UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC  20549





FORM
10-Q





(Mark
      One)x
            Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended December 31, 2008o
            Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Action
      of 1934For
      the transition period from ________________________ to
      ________________________





Commission
File Number 0-19266





ALLIED
HEALTHCARE PRODUCTS, INC.





1720
Sublette Avenue


St.
Louis, Missouri 63110


314/771-2400


IRS
Employment ID 25-1370721





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





Yes  xNo   ̈





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  ̈
                
                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 February 2, 2009 is 7,901,327 shares.








INDEXPageNumberPart
      I –
                                  Financial
      InformationItem
      1.
                                  Financial
      StatementsConsolidated
      Statement of Operations -
                                  3Three
      and six months ended December 31,2008
      and 2007 (Unaudited)Consolidated
      Balance Sheet -
                                  4 -
      5December
      31, 2008 (Unaudited) andJune
      30, 2008Consolidated
      Statement of Cash Flows -
                                  6Six
      months ended December 31, 2008 and 2007(Unaudited)Notes
      to Consolidated Financial Statements
                                  7 -
      10Item
      2.
                                  Management’s
      Discussion and Analysis of
                                  10
      - 16Financial
      Condition and Results of OperationsItem
      3.
                                  Quantitative
      and Qualitative Disclosure
                                  16about
      Market RiskItem
      4T.
                                  Controls
      and Procedures
                                  16Part
      II -
                                  Other
      InformationItem
      6.
                                  Exhibits
                                  17Signature
                                  18





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





Statements
contained in this Report, which are not historical facts or information, are
"forward-looking statements." Words such as "believe," "expect," "intend,"
"will," "should," and other expressions that indicate future events and trends
identify such forward-looking statements. These forward-looking statements
involve risks and uncertainties, which could cause the outcome and future
results of operations, and financial condition to be materially different than
stated or anticipated based on the forward-looking statements. Such risks and
uncertainties include both general economic risks and uncertainties, risks and
uncertainties affecting the demand for and economic factors affecting the
delivery of health care services, and specific matters which relate directly to
the Company's operations and properties as discussed in the Company’s annual
report on Form 10-K for the year ended June 30, 2008.  The Company
cautions that any forward-looking statements contained in this report reflects
only the belief of the Company or its management at the time the statement was
made. Although the Company believes such forward-looking statements are based
upon reasonable assumptions, such assumptions may ultimately prove inaccurate or
incomplete. The Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which the
statement was made.


2





PART
I.        FINANCIAL INFORMATION





Item
1.        Financial Statements





ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
STATEMENT OF OPERATIONS


(UNAUDITED)





Three months ended
                      
                      
                      Six months endedDecember 31,
                      
                      
                      December 31,2008
                      
                      
                      2007
                      
                      
                      2008
                      
                      
                      2007Net
      sales
                      
                      $
                      12,531,342
                      
                      
                      $
                      13,626,016
                      
                      
                      $
                      26,972,353
                      
                      
                      $
                      27,727,634Cost
      of sales
                      
                      
                      9,821,746
                      
                      
                      
                      10,714,172
                      
                      
                      
                      20,761,703
                      
                      
                      
                      21,648,777Gross
      profit
                      
                      
                      2,709,596
                      
                      
                      
                      2,911,844
                      
                      
                      
                      6,210,650
                      
                      
                      
                      6,078,857Selling,
      general andadministrative expenses
                      
                      
                      3,400,342
                      
                      
                      
                      2,932,428
                      
                      
                      
                      6,583,929
                      
                      
                      
                      5,975,398Income
      (loss) from operations
                      
                      
                      (690,746
                      )
                      
                      
                      (20,584
                      )
                      
                      
                      (373,279
                      )
                      
                      
                      103,459Interest
      income
                      
                      
                      (18,455
                      )
                      
                      
                      (38,177
                      )
                      
                      
                      (49,114
                      )
                      
                      
                      (78,946
                      )Interest
      expense
                      
                      
                      5,849
                      
                      
                      
                      -
                      
                      
                      
                      5,849
                      
                      
                      
                      -Other,
      net
                      
                      
                      11,112
                      
                      
                      
                      11,113
                      
                      
                      
                      23,179
                      
                      
                      
                      26,263(1,494
                      )
                      
                      
                      (27,064
                      )
                      
                      
                      (20,086
                      )
                      
                      
                      (52,683
                      )Income
      (loss) before provision for (benefit from) income taxes
                      
                      
                      (689,252
                      )
                      
                      
                      6,480
                      
                      
                      
                      (353,193
                      )
                      
                      
                      156,142Provision
      for (benefit from) income taxes
                      
                      
                      (253,158
                      )
                      
                      
                      -
                      
                      
                      
                      (125,456
                      )
                      
                      
                      62,597Net
      income (loss)
                      
                      $
                      (436,094
                      )
                      
                      $
                      6,480
                      
                      
                      $
                      (227,737
                      )
                      
                      $
                      93,545Basic
      and diluted earnings (loss) per share
                      
                      $
                      (0.06
                      )
                      
                      $
                      0.00
                      
                      
                      $
                      (0.03
                      )
                      
                      $
                      0.01Weighted
      average shares outstanding - basic
                      
                      
                      7,901,327
                      
                      
                      
                      7,883,577
                      
                      
                      
                      7,896,279
                      
                      
                      
                      7,883,577Weighted
      average shares outstanding - diluted
                      
                      
                      7,901,327
                      
                      
                      
                      8,130,901
                      
                      
                      
                      7,896,279
                      
                      
                      
                      8,122,607




See
accompanying Notes to Consolidated Financial Statements.





3





ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
BALANCE SHEET


ASSETS





(Unaudited)December 31,
                  
                  
                  June 30,2008
                  
                  
                  2008Current
      assets:Cash
      and cash equivalents
                  
                  $
                  4,212,532
                  
                  
                  $
                  6,149,015Accounts
      receivable, net of allowances of $300,000
                  
                  
                  4,642,668
                  
                  
                  
                  6,441,683Inventories,
      net
                  
                  
                  13,700,766
                  
                  
                  
                  12,046,450Other
      current assets
                  
                  
                  495,210
                  
                  
                  
                  394,975Total
      current assets
                  
                  
                  23,051,176
                  
                  
                  
                  25,032,123Property,
      plant and equipment, net
                  
                  
                  11,040,808
                  
                  
                  
                  10,542,573Goodwill
                  
                  
                  15,979,830
                  
                  
                  
                  15,979,830Other
      assets, net
                  
                  
                  697,206
                  
                  
                  
                  703,328Total
      assets
                  
                  $
                  50,769,020
                  
                  
                  $
                  52,257,854





See
accompanying Notes to Consolidated Financial Statements.




(CONTINUED)


4


ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
BALANCE SHEET


(CONTINUED)


LIABILITIES
AND STOCKHOLDERS' EQUITY




(Unaudited)December 31,
                          
                          
                          June 30,2008
                          
                          
                          2008Current
      liabilities:Accounts
      payable
                          
                          $
                          2,626,340
                          
                          
                          $
                          2,590,804Other
      accrued liabilities
                          
                          
                          1,900,964
                          
                          
                          
                          2,960,334Deferred
      income taxes
                          
                          
                          518,489
                          
                          
                          
                          500,238Deferred
      revenue
                          
                          
                          690,000
                          
                          
                          
                          690,000Total
      current liabilities
                          
                          
                          5,735,793
                          
                          
                          
                          6,741,376Deferred
      revenue
                          
                          
                          1,832,950
                          
                          
                          
                          2,177,500Commitments
      and contingenciesStockholders'
      equity:Preferred
      stock; $0.01 par value; 1,500,000 sharesauthorized; no shares
      issued and outstanding
                          
                          
                          -
                          
                          
                          
                          -Series
      A preferred stock; $0.01 par value; 200,000 shares authorized; no shares
      issued and outstanding
                          
                          
                          -
                          
                          
                          
                          -Common
      stock; $0.01 par value; 30,000,000 shares authorized; 10,204,819 and
      10,188,569 shares issued at December 31, 2008 and June 30, 2008,
      respectively; 7,901,327 and 7,885,077 shares outstanding
      at  December 31, 2008 and June 30, 2008,
      respectively
                          
                          
                          102,048
                          
                          
                          
                          101,886Additional
      paid-in capital
                          
                          
                          47,612,958
                          
                          
                          
                          47,524,084Retained
      earnings
                          
                          
                          16,216,699
                          
                          
                          
                          16,444,436Less
      treasury stock, at cost; 2,303,492 shares at December 31, 2008 and June
      30, 2008
                          
                          
                          (20,731,428
                          )
                          
                          
                          (20,731,428
                          )Total
      stockholders' equity
                          
                          
                          43,200,277
                          
                          
                          
                          43,338,978Total
      liabilities and stockholders' equity
                          
                          $
                          50,769,020
                          
                          
                          $
                          52,257,854




See
accompanying Notes to Consolidated Financial Statements.


5





ALLIED
HEALTHCARE PRODUCTS, INC.


CONSOLIDATED
STATEMENT OF CASH FLOWS


(UNAUDITED)




Six
      months endedDecember
      31,2008
                        
                        
                        2007Cash
      flows from operating activities:Net
      income (loss)
                        
                        $
                        (227,737
                        )
                        
                        $
                        93,545Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                        
                        
                        751,332
                        
                        
                        
                        667,929Stock
      based compensation
                        
                        
                        7,323
                        
                        
                        
                        37,849Provision
      for doubtful accounts and salesreturns
      and allowances
                        
                        
                        (10,449
                        )
                        
                        
                        (100,477
                        )Deferred
      taxes
                        
                        
                        18,251
                        
                        
                        
                        (15,140
                        )Loss
      on disposition of equipment
                        
                        
                        -
                        
                        
                        
                        5,228Changes
      in operating assets and liabilities:Accounts
      receivable
                        
                        
                        1,809,464
                        
                        
                        
                        1,161,488Inventories
                        
                        
                        (1,654,316
                        )
                        
                        
                        1,189,323Other
      current assets
                        
                        
                        (100,235
                        )
                        
                        
                        (248,232
                        )Accounts
      payable
                        
                        
                        35,536
                        
                        
                        
                        (320,924
                        )Deferred
      revenue
                        
                        
                        (344,550
                        )
                        
                        
                        (232,500
                        )Other
      accrued liabilities
                        
                        
                        (1,059,370
                        )
                        
                        
                        (849,766
                        )Net
      cash provided by (used in) operating activities
                        
                        
                        (774,751
                        )
                        
                        
                        1,388,323Cash
      flows from investing activities:Capital
      expenditures
                        
                        
                        (1,243,445
                        )
                        
                        
                        (259,501
                        )Purchase
      of intangible asset
                        
                        
                        -
                        
                        
                        
                        (35,000
                        )Net
      cash used in investing activities
                        
                        
                        (1,243,445
                        )
                        
                        
                        (294,501
                        )Cash
      flows from financing activities:Stock
      options exercised
                        
                        
                        81,094
                        
                        
                        
                        -Excess
      tax benefit from exercise of stock options
                        
                        
                        619
                        
                        
                        
                        -Net
      cash provided by financing activities
                        
                        
                        81,713
                        
                        
                        
                        -Net
      increase (decrease) in cash and cash equivalents
                        
                        
                        (1,936,483
                        )
                        
                        
                        1,093,822Cash
      and cash equivalents at beginning of period
                        
                        
                        6,149,015
                        
                        
                        
                        3,638,870Cash
      and cash equivalents at end of period
                        
                        $
                        4,212,532
                        
                        
                        $
                        4,732,692





See accompanying Notes to Consolidated
Financial Statements.




6




ALLIED HEALTHCARE PRODUCTS,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





1.           Unaudited
Consolidated Financial Statements





The accompanying unaudited consolidated
financial statements have been prepared in accordance with the instructions for
Form 10-Q and do not include all of the information and disclosures required by
accounting principles generally accepted in the United States of America for
complete financial statements.  In the opinion of management, all
adjustments, consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included.  Operating
results for any quarter are not necessarily indicative of the results for any
other quarter or for the full year.  These statements should be read
in conjunction with the consolidated financial statements and notes to the
consolidated financial statements thereto included in the Company’s Form 10-K
for the year ended June 30, 2008.





Recent Accounting
Pronouncements




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (FAS 141(R)). FAS 141(R) requires that the fair value of the
purchase price of an acquisition including the issuance of equity securities be
determined on the acquisition date; requires that all assets, liabilities,
noncontrolling interests, contingent consideration, contingencies, and
in-process research and development costs of an acquired business be recorded at
fair value at the acquisition date; requires that acquisition costs generally be
expensed as incurred; requires that restructuring costs generally be expensed in
periods subsequent to the acquisition date; and requires that changes in
deferred tax asset valuation allowances and acquired income tax uncertainties
after the measurement period impact income tax expense. FAS 141(R) also broadens
the definition of a business combination and expands disclosures related to
business combinations. FAS 141(R) will be applied prospectively to business
combinations occurring after the beginning of the Company's fiscal year 2010,
except that business combinations consummated prior to the effective date must
apply FAS 141(R) income tax requirements immediately upon adoption. The Company
is currently evaluating the impact of FAS 141(R) on its financial position,
results of operations, and cash flows, and does not anticipate any material
effect on the Company's consolidated financial statements.




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements.  SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the
information.  This statement was effective for us beginning July 1,
2008.Adoption of
SFAS No. 157 did not have a material impact on the Company’s results of
operations, financial position or cash flows.


7





2.           Inventories





Inventories
are comprised as follows:





December 31, 2008
                            
                            
                            June 30, 2008Work-in
      progress
                            
                            $
                            1,169,972
                            
                            
                            $
                            807,358Raw
      materials and component parts
                            
                            
                            9,303,520
                            
                            
                            
                            8,072,976Finished
      goods
                            
                            
                            4,474,245
                            
                            
                            
                            4,465,599Reserve
      for obsolete and excessinventory
                            
                            
                            (1,246,971
                            )
                            
                            
                            (1,299,483
                            )$
                            13,700,766
                            
                            
                            $
                            12,046,450




3.           Earnings
per share





Basic earnings per share are based on
the weighted average number of shares of all common stock outstanding during the
period.  Diluted earnings per share are based on the sum of the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. The number of basic shares outstanding for the
three months ended December 31, 2008 and 2007 were 7,901,327 and 7,883,577
respectively.  The number of diluted shares outstanding for the three
months ended December 31, 2008 and 2007 was 7,901,327 and 8,130,901
respectively.  The number of basic shares outstanding for the six
months ended December 31, 2008 and 2007 were 7,896,279 and 7,883,577
respectively.  The number of diluted shares outstanding for the six
months ended December 31, 2008 and 2007 was 7,896,279 and 8,122,607
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





On
September 30, 2008, the Bank and the Company agreed to an amendment of the
credit facility. In conjunction with the amendment to the Company’s credit
facility, the Bank extended the maturity on the Company’s revolving credit
facility to September 1, 2010, with automatic renewals.  The amendment
also increased the capital expenditure limitation to $4,000,000, from
$2,000,000, for the fiscal year ended June 30, 2009.  The entire
credit facility continues to accrue interest at the Bank’s prime
rate.  The prime rate was 3.25% on December 31, 2008. The interest
rate on prime rate loans may increase from prime to prime plus 0.75% if the
ratio of the Company’s funded debt to EBITDA exceeds 2.5. The amended credit
facility continues to provide the Company with a rate of LIBOR plus 1.75%, at
the Company’s option.  The optional LIBOR rate may increase from LIBOR
plus 1.75% to LIBOR plus 2.75% based on the Company’s fixed charge coverage
ratio.  The 90-day LIBOR rate was 1.42% at December 31,
2008.





At
December 31, 2008 the Company had no aggregate indebtedness, including capital
lease obligations, short-term debt and long term debt.





The
Company was in compliance with all of the financial covenants associated with
its credit facility at December 31, 2008.





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:




9




Three Months ended
                                
                                
                                Six Months endedDecember
      31,
                                
                                
                                December
      31,2008
                                
                                
                                2007
                                
                                
                                2008
                                
                                
                                2007Beginning
      balance
                                
                                $
                                2,695,000
                                
                                
                                $
                                2,286,250
                                
                                
                                $
                                2,867,500
                                
                                
                                $
                                2,402,500Payment
      Received from Abbott Laboratories
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Revenue
      recognized as net sales
                                
                                
                                (172,050
                                )
                                
                                
                                (116,250
                                )
                                
                                
                                (344,550
                                )
                                
                                
                                (232,500
                                )2,522,950
                                
                                
                                
                                2,170,000
                                
                                
                                
                                2,522,950
                                
                                
                                
                                2,170,000Less
      - Current portionof
      deferred revenue
                                
                                
                                (690,000
                                )
                                
                                
                                (465,000
                                )
                                
                                
                                (690,000
                                )
                                
                                
                                (465,000
                                )$
                                1,832,950
                                
                                
                                $
                                1,705,000
                                
                                
                                $
                                1,832,950
                                
                                
                                $
                                1,705,000




In
addition to the provisions of the agreement relating to the withdrawal of the
Baralyme® product, Abbott has agreed to pay Allied up to $2,150,000 in product
development costs to pursue development of a new carbon dioxide absorption
product for use in connection with inhalation anesthetics that does not contain
potassium hydroxide and does not produce a significant exothermic reaction with
currently available inhalation agents. As of December 31, 2008; $2,150,000 has
been received as a result of product development activities.  For the
three and six months ended December 31, 2008; $0 and $99,000, has been included
in Net Sales, respectively.  For the three and six months ended
December 31, 2008; $0 and $94,000, has been included in Cost of Sales,
respectively.




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





RESULTS OF
OPERATIONS





Three Months ended December
31, 2008 compared to three months ended December 31, 2007.





Allied
had net sales of $12.5 million for the three months ended December 31, 2008,
down $1.1 million, or 8.1%, from net sales of $13.6 million in the prior year
same quarter. Customer orders were $1.4 million lower than the prior year same
quarter, purchase order releases were $0.5 million lower than in the prior year
same quarter.    Purchase order release times depend on the
scheduling practices of individual customers, and do vary over time. Sales were
also down from the prior year due to a $450,000 decrease in sales recognized as
a result of product development activities to pursue development of a new carbon
dioxide absorption product.  Sales for the three months ended December
31, 2007 include $450,000 as a result of product development activities to
pursue development of a new carbon dioxide absorption product.  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.  Additional cost to develop the new product during the second
quarter of fiscal 2009 was not reimbursed.





10




Sales for
the three months ended December 31, 2008 include $172,050 for the recognition
into income of payments resulting from the agreement with Abbott Laboratories to
cease the production and distribution of Baralyme®.  Sales for the
three months ended December 31, 2007 include $116,250 for the recognition into
income of payments resulting from the agreement with Abbott Laboratories to
cease the production and distribution of Baralyme®.  Income from the
agreement will continue to be recognized over eight years, the term of the
agreement, at $57,350 per month.  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 9.7% from the prior year same quarter, while international
business, which represented 19.4% of second quarter sales, was down
0.6%.  Orders for the Company’s products for the three months ended
December 31, 2008 of $12.3 million were $1.4 million or 10.2% lower than orders
for the prior year same quarter of $13.7 million.  Domestic orders are
down 12.6% over the prior year same quarter while international orders which
represented 21.7% of second quarter orders were unchanged from the prior year
same quarter.  At this time, the Company believes this decrease in
domestic orders is due to order timing and market conditions, and does not
represent a decrease in the Company’s market share.





Gross
profit for the three months ended December 31, 2008 was $2.7 million, or 21.6%
of net sales, compared to $2.9 million, or 21.4% of net sales, for the three
months ended December 31, 2007.  Gross profit during the second
quarter was favorably impacted by an approximately 1.1% price increase in
selected products, and an easing of pressure on raw material cost resulting from
decreases in commodity cost in the market.


11


Selling,
general and administrative expenses for the three months ended December 31, 2008
were $3.4 million compared to selling, general and administrative expenses of
$2.9 million for the three months ended December 31 2007.  Salaries
and benefits increased approximately $0.3 million.  This increase is
primarily due to open employee positions in the second quarter of the prior
fiscal year and normal increases in the cost of fringe
benefits.  There have not been changes in staffing levels compared to
the same quarter of the prior fiscal year.  Also, outside services
increased approximately $130,000 primarily for the testing of the Company’s new
EPV100 and MCV ventilators designed to meet the needs of the mass casualty and
pandemic markets.  Additionally, legal expenses increased by
approximately $38,000, as a result of product liability claims. Selling, general
and administrative expenses also include approximately $24,000 in product
development cost for the new carbon dioxide absorption product being
developed.  In the prior year all development cost for this product
were reimbursed.  These development costs will continue for the
remainder of the fiscal year and are estimated to be an additional
$250,000.





Loss from
operations was $0.7 million for the three months ended December 31, 2008
compared to loss from operations of $20,584 for the three months ended December
31, 2007.  Interest income was $18,455 for the three months ended
December 31, 2008 compared to interest income of $38,177 for the three months
ended December 31, 2007.   Allied had loss before benefit from
income taxes in the second quarter of fiscal 2009 of $0.7 million, compared to
income before provision for income taxes in the second quarter of fiscal 2008 of
$6,480.  The Company recorded a tax benefit of $0.3 million for the
three-months ended December 31, 2008 and did not record a tax provision for the
three months ended December 31, 2007.





Net loss
for the second quarter of fiscal 2009 was $0.4 million or $0.06 per basic and
diluted share compared to net income of $6,480 or $0.00 per basic and diluted
share for the second quarter of fiscal 2008.  The weighted average
number of common shares outstanding, used in the calculation of basic earnings
per share for the second quarters of fiscal 2009 and 2008 were 7,901,327 and
7,883,577 shares, respectively.  The weighted average number of common
shares outstanding used in the calculation of diluted earnings per share for the
second quarters of fiscal 2009 and fiscal 2008 were 7,901,327 and 8,130,901
shares, respectively.





Six Months ended December
31, 2008 compared to six months ended December 31, 2007.





Allied
had net sales of $27.0 million for the six months ended December 31, 2007, down
$0.7 million, or 2.5%, from net sales of $27.7 million in the prior year same
period. Sales were primarily down from the prior year due to a $450,000 decrease
in sales recognized as a result of product development activities to pursue
development of a new carbon dioxide absorption product.  While the
Company continues to pursue development of a new product, reimbursement of those
activities was limited to $99,000 during the six months ended December 31,
2008.  Additional cost to develop the new product will not be
reimbursed.  In addition, customer orders were $1.3 million lower than
in the prior year same period, and customer purchase order releases were $0.9
million lower than in the prior year same period.  Purchase order
release times depend on the scheduling practices of individual customers and do
vary over time


12


Sales for
the six months ended December 31, 2008 include $344,550 for the recognition into
income of payments resulting from the agreement with Abbott Laboratories to
cease the production and distribution of Baralyme®.  Sales for the six
months ended December 31, 2008 also include $99,000 as a result of product
development activities to pursue development of a new carbon dioxide absorption
product.  The agreement with Abbott provides for Abbott to pay Allied
up to $2,150,000 in product development cost to pursue development of a new
carbon dioxide absorption product for use in connection with inhalation
anesthetics that does not contain potassium hydroxide and does not produce a
significant exothermic reaction with currently available inhalation
agents.  As of December 31, 2008; $2,150,000 has been received as a
result of product development activities.  The Company ceased the sale
of Baralyme® on August 27th,
2004.





Sales for
the six months ended December 31, 2007 include $232,500 for the recognition into
income of payments resulting from the agreement with Abbott Laboratories to
cease the production and distribution of Baralyme®.  Sales for the six
months ended December 31, 2007 also include $549,000 as a result of product
development activities to pursue development of a new carbon dioxide absorption
product.  Income from the agreement will continue to be recognized
over eight years, the term of the agreement, at $57,350 per
month.  Allied continues to sell Carbolime®, a carbon dioxide
absorbent with a different formulation than Baralyme®.





Domestic
sales were down 0.4% from the first six months of the prior year, while
international business, which represented 18.0% of the first six months of
sales, was down 11.9%.  Orders for the Company’s products for the six
months ended December 31, 2008 of  $25.6 million were $1.3 million or
4.8% lower than orders for the prior year same period of $26.9
million.  International orders are up 12.0% over the prior year same
period while domestic orders are down 8.4% over the prior year same
period.  The decrease in domestic orders occurred in the second
quarter.  At this time, the Company believes this decrease is due to
order timing, and market conditions, and does not represent a decrease in the
Company’s market share.





Gross
profit for the six months ended December 31, 2008 was $6.2 million, or 23.0% of
net sales, compared to $6.1 million, or 21.9% of net sales, for the six months
ended December 31, 2007.  The increase in gross profit is due to
modest price increases and an easing of pressure on raw material cost resulting
from decreases in commodity cost in the market.  Cost of sales for the
six months ended December 31, 2008 also include $94,000 as a result of product
development of a new carbon dioxide absorption product.


13


Selling,
general and administrative expenses for the six months ended December 31, 2008
were $6.6 million, a net increase of $0.6 million, or 10.0%, from $6.0 million
for the six months ended December 31, 2007.  Salaries and benefits
increased by $0.4 million from the prior year primarily due to open employee
positions in the second quarter of the prior fiscal year and normal increases in
the cost of fringe benefits.  There have not been changes in staffing
levels over the prior year.  Also, outside services increased
approximately $130,000 primarily for the testing of the Company’s new EPV100 and
MCV ventilators designed to meet the needs of the mass casualty and pandemic
markets.  Additionally, legal expenses increased by approximately
$90,000, as a result of product liability claims.  Selling, general
and administrative expenses also include approximately $67,000 in product
development cost for the new carbon dioxide absorption product being
developed.  In the prior year all development cost for this product
were reimbursed.  These development costs will continue for the
remainder of the fiscal year and are estimated to be an additional
$250,000.





Loss from
operations was $0.4 million for the six months ended December 31, 2008 compared
to income from operations of $0.1 million for the six months ended December 31,
2007.  Interest income was $49,114 for the six months ended December
31, 2008 compared to interest income of $78,946 for the six months ended
December 31, 2007.  Allied had loss before benefit for income taxes
for the first six months of fiscal 2008 of $0.4 million, compared to income
before provision for income taxes for the first six months of fiscal 2008 of
$0.2 million.  The Company recorded a tax benefit of $0.1 million for
the six-month period ended December 31, 2008, versus a tax provision of $0.1
million for the six-month period ended December 31, 2007.





In fiscal
2009, the net loss for the first six months was $0.2 million or $0.03 per basic
and diluted share compared to net income of $0.1 million or $0.01 per basic and
diluted share for the first six months of fiscal 2008. The weighted average
number of common shares outstanding, used in the calculation of basic earnings
per share for the first six months of fiscal 2009 and 2008 were 7,896,279 and
7,883,577 shares, respectively.   The weighted average number of
common shares outstanding used in the calculation of diluted earnings per share
for the first six months of fiscal 2009 and fiscal 2008 were 7,896,279 and
8,122,607 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 $17.3 million at December 31, 2008 compared to
$18.3 million at June 30, 2008.  Accrued liabilities decreased $1.1
million, inventory increased $1.7 million, and other current assets increased
$0.1 million.  At December 31, 2008 these increases in working capital
were more than offset by a decrease in Cash and cash equivalents of $1.9 million
and a decrease of $1.8 million in accounts receivable to $4.6 million at
December 31, 2008.  Accounts receivable as measured in days of sales
outstanding (“DSO”) increased to 37 DSO at December 31, 2008; up from 34 DSO at
June 30, 2008.


14


The
increase in inventory is primarily due to the decrease in sales during the
second quarter of fiscal 2009.  However, approximately $560,000 of the
$1.7 million increase in inventory is due to finished goods and components for
the Company’s new mass casualty ventilators and is permanent in
nature.  Also, approximately $780,000 of the $1.9 million decrease in
Cash and cash equivalents is due to investment in capital expenditures for cost
reduction projects.  Additionally, approximately $420,000 of the
decrease in Cash and cash equivalents is due to investment in capital
expenditures for the Company’s new product introductions and maintenance of
plant capacity.





On
September 30, 2008, the Bank and the Company agreed to an amendment of the
credit facility. In conjunction with the amendment to the Company’s credit
facility, the Bank extended the maturity on the Company’s revolving credit
facility to September 1, 2010, with automatic renewals.  The amendment
also increased the capital expenditure limitation to $4,000,000, from
$2,000,000, for the fiscal year ended June 30, 2009.  The entire
credit facility continues to accrue interest at the Bank’s prime
rate.  The prime rate was 3.25% on December 31, 2008. The interest
rate on prime rate loans may increase from prime to prime plus 0.75% if the
ratio of the Company’s funded debt to EBITDA exceeds 2.5. The amended credit
facility continues to provide the Company with a rate of LIBOR plus 1.75%, at
the Company’s option.  The optional LIBOR rate may increase from LIBOR
plus 1.75% to LIBOR plus 2.75% based on the Company’s fixed charge coverage
ratio.  The 90-day LIBOR rate was 1.42% at December 31,
2008.





At
December 31, 2008 the Company had no aggregate indebtedness, including capital
lease obligations, short-term debt and long term debt.





The
Company was in compliance with all of the financial covenants associated with
its credit facility at December 31, 2008.





In the
event that economic conditions were to severely worsen for a protracted period
of time, we believe that our borrowing capacity under our credit facilities will
provide sufficient financial flexibility.  The Company would have
options available to ensure liquidity in addition to increased
borrowing.  Capital expenditures, which are budgeted at $3.4 million
for the fiscal year ended June 30, 2009, could be postponed.  At
December 31, 2008, the Company had no bank debt.  Based on the
Company’s current level of debt, and performance, debt would bear interest at
the Bank’s prime rate.  The Company’s agreement with the Bank does
include provisions for higher interest rates at higher debt levels and different
levels of Company performance.





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




Litigation
and Contingencies





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


15





Recent
Accounting Pronouncements




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (FAS 141(R)). FAS 141(R) requires that the fair value of the
purchase price of an acquisition including the issuance of equity securities be
determined on the acquisition date; requires that all assets, liabilities,
noncontrolling interests, contingent consideration, contingencies, and
in-process research and development costs of an acquired business be recorded at
fair value at the acquisition date; requires that acquisition costs generally be
expensed as incurred; requires that restructuring costs generally be expensed in
periods subsequent to the acquisition date; and requires that changes in
deferred tax asset valuation allowances and acquired income tax uncertainties
after the measurement period impact income tax expense. FAS 141(R) also broadens
the definition of a business combination and expands disclosures related to
business combinations. FAS 141(R) will be applied prospectively to business
combinations occurring after the beginning of the Company's fiscal year 2010,
except that business combinations consummated prior to the effective date must
apply FAS 141(R) income tax requirements immediately upon adoption. The Company
is currently evaluating the impact of FAS 141(R) on its financial position,
results of operations, and cash flows, and does not anticipate any material
effect on the Company's consolidated financial statements.




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements.  SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the
information.  This statement was effective for us beginning July 1,
2008.Adoption of SFAS No.
157did not
have a material impact on the Company’s results of operations,financial
position or cash flows.





Item
3.    Quantitative and Qualitative Disclosure about Market
Risk





At
December 31, 2008, the Company did not have any debt outstanding.  The
revolving credit facility bears an interest rate using the commercial bank’s
“floating reference rate” or LIBOR as the basis, as defined in the loan
agreement, and therefore is subject to additional expense should there be an
increase in market interest rates.





The
Company had no holdings of derivative financial or commodity instruments at
December 31, 2008.  Allied Healthcare Products has international
sales; however these sales are denominated in U.S. dollars, mitigating foreign
exchange rate fluctuation risk.





Item
4T.     Controls and Procedures





(a)
            Management’s
      annual report on internal control over financial
  reporting.


16


The
Company maintains controls and procedures designed to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Securities Exchange Act of 1934 is recorded, processed, summarized, and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission and that such information is accumulated and
communicated to the Company's management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. Based upon their evaluation of those controls and
procedures performed as of December 31, 2008, the Chief Executive Officer and
Chief Financial Officer of the Company concluded that its disclosure controls
and procedures were effective.




The
management of Allied Healthcare Products, Inc. is responsible for establishing
and maintaining adequate internal control over financial reporting and for the
preparation and integrity of the accompanying financial statements and other
related information in this report.  The Audit Committee of the Board
of Directors, which is comprised of directors who are not employees of the
Company, meets regularly with management, the Company’s internal control outside
consultants, and the independent registered public accounting
firm.  The internal control consultants and the independent registered
public accounting firm have free and direct access to the Audit
Committee, and they meet periodically, without management present, to
discuss appropriate matters.  Based on management’s evaluation,
conducted under the criteria established in Internal Control - - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission, management concluded that its internal control over financial
reporting was effective as of December 31, 2008.




(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 December 31, 2008 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)


17





31.2  Certification
      of Chief Financial Officer (filed herewith)32.1  Sarbanes-Oxley
      Certification of Chief Executive Officer (furnished
    herewith)*32.2  Sarbanes-Oxley
      Certification of Chief Financial Officer (furnished
    herewith)*99.1  Press
      Release dated February 9, 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.





SIGNATURE





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





ALLIED
      HEALTHCARE PRODUCTS, INC./s/ Daniel C. DunnDaniel
      C. DunnChief Financial OfficerDate:
      February 9, 2009


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