**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION        Washington, D.C. 20549                 FORM 10-Q**

*(Mark One)*

þ     Quarterly reportpursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended**June        30****, 2008**.

o     Transition reportpursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period fromto.

Commission file number:**000-29321**

**ALLIED RESOURCES, INC****.**

(Exact name ofregistrantas specified in its charter)

| **Nevada**(State or other jurisdiction of                    incorporation or organization) | **000-31390**

(I.R.S. Employer

Identification No.) |
|---------------------------------------------------------------------------------------------|------------------------------------------------------|

**1403 East 900 South, Salt Lake City, Utah 84105**

(Address of principal executive offices) (Zip Code)         

**(801) 582-9609**

(Registrant’s telephone number, including area code)

**N/A****     **

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

Indicate by check markwhether theregistrant: (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: YesþNoo.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the Exchange Act:

Large accelerated fileroAccelerated fileroNon-accelerated fileroSmaller reporting companyþ

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

At August14, 2008, the number of shares outstanding of the registrant's common stock, $0.001 par value (the only class of voting stock),was5,653,011.

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**TABLE OF CONTENTS**

**
**PART I. - FINANCIAL INFORMATION**
     **ITEM 1.     FINANCIAL STATEMENTS**  3   Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007 (audited)      4   Unaudited Condensed Statements of Income for the three and month periods ended June 30, 2008 and June 30, 2007   5   Unaudited Condensed Statements of Cash Flows for the six month periods ended June 30, 2008 and June 30, 2007  6   Condensed Notes to Unaudited Financial Statements  7  **ITEM 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations**  8  **ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk**  16  **ITEM 4T.  Controls and Procedures**  16                
**PART II. - OTHER INFORMATION**
     **ITEM 1.     Legal Proceedings**  16  **ITEM 1A.  Risk Factors**  17  **ITEM 2.     Unregistered Sales of Equity Securities and Use of Proceeds**  20  **ITEM 3.     Defaults upon Senior Securities**  20  **ITEM 4.     Submission of Matters to a Vote of Securities Holders**  20  **ITEM 5.     Other Information**  20  **ITEM 6.     Exhibits**  20  **Signatures**  21  **Index to Exhibits**  22 **

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**PART I – FINANCIAL INFORMATION**

**ITEM 1.     FINANCIAL STATEMENTS**

As used herein,the terms “Allied,” “we,”“our,” “us,” “it,” and “its”refer toAllied Resources, Inc., a Nevada corporation, unless otherwise        indicated.In the opinion of management, the accompanying unaudited financial statements included in this Form 10-Qreflect 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.

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| ALLIED RESOURCES, INC.                           |
|--------------------------------------------------|
| BALANCE SHEETS                                   |
|                                             |   |   |   |   |
|                                             |   | June 30, |   | December 31, |
|                                             |   | 2008 |   | 2007 |
| ASSETS                                           |   | (Unaudited) |   | (Audited) |
| Current assets:                                  |   |   |   |   |
| Cash                                             | $ | 727,846 |   | 441,130 |
| Accounts receivable                              |   | 214,452 |   | 144,996 |
| Other assets                                     |   | - |   | 2,643 |
| Total current assets                             |   | 942,298 |   | 588,769 |
|                                             |   |   |   |   |
| Oil and gas properties (proven), net (successful |   |   |   |   |
| efforts method)                                  |   | 1,223,454 |   | 1,282,200 |
| Deferred tax asset                               |   | 894,000 |   | 995,000 |
| Deposits                                         |   | 704,701 |   | 704,701 |
| Total assets                                     | $ | 3,764,453 |   | 3,570,670 |
|                                             |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY             |   |   |   |   |
|                                             |   |   |   |   |
| Current liabilities:                             |   |   |   |   |
| Accounts payable                                 | $ | 2,793 |   | 3,929 |
| Accrued liabilities                              |   | - |   | 5,600 |
| Total current liabilities                        |   | 2,793 |   | 9,529 |
|                                             |   |   |   |   |
| Asset retirement obligation                      |   | 164,960 |   | 160,966 |
| Accrued tax liabilities                          |   | 40,000 |   | 40,000 |
| Total liabilities                                |   | 207,753 |   | 210,495 |
|                                             |   |   |   |   |
| Commitments and contingencies                    |   |   |   |   |
|                                             |   |   |   |   |
| Stockholders' equity:                            |   |   |   |   |
| Common stock, $.001 par value; 50,000,000 shares |   |   |   |   |
| authorized, 5,653,011 issued and outstanding     |   | 5,653 |   | 5,653 |
| Additional paid-in-capital                       |   | 9,723,302 |   | 9,723,302 |
| Accumulated deficit                              |   | (6,172,255) |   | (6,368,780) |
|                                             |   |   |   |   |
| Total stockholders' equity                       |   | 3,556,700 |   | 3,360,175 |
| Total liabilities and stockholders' equity       | $ | 3,764,453 |   | 3,570,670 |

The accompanying notes are an integral part of these financial statements

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| ALLIED RESOURCES, INC                   |
|-----------------------------------------|
| UNAUDITED STATEMENTS OF INCOME          |
| Six Months Ended June 30, 2008 and 2007 |
|                                    |   |   |   |   |   |   |   |   |
|                                    |   | Three Months Ended |   | Six Months Ended |
|                                    |   | June 30, |   | June 30, |
|                                    |   | 2008 |   | 2007 |   | 2008 |   | 2007 |
|                                    |   |   |   |   |   |   |   |   |
| Oil and gas revenues                    | $ | 399,323 |   | 226,915 |   | 693,152 |   | 390,292 |
|                                    |   |   |   |   |   |   |   |   |
| Operating expenses:                     |   |   |   |   |   |   |   |   |
| Production costs                        |   | 141,720 |   | 119,933 |   | 254,311 |   | 212,963 |
| Depletion                               |   | 29,869 |   | 10,375 |   | 58,745 |   | 20,154 |
| General and administrative expenses     |   | 35,902 |   | 35,109 |   | 89,269 |   | 73,491 |
|                                    |   |   |   |   |   |   |   |   |
|                                    |   | 207,491 |   | 165,417 |   | 402,325 |   | 306,608 |
|                                    |   |   |   |   |   |   |   |   |
| Income from operations                  |   | 191,832 |   | 61,498 |   | 290,827 |   | 83,684 |
|                                    |   |   |   |   |   |   |   |   |
| Interest income                         |   | 3,170 |   | 14,811 |   | 6,698 |   | 28,426 |
|                                    |   |   |   |   |   |   |   |   |
| Income before provision                 |   |   |   |   |   |   |   |   |
| for income taxes                        |   | 195,002 |   | 76,309 |   | 297,525 |   | 112,110 |
|                                    |   |   |   |   |   |   |   |   |
| Provision for income taxes - deferred   |   | 68,000 |   | 24,000 |   | 101,000 |   | 35,000 |
|                                    |   |   |   |   |   |   |   |   |
| Net income                              | $ | 127,002 |   | 52,309 |   | 196,525 |   | 77,110 |
|                                    |   |   |   |   |   |   |   |   |
| Income per common share -               |   |   |   |   |   |   |   |   |
| basic and diluted                       | $ | 0.02 |   | 0.01 |   | 0.03 |   | 0.01 |
|                                    |   |   |   |   |   |   |   |   |
| Weighted average common shares -        |   |   |   |   |   |   |   |   |
| basic and diluted                       |   | 5,653,000 |   | 5,653,000 |   | 5,653,000 |   | 5,653,000 |

The accompanying notes are an integral part of these financial statements

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| ALLIED RESOURCES, INC                           |
|-------------------------------------------------|
| UNAUDITED STATEMENTS OF CASH FLOWS              |
| Six Months Ended June 30, 2008 and 2007         |
|                                            |   |   |   |   |
|                                            |   |   |   |   |
|                                            |   | 2008 |   | 2007 |
| Cash flows from operating activities:           |   |   |   |   |
| Net income                                      | $ | 196,525 |   | 77,110 |
| Adjustments to reconcile net income to net cash |   |   |   |   |
| provided by operating activities:               |   |   |   |   |
| Depletion and amortization                      |   | 58,746 |   | 20,154 |
| Accretion expense                               |   | 3,994 |   | 3,737 |
| Deferred tax asset                              |   | 101,000 |   | 35,000 |
| (Increase) decrease in:                         |   |   |   |   |
| Accounts receivable                             |   | (69,456) |   | (19,700) |
| Other assets                                    |   | 2,643 |   | (52,592) |
| Increase (decrease) in:                         |   |   |   |   |
| Accounts payable                                |   | (1,136) |   | 5,365 |
| Accrued liabilities                             |   | (5,600) |   | - |
|                                            |   |   |   |   |
| Net cash provided by operating activities       |   | 286,716 |   | 69,074 |
|                                            |   |   |   |   |
|                                            |   |   |   |   |
| Cash flows from investing activities:           |   |   |   |   |
| Purchase of oil and gas properties              |   | - |   | (180,100) |
|                                            |   |   |   |   |
| Net cash used in investing activities           |   | - |   | (180,100) |
|                                            |   |   |   |   |
|                                            |   |   |   |   |
| Cash flows from financing activities:           |   | - |   | - |
|                                            |   |   |   |   |
| Net increase (decrease) in cash                 |   | 286,716 |   | (111,026) |
|                                            |   |   |   |   |
| Cash, beginning of period                       |   | 441,130 |   | 1,107,191 |
|                                            |   |   |   |   |
| Cash, end of period                             | $ | 727,846 |   | 996,165 |

The accompanying notes are an integral part of these financial statements

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ALLIED RESOURCES, INC.            CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

June 30, 2008

**Note 1 – Basis of Presentation**

The accompanying unaudited condensed financial statements have been prepared by management in accordance with the instructions in Form 10-Q 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-K for the year ended December        31, 2007, 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, 2008.

**Note 2 – Additional Footnotes Included By Reference**

Except as indicated in the following Notes, 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-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission. Therefore, those footnotes are included herein by        reference.                  

Note 3 – Supplemental Cash Flow Information

During the six months ended June 30, 2007, the Company increased the accumulated deficit and recorded an income tax liability of $60,000 as a result of the adoption of FIN 48.

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**Item 2****.     ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS        OF OPERATIONS**

This*Management’s Discussion and Analysis of Financial Condition and**Results of Operations*and other parts of thisquarterly reportcontain        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 subsection entitled*Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition*below. The following discussion should be read in conjunction with our financial statements and notes thereto included in this report. Our fiscal year end is December 31.All informationpresented herein is based on thethreeand sixmonthperiodsendedJune 30, 2008.

**ALLIED**         

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, and Goliad, Edwards and Jackson Counties, Texas.

**Discussion and Analysis**

Allied’s intends to utilize net cash flow from operationstopurchaseadditionalnon-operatedoil and gas producing properties, acquire available oil and gas        leases as a licensed operator andimplement improved production practices on existing wells.Our criteria for purchasing producing oil and gas properties is defined by short term returns on our investment, long term growth in cash flows,andpotentialforadditionaldevelopment.We are also focused on acquiring oil and gas leases with provenhistorical production that cantranslate into future revenue. The recent rise in energy prices has transformed many abandoned oil and gas leases into valuable prospects for revitalized production.Meanwhile we continue to focus onenhancing production from our existing inventory of wells.

***West Virginia Well Information***

Allied owns varying interests in a total of 145 wellsin West Virginiaon several leasesheld by an independent operator. Some leases contain multiple wells. All the wells in which we have an interest are situated on developed acreage        spread over 3,400 acres in Ritchie and Calhoun Counties. Depth of the producing intervals varies from 1,730 ft to 5,472 ft.Alliedbelieves thatoperating in West Virginiahas certain advantages over other locations, including:         

|  | ·      | relatively inexpensive drilling and completion operations,and |
|--|----------------------------------------|---------------------------------------------------------------|

|  | ·      | the absence of poisonous gas often associated with oil and gas production. |
|--|----------------------------------------|----------------------------------------------------------------------------|

Many of our wellsare situated on the same leases and as suchshare production equipment in order to minimize lease operating costs.

Our working interest is defined as interest in oil and gas that includes responsibility for all drilling, developing, and operating costs varying from 18.75% to 75%. Our net revenue interest is defined as that portion of oil and gas production revenue after deduction of royalties, varying from 15.00% to 65.625%.

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***Texas******Well Information***

Allied owns varying interests in a total of13wellsin Texasonfour leases held by independent operators. All the wells in which we have an interest are situated        on developed acreage spread over2,510acres inGoliad, Edwards and Jackson Counties. Depth of the producing intervals varies from7,600 ftto9,600ft.

Our working interest is defined as interest in oil and gas that includes responsibility for all drilling, developing, and operating costs varying from3.73% to21%. Our net revenue interest is defined as that portion of oil and gas production revenue after deduction of        royalties, varying from2.68% to12.75%.         *Recent Acquisitions         *

|  | ·      | Effective May 1, 2007 we acquired a non-operated 5.4221% working interest and net royalty interest of 3.9388%, in the Harper #2 well located within the Ramon Musquiz Survey, A-29, in Goliad, Texas. The Harper #2 well is operated by Hankey Oil Company of Houston, Texas and currently produces 1076 STBO and 30,402 MCFG per month from the Wilcox formation. |
|--|----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | Effective August 1, 2007 we acquired a non-operated 5.4375% working interest and various net revenue interests ranging from 4.2275% to 4.2325%in ten properties located in Sections 24, 41, 42 and 46 of the CCSD & RGNG RR Co. Survey, Edwards County Texas. The properties are operated by Marshall & Winston, Inc. of Midland,                    Texas and currently produce 16 STBO and 37,320 MCFG per month in the Frances Hill (Penn Lower) field from the Canyon Sands formation. |
|--|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | Effective October 1, 2007 we acquired a non-operated 3.73% working interest and a 2.68% net revenue interest in the Williams #1 well located within the John Alley Survey, A-3, Jackson County, Texas. The Williams #1 well is operated by Magnum Producing, LP of Corpus Christi, Texas and currently produces 1290 STBO and 8,580 MCFG per month from the Wilcox                    formation. |
|--|----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | EffectiveOctober 1, 2007 we acquired anon-operated 21% working interest and a 12.75% net revenue interest in the Brinkoeter #4 well located within the V. Ramos Survey, A-241, Goliad County, Texas. The Brinkoeter #4 well is operated by Marquee Corporation of Houston, Texas and                    currently produces 1,800 STBO and 600 MCFG per month from the Massive formation. |
|--|----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Allied’s business development strategy is prone to significant risks and uncertainties certain of which couldhave an immediate impact onitsefforts to maintain a positivenet cash flow andcoulddeterthe anticipatedexpansion of its business. Should webe unable to generate sufficientnetcash flowfromourexisting well interests, Alliedmaybe forced to sell assets orseekdebt or equityfinancing, as alternatives to the cessation of operations.The success of such measures can in no way be assured.

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**Results of Operations**

 

Allied’s financial condition, results of operations and the carrying value of our oil and natural gas properties depends primarily upon the prices we receive 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 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 future decreases in production. Allied’s continued success will depend onoil and naturalgas prices andproductionquantities. Since production leads to the depletion of oil and gas reserves, Allied’s ability to develop or acquireeconomically recoverable oil and gas reserves is vital to continued operations. Unless Alliedcontinues to obtainadditional reserves,declinesin production willeventually lead to significant decreasesin revenuein spite of oil and gas pricing.

 

During thesixmonth period endedJune 30, 2008Alliedwas focused onoverseeing the operation of our oil and gas assets by        independent operators,evaluating opportunities for the development or acquisition of additional oil and gas assetsand seeking out available oil and gas leases.

 

| **SIX****Months Ended****JUNE 30**         |   | **2008** |   | **2007** | **Change****#** | **Change****%** |
|--------------------------------------------|--------|----------|--------|----------|-----------------|-----------------|
|                                       |   |     |   |     |            |            |
| **Average Daily Production**               |   |     |   |     |            |            |
|                                       |   |     |   |     |            |            |
| Oil (bbls/day)                             |   | 11       |   | 2        | 9               | 459%            |
| Natural gas (mcf/day)                      |   | 319      |   | 306      | 13              | 5%              |
| Barrels of oil equivalent (boe/day)        |   | 64       |   | 53       | 11              | 21%             |
|                                       |   |     |   |     |            |            |
| **Profitability**                          |   |     |   |     |            |            |
|                                       |   |     |   |     |            |            |
| Petroleum and natural gas revenue          | $      | 693,152  | $      | 390,292  | 302,860         | 78%             |
| Net Revenue                                |   | 693,152  |   | 390,292  | 302,860         | 78%             |
| Production and operating costs             |   | 254,311  |   | 212,963  | 41,348          | 19%             |
| Field netback                              |   | 438,841  |   | 177,329  | 261,5121        | 147%            |
| G&A                                    |   | 89,269   |   | 73,491   | 15,778          | 21%             |
| Depletion, depreciation and other charges  |   | 58,745   |   | 20,154   | 38,591          | 191%            |
| Future income taxes                        |   | -        |   | -        | -               | 0%              |
| Net earnings from operations               | $      | 290,827  | $      | 83,684   | 207,143         | 248%            |
|                                       |   |     |   |     |            |            |
| **Profitability per****BOE**               |   |     |   |     |            |            |
|                                       |   |     |   |     |            |            |
| Oil and gas revenue (average sellingprice) |   | 59.35    |   | 40.69    | 18.67           | 46%             |
| Production and operating costs             |   | 21.78    |   | 22.20    | (0.42)          | -2%             |
| Field netback ($/boe)                      |   | 37.58    |   | 18.49    | 19.09           | 103%            |
| Net earnings ($/boe)                       |   | 24.90    |   | 8.72     | 16.18           | 185%            |
| Cash flow from operations ($/boe)          |   | 29.93    |   | 10.82    | 19.11           | 177%            |

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***Gross Revenue***

Gross revenue for the three month period ended June 30, 2008 increased to $399,323 from $226,915for the comparable period ended June 30, 2007, an increase of 76%.Gross revenue for the six month period ended June 30, 2008 increased to $693,152 from $390,292for the comparable period ended June 30, 2007, an increase of 78%.The increase in gross revenuein the currentthreeand sixmonthperiodscan be attributed both totherealization of gross revenue from recently acquired well interests in Texasandincreases intheprices paid for energy.Grossproduction of oil for the sixmonthperiod ended June 30,2008 increased to 2,064bbls from369bbls for the sixmonth period ended June 30, 2007, an increase of 459%.Gross production of gas forthesixmonth period ended June 30, 2008increased to58,024 MCF from 55,388MCF for the sixmonth period endedJune 30, 2007, an increase of 5%.Average oil and        natural gas prices realizedincreasedon a daily basisto $59.35per BOEoverthe six months ended June 30, 2008 from$40.69per BOEon a daily basis        overthe six months ended June 30, 2007,an increase of 46%.         

Allied anticipates that gross revenue will continue to increase in the near term as pricing in July of 2008 reached a record high price for a barrel of oilbut may diminish over the long term as energy prices fluctuateand efforts to increase production by development or        acquisition may or may not berealized.

 

******

***Net Income***

Net income after provisionfor income taxes for the threemonth period ended June 30, 2008 was $127,002as compared to net income after provision for income taxes of $52,309for the comparable period        ended June 30, 2007, an increase of 143%.Net income after provision for income taxes for the six month period ended June 30, 2008 was $196,525 as compared to net income after provision for income taxes of $77,110 for the comparable period ended June 30, 2007, an increase of 155%.The increasein net income in the current threeand        sixmonthperiodscan be attributed tothe increase in oil and gas revenuesand production.Management expectsthatnet income willcontinue toincrease innear termfuture periods asrevenues increaseas the result of energy prices and new production.

 

****

***Expenses***

General and administrative expenses for the threemonth period ended June 30, 2008 increased to $35,902 from $35,109for the comparable period ended June 30, 2007, an increase of 2%.General and administrative expenses for the six month        period ended June 30, 2008 increased to $89,269 from $73,491 for the comparable period ended June 30, 2007, an increase of 21%.The increasein general administrative expensesin thethreeand sixmonth periodscan beprimarilyattributed toincreases in accounting, consultingand professional fees.Allied anticipates that general and administrative expenses will remain relatively consistent over future periods.

Depletion expenses for the three month periods ended June 30, 2008, and June 30 were $29,869 and $10,375respectively.Depletion expenses for the six month periods ended June 30, 2008, and June 30, 2007 were $58,745 and $20,154 respectively. Depletion expenses will continue        to increase asouroil and gas assets age.

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Direct production expenses for the three month periods ended June30, 2008,and June 30, 2007 were $141,720 and $119,933respectively, an increase of 18%.Direct production expenses for the six month        periods ended June 30, 2008 and June 30, 2007 were $254,311 and $212,963, an increase of 19%.Direct production expenses include the cost of maintaining the wells,severance taxes, 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 costsover the        currentthreeand sixmonthperiodscan beattributed tothose costs associated with the acquisition of new well interests in Texas.Allied expects that direct production expenses will continue        to increase over future periods as the ages of our wells increase and we continue to acquireor developnew production.

 

****

***Income Tax Expense***

As of December 31, 2007Allied has a net operating loss (NOL) carry forwards of approximately $2,892,000. Should substantial changes in our ownership occur there would be an annual limitation of the amount of NOL carry forward, which could be utilized. The ultimate realization of these carry forwards is due,        in part, on the tax law in effect at the time and future events, which cannot be determined.

 

****

***Impact of Inflation***

Allied believes that inflation has had an effect on operations over the past three years in connection with production costs. Allied believes that it can offset inflationary increases in production costs by increasing revenue and improving operating efficiencies.

 

******

***Liquidity and Capital Resources***

Cash flow provided by operations for the sixmonth period ended June 30, 2008 was $286,716as compared to cash flow provided by operations of $69,074for the comparable period ended June 30, 2007. The increasein cash flow provided by operationsin the current periodcan be primarily attributed totheincrease in net income, an increase in depletion and amortization and an increase in a deferred tax asset over the comparable prior period.Allied expects to increasecash flow provided by operations in future periods.         

Cash flow used ininvesting activities for the sixmonth periods ended June 30, 2008 was $0 as compared to cash flow used in investing activities of $180,100 for the comparable period ended June 30, 2007. Allied expects to use cash flowin investing activities overfuture periods as the company evaluates existing wells, identifies exploration opportunities and considersadditionalacquisitions.

Cash flow from financing activities for the sixmonth periods ended June 30, 2008 and June 30, 2007 was $0. Allied does not expect to realize cash flow in financing activities in the near term.

Allied has a working capital surplus of $939,505 as of June 30, 2008and has funded its cash needs since inception with revenues generated from operations, debt instruments and privateequityplacements. Existing working capital and        anticipated cash flow are expected to be sufficient to fund operations in 2008.         Since earningsarereinvested in operations, cash dividends are not expected to be paid in the foreseeable future.         

Allied had no lines of credit or other bank financing arrangements.         

Commitments for future capital expenditures were not material at quarter-end.

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Allied hasno defined benefit plan orcontractual commitments with anyof its officers or directors.

Allied has no current plans for the purchase or sale of any plant or equipment.

Allied has no current plans to make any changes in the number of employees.

***Off Balance Sheet Arrangements*** 

As of June 30, 2007, Alliedhas no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that        is material to stockholders.         

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

The statements contained in the section titled Management’s Discussion and Analysis of Financial Condition and Results of Operations, with the exception of historical facts, are forward looking statements within the meaning of Section 27A of the Securities Act. A safe-harbor provision may not be applicable to the forward looking statements        made in this report because of certain exclusions under Section 27A (b). Forward looking statements 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 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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***Stock-Based Compensation***

Wehaveadopted SFAS No. 123 (revised 2004) (SFAS No.        123R), Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. In January 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107, which provides        supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and instead generally requires that such transactions be accounted for using a fair-value-based method. We use the Black-Scholes-Merton (“BSM”) option-pricing model to determine the fair-value of        stock-based awards under SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS No. 123, Accounting for Stock-Based Compensation. We have elected the modified prospective transition method as permitted by SFAS No. 123R and accordingly prior periods have not been restated to reflect the impact of SFAS No. 123R. The modified prospective transition method requires that stock-based compensation expense be recorded for all new and unvested stock options, restricted        stock, restricted stock units, and employee stock purchase plan shares that are ultimately expected to vest as the requisite service is rendered beginning on January 1, 2006, the first day of our fiscal year 2006. Stock-based compensation expense for awards granted prior to January 1, 2006 is based on the grant date fair-value as determined under the pro forma provisions of SFAS No. 123.

**The Company has no outstanding stock options or related stock option expense as of June 30, 2008.**

**We account for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123Rand the conclusions reached by the Emerging Issues Task Force (“EITF”)        in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.**

***Critical Accounting Policies and Estimates***

Accounting for Oil and Gas Property Costs. As more fully discussed in Note 1 to the 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.

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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.

***Critical Accounting Policies***

In Note 1 to the audited financial statements for the years ended December 31, 2007 and 2006, included inourForm 10-K, Allieddiscusses those accounting        policies that are considered to be significant in determining the results of operations and its financial position. Alliedbelieves that the accounting principles utilized by it conform to accounting principles generally accepted in the United States.

The preparation of financial statements requires Allied’smanagement to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent        degree of uncertainty. On an on-going basis, Alliedevaluates estimates. Alliedbases its estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or        conditions.

***Recent Accounting Pronouncements***

In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1        clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants.”                 Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We will adopt FSP APB 14-1 beginning in the first        quarter of 2009, and this standard must be applied on a retrospective basis. We are evaluating the impact the adoption of FSP APB 14-1 will have on our consolidated financial position and results of operations.                 In May 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting principles in the        United States for non-governmental entities. SFAS 162 is effective 60 days following approval by the SEC of the Public Company Accounting Oversight Board’s amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” We do not expect SFAS 162 to have a material impact on the preparation of our consolidated financial statements.         

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In April 2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that        are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. We are currently evaluating the impact, if any, that FSP 142-3 will have on our consolidated financial statements.

**ITEM 3.     ****QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Not required.

**ITEM 4T.     ****CONTROLS AND PROCEDURES**

***Evaluation of Disclosure Controls and Procedures***

        In connection with the preparation of this report on Form 10-Q, an evaluation was carried out by Allied’s management, with the participation of the chief executive officer and the chief financial officer, ofthe effectiveness of Allied’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)). Disclosure controls and procedures are designed to        ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

Based on thatevaluation, Allied’s management concluded, as of the end of the period coveredby this report, that Allied’s disclosure controls and procedures wereeffectivein recording,        processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms.

***Changes in Internal Control over Financial Reporting***

 

There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during theperiodendedJune 30, 2008, that materially affected, or are reasonably likely to materially affect, Allied’s internal control over financial reporting.

**PART II****– OTHER INFORMATION**

**ITEM 1.     LEGAL PROCEEDINGS         **

None.

 

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**ITEM 1****A****.****     RISK FACTORS         **

Ourfuture operating results are highly uncertain. Before deciding toinvest in us or to maintain or increase your investment, you should carefullyconsider the risks described below, in addition to the other informationcontained in this quarterlyreport. If any of these risks actually occur, ourbusiness, financial condition or results of operations could be seriouslyharmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.

**Risks Related t****o****Allied****’s Business**

***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 $6,172,255 at June 30, 2008. Although we haverecorded a net income of $196,525 for the six month period ended June 30, 2008, we may return tooperating losses in the future if revenuesdeclineas the result ofdepleted oil and gas resourcesor price decreases,combined with the increased operating expenses that can be anticipated fromaging wells. Our expectation of continued profitability dependsonthe sustainability of current energy prices andour abilityto increase productionthrough exploration, development or acquisition. Allied’s success in thiscontinuedendeavor 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 our oil and natural gas properties depend primarily upon the prices we receive 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 we receive for oil and natural gas. This price volatility also affects the amount of        Allied’s cash flow available for capital expenditures and our 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 our 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.

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***Allied’s future performance depends on our ability to find or acquire additional oil or natural gas reserves.***

Unless Allied successfully replaces the reserves that itproduces,defined reserves will decline, resulting in a decrease inoil andnatural gas production, that will produce lower revenues, in turn decreasingcash flows from operations. Allied has historically obtained        the majority of itsreserves through acquisition. 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 ifcash flows from operations are reduced, and access to external sources of capital is unavailable. Should Allied not make significant capital expendituresto increase reserves itwill not be able to maintaincurrent production rates and expenses will overtake revenue.         

***The results of our operations are wholly dependent on the production and maintenance efforts of independent operators.***

        The operation and maintenance of our oil and natural gas operations is wholly dependent on independent local operators. While the services provided by operators of our properties 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 third partiesto produce revenue from our assets could restrict our ability to continue generating a net profit on        operations.

**Risks Related to Allied****’s Stock**

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

        The market for our common stock islimited due to low trading volumesand the small number of brokerage firmsacting as market makers.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.Due to these limitations there is volatility in themarket priceand tradabilityof our stock,which may cause our shareholdersdifficultyin sellingtheir shares in the market place.         

***Our internal controls over financial reporting may not be considered effective******in the future******, 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 ofthe Sarbanes-Oxley Act of 2002wearerequired to furnish a report by our management on our internal controls over financial reporting. Such reportmustcontain, 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. If we are unable tocontinue toassert that our internal controls are effective, our shareholderscould lose confidence in the accuracy and completeness of our financial reports, which in turn could cause our stock price to decline.

***Allied******does not pay dividends.***

Allieddoes not pay dividends.We havenot paid any dividends since inception andhaveno intention of paying any dividends in the foreseeable future. Any future        dividends would be at the discretion of our board of directors and would depend on,among other things, future earnings,ouroperating and financial condition,ourcapital requirements, and general business conditions. Therefore, shareholdersshould not expect any        type of cash flow from their investment.

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***Allied may require additional capital funding.***

There can be no guarantee thatwewill not require additional funds, either through additional equity offerings or debt placements, in order to expand ouroperations. Such additional capital may result in dilution toourcurrentshareholders. Further, ourability to meet short-term and long-term financial commitments will depend on future cash. There can be no assurance that future income will generate sufficient funds to enableusto meetourfinancial commitments.         

***If the******market******price of our common stock declines as the******selling security holders******sell their        stock******,******selling******security holder******s or others may be encouraged to engage in short selling******, depressing the market price******.***

The significant downward pressure on the price of the common stock as theselling security holderssell material amounts of common stock could encourage short sales by theselling security holdersor        others. Short selling is the selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold it short. Significant short selling of a company’s stock creates an incentive for market participants to reduce the value of that company’s common stock. If a significant market for short selling our        common stock develops, the market price of our common stock could be significantly depressed.

***Allied******’s shareholders may face significant restrictions on******their stock.***

Allied’sstock differs from many stocks in that it is a“penny stock.”The Commission has adopted a number of rules to regulate“penny stocks”including, but not limited to, those rules from theSecuritiesActas follows:         

3a51-1     which defines penny stockas, generally speaking,those securitieswhichare not listed on either NASDAQ or a national securities exchange and are priced under $5,        excludingsecurities of issuers that have net tangible assets greater than $2 million if they have been in operation at least three years,greater than $5 million if in operation less than three years, oraverage revenue of at least $6 million for the last three years;

15g-1     which outlines transactions by broker/dealers which are exempt from 15g-2 through 15g-6 as those whose commissions from traders are lower than 5% total commissions;

15g-2     which details that brokers must disclose risks of penny stock on Schedule 15G;

15g-3     which details that broker/dealers must disclose quotes and other information relating to the penny stock market;

15g-4     which explains that compensation of broker/dealers must be disclosed;

15g-5     which explains that compensation of persons associated in connection with penny stock sales must be disclosed;

15g-6     which outlines that broker/dealers must send out monthly account statements; and

15g-9     which defines sales practice requirements.

 

SinceAllied’ssecurities constitute a“penny stock”within the meaning of the rules, the rules would apply tous and oursecurities.Because these rules provide regulatory burdens upon broker-dealers, theymay affect the ability ofshareholdersto sell their securities in any market that may develop; the rules themselves maylimitthemarket for penny stocks.Additionally, the market among dealers may not be active. Investors in penny stock often are unable to sell stock back to the dealer that sold them the stock. The mark-ups or commissions charged by the broker-dealers may be greater than any profit a seller may make. Because of large dealer spreads, investors may be unable to sell the stock immediately back to the dealer at the same price the        dealer sold the stock to the investor. In some cases, the stock may fall quickly in value. Investors may be unable to reap any profit from any sale of the stock, if they can sell it at all.

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Shareholders should be aware that,according to Commission Release No. 34-29093datedApril 17, 1991, the market for penny stocks has suffered from patterns of fraud and abuse. These patternsinclude:

|  | ·      | control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; |
|--|----------------------------------------|-------------------------------------------------------------------------------------------------------------------------|

|  | ·      | manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
|--|----------------------------------------|---------------------------------------------------------------------------------------------------------------------|

|  | ·      | “boiler room”practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; |
|--|----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and |
|--|----------------------------------------|--------------------------------------------------------------------------------------------|

|  | ·      | the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
|--|----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES****AND USE OF PROCEEDS**         

None.

**ITEM 3.     DEFAULTS ON SENIOR SECURITIES**

None.         

**ITEM 4.     ****SUBMISSION OF MATTERS****TO A VOTE OF SECURITY HOLDERS         **

None.         

**ITEM 5.     OTHER INFORMATION         **

None.

**ITEM 6.     EXHIBITS**

Exhibitsrequired to be attached by Item 601 of Regulation S-Kare listed inthe Index to Exhibits on page22of this Form 10-Q, and are incorporated herein by this        reference.

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**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.         

***Allied Resources, Inc******.******     ***

/s/ Ruairidh Campbell                                   August14, 2008

Ruairidh Campbell                         

Chief Executive Officer, Chief Financial Officer,Principal Accounting Officer,and Director

                    

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**INDEX TO****EXHIBITS**

***Exhibit     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)    | *      | Form Gas Purchase Agreement (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).                                                                                                                     |
| 31Attached |   | 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 |
| 32Attached |   | 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.                                            |

      *      Incorporated by reference to previous filings ofAllied.

     

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