UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC  20549





FORM
10-Q


x  Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.


For
the quarterly period ended December 31, 2009





 ̈  Transition
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.


For
the transition period from________ to ________





Commission
File Number:  0-19266





ALLIED
HEALTHCARE PRODUCTS, INC.


(Exact
name of registrant as specified in its charter)


Delaware
            
            25-1370721(State
      or other jurisdiction of
            
            (I.R.S.
      EmployerIncorporation
      or organization)
            
            Identification
      No.)





1720
Sublette Avenue, St. Louis, Missouri 63110


(Address
of principal executive offices, including zip code)





(314)
771-2400


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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes    ̈   No    ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of "large accelerated filer,” “accelerated
filer" and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





Large accelerated filer
             ̈
            
            Accelerated filer
             ̈Non-accelerated filer
             ̈
            (Do not check if smaller reporting company)
            Smaller reporting company
            x





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


Yes   o   No   x





The
number of shares of common stock outstanding at January 29, 2010 is 8,093,386
shares.









INDEXPageNumberPart
      I –
                                Financial
      InformationItem
      1.
                                Financial
      StatementsConsolidated
      Statement of Operations -
                                3Three
      and six months ended December 31,2009
      and 2008 (Unaudited)Consolidated
      Balance Sheet -
                                4 -
      5December
      31, 2009 (Unaudited) andJune
      30, 2009Consolidated
      Statement of Cash Flows -
                                6Six
      months ended December 31, 2009 and 2008(Unaudited)Notes
      to Consolidated Financial Statements
                                7 –
      11Item
      2.
                                Management’s
      Discussion and Analysis of
                                12
      – 16Financial
      Condition and Results of OperationsItem
      3.
                                Quantitative
      and Qualitative Disclosure
                                16about
      Market RiskItem
      4T.
                                Controls
      and Procedures
                                16Part
      II -
                                Other
      InformationItem
      4.
                                Submission
      of Matters to Vote of Securities Holders
                                17Item
      6.
                                Exhibits
                                17Signature
                                18





SAFE
HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995





Statements
contained in this Report, which are not historical facts or information, are
"forward-looking statements." Words such as "believe," "expect," "intend,"
"will," "should," and other expressions that indicate future events and trends
identify such forward-looking statements. These forward-looking statements
involve risks and uncertainties, which could cause the outcome and future
results of operations, and financial condition to be materially different than
stated or anticipated based on the forward-looking statements. Such risks and
uncertainties include both general economic risks and uncertainties, risks and
uncertainties affecting the demand for and economic factors affecting the
delivery of health care services, and specific matters which relate directly to
the Company's operations and properties as discussed in the Company’s annual
report on Form 10-K for the year ended June 30, 2009.  The Company
cautions that any forward-looking statements contained in this report reflect
only the belief of the Company or its management at the time the statement was
made. Although the Company believes such forward-looking statements are based
upon reasonable assumptions, such assumptions may ultimately prove inaccurate or
incomplete. The Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which the
statement was made.


2


PART
I.       FINANCIAL INFORMATION





Item
1.        Financial
Statements





ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
STATEMENT OF OPERATIONS


(UNAUDITED)





Three
      months ended
                                                  
                                                  
                                                  Six
      months endedDecember
      31,
                                                  
                                                  
                                                  December
      31,2009
                                                  
                                                  
                                                  2008
                                                  
                                                  
                                                  2009
                                                  
                                                  
                                                  2008Net
      sales
                                                  
                                                  $
                                                  11,414,908
                                                  
                                                  
                                                  $
                                                  12,531,342
                                                  
                                                  
                                                  $
                                                  22,738,584
                                                  
                                                  
                                                  $
                                                  26,972,353Cost
      of sales
                                                  
                                                  
                                                  8,470,169
                                                  
                                                  
                                                  
                                                  9,821,746
                                                  
                                                  
                                                  
                                                  17,390,969
                                                  
                                                  
                                                  
                                                  20,761,703Gross
      profit
                                                  
                                                  
                                                  2,944,739
                                                  
                                                  
                                                  
                                                  2,709,596
                                                  
                                                  
                                                  
                                                  5,347,615
                                                  
                                                  
                                                  
                                                  6,210,650Selling,
      general andadministrative
      expenses
                                                  
                                                  
                                                  2,900,113
                                                  
                                                  
                                                  
                                                  3,400,342
                                                  
                                                  
                                                  
                                                  6,491,891
                                                  
                                                  
                                                  
                                                  6,583,929Income
      (loss) from operations
                                                  
                                                  
                                                  44,626
                                                  
                                                  
                                                  
                                                  (690,746
                                                  )
                                                  
                                                  
                                                  (1,144,276
                                                  )
                                                  
                                                  
                                                  (373,279
                                                  )Interest
      income
                                                  
                                                  
                                                  (464
                                                  )
                                                  
                                                  
                                                  (18,455
                                                  )
                                                  
                                                  
                                                  (1,448
                                                  )
                                                  
                                                  
                                                  (49,114
                                                  )Interest
      expense
                                                  
                                                  
                                                  162
                                                  
                                                  
                                                  
                                                  5,849
                                                  
                                                  
                                                  
                                                  2,574
                                                  
                                                  
                                                  
                                                  5,849Other,
      net
                                                  
                                                  
                                                  11,785
                                                  
                                                  
                                                  
                                                  11,112
                                                  
                                                  
                                                  
                                                  22,798
                                                  
                                                  
                                                  
                                                  23,17911,483
                                                  
                                                  
                                                  
                                                  (1,494
                                                  )
                                                  
                                                  
                                                  23,924
                                                  
                                                  
                                                  
                                                  (20,086
                                                  )Income
      (loss) before provision for(benefit
      from) income taxes
                                                  
                                                  
                                                  33,143
                                                  
                                                  
                                                  
                                                  (689,252
                                                  )
                                                  
                                                  
                                                  (1,168,200
                                                  )
                                                  
                                                  
                                                  (353,193
                                                  )Provision
      for (benefit from) income taxes
                                                  
                                                  
                                                  11,573
                                                  
                                                  
                                                  
                                                  (253,158
                                                  )
                                                  
                                                  
                                                  (444,832
                                                  )
                                                  
                                                  
                                                  (125,456
                                                  )Net
      income (loss)
                                                  
                                                  $
                                                  21,570
                                                  
                                                  
                                                  $
                                                  (436,094
                                                  )
                                                  
                                                  $
                                                  (723,368
                                                  )
                                                  
                                                  $
                                                  (227,737
                                                  )Basic
      and diluted earnings (loss)per
      share
                                                  
                                                  $
                                                  0.00
                                                  
                                                  
                                                  $
                                                  (0.06
                                                  )
                                                  
                                                  $
                                                  (0.09
                                                  )
                                                  
                                                  $
                                                  (0.03
                                                  )Weighted
      average shares  outstanding - basic
                                                  
                                                  
                                                  8,092,734
                                                  
                                                  
                                                  
                                                  7,901,327
                                                  
                                                  
                                                  
                                                  8,040,528
                                                  
                                                  
                                                  
                                                  7,896,279Weighted
      average shares  outstanding - diluted
                                                  
                                                  
                                                  8,217,103
                                                  
                                                  
                                                  
                                                  7,901,327
                                                  
                                                  
                                                  
                                                  8,040,528
                                                  
                                                  
                                                  
                                                  7,896,279





See
accompanying Notes to Consolidated Financial Statements.


3





ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
BALANCE SHEET


ASSETS





(Unaudited)December 31,
                        
                        
                        June 30,2009
                        
                        
                        2009Current
      assets:Cash
      and cash equivalents
                        
                        $
                        2,492,160
                        
                        
                        $
                        1,943,364Accounts
      receivable, net of allowances of $300,000
                        
                        
                        5,283,980
                        
                        
                        
                        6,172,437Inventories,
      net
                        
                        
                        12,736,488
                        
                        
                        
                        12,663,938Income
      tax receivable
                        
                        
                        1,653,573
                        
                        
                        
                        937,273Other
      current assets
                        
                        
                        308,451
                        
                        
                        
                        327,203Total
      current assets
                        
                        
                        22,474,652
                        
                        
                        
                        22,044,215Property,
      plant and equipment, net
                        
                        
                        10,209,764
                        
                        
                        
                        10,799,089Other
      assets, net
                        
                        
                        189,132
                        
                        
                        
                        390,627Total
      assets
                        
                        $
                        32,873,548
                        
                        
                        $
                        33,233,931





See
accompanying Notes to Consolidated Financial Statements.





(CONTINUED)


4


ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
BALANCE SHEET


(CONTINUED)


LIABILITIES
AND STOCKHOLDERS' EQUITY





(Unaudited)December
      31,
                      
                      
                      June
      30,2009
                      
                      
                      2009Current
      liabilities:Accounts
      payable
                      
                      $
                      2,315,688
                      
                      
                      $
                      1,633,568Other
      accrued liabilities
                      
                      
                      1,880,039
                      
                      
                      
                      2,316,558Deferred
      income taxes
                      
                      
                      168,136
                      
                      
                      
                      419,213Deferred
      revenue
                      
                      
                      688,200
                      
                      
                      
                      688,200Total
      current liabilities
                      
                      
                      5,052,063
                      
                      
                      
                      5,057,539Deferred
      revenue
                      
                      
                      1,147,000
                      
                      
                      
                      1,491,100Commitments
      and contingenciesStockholders'
      equity:Preferred
      stock; $0.01 par value; 1,500,000 shares authorized; no shares issued and
      outstanding
                      
                      
                      -
                      
                      
                      
                      -Series
      A preferred stock; $0.01 par value; 200,000 shares authorized; no shares
      issued and outstanding
                      
                      
                      -
                      
                      
                      
                      -Common
      stock; $0.01 par value; 30,000,000 shares authorized; 10,396,878 and
      10,204,819 shares issued at December 31, 2009 and June 30, 2009,
      respectively; 8,093,386 and 7,901,327 shares outstanding at December 31,
      2009 and June 30, 2009, respectively
                      
                      
                      103,969
                      
                      
                      
                      102,048Additional
      paid-in capital
                      
                      
                      48,342,689
                      
                      
                      
                      47,632,049Accumulated
      deficit
                      
                      
                      (1,040,745
                      )
                      
                      
                      (317,377
                      )Less
      treasury stock, at cost; 2,303,492 shares at December 31, 2009 and June
      30, 2009
                      
                      
                      (20,731,428
                      )
                      
                      
                      (20,731,428
                      )Total
      stockholders' equity
                      
                      
                      26,674,485
                      
                      
                      
                      26,685,292Total
      liabilities and stockholders' equity
                      
                      $
                      32,873,548
                      
                      
                      $
                      33,233,931





See
accompanying Notes to Consolidated Financial Statements.


5





ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
STATEMENT OF CASH FLOWS


(UNAUDITED)





Six months ended
                      December 31,2009
                    
                    
                    2008Cash
      flows from operating activities:Net
      loss
                    
                    $
                    (723,368
                    )
                    
                    $
                    (227,737
                    )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                    
                    
                    710,622
                    
                    
                    
                    751,332Stock
      based compensation
                    
                    
                    627,693
                    
                    
                    
                    7,323Provision
      for doubtful accounts and sales returns and allowances
                    
                    
                    13,361
                    
                    
                    
                    (10,449
                    )Deferred
      taxes
                    
                    
                    (55,702
                    )
                    
                    
                    18,251Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    875,096
                    
                    
                    
                    1,809,464Inventories
                    
                    
                    (72,550
                    )
                    
                    
                    (1,654,316
                    )Income
      tax receivable
                    
                    
                    (716,300
                    )
                    
                    
                    -Other
      current assets
                    
                    
                    18,750
                    
                    
                    
                    (100,235
                    )Accounts
      payable
                    
                    
                    682,120
                    
                    
                    
                    35,536Deferred
      revenue
                    
                    
                    (344,100
                    )
                    
                    
                    (344,550
                    )Other
      accrued liabilities
                    
                    
                    (436,519
                    )
                    
                    
                    (1,059,370
                    )Net
      cash provided by (used in) operating activities
                    
                    
                    579,103
                    
                    
                    
                    (774,751
                    )Cash
      flows from investing activities:Capital
      expenditures
                    
                    
                    (115,175
                    )
                    
                    
                    (1,243,445
                    )Net
      cash used in investing activities
                    
                    
                    (115,175
                    )
                    
                    
                    (1,243,445
                    )Cash
      flows from financing activities:Stock
      options exercised
                    
                    
                    3,469
                    
                    
                    
                    81,094Minimum
      tax witholdings on stock options exercised
                    
                    
                    (406,110
                    )
                    
                    
                    -Excess
      tax benefit from exercise of stock options
                    
                    
                    487,509
                    
                    
                    
                    619Net
      cash provided by financing activities
                    
                    
                    84,868
                    
                    
                    
                    81,713Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    548,796
                    
                    
                    
                    (1,936,483
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    1,943,364
                    
                    
                    
                    6,149,015Cash
      and cash equivalents at end of period
                    
                    $
                    2,492,160
                    
                    
                    $
                    4,212,532





See accompanying Notes to Consolidated
Financial Statements.




6




ALLIED HEALTHCARE PRODUCTS,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





1.  Summary
of Significant Accounting and Reporting Policies





Basis
of Presentation





The accompanying unaudited consolidated
financial statements have been prepared in accordance with the instructions for
Form 10-Q and do not include all of the information and disclosures required by
accounting principles generally accepted in the United States of America for
complete financial statements.  In the opinion of management, all
adjustments, consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included.  Operating
results for any quarter are not necessarily indicative of the results for any
other quarter or for the full year.  These statements should be read
in conjunction with the consolidated financial statements and notes to the
consolidated financial statements thereto included in the Company’s Form 10-K
for the year ended June 30, 2009.





Codification
of Accounting Standards





On
September 30, 2009, the Company adopted SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles(the Codification). The Codification combines the previous U.S. GAAP
hierarchy which included four levels of authoritative accounting literature
distributed among a number of different sources. The Codification does not by
itself create new accounting standards but instead reorganizes thousands of
pages of existing U.S. GAAP accounting rules into approximately 90 accounting
topics. All existing accounting standards documents are superseded by the
Codification and all other accounting literature not included in the
Codification is now considered non-authoritative. The Codification explicitly
recognizes the rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under federal securities laws as authoritative GAAP for SEC
registrants. The Codification is now the single source of authoritative
nongovernmental accounting standards in the U.S.





As a
result of the Codification, the references to authoritative accounting
pronouncements included herein in this Quarterly Report on Form 10-Q now refer
to the Codification topic section rather than a specific accounting rule as was
past practice.


7


Subsequent
Events




Allied Healthcare Products, Inc. has
applied the provisions of the Subsequent Events Topic of the Accounting
Standards Codification (ASC) to its consolidated interim financial statements
for periods ended after June 15, 2009.  The Subsequent Event
Topic establishes general standards of accounting for, and disclosure of, events
that occur after the balance sheet date but before financial statements are
issued.  In particular, the Subsequent Events Topic sets forth the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements.  Accordingly,
the Company has evaluated events and transactions occurring through February 8,
2010, the date the consolidated interim financial statements were issued, for
potential recognition or disclosure in the financial statements.





Recently
Issued Accounting Guidance




In April
2009, the FASB issued guidance (“Fair Value Determination Guidance”) in the Fair
Value Measurements and Disclosures Topic of the ASC regarding the determination
of fair value in instances where market conditions result in either inactive
markets for assets and liabilities or disorderly transactions within markets.
The Fair Value Determination Guidance affirms that the objective of fair value
when the market for an asset is not active is the price that would be received
to sell the asset in an orderly transaction, and clarifies and includes
additional factors for determining whether there has been a significant decrease
in market activity for an asset when the market for that asset is not active.
The Fair Value Determination Guidance requires an entity to base its conclusion
about whether a transaction was not orderly on the weight of the evidence and
expands certain disclosure requirements. The Fair Value Determination Guidance
became effective for Allied Healthcare Products, Inc. in the quarter ended
September 30, 2009, and its adoption did not have a significant effect on
the Company’s financial position, results of operations, or cash
flows.




In
December 2007, the FASB issued the Business Combinations Topic of the ASC. The
Business Combinations Topic replaces previously issued guidance regarding
business combinations, and applies to all transactions and other events in which
one entity obtains control over one or more other
businesses.  Departing from the cost-allocation process of previous
guidance, the Business Combinations Topic requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquired entity at the acquisition date, measured at their fair values as of
that date.  Contingent consideration is recognized and measured at
fair value at the acquisition date, and acquisition related costs are expensed
as incurred. The Business Combinations Topic also distinguishes between assets
acquired and liabilities assumed arising from contractual contingencies as of
the acquisition date and assets or liabilities arising from all other
contingencies, requiring different treatment for each type of
contingency.  The Business Combinations Topic is effective for Allied
Healthcare Products, Inc. on July 1, 2009. To the extent business
combinations occur on or after the effective date, the Company’s accounting for
those transactions will be significantly affected by the provisions of the
Business Combinations Topic.





The
Company has determined that all other recently issued accounting guidance will
not have a material impact on its consolidated financial position, results of
operations and cash flows, or do not apply to its operations.


8





Fair
Value of Financial Instruments





The Company’s financial instruments
consist of cash, accounts receivable and accounts payable.  The
carrying amounts for cash, accounts receivable and accounts payable approximate
their fair value due to the short maturity of these instruments.





2.  Inventories





Inventories
are comprised as follows:





December 31, 2009
                      
                      
                      June 30, 2009Work-in
      progress
                      
                      $
                      1,099,609
                      
                      
                      $
                      718,711Raw
      materials and component parts
                      
                      
                      8,704,302
                      
                      
                      
                      8,981,435Finished
      goods
                      
                      
                      4,252,264
                      
                      
                      
                      4,311,440Reserve
      for obsolete and excessinventory
                      
                      
                      (1,319,687
                      )
                      
                      
                      (1,347,648
                      )$
                      12,736,488
                      
                      
                      $
                      12,663,938





3.  Earnings
per share





Basic earnings per share are based on
the weighted average number of shares of all common stock outstanding during the
period.  Diluted earnings per share are based on the sum of the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. The number of basic shares outstanding for the
three months ended December 31, 2009 and 2008 were 8,092,734 and 7,901,327
respectively.  The number of diluted shares outstanding for the three
months ended December 31, 2009 and 2008 were 8,217,103 and 7,901,327
respectively. The number of basic and diluted shares outstanding for the six
months ended December 31, 2009 and 2008 were 8,040,528 and 7,896,279
respectively.





4.  Commitments
and Contingencies





The
Company is subject to various investigations, claims and legal proceedings
covering a wide range of matters that arise in the ordinary course of its
business activities.  The Company has recognized the costs and
associated liabilities only for those investigations, claims and legal
proceedings for which, in its view, it is probable that liabilities have been
incurred and the related amounts are estimable.  Based upon
information currently available, management believes that existing accrued
liabilities are sufficient and that it is not reasonably possible at this time
to believe that any additional liabilities will result from the resolution of
these matters that would have a material adverse effect on the Company’s
consolidated results of operations, financial position or cash
flows.


9


5.  Financing





Effective as of November 13, 2009,
Allied Healthcare Products, Inc. (the “Company”) terminated its revolving credit
facility arrangement with Bank of America, N.A., as successor to LaSalle Bank
National Association (the “Old Credit Agreement”). The Old Credit Agreement
provided for borrowings of up to $10,000,000 and was available through
September 1, 2010. No loans were outstanding under the Old Credit Agreement
as of November 13, 2009.





On
November 17, 2009, in order to obtain replacement financing, the Company
entered into a Loan and Security Agreement by and between Enterprise Bank &
Trust and the Company (the “New Credit Agreement”) pursuant to which the Company
obtained a secured revolving credit facility with borrowing availability of up
to $7,500,000 (the “New Credit Facility”). The Company’s obligations under the
New Credit Facility are secured by certain assets of the Company pursuant to the
terms and subject to the conditions set forth in the New Credit
Agreement.





The New
Credit Facility will be available on a revolving basis until it expires on
November 17, 2010, at which time all amounts outstanding under the New Credit
Facility will be due and payable. Advances under the New Credit Facility will be
made pursuant to a Revolving Credit Note (the “Promissory Note”) executed by the
Company in favor of Enterprise Bank & Trust. Such advances will bear
interest at a rate equal to .50% in excess of Enterprise Bank & Trust’s
prime-rate based interest rate for commercial loans, subject to a minimum annual
interest rate of 4.50%.  Advances may be prepaid in whole or in part
without premium or penalty.





Under the
New Credit Agreement, advances are generally subject to customary borrowing
conditions. The New Credit Agreement also contains covenants with which the
Company must comply during the term of the New Credit Facility. Among other
things, such covenants restrict the Company’s ability to incur certain
additional debt; make specified restricted payments, dividends and capital
expenditures; authorize or issue capital stock; enter into certain transaction
with affiliates; consolidate or merge with or acquire another business; sell
certain of its assets or dissolve or wind up the Company. The New Credit
Agreement also contains certain events of default that are customary for
financings of this type including, without limitation: the failure to pay
principal, interest, fees or other amounts when due; the breach of specified
representations or warranties contained in the loan documents; cross-default
with certain other indebtedness of the Company; the entry of uninsured judgments
that are not bonded or stayed; failure to comply with the observance or
performance of specified agreements contained in the loan documents;
commencement of bankruptcy or other insolvency proceedings; and the failure of
any of the loan documents entered into in connection with the New Credit
Facility to be in full force and effect. After an event of default, and upon the
continuation thereof, the principal amount of all loans made under the New
Credit Facility would bear interest at a rate per annum equal to 4.00% above the
otherwise applicable interest rate (provided, that the interest rate may not
exceed the highest rate permissible under law), and the lender would have the
option to accelerate maturity and payment of the Company’s obligations under the
New Credit Facility.


10





The prime
rate was 3.25% on December 31, 2009.





At
December 31, 2009 the Company had no aggregate indebtedness, including capital
lease obligations, short-term debt and long term debt.





The
Company was in compliance with all of the financial covenants associated with
its credit facility at December 31, 2009.





6.  Baralyme®
Agreement





A
reconciliation of deferred revenue resulting from the agreement with Abbott
Laboratories (“Abbott”), with the amounts received under the agreement, and
amounts recognized as net sales is as follows:





Three
      Months ended
                        
                        
                        Six
      Months endedDecember
      31,
                        
                        
                        December
      31,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Beginning
      balance
                        
                        $
                        2,007,250
                        
                        
                        $
                        2,695,000
                        
                        
                        $
                        2,179,300
                        
                        
                        $
                        2,867,500Revenue
      recognizedas
      net sales
                        
                        
                        (172,050
                        )
                        
                        
                        (172,050
                        )
                        
                        
                        (344,100
                        )
                        
                        
                        (344,550
                        )1,835,200
                        
                        
                        
                        2,522,950
                        
                        
                        
                        1,835,200
                        
                        
                        
                        2,522,950Less
      - Current portionof
      deferred revenue
                        
                        
                        (688,200
                        )
                        
                        
                        (690,000
                        )
                        
                        
                        (688,200
                        )
                        
                        
                        (690,000
                        )$
                        1,147,000
                        
                        
                        $
                        1,832,950
                        
                        
                        $
                        1,147,000
                        
                        
                        $
                        1,832,950





In addition to the provisions of the
agreement relating to the withdrawal of the Baralyme® product, Abbott has agreed
to pay Allied up to $2,150,000 in product development costs to pursue
development of a new carbon dioxide absorption product for use in connection
with inhalation anesthetics that does not contain potassium hydroxide and does
not produce a significant exothermic reaction with currently available
inhalation agents.  As of December 31, 2009, $2,150,000 has been
received as a result of product development activities.


11


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





RESULTS OF
OPERATIONS





Three months ended December
31, 2009 compared to three months ended December 31, 2008





Allied
had net sales of $11.4 million for the three months ended December 31, 2009,
down $1.1 million, or 8.8%, from net sales of $12.5 million in the prior year
same quarter.  Customer orders of $10.9 million were $1.4 million
lower than the prior year same quarter.    Purchase order
releases were only $0.8 million lower than in the prior year same
quarter.  Purchase order release times depend on the scheduling
practices of individual customers, and do vary over time.





Sales for
the three months ended December 31, 2009 and December 31, 2008 include $172,050
for the recognition into income of payments resulting from the agreement with
Abbott Laboratories to cease the production and distribution of
Baralyme®.  Income from the agreement will continue to be recognized
at $57,350 per month until the expiration of the agreement in August
2012.  Allied continues to sell Carbolime®, a carbon dioxide absorbent
with a different formulation than Baralyme®.  The Company ceased the
sale of Baralyme® on August 27th,
2004.





Domestic
sales were down 7.7% from the prior year same quarter, while international
business, which represented 18.4% of second quarter sales, was down
13.8%.  Orders for the Company’s products for the three months ended
December 31, 2009 of $10.9 million were $1.4 million or 11.4% lower than orders
for the prior year same quarter of $12.3 million.  Domestic orders are
down 12.8% over the prior year same quarter while international orders, which
represented 23.0% of second quarter orders, were 6.3% lower than orders for the
prior year same quarter.  The Company believes that the decrease in
net sales is primarily the result of the worldwide recession. By and large, the
Company’s products are considered durable goods.  The Company believes
that the purchase of equipment and durable goods and the purchase of equipment
by hospitals and municipalities have been cut as a short term measure to meet
budgets and conserve cash.





Gross
profit for the three months ended December 31, 2009 was $2.9 million, or 25.4%
of net sales, compared to $2.7 million, or 21.6% of net sales, for the three
months ended December 31, 2008.  Gross profit during the second
quarter was favorably impacted by cost savings initiatives which reduced the
cost of purchased materials and manufactured finished goods.





Selling,
general and administrative expenses for the three months ended December 31, 2009
were $2.9 million compared to selling, general and administrative expenses of
$3.4 million for the three months ended December 31, 2008.  The
decrease in selling, general and administrative expenses is partially due to a
decrease of approximately $0.2 million for compensation expense as a result of a
reduction in the Company’s workforce and decrease in
sales.  Additionally, selling expenses for business travel decreased
approximately $0.1 million and expenses for outside professional services
decreased approximately $0.1 million compared to the same quarter of the prior
year.





Income
from operations was $44,626 for the three months ended December 31, 2009
compared to loss from operations of $0.7 million for the three months ended
December 31, 2008.  Allied had income before provision for income
taxes in the second quarter of fiscal 2010 of $33,143, compared to a loss before
benefit from income taxes in the second quarter of fiscal 2009 of $0.7
million.  The Company recorded a tax provision of $11,573 for the
three-months ended December 31, 2009 compared to a tax benefit of $0.3 million
for the three months ended December 31, 2008.


12


Net
income for the second quarter of fiscal 2010 was $21,570 or $0.00 per basic and
diluted share compared to net loss of $0.4 million or $0.06 per basic and
diluted share for the second quarter of fiscal 2009.  The weighted
average number of common shares outstanding, used in the calculation of basic
earnings per share for the second quarters of fiscal 2010 and 2009 were
8,092,734 and 7,901,327 shares, respectively.  The weighted average
number of common shares outstanding, used in the calculation of diluted earnings
per share for the second quarters of fiscal 2010 and 2009 were 8,217,103 and
7,901,327 shares, respectively.





Six months ended December
31, 2009 compared to six months ended December 31, 2008





Allied
had net sales of $22.7 million for the six months ended December 31, 2009, down
$4.3 million, or 15.9%, from net sales of $27.0 million in the prior year same
period.  Customer orders of $22.4 million were $3.1 million lower than
the prior year same period.    Purchase order releases were
$4.0 million lower than in the prior year same period.  Purchase order
release times depend on the scheduling practices of individual customers, and do
vary over time.





$99,000
of the decrease in the Company’s sales compared to the same period last year are
due to discontinuation of reimbursement from Abbott for product development
activities to pursue development of a new carbon dioxide absorption
product.  Sales for the six months ended December 31, 2008 include
$99,000 of such reimbursements.





Sales for
the six months ended December 31, 2009 and December 31, 2008 include $344,100
and $344,550 respectively, for the recognition into income of payments resulting
from the agreement with Abbott Laboratories to cease the production and
distribution of Baralyme®.





Domestic
sales were down 14.3% from the prior year same period, while international
business, which represented 16.6% of sales for the first half of fiscal 2010,
was down 22.2%.  Orders for the Company’s products for the six months
ended December 31, 2009 of $22.4 million were $3.2 million or 12.5% lower than
orders for the prior year same period of $25.6 million.  Domestic
orders are down 11.4% over the prior year same period while international
orders, which represented 19.5% of orders for the first half of fiscal 2010,
were 15.7% lower than orders for the prior year same period.





Gross
profit for the six months ended December 31, 2009 was $5.3 million, or 23.3% of
net sales, compared to $6.2 million, or 23.0% of net sales, for the six months
ended December 31, 2008.  Gross profit during the first half of fiscal
2010 was favorably impacted by cost savings initiatives which have reduced the
cost of purchased materials and manufactured finished goods.


13


Selling,
general and administrative expenses for the six months ended December 31, 2009
were $6.5 million compared to selling, general and administrative expenses of
$6.6 million for the six months ended December 31 2008.  Stock option
expense increased approximately $0.6 million due to the grant of immediately
vested stock options to the Company’s President and CEO.  This
increase was partially offset by a decrease of approximately $260,000 for
compensation expense as a result of a reduction in the Company’s workforce, a
decrease of approximately $48,000 for recruiting expenses, and a decrease of
approximately $80,000 for outside professional services compared to the same
period of the prior year.  Due to the low level of sales for the first
half of fiscal 2010, sales commissions decreased $83,000 compared to the same
period of the prior year.  Additionally, selling expenses for business
travel decreased approximately $136,000, vehicle expenses decreased
approximately $29,000, and expenses for trade shows decreased approximately
$61,000 compared to the same period of the prior year.





Loss from
operations was $1.1 million for the six months ended December 31, 2009 compared
to loss from operations of $0.4 million for the six months ended December 31,
2008.  Interest income was $1,448 for the six months ended December
31, 2009 compared to interest income of $49,114 for the six months ended
December 31, 2008.   Allied had loss before benefit from income
taxes in the first half of fiscal 2010 of $1.2 million, compared to loss before
benefit from income taxes in the first half of fiscal 2009 of $0.4
million.  The Company recorded a tax benefit of $0.4 million for the
six months ended December 31, 2009 compared to a tax benefit of $0.1 million for
the six months ended December 31, 2008.





Net loss
for the first six months of fiscal 2010 was $0.7 million or $0.09 per basic and
diluted share compared to net loss of $0.2 million or $0.03 per basic and
diluted share for the first six months of fiscal 2009.  The weighted
average number of common shares outstanding, used in the calculation of basic
and diluted earnings per share for the first six months of fiscal 2010 and 2009
were 8,040,528 and 7,896,279 shares, respectively.





LIQUIDITY AND CAPITAL
RESOURCES





The
Company believes that available resources and anticipated cash flows from
operations are sufficient to meet operating requirements in the coming
year.





The
Company’s working capital was $17.4 million at December 31, 2009 compared to
$17.0 million at June 30, 2009.  Cash increased $0.5 million, income
taxes receivable increased $0.7 million and inventory increased $0.1
million.  The current deferred income tax liability decreased $0.3
million and accrued liabilities decreased $0.4 million.  At December
31, 2009 these increases in working capital were offset by a $0.7 million
increase in accounts payable and a decrease in accounts receivable of $0.9
million to $5.3 million at December 31, 2009.  Accounts receivable as
measured in days of sales outstanding (“DSO”) decreased to 42 DSO at December
31, 2009; down from 43 DSO at June 30, 2009.


14





Effective as of November 13, 2009,
Allied Healthcare Products, Inc. (the “Company”) terminated its revolving credit
facility arrangement with Bank of America, N.A., as successor to LaSalle Bank
National Association (the “Old Credit Agreement”). The Old Credit Agreement
provided for borrowings of up to $10,000,000 and was available through
September 1, 2010. No loans were outstanding under the Old Credit Agreement
as of November 13, 2009.





On
November 17, 2009, in order to obtain replacement financing, the Company
entered into a Loan and Security Agreement by and between Enterprise Bank &
Trust and the Company (the “New Credit Agreement”) pursuant to which the Company
obtained a secured revolving credit facility with borrowing availability of up
to $7,500,000 (the “New Credit Facility”). The Company’s obligations under the
New Credit Facility are secured by certain assets of the Company pursuant to the
terms and subject to the conditions set forth in the New Credit
Agreement.  See Note 5 – Financing to the Company’s consolidated
unaudited financial statements for more information concerning the New Credit
Facility.





The prime
rate was 3.25% on December 31, 2009.





At
December 31, 2009 the Company had no aggregate indebtedness, including capital
lease obligations, short-term debt and long term debt.





In the
event that economic conditions were to severely worsen for a protracted period
of time, we believe that we will have borrowing capacity under credit facilities
that will provide sufficient financial flexibility.  The Company would
have options available to ensure liquidity in addition to increased
borrowing.  Capital expenditures, which are budgeted at $1.2 million
for the fiscal year ended June 30, 2010, could be postponed.





Inflation
has not had a material effect on the Company’s business or results of operations
during the first six months of fiscal 2010.





Litigation
and Contingencies





The
Company becomes, from time to time, a party to personal injury litigation
arising out of incidents involving the use of its products. The Company believes
that any potential judgments resulting from these claims over its self-insured
retention will be covered by the Company’s product liability
insurance.





Recently
Issued Accounting Guidance




The
impact and any associated risks related to the Company’s critical accounting
policies on business operations are discussed throughout “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” where
such policies affect our reported and expected financial results. For a detailed
discussion on the application of these and other accounting policies, see the
Company’s Annual Report on Form 10-K for the year ended June 30,
2009.


15




See Note
1 – Summary of Significant Accounting and Reporting Policies for more
information on recent accounting pronouncements and their impact, if any, on our
consolidated financial statements. Management believes there have been no
material changes to our critical accounting policies.





Item
3.    Quantitative and Qualitative Disclosure about Market
Risk





At
December 31, 2009, the Company did not have any debt outstanding.  The
revolving credit facility bears an interest rate using the commercial bank’s
prime-rate based interest rate for commercial loans as the basis, as defined in
the loan agreement, and therefore is subject to additional expense should there
be an increase in market interest rates.





The
Company had no holdings of derivative financial or commodity instruments at
December 31, 2009.  Allied Healthcare Products has international
sales; however these sales are denominated in U.S. dollars, mitigating foreign
exchange rate fluctuation risk.





Item
4T.     Controls and Procedures





(a) Disclosure
Controls and Procedures.




The
Company maintains controls and procedures designed to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Securities Exchange Act of 1934 is recorded, processed, summarized, and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission and that such information is accumulated and
communicated to the Company's management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. Based upon their evaluation of those controls and
procedures performed as of December 31, 2009, the Chief Executive Officer and
Chief Financial Officer of the Company concluded that its disclosure controls
and procedures were effective.





(b)
Changes in internal control over financial reporting





There
were no changes in the Company’s internal control over financial reporting
during the quarter ended December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, the registrant’s internal control over
financial reporting.





16




Part
II.    OTHER INFORMATION





Item
4.    Submission of Matters to Vote of Security
Holders





ANNUAL
MEETING OF SHAREHOLDERS: The annual meeting of the Company’s stockholders was
held on November 13, 2009. Proxies were solicited pursuant to Regulation 14A of
the Securities Exchange Act of 1934. There was no solicitation in opposition to
management’s nominees for Directors and all nominees were elected.  In
addition, stockholders approved the Company’s 2009 Incentive Stock
Plan.





The
results of the voting on each proposal submitted at the meeting are as
follows:





Election
of Directors





FOR
                  
                  
                  WITHHELDJudith
      T. Graves
                  
                  
                  7,554,896
                  
                  
                  
                  26,632Joseph
      E. Root
                  
                  
                  7,556,356
                  
                  
                  
                  25,172Dr.
      William A. Peck
                  
                  
                  7,549,945
                  
                  
                  
                  31,583Earl
      R. Refsland
                  
                  
                  7,555,842
                  
                  
                  
                  25,685John
      D. Weil
                  
                  
                  7,550,211
                  
                  
                  
                  31,317





Proposal
1: Approval of 2009 Incentive Stock Plan





FOR
                
                AGAINST
                
                ABSTAIN6,496,658
                
                170,733
                
                1,515





Item
6.   Exhibits





(a)   Exhibits:


31.1  Certification
of Chief Executive Officer (filed herewith)





31.2  Certification
of Chief Financial Officer (filed herewith)





32.1  Sarbanes-Oxley
Certification of Chief Executive Officer (furnished herewith)*





32.2  Sarbanes-Oxley
Certification of Chief Financial Officer (furnished herewith)*





99.1  Press
Release dated February 8, 2010 announcing second quarter earnings*





*Notwithstanding
any incorporation of this Quarterly Report on Form 10-Q in any other filing by
the Registrant, Exhibits furnished herewith and designated with an asterisk (*)
shall not be deemed incorporated by reference to any other filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934 unless
specifically otherwise set forth therein.


17


SIGNATURE





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





ALLIED
      HEALTHCARE PRODUCTS, INC./s/
      Daniel C. DunnDaniel
      C. Dunn
                      Chief Financial
    OfficerDate:
      February 8,
2010


18