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 November 30, 2006

         |_|      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. 0-10783


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



                             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, zip code)

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

         Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
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 (as defined in Rule 12b-2
of the Exchange Act).

   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 January 15, 2007, there were 21,040,186 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                      November 30,        August 31,
                   ------                          2006               2006
                                             ---------------   -----------------
Current assets:
    Cash and cash equivalents                $     1,273,927   $      2,179,094
    Investments                                   20,920,220         22,556,106
    Receivables, net                               1,086,886          1,186,800
    Related party trade receivables                  226,683            261,543
    Income tax receivable                            328,021                  -
    Inventories, net                               1,474,247          1,366,264
    Deferred tax asset                               279,000            178,000
    Other current assets                             112,309            120,277
                                             ---------------   -----------------
           Total current assets                   25,701,293         27,848,084

Property and equipment, net                          306,199            303,034
Note receivable                                      137,500            137,500
Patents, net                                          20,781             21,250
                                             ---------------   -----------------
                                             $    26,165,773   $     28,309,868
                                             ===============   =================

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

Current Liabilities:
    Accounts payable                         $       490,256   $        365,396
    Accrued  liabilities                             423,982            545,113
    Income taxes payable                                   -          1,539,946
    Deferred revenue - current portion                23,293             17,912
                                             ---------------   -----------------

           Total current liabilities                 937,531          2,468,367
                                             ---------------   -----------------

Deferred revenue - less current portion              200,833            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;
        21,040,186 and 21,023,668 shares
        issued and outstanding                        21,041             21,024
    Additional paid-in capital                    25,438,724         25,452,231
    Deferred compensation                                  -           (247,700)
    Treasury stock , at cost                            (234)              (234)
    Other comprehensive loss                         (68,493)           (99,362)
    Retained earnings (deficit)                     (363,629)           498,042
                                             ---------------   -----------------

           Total stockholders' equity             25,027,409         25,624,001
                                             ---------------   -----------------

                                             $    26,165,773   $     28,309,868
                                             ===============   =================

See accompanying notes to condensed financial statements.

                                       1
<PAGE>
                             BSD MEDICAL CORPORATION

                       Condensed Statements of Operations
                                   (Unaudited)

                                                        Three Months
                                                      Ended November 30,
                                             -----------------------------------
                                                   2006               2005
Revenues:                                    ---------------   -----------------

      Sales                                  $       648,611   $        509,881
      Sales to related parties                        16,044             11,286
                                             ---------------   -----------------

           Total revenues                            664,655            521,167
                                             ---------------   -----------------
Costs and expenses:
    Cost of sales                                    436,625            352,244
    Cost of sales to related parties                  12,630              5,256
    Research and development                         332,079            230,165
    Selling, general and administrative            1,556,441          1,054,114
                                             ---------------   -----------------

           Total costs and expenses                2,337,775          1,641,779
                                             ---------------   -----------------

           Operating loss                         (1,673,120)        (1,120,612)
                                             ---------------   -----------------

Other income (expense):
    Interest income                                  370,213            244,623
    Other income (expense)                           (27,732)         5,882,925
                                             ---------------   -----------------

           Total other income                        342,481          6,127,548
                                             ---------------   -----------------

Income (loss) before income taxes                 (1,330,639)         5,006,936
Income tax benefit (expense)                         468,968         (1,870,694)
                                             ---------------   -----------------
           Net income (loss)                 $      (861,671)  $      3,136,242
                                             ===============   =================


Net income (loss) per common share - basic   $          (.04)  $            .15
                                             ===============   =================

Net income (loss) per common share - diluted $          (.04)  $            .13
                                             ===============   =================

Weighted average number of common  shares
  outstanding
     Basic                                        21,036,000         20,513,000
     Diluted                                 ---------------   -----------------
                                                  21,036,000         22,145,000
                                             ---------------   -----------------

See accompanying notes to condensed financial statements.


                                       2
<PAGE>
                             BSD MEDICAL CORPORATION

                       Condensed Statements of Cash Flows
                                   (Unaudited)


                                                         Three Months
                                                      Ended November 30,
                                             -----------------------------------
                                                   2006             2005
                                             ---------------   -----------------

Cash flows from operating activities:
 Net income (loss)                           $      (861,671)  $      3,136,242
 Adjustments to reconcile net income (loss)
    to net cash used in operating
    activities:
    Provision for doubtful accounts                   83,700                  -
    Depreciation and amortization                     21,116             34,309
    Stock compensation expense                       234,210                945
    Gain on sale of investment in TherMatrx                -         (5,882,925)
    Amortization of deferred compensation                  -             36,650
    (Increase) decrease in:
        Receivables                                   16,214           (332,197)
        Related party receivables                     34,860            210,756
        Income tax receivable                       (367,967)                 -
        Inventories                                 (107,983)          (156,866)
        Deferred tax asset                          (101,000)            (8,000)
        Other current assets                           7,968            (22,751)
    Increase (decrease) in:
        Accounts payable                             124,860            234,432
        Accrued expenses                            (121,131)           105,296
        Income taxes payable                      (1,500,000)         1,770,602
        Deferred revenue                            (11,286)             (2,894)
                                             ---------------   -----------------

        Net cash used in operating
          activities                              (2,548,110)          (876,401)
                                             -----------------------------------

Cash flows from investing activities:
 Proceeds from sale of investment in
  TherMatrx                                                -          5,882,925
 (Purchase) sale of investments                    1,666,755         (5,698,833)
 Purchase of property and equipment                  (23,812)          (133,435)
                                             ---------------   -----------------

        Net cash provided by investing
          activities                               1,642,943             50,657
                                             ---------------   -----------------

Cash flows from by financing activities:
 Proceeds from sale of common stock                        -             75,305
                                             -----------------------------------

Decrease in cash and cash equivalents               (905,167)          (750,440)
Cash and cash equivalents, beginning
  of period                                        2,179,094            908,674
                                             ---------------   -----------------
Cash and cash equivalents, end of period     $     1,273,927   $        158,235
                                             ===============   =================

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

o        The Company paid no cash for interest during the three months ended
         November 30, 2006 and 2005 and $1,500,000 and $108,091 for income taxes
         during the three months ended November 30, 2006 and 2005, respectively.

o        The Company issued 120,000 stock options during the three months ended
         November 30, 2006, which resulted in compensation expense of $344,141
         of which $17,207 was recognized during the quarter. The Company issued

                                       3
<PAGE>

         170,000 stock options during the three months ended November 30, 2005,
         which resulted in an increase to deferred compensation of $326,550.

o        The Company had an income tax benefit from the exercise of stock
         options of $258,892 during the three months ended November 30, 2005,
         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 $30,869 during the three months
         ended November 30, 2006 on available-for-sale securities. The Company
         had an unrealized loss of $61,478 during the three months ended
         November 30, 2005 on available-for- sale securities.

o        The Company transferred deferred compensation of $247,700 to additional
         paid-in capital during the three months ended November 30, 2006.

o        The Company decreased income taxes payable and decreased income tax
         receivable by $39,946 during the three months ended November 30, 2006.


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 November 30, 2006 and August 31, 2006 and the related
unaudited condensed statements of operations and of cash flows for the three
months ended November 30, 2006 and 2005 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 November 30,
2006 and August 31, 2006 and our results of operations and cash flows for the
three months ended November 30, 2006 and 2005 have been included. The results of
operations for the three months ended November 30, 2006 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.

         The FASB has issued Statement No. 154, Accounting Changes and Error
Corrections. This new standard replaces Accounting Principles Board (APB)
Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting
Accounting Changes in the Interim Financial Statements. Among other changes,
SFAS No. 154 requires that a voluntary change in accounting principle be applied
retrospectively with all prior period financial statement presented on the new
accounting principle, unless it is impracticable to do so. SFAS No. 154 also
provides that (1) a change in method of depreciating or amortizing a long-lived
non-financial asset be accounted for as a change in estimate (prospectively)
that was effected by a change in accounting principle, and (2) correction of

                                       5
<PAGE>

errors in previously issued financial statement should be termed a
"restatement." The new standard is effective for accounting changes and
correction of errors made in fiscal years beginning after December 15, 2005.
Early adoption of this standard is permitted for accounting changes and
correction of errors made in fiscal years beginning after June 1, 2005. The
adoption of this new accounting pronouncement had no material impact on the
Company's financial position or results of operations.

         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.

         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.

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
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 ended November 30, 2006, 1,174,999 common
stock equivalents related to stock options were not included in the computation
due to their anti-dilutive effect.

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

                                               Three Months Ended November 30,
                                             -----------------------------------
                                                  2006                2005
                                             ---------------   -----------------

         Weighted average number of
            shares outstanding - basic            21,036,000         20,513,000
         Dilutive effect of stock options                  -          1,632,000
                                             ---------------   -----------------

         Weighted average number of
            shares outstanding - diluted          21,036,000         22,145,000
                                             ===============   =================


                                       6
<PAGE>

Note 4.    Inventories

         Inventories consist of the following:

                                               November 30,        August 31,
                                                  2006               2006
                                             ---------------   -----------------

         Parts and supplies                  $       867,804   $        711,552
         Work-in-process                             593,339            641,608
         Finished goods                               53,104             53,104
         Reserve for obsolete inventory              (40,000)           (40,000)
                                             ---------------   -----------------

         Inventories, net                    $     1,474,247   $      1,366,264
                                             ===============   =================

Note 5.    Related Party Transactions

         During the three months ended November 30, 2006 and November 30, 2005,
we had sales of $16,044 and $11,286, respectively, to an entity controlled by a
significant stockholder and member of the Board of Directors. These related
party transactions represent 2% of total sales for each period.

         At November 30, 2006 and August 31, 2006, receivables include $226,683
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 November 30, 2006 and for the
three months ended November 30, 2006 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
quarter ended November 30, 2006 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 November 30, 2006, 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 statement of operations for the three months ended November 30,
2006 includes stock-based compensation expense from stock options of $204,210 in
selling, general and administrative expenses.

                                       7
<PAGE>

         During the three months ended November 30, 2006, we granted 120,000
options to our directors, with one fifth vesting each year for the next five
years. This grant accounts for $17,207 of the stock-based compensation expense
for the three months ended November 30, 2006.

         Unrecognized stock-based compensation expense expected to be recognized
over the estimated weighted-average amortization period of 1.34 years is
approximately $1,671,000 at November 30, 2006.

         Our weighted-average assumptions used in the Black-Scholes valuation
model for equity awards with time-based vesting provisions granted during the
three months ended November 30, 2006 are shown below:

Expected volatility                                                67.57%
Expected dividends                                                   0%
Expected term                                                     5 Years
Risk-free interest rate                                            4.68%

         The expected volatility rate was estimated based on the 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 ended November 30, 2005. 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.

Net income - as reported                                       $      3,136,242
Add: Stock-based employee compensation expense
   included in reported net income,
   net of related tax effects                                            36,650
Deduct: Stock-based employee compensation expense
   determined under fair value based method for
   all awards, net of related taxes fair value
   based method for all awards, net of related taxes                   (158,738)
                                                               -----------------

Net income - pro forma                                         $      3,014,154
                                                               =================

Income per common share - as reported:

     Basic                                                     $            .15
     Diluted                                                   $            .13

Income per common share - pro forma:
     Basic                                                     $            .14
     Diluted                                                   $            .13


                                       8
<PAGE>

         A summary of the time-based stock option awards as of November 30,
2006, and changes during the three 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                        13,788        1.31
 Forfeited or expired              -              -


 Outstanding at November 30,
   2006                        1,915,263  $     1.92
                              ==========  ==========

 Exercisable at November 30,
   2006                        1,331,309  $     1.24       6.32      $ 6,604,000
                              ==========  ==========    ==========   ===========

         The weighted-average grant-date fair value of stock options granted
during the three months ended November 30, 2006 was $4.77.

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



                                       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 to treat 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, 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 received much notoriety, 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.

         Although we have not entered these markets, we also believe that our
technology has application for additional approaches to treating cancer and for
a number of other medical purposes, including the treatment of such conditions
as psoriasis, arthritis, fibroids, hemorrhoids, menorrhagra (excessive menstrual
bleeding), benign tumors and cysts. We believe our technology is also applicable
to treating special medical problems such as sleep apnea and for certain
cosmetic uses. Our mission is to develop the full spectrum of medical uses for
our special competence in precision-focused RF/microwave systems, and to broadly
apply the utilization of our technology to treat cancer and benign diseases and
conditions.

         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.

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<PAGE>

         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 for non-related parties as with 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 November 30, 2006, 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.

         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 period ended November 30, 2006, 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 November 30, 2006. 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 ended November 30, 2006, we
recorded compensation expense of $204,210 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 closed the balance of deferred compensation of $247,700
to additional paid-in capital.

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

Three Months Ended November 30, 2006 Compared to the Three Months Ended November
30, 2005

         Revenues. Total revenues for the three months ended November 30, 2006
were $664,655, compared to $521,167, for the three months ended November 30,
2005, an increase of $143,488, or approximately 28%. The increase in total
revenues was primarily due to an increase in sales to unrelated parties. 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.

                                       12
<PAGE>

         Related Party Sales. We earned $16,044, or approximately 2%, of our
revenues in the three months ended November 30, 2006 from sales to related
parties as compared to $11,286 or 2%, in the three months ended November 30,
2005. All of the related party revenue in the 2006 period was from sales of
component parts to Medizin-Technik.

         Non-Related Party Sales. In the three months ended November 30, 2006,
we earned $648,611 or 98%, of our revenues from sales to unrelated parties, as
compared to $509,881, or 98%, for the three months ended November 30, 2005.
These sales for the three months ended November 30, 2006 consisted of product
sales of $586,612, consulting services of $31,143, service contracts of $14,110,
and probes of $16,746. By comparison, these sales for the three months ended
November 30, 2005 consisted of product sales of $445,825, consulting services of
$4,645, service contracts of $5,594, probes of $17,923 and other miscellaneous
revenue of $35,894.

         Gross Profit. Gross profit for the three months ended November 30, 2006
was $215,400 or 32% as compared to $163,667 or 31%, of total product sales for
the three months ended November 30, 2005. As sales volumes increases, our
employees will be more utilized, thus increasing our gross profit percentage.

         Selling General and Administrative Expenses. Selling, general and
administrative expenses increased to $1,556,441 in the three months ended
November 30, 2006, from $1,054,114 for the three months ended November 30, 2005,
an increase of $502,327 or approximately 48%. This increase was primarily due to
an increase in sales and marketing costs of $294,083 supporting new product
sales and market development activities and $204,210 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 $332,079, for the three months ended November 30, 2006, as compared to
$230,165, for the corresponding period of fiscal 2005, an increase of $101,914,
or approximately 44%. Research and development expenses in the three months
ended November 30, 2006 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 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.

         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 $370,213 for the three
months ended November 30, 2006 as compared to $244,623 for the three months
ended November 30, 2005, due to the significantly higher levels of cash and
investments resulting from the sale of our investment in TherMatrx.

                                       13
<PAGE>

         Net income (loss). During the three months ended November 30, 2006 we
had a net loss of $861,671 after recording a tax benefit of $468,968 as compared
to an after tax net income of $3,136,242 in the corresponding period of 2005.

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

         Since inception through November 30, 2006, we have generated an
accumulated deficit of $363,629. We have historically financed our operations
through cash from operations, research grants, licensing of technological assets
and issuance of common stock. As of November 30, 2006, we had cash, cash
equivalents and investments totaling $22,194,147 as compared to cash, cash
equivalents and investments totaling $24,735,200 as of August 31, 2006.

         During the three months ended November 30, 2006 we used $2,548,110 of
cash in operating activities, primarily as a result of our net loss of $861,671,
decreases in accrued expenses of $121,131 and income tax payable of $1,500,000,
increases in income tax receivable of $367,967, inventories of $107,983 and
deferred tax asset of $101,000, offset by increases in accounts payable of
$124,860 and decreases in receivables of $16,214 and related party receivables
of $34,860. Our investing activities resulted in a decrease in investments of
$1,666,755 and the purchase of property and equipment of $23,812.

         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 shortfall 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 November 30, 2006, we have no significant commitments for the
purchase of property and equipment.

         The Company has no off balance sheet arrangements as November 30, 2006.

                           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;



                                       14
<PAGE>

         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 systems;

         o    our development or acquisition of new technologies;

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

         o    the amount of expenses we will incur for the commercial
              introduction of the BSD-2000 and MicroThermx systems; 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; and

         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.

Item 3.   Quantitative and Qualitative Disclosure About Market Risk.

         As of November 30, 2006, 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.

         a.   Evaluation of disclosure controls and procedures.

                                       15
<PAGE>

         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.

         b.   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.



                                       16
<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 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 Required Pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 2002

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

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

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


                                       17
<PAGE>

                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934,
BSD Medical Corporation, the registrant, has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.




                                    BSD MEDICAL CORPORATION



Date:    January 16, 2007                    /s/ Hyrum A. Mead
                                    ---------------------------------------
                                    President (Principal Executive Officer)

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










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