<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 SEPTEMBER 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 November 13, 2003 were 19,633,340 shares of Common Stock outstanding.



<PAGE>

                           ALLIS-CHALMERS CORPORATION

                                    FORM 10-Q

                               September 30, 2003

                                TABLE OF CONTENTS

Part I.    Financial Information                                               3

Item1:     Financial Statements

           Consolidated Statements of Operations for the three months and
           nine months ended September 30, 2003 and 2002                       3

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

           Consolidated Statements of Cash Flows for the nine months ended
           September 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                                              14

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                                   22

Signatures                                                                    23

Certifications                                                                24

                                       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      Nine Months Ended
                                                    September 30,           September 30,
                                                ---------------------   ---------------------
                                                  2003        2002        2003        2002
                                                ---------   ---------   ---------   ---------
                                                      (in thousands, except per share)
<S>                                             <C>         <C>         <C>         <C>

Sales                                           $  8,089    $  4,775    $ 22,428    $ 12,265
Cost of sales                                      6,011       3,841      16,212      10,046
                                                ---------   ---------   ---------   ---------
   Gross Margin                                    2,078         934       6,216       2,219

Marketing and administrative expense               1,351         886       3,759       2,696
Corporate reorganization costs                        --         495          --         495
Abandoned acquisition/private placement costs         --         233          --         233
                                                ---------   ---------   ---------   ---------
   Income/(loss) from operations                     727        (680)      2,457      (1,205)

Other Income (expense)
   Interest expense                                 (521)       (558)     (1,797)     (1,581)
   Minority interest                                 (26)       (105)       (337)       (145)
   Factoring costs on note receivable                 --        (191)         --        (191)
   Settlement of lawsuit                           1,034          --       1,034          --
   Other                                              10          29        (164)        107
                                                ---------   ---------   ---------   ---------
Net income/(loss) before income taxes              1,224      (1,505)      1,193      (3,015)

   Provision for income taxes                         --          --          --          --
                                                ---------   ---------   ---------   ---------
Net income/(loss)                                  1,224      (1,505)      1,193      (3,015)

   Preferred stock dividend                          (88)        (87)       (569)       (232)
                                                ---------   ---------   ---------   ---------
Net income/(loss) attributed to common shares   $  1,136    $ (1,592)   $    624    $ (3,247)
                                                =========   =========   =========   =========
Net income/(loss) per common share, basic       $   0.06    $  (0.08)   $   0.03    $  (0.18)
                                                =========   =========   =========   =========
Net income/(loss) per common share, diluted     $   0.04    $  (0.08)   $   0.02    $  (0.18)
                                                =========   =========   =========   =========
Weighted average number of common shares
outstanding
     Basic                                        19,633      19,633      19,633      18,506
                                                =========   =========   =========   =========
    Diluted                                       31,700      19,633      31,700      18,506
                                                =========   =========   =========   =========
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>

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

Cash and cash equivalents                                      $        120    $        146
Trade receivables, net                                                7,291           4,409
Lease deposit                                                            --             525
Lease receivable, current                                               180             180
Prepaid and other current assets                                      1,357             317
                                                               -------------   -------------
    Total current assets                                              8,948           5,577

Property, plant and equipment, net                                   27,144          17,124
Goodwill                                                              7,829           7,829
Other intangible assets, net                                          2,254           2,650
Debt issuance costs, net                                                554             515
Lease receivable                                                        936           1,042
Other assets                                                              6              41
                                                               -------------   -------------
    Total assets                                               $     47,671    $     34,778
                                                               =============   =============

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

Current maturities of long-term debt                           $      3,278    $     13,890
Trade accounts payable                                                4,844           2,106
Accrued employee benefits and payroll taxes                             405             280
Accrued interest                                                        547             811
Accrued expenses                                                      1,183           1,506
                                                               -------------   -------------
   Total current liabilities                                         10,257          18,593

Accrued postretirement benefit obligations                              635             670
Long-term debt, less current portion                                 24,861           7,331
Other long-term liabilities                                             270             270
Redeemable warrants                                                   1,500           1,500
Redeemable convertible preferred stock                                4,390           3,821

Minority interest                                                     2,503           1,584

Common shareholders' equity:
Common stock, $.15 par value (110,000,000 shares authorized;
  19,633,340 issued and outstanding at September 30, 2003
  and December 31, 2002)                                              2,945           2,945
Capital in excess of par value                                        8,285           7,237
Accumulated (deficit)                                                (7,975)         (9,173)
                                                               -------------   -------------
Total shareholders' equity                                            3,255           1,009
                                                               -------------   -------------
Total liabilities and shareholders' equity                     $     47,671    $     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>

                                                                           Nine Months Ended
                                                                             September 30,
                                                                          -------------------
                                                                            2003       2002
                                                                          --------   --------
<S>                                                                       <C>        <C>
Cash flows from operating activities:
Net income (loss)                                                         $ 1,193    $(3,015)
Adjustments to reconcile net (loss) to net
       cash provided (used) by operating activities:
Depreciation and amortization expense                                       2,050      1,755
(Gain) loss on settlement of lawsuit                                       (1,034)        --
Amortization of discount on debt                                              442        200
Minority interest in income of subsidiary                                     337        145
Changes in working capital:
     Decrease (increase) in accounts receivable                            (2,882)       304
     Decrease (increase) in due from related party                             --         51
     Decrease (increase) in other current assets                           (1,040)       910
     Decrease (increase) in other assets                                       35        925
     Decrease (increase) in lease deposit                                     525         --
     Decrease (increase) in lease receivable                                  106
     (Decrease) increase in accounts payable                                2,738        863
     (Decrease) increase in accrued interest                                 (264)       125
     (Decrease) increase in accrued expenses                                 (323)      (914)
     (Decrease) increase in other long-term liabilities                        --       (124)
     (Decrease) increase in accrued employee benefits and payroll taxes        90       (784)
                                                                          --------   --------
Net cash provided by operating activities                                   1,973        441

Cash flows from investing activities:
    Acquisition of Jens, net of cash acquired                                  --     (7,762)
    Acquisition of Strata, net of cash acquired                                --       (373)
    Purchase of equipment                                                  (4,386)      (250)
                                                                          --------   --------
Net cash (used) by investing activities                                    (4,386)    (8,385)

Cash flows from financing activities:
     Proceeds from issuance of long-term debt                               9,616      8,657
     Repayments of long-term debt                                          (6,925)        --
     Debt issuance costs                                                     (304)      (755)
                                                                          --------   --------
Net cash provided by financing activities                                   2,387      7,902
                                                                          --------   --------
Net (decrease) in cash and cash equivalents                                   (26)       (42)

Cash and cash equivalents at beginning of year                                146        152
                                                                          --------   --------
Cash and cash equivalents at end of period                                $   120    $   110
                                                                          ========   ========
Supplemental information - interest paid                                  $ 1,796    $ 1,177
                                                                          ========   ========

                                              5
</TABLE>



<PAGE>

ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS (CONTINUED)

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

        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 nine months ended September 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)
                                                                     ===========

Non-cash investing and financing transactions in connection with the formation
of the AirComp joint venture and other activities during the nine months ended
September 30, 2003 include the following:

        Amortization of discount on debt                             $      442
                                                                     ===========
        (Gain) on settlement of debt                                 $   (1,034)
                                                                     ===========
        Contribution of debt by M-I to joint venture                 $    4,818
                                                                     ===========
        Purchase of equipment financed through assumption of debt
            or accounts payable as of September 30, 2003             $      906
                                                                     ===========

This interim statement is unaudited.

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

                                       6


<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,
July 16, 2003, and September 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., a Smith/Schlumberger
Company, ("M-I"). Both Companies contributed assets with a net 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 has consolidated AirComp into its
financial statements for the quarter ended September 30, 2003.

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 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 September 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 September 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 September 15, 2003. The effect on the
Company's financial position include the fact that beginning on July 1, 2003,
the redeemable convertible preferred stock and the redeemable warrants will be
classified as liabilities and not 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 September 30,
2003.

NOTE 2 - ACQUISITIONS

The Company entered into a joint venture agreement with a division of M-I L.L.C.
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 September 27, 2007), of which $7.3 million was distributed
to the Company to extinguish the outstanding Mountain Compressed Air debt,
approximately $2.4 million of the $7.3 million was used to purchase equipment
Mountain Compressed Air was leasing prior to the transaction and $700,000 was
applied to pay transaction costs and for working capital. The debt bears
interest at a floating rate, currently LIBOR plus 2.25%, which is payable
quarterly and quarterly principal of $285,714 starting in the third quarter of
2003, the balance of the debt is due on September 27, 2007. AirComp has the
ability to borrow an additional $1.4 million under its credit agreements with
the bank. AirComp's bank debt is secured by substantially all of the assets of
AirComp. In addition to 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.

                                       8


<PAGE>

The Company has guaranteed all of Mountain Compressed Air's obligations under
the joint venture agreement, and Mountain Compressed Air has guaranteed up to
55% of AirComp's debt including AirComp's obligations under the note issued
to M-I L.L.C. Additionally, all of the $13 million assets of AirComp are
collateralized by the debt.

As a result of the repayment of Mountain Compressed Air's outstanding debt in
connection with the AirComp transaction, the Company became compliant with all
of its loan covenants with its Bank Lenders, except for a certain debt covenant
at AirComp. The Company has obtained a waiver for that covenant default.

The following unaudited pro forma consolidated summary financial information
illustrates the effects of the joint venture of AirComp LLC 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.

                                                               Nine Months
                                                           Ended September 30,
                                                         -----------------------
                                                            2003         2002
                                                         ----------   ----------
                                                              (in thousands)

Revenues                                                 $  24,150    $  14,233

Operating income /(loss)                                 $   2,730    $    (379)

Net income/ (loss)                                       $     876    $  (2,883)

Net income/ (loss) per common share, basic               $    0.04    $   (0.16)

Net income/ (loss) per common share, diluted             $    0.02    $   (0.16)

NOTE 3 - LONG-TERM DEBT

Long-term debt is primarily a result of the costs of the acquisitions of certain
assets of Jens' Oilfield Service, Inc., Strata Directional Technology, Inc. and
the newly created joint venture between Mountain Air and M-I L.L.C, AirComp LLC.

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

The debt agreements are as follows:

MOUNTAIN AIR

NOTES PAYABLE TO WELLS FARGO - EQUIPMENT LEASING - A term loan in the original
amount of $267,000 at an interest rates of 5%, interest payable monthly, with
monthly principal payments of $5,039 due on the last day of the month. The
maturity date of the loan is June 30, 2008.

NOTE PAYABLE TO SELLER OF MOUNTAIN AIR DRILLING SERVICE COMPANY ("MADSCO") - A
note to the sellers of MADSCO assets in the original amount of $2,200,000 at
5.75% simple interest was reduced to $1,469,151 as a result of the settlement of
a legal action by the Company against the sellers. The principal and accrued
interest is due on September 30, 2007 in the amount of $1,863,195. See Note 6
for information regarding the modification to the terms of this agreement.

                                       9


<PAGE>

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 September 30, 2003) with
monthly principal payments of $67,373. The maturity date of the loan is February
1, 2007. The balance at September 30, 2003 was $2,830,000.

NOTE PAYABLE TO WELLS FARGO - REAL ESTATE NOTE - A real estate loan in the
amount of $532,000 at floating interest rate (7.0% at September 30, 2003) with
monthly principal payments of $14,778. The principal will be due on February 1,
2005. The balance at September 30, 2003 was $251,000.

LINE OF CREDIT WITH WELLS FARGO - At September 30, 2003, Jens had a $1,000,000
line of credit at Wells Fargo bank, of which $418,000 was outstanding. The
committed line of credit is due on January 31, 2005. Interest accrues at a
floating rate plus 3% (7.25% at September 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 September 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 September 30, 2003, the balance was
approximately $823,000, including $247,000 classified as short-term.

STRATA

VENDOR FINANCING - On September 15, 2003, Strata entered into a short-term
vendor financing agreement with a major supplier of drilling motors for the
purchase of drilling motor rentals. The agreement provides for the payment of
the principal amount of $70,781 plus interest at a rate of 8.0%. Payment of the
principal and interest on the note is due monthly; however, the Company may make
payments with respect to principal and interest at any time without penalty. As
of September 30, 2003, the outstanding balance, including accrued interest, was
approximately $849,375. All amounts must be repaid on or prior to October 31,
2004

LINE OF CREDIT WITH WELLS FARGO - At September 30, 2003, Strata has a $2,500,000
line of credit at Wells Fargo bank, of which $1,099,000 was outstanding. The
committed line of credit is due on January 31, 2005. Interest accrues at a
floating interest rate plus 1/2% (7.25% at September 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.
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
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 September 30, 2003, the
notes are recorded at $382,000, including accrued interest.

                                       10


<PAGE>

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.

AIRCOMP LLC

LINE OF CREDIT WITH WELLS FARGO - a $1,000,000 line of credit at Wells Fargo
bank, of which $590,000 was outstanding at September 30, 2003. Interest accrues
at a rate equal to the LIBOR rate plus 1.5% to 2.25% (3.59% at September 30,
2003) for the committed portion and is payable quarterly starting in September
2003. Additionally, the Company pays a 0.5% fee for the uncommitted portion. The
committed line of credit is due on June 27, 2007

NOTES PAYABLE TO WELLS FARGO - TERM NOTE - A term loan in the original amount of
$8,000,000 at variable interest rates related to the Prime or LIBOR rates (4.09%
at September 30, 2003), interest payable quarterly, with quarterly principal
payments of $286,000 due on the last day of the quarter beginning in July 2003.
The maturity date of the loan is June 27, 2007 and the balance at September 30,
2003 was $7,714,000

NOTE PAYABLE TO WELLS FARGO - EQUIPMENT TERM LOAN - A delayed draw term loan in
the amount of $1,000,000 with interest at a rate equal to the LIBOR rate plus
2.0% to 2.75%, with quarterly payments of interest currently and quarterly
payments of principal equal to 5% of the outstanding balance commencing in the
first quarter of 2005. The maturity date of the loan is June 27, 2007. AirComp
has not yet drawn down on this note and the there was no outstanding balance at
September 30, 2003.

NOTE PAYABLE TO M-I L.L.C. - SUBORDINATED DEBT - Subordinated debt in the amount
of $4,818,000 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.

NOTE 4 - PREFFERRED SHARES AND WARRANTS

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 the Company's 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.

                                       11


<PAGE>

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 the
Company's 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 the Company's common
stock the Conversion Price for such conversion shall be $0.50. The letter
agreement reduced 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 the
Company's common stock. Section 11 also provides that in the event the Company
sells shares of the Company's common stock for less than the Conversion Price,
the Conversion Price will be reduced to such sales price.

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

Effective July 1, 203, the Company recorded the redeemable convertible preferred
stock as a long-term liability in response to the adoption of SFAS No. 150.

NOTE 5 - SEGMENT INFORMATION

The Company has three segments, Casing Services (Jens), Directional Drilling
Services (Strata) and Compressed Air Drilling Services (Mountain Air and
AirComp). 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       Nine Months Ended
                                                September 30,           September 30,
                                            ---------------------   ---------------------
                                              2003         2002       2003         2002
                                            ---------   ---------   ---------   ---------
                                                            (in thousands)
<S>                                         <C>         <C>         <C>         <C>
Revenues:
     Casing Services                        $  2,559    $  2,197    $  7,712    $  5,445
     Directional Drilling Services             3,353       1,785      10,336       4,058
     Compressed Air Drilling Services          2,177         793       4,380       2,762
                                            ---------   ---------   ---------   ---------
Total revenues                              $  8,089    $  4,775    $ 22,428    $ 12,265
                                            =========   =========   =========   =========
Operating income/ (loss):
     Casing Services                        $    913    $    749    $  3,070    $  1,707
     Directional Drilling Services               120         (44)        613        (187)
     Compressed Air Drilling Services            171        (269)         52        (716)
     General Corporate                          (477)     (1,116)     (1,278)     (2,009)
                                            ---------   ---------   ---------   ---------
Total operating income/(loss)               $    727    $   (680)   $  2,457    $ (1,205)
                                            =========   =========   =========   =========

                                       12


<PAGE>

Depreciation and Amortization Expense:
     Casing Services                        $    345    $    332    $  1,035    $    863
     Directional Drilling Services                56          48         175         165
     Compressed Air Drilling Services            242         231         967         690
     General Corporate                            18          12          78          36
                                            ---------   ---------   ---------   ---------
Total depreciation & amortization expense   $    661    $    623    $  2,255    $  1,754
                                            =========   =========   =========   =========
Interest Expense:
     Casing Services                        $    146    $    152    $    469    $    420
     Directional Drilling Services                42          51         166         139
     Compressed Air Drilling Services            164         185         655         554
     General Corporate                           169         170         507         468
                                            ---------   ---------   ---------   ---------
Total interest expense                      $    521    $    558    $  1,797    $  1,581
                                            =========   =========   =========   =========
Capital Expenditures:
     Casing Services                        $    973    $    114    $  1,215    $    144
     Directional Drilling Services               850          --         893          --
     Compressed Air Drilling Services          1,765          49       2,259         127
     General Corporate                             3          --          19           9
                                            ---------   ---------   ---------   ---------
Total capital expenditures                  $  3,591    $    163    $  4,386    $    280
                                            =========   =========   =========   =========
</TABLE>

At September 30, 2003 the total assets for the Casing Services, Directional
Drilling Services, Compressed Air Drilling Services and General Corporate
segments are $17,361,000, $9,122,000, $20,020,000 and $1,168,000, respectively.

NOTE 6 - SETTLEMENT ON LAWSIUT

On July 15, 2003, the Company entered into a settlement agreement with the
former owners of Mountain Air Drilling Service Company (the "Sellers"). As of
the date of the agreement, the Company owed the Sellers a total of $2,563,195
including $2.2 million in principal and $363,195 in accrued interest. 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 no longer accrues interest and the due
date of the note payable was extended from February 6, 2006 to September 30,
2007. The lump-sum payment due the Sellers at that date will be $1,863,195. The
Company recorded a one-time gain on the reduction of the note payable to the
Sellers of $1,034,000 in the third quarter of 2003. The gain was calculated by
discounting the note payable to $1,469,152 using a present value calculation and
accreting the note payable to $1,863,195, the amount due in September 2007. The
Company will record interest expense totaling $394,043 over the life of the note
payable beginning July 2003.

                                       13


<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 the Company's 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 Company's common
stock, which upon issuance represented over 85% of the Company's 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 net 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 the Company's revenues from natural gas
drilling services and the balance from oil drilling services; however, most of
the Company's services can be utilized for either activity.

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

We have identified the policies below as critical to the Company's business
operations and the understanding of the Company's results of operations. The
impact and any associated risks related to these policies on the Company's
business operations is discussed throughout Management's Discussion and Analysis
of Financial Condition and Results of Operations where such policies affect the
Company's 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 the Company's preparation of
this Quarterly Report on Form 10-Q requires the Company to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the Company's
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 the
Company's revenue is a key component of the Company's results of operations. In
addition, the Company's 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 the Company's revenue policy. Revenue results are difficult to
predict, and any shortfall in revenue or delay in recognizing revenue could
cause the Company's 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.

                                       14


<PAGE>

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 and to estimate present value calculation factors.
These forecasts require assumptions about demand for the Company's products and
services, future market conditions and 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
$10,083,000 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.

EXTINGUISHMENT OF DEBT - Pursuant to SFAS No. 140, SFAS No. 145 and Emerging
Issues Task Force No. 96-19, the Company has recorded the settlement of the
Sellers' Note for MCA as an ordinary item in the period of extinguishment.
According to the aforementioned pronouncements, debt is considered to be
extinguished when the debtor has repaid the creditor, the debtor has been
legally released as the primary obligor on the debt, or when the debt is
substantially modified. As the debtor, the Company's obligation to the Sellers
of MCA was substantially modified. The amount recorded to income for the 3 month
period ended September 30, 2003 was the difference between the carrying value of
the debt prior to modification and the present value of the modified debt terms
as discounted back from its maturity date.

RESULTS OF OPERATIONS

Results of operations for 2003 and 2002 reflect the business operations of
Allis-Chalmers and its subsidiaries 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") and its joint venture
AirComp, which provides air drilling services to natural gas exploration
operations ("Compressed Air Drilling Services"). The results from the Casing
Services and the Directional Drilling Services operations are included from
February 1, 2002.

                                       15


<PAGE>

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

HISTORICAL COMPARISON

Sales for the three months ended September 30, 2003 totaled $8,089,000. In the
comparable period of 2002, revenues were $4,775,000. Revenues for the three
months ended September 30, 2003 for the Casing Services, Directional Drilling
Services, and Compressed Air Drilling Services segments were $2,559,000,
$3,353,000 and $2,177,000, respectively. Revenues for the three months ended
September 30, 2002 for the Casing Services, Directional Drilling Services, and
Compressed Air Drilling Services segments were $2,197,000, $1,785,000 and
$793,000, respectively. Revenues for the third quarter of 2003 increased over
the third quarter of 2002 due to the increased activity in the drilling market
and increased market share in the Casing Services primarily in Mexico due to the
increase drilling activity by PEMEX. Directional Drilling Services also
increased market share as did Compressed Air Drilling Services as a result of to
the joint venture between Mountain Air and M-I Air Drilling and the
consolidation of the results of operations of AirComp into the consolidated
financial statements of the Company.

Gross margin ratio, as a percentage of sales, was 25.6% in the third quarter of
2003 compared with 19.6% in the third quarter of 2002. The gross margin
increased in the third quarter of 2003 as compared to the third quarter of 2002,
due to an increase in market share and increased pricing in the Casing Services,
Directional Drilling Services, and Compressed Air Drilling Services segments.
The increase in profit margin resulted because the Company's revenues increased
at a greater rate than its expenses because many of its costs are fixed and do
not increase with revenues.

Marketing and administrative expense was $1,351,000 in the third quarter of 2003
compared with $886,000 in the third quarter of 2002. The marketing and
administrative expenses increased in 2003 compared to 2002 due to the increased
costs associated with the joint venture AirComp and the hiring of additional
sales force.

Operating income for the three months ended September 30, 2003 totaled $727,000.
For the three months ended September 30, 2002, the operating (loss) was
($680,000). Operating income (loss) for the three months ended September 30,
2003 for the Casing Services, Directional Drilling Services, Compressed Air
Drilling Services and General Corporate segments were $913,000, $120,000,
$171,000 and ($477,000), respectively. Operating income (loss) for the three
months ended September 30, 2002 for the Casing Services, Directional Drilling
Services, Compressed Air Drilling Services and General Corporate segments were
$749,000, ($44,000), ($269,000) and ($1,116,000), respectively. In the third
quarter of 2002, the Company in response to the default of its debt covenants,
the Company reorganized itself in order to contain costs and recorded charges
related to the reorganization in the amount of $495,000. Such organizational
changes included reduction of personnel, the deployment of turn-around
consultants and a terminated rent obligation. These charges consisted of related
payroll costs for terminated employees of $307,000, consulting fees of $113,000,
and costs associated with a terminated rent obligation of $75,000. The Company
also recorded costs related to abandoned acquisitions and equity raise in the
amount of $233,000 consisting of legal fees associated with abandoned
acquisition of $82,000 and costs related to a abandoned private placement in the
amount of $150,000.

We had net income attributed to common shareholders of $1,136,000, or $0.06 per
common share, for the third quarter of 2003 compared with a loss of
($1,592,000), or ($0.08) per common share, for the third quarter of 2002. The
Company recorded a one-time gain on the reduction of the note payable of
$1,034,000 in the third quarter of 2003 as a result of settling lawsuit against
the formers owners of Mountain Air Drilling Service Company. The gain was
calculated by discounting the note payable to $1,469,152 using a present value
calculation and accreting the note payable to $1,863,195, the amount due in
September 2007. The Company will record interest expense totaling $394,043 over
the life of the note payable beginning July 2003.

                                       16


<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO SEPTEMBER 30, 2002:
--------------------------------------------------------------------

HISTORICAL COMPARISON

Sales for the nine months ended September 30, 2003 totaled $22,428,000. In the
comparable period of 2002, revenues were $12,265,000. Revenues for the nine
months ended September 30, 2003 for the Casing Services, Directional Drilling
Services, and Compressed Air Drilling Services segments were $7,712,000,
$10,336,000 and $4,380,000, respectively. Revenues for the nine months ended
September 30, 2002 for the Casing Services, Directional Drilling Services, and
Compressed Air Drilling Services segments were $5,445,000, $4,058,000 and
$2,762,000, respectively. The sales for the Casing Services and Directional
Drilling segments for 2002 were from February 1, 2002 through September 30,
2002. Revenues for the first nine months of 2003 increased over the first nine
months of 2002 due to the increased activity in the drilling market and the
Company's continued efforts to increase market share in the Casing Services
primarily in Mexico due to the increase drilling activity by PEMEX. Directional
Drilling Services also increased market share as did Compressed Air Drilling
Services as a result of the joint venture between Mountain Air and M-I Air
Drilling and the consolidation of the results of operation of AirComp into the
consolidated financial statements of the Company.

Gross margin ratio, as a percentage of sales, was 27.7% in the first nine months
of 2003 compared with 18.1 % in the first nine months of 2002. The gross margin
increased in the first nine months of 2003 as compared to the first nine months
of 2002, which included Casing Services and Directional Drilling from February
1, 2002 through September 30, 2002, due to an increase in market share and
increased pricing in the Casing Services, Directional Drilling Services, and
Compressed Air Drilling Services segments. The increase in profit margin results
resulted because the Company's revenues increased at a greater rate than its
expenses because many of its costs are fixed and do not increase with revenues.

Marketing and administrative expense was $3,759,000 in the first nine months of
2003 compared with $2,696,000 in the first nine months of 2002. The marketing
and administrative expenses increased in 2003 compared to 2002 due to the
increased costs associated with the joint venture AirComp and the hiring of
additional sales force. The marketing and administrative expenses for the Casing
Services and Directional Drilling segments for the period ended September 30,
2002 were from February 1, 2002 through September 30, 2002.

Operating income for the nine months ended September 30, 2003 totaled
$2,457,000. For the nine months ended September 30, 2002, the operating (loss)
was ($1,205,000). Operating income (loss) for the nine months ended September
30, 2003 for the Casing Services, Directional Drilling Services, Compressed Air
Drilling Services and General Corporate segments were $3,070,000, $613,000,
$52,000 and ($1,278,000), respectively. Operating income (loss) for the nine
months ended September 30, 2002 for the Casing Services, Directional Drilling
Services, Compressed Air Drilling Services and General Corporate segments were
$1,707,000, ($187,000), ($716,000) and ($2,009,000), respectively. The operating
income (loss) for the Casing Services and Directional Drilling segments were
from February 1, 2002 through September 30, 2002 (post merger period). In the
third quarter of 2002, the Company in response to the default of its debt
covenants, the Company reorganized itself in order to contain costs and recorded
charges related to the reorganization in the amount of $495,000. The Company
also recorded costs related to abandoned acquisitions and equity raise in the
amount of $233,000 consisting of legal fees associated with abandoned
acquisition of $82,000 and costs related to a abandoned private placement in the
amount of $150,000.

We had a net income attributed to common stockholders' of $624,000, or $0.03 per
common share, for the first nine months of 2003 compared with a loss of
($3,247,000), or ($0.18) per common share, for the first nine months of 2002.
The Company recorded a one-time gain on the reduction of the note payable of
$1,034,000 in the third quarter of 2003 as a result of settling lawsuit against
the formers owners of Mountain Air Drilling Service Company. The gain was
calculated by discounting the note payable to $1,469,152 using a present value
calculation and accreting the note payable to $1,863,195, the amount due in
September 2007. The Company will record interest expense totaling $394,043 over
the life of the note payable beginning July 2003.

PRO FORMA COMPARISON

The pro forma results of operations set forth below includes results of
operations of the Company for all of the first nine months of 2003 and 2002 as
if the AirComp transaction 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>

Pro forma sales in the first nine months of 2003 totaled $24,150,000 compared
with pro forma sales of $14,233,000 for the first nine months of 2002. Revenues
for the first nine months of 2003 increased over the first nine months of 2002
due to the increase activity in the drilling market and the Company's continued
efforts to increase market share in the Casing Services primarily in Mexico due
to the increase drilling activity by PEMEX. Directional Drilling Services also
increased market share as did Compressed Air Drilling as a result of the joint
venture between Mountain Air and M-I Air Drilling and the consolidation of the
results of operation of AirComp into the consolidated financial statements of
the Company.

Pro forma gross profit totaled $6,488,000 for a pro forma gross profit margin of
26.9% of sales in the nine months ended September 30, 2003. Pro forma gross
profit for the comparable nine months in the prior year totaled $3,278,000 for a
gross profit margin of 23.0% of sales. The increase in profit margin results
resulted because 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's pro forma net income attributed to common shareholders' was
$743,000, or $0.04 per common share, for the first nine months of 2003 compared
to a pro forma net loss of ($2,883,000), or ($0.16) per common share, for the
first nine months of 2002. The Company recorded a one-time gain on the reduction
of the note payable of $1,034,000 in the third quarter of 2003 as a result of
settling lawsuit against the formers owners of Mountain Air Drilling Service
Company. The gain was calculated by discounting the note payable to $1,469,152
using a present value calculation and accreting the note payable to $1,863,195,
the amount due in September 2007. The Company will record interest expense
totaling $394,043 over the life of the note payable beginning July 2003.

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 September 30, 2003.
<TABLE>
<CAPTION>

                                                      Payments due by Period
                                     -------------------------------------------------------------------
                                                                                               AFTER 5
CONTRACTUAL OBLIGATIONS                 TOTAL         1 YEAR      2-3 YEARS     4-5 YEARS       YEARS
                                     -----------   -----------   -----------   -----------   -----------
<S>                                  <C>           <C>           <C>           <C>           <C>
Note payable                         $30,476,000   $ 2,648,000   $16,508,000   $11,320,000   $        --
Interest Payments on note payable      1,523,000       132,000       825,000       566,000            --
Operating Lease                        1,140,000       228,000       456,000       456,000
Employment Contracts                   1,754,000     1,180,000       574,000            --            --
                                     -----------   -----------   -----------   -----------   -----------
Total Contractual Cash Obligations   $34,893,000   $ 4,188,000   $18,363,000   $12,342,000   $        --
                                     ===========   ===========   ===========   ===========   ===========
</TABLE>

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

Cash and cash equivalents totaled $120,000 at September 30, 2003, a decrease
from $146,000 at December 31, 2002 primarily due to the management of cash
reserves on a daily basis. Cash flows provided by operations totaled $1,973,000
in the first nine months of 2003 compared to the $441,000 generated in the prior
year.

Net trade receivables at September 30, 2003 were $7,291,000. 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.

                                       18


<PAGE>

Net property, plant and equipment were $27,144,000 at September 30, 2003. The
increase in plant, property and equipment is due to the assets contributed at
historical costs by M-I Air Drilling into the joint venture AirComp. Capital
expenditures for the nine months ended September 30, 2003 were $4,386,000
including $2.4 million for the purchase of an operating lease at Mountain Air
contributed to AirComp on July 2, 2003. Capital expenditures for fiscal year
2003 are projected to be approximately $3,500,000 excluding the purchase of the
operating lease at Mountain Air.

Trade accounts payable at September 30, 2003 were $4,884,000. This increased
significantly from the December 31, 2002 balance of $2,106,000 due to the
increase in operating activity, increased capital expenditures at Jens' and an
increase in accounts receivable resulting in less cash available to pay
payables. The Company is investigating additional financing or other methods of
financing its accounts receivable.

Other current liabilities, excluding the current portion of long-term debt, were
$2,135,000 including interest in the amount of $547,000, accrued salary and
benefits in the amount of $405,000, and accrued expenses of $1,183,000. All of
these balance sheet accounts increased significantly from the December 31, 2002
balances due to the increase in revenues and operations.

Long-term debt was $28,139,000 at September 30, 2003 including current
maturities. The increase in the long-term debt is attributable to the financing
of AirComp of approximately $13.3 million.

In addition to the debt discussed above, the Company had available lines of
credit totaling $2,865,000 at September 30, 2003, of which $1,031,000 was
available and unused. In addition, AirComp had available $638,000 of unused
credit at September 30, 2003.

Our long-term capital needs are to refinance the Company's existing debt,
provide funds for existing operations, and 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 the Company's debts as they become due, including the
amounts due to the Bank Lenders and the amounts required to redeem the Series A
Preferred Stock described above the Company 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 the Company's
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 the Company's 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, the Company issued to Energy Spectrum
a warrant to purchase 437,500 shares of the Company's common stock at an
exercise price of $0.15 per share, and the Company agreed that if the Company
did not redeem all but one share of the Preferred Stock on or prior to February
6, 2003, the Company would issue Energy Spectrum an additional warrant to
purchase 875,000 shares of the Company's common stock at an exercise price of
$0.15 per share. On February 19, 2003, the Company issued such warrant.

RECENT DEVELOPMENTS - JOINT VENTURE WITH M-I L. L.C.

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.

                                       19


<PAGE>

In connection with the transaction, AirComp obtained bank financing of $8
million (matures on September 27, 2007), of which $7.3 million was distributed
to the Company to extinguish the outstanding Mountain Compressed Air debt,
approximately $2.4 million of the $7.3 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 55% of AirComp's debt.

As a result of the repayment of Mountain Compressed Air's outstanding debt in
connection with the AirComp transaction, the Company became compliant with all
of its loan covenants with its Bank Lenders, except for a certain debt covenant
at AirComp. The Company has obtained a waiver for that covenant default.

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.

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 the Company's 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 the Company's management, such statements can only be based on
facts and factors the Company currently knows 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 the
Company's Annual Report on Form 10K (including without limitation in the "Risk
Factors" Section), and in the Company's 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

The Company's chief executive officer and the Company's principal 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 the final day of the period covered by this report (the
"Evaluation Date"), have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed in the Company's
periodic reports under the Securities Exchange Act of 1934 is accumulated and
communicated to the Company's management, including these officers, to allow
timely decisions regarding required disclosure.

During the period covered by this Report, there were no changes in the Company's
internal controls or in other factors that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.

                                       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.

TheCompany recorded a one-time gain on the reduction of the note payable to the
Sellers of $1,034,000 in the third quarter of 2003. The gain was calculated by
discounting the note payable to $1,469,152 using a present value calculation and
accreting the note payable to $1,863,195, the amount due in September 2007. The
Company will record interest expense totaling $394,043 over the life of the note
payable beginning July 2003.

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 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 September 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 September 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 has obtained a waiver of past
defaults from the Bank Lenders.

The Company is paying current interest on the Subordinated Note and the Seller
Note and has paid all of the past-due interest on the Subordinated Note. As of
November 10, 2003, the Company owed an aggregate of $425,000 for past-due
interest on the Seller Note.

                                       21


<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

10.34    Second Amendment to Credit Agreement dated as of September 30 2003, by
         and between Jens Oilfield Service, Inc. and Wells Fargo Credit Inc.

10.35    Third Amendment to Credit Agreement dated as of September, 2003, by and
         between Strata Directional Technology, Inc., and Wells Fargo Credit
         Inc.

10.36    First Amendment to Credit Agreement dated as of October 1, 2003, by and
         between Allis-Chalmers Corporation and Wells Fargo Energy Capital Inc.

31.1     Certification of Principal Executive Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002.

31.2     Certification of Principal Financial Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002.

32.1     Certification of Principal Executive Officer pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002.

32.2     Certification of Principal Financial Officer 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 July 15, 2003,
reporting the Company's entering into a joint venture agreement with a division
of M-I L.L.C., and related financing on July 2, 2003. A Report 8-K/A was filed
on September 16, 2003, which included pro forma financial statements for the
periods ending December 31, 2002 and June 31, 2003 relating to the joint venture
agreement with a division of M-I L.L.C.

                                       22


<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

November 13, 2003

                                       23


<PAGE>

                                  EXHIBIT INDEX

10.34    Second Amendment to Credit Agreement dated as of September 30 2003, by
         and between Jens Oilfield Service, Inc. and Wells Fargo Credit Inc.

10.35    Third Amendment to Credit Agreement dated as of September, 2003, by and
         between Strata Directional Technology, Inc., and Wells Fargo Credit
         Inc.

10.36    First Amendment to Credit Agreement dated as of October 1, 2003, by and
         between Allis-Chalmers Corporation and Wells Fargo Energy Capital Inc.

31.1     Certification of Principal Executive Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002.

31.2     Certification of Principal Financial Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002.

32.1     Certification of Principal Executive Officer pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002.

32.2     Certification of Principal Financial Officer pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002.

                                       24