<PAGE>

                 UNITED STATE 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, 2004 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.)


                5075 WESTHEIMER, SUITE 890, HOUSTON, TEXAS 77056
                -------------------------------------------------
               (Address of principal executive offices) (Zip code)

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

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     COMMON STOCK, PAR VALUE $0.01 PER SHARE

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 is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

At August 12, 2004, there were 9,783,681 shares of common stock outstanding.




<PAGE>

                           ALLIS-CHALMERS CORPORATION

                                    FORM 10-Q

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

                                TABLE OF CONTENTS
                                -----------------

                                     PART I




     ITEM                                                               PAGE
     ----                                                               ----

1. Financial Statements

   Consolidated Statements of Operations for the three months and six
     months ended June 30, 2004 and 2003................................ 3

   Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003.4

   Consolidated Statements of Cash Flows for the six months ended
    June 30, 2004 and 2003.............................................. 5

   Notes to Consolidated Financial Statements............................6

2. Management's Discussion and Analysis of Financial Condition and
   Results of Operations................................................ 11

4. Controls and Procedures.............................................. 16


                                     PART II

1. Legal Proceedings.................................................... 17
2. Changes in Securities and Use of Proceeds............................ 17
6. Exhibits and Reports on Form 8-K..................................... 17


   Signatures and Certifications........................................ 18


                                       2



<PAGE>
<TABLE>

                                         PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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


                                                       Three Months Ended            Six Months Ended
                                                             June 30,                     June 30,
                                                       2004           2003          2004           2003
                                                    ---------      ---------      ---------      ---------
                                                              (in thousands, except per share)
<S>                                                 <C>            <C>            <C>            <C>
Revenues                                            $ 11,422       $  7,340       $ 21,083       $ 14,339
Cost of sales                                          8,340          5,410         15,729         10,405
                                                    ---------      ---------      ---------      ---------

   Gross Profit                                        3,082          1,930          5,354          3,934

General and administrative expense                     1,853          1,020          2,956          2,001
                                                    ---------      ---------      ---------      ---------

   Income/ (loss) from operations                      1,229            910          2,398          1,933

Other Income (expense)
   Interest income                                        --             --             --             --
   Interest expense                                     (499)          (843)        (1,068)        (1,480)
   Other                                                  18           (186)           205           (174)
   Minority interest                                    (161)          (124)          (256)          (311)
                                                    ---------      ---------      ---------      ---------

Net income/(loss) before income taxes                    587           (243)         1,279            (32)
                                                    ---------      ---------      ---------      ---------

   Provision for income taxes                            117             92            220            250
                                                    ---------      ---------      ---------      ---------

Net income/ (loss)                                       470           (335)         1,059           (282)
                                                    ---------      ---------      ---------      ---------

   Preferred stock dividend                              (36)           (87)          (124)          (481)
                                                    ---------      ---------      ---------      ---------

Net income/ (loss) attributed to common shares      $    434       $   (422)      $    935       $   (763)
                                                    =========      =========      =========      =========

Net income/ (loss) per common share  basic          $   0.07       $  (0.11)      $   0.18       $  (0.19)
                                                    =========      =========      =========      =========

Net income/ (loss) per common share  diluted        $   0.04       $  (0.11)      $   0.11       $  (0.19)
                                                    =========      =========      =========      =========

Weighted average number of common shares
outstanding
     Basic                                             6,253          3,927          5,077          3,927
                                                    =========      =========      =========      =========

    Diluted                                           10,237          3,927          8,394          3,927
                                                    =========      =========      =========      =========

                                     This interim statement is unaudited.

                   The accompanying Notes are an integral part of the Financial Statements.
</TABLE>

                                                      3



<PAGE>
<TABLE>

ALLIS-CHALMERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
                                                                        June 30,         December 31,
                                                                          2004               2003
                                                                      -------------      -------------
ASSETS
<S>                                                                   <C>                <C>
Cash and cash equivalents                                             $        485       $      1,299
Trade receivables, net                                                      10,305              8,823
Lease receivable, current                                                      180                180
Deferred offering costs                                                      2,650                  -
Prepaids and other current assets                                            1,137                887
                                                                      -------------      -------------
   Total current assets                                                     14,757             11,189

Property and equipment, net                                                 27,234             26,339
Goodwill                                                                     7,661              7,661
Other intangible assets, net                                                 2,054              2,290
Debt issuance costs, net                                                       612                567
Lease receivable                                                               664                787
Other assets                                                                    79                 40
                                                                      -------------      -------------
      Total assets                                                    $     53,061       $     48,873
                                                                      =============      =============
LIABILITIES AND SHAREHOLDERS' EQUITY

Current maturities of long-term debt                                  $      4,848       $      5,150
Trade accounts payable                                                       3,391              3,133
Accrued salaries, benefits and payroll taxes                                   677                591
Accrued interest                                                               212                152
Accrued expenses                                                             1,332              1,761
Accounts payable, related parties                                              541                787
                                                                      -------------      -------------
    Total current liabilities                                               11,001             11,574

Accrued postretirement benefit obligations                                     520                545
Long-term debt, net of current maturities                                   26,163             27,083
Other long-term liabilities                                                    129                270
Redeemable warrants                                                          1,500              1,500
Redeemable convertible preferred stock                                           -              4,171
                                                                      -------------      -------------
    Total liabilities                                                       39,313             45,143

Commitments and Contingencies (Note 9 and Note 19)

Minority interests                                                           2,782              2,523

COMMON SHAREHOLDERS' EQUITY
   Common stock, $.01 par value (20,000,000 shares authorized;
     6,264,758 and 3,926,668 issued and outstanding, respectively)              63                 39
   Capital in excess of par value                                           18,593              9,793
   Accumulated (deficit)                                                    (7,690)            (8,625)
                                                                      -------------      -------------
    Total shareholders' equity                                              10,966              1,207
                                                                      -------------      -------------
    Total liabilities and shareholders' equity                        $     53,061       $     48,873
                                                                      =============      =============

                                This interim statement is unaudited.

                The accompanying Notes are an integral part of the Financial Statements.
</TABLE>

                                                 4



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

                                                                               Six Months Ended
                                                                                    June 30,
                                                                               2004          2003
                                                                             --------      --------
<S>                                                                          <C>           <C>
Cash flows from operating activities:
Net income (loss)                                                            $ 1,059       $  (282)
Adjustments to reconcile net (loss) to net
  cash provided by operating activities:
Depreciation and amortization expense                                          1,389         1,380
Fair value of warrant issued to consultant                                        14            --
(Gain) loss on sale of fixed assets                                               --           181
Amortization of discount on debt                                                 109           367
Minority interest in income of subsidiary                                        256           311
Changes in working capital:
     Decrease (increase) in accounts receivable                               (1,482)       (1,597)
     Decrease (increase) in other current assets                                (250)         (619)
     Decrease (increase) in other assets                                          84            35
     Decrease (increase) in lease deposit                                         --           525
     (Decrease) increase in accounts payable                                     258         1,385
     (Decrease) increase in accrued interest                                      60           468
     (Decrease) increase in accrued expenses                                    (429)         (393)
     (Decrease) increase in other long-term liabilities                         (141)           --
     (Decrease) increase in accrued employee benefits and payroll taxes         (185)          (88)
                                                                             --------      --------
Net cash provided by operating activities                                        742         1,673

Cash flows from investing activities:
    Proceeds from sale of fixed assets                                            --           700
    Purchase of equipment                                                     (1,879)         (821)
                                                                             --------      --------
Net cash provided (used) by investing activities
                                                                              (1,879)         (121)
Cash flows from financing activities:
     Proceeds from issuance of common stock, net                               1,865            --
     Repayments of long-term debt                                             (1,331)       (1,668)
     Debt issuance costs                                                        (211)           --
                                                                             --------      --------
Net cash provided (used) by financing activities                                 323        (1,668)
                                                                             --------      --------
Net increase (decrease) in cash and cash equivalents                            (814)         (116)

Cash and cash equivalents at beginning of year                                 1,299           146
                                                                             --------      --------
Cash and cash equivalents at end of period                                   $   485       $    30
                                                                             ========      ========

Supplemental information - interest paid                                     $ 1,068       $ 1,480
                                                                             ========      ========


                                This interim statement is unaudited.

              The accompanying Notes are an integral part of the Financial Statements.
</TABLE>

                                                 5



<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, 2003
(the "Form 10-K").

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

OilQuip Rentals, Inc., an oil and gas rental company ("OilQuip"), was
incorporated on February 4, 2000 to find and acquire acquisition targets to
operate as subsidiaries.

On February 6, 2001, OilQuip, through its subsidiary, Mountain Compressed Air
Inc. ("Mountain Air"), a Texas corporation, acquired certain assets of Mountain
Air Drilling Service Co., Inc. ("MADSCO"), whose business consisted of providing
equipment and trained personnel in the four corner areas of the southwestern
United States. Mountain Air primarily provides compressed air equipment and
related products and services and trained operators to companies in the business
of drilling for natural gas.

On May 9, 2001, OilQuip merged into a subsidiary of Allis-Chalmers. In the
merger, all of OilQuip's outstanding common stock was converted into 2,000,000
shares of Allis-Chalmers' common stock.

For legal purposes, we acquired OilQuip, the parent company of Mountain Air.
However, for accounting purposes, OilQuip was treated as the acquiring company
in a reverse acquisition of Allis-Chalmers. Our financial statements prior to
the merger reflect the operations of OilQuip. As a result of the merger, the
fixed assets, goodwill and other intangibles of Allis-Chalmers were increased by
$2,691,000.

On February 6, 2002, we acquired 81% of the outstanding stock of Jens' Oilfield
Service, Inc. ("Jens'"), which 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"), which provides high-end directional and horizontal drilling
services for specific targeted reservoirs that cannot be reached vertically.

In July 2003, through our subsidiary Mountain Air, we entered into a limited
liability company operating agreement with a division of M-I L.L.C. ("M-I"), a
joint venture between Smith International and Schlumberger N.V. (Schlumberger
Limited), to form a Texas limited liability company named AirComp LLC
("AirComp"). Mountain Air contributed assets with a net book value of
approximately $6.3 million and M-I contributed assets with a net book value of
approximately $6.8 million to AirComp L.L.C.. In addition, the AirComp issued a
subordinated note to M-I in the amount of $4.8 million. The Company owns 55% and
M-I owns 45% of AirComp. Because the Company controls AirComp, the Company has
accounted for the joint venture as a business combination.

On June 10, 2004, the Company effected a reverse stock split in order to
increase the share price of the Common Stock. As a result of the reverse stock
split, every five shares of the Company's common stock were combined into one
share of common stock. The reverse stock split reduced the number of shares of
outstanding common stock from 31,393,789 to approximately 6,265,000 and reduced
the number of stockholders of the Company from approximately 6,070 to
approximately 2,140.

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 the 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, recoverability of long-lived assets and intangibles, useful
lives used in depreciation and amortization, income taxes and related valuation
allowances. 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.

                                       6



<PAGE>

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Allis-Chalmers and
its subsidiaries Mountain Air, Jens', and Strata and its joint venture, AirComp.
All significant inter-company transactions have been eliminated.

REVENUE RECOGNITION

The Company's revenue recognition policy is significant because revenue is a key
component of reported results of operations. In addition, revenue recognition
determines the timing of certain expenses, such as commissions. The Company
follows specific and detailed guidelines in measuring revenue. Revenues are
recognized by the Company and its subsidiaries as services are rendered,
provided that pricing is fixed or determinable and collection is reasonably
assured. The Securities and Exchange Commission's ("SEC") Staff Accounting
Bulletin ("SAB") No. 104, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB No.
104"), provides guidance on the SEC staff's views on application of generally
accepted accounting principles to selected revenue recognition issues. The
Company's revenue recognition policy is in accordance with generally accepted
accounting principles and SAB No. 104.

RECLASSIFICATIONS AND RESTATEMENT OF FORM 10-Q

Certain prior period balances have been reclassified to conform to current year
presentation.

The accompanying 2003 financial statements have been restated from the
previously filed interim financial statements included in Form 10-Q for the
first, second and third quarters of 2003. As discussed in Note 7 in the
financial statements included in the Form 10-K, an adjustment was recorded in
the fourth quarter of 2003 to reflect a change in estimate of the recoverability
of foreign taxes paid in 2003. The effect of the significant fourth quarter
adjustment on the individual quarterly financial statements is as follows:

                                               Three Months       Six Months
                                                   Ended             Ended
                                               June 30, 2003     June 30, 2003
                                               -------------     -------------
Net income (loss) attributed to
    common shareholders
Previously reported                            $     (330)        $    (513)
Adjustment                                            (92)             (250)
Restated                                             (422)             (763)

Net income (loss) per share, basic
    and diluted
Previously reported                            $    (0.08)         $  (0.13)
Adjustment                                          (0.03)            (0.06)
Restated                                            (0.11)            (0.19)

SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

The Company discloses the results of its segments in accordance with SFAS No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS
No. 131"). The Company designates the internal organization that is used by
management for allocating resources and assessing performance as the source of
the Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas and major customers. At June 30, 2004
and 2003, the Company operated in three segments organized by service line:
casing services, directional drilling services and compressed air drilling
services.

NOTE 2 - ACQUISITIONS

In July 2003, through our subsidiary Mountain Air, we entered into a limited
liability company operating agreement with a division of M-I, a joint venture
between Smith International and Schlumberger N.V. (Schlumberger Limited), to
form a Texas limited liability company named AirComp. The formation of AirComp
has created the second largest provider of compressed air and related products
and services for the drilling, workover, completion, and transmission segments
of the oil, gas and geothermal industries.

                                       7



<PAGE>

Mountain Air contributed assets with a net book value of approximately $6.3
million and M-I contributed assets with a net book value of approximately $6.8
million to AirComp L.L.C. In addition, the Company issued a subordinated note to
M-I in the amount of $4.8 million. The Company owns 55% and M-I owns 45% of
AirComp. Because the Company controls AirComp, the Company has accounted for the
joint venture as a business combination.

The following unaudited pro forma consolidated summary financial information
illustrates the effects of the formation of AirComp on the Company's results of
operations as of June 30, 2003, based on the historical statements of
operations, as if the transaction had occurred as of the beginning of the period
presented.

                                                 THREE MONTHS      SIX MONTHS
                                                ENDED JUNE 30,   ENDED JUNE 30,
                                                --------------   --------------
                                                          (UNAUDITED)
                                                (in thousands, except per share)
                                                    2003              2003
                                                    ----              ----

Revenues                                         $  8,181          $ 16,061
Operating income (loss)                          $    620          $  2,206
Net income (loss)                                $   (612)         $   (394)

Net income (loss) per common share

       Basic                                     $  (0.16)         $  (0.10)
       Diluted                                   $  (0.16)         $  (0.10)

NOTE 3 - DEBT

Debt is as follows at June 30:
                                                                       2004
                                                                    ---------
                                                                  (in thousands)
Debt of Mountain Air
Note payable to Wells Fargo - Equipment leasing                     $    223
Note payable to Seller of Mountain Air Drilling Service Company        1,555

Debt of Jens'
Note payable to Wells Fargo -Term Note                                 3,672
Note payable to Wells Fargo -Real Estate Note                            118
Line of Credit with Wells Fargo                                          248
Subordinated Note payable to Seller of Jens                            4,000
Note payable to Seller of Jens' for non-compete agreement                638
Note payable to Texas State Bank - Term Note                             354

Debt of Strata
Vendor financing                                                       1,746
Line of Credit with Wells Fargo                                        2,782

Debt of Allis-Chalmers
Notes payable to certain former Directors                                394
Note payable to Wells Fargo - Subordinated Debt, net                   2,309

Debt of AirComp, LLC
Line of Credit to Wells Fargo                                            807
Note payable to Wells Fargo                                            6,857
Note payable to Wells Fargo                                              490
Subordinated Note payable to M-I L.L.C                                 4,818
                                                                    ---------
Total debt                                                            31,011
Less short-term debt and current maturities                            4,848
                                                                    ---------
Long-term debt obligations                                          $ 26,163
                                                                    =========

Substantially all of the Company's assets are pledged as collateral under the
credit agreements.

                                       8



<PAGE>

NOTE 4 - SHAREHOLDERS' EQUITY

On April 2, 2004, the Company completed the following transactions:

         o        In exchange for an investment of $2,000,000, the Company
                  issued 620,000 shares of common stock for a purchase price
                  equal to $2.50 per share, and issued warrants to purchase
                  800,000 shares of common stock at an exercise price of $2.50
                  per share, expiring on April 1, 2006, to an investor group
                  (the "Investor Group") consisting of entities affiliated with
                  Donald and Christopher Engel and directors Robert Nederlander
                  and Leonard Toboroff. The aggregate purchase price for the
                  common stock was $1,550,000, and the aggregate purchase price
                  for the warrants was $450,000.

         o        Energy Spectrum converted its 3,500,000 shares of Series A 10%
                  Cumulative Convertible Preferred Stock, including accrued
                  dividend rights, into 1,718,090 shares of common stock. The
                  conversion of the preferred stock will have an impact on the
                  earnings per share in future periods since the Company will
                  not record any dividends.

         o        The Company, the Investor Group, Energy Spectrum, and director
                  Saeed Sheikh, and officers and directors Munawar H.
                  Hidayatallah and Jens H. Mortensen entered into a stockholders
                  agreement pursuant to which the parties have agreed to vote
                  for the election to the board of directors of the Company
                  three persons nominated by Energy Spectrum, two persons
                  nominated by the Investor Group and one person nominated by
                  Messrs. Hidayatallah, Mortensen and Sheikh. In addition, the
                  parties and the Company agreed that in the event the Company
                  has not effected a public offering of its shares prior to
                  September 30, 2005, then, at the request of Energy Spectrum,
                  the Company will retain an investment banking firm to identify
                  candidates for a transaction involving the sale of the Company
                  or its assets.

NOTE 5 - REVERSE STOCK SPLIT

The Company effected a reverse stock split on June 10, 2004 in order to increase
the share price of the common stock. As a result of the reverse stock split,
every five shares of the Company's common stock were combined into one share of
common stock. The reverse stock split reduced the number of shares of
outstanding common stock from 31,393,789 to approximately 6,265,000 and reduced
the number of stockholders of the Company from approximately 6,070 to
approximately 2,140. The Company currently has an application pending to list
the Common Stock on the American Stock Exchange, which has an initial listing
requirement that the Common Stock trade for a minimum of $3.00 per share and
certain other qualitative and quantative listing requirements. There can be no
assurance that the Company will be successful in listing the Common Stock on the
American Stock Exchange.


                                       9



<PAGE>

NOTE 6 - SEGMENT INFORMATION

The Company has three operating segments including Casing Services (Jens'),
Directional Drilling Services (Strata) and Compressed Air Drilling Services
(AirComp). All of the segments provide services to the petroleum exploration and
production industry. The revenues, operating income (loss), depreciation and
amortization, interest, capital expenditures and assets of each of the reporting
segments plus the General Corporate function are reported below for the quarters
and the six months ended June 30, 2004 and 2003:
<TABLE>
                                                Three Months Ended June 30,   Six Months Ended June 30,
                                                    2004           2003          2004           2003
                                                 ---------      ---------      ---------      ---------
                                                                     (in thousands)
<S>                                              <C>            <C>            <C>            <C>
REVENUES:
Casing services                                  $  2,446       $  2,644       $  4,386       $  5,153
Directional drilling services                       6,422          3,503         11,675          6,983
Compressed air drilling services                    2,554          1,193          5,022          2,203
                                                 ---------      ---------      ---------      ---------

Total revenues                                   $ 11,422       $  7,340       $ 21,083       $ 14,339
                                                 =========      =========      =========      =========
OPERATING INCOME (LOSS):
Casing services                                  $    783       $    988       $  1,225       $  2,227
Directional drilling services                         727            255          1,389            511
Compressed air drilling services                      419             71            812            (36)
General corporate                                    (700)          (404)        (1,028)          (769)
                                                 ---------      ---------      ---------      ---------

Total income/(loss) from operations              $  1,229       $    910       $  2,398       $  1,933
                                                 =========      =========      =========      =========
DEPRECIATION AND AMORTIZATION EXPENSE:
Casing services                                  $    355       $    275       $    717       $    690
Directional drilling services                         114             39            214            119
Compressed air drilling services                      197            180            408            511
General corporate                                      25             (3)            50             60
                                                 ---------      ---------      ---------      ---------

Total depreciation and amortization expense      $    691       $    491       $  1,389       $  1,380
                                                 =========      =========      =========      =========
INTEREST EXPENSE:
Casing services                                  $    155       $    230       $    320       $    393
Directional drilling services                          67             77            142            140
Compressed air drilling services                      158            331            317            574
General corporate                                     119            205            289            373
                                                 ---------      ---------      ---------      ---------

Total interest expense                           $    499       $    843       $  1,068       $  1,480
                                                 =========      =========      =========      =========
CAPITAL EXPENDITURES
Casing services                                  $     46       $    201       $    425       $    242
Directional drilling services                          83             61            788             69
Compressed air drilling services                      338            379            664            494
General corporate                                       1              5              2             16
                                                 ---------      ---------      ---------      ---------

Total capital expenditures                       $    468       $    646       $  1,879       $    821
                                                 =========      =========      =========      =========
ASSETS:
Casing services                                  $ 17,060       $ 16,562       $ 17,060       $ 16,562
Directional drilling services                      12,795          8,125         12,795          8,125
Compressed air drilling services                   18,588          9,038         18,588          9,038
General corporate                                   4,617          1,322          4,617          1,322
                                                 ---------      ---------      ---------      ---------

Total assets                                     $ 53,061       $ 35,047       $ 53,061       $ 35,047
                                                 =========      =========      =========      =========
</TABLE>
                                       10



<PAGE>

NOTE 7 - LEGAL MATTERS

The Company is involved in various legal proceedings arising in the ordinary
course of business. The legal proceedings are at different stages. In the
opinion of management and their legal counsel, the ultimate gain or loss, if
any, to the Company from all such proceedings can not be reasonably estimated at
this time.

The Company is a defendant in an action (the "Action") brought in April 2004
(No. 04CV308) in the District Court of Mesa County Colorado by the former owner
of Mountain Air Drilling Service Company, Inc. nka Pattongill & Murphy, Inc.,
from whom the Company's Mountain Compressed Air, Inc. ("MCA") acquired assets in
2001. The plaintiff seeks to accelerate payment of a note (the "Note") issued in
connection with the acquisition and are seeking $1,863,000 in damages
(representing principal and interest due under the Note), on the basis that MCA
has failed to provide financial statements required by the Note. The Company
believes the claim is without merit because MCA no longer maintains separate
financial statements and the Company provides plaintiff with the Company's
publicly available financial statements. The financial statements disclose as a
separate segment the operations of AirComp, which conducts business using the
assets acquired from plaintiff. In addition, the rights of the holder of the
Note are subordinated to certain senior lease obligations, and therefore even if
the plaintiff had the right to accelerate the debt under the terms of the Note,
the plaintiff is prevented from doing so pursuant to the terms of the
subordination agreement until September, 2007, at which time the Note will
mature by its terms. Finally, the Company has claims in the amount of $12,000
for legal fees and other expenses that the plaintiff agreed to pay the Company
in connection with the settlement of an earlier lawsuit involving the
acquisition of assets from plaintiff.


NOTE 8 - SUBSEQUENT EVENTS

On March 15, 2004, the Company filed an application to list the common stock on
the American Stock Exchange. However, approval of listing of the common stock is
subject to numerous conditions, and there can be no assurance that the
application will be approved.

On July 17, 2004 our Strata and Jens subsidiaries entered into amendments to
their respective Wells Fargo Credit, Inc. credit agreements. The amendments
provide for an increase in the permitted capital expenditures in 2004 by Strata,
and also permitted additional indebtedness by Jens. Each of the amendments also
included consents to a $10.0 million to $15.0 million equity offering by the
Company and waived any requirement that the net proceeds be contributed to
Strata or Jens and used to prepay outstanding borrowings under the credit
facilities.

On August 10, 2004 we completed the private placement of 3,504,667 shares of our
common stock at a price of $3.00 per share. Net proceeds to us, after selling
commissions and expenses, are estimated to be $9.6 million. The private
placement was structured as what is known as a "private investment in public
equity" or "PIPE" offering, in which we issued shares pursuant to an exemption
from the Securities Act of 1933, and have agreed to subsequently register the
common stock under the Securities Act of 1933 to allow investors to resell the
common stock in public markets.

We will use the net proceeds of the offering to reduce debt, for acquisitions,
and for general corporate purposes. While we are in discussions and in the
analysis phase with potential acquisition candidates, as of this date, the
Company has not entered into definitive agreements with respect to any
acquisition candidate.

                                       11



<PAGE>

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

The information in this Item 2 contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of risks and uncertainties, including, but not limited
to, those discussed herein , and in other reports filed with the Securities and
Exchange Commission, and in particular those discussed under "Risk Factors" in
our Annual Report on Form 10-K. You should not place undue reliance on these
forward-looking statements, which speak only as of the date of this report. We
are under no obligation to revise or update any forward-looking statements.

BACKGROUND
----------

Prior to May 2001, we operated primarily through Houston Dynamic Services, Inc
("HDS"). In May 2001, as part of a strategy to acquire and develop businesses in
the natural gas and oil services industry, we consummated a merger (the "OilQuip
Merger") in which we acquired 100% of the capital stock of OilQuip Rentals, Inc.
("OilQuip"), which owned 100% of the capital stock of Mountain Air. In December
2001, we disposed of HDS, and in February 2002, we acquired substantially all of
the capital stock of Strata and approximately 81% of the capital stock of Jens'.
In July 2003, through our subsidiary Mountain Air, we entered into a limited
liability company operating agreement with a division of M-I L.L.C., a joint
venture between Smith International and Schlumberger N.V. (Schlumberger Limited)
to form AirComp LLC. Mountain Air contributed assets with a net book value of
approximately $6.3 million and M-I contributed assets with a net book value of
approximately $6.8 million to AirComp. In addition, the Company issued a
subordinated note to M-I in the amount of $4.8 million. The Company owns 55% and
M-I owns 45% of AirComp. We have consolidated AirComp into our financial
statements beginning with the quarter ending September 30, 2003.

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 in our Form 10-K. 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, the 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.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. In order to estimate the collectibility of
amounts due from our customers, we make estimates and judgments regarding the
collectibility of our accounts receivables, based upon customer payment history
and current credit worthiness, as well as consideration of the overall business
climate in which our customers operate. Provisions for doubtful accounts are
recorded when it becomes evident that the customers will not be able to make the
required payments at either contractual due dates or in the future. Over the
past two years, reserves for doubtful accounts, as a percentage of total
accounts receivable before reserves, have ranged from 1% to 2%. We believe that
our reserve for doubtful accounts is adequate to cover anticipated losses under
current conditions; however, there can be no assurance of such fact.

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. We follow specific and detailed guidelines in measuring revenue.
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 rendered,
provided that pricing is fixed or determinable and collection is reasonably
assured. The Securities and Exchange Commission's ("SEC") Staff Accounting
Bulletin No. 104 ("SAB No. 104"), REVENUE RECOGNITION IN FINANCIAL STATEMENTS,
provides guidance on the SEC staff's views on application of generally accepted
accounting principles to selected revenue recognition issues. Our revenue
recognition policy is in accordance with generally accepted accounting
principles and SAB No. 104.

                                       12



<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
as to the value of these assets, including amounts to be capitalized,
depreciation and amortization methods and useful lives. Additionally, the book
values of these assets are reviewed for impairment on an annual basis 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
technological developments. Changes to these assumptions could require a
provision for impairment in a future period.

GOODWILL AND OTHER INTANGIBLES. The Company has recorded approximately
$7,661,000 of goodwill and $2,054,000 of other identifiable intangible assets.
The Company allocates purchase price to intangible assets when it makes a
business combination. The excess of the purchase price after allocation of fair
values to tangible assets is allocated to identifiable intangibles and
thereafter to goodwill. Purchase price allocations have been made to intangible
assets and goodwill in connection with the acquisition of the Mountain Air,
Strata and Jens' operating segments, as well as the reverse merger between the
Company and OilQuip. Subsequently, the Company has performed its initial
impairment tests and annual impairment tests in accordance with Financial
Accounting Standards Board No. 141, BUSINESS COMBINATIONS, and Financial
Accounting Standards Board No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. The
initial valuations of intangibles related to the Mountain Air, Strata and Jens'
operating segments required the use of third-party valuation experts who in turn
developed assumptions to value the carrying amount of the individual reporting
units. Changes to these assumptions could require a provision for impairment in
future periods.

STOCK BASED COMPENSATION. The Company accounts for its stock-based compensation
using Accounting Principles Board's Opinion No. 25 ("APB No. 25"). Under APB No.
25, compensation expense is recognized for stock options with an exercise price
that is less than the market price on the grant date of the option. For stock
options with exercise prices at or above the market value of the stock on the
grant date, the Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION
("SFAS 123"). The Company has adopted the disclosure-only provisions of SFAS 123
for the stock options granted to the employees and directors of the Company.
Accordingly, no compensation expense has been recognized for these options. Many
equity instrument transactions are valued based on pricing models such as
Black-Scholes, which require judgments by management. Values for such
transactions can vary widely and are often material to the financial statements.

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

Results of operations for 2004 and 2003 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 directional and horizontal
drilling services for specific targeted reservoirs that cannot be reached
vertically ("Directional Drilling Services"). In July 2003, through our
subsidiary Mountain Air, we entered into a limited liability company operating
agreement with a division of M-I L.L.C., a joint venture between Smith
International and Schlumberger N.V. (Schlumberger Limited) to form AirComp LLC.
Mountain Air contributed assets with a net book value of approximately $6.3
million and M-I contributed assets with a net book value of approximately $6.8
million to AirComp L.L.C. The Company owns 55% and M-I owns 45% of AirComp. We
have consolidated AirComp into our financial statements beginning with the
quarter ending September 30, 2003. The business of Mountain Air and AirComp is
referred to below as "Compressed Air Drilling Services."

                                       13



<PAGE>

THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO JUNE 30, 2003:
-----------------------------------------------------------

Our revenues for the second quarter ended June 30, 2004 were $11,422,000, an
increase of 55.6% compared to $7,340, 000 for the second quarter of 2003. The
increase in revenues in the quarter was principally due to the inclusion of the
revenues of Aircomp, our joint venture with M-I formed in July 2003, and an
increase in revenues for our Directional Drilling Services, offset in part by a
decrease in revenues in our Casing Services segment. Revenues for the second
quarter ended June 30, 2004 for the Casing Services, Directional Drilling
Services and Compressed Air Drilling were $2,446,000, $6,422,000, and
$2,554,000, respectively, compared to $ 2,644,000, $3,503,000, and $1,193,000,
respectively, for the second quarter of 2003. Revenues for the Casing Services
segment decreased $198,000, or 7.4%, for the second quarter of 2004, compared to
the second quarter of 2003, due to an increased competitive environment in South
Texas and a decrease in drilling in Mexico by PEMEX due to bad weather. Our
revenues from Directional Drilling Services increased $2,919,000, or 83.3%, for
the second quarter of 2004 compared to the year-ago quarter, due to an increase
in demand for our services and our increased penetration of the Gulf Coast area.
Revenues for the Compressed Air Drilling Services segment increased $1,361,000,
or 114.0% during the second quarter of 2004 compared to the 2003 second quarter,
principally due to the formation of Aircomp, our joint venture company with M-I.
Through Aircomp, we were able to expand the geographical areas in which we
operate to include geothermal drilling in California and natural gas drilling in
West Texas.

Gross profit, as a percentage of sales, was 27.0% for the quarter ended June 30,
2004 compared to 26.3% for the quarter ended June 30, 2003. The gross profit
percentage increased primarily as a result of increased revenues and pricing in
the Directional Drilling Services segment. Because we have made significant
investments in equipment and have a constant number of operations personnel,
many of our costs of revenues are relatively fixed, and as a result, our gross
profit margins are significantly impacted by either increases or decreases in
pricing structures and revenues.

General and administrative expense was $1,853,000 in the second quarter of 2004
compared with $1,020,000 in the second quarter of 2003. General and
administrative expense increased in 2004 compared to 2003 due to the inclusion
of AirComp and the hiring of additional sales and administrative personnel at
each of the Company's subsidiaries to meet increased demand for our services and
due to increased professional fees and other expenses related to the Company's
financing activities.

Operating income for the second quarter ended June 30, 2004 totaled $1,229,000,
a 35.1% increase over the comparable period in 2003, reflecting the inclusion of
operating income of AirComp and increased revenue for Directional Drilling
Services. In the comparable period of 2003, operating income was $910,000.
Operating income (loss) for the quarter ended June 30, 2004 for the Casing
Services, Directional Drilling Services, Compressed Air Drilling Services and
General Corporate segments were $783,000, $727,000, $419,000 and ($700,000),
respectively. Operating income (loss) for the quarter 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 for the Casing Services decreased
approximately $205,000 due to reduced revenues. Operating income for Directional
Drilling Services increased approximately $472,000 due to our increased
penetration of the Gulf Coast area. Compressed Air Drilling Services increased
approximately $348,000 due the expanded geographical areas in which AirComp
operates. General Corporate segments decreased approximately ($296,000) due to
increased professional fees and other expenses related to the Company's
financing activities.

Our interest expense for the second quarter of 2004, decreased to $499,000 from
$843,000 for the second quarter of 2003 due to the reduction in our debt.

                                       14



<PAGE>

We had a net income attributed to common shareholders of $434,000, or $0.07 per
common share, for the quarter ended June 30, 2004 compared with a net loss of
($422,000), or ($0.11) per common share, for the quarter end June 30, 2003.

PRO FORMA RESULTS

The following unaudited pro forma consolidated summary financial information
illustrates the effects of the formation of AirComp on the Company's results of
operations, based on the historical statements of operations, as if the
transaction had occurred as of the beginning of the periods presented. Pro forma
results of operations set forth below includes results of operations for the
quarter ended June 30, 2004 and 2003.

Pro forma revenues for the second quarter of 2004 totaled $11,423,000, compared
to pro forma revenues in the second quarter of 2003 of $8,181,000, an increase
of approximately 40%. The increase in 2004 compared to 2003 was primarily due to
higher revenues resulting from the overall upturn in the petroleum industry. Pro
forma sales for the second quarter of 2004 for AirComp totaled $2,554,000,
compared to pro forma sales in the second quarter of 2003 of $2,034,000. The pro
forma sales in 2004 for AirComp increased $520,000 due to increased drilling
activity in West Texas and a slight increase in activity in the San Juan basin
over the same period in 2003.

Pro forma gross profit, as a percentage of sales, was 27.5% for the quarter
ended June 30, 2004 compared with a pro forma gross profit of 20.0 % for the
quarter ended June 30, 2003. The gross profit percentage increased as a result
of increased revenues and service pricing in the Directional Drilling Services
segments. Because we have made significant investments in equipment and have a
constant number of operations personnel, many of our costs of revenues are
relatively fixed, and as a result, our gross profit margins are significantly
impacted by either increases or decreases in pricing structures and revenues.

Pro forma general and administrative expense was $1,853,000 in 2004 compared
with $1,020,000 in 2003. The pro forma general and administrative expense
increased in 2004 compared to 2003 due to the additional administrative costs
associated with AirComp and the hiring of additional sales force and
administrative personnel at each of the Company's subsidiaries to meet increased
demand for our services and due to increased professional fees and other
expenses related to the Company's financing activites.

The Company had pro forma operating income for the second quarter of 2004 of
$1,229,000, an increase of 98.2% as compared to pro forma operating income of
$620,000 in the second quarter of 2003. The increase in pro forma operating
income for 2004 was primarily due to higher revenues resulting from the overall
upturn in the petroleum industry.

The Company had a pro forma net income of $434,000, or $0.07 per common share,
for the quarter ended June 30, 2004 compared with a pro forma net loss of
($612,000), or ($0.16) per common share, for the quarter ended June 30 2003.

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO JUNE 30, 2003:
---------------------------------------------------------

Our revenues for the six months ended June 30, 2004 were $21,083,000, an
increase of 47.0% compared to $14,339,000 for the second quarter of 2003. The
increase in revenues for the six months ended June 30, 2004 was principally due
to the inclusion of the revenues of Aircomp, our joint venture with M-I formed
in July 2003, and an increase in revenues for our Directional Drilling Services,
offset in part by a decrease in revenues in our Casing Services segment.
Revenues for the six months ended June 30, 2004 for the Casing Services,
Directional Drilling Services and Compressed Air Drilling were $4,386,000,
$11,675,000, and $5,022,000, respectively, compared to $ 5,153,000, $6,983,000,
and $2,203,000, respectively, for the six months ended June 30, 2003. Revenues
for the Casing Services segment decreased $767,000, or 14.9%, for the first six
months of 2004, compared to the first six months of 2003, due to an increased
competitive environment in South Texas and a decrease in drilling in Mexico by
PEMEX due to bad weather. Our revenues from Directional Drilling Services
increased $4,692,000, or 67.2%, for the six months of 2004 compared to the
year-ago period, due to an increase in demand for our services and our increased
penetration of the Gulf Coast area. Revenues for the Compressed Air Drilling
Services segment increased $2,819,000, or 128.0% during the six months of 2004
compared to the six months of 2003, principally due to the formation of Aircomp,
our joint venture company with M-I. Through Aircomp, we were able to expand the
geographical areas in which we operate to include geothermal drilling in
California and natural gas drilling in West Texas.

                                       15



<PAGE>

Gross profit, as a percentage of sales, was 25.4% for the six months ended June
30, 2004 compared with 27.4% for the six months ended June 30, 2003. The gross
profit percentage decreased as a result of relatively fixed direct costs and
decreased service pricing in the Casing Services and Compressed Air Drilling
Services segments offset by increased revenues and pricing in the Directional
Drilling segment. Because we have made significant investments in equipment and
have a constant number of operations personnel, many of our costs of revenues
are relatively fixed, and as a result, our gross profit margins are
significantly impacted by either increases or decreases in pricing structures or
revenues.

General and administrative expense was $2,956,000 in 2004 compared with
$2,001,000 in 2003. General and administrative expense increased in 2004
compared to 2003 due to the additional administrative costs associated with
AirComp and the hiring of additional sales force and administrative personnel at
each of the Company's subsidiaries to meet increased demand for our services and
due to increased professional fees and other expenses related to the Company's
financing activities.

Operating income for the six months ended June 30, 2004 totaled $2,398,000, a
24.1% increase over the comparable period in 2003, reflecting the inclusion of
operating income of AirComp and the increased revenues from Directional Drilling
Services, offset in part by a decrease in revenues in our Casing Services
segment. In the comparable period of 2003, operating income was $1,933,000.
Operating income (loss) for the six months ended June 30, 2004 for the Casing
Services, Directional Drilling Services, Compressed Air Drilling Services and
General Corporate segments were $1,225,000, $1,389,000, $812,000 and
($1,028,000), respectively. 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 for the Casing Services
decreased approximately $1,009,000 due reduced revenues. Operating income for
Directional Drilling Services increased approximately $878,000 due to an
increase in demand for our services and increased penetration of the Gulf Coast
area. Compressed Air Drilling Services increased approximately $848,000 due the
expanded geographical areas in which AirComp operates. General Corporate
segments decreased approximately ($259,000) due to increased professional fees
and other expenses related to the Company's financing activities.

Our interest expense decreased to $1,068,000 for the six months of 2004,
compared to $1,480,000 for the six months of the prior year due to the reduction
of our debt.

We had a net income attributed to common shareholders of $935,000, or $0.18 per
common share, for the six months ended June 30, 2004 compared with a net loss of
($763,000), or ($0.19) per common share, for the six months end June 30, 2003.

PRO FORMA RESULTS

The following unaudited pro forma consolidated summary financial information
illustrates the effects of the formation of AirComp on the Company's results of
operations, based on the historical statements of operations, as if the
transaction had occurred as of the beginning of the periods presented. Pro forma
results of operations set forth below includes results of operations for the six
months ended June 30, 2004 and 2003.

Pro forma revenues for the six months of 2004 totaled $21,083,000, compared to
pro forma sales in the six months of 2003 of $16,061,000, an increase of
approximately 31%. The increase in 2004 compared to 2003 was primarily due to
higher revenues resulting from the overall upturn in the petroleum industry. Pro
forma sales for the second six months of 2004 for AirComp totaled $3,925,000,
compared to pro forma sales in the second six months of 2003 of $2,203,000. The
pro forma sales in 2004 for AirComp increased $1,722,000 due to increased
drilling activity in West Texas and a slight increase in activity in the San
Juan basin over the same period in 2003.

Pro forma gross profit, as a percentage of sales, was 25.4% for the six months
ended June 30, 2004 compared with a pro forma gross margin of 31.0% for the six
months ended June 30, 2003. The gross margin ratio decreased as a result of
relatively fixed direct costs and decreased revenues and service pricing in the
Casing Services and Compressed Air Drilling Services segments, offset in part
by increased revenues and service pricing in the Directional Drilling segment.
Because we have made significant investments in equipment and have a constant
number of operations personnel, many of our costs of revenues are relatively
fixed, and as a result, our gross profit margins are significantly impacted by
either increases or decreases in revenues.

                                       16



<PAGE>

Pro forma general and administrative expense was $2,956,000 in 2004 compared
with $2,001,000 in 2003. The pro forma general and administrative expense
increased in 2004 due to the overhead costs associated with AirComp and the
hiring of additional sales force and administrative personnel at each of the
Company's subsidiaries to meet increased demand in the market.

The Company had pro forma operating income for the first six months of 2004 of
$2,398,000, an increase of 8% as compared to pro forma operating income of
$2,206,000 in the first six months of 2003. The increase in pro forma operating
income for 2004 was primarily due to higher revenues resulting from the overall
upturn in the petroleum industry.

The Company incurred a pro forma net income of $935,000, or $0.18 per common
share, for the six months ended June 30, 2004 compared with a pro forma net loss
of ($394,000), or ($0.10) per common share, for the six months ended June 30
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 June 30, 2004.
<TABLE>
                                           PAYMENTS DUE BY PERIOD
                                           ---------------------------------------------------------------------
                                                                                                     AFTER 5
CONTRACTUAL OBLIGATIONS                         TOTAL         1 YEAR       2-3 YEARS     4-5 YEARS   YEARS
-----------------------                         -----         ------       ---------     ---------   -------
<S>                                        <C>            <C>            <C>           <C>           <C>
Notes payable                              $   31,011,000 $    7,608,000  $ 13,051,000  $ 10,352,000  $     -
Interest Payments on notes payable              2,016,000        495,000       848,000       673,000        -
Operating Lease                                   756,000        318,000       323,000       115,000        -
Employment Contracts                            2,818,000      1,006,000     1,812,000             -        -
                                           -------------- --------------  ------------  ------------  -------
Total Contractual Cash Obligations         $   36,601,000 $    9,427,000  $ 16,034,000  $ 11,140,000  $     -
                                           ============== ==============  ============  ============  =======
</TABLE>

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

Cash and cash equivalents totaled $485,000 at June 30, 2004 compared to
$1,299,000 at December 31, 2003. The decrease in cash and cash equivalents was
due to $1,879,000 in purchases of equipment, $1,331,000 of repayment of
long-term debt, and $211,000 of debt issuances costs offset in part by $742,000
in net cash provided by operating activities and $1,865,000 of net proceeds from
the issuance of common stock.

Net trade receivables at June 30, 2004 were $10,305,000 compared to $8,823,000
at December 31, 2003, due to increased sales at Strata and AirComp.

Net property, plant and equipment were $27,234,000 at June 30, 2004 compared to
$26,339,000 at December 31, 2003. The increase in net property, plant and
equipment was due to the addition of approximately $788,000 of downhole motors
and other assets used in the operations at Strata, the addition of casing
equipment of approximately $425,000 at Jens', and capital repairs to the
existing equipment of approximately $664,000 at AirComp. Capital expenditures
for the six months of 2004 were $1,879,000 compared to capital expenditures for
2003 of $821,000. Capital expenditures for the balance of 2004 are projected to
be approximately $3,100,000. We expect these expenditures will be funded from
operating cash flows and lines of credit already in place available for capital
projects.

Trade accounts payable at June 30, 2004 were $3,391,000 as compared to
$3,133,000 at December 31, 2003. The increase was primarily due to increased
operational expenses.

                                       17



<PAGE>

At June 30, 2004, other current liabilities, excluding the current portion of
long-term debt and trade accounts payable, were $2,762,000 consisting of
interest in the amount of $212,000, accrued salary and benefits in the amount of
$677,000, income taxes payable of $45,000, accrued restructuring costs of
$98,000, related party payables of $541,000, accrued operating expenses of
$1,153,000, and legal and professional expenses in the amount of $36,000.
Included in accrued restructuring costs was compensation in the amount of
$98,000 due to former employees of the Company. At December 31, 2003, other
current liabilities, excluding the current portion of long-term debt and trade
accounts payable, were $3,291,000 consisting of interest in the amount of
$152,000, accrued salary and benefits in the amount of $591,000, income taxes
payable of $45,000, accrued restructuring costs of $296,000, related party
payables of $787,000, accrued operating expenses of $1,358,000, and legal and
professional expenses in the amount of $62,000. Included in accrued
restructuring costs was compensation in the amount of $166,000 due to former
employees of the Company. All of these balance sheet accounts decreased
significantly from December 31, 2003 balances due to increased cash flow from
operations.

Long-term debt including current maturities was $31,011,000 at June 30, 2004 as
compared to $32,233,000 at December 31, 2003. The decrease in long-term debt
resulted from scheduled principal repayments as well as a prepayment on Strata's
vendor financed note of approximately $637,000.

CAPITAL REQUIREMENTS

Our long-term capital needs are to repay and/or refinance our existing debt,
provide funds for existing operations, 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 equity or debt securities, as well as secured and unsecured loans.
See "Recent Developments" below for a discussion of capital transactions
completed subsequent to June 30, 2004. In March 2004, we entered into an
agreement with Morgan Joseph & Co. Inc. to assist us in restructuring our
outstanding debt and to pursue an offering of its common stock. However, there
can be no assurance that the Company will be successful in such efforts. Any new
issuance of equity securities may further dilute existing shareholders.

RECENT DEVELOPMENTS

The Company effected a reverse stock split on June 10, 2004 in order to increase
the share price of the common stock. As a result of the reverse stock split,
every five shares of the Company's common stock were combined into one share of
common stock. The reverse stock split reduced the number of shares of
outstanding common stock from 31,393,789 to approximately 6,265,000 and reduced
the number of stockholders of the Company from approximately 6,070 to
approximately 2,140. The Company currently has an application pending to list
the Common Stock on the American Stock Exchange, which has an initial listing
requirement that the Common Stock trade for a minimum of $3.00 per share and
certain other qualitative and quantative listing requirements. There can be no
assurance that the Company will be successful in listing the Common Stock on the
American Stock Exchange.

On July 17, 2004 our Strata and Jens subsidiaries entered into amendments to
their respective Wells Fargo Credit, Inc. credit agreements. The amendments
provide for an increase in the permitted capital expenditures in 2004 by Strata,
and also permitted additional indebtedness by Jens. Each of the amendments also
included consents to a $10.0 million to $15.0 million equity offering by us and
waived any requirement that the net proceeds be contributed to Strata or Jens
and used to prepay outstanding borrowings under the credit facilities.

On August 10, 2004 we completed the private placement of 3,504,677 shares of our
common stock at a price of $3.00 per share. Net proceeds to us, after selling
commissions and expenses, are estimated to be $9.6 million. The private
placement was structured as what is known as a "private investment in public
equity" or "PIPE" offering, in which we issued shares pursuant to an exemption
from the Securities Act of 1933, and have agreed to subsequently register the
common stock under the Securities Act of 1933 to allow investors to resell the
common stock in public markets.

We will use the net proceeds of the offering to reduce debt, for acquisitions,
and for general corporate purposes. While we are in discussions and in the
analysis phase with potential acquisition candidates, as of this date, the
Company has not entered into definitive agreements with respect to any
acquisition.

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<PAGE>

ITEM 4. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our chief executive officer
and our chief accounting officer have evaluated the effectiveness of the
Company's "disclosure controls and procedures" (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of the end of the period covered by this Report (the
"Evaluation Date"), and have concluded that, as of the Evaluation Date, our
disclosure controls and procedures are effective in enabling us to record,
process, summarize, and report information required to be included in our SEC
filings within the required time period. Since the Evaluation Date, there have
not been any significant changes in our internal controls, or in other factors
that could significantly affect these controls subsequent to the Evaluation
Date.

It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of future
events.


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<PAGE>

                                     PART II

ITEM 1. LEGAL PROCEEDINGS.


The Company is a defendant in an action (the "Action") brought in April 2004
(No. 04CV308) in the District Court of Mesa County Colorado by the former owner
of Mountain Air Drilling Service Company, Inc. nka Pattongill & Murphy, Inc.,
from whom the Company's Mountain Compressed Air, Inc. ("MCA") acquired assets in
2001. The plaintiff seeks to accelerate payment of a note (the "Note") issued in
connection with the acquisition and are seeking $1,863,000 in damages
(representing principal and interest due under the Note), on the basis that MCA
has failed to provide financial statements required by the Note. The Company
believes the claim is without merit because MCA no longer maintains separate
financial statements and the Company provides plaintiff with the Company's
publicly available financial statements. The financial statements disclose as a
separate segment the operations of AirComp, which conducts business using the
assets acquired from plaintiff. In addition, the rights of the holder of the
Note are subordinated to certain senior lease obligations, and therefore even if
the plaintiff had the right to accelerate the debt under the terms of the Note,
the plaintiff is prevented from doing so pursuant to the terms of the
subordination agreement until September, 2007, at which time the Note will
mature by its terms. Finally, the Company has claims in the amount of $12,000
for legal fees and other expenses that the plaintiff agreed to pay the Company
in connection with the settlement of an earlier lawsuit involving the
acquisition of assets from plaintiff.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

On April 2, 2004, the Company completed the following transactions:

         o        In exchange for an investment of $2.0 million, the Company
                  issued 620,000 shares of common stock for a purchase price
                  equal to $2.50 per share, and issued warrants to purchase
                  800,000 shares of common stock at an exercise price of $2.50
                  per share, expiring on April 1, 2006, to an investor group
                  (the "Investor Group") consisting of entities affiliated with
                  Donald and Christopher Engel and directors Robert Nederlander
                  and Leonard Toboroff. The aggregate purchase price for the
                  common stock was $1,550,000, and the aggregate purchase price
                  for the warrants was $450,000. The transaction did not involve
                  a public offering and was exempt from registration under the
                  Securities Act of 1933 pursuant to Regulation D of the
                  Securities and Exchange Commission.

         o        Energy Spectrum converted its 3,500,000 shares of Series A 10%
                  Cumulative Convertible Preferred Stock, including accrued
                  dividend rights, into 1,718,090 shares of common stock. The
                  conversion of the preferred stock will have an impact on the
                  earnings per share in future periods since the Company will
                  not record any dividends. The transaction did not involve a
                  public offering and was exempt from registration under the
                  Securities Act of 1933 pursuant to Regulation D of the
                  Securities and Exchange Commission.

         o        The Company, the Investor Group, Energy Spectrum, and director
                  Saeed Sheikh, and officers and directors Munawar H.
                  Hidayatallah and Jens H. Mortensen entered into a stockholders
                  agreement pursuant to which the parties have agreed to vote
                  for the election to the board of directors of the Company
                  three persons nominated by Energy Spectrum, two persons
                  nominated by the Investor Group and one person nominated by
                  Messrs. Hidayatallah, Mortensen and Sheikh. In addition, the
                  parties and the Company agreed that in the event the Company
                  has not effected a public offering of its shares prior to
                  September 30, 2005, then, at the request of Energy Spectrum,
                  the Company will retain an investment banking firm to identify
                  candidates for a transaction involving the sale of the Company
                  or its assets.


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<PAGE>

ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) List of Documents Filed
    -----------------------

The Index to Financial Statements is included on page 2 of this report.
Financial statements Schedules not included in this report have been omitted
because they are not applicable or the required information is included in the
Financial Statements or Notes thereto. The exhibits listed on the Exhibit Index
located at Page 19 of this Quarterly Report are filed as part of this Form 10-Q.

(b) Reports on Form 8-K
    -------------------

Reports on Form 8-K were filed on June 3, 2004 and on June 24, 2004.


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on August 16, 2004.


                                               ALLIS-CHALMERS CORPORATION
                                           -------------------------------------
                                                       (Registrant)

                                           /S/ MUNAWAR H. HIDAYATALLAH
                                           -------------------------------------
                                           Munawar H. Hidayatallah
                                           Chief Executive Officer and Chairman





                                       21



<PAGE>


                                  EXHIBIT INDEX

3.1      Amended and Restated Certificate of Incorporation of Allis-Chalmers
         Corporation.

3.4      Certificate of Amendment of Certificate of Incorporation filed with the
         Delaware Secretary of State on June 9, 2004.

4.1      Specimen Stock Certificate of Common Stock of Allis-Chalmers
         Corporation.

10.45    Fourth Amendment to Credit Agreement dated as of January 30, 2004, by
         and between Strata Directional Technologies, Inc., and Wells Fargo
         Credit Inc.

10.46    Second Amendment to Credit Agreement dated as of April 2, 2004, between
         AirComp, LLC and Wells Fargo Bank, NA.

10.47    *Employment Agreement dated as of April 1, 2004 between Registrant and
         Munawar H. Hidayatallah.

10.48    *Employment Agreement dated as of April 1, 2004 between Registrant and
         David Wilde

10.49    Stock and Warrant Purchase Agreement dated April 2, 2004 by and among
         Registrant and Donald Engel, Christopher Engel and Leonard Toboroff.

10.50    Form of Warrant issued to Investors pursuant to Stock and Warrant
         Purchase Agreement dated April 2, 2004 by and among Registrant and
         Donald Engel, Christopher Engel and Leonard Toboroff.

10.51    Preferred Stock Conversion Agreement dated April 2, 2004 by and between
         Registrant and Energy Spectrum Partners LP

10.52    Amendment to Credit Agreement by and between Registrant and Wells Fargo
         Energy Capital dated April 2, 2004.

10.53    Fifth Amendment to Credit Agreement dated as of April 6, 2004, by and
         between Strata Directional Technology, Inc., and Wells Fargo Credit
         Inc.

10.54    Third Amendment to Credit Agreement dated as of April 6, 2004, by and
         between Jens Oilfield Service, Inc. and Wells Fargo Credit Inc.

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

31.2     Certification of Chief Accounting Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002.

32.1     Certification of the Chief Executive Officer and Chief Accounting
         Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906
         of the Sarbanes-Oxley Act of 2002.

         *        Compensation Plan or Arrangement



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