<PAGE>   1


                                   FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


For Quarter Ended:  September 30, 1996

Commission file number:  0-11363


                            CHAD THERAPEUTICS, INC.
             (Exact name of registrant as specified in its charter)

           California                             95-3792700
   (State or other jurisdiction of             (I.R.S. Employer
   incorporation or organization)             Identification No.)

  21622 Plummer Street, Chatsworth, CA               91311
(Address of principal executive offices)           (Zip Code)

                                 (818) 882-0883
              (Registrant's telephone number, including area code)

                   9445 De Soto Avenue, Chatsworth, CA 91311
                                (Former Address)


(Former  name, former address and former fiscal year, if  changed since last 
report.)

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes..X..  No.....

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

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

                       Common Shares           9,634,435



<PAGE>   2
                            CHAD THERAPEUTICS, INC.
                                 Balance Sheets
                     September 30, 1996 and March 31, 1996


                                     ASSETS

<TABLE>
<CAPTION>
                                                 September 30,     March 31,
                                                     1996            1996   
                                                 ------------     ----------
                                                  (Unaudited)
<S>                                              <C>             <C>
Current assets:
   Cash                                          $   617,000     $ 1,809,000
   Marketable securities                           1,500,000       1,029,000
   Accounts receivable, less allowance for
     doubtful accounts of $114,000 at
     September 30, 1996, and $92,000 at
     March 31, 1996                                3,945,000       2,872,000
   Inventories (Note 2)                            5,499,000       4,011,000
   Income taxes refundable                            93,000           -
   Prepaid expenses                                  246,000         145,000
   Deferred income taxes                             356,000         356,000
                                                  ----------      ----------
     Total current assets                         12,256,000      10,222,000

Property and equipment, at cost                    2,457,000       1,074,000
     Less accumulated depreciation                   610,000         574,000
                                                  ----------      ----------
        Net property and equipment                 1,847,000         500,000
                                                  ----------      ----------

Other assets, net                                    479,000          56,000
                                                  ----------      ----------

     Total assets                                $14,582,000     $10,778,000
                                                  ==========      ==========

                   LIABILITIES AND SHAREHOLDERS' EQUITY
                   ------------------------------------

Current liabilities:
   Accounts payable                              $   506,000     $   399,000
   Accrued expenses                                  917,000         424,000
   Income taxes payable                                -             180,000
                                                  ----------      ----------

     Total current liabilities                     1,423,000       1,003,000
                                                  ----------      ----------

Shareholders' equity:
 Common shares, $.01 par value, authorized
  40,000,000 shares; 9,634,000 and 9,623,000
  shares issued and outstanding                    6,875,000       6,791,000
 Retained earnings                                 6,286,000       3,052,000
                                                  ----------      ----------
                                                  13,161,000       9,843,000
 Less treasury shares at cost, 1,000 and
  5,000 shares                                        (2,000)        (68,000)
                                                  ----------      ---------- 

     Net shareholders' equity                     13,159,000       9,775,000
                                                  ----------      ----------

     Total liabilities and shareholders' equity  $14,582,000     $10,778,000
                                                  ==========      ==========
</TABLE>


See accompanying notes to financial statements.
<PAGE>   3
                            CHAD THERAPEUTICS, INC.
                             Statements of Earnings
              For the six months ended September 30, 1996 and 1995

                                  (Unaudited)


<TABLE>
<CAPTION>
                                                      Six Months Ended
                                                ---------------------------
                                                    1996            1995
                                                    ----            ----
<S>                                             <C>             <C>
Net sales                                       $15,129,000     $10,547,000
Cost of sales                                     6,279,000       4,538,000
                                                 ----------      ----------

        Gross profit                              8,850,000       6,009,000

Costs and expenses:
   Selling, general and administrative            3,108,000       2,705,000
   Research and development                         413,000          55,000
                                                 ----------      ----------

        Total costs and expenses                  3,521,000       2,760,000
                                                 ----------      ----------

        Operating income                          5,329,000       3,249,000

   Other income - interest income                    62,000          43,000
                                                 ----------      ----------

        Earnings before income taxes              5,391,000       3,292,000
Income taxes                                      2,157,000       1,316,000
                                                 ----------      ----------

        Net earnings                            $ 3,234,000     $ 1,976,000
                                                 ==========      ==========

            Net earnings per share              $       .31     $       .20
                                                  =========      ==========
Weighted average number of common shares
   (Note 3)                                      10,384,000      10,146,000
                                                 ==========      ==========
</TABLE>



See accompanying notes to financial statements.
<PAGE>   4
                            CHAD THERAPEUTICS, INC.
                             Statements of Earnings
             For the three months ended September 30, 1996 and 1995

                                  (Unaudited)


<TABLE>
<CAPTION>
                                                     Three Months Ended
                                                --------------------------
                                                    1996            1995
                                                    ----            ----
<S>                                             <C>             <C>
Net sales                                       $7,357,000      $5,264,000
Cost of sales                                    3,100,000       2,185,000
                                                 ---------       ---------

        Gross profit                             4,257,000       3,079,000

Costs and expenses:
   Selling, general and administrative           1,469,000       1,365,000
   Research and development                        138,000          39,000
                                                 ---------       ---------

        Total costs and expenses                 1,607,000       1,404,000
                                                 ---------       ---------

        Operating income                         2,650,000       1,675,000

   Other income - interest income                   35,000          28,000
                                                 ---------       ---------

        Earnings before income taxes             2,685,000       1,703,000
Income taxes                                     1,075,000         682,000
                                                 ---------       ---------

        Net earnings                            $1,610,000      $1,021,000
                                                 =========       =========

            Net earnings per share              $      .15      $      .10
                                                  ========       =========
Weighted average number of common shares
   (Note 3)                                     10,403,000      10,253,000
                                                ==========      ==========
</TABLE>



See accompanying notes to financial statements.
<PAGE>   5
                            CHAD THERAPEUTICS, INC.
                       Statement of Shareholders' Equity
                  For the six months ended September 30, 1996
                                  (Unaudited)



<TABLE>
<CAPTION>
                                       Common Shares         Retained     Treasury
                                     Shares     Amount       Earnings      Shares 
                                   ---------  ----------   ------------   --------
<S>                                <C>        <C>          <C>            <C>
Balance at
 March 31, 1996                    9,623,000  $6,791,000   $ 3,052,000    $(68,000)

Exercise of stock options             11,000      65,000         -            -

Common shares issued for
 purchases under employee
 benefit plan                          -          19,000         -          66,000

Net earnings                           -           -         3,234,000        -   
                                   ---------   ---------    ----------     -------
Balance at
 September 30, 1996                9,634,000  $6,875,000   $ 6,286,000    $ (2,000)
                                   =========   =========    ==========     ======= 
</TABLE>



See accompanying notes to financial statements.
<PAGE>   6
                            CHAD THERAPEUTICS, INC.
                            Statements of Cash Flows
              For the six months ended September 30, 1996 and 1995

                                  (Unaudited)


<TABLE>
<CAPTION>
                                                         Six Months Ended
                                                     ------------------------
                                                        1996          1995
                                                        ----          ----
<S>                                                  <C>           <C>
Cash flows from operating activities:
   Net earnings                                      $ 3,234,000   $ 1,976,000
   Adjustments to reconcile net earnings to
     net cash used in operating activities:
       Depreciation and amortization                      69,000        50,000
       Changes in assets and liabilities:
         Decrease (increase) in accounts receivable   (1,073,000)     (752,000)
         Decrease (increase) in inventories           (1,488,000)     (303,000)
         Decrease (increase) in income taxes
           refundable                                    (93,000)       84,000
         Decrease (increase) in prepaid expenses        (101,000)      (35,000)
         Decrease (increase) in deferred income taxes      -            80,000
         Decrease (increase) in other assets            (423,000)     (156,000)
         Increase (decrease) in accounts payable         107,000       (64,000)
         Increase (decrease) in accrued expenses         493,000       617,000
         Increase (decrease) in income taxes payable    (180,000)      186,000
                                                      ----------    ----------
               Net cash provided by
               operating activities                      545,000     1,683,000
                                                      ----------    ----------

Cash flows from investing activities:
   Increase in marketable securities                    (471,000)   (1,807,000)
   Capital expenditures                               (1,416,000)     (140,000)
                                                      ----------    ---------- 

               Net cash (used in) investing
               activities                             (1,887,000)   (1,947,000)
                                                      ----------    ---------- 

Cash flows from financing activities:
   Exercise of stock options                              65,000        18,000
   Common shares repurchased                               -          (620,000)
   Common shares issued                                   85,000        10,000
   Other                                                   -             3,000
                                                      ----------    ----------
               Net cash provided by (used in)
               financing activities                      150,000      (589,000)
                                                      ----------    ---------- 

Net increase (decrease) in cash                       (1,192,000)     (853,000)
Cash beginning of period                               1,809,000     1,219,000
                                                      ----------    ----------

Cash end of period                                   $   617,000   $   366,000
                                                      ==========    ==========
</TABLE>



See accompanying notes to financial statements.
<PAGE>   7
                            CHAD THERAPEUTICS, INC.
                               September 30, 1996
                                  (Unaudited)


1.       Interim Reporting

         Chad Therapeutics, Inc. (the Company) is in the business of
         developing, producing and marketing respiratory care devices designed
         to improve the efficiency of oxygen delivery systems for home health
         care and hospital treatment of patients suffering from pulmonary
         diseases.

         In the opinion of management, all adjustments necessary, which are of
         a normal and recurring nature, to a fair statement of the results for
         the interim periods presented have been made.  The interim statements
         are condensed and do not include some of the information necessary for
         a more complete understanding of the financial data.  Accordingly,
         your attention is directed to the footnote disclosures found on pages
         18, 19, 20 and 21 of the March 31, 1996, Annual Report and
         particularly to Note 1 which includes a summary of significant
         accounting policies.

2.       Inventories

        Inventories at September 30, 1996, are summarized as follows:

<TABLE>
                    <S>                     <C>
                    Finished goods          $  726,000
                    Work-in-Process          1,374,000
                    Raw materials            3,399,000
                                             ---------
                                            $5,499,000
                                             =========
</TABLE>

3.       Net Earnings Per Common Share

         Net earnings per common share is based on the weighted average number
         of shares and common stock equivalents (stock options) outstanding.
         The weighted average number of shares for the periods ended September
         30, 1995, has been restated for the three-for-two stock split
         distributed on October 16, 1995, and the periods ended September 30,
         1996 and 1995 have been restated for the 3% stock dividend distributed
         on October 15, 1996.
<PAGE>   8
                            CHAD THERAPEUTICS, INC.
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations

                               September 30, 1996

Results of Operations

Sales for the three and six months ended September 30, 1996, increased
$2,093,000 and $4,582,000 or 39.8% and 43.4%, respectively, over the prior
year's periods.  There were no price increases during the periods presented.
The increase in sales relates primarily to increases in domestic sales of
OXYMATIC conservers and OXYLITE complete portable oxygen systems which are
benefiting from the current marketing environment for home oxygen therapy
discussed below.

Sales to foreign distributors represented 14% and 11% of total sales for the
six month periods ended September 30, 1996 and 1995, respectively, as these
sales increased at a slightly slower rate than domestic sales.  Currently,
management expects a smaller increase in sales to foreign distributors during
the upcoming fiscal year and while these sales should continue to increase on
an annual basis, quarter to quarter sales will fluctuate depending on the
timing of shipments.  In addition, all foreign sales are transacted in dollars,
thus quarter to quarter unit sales could be affected by foreign currency
fluctuations.

In June, 1989, a new procedure for payment by Medicare for home oxygen services
became effective which provides a prospective flat fee monthly payment based
solely on the patient's prescribed oxygen requirement.  Previously dealers were
reimbursed on the basis of total oxygen delivered and a rental charge which
varied based on the type of system being used and other factors.  The prior
procedure tended to encourage waste and inefficiency.  Consequently, with the
incentive now to operate efficiently, inexpensive concentrators have grown in
popularity because of low cost and less frequent servicing requirements.  At
the same time, interest heightened in oxygen conserving devices which can
extend the life of oxygen supplies and reduce service calls by dealers.
Management believes the new reimbursement procedures have heightened interest
in the cost savings and increased mobility afforded by oxygen conserving
devices such as the Company's products.

In addition, other changes in the health care delivery system - including the
increase in the acceptance and utilization of managed care - has stimulated a
significant consolidation among home oxygen dealers.  As major national and
regional home medical equipment chains attempt to secure managed care contracts
and improve their market position, they have expanded their distribution
networks through the acquisition of independent dealers in strategic areas.
Two major national chains presently account for approximately 25% of the
Company's domestic sales.  This percentage is approximately equal to these
chains total market share in the home oxygen business.  The Company's products,
which allow homecare dealers to provide cost efficient home oxygen therapy, are
ideally suited for use in a managed care environment and as a tool for dealers
to increase revenues and profits.  To ensure continued awareness of the benefits
<PAGE>   9
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations

                               September 30, 1996

Results of Operations (continued)

of the Company's products by chain headquarters personnel, a proactive
marketing and communication program is in effect  with all of the major
national chains.  Management believes that the consolidation activity being
experienced in the home oxygen business is temporary and should have no
material adverse effects on the Company's growth.

Cost of sales as a percent of net sales were 42.1% and 41.5% for the three
months ended September 30, 1996 and 1995, respectively, and decreased from 43%
to 41.5% for the six months ended September 30, 1996 and 1995, respectively.
The current period has benefitted from decreased production costs associated
with bringing certain manufacturing operations in house and increased volume
levels.  Management believes the cost per unit should remain at or near current
levels in future periods as efficiencies of in house manufacturing have mostly
been realized.

Selling, general and administrative expenditures decreased as a percentage of
net sales for the three and six months ended September 30, 1996, from 25.9% to
20% and from 25.7% to 20.5%, respectively, as compared to the prior year's
periods, as the rate of growth in sales exceeded the increased costs associated
with such growth.  Research and development expenses increased by $99,000 and
$358,000 for the three and six months ended September 30, 1996, respectively,
as compared to the prior year's periods.  Currently, management expects
research and development expenditures to total approximately $600,000 in the
fiscal year ended March 31, 1997, on projects to enhance and expand the
Company's product line.

At March 31, 1995, the Company had fully utilized its net operating loss
carryforwards for Federal income tax purposes and other tax credit
carryforwards.  Future years will therefore be fully taxed and management
estimates that the combined Federal and California income tax rates will be
approximately 40%, as compared to 39.1% in 1996 and 31.5% in 1995.

Financial Condition

At September 30, 1996, the Company had cash and marketable securities totaling
$2,117,000 or 15% of total assets, as compared to $2,838,000 (26%) at March 31,
1996.  Approximately, $1,200,000 has been expended through September 30, 1996,
for capital expenditures associated with the construction of the Company's new
corporate headquarters.  Net working capital increased from $9,219,000 at March
31, 1996, to $10,833,000 at September 30, 1996. Accounts receivable increased
$1,073,000 during the period ended September 30, 1996, which related to the
increase in sales activity.  Future increases or decreases in accounts
receivable will generally coincide with sales volume fluctuations and the
timing of shipments to foreign customers.  During the same
<PAGE>   10
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations

                               September 30, 1996

Financial Condition (continued)

period, inventories increased $1,488,000. The Company attempts to maintain
sufficient  inventories  to meet its  customer needs as orders are received.
Thus, future inventory and related accounts payable levels will be impacted by
the ability of the Company to maintain its safety stock levels.  If safety
stock levels drop below target amounts then inventories in subsequent periods
will increase more rapidly as inventory balances are replenished.

Management believes funds derived from operations should be adequate to meet
the Company's present cash requirements.  The Company does not have any
established external sources of funds.  The Company expects capital
expenditures during the next twelve months to be approximately $500,000,
primarily related to the costs associated with moving to new facilities in the
fall of 1996. On June 30, 1994, the Company announced that the Board of
Directors had authorized stock repurchases of its common shares in privately
negotiated transactions for a minimum of 10,000 shares.  While the Company made
no stock repurchases during the periods ended September 30, 1996, the Company
may make additional stock repurchases pursuant to the Board of Directors
authorization in the future.  The Company does not provide post employment
retirement benefits.

Newly Issued Accounting Standards

In March, 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lives Assets and for Long-lived Assets
to be Disposed Of," was issued.  This statement provides guidelines for
recognition of impairment losses related to long-term assets and is effective
for fiscal years beginning after December 15, 1995. The adoption of this new
standard did not have a material effect on the Company's financial statements.

In October, 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("Statement No. 123"), was issued.
This statement encourages, but does not require, a fair value based method of
accounting for employee stock options and will be effective for fiscal years
beginning after December 15, 1995.  The Company will continue to measure
compensation costs under APB Opinion No.  25, "Accounting for Stock Issued to
Employees" and will comply with the pro forma disclosure requirements of
Statement No.123 in its annual financial statements.

Outlook:  Issues & Risks

From time to time, the Company may make forward-looking statements regarding
its anticipated future performance or prospects.  All such forward-looking
statements are subject
<PAGE>   11
                            CHAD THERAPEUTICS, INC.
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations

                               September 30, 1996

Outlook:  Issues & Risks (continued)

to certain inherent risks and uncertainties.  Among the factors that could
cause actual results to differ materially are the following:

Dependence Upon a Single Product Line

Although the Company currently markets a number of products, these products
comprise a single product line for patients requiring supplementary oxygen.
The Company's future performance is thus dependent upon developments affecting
this segment of the health care market and the Company's ability to remain
competitive within this market sector.

Rapid Technological Change

The health care industry is characterized by rapid technological change.  The
Company's products may become obsolete as a result of new developments.  The
Company's ability to remain competitive will depend to a large extent upon its
ability to anticipate and stay abreast of new technological developments
related to oxygen therapy.  The Company has limited internal research and
development capabilities.  Historically, the Company has contracted with
outside parties to develop new products.  Some of the Company's competitors
have substantially greater funds and facilities to pursue research and
development of new products and technologies for oxygen therapy.

Potential Changes in Administration of Health Care

A number of bills proposing to regulate, control or alter the method of
financing health care costs have been discussed and certain of such bills have
been introduced in Congress and various state legislatures.  There are wide
variations among these bills and proposals.  Because of the uncertain state of
the health care proposals, it is not possible at this time to predict the
effect on the business of the Company if any of these proposals is enacted.

Federal law has altered the payment rates available to providers of Medicare
services in various ways during the last several years.  Congress has passed
legislation which would reduce Medicare spending.  Some of the savings are to
come from increases in premiums to cover part of the Medicare program cost.  It
cannot be predicted, however, what prospective payment system rates or rule
changes will be made to determine how rates will be affected.  There can be no
assurance that a change in Medicare reimbursement rates will not have an
adverse effect on the Company's business.
<PAGE>   12
                            CHAD THERAPEUTICS, INC.
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations

                               September 30, 1996

Patents and Trademarks

The Company pursues a policy of obtaining patents for appropriate inventions
related to products marketed or manufactured by the Company.  The Company
considers the patentability of its products to be significant to the success of
the Company.  To the extent that the products to be marketed by the Company do
not receive patent protection, competitors may be able to manufacture and market
substantially similar products.  Such competition could have an adverse impact
upon the Company's business.

Products Liability

The nature of the Company's business subjects it to potential legal actions
asserting that the Company is liable for damages for product liability claims.
Although the Company maintains products liability insurance in an amount which
it believes to be customary in the industry, there is no assurance that this
insurance will be sufficient to cover the costs of defense or judgments which
might be entered against the Company.  The type and frequency of these claims
could have an adverse impact on the Company's results of operations and
financial position.

Availability of Third Party Component Products

The Company tests and packages its products in its own facility.  Some of its
other manufacturing processes are conducted by other firms and the Company
expects to continue using outside firms for certain manufacturing processes for
the foreseeable future.  The Company's agreements with its suppliers are
terminable at will or by notice.  The Company believes that other suppliers
would be available in the event of termination of these arrangements.  No
assurance can be given, however, that the Company will not suffer a material
disruption in the supply of its products.

Accounting Standards

Accounting standards promulgated by the Financial Accounting Standards Board
change periodically.  Changes in such standards may have an impact on the
Company's future reported earnings and financial position.

Additional Risk Factors

Additional factors which might affect the Company's performance may be listed
from time to time in the reports filed by the Company with the Securities and
Exchange Commission.
<PAGE>   13
                                   SIGNATURES

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


                                              CHAD THERAPEUTICS, INC. 
                                             -------------------------
                                                    (Registrant)



     Date    11/14/96                         /s/ Charles R. Adams    
         ----------------                    -------------------------
                                              Charles R. Adams
                                              Chief Executive Officer


     Date    11/14/96                         /s/ Earl L. Yager       
         ----------------                    -------------------------
                                              Earl L. Yager
                                              Senior Vice President, Chief
                                              Financial Officer and Secretary