UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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


                                    FORM 10-Q


(Mark One)

         |X|      Quarterly  Report  Pursuant to  Section  13 or  15(d)  of  the
         Securities Exchange Act of 1934

         For the quarterly period ended February 28, 2007

         |_|      Transition  Report  Pursuant  to  Section  13 or  15(d) of the
         Securities Exchange Act of 1934

         For the transition period from ___________ to __________

                          Commission File No. 001-32526


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



                             BSD Medical Corporation
             (Exact Name of Registrant as Specified in Its Charter)

                 Delaware                                  75-1590407
      (State or other jurisdiction of                   (I.R.S. Employer
      incorporation or organization)                  Identification No.)

                              2188 West 2200 South
                           Salt Lake City, Utah 84119
          (Address of principal executive offices, including zip code)

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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

         Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer or non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one): Large Accelerated Filer |_| Accelerated Filer |_| Non-accelerated
Filer |X|

         Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

         As of April 6, 2007, there were 21,090,786 shares of the registrant's
common stock, $0.001 par value per share, outstanding.


<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

                             BSD MEDICAL CORPORATION
                            Condensed Balance Sheets
                                   (Unaudited)

                                 Assets         February 28,       August 31,
                                ------             2007               2006
                                              ---------------   ----------------
Current assets:
  Cash and cash equivalents                   $       804,490   $     2,179,094
  Investments                                      20,366,165        22,556,106
  Receivables, net                                  1,007,928         1,186,800
  Related party trade receivables                     254,658           261,543
  Income tax receivable                             1,121,996                 -
  Inventories, net                                  1,379,178         1,366,264
  Deferred tax asset                                  369,000           178,000
  Other current assets                                133,805           120,277
                                              ---------------   ----------------
         Total current assets                      25,437,220        27,848,084

Property and equipment, net                           303,100           303,034
Note receivable                                             -           137,500
Patents, net                                           20,311            21,250
                                              ---------------   ----------------
                                              $    25,760,631   $    28,309,868
                                              ===============   ================

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

Current Liabilities:
  Accounts payable                            $       351,737   $       365,396
  Accrued  liabilities                                670,076           545,113
  Income taxes payable                                      -         1,539,946
  Deferred revenue - current portion                   21,550            17,912
                                              ---------------   ----------------

         Total current liabilities                  1,043,363         2,468,367
                                              ---------------   ----------------

Deferred revenue - less current portion                58,333           217,500
                                              ---------------   ----------------

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.001 par value;
    10,000,000 authorized, no shares
    issued and outstanding                                  -                 -
  Common stock, $.001 par value;
    40,000,000 shares authorized;
    21,047,186 and 21,023,668 shares
    issued  and outstanding                            21,048            21,024
  Additional paid-in capital                       25,662,998        25,452,231
  Deferred compensation                                     -          (247,700)
  Treasury stock , at cost                               (234)             (234)
  Other comprehensive income (loss)                    51,537           (99,362)
  Retained earnings (deficit)                      (1,076,414)          498,042
                                              ---------------   ----------------

         Total stockholders' equity                24,658,935        25,624,001
                                              ---------------   ----------------

                                              $    25,760,631   $    28,309,868
                                              ===============   ================


            See accompanying notes to condensed financial statements.

                                       1
<PAGE>

<TABLE>
<CAPTION>
                                           BSD MEDICAL CORPORATION
                                     Condensed Statements of Operations
                                                 (Unaudited)



                                                        Three Months                   Six Months
                                                     Ended February 28,             Ended February 28,
                                              ----------------------------   ------------------------------
                                                  2007            2006            2007            2006
                                              ------------   -------------   -------------   --------------
<S>                                           <C>            <C>             <C>             <C>
Sales                                         $    178,074   $     242,790   $     826,685   $      752,090
Related party sales                                482,583         196,586         498,627          208,453
                                              ------------   -------------   -------------   --------------

           Total sales                             660,657         439,376       1,325,312          960,543
                                              ------------   -------------   -------------   --------------
Costs and expenses:
    Cost of sales                                   95,870         242,333         509,891          594,576
    Cost of related party sales                    327,448          61,398         362,681           66,654
    Research and development                       508,778         334,739         840,857          564,904
    Selling, general, and administrative         1,331,259       1,169,707       2,887,700        2,223,822
                                              ------------   -------------   -------------   --------------

           Total costs and expenses              2,263,354       1,808,177       4,601,129        3,349,956
                                              ------------   -------------   -------------   --------------

           Operating loss                       (1,602,697)     (1,368,801)     (3,275,817)      (2,489,413)
                                              ------------   -------------   -------------   --------------

Other income
    Interest income                                342,457         304,590         712,670          549,213
    Other income (expense)                         (46,604)      5,932,361         (74,336)      11,815,286
                                              ------------   -------------   -------------   --------------

           Total other income:                     295,853       6,236,951         638,334       12,364,499
                                              ------------   -------------   -------------   --------------
           Income (loss) before income taxes    (1,306,844)      4,868,150      (2,637,483)       9,875,086
Income tax (provision) benefit                     594,059      (1,686,471)      1,063,027       (3,557,164)
                                              ------------   -------------   -------------   --------------
           Net income (loss)                  $   (712,785)  $   3,181,679   $  (1,574,456)  $    6,317,922
                                              ============   =============   =============   ==============

Net income (loss) per common share:
    Basic                                     $      (0.03)  $        0.15   $       (0.07)  $         0.30
                                              ============   =============   =============   ==============
    Diluted                                   $      (0.03)  $        0.14   $       (0.07)  $         0.28
                                              ============   =============   =============   ==============

Weighted average number of shares outstanding:
    Basic                                       21,042,000      20,575,000      21,039,000       20,556,000
                                              ============   =============   =============   ==============
    Diluted                                     21,042,000      22,046,000      21,039,000       22,123,000
                                              ============   =============   =============   ==============

                          See accompanying notes to condensed financial statements.
</TABLE>

                                                     2
<PAGE>

                             BSD MEDICAL CORPORATION
                       Condensed Statements of Cash Flows
                                   (Unaudited)


                                                         Six Months
                                                      Ended February 28,
                                              ---------------   ----------------
                                                    2007              2006
                                              ---------------   ----------------

Cash flows from operating activities:
  Net income (loss)                           $    (1,574,456)  $     6,317,922
  Adjustments to reconcile net income (loss)
    to net cash used in operating activities:
     Provision for doubtful accounts                   83,700                 -
     Depreciation and amortization                     46,340            43,588
     Loss on disposition of property and
       equipment                                        2,577                 -
     Stock compensation expense                       438,944            18,050
     Amortization of deferred compensation                  -            56,300
     Gain on sale of investment in TherMatrx                -       (11,550,120)
     (Increase) decrease in:
       Receivables                                    232,672           (38,875)
       Related party receivables                        6,885            59,204
       Income tax refund receivable                (1,147,645)                -
       Inventories                                    (12,914)         (221,301)
       Deferred tax asset                            (191,000)         (199,000)
       Other current assets                           (13,528)           56,208
     Increase (decrease) in:
       Accounts payable                               (13,659)          121,753
       Accrued expenses                               124,963           282,460
       Income taxes payable                        (1,500,000)        3,239,505
       Deferred revenue                              (155,529)             (221)
                                              ---------------   ----------------

         Net cash used in operating
         activities                                (3,672,650)       (1,814,526)
                                              ---------------   ----------------

Cash flows from investing activities:
  Proceeds from sale of investment in
    TherMatrx                                               -        11,550,120
  (Purchase) sale of investments                    2,340,840        (9,948,404)
  Purchase of property and equipment                  (48,044)         (161,535)
                                              ---------------   ----------------

         Net cash provided by investing
         activities                                 2,292,796         1,440,181
                                              ---------------   ----------------

Cash flows from by financing activities:
  Proceeds from sale of common stock                    5,250           137,160
                                              ---------------   ----------------

Decrease in cash and cash equivalents              (1,374,604)         (237,185)
Cash and cash equivalents, beginning of
  period                                            2,179,094           908,674
                                              ---------------   ----------------

Cash and cash equivalents, end of period      $       804,490   $       671,489
                                              ===============   ================

Supplemental Disclosure of Cash Flow Information
------------------------------------------------

         o    The Company paid no cash for interest  during the six months ended
              February 28, 2007 and 2006 and  $1,799,000 and $392,311 for income
              taxes  during the six months  ended  February  28,  2007 and 2006,
              respectively.

         o    The Company  issued  120,000 stock  options  during the six months
              ended February 28, 2007 which resulted in compensation  expense of
              $344,141,  of which $34,150 was  recognized  during the six months

                                       3
<PAGE>

              ended  February 28, 2007. The Company issued 265,000 stock options
              during the six months ended  February 28, 2006,  which resulted in
              an increase to deferred compensation of $363,200.

         o    The Company had an income tax benefit  from the  exercise of stock
              options  of $14,297  and  $555,567  during  the six  months  ended
              February 28, 2007 and 2006 respectively,  which was recorded as an
              increase to additional  paid-in  capital and a reduction in income
              taxes payable.

         o    The Company  had an  unrealized  gain of  $150,899  during the six
              months ended February 28, 2007 on  available-for-sale  securities.
              The Company had an unrealized loss of $8,278 during the six months
              ended February 28, 2006 on available-for-sale securities.

         o    The  Company  transferred  deferred  compensation  of  $247,700 to
              additional  paid-in  capital  during the six months ended February
              28, 2007.

         o    The Company  decreased  income taxes payable and decreased  income
              tax receivable by $39,946 during the six months ended February 28,
              2007.

         o    The  Company  increased  common  stock  and  decreased  additional
              paid-in  capital by $10 during the six months  ended  February 28,
              2007.





            See accompanying notes to condensed financial statements





                                       4
<PAGE>

                             BSD MEDICAL CORPORATION
                     Notes to Condensed Financial Statements


Note 1.    Basis of Presentation

         The  accompanying  unaudited  condensed  balance  sheets of BSD Medical
Corporation  as of  February  28,  2007 and  August  31,  2006  and the  related
unaudited  condensed  statements of  operations  and of cash flows for the three
months and six months  ended  February  28, 2007 and 2006 have been  prepared in
accordance  with U.S.  generally  accepted  accounting  principles  for  interim
financial  reporting and pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). The condensed financial statements do not include
all of the  information  and  footnotes  required  by  U.S.  generally  accepted
accounting  principles  for  complete  financial  statements.   These  condensed
financial  statements should be read in conjunction with the notes thereto,  and
the financial statements and notes thereto included in our annual report on Form
10-KSB for the year ended August 31, 2006.

         All  adjustments  (consisting  only of  normal  recurring  adjustments)
necessary for the fair presentation of our financial position as of February 28,
2007 and August 31,  2006 and our results of  operations  and cash flows for the
three months and six months ended February 28, 2007 and 2006 have been included.
The results of operations for the three months and six months ended February 28,
2007 may not be indicative of the results for the year ending August 31, 2007.

Note 2.  Recent Accounting Pronouncements

         In July 2006, the Financial  Accounting  Standards  Board (FASB) issued
FASB Interpretation (FIN) 48, Accounting for Uncertainty in Income Taxes. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in financial
statements in accordance with Statement of Financial Accounting Standards (SFAS)
No.  109,  Accounting  for  Income  Taxes.  This  Interpretation   prescribes  a
recognition  threshold and  measurement  attribute  for the financial  statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return.  FIN 48 also  provides  guidance on  derecognition,  classification,
interest  and  penalties,   accounting  in  interim   periods,   disclosure  and
transition. We are currently evaluating the impact this Interpretation will have
on our  financial  statements.  This  Interpretation  will be  effective  in the
Company's financial statements for the fiscal year beginning September 1, 2007.

         In  September   2006,   the  FASB  issued  SFAS  No.  157,  Fair  Value
Measurements.  SFAS No. 157 defines  fair  value,  establishes  a framework  for
measuring  fair  value,  and  requires  enhanced  disclosures  about  fair value
measurements.  SFAS No. 157  requires  companies  to disclose  the fair value of
their  financial  instruments  according to a fair value hierarchy as defined in
the  standard.   Additionally,   companies  are  required  to  provide  enhanced
disclosure regarding financial instruments in one of the categories, including a
reconciliation  of the beginning and ending  balances  separately for each major
category of assets and  liabilities.  SFAS No. 157 is  effective  for  financial
statements  issued for fiscal years  beginning  after  November  15,  2007,  and
interim  periods within those fiscal years. We believe that the adoption of SFAS
No. 157 will not have a material impact on the financial statements.


         In February 2006, the FASB issued SFAS No. 155,  Accounting for Certain
Hybrid  Instruments,  which  amends  SFAS No.  133,  Accounting  for  Derivative
Instruments and Hedging  Activities,  and SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and  Extinguishments of Liabilities.  SFAS No.
155 allows financial  instruments that have embedded derivatives to be accounted
for as a whole  (eliminating the need to bifurcate the derivative from its host)
if the holder elects to account for the whole  instrument on a fair value basis.
SFAS No. 155 also clarifies and amends certain other  provisions of SFAS No. 133
and SFAS No. 140.  This  statement is effective  for all  financial  instruments
acquired or issued in financial  years beginning after September 15, 2006. We do
not expect our  adoption of this new  standard to have a material  impact on our
financial position, results of operations or cash flows.

                                       5
<PAGE>

         In March 2006,  the FASB issued SFAS No. 156,  Accounting for Servicing
of Financial Assets to simplify accounting for separately  recognized  servicing
assets and servicing  liabilities.  SFAS No. 156 amends SFAS No. 140, Accounting
for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
Liabilities.  Additionally,  SFAS No. 156 applies to all  separately  recognized
servicing  assets and  liabilities  acquired or issued after the beginning of an
entity's  fiscal year that begins  after  September  15,  2006,  although  early
adoption is  permitted.  We do not expect our  adoption of this new  standard to
have a material impact on our financial position,  results of operations or cash
flows.

         In February  2007,  the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial  Liabilities - Including an Amendment of FASB
Statement No. 115.  This  statement  permits  entities to choose to measure many
financial  instruments  and  certain  other  items  at fair  value.  Most of the
provisions  of SFAS No.  159 apply  only to  entities  that elect the fair value
option.   However,  the  amendment  to  SFAS  No.  115  Accounting  for  Certain
Investments  in  Debt  and  Equity  Securities  applies  to  all  entities  with
available-for-sale  and trading securities.  SFAS No. 159 is effective as of the
beginning of an entity's  first fiscal year that begins after November 15, 2007.
Early  adoption is permitted as of the beginning of a fiscal year that begins on
or before  November  15,  2007,  provided  the entity  also  elects to apply the
provision  of SFAS No.  157,  Fair  Value  Measurements.  The  adoption  of this
statement is not expected to have a material  effect on the Company's  financial
statements.

         On  December  21,  2006,  the FASB  issued  FASB Staff  Position  (FSP)
Emerging Issues Task  Force (EITF) 00-19-2, Accounting  for Registration Payment
Arrangements, which requires an issuer to account for a contingent obligation to
transfer  consideration  under a registration  payment arrangement in accordance
with FASB Statement No. 5, Accounting for Contingencies and FASB  Interpretation
14,  Reasonable   Estimation  of  the  Amount  of  Loss.   Registration  payment
arrangements  are  frequently  entered  into  in  connection  with  issuance  of
unregistered  financial  instruments,  such as  equity  shares  or  warrants.  A
registration  payment  arrangement  contingently  obligates  the  issuer to make
future  payments or otherwise  transfer  consideration  to another  party if the
issuer  fails to file a  registration  statement  with the SEC for the resale of
specified  financial  instruments  or fails to have the  registration  statement
declared  effective within a specific  period.  The FSP requires issuers to make
certain  disclosures  for  each  registration  payment  arrangement  or group of
similar arrangements.  The FSP is effective immediately for registration payment
arrangements and financial  instruments entered into or modified after the FSP's
issuance date. For  previously  issued  registration  payment  arrangements  and
financial  instruments subject to those  arrangements,  the FSP is effective for
financial  statements issued for fiscal years beginning after December 15, 2006.
To the  extent  that we enter into  financing  arrangements  in the future  that
include  registration payment  arrangements,  the future application of this FSP
may have a material effect on our financial condition and results of operations.

         In June 2006, the FASB ratified  EITF,  No. 06-3,  How Taxes  Collected
from Customers and Remitted to Governmental  Authorities  Should Be Presented in
the Income  Statement  (That Is, Gross versus Net  Presentation).  EITF No. 06-3
requires that, for interim and annual reporting periods beginning after December
15, 2006, we disclose our policy related to the  presentation of sales taxes and
similar  assessments  related to our  revenue  transactions.  Early  adoption is
permitted.  We present  revenue net of sales taxes and any similar  assessments.
EITF No. 06-3 had no effect on our financial position and results of operations.

Note 3.  Net Income (Loss) Per Common Share

         The  computation  of basic  earnings  per common  share is based on the
weighted average number of shares outstanding during the period. The computation
of diluted  earnings per common share is based on the weighted average number of

                                       6
<PAGE>

shares  outstanding  during the period plus the  weighted  average  common stock
equivalents  which would arise from the  exercise of stock  options  outstanding
using the treasury  stock  method and the average  market price per share during
the period.  When  common  stock  equivalents  are  anti-dilutive,  they are not
included.  During the three  months  and six months  ended  February  28,  2007,
1,531,960 and 1,247,563 common stock  equivalents  related to stock options were
not included in the computation due to their anti-dilutive effect, respectively,
resulting because of the Company's net loss.

         The shares used in the  computation of the Company's  basic and diluted
earnings per share are reconciled as follows:

                             Three Months Ended          Six Months Ended
                                February 28,                February 28,
                           ---------------------------------------------------
                             2007          2006          2007          2006
Weighted average number
 of shares outstanding
 - basic                   21,042,000   20,575,000    21,039,000    20,556,000
Dilutive effect of stock
 options                            -    1,471,000             -     1,578,780
                           ---------------------------------------------------

Weighted average number
  of shares outstanding
  - diluted                21,042,000   22,046,000    21,039,000    22,123,000
                           ===================================================


Note 4.  Inventories

         Inventories consist of the following:

                                          February 28, 2007   August 31, 2006
                                          ------------------ -------------------

         Parts and supplies                     $  817,338          $  711,552
         Work-in-process                           548,736             641,608
         Finished goods                             53,104              53,104
         Reserve for obsolete inventory            (40,000)            (40,000)
                                          ------------------ -------------------

         Inventories, net                      $ 1,379,178         $ 1,366,264
                                          ================== ===================

Note 5.    Related Party Transactions

         During the three months ended  February 28, 2007 and February 28, 2006,
we had sales of $482,583 and $196,586,  respectively, to an entity controlled by
a significant  stockholder  and member of the Board of Directors.  These related
party  transactions  represent  73% and 45% of total  sales for each  respective
three-month period.

         During the six months ended February 28, 2007 and February 28, 2006, we
had sales of $498,627 and $208,453,  respectively,  to this related party. These
related  party  transactions  represent  38% and 22% of  total  sales  for  each
respective six-month period.

         At February 28, 2007 and August 31, 2006,  receivables include $254,658
and $261,543 respectively, from this entity.

Note 6.  Stock-Based Compensation

         On September 1, 2006, we adopted SFAS No. 123 (R), Share-Based Payment,
which requires the measurement  and recognition of compensation  expense for all
share-based  payment awards made to employees and directors  including  employee
stock options.  In accordance with this standard,  we recognize the compensation
cost of all  share-based  awards on a  straight-line  basis  over the  requisite
service  period for the number of awards  that are  expected  to vest.  Prior to
September  1, 2006,  we  accounted  for those  plans under the  recognition  and
measurement  provisions of APB Opinion No. 25, and related  Interpretations,  as
permitted by SFAS No. 123.

         Our condensed financial  statements as of February 28, 2007 and for the
three  months and six months  ended  February 28, 2007 reflect the impact of the
implementation  of SFAS  123(R).  We  adopted  SFAS  123(R)  using the  modified
prospective  transition  method,  which  requires that  compensation  expense be
recognized  during the three months and six months ended February 28, 2007 equal
to:  (a)  amortization  related  to the  compensation  cost for all  share-based
payments  granted prior to, but not yet vested as of September 1, 2006, based on
the grant date fair value estimated in accordance  with the original  provisions
of Statement  123, and (b)  amortization  related to  compensation  cost for all
share-based  payments  granted  subsequent  to September  1, 2006,  based on the
grant-date  fair value  estimated  in  accordance  with the  provisions  of SFAS
123(R). Results for prior periods have not been restated.

         We have two stock-based employee plans and a director option plan which
are described more fully in Note 11 in our 2006 Annual Report on Form 10-KSB. As
of February  28,  2007,  we had  approximately  779,000  shares of common  stock
reserved for future issuance under the stock option plans.

         The adoption of SFAS 123(R) had a significant  impact on our results of
operations.  Our  statements of  operations  for the three months and six months

                                       7
<PAGE>

ended  February 28, 2007  include  stock-based  compensation  expense from stock
options  in  selling,  general  and  administrative  expenses  of  $204,734  and
$408,943, respectively.

         During the six months  ended  February  28,  2007,  we granted  120,000
options to our  directors,  with one fifth  vesting  each year for the next five
years. This grant accounts for $34,414 of the stock-based  compensation  expense
for the six months ended February 28, 2007.

         Unrecognized stock-based compensation expense expected to be recognized
over  the  estimated  weighted-average  amortization  period  of 1.34  years  is
approximately $1,466,000 at February 28, 2007.

         Our  weighted-average  assumptions used in the Black-Scholes  valuation
model for equity awards with time-based  vesting  provisions  granted during the
six months ended February 28, 2007 are shown below:

Expected volatility                                                  67.57%
Expected dividends                                                     0%
Expected term                                                       5 Years
Risk-free interest rate                                              4.64%

         The  expected  volatility  rate was  estimated  based on the  four-year
historical volatility of our common stock. The expected term was estimated based
on historical  experience of stock option exercise.  The risk-free interest rate
is the rate provided by the U.S.  Treasury for Daily  Treasury Yield Curve Rates
commonly referred to as "Constant  Maturity Treasury" rate in effect at the time
of grant with a remaining term equal to the expected option term.

         The  following  table  illustrates  the effect on net loss and loss per
share if we had applied the fair value  recognition  provisions of Statement 123
to options  granted under our stock option plans and the employee stock purchase
plan for the three months and six months ended  February 28, 2006.  For purposes
of this  pro-forma  disclosure,  the value of the options is  estimated  using a
Black-Scholes  option-pricing  model and  charged to expense  over the  options'
vesting periods.

                                                Three Months        Six Months
                                                   Ended              Ended
                                                February 28,       February 28,
                                                   2006                2006
                                              --------------      --------------

Net income - as reported                      $    3,181,679      $   6,317,922
Add: Stock-based employee compensation
  expense included in reported net
  income, net of related taxes tax
  effects                                             19,650             56,300
Deduct: Stock-based employee
   compensation expense determined
   under fair value based method for
   all awards, net of related taxes                        -           (170,798)

Net income - pro forma                        $    3,201,629      $   6,203,424

Income per common share - as reported:

     Basic                                    $          .15      $         .30
     Diluted                                  $          .14      $         .28

Income per common share - pro forma:
     Basic                                    $          .16      $         .30
     Diluted                                  $          .14      $         .28
--------------------------------------------------------------------------------

                                       8
<PAGE>

         A summary of the  time-based  stock  option  awards as of February  28,
2007, and changes during the six months then ended, is as follows:

                                                        Weighted-
                                           Weighted-     Average
                                            Average     Remaining      Aggregate
                                            Exercise  Contract Term    Intrinsic
 Stock Option Awards            Shares       Price       (Years)         Value
                               ---------   ---------  -------------  -----------
 Outstanding at August
   31, 2006                    1,809,051   $    1.72
 Granted                         120,000        4.77
 Exercised                       (20,788)       1.12
 Forfeited or expired                  -           -



  Outstanding at February
     28, 2007                  1,908,263   $    1.92
                               =========   =========

 Exercisable at February
     28, 2007                  1,434,120   $    1.30       6.82      $ 9,376,876
                               =========   =========  =============  ===========

         The  weighted-average  grant-date  fair value of stock options  granted
during the six months ended February 28, 2007 was $2.87.

         Upon adoption of SFAS No. 123 (R) on September 1, 2006, we reclassified
the balance of deferred compensation of $247,700 to additional paid-in capital.

Note 7.  Subsequent Event

         In April 2007, we received an additional  $202,223 in proceeds from the
sale of TherMatrx,  Inc. We previously reported that we had received the last of
the contingency payments from the sale. However,  pursuant to the performance of
certain  audit  procedures  requested  by the former  management  of  TherMatrx,
additional contingency payments were calculated and distributed.


                                       9
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations.

         This  Management's  Discussion and Analysis of Financial  Condition and
Results of  Operations  and other parts of this report  contain  forward-looking
statements that involve risks and uncertainties.  Forward-looking statements can
also be  identified  by  words  such as  "anticipates,"  "expects,"  "believes,"
"plans,"  "predicts,"  and similar  terms.  Forward-looking  statements  are not
guarantees of future performance and our actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such  differences  include,  but are not limited to those discussed in the
subsections   entitled   "Forward-Looking   Statements"   below.  The  following
discussion  should  be read  in  conjunction  with  our  consolidated  financial
statements and notes thereto included in this report. We assume no obligation to
revise  or update  any  forward-looking  statements  for any  reason,  except as
required by law.

General
-------

         BSD Medical Corporation  develops,  manufactures,  markets and services
medical systems that deliver precision-focused radio frequency (RF) or microwave
energy into diseased sites of the body,  heating them to specified  temperatures
as required by a variety of medical  therapies.  Our business  objectives are to
commercialize our products  developed for the treatment of cancer and to further
expand our  developments  to treat other  diseases and medical  conditions.  Our
product line for cancer therapy has been created to offer  hospitals and clinics
a  complete  solution  for  thermal  treatment  of  cancer as  provided  through
microwave/RF systems.

         While our  primary  developments  to date have  been  cancer  treatment
systems,  we  also  pioneered  the  use of  microwave  thermal  therapy  for the
treatment of symptoms associated with enlarged prostate,  and we are responsible
for much of the  technology  that has  successfully  created a  substantial  new
medical  industry using that therapy.  In accordance with our strategic plan, we
subsequently  sold our interest in TherMatrx,  Inc., the company  established to
commercialize our technology for treating enlarged prostate symptoms, to provide
substantial  funding that we can utilize for commercializing our systems used in
the treatment of cancer and in achieving other business objectives.

         In spite of the advances in cancer treatment  technology,  according to
the American Cancer Society over 40% of cancer patients continue to die from the
disease in the United States,  and cancer has now surpassed heart disease as the
number   one  killer   from  all   causes  of  death  in  the   United   States.
Commercialization  of our systems used to treat  cancer,  including the BSD-2000
and BSD-500  families of systems and the new MicroThermX  100 microwave  thermal
ablation  system,  is our most immediate  business  objective.  Our BSD-2000 and
BSD-500  cancer  treatment  systems  are used to treat  cancer  with heat  while
boosting the  effectiveness  of radiation and  chemotherapy  through a number of
biological mechanisms.  Our MicroThermX 100 system is used to treat cancers with
heat alone.  Current and targeted cancer treatment sites for our systems include
cancers of the prostate,  breast,  head, neck,  bladder,  cervix,  colon/rectum,
esophagus,  liver,  brain,  bone, stomach and lung, and including general pelvic
and  abdominal  tumors.  Our cancer  treatment  systems  have been used to treat
thousands of patients  throughout the world, and have been recognized, including
the 2005 Frost & Sullivan  "Technology  Innovation of the Year Award" for cancer
therapy devices.

         Our BSD-2000 systems are used to  non-invasively  treat cancers located
deeper in the body,  and are designed to be companions  to the  estimated  7,500
linear  accelerators  used to treat cancer through  radiation and in combination
with chemotherapy  treatments.  Our BSD-500 systems treat cancers on or near the
body surface and those that can be approached  through body orifices such as the
throat, the rectum, etc., or through interstitial  treatment in combination with
interstitial  radiation   (brachytherapy).   BSD-500  systems  can  be  used  as
companions to our BSD-2000 systems and the estimated 2,500 brachytherapy systems
installed, as well as with chemotherapy  treatments.  The MicroThermX 100 system
is used to treat cancers that can be destroyed with heat alone.

                                       10
<PAGE>

         Based on our management team's knowledge of the market, we believe that
the fully saturated  potential market for these developed cancer therapy systems
is in excess of $5 billion. We also project an after-market opportunity based on
service  agreements that equates to  approximately  15% of the purchase price of
our systems per year.  We believe  that the  replacement  cycle for our systems,
based on advances in software,  hardware and other components,  will average 5-7
years. Our financial model in the higher  production  environment of established
commercial  sales is to achieve a 60% gross  margin on systems  and an 80% gross
margin  on  service   agreements  and  disposable   applicators  used  with  our
MicroThermX 100 system.

         We have received  United States Food and Drug  Administration,  or FDA,
approval to market our commercial version of the BSD-500,  and in March 2006, we
completed  a  submission  for FDA  approval  to sell the  BSD-2000 in the United
States.  We anticipate  submitting our  MicroThermX  100 system for FDA approval
during our fiscal 2007 year.  We have designed our cancer  therapy  systems such
that  together  they are capable of  providing  treatment  for most solid tumors
located virtually anywhere in the body.

         Our common stock trades on the American Stock Exchange (AMEX) under the
symbol "BSM."

Critical Accounting Policies and Estimates
------------------------------------------

         The following is a discussion of our critical  accounting  policies and
estimates  that  management  believes  are material to an  understanding  of our
results of operations and which involve the exercise of judgment or estimates by
management.

         Revenue Recognition.  Revenue from the sale of cancer treatment systems
is  recognized  when a  purchase  order has been  received,  the system has been
shipped,  the  selling  price  is  fixed  or  determinable,  and  collection  is
reasonably  assured.  Most system sales are F.O.B.  shipping  point;  therefore,
shipment  is  deemed to have  occurred  when the  product  is  delivered  to the
transportation  carrier.  Most  system  sales do not  include  installation.  If
installation  is included  as part of the  contract,  revenue is not  recognized
until installation has occurred, or until any remaining installation  obligation
is deemed to be perfunctory.  Some sales of cancer treatment systems may include
training as part of the sale. In such cases,  the portion of the revenue related
to the  training,  calculated  based on the amount  charged  for  training  on a
stand-alone  basis,  is  deferred  and  recognized  when the  training  has been
provided.  The sales of our cancer  treatment  systems do not  require  specific
customer acceptance provisions and do not include the right of return, except in
cases  where the product  does not  function  as  warranted  by us. We provide a
reserve  allowance  for  estimated  returns.  To  date,  returns  have  not been
significant.

         Revenue from manufacturing  services is recorded when an agreement with
the customer  exists for such  services,  the services have been  provided,  and
collection is  reasonably  assured.  Revenue from training  services is recorded
when an  agreement  with the  customer  exists for such  training,  the training
services have been provided, and collection is reasonably assured.  Revenue from
service support  contracts is recognized on a straight-line  basis over the term
of the contract.

         Our revenue  recognition  policy is the same for sales to both  related
parties and non-related parties. We provide the same products and services under
the  same  terms  to  non-related  parties  as  to  related  parties.  Sales  to
distributors  are recognized in the same manner as sales to end-user  customers.
Deferred  revenue and customer  deposits  payable  include  amounts from service
contracts as well as cash  received  for the sales of  products,  which have not
been shipped.

         Inventory Reserves.  As of February 28, 2007, we had recorded a reserve
for  potential  inventory  impairment  of $40,000.  We  periodically  review our
inventory levels and usage, paying particular  attention to slower-moving items.
If projected  sales for fiscal 2007 do not  materialize  or if our  hyperthermia
systems do not  receive  increased  market  acceptance,  we may be  required  to
increase the reserve for inventory in future periods.

                                       11
<PAGE>

         Product  Warranty.  We provide  product  warranties  on our BSD-500 and
BSD-2000 systems. These warranties vary from contract to contract, but generally
consist  of  parts  and  labor   warranties  for  one  year  from  the  date  of
installation.  To date,  expenses  resulting from such  warranties have not been
material. We record a warranty expense at the time of each sale. This reserve is
estimated  based on prior  history of service  expense  associated  with similar
units sold in the past.

         Allowance for Doubtful  Accounts.  We maintain  allowances for doubtful
accounts for estimated  losses  resulting from the inability of our customers to
make required  payments.  As of August 31, 2006 we had a $20,000 balance in this
account.  During the six  months  ended  February  28,  2007,  we  analyzed  our
outstanding  accounts  receivables  and determined  that we should  increase our
allowance for doubtful  accounts by $83,700 to a balance of $103,700 at February
28, 2007. This allowance is a significant estimate and is regularly evaluated by
us for adequacy by taking into  consideration  factors such as past  experience,
credit  quality of the  customer  base,  age of the  receivable  balances,  both
individually  and in the aggregate,  and current  economic  conditions  that may
affect a customer's ability to pay. If the financial  condition of our customers
were to  deteriorate,  resulting  in an  impairment  of  their  ability  to make
payments, additional allowances may be required.

         Stock-based  Compensation  - On  September  1, 2006 we adopted SFAS No.
123(R),  which requires us to measure the compensation cost of stock options and
other  stock-based  awards to employees and directors at fair value at the grant
date and recognize  compensation  expense over the requisite  service period for
awards  expected to vest.  During the three months and six months ended February
28,  2007,   we  recorded   compensation   expense  of  $204,734  and  $408,943,
respectively,  for stock  options  issued to directors and  employees.  The fair
value of stock  options is computed  using the  Black-Scholes  valuation  model,
which model utilizes inputs that are subject to change over time,  including the
volatility  of the market price of our common stock,  risk free interest  rates,
requisite  service periods and assumptions made by us regarding the assumed life
and  vesting  of  stock  options  and  stock-based  awards.  As new  options  or
stock-based awards are granted, additional non-cash compensation expense will be
recorded  by us.  Upon  adoption of SFAS No. 123 (R) on  September  1, 2006,  we
reclassified  the balance of  deferred  compensation  of $247,700 to  additional
paid-in capital.

Results of Operations
---------------------

Three Months Ended February 28, 2007 Compared to the Three Months Ended February
28, 2006

         Revenues.  Total  revenues for the three months ended February 28, 2007
were  $660,657,  compared to $439,376,  for the three months ended  February 28,
2006,  an increase of  $221,281,  or  approximately  50%.  The increase in total
revenues was due to an increase in sales to related parties, as discussed below.
Our  revenues  can  fluctuate  significantly  from period to period  because our
sales, to date, have been based upon a relatively  small number of systems,  the
sales price of each being substantial enough to greatly impact revenue levels in
the periods in which they occur. Sales of a few systems can cause a large change
in our revenue from period to period.

         Related Party Sales. We earned $482,583,  or approximately  73%, of our
revenues  in the three  months  ended  February  28,  2007 from sales to related
parties as compared to $196,586 or 45%, in the three months  ended  February 28,
2006.  These  sales  for the  three  months  ended  February  28,  2007  were to
Medizin-Technik  and consisted of product  sales of $368,875,  probes of $17,100
and other  revenues of $96,608.  All of the related party  revenues in the three
months ended February 28, 2006 was from sales of systems and component  parts to
Medizin-Technik.  Sales to  Medizin-Technik  may  fluctuate  significantly  from
period to period because our sales,  to date,  have been based upon a relatively
small  number of systems,  the sales price of each being  substantial  enough to
greatly impact revenue levels in the periods in which they occur. Sales of a few
systems can cause a large change in our revenue from period to period.

                                       12
<PAGE>

         Non-Related  Party Sales.  In the three months ended February 28, 2007,
we earned $178,074 or 27%, of our revenues from sales to unrelated  parties,  as
compared to $242,790,  or 55%,  for the three  months  ended  February 28, 2006.
These sales for the three  months ended  February 28, 2007  consisted of product
sales of $149,800,  consulting services of $9,720,  service contracts of $6,743,
probes of $9,200 and other revenues of $2,611.  By  comparison,  these sales for
the three months ended February 28, 2006 consisted of product sales of $200,000,
consulting  services of $32,064,  service contracts of $7,094,  probes of $2,362
and other revenues of $1,270.

         Gross Profit. Gross profit for the three months ended February 28, 2007
was $237,339 or 36% as compared to $135,645 or 31%, of total  product  sales for
the three  months  ended  February 28, 2006.  As sales  volumes  increases,  our
employees will be more utilized,  thus  increasing our gross profit  percentage.
The gross margin  percentage will also fluctuate from period to period depending
on the mix of revenues reported for the period.

         Selling  General  and  Administrative  Expenses.  Selling,  general and
administrative  expenses  increased  to  $1,331,259  in the three  months  ended
February 28, 2007, from $1,169,707 for the three months ended February 28, 2006,
an increase of $161,552 or approximately 14%. This increase was primarily due to
$204,734  in  compensation  expense  related to issuance  of stock  options.  We
anticipate that our selling,  general and administrative  expenses will continue
at this increased level at least in the short term.

         Research and Development  Expenses.  Research and development  expenses
were  $508,778  for the three months  ended  February  28, 2007,  as compared to
$334,739,  for the corresponding period of fiscal 2006, an increase of $174,039,
or  approximately  52%.  Research and  development  expenses in the three months
ended  February 28, 2007  increased  due to expanded  activities  related to the
following:

         o    Update of our  commercial  version of the BSD-2000  with  complete
              modernization  of the computer system,  including  addition of the
              Sigma Ellipse phased array applicator.

         o    Support for field  implementation  of a complete new design of the
              BSD-2000  patient support system,  enhancements to the BSD 500 and
              2000 systems  including  language  translations  of the  operating
              manuals to German and Chinese and  development  of various  spiral
              array applicator systems to compliment the BSD-500.

         o    Support for Premarket  Approval,  or PMA,  filing for the BSD-2000
              system,  development  of the first  model of the  MicroThermX  100
              microwave ablation system.

         o    Development of new microwave ablation disposable applicators.

         o    Technical  research to evaluate  the various  treatment  sites and
              diseases suitable for the application of the MicroThermX 100.

         Interest  Income.  Interest income  increased to $342,457 for the three
months  ended  February  28, 2007 as compared to $304,590  for the three  months
ended February 28, 2006, due to higher levels of cash and investments and higher
rates in the current fiscal year.

         Net income  (loss).  During the three months ended February 28, 2007 we
had a net loss of $712,785 after recording a tax benefit of $594,059 as compared
to an after tax net income of $3,181,679 in the corresponding period of 2006.

Six Months Ended February 28, 2007 Compared to the Six Months Ended February 28,
2006

         Revenues.  Total  revenues for the six months  ended  February 28, 2007
were  $1,325,312,  compared to $960,543,  for the six months ended  February 28,

                                       13
<PAGE>

2006,  an increase of  $364,769,  or  approximately  38%.  The increase in total
revenues was due to an increase in sales to related parties, as discussed below.
Our  revenues  can  fluctuate  significantly  from period to period  because our
sales, to date, have been based upon a relatively  small number of systems,  the
sales price of each being substantial enough to greatly impact revenue levels in
the periods in which they occur. Sales of a few systems can cause a large change
in our revenue from period to period.

         Related Party Sales. We earned $498,627,  or approximately  38%, of our
revenues in the six months ended February 28, 2007 from sales to related parties
as compared to $208,453 or 22%, in the six months ended February 28, 2006. These
sales for the six months  ended  February 28, 2007 were to  Medizin-Technik  and
consisted of product sales of $368,875,  probes of $25,380 and other revenues of
$104,372. All of the related party revenues in the six months ended February 28,
2006 was from sales of systems and component parts to Medizin-Technik.  Sales to
Medizin-Technik  may fluctuate  significantly  from period to period because our
sales, to date, have been based upon a relatively  small number of systems,  the
sales price of each being substantial enough to greatly impact revenue levels in
the periods in which they occur. Sales of a few systems can cause a large change
in our revenue from period to period.

         Non-Related  Party Sales. In the six months ended February 28, 2007, we
earned  $826,685 or 62%, of our  revenues  from sales to unrelated  parties,  as
compared to $752,090,  or 78%, for the six months ended February 28, 2006. These
sales for the six months ended  February 28, 2007  consisted of product sales of
$736,412,  consulting services of $40,863,  service contracts of $18,028, probes
of $19,922 and other revenue of $11,460. By comparison,  these sales for the six
months  ended  February  28,  2006  consisted  of  product  sales  of  $644,805,
consulting services of $36,709,  service contracts of $11,937, probes of $20,285
and other revenues of $38,354.

         Gross Profit.  Gross profit for the six months ended  February 28, 2007
was $452,740 or 34% as compared to $299,313 or 31%, of total  product  sales for
the six months ended February 28, 2006. As sales volume increases, our employees
will be more utilized,  thus increasing our gross profit  percentage.  The gross
margin percentage will also fluctuate from period to period depending on the mix
of revenues reported for the period.

         Selling  General  and  Administrative  Expenses.  Selling,  general and
administrative expenses increased to $2,887,700 in the six months ended February
28,  2007,  from  $2,223,822  for the six months ended  February  28,  2006,  an
increase of $663,878 or approximately 30%. This increase was primarily due to an
increase in sales and marketing  costs  supporting  new product sales and market
development  activities and $408,943 in compensation expense related to issuance
of stock options.  We anticipate  that our selling,  general and  administrative
expenses will continue at this increased level at least in the short term.

         Research and Development  Expenses.  Research and development  expenses
were  $840,857,  for the six months  ended  February  28,  2007,  as compared to
$564,904,  for the corresponding period of fiscal 2006, an increase of $275,953,
or  approximately  49%.  Research and  development  expenses in the three months
ended  February 28, 2007  increased  due to expanded  activities  related to the
following:

         o    Update of our  commercial  version of the BSD-2000  with  complete
              modernization  of the computer system,  including  addition of the
              Sigma Ellipse phased array applicator.

         o    Support for field  implementation  of a complete new design of the
              BSD-2000  patient support system,  enhancements to the BSD 500 and
              2000 systems  including  language  translations  of the  operating
              manuals to German and Chinese and  development  of various  spiral
              array applicator systems to compliment the BSD-500.

         o    Support for PMA filing for the BSD-2000 system, development of the
              first model of the MicroThermX 100 microwave ablation system.

                                       14
<PAGE>

         o    Development of new microwave ablation disposable applicators.

         o    Technical  research to evaluate  the various  treatment  sites and
              diseases suitable for the application of the MicroThermX 100.

         Interest  Income.  Interest  income  increased  to $712,670 for the six
months ended February 28, 2007, as compared to $549,213 for the six months ended
February 28, 2006, due to higher levels of cash and investments and higher rates
in the current fiscal year.

         Net income (loss). During the six months ended February 28, 2007 we had
a net loss of $1,574,456 after recording a tax benefit of $1,063,027 as compared
to an after tax net income of $6,317,922 in the corresponding period of 2006.

Liquidity and Capital Resources
-------------------------------

         Since  inception  through  February  28,  2007,  we have  generated  an
accumulated deficit of $1,076,414.  We have historically financed our operations
through  cash from  operations,  research  grants,  licensing  of  technological
assets,  issuance of common stock and sale of investments in spinoff operations.
As of February 28, 2007, we had cash, cash equivalents and investments  totaling
$21,170,655  as compared to cash,  cash  equivalents  and  investments  totaling
$24,735,200 as of August 31, 2006.

         During the six months ended  February 28, 2007,  we used  $3,672,650 of
cash  in  operating  activities,  primarily  as a  result  of our  net  loss  of
$1,574,456,  decrease in income tax payable of  $1,500,000,  increases in income
tax  receivable  of  $1,147,645,  and deferred tax asset of $191,000,  offset by
increases  in accrued  expenses of $124,963  and  decreases  in  receivables  of
$239,557.  Cash provided  from  investing  activities  resulted from the sale of
investments  of  $2,340,840  offset by the purchase of property and equipment of
$48,044.  Cash  provided by  investing  activities  consisted  of proceeds  from
exercise of stock options of $5,250.

         We  expect  to incur  additional  expenses  related  to the  commercial
introduction  of our systems,  due to additional  participation  at trade shows,
expenditures  on publicity,  additional  travel,  increased  sales  salaries and
commissions and other related expenses.  In addition, we anticipate that we will
incur  increased  expenses  related  to  seeking   governmental  and  regulatory
approvals  for our products and corporate  governance  and  compliance  with the
Sarbanes-Oxley Act, during fiscal 2007.

         We  believe  we can cover any cash  requirements  with cost  cutting or
available  cash. If we cannot cover any such cash shortfall with cost cutting or
available  cash,  we would  need to obtain  additional  financing.  We cannot be
certain that any financing will be available when needed or will be available on
terms  acceptable  to us. If we raise equity  capital our  stockholders  will be
diluted.  Insufficient  funds may require us to delay,  scale back or  eliminate
some or all of our programs  designed to facilitate the commercial  introduction
of our systems or entry into new markets.

         As of February 28, 2007,  we have no  significant  commitments  for the
purchase of property and equipment.

         The Company has no off balance  sheet  arrangements  as of February 27,
2007.

         We believe that our current cash and cash equivalents and expected cash
provided from operating activities will be sufficient to fund our operations for
the next twelve months.


                                       15
<PAGE>
                           FORWARD-LOOKING STATEMENTS

         With the exception of historical  facts,  the  statements  contained in
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  are  forward-looking  statements  within the meaning of the Private
Securities Litigation Reform Act of 1995, which reflect our current expectations
and  beliefs  regarding  our  future  results  of  operations,  performance  and
achievements.  These statements are subject to risks and  uncertainties  and are
based  upon  assumptions  and  beliefs  that may or may not  materialize.  These
forward-looking   statements  include,   but  are  not  limited  to,  statements
concerning:

         o    our belief about the market opportunities for our products;

         o    our anticipated financial performance and business plan;

         o    our expectations  regarding the commercialization of the BSD-2000,
              BSD 500 and MicroThermX 100 systems;

         o    our expectations to further expand our developments to treat other
              diseases and medical conditions;

         o    our  expectations  that  in a  higher  production  environment  of
              established  commercial  sales we could achieve a 60% gross margin
              on system sales and an 80% gross margin on service  agreements and
              disposable applicators used with our MicroThermX 100 system;

         o    our belief  concerning the market  potential for developed  cancer
              therapy systems;

         o    our  expectations  related  to the  after-market  opportunity  for
              service agreements;

         o    our expectations related to the replacement cycle for our systems;

         o    our expectations that we will incur increased  expenses related to
              seeking governmental and regulatory approvals for our products;

         o    our expectations and efforts  regarding FDA approvals  relating to
              the BSD-2000 and MicroThermX 100 systems;

         o    our belief that our  technology  has  application  for  additional
              approaches to treating cancer and for other medical purposes;

         o    our  expectations  related to the amount of expenses we will incur
              for the commercial  introduction  of the BSD-2000 and  MicroThermX
              100 systems;

         o    our belief that we can cover any cash  shortfall with cost cutting
              or available cash; and

         o    our belief that our current working capital,  investments and cash
              from  operations  will be  sufficient  to finance  our  operations
              through  working  capital and capital  resources  needs for fiscal
              2007.

         We wish to caution readers that the forward-looking  statements and our
operating  results are  subject to various  risks and  uncertainties  that could
cause our actual results and outcomes to differ  materially from those discussed
or  anticipated,  including the factors set forth in the section  entitled "Risk
Factors"  included in our Annual Report on Form 10-KSB for the year ended August
31, 2006 and our other filings with the Securities and Exchange  Commission.  We
also  wish  to  advise   readers  not  to  place  any  undue   reliance  on  the
forward-looking  statements  contained in this report, which reflect our beliefs
and expectations  only as of the date of this report. We assume no obligation to
update or revise  these  forward-looking  statements  to  reflect  new events or
circumstances  or any  changes  in our  beliefs or  expectations,  other than as
required by law.



                                       16
<PAGE>

Item 3.   Quantitative and Qualitative Disclosure About Market Risk.

         As  of  February  28,  2007,  our  investments   consist  primarily  of
highly-liquid mutual funds, which are considered available-for-sale  securities.
These  investments  are not  held  for  speculative  or  trading  purposes.  Our
investments  may be exposed to market risk from  changes in  interest  rates and
other security market conditions that could impact our results of operations and
financial  position.  Changes in  interest  rates or other  market  factors  may
materially  affect the investment  income we earn on cash, cash  equivalents and
investments.

         We do not  have  material  foreign  operations  and are  not  currently
exposed to material risks from changes in foreign currency.

Item 4.   Controls and Procedures.

         Evaluation of disclosure controls and procedures.

         Under the  supervision  and with the  participation  of our management,
including our principal  executive officer and principal  financial officer,  we
evaluated  the  effectiveness  of the design  and  operation  of our  disclosure
controls and  procedures  (as defined in Rule  13a-15(e) or 15d-15(e)  under the
Securities  Exchange  Act  of  1934  (the  "Exchange  Act")).  Based  upon  that
evaluation,  the principal  executive  officer and principal  financial  officer
concluded  that for the  reasons  described  below,  as of the end of the period
covered  by this  report,  our  disclosure  controls  and  procedures  were  not
effective  and  adequately  designed to ensure that  information  required to be
disclosed  by us in the  reports  we file or submit  under the  Exchange  Act is
recorded,  processed,  summarized and reported within the time periods specified
in applicable rules and forms.

         In  connection  with the  completion  of its  review  of our  financial
statements for the fiscal quarter ended November 30, 2006,  Tanner LC identified
deficiencies  that existed in the design or  operation  of our internal  control
over financial reporting.  These deficiencies  included a lack of segregation of
duties in our  accounting  department  and a lack of controls over reporting and
accounting for deferred income taxes,  deferred  compensation and stock options.
These  deficiencies  have  been  disclosed  to our  audit  committee  and to our
auditors.  Additional effort is needed to fully remedy these deficiencies and we
are continuing  our efforts to improve and strengthen our control  processes and
procedures. Our management, audit committee, and directors will continue to work
with our  auditors  and other  outside  advisors to ensure that our controls and
procedures  are adequate and  effective,  including  increasing  the size of our
financial  department,  and hiring more  experienced  financial  management with
experience in accounting for deferred income taxes,  deferred  compensation  and
stock options.

         Changes in internal controls over financial reporting.

         During the fiscal quarter covered by this report, with the exception of
the matters  described  above,  there has been no change in our internal control
over financial  reporting (as defined in Rule  13a-15(f) or 15d-15(f)  under the
Exchange  Act)  that  has  materially  affected,  or  is  reasonably  likely  to
materially affect, our internal control over financial reporting.


                                       17
<PAGE>

PART II - OTHER INFORMATION

Item 1A.      Risk Factors.

         In  addition to the other  information  set forth in this  report,  you
should  carefully  consider  the factors  discussed in Item 1 -  Description  of
Business in our Annual Report on Form 10-KSB for the year ended August 31, 2006,
which  could  materially  affect our  business,  financial  condition  or future
results of operations.  The risks  discussed in our Annual Report on Form 10-KSB
are not the only risks facing our Company.  Additional  risks and  uncertainties
not currently  known to us or that we currently  deem to be immaterial  also may
materially adversely affect our business,  financial condition and/or results of
operations.

Item 6.       Exhibits.

         The following exhibits are filed as part of this report:

    Exhibit No.     Description of Exhibit
    -----------     ----------------------

      31.1          Certification  of  Principal   Executive   Officer  Required
                    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

      31.2          Certification  of  Principal   Financial   Officer  Required
                    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

      32.1          Certification  of  Principal   Executive   Officer  Required
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

      32.2          Certification  of  Principal   Financial   Officer  Required
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




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<PAGE>

                                   SIGNATURES


         Pursuant to the  requirements  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:    April 16, 2007                  /s/ Hyrum A. Mead
                                      -----------------------------------------
                                      Hyrum A. Mead
                                      -------------
                                      President (Principal Executive Officer)

Date:    April 16, 2007                  /s/ Dennis E. Bradley
                                      -----------------------------------------
                                      Dennis E. Bradley
                                      -----------------
                                      Controller (Principal Accounting Officer)



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