<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 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
                  JUNE 30, 2003 OR

         [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
                  _______________ TO _______________

                  Commission file number 1-2199


                           ALLIS-CHALMERS CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


                Delaware                                       39-0126090
    -------------------------------                       --------------------
    (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                        Identification No.)


                  7660 Woodway, Suite 200, Houston, Texas 77063
               ---------------------------------------------------
               (Address of principal executive offices) (Zip code)


                                 (713) 369-0550
               --------------------------------------------------
               Registrant's telephone number, including area code


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 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]

At August 14, 2003 were 19,633,340 shares of Common Stock outstanding.



<PAGE>

                           ALLIS-CHALMERS CORPORATION

                                    FORM 10-Q

                                  June 30, 2003

                                TABLE OF CONTENTS


Part I.           Financial Information                                       3

Item 1:           Financial Statements

                  Consolidated Statements of Operations for the three
                    months and six months ended June 30, 2003 and 2002        3

                  Consolidated Balance Sheets as of June 30, 2003 and
                    December 31, 2002                                         4

                  Consolidated Statements of Cash Flows for the six
                    months ended June 30, 2003 and 2002                       5

                  Notes to Consolidated Financial Statements                  7

Item 2:           Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                      15

Item 4:           Controls and Procedures                                    20

Part II.          Other Information                                          21

Item 1:           Legal Proceedings                                          21

Item 3:           Default on Senior Securities                               21

Item 6:           Exhibits and Reports on Form 8-K                           21

Signatures                                                                   22

Certifications                                                               23


                                       2


<PAGE>

PART I.  FINANCIAL INFORMATION
         ---------------------

ITEM 1.  FINANCIAL STATEMENTS
-----------------------------

<TABLE>
                                        ALLIS-CHALMERS CORPORATION
                                   CONSOLIDATED STATEMENTS OF OPERATIONS
                                     (in thousands, except per share)
<CAPTION>

                                                     Three Months Ended             Six Months Ended
                                                           June 30,                      June 30,
                                                     2003           2002           2003           2002
                                                 ------------   ------------   ------------   ------------
                                                          (in thousands, except per share)
<S>                                              <C>            <C>            <C>            <C>
Sales                                            $     7,340    $     4,238    $    14,339    $     7,491
Cost of sales                                          5,410          3,561         10,405          6,204
                                                 ------------   ------------   ------------   ------------

   Gross Margin                                        1,930            677          3,934          1,287

Marketing and administrative expense                   1,020            970          2,001          1,810
                                                 ------------   ------------   ------------   ------------

   Income/ (loss) from operations                        910           (293)         1,933           (523)

Other Income (expense)
   Interest income                                        --             --             --             --
   Interest expense                                     (843)          (600)        (1,480)        (1,023)
   Other                                                (186)            47           (174)            77
   Minority interest                                    (124)           (23)          (311)           (40)
                                                 ------------   ------------   ------------   ------------

Net income/(loss) before income taxes                   (243)          (869)           (32)        (1.509)
                                                 ------------   ------------   ------------   ------------

   Provision for income taxes                             --             --             --             --
                                                 ------------   ------------   ------------   ------------

Net income/ (loss)                                      (243)          (869)           (32)        (1,509)
                                                 ------------   ------------   ------------   ------------

   Preferred stock dividend                              (87)           (87)          (481)          (145)
                                                 ------------   ------------   ------------   ------------

Net income/ (loss) attributed to common shares   $      (330)   $      (956)   $      (513)   $    (1,654)
                                                 ============   ============   ============   ============

Net income/ (loss) per common share              $     (0.02)   $     (0.05)   $     (0.03)   $     (0.09)
                                                 ============   ============   ============   ============

Weighted average number of common shares
outstanding
     Basic                                            19,633         19.574         19,633         17,933
                                                 ============   ============   ============   ============

    Diluted                                           19,633         19,574         19,633         17,933
                                                 ============   ============   ============   ============

This interim statement is unaudited.

The accompanying Notes are an integral part of the Financial Statements.

                                                    3
</TABLE>


<PAGE>

<TABLE>
                               ALLIS-CHALMERS CORPORATION
                               CONSOLIDATED BALANCE SHEETS
                              (in thousands, except shares)
<CAPTION>

                                                                 June 30,     December 31,
                                                                   2003           2002
                                                                 ---------     ---------
<S>                                                              <C>           <C>
Assets
------

Cash and cash equivalents                                        $     30      $    146
Trade receivables, net                                              6,006         4,409
Lease deposit                                                          --           525
Lease receivable, current                                             180           180
Prepaid and other current assets                                    1,186           317
                                                                 ---------     ---------

    Total current assets                                            7,402         5,577

Property, plant and equipment, net                                 16,139        17,124
Goodwill                                                            7,829         7,829
Other intangible assets, net                                        2,386         2,650
Debt issuance costs, net                                              324           515
Lease receivable                                                      961         1,042
Other assets                                                            6            41
                                                                 ---------     ---------

    Total assets                                                 $ 35,047      $ 34,778
                                                                 =========     =========

Liabilities and Shareholders' Equity
------------------------------------

Current maturities of long-term debt                             $  6,406      $ 13,890
Trade accounts payable                                              3,490         2,106
Accrued employee benefits and payroll taxes                           213           280
Accrued interest                                                    1,279           811
Accrued expenses                                                    1,113         1,506
                                                                 ---------     ---------

   Total current liabilities                                       12,501        18,593

Accrued postretirement benefit obligations                            649           670
Long-term debt, less current portion                               13,433         7,331
Other long-term liabilities                                           270           270

Minority interest                                                   1,895         1,584
Redeemable warrants                                                 1,500         1,500
Redeemable convertible preferred stock                              4,302         3,821

Common shareholders' equity:
Common stock, $.15 par value (110,000,000 shares authorized;
19,633,340 issued and outstanding at June 30, 2003 and at
December 31, 2002)                                                  2,945         2,945
Capital in excess of par value                                      6,757         7,237
Accumulated (deficit)                                              (9,205)       (9,173)
                                                                 ---------     ---------

Total shareholders' equity                                            497         1,009
                                                                 ---------     ---------

Total liabilities and shareholders' equity                       $ 35,047      $ 34,778
                                                                 =========     =========

This interim statement is unaudited

The accompanying Notes are an integral part of the Financial Statements.

                                           4
</TABLE>


<PAGE>

<TABLE>
                                        ALLIS-CHALMERS CORPORATION
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                              (in thousands)
<CAPTION>

                                                                                  Six Months Ended
                                                                                      June 30,
                                                                                2003              2002
                                                                            ------------     ------------
<S>                                                                         <C>              <C>
Cash flows from operating activities:
Net income (loss)                                                           $       (32)     $    (1,509)
Adjustments to reconcile net (loss) to net
       cash provided (used) by operating activities:
Depreciation and amortization expense                                             1,380            1,131
(Gain) loss on sale of fixed assets                                                 181               --
Amortization of discount on debt                                                    367              100
Minority interest in income of subsidiary                                           311               40
Changes in working capital:
     Decrease (increase) in accounts receivable                                  (1,597)             909
     Decrease (increase) in due from related party                                   --               40
     Decrease (increase) in other current assets                                   (869)             938
     Decrease (increase) in other assets                                             35              136
     Decrease (increase) in lease deposit                                           525               --
     (Decrease) increase in accounts payable                                      1,385               49
     (Decrease) increase in accrued interest                                        468              121
     (Decrease) increase in accrued expenses                                       (393)          (1,220)
     (Decrease) increase in other long-term liabilities                              --              (61)
     (Decrease) increase in accrued employee benefits and payroll taxes             (88)            (708)
                                                                            ------------     ------------

Net cash provided (used) by operating activities                                  1,673              (34)

Cash flows from investing activities:
    Acquisition of Jens, net of cash acquired                                        --           (7,762)
    Acquisition of Strata, net of cash acquired                                      --             (373)
    Proceeds from sale of fixed assets                                              700               --
    Purchase of equipment                                                          (821)             (87)
                                                                            ------------     ------------

Net cash provided (used) by investing activities                                   (121)          (8,222)

Cash flows from financing activities:
     Proceeds from issuance of long-term debt, net of repayments                     --            9,193
     Repayments of long-term debt                                                (1,668)              --
     Debt issuance costs                                                             --             (763)
                                                                            ------------     ------------

Net cash provided (used) by financing activities                                 (1,668)           8,430
                                                                            ------------     ------------

Net increase (decrease) in cash and cash equivalents                               (116)             174

Cash and cash equivalents at beginning of year                                      146              152
                                                                            ------------     ------------

Cash and cash equivalents at end of period                                  $        30      $       326
                                                                            ============     ============

Supplemental information - interest paid                                    $     1,480      $       798
                                                                            ============     ============

                                                    5
</TABLE>


<PAGE>

<TABLE>
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
--------------------------------------------------------
STATEMENTS OF CASH FLOWS (CONTINUED)
------------------------------------
<CAPTION>

Non-cash investing and financing transactions in connection with the acquisition
of Jens' Oilfield Service, Inc. for the six months ended June 30, 2002:

<S>                                                                                     <C>
                  Fair value of net assets acquired                                     $  (11,204)
                  Goodwill and other intangibles                                            (1,235)
                  Note payable to prior owner                                                4,000
                  Value of common stock issued                                                 677
                                                                                        -----------

                  Net cash paid to acquire subsidiary                                   $   (7,762)
                                                                                        -----------

Non-cash investing and financing transactions in connection with the acquisition
of Strata Directional Technology, Inc. for the six months ended June 30, 2002:

                  Fair value of net assets acquired                                     $   (2,073)
                  Goodwill and other intangibles                                            (5,019)
                  Issuance of preferred stock                                                3,500
                  Value of common stock issued                                               3,219
                                                                                        -----------

                  Net cash paid to acquire subsidiary                                   $     (373)
                                                                                        -----------

This interim statement is unaudited.

The accompanying Notes are an integral part of the Financial Statements.

                                                 6
</TABLE>


<PAGE>

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This interim financial data should be read in conjunction with the consolidated
financial statements and related notes, management's discussion and analysis and
other information included in Allis-Chalmers Corporation's ("Allis-Chalmers" or
the "Company") Annual Report on Form 10-K for the year ended December 31, 2002,
and the Current Reports on Form 8-K filed on February 20, 2003, June 12, 2003,
and July 16, 2003, respectively.

All normal and recurring adjustments considered necessary for a fair
presentation of the results of operations have been included in the unaudited
financial statements. In addition, all non-recurring adjustments necessary to
prevent the financial statements from being misleading have been included in the
unaudited financial statements. The results of operations for any interim period
are not necessarily indicative of the Company's operating results for a full
year.

ORGANIZATION OF BUSINESS

The Company was incorporated in 1913 under Delaware law. The Company reorganized
in bankruptcy in 1988, and sold all of its major businesses. In May 2001, the
Company consummated a merger in which the Company acquired OilQuip Rentals, Inc.
(OilQuip) and its wholly owned subsidiary, Mountain Compressed Air, Inc.
("Mountain Air"), in exchange for shares of the common stock, which upon
issuance represented over 85% of the outstanding common stock. In February 2002,
the Company acquired approximately 81% of the capital stock of Jens' Oilfield
Service, Inc. ("Jens'") and all of the capital stock of Strata Directional
Technology, Inc. ("Strata").

On July 2, 2003, the Company through its subsidiary Mountain Air, entered into a
joint venture agreement with a division of M-I L.L.C. ("M-I"). Both Companies
contributed assets with a book value of approximately $13 million to AirComp
L.L.C. ("AirComp"). The Company owns 55% and M-I owns 45% of AirComp. The
Company will consolidate AirComp into its financial statements in future
financial statements.

Through AirComp, Jens' and Strata, and through additional acquisitions in the
oil and natural gas drilling services industry, the Company intends to exploit
opportunities in the oil and natural gas service and rental industry. Currently,
the Company receives 80% to 85% of its revenues from natural gas drilling
services and the balance from oil drilling services; however, most of its
services can be utilized for either activity.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Future events and their effects cannot be predicted
with certainty. Accordingly, the Company's accounting estimates require the
exercise of judgment. While management believes that the estimates and
assumptions used in the preparation of the consolidated financial statements are
appropriate, actual results could differ from those estimates. Estimates are
used for, but are not limited to, determining the following: allowance for
doubtful accounts reserves, recoverability of long-lived assets, useful lives
used in depreciation and amortization, income taxes and related valuation
allowances, and insurance and legal accruals. The accounting estimates used in
the preparation of the consolidated financial statements may change as new
events occur, as more experience is acquired, as additional information is
obtained and as the Company's operating environment changes.

                                       7


<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

In July 2002, the FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") issued SFAS No.
146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES ("SFAS No.
146"). SFAS No. 146 requires companies to recognize costs associated with exit
or disposal activities when they are incurred rather than at the date of
commitment to an exit or disposal plan. The provisions of SFAS No. 146 will
apply to any exit or disposal activities initiated by the Company after December
31, 2002. SFAS No. 146 is not expected to have a material effect on the results
of operations or financial position of the Company.

SFAS No. 147, ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS, was issued in
December 2002 and is not expected to apply to the Company's current or planned
activities.

In December 2002, the FASB approved SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION - TRANSITION AND DISCLOSURE - AN AMENDMENT OF FASB STATEMENT NO.
123 ("SFAS No. 148"). SFAS No. 148 amends SFAS No. 123 to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 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. SFAS No. 148 is effective for financial statements for
fiscal years ending after December 15, 2002. The Company will continue to
account for stock based compensation using the methods detailed in the
stock-based compensation accounting policy as disclosed in Company's Annual
Report on From 10-K for the year ended December 31, 2002.

In April 2003, the FASB issued SFAS No. 149, AMENDMENT OF STATEMENT NO. 133
ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS No. 149").  SFAS No.
149 amends certain portions of SFAS No. 133 and is effective for all contracts
entered into or modified after June 30, 2003 on a prospective basis. SFAS No.
149 is not expected to have a material effect on the results of operations or
financial position of the Company because the Company currently has no
derivatives or hedging contracts.

In June 2003, the FASB approved SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (SFAS No. 150).
SFAS No. 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This Statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The effect on the Company's
financial position include the fact that beginning on July 1, 2003, or
immediately subsequent to the date of this financial statement, the redeemable
convertible preferred stock and the redeemable warrants will be classified as
liabilities and not as currently shown in the mezzanine equity section of the
balance sheet. The adoption of SFAS No. 150 could also affect the Company's debt
covenant calculations, which are currently in compliance as of June 30, 2003.

NOTE 2 - ACQUISITIONS

The Company completed two acquisitions and related financing on February 6,
2002.

The Company purchased 81% of the outstanding stock of Jens Oil Field Service,
Inc. ("Jens"). Jens supplies highly specialized equipment and operations to
install casing and production tubing required to drill and complete oil and gas
wells. The Company also purchased substantially all the outstanding common stock
and preferred stock of Strata Directional Technology, Inc. ("Strata"). Strata

                                       8


<PAGE>

provides high-end directional and horizontal drilling services for specific
targeted reservoirs that cannot be reached vertically.

The purchase price for Jens and Strata was (i) $10,250,000 in cash, (ii) a
$4,000,000 note payable due in four years, (iii) $1,000,000 for a non-compete
agreement payable for five years, (iv) 7,957,712 shares of common stock of the
Company, (v) 3,500,000 shares of a newly created Series A 10% Cumulative
Convertible Preferred Stock of the Company ("Series A Preferred Stock") and (vi)
an additional payment of $841,000 based upon Jens' working capital on February
1, 2002. In May 2002, the Company purchased the remaining minority interest in
Strata in exchange for 87,500 shares of the Company common stock.

In connection with the acquisition of Strata and Jens, the Company's bank
provided financing of $12,728,396 consisting of revolving credit facilities in
the amount of $3,500,000, term facilities in the amount of $5,696,396 and a
subordinated loan in the amount of $3,000,000.

In connection with the Strata purchase, the Company authorized the creation of
Series A Preferred Stock. 3,500,000 shares of Series A Preferred Stock were
issued to the seller, Energy Spectrum. The Series A Preferred Stock has
cumulative dividends at ten percent (10%) per annum payable in cash or
additional Series A Preferred Stock. Additionally, the Series A Preferred Stock
is convertible into common stock of the Company. The Series A Preferred Stock is
also subject to mandatory redemption on or before February 4, 2004 or earlier
from the net proceeds of new equity sales and optional redemption by the Company
at any time. The redemption price of the Series A Preferred Stock is $1.00 per
share. In addition, in connection with the Strata acquisition, Energy Spectrum
was issued warrants for 1,312,500 shares of Company common stock at an exercise
price of $0.15 per share.

The acquisitions were accounted for using the purchase method of accounting.
Goodwill and other identifiable intangible assets of $4,668,000 were recorded
with the acquisition of Strata and other identifiable intangible assets of
$1,235,000 were recorded with the acquisition of Jens.

The Company issued to the banks warrants for 1,165,000 shares of common stock at
an exercise price of $0.15 per share and 335,000 warrants to purchase common
stock at a $1.00 per share in connection with their subordinated debt financing.
All of these warrants are subject to redemption by the Company at the option of
the warrant holders for $1,500,000 after three years.

The following unaudited pro forma consolidated summary financial information
illustrates the effects of the acquisitions of Jens and Strata on the Company's
results of operations, based on the historical statements of operations, as if
the transactions had occurred as of the beginning of the period presented.

                                                            Six Months
                                                            ----------
                                                          Ended June 30,
                                                          --------------
                                                               2002
                                                               ----
                                                          (in thousands)

Revenues                                                     $ 8,462

Operating income /(loss)                                     $  (360)

Net income/ (loss)                                           $(1,656)

Income (loss) per share                                      $ (0.08)


                                       9


<PAGE>

NOTE 3 - LONG-TERM DEBT

Long-term debt is primarily a result of the costs of the acquisitions of certain
assets of Mountain Air, Jens' Oilfield Service, Inc. and Strata Directional
Technology, Inc.

Substantially all of the Company's assets are pledged as collateral to the
outstanding debt agreements.

The debt agreements are as follows:

MOUNTAIN AIR

LINE OF CREDIT WITH WELLS FARGO - At June 30, 2003, Mountain Air had a $500,000
line of credit at Wells Fargo bank, of which $417,000 is outstanding. The
committed line of credit was due on June 30, 2003 and was extinguished on July
2, 2003 in connection with the AirComp L.L.C. joint venture (Note 6). Interest
accrues at a rate equal to the Prime rate plus 0.5% to 1.25% (5.50% at June 30,
2003) for the committed portion. Additionally, the Company pays a 0.5% fee for
the uncommitted portion.

NOTES PAYABLE TO WELLS FARGO - TERM NOTE - A term loan in the original amount of
$3,550,000 at variable interest rates related to the Prime or LIBOR rates (6.00%
at June 30, 2003), interest payable monthly, with monthly principal payments of
$35,000 due on the last day of the month. The maturity date of the loan was June
30, 2003 and the balance at June 30, 2003 was $2,287,000 and was extinguished on
July 2, 2003 in connection with the AirComp L.L.C. joint venture (Note 6).

NOTE PAYABLE TO WELLS FARGO - SUBORDINATED DEBT AND AMORTIZATION OF REDEEMABLE
WARRANT - Subordinated debt in the amount of $2,000,000 with 12% interest
payable monthly commencing on January 31, 2003. The principal was due on June
30, 2003 and was extinguished on July 2, 2003 in connection with the AirComp
L.L.C. joint venture (Note 6). In connection with incurring the debt, the
Company issued redeemable warrants valued at $600,000, which have been recorded
as a discount to the subordinated debt and as a liability (see REEDEMABLE
WARRANTS below). The discount was amortized until June 30, 2003.

NOTE PAYABLE TO WELLS FARGO - EQUIPMENT TERM LOAN - A delayed draw term loan in
the amount of $282,291 at LIBOR plus 0.5% interest payable quarterly commencing
on November 30, 2001 (interest rate of 4.75% at June 30, 2003). The principal
was due on June 30, 2003. The balance as of June 30, 2003 is $146,000 and was
extinguished on July 2, 2003 in connection with the AirComp L.L.C. joint venture
(Note 6).

All of the Mountain Air's notes payable to Wells Fargo were paid off on July 2,
2003 in conjunction with the joint venture between the Company and M-I L.L.C.
(Note 6)

NOTE PAYABLE TO SELLER OF MOUNTAIN AIR DRILLING SERVICE COMPANY ("MADSCO") - A
note to the seller of MADSCO assets in the amount of $2,200,000 at 5.75% simple
interest. The principal and interest are due on February 6, 2006. See Note 6 for
subsequent event regarding the modification to the terms of this agreement.

JENS'

NOTE PAYABLE TO WELLS FARGO - TERM NOTE - A term loan in the amount of
$4,042,396 at a floating interest rate (7.25% at June 30, 2003) with monthly
principal payments of $67,373. The maturity date of the loan is February 1,
2007. The balance at June 30, 2003 was $2,960,000.

NOTE PAYABLE TO WELLS FARGO - REAL ESTATE NOTE - A real estate loan in the
amount of $532,000 at floating interest rate (7.25% at June 30, 2003) with
monthly principal payments of $14,778. The principal will be due on February 1,
2005. The balance at June 30, 2003 was $298,000.

                                       10


<PAGE>

LINE OF CREDIT WITH WELLS FARGO - At June 30, 2003, Jens had a $1,000,000 line
of credit at Wells Fargo bank, of which $545,000 was outstanding. The committed
line of credit is due on January 31, 2005. Interest accrues at a floating rate
plus 3% (7.25% at June 30, 2003) for the committed portion. Additionally, the
Company pays a 0.5% fee for the uncommitted portion.

SUBORDINATED NOTE PAYABLE TO SELLER OF JENS' -A subordinated seller's note in
the amount of $4,000,000 at 7.5% simple interest. At June 30, 2003, $375,000 of
interest was accrued and was included in accrued interest. The principal and
interest are due on January 31, 2006. The note is subordinated to the rights of
Wells Fargo.

NOTE PAYABLE TO SELLER OF JENS' FOR NON-COMPETE AGREEMENT - In conjunction with
the purchase of Jens' (Note 2), the Company agreed to pay a total of $1,234,560
to the Seller of Jens' in exchange for a non-compete agreement signed
simultaneously. The Company is to make monthly payments of $20,576 through the
period ended January 31, 2007. As of June 30, 2003, the balance was
approximately $885,000, including $247,000 classified as short-term.

STRATA

NOTES PAYABLE TO WELLS FARGO - TERM NOTE - A term loan in the amount of
$1,654,000 at a floating interest rate (7.75% at June 30, 2003) with monthly
principal payments of $27,567. The maturity date of the loan is February 1,
2005. In addition to the monthly principal payments, in June 2002, the Company
entered into a direct financing lease with a third party whereby a portion of
assets were sold by Strata. The payments from that third party, which are
expected to exceed $15,000 a month, are to be directly applied to the principal
of this note. In June 2003, the Company sold its wireline assets for $700,000 to
Gyrodata and utilized the proceeds to pay down the outstanding principal
balance. The note payable balance at June 30, 2003 was $78,000.

VENDOR FINANCING - In 1996 and as amended in 2000 and 2002, Strata entered into
a short-term vendor financing agreement with a major supplier of drilling motors
for drilling motor rentals, motor lease costs and motor repair costs. The
agreement, as amended, provides for repayment of all amounts due no later than
September 30, 2003. Payment of the interest on the note is due monthly; however,
the Company may make payments with respect to principal and interest at any time
without bonus or penalty. The vendor financing incurs interest at a rate of
8.0%. As of June 30, 2003, the outstanding balance, including accrued interest,
was approximately $245,000.

LINE OF CREDIT WITH WELLS FARGO - At June 30, 2003, Strata has a $2,500,000 line
of credit at Wells Fargo bank, of which $873,000 was outstanding. The committed
line of credit is due on January 31, 2005. Interest accrues at a floating
interest rate plus 1/2% (7.75% at June 30, 2003) for the committed portion.
Additionally, the Company pays a 0.5% fee for the uncommitted portion.

ALLIS-CHALMERS

NOTES PAYABLE TO WELLS FARGO - SUBORDINATED DEBT AND AMORTIZATION OF REDEEMABLE
WARRANT - Subordinated debt secured to partially finance the acquisitions of
Jens' and Strata in the amount of $3,000,000 at 12% interest payable monthly. At
June 30, 2003, $244,000 of interest was accrued and was included in accrued
interest. The principal will be due on January 31, 2005. In connection with
incurring the debt, the Company issued redeemable warrants valued at $900,000,
which have been recorded as a discount to the subordinated debt and as a
liability (see REEDEMABLE WARRANTS below). The discount is amortizable over
three years beginning February 6, 2002 as additional interest expense.

NOTES PAYABLE TO CERTAIN FORMER DIRECTORS - The Allis-Chalmers Board established
an arrangement by which to compensate former and continuing Board members who
had served from 1989 to March 31, 1999 without compensation. Pursuant to the

                                       11


<PAGE>

arrangement in 1999, Allis-Chalmers issued promissory notes totaling $325,000 to
current or former directors and officers. The notes bear interest at the rate of
5%, compounded quarterly, and are due March 28, 2005. At June 30, 2003, the
notes are recorded at $378,000, including accrued interest.

REDEEMABLE WARRANTS - Associated with the issuance of the $2 million
Subordinated debt recorded by Mountain Air and the $3 million Subordinated debt
recorded by Allis-Chalmers (collectively, the "subordinated debt"), the Company
has issued redeemable warrants that are exercisable into a maximum of 1,165,000
shares of the Company's common stock at an exercise price of $0.15 per share
("Warrants A and B") and non-redeemable warrants that are exercisable into a
maximum of 335,000 shares of the Company's common stock at $1.00 per share
("Warrant C"). Warrants A and B are subject to cash redemption provisions
("puts") of $600,000 and $900,000, respectively, at the discretion of the
warrant holders beginning at the earlier of the final maturity date of the
subordinated debt or three years from the closing of the subordinated debt
(January 31, 2004 and January 31, 2005, respectively). Warrant C does not
contain any such puts or provisions. In addition, previously issued warrants to
purchase common stock of Mountain Air were cancelled. The Company has recorded a
liability of $600,000 at Mountain Air and $900,000 at Allis-Chalmers for a total
of $1,500,000 and is amortizing the effects of the puts to interest expense over
the life of the related subordinated debt instruments.

NOTE 4 - SHAREHOLDERS' EQUITY

On March 6, 2002, the Company issued 3,500,000 shares of Series A 10% Cumulative
Convertible Preferred Stock, (the "Preferred Stock"), to Energy Spectrum
Partners, LP. ("Energy Spectrum") in connection with the acquisition (the
"Strata Acquisition") from Energy Spectrum of substantially all of the common
stock and preferred stock of Strata Directional Technology, Inc.

In accordance with the Certificate of Designation, Preferences and Rights of the
Preferred Stock (the "Certificate") the Preferred Stock is convertible into a
number of shares of our common stock determined by dividing the "Liquidation
Value" of the Preferred Stock, which is $1.00 per share, by the "Conversion
Price" of the Preferred Stock. The Conversion Price was initially $0.75, but in
accordance with the Certificate was reduced on February 1, 2003, to an amount
equal to 75% of the market price calculated in accordance with the Certificate,
or $0.19.

By letter agreement dated February 19, 2003, a copy of which is attached as an
exhibit to Form 8-K filed on February 20, 2003, Energy Spectrum agreed to
increase the Conversion Price to $0.50, to vote for an amendment to our
Certificate of Incorporation to reflect the increase in the Conversion Price,
and that prior to the amendment of the Company's Certificate of Incorporation if
any Preferred Stock is converted into our common stock the Conversion Price for
such conversion shall be $0.50. The letter agreement reduces the number of
shares of common stock into which the Preferred Stock is convertible from
18,421,053 to 7,000,000 shares.

The Conversion Price is subject to adjustment pursuant to Section 11 of the
Certificate in the event of a stock split, stock dividend, reclassification, or
similar event, or in the event any other distribution is made in respect of our
common stock. Section 11 also provides that in the event we sell shares of our
common stock for less than the Conversion Price, the Conversion Price will be
reduced to such sales price.

In connection with the Strata Acquisition, we issued to Energy Spectrum a
warrant to purchase 437,500 shares of our common stock at an exercise price of
$0.15 per share, and we agreed that if we did not redeem all but one share of
the Preferred Stock on or prior to February 6, 2003, we would issue Energy
Spectrum an additional warrant to purchase 875,000 shares of our common stock at
an exercise price of $0.15 per share. On February 19, 2003, we issued such
warrant, a copy of which is attached as an exhibit to the Form 8-K filed on
February 20, 2003.

                                       12


<PAGE>

NOTE 5 - SEGMENT INFORMATION

The Company has three segments, Casing Services (Jens), Directional Drilling
Services (Strata) and Compressed Air Drilling Services (Mountain Air). All of
the segments provide services to the petroleum industry. The revenues and
operating income by segment are presented below:

<TABLE>
<CAPTION>
                                                 Three Months Ended          Six Months Ended
                                                 ------------------          ----------------
                                                      June 30,                   June 30,
                                                      --------                   --------
                                                 2003          2002          2003          2002
                                              ---------     ---------     ---------     ---------
                                                                 (in thousands)
<S>                                           <C>           <C>           <C>           <C>
Revenues:
     Casing Services                          $  2,644      $  2,079      $  5,153      $  3,248
     Directional Drilling Services               3,503         1,322         6,983         2,273
     Compressed Air Drilling Services            1,193           837         2,203         1,970
                                              ---------     ---------     ---------     ---------

Total revenues                                $  7,340      $  4,238      $ 14,339      $  7,491

Operating income/ (loss):
     Casing Services                          $    988      $    672      $  2,227      $    958
     Directional Drilling Services                 255          (109)          511          (142)
     Compressed Air Drilling Services               71          (412)          (36)         (446)

     General Corporate                            (404)         (444)         (769)         (893)
                                              ---------     ---------     ---------     ---------

Total operating income/(loss)                 $    910      $   (293)     $  1,933      $   (523)

Depreciation and Amortization Expense:
     Casing Services                          $    275      $    324      $    690      $    531
     Directional Drilling Services                  39            67           119           118
     Compressed Air Drilling Services              180           237           511           459

     General Corporate                              (3)           12            60            23
                                              ---------     ---------     ---------     ---------

Total depreciation & amortization expense     $    491      $    640      $  1,380      $  1,131

Interest Expense:
     Casing Services                          $    230      $    354      $    393      $    549
     Directional Drilling Services                  77            57           140            87
     Compressed Air Drilling Services              331           181           574           369

     General Corporate                             205             8           373            18
                                              ---------     ---------     ---------     ---------

Total interest expense                        $    843      $    600      $  1,480      $  1,023

Capital Expenditures:
     Casing Services                          $    201      $     --      $    242      $     --
     Directional Drilling Services                  61            --            69            --
     Compressed Air Drilling Services              379            28           494            78

     General Corporate                               5             6            16             9
                                              ---------     ---------     ---------     ---------

Total capital expenditures                    $    646      $     34      $    821      $     87
</TABLE>

                                               13


<PAGE>

At June 30, 2003 the total assets for the Casing Services, Directional Drilling
Services, Compressed Air Drilling Services and General Corporate segments are
$16,562,000, $8,125,000, $9,038,000 and $1,322,000, respectively.

NOTE 6 - SUBSEQUENT EVENTS

The Company entered into a joint venture agreement with a division of M-I
L.L.C., and related financing on July 2, 2003. The Company through its
subsidiary, Mountain Compressed Air, Inc., and M-I L.L.C. each contributed
assets with a combined net book value of approximately $13 million to AirComp.
Mountain Compressed Air contributed substantially all of its compressed air
drilling assets with an estimated net book value of approximately $7.2 million
to AirComp. The Company will own 55% and M-I L.L.C. will own 45% of AirComp.

In connection with the transaction, AirComp obtained bank financing of $8
million (matures on June 27, 2007), of which $7.3 million was distributed to the
Company to extinguish the outstanding Mountain Compressed Air debt,
approximately $2.4 million was used to purchase equipment the Company was
leasing and $700,000 will be used by AirComp to pay transaction costs and
working capital. The debt bears interest at a floating rate, currently LIBOR
plus 0.5% annually. AirComp has the ability to borrow an additional $2 million
under its credit agreement with the bank. AirComp's bank debt is secured by
substantially all of the assets of AirComp. The Company has guaranteed all of
Mountain Compressed Air's obligations under the joint venture agreement, and
Mountain Compressed Air has guaranteed up to $2 million of AirComp's debt.

As a result of the debt repayment, the Company is in compliance with all of its
loan covenants with its Bank Lenders and classified all of its debt, except for
the debt relating to Mountain Compressed Air, as long-term instead of short-term
as previously reported in prior 10-Qs and 10-Ks.

Along with the bank financing, AirComp issued a note to M-I L.L.C. for in the
amount of $4.8 million bearing an annual interest rate of 5% in conjunction with
the joint venture. The note is due and payable when M-I sells its interest in
AirComp.

On July 15, 2003, the Company entered into a settlement agreement with the
former owners of Mountain Air Drilling Service Company (the "Sellers"). As part
of the settlement agreement, the note payable to the Sellers was reduced from
$2.2 million to $1.5 million. The note payable continues to accrue interest at a
rate of 5.75% per annum and the due date of the note payable was extended from
February 6, 2006 to September 30, 2007. The Company has not yet determined the
accounting effects of this modification to the original debt terms.

                                       14


<PAGE>

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

BACKGROUND
----------

The Company was incorporated in 1913 under Delaware law. The Company reorganized
in bankruptcy in 1988, and sold all of our major businesses. In May 2001, the
Company consummated a merger in which the Company acquired OilQuip Rentals, Inc.
(OilQuip) and its wholly owned subsidiary, Mountain Compressed Air, Inc.
("Mountain Air"), in exchange for shares of our common stock, which upon
issuance represented over 85% of our outstanding common stock. In February 2002,
the Company acquired approximately 81% of the capital stock of Jens' Oilfield
Service, Inc. ("Jens'") and all of the capital stock of Strata Directional
Technology, Inc. ("Strata").

On July 2, 2003, the Company through its subsidiary Mountain Air, entered into a
joint venture agreement with a division of M-I L.L.C. Both Companies contributed
assets with a book value of approximately $13 million to AirComp L.L.C.
("AirComp"). The Company owns 55% and M-I L.L.C. owns 45% of AirComp L.L.C.

Through AirComp, Jens' and Strata, and through additional acquisitions in the
oil and natural gas drilling services industry, the Company intends to exploit
opportunities in the oil and natural gas service and rental industry. Currently,
the Company receives 80% to 85% of our revenues from natural gas drilling
services and the balance from oil drilling services; however, most of our
services can be utilized for either activity.

CRITICAL ACCOUNTING POLICIES
----------------------------

We have identified the policies below as critical to our business operations and
the understanding of our results of operations. The impact and any associated
risks related to these policies on our business operations is discussed
throughout Management's Discussion and Analysis of Financial Condition and
Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note 1 in the Notes to the Consolidated Financial
Statements. Note that our preparation of this Quarterly Report on Form 10-Q
requires us to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of our financial statements, and the reported amounts of revenue and
expenses during the reporting period. There can be no assurance that actual
results will not differ from those estimates.

REVENUE RECOGNITION. Our revenue recognition policy is significant because our
revenue is a key component of our results of operations. In addition, our
revenue recognition policy determines the timing of certain expenses, such as
commissions and royalties. We follow very specific and detailed guidelines in
measuring revenue; however, certain judgments affect the application of our
revenue policy. Revenue results are difficult to predict, and any shortfall in
revenue or delay in recognizing revenue could cause our operating results to
vary significantly from quarter to quarter and could result in future operating
losses. Revenues are recognized by the Company and its subsidiaries as services
are provided.

IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets, which include property,
plant and equipment, goodwill and other intangibles, comprise a significant
amount of the Company's total assets. The Company makes judgments and estimates
in conjunction with the carrying value of these assets, including amounts to be
capitalized, depreciation and amortization methods and useful lives.
Additionally, the carrying values of these assets are reviewed for impairment or
whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable. An impairment loss is recorded in the period in which it
is determined that the carrying amount is not recoverable. This requires the
Company to make long-term forecasts of its future revenues and costs related to
the assets subject to review. These forecasts require assumptions about demand
for the Company's products and services, future market conditions and

                                       15


<PAGE>

technological developments. Significant and unanticipated changes to these
assumptions could require a provision for impairment in a future period.

GOODWILL AND OTHER INTANGIBLES - The Company has recorded approximately
$10,215,000 of goodwill and other identifiable intangible assets. The Company
performs purchase price allocations when it makes a business combination.
Business combinations and subsequent purchase price allocations have been
recorded for purchase of the Mountain Air, Strata and Jens' operating segments.
The excess of the purchase price after allocation of fair values to tangible
assets are allocated to goodwill and other identifiable intangibles.
Subsequently, the Company has performed its initial impairment tests and annual
valuation tests in accordance with Financial Accounting Standards Board No. 141,
BUSINESS COMBINATIONS, and Financial Accounting Standards Board No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS. These valuations required the use of
third-party valuation experts who in turn developed assumptions to value the
carrying value of the individual reporting units. Significant and unanticipated
changes to these assumptions could require a provision for impairment in a
future period.

RESULTS OF OPERATIONS
---------------------

Results of operations for 2003 and 2002 reflect the business operations of
Allis-Chalmers and its subsidiaries Mountain Compressed Air, which provides air
drilling services to natural gas exploration operations ("Compressed Air
Drilling Services"), Jens' Oilfield Service, Inc., which supplies highly
specialized equipment and operations to install casing and production tubing
required to drill and complete oil and gas wells ("Casing Services"), and Strata
Directional Technology, Inc., which provides high-end directional and horizontal
drilling services for specific targeted reservoirs that cannot be reached
vertically ("Directional Drilling Services"). The results from the Casing
Services and the Directional Drilling Services operations are included from
February 1, 2002.

THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO JUNE 30, 2002:
-----------------------------------------------------------

HISTORICAL COMPARISON

Sales for the three months ended June 30, 2003 totaled $7,340,000. In the
comparable period of 2002, revenues were $4,238,000. Revenues for the three
months ended June 30, 2003 for the Casing Services, Directional Drilling
Services, and Compressed Air Drilling Services segments were $2,644,000,
$3,503,000 and $1,193,000, respectively. Revenues for the three months ended
June 30, 2002 for the Casing Services, Directional Drilling Services, and
Compressed Air Drilling Services segments were $2,079,000, $1,322,000 and
$837,000, respectively. Revenues for the second quarter of 2003 increased over
the second quarter of 2002 due to the increased activity in the drilling market
and our continued efforts to increase market share in the Casing Services and
Directional Drilling Services segments.

Gross margin ratio, as a percentage of sales, was 26.3% in the second quarter of
2003 compared with 16.0% in the second quarter of 2002. The gross margin
increased in the second quarter of 2003 as compared to the second quarter of
2002, due to an increase in market share and increased pricing in the Casing
Services and Directional Drilling Services segments.

Marketing and administrative expense was $1,020,000 in the second quarter of
2003 compared with $970,000 in the second quarter of 2002. The marketing and
administrative expenses increased in 2003 compared to 2002 due to the increased
costs associated with the increase revenues.

Operating income for the three months ended June 30, 2003 totaled $910,000. For
the three months ended June 30, 2002, the operating (loss) was ($293,000).
Operating income (loss) for the three months ended June 30, 2003 for the Casing
Services, Directional Drilling Services, Compressed Air Drilling Services and
General Corporate segments were $988,000, $255,000, $71,000 and ($404,000),
respectively. Operating income (loss) for the three months ended June 30, 2002

                                       16


<PAGE>

for the Casing Services, Directional Drilling Services, Compressed Air Drilling
Services and General Corporate segments were $672,000, ($109,000), ($412,000)
and ($444,000), respectively.

We had net loss attributed to common shareholders of $(330,000), or ($0.02) per
common share, for the second quarter of 2003 compared with a loss of ($956,000),
or ($0.05) per common share, for the second quarter of 2002.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO JUNE 30, 2002:
---------------------------------------------------------

HISTORICAL COMPARISON

Sales for the six months ended June 30, 2003 totaled $14,339,000. In the
comparable period of 2002, revenues were $7,491,000. Revenues for the six months
ended June 30, 2003 for the Casing Services, Directional Drilling Services, and
Compressed Air Drilling Services segments were $5,153,000, $6,983,000 and
$2,203,000, respectively. Revenues for the six months ended June 30, 2002 for
the Casing Services, Directional Drilling Services, and Compressed Air Drilling
Services segments were $3,248,000, $2,273,000 and $1,970,000, respectively. The
sales for the Casing Services and Directional Drilling segments for 2002 were
from February 1, 2002 through June 30, 2002. Revenues for the first six months
of 2003 increased over the first six months of 2002 due to the increased
activity in the drilling market and our continued efforts to increase market
share in the Casing Services and Directional Drilling Services segments.

Gross margin ratio, as a percentage of sales, was 27.4% in the first six months
of 2003 compared with 20.7 % in the first six months of 2002. The gross margin
increased in the first six months of 2003 as compared to the first six months of
2002, which included post merger sales from February 1, 2002 through June 30,
2002 for the Casing Services and Directional Drilling segments, due to an
increase in market share and increased pricing in the Casing Services and
Directional Drilling Services segments.

Marketing and administrative expense was $2,001,000 in the first six months of
2003 compared with $1,810,000 in the first six months of 2002. The marketing and
administrative expenses increased in 2003 compared to 2002 due to the increased
costs associated with the increase revenues. The marketing and administrative
expenses for the Casing Services and Directional Drilling segments for the post
merger period ended June 30, 2002 were from February 1, 2002 through June 30,
2002.

Operating income for the six months ended June 30, 2003 totaled $1,933,000. For
the six months ended June 30, 2002, the operating (loss) was ($523,000).
Operating income (loss) for the six months ended June 30, 2003 for the Casing
Services, Directional Drilling Services, Compressed Air Drilling Services and
General Corporate segments were $2,227,000, $511,000, ($36,000) and ($769,000),
respectively. Operating income (loss) for the six months ended June 30, 2002 for
the Casing Services, Directional Drilling Services, Compressed Air Drilling
Services and General Corporate segments were $958,000, ($142,000), ($446,000)
and ($893,000), respectively. The operating income (loss) for the Casing
Services and Directional Drilling segments were from February 1, 2002 through
June 30, 2002 (post merger period).

We had a net loss attributed to common stockholders' of ($513,000), or ($0.03)
per common share, for the first six months of 2003 compared with a loss of
($1,654,000), or ($0.09) per common share, for the first six months of 2002.

PRO FORMA COMPARISON

The pro forma results of operations set forth below includes results of
operations of the Company for all of the first six months of 2003 and 2002 as if
the transactions had occurred as of the beginning of the periods presented.
These pro forma financial statements should be read in conjunction with the
historical financial statements included herein.

                                       17


<PAGE>

Sales in the first six months of 2003 totaled $14,339,000 compared with pro
forma sales of $8,642,000 for the first six months of 2002. Revenues for the
first six months of 2003 increased over the first six months of 2002 due to the
increase activity in the drilling market and our continued efforts to increase
market share in the Casing Services and Directional Drilling Services segments.

Gross profit totaled $3,934,000 for a gross profit margin of 27.4% of sales in
the six months ended June 30, 2003. Pro forma gross profit for the comparable
six months in the prior year totaled $1,563,000 for a gross profit margin of
18.1% of sales. The increase in profit margin results reflects the fact that the
Company's revenues increased at a greater rate than its expenses because many of
its costs (including certain financing and equipment costs) are fixed and do not
increase with revenues.

The Company had a net loss attributed to common shareholders' of ($513,000), or
($0.03) per common share, for the first six months of 2003 compared to a pro
forma net loss of ($1,656,000), or ($0.09) per common share, for the first six
months of 2002.

SCHEDULE OF CONTRACTUAL OBLIGATIONS

The following table summarizes the Company's obligations and commitments to make
future payments under its notes payable, operating leases, employment contracts
and consulting agreements for the periods specified as of June 30, 2003.

<TABLE>
<CAPTION>
                                             Payments due by Period
                                             -----------------------------------------------------------------------
                                                                                                         AFTER 5
                                                  TOTAL          1 YEAR       2-3 YEARS     4-5 YEARS     YEARS
                                                  -----          ------       ---------     ---------    -------
<S>                                          <C>             <C>            <C>            <C>           <C>
CONTRACTUAL OBLIGATIONS

Note payable                                 $   20,259,000  $   6,405,000  $   6,975,000  $  6,879,000  $       -
Interest Payments on note payable                 1,620,000        512,000        558,000       550,000          -
Operating Lease                                   2,137,000        824,000      1,313,000             -          -
Employment Contracts                              1,916,000      1,180,000        736,000             -          -

Total Contractual Cash Obligations           $   25,932,000  $   8,921,000  $   9,520,000  $  7,384,000  $       -
                                             --------------  -------------- -------------- ------------- ----------
</TABLE>

FINANCIAL CONDITION AND LIQUIDITY
---------------------------------

Cash and cash equivalents totaled $30,000 at June 30, 2003, a decrease from
$146,000 at December 31, 2002. Cash flows provided by operations totaled
$1,673,000 in the first six months of 2003 compared to the $34,000 utilized in
the prior year.

Net trade receivables at June 30, 2003 were $6,006,000. This increased
significantly from the December 31, 2002 balance of $4,409,000 due to the
increase in operating activity and increased activities with customers with
longer payment cycles.

Net property, plant and equipment were $16,139,000 at June 30, 2003. Capital
expenditures for the six months ended June 30, 2003 were $821,000. Capital
expenditures for the year 2003 are projected to be approximately $3,000,000.

Trade accounts payable at June 30, 2003 were $3,490,000. This increased
significantly from the December 31, 2002 balance of $2,106,000 due to the
increase in operating activity without an adequate improvement in cash flows.

                                       18


<PAGE>

Other current liabilities, excluding the current portion of long-term debt, were
$2,605,000 including interest in the amount of $1,279,000, accrued salary and
benefits in the amount of $213,000, and accrued expenses of $1,113,000. All of
these balance sheet accounts increased significantly from the December 31, 2002
balances due to the increase in revenues.

Long-term debt was $20,259,000 at June 30, 2003 including current maturities.

In addition to the debt discussed above, the Company had available lines of
credit totaling $2,559,000 at June 30, 2003, of which $597,000 was available and
unused.

Our long-term capital needs are to refinance our existing debt, provide funds
for existing operations, redeem the Series A Preferred Stock (which is subject
to mandatory redemption on February 1, 2004) and to secure funds for
acquisitions in the oil and gas equipment rental and services industry. In order
to pay our debts as they become due, including the amounts due to the Bank
Lenders described above we will require additional financing, which may include
the issuance of new warrants or other equity or debt securities, as well as
secured and unsecured loans. Any new issuance of equity securities would dilute
existing shareholders.

By letter agreement dated February 19, 2003, Energy Spectrum agreed to increase
the Conversion Price to $0.50, to vote for an amendment to our Certificate of
Incorporation to reflect the increase in the Conversion Price, and that prior to
the amendment of the Company's Certificate of Incorporation if any Preferred
Stock is converted into our common stock the Conversion Price for such
conversion shall be $0.50. The letter agreement reduces the number of shares of
common stock into which the Preferred Stock is convertible from 18,421,053 to
7,000,000 shares.

In connection with the Strata Acquisition, we issued to Energy Spectrum a
warrant to purchase 437,500 shares of our common stock at an exercise price of
$0.15 per share, and we agreed that if we did not redeem all but one share of
the Preferred Stock on or prior to February 6, 2003, we would issue Energy
Spectrum an additional warrant to purchase 875,000 shares of our common stock at
an exercise price of $0.15 per share. On February 19, 2003, we issued such
warrant.

RECENT DEVELOPMENTS - JOINT VENTURE WITH M-I L. L.C. AND MOUNTAIN AIR DRILLING
SERVICE COMPANY NOTE PAYABLE REDUCTION

We entered into a joint venture agreement with a division of M-I L.L.C., and
related financing on July 2, 2003. The Company through its subsidiary, Mountain
Compressed Air, Inc., and M-I L.L.C. each contributed assets with a combined net
book value of approximately $13 million to AirComp. Mountain Compressed Air
contributed substantially all of its compressed air drilling assets with an
estimated net book value of approximately $7.2 million to AirComp. The Company
will own 55% and M-I L.L.C. will own 45% of AirComp.

In connection with the transaction, AirComp obtained bank financing of $8
million (matures on June 27, 2007), of which $7.3 million was distributed to the
Company to extinguish the outstanding Mountain Compressed Air debt,
approximately $2.4 million was used to purchase equipment the Company was
leasing and $700,000 will be used by AirComp to pay transaction costs and
working capital. The debt bears interest at a floating rate, currently LIBOR
plus 0.5% annually. AirComp has the ability to borrow an additional $2 million
under its credit agreement with the bank. AirComp's bank debt is secured by
substantially all of the assets of AirComp. The Company has guaranteed all of
Mountain Compressed Air's obligations under the joint venture agreement, and
Mountain Compressed Air has guaranteed up to $2 million of AirComp's debt.

                                       19


<PAGE>

As a result of the debt repayment, the Company is in compliance with all of its
loan covenants with its Bank Lenders and classified all of is debt except for
the debt relating to Mountain Compressed Air, as long-term instead of short-term
as previously reported in prior 10-Qs and 10-Ks.

Along with the bank financing, AirComp issued a note to M-I L.L.C. for in the
amount of $4.8 million bearing an annual interest rate of 5% in conjunction with
the joint venture. The note is due and payable when M-I sells its interest in
AirComp.

On July 15, 2003, the Company entered into a settlement agreement with the
former owners of Mountain Air Drilling Service Company ("the Sellers"). As part
of the settlement agreement, the note payable to the Sellers was reduced from
$2.2 million to $1.5 million. The note payable continues to accrue interest at a
rate of 5.75% per annum and the due date of the note payable was extended from
February 6, 2006 to September 30, 2007. The Company has not yet determined the
accounting effects of this modification to the original debt terms.

FORWARD LOOKING STATEMENTS

This Report on Form 10-Q contains forward-looking statements (within the meaning
of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934) regarding our business, financial
condition, results of operations and prospects. Words such as expects,
anticipates, intends, plans, believes, seeks, estimates and similar expressions
or variations of such words are intended to identify forward-looking statements,
but are not the exclusive means of identifying forward-looking statements in
this Report on Form 10-Q.

Although forward-looking statements in this Report on Form 10-Q reflect the good
faith judgment of our management, such statements can only be based on facts and
factors we currently know about. Consequently, forward-looking statements are
inherently subject to risks and uncertainties, and actual results and outcomes
may differ materially from the results and outcomes discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences in results and outcomes include, but are not limited to, those
discussed elsewhere in this Report on Form 10-Q, in our Annual Report on Form
10K (including without limitation in the "Risk Factors" Section), and in our
other SEC filings and publicly available documents. Readers are urged not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this Report on Form 10-Q. We undertake no obligation to revise or
update any forward-looking statements in order to reflect any event or
circumstance that may arise after the date of this Report on Form 10-Q.

ITEM 4.  Controls and Procedures

         (b). Evaluation of disclosure controls and procedures. Our chief
         executive officer and our chief accounting officer, after evaluating
         the effectiveness of the Company's "disclosure controls and procedures"
         (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date
         (the "Evaluation Date") within 90 days prior to the filing date of this
         quarterly report, have concluded that, as of the Evaluation Date, our
         disclosure controls and procedures were adequate to ensure that
         material information relating to the registrant and its consolidated
         subsidiaries would be made known to them by others within those
         entities.

         (b). Changes in internal controls. To our knowledge, there are no
         significant changes in the Company's internal controls or in other
         factors that could significantly affect internal controls subsequent to
         the Evaluation Date.

                                       20


<PAGE>

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On January 15, 2003, the Company filed a lawsuit against the former owners
(Rodney and Linda Huskey) of Mountain Air Drilling Service Company, Inc. nka
Pattongill & Murphy, Inc. in the U.S. District Court for the Southern District
of Texas "Houston Division." The Company asserted claims for breach of
representations and warranties and non-compete covenants made in connection with
the purchase of Mountain Compressed Air. In July 2003, the Company entered into
a settlement agreement with the former owners of Mountain Air Drilling Service
Company. As part of the settlement agreement, the principal due on the note
payable to Pattongill & Murphy, Inc., (sellers) was reduced from $2.2 million to
$1.5 million. The note payable continues to accrue interest at a rate of 5.75%
per annum and the due date of the note payable was extended from February 6,
2006 to September 30, 2007

ITEM 3. DEFAULT UPON SENIOR SECURITIES

On July 16, 2002, the Company's lenders declared the Company and it's
subsidiaries to be in default under numerous credit agreements with Wells Fargo
Bank and its affiliates (the "Bank Lenders"). The defaults resulted primarily
from failures to meet financial covenants. As a result of these defaults the
Bank Lenders imposed default interest rates and suspended interest payments
(aggregating $375,000 through June 30, 2003) on a $4.0 million subordinated
seller note (the "Seller Note") issued to Jens Mortensen in connection with the
Jens' acquisition, and suspended interest payments (aggregating $244,000 through
June 30, 2003) on a $3.0 million subordinated bank note (the "Subordinated Bank
Note") issued in connection with the Jens' acquisition, which resulted in Jens'
default under the terms of both notes. Pursuant to the terms of inter-creditor
agreements between the lenders, the holders of such obligations were precluded
from taking action to enforce such obligations without the consent of the Bank
Lenders.

Effective January 1, 2003 the Company entered into Amendment and Forbearance
Agreements (the "Forbearance Agreements"), which amended certain operating
Covenants. In addition the Bank Lenders agreed to forbear from taking action
(but did not waive the underlying defaults) with respect to the alleged defaults
until June 30, 2003.

On July 2, 2003, the Company entered into a joint venture agreement pursuant to
which it contributed substantially all of the assets of its Mountain Compressed
Air subsidiary to AirComp, as described in "Item 3 -- Managements Discussion and
Analysis of Financial Condition and Results of Operations - Recent Developments
- Joint Venture With M-I L.L.C." As a result of this transaction, the Company
repaid certain debts due to the Bank Lenders and is now in compliance with its
agreements with the Bank Lenders. The Company is in the process of obtaining a
waiver of past defaults from the Bank Lenders.

The Company is paying current interest on the Subordinated Note and has paid
$40,000 of past-due interest on the Subordinated Note. As of August 10, 2003,
the Company owed an aggregate of $604,000 for past-due interest on the Seller
Note and the Subordinated Bank Note.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

         99.1     CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C.
                  SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
                  SARBANES-OXLEY ACT OF 2002

         99.2     CHIEF ACCOUNTING OFFICER CERTIFICATION PURSUANT TO 18 U.S.C.
                  SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
                  SARBANES-OXLEY ACT OF 2002

(b) Reports on Form 8-K: A report on Form 8-K was filed on June 12, 2003,
reporting the Company's press release relating to earnings for the first quarter
of 2003, which included financial statements for the period.

                                       21


<PAGE>

                                    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.

                                                   Allis-Chalmers Corporation
                                                   --------------------------
                                                           (Registrant)


                                                   /s/ Munawar H. Hidayatallah
                                                   ---------------------------
                                                   Munawar H. Hidayatallah
                                                   Chief Executive Officer
                                                   And Chairman

August 14, 2003

                                       22


<PAGE>

                                 CERTIFICATIONS

I, Munawar H. Hidayatallah, Chief Executive Officer of the Company, certify
that:

(1)      I have reviewed this quarterly report on Form 10-Q of Allis-Chalmers
         Corporation;

(2)      Based on my knowledge, this quarterly report does not contain any
         untrue statement of material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

(3)      Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly
         report;

(4)      The registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         (a)    designed such disclosure controls and procedures to ensure that
                material information relating to the registrant, including its
                consolidated subsidiaries, is made known to us by others within
                those entities, particularly during the period in which this
                quarterly report is being prepared;

         (b)    evaluated the effectiveness of the registrant's disclosure
                controls and procedures as of a date within 90 days prior to the
                filing date of this quarterly report (the "Evaluation Date");
                and

         (c)    presented in this quarterly report our conclusions about the
                effectiveness of the disclosure controls and procedures based on
                our evaluation as of the Evaluation
                Date;

(5)      The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         (a)    all significant deficiencies in the design or operation of
                internal controls which could adversely affect the registrant's
                ability to record, process, summarize and report financial data
                and have identified for the registrant's auditors any material
                weaknesses in internal controls; and

         (b)    any fraud, whether or not material, that involves management or
                other employees who have a significant role in the registrant's
                internal controls; and

(6)      The registrant's other certifying officer and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:   August 14, 2003                         By:  /s/ Munawar H. Hidayatallah
                                                     ---------------------------
                                                     Munawar H. Hidayatallah
                                                     Chief Executive Officer

                                       23


<PAGE>

                                 CERTIFICATIONS

I, Todd C. Seward, Chief Accounting Officer of the Company, certify that:

(1)      I have reviewed this quarterly report on Form 10-Q of Allis-Chalmers
         Corporation;

(2)      Based on my knowledge, this quarterly report does not contain any
         untrue statement of material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

(3)      Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly
         report;

(4)      The registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         (a)    designed such disclosure controls and procedures to ensure that
                material information relating to the registrant, including its
                consolidated subsidiaries, is made known to us by others within
                those entities, particularly during the period in which this
                quarterly report is being prepared;

         (b)    evaluated the effectiveness of the registrant's disclosure
                controls and procedures as of a date within 90 days prior to the
                filing date of this quarterly report (the "Evaluation Date");
                and

         (c)    presented in this quarterly report our conclusions about the
                effectiveness of the disclosure controls and procedures based on
                our evaluation as of the Evaluation
                Date;

(5)      The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         (a)    all significant deficiencies in the design or operation of
                internal controls which could adversely affect the registrant's
                ability to record, process, summarize and report financial data
                and have identified for the registrant's auditors any material
                weaknesses in internal controls; and

         (b)    any fraud, whether or not material, that involves management or
                other employees who have a significant role in the registrant's
                internal controls; and

(6)      The registrant's other certifying officer and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:   August 14, 2003                           By:   /s/  Todd C. Seward
                                                        ------------------------
                                                        Todd C. Seward
                                                        Chief Accounting Officer

                                       24