U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                  FORM 10 - QSB


               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly Period Ended November 30, 2005

                         Commission file number 0-10783


                             BSD MEDICAL CORPORATION


               DELAWARE                                75-1590407
               --------                                ----------
        (State of Incorporation)           (IRS Employer Identification Number)


            2188 West 2200 South
            Salt Lake City, Utah                               84119
            --------------------                               -----
    (Address of principal executive offices)                 (Zip Code)

Issuer's telephone number:  (801) 972-5555

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Exchange Act during the past 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 shell company (as defined in
Rule 12b-2 of the Exchange Act.) Yes [X] No [ ]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

As of November 30, 2005, there were 20,543,963 shares of the Registrant's common
stock, $0.001 par value per share, outstanding.


Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]



<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements-
<TABLE>
<CAPTION>

                             BSD MEDICAL CORPORATION
                             Condensed Balance Sheet
                                   (Unaudited)

                                 Assets                                            November 30,
                                 ------                                               2005
                                                                                -----------------
<S>                                                                             <C>
Current assets:
    Cash and cash equivalents                                                   $         158,235
    Available-for-sale securities                                                      18,255,878
    Receivables, net of allowance for doubtful accounts of $42,500                        599,747
    Related party receivables                                                              25,374
    Inventories, net                                                                    1,291,219
    Deferred tax asset                                                                    107,000
    Other current assets                                                                  155,492
                                                                                -----------------
           Total current assets                                                        20,592,945

Property and equipment, net                                                               274,440
Patents, net                                                                               22,659
                                                                                -----------------
                                                                                $      20,890,044
                                                                                =================

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

Current liabilities:
    Accounts payable                                                            $         347,245
    Accrued expenses                                                                      353,672
    Income taxes payable                                                                1,752,469
    Deferred revenue                                                                        4,434
                                                                                -----------------

           Total current liabilities                                                    2,457,820

Deferred tax liability                                                                      8,000
                                                                                -----------------

           Total liabilities                                                            2,465,820
                                                                                -----------------

Stockholders' equity:
    Preferred stock, $.001 par value; 10,000,000 authorized,
        no shares  issued and outstanding                                                       -
    Common stock, $.001 par value; authorized 40,000,000 shares; issued
      20,543,963 shares and outstanding 20,519,632 shares                                  20,545
    Additional paid-in capital                                                         24,404,264
    Deferred compensation                                                                (360,600)
    Common stock in treasury 24,331 shares, at cost                                          (234)
    Other comprehensive loss                                                              (24,539)
    Accumulated deficit                                                                (5,615,212)
                                                                                -----------------

           Net stockholders' equity                                                    18,424,224
                                                                                -----------------

                                                                                $      20,890,044
                                                                                =================
</TABLE>

See accompanying notes to financial statements.

                                       1
<PAGE>


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

                                                                Three Months
                                                                    Ended:
                                                      ---------------------------------
                                                         November          November
                                                         30, 2005         30, 2004
                                                      --------------    ---------------
<S>                                                   <C>               <C>
Sales and service                                     $      509,881    $       250,779
Related party sales and service                               11,286              7,154
                                                      --------------    ---------------

           Total revenues                                    521,167            257,933
                                                      --------------    ---------------
Costs and expenses:
    Cost of sales                                            352,244            266,063
    Cost of sales to related parties                           5,256              4,308
    Research and development                                 230,165            182,513
    Selling, general and administrative                    1,054,114            380,500
                                                      --------------    ---------------

           Total costs and expenses                        1,641,779            833,384
                                                      --------------    ---------------

           Operating loss                                 (1,120,612)          (575,451)

Other income:
    Interest income                                          244,623             70,592
    Other income                                           5,882,925                523
                                                      --------------    ---------------

           Total other income                              6,127,548             71,115
                                                      --------------    ---------------

Net income (loss) before income taxes                      5,006,936           (504,336)
     Income tax expense                                    1,870,693                  -
                                                      --------------    ---------------
           Net income (loss)                          $    3,136,242    $      (504,336)
                                                      ==============    ===============


Net income (loss) per common share - basic            $          .15    $          (.03)
                                                      ==============    ===============

Net income (loss) per common share - diluted          $          .13    $          (.03)
                                                      ==============    ===============

Weighted average number of shares outstanding

       Basic                                              20,513,000         20,041,000
                                                      --------------    ---------------
       Diluted                                            22,145,000         20,041,000
                                                      --------------    ---------------

</TABLE>

See accompanying notes to financial statements.

                                       2
<PAGE>

                            BSD MEDICAL CORPORATION
                       Condensed Statements of Cash Flows
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                          Three Months
                                                                                            Ended:
                                                                              -----------------------------------
                                                                                  November            November
                                                                                  30, 2005            30, 2004
                                                                              ---------------     ---------------
<S>                                                                           <C>                 <C>
Cash flows from operating activities:
    Net income (loss)                                                         $     3,136,242     $      (504,336)
    Adjustments to reconcile net income (loss) to net cash used in
      operating activities:
       Depreciation and amortization                                                   34,309               9,043
       Stock compensation expense                                                         945              30,000
       Gain on sale of investment in TherMatrx                                     (5,882,925)                  -
       Amortization of deferred compensation                                           36,650               9,508
       (Increase) decrease in:
           Receivables                                                               (121,441)            (51,902)
           Inventories                                                               (156,866)            (53,672)
           Deferred tax asset                                                          (8,000)                  -
           Other current assets                                                       (22,751)             (3,350)
       Increase (decrease) in:
           Accounts payable                                                           234,432              34,752
           Accrued expenses                                                           105,296                   -
           Income taxes payable                                                     1,770,602            (151,907)
           Deferred revenue                                                            (2,894)            (10,114)
                                                                              ---------------     ---------------
              Net cash used in operating activities                           $      (876,401)          (691,978)
                                                                              ---------------     ---------------
Cash flows from investing activities:
    Proceeds from sale of investment in TherMatrx                                   5,882,925                   -
    Purchase of available-for-sale securities                                      (5,698,833)                  -
    Purchase of property and equipment                                               (133,435)            (21,040)
                                                                              ---------------     ---------------
              Net cash provided by (used in) investing activities                      50,657            (21,040)

Cash flows from by financing activities-
     Proceeds from sale of common stock                                                75,305             41,250
                                                                              ---------------     ---------------

Decrease in cash and cash equivalents                                                (750,440)           (671,768)
Cash and cash equivalents, beginning of period                                        908,674           9,697,154
                                                                              ---------------     ---------------
Cash and cash equivalents, end of period                                      $       158,235     $     9,025,386
                                                                              ===============     ===============
</TABLE>

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

o        The Company  paid no cash for  interest  during the three  months ended
         November  30, 2005 and 2004 and $108,091 and $0 for income taxes during
         the three months ended November 30, 2005 and 2004.

o        The Company  issued  170,000 and 100,000 stock options during the three
         month periods  ended  November 30, 2005 and 2004,  respectively,  which
         resulted  in an  increase  to  Deferred  Compensation  of $ 326,550 and
         $15,750, respectively.

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


                                       3
<PAGE>


                             BSD MEDICAL CORPORATION
                     Notes to Condensed Financial Statements


Note 1.    Basis of Presentation

         The  Condensed  Balance  Sheet as of November 30, 2005,  the  Condensed
Statements  of  Operations  and the  Condensed  Statements of Cash Flows for the
three months ended  November 30, 2005 and 2004 have been prepared by the Company
without audit.  In the opinion of management,  all  adjustments to the books and
accounts (which include only normal recurring  adjustments) necessary to present
fairly the  financial  position,  results of  operations,  and cash flows of the
Company have been made.

         Certain  information  and  footnote  disclosures  normally  included in
condensed  financial  statements  prepared  in  accordance  with U.S.  generally
accepted  accounting  principles have been condensed or omitted.  The results of
operations for the three month period ended November 30, 2005 is not necessarily
indicative of the results to be expected for the full year.

Note 2.  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.

         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,
                                       ----------------------------------
                                              2005              2004
                                              ----              ----
Weighted average number of
   shares outstanding - basic               20,513,000        20,041,000
Dilutive effect of stock options             1,632,000                 -
                                       ---------------- -----------------
Weighted average number of
   shares outstanding - diluted             22,145,000        20,041,000*
                                       ================ =================

* Stock  options were not included in the 2004  calculation  since they would be
anti-dilutive in that year.


                                       4
<PAGE>

Note 3.    Related Party Transactions

         During the three months ended  November 30, 2005 and November 30, 2004,
the  Company  had  sales of  $11,286  and  $7,154,  respectively,  to an  entity
controlled  by a significant  stockholder  and member of the Board of Directors.
These related party transactions represent 2% and 3% of total sales.

         At November 30, 2005, receivables include $25,374 due from this entity.

Note 4.  Stock-Based Compensation

         The Company  accounts for stock options  granted to employees under the
recognition and measurement  principles of Accounting  Principles  Board Opinion
No.  (APB  25),   Accounting   for  Stock  Issued  to  Employees,   and  related
Interpretations,  and has adopted the disclosure-only provisions of Statement of
Financial  Accounting  Standards  (SFAS) No.  123,  Accounting  for  Stock-Based
Compensation.  Accordingly,  the  difference  between the exercise price and the
fair  market  value of the stock on the grant  date has been  recognized  in the
financial  statements as expense. Had the Company's stock options been accounted
for based on the fair value  method of SFAS No. 123,  the results of  operations
would have been reduced to the pro forma amounts  indicated  below for the three
months ended November 30:

                                                      2005           2004
                                                   -----------------------------

Net income (loss) - as reported                    $    3,136,242  $   (504,336)

Add: Stock-based employee compensation
expense included in reported
net income, net of related tax effects                     36,650        15,750

Deduct: Stock-based employee compensation
expense determined under fair value based
method for all awards, net of related taxes              (158,738)     (103,089)
                                                   -----------------------------

Net income (loss) - pro forma                      $    3,014,154  $   (591,675)
                                                   -----------------------------

Basic net income (loss) per share - as reported    $          .15          (.03)
                                                   -----------------------------
Diluted net income (loss) per share - as reported  $          .13  $       (.03)
                                                   -----------------------------
Basic net income (loss) per share - pro forma                 .14          (.03)
                                                   -----------------------------
Diluted net income per share - pro forma           $          .13              -
                                                   -----------------------------

         The fair value of each stock option  granted for the three months ended
November  30,  2005  and  2004 is  estimated  on the  date of  grant  using  the
Black-Scholes option pricing model using the following assumptions:


                                                   -----------------------------
                                                        2005            2004
                                                   -----------------------------

Expected dividend yield                            $             - $           -
Expected stock price volatility                             75.5%            83%
Risk-free interest rate                                     4.02%          3.32%
Expected life of options                                4.8 years       10 years

         The  weighted  average fair value of options  granted  during the three
months ended November 30, 2005 and 2004 was $3.75 and $1.20, respectively.

                                       5
<PAGE>

Note 5.  Gain on Sale of Investment in TherMatrx

         On  July  15,  2004,  the  Company's  investment  in an  unconsolidated
subsidiary  (TherMatrx) was sold to American  Medical  Systems,  Inc. (AMS). The
Company's  portion of the  initial  payment  from this sale,  received in fiscal
2004, was approximately $9 million,  with additional  payments contingent on the
quarterly sales of TherMatrx through the fourth calendar quarter of 2005. During
the quarter ended November 30, 2005, the Company received an additional  payment
from the sale of TherMatrx of $5,882,925, to bring the total received to date as
November 30, 2005 to $21,409,756. This amount is recorded as a gain and has been
reflected in "Other income" in the Statement of Operations.

Note 6.   Subsequent Event

         On  December  2, 2005 the Company  received  an  additional  payment of
approximately $5.7 million from the earnout of TherMatrx, Inc. The amount of the
payment was based on the level of sales of TherMatrx  products  during the third
calendar  quarter of 2005. This brings the total payments  collected by BSD from
the sale of  TherMatrx  to over $27  million.  This payment will be reflected in
"other  income" in the Company's  Statement of Operations for the quarter ending
February 28, 2006.



                                       6
<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

         We  develop,  manufacture,  market and  service  systems  that  deliver
precision-focused  radio frequency (RF) and microwave energy into diseased sites
of the body, heating them to specified  temperatures as required by a variety of
medical therapies.  Our business  objectives  currently are to commercialize our
products  developed  for the  treatment  of cancer  and to  further  expand  our
developments to treat other diseases and medical conditions.

         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
sold our interest in TherMatrx,  Inc., the company  established to commercialize
our technology to treat enlarged prostate  symptoms,  to provide what we project
to  be  over  a  $30  million   payout  in  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 (the  BSD-2000 and BSD-500  families of  products) is our most  immediate
business  objective.  Our cancer therapy  systems are used in  combination  with
existing  cancer  treatments  to  kill  cancer  with  heat  while  boosting  the
effectiveness  of  radiation  and  chemotherapy  through a number of  biological
mechanisms.  Current and targeted cancer treatment sites for our systems include
cancers  of the  prostate,  breast,  chestwall,  head,  neck,  bladder,  cervix,
colon/rectum,  esophagus,  liver,  pancreas,  brain,  bone,  stomach  and  lung,
including soft tissue sarcoma, melanoma, carcinoma, and basal cell carcinoma.

         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  globally 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, to the estimated 2,500 brachytherapy
systems installed and with chemotherapy treatments.

         We have received FDA approval to market our  commercial  version of the
BSD-500 and are in the late stages of preparing our  submission for FDA approval
to sell the BSD-2000 in the United States. We have designed our cancer treatment
systems such that together they are capable of providing  complementary  therapy
for treatment of most solid tumors located in the body.

                                       7
<PAGE>

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

         Our accumulated deficit since inception decreased from $8,751,454 as of
August 31, 2005 to $5,615,212 as of November 30, 2005 due to net income recorded
during the three months  ended  November  30,  2005.  We recorded  after tax net
income for the first three months of fiscal 2006 of $3,136,242.

         We recognize  revenue from the sale of cancer  treatment  systems,  the
sale of parts and accessories related to the cancer treatment systems,  the sale
of software license rights,  the providing of manufacturing  services,  training
and support  services.  Product  sales were  $445,825 and $215,458 for the three
months  ended  November  30, 2005 and 2004,  respectively.  Service  revenue was
$75,341 and  $42,475  for the three  months  ended  November  30, 2005 and 2004,
respectively.

         In the first quarter of fiscal 2006, we earned  $509,881 or 98%, of our
revenue from sales to unrelated  parties.  These  revenues  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.

         Cost of sales  for the  first  quarter  of  fiscal  2006,  include  raw
materials  and labor costs of $222,728 and  overhead of  $134,772.  Research and
development  expenses  include  expenditures  for new  product  development  and
development of enhancements to existing products.

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  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, 2005, we recorded a reserve for
potential inventory  impairment of $80,000. We periodically review our inventory
levels and usage,  paying particular  attention to slower-moving  items. We have

                                       8
<PAGE>

projected  no orders  to be placed  with us for  TherMatrx  systems,  and do not
project a requirement for any inventory impairment based on this decline.

         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 sale.  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 provide our customers with payment
terms that vary from contract to contract.  Our allowance for doubtful  accounts
at November 30, 2005 was $42,500. Bad debt expense for the period ended November
30, 2005 was $0. We perform  ongoing  credit  evaluations  of our  customers and
maintain  allowances for possible losses.  Allowance estimates are recorded on a
customer-by-customer   basis  and  are  determined  based  on  the  age  of  the
receivable,  compliance  with payment  terms,  and prior  history with  existing
clients.

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

Three Months Ended November 30, 2005 Compared to the Three Months Ended November
30, 2004

         Revenue.  Revenue  for the three  months  ended  November  30, 2005 was
$521,167  compared to $257,933 for the three months ended  November 30, 2004, an
increase of $263,234,  or approximately  102%. The increase in total revenue was
primarily  due to an increase  in sales to  unrelated  parties.  Our revenue 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 Revenue.  We earned $11,286,  or approximately 2%, of our
revenue  in the three  months  ended  November  30,  2005 from  sales to related
parties as  compared to $7,154 or 3%, in the three  months  ended  November  30,
2004.  All of the  related  party  revenue in the 2005  period was from sales of
component  parts to  Medizin-Technik.  Sales to  Medizin-Technik  may  fluctuate
significantly  from period to period because our sales, to date, have been based
upon a  relatively  small  number  of  systems,  the sales  price of each  being
substantial enough to greatly impact revenue levels in the periods in which they
occur.  Sales of a few  systems  can cause a large  change in the  revenue  from
period to period.

         Non-related Party Revenue. In the three months ended November 30, 2005,
we earned  $509,881or  98%, of our revenue from sales to unrelated  parties,  as
compared to approximately  $250,779, or 97%, for the three months ended November
30, 2004.  These  revenues  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, 2005
was $163,667 or 31.4% as compared to $(12,438),  or (5)%, of total product sales
for the three months ended  November 30, 2004.  Because we have not had employee
layoffs due to the specialized  nature of our employees and because of the fixed
costs  associated  with  production,  as our sales  declined  in the fiscal 2005
period,  it resulted in an increase in our costs for  inventory and a decline in
gross profit  percentage.  As sales volumes  increased,  our employees were more
utilized, thus increasing our gross profit percentage for the three months ended
November 30, 2005.

         Selling  General  and  Administrative  Expenses.  Selling,  general and
administrative  expenses  increased  to  $1,054,114  in the three  months  ended
November 30, 2005,  from $380,500 for the three months ended  November 30, 2004,
an increase of $673,614 or 177%.  This increase was primarily due to an increase
in sales and marketing  costs of $413,853  supporting new product sales. We also
incurred  higher  consulting  costs related to preparation  of FDA  submissions,
higher  legal and  accounting  costs and an  increase  in  compensation  expense
related the issuance of stock options.  Payroll costs also increased as a result
of wage and salary raises, the addition of new employees and fewer BSD employees
working as consultants for TherMatrx.

                                       9
<PAGE>

         Research and Development  Expenses.  Research and development  expenses
were  $230,165  for the three months  ended  November  30, 2005,  as compared to
$182,513 for the three months ended  November 30, 2004,  an increase of $47,652,
or 26%,  primarily due to an increase in payroll and consulting costs.  Research
and  development  expenses  for the  period  ended  November  30,  2005  related
primarily to new product  developments and the conversion of systems software to
foreign languages for international use.

         Interest  income.  Interest income  increased to $244,623 for the three
months ended November 30, 2005 as compared to $70,592 for the three months ended
November  30,  2004  due  to  the  significantly   higher  levels  of  cash  and
available-for-sale  securities  resulting  from  the sale of our  investment  in
TherMatrx.

         Net income  (loss).  The  increase  in net income for the three  months
ended  November  30,  2005  was  $3,136,242  after  an  income  tax  expense  of
$1,870,693,  as compared  with a net loss of $504,336 for the three months ended
November 30, 2004. The increase in the net income was primarily due to a payment
of $5,882,925  received  during the period ended November 30, 2005 from the sale
of our investment in TherMatrx and the increase in interest income.

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

         Our accumulated deficit since inception decreased from $8,751,454 as of
August  31,  2005 to  $5,615,212  as of  November  30,  2005,  due to net income
recorded  during the first three  months of fiscal  2006.  We have  historically
financed our operations through cash from operations, licensing of technological
assets,  issuance  of common  stock and through  the sale of our  investment  in
TherMatrx. We have received additional payments and expect to receive additional
payments-- as a result of the sale of our TherMatrx shares.  These payments were
contingent on the product sales that  TherMatrx  achieved  through  December 31,
2005.  We believe  these  payments  and the  payments  yet to be  received  will
contribute significantly to our future capital resources.

         During the three months ended  November 30, 2005,  we used  $876,401 in
operating  activities.  The cash used in  operating  activities  was  mainly the
result of net income of  $3,136,242,  adjusted by an  increase  in income  taxes
payable of $1,770,602,  an increase in accrued expenses of $105,296, an increase
in accounts  receivable  of $121,441,  and an increase in inventory of $156,866.
Our investing  activities for the three months ended November 30, 2005 generated
net cash of $50,656,  relating mainly to the proceeds  received from the sale of
our  investment  in  TherMatrx,  offset by the purchase of certain  property and
equipment of $133,435.  Total cash decreased from $908,674 at August 31, 2005 to
$158,235 at November 30, 2005,  primarily as a result of cash used in operations
and an increase in investments.

         We expect to use the payments  from the sale of our  TherMatrx  shares,
including any contingent payments, for general corporate purposes, including the
sales  and  marketing  effort  for our FDA  approved  cancer  therapy  products,
supporting  the  FDA   application   for  our  cancer  therapy   products  under
investigational  status, the development of new products used in medical therapy
and the possibility of acquiring new companies or technology.

         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, during fiscal 2006 in excess of fiscal 2005.

         We believe our current  cash,  investments  and cash  received from the
sale of our  TherMatrx  shares  will be  sufficient  to finance  our  operations
through fiscal 2006.

                                       10
<PAGE>

                           FORWARD-LOOKING STATEMENTS

         With the exception of historical  facts,  the  statements  contained in
sections entitled  "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 anticipated financial performance and business plan;
         o    our  expectations  regarding the  commercial  introduction  of our
              systems;
         o    our  expectations and efforts  regarding  receipt of FDA approvals
              relating to the BSD-2000 system;
         o    our  technological  developments  for  the  BSD-500  and  BSD-2000
              systems;
         o    our  ability  to  successfully  develop  our  technology  for  new
              applications and the expense of such developments;
         o    our development or acquisition of new technologies;
         o    our  estimation  of our portion of the total payout from this sale
              of TherMatrx;
         o    the  amount  of  expenses   we  will  incur  for  the   commercial
              introduction of our systems;
         o    the  amount  of  expenses  we  will  incur  for  governmental  and
              regulatory, including FDA, approvals;
         o    our  expectation  that related party revenue will continue to be a
              significant portion of our total revenue;
         o    our  belief  that  sales of  BSD-500  and  BSD-2000  systems  will
              increase through our future sales and marketing efforts;
         o    our assumption that we will receive contingent  payments,  and the
              amount  of such  payments,  in  connection  with  the  sale of our
              ownership in TherMatrx to AMS; and
         o    our anticipated use of proceeds from the sale of our investment in
              TherMatrx to AMS.

         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, 2005 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.   Controls and Procedures

         a. Evaluation of disclosure controls and procedures.

         Under the  supervision  and with the  participation  of our management,
         including  our  principal  executive  officer and  principal  financial
         officer,  we evaluated the effectiveness of the design and operation of
         our disclosure controls and procedures (as defined in Rule 13a-15(e) or
         15d-15(e)  under the  Securities  Exchange  Act of 1934 (the  "Exchange
         Act")). Based upon that evaluation, the principal executive officer and
         principal financial officer concluded that, 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,  2005,   Tanner  LC  identified
         deficiencies  that  existed in the design or  operation of our internal
         control  over  financial  reporting.  The  deficiencies  related to the
         preparation  and  appropriate  presentation  of the  statement  of cash
         flows,  the provision for income taxes and related  income tax footnote
         disclosures,  and the  appropriate  accounting for stock options issued
         for services.  These  deficiencies  were detected in the review process
         and have been appropriately recorded and disclosed in this Form 10-QSB.
         We are in the process of improving our internal  control over financial
         reporting and accounting for stock-based  compensation and income taxes
         and related  disclosures in an effort to remediate  these  deficiencies
         through  improved  supervision  and training of our  accounting  staff.
         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.

         During the fiscal  quarter  covered by this  report,  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.


                                       12
<PAGE>


PART II - OTHER INFORMATION

Item 1.       Legal Proceedings

         None.

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds

         None.

Item 3.       Defaults Upon Senior Securities

         None.

Item 4.       Submission of Matters to a Vote of Security Holders

         None.

Item 5.       Other Information

         None.

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


                                       13
<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 17, 2006              /s/ Hyrum A. Mead
                                       -----------------
                                       President (principal executive officer)

Date:    January 17, 2006              /s/ Dennis E. Bradley
                                       ---------------------
                                       Controller (principal financial officer)

                                       14