ALLIED HEALTHCARE PRODUCTS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2004

Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Action of 1934

For the transition period from to
------------------- -------------------

Commission File Number 0-19266

ALLIED HEALTHCARE PRODUCTS, INC.

1720 Sublette Avenue

St. Louis, Missouri 63110
314/771-2400

IRS Employment ID 25-1370721

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

Yes X No
----- -----

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes No X
----- -----

The number of shares of common stock outstanding at April 30, 2004 is
7,818,432 shares.

INDEX

"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, 2003. 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)

See accompanying Notes to Consolidated Financial Statements.

3

ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
(UNAUDITED)

See accompanying Notes to Consolidated Financial Statements.

(CONTINUED)

4

ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)

See accompanying Notes to Consolidated Financial Statements.

5

ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

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, 2003.

2. Significant Accounting Policies - Stock Options

The Company accounts for employee stock options in accordance with
Accounting Principles Board No. (APB) 25, "Accounting for Stock Issued to
Employees". Under APB 25, the Company applies the intrinsic value method of
accounting. The Company has not recognized compensation expense for options
granted because the Company grants options at a price equal to market value at
the time of grant. Financial Accounting Standard No. 123 (SFAS 123), "Accounting
for Stock-Based Compensation," prescribes the recognition of compensation
expense based on the fair value of options determined on the grant date.
However, SFAS 123 grants an exception that allows companies currently applying
APB 25 to continue using that method. The Company has elected to continue
applying the intrinsic value method under APB 25.

The fair value of options granted (which is amortized over the option
vesting period in determining the pro forma impact) is estimated on the date of
grant using the Black-Scholes multiple option-pricing model. The following table
shows stock-based compensation expense included in net income/(loss), pro forma
stock-based compensation expense, net income/(loss), and earnings per share had
the Company elected to record compensation expense based on the fair value of
options at the grant date for the three and nine months ended March 31, 2004 and
2003.

7

The effects of applying SFAS 123 in this proforma disclosure are not necessarily
indicative of future amounts.

3. Inventories

Inventories are comprised of the following:

4. 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 year. The weighted
number of basic shares outstanding for the three months ended March 31, 2004 and
2003 was 7,818,432 and 7,813,932, respectively. The weighted number of diluted
shares outstanding for the three months ended March 31, 2004 and 2003 was
8,005,365 and 7,909,158 shares, respectively. The weighted number of basic
shares outstanding for the nine months ended March 31, 2004 and 2003 was
7,815,748 and 7,813,932, respectively. The

8

weighted number of diluted shares outstanding for the nine months ended March
31, 2004 and 2003 was 7,957,881 and 7,956,448 shares, respectively.

5. New Accounting Standards

In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of
Long-Lived Assets" which supercedes Statement of Financial Accounting Standards
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of" and the accounting and reporting provisions of Accounting
Principles Bulletin No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", for the disposal of a business.
SFAS 144 provides a single accounting model for long-lived assets to be disposed
of. Although retaining many of the fundamental recognition and measurement
provisions of SFAS 121, the new rules change the criteria to be met to classify
an asset as held-for-sale. The new rules also broaden the criteria regarding
classification of a discontinued operation. The Company was required to adopt
the provisions of SFAS 144 effective July 1, 2002. Adoption of SFAS 144 did not
have a material impact on the Company's results of operations, financial
position or cash flows.

In July 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 (SFAS 146), "Accounting for Costs Associated with Exit or
Disposal Activities" which addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost
was recognized at the date of an entity's commitment to an exit plan. The
provisions of SFAS 146 are effective for exit or disposal activities initiated
after December 31, 2002. Adoption of SFAS 146 did not have a material impact on
the Company's results of operations, financial position or cash flows.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 (SFAS 148), "Accounting for Stock-Based Compensation -
Transition and Disclosure - an amendment of FAS 123," which provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. Additionally, SFAS 148 amends
the disclosure requirements of Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation," to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The provisions of SFAS 148 are effective for financial
statements issued for fiscal years

9

ending after December 15, 2002 and for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002.
Adoption of SFAS 148 did not have a material impact on the Company's results of
operations, financial position or cash flows.

In November 2002, the FASB issued Interpretation (FIN) No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". This interpretation elaborates
on the disclosures to be made by a guarantor in its financial statements about
its obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. At March 31, 2004, the Company does not have any commitments that are
within the scope of FIN No. 45.

In January 2003, the FASB released FIN No. 46, "Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51". The
Interpretation clarifies issues regarding the consolidation of entities which
may have features that make it unclear whether consolidation or equity method
accounting is appropriate. Adoption of FIN 46 did not have a material impact on
the Company's results of operations, financial position or cash flows.

In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150 (SFAS 150), "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity." SFAS 150 provides guidance on
distinguishing between liability and equity instruments and accounting for
instruments that have characteristics of both. SFAS 150 requires specific types
of freestanding financial instruments to be classified as liabilities including
mandatory redeemable financial instruments, obligations to repurchase the
issuer's equity shares by transferring assets and certain obligations to issue a
variable number of shares. The provisions of SFAS 150 are effective for
financial instruments entered into or modified after May 31, 2003. Adoption of
SFAS 150 did not have a material impact on the Company's results of operations,
financial position or cash flows.

6. 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.

10

7. Financing Agreement Amendment

On April 24, 2002, the Company entered into a new credit facility
arrangement with LaSalle Bank National Association (the Bank). The credit
facility provides for total borrowings up to $19.0 million; consisting of $15.0
million through a revolving credit facility and up to $4.0 million under a term
loan for capital equipment.

On September 26, 2003, the Bank further amended the Company's credit
facility (the amended credit facility). The Bank amended various financial
covenants in conjunction with the amended credit facility including a reduction
in the required fixed coverage charge ratio and the elimination of the EBITDA
covenant. The Bank amended the borrowing base to include 80% of eligible
accounts receivable plus the lesser of 50% of eligible inventory or $7.0
million, subject to reserves as established by the Bank. In addition, the
outstanding loans under the amended credit facility bears interest at an annual
interest rate of 1.00% plus the Bank's prime rate. In conjunction with these
amendments to the Company's credit facility, the Bank extended the maturity on
the Company's term loan on real estate from August 1, 2003 to April 24, 2005.
Amortization on the real estate term loan continues on a five-year schedule with
equal monthly payments of $49,685. The real estate term loan bears interest at
an annual interest rate of 1.00% plus the Bank's prime rate. The Company also
received a waiver from the Bank for its covenant violations pertaining to its
EBITDA covenant, which the Company was in default of on June 30, 2003.

At March 31, 2004, the Company was in compliance with its financial
covenants under the amended credit facility. Although the Company was in
compliance with its financial covenants under the amended credit facility at
March 31, 2004, the ability of the Company to remain in compliance with these
ratios for the remainder of the current fiscal year depends on the cumulative
operating results and related fixed charges, and is subject to achieving
satisfactory revenue and expense levels sufficient to enable the Company to meet
heightened performance standards. At March 31, 2004, the Company realized a
Fixed Charge Coverage Ratio, as defined, of approximately 1.4 to 1.0 based on
the prior twelve months. During the year ending June 30, 2004, the Company must
realize a Fixed Charge Coverage Ratio of at least .75 to 1.0, as defined in the
amended credit agreement.

In addition, the outstanding loans under the amended credit facility
bear interest at an annual interest rate at the Bank's prime rate plus 1.00% and
the Company no longer has an option to elect a LIBOR rate of interest for its
outstanding borrowings. The Company's per annum fee on any outstanding letters
of credit under the amended credit facility is 2.50%. Under the terms of the
amended credit facility, the interest rate on each loan outstanding at an Event
of Default, as defined in the amended credit facility, bears interest at the
rate of 2.00% per annum in excess of the interest rate otherwise payable thereon
and both principal and interest would become payable on demand.

The Company's credit facility requires a lockbox arrangement, which
provides for all receipts to be swept daily to reduce borrowings outstanding
under the credit facility. This arrangement, combined with the existence of a
Material Adverse Effect (MAE)

11

clause in the new credit facility, cause the revolving credit facility to be
classified as a current liability, per guidance in the FASB's EITF Issue No.
95-22, "Balance Sheet Classification of Borrowings Outstanding under Revolving
Credit Agreements that Include Both a Subjective Acceleration Clause and a
Lock-Box Arrangement." However, the Company does not expect to repay, or be
required to repay, within one year, the balance of the revolving credit facility
classified as a current liability. The MAE clause, which is a typical
requirement in commercial credit agreements, allows the lender to require the
loan to become due if it determines there has been a material adverse effect on
the Company's operations, business, properties, assets, liabilities, condition
or prospects. The classification of the revolving credit facility as a current
liability is a result only of the combination of the two aforementioned factors:
the lockbox arrangement and the MAE clause. However, the revolving credit
facility does not expire or have a maturity date within one year, but rather has
a final expiration date of April 25, 2005. Additionally, the Bank has not
notified the Company of any indication of a MAE at March 31, 2004.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003.

Allied had net sales of $15.0 million for the three months ended March
31, 2004, down $1.4 million, or 9.0%, from net sales of $16.4 million in the
prior year same quarter. Demand was lower in the third quarter of fiscal 2004
than in the prior year for the Company's products. The effect of lower sales on
gross profit was offset during the quarter by improved gross profit performance.
Gross profit for the three months ended March 31, 2004 was $4.2 million, or
28.2% of net sales, compared to $4.2 million, or 25.8% of net sales, for the
three months ended March 31, 2003. The improvement in gross margins is primarily
attributable to reduced operations cost resulting from the Company's cost
reduction efforts, including automation of certain manufacturing processes, and
greater control over manufacturing overhead expenditures. Manufacturing overhead
has been reduced for personnel and non-personnel costs.

Selling, general and administrative expenses for the three months ended
March 31, 2004 were $3.1 million, a decrease of $0.4 million, or 10.8%, from
$3.4 million for the three months ended March 31, 2003. The decrease is
primarily the result of $0.3 million in lower personnel cost and $0.1 million in
lower insurance cost.

Income from operations was $1.2 million for the three months ended
March 31, 2004 compared to $0.8 million income from operations for the three
months ended March 31, 2003. Interest expense was $0.1 million for the three
months ended March 31, 2004,

12

down from $0.2 million for the three months ended March 31, 2003. Allied had
income before provision for income taxes in the third quarter of fiscal 2004 of
$1.0 million, compared to an income before provision for income taxes of $0.6
million, for the third quarter of fiscal 2003. The Company recorded a tax
provision of $0.4 million for the three-month period ended March 31, 2004 versus
a tax provision of $0.2 million recorded for the three-month period ended March
31, 2003.

In fiscal 2004, the net income for the third quarter was $0.6 million
or $0.08 per basic and diluted share compared to a net income of $0.4 million or
$0.05 per basic and diluted share for the third quarter of fiscal 2003. The
weighted average number of common shares outstanding used in the calculation of
basic earnings per share for the third quarters of fiscal 2004 and 2003 was
7,818,432 and 7,813,932 shares, respectively. The weighted average number of
common shares outstanding used in the calculation of diluted earnings per share
for the third quarters of fiscal 2004 and fiscal 2003 was 8,005,365 and
7,909,158 shares, respectively.

NINE MONTHS ENDED MARCH 31, 2004 COMPARED TO NINE MONTHS ENDED MARCH 31, 2003.

Allied had net sales of $43.8 million for the nine months ended March
31, 2004, down $2.7 million, or 5.8%, from net sales of $46.5 million in the
prior year same period. Sales in the first nine months of fiscal 2004 have been
unfavorably impacted by decreased activity in the medical gas equipment markets.
This is reflected by lower orders and shipments in this market than in the prior
year. Demand was also down for the Company's respiratory care products and
emergency medical products for the first nine months than in the prior year.

Gross profit for the nine months ended March 31, 2004 was $11.7
million, or 26.7% of net sales, compared to $10.8 million, or 23.2% of net
sales, for the nine months ended March 31, 2003. The improvement in gross
margins is the result of reduced operations cost resulting from the Company's
cost reduction efforts, including automation of certain manufacturing processes.
These improvements offset the decrease in gross margins attributable to lower
sales volumes. In addition, gross profit improved $0.2 million as a result of a
distribution representing the Company's membership interest in the liquidation
of the General American Mutual Holding Company, the Company's health care
benefit provider. The Company is continuing to review, automate, and further
improve operations to improve productivity and lower manufacturing and product
cost.

Selling, general and administrative expenses for the nine months ended
March 31, 2004 were $9.6 million, a decrease of $0.6 million, or 5.9%, from
$10.2 million for the nine months ended March 31, 2003. The decrease is
primarily the result of reduced $0.5 million in reduced personnel cost and $0.3
million in reduced insurance cost. These savings were partially offset by an
additional $0.2 million in legal fees in fiscal 2004.

On July 28th, 2003 the Company announced a workforce reduction of 14
positions from its managerial and administrative staff and 5 positions from its
production group.

13

This reduction resulted in severance pay of approximately $73,000, which was
paid in the first quarter of fiscal 2004. These payments are reflected in
selling, general, and administrative expenses for the nine months ended March
31, 2004.

Income from operations was $2.1 million for the nine months ended March
31, 2004 compared to a $0.6 million income from operations for the nine months
ended March 31, 2003. Interest expense was $0.5 million for the nine months
ended March 31, 2004, down from $0.7 million for the nine months ended March 31,
2003. Allied had income before provision for income taxes in the first nine
months of fiscal 2004 of $1.7 million, compared to a loss before benefit for
income taxes of $46,727, for the first nine months of fiscal 2003. The Company
recorded a tax provision of $0.7 million for the nine-month period ended March
31, 2004 versus a tax provision of $4,527 recorded for the nine-month period
ended March 31, 2003.

In fiscal 2004, the net income for the first nine months was $1.0
million, or $0.13 per basic and diluted share compared to a net loss of $0.1
million or $0.01 loss per basic and diluted share for the first nine months of
fiscal 2003. The weighted average number of common shares outstanding used in
the calculation of basic earnings per share for the first nine months of fiscal
2004 and 2003 was 7,815,748 and 7,813,932 shares, respectively. The weighted
average number of common shares outstanding used in the calculation of diluted
earnings per share for the first nine months of fiscal 2004 and fiscal 2003 was
7,957,881 and 7,956,448 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 next
12 months.

Working capital increased to $10.2 million at March 31, 2004 compared
to $9.4 million at June 30, 2003. This is primarily due to a $3.9 million
reduction in the current portion of long-term debt and $0.3 million increase in
other current assets as a result of insurance payments. These changes have been
offset by a $0.6 million increase in accounts payable, a $0.9 million increase
in accrued liabilities, a $0.4 million decrease in accounts receivable, a $0.2
million decrease in income tax receivable, and a $1.3 million decrease in
inventory. The decrease in inventory is a result of improved inventory control
procedures during the last year.

On April 24, 2002, the Company entered into a new credit facility
arrangement with LaSalle Bank National Association (the "Bank"). The new credit
facility provides -for total borrowings up to $19.0 million; consisting of up to
$15.0 million through a revolving credit facility and up to $4.0 million under a
term loan.

On September 26, 2003, the Bank further amended the Company's credit
facility (the amended credit facility). The Bank amended various financial
covenants in conjunction with the amended credit facility including a reduction
in the required fixed coverage charge ratio and the elimination of the EBITDA
covenant. The Bank amended

14

the borrowing base to include 80% of eligible accounts receivable plus the
lesser of 50% of eligible inventory or $7.0 million, subject to reserves as
established by the Bank. In addition, the outstanding loans under the amended
credit facility bears interest at an annual interest rate of 1.00% plus the
Bank's prime rate. In conjunction with these amendments to the Company's credit
facility, the Bank extended the maturity on the Company's term loan on real
estate from August 1, 2003 to April 24, 2005. Amortization on the real estate
term loan continues on a five-year schedule with equal monthly payments of
$49,685. The real estate term loan bears interest at an annual interest rate of
1.00% plus the Bank's prime rate. The Company also received a waiver from the
Bank for its covenant violations pertaining to its EBITDA covenant, which the
Company was in default of on June 30, 2003.

At March 31, 2004, the Company was in compliance with its financial
covenants under the amended credit facility. Although the Company was in
compliance with its financial covenants under the amended credit facility at
March 31, 2004, the ability of the Company to remain in compliance with these
ratios for the remainder of the current fiscal year depends on the cumulative
operating results and related fixed charges, and is subject to achieving
satisfactory revenue and expense levels sufficient to enable the Company to meet
heightened performance standards. At March 31, 2004, the Company realized a
Fixed Charge Coverage Ratio, as defined, of approximately 1.4 to 1.0 based on
the prior twelve months. During the year ending June 30, 2004, the Company must
realize a Fixed Charge Coverage Ratio of at least .75 to 1.0, as defined in the
amended credit agreement.

The Company's credit facility requires lockbox arrangement, which
provide for all receipts to be swept daily to reduce borrowings outstanding
under the credit facility. This arrangement, combined with the existence of a
Material Adverse Effect (MAE) clause in the new credit facility, cause the
revolving credit facility to be classified as a current liability, per guidance
in the FASB's Emerging Issues Task Force Issue 95-22, "Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit Agreements that
Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement."
However, the Company does not expect to repay, or be required to repay, within
one year, the balance of the revolving credit facility classified as a current
liability. The MAE clause, which is a typical requirement in commercial credit
agreements, allows the lender to require the loan to become due if it determines
there has been a material adverse effect on the Company's operations, business,
properties, assets, liabilities, condition or prospects. The classification of
the revolving credit facility as a current liability is a result only of the
combination of the two aforementioned factors: the lockbox arrangement and the
MAE clause. However, the revolving credit facility does not expire or have a
maturity date within one year, but rather has a final expiration date of April
25, 2005. Additionally, the Bank has not notified the Company of any indication
of a MAE at March 31, 2004.

At March 31, 2004, the company had $0.3 million outstanding against
this facility and $9.4 million available to borrow from the line based on
collateral requirements.

15

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

RECENTLY ISSUED ACCOUNTING STANDARDS

In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of
Long-Lived Assets", which supersedes Statement of Financial Accounting Standards
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of" and the accounting and reporting provisions of APB No. 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", for the disposal of a business. SFAS 144 provides a
single accounting model for long-lived assets to be disposed of. Although
retaining many of the fundamental recognition and measurement provisions of SFAS
121, the new rules change the criteria to be met to classify an asset as
held-for-sale. The new rules also broaden the criteria regarding classification
of a discontinued operation. The Company was required to adopt the provisions of
SFAS 144 effective July 1, 2002. Adoption of SFAS 144 did not have a material
impact on the Company's results of operations, financial position or cash flows.

In July 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 (SFAS 146), "Accounting for Costs Associated with Exit or
Disposal Activities" which addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost
was recognized at the date of an entity's commitment to an exit plan. The
provisions of SFAS 146 are effective for exit or disposal activities initiated
after December 31, 2002. Adoption of SFAS 146 has not had a material impact on
the Company's results of operations, financial position or cash flows.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 (SFAS 148), "Accounting for Stock-Based Compensation -
Transition and Disclosure - an amendment of FAS 123," which provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. Additionally, SFAS 148 amends
the disclosure requirements of Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation," to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The provisions of SFAS 148 are effective for financial
statements issued for fiscal years ending after December 15, 2002 and for
financial reports containing condensed financial statements for interim periods
beginning after December 15, 2002. Adoption of SFAS

16

148 did not have a material impact on the Company's results of operations,
financial position or cash flows.

In November 2002, the FASB issued Interpretation (FIN) No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". This interpretation elaborates
on the disclosures to be made by a guarantor in its financial statements about
its obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. At March 31, 2004, the Company does not have any commitments that are
within the scope of FIN No. 45.

In January 2003, the FASB released FIN No. 46, "Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51". The
Interpretation clarifies issues regarding the consolidation of entities which
may have features that make it unclear whether consolidation or equity method
accounting is appropriate. Adoption of FIN 46 did not have a material impact on
the Company's results of operations, financial position or cash flows.

In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150 (SFAS 150), "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity." SFAS 150 provides guidance on
distinguishing between liability and equity instruments and accounting for
instruments that have characteristics of both. SFAS 150 requires specific types
of freestanding financial instruments to be classified as liabilities including
mandatory redeemable financial instruments, obligations to repurchase the
issuer's equity shares by transferring assets and certain obligations to issue a
variable number of shares. The provisions of SFAS 150 are effective for
financial instruments entered into or modified after May 31, 2003. Adoption of
SFAS 150 did not have a material impact on the Company's results of operations,
financial position or cash flows.

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. More
specifically there have been a number of lawsuits filed against the Company
alleging that its aluminum oxygen pressure regulator, marketed under its Life
Support Products label, has caused fires that have led to personal injury. The
Company believes, based on preliminary findings, that its products did not cause
the fires. The Company intends to defend these claims in cooperation with its
insurers. Based on the progression of certain cases, the Company has recorded an
additional $0.1 million charge to operations evenly throughout both fiscal 2004
and 2003 for amounts estimated to be payable by the Company under its
self-insurance retention for legal costs associated with defending these claims.
The Company believes that any potential judgements resulting from these claims
over its self-insured

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retention will be covered by the Company's product liability insurance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

At March 31, 2004, the Company had $5.3 million in debt outstanding.
This balance represents amounts outstanding under the Company's revolving credit
facility of $0.3 million, the Company's real estate loan for $2.7 million, and
the Company's capital expenditure loan for $2.3 million. The revolving credit
facility, the capital expenditure loan, and the real estate loan bear an
interest rate using the commercial bank's "floating reference rate" 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 March 31, 2004. Allied Healthcare Products has international
sales, however these sales are denominated in U.S. dollars, mitigating foreign
exchange rate fluctuation risk.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision, and with the participation, of its
management, including its principal executive officer and principal financial
officer, performed an evaluation of the Company's disclosure controls and
procedures, as contemplated by Securities Exchange Act Rule 13a-15, as of March
31, 2004. Based on that evaluation, the Company's principal executive officer
and principal financial officer concluded that such disclosure controls and
procedures are effective to ensure that material information relating to the
Company, including its consolidated subsidiaries, is made known to them,
particularly during the period for which the periodic reports are being
prepared.

Changes in Internal Controls

No significant changes were made in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation performed pursuant to Securities Exchange Act Rule
13a-15 referred to above.

Part II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

31.1 Certification by Chief Executive Officer pursuant to Rule
13a-14(a).

31.2 Certification by Chief Financial Officer pursuant to Rule
13a-14(a).

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32.1 Certification by Chief Executive Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002.

32.2 Certification by Chief Financial Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002.

99.1 Press Release dated April 30, 2004, announcing earnings for the
quarter and nine months ended March 31, 2004.

b) Reports on Form 8-K:

For an event occurring on February 25, 2004, the Registrant filed a
Form 8-K announcing that Judy T. Graves had been elected to its board of
directors expanding the size of the board to six members.

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. Dunn
-----------------------------------
Daniel C. Dunn
Chief Financial Officer

Date: April 30, 2004

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