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 September 30,
2009





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


For
      the transition period from________ to
________





Commission
File Number:  0-19266





ALLIED
HEALTHCARE PRODUCTS, INC.


(Exact
name of registrant as specified in its charter)


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





1720
Sublette Avenue, St. Louis, Missouri 63110


(Address
of principal executive offices, including zip code)





(314)
771-2400


(Registrant’s
telephone number, including area code)





N/A


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





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





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





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





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





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


Yes    ̈   No   x





The
number of shares of common stock outstanding at November 6, 2009 is 8,091,886
shares.








INDEX





PageNumberPart
      I –
                                    Financial
      InformationItem
      1.
                                    Financial
      StatementsConsolidated
      Statement of Operations -
                                    3Three
      months ended September 30,2009
      and 2008 (Unaudited)Consolidated
      Balance Sheet -
                                    4 -
      5September
      30, 2009 (Unaudited) andJune
      30, 2009Consolidated
      Statement of Cash Flows -
                                    6Three
      months ended September 30, 2009 and 2008(Unaudited)Notes
      to Consolidated Financial Statements
                                    7 -
      10Item
      2.
                                    Management’s
      Discussion and Analysis of
                                    11
      - 15Financial
      Condition and Results of OperationsItem
      3.
                                    Quantitative
      and Qualitative Disclosure
                                    15about
      Market RiskItem
      4T.
                                    Controls
      and Procedures
                                    16Part
      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, 2009.  The Company
cautions that any forward-looking statements contained in this report reflect
only the belief of the Company or its management at the time the statement was
made. Although the Company believes such forward-looking statements are based
upon reasonable assumptions, such assumptions may ultimately prove inaccurate or
incomplete. The Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which the
statement was made.


2


PART
I.     FINANCIAL INFORMATION





Item
1.        Financial
Statements





ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
STATEMENT OF OPERATIONS


(UNAUDITED)





Three
      months endedSeptember 30,2009
                        
                        
                        2008Net
      sales
                        
                        $
                        11,323,676
                        
                        
                        $
                        14,441,011Cost
      of sales
                        
                        
                        8,920,800
                        
                        
                        
                        10,939,957Gross
      profit
                        
                        
                        2,402,876
                        
                        
                        
                        3,501,054Selling,
      general and administrative expenses
                        
                        
                        3,591,776
                        
                        
                        
                        3,183,587Income
      (loss) from operations
                        
                        
                        (1,188,900
                        )
                        
                        
                        317,467Interest
      income
                        
                        
                        (984
                        )
                        
                        
                        (30,659
                        )Interest
      expense
                        
                        
                        2,413
                        
                        
                        
                        -Other,
      net
                        
                        
                        11,014
                        
                        
                        
                        12,06712,443
                        
                        
                        
                        (18,592
                        )Income
      (loss) before provision for (benefit from) income
    taxes
                        
                        
                        (1,201,343
                        )
                        
                        
                        336,059Provision
      for (benefit from) income taxes
                        
                        
                        (456,405
                        )
                        
                        
                        127,702Net
      income (loss)
                        
                        $
                        (744,938
                        )
                        
                        $
                        208,357Basic
      and diluted earnings (loss) per share
                        
                        $
                        (0.09
                        )
                        
                        $
                        0.03Weighted
      average shares outstanding - basic
                        
                        
                        7,988,321
                        
                        
                        
                        7,891,232Weighted
      average shares outstanding - diluted
                        
                        
                        7,988,321
                        
                        
                        
                        8,132,931





See
accompanying Notes to Consolidated Financial Statements.


3


ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
BALANCE SHEET


ASSETS





(Unaudited)September
      30,
                    
                    
                    June
      30,2009
                    
                    
                    2009Current
      assets:Cash
      and cash equivalents
                    
                    $
                    2,298,957
                    
                    
                    $
                    1,943,364Accounts
      receivable, net of allowances of $300,000
                    
                    
                    5,339,629
                    
                    
                    
                    6,172,437Inventories,
      net
                    
                    
                    12,597,816
                    
                    
                    
                    12,663,938Income
      tax receivable
                    
                    
                    1,632,577
                    
                    
                    
                    937,273Other
      current assets
                    
                    
                    334,337
                    
                    
                    
                    327,203Total
      current assets
                    
                    
                    22,203,316
                    
                    
                    
                    22,044,215Property,
      plant and equipment, net
                    
                    
                    10,510,423
                    
                    
                    
                    10,799,089Other
      assets, net
                    
                    
                    387,568
                    
                    
                    
                    390,627Total
      assets
                    
                    $
                    33,101,307
                    
                    
                    $
                    33,233,931





See
accompanying Notes to Consolidated Financial Statements.





(CONTINUED)


4


ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
BALANCE SHEET


(CONTINUED)


LIABILITIES
AND STOCKHOLDERS' EQUITY





(Unaudited)September
      30,
                      
                      
                      June
      30,2009
                      
                      
                      2009Current
      liabilities:Accounts
      payable
                      
                      $
                      2,108,441
                      
                      
                      $
                      1,633,568Other
      accrued liabilities
                      
                      
                      2,175,676
                      
                      
                      
                      2,316,558Deferred
      income taxes
                      
                      
                      171,980
                      
                      
                      
                      419,213Deferred
      revenue
                      
                      
                      688,200
                      
                      
                      
                      688,200Total
      current liabilities
                      
                      
                      5,144,297
                      
                      
                      
                      5,057,539Deferred
      revenue
                      
                      
                      1,319,050
                      
                      
                      
                      1,491,100Commitments
      and contingenciesStockholders'
      equity:Preferred
      stock; $0.01 par value; 1,500,000 shares authorized; no shares issued
      and outstanding
                      
                      
                      -
                      
                      
                      
                      -Series
      A preferred stock; $0.01 par value; 200,000 shares authorized; no
      shares issued and outstanding
                      
                      
                      -
                      
                      
                      
                      -Common
      stock; $0.01 par value; 30,000,000 shares authorized; 10,395,378 and
      10,204,819 shares issued at September 30, 2009 and June 30, 2009,
      respectively; 8,091,886 and 7,901,327 shares outstanding at September 30,
      2009 and June 30, 2009, respectively
                      
                      
                      103,954
                      
                      
                      
                      102,048Additional
      paid-in capital
                      
                      
                      48,327,749
                      
                      
                      
                      47,632,049Accumulated
      deficit
                      
                      
                      (1,062,315
                      )
                      
                      
                      (317,377
                      )Less
      treasury stock, at cost; 2,303,492 shares at September 30, 2009 and
      June 30, 2009
                      
                      
                      (20,731,428
                      )
                      
                      
                      (20,731,428
                      )Total
      stockholders' equity
                      
                      
                      26,637,960
                      
                      
                      
                      26,685,292Total
      liabilities and stockholders' equity
                      
                      $
                      33,101,307
                      
                      
                      $
                      33,233,931





See
accompanying Notes to Consolidated Financial Statements.


5


ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
STATEMENT OF CASH FLOWS


(UNAUDITED)




Three
      months endedSeptember 30,2009
                    
                    
                    2008Cash
      flows from operating activities:Net
      income (loss)
                    
                    $
                    (744,938
                    )
                    
                    $
                    208,357Adjustments
      to reconcile net income (loss) to net cash provided by (used in)
      operating activities:Depreciation
      and amortization
                    
                    
                    355,309
                    
                    
                    
                    375,667Stock
      based compensation
                    
                    
                    618,084
                    
                    
                    
                    (4,521
                    )Provision
      for doubtful accounts and sales returns and allowances
                    
                    
                    1,750
                    
                    
                    
                    (18,311
                    )Deferred taxes
                    
                    
                    (247,233
                    )
                    
                    
                    22,988Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    831,058
                    
                    
                    
                    87,625Inventories
                    
                    
                    66,122
                    
                    
                    
                    (729,974
                    )Income
      tax receivable
                    
                    
                    (695,304
                    )
                    
                    
                    -Other
      current assets
                    
                    
                    (7,134
                    )
                    
                    
                    (159,769
                    )Accounts
      payable
                    
                    
                    474,873
                    
                    
                    
                    135,583Deferred
      revenue
                    
                    
                    (172,050
                    )
                    
                    
                    (172,500
                    )Other
      accrued liabilities
                    
                    
                    (140,882
                    )
                    
                    
                    (846,512
                    )Net
      cash provided by (used in) operating activities
                    
                    
                    339,655
                    
                    
                    
                    (1,101,367
                    )Cash
      flows from investing activities:Capital
      expenditures
                    
                    
                    (63,584
                    )
                    
                    
                    (1,004,286
                    )Net
      cash used in investing activities
                    
                    
                    (63,584
                    )
                    
                    
                    (1,004,286
                    )Cash
      flows from financing activities:Stock
      options exercised
                    
                    
                    -
                    
                    
                    
                    81,094Minimum
      tax witholdings on stock options exercised
                    
                    
                    (406,110
                    )
                    
                    
                    -Excess
      tax benefit from exercise of stock options
                    
                    
                    485,632
                    
                    
                    
                    -Net
      cash provided by financing activities
                    
                    
                    79,522
                    
                    
                    
                    81,094Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    355,593
                    
                    
                    
                    (2,024,559
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    1,943,364
                    
                    
                    
                    6,149,015Cash
      and cash equivalents at end of period
                    
                    $
                    2,298,957
                    
                    
                    $
                    4,124,456





See
accompanying Notes to Consolidated Financial Statements.


6


ALLIED
HEALTHCARE PRODUCTS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





1.  Summary
of Significant Accounting and Reporting Policies





Basis
of Presentation





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





Codification
of Accounting Standards





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





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





Subsequent
Events




Allied Healthcare Products, Inc. has
applied the provisions of the Subsequent Events Topic of the Accounting
Standards Codification (ASC) to its consolidated interim financial statements
for periods ended after June 15, 2009.  The Subsequent Event
Topic establishes general standards of accounting for, and disclosure of, events
that occur after the balance sheet date but before financial statements are
issued.  In particular, the Subsequent Events Topic sets forth the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements.  Accordingly,
the Company has evaluated events and transactions occurring through
November 6, 2009, the date the consolidated interim financial statements
were issued, for potential recognition or disclosure in the financial
statements.


7


Recently
Issued Accounting Guidance




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




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





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


8


Fair
Value of Financial Instruments





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





2.  Inventories





Inventories
are comprised as follows:





September
      30, 2009
                      
                      
                      June
      30, 2009Work-in
      progress
                      
                      $
                      1,050,336
                      
                      
                      $
                      718,711Raw
      materials and component parts
                      
                      
                      8,745,491
                      
                      
                      
                      8,981,435Finished
      goods
                      
                      
                      4,125,745
                      
                      
                      
                      4,311,440Reserve
      for obsolete and excessinventory
                      
                      
                      (1,323,756
                      )
                      
                      
                      (1,347,648
                      )$
                      12,597,816
                      
                      
                      $
                      12,663,938





3.  Earnings
per share





Basic earnings per share are based on
the weighted average number of shares of all common stock outstanding during the
period.  Diluted earnings per share are based on the sum of the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. The number of basic shares outstanding for the
three months ended September 30, 2009 and 2008 were 7,988,321 and 7,891,232
respectively.  The number of diluted shares outstanding for the three
months ended September 30, 2009 and 2008 was 7,988,321 and 8,132,931,
respectively.





4.  Commitments
and Contingencies





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





5.  Financing





The Company has entered into a credit
facility arrangement with Bank of America, the successor in interest to LaSalle
Bank National Association (the “Bank”).  The credit facility was
amended on September 26, 2002, September 26, 2003, August 25, 2004, September 1,
2005, and September 30, 2008.


9


Under the
terms of the credit facility, the Company is required to be in compliance with
certain financial covenants pertaining to stockholders’ equity, capital
expenditures and net income.  Additionally, the terms of the credit
facility restrict the Company from the payment of dividends on any class of its
stock.  At September 30, 2009, the Company was in violation of its
fixed charge coverage ratio covenant under the credit agreement and the Company
had no outstanding amounts under the credit facility.  The Company is
negotiating with the Bank for an acceptable waiver and amendment of the credit
agreement.  The Company is also negotiating with other financial
institutions to obtain a replacement credit facility.  Based on such
discussions, the Company believes it will be able to negotiate an acceptable
waiver and amendment with the Bank or to procure a replacement credit facility
with another lender.  Even if this were not possible, the Company does
not anticipate the technical default under the credit facility to materially
impact its liquidity.





The
revolving credit facility provides for a borrowing base of 80% of eligible
accounts receivable plus the lesser of 50% of eligible inventory or $7.0
million, subject to reserves as established by the Bank. The maximum borrowing
under the revolving credit facility is $10 million.  At June 30, 2009, $10 million
was available under the revolving credit facility.  However,the Company does not have
any availability under the revolving credit facility due to the financial
covenant violations discussed above.  As a result of an amendment made
on September 30, 2008, the credit facility matures on September 1,
2010.  Borrowings under the facility accrue interest at a variable
rate equal to the Bank’s prime rate.  The credit facility calls for a
commitment fee payable quarterly based on the average daily unused portion of
the revolving credit facility.  This commitment fee is 0.25% if the
Company’s ratio of funded debt to EBITDA is greater than or equal to
1.5.  The commitment fee reduces to 0.20% if this ratio is less than
1.5 but greater than or equal to 1.0, and the fee reduces to 0.15% if this ratio
is less than 1.0.  The revolving credit facility also provides for a
commitment guaranty of up to $5.0 million for letters of credit and requires a
per annum fee of 2.50% on outstanding letters of credit.  At
September 30, 2009, the Company had no letters of credit
outstanding.  Any outstanding letters of credit decrease the amount
available for borrowing under the revolving credit facility.





At
September 30, 2009 the Company had no aggregate indebtedness, including capital
lease obligations, short-term debt and long term debt.





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:


10





Three
      Months endedSeptember
      30,2009
                        
                        
                        2008Beginning
      balance
                        
                        $
                        2,179,300
                        
                        
                        $
                        2,867,500Revenue
      recognized as net sales
                        
                        
                        (172,050
                        )
                        
                        
                        (172,500
                        )2,007,250
                        
                        
                        
                        2,695,000Less
      - Current portion of deferred revenue
                        
                        
                        (688,200
                        )
                        
                        
                        (690,000
                        )$
                        1,319,050
                        
                        
                        $
                        2,005,000





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 September 30, 2009, $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 September
30, 2009 compared to three months ended September 30, 2008





Allied
had net sales of $11.3 million for the three months ended September 30, 2009,
down $3.1 million, or 21.5%, from net sales of $14.4 million in the prior year
same quarter.  Customer orders of $11.6 million were $1.7 million
lower than the prior year same quarter.    Purchase order
releases were $3.2 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.





$99,000
of the decrease in the Company’s sales compared to the same quarter of last year
are due to discontinuation of reimbursement from Abbott for product development
activities to pursue development of a new carbon dioxide absorption
product.  Sales for the three months ended September 30, 2008 include
$99,000 of such reimbursements.  While the Company continues to pursue
development of a new product, reimbursement of those activities by Abbott was
completed during the quarter ended September 30, 2008.


11


Sales for
the three months ended September 30, 2009 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®.  Sales for the
three months ended September 30, 2008 include $172,500 for the recognition into
income of payments resulting from the agreement with Abbott Laboratories to
cease the production and distribution of Baralyme®.  Income from the
agreement will continue to be recognized at $57,350 per month until the
expiration of the agreement in August 2012.  Allied continues to sell
Carbolime®, a carbon dioxide absorbent with a different formulation than
Baralyme®.  The Company ceased the sale of Baralyme® on August 27th,
2004.





Domestic
sales were down 19.8% from the prior year same quarter, while international
business, which represented 14.8% of first quarter sales, was down
30.7%.  Orders for the Company’s products for the three months ended
September 30, 2009 of $11.6 million were $1.7 million or 12.8% lower than orders
for the prior year same quarter of $13.3 million.  Domestic orders are
down 10.1% over the prior year same quarter while international orders, which
represented 16.2% of first quarter orders, were 25.7% lower than orders for the
prior year same quarter.





Gross
profit for the three months ended September 30, 2009 was $2.4 million, or 21.2%
of net sales, compared to $3.5 million, or 24.3% of net sales, for the three
months ended September 30, 2008.  Gross profit during the first
quarter was negatively impacted by the lower level of sales and low production
volume, resulting in less effective utilization of the Company’s manufacturing
capacity and the fixed expenses associated with that capacity.





Selling,
general and administrative expenses for the three months ended September 30,
2009 were $3.6 million compared to selling, general and administrative expenses
of $3.2 million for the three months ended September 30 2008.  Stock
option expense increased approximately $0.6 million due to the grant of
immediately vested stock options to the Company’s President and
CEO.  This increase was partially offset by a decrease of
approximately $103,000 for compensation expense and a decrease of approximately
$47,000 for recruiting expense compared to the same quarter of the prior
year.  Due to the low level of sales for the first quarter of fiscal
2010, sales commissions decreased $57,000 compared to the same quarter of the
prior year.





Loss from
operations was $1.2 million for the three months ended September 30, 2009
compared to income from operations of $0.3 million for the three months ended
September 30, 2008.  Interest income was $984 for the three months
ended September 30, 2009 compared to interest income of $30,659 for the three
months ended September 30, 2008.   Allied had loss before benefit
from income taxes in the first quarter of fiscal 2010 of $1.2 million, compared
to income before provision for income taxes in the first quarter of fiscal 2009
of $0.3 million.  The Company recorded a tax benefit of $0.5 million
for the three-months ended September 30, 2009 compared to a tax provision of
$0.1 million for the three months ended September 30, 2008.


12


Net loss
for the first quarter of fiscal 2010 was $0.7 million or $0.09 per basic and
diluted share compared to net income of $0.2 million or $0.03 per basic and
diluted share for the first quarter of fiscal 2009.  The weighted
average number of common shares outstanding, used in the calculation of basic
earnings per share for the first quarters of fiscal 2010 and 2009 were 7,988,321
and 7,891,232 shares, respectively.  The weighted average number of
common shares outstanding used in the calculation of diluted earnings per share
for the first quarters of fiscal 2010 and fiscal 2009 were 7,988,321 and
8,132,931 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 $17.1 million at September 30, 2009 compared to
$17.0 million at June 30, 2009.  Income taxes receivable increased
$0.7 million and cash increased $0.4 million.  Deferred income taxes
decreased $0.2 million and accrued liabilities decreased $0.1
million.  At September 30, 2009 these increases in working capital
were offset by a $0.5 million increase in accounts payable, and a $0.1 million
decrease in inventories.  Accounts receivable decreased $0.8 million
to $5.3 million at September 30, 2009.  Accounts receivable as
measured in days of sales outstanding (“DSO”) was 43 DSO at September 30, 2009;
unchanged from June 30, 2009.





The Company has entered into a credit
facility arrangement with Bank of America, the successor in interest to LaSalle
Bank National Association (the “Bank”).  The credit facility was
amended on September 26, 2002, September 26, 2003, August 25, 2004, September 1,
2005, and September 30, 2008.





Under the
terms of the credit facility, the Company is required to be in compliance with
certain financial covenants pertaining to stockholders’ equity, capital
expenditures and net income.  Additionally, the terms of the credit
facility restrict the Company from the payment of dividends on any class of its
stock.  At September 30, 2009, the Company was in violation of its
fixed charge coverage ratio covenant under the credit agreement and the Company
had no outstanding amounts under the credit facility.  The Company is
negotiating with the Bank for an acceptable waiver and amendment of the credit
agreement.  The Company is also negotiating with other financial
institutions to obtain a replacement credit facility.  Based on such
discussions, the Company believes it will be able to negotiate an acceptable
waiver and amendment with the Bank or to procure a replacement credit facility
with another lender.    Even if this were not possible, the
Company does not anticipate the technical default under the credit facility to
materially impact its liquidity.


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The
revolving credit facility provides for a borrowing base of 80% of eligible
accounts receivable plus the lesser of 50% of eligible inventory or $7.0
million, subject to reserves as established by the Bank. The maximum borrowing
under the revolving credit facility is $10 million.  At June 30, 2009, $10 million
was available under the revolving credit facility.  However,the Company does not have
any availability under the revolving credit facility due to the financial
covenant violations discussed above.  As a result of an amendment made
on September 30, 2008, the credit facility matures on September 1,
2010.  Borrowings under the facility accrue interest at a variable
rate equal to the Bank’s prime rate.  The credit facility calls for a
commitment fee payable quarterly based on the average daily unused portion of
the revolving credit facility.  This commitment fee is 0.25% if the
Company’s ratio of funded debt to EBITDA is greater than or equal to
1.5.  The commitment fee reduces to 0.20% if this ratio is less than
1.5 but greater than or equal to 1.0, and the fee reduces to 0.15% if this ratio
is less than 1.0.  The revolving credit facility also provides for a
commitment guaranty of up to $5.0 million for letters of credit and requires a
per annum fee of 2.50% on outstanding letters of credit.  At
September 30, 2009, the Company had no letters of credit
outstanding.  Any outstanding letters of credit decrease the amount
available for borrowing under the revolving credit facility.





At
September 30, 2009 the Company had no aggregate indebtedness, including capital
lease obligations, short-term debt and long term debt.





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





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





Litigation
and Contingencies





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


14


Recently
Issued Accounting Guidance




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




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





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





Item
3.    Quantitative and Qualitative Disclosure about Market
Risk





At
September 30, 2009, 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
September 30, 2009.  Allied Healthcare Products has international
sales; however these sales are denominated in U.S. dollars, mitigating foreign
exchange rate fluctuation risk.


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Item
4T.     Controls and Procedures





(a)
            Disclosure
      Controls and Procedures.




The
Company maintains controls and procedures designed to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Securities Exchange Act of 1934 is recorded, processed, summarized, and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission and that such information is accumulated and
communicated to the Company's management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. Based upon their evaluation of those controls and
procedures performed as of September 30, 2009, the Chief Executive Officer and
Chief Financial Officer of the Company concluded that its disclosure controls
and procedures were effective.





(b)
Changes in internal control over financial reporting





There
were no changes in the Company’s internal controls for financial reporting or
other factors during the quarter ended September 30, 2009 that could
significantly affect such internal controls.  However, the Company has
been engaged in the process of further reviewing and documenting its disclosure
controls and procedures, including its internal accounting
controls.  The Company may from time to time make changes aimed at
enhancing the effectiveness of its disclosure controls and procedures, including
its internal controls, to ensure that the Company’s systems evolve with its
business.





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 November 6, 2009 announcing first 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. Dunn
                Chief
      Financial OfficerDate:
      November 6, 2009


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