SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-QSB

(Mark One)

[X ]     Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2006.

[  ]      Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from  to.

Commission file number: 000-31390

ALLIED RESOURCES, INC.(Exact name of small business issuer as specified in its charter)

|NEVADA(State or other jurisdiction of incorporation or organization) | 55-0608764(IRS Employer Identification Number)
|-------------------------------------------------------------------- | ----------------------------------------------

1403 East 900 South, Salt Lake City, Utah 84105(Address of Principal Executive Office)          (Zip Code)

(801) 582-9609(Issuers telephone number)

Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YesX          No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes          NoX

The number of outstanding shares of the registrants common stock, $0.001 par value (the only class of voting stock), as of May 12, 2006 was 5,653,011.

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TABLE OF CONTENTS



|                  |                                                             |                                                                                                 |    |      |   | 
|----------------- | ----------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                  |                                                             |                                                                                                 |    | Page
|                  |                                                             |                                                                                                 |    |     
|PART I.           |                                                             |                                                                                                 |    |     
|                  | ITEM 1. FINANCIAL STATEMENTS                                |                                                                                                 |    | 3    |  
|                  |                                                             | Balance Sheets                                                                                  |    |      | 4 | 
|                  |                                                             | Unaudited  Statements of Income for the three months ended March 31, 2006 and March 31, 2005    |    |      | 5 | 
|                  |                                                             | Unaudited Statements of Cash Flows for the three months ended March 31, 2006 and March 31, 2005 |    |      | 6 | 
|                  |                                                             | Unaudited Notes to Financial Statements                                                         |    |      | 7 | 
|                  |                                                             |                                                                                                 |    |      |   | 
|                  |                                                             |                                                                                                 |    |      |   | 
|                  |                                                             |                                                                                                 |    |      |   | 
|                  | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS                |                                                                                                 |    | 8    |  
|                  | ITEM 3. CONTROLS AND PROCEDURES                             |                                                                                                 |    | 15   |  
|PART II.          |                                                             |                                                                                                 |    |     
|                  | ITEM 1. LEGAL PROCEEDINGS                                   |                                                                                                 |    | 16   |  
|                  | ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES             |                                                                                                 |    | 16   |  
|                  | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                     |                                                                                                 |    | 16   |  
|                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |                                                                                                 |    | 16   |  
|                  | ITEM 5. OTHER INFORMATION                                   |                                                                                                 |    | 16   |  
|                  | ITEM 6. EXHIBITS                                            |                                                                                                 |    | 16   |  
|                  | SIGNATURES                                                  |                                                                                                 |    | 17   |  
|INDEX TO EXHIBITS |                                                             |                                                                                                 | 18 |     

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PART I

As used herein, the term Allied, we, our, and us, refers to Allied Resources, Inc., a Nevada corporation and its predecessors, unless otherwise indicated. In the opinion of management, the accompanying unaudited financial statements included in this Form 10-QSB reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

3

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|ALLIED RESOURCES, INC.
|----------------------
|BALANCE SHEETS        

|ASSETS               |  |   | March 31,   |  | December 31,
|-------------------- |  | - | ----------- |  | ------------
|                     |  |   | 2006        |  | 2005        
|                     |  |   | (Unaudited) |  | (Audited)   
|Current assets:      |  |   |             |  |             
|Cash                 |  | $ | 885,457     |  | 763,435     
|Accounts receivable  |  |   | 108,529     |  | 151,141     
|                     |  |   |             |  |             
|                     |  |   |             |  |             
|Total current assets |  |   | 993,986     |  | 914,576     
|                     |  |   |             |  |             

|Oil and gas properties , net |  | 601,461 |  | 612,851
|---------------------------- |  | ------- |  | -------

|Deposits                                                                |  |   | 513,239     |  | 473,716    
|----------------------------------------------------------------------- |  | - | ----------- |  | -----------
|Deferred tax asset                                                      |  |   | 1,155,000   |  | 1,183,000  
|                                                                        |  |   |             |  |            
|Total assets                                                            |  | $ | 3,263,686   |  | 3,184,143  
|                                                                        |  |   |             |  |            
|LIABILITIES AND STOCKHOLDERS' EQUITY                                    |  |   |             |  |            
|                                                                        |  |   |             |  |            
|Current liabilities:                                                    |  |   |             |  |            
|Accounts payable                                                        |  | $ | 27,157      |  | 12,507     
|                                                                        |  |   |             |  |            
|Total current liabilities                                               |  |   | 27,157      |  | 12,507     
|                                                                        |  |   |             |  |            
|Asset retirement obligation                                             |  |   | 144,121     |  | 142,341    
|                                                                        |  |   |             |  |            
|Commitments and contingencies                                           |  |   | -           |  | -          
|                                                                        |  |   |             |  |            
|Stockholders' equity:                                                   |  |   |             |  |            
|Common stock, $.001 par value; 50,000,000 shares                        |  |   |             |  |            
|authorized, 5,653,011 and 5,666,691 issued and outstanding respectively |  |   | 5,653       |  | 5,667      
|Additional paid-in-capital                                              |  |   | 9,723,302   |  | 9,717,288  
|Accumulated other comprehensive income                                  |  |   | 23          |  | 22         
|Accumulated deficit                                                     |  |   | (6,636,570) |  | (6,693,682)
|                                                                        |  |   |             |  |            
|Total stockholders' equity                                              |  |   | 3,092,408   |  | 3,029,295  
|                                                                        |  |   |             |  |            
|Total liabilities and stockholders' equity                              |  | $ | 3,263,686   |  | 3,184,143  

The accompanying notes are an integral part of these financial statements.









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|ALLIED RESOURCES, INC                                                                   
|----------------------------------------------------------------------------------------
|UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2006 and 2005

| | 
| | 

| | 
| | 

|                                     |   | 2006      |  | 2005     
|------------------------------------ | - | --------- |  | ---------
|                                     |   |           |  |          
|Oil and gas revenues                 | $ | 237,634   |  | 157,820  
|                                     |   |           |  |          
|Operating expenses:                  |   |           |  |          
|Production costs                     |   | 94,337    |  | 58,214   
|Depletion                            |   | 11,390    |  | 15,830   
|General and administrative expenses  |   | 54,133    |  | 49,715   
|                                     |   | 159,860   |  | 123,759  
|Income from operations               |   | 77,774    |  | 34,061   
|                                     |   |           |  |          
|Interest income                      |   | 7,338     |  | 2,089    
|                                     |   |           |  |          
|Income before provision              |   |           |  |          
|for income taxes                     |   | 85,112    |  | 36,150   
|                                     |   |           |  |          
|Provisionfor income taxes - deferred |   | 28,000    |  | -        
|Net income                           | $ | 57,112    |  | 36,150   
|                                     |   |           |  |          
|Income per common share -            |   |           |  |          
|basic and diluted                    | $ | 0 .01     |  | 0 .01    
|Weighted average common shares -     |   |           |  |          
|basic and diluted                    |   | 5,657,000 |  | 5,677,000



The accompanying notes are an integral part of these financial statements.









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|ALLIED RESOURCES, INC                       
|--------------------------------------------
|UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
|Three Months Ended March 31, 2006 and 2005  

|                                           |  |   |          |  |         
|------------------------------------------ |  | - | -------- |  | --------
|                                           |  |   |          |  |         
|                                           |  |   | 2006     |  | 2005    
|Cash flows from operating activities:      |  |   |          |  |         
|Net income                                 |  | $ | 57,112   |  | 36,150  
|Adjustments to reconcile net income to net |  |   |          |  |         
|cash provided by operating activities:     |  |   |          |  |         
|Depletion and amortization                 |  |   | 11,390   |  | 15,830  
|Accretion expense                          |  |   | 1,780    |  | 1,695   
|Deferred tax asset                         |  |   | 28,000   |  | -       
|Stock Compensation Expense                 |  |   | 6,000    |  | -       
|(Increase) Decrease in:                    |  |   |          |  |         
|Accounts receivable                        |  |   | 42,612   |  | (13,980)
|Deposits                                   |  |   | (39,523) |  | (26,011)
|Increase in:                               |  |   |          |  |         
|Accounts payable                           |  |   | 14,650   |  | 19,596  
|                                           |  |   |          |  |         
|Net cash provided by operating activities  |  |   | 122,021  |  | 33,280  
|                                           |  |   |          |  |         
|                                           |  |   |          |  |         
|Cash flows from investing activities:      |  |   | -        |  | -       
|                                           |  |   |          |  |         
|                                           |  |   |          |  |         
|Cash flows from financing activities:      |  |   | -        |  | -       
|                                           |  |   |          |  |         
|                                           |  |   |          |  |         

|Change in accumulated other comprehensive income |  | 1 |  | 40
|------------------------------------------------ |  | - |  | --

|                          |  |   |         |  |        
|------------------------- |  | - | ------- |  | -------
|Net increase in cash      |  |   | 122,022 |  | 33,320 
|                          |  |   |         |  |        
|Cash, beginning of period |  |   | 763,435 |  | 518,092
|                          |  |   |         |  |        
|Cash, end of period       |  | $ | 885,457 |  | 551,412



The accompanying notes are an integral part of these financial statements.





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ALLIED RESOURCES, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

March 31, 2006

Note 1  Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared by management in accordance with the instructions in Form 10-QSB and, therefore, do not include all information and footnotes required by generally accepted accounting principles and should, therefore, be read in conjunction with the Companys Form 10-KSB for the year ended December 31, 2005, filed with the Securities and Exchange Commission. These statements do include all normal recurring adjustments which the Company believes necessary for a fair presentation of the statements. The interim operations are not necessarily indicative of the results to be expected for the full year ended December 31, 2006.

Note 2  Additional Footnotes Included By Reference

Except as indicated in Notes above, there have been no other material changes in the information disclosed in the notes to the financial statements included in the Companys Form 10-KSB for the year ended December 31, 2005, filed with the Securities and Exchange Commission. Therefore, those footnotes are included herein by reference.

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This Managements Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as anticipates, expects, believes, plans, predicts, and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsections entitled Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition below and the subsection entitled Risk Factors above. The following discussion should be read in conjunction with our financial statements and notes
thereto included in this report. All information presented herein is based on our fiscal year ended December 31, 2005.

General

Allied is an independent oil and natural gas producer involved in the exploration, development, production and sale of oil and gas derived from properties located in Calhoun and Ritchie counties, West Virginia. Allied owns working interests varying from 18.75% to 75% and net revenue interest varying from 18.05 to 65.625%, after deduction of royalties, in a total of 145 wells on several leases.

Discussion and Analysis

Allieds short term strategy is to maintain a positive net cash flow from operations and to use this net cash flow to further increase production by implementing improved production practices and recovery techniques. Allied believes that it can achieve production growth through the improved exploitation of its existing inventory of wells in West Virginia through the disposition of non-productive wells and the enhancement of producing wells. Once Allied believes that it has optimized production from its existing inventory of wells, its long term strategy is to pursue selective acquisitions of additional oil or gas properties or exploration projects.

Allieds business development strategy is prone to significant risks and uncertainties certain of which can have an immediate impact on its efforts to realize positive net cash flow and deter future prospects of production growth. Historically Allied has not been able to generate sufficient cash flow from operations to sustain operations and fund necessary exploration or development costs. Therefore, there can be no assurance that the wells currently producing will provide sufficient cash flows to continue to sustain operations. Should Allied be unable to continue to generate sufficient cash flow from existing properties, Allied may have to sell certain properties or interests in such properties or seek financing through alternative sources such as the sale of its common stock. Allied can provide no assurance that such efforts, if necessary, would be successful.

Allieds financial condition, results of operations and the carrying value of its oil and natural gas properties depends primarily upon the prices it receives for oil and natural gas production and the quantity of that production. Oil and natural gas prices historically have been volatile and are likely to continue to be volatile in the future. This price volatility can immediately affect Allieds available cash flow which can in turn impact the availability of net cash flow for future capital expenditures. A drop in oil and natural gas prices could also incur a write down of the carrying value of our properties as can a decrease in production. Allieds future success will depend on the level of oil and natural gas prices and the quantity of its production. Since production leads to the depletion of oil and gas reserves, Allieds ability to develop or acquire additional economically recoverable oil and gas reserves is vital to
its future success. Unless Allied can obtain additional reserves, its current production will decline which will lead to a significant reduction in revenue.

8

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Results of Operations

During the period from January 1, 2006 through March 31, 2006, Allied has been engaged in overseeing the operation of its oil and gas assets by an independent operator, Allstate Energy Corporation. For the three month period ended March 31, 2006 Allied realized net income from operations due to an increase in revenues and a decrease in depletion costs as compared to the prior three month period ended March 31, 2005.

|THREE MONTHS ENDED MARCH 31                 |   | 2006    |   | 2005    | CHANGE # | CHANGE %
|------------------------------------------- | - | ------- | - | ------- | -------- | --------
|Average Daily Production                    |   |         |   |         |          |         
|Oil (bbls/day)                              |   | 2       |   | 1       | 1        | 100%    
|Natural gas (mcf/day)                       |   | 323     |   | 319     | 4        | 1%      
|Barrels of oil equivalent (boe/day)         |   | 56      |   | 54      | 2        | 3%      
|Profitability                               |   |         |   |         |          |         
|Petroleum and natural gas revenue           | $ | 237,634 | $ | 157,820 | 79,814   | 51%     
|Net Revenue                                 |   | 237,634 |   | 158,820 | 79,184   | 51%     
|Production and operating costs              |   | 94,337  |   | 58,214  | 36,123   | 62%     
|Field netback                               |   | 143,297 |   | 99,606  | 43,691   | 44%     
|G&A                                         |   | 54,133  |   | 49,715  | 4,418    | 9%      
|Earnings before depletion and taxes         |   | 89,164  |   | 49,891  | 39,273   | 79%     
|Depletion, depreciation and other charges   |   | 11,390  |   | 15,830  | (4,440)  | -28%    
|Future income taxes                         |   | -       |   | -       | -        | 0%      
|Net earnings from operations                | $ | 77,774  | $ | 34,061  | 43,713   | 128%    
|Profitability per boe                       |   |         |   |         |          |         
|Oil and gas revenue (average selling price) |   | 47.29   |   | 32.40   | 14.89    | 46%     
|Production and operating costs              |   | 18.77   |   | 11.95   | 6.82     | 57%     
|Field netback ($/boe)                       |   | 28.52   |   | 20.45   | 8.07     | 39%     
|Net earnings ($/boe)                        |   | 15.48   |   | 6.99    | 8.49     | 121%    
|Cash flow from operations ($/boe)           |   | 17.74   |   | 10.24   | 7.50     | 73%     

Revenue

Revenue for the three months ended March 31, 2006 increased to $237,634 from $157,820 for the three month period ended March 31, 2005, an increase of 51%. The increase in revenue over the three month comparative periods is attributable to an increase in the prices realized for oil and gas production over the current period and increases in production. Allied anticipates that increases or decreases in revenues in future periods will remain substantially dependent on production levels and the market price for oil and gas.

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Income

Net income before provision for income taxes for the three months ended March 31, 2006 increased to $85,112 from $36,150 for the three month period ended March 31, 2005, an increase of 135%. The increase in net income before any provision for income tax benefit over the three month comparative periods was due to increases in revenue and interest income in combination with a decrease in depletion expenses tempered by increases in production costs. Allied anticipates that net income will continue to increase over future periods subject to market prices for oil and gas products and production costs..

Net income after provision for income taxes for the three months ended March 31, 2006 increased to $57,112 from $36,150 for the three month period ended March 31, 2005, an increase of 58%. The increase in net income after provision for income taxes includes a deferred provision for income taxes of $28,000.

Expenses

General and administrative expenses for the three months ended March 31, 2006, increased to $54,133 from $49,715 for the three month period ended March 31, 2005, an increase of 9%. The increase in general and administrative expenses over the three month comparative periods can be attributed to an increase in accounting costs associated with tax filings, annual audit fees and the preparation of an annual oil and gas report. Allied anticipates that general and administrative expenses in future periods will decline on a quarterly basis.

Direct production costs for the three months ended March 31, 2006, increased to $94,337 from $58,214 for the three month period ended March 31, 2005, an increase of 62%. Direct production costs include the cost of maintaining the wells, access roads, miscellaneous expenses for soap, solvent, gasoline or electricity and expenses such as those incurred in swabbing, dozer work or rig time. The increase in direct production costs for the three month comparative periods can be attributed to increases in the maintenance fee charged on a per well basis by Allstate from $125 per well to $175 per well in the current period. Allied expects that direct production expenses will increase over future periods as costs associated with maintaining the wells increases.

Depletion expenses for the three months ended March 31, 2006 and March 31, 2005 were $11,390 and $15,830 respectively. Allied expects that oil and gas resources will continue to deplete over future periods as wells age.

Income Tax Expense (Benefit)

Allied has an income tax benefit resulting from prior net operating losses which may be used to offset current operating profits. As of December 31, 2005, Allied had net operating loss (NOL) carry-forwards of approximately $3,428,000. Should substantial changes in Allieds ownership occur there would be an annual limitation on the amount of NOL carry-forward, which could be utilized. Further, the ultimate realization of these carry-forwards will be due, in part, on the tax law in effect at the time of the anticipated benefit which cannot be definitively determined based on future events.

Impact of Inflation

Allied believes that inflation has had a negligible effect on operations over the past three years. Allied expects that it can offset inflationary increases in maintenance costs by increasing revenue and improving operating efficiencies.

10

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Liquidity and Capital Resources

Cash flow provided by operations was $122,021 for the three months ended March 31, 2006, as compared to cash flow provided by operations of $33,280 for the three months ended March 31, 2005. The increase in cash flow provided by operations over the comparative periods can be attributed to an increase in net income, a tax deferred asset, stock compensation expense and an increase in accounts receivable. Allied expects to continue to realize cash flow produced by operations in future periods.

Cash flow used in investing activities for the three month period ended March 31, 2006 was $0 as compared to $0 for the three month period ended March 31, 2005. Allied is currently reevaluating its existing wells which may lead to a decision to invest capital into upgrading existing production facilities or to drill new wells. Should Allied expend capital on existing wells or drilling, it would then expect to use cash flow in investing activities in future periods.

Cash flow generated from financing activities was $0 for the three months ended March 31, 2006 and $0 for the three months ended March 31, 2005.

Allied has a working capital surplus of $966,829 as of March 31, 2006 and has funded its cash needs since inception with revenues generated from operations, debt instruments and private placements. Existing working capital and anticipated cash flow are expected to be sufficient to fund operations for the next twelve months.

Allied has no current commitments for the purchase or sale of any plant or equipment and has no current intention to make any changes in the number of employees.

Forward Looking Statements and Factors That May Affect Future Results and Financial Condition

The statements contained in sections titled Plan of Operation and Description of Business, with the exception of historical facts are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which reflect our current expectations and beliefs regarding our future results of operations, performance, and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These forward looking statements include, but are not limited to, statements concerning:



·

our anticipated financial performance and business plan;

·

uncertainties related to production volumes of oil and gas;

·

the sufficiency of existing capital resources;

·

uncertainties related to future oil and gas prices;

·

our ability to raise additional capital to fund cash requirements for future operations;

·

uncertainties related the quantity of our reserves of oil and gas

·

the volatility of the stock market and;

·

general economic conditions.



We wish to caution readers that our operating results are subject to various risks and uncertainties that could cause our actual results to differ materially from those discussed or anticipated, including the factors set forth in the section entitled Risk Factors included elsewhere in this report. We also wish to advise readers not to place any undue reliance on the forward looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other that is required by law.

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Risks Related to Our Business

Our future operating results are highly uncertain. Before deciding to invest in us or to maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this annual report. If any of these risks actually occur, our business, financial condition or results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.

We have a history of significant operating losses, which losses may reoccur in the future.

Since our inception in 1979, our expenses have often exceeded our income, resulting in losses and an accumulated deficit of $6,693,682 at December 31, 2005. Although we did record a net income of $1,233,095 during fiscal 2005, we may incur operating losses in the future as revenues are likely to decline from depleted gas resources and expenses are likely to increase with aging wells. Our expectation of continued profitability is dependent upon our ability to acquire additional production revenue through exploration, development or acquisition. Allieds success in this endeavor can in no way be assured.

Oil and natural gas prices are volatile. Any substantial decrease in prices would adversely affect our financial results.

Allieds future financial condition, results of operations and the carrying value of its oil and natural gas properties depend primarily upon the prices it receives for oil and natural gas production. Oil and natural gas prices historically have been volatile and are likely to continue to be volatile in the future. Allieds cash flow from operations is highly dependent on the prices it receives for oil and natural gas. This price volatility also affects the amount of Allieds cash flow available for capital expenditures and its ability to borrow money or raise additional capital. The prices for oil and natural gas are subject to a variety of additional factors that are beyond our control. These factors include:

·

the level of consumer demand for oil and natural gas;

·

the domestic and foreign supply of oil and natural gas;

·

the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;

·

the price of foreign oil and natural gas;

·

domestic governmental regulations and taxes;

·

the price and availability of alternative fuel sources;

·

weather conditions;

·

market uncertainty;

·

political conditions or hostilities in energy producing regions, including the Middle East; and

·

worldwide economic conditions.



These factors and the volatility of the energy markets generally make it extremely difficult to predict future oil and natural gas price movements with any certainty. Declines in oil and natural gas prices would not only reduce revenue, but could reduce the amount of oil and natural gas that Allied can produce economically and, as a result, could have a material adverse effect on its financial condition, results of operations and reserves. Should the oil and natural gas industry experience significant price declines, Allied may, among other things, be unable to meet our financial obligations or make planned expenditures.

12

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Allieds future performance depends on its ability to find or acquire additional oil or natural gas reserves.

Unless Allied successfully replaces the reserves that it produces, the defined reserves will decline, resulting in a decrease in natural gas production and lower revenues and cash flows from operations. Allied has historically obtained the majority of its reserves through acquisitions. The business of exploring for, developing or acquiring reserves is capital intensive. Allied may not be able to obtain the necessary capital to acquire additional oil or natural gas reserves as cash flows from operations are reduced, and access to external sources of capital is unavailable. Should Allied not make significant capital expenditures it will not be able to maintain its current production rates and expenses will overtake revenue which may lead to a cessation of operations.

The results of our operations are wholly dependent on the production and maintenance efforts of Allstate.

The operation and maintenance of our oil and natural gas operations is wholly dependent on an independent local operator, Allstate. While the services provided by Allstate in the past have proven adequate for the successful operation of our oil and natural gas wells, the fact that we are dependent on operations of a third party to produce revenue from our assets could restrict its ability to continue generating a net profit on operations.

The market for our stock is limited and our stock price may be volatile.

The market for our common stock has been limited due to low trading volume and the small number of brokerage firms acting as market makers. Because of the limitations of our market and volatility of the market price of our stock, investors may face difficulties in selling shares at attractive prices when they want to. The average daily trading volume for our stock has varied significantly from week to week and from month to month, and the trading volume often varies widely from day to day.

We may incur significant expenses as a result of being quoted on the Over the Counter Bulletin Board, which may negatively impact our financial performance.

We may incur significant legal, accounting and other expenses as a result of being listed on the Over the Counter Bulletin Board. The Sarbanes-Oxley Act of 2002, as well as related rules implemented by the Commission has required changes in corporate governance practices of public companies. We expect that compliance with these laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 as discussed in the following risk factor, may substantially increase our expenses, including our legal and accounting costs, and make some activities more time-consuming and costly. As a result, there may be a substantial increase in legal, accounting and certain other expenses in the future, which would negatively impact our financial performance and could have a material adverse effect on our results of operations and financial condition.

13

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Our internal controls over financial reporting may not be considered effective, which could result in a loss of investor confidence in our financial reports and in turn have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our annual report for the year ending December 31, 2007, we may be required to furnish a report by our management on our internal controls over financial reporting. Such report will contain, among other matters, an assessment of the effectiveness of our internal controls over financial reporting as of the end of the year, including a statement as to whether or not our internal controls over financial reporting are effective. This assessment must include disclosure of any material weaknesses in our internal controls over financial reporting identified by management. The report will also contain a statement that our independent registered public accounting firm has issued an attestation report on managements assessment of internal controls. If we are unable to assert that our internal controls are effective as of December 31, 2007, or if our independent registered public
accounting firm is unable to attest that our managements report is fairly stated or they are unable to express an opinion on our managements evaluation or on the effectiveness of our internal controls, investors could lose confidence in the accuracy and completeness of our financial reports, which in turn could cause our stock price to decline.

Critical Accounting Policies and Estimates

Accounting for Oil and Gas Property Costs. As more fully discussed in Note 1 to its financial statements, Allied (i) follows the successful efforts method of accounting for the costs of its oil and gas properties, (ii) amortizes such costs using the units of production method and, (iii) evaluates its proven properties for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. Adverse changes in conditions (primarily gas price declines) could result in permanent write-downs in the carrying value of oil and gas properties as well as non-cash charges to operations that would not affect cash flows.

Estimates of Proved Oil and Gas Reserves. An independent petroleum engineer annually estimates Allieds proven reserves. Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof. In addition, subsequent physical and economic factors such as the results of drilling, testing, production and product prices may justify revision of such estimates. Therefore, actual quantities, production timing, and the value of reserves may differ substantially from estimates. A reduction in proved reserves would result in an increase in depreciation, depletion and amortization expense.

Estimates of Asset Retirement Obligations. In accordance with SFAS No 143, Allied makes estimates of future costs and the timing thereof in connection with recording its future obligations to plug and abandon wells. Estimated abandonment dates will be revised in the future based on changes to related economic lives, which vary with product prices and production costs. Estimated plugging costs may also be adjusted to reflect changing industry experience. Increases in operating costs and decreases in product prices would increase the estimated amount of the obligation and increase depreciation, depletion and amortization expense. Cash flows would not be affected until costs to plug and abandon were actually incurred.

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The Companys president acts both as the Companys chief executive officer and chief financial officer and is responsible for establishing and maintaining disclosure controls and procedures for the Company.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act), as of March 31, 2006. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective and adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our chief executive officer and chief financial
officer, in a manner that allowed for timely decisions regarding required disclosure.

The auditors did not test the effectiveness of nor relied on the internal controls of the Company for the fiscal quarters ended March 31, 2006 and 2005.

(b) Changes in Internal Controls

During the period ended March 31, 2006, there has been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Allieds management, including the chief executive officer and chief financial officer, do not expect that its disclosure controls or internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by managements override of the control. The design of any systems of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Individual persons perform multiple tasks which normally would be allocated to separate persons and therefore extra diligence must be exercised during the period these tasks are combined.

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PART II

None.

On March 16, 2006 Allied authorized the issuance of 10,000 shares of common stock to Ed Haidenthaller valued at $0.30 per share for services rendered as a director relying on exemptions provided by Section 4(2) and Regulation D of the Securities Act of 1933, as amended.

Allied complied with the exemptions requirements based on the following factors: (1) the issuance was an isolated private transaction by Allied which did not involve a public offering; (2) there was only one offeree who is a director of Allied; (3) the offeree committed to hold the stock for at least one year; (4) there were no subsequent or contemporaneous public offerings of the stock; (5) the stock was not broken down into smaller denominations; and (6) the discussions that lead to the issuance of the stock took place directly between the offeree and Allied.

On March 16, 2006 Allied authorized the issuance of 10,000 shares of common stock to Paul Crow valued at $0.30 per share for services rendered as a director relying on exemptions provided by Section 4(2) and Regulation D of the Securities Act of 1933, as amended.

Allied complied with the exemptions requirements based on the following factors: (1) the issuance was an isolated private transaction by Allied which did not involve a public offering; (2) there was only one offeree who is a director of Allied; (3) the offeree committed to hold the stock for at least one year; (4) there were no subsequent or contemporaneous public offerings of the stock; (5) the stock was not broken down into smaller denominations; and (6) the discussions that lead to the issuance of the stock took place directly between the offeree and Allied.

None.

None.

None.

Exhibits required to be attached by Item 601 of Regulation SB are listed in the Index to Exhibits on page 18 of this Form 10-QSB and are incorporated herein by this reference.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, hereunto duly authorized, this 12th day of May 2006.

ALLIED RESOURCES, INC.

/s/ Ruairidh Campbell

Ruairidh Campbell

Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer

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### INDEX TO EXHIBITS

|Exhibit No. | Page No. | Description                                                                                                                                                                                                                 
|----------- | -------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3(i)        | *        | Articles of Incorporation dated February 12, 2002 (incorporated by reference to the Form 10-SB/A filed on April 21, 2003).                                                                                                  
|3(ii)       | *        | Bylaws (incorporated by reference to the Form 10-SB/A filed on April 21, 2003).                                                                                                                                             
|10(i)       | *        | Oil and Gas Well Operating Agreement between Allied and Allstate Energy Corporation dated May 1, 1996 (incorporated by reference to the Form 10SB/A filed on April 21, 2003).                                               
|10(ii)      | *        | Amendments to Operating Agreements between Allied and Allstate Energy Corporation dated May 10, 1996 (incorporated by reference to the Form 10SB/A filed on April 21, 2003).                                                
|10(iii)     | *        | Drilling Agreement between Allied and Allstate Energy Corporation dated March 4, 2002 (incorporated by reference to the Form 10SB/A filed on April 21, 2003).                                                               
|10(iv)      | *        | Escrow Agreement between Ruairidh Campbell, Dr. Stewart Jackson, Yvonne Cole and Allied dated June 18, 1999 (incorporated by reference to the Form 10SB/A filed on April 21, 2003).                                         
|10(v)       | *        | Form Gas Purchase Agreement (incorporated by reference to the Form 10SB/A filed on April 21, 2003).                                                                                                                         
|10(vi)      | *        | Gas Contract between Allstate Energy Corporation and Dominion dated January 1, 2002 (incorporated by reference to the Form 10SB/A filed on April 21, 2003).                                                                 
|14          | *        | Code of Ethics adopted May 3, 2004 (incorporated by reference to the Form 10-KSB filed on May 26, 2004).                                                                                                                    
|31          | Attached | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|32          | Attached | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                           

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