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                                  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 29, 2008

         |_|      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, a non-accelerated filer or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

         Large accelerated filer |_|               Accelerated filer |X|
         Non-accelerated filer |_|                 Smaller reporting company |_|

         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 9, 2008, there were 21,318,128 shares of the Registrant's
common stock, $0.001 par value per share, outstanding.




<PAGE>

                             BSD MEDICAL CORPORATION
                                    FORM 10-Q

                     FOR THE QUARTER ENDED FEBRUARY 29, 2008


                         PART I - Financial Information

Item 1.  Financial Statements

         Condensed Balance Sheets............................................3
         Condensed Statements of Operations..................................4
         Condensed Statements of Cash Flows..................................5
         Notes to Condensed Financial Statements.............................6

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations................................13

Item 3.  Quantitative and Qualitative Disclosures About
         Market Risk........................................................20

Item 4.  Controls and Procedures............................................21


                     PART II - Other Information

Item 1A.  Risk Factors......................................................21

Item 4.  Results of Votes of Security Holders...............................22

Item 6.  Exhibits...........................................................23

Signatures..................................................................24








                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.


                             BSD MEDICAL CORPORATION
                            Condensed Balance Sheets
                                   (Unaudited)


                                                February 29,       August 31,
                               ASSETS              2008               2007
                                              ----------------------------------
Current assets:
   Cash and cash equivalents                  $       454,318   $       416,540
   Investments                                     15,091,597        19,090,118
   Accounts receivable, net of
      allowance for doubtful
      accounts of $20,000                             277,362           203,267
   Related party trade accounts
      receivable                                      861,983           488,200
   Income tax receivable                            2,430,022         1,759,995
   Inventories, net                                 1,615,719         1,510,067
   Deferred tax asset                                       -           387,000
   Other current assets                                64,483           127,003
                                              ----------------------------------
   Total current assets                            20,795,484        23,982,190

Property and equipment, net                         1,441,279           271,077
Patents, net                                           38,886            19,373
Deferred tax asset                                          -            69,000
                                              ----------------------------------

                                              $    22,275,649   $    24,341,640
                                              ==================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                           $       346,286   $       235,676
   Accrued liabilities                                570,485           633,090
   Customer deposits                                   84,750           214,638
   Deferred revenue - current
     portion                                           20,670            26,115
                                              ----------------------------------
   Total current liabilities                        1,022,191         1,109,519

Deferred revenue - net of
     current portion                                   38,334            48,333
                                              ----------------------------------

   Total liabilities                                1,060,525         1,157,852
                                              ----------------------------------

Commitments and contingencies

Stockholders' equity:
   Preferred stock, $.001 par
      value; 10,000,000 shares
      authorized, no shares
      issued and outstanding                                -                 -
   Common stock; $.001 par
      value, 40,000,000 shares
      authorized, 21,328,561
      and 21,297,446 shares issued                     21,329            21,298
   Additional paid-in capital                      26,895,728        26,373,637
   Treasury stock, 24,331 shares
      at cost                                            (234)             (234)
   Other comprehensive loss                        (1,828,774)         (360,760)
   Accumulated deficit                             (3,872,925)       (2,850,153)
                                              ----------------------------------
   Total stockholders' equity                      21,215,124        23,183,788
                                              ----------------------------------

                                              $    22,275,649   $    24,341,640
                                              ==================================

            See accompanying notes to condensed financial statements


                                       3
<PAGE>

                             BSD MEDICAL CORPORATION
                       Condensed Statements of Operations
                                   (Unaudited)



                             Three Months Ended          Six Months Ended
                         February 29,  February 28,  February 29,   February 28,
                             2008         2007          2008           2007
                         ------------  ------------  ------------  -------------
Revenues:
  Sales                  $    640,539  $    178,074  $  1,120,242  $    826,685
  Sales to related
     parties                  835,113       482,583     1,743,138       498,627
                         ------------  ------------  ------------  -------------

   Total revenues           1,475,652       660,657     2,863,380     1,325,312
                         ------------  ------------  ------------  -------------

Operating costs and
  expenses:
   Cost of sales              261,083        95,870       424,064       509,891
   Cost of related
     party sales              330,002       327,447       607,876       362,681
   Research and
     development              433,869       508,778       771,222       840,857
   Selling, general
     and administrative     1,434,118     1,331,259     2,828,065     2,887,700
                         ------------  ------------  ------------  -------------

   Total operating
   costs and expenses       2,459,072     2,263,354     4,631,227     4,601,129
                         ------------  ------------  ------------  -------------

Loss from operations         (983,420)   (1,602,697)   (1,767,847)   (3,275,817)
                         ------------  ------------  ------------  -------------

Other income (expense):
   Interest and
     investment income        355,640       342,457       544,988       712,670
   Other expense              (47,057)      (46,604)     (110,913)      (74,336)
                         ------------  ------------  ------------  -------------

   Total other income
   (expense)                  308,583       295,853       434,075       638,334
                         ------------  ------------  ------------  -------------

Loss before income
  taxes                      (674,837)   (1,306,844)   (1,333,772)   (2,637,483)

Income tax benefit            268,000       594,059       311,000     1,063,027
                         ------------  ------------  ------------  -------------

Net loss                     (406,837)     (712,785)   (1,022,772)   (1,574,456)

Other comprehensive
  income (loss) -
  unrealized gain
  (loss) on
  investments,
  net of income tax        (1,099,414)      120,029    (1,468,014)      150,899
                         ------------  ------------  ------------  -------------

Net comprehensive loss   $ (1,506,251) $   (592,756) $ (2,490,786) $ (1,423,557)
                         ============  ============  ============  =============

Loss per common share:
   Basic                 $      (0.02) $      (0.03) $      (0.05) $      (0.07)
                         ============  ============  ============  =============
   Diluted               $      (0.02) $      (0.03) $      (0.05) $      (0.07)
                         ============  ============  ============  =============

Weighted average
  number of shares
  outstanding:
   Basic                   21,321,000    21,042,000    21,316,000    21,039,000
   Diluted                 21,321,000    21,042,000    21,316,000    21,039,000

            See accompanying notes to condensed financial statements



                                       4
<PAGE>
                             BSD MEDICAL CORPORATION
                       Condensed Statements of Cash Flows
                                   (Unaudited)

                                                       Six Months Ended
                                                February 29,      February 28,
                                                   2008               2007
                                              ---------------   ----------------
Cash flows from operating activities:
 Net loss                                     $    (1,022,772)  $    (1,574,456)
 Adjustments to reconcile net loss to
   net cash used in operating activities:
     Depreciation and amortization                     57,954            46,340
     Stock-based compensation                         365,095           438,944
     Stock issued for services                         30,000                 -
     Provision for doubtful accounts                        -            83,700
     Loss on disposition of property and
       equipment                                            -             2,577
     Decrease (increase) in:
       Receivables                                   (447,878)          239,557
       Income tax receivable                         (555,000)       (1,147,645)
       Inventories                                   (105,652)          (12,914)
       Deferred tax assets                            244,000          (191,000)
       Other current assets                            62,520           (13,528)
     Increase (decrease) in:
       Accounts payable                               110,610           (13,659)
       Accrued liabilities                            (62,605)          124,963
       Customer deposits                             (129,888)                -
       Deferred revenue                               (15,444)         (155,529)
       Income taxes payable                                 -        (1,500,000)
                                              ---------------   ----------------

   Net cash used in operating activities           (1,469,060)       (3,672,650)
                                              ---------------   ----------------

Cash flows from investing activities:
 Sale of investments                                2,742,507         2,340,840
 Purchase of property and equipment                (1,226,703)          (48,044)
 Increase in patents                                  (20,966)                -
                                              ---------------   ----------------

   Net cash provided by investing activities        1,494,838         2,292,796
                                              ---------------   ----------------

Cash flows from financing activities:
 Proceeds from the sale of common stock                12,000             5,250
                                              ---------------   ----------------

Net increase (decrease) in cash and cash
  equivalents                                          37,778        (1,374,604)
Cash and cash equivalents, beginning
  of period                                           416,540         2,179,094
                                              ---------------   ----------------

Cash and cash equivalents, end of period      $       454,318   $       804,490
                                              ===============   ================



            See accompanying notes to condensed financial statements

                                       5
<PAGE>
                             BSD MEDICAL CORPORATION
                     Notes to Condensed Financial Statements
                                   (Unaudited)

Note 1.  Basis of Presentation

         The  accompanying  unaudited  condensed  balance  sheets of BSD Medical
Corporation  (the  "Company")  as of February 29, 2008 and August 31, 2007,  the
related  unaudited  condensed  statements of operations for the three months and
six months  ended  February  29, 2008 and  February  28,  2007,  and the related
unaudited  condensed  statements of cash flows for the six months ended February
29, 2008 and  February  28,  2007 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
(the  "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-K for the year ended August 31, 2007.

         All  adjustments  (consisting  only of  normal  recurring  adjustments)
necessary for the fair presentation of our financial position as of February 29,
2008 and August 31, 2007, our results of operations for the three months and six
months ended February 29, 2008 and February 28, 2007, and our cash flows for the
six months ended February 29, 2008 and February 28, 2007 have been included. The
results of  operations  for the three months and six months  ended  February 29,
2008 may not be indicative of the results for the year ending August 31, 2008.

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 adopted this Interpretation on September 1, 2007,
with no material impact on our financial statements.

         In  March  2008,  the  FASB  issued  SFAS No.  161,  Disclosures  about
Derivative  Instruments  and  Hedging  Activities.  This  statement  changes the
disclosure  requirements  for  derivative  instruments  and hedging  activities.
Entities are required to provide enhanced  disclosures  about (a) how and why an
entity uses derivative  instruments,  (b) how derivative instruments and related
hedged items are accounted  for under SFAS No. 133,  Accounting  for  Derivative
Instruments and Hedging Activities, and its related interpretations, and (c) how
derivative  instruments  and related  hedged items affect an entity's  financial
position, financial performance, and cash flows. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, or our fiscal year  beginning  September 1, 2009,  with early
application  encouraged.  This  statement  encourages,  but  does  not  require,
comparative  disclosures for earlier periods at initial  adoption.  We currently
are unable to determine what impact the future application of this pronouncement
may have on our financial statements.

         In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations.  This statement  replaces SFAS No. 141, Business  Combinations and
applies to all  transactions  or other events in which an entity (the  acquirer)
obtains  control  of one or more  businesses  (the  acquiree),  including  those


                                       6
<PAGE>

sometimes  referred to as "true mergers" or "mergers of equals" and combinations
achieved  without the  transfer of  consideration.  This  statement  establishes
principles and requirements for how the acquirer:  a) recognizes and measures in
its financial  statements the  identifiable  assets  acquired,  the  liabilities
assumed,  and any  noncontrolling  interest in the acquiree;  b) recognizes  and
measures the  goodwill  acquired in the  business  combination  or a gain from a
bargain purchase; and c) determines what information to disclose to enable users
of the financials statements to evaluate the nature and financial effects of the
business  combination.  This statement  will be effective for fiscal years,  and
interim  periods  within those fiscal years,  beginning on or after December 15,
2008,  or our fiscal  year  beginning  September  1, 2009.  Earlier  adoption is
prohibited.  We  currently  are  unable to  determine  what  impact  the  future
application of this pronouncement may have on our financial statements.

         In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated  Financial Statements.  This statement applies to all entities that
prepare consolidated financial statements,  except not-for-profit organizations,
and amends Accounting  Research Bulletin ("ARB") 51 to establish  accounting and
reporting standards for the noncontrolling  interest in a subsidiary and for the
deconsolidation   of  a  subsidiary.   It  also  amends   certain  of  ARB  51's
consolidation  procedures for consistency  with the requirements of SFAS No. 141
(revised 2007).  This statement will be effective for fiscal years,  and interim
periods  within those fiscal years,  beginning on or after December 15, 2008, or
our fiscal year beginning September 1, 2009. Earlier adoption is prohibited.  We
currently  are unable to determine  what impact the future  application  of this
pronouncement may have on our financial statements.

         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,
or our fiscal year beginning  September 1, 2008.  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. We have not elected early adoption of this statement, and do
not expect the  adoption of this  statement  will have a material  impact on our
financial statements.

         In September  2006, the FASB issued SFAS Statement No. 158,  Employers'
Accounting for Defined Benefit Pension and Other Postretirement  Plans. This new
standard will require  employers to fully recognize the  obligations  associated
with  single-employer  defined  benefit  pension,  retiree  healthcare and other
postretirement plans in their financial  statements.  We adopted SFAS No. 158 on
September 1, 2007, with no material impact on our financial  statements since we
currently do not sponsor a defined benefit pension or postretirement plan within
the scope of the standard.

         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. In February 2008, the FASB issued FASB Staff
Position  (FSP) No. FAS 157-2,  which delays by one year the  effective  date of
SFAS  No.  157 for  certain  types of  non-financial  assets  and  non-financial
liabilities.  As a  result,  SFAS  No.  157  will  be  effective  for  financial
statements  issued for fiscal years  beginning  after  November 15, 2007, or our
fiscal year beginning  September 1, 2008, for financial  assets and  liabilities


                                       7
<PAGE>

carried  at fair value on a  recurring  basis,  and on  September  1, 2009,  for
non-recurring  non-financial  assets  and  liabilities  that are  recognized  or
disclosed at fair value. We are currently  unable to determine the impact on our
financial  statements of the  application  of SFAS No. 157 on September 1, 2008,
for financial assets and liabilities carried at fair value on a recurring basis.
Similarly,  we are  currently  unable to determine  the impact on our  financial
statements  of the  application  of SFAS  No.  157 on  September  1,  2009,  for
non-recurring  non-financial  assets  and  liabilities  that are  recognized  or
disclosed at fair value.

         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 adopted SFAS No. 156 on  September 1, 2007,  with no
material impact on our 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
adopted  SFAS No. 156 on  September  1,  2007,  with no  material  impact on our
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.
We adopted this  standard on September 1, 2007,  with no material  impact on our
financial statements.

         EITF No. 07-3,  Accounting for Nonrefundable Advance Payments for Goods
or Services Received for Use in Future Research and Development Activities,  was
issued in June 2007.  The EITF reached a consensus that  nonrefundable  payments
for goods and  services  that will be used or rendered  for future  research and
development  activities should be deferred and capitalized.  Such amounts should
be  recognized  as an expense as the related goods are delivered and the related
services are performed. Entities should continue to evaluate whether they expect
the goods to be  delivered  or services to be  rendered.  If the entity does not
expect the goods to be  delivered or services to be  rendered,  the  capitalized
advance payment should be charged to expense.  This  pronouncement  is effective
for financial  statements  issued for fiscal years  beginning after December 15,
2007,  our fiscal year beginning  September 1, 2008, and interim  periods within
those fiscal years. Earlier application is not permitted.  Entities are required
to report the  effects of  applying  this  pronouncement  prospectively  for new
contracts entered into on or after the effective date of this pronouncement.  We
currently  are unable to determine  what impact the future  application  of this
pronouncement may have on our financial statements.



                                       8
<PAGE>

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  and six months  ended  February  29,  2008,
994,887 and 1,052,147 common stock equivalents related to stock options were not
included in the computation  due to their  anti-dilutive  effect,  respectively,
because of the  Company's net loss.  Similarly,  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.

         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 29,  February 28,  February 29,   February 28,
                             2008         2007          2008           2007
                         ------------  ------------  ------------  -------------

Weighted average number
  of shares outstanding
  - basic                  21,321,000    21,042,000    21,316,000    21,039,000
Dilutive effect of
  stock options                     -             -             -             -
                         ------------  ------------  ------------  -------------

Weighted average number
  of shares outstanding
  - diluted                21,321,000    21,042,000    21,316,000     21,039,000
                         ============  ============  ============  =============


Note 4.  Inventories

         Inventories consist of the following:

                                                February 29,       August 31,
                                                    2008              2007
                                              ---------------   ----------------

         Parts and supplies                   $       936,907   $       835,498
         Work-in-process                              665,006           610,846
         Finished goods                                53,806           103,723
         Reserve for obsolete inventory               (40,000)          (40,000)
                                              ---------------   ----------------

         Inventories, net                     $     1,615,719   $     1,510,067
                                              ===============   ================

                                       9
<PAGE>

Note 5.  Property and Equipment

         Property and equipment consist of the following:

                                                February 29,       August 31,
                                                   2008               2007
                                              ---------------   ----------------

         Equipment                            $       988,865   $       962,162
         Furniture and fixtures                       298,576           298,576
         Leasehold improvements                        17,420            17,420
         Building                                     956,000                 -
         Land                                         244,000                 -
                                              ---------------   ----------------

                                                    2,504,861         1,278,158
         Less accumulated depreciation             (1,063,582)       (1,007,081)
                                              ---------------   ----------------

         Property and equipment, net          $     1,441,279   $       271,077
                                              ===============   ================

         When  the  lease  on the  Company's  office,  production  and  research
facilities  expired  in  November  2007,  the  Company  exercised  its option to
purchase the building and land for a total purchase price of $1,200,000.

Note 6.  Related Party Transactions

         During the three months ended  February 29, 2008 and February 28, 2007,
we had sales of $835,113 and $482,583,  respectively, to an entity controlled by
a significant  stockholder  and member of the Board of Directors.  These related
party transactions  represent  approximately 57% and 73% of total sales for each
respective three-month period.

         During the six months ended February 29, 2008 and February 28, 2007, we
had sales of  $1,743,138  and  $498,627,  respectively,  to this  entity.  These
related party  transactions  represent  approximately 61% and 38% of total sales
for each respective six-month period.

         At February 29, 2008 and August 31, 2007, receivables included $861,983
and $488,200, respectively, from this entity.


Note 7. Stock-Based Compensation

        We have a stock-based  employee  plan and a director  option plan which
are  described  more fully in Note 11 in our 2007 Annual Report on Form 10-K. As
of February  29, 2008,  we had  approximately  1,520,000  shares of common stock
reserved for future issuance under the stock option plans.

        The Company  accounts for  stock-based  compensation in accordance with
SFAS  No.  123(R),  Share  Based  Payments.  Under  the fair  value  recognition
provisions of this statement,  stock-based  compensation cost is measured at the
grant  date  based on the value of the  award  granted  using the  Black-Scholes
option pricing model,  and recognized  over the period in which the award vests.
The stock-based  compensation  expense for the three-month and six-month periods
ended  February  29,  2008 has  been  allocated  to the  various  categories  of
operating  costs and expenses in a manner  similar to the  allocation of payroll
expense as follows:


                                       10
<PAGE>
                                                Three Months       Six Months
                                                   Ended             Ended
                                                February 29,      February 29,
                                                    2008              2008
                                              ---------------   ----------------

         Cost of sales                        $        21,148   $        42,296
         Research and development                      35,125            60,620
         Selling, general and administrative          150,192           262,179
                                              ---------------   ----------------

         Total                                $       206,465   $       365,095
                                              ===============   ================

         Stock-based  compensation  expense for the  three-month  and  six-month
periods ended February 28, 2007 of $204,734 and $408,943, respectively, has been
included in selling, general and administrative expenses.

         During the six months  ended  February  29,  2008,  we granted  367,000
options to our directors and employees,  285,000  options with one fifth vesting
each year for the next five years,  and 82,000  options  with one third  vesting
each year for the next three  years.  These  grants  account  for $98,820 of the
total  stock-based  compensation  expense for the six months ended  February 29,
2008.

         Unrecognized stock-based compensation expense expected to be recognized
over  the  estimated  weighted-average  amortization  period  of 2.39  years  is
approximately $2,466,000 at February 29, 2008.

         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 29, 2008 are shown below:

             Expected volatility                                     64.17%
             Expected dividends                                        0%
             Expected term                                         6.25 Years
             Risk-free interest rate                                  3.95%

         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 and  forfeiture.  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.

         A summary of the  time-based  stock  option  awards as of February  29,
2008, and changes during the six months then ended, is as follows:




                                       11
<PAGE>
                                                   Weighted-
                                     Weighted-      Average
                                      Average      Remaining        Aggregate
                                     Exercise    Contract Term      Intrinsic
                          Shares      Price         (Years)           Value
                        ----------  ----------   -------------    --------------

Outstanding at
  August 31, 2007        1,795,853  $     2.31
Granted                    367,000        5.58
Exercised                  (32,508)       1.25
Forfeited or expired             -           -
                        ----------  ----------

Outstanding at
  February 29, 2008      2,130,345  $     2.89           6.84
                        ==========  ==========   =============

Exercisable at
  February 29, 2008      1,387,029  $     1.72           5.66      $   5,171,249
                        ==========  ==========   ============      =============

         The  weighted-average  grant-date  fair value of stock options  granted
during the six months ended February 29, 2008 was $3.51.

Note 8.  Supplemental Cash Flow Information

         The Company  paid no amounts for  interest  during the six months ended
February 29, 2008 and February 28, 2007.  The Company paid no amounts for income
taxes during the six months ended  February 29, 2008,  and paid  $1,799,000  for
income taxes during the six months ended February 28, 2007.

         During the six months  ended  February  29,  2008,  the Company had the
following non-cash financing and investing activities:

         o    Recorded an increase in additional paid-in capital of $115,027 and
              an increase in income tax  receivable  of $115,027  related to the
              tax benefit from the exercise of stock options.

         o    Increased  other  comprehensive  loss  by  $1,468,014,   decreased
              investments  by $1,256,014 and decreased  short-term  deferred tax
              asset by $212,000.

         o    Increased common stock and decreased additional paid-in capital by
              $17.

         During the six months  ended  February  28,  2007,  the Company had the
following non-cash financing and investing activities:

         o    Recorded an increase in additional  paid-in capital of $14,297 and
              a decrease to income taxes  payable of $14,297  related to the tax
              benefit from the exercise of stock options.

         o    Increased other comprehensive income and increased  investments by
              $150,899.

         o    Transferred  deferred   compensation  of  $247,700  to  additional
              paid-in capital.

         o    Decreased income taxes payable and decreased income tax receivable
              by $39,946.

         o    Increased common stock and decreased additional paid-in capital by
              $10.




                                       12
<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
subsection entitled "Forward-Looking Statements" below. The following discussion
should be read in  conjunction  with our 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  created a 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 funding that we
can utilize for  commercializing our systems used in the treatment of cancer and
in pursuing 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.  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 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.



                                       13
<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. We estimate our financial model in the higher  production  environment of
established  commercial sales could achieve a 60% gross margin on systems and an
80% gross margin on service agreements and disposable  applicators used with our
MicroThermX  100 system,  although there is no assurance that these results will
be obtained.

         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.  In August 2007, we  successfully  concluded a pre-approval  and quality
system  inspection  by the FDA. On December 31, 2007,  we received a letter from
the FDA  denying our  application  for  pre-market  approval of the BSD 2000 and
providing guidance regarding  amendments needed to make the BSD-2000  submission
approvable.  We are in the process of providing  additional  information for the
BSD-2000  pre-market approval  submission,  in response to the FDA's request. We
are currently  preparing our FDA submission for the MicroThermX  100 system.  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.


                                       14
<PAGE>

         Inventory  Reserves.  We periodically  review our inventory  levels and
usage,  paying particular  attention to slower-moving  items. If projected sales
for fiscal 2008 do not materialize or if our hyperthermia systems do not receive
increased  market  acceptance,  we may be required  to increase  the reserve for
inventory impairment 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 February  29, 2008 and August 31, 2007 we had a
$20,000 balance in this account. 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.  We account for stock-based  compensation in
accordance with 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. We recorded  compensation
expense for stock  options  issued to  directors  and  employees of $206,465 and
$365,095  during the three  months  and six  months  ended  February  29,  2008,
respectively,  and  $204,734  and  $408,943  for the three months and six months
ended  February  28,  2007,  respectively.  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.

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

         We maintain valuation  allowances where it is more likely than not that
all or a portion  of a  deferred  tax asset  will not be  realized.  Changes  in
valuation  allowances  are included in our income tax provision in the period of
change. In determining whether a valuation  allowance is warranted,  we evaluate
factors such as prior earnings history, expected future earnings and our ability
to carry-back reversing items within two years to offset income taxes previously
paid.

         To the extent that we have the  ability to  carry-back  current  period
taxable  losses  within two years to offset  income taxes  previously  paid,  we
record an income tax receivable and a current income tax benefit.



                                       15
<PAGE>

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

Three Months Ended February 29, 2008 Compared to the Three Months Ended February
28, 2007

         Revenues.  Total  revenues for the three months ended February 29, 2008
were  $1,475,652,  compared to $660,657 for the three months ended  February 28,
2007,  an increase of $814,995,  or  approximately  123%.  The increase in total
revenues  was due to an  increase  in the  volume  of sales to both  non-related
parties and related  parties,  as further  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 had  $835,113,  or  approximately  57%, of our
revenues  in the three  months  ended  February  29,  2008 from sales to related
parties as compared to $482,583 or approximately  73%, in the three months ended
February  28,  2007.  Related  party  sales for all  periods  presented  were to
Medizin-Technik  GmbH.  Dr.  Gerhard  Sennewald,  one  of our  stockholders  and
directors,   is  also  a   stockholder,   executive   officer  and  director  of
Medizin-Technik.  These  sales for the three  months  ended  February  29,  2008
consisted of product sales of $803,200,  probes of $10,725 and other revenues of
$21,188.  These sales for the three months ended  February 28, 2007 consisted of
product  sales of  $368,875,  probes of $17,100  and other  revenues of $96,608.
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 three months ended February 29, 2008,
we had $640,539 or  approximately  43% of our  revenues  from sales to unrelated
parties,  as compared to $178,074,  or  approximately  27%, for the three months
ended  February  28, 2007.  These sales for the three months ended  February 29,
2008 consisted of product sales of $620,700, service contracts of $9,495, probes
of $600 and other revenues of $9,744. By comparison, non-related party 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.

         Gross Profit. Gross profit for the three months ended February 29, 2008
was  $884,567 or 60% of total  product  sales as compared to $237,340 or 36%, of
total  product  sales for the three  months ended  February  28, 2007.  As sales
volumes  increase,  we will more fully  absorb our fixed  overhead  costs,  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.

         Research and Development  Expenses.  Research and development  expenses
were  $433,869  for the three months  ended  February  29, 2008,  as compared to
$508,778,  for the three months ended  February 28, 2007, a decrease of $74,909,
or approximately 15%.

         Selling  General  and  Administrative  Expenses.  Selling,  general and
administrative  expenses  increased  to  $1,434,118  in the three  months  ended
February 29, 2008, from $1,331,259 for the three months ended February 28, 2007,
an increase of $102,859 or approximately  8%. This increase was primarily due to
an  increase  in  professional   fees,   partially  offset  by  a  reduction  in
compensation  expense  related  to the  issuance  of stock  options  charged  to
selling, general and administrative expenses in the current year.


                                       16
<PAGE>

         Interest  and  Investment   Income.   Interest  and  investment  income
increased to $355,640  for the three months ended  February 29, 2008 as compared
to $342,457 for the three months ended February 28, 2007 due to a higher rate of
return  recognized on investments in the current  quarter,  partially  offset by
lower levels of cash and  investments  in the current  quarter.  At February 29,
2008,  however,  we had an unrealized loss on investments of $1,828,774 reported
as other comprehensive loss.

         Income Tax  Benefit.  We reported an income tax benefit of $268,000 for
the three months ended  February 29, 2008,  which  represents an increase to our
income tax receivable  resulting from our ability to carry-back our taxable loss
in the current  period to offset  income taxes  previously  paid.  For the three
months ended  February 28, 2007,  we reported an income tax benefit of $594,059,
which was  comprised of a current  income tax benefit of $504,059 and a deferred
income tax benefit of $90,000.

         Net Loss. During the three months ended February 29, 2008, we had a net
loss of  $406,837,  as compared  to a net loss of  $712,785 in the three  months
ended  February  28,  2007.  Our net loss in the second  quarter of the  current
fiscal year decreased $305,948 compared to the net loss in the second quarter of
the prior  year,  primarily  due to the  increase in total  revenues,  partially
offset by an increase in our total  operating  costs and expenses in the current
year.

Six Months Ended February 29, 2008 Compared to the Six Months Ended February 28,
2007

         Revenues.  Total  revenues for the six months  ended  February 29, 2008
were $2,863,380,  compared to $1,325,312,  for the six months ended February 28,
2007, an increase of $1,538,068,  or  approximately  116%. The increase in total
revenues  was due to an  increase  in the  volume  of sales to both  non-related
parties and related parties, as further discussed below.

         Related Party Sales. We had $1,743,138,  or  approximately  61%, of our
revenues in the six months ended February 29, 2008 from sales to related parties
as compared to $498,627,  or approximately 38%, in the six months ended February
28, 2007. Related party sales for all periods presented were to Medizin-Technik.
These sales for the six months  ended  February  29, 2008  consisted  of product
sales of  $1,682,712,  probes of $19,425 and other  revenues  of $41,001.  These
sales for the six months ended  February 28, 2007  consisted of product sales of
$368,875, probes of $25,380 and other revenues of $104,372.

         Non-Related  Party Sales. In the six months ended February 29, 2008, we
had  $1,120,242  or  approximately  39% of our revenues  from sales to unrelated
parties, as compared to $826,685, or approximately 62%, for the six months ended
February  28,  2007.  These  sales for the six months  ended  February  29, 2008
consisted of product sales of $1,055,700,  service contracts of $24,866,  probes
of $14,447 and other revenues of $25,229. By comparison, non-related party 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.

         Gross Profit.  Gross profit for the six months ended  February 29, 2008
was  $1,831,440 or 64% of total product sales as compared to $452,740 or 34%, of
total product sales for the six months ended February 28, 2007. As sales volumes
increase,  we will more fully absorb our fixed overhead  costs,  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.

         Research and Development  Expenses.  Research and development  expenses
were  $771,222  for the six months  ended  February  29,  2008,  as  compared to
$840,857,  for the six months ended February 28, 2007, a decrease of $69,635, or
approximately 8%.

         Selling  General  and  Administrative  Expenses.  Selling,  general and
administrative expenses decreased to $2,828,065 in the six months ended February
29, 2008, from $2,887,700 for the six months ended February 28, 2007, a decrease


                                       17
<PAGE>

of $59,635,  or approximately 2%. This decrease was primarily due to a reduction
in  compensation  expense  related to the issuance of stock  options  charged to
selling,  general and  administrative  expenses in the current  year,  partially
offset by an increase in professional fees.

         Interest  and  Investment   Income.   Interest  and  investment  income
decreased to $544,988 for the six months ended  February 29, 2008 as compared to
$712,670  for the six months  ended  February  28, 2007 due  primarily  to lower
levels of cash and  investments  in the  current  year.  At February  29,  2008,
however,  we had an unrealized  loss on  investments  of $1,828,774  reported as
other comprehensive loss.

         Income Tax  Benefit.  For the six months ended  February  29, 2008,  we
reported an income tax benefit of  $311,000,  which was  comprised  of a current
income  tax  benefit of  $479,000,  partially  offset by a  deferred  income tax
provision of $168,000.  The current income tax benefit of $479,000 represents an
increase to our income tax  receivable  resulting from our ability to carry-back
our taxable loss in the current period to offset income taxes  previously  paid.
The  deferred  income tax  provision  of $168,000  resulted  primarily  from our
recording  a 100%  valuation  allowance  against our  deferred  tax assets as of
February  29, 2008.  In recording  the  valuation  allowance,  we were unable to
conclude  that it is more likely than not that our  deferred  tax assets will be
realized.  In reaching this  determination,  we evaluated  factors such as prior
earnings  history,  expected  future  earnings  and our  ability  to  carry-back
reversing items within two years to offset income taxes paid. For the six months
ended February 28, 2007, we reported an income tax benefit of $1,063,027,  which
was comprised of a current income tax benefit of $872,027 and a deferred  income
tax benefit of $191,000.

         Net Loss.  During the six months ended  February 29, 2008, we had a net
loss of  $1,022,772,  as compared to a net loss of  $1,574,456 in the six months
ended  February  28,  2007.  Our net loss in the first six months of the current
fiscal year decreased  $551,684 compared to the net loss in the first six months
of the prior year,  primarily due to the increase in total  revenues,  partially
offset by an increase in our total  operating  costs and expenses in the current
year.

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

         Since  inception  through  February  29,  2008,  we have  generated  an
accumulated deficit of $3,872,925.  We have historically financed our operations
through research grants,  licensing of technological assets,  issuance of common
stock and the sale of  investments  in spin-off  operations.  As of February 29,
2008, we had cash,  cash  equivalents and  investments  totaling  $15,545,915 as
compared to cash, cash  equivalents and investments  totaling  $19,506,658 as of
August 31, 2007. The recorded value of our  investments at February 29, 2008 has
been reduced by an unrealized loss of $1,828,774.

         During the six months ended  February 29, 2008,  we used  $1,469,060 of
cash  in  operating  activities,  primarily  as a  result  of our  net  loss  of
$1,022,772,  increase  in  receivables  of  $447,878,  increase  in  income  tax
receivable of $555,000,  increase in  inventories  of $105,652,  and decrease in
customer  deposits of $129,888,  partially  offset by a decrease in deferred tax
assets  of  $244,000  and an  increase  in  accounts  payable  of  $110,610.  By
comparison,  net cash used in operating activities was $3,672,650 during the six
months ended February 28, 2007.

         Net cash  provided by  investing  activities  for the six months  ended
February 29, 2008 was  $1,494,838,  resulting  from the sale of  investments  of
$2,742,507,  partially  offset by the  purchase of  property  and  equipment  of
$1,226,703  and an  increase  in patents of  $20,966.  For the six months  ended
February 28, 2007,  net cash provided by investing  activities  was  $2,292,796,
resulting from the sale of investments  of $2,340,840,  partially  offset by the
purchase of property and equipment of $48,044.

         Net cash  provided by financing  activities  consisted of proceeds from
the sale of common stock through the exercise of stock options of $12,000 in the
six months ended  February 29, 2008 and $5,250 for the six months ended February
28, 2007.


                                       18
<PAGE>

         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  continued   expenses  related  to  corporate
governance and compliance  with the  Sarbanes-Oxley  Act of 2002,  during fiscal
2008.

         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 29, 2008,  we have no  significant  commitments  for the
purchase of property and equipment.

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


                           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;



                                       19
<PAGE>
         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 our systems;

         o    our expectation  that we will incur continued  expenses related to
              our corporate  governance and compliance  with the  Sarbanes-Oxley
              Act of 2002;

         o    our  expectation  that our  selling,  general  and  administrative
              expenses will continue at the same or increased levels at least in
              the short term;

         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 the next
              twelve months.

        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 Items  entitled  "Risk
Factors"  included in our Annual  Report on Form 10-K for the year ended  August
31, 2007 and in this Form 10-Q,  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.

         A significant  portion of the Company's cash equivalents and short-term
investments bear variable interest rates that are adjusted to market conditions.
Changes in market rates will affect  interest  earned and potentially the market
value of the  principal  of these  instruments.  The  Company  does not  utilize
derivative  instruments  to  offset  the  exposure  to  interest  rate  changes.
Significant  changes  in  interest  rates  may  have a  material  impact  on the
Company's  investment income, but not on the Company's  consolidated  results of
operations.

         The Company does have  significant  sales to foreign  customers  and is
therefore subject to the effects that changes in foreign currency exchange rates
may have on demand for its products and  services.  The Company does not utilize
derivative  instruments  to offset the  exposure to changes in foreign  currency
exchange rates. To minimize  foreign  exchange risk, the Company's  export sales
are transacted in United States dollars.



                                       20
<PAGE>

Item 4.  Controls and Procedures.

         Evaluation of disclosure controls and procedures.

         As of the end of the period  covered by this  report,  we  conducted an
evaluation,  under the supervision and with the  participation of our management
including our principal  executive officer and principal  financial officer,  of
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 on this  evaluation,  the
principal  executive officer and principal  financial officer concluded that our
disclosure  controls and procedures were effective in ensuring that  information
required to be  disclosed  by us in the reports that we file or submit under the
Exchange Act is recorded,  processed,  summarized  and reported  within the time
periods  specified in applicable  rules and forms and that such  information  is
accumulated  and  communicated  to  our  management,   including  our  principal
executive  officer  and  principal  financial  officer,  in a manner that allows
timely decisions regarding required disclosure.

         Changes in internal controls over financial reporting.

         There was no change in our internal  control over  financial  reporting
during our most recently completed fiscal quarter that has materially  affected,
or is  reasonably  likely  to  materially  affect,  our  internal  control  over
financial reporting.


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 1A - "Risk Factors" in
our annual  report on Form 10-K for the year ended August 31, 2007,  which could
materially  affect  our  business,  financial  condition  or future  results  of
operations.  The  information  presented  below  updates  those risk factors and
should be read in conjunction with the risk factors and information disclosed in
that Form  10-K.  The risks  discussed  in our annual  report on Form  10-K,  as
updated in this report,  are not the only risks facing us.  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.

We have not yet received  pre-market  approval for our BSD-2000 and  MicroThermx
100 systems,  which is necessary for us to commercially  market these systems in
the U.S.

         We have not yet  received  pre-market  approval  for our  BSD-2000  and
MicroThermx 100 systems.  Obtaining these  pre-market  approvals from the FDA is
necessary  for us to  commercially  market these  systems in the United  States.
Obtaining approvals is a lengthy and expensive process. On December 31, 2007, we
received a letter from the FDA denying our application  for pre-market  approval
of the BSD 2000 and providing guidance  regarding  amendments needed to make the
BSD-2000 submission approvable.  We may not be able to obtain these approvals on
a timely basis,  if at all, and such failure  could harm our business  prospects
substantially. Further, even if we are able to obtain the approvals we seek from
the FDA, the  approvals  granted might include  significant  limitations  on the
indicated uses for which the products may be marketed,  which restrictions could
negatively impact our business.



                                       21
<PAGE>

Item 4.  Results of Votes of Security Holders.

         The annual meeting of  shareholders of the Company was held on February
1, 2008. The shareholders  voted, either in person or by proxy, on the following
proposals.  The  directors  listed below were elected,  and all other  proposals
submitted to a vote of the shareholders  were approved,  with the results of the
shareholder vote as follows:

         1    The following six directors  were elected to hold office until the
              next annual meeting or until their successors are duly elected and
              qualified:
                                                      Votes
                                      Votes For      Withheld        Total Voted
                                     -----------     ----------     ------------

              Paul F. Turner         17,107,993      1,446,815       18,554,808
              Hyrum A. Mead          17,117,993      1,436,815       18,554,808
              Gerhard W. Sennewald   17,107,943      1,446,865       18,554,808
              Steven G. Stewart      17,184,635      1,370,173       18,554,808
              Michael Nobel          17,184,735      1,370,073       18,554,808
              Douglas P. Boyd        17,184,735      1,370,073       18,554,808

         2.   To approve an amendment and  restatement of the Company's  Amended
              and Restated 1998  Directors  Stock Plan to increase the number of
              shares of common stock  reserved for issuance  under the plan from
              1,000,000 to 1,500,000:

                  For                                         11,402,489
                  Against                                      1,740,119
                  Abstain or broker non-vote                   5,412,200

         3.   To approve an amendment and  restatement of the Company's  Amended
              and Restated 1998 Stock  Incentive  Plan to increase the number of
              shares of common stock  reserved for issuance  under the plan from
              2,677,300 to 3,427,300:

                  For                                         11,437,845
                  Against                                      1,699,413
                  Abstain or broker non-vote                   5,417,550

         4.   To approve an amendment and  restatement of the Company's  Amended
              and Restated 1998 Stock  Incentive  Plan to increase the number of
              shares that may be awarded to each participant:

                  For                                         11,491,345
                  Against                                      1,648,763
                  Abstain or broker non-vote                   5,414,700

         5.   To approve an amendment and  restatement of the Company's  Amended
              and Restated 1998 Stock  Incentive Plan to extend the  termination
              date of the plan from  February 9, 2008 to ten years from the date
              the plan is  adopted  by the Board of  Directors,  or the date the
              plan  is  approved  by the  shareholders,  whichever  is  earlier,
              subject to earlier termination by the Board of Directors:

                  For                                         11,603,042
                  Against                                      1,520,066
                  Abstain or broker non-vote                   5,431,700



                                       22
<PAGE>

         6.   To ratify the selection of Tanner LC as the Company's  independent
              registered  public  accountants  for the fiscal year ending August
              31, 2008:

                  For                                         17,163,021
                  Against                                      1,356,441
                  Abstain                                         35,346

         7.   To transact  such other  business as may properly  come before the
              Annual Meeting or any adjournment or postponement thereof:

                  For                                         16,920,614
                  Against                                      1,558,687
                  Abstain                                         75,507

Item 5.  Other Information,

         On  February  1,  2008,  the   stockholders  of  the  Company  approved
amendments to the Company's  Amended and Restated 1998 Directors  Stock Plan and
Amended and Restated 1998 Stock  Incentive Plan. A copy of each plan is filed as
Exhibits 10.1 and 10.2 to this Form 10-Q, and incorporated by reference  herein.
Please also see Item 4 above and the Company's  definitive proxy statement filed
on January 3, 2008 for a description of these amendments.

Item 6.  Exhibits.

         The following exhibits are filed as part of this report:

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

         10.1       Second  Amended  and  Restated  1998  Directors  Stock  Plan
                    incorporated  by  reference  to Appendix A of the  Company's
                    definitive  proxy  statement  filed on January 3, 2008 (File
                    No. 001-32526)

         10.2       Second  Amended  and  Restated  1998  Stock  Incentive  Plan
                    incorporated    by   reference   to  Appendix  B  (File  No.
                    001-32526)

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

         31.2       Certification  of  Principal   Accounting  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   Accounting  Officer  Required
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


                                       23
<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 9, 2008              /s/ Hyrum A. Mead
                                    --------------------------------------------
                                    Hyrum A. Mead
                                    President (Principal Executive Officer)

Date:    April 9, 2008              /s/ Dennis P. Gauger
                                    --------------------------------------------
                                    Dennis P. Gauger
                                    Chief Financial Officer (Principal
                                    Accounting Officer)





                                       24



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