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 February 28, 2006

                         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 [ ] No [ X ]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

As of February 28, 2006, there were 20,740,296 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-

                             BSD MEDICAL CORPORATION
                             Condensed Balance Sheet
                                   (Unaudited)


                                 Assets                          February 28,
                                                                     2006
                                                              ------------------
Current assets:
    Cash and cash equivalents                                $          671,489
    Available-for-sale securities                                    22,558,649
    Receivables, net of allowance for
      doubtful accounts of $42,500                                      306,424
    Related party receivables                                           176,926
    Inventories, net                                                  1,355,654
    Deferred tax asset                                                  298,000
    Other current assets                                                 76,532
                                                              ------------------
           Total current assets                                      25,443,674

Property and equipment, net                                             293,729
Patents, net                                                             22,190
                                                              ------------------
                                                             $       25,759,593
                                                              ==================

                  Liabilities and Stockholders' Equity
Current liabilities:
    Accounts payable                                         $          234,566
    Accrued expenses                                                    530,836
    Income taxes payable                                              2,924,697
    Deferred revenue                                                      7,107
                                                              ------------------

           Total current liabilities                                  3,697,206

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

           Total liabilities                                          3,705,206
                                                              ------------------

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 20,740,296 shares and
      outstanding  20,715,965 shares                                     20,741
    Additional paid-in capital                                       24,779,702
    Deferred compensation                                              (340,950)
    Common stock in treasury 24,331 shares, at cost                        (234)
    Other comprehensive income                                           28,661
    Accumulated deficit                                              (2,433,533)

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

           Net stockholders' equity                                  22,054,387
                                                              ------------------

                                                             $       25,759,593
                                                              ==================
See accompanying notes to financial statements.

                                        1
<PAGE>

                             BSD MEDICAL CORPORATION


                       Condensed Statements of Operations
                                   (Unaudited)
              Periods ended February 28, 2006 and February 28, 2005
<TABLE>
<CAPTION>


                                                            Three Months                        Six Months
                                                               Ended:                             Ended:
                                                  ---------------------------------  ---------------------------------
                                                   February 28,    February 28,       February 28,    February 28,
                                                       2006              2005             2006              2005
                                                  ---------------  ----------------  ---------------  ----------------
<S>                                              <C>              <C>               <C>              <C>
Sales                                            $     242,790    $     226,507     $     752,090    $     477,286
Related party sales                                    196,586          488,906           208,453          496,060
                                                  ---------------  ----------------  ---------------  ----------------

           Total sales                                 439,376          715,413           960,543          973,346
                                                  ---------------  ----------------  ---------------  ----------------
Costs and expenses:
    Cost of sales                                      242,333          184,629           594,576          450,693
    Cost of related party sales                         61,398          190,330            66,654          194,637
    Research and development                           334,739          191,283           564,904          374,880
    Selling, general, and administrative             1,169,707          459,280         2,223,822          838,698
                                                  ---------------  ----------------  ---------------  ----------------

           Total costs and expenses                  1,808,177        1,025,522         3,349,956        1,858,908
                                                  ---------------  ----------------  ---------------  ----------------

           Operating loss                           (1,368,801)        (310,109)       (2,489,413)        (885,562)

Other income
    Interest income                                    304,590           86,905           549,213          157,498
    Other income                                     5,932,361        1,094,406        11,815,286        1,094,929
                                                  ---------------  ----------------  ---------------  ----------------

           Total other income:                       6,236,951        1,181,311        12,364,499        1,252,426
                                                  ---------------  ----------------  ---------------  ----------------
           Income before income taxes                4,868,150          871,202         9,875,086          366,865
Income tax provision                                (1,686,471)               -        (3,557,164)               -
                                                  ---------------  ----------------  ---------------  ----------------
           Net income                            $   3,181,679    $     871,202     $   6,317,922    $     366,865
                                                  ===============  ================  ===============  ================

Net income per common and common equivalent
    Basic                                        $         .15    $         .04     $         .30    $         .02

    Diluted                                      $         .14    $         .04     $         .28    $         .02
                                                  ---------------  ----------------  ---------------  ----------------

Weighted average number of shares outstanding,
    Basic                                           20,575,000       20,136,000        20,556,000       20,060,000
                                                  ---------------  ----------------  ---------------  ----------------
    Diluted                                         22,046,000       21,530,000        22,123,000       21,233,000
                                                  ---------------  ----------------  ---------------  ----------------


</TABLE>

See accompanying notes to financial statements.

                                       2
<PAGE>


                             BSD MEDICAL CORPORATION

                       Condensed Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                    Six Months
                                                                                      Ended:
                                                                     ------------------------------------
                                                                       February 28,       February 28
                                                                           2006               2005
                                                                     ----------------   -----------------
<S>                                                                 <C>                <C>
Cash flows from operating activities:
    Net income                                                      $  6,317,922       $    366,865
    Adjustments to reconcile net income to net cash used in
      operating activities:
       Depreciation and amortization                                      43,588             24,150
       Stock compensation expense                                         18,050             30,000
       Gain on sale of investment in TherMatrx                       (11,550,120)                 -
       Amortization of deferred compensation                              56,300              9,508
       (Increase) decrease in:
           Receivables                                                    20,330           (531,736)
           Inventories                                                  (221,301)          (154,226)
           Deferred tax asset                                           (199,000)                 -
           Other current assets                                           56,208           (126,293)
       Increase (decrease) in:
           Accounts payable                                              121,753            163,457
           Accrued expenses                                              282,460                  -
           Income taxes payable                                        3,239,505           (214,232)
           Deferred revenue                                                 (221)           (17,666)
                                                                     ----------------   -----------------
              Net cash used in operating activities                   (1,814,527)          (450,172)
                                                                     ------------------------------------

Cash flows from investing activities:
    Proceeds from sale of investment in TherMatrx                     11,550,120                  -
    Purchase of available-for-sale securities                         (9,948,404)                 -
    Purchase of property and equipment                                  (161,535)           (49,324)
                                                                     ----------------   -----------------
            Net cash provided by (used in) investing activities        1,440,181            (49,324)

Cash flows from by financing activities-
     Proceeds from exercise of stock options                             137,160             53,700
                                                                     ------------------------------------

Change in cash and cash equivalents                                      (237,185)          (445,796)
Cash and cash equivalents, beginning of period                            908,674          9,697,154
                                                                     ------------------------------------
Cash and cash equivalents, end of period                            $     671,489      $   9,251,358
                                                                     ====================================
</TABLE>


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

o        The Company paid no cash for interest during the six months ended
         February 28, 2006 and 2005 and $392,311 and $0 for income taxes during
         the six months ended February 28, 2006 and 2005.

o        The Company issued 265,000 and 100,000 stock options during the six
         month periods ended February 28, 2006 and 2005, respectively, which
         resulted in an increase to Deferred Compensation of $363,200 and
         $15,750, respectively.

o        The Company had an income tax benefit from the exercise of stock
         options of $555,567 during the six months ended February 28, 2006,
         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 $8,278 during the six months
         ended February 28, 2006 on available-for-sale securities.


                                       3
<PAGE>
                             BSD MEDICAL CORPORATION
                     Notes to Condensed Financial Statements




Note 1.    Basis of Presentation

         The  accompanying  unaudited  condensed  financial  statements  of  BSD
Medical  Corporation  as of  February  28, 2006 and for the three and six months
ended  February 28, 2006 and 2005,  have been prepared in  accordance  with U.S.
generally  accepted  accounting  principles for interim financial  reporting and
pursuant to the rules and regulations of the Securities and Exchange Commission.
The  financial  statements do not include all of the  information  and footnotes
required by U.S. generally accepted accounting principles for complete financial
statements.  These financial  statements  should be read in conjunction with the
notes hereto,  and the financial  statements  and notes thereto  included in our
annual report on Form 10-KSB for the year ended August 31, 2005.

         All  adjustments  (consisting  only of  normal  recurring  adjustments)
necessary for the fair presentation of our financial position as of February 28,
2006 and our results of operations,  financial  position and changes therein for
the three and six months ended  February  28, 2006 and 2005 have been  included.
The results of operations  for the three and six months ended  February 28, 2006
may not be indicative of the results for the year ending August 31, 2006.

Note 2.  Recent accounting pronouncements

         The Company  accounts for  stock-based  compensation  awards  issued to
employees  using  the  intrinsic  value   measurement   provisions  of  APB  25.
Accordingly, no compensation expense has been recorded for stock options granted
to employees with exercise prices greater than or equal to the fair value of the
underlying  common  stock at the option grant date.  On December  16, 2004,  the
Financial Accounting Standards Board (FASB) issued SFAS No. 123R (revised 2004),
"Share-Based   Payment,"  which  eliminates  the  alternative  of  applying  the
intrinsic value measurement  provisions of APB 25 to stock  compensation  awards
issued to employees.  The new standard requires  enterprises to measure the cost
of employee  services  received in exchange  for an award of equity  instruments
based on the  grant-date  fair value of the award.  That cost will be recognized
over the period  during  which an employee  is  required to provide  services in
exchange  for the award,  known as the  requisite  service  period  (usually the
vesting period).

         The Company has not yet  quantified the effects of the adoption of SFAS
123R,  but it is  expected  that the new  standard  will  result in  significant
stock-based compensation expense. The pro forma effects on net loss and net loss
per  common  share  if the  Company  had  applied  the  fair  value  recognition
provisions of the original SFAS 123 on stock  compensation  awards  (rather than
applying the intrinsic value measurement  provisions of APB 25) are disclosed in
Note 6 below.  Although the pro forma  effects of applying the original SFAS 123
may be indicative of the effects of adopting SFAS 123R,  the provisions of these
two statements differ in some important respects. The actual effects of adopting
SFAS 123R will be dependent on numerous factors  including,  but not limited to,

                                       4
<PAGE>

the  valuation  model  chosen by the Company to value  stock-based  awards,  the
assumed award  forfeiture rate, the accounting  policies adopted  concerning the
method of  recognizing  the fair  value of  awards  over the  requisite  service
period,  and the transition method (as described below) chosen for adopting SFAS
123R.

         SFAS 123R will be  effective  for the Company  beginning  September  1,
2006, and requires the use of either the Modified Prospective Application Method
or the Modified  Retrospective  Method.  Under the Modified  Prospective Method,
SFAS 123R is  applied  to new awards  and to awards  modified,  repurchased,  or
cancelled  after the effective  date.  Additionally,  compensation  cost for the
portion of awards for which the requisite service has not been rendered (such as
unvested  options)  that are  outstanding  as of the date of  adoption  shall be
recognized as the remaining  requisite  services are rendered.  The compensation
cost relating to unvested  awards at the date of adoption  shall be based on the
grant-date  fair value of those awards as calculated  for pro forma  disclosures
under the  original  SFAS 123.  Alternatively,  companies  may use the  Modified
Retrospective  Application Method. This method may be applied to all prior years
for which the original SFAS 123 was  effective or only to prior interim  periods
in the year of  initial  adoption.  If the  Modified  Retrospective  Application
Method is applied,  financial  statements for prior periods shall be adjusted to
give  effect  to the  fair-value-based  method  of  accounting  for  awards on a
consistent basis with the pro forma disclosures required for those periods under
the original SFAS 123.

         On April 15, 2005,  the SEC issued release No.  33-8568,  "Amendment to
Rule 4-01(a) of Regulation S-X Regarding the Compliance Date for SFAS 123R." The
amended rule permits calendar year  registrants  subject to oversight by the SEC
to implement  SFAS 123R at the  beginning  of its next fiscal year.  The Company
will implement SFAS 123R at the beginning of its next fiscal year  (September 1,
2006).

         In March,  2005,  the SEC issued SAB No.  107 to  simplify  some of the
implementation  challenges  of  SFAS  123R.  In  particular,  SAB  107  provides
supplemental   implementation  guidance  on  SFAS  123R  including  guidance  on
valuation   methods,   classification   of   compensation   expense,   inventory
capitalization   of  share-based   compensation   costs,   income  tax  effects,
disclosures in Management's Discussion and Analysis and several other issues. We
will apply the  principles of SAB 107 in  conjunction  with the adoption of SFAS
123R.

         In May 2005,  the FASB  issued SFAS No.  154,  "Accounting  Changes and
Error  Corrections,"  which replaces APB No. 20, "Accounting  Changes," and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial  Statements." SFAS 154
applies to all  voluntary  changes in  accounting  principle,  and  changes  the
requirements  for  accounting  and reporting a change in accounting  principles.
SFAS 154 requires retroactive application to prior periods' financial statements
of a voluntary change in accounting principle unless it is impractical to do so.
APB 20 previously  required that most voluntary changes in accounting  principle
be recognized with a cumulative effect adjustment in net income of the period of
the change.  SFAS 154 is effective for accounting changes made in annual periods
beginning after December 15, 2005.


                                       5
<PAGE>

Note 3.  Net Income 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:
<TABLE>
<CAPTION>
                                              Three Months Ended                  Six Months Ended
                                                 February 28,                       February 28,
                                             2006             2005              2006             2005
                                             ----             ----              ----             ----
<S>                                         <C>               <C>               <C>              <C>
Weighted average number of
   shares outstanding - basic               20,575,141        20,136,000        20,555,998       20,060,000

Dilutive effect of stock options             1,471,046         1,394,000         1,578,780        1,173,000
                                            ----------        ----------        ----------       ----------
Weighted average number of
   shares outstanding - diluted             22,046,187        21,530,000        22,123,000       21,233,000
                                       ================ ================= ================= ================
</TABLE>

Note 4. Inventories

         Inventories consisted of the following as of February 28, 2006:


         Raw materials                                        $      713,109
         Work in process                                             722,545
         Reserve for obsolete inventory                              (80,000)
                                                              --------------
                                                              $    1,355,654
                                                              ==============

Note 5.    Related Party Transactions

         During the six months  ended  February  28, 2006 and February 28, 2005,
the Company  had sales of  $208,453  and  $496,060,  respectively,  to an entity
controlled  by a significant  stockholder  and member of the Board of Directors.
These related party transactions represent 21.7% and 51% of total sales.

Note 6.  Stock-Based Compensation

         The Company  accounts for stock options  granted to employees under the
recognition and measurement  principles of Accounting  Principles  Board Opinion
No.  25 (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

                                       6
<PAGE>

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 -
-periods indicated below:
<TABLE>
<CAPTION>
                                                                  Six Months Ended        Three Months Ended
                                                                   February 28,              February 28,
                                                                2006         2005          2006         2005
                                                            ----------------------------------------------------
<S>                                                         <C>           <C>          <C>            <C>
Net income as reported                                      $ 6,317,922   $  366,865   $  3,181,679   $  871,202

Add:  Stock based employee compensation expense included
in reported net income net of related tax effects           $    56,300        9,508         19,650            -

Deduct:  Total stock based employee compensation expense
determined under fair value based method for all awards,
net of related taxes                                        $  (170,798)    (103,089)             -            -
                                                            ----------------------------------------------------

Net income - pro forma                                        6,203,424   $  273,284   $  3,201,329   $  871,202

Basic income per share as reported                          $       .30   $      .02   $        .15   $      .04
                                                            ----------------------------------------------------
Diluted income per share as reported                        $       .28   $      .02   $        .14   $      .04

Basic income per share -  pro-forma                         $       .30   $      .02   $        .16   $      .04
                                                            ----------------------------------------------------
Diluted income per share - pro forma                        $       .28   $      .01   $        .14   $     $.04
                                                            ----------------------------------------------------

</TABLE>
         The fair value of each stock  option  granted for the six months  ended
February  28,  2006  and  2005 is  estimated  on the  date of  grant  using  the
Black-Scholes option pricing model using the following assumptions:


                                         ----------------------------------
                                                     2006             2005
                                         ----------------------------------

Expected dividend yield                   $             - $              -
Expected stock price volatility                       75%              84%
Risk-free interest rate                             4.10%            3.32%
Expected life of options                       4.84 years         10 years

         The  weighted  average  fair  value of options  granted  during the six
months ended February 28, 2006 and 2005 was $3.56 and $1.20, respectively.

Note 7.  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 February 28, 2006, the Company received an additional  payment
from the sale of TherMatrx of $5,667,196, to bring the total received to date as
of February 28, 2006 to  $27,076,952.  This amount is recorded as a gain and has
been reflected as "other income" in the Statements of Operations.

                                       7
<PAGE>

Note 8.   Subsequent Event

         On March 6,  2006,  the  Company  received  an  additional  payment  of
approximately  $5.86 million from the earnout of  TherMatrx,  Inc. The amount of
the payment  was based on the level of sales of  TherMatrx  products  during the
fourth  calendar  quarter of 2005.  This brings the total payments  collected by
the Company from the sale of TherMatrx to over  $32.9 million. This payment will
be  reflected  in the "other  income"  section of the  Company's  Statements  of
Operations for the quarter ending May 31, 2006.

Note  9.   Stockholders' Equity

         During the six months ended February 28, 2006, 375,226 shares of common
stock were issued for cash of $137,160 and services of $18,050.



                                       8
<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 funding that we
can utilize for  commercializing our systems used in the treatment of cancer and
in achieving  other  business  objectives.  We have received  approximately  $33
million in earnout payments from the TherMatrx sale through March 6, 2006.

         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 have  applied 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.

                                       9
<PAGE>

         In this  report it will be noted that we have  substantially  increased
our  emphasis  on  marketing,   market  preparation  and  sales  efforts.   This
corresponds to our FDA submission for approval of the BSD-2000. Our objective is
to prepare the market for our systems. We have also increased our efforts in the
development of new products not announced.

         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 $2,433,533 as of February 28, 2006 due to net income recorded
during the six months ended  February 28, 2006. We recorded after tax net income
for the first six months of fiscal 2006 of $6,317,922.

         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,  providing  manufacturing  services,  training and
support  services.  Product  sales were $821,739 and $861,417 for the six months
ended February 28, 2006 and 2005, respectively. Service revenue was $138,804 and
$111,929 for the six months ended February 28, 2006 and 2005, respectively.

         During  the six  month  period  ended  February  28,  2006,  we  earned
$752,090,  or 78.3%,  of our  revenue  from sales to  unrelated  parties.  These
revenues consisted of product sales of $644,805, consulting services of $36,709,
service contracts of $11,889,  probes of $20,285 and other miscellaneous revenue
of $ 38,402.

         Cost of sales for the period  ended  February  28, 2006  includes,  raw
materials and labor costs of $422,276 and overhead  costs of $238,954.  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.

                                       10
<PAGE>

Deferred  revenue and customer  deposits  payable  include  amounts from service
contracts as well as cash  received  for the sales of  products,  which have not
been shipped.

         Inventory  Reserves.  As of February  28,  2006,  we have a reserve for
potential  inventory  impairment recorded of $80,000. We periodically review our
inventory levels and usage, paying particular attention to slower-moving items.

         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 February  28, 2006 was  $42,500.  Bad debt  expense for the six months  ended
February 28, 2006 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 February 28, 2006 Compared to the Three Months Ended February
28, 2005

         Revenue.  Revenue  for the three  months  ended  February  28, 2006 was
$439,376  compared to $715,413 for the three  months ended  February 28, 2005, a
decrease of $276,037,  or  approximately  39%. The decrease in total revenue was
primarily  due to a  decrease  in sales to  related  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.

         We earned $196,586,  or approximately  45%, of our revenue in the three
months  ended  February  28,  2006 from sales to related  parties as compared to
$488,906,  or 68.33%,  in the three months ended  February 28, 2005.  All of the
related party revenue in the 2006 period was from sales of systems and component
parts to Medizin-Technik.  Sales to Medizin-Technik may fluctuate  significantly
from  period to period  because  our  sales,  to date,  have been  based  upon a
relatively  small number of systems,  the sales price of each being  substantial
enough to greatly  impact  revenue  levels in the  periods in which they  occur.
Sales of a few  systems can cause a large  change in the revenue  from period to
period.

         In the three months ended  February 28, 2006,  we earned  $242,790,  or
55%, of our revenue from sales to unrelated parties, as compared to $226,507, or
32%, for the three months ended February 28, 2005.  These revenues  consisted of
product sales of $200,000,  consulting services of $32,064, service contracts of
$7,094, probes of $2,362 and other miscellaneous revenue of $1,270.

         Gross Profit. Gross profit for the three months ended February 28, 2006
was $135,645,  or 31% as compared to $340,454, or 48% of total product sales for
the three  months  ended  February  28,  2005.  Because we have not had employee
layoffs due to the specialized  nature of our employees and because of the fixed
costs  associated with  production,  declining sales during the six months ended
February 28, 2006  resulted in increased  costs for  inventory and a decreased -
gross profit percentage.

         Selling  General  and  Administrative  Expenses.  Selling,  general and
administrative  expenses  increased  to  $1,169,707  in the three  months  ended
February 28,  2006,  up from  $459,280  for the three months ended  February 28,
2005,  an increase of $710,427,  or 155%.  This increase was primarily due to an

                                       11
<PAGE>

increase in sales and marketing costs of $645,151  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 to 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 American Medical Systems, Inc.

         Research and Development  Expenses.  Research and development  expenses
were  $334,739  for the three months  ended  February  28, 2006,  as compared to
$191,283 for the three months ended  February 28, 2005, an increase of $143,456,
or 75%,  primarily due to an increase in payroll and consulting costs associated
with increased emphasis on the development of new products.

         Interest  income.  Interest income  increased to $304,590 for the three
months  ended  February  28,  2006,  as compared to $86,905 for the three months
ended  February 28, 2005,  due to the  significantly  higher  levels of cash and
available-for-sale  securities  resulting  from  the sale of our  investment  in
TherMatrx.

         Net income Net income for the three months ended  February 28, 2006 was
$3,181,679 after an income tax expense of $1,686,471,  as compared to net income
of $871,202 for the three months  ended  February 28, 2005.  The increase in the
net income was  primarily  due to a payment of  $5,667,196  received  during the
period ended February 28, 2006, from the sale of our investment in TherMatrx and
the increase in interest income.

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

Six Months Ended  February 28, 2006 Compared  to  the Six Months Ended  February
28, 2005

         Revenue.  Revenue  for the six  months  ended  February  28,  2006  was
$960,543,  compared to $973,346 for the  corresponding  period in fiscal 2005, a
decrease  of $12,803 or  approximately  1%. The  decrease  in total  revenue was
primarily   due  to  a  decrease   in  sales  to  related   parties.   Sales  to
Medizin-Technik  totaled $208,453 as compared to $496,060 for the  corresponding
period -, in fiscal 2005. Dr.  Gerhard  Sennewald,  one of our  directors,  is a
stockholder,  executive  officer and a director  of  Medizin-Technik  GmbH.  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.  Product sales  decreased to $644,805 for the six
months ended  February 28, 2006,  as compared to $645,960 for the  corresponding
periods of fiscal 2005.

         In the six months period ended February 28, 2006, we derived  $208,453,
or 22% of our  revenue as compared  to  $496,060,  or 51%, of our revenue in six
months  ended  February  28,  2005,  from sales to related  parties.  All of the
related  party  revenue in the 2006  period was from  sales of BSD  systems  and
component parts to  Medizin-Technik.  For the six months ended February 28, 2006
and 2005,  all of the related  party  revenue was for sales to  Medizin-Technik.
Sales to Medizin-Technik  may fluctuate  significantly from period to period due
to the high cost of a BSD-2000 or BSD-500 system.  Sales increases of one or two
systems can have a material effect on our revenue.

         In the six months ended February 28, 2006, we derived $752,090,  or 78%
of our revenue to sales to non-related parties compared to $477,286,  or 49% for
the  corresponding  period of fiscal  2005.  Our fiscal 2006  non-related  party
revenue consisted of product sales of approximately $644,805. The balance of our
non-related  party  revenue  consisted of consulting  services of  approximately
$36,709,  service  contracts of approximately  $11,937,  probes of approximately
$20,285 and miscellaneous revenue of $38,354.

                                       12
<PAGE>

         Gross Profit.  Gross profit for the six months ended  February 28, 2006
was  $299,313,  or  31%  as  compared  to  $328,016,  or  34%  of  sales  in the
corresponding  period in fiscal  2005.  The decline in gross  profit  margin was
primarily  due to the cost of excess  production  employees  resulting  from the
significant decrease in sales during our second fiscal quarter.  Because we have
not had  employee  layoffs  and  because  of the  fixed  costs  associated  with
production,  as our sales declined, it resulted in the lower gross profit margin
in the six months ended February 28, 2006.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative expenses increased to $2,223,822 in the six months ended February
28, 2006, from $838,698 for the corresponding period of fiscal 2005, an increase
of  $1,385,124,   or  165%.  Our  sales  and  marketing   costs  increased  from
approximately   $125,000  in  the  six  months   ended   February  28,  2005  to
approximately  $1,172,937  in the six  months  ended  February  28,  2006 due to
increased  head  count and to higher  sales and  marketing  costs due to greater
emphasis on sales and  marketing.  Legal and  accounting  costs  increased  from
approximately  $88,000 in the 2005 period to approximately  $154,000 in the 2006
period,  reflecting the use of legal counsel in preparation for the shareholders
meeting and the review of the Form 10-QSB, 10-KSB and proxy statements,  as well
as fees incurred in connection  with tax  consulting  and planning.  Shareholder
relations  costs  increased  from  approximately  $42,000 in the 2005  period to
approximately $50,000 in the 2006 period reflecting costs incurred in connection
with our annual shareholders meeting and the issuance of various press releases.
Consulting costs increased from approximately $46,000 to approximately  $172,000
from the 2005 period to the 2006 period, respectively. This is due to the use of
consultants  in  marketing  efforts  and in  efforts  to file  the FDA  approval
application.

         Research and Development  Expenses.  Research and development  expenses
were  $564,904  for the six months  ended  February  28,  2006,  as  compared to
$374,880 for the  corresponding  period in fiscal 2005, an increase of $190,024,
or 51%,  primarily due to an increase in payroll and consulting costs associated
with increased emphasis on the development of new products.

         Interest  income.  Interest  income  increased  to  $549,213 in the six
months  ended  February  28, 2006 as compared  $157,498 for the six months ended
February  28,  2005,  due to the  significantly  higher  levels  of cash on hand
resulting from the sale of our shares in TherMatrx.

         Net income.  Net income after taxes for the six months  ended  February
28,  2006,  was  $6,317,922  as compared  with a net income of $366,865  for the
corresponding  period  of  fiscal  2005.  The  increase  in the net  income  was
primarily due to payments of $11,550,120 during the 2006 period from the sale of
our shares in TherMatrx and the increase in interest income.

         Fluctuation  in  Operating  Results.  Our  results of  operations  have
fluctuated in the past and may fluctuate in the future from year to year as well
as from  quarter  to  quarter.  Revenue  may  fluctuate  as a result of  factors
relating to the demand for thermotherapy systems and component parts supplied by
us to TherMatrx,  market acceptance of our BSD hyperthermia systems,  changes in
the medical  capital  equipment  market,  changes in order mix and product order
configurations,   competition,   regulatory   developments  and  other  matters.
Operating  expenses  may  fluctuate  as a result  of the  timing  of  sales  and
marketing activities,  research and development and clinical trial expenses, and
general and  administrative  expenses  associated with our potential growth. For
these and other reasons  described  elsewhere,  our results of operations  for a
particular  period may not be  indicative  of  operating  results  for any other
period.

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

         Our accumulated deficit since inception decreased from $8,751,454 as of
August 31, 2005 to  $2,433,533  as of February  28,  2006,  due to net income of
$6,317,922  recorded  during the six months ended  February  28,  2006.  We have
historically financed our operations through cash from operations,  licensing of

                                       13
<PAGE>

technological  assets,  issuance  of common  stock and  through  the sale of our
investments  in spinoff  operations.  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 February 28, 2006, we used  $1,814,527 in
operating  activities.  The cash used in  operating  activities  was  mainly the
result of the  exclusion of TherMatrx  gain, an increase in income taxes payable
of  $3,239,505,  an  increase in accounts  payable of  $121,753,  an increase in
accrued expenses of $282,460,  a decrease in accounts receivable of $20,330, and
an increase in inventory  of  $221,301.  Our  investing  activities  for the six
months ended February 28, 2006 generated net cash of $1,440,181, relating mainly
to the  proceeds  received  from  the sale of our  investment  in  TherMatrx  of
$11,550,120  offset  by  the  purchase  of   available-for-sale   securities  of
$9,948,404 and the purchase of certain property and equipment of $161,535. Total
cash  decreased  from  $908,674 at August 31,  2005 to $671,489 at February  28,
2006,  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 possible acquisition of 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 and cash  equivalents  and securities  that
are  available for sale will be  sufficient  to finance our  operations  through
fiscal 2006.

                           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    the  amount  of  expenses   we  will  incur  for  the   commercial
              introduction of our systems;

                                       14
<PAGE>

         o    our anticipation that we will incur increased  expenses related to
              seeking  governmental  and regulatory,  approvals for our products
              during fiscal 2006 in excess of fiscal 2005;
         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
              TherMatrx shares; and
         o    our belief that payments  received in connection  with the sale of
              our TherMatrx  shares will contribute  significantly to our future
              capital resources;
         o    our  anticipated  use of proceeds  from the sale of our  TherMatrx
              shares; and
         o    our belief that our current  cash,  investments  and cash received
              from  the  sale of our  TherMatrx  shares  will be  sufficient  to
              finance our operations through fiscal 2006.

                                       15
<PAGE>

         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.  We have
identified  deficiencies that existed in the design or operation of our internal
control over financial reporting.  The deficiencies relate to the preparation of
our provision for income taxes and related income tax footnote disclosures,  and
the  lack  of  formal   procedures   to  identify   and  apply  new   accounting
pronouncements and related disclosures.  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 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.

                                       16
<PAGE>

         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.



                                       17
<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

         The Company's  Annual Meeting of Shareholders  was held on February 13,
2006. Of the 20,519,632  shares of common stock outstanding and entitled to vote
at the meeting,  14,096,138  shares were present,  either in person or by proxy.
The  following  proposals  were  submitted to a vote of security  holders at the
meeting;

1.       To elect six members of the Board of  Directors to serve until the next
         annual  meeting  of the  Company  and their  successors  have been duly
         appointed and are qualified.

2.       To approve and ratify an amendment to the 1998  Director  Stock Plan to
         extend the term of the plan and to increase  the  compensation  paid to
         directors under the plan.

3.       To ratify  the  selection  of Tanner  LC as the  Company's  independent
         registered public accounting firm for the fiscal year ending August 31,
         2006.

         The above  proposals  were  approved  and the results of the voting are
         summarized in the following table:
<TABLE>
<CAPTION>

                     Proposal                 For            Against         Withheld        Abstain
                     --------                 ---            -------         --------        -------
<S>                                          <C>             <C>                 <C>           <C>
1.       Elect Board of Directors:
         o  Paul F. Turner                   14,019,420           --             76,718            --
         o  Hyrum A. Mead                    14,027,420           --             68,718            --
         o  Gerhard W. Sennewald             14,018,820           --             77,318            --
         o  Steven G. Stewart                14,062,120           --             34,018            --
         o  Michael Nobel                    14,070,120           --             26,018            --
         o  Douglas P. Boyd                  14,062,120           --             34,018            --

2.       Approve and ratify an amendment     13,930,382      163,906                 --        23,350
         to the 1998 Director Stock Plan

3.       Ratify selection of Tanner LC as    14,076,780        8,335                 --        11,023
         independent registered public
         accounting firm
</TABLE>

Item 5.       Other Information

         None.
                                       18
<PAGE>

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


                                       19
<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:    April 14, 2006                      /s/ Hyrum A. Mead
                                    ---------------------------------------
                                    President (principal executive officer)

Date:    April 14, 2006                      /s/ Dennis E. Bradley
                                    ----------------------------------------
                                    Controller (principal financial officer)


                                       20