SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

(Mark One)

 X   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
---- Act of 1934

For the quarterly period ended December 31, 1997

      Transition report pursuant to Section 13 or 15(d) of the Securities
----  Exchange Action of 1934

For the transition period from _______________________ to ______________________



                         Commission File Number 0-19266

                        ALLIED HEALTHCARE PRODUCTS, INC.

                              1720 Sublette Avenue

                            St. Louis, Missouri 63110
                                  314/771-2400

                        I.R.S. Employment I.D. 25-1370721

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding  twelve  months (or for such shorter  periods that the
registrant  was required to file such reports,  and (2) has been subject to such
filing requirements for the past ninety days.

                        Yes     X          No
                             --------         -------- 
      The number of shares of common stock  outstanding  at February 17, 1998 is
7,806,682 shares.


<PAGE>


                                      INDEX


                                                                            Page
                                                                          Number
Part I - Financial Information

            Item 1.           Financial Statements

                        Consolidated Statement
                        of Operations - three months and six months           3
                        ended December 31,
                        1997 and 1996 (Unaudited)

                        Consolidated  Balance Sheets -
                        December 31, 1997 (Unaudited) and                    4-5
                        June 30, 1997

                        Consolidated Statements of Cash
                        Flow - six months ended                              6-7
                        December 31, 1997 and 1996 (Unaudited)

                        Consolidated Statement of Changes
                        in Stockholders' Equity - six months                   8
                        ended December 31, 1997 (Unaudited)

                        Notes to Consolidated
                        Financial Statements                                9-10


      Item 2.           Management's Discussion and
                        Analysis of Financial Condition                    11-22
                        and Results of Operations

Part II - Other Information                                                   22

      Item 6.  Exhibits and Reports on Form 8-K                               22

Signature                                                                     23

<PAGE>
PART I.   FINANCIAL INFORMATION
          Item 1.   Financial Statements




                        ALLIED HEALTHCARE PRODUCTS, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<S>                                        <C>             <C>             <C>           <C>  


                                         Three months ended           Six months ended
                                         December 31,                 December 31,
                                         --------------------------   ----------------------------
                                             1997          1996           1997           1996
                                         --------------------------   ----------------------------

Net sales                                $24,032,988   $28,388,652     $54,205,892    $57,522,375
Cost of sales                             17,290,512    19,663,935      38,234,136     39,557,557
                                         ------------  ------------   -------------  -------------
Gross profit                               6,742,476     8,724,717      15,971,756     17,964,818

Selling, general and                                                                  
  administrative expenses                  6,322,144     8,233,434      13,574,731     16,611,268
Gain on sale of business                 (12,812,927)            0     (12,812,927)             0
Non-recurring impairment losses            9,778,259             0       9,778,259              0
                                         ------------  ------------   -------------  -------------

Income from operations                     3,455,000       491,283       5,431,693      1,353,550

Other expenses:                                                                       
  Interest expense                         1,212,581     1,408,745       3,072,400      2,524,175
  Other, net                                  40,311        28,980          87,250         54,936
                                         ------------  ------------   -------------  -------------
                                           1,252,892     1,437,725       3,159,650      2,579,111
                                         ------------  ------------   -------------  -------------
Income (loss) before provision                                                        
  (benefit) for income taxes and
  extraordinary loss                       2,202,108      (946,442)      2,272,043     (1,225,561)

Provision (benefit) for income taxes       8,886,340      (390,000)      9,063,463       (491,850)
                                         ------------  ------------   -------------  -------------

Loss before extraordinary loss            (6,684,232)     (556,442)     (6,791,420)      (733,711)

Extraordinary loss on early 
  extinguishment of debt, net of
  income tax benefit of $373,191                   0             0         530,632              0
                                         ------------  ------------   -------------  -------------
Net Loss                                 ($6,684,232)    ($556,442)    ($7,322,052)     ($733,711)
                                         ============  ============   =============  =============
                                                                       
Basic and diluted loss per share:
  Loss before extraordinary loss              ($0.86)       ($0.07)         ($0.87)        ($0.09)
  Extraordinary loss                            ---           ---           ($0.07)          --- 
                                         ------------  ------------   -------------  -------------
  Net Loss                                    ($0.86)       ($0.07)         ($0.94)        ($0.09)
                                         ============  ============   =============  =============

Weighted average shares                    7,806,682     7,796,682       7,803,389      7,796,682
                                         ============  ============   =============  =============

          See accompanying Notes to Consolidated Financial Statements.

</TABLE>

<PAGE>

                               ALLIED HEALTHCARE PRODUCTS, INC.
                                  CONSOLIDATED BALANCE SHEET
                                           ASSETS

<TABLE>
<S>                                                              <C>               <C> 

                                                                December 31,      June 30,
                                                                1997            1997
                                                                -------------   -------------
                                                                 (Unaudited)
Current Assets:
   Cash                                                           $1,374,532        $988,436
   Accounts receivable, net of allowance for doubtful
      accounts of $971,745 and $1,225,326, respectively           16,648,773      23,093,037
   Inventories                                                    21,240,163      26,052,991
   Other current assets                                              275,335       1,544,811
                                                                -------------   -------------
      Total current assets                                        39,538,803      51,679,275
                                                                -------------   -------------
   Property, plant and equipment, net                             18,817,351      20,848,870
   Goodwill, net                                                  28,434,770      50,763,511
   Deferred income taxes-noncurrent                                        0       1,665,069
   Other assets, net                                                 709,731       1,386,291
                                                                -------------   -------------
      Total assets                                               $87,500,655    $126,343,016
                                                                =============   =============

                    See accompanying Notes To Consolidated Financial Statements.

                                   (CONTINUED)
</TABLE>

<PAGE>

                              

                              ALLIED HEALTHCARE PRODUCTS, INC.
                                 CONSOLIDATED BALANCE SHEET
                                        (CONTINUED)
                           LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S>                                                               <C>               <C>  


                                                                December 31,      June 30,
                                                                    1997            1997
                                                                -------------   -------------
                                                                 (Unaudited)
Current liabilities:
   Accounts payable                                               $9,659,203     $14,048,235
   Current portion of long-term debt                               2,043,278      12,890,772
   Other current liabilities                                       9,791,475       5,997,670
                                                                -------------   -------------
      Total current liabilities                                   21,493,956      32,936,677
                                                                -------------   -------------
Long-term debt                                                    13,260,113      34,041,300

Deferred income tax liability-noncurrent                             634,849               0

Commitments and contingencies

Stockholders' equity:
   Preferred  stock;  $.01 par value;  1,500,000  shares  authorized;  no shares
    issued and outstanding;  which includes Series A preferred  stock;  $.01 par
    value; 200,000 shares authorized; no shares issued and outstanding
   Common stock;  $.01 par value;  30,000,000 shares  authorized;  7,806,682 and
    7,796,682 shares issued and outstanding at December 31, 1997 and
    June 30, 1997, respectively                                      101,102         101,002
   Additional paid-in capital                                     47,014,621      46,945,971
   Common stock in treasury, at cost                             (20,731,428)    (20,731,428)
   Retained earnings                                              25,727,442      33,049,494
                                                                -------------   -------------
      Total stockholders' equity                                  52,111,737      59,365,039
                                                                -------------   -------------
      Total liabilities and stockholders' equity                 $87,500,655    $126,343,016
                                                                =============   =============


                See accompanying Notes To Consolidated Financial Statements.


</TABLE>

<PAGE>

<TABLE>

                        ALLIED HEALTHCARE PRODUCTS, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<S>                                                                 <C>             <C>  
                                                                Six months ended
                                                                December 31,
                                                                -----------------------------
                                                                    1997            1996
Cash flows from operating activities:                           -------------   -------------
   Net loss                                                      ($7,322,052)      ($733,711)
   Adjustments to reconcile net loss to net cash provided by (used in) operating
       activities:

      Depreciation and amortization                                2,891,467       2,662,639
      Gain on sale of Bear Medical                               (12,812,927)              0
      Loss on refinancing of long-term debt                          903,823               0
      Noncash portion of non-recurring impairment losses           9,528,398               0
      Decrease (increase) in accounts receivable, net                465,885        (543,304)
      Decrease (increase) in inventories                            (486,272)          6,438
      Decrease in income taxes receivable                                  0       1,267,791
      Decrease in deferred income taxes - asset                    2,001,014               0
      Decrease (increase) in other current assets                    358,608        (652,368)
      Decrease in accounts payable                                (2,906,836)       (884,760)
      Increase in accrued income taxes                             5,530,512               0
      Increase (decrease) in other current liabilities            (1,490,204)        142,914
      Increase in deferred income taxes - liability                  634,849               0
                                                                -------------   -------------
       Net cash provided by (used in) operating activities        (2,703,735)      1,265,639
                                                                -------------   -------------

Cash flows from investing activities:
   Capital expenditures, net                                        (468,856)     (1,300,761)
   Proceeds on sale of Bear Medical, net of disposal costs        36,001,160               0
                                                                -------------   -------------
       Net cash provided by (used in) investing activities        35,532,304      (1,300,761)
                                                                -------------   -------------
                                  (CONTINUED)
</TABLE>

<PAGE>


                       ALLIED HEALTHCARE PRODUCTS, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (CONTINUED)
                                   (UNAUDITED)
<TABLE>
<S>                                                                 <C>             <C> 

                                                                       Six months ended
                                                                          December 31,
                                                                -----------------------------
                                                                    1997            1996
                                                                -------------   -------------
Cash flows from financing activities:
   Proceeds from issuance of long-term debt                       26,000,000       5,000,000
   Payments of long-term debt                                    (35,642,061)       (839,791)
   Borrowings under revolving credit agreement                    74,751,622      12,609,715
   Payments under revolving credit agreement                     (96,659,252)    (15,720,794)
   Issuance of common stock                                           68,750               0
   Debt issuance costs                                              (961,532)       (551,161)
   Dividends paid on common stock                                          0        (545,768)
                                                                -------------   -------------
       Net cash used in financing activities                     (32,442,473)        (47,799)
                                                                -------------   -------------

   Net increase (decrease) in cash and equivalents                   386,096         (82,921)
   Cash and equivalents at beginning of period                       988,436       1,489,133
                                                                -------------   -------------
   Cash and equivalents at end of period                          $1,374,532      $1,406,212
                                                                =============   =============


Supplemental  disclosures of cash flow information:  Cash paid during the period
   for:
       Interest                                                   $3,668,177      $2,604,221
       Income taxes                                                  $77,118         $72,500


                 See accompanying Notes To Consolidated Financial Statements.

</TABLE>


<PAGE>


                        ALLIED HEALTHCARE PRODUCTS, INC.
                      CONSOLIDATED STATEMENT OF CHANGES IN
                              STOCKHOLDERS' EQUITY
                                   (UNAUDITED)

<TABLE>
<S>                            <C>         <C>        <C>           <C>           <C> 



                                                    Additional
                             Preferred    Common     paid-in      Treasury      Retained
                               stock      stock      capital        stock       earnings
                             ---------- ---------- ------------ ------------- ------------
Balance, June 30, 1997               $0   $101,002  $46,945,971  ($20,731,428) $33,049,494

Issuance of common stock                       100       68,650
Net loss for the
   six months ended
   December 31, 1997                                                           (7,322,052)
                             ---------- ---------- ------------ ------------- ------------
Balance,
   December 31, 1997                 $0   $101,102  $47,014,621  ($20,731,428) $25,727,442
                             ========== ========== ============ ============= ============

                 See accompanying Notes To Consolidated Financial Statements.

</TABLE>

<PAGE>

                        ALLIED HEALTHCARE PRODUCTS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)




1.  Unaudited Financial Statements

     The  accompanying  unaudited  financial  statements  have been  prepared in
accordance  with the  instructions  for Form 10-Q and do not  include all of the
information and footnotes required by generally accepted  accounting  principles
for  complete  financial   statements.   In  the  opinion  of  management,   all
adjustments,   consisting  only  of  normal  recurring  adjustments   considered
necessary for a fair presentation, have been included. Operating results for any
quarter are not  necessarily  indicative of the results for any other quarter or
for the full  year.  These  statements  should be read in  conjunction  with the
financial statements and notes to the consolidated  financial statements thereto
included in the Company's Form 10-K for the year ended June 30, 1997.

2.  Inventories

            Inventories are comprised as follows:

                                                      December 31,      June 30,
                                                          1997            1997
                                                      (Unaudited)


          Work-in-progress                           $ 1,524,522    $  2,726,585
          Component Parts                             15,812,672    $ 18,679,482
          Finished Goods                               3,902,969    $  4,646,924
                                                    $ 21,240,163    $ 26,052,991
                                                      ===========   ============


     The above amounts are net of a reserve for obsolete and excess inventory of
approximately  $2.1  million and $1.7  million at December 31, 1997 and June 30,
1997, respectively.

3.  Debt Refinancing

     On August 8, 1997 the Company  refinanced  its existing  debt through a new
$46.0 million credit facility with Foothill Capital  Corporation  (Foothill),  a
division of Norwest Bank. The Foothill credit  facility,  with a blended average
interest  rate of 10.2%,  is comprised of a $25.0 million  three-year  revolving
line of  credit,  three-year  term  loans of  $10.0  million  and $7.0  million,
respectively,  and a $4.0 million loan maturing in February 1998. In conjunction
with the new financing  agreement,  Allied placed an additional  $5.0 million in
subordinated  debt  financing,  which  matures in February  1998,  with  several
related parties to

<PAGE>

the Company.  In addition,  the Company issued 112,500 warrants with an exercise
price of $7.025 per share,  62,500 of which  were  issued to the  holders of the
subordinated  debt and the  remaining  warrants  were  issued  to  Foothill.  In
conjunction with the debt refinancing,  the Company recorded a $0.5 million, net
of taxes,  extraordinary  expense to write off the unamortized loan costs of the
previous credit facility.

4.  Sale of Bear Medical Systems and BiCore Monitoring Systems

     On October 31, 1997,  the Company  sold the assets of Bear Medical  Systems
and its subsidiary BiCore Monitoring Systems, to Thermo Electron Corporation for
approximately  $35.7 million,  net of transaction  costs, plus the assumption of
certain  liabilities,  resulting in a one-time,  pre-tax  gain of  approximately
$12.8 million.

     The net proceeds of  approximately  $29.5 million after taxes were utilized
to  repay  a  significant  portion  of  its  term  notes  and  repay  all of its
subordinated debt, $16.0 million, of which had a coupon rate of 14.0% per annum.

5.  Non-Recurring Items

     In the second  quarter of fiscal 1997,  non-recurring  items of  $9,778,259
were  charged to  operations.  These items  included a  $8,874,729  reduction in
goodwill for certain  subsidiaries  to reflect their current value,  $403,530 in
connection with discontinuing  operations in its Mt. Vernon, Ohio facility,  and
$500,000 in connection with the early termination of a consulting agreement.

The goodwill  impairment  provisions  reflect the  Company's  evaluation  of the
carrying  value of its  remaining  business  subsequent  to the sale of Bear and
BiCore in the second  quarter of fiscal 1998.  Such goodwill  writedowns,  which
were determined pursuant to the Company's impairment accounting policy described
in Notes 2 to the June 30, 1997 financial  statements,  primarily related to the
Company's  headwall  and  disposable  products  businesses,  which  continue  to
experience  weakness in financial results due to a variety of market conditions.
Due to the  non-deductible  nature of these  goodwill  writedowns for income tax
reporting purposes,  the Company's effective income rate is substantially higher
in the three and six months ended December 31, 1997.



<PAGE>


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


GENERAL

The  following  discussion  summarizes  the  significant  factors  affecting the
consolidated  operating  results and  financial  condition of Allied  Healthcare
Products,  Inc.  ("Allied" or the  "Company")  for the three month and six month
periods  ended  December  31,  1997  compared  to the three  month and six month
periods ended December 31, 1996. This  discussion  should be read in conjunction
with the December 31, and June 30, 1997  consolidated  financial  statements and
accompanying  notes  thereto  included in the Annual Report on Form 10-K for the
year ended June 30, 1997 and this Quarterly  Report on Form 10-Q for the quarter
ended December 31, 1997.

Certain  statements  contained  herein are  forward-looking  statements.  Actual
results could differ  materially  from those  anticipated as a result of various
factors, including cyclical and other industry downturns, the effect of currency
devaluations  and  recessionary  conditions  in Asian  markets,  the  effects of
federal and state  legislation  on health care  reform,  including  Medicare and
Medicaid  financing,  the ability to realize the full benefit of recent  capital
expenditures or consolidation and  rationalization  activities,  difficulties or
delays  in  the   introduction  of  new  products  or  disruptions  in  selling,
manufacturing and/or shipping efforts.

The results of operations for the second quarter of fiscal 1998 were effected by
several one time items.  During the quarter,  the Company sold the assets of its
ventilation  products division for a gain. The proceeds from this sale were used
to significantly pay down debt and to provide additional liquidity.  The Company
also recorded several non-recurring items and other charges to operations in the
second  quarter of fiscal 1998.  Such  non-recurring  items  reflect  changes in
business conditions resulting from the sale of the ventilation products division
and other changes in market  conditions.  In addition,  reserves for inventories
and bad debts were increased during the quarter.  The result of these activities
is that the Company  strengthened  its balance sheet by reducing debt,  reducing
intangible assets, and increasing reserves.

Further  complicating  the review of operations is the year to year  comparisons
resulting  from the sale of the  ventilation  products  division  on October 31,
1997. The fiscal 1998 results include  ventilation  products division operations
for one month and four  months in the three  month and six month  periods  ended
December 31, 1997 while the fiscal 1997  results  include  ventilation  products
division  operations for the full three month and six month in the periods ended
December 31, 1996.

Each of these  components  and their  impact  on the  operating  results  are as
follows:

SALE OF VENTILATION PRODUCTS DIVISION

On October 31, 1997, the Company sold the assets of Bear Medical  Systems,  Inc.
("Bear") and its subsidiary BiCore Monitoring Systems, Inc. ("BiCore") to Thermo
Electron   Corporation   for  $36.6  million  plus  the  assumption  of  certain
liabilities.  The net  proceeds  of $29.5  million,  after  expenses  as well as
federal and state taxes payable of approximately $6.1 million due in March 1998,
were utilized to repay a significant  portion of its term notes and to repay all
of its subordinated  debt, $15.8 million of which had a coupon rate of 14.0% per
annum. Of the debt which was repaid, $9.0 million would have matured in February
1998.

<PAGE>

The  sale of these  assets  resulted  in an  estimated  gain  before  taxes  for
financial  reporting  purposes  of  $12.8  million,  which  is  recorded  in the
Company's  results of operations  for the three months ended  December 31, 1997.
The gain on sale of the  ventilation  products  division,  as a  discrete  item,
resulted in a tax provision of $9.4 million. The relatively higher effective tax
rate on this transaction  reflected the fact that approximately $12.7 million of
goodwill  associated  with these  businesses  is not  deductible  for income tax
purposes.  The net income  effect of the gain on sale of  business  is income of
approximately $3.4 million, or $0.43 per share.

DEBT REDUCTION

The proceeds from the gain on the sale of the ventilation products division were
used to  significantly  pay down the Company's debt during the second quarter of
fiscal 1998. The $36.6 million  received from the sale of this business was used
to reduce the  Company's  commercial  debt by $35.6  million and to pay the $1.0
million of expenses associated with such sale.

Prior to the sale of the business the Company had $45.6  million in  outstanding
commercial and  subordinated  debt. On November 3, 1997 , the Company repaid two
term notes totaling  $10.8 million,  which had a coupon rate of 14.0% per annum,
and  significantly  reduced the  outstanding  balance of its  revolving  line of
credit and on November 4, 1997 repaid $5.0 million of subordinated  debt,  which
also had a coupon rate of 14.0% per annum,  from the proceeds  obtained from the
sale of business.

NON-RECURRING CHARGES

During the second  quarter of fiscal 1998 the Company  reevaluated  the carrying
value of its various  businesses  and  recorded  $9.8  million of  non-recurring
charges to reflect the changes in business conditions resulting from the sale of
the ventilation and due to other changes in market  conditions  discussed below,
which  culminated  during  the  second  quarter  of fiscal  1998.  The  elements
comprising the $9.8 million of non-recurring charges are:

Goodwill writedowns,  which were determined pursuant to the Company's impairment
policy as described in Note 2 to the June 30, 1997 financial statements, totaled
$8.9 million for the four following businesses:

$4.4 million  associated with the partial goodwill  writedown related to the B&F
     disposable  products business.  Continuing weakness in financial results of
     the business due to market condition changes in the home healthcare market,
     pressures  on pricing,  and overall  weakness in  financial  results of the
     national home health care chains caused  Allied to  re-evaluate  and adjust
     the carrying value of this business.

$2.4 million  associated  with the  writedown of goodwill for Allied's  headwall
     business which continues to experience weakness in financial results due to
     market conditions.

$1.6 million associated with the writedown of Omni-Tech Medical,  Inc. goodwill.
     This  transportation  ventilator  business is directly  related to the Bear
     ventilation   products   division  which  was  recently  sold  and  is  not
     anticipated to contribute to the ongoing operations of the Company.

<PAGE>

$0.5 million   associated  with  the  write-down  of  goodwill  for  the  Design
     Principles,  Inc.  backboard  business.  Increased costs have significantly
     eroded the margins of this business  necessitating a  re-evaluation  of the
     value of the goodwill related to the business.

In addition to the non-cash goodwill  write-downs the other  non-recurring items
include:

$0.5 million of consulting fees related to a co-operative  purchasing study. The
     Company's participation in the study has been formally terminated.

$0.4 million for the  writedown of leasehold  improvements  and a reserve of the
     remaining lease payments for the Mt. Vernon, Ohio facility which was closed
     as part of the Company's rationalization initiatives. The tenant subletting
     this facility is operating under Chapter 11 reorganization protection.

The  combined  tax impact of these  non-recurring  charges,  resulted  in a $0.4
million   tax   benefit.   This   minimal   tax   benefit   resulted   from  the
non-deductibility  for tax purposes of the $8.9 million of goodwill  writedowns.
The  non-recurring  charges,  as a  discrete  item,  resulted  in a net  loss of
approximately $9.4 million or a loss of $1.21 per share.

As a result of the  writedown  of the  carrying  value of  goodwill  for certain
businesses described above the Company expects to reduce its annual amortization
charges by $0.3 million or $0.04 per share.

Financial Information:

The following table sets forth, for the fiscal period indicated,  the percentage
of  net  sales   represented  by  certain  items   reflected  in  the  Company's
consolidated statement of operations.
<TABLE>
<S>                                        <C>            <C>        <C>          <C>   
 
                                           Three Months Ended        Six Months Ended
                                               December 31,             December 31,
                                             1997        1996        1997        1996

Net Sales                                  100.0%      100.0%        100.0%      100.0%
Cost of sales                               71.9        69.3          70.5        68.8
Gross profit                                28.1        30.7          29.5        31.2
Total SG&A expenses                         26.3        29.0          25.0        28.8
Gain on sale of business                   (53.3)        0.0         (23.6)        0.0
Non-recurring charges                       40.7         0.0          18.0         0.0
Income from operations                      14.4         1.7          10.0         2.4
Interest/other expense                       5.2         5.1           5.8         4.5
Income (loss) before provision
     (benefit) for income taxes              9.2        (3.4)          4.2        (2.1)
Provision (benefit) for income taxes        37.0        (1.4)         16.7        (0.8)
Net income (loss) before
        extraordinary item                 (27.8)       (2.0)        (12.5)       (1.3)
Extraordinary (loss)                         0.0         0.0          (1.0)        0.0
Net (loss)                                 (27.8)%      (2.0)%       (13.5)%      (1.3)%

</TABLE>

<PAGE>

RESULTS OF OPERATIONS

Allied  manufactures  and markets  medical gas  equipment,  respiratory  therapy
equipment and emergency medical products. Set forth below is certain information
with respect to amounts  (dollars in  thousands)  and  percentages  of net sales
attributable  to  medical  gas  equipment  respiratory  therapy  equipment,  and
emergency  medical  products for the three months and six months ended  December
31, 1997 compared to the three months and six months ended December 31, 1996.


                                             Three Months Ended
                              December 31, 1997       December 31, 1996
                                          % of                    % of
                                          total                   total
                              Net         net         Net         net
                              sales       sales       sales       sales

Medical Gas Equipment         $10,691     44.5%       $10,144     35.7%
Respiratory Therapy Equipment  10,764     44.8%        15,627     55.1%
Emergency Medical Products      2,579     10.7%         2,617      9.2%
Total                         $24,034    100.0%       $28,388    100.0%



                                            Six Months Ended
                              December 31, 1997       December 31, 1996
                                          %of                     %of
                                          total                   total
                              Net         net         Net         net
                              sales       sales       sales       sales

Medical Gas Equipment         $22,827      42.1%      $20,240      35.2%
Respiratory Therapy Equipment  25,822      47.6%       31,559      54.9%
Emergency Medical Products      5,558      10.3%        5,723       9.9%
Total                         $54,207     100.0%      $57,522     100.0%


Three months ended December 31, 1997 compared to three months ended December 31,
1996

Net sales for the three  months ended  December  31, 1997 of $24.0  million were
$4.4 million  below sales of $28.4  million for the three months ended  December
31, 1996. Of the $4.4 million decline in sales,  $3.7 million of the decline was
attributable  to the  previously  discussed  sale  of the  ventilation  products
division and $0.7 million of the decline relates to the remaining product lines.
The $0.7 million decline in remaining  business sales  represents a 3.2% decline
of these sales from year to year.  Factors impacting sales in the second quarter
include  external  and  internal  issues.  External,  or macro  economic  issues
impacting the Company include the continued pricing pressures in the home health
care  market,  the Asian  currency  devaluations  and  changes in  Medicaid  and
Medicare reimbursement rates, some of which are in effect and

<PAGE>

some of which have been  proposed.  Certain  internal  issues also have impacted
Company  operations.  The sale of the ventilation  products division caused some
short term  disruptions in the field sales force which needed to be realigned to
provide  sufficient  coverage in the domestic markets.  Certain geographic sales
territories  had to be  realigned  or  supplemented  as the  field  sales  force
previously sold both ventilators and the remaining core products of the Company.
The  capital  expenditure  project  in  the  Company's  Toledo,  Ohio  facility,
described in the Company's June 30, 1997 Form 10-K and Form 10-Q for the quarter
ended September 30, 1997, made  significant  progress but, to date, has not been
completed.

New orders,  or the pace of incoming  business,  of $23.7  million for the three
months ended  December 31, 1997 were $8.0 million  below orders of $31.7 million
in the prior year same  period.  Of the $8.0  million  decline  in orders,  $5.2
million was attributable to the sale of the ventilation  products division while
$2.8  million of the decline  relates to the  remaining  businesses.  This 12.2%
decline in  remaining  business  sales were  attributable  to the  external  and
internal  factors  previously  discussed  combined with the  volatility in order
patterns for the headwall  business and the absence of several  large  emergency
products orders, which exceeded $1.0 million in the prior year.

Medical  gas  equipment  sales in the  second  quarter  of fiscal  1998 of $10.7
million were $0.6 million, or 5.4%, in excess of same period prior year of $10.1
million.  Medical gas construction  sales and headwall sales had sales increases
of 24.1% and 38.7%, respectively,  in the second quarter of fiscal 1998 compared
to the same period prior year sales.  These products are generally  ordered in a
period or periods prior to the actual  shipment  date. The increase in shipments
of these  products in the second quarter of fiscal 1998 reflect the strong order
trend  experienced  during the past three to five quarters.  Medical gas suction
and  regulation  device sales  declined by 12.1% in the second quarter of fiscal
1998  compared to the same period prior year sales.  These  products,  which are
generally  shipped in the same  quarter in which they are  ordered,  declined in
sales as a result of soft Asian  demand and because of a  reduction  in stocking
levels of the Company's domestic distributors.  Orders for medical gas equipment
products in the second quarter of fiscal 1998 of $9.1 million were $1.0 million,
or 9.7%,  under  orders of $10.1  million in the second  quarter of fiscal 1997.
Both headwall orders, which are subject to frequent  fluctuations from period to
period because of the large dollar,  infrequent  order patterns of this product,
and medical gas suction and regulation device orders, which experienced softness
as previously  discussed,  were both below prior year comparable  period orders.
Medical gas construction product orders increased from period to period in spite
of a decline in orders from Asian markets.

Respiratory  therapy  equipment  sales in the second  quarter of fiscal  1998 of
$10.8  million were $4.9 million below the prior year same period sales of $15.6
million.  Of the $4.9 million decline in respiratory  therapy  equipment  sales,
$3.7 million of the decline was attributable to the previously discussed sale of
the  ventilation  products  division and $1.2  million of the decline  relate to
remaining product lines.  Sales to the home healthcare market declined by 16.4%.
Reduction in sales of low margin aluminum cylinders,  competitive pressures, and
manufacturing  inefficiencies in the Toledo,  Ohio facility  contributed to this
decline.  Additionally,  pricing  pressures caused by the  consolidation of home
health care dealers and  continued  concerns over  potential  reductions in home
oxygen therapy reimbursement rates continued to impact sales of home health care
products.  While  the  Company  is unable  to  predict  when  these  latter  two
macroeconomic  factors  will be resolved,  until there is a resolution  of these
issues,  current  customer  patterns  are likely to  continue.  The  Company has
continued  to  experience  capacity  limitations  at its Toledo,  Ohio  facility
although late in the quarter  improvements in direct labor constraints and plant
layout changes have begun to improve  efficiencies  and throughput of disposable
products.  Sales to the  hospital  market  declined by 4.5% in the three  months
ended December 31, 1997 compared to the prior year same period.  The new tooling
for the disposable canister units has now been completed which the Company hopes
will result in

<PAGE>

improved fiscal 1998 third quarter hospital sales. In addition, the new Respical
calibration  device has been  introduced  in the third  quarter of fiscal  1998.
Orders of respiratory  therapy products in the second quarter of fiscal 1998 for
the Company's  core products  declined by 3.1% as a result of factors  discussed
above.

Emergency  medical  product  sales in the second  quarter of fiscal 1998 of $2.6
million  were  unchanged  from the  comparable  prior  year  period.  Orders for
emergency  medical  products,  however,  decreased to $2.5 million in the second
quarter of fiscal 1998 from $4.0  million in the second  quarter of fiscal 1997.
The decline is  attributable to the absence of several large orders for the same
prior year period,  which exceeded $1.0 million, and the softness in demand from
Asian markets.

The  impact  of the Asian  currency  devaluation  combined  with the sale of the
ventilation products division affected the Company's  international sales in the
second quarter of fiscal 1998.  International  sales,  which are included in the
product line sales discussed above, were $6.4 million for the three months ended
December  31, 1997, a decline of $1.5 million from sales of $7.9 million for the
three months ended  December 31,  1996.  The decline in  international  sales of
which  $2.0  million  resulted  from  the  previously   discussed  sale  of  the
ventilation products division was partially offset by a year to year increase in
core business  sales of $0.5  million,  principally  from prior quarter  orders.
International  orders of core business  products in the second quarter of fiscal
1998 were 25.2% below the prior year same period international orders because of
the  same  factors  previously  discussed.  As a  result  of  the  sale  of  the
ventilation  products division the percent of the total net sales represented by
the  Company's  international  sales are expected to  approximate  20% in future
periods.

Gross  profit for the second  quarter of fiscal  1998 of $6.7  million  was $2.0
million  below the gross profit of $8.7 million in the second  quarter of fiscal
1997.  Gross profit as a percent to net sales was 28.1% and 30.7% for the second
quarter  fiscal 1998 and fiscal 1997,  respectively.  The sale of higher  margin
ventilator  business impacted the decline in gross margin as these products were
part of the Company's business for one month of fiscal 1998 compared to the full
three  months in fiscal  1997.  Continued  pricing  pressures  brought on by the
consolidations and cost containment initiatives of healthcare providers combined
with  the  Company's   planned   reductions  in   inventories   led  to  reduced
manufacturing throughput and absorption of plant overhead. Both of these factors
also reduced margins as a percent to net sales.  Finally,  the Company increased
inventory  reserves  in excess of $0.5  million in the second  quarter of fiscal
1998.

Selling, General, and Administrative ("SG&A") expenses for the second quarter of
fiscal 1998 were $6.3  million,  a decline of $2.0 million from SG&A expenses of
$8.3 million in the second quarter of fiscal 1997.  This decline is attributable
to  the  sale  of  the  ventilation  products  division.  In  addition,  certain
investments in field sales force training and other consulting  expenses made in
the prior  year did not  repeat in the second  quarter  of fiscal  1998.  In the
current year,  the Company  installed its computer  systems in the Toledo,  Ohio
operations and also incurred recruitment costs to fill several key positions. As
a percent to net sales, SG&A expenses declined to 26.3% in the second quarter of
fiscal 1998 compared to 29.0% in the second quarter of fiscal 1997.

As  previously   discussed,   the  Company   recorded  in  operating   income  a
non-recurring gain on sale of the ventilation products division of $12.8 million
and recorded several non-recurring  impairment losses and other charges totaling
$9.8 million in the second quarter of fiscal 1998.

Income from  operations in the second quarter of fiscal 1998 of $3.5 million was
$3.0 million above income from  operations of $0.5 million in the second quarter
of  fiscal  1997.  The  increase  was  attributable  to the net  effects  of the
non-recurring items described above.  Exclusive of the previously  discussed one
time  items,  income  from  operations  would  have been $0.5  million  for both
periods.

<PAGE>

Interest  expense  for the second  quarter of fiscal  1998 was $1.2  million,  a
decrease of $0.2  million  from  interest  expense of $1.4  million in the prior
year. The Company reduced its  outstanding  debt in early November 1997 by $35.7
million  dollars by applying the net proceeds  from the sale of the  ventilation
products division. Taxes due on the gain, of approximately $6.1 million, will be
paid in March, 1998. Accordingly debt levels will be lower until such payment is
made.  Interest  expense  during the second quarter of fiscal 1998 included $0.4
million for the full  amortization  of loan costs related to the portion of debt
that was paid down with the proceeds from the gain.  Such  amortization  of loan
costs partially  offset the reduction in interest  expense  resulting from lower
average  debt levels in the second  quarter of fiscal 1998  compared to the same
period in fiscal 1997.

Allied had income  before  provision  for  income  taxes of $2.2  million in the
second  quarter of fiscal 1998  compared to a loss before  provision  for income
taxes of $0.9 million in the prior year comparable  period,  an increase of $3.1
million based on the factors described above.

The provision  for income taxes of $8.9 million in the second  quarter of fiscal
1998 as compared to income before taxes of $2.2 million,  resulted in an unusual
effective tax rate of 403%,  which primarily  reflected the tax effects relative
to the non-recurring items recorded in the quarter as previously  discussed.  In
the second quarter of fiscal 1997 Allied recorded a tax benefit of $0.4 million,
for an effective tax rate of 41% on a loss before taxes of $0.9 million.

The net loss for the second quarter of fiscal 1998 is $6.7 million, or $0.86 per
basic share. Exclusive of the gain on the sale of the business and non-recurring
charge the net loss for the second  quarter of fiscal  1998 would have been $0.7
million or $0.08 per basic share.  Earnings per share amounts reported are basic
earnings per share,  which are  substantially the same as fully diluted earnings
per share.  The number of common shares used in the  calculation of earnings per
share was  7,806,682  and  7,796,682  for the second  quarter of fiscal 1998 and
fiscal 1997, respectively.

SIX MONTHS  ENDED  DECEMBER 31, 1997  COMPARED TO SIX MONTHS ENDED  DECEMBER 31,
1996

Net sales for the six months  ended  December  31,  1997 were $54.2  million,  a
decrease of $3.3 million  from net sales of $57.5  million in the same period in
the prior year. Of the $3.3 million  decline in net sales,  $3.7 million related
to the sale of the  ventilation  products  division,  in the  second  quarter of
fiscal 1998 which was partially  offset by an increase in sales of core business
products of $0.4 million.  Certain external and internal factors,  as previously
discussed,  impacted  sales in the first six months of fiscal 1998.  Of the $0.4
million  increase in core product  sales for the six months  ended  December 31,
1997,  an  increase of $1.1  million  occurred  in the first  quarter  which was
partially offset by a decline of $0.7 million in the second quarter.  Orders for
the six months ended  December  31, 1997 of $54.7  million was $6.9 million less
than orders of $61.6 million for the six months ended  December 31, 1996. Of the
$6.9  million  decline  in  orders,  $4.6  million  related  to the  sale of the
ventilation  products  division while $2.3 million related to the Company's core
business.  The decline in core  business  orders  consisted of a decrease in the
second  quarter  orders of $2.7  million  which was  partially  offset by a $0.4
million increase in the first quarter year to year order comparison.  Management
can not predict when the ramifications of the previously discussed macroeconomic
conditions  will be resolved,  particularly  the decline in the Asian market and
pressures from the home  healthcare  market.  Internal  operational  issues,  as
previously  discussed,  are being  addressed and have been  improving,  however,
there can be no assurance to the extent that these issues will be resolved.

<PAGE>


Medical gas equipment  sales for the six months ended December 31, 1997 of $22.8
million were $2.4 million,  or 12.8% above same period prior year sales of $20.2
million.  Medical gas system  construction  sales,  headwall sales,  medical gas
suction and regulation  device sales experienced  increases of 20.1%,  39.8% and
2.2%,  respectively,  for the six months ended December 31, 1997 compared to the
same period prior year sales.  The  increase in shipments of these  products for
the six  months  ended  December  31,  1997  reflected  the strong  order  trend
experienced during the past three to five quarters;  however, order patterns for
these  products,   particularly  medical  gas  suction  and  regulation  devices
experienced market softness, as previously discussed,  during the second quarter
of fiscal 1998.

Orders for  medical gas  equipment  of $19.8  million  for the six months  ended
December 31, 1997 were $1.4  million,  or 6.6% less than orders of $21.2 million
for the six months ended December 31, 1996. Medical gas construction orders have
increased  by  5.7%  while  headwall  orders,  which  are  subject  to  frequent
fluctuations  in order  patterns,  declined  44.5%,  and orders for  medical gas
suction and regulation devices, which experienced soft second quarter demand, as
previously  discussed,  have  declined  9.5% as  compared to the prior year same
period orders.

Respiratory  therapy  equipment sales for the six months ended December 31, 1997
of $25.8  million  were $5.7  million  below the prior year same period sales of
$31.5 million.  Of the decline,  $3.7 million was attributable to the previously
discussed  sale of the  ventilator  business  and $2.0  million  of the  decline
relates to the Company's  remaining product lines.  Sales to the home healthcare
market  declined  by 16.2%  attributable  to  external  factors in the market as
previously discussed. In addition, pricing pressures caused by the consolidation
of home health care dealers and continued  concerns over potential  Medicare and
Medicaid  reductions in home oxygen  therapy  reimbursement  rates  continued to
impact  sales of home  health  care  products.  The  Company  has  continued  to
experience  capacity  limitations at the Toledo,  Ohio facility  although recent
improvements in direct labor  constraints and plant layout changes have begun to
improve  efficiencies  and  throughput  of  disposable  products.  Sales  to the
hospital  market  increased  by 9.5% in the six months  ended  December 31, 1997
compared  to the prior year same  period but had  declined by 4.5% in the second
quarter  of fiscal  1998,  as  previously  discussed.  The new  tooling  for the
disposable  canister units has now been  completed  which the Company hopes will
improve  fiscal  1998  third  quarter  sales.  In  addition,  the  new  Respical
calibration  device has been  introduced  in the third  quarter of fiscal  1998.
Orders of  respiratory  therapy  products for the six months ended  December 31,
1997  for  the  remaining  products  declined  by 3.6% as a  result  of  factors
discussed above.

Emergency  medical  product  sales  of $5.6  million  for the six  months  ended
December 31, 1997 were $0.1 million,  or 2.9% under sales of $5.7 million in the
comparable prior year period. Orders for emergency medical products decreased to
$6.3  million for the six months  ended  December 31, 1997 from $6.5 million for
the six months  ended  December 31, 1996.  The decline was  attributable  to the
absence of several  large  orders  booked in the second  quarter of fiscal 1997,
which exceeded $1.0 million,  that did not repeat in the current year and due to
softness in demand from Asian markets.

The  impact of the Asian  currency  devaluations  combined  with the sale of the
ventilation  products  division,  both events occurring in the second quarter of
fiscal 1998, affected the Company's international sales for the six months ended
December 31, 1997.  International  sales, which are included in the product line
sales discussed above,  were $16.0 million for the six months ended December 31,
1997, a decline of $0.1 million from  international  sales of $16.1  million for
the six  months  ended  December  31,  1996.  A $2.0  million  decline  in sales
resulting  from  the  previously  discussed  sale  of the  ventilation  products
division was partially

<PAGE>

offset by a year to year increase in core business  sales of $1.9 million.  Core
business  international sales increased by 21.2% from year to year, however, the
shipments  primarily  related to prior quarter orders.  International  orders of
core business  products  were 3.3% ended  December 31, 1997 below the prior year
same period  international  orders.  As a result of the sale of the  ventilation
products  division the percent of total net sales  represented  by the Company's
international sales is expected to approximate 20%.

Gross  profit for the six months ended  December  31, 1997 of $16.0  million was
$2.0 million  below the gross  profit of $18.0  million for the six months ended
December  31,  1996.  Gross profit as a percent to net sales was 29.5% and 31.2%
for the six months ended December 31, 1997 and December 31, 1996,  respectively.
The sale of the high margin  ventilation  products division impacted the decline
in gross margin as these  products were part of the Company's  business for only
four  months of fiscal  1998  compared  to the full six  months in fiscal  1997.
Continued  pricing  pressures  brought  on  by  the   consolidations   and  cost
containment  initiatives  of  healthcare  providers  and the  Company's  planned
reductions in inventories led to reduced  manufacturing  throughput resulting in
lower  absorption of plant overhead  which also reduced  margins as a percent to
net sales.  Finally,  the Company increased inventory reserves in excess of $0.8
million in the six months ended December 31, 1997.

Selling,  General, and Administrative ("SG&A") expenses for the six months ended
December  31,  1997 were  $13.6  million,  a decline of $3.0  million  from SG&A
expenses of $16.6  million  for the six months  ended  December  31,  1996.  The
decline  in SG&A  primarily  relates  to the  sale of the  ventilation  products
division.  In  addition,  certain  investments  in field sales  force  training,
product literature expenditures, and other consulting expenses made in the prior
year did not repeat in fiscal 1998. In the current year,  the Company  installed
to its  computer  systems  at its  Toledo,  Ohio  operations  and also  incurred
recruitment costs to fill several key positions. As a percent to net sales, SG&A
expenses  declined to 25.0% for the six months ended  December 31, 1997 compared
to 28.9% for the six months ended December 31, 1996.

As previously  discussed,  the Company recorded a non-recurring  gain on sale of
the  ventilation  products  division of $12.8  million in  operating  income and
recorded  several  non-recurring  charges  totaling  $9.8  million in the second
quarter of fiscal 1998.

Income  from  operations  for the six months  ended  December  31,  1997 of $5.4
million was $4.0 million  above income from  operations  of $1.4 million for the
six months ended December 31, 1996. The increase was primarily  attributable  to
the net  effects  of the  non-recurring  items  described  above  combined  with
operational  improvements noted in the first quarter of fiscal 1998. Without the
non-recurring items discussed above, income from operations would have been $2.4
million for the six months ended  December 31, 1997 compared to $1.4 million for
the prior year same period.

Interest expense for the six months ended December 31, 1997 was $3.1 million, an
increase of $0.5  million  over  interest  expense of $2.5  million in the prior
year. This increase was attributable to the significant fees the Company paid to
its  previous  bank  syndicate  in the first  quarter  of fiscal  1998 to obtain
covenant waivers.  On August 8, 1997, the Company refinanced its commercial debt
and  entered  into  a  $46.0  million  credit  facility  with  Foothill  Capital
Corporation and the Company also obtained $5.0 million of subordinated debt. The
refinancing   arrangement  eliminated  the  requirement  of  making  significant
quarterly  fee  payments to obtain  covenant  waivers.  The Company  reduced its
outstanding  debt in early November by $35.7 million dollars by applying the net
proceeds  of the sale of the  ventilation  products  division.  Taxes due on the
gain, of approximately $6.1 million,  will be paid in March, 1998.  Accordingly,
debt levels will be lower until such payment is made.  Interest  expense  during
the six months ended  December 31, 1997 also  included $0.4

<PAGE>

million for the full  amortization  of loan costs related to the portion of debt
that was paid down with the proceeds from the gain.

Allied had income  before  provision for income taxes of $2.3 million in the six
months ended  December 31, 1997  compared to a loss before  provision for income
taxes of $1.2 million in the prior year comparable  period,  an increase of $3.5
million, based on the factors described above.

The provision for income taxes of $9.1 million for the six months ended December
31, 1997 as  compared  to income  before  taxes and  extraordinary  loss of $2.3
million,  resulted  in an unusual  effective  tax rate of 399%  which  primarily
reflected the tax effects  relative to the  non-recurring  items recorded in the
second quarter of fiscal 1998. In the six months ended December 31, 1996, Allied
recorded a tax benefit of $0.5  million,  for an effective  tax rate of 40% on a
loss before taxes of $1.2 million.

Allied recorded an extraordinary loss on the early extinguishment of debt, which
is discussed  further below,  of $0.5 million,  or $0.07 basic per share, in the
first quarter of fiscal 1998. This extraordinary loss is net of a tax benefit of
$0.4 million.  The net loss for the six months ended  December 31, 1997 was $7.3
million,  or $0.94 per basic share.  Exclusive of the  extraordinary  loss,  the
non-recurring  gain on the sale of the ventilation  products division  business,
and the  other  non-recurring  charges,  the net loss for the six  months  ended
December  31,  1997  would  have been  $0.8  million  or $0.09 per basic  share.
Earnings  per share  amounts  reported are basic  earnings per share,  which are
substantially  the same as  diluted  earnings  per  share.  The number of common
shares used in the calculation of earnings per share was 7,803,389 and 7,796,682
for the first six months of fiscal 1998 and fiscal 1997, respectively.

FINANCIAL CONDITION

The  following  table  sets  forth  selected  information   concerning  Allied's
financial condition:

      Dollars in thousands           December 31, 1997            June 30, 1997
      --------------------           -----------------            -------------
      Cash                             $1,375                     $988
      Working Capital                  $18,045                    $18,743
      Total Debt                       $15,303                    $46,932
      Current Ratio                     1.84:1                     1.57:1

The Company's working capital was $18.0 million at December 31, 1997 compared to
$18.7 million at June 30, 1997. Inventories,  other current assets, and accounts
payable  all  decreased  as a result  of the  previously  discussed  sale of the
ventilation  products  division.  Proceeds  from  such  sale  were  utilized  to
significantly reduce debt during the second quarter,  which is discussed further
below.  Accounts  receivables declined to $16.6 million at December 31, 1997, or
$6.5 million from $23.1 million at June 30, 1997. Of this decline,  $7.3 million
are  receivables  attributable  to the  ventilator  business which was partially
offset by an increase in  receivables  of $0.8  million for the  Company's  core
business.  Accounts  receivables as measured in days sales  outstanding  ("DSO")
increased  to 74 DSO from 71 DSO in this  period,  primarily  as a result of the
slow down in customers  payments during the winter holiday season. The amount of
receivables  over 90 days from date of  invoice  declined  by $0.5  million  and
related  reserves as a  percentage  of  receivables  increased  by one half of a
percentage point. Inventories declined to $21.2 million, at December 31, 1997 or
$4.8 million, from $26.0 million at June 30, 1997. Of this decline, $4.7 million
is attributable to the ventilator  business which was combined with a decline of
$0.1  million in  inventories  related to the core  business.  The  Company  has
focused on improving the mix of  inventories  and has been  increasing  stocking
levels of high sales volume products while simultaneously  reducing the stocking
levels of low sales volume  products.  Inventories, as

<PAGE>

measured in days on hand ("DOH")  increased to 131 DOH at December 31, 1997 from
124 DOH at June 30, 1997. Accounts payable decreased to $9.7 million at December
31, 1997, down $4.3 million from the June 30, 1997 balance of $14.0 million.  Of
this  decline,  $1.2  million of payables  related to the  ventilation  products
division.  The Company experienced limited liquidity during fiscal 1997 due to a
reduction in borrowing  availability  related to principal  payments made on its
term loans  combined with the high level of fees paid to the Company's  previous
commercial  bank  group,  as  previously  discussed.  Consequently,  payments to
vendors and other  obligations were extended,  causing some disruption in vendor
deliveries  and  services.   The  Company's  limited  liquidity   situation  was
alleviated with the completion of its debt refinancing, on August 8, 1997, which
is discussed  further below.  The Company is current on all its  obligations and
disruptions of vendor deliveries and services have been eliminated.  The current
portion of long term debt at  December  31,  1997 was $2.0  million  compared to
$12.9 million at June 30, 1997.  The June 30, 1997 current  portion of long term
debt included $4.0 million of term notes and $5.0 million of  subordinated  debt
which were due to mature on  February  1, 1998,  but were  repaid on November 3,
1997 and November 4, 1997,  respectively,  in  conjunction  with the sale of the
ventilation products division.

The net  increase/(decrease)  in cash for the six months ended December 31, 1997
and 1996 was $0.4 million and $(0.1) million, respectively. Net cash provided by
(used by)  operations  was $(2.7) million and $1.3 million for the same periods.
Cash used by operations  for the six months ended December 31, 1997 consisted of
a net loss of $7.3  million  which  was  partially  offset  by $2.9  million  in
non-cash  charges to operations for amortization  and  depreciation,  a non-cash
loss on refinancing  charges of $0.9 million and changes in working  capital and
defined tax accounts of $5.1 million. In addition,  the Company reported a $12.8
million  gain on sale  the  ventilation  products  division  and  also  recorded
non-recurring  charges,  for which the non-cash portion is $9.5 million,  in the
six months ended December 31, 1997.  The Company  received  pre-tax  proceeds of
$36.0 million on the sale the ventilation products division,  reduced total debt
by $32.4 million,  and made capital  expenditures of $1.0 million which resulted
in net  increase in cash of $0.4  million in the six months  ended  December 31,
1997. Cash provided by operations for the comparable prior year period consisted
of a net loss of $0.7 million  which was offset by the non-cash  charges of $2.7
million for depreciation and amortization,  as well as cash generated by changes
in working  capital  accounts,  which included a tax refund of $1.8 million,  of
$2.6 million.  The cash provided by operations was used for capital expenditures
of $1.3  million  results in a net  decrease in cash of $0.1 million for the six
months ended  December 31, 1996.  The adverse  results of operations  during the
latter  half of fiscal  1996 and  during  fiscal  1997  impacted  the  Company's
liquidity and the ability of the Company to continue  historical levels of fixed
payments. Accordingly, on August 21, 1996 the Company's Board of Directors voted
to suspend quarterly dividends effective  immediately  subsequent to the payment
of dividends for the fourth quarter of fiscal 1996. In addition,  to improve the
liquidity of the Company and to reduce interest  expense,  on August 8, 1997 the
Company refinanced its existing debt, which is discussed further below.

At December 31, 1997, the Company had aggregate  indebtedness  of $15.3 million,
including $2.0 million of short-term  debt and $13.3 million of long-term  debt.
At June 30,  1997,  the Company had  aggregate  indebtedness  of $46.9  million,
including  $12.9 million of short-term debt and $34.0 million of long-term debt.
Throughout  fiscal  1996 the Company  entered  into a series of  amendments  and
waiver  negotiations  with its previous bank syndicate.  During fiscal 1997, the
Company paid waiver fees totaling  approximately  $2.2 million for the September
1996  amendment  to its  credit  facilities,  to obtain  waivers  for  technical
covenant  violations at December 31, 1996 and March 31, 1997 and paid additional
fees of $0.4  million  in the first  quarter of fiscal  1998.  The  Company  was
unsuccessful  in its  attempts  to  negotiate  a  long-term  agreement  with its
previous bank syndicate.  Accordingly,  on August 8, 1997 the Company refinanced
its existing  debt through a new $46.0  million  credit  facility  with Foothill
Capital  Corporation.  The new credit facility,  with a blended average interest
rate of 10.2%,  was comprised of a $25.0 million  three-year  revolving  

<PAGE>

line of  credit,  three-year  term  loans of  $10.0  million  and $7.0  million,
respectively,  and a $4.0  million  term loan  maturing  in  February  1998.  In
conjunction  with its new credit  facilities,  Allied placed an additional  $5.0
million in  subordinated  debt , with  several  related  parties to the  Company
maturing in February 1998 In addition, the Company issued 112,500 warrants at an
exercise  price of  $7.025  per  share,  62,500  of  which  were  issued  to the
subordinated  debt  holders  and the balance  were  issued to  Foothill  Capital
Corporation.  Such  warrants  are  exerciseable  at the  option  of  the  holder
beginning  February 8, 1998.  The proceeds  from the August 8, 1997  refinancing
were used to replace the Company's outstanding debt with the previous commercial
bank syndicate,  and to provide  additional  liquidity.  On October 31, 1997 the
Company completed the sale of its ventilation products division.  On November 3,
1997 the  Company  repaid  two  term  notes  and a  significant  portion  of its
revolving  credit  facility to Foothill.  On November 4, 1997 the Company repaid
its $5.0 million  subordinated debt.  Amendments to the Foothill credit facility
are  expected to be  completed  in the fiscal 1998 third  quarter to reflect the
impact of the significant  reductions in the Company's  outstanding debt and the
sale of the ventilation  products division.  The Company believes that cash flow
from  operations and available  borrowings  under its credit  facilities will be
sufficient to finance fixed payments and planned capital  expenditures in fiscal
1998.

As of December 31, 1997, the Company had a backlog of $19.2 million  compared to
a  backlog  of  $24.9  million  at June  30,  1997.  The  Company's  backlog,  a
significant  portion  of which is  attributable  to the  Company's  medical  gas
equipment  products,  consists of firm  customer  purchase  orders  which may be
subject to  cancellation by the customer.  The sale of the ventilation  products
division  reduced the Company's  backlog by $3.7 million as compared to June 30,
1997.  The  Company's  backlog  increased  in  emergency  medical  products  and
respiratory  therapy  products in the six months  ended  December  31, 1997 such
increase  was being  partially  offset by a decline in backlog  for  medical gas
equipment products.

Inflation has not had a material effect on the Company's  business or results of
operations.

Part II.     OTHER INFORMATION

Item 5.     Other Information

On February 9, 1998 the Company  announced the  appointment  of James B. Hickey,
Jr. to its board of directors. The Company also reduced its board size from nine
to seven  members  by  accepting  the  resignation  of board  members  Samuel A.
Hamacher, James C. Janning, and Donald E. Nickelson.

Item 6.       Exhibits and Reports on Form 8-K

(a)    Exhibits

       Exhibit 27 - Financial Data Schedule

(b)    Reports on Form 8-K
       
       (i)  Form 8-k dated as of October 7, 1997  (announcing  that the  Company
            had  entered  into  a  definitive  agreement  with   Thermo-Electron
            Corporation regarding the sale of substantially  all of  the  assets
            of the  Company's  ventilation products division).

      (ii)  Form 8-k dated as of October 31,  1997  (reporting  the  disposition
            of  substantially  all of  the assets  of the Company's  ventilation
            products division).
     



<PAGE>


                                    SIGNATURE


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



                                    ALLIED HEALTHCARE PRODUCTS, INC.



Date: February 17, 1998                    /Barry F. Baker/
                                    -----------------------------------------
                                    Barry F. Baker
                                    Vice President - Finance and Chief Financial
                                      Officer
                                    (Principal Accounting and Financial Officer)