UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      DC 20549





**FORM
      10-Q**




(Mark
      One)




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




For
        the
        quarterly period ended December 31, 2007
  o
              Transition
                  report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Action
                  of 1934
  For
          the
          transition period from ______________ to ______________


Commission
      File Number 0-19266





**ALLIED
      HEALTHCARE PRODUCTS, INC.**





1720
      Sublette Avenue


St.
      Louis, Missouri 63110


314/771-2400


IRS
      Employment ID 25-1370721





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





Yes
x No
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of "accelerated
      filer” and “large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
      accelerated filer oAccelerated
      filer oNon-accelerated filer x





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





Yes
oNo
x




The
      number of shares of common stock outstanding at February 7, 2008 is 7,883,577
      shares.









**INDEX**





PageNumberPart
                I -
            Financial
                InformationItem
                1.
            Financial
                StatementsConsolidated
                Statement of Operations -three
                months ended December 31,2007
                and 2006 (Unaudited)
            3Consolidated
                Balance Sheet -December
                31, 2007 (Unaudited) andJune
                30, 2007
            4
                -
                5Consolidated
                Statement of Cash Flows -Six
                months ended December 31, 2007 and 2006(Unaudited)
            6Notes
                to Consolidated Financial Statements
            7
                -
                10Item
                2.
            Management’s
                Discussion and Analysis ofFinancial
                Condition and Results of Operations
            10
                - 16Item
                3.
            Quantitative
                and Qualitative Disclosureabout
                Market Risk
            16****
            Item
                4.
            Controls
                and Procedures
            16Part
                II -
            Other
                InformationItem
                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, 2007. The Company cautions
      that
      any forward-looking statements contained in this report reflects 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
                31,2007
            
            2006
            
            2007
            
            2006Net
                sales
            
            $
            13,626,016
            
            $
            14,273,950
            
            $
            27,727,634
            
            $
            28,751,392Cost
                of sales
            
            
            10,714,172
            
            
            10,757,222
            
            
            21,648,777
            
            
            21,715,111Gross
                profit
            
            
            2,911,844
            
            
            3,516,728
            
            
            6,078,857
            
            
            7,036,281Selling,
                general andadministrative
                expenses
            
            
            2,932,428
            
            
            3,091,418
            
            
            5,975,398
            
            
            6,282,415Income
                (loss) from operations
            
            
            (20,584
            )
            
            425,310
            
            
            103,459
            
            
            753,866Interest
                income
            
            
            (38,177
            )
            
            (28,059
            )
            
            (78,946
            )
            
            (56,228
            )Other,
                net
            
            
            11,113
            
            
            (53,182
            )
            
            26,263
            
            
            (43,878
            )(27,064
            )
            
            (81,241
            )
            
            (52,683
            )
            
            (100,106
            )Income
                before provisionfor
                income taxes
            
            
            6,480
            
            
            506,551
            
            
            156,142
            
            
            853,972Provision
                for income taxes
            
            
            -
            
            
            213,395
            
            
            62,597
            
            
            359,183Net
                income
            
            $
            6,480
            
            $
            293,156
            
            $
            93,545
            
            $
            494,789Basic
                and diluted earningsper
                share
            
            $
            0.00
            
            $
            0.04
            
            $
            0.01
            
            $
            0.06Weighted
                average sharesoutstanding
                - basic
            
            
            7,883,577
            
            
            7,877,120
            
            
            7,883,577
            
            
            7,868,512Weighted
                average sharesoutstanding
                - diluted
            
            
            8,130,901
            
            
            8,059,573
            
            
            8,122,607
            
            
            8,064,650




See
      accompanying Notes to Consolidated Financial Statements.




3




**ALLIED
      HEALTHCARE PRODUCTS, INC.**


**CONSOLIDATED
      BALANCE SHEET**


**ASSETS**




December
                31,
            
            June
                30,2007
            
            2007(Unaudited)Current
                assets:Cash
                and cash equivalents
            
            $
            4,732,692
            
            $
            3,638,870Accounts
                receivable, net of allowancesof
                $325,000 and $460,000, respectively
            
            
            6,190,756
            
            
            7,251,767Inventories,
                net
            
            
            11,810,149
            
            
            12,999,472Other
                current assets
            
            
            523,486
            
            
            275,254Total
                current assets
            
            
            23,257,083
            
            
            24,165,363Property,
                plant and equipment, net
            
            
            10,267,716
            
            
            10,677,000Goodwill
            
            
            15,979,830
            
            
            15,979,830Other
                assets, net
            
            
            562,161
            
            
            496,127Total
                assets
            
            $
            50,066,790
            
            $
            51,318,320




See
      accompanying Notes to Consolidated Financial Statements.





**(CONTINUED)**




4


**ALLIED
      HEALTHCARE PRODUCTS, INC.**


**CONSOLIDATED
      BALANCE SHEET**


**(CONTINUED)**


**LIABILITIES
      AND STOCKHOLDERS' EQUITY**





December
                31,
            
            June
                30,2007
            
            2007(Unaudited)Current
                liabilities:Accounts
                payable
            
            $
            2,719,389
            
            $
            3,040,313Other
                accrued liabilities
            
            
            1,945,603
            
            
            2,508,820Deferred
                income taxes
            
            
            726,861
            
            
            882,001Deferred
                revenue
            
            
            465,000
            
            
            465,000Total
                current liabilities
            
            
            5,856,853
            
            
            6,896,134Deferred
                revenue
            
            
            1,705,000
            
            
            1,937,500Commitments
                and contingenciesStockholders'
                equity:Preferred
                stock; $0.01 par value; 1,500,000 sharesauthorized;
                no shares issued and outstanding
            
            
            -
            
            
            -Series
                A preferred stock; $0.01 par value; 200,000 sharesauthorized;
                no shares issued and outstanding
            
            
            -
            
            
            -Common
                stock; $0.01 par value; 30,000,000 sharesauthorized;
                10,187,069 shares issued at December 31, 2007and
                June 30, 2007; 7,883,577 shares outstanding atDecember
                31, 2007 and June 30, 2007
            
            
            101,871
            
            
            101,871Additional
                paid-in capital
            
            
            47,479,012
            
            
            47,441,163Retained
                earnings
            
            
            15,655,482
            
            
            15,673,080Less
                treasury stock, at cost; 2,303,492 shares atDecember
                31, 2007 and June 30, 2007
            
            
            (20,731,428
            )
            
            (20,731,428
            )Total
                stockholders' equity
            
            
            42,504,937
            
            
            42,484,686Total
                liabilities and stockholders' equity
            
            $
            50,066,790
            
            $
            51,318,320





See
      accompanying Notes to Consolidated Financial Statements.




5





**ALLIED
      HEALTHCARE PRODUCTS, INC.**


**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


**(UNAUDITED)**





Six
                months endedDecember
                31,2007
            
            2006Cash
                flows from operating activities:Net
                income
            
            $
            93,545
            
            $
            494,789Adjustments
                to reconcile net income to netcash
                provided by operating activities:Depreciation
                and amortization
            
            
            667,929
            
            
            605,260Stock
                based compensation
            
            
            37,849
            
            
            39,036Provision
                for doubtful accounts and salesreturns
                and allowances
            
            
            (100,477
            )
            
            (36,231
            )Deferred
                tax benefit
            
            
            (15,140
            )
            
            (12,754
            )Loss
                on disposition of equipment
            
            
            5,228
            
            
            -Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            1,161,488
            
            
            107,990Inventories
            
            
            1,189,323
            
            
            (696,287
            )Other
                current assets
            
            
            (248,232
            )
            
            (273,301
            )Accounts
                payable
            
            
            (320,924
            )
            
            457,417Deferred
                revenue
            
            
            (232,500
            )
            
            (232,500
            )Other
                accrued liabilities
            
            
            (849,766
            )
            
            (164,121
            )Net
                cash provided by operating activities
            
            
            1,388,323
            
            
            289,298Cash
                flows from investing activities:Capital
                expenditures
            
            
            (259,501
            )
            
            (252,498
            )Purchase
                of intangible asset
            
            
            (35,000
            )
            
            -Net
                cash used in investing activities
            
            
            (294,501
            )
            
            (252,498
            )Cash
                flows from financing activities:Stock
                options exercised
            
            
            -
            
            
            81,090Excess
                tax benefit from exercise of stock options
            
            
            -
            
            
            28,424Net
                cash provided by financing activities
            
            
            -
            
            
            109,514Net
                increase in cash and cash equivalents
            
            
            1,093,822
            
            
            146,314Cash
                and cash equivalents at beginning of period
            
            
            3,638,870
            
            
            2,696,324Cash
                and cash equivalents at end of period
            
            $
            4,732,692
            
            $
            2,842,638





See
      accompanying Notes to Consolidated Financial Statements.




6


**ALLIED
      HEALTHCARE PRODUCTS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**




1.  Unaudited
      Consolidated Financial Statements





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, 2007.





Recent
      Accounting Pronouncements





In
      June
      2006, the Financial Accounting Standards Board (FASB) issued Interpretation
      No.
      48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes,” which clarifies the
      accounting for uncertainty in income taxes recognized in the financial
      statements in accordance with FASB Statement No. 109, “Accounting for Income
      Taxes”. FIN 48 provides guidance on the financial statement recognition and
      measurement of a tax position taken or expected to be taken in a tax return.
      FIN
      48 also provides guidance on derecognition, classification, interest and
      penalties, accounting in interim periods, disclosures, and
      transition.





The
      Company adopted FIN 48 as of July 1, 2007. The cumulative effect of adopting
      FIN
      48 has been recorded as a net decrease to retained earnings of $111,143. On
      the
      date of adoption of FIN 48, and December 31, 2007, the Company had approximately
      $220,000 of unrecognized tax benefits. Of the unrecognized tax benefits at
      December 31, 2007, approximately $82,000 would impact the Company’s effective
      income tax rate if recognized.





The
      Internal Revenue Service (IRS) commenced an examination of the Company’s U.S.
      income tax returns for the fiscal years ended June 30, 2005 and 2006 in the
      third quarter of fiscal 2007. The examination is anticipated to be complete
      by
      the end of fiscal 2008. As of December 31, 2007 the IRS has discussed certain
      potential adjustments with the Company. Management is currently evaluating
      those
      potential adjustments to determine if it agrees, but if accepted the Company
      does not anticipate the adjustments would result in a material change in its
      financial position. Due to the ongoing IRS examination, the Company anticipates
      that it is reasonably possible that the unrecognized tax benefits may increase
      or decrease, but are unable to reasonably estimate the range.




7





The
      Company’s federal income tax returns for the tax fiscal years 2004 and after
      remain subject to examination. The various states in which the Company is
      subject to income tax are generally open for the tax fiscal years 2004 and
      after.





The
      Company classifies interest expenses on taxes payable as interest expense.
      The
      Company classifies penalties as a component of other expenses. The total
      interest and penalty expense related to tax uncertainties recognized for the
      three and six months ended December 31, 2007 were approximately $5,000 and
      $10,000, respectively. Accrued interest and penalties of $75,000 related to
      income tax uncertainties were recognized as a component of other noncurrent
      liabilities at December 31, 2007.





2.  Inventories


Inventories
      are comprised as follows:





December
                31,
              2007
            
            June
                30,
              2007Work-in
                progress
            
            $
            1,033,680
            
            $
            742,890Raw
                materials and component parts
            
            
            7,733,760
            
            
            8,544,226Finished
                goods
            
            
            4,101,149
            
            
            4,812,220Reserve
                for obsolete and excessinventory
            
            
            (1,058,440
            )
            
            (1,099,864
            )$
            11,810,149
            
            $
            12,999,472





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, 2007 and 2006 was 7,883,577
      and 7,877,120 respectively. The number of diluted shares outstanding for the
      three months ended December 31, 2007 and 2006 was 8,130,901 and 8,059,573
      respectively. The number of basic shares outstanding for the six months ended
      December 31, 2007 and 2006 was 7,883,577 and 7,868,512 respectively. The number
      of diluted shares outstanding for the six months ended December 31, 2007 and
      2006 was 8,122,607 and 8,064,650 respectively.





8





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.





5.
      Financing





On
      September 1, 2005, the Bank and the Company agreed to an amendment of the credit
      facility. In conjunction with the amendment to the Company’s credit facility,
      the Bank extended the maturity on the Company’s revolving credit facility from
      April 24, 2007 to September 1, 2008. Based on the Company’s current level of
      debt, and performance, debt would bear interest at the Bank’s prime rate. The
      prime rate was 7.25% on December 31, 2007. The interest rate on prime rate
      loans
      may increase from prime to prime plus 0.75% if the ratio of the Company’s funded
      debt to EBITDA exceeds 2.5. The amended credit facility also provides the
      Company with a rate of LIBOR plus 1.75%, at the Company’s option. The optional
      LIBOR rate may increase from LIBOR plus 1.75% to LIBOR plus 2.75% based on
      the
      Company’s fixed charge coverage ratio. The 90-day LIBOR rate was 4.73% at
      December 31, 2007.





At
      December 31, 2007 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, 2007.




9





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
                31,2007
            
            2006
            
            2007
            
            2006Beginning
                balance
            
            $
            2,286,250
            
            $
            1,821,250
            
            $
            2,402,500
            
            $
            1,937,500Payment
                Received fromAbbott
                Laboratories
            
            
            -
            
            
            -
            
            
            -
            
            
            -Revenue
                recognizedas
                net sales
            
            
            (116,250
            )
            
            (116,250
            )
            
            (232,500
            )
            
            (232,500
            )2,170,000
            
            
            1,705,000
            
            
            2,170,000
            
            
            1,705,000Less
                - Current portionof
                deferred revenue
            
            
            (465,000
            )
            
            (465,000
            )
            
            (465,000
            )
            
            (465,000
            )$
            1,705,000
            
            $
            1,240,000
            
            $
            1,705,000
            
            $
            1,240,000




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, 2007; $952,000 has
      been received, and $451,000 is receivable, as a result of product development
      activities. For
      the
      three and six months ended December 31, 2007; $451,000 and $549,000, have been
      included in Net Sales, respectively. For the three and six months ended December
      31, 2007; $451,000 and $549,000 have been included in Cost of Sales,
      respectively.





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





**RESULTS
      OF OPERATIONS**





**Three
      Months ended December 31, 2007 compared to three months ended December 31,
      2006.**





Allied
      had net sales of $13.6 million for the three months ended December 31, 2007,
      down $0.7 million, or 4.9%, from net sales of $14.3 million in the prior year
      same quarter, as a result of lower customer purchase order releases. Customer
      orders were $0.4 million higher than in the prior year same quarter, however,
      customer purchase order releases were $1.0 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.




10





Sales
      for
      the three months ended December 31, 2007 include $116,250 for the recognition
      into income of payments resulting from the agreement with Abbott Laboratories
      to
      cease the production and distribution of Baralyme®. Sales for the three months
      ended December 31, 2007 also include $451,000 as a result of product development
      activities to pursue development of a new carbon dioxide absorption product.
      The
      agreement with Abbott provides for Abbott to pay Allied up to $2,150,000 in
      product development cost 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.





The
      Company ceased the sale of Baralyme® on August 27 th ,
      2004.
      Sales for the three months ended December 31, 2006 include $116,250 for the
      recognition into income of payments resulting from the agreement with Abbott
      Laboratories to cease the production and distribution of Baralyme®. Sales for
      the three months ended December 31, 2006 also include $190,000 as a result
      of
      product development activities to pursue development of a new carbon dioxide
      absorption product. Income from the agreement will continue to be recognized
      over eight years, the term of the agreement, at $38,750 per month. Allied
      continues to sell Carbolime®, a carbon dioxide absorbent with a different
      formulation than Baralyme®.





Domestic
      sales were down 2.8% from the prior year same quarter, while international
      business, which represented 17.9% of second quarter sales, was down 11.8%.
      Orders for the Company’s products for the three months ended December 31, 2007
      of $13.7 million were $0.4 million or 3.0% higher than orders for the prior
      year
      same quarter of $13.3 million. Domestic orders are up 4.9% over the prior year
      same quarter while international orders which represented 19.5% of second
      quarter orders, was down 4.4%.





Gross
      profit for the three months ended December 31, 2007 was $2.9 million, or 21.4%
      of net sales, compared to $3.5 million, or 24.6% of net sales, for the three
      months ended December 31, 2006. The decrease in gross profit as a percent of
      sales is primarily due to lower sales volume and a decrease in inventory. The
      lower level of sales combined with the $0.4 million decrease in inventory
      results in less effective utilization of the Company’s manufacturing capacity
      and the fixed expenses associated with that capacity. Cost of sales for the
      three months ended December 31, 2007 also included $451,000 as a result of
      product development of a new carbon dioxide absorption product.




11





Selling,
      general and administrative expenses for the three months ended December 31,
      2007
      were $2.9 million, a net decrease of $0.2 million, or 6.5%, from $3.1 million
      for the three months ended December 31, 2006. Salaries and benefits decreased
      by
      $122,000 from the prior year same quarter as a result of employee turnover.
      There have not been changes to staffing levels from the prior year. Research
      and
      development expenses decreased by approximately $60,000 from the same quarter
      of
      the prior year, and insurance expense also improved approximately $20,000 from
      the same quarter of the prior year.





Loss
      from
      operations was $20,584 for the three months ended December 31, 2007 compared
      to
      income from operations of $0.4 million for the three months ended December
      31,
      2006. Interest income was $43,327 for the three months ended December 31, 2007
      compared to interest income of $28,059 for the three months ended December
      31,
      2006. Allied had income before provision for income taxes in the second quarter
      of fiscal 2008 of $6,480, compared to income before provision for income taxes
      in the second quarter of fiscal 2007 of $0.5 million. The Company did not record
      a tax provision for the three-months ended December 31, 2007, compared to a
      tax
      provision of $0.2 million for the three months ended December 31,
      2006.





Net
      income for the second quarter of fiscal 2008 was $6,480 or $0.00 per basic
      and
      diluted share compared to net income of $0.3 million or $0.04 per basic and
      diluted share for the second quarter of fiscal 2007. The weighted average number
      of common shares outstanding, used in the calculation of basic earnings per
      share for the second quarters of fiscal 2008 and 2007 were 7,883,577 and
      7,877,120 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 2008 and fiscal 2007 were 8,130,901 and 8,059,573 shares,
      respectively.





**Six
      Months ended December 31, 2007 compared to six months ended December 31,
      2006.**





Allied
      had net sales of $27.7 million for the six months ended December 31, 2007,
      down
      $1.1 million, or 3.8%, from net sales of $28.8 million in the prior year same
      period. The overall sales decrease is primarily due to lower customer purchase
      order releases. Customer orders were $0.2 million lower than in the prior year
      same period, however, customer purchase order releases were $0.9 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.





Sales
      for
      the six months ended December 31, 2007 include $232,500 for the recognition
      into
      income of payments resulting from the agreement with Abbott Laboratories to
      cease the production and distribution of Baralyme®. Sales for the six months
      ended December 31, 2007 also include $549,000 as a result of product development
      activities to pursue development of a new carbon dioxide absorption product.
      The
      agreement with Abbott provides for Abbott to pay Allied up to $2,150,000 in
      product development cost 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.




12





The
      Company ceased the sale of Baralyme® on August 27 th ,
      2004.
      Sales for the six months ended December 31, 2006 include $232,500 for the
      recognition into income of payments resulting from the agreement with Abbott
      Laboratories to cease the production and distribution of Baralyme®. Sales for
      the six months ended December 31, 2006 also include $340,000 as a result of
      product development activities to pursue development of a new carbon dioxide
      absorption product. Income from the agreement will continue to be recognized
      over eight years, the term of the agreement, at $38,750 per month. Allied
      continues to sell Carbolime®, a carbon dioxide absorbent with a different
      formulation than Baralyme®.





Domestic
      sales were down 6.4% from the first six months of the prior year, while
      international business, which represented 19.8% of the first six months of
      sales, was up 10.0%. Orders for the Company’s products for the six months ended
      December 31, 2007 of $26.9 million were $0.2 million or 0.7% lower than orders
      for the prior year same period of $27.1 million. International orders are down
      8.2% over the prior year same period while domestic orders are up 0.8% over
      the
      prior year same period. The Company believes that the decrease in international
      orders, primarily for international construction projects, is a result of order
      timing, and is not reflective of a loss of market share.





Gross
      profit for the six months ended December 31, 2007 was $6.1 million, or 21.9%
      of
      net sales, compared to $7.0 million, or 24.5% of net sales, for the six months
      ended December 31, 2006. The decrease in gross profit as a percent of sales
      is
      primarily due to lower sales volume and a decrease in inventory. The lower
      level
      of sales combined with the $1.2 million decrease in inventory results in less
      effective utilization of the Company’s manufacturing capacity and the fixed
      expenses associated with that capacity. Cost of sales for the six months ended
      December 31, 2007 also included $549,000 as a result of product development
      of a
      new carbon dioxide absorption product.





Selling,
      general and administrative expenses for the six months ended December 31, 2007
      were $6.0 million, a net decrease of $0.3 million, or 4.8%, from $6.3 million
      for the six months ended December 31, 2006. Salaries and benefits decreased
      by
      $0.1 million from the prior year primarily as a result of employee turnover.
      There have not been changes in staffing levels over the prior year. The decrease
      in selling, general and administrative expense also includes a decrease of
      approximately $0.1 million for relocation expense and a $0.1 million decrease
      in
      research and development expenses.





Income
      from operations was $0.1 million for the six months ended December 31, 2007
      compared to $0.8 million for the six months ended December 31, 2006. Interest
      income was $84,096 for the six months ended December 31, 2007 compared to
      interest income of $56,228 for the six months ended December 31, 2006. Allied
      had income before provision for income taxes for the first six months of fiscal
      2008 of $0.2 million, compared to income before provision for income taxes
      for
      the first six months of fiscal 2007 of $0.9 million. The Company recorded a
      tax
      provision of $0.1 million for the six-month period ended December 31, 2007,
      versus a tax provision of $0.4 million for the six-month period ended December
      31, 2006.




13





In
      fiscal
      2008, the net income for the first six months was $0.1 million or $0.01 per
      basic and diluted share compared to net income of $0.5 million or $0.06 per
      basic and diluted share for the first six months of fiscal 2007. The weighted
      average number of common shares outstanding, used in the calculation of basic
      earnings per share for the first six months of fiscal 2008 and 2007 were
      7,883,577 and 7,868,512 shares, respectively. The weighted average number of
      common shares outstanding used in the calculation of diluted earnings per share
      for the first six months of fiscal 2008 and fiscal 2007 were 8,122,607 and
      8,064,650 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, 2007 compared to
      $17.3 million at June 30, 2007. Cash and cash equivalents increased by $1.1
      million. Other current assets increased $0.2 million as a result of an increase
      in prepaid insurance and accrued liabilities decreased $0.6 million. Accounts
      payable decreased $0.3 million and deferred income taxes decreased $0.2 million.
      At December 31, 2007 these increases in working capital were offset by a
      decrease in inventory of $1.2 million and $1.1 million decrease in accounts
      receivable to $6.2 million at December 31, 2007, due to a decrease in sales.
      Accounts receivable as measured in days of sales outstanding (“DSO”) decreased
      to 38 DSO at December 31, 2007, down from 45 DSO at June 30, 2007.





On
      September 1, 2005, the Bank and the Company agreed to an amendment of the credit
      facility. In conjunction with the amendment to the Company’s credit facility,
      the Bank extended the maturity on the Company’s revolving credit facility from
      April 24, 2007 to September 1, 2008. Based on the Company’s current level of
      debt, and performance, debt would bear interest at the Bank’s prime rate. The
      prime rate was 7.25% on December 31, 2007. The interest rate on prime rate
      loans
      may increase from prime to prime plus 0.75% if the ratio of the Company’s funded
      debt to EBITDA exceeds 2.5. The amended credit facility also provides the
      Company with a rate of LIBOR plus 1.75%, at the Company’s option. The optional
      LIBOR rate may increase from LIBOR plus 1.75% to LIBOR plus 2.75% based on
      the
      Company’s fixed charge coverage ratio. The 90-day LIBOR rate was 4.73% at
      December 31, 2007.





At
      December 31, 2007 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, 2007.




14





In
      the
      event that economic conditions were to severely worsen for a protracted period
      of time, we believe that our borrowing capacity under our credit facilities
      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 $1.5 million for the fiscal year ended
      June
      30, 2008, could be postponed. At December 31, 2007, the Company had no bank
      debt. Based on the Company’s current level of debt, and performance, debt would
      bear interest at the Bank’s prime rate. The Company’s agreement with the Bank
      does include provisions for higher interest rates at higher debt levels and
      different levels of Company performance.





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





**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.





**Recent
      Accounting Pronouncements**





In
      June
      2006, the Financial Accounting Standards Board (FASB) issued Interpretation
      No.
      48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes,” which clarifies the
      accounting for uncertainty in income taxes recognized in the financial
      statements in accordance with FASB Statement No. 109, “Accounting for Income
      Taxes”. FIN 48 provides guidance on the financial statement recognition and
      measurement of a tax position taken or expected to be taken in a tax return.
      FIN
      48 also provides guidance on derecognition, classification, interest and
      penalties, accounting in interim periods, disclosures, and
      transition.





The
      Company adopted FIN 48 as of July 1, 2007. The cumulative effect of adopting
      FIN
      48 has been recorded as a net decrease to retained earnings of $111,143. On
      the
      date of adoption of FIN 48, and December 31, 2007, the Company had approximately
      $220,000 of unrecognized tax benefits. Of the unrecognized tax benefits at
      December 31, 2007, approximately $82,000 would impact the Company’s effective
      income tax rate if recognized.





The
      Internal Revenue Service (IRS) commenced an examination of the Company’s U.S.
      income tax returns for the fiscal years ended June 30, 2005 and 2006 in the
      third quarter of fiscal 2007. The examination is anticipated to be complete
      by
      the end of fiscal 2008. As of December 31, 2007 the IRS has discussed certain
      potential adjustments with the Company. Management is currently evaluating
      those
      potential adjustments to determine if it agrees, but if accepted the Company
      does not anticipate the adjustments would result in a material change in its
      financial position. Due to the ongoing IRS examination, the Company anticipates
      that it is reasonably possible that the unrecognized tax benefits may increase
      or decrease, but are unable to reasonably estimate the range.




15





The
      Company’s federal income tax returns for the tax fiscal years 2004 and after
      remain subject to examination. The various states in which the Company is
      subject to income tax are generally open for the tax fiscal years 2004 and
      after.





The
      Company classifies interest expenses on taxes payable as interest expense.
      The
      Company classifies penalties as a component of other expenses. The total
      interest and penalty expense related to tax uncertainties recognized for the
      three and six months ended December 31, 2007 were approximately $5,000 and
      $10,000, respectively. Accrued interest and penalties of $75,000 related to
      income tax uncertainties were recognized as a component of other noncurrent
      liabilities at December 31, 2007.





**Item
      3. Quantitative and Qualitative Disclosure about Market
      Risk**





At
      December 31, 2007, the Company did not have any debt outstanding. The revolving
      credit facility bears an interest rate using the commercial bank’s “floating
      reference rate” or LIBOR 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, 2007. Allied Healthcare Products has international sales; however
      these sales are denominated in U.S. dollars, mitigating foreign exchange rate
      fluctuation risk.





**Item
      4. Controls and Procedures**





Evaluation
      of Disclosure Controls and Procedures





(a)
      As of
      December 31, 2007, the Company, under the supervision, and with the
      participation, of its management, including its principal executive officer
      and
      principal financial officer, performed an evaluation of the Company’s disclosure
      controls and procedures, as contemplated by Securities Exchange Act Rule 13a-15.
      Based on that evaluation, the Company’s principal executive officer and
      principal financial officer concluded that such disclosure controls and
      procedures were effective as of December 31, 2007.




(b)
      There
      has been no change in our internal controls over financial reporting during
      the
      quarter ended December 31, 2007, that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.




16




Part
      II.  OTHER
      INFORMATION





**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)*




*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,
              2008




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