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, 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 October 29, 2010 is 8,093,386
shares.








INDEX





PageNumberPart
      I –
                                          Financial
      InformationItem
      1.
                                          Financial
      StatementsConsolidated
      Statement of Operations -
                                          3Three
      months ended September 30,2010
      and 2009 (Unaudited)Consolidated
      Balance Sheet -
                                          4 -
      5September
      30, 2010 (Unaudited) andJune
      30, 2010Consolidated
      Statement of Cash Flows -
                                          6Three
      months ended September 30, 2010 and 2009(Unaudited)Notes
      to Consolidated Financial Statements
                                          7 –
      10Item
      2.
                                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                          10
      – 13Item
      3.
                                          Quantitative
      and Qualitative Disclosure about Market Risk
                                          13Item
      4.
                                          Controls
      and Procedures
                                          13Part
      II -
                                          Other
      InformationItem
      6.
                                          Exhibits
                                          14Signature
                                          15





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 endedSeptember 30,2010
                                    
                                    
                                    2009Net
      sales
                                    
                                    $
                                    11,940,733
                                    
                                    
                                    $
                                    11,323,676Cost
      of sales
                                    
                                    
                                    9,390,006
                                    
                                    
                                    
                                    8,920,800Gross
      profit
                                    
                                    
                                    2,550,727
                                    
                                    
                                    
                                    2,402,876Selling,
      general andadministrative
      expenses
                                    
                                    
                                    2,684,576
                                    
                                    
                                    
                                    3,591,776Loss
      from operations
                                    
                                    
                                    (133,849
                                    )
                                    
                                    
                                    (1,188,900
                                    )Interest
      income
                                    
                                    
                                    (7,475
                                    )
                                    
                                    
                                    (984
                                    )Interest
      expense
                                    
                                    
                                    66
                                    
                                    
                                    
                                    2,413Other,
      net
                                    
                                    
                                    15,100
                                    
                                    
                                    
                                    11,0147,691
                                    
                                    
                                    
                                    12,443Loss
      before benefit from income taxes
                                    
                                    
                                    (141,540
                                    )
                                    
                                    
                                    (1,201,343
                                    )Benefit
      from income taxes
                                    
                                    
                                    (53,785
                                    )
                                    
                                    
                                    (456,405
                                    )Net
      loss
                                    
                                    $
                                    (87,755
                                    )
                                    
                                    $
                                    (744,938
                                    )Basic
      and diluted loss per share
                                    
                                    $
                                    (0.01
                                    )
                                    
                                    $
                                    (0.09
                                    )Weighted
      average shares outstanding - basic and diluted
                                    
                                    
                                    8,093,386
                                    
                                    
                                    
                                    7,988,321





See
accompanying Notes to Consolidated Financial Statements.


3





ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
BALANCE SHEET


ASSETS





(Unaudited)September 30,
                    
                    
                    June 30,2010
                    
                    
                    2010Current
      assets:Cash
      and cash equivalents
                    
                    $
                    5,338,748
                    
                    
                    $
                    5,263,324Accounts
      receivable, net of allowances of $300,000
                    
                    
                    5,617,624
                    
                    
                    
                    5,418,253Inventories,
      net
                    
                    
                    10,954,909
                    
                    
                    
                    11,155,456Income
      tax receivable
                    
                    
                    865,029
                    
                    
                    
                    877,665Other
      current assets
                    
                    
                    216,481
                    
                    
                    
                    221,840Total
      current assets
                    
                    
                    22,992,791
                    
                    
                    
                    22,936,538Property,
      plant and equipment, net
                    
                    
                    9,335,369
                    
                    
                    
                    9,661,395Other
      assets, net
                    
                    
                    330,023
                    
                    
                    
                    333,084Total
      assets
                    
                    $
                    32,658,183
                    
                    
                    $
                    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)September 30,
                  
                  
                  June 30,2010
                  
                  
                  2010Current
      liabilities:Accounts
      payable
                  
                  $
                  2,186,504
                  
                  
                  $
                  1,950,446Other
      accrued liabilities
                  
                  
                  1,987,956
                  
                  
                  
                  2,241,259Deferred
      income taxes
                  
                  
                  426,889
                  
                  
                  
                  429,699Deferred
      revenue
                  
                  
                  688,200
                  
                  
                  
                  688,200Total
      current liabilities
                  
                  
                  5,289,549
                  
                  
                  
                  5,309,604Deferred
      revenue
                  
                  
                  630,850
                  
                  
                  
                  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; 10,396,878
      shares issued at September 30, 2010 and June 30, 2010; 8,093,386
      shares outstanding at September 30, 2010 and June 30,
      2010
                  
                  
                  103,969
                  
                  
                  
                  103,969Additional
      paid-in capital
                  
                  
                  48,369,948
                  
                  
                  
                  48,362,922Accumulated
      deficit
                  
                  
                  (1,004,705
                  )
                  
                  
                  (916,950
                  )Less
      treasury stock, at cost; 2,303,492 shares at September 30, 2010 and
      June 30, 2010
                  
                  
                  (20,731,428
                  )
                  
                  
                  (20,731,428
                  )Total
      stockholders' equity
                  
                  
                  26,737,784
                  
                  
                  
                  26,818,513Total
      liabilities and stockholders' equity
                  
                  $
                  32,658,183
                  
                  
                  $
                  32,931,017





See
accompanying Notes to Consolidated Financial Statements.


5





ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
STATEMENT OF CASH FLOWS


(UNAUDITED)





Three months endedSeptember 30,2010
                                                
                                                
                                                2009Cash
      flows from operating activities:Net
      loss
                                                
                                                $
                                                (87,755
                                                )
                                                
                                                $
                                                (744,938
                                                )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
                                                
                                                
                                                376,517
                                                
                                                
                                                
                                                355,309Stock
      based compensation
                                                
                                                
                                                7,026
                                                
                                                
                                                
                                                618,084Provision
      for doubtful accounts and sales returns and
allowances
                                                
                                                
                                                14,188
                                                
                                                
                                                
                                                1,750Deferred
      taxes
                                                
                                                
                                                (2,810
                                                )
                                                
                                                
                                                (247,233
                                                )Changes
      in operating assets and liabilities:Accounts
      receivable
                                                
                                                
                                                (213,559
                                                )
                                                
                                                
                                                831,058Inventories
                                                
                                                
                                                200,547
                                                
                                                
                                                
                                                66,122Income
      tax receivable
                                                
                                                
                                                12,636
                                                
                                                
                                                
                                                (695,304
                                                )Other
      current assets
                                                
                                                
                                                5,359
                                                
                                                
                                                
                                                (7,134
                                                )Accounts
      payable
                                                
                                                
                                                236,058
                                                
                                                
                                                
                                                474,873Deferred
      revenue
                                                
                                                
                                                (172,050
                                                )
                                                
                                                
                                                (172,050
                                                )Other
      accrued liabilities
                                                
                                                
                                                (253,303
                                                )
                                                
                                                
                                                (140,882
                                                )Net
      cash provided by operating activities
                                                
                                                
                                                122,854
                                                
                                                
                                                
                                                339,655Cash
      flows from investing activities:Capital
      expenditures
                                                
                                                
                                                (47,430
                                                )
                                                
                                                
                                                (63,584
                                                )Net
      cash used in investing activities
                                                
                                                
                                                (47,430
                                                )
                                                
                                                
                                                (63,584
                                                )Cash
      flows from financing activities:Minimum
      tax withholdings on stock options exercised
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (406,110
                                                )Excess
      tax benefit from exercise of stock options
                                                
                                                
                                                -
                                                
                                                
                                                
                                                485,632Net
      cash provided by financing activities
                                                
                                                
                                                -
                                                
                                                
                                                
                                                79,522Net
      increase in cash and cash equivalents
                                                
                                                
                                                75,424
                                                
                                                
                                                
                                                355,593Cash
      and cash equivalents at beginning of period
                                                
                                                
                                                5,263,324
                                                
                                                
                                                
                                                1,943,364Cash
      and cash equivalents at end of period
                                                
                                                $
                                                5,338,748
                                                
                                                
                                                $
                                                2,298,957





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:




September 30, 2010
                  
                  
                  June 30, 2010Work-in
      progress
                  
                  $
                  885,899
                  
                  
                  $
                  802,550Component
      parts
                  
                  
                  8,163,620
                  
                  
                  
                  7,984,369Finished
      goods
                  
                  
                  3,362,741
                  
                  
                  
                  3,845,027Reserve
      for obsolete and excess inventory
                  
                  
                  (1,457,351
                  )
                  
                  
                  (1,476,490
                  )$
                  10,954,909
                  
                  
                  $
                  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 and diluted shares
outstanding for the three months ended September 30, 2010 and 2009 were
8,093,386 and 7,988,321, 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.


8




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.





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 September 30, 2010.





9




At
September 30, 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 September 30, 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 endedSeptember 30,2010
                            
                            
                            2009Beginning
      balance
                            
                            $
                            1,491,100
                            
                            
                            $
                            2,179,300Revenue
      recognized as net sales
                            
                            
                            (172,050
                            )
                            
                            
                            (172,050
                            )1,319,050
                            
                            
                            
                            2,007,250Less
      - Current portion of deferred revenue
                            
                            
                            (688,200
                            )
                            
                            
                            (688,200
                            )$
                            630,850
                            
                            
                            $
                            1,319,050





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, 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 September 30, 2010 compared to three months ended September 30,
2009





Allied
had net sales of $11.9 million for the three months ended September 30, 2010, up
$0.6 million, or 5.3%, from net sales of $11.3 million in the prior year same
quarter. Domestic sales were up 0.5% from the prior year same quarter, while
international business, which represented 18.8% of first quarter sales, was up
34.2%.


10





Sales for
the three months ended September 30, 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 September 30, 2010 of
$11.8 million were $0.2 million or 1.7% higher than orders for the prior year
same quarter of $11.6 million.  Domestic orders are up 2.6% over the
prior year same quarter while international orders, which represented 15.8% of
first quarter orders, were 0.6% lower than orders for the prior year same
quarter.  The Company believes that the purchase of equipment and
durable goods by hospitals and municipalities 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 September 30, 2010 was $2.6 million, or 21.8%
of net sales, compared to $2.4 million, or 21.2% of net sales, for the three
months ended September 30, 2009.  Gross profit during the first
quarter was favorably impacted by cost savings initiatives which reduced the
cost of purchased materials and manufactured finished goods, and higher sales
which result in better utilization of fixed overhead costs.  Gross
profit was negatively impacted by approximately $350,000 in shipping and other
startup cost at its Stuyvesant Falls facility for the production of its CO2absorbent product lines.  The Company believes that this cost
will be approximately $230,000 in the second quarter, and that these additional
costs will end during the second quarter.





Selling,
general and administrative expenses for the three months ended September 30,
2010 were $2.7 million compared to selling, general and administrative expenses
of $3.6 million for the three months ended September 30, 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, a decrease of approximately $0.2 million for compensation
expense due to a reduction in the Company’s workforce compared to the same
quarter of the prior year, and a decrease in selling expenses for outside
professional services of approximately $0.1 million.





Loss from
operations was $0.1 million for the three months ended September 30, 2010
compared to loss from operations of $1.2 million for the three months ended
September 30, 2009.  Allied had a loss before benefit for income taxes
in the first quarter of fiscal 2011 of $0.1 million, compared to a loss before
benefit from income taxes in the first quarter of fiscal 2010 of $1.2
million.  The Company recorded a tax benefit of $54,000 for the three
months ended September 30, 2010 compared to a tax benefit of $0.5 million for
the three months ended September 30, 2009.


11




Net loss
for the first quarter of fiscal 2011 was $88,000 or $0.01 per basic and diluted
share compared to net loss of $0.7 million or $0.09 per basic and diluted share
for the first quarter of fiscal 2010.  The weighted average number of
common shares outstanding, used in the calculation of basic and diluted earnings
per share for the first quarters of fiscal 2011 and 2010 were 8,093,386 and
7,988,321, 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 $17.7 million at September 30, 2010 compared to
$17.6 million at June 30, 2010.  Cash increased $0.1 million and
accrued liabilities decreased $0.3 million.  Accounts receivable
increased $0.2 million to $5.6 million at September 30,
2010.  Accounts receivable as measured in days of sales outstanding
(“DSO”) increased to 43 DSO at September 30, 2010; up from 40 DSO at June 30,
2010.  At September 30, 2010 these increases in working capital were
offset by a decrease in inventory of $0.2 million, and a $0.2 million increase
in accounts payable.





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 September 30, 2010.





At
September 30, 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.


12





Inflation
has not had a material effect on the Company’s business or results of operations
during the first quarter of fiscal 2011.





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
September 30, 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
September 30, 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 September 30, 2010, the Chief Executive Officer
and Chief Financial Officer of the Company concluded that its disclosure
controls and procedures were effective.




13




Changes
in internal control over financial reporting





There
were no changes in the Company’s internal control over financial reporting
during the quarter ended September 30, 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 November 5, 2010 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.


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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:
      November 5,
2010


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