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, 2010





 ̈
            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   ̈    No  x





The
number of shares of common stock outstanding at January 31, 2011 is 8,112,217
shares.







INDEX




PageNumberPart
      I –
                                    Financial
      InformationItem
      1.
                                    Financial
      StatementsConsolidated
      Statement of Operations -
                                    3Three
      and six months ended December 31,2010
      and 2009 (Unaudited)Consolidated
      Balance Sheet -
                                    4 - 5December
      31, 2010 (Unaudited) andJune
      30, 2010Consolidated
      Statement of Cash Flows -
                                    6Six
      months ended December 31, 2010 and 2009(Unaudited)Notes
      to Consolidated Financial Statements
                                    7 – 11Item
      2.
                                    Management’s
      Discussion and Analysis of
                                    11 – 15Financial
      Condition and Results of OperationsItem
      3.
                                    Quantitative
      and Qualitative Disclosure
                                    15about
      Market RiskItem
      4.
                                    Controls
      and Procedures
                                    15Part
      II -
                                    Other
      InformationItem
      6.
                                    Exhibits
                                    16Signature
                                    17





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, 2010. 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 31,2010
                                  
                                  
                                  2009
                                  
                                  
                                  2010
                                  
                                  
                                  2009Net
      sales
                                  
                                  $
                                  11,402,681
                                  
                                  
                                  $
                                  11,414,908
                                  
                                  
                                  $
                                  23,343,414
                                  
                                  
                                  $
                                  22,738,584Cost
      of sales
                                  
                                  
                                  8,592,712
                                  
                                  
                                  
                                  8,470,169
                                  
                                  
                                  
                                  17,982,718
                                  
                                  
                                  
                                  17,390,969Gross
      profit
                                  
                                  
                                  2,809,969
                                  
                                  
                                  
                                  2,944,739
                                  
                                  
                                  
                                  5,360,696
                                  
                                  
                                  
                                  5,347,615Selling,
      general andadministrative
      expenses
                                  
                                  
                                  2,600,734
                                  
                                  
                                  
                                  2,900,113
                                  
                                  
                                  
                                  5,285,310
                                  
                                  
                                  
                                  6,491,891Income
      (loss) from operations
                                  
                                  
                                  209,235
                                  
                                  
                                  
                                  44,626
                                  
                                  
                                  
                                  75,386
                                  
                                  
                                  
                                  (1,144,276
                                  )Interest
      income
                                  
                                  
                                  (8,067
                                  )
                                  
                                  
                                  (464
                                  )
                                  
                                  
                                  (15,542
                                  )
                                  
                                  
                                  (1,448
                                  )Interest
      expense
                                  
                                  
                                  -
                                  
                                  
                                  
                                  162
                                  
                                  
                                  
                                  66
                                  
                                  
                                  
                                  2,574Other,
      net
                                  
                                  
                                  28,410
                                  
                                  
                                  
                                  11,785
                                  
                                  
                                  
                                  43,509
                                  
                                  
                                  
                                  22,79820,343
                                  
                                  
                                  
                                  11,483
                                  
                                  
                                  
                                  28,033
                                  
                                  
                                  
                                  23,924Income
      (loss) before provision for (benefit from) income taxes
                                  
                                  
                                  188,892
                                  
                                  
                                  
                                  33,143
                                  
                                  
                                  
                                  47,353
                                  
                                  
                                  
                                  (1,168,200
                                  )Provision
      for (benefit from) income taxes
                                  
                                  
                                  71,779
                                  
                                  
                                  
                                  11,573
                                  
                                  
                                  
                                  17,994
                                  
                                  
                                  
                                  (444,832
                                  )Net
      income (loss)
                                  
                                  $
                                  117,113
                                  
                                  
                                  $
                                  21,570
                                  
                                  
                                  $
                                  29,359
                                  
                                  
                                  $
                                  (723,368
                                  )Basic
      earnings (loss) per share
                                  
                                  $
                                  0.01
                                  
                                  
                                  $
                                  0.00
                                  
                                  
                                  $
                                  0.00
                                  
                                  
                                  $
                                  (0.09
                                  )Diluted
      earnings (loss) per share
                                  
                                  $
                                  0.01
                                  
                                  
                                  $
                                  0.00
                                  
                                  
                                  $
                                  0.00
                                  
                                  
                                  $
                                  (0.09
                                  )Weighted
      average sharesoutstanding - basic
                                  
                                  
                                  8,098,366
                                  
                                  
                                  
                                  8,092,734
                                  
                                  
                                  
                                  8,095,876
                                  
                                  
                                  
                                  8,040,528Weighted
      average sharesoutstanding - diluted
                                  
                                  
                                  8,119,386
                                  
                                  
                                  
                                  8,217,103
                                  
                                  
                                  
                                  8,114,724
                                  
                                  
                                  
                                  8,040,528





See
accompanying Notes to Consolidated Financial Statements.


3




ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
BALANCE SHEET


ASSETS




(Unaudited)December 31,
                          
                          
                          June 30,2010
                          
                          
                          2010Current
      assets:Cash
      and cash equivalents
                          
                          $
                          6,239,426
                          
                          
                          $
                          5,263,324Accounts
      receivable, net of allowances of $300,000
                          
                          
                          4,224,975
                          
                          
                          
                          5,418,253Inventories,
      net
                          
                          
                          11,423,933
                          
                          
                          
                          11,155,456Income
      tax receivable
                          
                          
                          811,347
                          
                          
                          
                          877,665Other
      current assets
                          
                          
                          237,635
                          
                          
                          
                          221,840Total
      current assets
                          
                          
                          22,937,316
                          
                          
                          
                          22,936,538Property,
      plant and equipment, net
                          
                          
                          9,015,107
                          
                          
                          
                          9,661,395Other
      assets, net
                          
                          
                          326,961
                          
                          
                          
                          333,084Total
      assets
                          
                          $
                          32,279,384
                          
                          
                          $
                          32,931,017





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 30,2010
                
                
                2010Current
      liabilities:Accounts
      payable
                
                $
                2,123,410
                
                
                $
                1,950,446Other
      accrued liabilities
                
                
                1,653,519
                
                
                
                2,241,259Deferred
      income taxes
                
                
                425,036
                
                
                
                429,699Deferred
      revenue
                
                
                688,200
                
                
                
                688,200Total
      current liabilities
                
                
                4,890,165
                
                
                
                5,309,604Deferred
      revenue
                
                
                458,800
                
                
                
                802,900Commitments
      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; 10,415,709 and
      10,396,878 shares issued at December 31, 2010 and June 30, 2010,
      respectively; 8,112,217 and 8,093,386 shares outstanding at December 31,
      2010 and June 30, 2010, respectively
                
                
                104,157
                
                
                
                103,969Additional
      paid-in capital
                
                
                48,445,281
                
                
                
                48,362,922Accumulated
      deficit
                
                
                (887,591
                )
                
                
                (916,950
                )Less
      treasury stock, at cost; 2,303,492 shares at December 31, 2010 and June
      30, 2010
                
                
                (20,731,428
                )
                
                
                (20,731,428
                )Total
      stockholders' equity
                
                
                26,930,419
                
                
                
                26,818,513Total
      liabilities and stockholders' equity
                
                $
                32,279,384
                
                
                $
                32,931,017





See
accompanying Notes to Consolidated Financial Statements.




5




ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
STATEMENT OF CASH FLOWS


(UNAUDITED)




Six months endedDecember 31,2010
                    
                    
                    2009Cash
      flows from operating activities:Net
      income (loss)
                    
                    $
                    29,359
                    
                    
                    $
                    (723,368
                    )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
      and amortization
                    
                    
                    753,032
                    
                    
                    
                    710,622Stock
      based compensation
                    
                    
                    11,659
                    
                    
                    
                    627,693Provision
      for doubtful accounts and sales returns and allowances
                    
                    
                    19,713
                    
                    
                    
                    13,361Deferred
      taxes
                    
                    
                    (4,663
                    )
                    
                    
                    (55,702
                    )Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    1,173,565
                    
                    
                    
                    875,096Inventories
                    
                    
                    (268,477
                    )
                    
                    
                    (72,550
                    )Income
      tax receivable
                    
                    
                    66,318
                    
                    
                    
                    (716,300
                    )Other
      current assets
                    
                    
                    (15,795
                    )
                    
                    
                    18,750Accounts
      payable
                    
                    
                    172,964
                    
                    
                    
                    682,120Deferred
      revenue
                    
                    
                    (344,100
                    )
                    
                    
                    (344,100
                    )Other
      accrued liabilities
                    
                    
                    (587,740
                    )
                    
                    
                    (436,519
                    )Net
      cash provided by operating activities
                    
                    
                    1,005,835
                    
                    
                    
                    579,103Cash
      flows from investing activities:Capital
      expenditures
                    
                    
                    (100,622
                    )
                    
                    
                    (115,175
                    )Net
      cash used in investing activities
                    
                    
                    (100,622
                    )
                    
                    
                    (115,175
                    )Cash
      flows from financing activities:Stock
      options exercised
                    
                    
                    62,484
                    
                    
                    
                    3,469Minimum
      tax withholdings on stock options exercised
                    
                    
                    -
                    
                    
                    
                    (406,110
                    )Excess
      tax benefit from exercise of stock options
                    
                    
                    8,405
                    
                    
                    
                    487,509Net
      cash provided by financing activities
                    
                    
                    70,889
                    
                    
                    
                    84,868Net
      increase in cash and cash equivalents
                    
                    
                    976,102
                    
                    
                    
                    548,796Cash
      and cash equivalents at beginning of period
                    
                    
                    5,263,324
                    
                    
                    
                    1,943,364Cash
      and cash equivalents at end of period
                    
                    $
                    6,239,426
                    
                    
                    $
                    2,492,160





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 of Allied Healthcare
Products, Inc. (the “Company”) 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 Annual
Report on Form 10-K for the year ended June 30, 2010.





Recently
Adopted Accounting Pronouncements




In June
2009, the FASB issued guidance titled “Consolidation” (ASC Topic 810), which
amends previous guidance to require an analysis to determine whether a variable
interest gives a company a controlling financial interest in a variable interest
entity. An ongoing reassessment of financial responsibility is required,
including interests in entities formed prior to the effective date of this
guidance. This guidance also eliminates the quantitative approach previously
required for determining whether a company is the primary beneficiary. It is
effective for fiscal years beginning after November 15, 2009. This guidance
became effective for the Company in the quarter ended September 30, 2010,
and its adoption did not have a significant effect on its consolidated financial
statements.




In
October 2009, the FASB issued guidance titled “Revenue Recognition – Multiple
Deliverable Revenue Arrangements” (Accounting Standards Update 2009-13), which
requires entities to allocate revenue in an arrangement using estimated selling
prices of the delivered goods and services based on a selling price hierarchy.
The guidance eliminates the residual method of revenue allocation and requires
revenue to be allocated using the relative selling price method. This guidance
is applied on a prospective basis for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. This
guidance became effective for the Company in the quarter ended
September 30, 2010, and its adoption did not have a significant effect on
its consolidated financial statements.




7




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.




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, 2010
                    
                    
                    June 30, 2010Work-in
      progress
                    
                    $
                    937,866
                    
                    
                    $
                    802,550Component
      parts
                    
                    
                    8,435,138
                    
                    
                    
                    7,984,369Finished
      goods
                    
                    
                    3,457,126
                    
                    
                    
                    3,845,027Reserve
      for obsolete and excessinventory
                    
                    
                    (1,406,197
                    )
                    
                    
                    (1,476,490
                    )$
                    11,423,933
                    
                    
                    $
                    11,155,456





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, 2010 and 2009 were 8,098,366 and 8,092,734, respectively. The
number of diluted shares outstanding for the three months ended December 31,
2010 and 2009 were 8,119,386 and 8,217,103, respectively. The number of basic
shares outstanding for the six months ended December 31, 2010 and 2009 was
8,095,876 and 8,040,528, respectively. The number of diluted shares outstanding
for the six months ended December 31, 2010 and 2009 was 8,114,724 and 8,040,528,
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.





8




The
Company is currently involved in litigation with Niagara Mohawk Power Corporation
d/b/a National Grid (“Niagara”) and other parties, which provides electrical
power to the Company’s facility in Stuyvesant Falls, New York. Within the past
several months, Niagara began sending invoices to the Company for electricity
used at the Company’s Stuyvesant Falls plant. The Company maintains in its
defense of the lawsuit that it is entitled to a certain amount of free
electricity based on covenants running with the land which have been honored for
more than a century. Niagara’s attempts to collect such invoices were stopped in
December 2010 by a temporary restraining order, although a court has not yet
ruled on the merits of all of Niagara’s claims. Among other things, Niagara seeks
approximately $469,000, which it alleges represents the value of electricity
provided prior to the commencement of litigation going back to 2003. As of
December 31, 2010, the Company has not recorded a provision for this matter as
management intends to vigorously defend this allegation and believes the payment
of this claim is not probable. The Company believes, however, that any liability
it may incur would not have a material adverse effect on its financial condition
or its result of operations.





5.
Financing





Effective as of November 13, 2009,
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”).




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 was amended on November 2, 2010 extending the maturity date to
November 14, 2011. The New Credit Facility will be available on a revolving
basis until it expires on November 14, 2011, 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.




9




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 transactions
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.




The prime
rate was 3.25% on December 31, 2010.




At
December 31, 2010 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
the New Credit Facility at December 31, 2010.




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 31,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009Beginning
      balance
                        
                        $
                        1,319,050
                        
                        
                        $
                        2,007,250
                        
                        
                        $
                        1,491,100
                        
                        
                        $
                        2,179,300Revenue
      recognized as net sales
                        
                        
                        (172,050
                        )
                        
                        
                        (172,050
                        )
                        
                        
                        (344,100
                        )
                        
                        
                        (344,100
                        )1,147,000
                        
                        
                        
                        1,835,200
                        
                        
                        
                        1,147,000
                        
                        
                        
                        1,835,200Less
      - Current portion of deferred revenue
                        
                        
                        (688,200
                        )
                        
                        
                        (688,200
                        )
                        
                        
                        (688,200
                        )
                        
                        
                        (688,200
                        )$
                        458,800
                        
                        
                        $
                        1,147,000
                        
                        
                        $
                        458,800
                        
                        
                        $
                        1,147,000




10




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, 2010, $2,150,000 has been received as a
result of product development activities.




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




Results
of Operations





Three
months ended December 31, 2010 compared to three months ended December 31,
2009





Allied
had net sales of $11.4 million for the three months ended December 31, 2010,
unchanged from net sales of $11.4 million in the prior year same quarter.
Domestic sales were up 0.1% while international sales, which represented 18.0%
of second quarter sales, were down 1.1% from the prior year same
quarter.





Sales for
the three months ended December 31, 2010 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 27, 2004.




Orders
for the Company’s products for the three months ended December 31, 2010 of $11.0
million were $0.1 million or 0.9% higher than orders for the prior year same
quarter of $10.9 million. Domestic orders are up 3.0% over the prior year same
quarter while international orders, which represented 21.4% of second quarter
orders, were 5.9% lower than orders for the prior year same quarter. Orders have
not returned to pre-recession levels. The Company continues to believe that the
purchase of equipment and durable goods by some customers have continued to be
reduced as a short term measure to meet budgets and conserve cash, given the
only limited recovery in the economy. By and large, the Company’s products are
considered durable goods.




Gross
profit for the three months ended December 31, 2010 was $2.8 million, or 24.6%
of net sales, compared to $2.9 million, or 25.4% of net sales, for the three
months ended December 31, 2009. Gross profit during the second quarter was
negatively impacted by approximately $280,000 in shipping, additional product
cost, and other startup cost at its Stuyvesant Falls facility for the production
of its carbon dioxide absorbent product lines. The additional shipping costs and
most of the startup cost were completed during the second quarter.
 11




Selling,
general and administrative expenses for the three months ended December 31, 2010
were $2.6 million compared to selling, general and administrative expenses of
$2.9 million for the three months ended December 31, 2009.  This
decrease is due to, among other things, decreases in compensation expense and
sales commissions compared to the same quarter of the prior year.  The
Company also experienced a decrease in selling expenses for outside professional
services and a decrease in health insurance costs. The Company is self-insured
for health care costs and has not changed its fringe benefit plans or providers
from the prior year.  The Company believes that the reduction in
health insurance expenses is primarily due to a reduction in medical claims by
employees and their dependents from the prior year level.





Income
from operations was $0.2 million for the three months ended December 31, 2010
compared to income from operations of $44,626 for the three months ended
December 31, 2009.  Allied had income before provision for income
taxes in the second quarter of fiscal 2011 of $0.2 million, compared to income
before provision for income taxes in the second quarter of fiscal 2010 of
$33,143.





Net
income for the second quarter of fiscal 2011 was $117,113 or $0.01 per basic and
diluted share compared to net income of $21,570 or $0.00 per basic and diluted
share for the second quarter of fiscal 2010.  The weighted average
number of common shares outstanding, used in the calculation of basic earnings
per share for the second quarters of fiscal 2011 and 2010 were 8,098,366 and
8,092,734, respectively.  The number of diluted shares outstanding for
the three months ended December 31, 2010 and 2009 were 8,119,386 and 8,217,103,
respectively.





Six
months ended December 31, 2010 compared to six months ended December 31,
2009





Allied
had net sales of $23.3 million for the six months ended December 31, 2010, up
$0.6 million, or 2.6% from net sales of $22.7 million in the prior year same
period resulting from higher order levels.   Domestic sales were
unchanged from the prior year same period while international sales were up
14.6% from the prior year same period.  International business
represented 18.5% of sales for the first six months of fiscal 2011.





Sales for
the six months ended December 31, 2010 include $344,100 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 27,
2004.


12


Orders
for the Company’s products for the six months ended December 31, 2010 of $22.8
million were $0.4 million or 1.8% higher than orders for the prior year same
period of $22.4 million.  Domestic orders are up 2.8% over the prior
year same period while international orders, which represented 18.5% of orders
for the first six months of fiscal 2011, were 3.6% lower than orders for the
prior year same period.  Orders for have not returned to pre-recession
levels. The Company continues to believe that the purchase of equipment and
durable goods by some customers have continued to be reduced as a short term
measure to meet budgets and conserve cash, given the only limited recovery in
the economy. By and large, the Company’s products are considered durable
goods.





Gross
profit for the six months ended December 31, 2010 was $5.4 million, or 23.2% of
net sales, compared to $5.3 million, or 23.3% of net sales, for the six months
ended December 31, 2009.    Gross profit during the first
six months of fiscal 2011 was negatively impacted by approximately $630,000 in
shipping, additional product cost, and other startup cost at its Stuyvesant
Falls facility for the production of its carbon dioxideabsorbent
product lines.  The additional shipping costs and the majority of
startup cost were completed during the second quarter.  Gross profit
during the first six months of fiscal 2011 was favorably impacted by cost
savings initiatives which reduced the cost of purchased materials and
manufactured finished goods, higher sales which result in better utilization of
fixed overhead costs, and lower spending levels for some fixed overhead
categories including fringe benefits, salaries, and  real estate
taxes. The Company is self-insured for health care costs and has not changed its
fringe benefit plans or providers from the prior year.  The Company
believes that the reduction in fringe benefits is primarily due to a reduction
in medical claims by employees and their dependents.





Selling,
general and administrative expenses for the six months ended December 31, 2010
were $5.3 million compared to selling, general and administrative expenses of
$6.5 million for the six months ended December 31, 2009.  The decrease
in selling, general and administrative expenses is due to, among other things, a
decrease of approximately $0.6 million in compensation expense related to option
grants.  Other decreases included a decrease of approximately $0.1
million for compensation expense and $0.1 million for sales commissions compared
to the same period of the prior year.  The Company also experienced a
decrease in selling expenses for outside professional services of approximately
$0.1 million, and a decrease in health insurance costs of approximately $0.2
million, primarily due to lower claims.





Income
from operations was $0.1 million for the six months ended December 31, 2010
compared to a loss from operations of $1.1 million for the six months ended
December 31, 2009.  Allied had income before provision for income
taxes in the first six months of fiscal 2011 of $47,353, compared to a loss
before benefit from income taxes in the first six months of fiscal 2010 of $1.2
million.  The Company recorded a tax provision of $17,994 for the six
months ended December 31, 2010 compared to a tax benefit of $0.4 million for the
six months ended December 31, 2009.





Net
income for the six months ended December 31, 2010 was $29,359 or $0.00 per basic
and diluted share compared to a net loss of $0.7 million or $0.09 per basic and
diluted share for the first six months of fiscal 2011.  The weighted
average number of common shares outstanding, used in the calculation of basic
earnings per share for the first six months of fiscal 2011 and 2010 were
8,095,876 and 8,040,528, 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 2011 and 2010 were 8,114,724 and 8,040,528,
respectively.


13





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 $18.0 million at December 31, 2010 compared to
$17.6 million at June 30, 2010.  Cash increased $1.0 million,
inventory increased $0.3 million and accrued liabilities decreased $0.6
million.  At December 31, 2010 these increases in working capital were
offset by a decrease in income tax receivable of $0.1 million, and a $0.2
million increase in accounts payable.  Accounts receivable decreased
$1.2 million to $4.2 million at December 31, 2010.  Accounts
receivable as measured in days of sales outstanding (“DSO”) decreased to 34 DSO
at December 31, 2010; down from 40 DSO at June 30, 2010.





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.





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.  The prime
rate was 3.25% on December 30, 2010.





At
December 31, 2010 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 $0.8 million
for the fiscal year ended June 30, 2011, 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 2011.


14




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,
2010.





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, 2010, 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, 2010.  The Company 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




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, 2010, the Chief Executive Officer
and Chief Financial Officer of the Company concluded that its disclosure
controls and procedures were effective.


15





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, 2010 that have materially affected, or are
reasonably likely to materially affect, the registrant’s internal control over
financial reporting.





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)*





99.1
Press Release dated February 8, 2011 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.


16





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. DunnChief Financial OfficerDate:
      February 8,
2011


17