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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, 2001 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
          incorporation or organization) |  | (I.R.S. Employer
          Identification No.)

8150 Lawndale, Houston, TX 77012
  4180 Cherokee Drive, Brookfield, WI 53045 (Former address)

---

(Address of principal executive
  offices) (Zip code)


(713) 928-6200

---

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 16, 2001 were 11,588,128 shares of Common Stock outstanding.





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TABLE OF CONTENTS



|                              |                                              |                                   |  |  |  |  |  | 
|----------------------------- | -------------------------------------------- | --------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                
|                              |                                              | STATEMENTS OF OPERATIONS         
|                              |                                              | STATEMENTS OF FINANCIAL CONDITION
|                              |                                              | STATEMENTS OF CASH FLOWS         
|                              |                                              | NOTES TO FINANCIAL STATEMENTS    
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                   
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K    
|SIGNATURE                    
|Exhibit Index                
|EXHIBIT 10.1                 



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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES




STATEMENTS OF OPERATIONS

|                                     |                  |                                                                                     |       |                    |        |                   |     |                               |        |      |       |      |        |   |     |   |        |  
|------------------------------------ | ---------------- | ----------------------------------------------------------------------------------- | ----- | ------------------ | ------ | ----------------- | --- | ----------------------------- | ------ | ---- | ----- | ---- | ------ | - | --- | - | ------ | -
|                                     |                  |                                                                                     |       | Three Months Ended |        | Nine Months Ended
|                                     |                  |                                                                                     |       | September 30       |        | September 30     
|                                     |                  |                                                                                     |       |                    |        |                  
|                                     |                  |                                                                                     |       | 2001               |        | 2000              |     | 2001                          |        | 2000
|                                     |                  |                                                                                     |       |                    |        |                   |     |                               |        |     
|                                     |                  |                                                                                     |       |                    |        |                   |     | (thousands, except per share) |        |      |       |     
|Sales                                |                  | $                                                                                   | 2,463 |                    |        | $                 | 0   |                               |        | $    | 5,070 |      |        | $ | 0   |  
|Cost of sales                        |                  |                                                                                     | 1,715 |                    |        |                   | 0   |                               |        |      | 3,596 |      |        |   | 0   |  
|                                     |                  |                                                                                     |       |                    |        |                   |     |                               |        |      |       |      |        |   |     |  
|                                     |                  | Gross Margin                                                                        |       |                    | 748    |                   |     |                               | 0      |      |       |      | 1,474  |   |     |   | 0      |  
|Marketing and administrative expense |                  |                                                                                     | 821   |                    |        |                   | 102 |                               |        |      | 2,239 |      |        |   | 274 |  
|                                     |                  |                                                                                     |       |                    |        |                   |     |                               |        |      |       |      |        |   |     |  
|                                     |                  | Income/(Loss) from Operations                                                       |       |                    | (73    | )                 |     |                               | (102   | )    |       |      | (765   | ) |     |   | (274   | )
|Other income (expense)               |                  |                                                                                     |       |                    |        |                   |     |                               |        |      |       |      |        |   |     |  
|                                     | Interest income  |                                                                                     |       | (1                 | )      |                   |     | 0                             |        |      |       | 0    |        |   |     | 0 |       
|                                     | Interest expense |                                                                                     |       | (171               | )      |                   |     | 0                             |        |      |       | (523 | )      |   |     | 0 |       
|                                     | Other            |                                                                                     |       | 57                 |        |                   |     | 0                             |        |      |       | 59   |        |   |     | 0 |       
|                                     |                  |                                                                                     |       |                    |        |                   |     |                               |        |      |       |      |        |   |     |  
|                                     |                  | Net Income/(Loss)                                                                   |       | $                  | (188   | )                 |     | $                             | (102   | )    |       | $    | (1,229 | ) |     | $ | (274   | )
|                                     |                  |                                                                                     |       |                    |        |                   |     |                               |        |      |       |      |        |   |     |  
|                                     |                  | Net Income/(Loss) per Common Share                                                  |       | $                  | (.09   | )                 |     | $                             | (.26   | )    |       | $    | (1.16  | ) |     | $ | (.69   | )
|                                     |                  |                                                                                     |       |                    |        |                   |     |                               |        |      |       |      |        |   |     |  
|                                     |                  | Weighted average shares outstanding                                                 |       |                    | 1,988  |                   |     |                               | 400    |      |       |      | 1,060  |   |     |   | 400    |  
|                                     |                  |                                                                                     |       |                    |        |                   |     |                               |        |      |       |      |        |   |     |  
|                                     |                  | Pro forma net income (loss) per
common share                                        |       | $                  | (.02   | )                 |     | $                             | (.01   | )    |       | $    | (.11   | ) |     | $ | (.02   | )
|                                     |                  | Pro forma
          weighted average number 
          of common shares outstanding |       |                    | 11,588 |                   |     |                               | 11,588 |      |       |      | 11,588 |   |     |   | 11,588 |  
|                                     |                  |                                                                                     |       |                    |        |                   |     |                               |        |      |       |      |        |   |     |  

This interim statement is unaudited.

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

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ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES




STATEMENTS OF FINANCIAL CONDITION

|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |              |       |       |       | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------------- | ------ | ------------ | ----- | ----- | ----- | 
|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       | September 30, |        | December 31,
|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       | 2001          |        | 2000        
|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |             
|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       | (thousands)  
|Assets                                     |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |              |       |      
|Cash and cash equivalents                  |                                                                                                                                                                                                                                                                                                                                                                         | $                                          | 289   |               |        | $            | 4     |      
|Trade receivables, net                     |                                                                                                                                                                                                                                                                                                                                                                         |                                            | 1,561 |               |        |              |      |      
|Inventories, net                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            | 59    |               |        |              |      |      
|Common stock subscribed                    |                                                                                                                                                                                                                                                                                                                                                                         |                                            |      |               |        |              | 1,838 |      
|Due from related party                     |                                                                                                                                                                                                                                                                                                                                                                         |                                            | 33    |               |        |              | 104   |      
|Other current assets                       |                                                                                                                                                                                                                                                                                                                                                                         |                                            | 877   |               |        |              | 20    |      
|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |              |       |      
|                                           |                                                                                                                                                                                                                                                                                                                                                                         | Total Current Assets                       |       |               | 2,819  |              |       |       | 1,966 | 
|Net property, plant and equipment          |                                                                                                                                                                                                                                                                                                                                                                         |                                            | 8,265 |               |        |              |      |      
|Goodwill and other intangibles, net        |                                                                                                                                                                                                                                                                                                                                                                         |                                            | 4,580 |               |        |              |      |      
|Other assets                               |                                                                                                                                                                                                                                                                                                                                                                         |                                            |      |               |        |              | 394   |      
|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |              |       |      
|                                           |                                                                                                                                                                                                                                                                                                                                                                         | Total Assets                               |       | $             | 15,664 |              |       | $     | 2,360 | 
|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |              |       |      
|Liabilities and Shareholders Equity       |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |              |       |      
|Current maturities of long-term debt       |                                                                                                                                                                                                                                                                                                                                                                         | $                                          | 6,174 |               |        | $            |      |      
|Trade accounts payable                     |                                                                                                                                                                                                                                                                                                                                                                         |                                            | 516   |               |        |              | 12    |      
|Accrued employee benefits                  |                                                                                                                                                                                                                                                                                                                                                                         |                                            | 476   |               |        |              |      |      
|Other current liabilities                  |                                                                                                                                                                                                                                                                                                                                                                         |                                            | 421   |               |        |              |      |      
|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |              |       |      
|                                           |                                                                                                                                                                                                                                                                                                                                                                         | Total Current Liabilities                  |       |               | 7,587  |              |       |       | 12    | 
|Accrued postretirement benefit obligations |                                                                                                                                                                                                                                                                                                                                                                         |                                            | 862   |               |        |              |      |      
|Long-term debt                             |                                                                                                                                                                                                                                                                                                                                                                         |                                            | 2,617 |               |        |              |      |      
|Shareholders equity (See Note 6)          |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |              |       |      
|                                           | Common
          stock ($.15 par value; 1,988,128 actual and
          11,588,128 pro forma shares issued and 
          outstanding at September 30, 2001, as restated
          for the re-capitalization on May 9, 2001, 
          see note 6; and 400,000 actual and 11,588,128
          pro forma shares issued and outstanding at 
          December 31, 2000) |                                            |       | 298           |        |              |       | 60    |      
|                                           | Capital in excess of par value                                                                                                                                                                                                                                                                                                                                          |                                            |       | 6,156         |        |              |       | 2,915 |      
|                                           | Accumulated deficit                                                                                                                                                                                                                                                                                                                                                     |                                            |       | (1,856        | )      |              |       | (627  | )    
|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |              |       |      
|                                           |                                                                                                                                                                                                                                                                                                                                                                         | Total Shareholders Equity                 |       |               | 4,598  |              |       |       | 2,348 | 
|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |              |       |      
|                                           |                                                                                                                                                                                                                                                                                                                                                                         | Total Liabilities and Shareholders Equity |       | $             | 15,664 |              |       | $     | 2,360 | 
|                                           |                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |               |        |              |       |      

This interim statement is unaudited.

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

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ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES




STATEMENTS OF CASH FLOWS

|                                                 |                                                                                                    |                                              |                                                            |        |     |                   |    |      |   |      |   | 
|------------------------------------------------ | -------------------------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------------------------- | ------ | --- | ----------------- | -- | ---- | - | ---- | - | 
|                                                 |                                                                                                    |                                              |                                                            |        |     | Nine Months Ended
|                                                 |                                                                                                    |                                              |                                                            |        |     | September 30,    
|                                                 |                                                                                                    |                                              |                                                            |        |     |                  
|                                                 |                                                                                                    |                                              |                                                            |        |     | 2001              |    | 2000
|                                                 |                                                                                                    |                                              |                                                            |        |     |                   |    |     
|                                                 |                                                                                                    |                                              |                                                            |        |     | (thousands)      
|Cash flows from operating activities:            |                                                                                                    |                                              |                                                            |        |     |                   |    |     
|                                                 | Net loss                                                                                           |                                              | $                                                          | (1,229 | )   |                   | $  | (274 | )
|                                                 | Adjustments
          to reconcile net loss to net cash (used)
           by operating activities: |                                              |                                                            |        |     |                   |    |      |  
|                                                 |                                                                                                    | Depreciation and amortization                |                                                            |        | 579 |                   |    |      |  |     
|                                                 |                                                                                                    | Issuance of stock options for services       |                                                            |        | 500 |                   |    |      |  |     
|                                                 |                                                                                                    | Changes in operating assets and liabilities: |                                                            |        |     |                   |    |      |   |     
|                                                 |                                                                                                    |                                              | Trade receivables, net                                     |        |     | (707              | )  |      |   |     |  
|                                                 |                                                                                                    |                                              | Inventories                                                |        |     | (4                | )  |      |   |     |  
|                                                 |                                                                                                    |                                              | Trade accounts payable                                     |        |     | 552               |    |      |   |     |  
|                                                 |                                                                                                    |                                              | Other current items                                        |        |     | (33               | )  |      |   | 528  |  
|                                                 |                                                                                                    |                                              | Other                                                      |        |     | (64               | )  |      |   |     |  
|                                                 |                                                                                                    |                                              |                                                            |        |     |                   |    |     
|                                                 |                                                                                                    |                                              | Net cash
          provided (used) by operating activities |        |     | (406              | )  |      |   | 254  |  
|Cash flows from investing activities:            |                                                                                                    |                                              |                                                            |        |     |                   |    |     
|                                                 | Acquisitions, net of cash acquired                                                                 |                                              |                                                            | (9,730 | )   |                   |    | (494 | )
|                                                 | Capital expenditures                                                                               |                                              |                                                            | (303   | )   |                   |    |     |  
|                                                 | Proceeds from sale of equipment                                                                    |                                              |                                                            | 3,549  |     |                   |    |     |  
|                                                 |                                                                                                    |                                              |                                                            |        |     |                   |    |     
|                                                 |                                                                                                    |                                              | Net cash (used) by investing activities                    |        |     | (6,484            | )  |      |   | (494 | )
|Cash flows from financing activities:            |                                                                                                    |                                              |                                                            |        |     |                   |    |     
|                                                 | Proceeds from issuance of long-term debt                                                           |                                              |                                                            | 5,866  |     |                   |    |     |  
|                                                 | Proceeds from issuance of common stock                                                             |                                              |                                                            | 1,838  |     |                   |    | 250  |  
|                                                 | Debt issuance costs                                                                                |                                              |                                                            | (190   | )   |                   |    |     |  
|                                                 | Payments of long-term debt                                                                         |                                              |                                                            | (339   | )   |                   |    |     |  
|                                                 |                                                                                                    |                                              |                                                            |        |     |                   |    |     
|                                                 |                                                                                                    |                                              | Net cash provided by financing activities                  |        |     | 7,175             |    |      |   | 250  |  
|                                                 |                                                                                                    |                                              |                                                            |        |     |                   |    |     
|Net increase in cash and cash equivalents        |                                                                                                    |                                              | 285                                                        |        |     |                   | 10 |     
|Cash and cash equivalents at beginning of period |                                                                                                    |                                              | 4                                                          |        |     |                   |   |     
|                                                 |                                                                                                    |                                              |                                                            |        |     |                   |    |     
|Cash and cash equivalents at end of period       |                                                                                                    | $                                            | 289                                                        |        |     | $                 | 10 |     
|                                                 |                                                                                                    |                                              |                                                            |        |     |                   |    |     
|Supplemental information  interest paid         |                                                                                                    | $                                            | 429                                                        |        |     | $                 |   |     
|                                                 |                                                                                                    |                                              |                                                            |        |     |                   |    |     

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ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CASH FLOWS (CONTINUED)

|                                                                                                                              |                                     |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- |  | - | ------ | -
|Non-cash
          investing and financing transactions in connection 
          with the acquisition of Mountain Air assets: |                                     |  |   |       
|                                                                                                                              | Fair value of net assets acquired   |  | $ | (9,970 | )
|                                                                                                                              | Goodwill and other intangibles      |  |   | (2,656 | )
|                                                                                                                              | Note payable to prior owner         |  |   | 2,200  |  
|                                                                                                                              | Other adjustments                   |  |   | 579    |  
|                                                                                                                              |                                     |  |   |       
|                                                                                                                              | Net cash paid to acquire subsidiary |  | $ | (9,847 | )
|                                                                                                                              |                                     |  |   |       

|                                                                                                                               |                                              |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------- |  | - | ------ | -
|Non-cash
          investing transactions in connection with the merger of Allis-Chalmers
          and OilQuip Rentals, Inc.: |                                              |  |   |       
|                                                                                                                               | Value of common stock exchanged              |  |   | 2,779  |  
|                                                                                                                               | Fair value of net assets, less cash received |  |   | (1,102 | )
|                                                                                                                               | Goodwill and other intangibles               |  |   | (1,560 | )
|                                                                                                                               |                                              |  |   |       
|                                                                                                                               | Net cash received in acquisition             |  |   | 117    |  
|                                                                                                                               |                                              |  |   |       
|                                                                                                                               | Business acquisitions, net of cash received  |  | $ | (9,730 | )
|                                                                                                                               |                                              |  |   |       

This interim statement is unaudited.

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

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NOTES TO FINANCIAL STATEMENTS

NOTE 1  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, 2000, and the Current Reports on Forms 8-K and 8-K/A filed
on May 15, 2001 and July 17, 2001, respectively.

On May 9, 2001, OilQuip Rentals, Inc., an oil and gas rental company
(OilQuip), merged into a subsidiary of Allis-Chalmers. In the merger, all of
OilQuips outstanding common stock was converted into 400,000 shares of
Allis-Chalmers common stock and the right to receive an additional 9,600,000
shares of Allis-Chalmers common stock upon the filing of an amendment to the
Amended and Restated Certificate of Incorporation (Certificate) to authorize
the issuance of such shares.

For legal purposes, Allis-Chalmers acquired OilQuip, the parent company of
Mountain Compressed Air, Inc. (MCA). However, for accounting purposes
OilQuip was treated as the acquiring company in a reverse acquisition of
Allis-Chalmers. The financial statements prior to the merger are the financial
statements of OilQuip. As a result, the fixed assets, goodwill and other
intangibles of Allis-Chalmers are increased by $2,515,000. Goodwill and other
intangibles are being amortized over 10 years and the fixed assets are being
depreciated over 10 years, except for a building which is being depreciated
over 20 years.

OilQuip was incorporated on February 4, 2000 to find and acquire targets to
operate as subsidiaries.

During the period February 4, 2000 (Inception) to February 6, 2001, OilQuip had
been in the development stage. OilQuips activities through February 6, 2001
consisted of developing its business plan, raising capital and negotiating with
potential acquisition targets.

On February 6, 2001, OilQuip, through its subsidiary MCA, acquired certain
assets of Mountain Air Drilling Service Co., Inc. (Mountain Air), whose
business consists of providing equipment and trained personnel in the four
corner areas of the southwestern United States. MCA primarily provides
compressed air equipment and trained operators to companies in the business of
drilling for natural gas.

Use Of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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. Actual results could differ from those estimates.

All adjustments considered necessary for a fair presentation of the results of
operations 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.

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New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board finalized FASB Statement
No. 141, Business Combinations(SFAS 141), and No. 142, Goodwill and Other
Intangible Assets(SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method
of accounting for business combinations initiated after June 30, 2001. SFAS
141 also requires that the Company recognize acquired intangible assets apart
from goodwill if the acquired intangible assets meet certain criteria. SFAS
141 applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An
intangible asset with an indefinite useful life should be tested for impairment
in accordance with the guidance in SFAS 142. SFAS 142 is required to be
applied in fiscal years beginning after December 15, 2001 to all goodwill and
other intangible assets recognized at the date, regardless of when those assets
were initially recognized. SFAS 142 requires the Company to complete a
transitional goodwill impairment test six months from the date of adoption.
The Company is also required to reassess the useful lives of other intangible
assets within the first interim quarter after adoption of SFAS 142.

The Companys previous business combinations were accounted for using the
purchase method. As of September 30, 2001, the net carrying amount of goodwill
is $4,147,000 and other intangible assets is $433,000. Amortization expense
during the nine-month period ended September 30, 2001 was $161,000. Currently,
the Company is assessing but has not yet determined how the adoption of SFAS
141 and SFAS 142 will impact its financial position and results of operations.

Issuance of Stock Options

The Company recorded expense for the issuance of stock options for 500,000
shares of common stock to a director in the second quarter 2001 after
shareholders approved an increase of authorized shares of common stock for the
Company. The increase in authorized shares is necessary to accommodate any
future exercise of the options. After further review of the transaction and
recent accounting standards, the Company recorded expense of $500,000 for the
issuance of the stock options in the second quarter instead of when the
authorization of additional shares is approved.

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Pro Forma Shares Outstanding

The earnings per share for the 2000 periods has been changed to give effect to
the recapitalization of the Company, which occurred in the reverse acquisition
of Allis-Chalmers on May 9, 2001. Under the recapitalization, the original
number of shares outstanding of the formerly private company, OilQuip, are
considered to have been exchanged for the 400,000 shares of Allis-Chalmers that
were issued on the date of the reverse acquisition to the owners of OilQuip
Rentals, Inc. As a result, the 400,000 shares are presented in place of the
originally issued shares of OilQuip. In addition, pro forma per share data is
presented that includes an additional 9,600,000 shares of Allis-Chalmers that
were issued October 15, 2001 in connection with the reverse acquisition.

NOTE 2  POSTRETIREMENT OBLIGATIONS PENSION PLAN

In 1994, Allis-Chalmers independent pension actuaries changed the assumptions
for mortality and administrative expenses used to determine the liabilities of
the Allis-Chalmers Consolidated Pension Plan (the Consolidated Plan).
Primarily as a result of the changes in mortality assumptions to reflect
decreased mortality rates of Allis-Chalmers retirees, the Consolidated Plan
was underfunded on a present value basis. In the first quarter of 1996,
Allis-Chalmers made a required cash contribution to the Consolidated Plan in
the amount of $205,000. Allis-Chalmers did not, however, have the financial
resources to make the other required payments during 1996 and 1997. Given the
inability of Allis-Chalmers to fund such obligations with its current financial
resources, in February 1997, Allis-Chalmers applied to the Pension Benefit
Guaranty Corporation (PBGC) for a distress termination of the Consolidated
Plan under section 4041(c) of the Employee Retirement Income Security Act of
1974, as amended (ERISA). The PBGC approved the distress termination
application in September 1997 and agreed to a plan termination date of April
14, 1997. The PBGC became trustee of the terminated Consolidated Plan on
September 30, 1997.

Upon termination of the Consolidated Plan, Allis-Chalmers and its subsidiaries
incurred a liability to the PBGC for an amount equal to the Consolidated Plans
unfunded benefit liabilities. Allis-Chalmers and its subsidiaries also had
liability to the PBGC, as trustee of the terminated Consolidated Plan, for the
outstanding balance of the Consolidated Plans accumulated funding
deficiencies. The PBGC estimated that the unfunded benefit liabilities and the
accumulated funding deficiencies (together, the PBGC Liability) total
approximately $67.9 million. Effective March 31, 1999, Allis-Chalmers issued
585,100 shares to the PBGC reducing the pension liability by the estimated fair
market value of the shares to $66.9 million.

In September 1997, Allis-Chalmers and the PBGC entered into an agreement in
principle for the settlement of the PBGC Liability which required, among other
things, satisfactory resolution of Allis-Chalmers tax obligations with respect
to the Consolidated Plan under Section 4971 of the Internal Revenue Code of
1986, as amended (Code). Section 4971(a) of the Code imposes, for each
taxable year, a first-tier tax of 10% on the amount of the accumulated funding
deficiency under a plan like the Consolidated Plan. Section 4971(b) of the
Code imposes an additional, second-tier tax equal to 100% of such accumulated
funding deficiency if the deficiency is not corrected within a specified
period. Liability for the taxes imposed under Section 4971

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extends, jointly and severally, to Allis-Chalmers and to its
commonly-controlled subsidiary corporations.

Prior to its termination, the Consolidated Plan had an accumulated funding
deficiency in the taxable years 1995, 1996, and 1997. Those deficiencies
resulted in estimated first-tier taxes under Code Section 4971(a) of
approximately $900,000.

On July 16, 1998, Allis-Chalmers and the Internal Revenue Service (IRS)
reached an agreement in principle to settle Allis-Chalmers tax liability under
Code Section 4971 for $75,000. Following final IRS approval, payment of this
amount was made on August 11, 1998.

In June 1999, but effective as of March 31, 1999, Allis-Chalmers and the PBGC
entered into an agreement for the settlement of the PBGC Liability (the PBGC
Agreement). Pursuant to the terms of the PBGC Agreement, Allis-Chalmers
issued 585,100 shares of its common stock to the PBGC, or 35% of the total
number of shares issued and outstanding on a fully-diluted basis, and
Allis-Chalmers has a right of first refusal with respect to the sale of the
shares of common stock owned by the PBGC. In conjunction with the share
issuance, Allis-Chalmers reduced the pension liability to the PBGC based on the
estimated fair market value of the shares issued on the effective date of March
31, 1999. In accordance with the terms of the PBGC Agreement, Allis-Chalmers
was required to and has (i) decreased the size of the Board of Directors of
Allis-Chalmers (the Board) to seven members; (ii) caused a sufficient number
of then current directors of Allis-Chalmers to resign from the Board and all
committees thereof; and (iii) caused three designees of the PBGC, to be elected
to the Board. The PBGC has caused Allis-Chalmers to amend its By-laws
(By-laws) to conform to the terms of the PBGC Agreement. Furthermore,
Allis-Chalmers agreed to pay the PBGCs reasonable professional fees on the
90th day after a Release Event (as defined below). During the term of the PBGC
Agreement, Allis-Chalmers agreed not to issue or agree to issue any common
stock of Allis-Chalmers or any common stock equivalent for less than fair
value (as determined by a majority of the Board). Allis-Chalmers also agreed
not to merge or consolidate with any other entity or sell, transfer or convey
more than 50% of its property or assets without majority Board approval and
agreed not to amend its Certificate or By-laws. In connection with the Merger,
substantially all of the covenants set forth in the PBGC Agreement were
terminated.

In order to satisfy and discharge the PBGC Liability, the PBGC Agreement
provided that Allis-Chalmers had to either: (i) receive, in a single
transaction or in a series of related transactions, debt financing which makes
available to Allis-Chalmers at least $10 million of borrowings or (ii)
consummate an acquisition, in a single transaction or in a series of related
transactions, of assets and/or a business where the purchase price (including
funded debt assumed) is at least $10 million (Release Event). The merger
with OilQuip (the Merger) on May 9, 2001 (as described in Note 1) constituted
a Release Event, which satisfied and discharged the PBGC Liability.

In connection with the PBGC Agreement, and as additional consideration for
settling the PBGC Liability, the following agreements, each dated as of March
31, 1999 were also entered into: (i) a Registration Rights Agreement between
Allis-Chalmers and PBGC (the Registration Rights

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Agreement); and (ii) a Lock-Up Agreement by and among Allis-Chalmers, the
PBGC, AL-CH Company, L.P., a Delaware limited partnership (AL-CH), Wells
Fargo Bank, as trustee under that certain Amended and Restated Retiree Health
Trust Agreement for UAW Retired Employees of Allis-Chalmers Corporation (the
UAW Trust), and Firstar Trust Company, as trustee under that certain Amended
and Restated Retiree Health Trust Agreement for Non-UAW Retired Employees of
Allis-Chalmers Corporation (the Non-UAW Trust) (the Lock-Up Agreement).

The Registration Rights Agreement grants each holder of Registrable Shares
(defined in the Registration Rights Agreement to basically mean the shares of
common stock issued to the PBGC under the PBGC Agreement) the right to have
their shares registered pursuant to the Securities Act of 1933, as amended, on
demand or incidental to a registration statement being filed by Allis-Chalmers.
In order to demand registration of Registrable Shares, a request for
registration by holders of not less than 20% of the Registrable Shares is
necessary. Allis-Chalmers may deny a request for registration of such shares
if Allis-Chalmers contemplates filing a registration statement within 90 days
of receipt of notice from the holders. The Registration Rights Agreement also
contains provisions that allow Allis-Chalmers to postpone the filing of any
registration statement for up to 180 days. The Registration Rights Agreement
contains indemnification language similar to that usually contained in
agreements of this kind. In connection with the Merger, the PBGC agreed to
waive certain rights to have its shares registered on Registration Statements
on Forms S-1 and S-2 for a twelve (12) month period after the Merger.

The Lock-Up Agreement governs the transfer and disposition of shares of
Allis-Chalmers common stock and the voting of such shares, as well as grants
the PBGC a right of sale of its shares prior to AL-CH, the UAW Trust and the
Non-UAW Trust.

Pursuant to the Lock-Up Agreement, unless the Board has terminated the common
stock transfer restrictions set forth in Article XIII of the Companys
Certificate, AL-CH, the UAW Trust and the Non-UAW Trust each agreed that,
during the period commencing on March 31, 1999 and ending on the third
anniversary of the Release Event, it will not, directly or indirectly, sell,
transfer, assign or dispose of any shares of Company stock it beneficially
owns. Commencing with the third anniversary of the Release Event and
continuing until the fifth anniversary of the Release Event, each of AL-CH, the
UAW Trust and the Non-UAW Trust agreed not to sell, transfer or dispose of any
shares of Allis-Chalmers stock without first giving the PBGC an opportunity to
sell all or any portion of the shares of Allis-Chalmers stock the PBGC owns.
The foregoing right of the PBGC applies to the sale of Allis-Chalmers stock in
a public offering or otherwise.

The Lock-Up Agreement also contains a voting component. During the term of the
Lock-Up Agreement, each party to the agreement agreed to vote, at any meeting
of Allis-Chalmers stockholders and in any written consent, all shares of
Allis-Chalmers stock owned by it in favor of the election as directors of
Allis-Chalmers the persons nominated by the Nominating Committee of the Board
and to refrain from taking any action contrary to or inconsistent with such
obligation. During the term of the Lock-Up Agreement, each party to the
agreement further agreed not to vote its shares of Allis-Chalmers stock or take
any other action to amend Allis-

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Chalmers Certificate or By-laws in a manner that is inconsistent with, or in
breach of, the PBGC Agreement. Each party further agreed that it will vote all
of its shares (i) in favor of certain specified amendments to Allis-Chalmers
Certificate, (ii) for the election of the persons designated by the PBGC (each,
a PBGC Director) to serve on the Board and (iii) in favor of the election of
Allis-Chalmers directors who are committed to cause, and who do cause, one PBGC
Director to be appointed to the Nominating Committee of the Board and one PBGC
Director to be appointed as the Chairman of the Compensation Committee of the
Board. In connection with the Merger, the Lock-Up Agreement was terminated in
its entirety.

NOTE 3  ACQUISITIONS

On January 25, 2001, OilQuip formed a subsidiary, MCA, a Texas corporation. On
February 6, 2001, MCA acquired the business and certain assets of Mountain Air,
a private company, for $10,000,000 (including a $200,000 deposit paid in 2000)
in cash and a $2,200,000 promissory note to the sellers (with interest at 5
3/4 percent and principal and interest due February 6, 2006). The acquisition
was accounted for using the purchase method of accounting. Goodwill of
$2,656,000 was recorded with the acquisition.

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 400,000
shares of Allis-Chalmers common stock and the right to receive the remaining
9,600,000 shares of Allis-Chalmers common stock , which were issued on October
15, 2001. The acquisition was accounted for using the purchase method of
accounting. Goodwill of $1,560,000 was recorded in connection with the Merger.
Effective on the date of the reverse merger, OilQuip financial statements
became the financial statements of the reporting company. Financial statements
prior to the reverse merger are of OilQuip.

NOTE 4    LEASE COMMITMENTS

On February 6, 2001, MCA, a subsidiary of OilQuip, completed the purchase of
certain assets pursuant to an Asset Purchase Agreement with Mountain Air. A
portion of the purchased equipment was sold to a leasing company. The leasing
of the equipment is being accounted for as an operating lease. Lease payments
totaling $3,480,000 will be made over a period of six years.

The Company rents office space on a five-year lease, which expires February 5,
2006. Rent expense for the third quarter of 2001 was $27,000. The Company has
no further lease obligations.

NOTE 5  LONG-TERM DEBT

Long-term debt is primarily a result of the cost of the acquisition of certain
assets of Mountain Air.

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| |  |  | A term loan in the amount of $3,550,000 at 8%, interest
payable monthly, with quarterly principal payments of $147,916.67
due on the last day of April, July, October and January. The
maturity date of the loan is February 7, 2004.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A sellers note in the amount of $2,200,000 at 5.75% simple
interest. The principal and interest are due on February 6, 2004.                                                                                                        
|
| |  |  | Subordinated debt in the amount of $2,000,000 at 12% interest
payable quarterly commencing on April 1, 2001. The principal will
be due upon on January 31, 2004.                                                                     

The Company is currently in default of certain covenants set forth in its term
loan and subordinated debt agreements with Wells Fargo Bank, relating to the
maintenance of certain financial ratios, and is negotiating for a waiver of the
default and an amendment of the credit agreement to provide for ratios with
which the Company will be in compliance. While the Company believes such a
waiver and amendment will be obtained (and, as discussed below, is currently
engaged in negotiations with the lender for additional financing), there can be
no assurance of such fact or that the lender will not exercise its rights under
the credit agreement (and related credit agreements) including the acceleration
of approximately $5.5 million in debt. Accordingly, such debt is recorded as a
current liability on the Companys financial statements. The acceleration of
outstanding debt or any action to enforce the Companys obligations with
respect to such debt (including foreclosure upon security pledged as collateral
for such debt) would have a material adverse effect on the Company. The
company is making all payments to Wells Fargo bank in compliance with the debt
agreements.

In addition to the above acquisition debt, there is also debt resulting from
the Allis-Chalmers Boards decision to establish an arrangement by which to
compensate former and continuing Allis-Chalmers Board members who had served
from 1989 to March 31, 1999 without compensation. Allis-Chalmers issued
promissory notes in the amount of $25,000 each to seven current or former
directors and $150,000 to John T. Grigsby, Jr. a former director and current
Executive Vice President and Chief Financial Officer of Allis-Chalmers. The
notes bear interest at the rate of five percent (5%) and are due March 28,
2005; however, the notes may be prepaid at any time at the discretion of
Allis-Chalmers. In addition, the notes are canceled in the event of a
subsequent bankruptcy of Allis-Chalmers.

NOTE 6  SHAREHOLDERS EQUITY

The changes in shareholders equity in 2001 were as follows:

|                                                                                      |                                      |   |            |           | 
|------------------------------------------------------------------------------------- | ------------------------------------ | - | ---------- | --------- | 
|OilQuip Rentals, Inc. balance at December 31,
        2000                            |                                      | $ | 2,348,000  |          
|Fair
          Value of Warrants Issued in Conjunction
          with MCA Acquisition |                                      |   | 200,000    |          
|Issuance
          of Stock Options to a Shareholder                                  |                                      |   | 500,000    |          
|Allis-Chalmers
           OilQuip Merger/Reorganization                              |                                      |   | 2,779,000  |          
|Net Loss
          Nine Months ended September 30                                     |                                      |   | (1,229,000 | )        
|                                                                                      |                                      |   |            |          
|                                                                                      | Total
          Shareholders Equity |   | $          | 4,598,000 | 

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For legal purposes, Allis-Chalmers acquired OilQuip, the parent company of MCA.
However, for accounting purposes OilQuip was treated as the acquiring company
in a reverse acquisition of Allis-Chalmers. The business combination was
accounted for as a purchase. As a result, $2,779,000, the value of the
Allis-Chalmers common stock outstanding at the date of acquisition, was added
to shareholders equity, which reflects the recapitalization of Allis-Chalmers
and the reorganization of the combined company.

On May 31, 2001, the Board granted to Leonard Toboroff, a director of
Allis-Chalmers, subject to shareholder approval of certain amendments to the
Certificate, an option to purchase 500,000 shares of common stock at $0.50 per
share. The option was granted for services provided by Mr. Toboroff to OilQuip
prior to the Merger, including providing financial advisory services, assisting
in OilQuips capital structure and assisting OilQuip in finding strategic
acquisition opportunities. The Board was apprised of Mr. Toboroffs services
to OilQuip prior to its approval of the Merger. The Company recorded an
expense of $500,000 for the issuance of the options.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS

The statements regarding future performance and results and the other
statements that are not historical facts contained in this report are
forward-looking statements. Statements made in this document that state
Allis-Chalmers or managements intentions, hopes, opinions, plans, estimates,
beliefs, expectations, anticipations or predictions of the future and words of
similar import are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Although Allis-Chalmers
believes that the expectations reflected in such forward-looking statements are
reasonable, Allis-Chalmers can give no assurance that such expectations will
prove to have been correct. Such statements involve risks and uncertainties
including, but not limited to, the risks involved in dealing with other
parties, including the risk that other parties commitments to Allis-Chalmers
and our subsidiaries could be breached, competition, changes in the market for
HDS services, changes in the markets for oil and natural gas and for drilling
rigs and the risks of doing business in changing markets, risks associated with
acquisitions including difficulties in integrating acquired companies, and
changing costs and other factors discussed herein and in our other Securities
and Exchange Commission filings. Should one or more risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual outcomes
may vary materially from those indicated.

On May 9, 2001, OilQuip Rentals, Inc., an oil and gas rental company
(OilQuip), merged into a subsidiary of Allis-Chalmers. In the Merger, all of
OilQuips outstanding common stock was converted into 400,000 shares of
Allis-Chalmers common stock and the right to receive an additional 9,600,000
shares of Allis-Chalmers common stock upon the filing of an amendment to the
Amended and Restated Certificate of Incorporation to authorize the issuance of
such shares.

For legal purposes, Allis-Chalmers acquired OilQuip, the parent company of MCA.
However, for accounting purposes OilQuip was treated as the acquiring company
in a reverse acquisition of Allis-Chalmers. As a result the fixed assets, and
goodwill and other intangibles of Allis-Chalmers are increased by $2,515,000.
Goodwill and other intangibles are being amortized over 10 years and the fixed
assets are being depreciated over 10 years, except for the buildings, which is
being depreciated over 20 years. Effective on the date of the reverse merger,
OilQuip became the reporting company. Financial statements prior to the
reverse merger are of OilQuip.

Results of Operations

Results of operations for 2001 and 2000 reflect the business operations of
OilQuip. The operations of Houston Dynamic Service, Inc., an Allis Chalmers
subsidiary that is involved in the machinery repair and service business
(HDS), is included from the date of the Merger on May 9, 2001.

During the period February 4, 2000 (Inception) to February 6, 2001, OilQuip was
in the developmental stage. OilQuips activities for prior to February 6, 2001
consisted of developing its business plan, raising capital and negotiating with
potential acquisition targets. Therefore, the results for operations for prior
to February 6, 2001 had no sales, cost of sales, or marketing and
administrative expenses that would be reflective of the ongoing company.

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Three months ended September 30, 2001:

Sales in the third quarter of 2001 totaled $2,463,000 in line with
expectations. The reason for the increase from the prior year was the Merger
in May 2001. In the corresponding periods in 2000, OilQuip had no operations.

Gross margin, as a percentage of sales, was 30.4% in the third quarter of 2001.

Marketing and administrative expense was $821,000 in the third quarter of 2001
compared with $102,000 in the prior year. The primary reason for the increase
from the prior year was the Merger and issuance of stock options in May 2001.
A significant portion of the Companys administrative expenses relates Costs
incurred for Securities and Exchange Commission and other governmental filings
as well as legal, accounting and audit, tax, insurance and other corporate
requirements of a publicly held company.

The Company incurred a net loss of $188,000, or $.09 per common share, in the
third quarter of 2001 compared with a loss by OilQuip of $102,000, or $.26 per
common share, in the same period of 2000.

Pro Forma Results

Pro forma sales (taking into account the activities of HDS as well as MCA, an
oil drilling service company acquired by OilQuip in February 2001) in the third
quarter of 2001 totaled $2,463,000 a slight increase from $2,446,000 in the
third quarter of 2000. Pro forma sales at HDS increased to $943,000 compared
with $909,000 in the prior year. HDS continues to be affected by volatile
market conditions that prevail in the oil related fields of refining,
processing, chemicals and petrochemical operating throughout the Gulf Coast.
Pro forma sales at MCA decreased to $1,521,000 compared with $1,537,000 in the
prior year due to difficulties experienced by MCA customers in obtaining
drilling permits. The permitting process has now returned to a normal
schedule.

Pro forma gross margin, as a percentage of sales was 30.4% in the third quarter
of 2001. Additional sales offset the additional cost of depreciation and
equipment lease to improve the margin results from actual.

Pro forma marketing and expense was $821,000 in the third quarter of 2001.
Amortization expense was $71,000 as a result of OilQuips acquisition of MCA
and the Merger. A significant portion of the Companys administrative expenses
relates to costs incurred for Securities and Exchange Commission and other
governmental filings as well as legal, accounting and audit, tax, insurance and
other corporate requirements of a publicly held company.

The Company incurred a pro forma net loss of $188,000, or $.09 per common
share, for the three months ended September 30, 2001.

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Nine months ended September 30, 2001:

Sales in the first nine months of 2001 totaled $5,070,000. The reason for the
increase from the prior year was the Merger in May 2001. In the corresponding
periods in 2000, OilQuip had no operations.

Gross margin, as a percentage of sales, was 29.1% in the first nine months of
2001.

Marketing and administrative expense was $2,239,000 in the first nine months of
2001 compared with $274,000 in the prior year. Amortization expense was
$129,000 as a result of OilQuips acquisition of MCA and the merger between
Allis-Chalmers and OilQuip. The primary reason for the increase from the prior
year was the Merger and issuance of stock options in May 2001. A significant
portion of the Companys administrative expenses relates to costs incurred for
Securities and Exchange Commission and other governmental filings as well as
legal, accounting and audit, tax, insurance and other corporate requirements of
a publicly held company.

The Company incurred a net loss of $1,229,000, or $1.16 per common share, in
the first nine months of 2001 compared with a loss by OilQuip of $274,000, or
$.69. per common share, in the same period of 2000.

Pro Forma Results

Pro forma sales in the first nine months of 2001 totaled $7,462,000, a slight
decrease from $7,654,000 in the first nine months of 2000. Pro forma sales at
HDS increased to $3,501,000 compared with $3,331,000 in the prior year. HDS
continues to be affected by volatile market conditions that prevail in the oil
related fields of refining, processing, chemical and petrochemical operating
throughout the Gulf coasts. Pro forma sales at MCA decreased to $3,961,000
compared with $4,323,000 in the prior year due to difficulties experienced by
MCA customers in obtaining drilling permits. The permitting process has now
returned to a normal schedule.

Pro forma gross margin, as a percentage of sales was 29.7% in the first nine
months of 2001. Additional sales offset the additional cost of depreciation
and equipment lease to improve the margin results from actual.

Pro forma marketing and administrative expense was $3,055,000 in the first nine
months of 2001. Amortization expense was $99,000 as a result of OilQuips
acquisition of MCA and the Merger. A significant portion of the Companys
administrative expenses relates to costs incurred for Securities and Exchange
Commission and other governmental filings as well as legal, accounting and
audit, tax, insurance and other corporate requirements of a publicly held
company.

The Company incurred a pro forma net loss of $1,404,000, or $.12 per common
share, for the nine months ended September 30, 2001.

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Financial Condition and Liquidity

Cash and cash equivalents totaled $289,000 at September 30, 2001, an increase
from $4,000 for OilQuip at December 31, 2000 mainly due to the merger and the
acquisition of MCA.

Other current assets include a lease deposit in the amount of $701,000, a
result of the sale/leaseback to help finance MCAs acquisition of certain
assets of Mountain Air.

Net trade receivables at September 30, 2001 were $1,516,000. This increased
significantly from the December 31, 2000 balance for OilQuip due to the
acquisition of certain assets of Mountain Air and the Merger.

Inventory at September 30, 2001 was $59,000, consistent with HDS normal
inventory, which has always been minimal. MCA carries no inventory.

Net property, plant and equipment were $8,265,000 at September 30, 2001, as a
result of the MCA acquisition of certain assets of Mountain Air and the Merger
in May 2001. Included are $2.7 million of replacement parts for which no
depreciation has been taken. When put into service, depreciation will be
taken on these replacement parts. Minimal purchases were made after the
acquisition and Merger.

Trade accounts payable at September 30, 2001 were $516,000. This increased
significantly from the December 31, 2000 balance due to the acquisition of
certain assets of Mountain Air and the Merger in May, 2001.

Other current liabilities, excluding the current portion of long term debt,
were $897,000 consisting of taxes in the amount of $158,000, accrued salary and
benefits in the amount of $476,000, and legal and professional expenses in the
amount of $263,000. Included in salary and benefits payable is deferred
compensation in the amount of $224,000 due the president of the Company. All
of these balance sheet accounts increased significantly from December 31, 2000
balances for OilQuip due to the Merger in May 2001.

Long term debt was $2,617,000 at September 30, 2001. Long-term debt is
primarily a result of the cost of the acquisition of certain assets of Mountain
Air which was consummated in February 2001:



| |  |  | A term loan in the amount of $3,550,000 at 8%, interest
payable monthly, with quarterly principal payments of $147,916.67
due on the last day of April, July, October and January. The
maturity date of the loan is February 7, 2004.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A sellers note in the amount of $2,200,000 at 5.75% simple
interest. The principal and interest are due on February 6, 2004.                                                                                                         

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| |  |  | Subordinated debt in the amount of $2,000,000 at 12% interest
payable quarterly commencing on April 1, 2001. The principal will
be due upon on January 31, 2004.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company is currently in default of certain covenants set forth in its term
loan and subordinated debt agreements with Wells Fargo Bank, relating to the
maintenance of certain financial ratios, and is negotiating for a waiver of the
default and an amendment of the credit agreement to provide for ratios with
which the Company will be in compliance. While the Company believes such a
waiver and amendment will be obtained (and, as discussed below, is currently
engaged in negotiations with the lender for additional financing), there can be
no assurance of such fact or that the lender will not exercise its rights under
the credit agreement (and related credit agreements) including the acceleration
of approximately $5.5 million in debt. Accordingly, such debt is recorded as a
current liability on the Companys financial statements. The acceleration of
outstanding debt or any action to enforce the Companys obligations with
respect to such debt (including foreclosure upon security pledged as collateral
for such debt) would have a material adverse effect on the Company. The
company is making all payments to Wells Fargo bank in compliance with the debt
agreements.

An addition to the above acquisition debt, there is also debt resulting from
the Allis-Chalmers Boards decision to establish an arrangement by which to
compensate former and continuing Board members who had served from 1989 to
March 31, 1999 without compensation. Allis-Chalmers issued promissory notes in
the amount of $25,000 each to seven current or former directors and $150,000 to
John T. Grigsby, Jr. a former director and current Executive Vice President and
Chief Financial Officer of Allis-Chalmers. The notes bear interest at the rate
of five percent (5%) and are due March 28, 2005; however, the notes may be
prepaid at any time at the discretion of Allis-Chalmers. In addition, the
notes are canceled in the event of a subsequent bankruptcy of Allis-Chalmers.

In addition, the Board granted options to purchase 2,000 shares of
Allis-Chamlers common stock to the seven directors and an option to purchase
10,000 shares to Mr. Grigsby. The option price was determined to be $2.75 per
share. The options vested immediately and may be exercised any time prior to
March 28, 2010.

For a discussion of the Consolidated Plan, the PBGC Liability, the PBGC
Agreement, the Lock-Up Agreement, the Registration Rights Agreement and the
Merger, see Note 2 to the Financial Statements above.

The Environmental Protection Agency (EPA) and certain state environmental
protection agencies have requested information in connection with several
potential hazardous waste disposal sites in which products manufactured by
Allis-Chalmers before consummation of the Plan of Reorganization were disposed.
The EPA has claimed that Allis-Chalmers is liable for cleanup costs associated
with several additional sites. In addition, certain third parties have
asserted that Allis-Chalmers is liable for cleanup costs or associated EPA
fines in connection with additional sites. In each instance the environmental
claims asserted against Allis-Chalmers involve its prebankruptcy operations.
Accordingly, Allis-Chalmers has taken the position that all cleanup costs or
other liabilities related to these sites were discharged in the bankruptcy. No

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environmental claims have been asserted against Allis-Chalmers involving its
postbankruptcy operations. There can be no assurance that Allis-Chalmers will
not be subject to material environmental claims in the future.

The Companys principal sources of cash in the third quarter included earnings
from the operations of HDS and MCA. The cash requirements needed for the
administrative expenses associated with being a publicly held company are
significant, and the Company will continue to use cash generated by operations
to fund such expenses.

Following the Merger on May 9, 2001, the Company has announced its intent to
investigate acquisition opportunities in the natural gas exploration and
drilling industry and intends to use HDS as a centralized fabrication and
machining facility for its operations. Except to the extent the Company is
able to consummate acquisitions using its stock as consideration, additional
funds will be required to consummate any acquisitions. The Company is
currently negotiating with its lenders to obtain additional financing, to be
used for working capital and for acquisition purposes. However, there can be
no assurances that any such financing can be obtained. If the Company does not
obtain additional financing, its current cash flow is insufficient to support
continued operations over an extended period of time, and the Company may
consider a sale of assets or additional debt or equity securities in order to
obtain additional funds. There can be no assurance that any of such efforts
will be successful.




PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

None.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | Exhibits:
|--- |  | ---------

|     |  |                                                                                                                                    
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Option Agreement
        dated October 15, 2001, between the Company and Leonard Toboroff
        (Employee Compensation Agreement)



|(b) |  | Rep (b) Reports on Form 8-K: A report on Form 8-K was filed on May 15,
2001, reporting the Merger. On July 17, 2001, the Company filed an
amendment to the 8-K to include financial statements and pro forma
statements relating to the Merger.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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UNAUDITED SUMMARY PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION

The accompanying pro forma consolidated financial statements present the
historical financial information of Allis-Chalmers, as adjusted for the merger
with OilQuip, pursuant to the merger agreement. OilQuip was formed in February
2000 to fund and acquire targets to operate as subsidiaries. In February 2001,
OilQuip, through its subsidiary MCA, acquired the assets of Mountain Air, and
OilQuip is currently a holding company for MCA. The operations of
Allis-Chalmers wholly-owned subsidiary HDS and OilQuips wholly-owned
subsidiary MCA comprise the continuing operations of Allis-Chalmers.

The summary unaudited pro forma combined condensed financial information has
been derived from the unaudited financial statements of the entities being
combined. This data is not necessarily indicative of the combined results of
operations or financial position that would have occurred if the merger had
occurred at the beginning of each period presented or on the dates indicated,
nor is it necessarily indicative of our future operating results or financial
position. The data set forth below should be read in conjunction with our
(audited) financial statements in conjunction with the September 25, 2001 proxy
statement filed with the Securities and Exchange Commission (and unaudited
interim financial statements), including the notes thereto.

The accompanying pro forma consolidated statement of operations for the nine
months ended September 30, 2001 and 2000 combines the historical financial
information of OilQuip for the nine months ended September 30, 2001 and 2000
with the historical financial information of Allis-Chalmers for the period of
January 1, 2001 through May 9, 2001, and the nine-month period ended September
30, 2000, and Mountain Air for the period of January 1, 2001 through February
7, 2001, and the nine-month period ended September 30, 2000, as if the
acquisition had occurred at January 1, 2000 and January 1, 2000, respectively.

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ALLIS-CHALMERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
AS OF SEPTEMBER 30, 2001
(In thousands, except per share data)

|                                                              |                  |   |                |        |         |   |              |      |             |   |                 |   |  |   |           |          |    |   |        |      |  
|------------------------------------------------------------- | ---------------- | - | -------------- | ------ | ------- | - | ------------ | ---- | ----------- | - | --------------- | - |  | - | --------- | -------- | -- | - | ------ | ---- | -
|                                                              |                  |   |                |        |         |   |              |      |             |   |                 |   |  |   | PRO FORMA |          |    |   |       
|                                                              |                  |   | ALLIS-CHALMERS |        | OILQUIP |   | MOUNTAIN AIR |      | ADJUSTMENTS |   | PRO FORMA TOTAL
|                                                              |                  |   |                |        |         |   |              |      |             |   |                
|Sales                                                         |                  | $ | 3,501          |        |         | $ | 3,468        |      |             | $ | 493             |   |  | $ |          |          |    | $ | 7,462  |     
|Cost of Sales                                                 |                  |   | 2,547          |        |         |   | 2,334        |      |             |   | 214             |   |  |   | 150       | 3,4      |    |   | 5,245  |     
|                                                              |                  |   |                |        |         |   |              |      |             |   |                 |   |  |   |           |          |    |   |        |     
|Gross Profit                                                  |                  |   | 954            |        |         |   | 1,134        |      |             |   | 279             |   |  |   | (150      | )        |    |   | 2,217  |     
|Marketing
          and 
          Administrative Expense     |                  |   | 1,733          |        |         |   | 1,087        |      |             |   | 165             |   |  |   | 70        | 2,5      |    |   | 3,055  |     
|                                                              |                  |   |                |        |         |   |              |      |             |   |                 |   |  |   |           |          |    |   |        |     
|Income
          (Loss) from
          Operations             |                  |   | (779           | )      |         |   | 47           |      |             |   | 114             |   |  |   | (220      | )2,3,4,5 |    |   | (838   | )   
|Other
          Income (Expense)                              |                  |   |                |        |         |   |              |      |             |   |                 |   |  |   |           |          |    |   |        |     
|                                                              | Interest Income  |   |                | 0      |         |   |              | 1    |             |   |                 |  |  |   |           |         |    |   |        | 1    |  
|                                                              | Interest Expense |   |                | (24    | )       |   |              | (513 | )           |   |                 |  |  |   |           | (87      | )6 |   |        | (624 | )
|                                                              | Other            |   |                | 66,876 | 1       |   |              | 57   |             |   |                 |  |  |   |           | (66,876  | )1 |   |        | 57   |  
|                                                              |                  |   |                |        |         |   |              |      |             |   |                 |   |  |   |           |          |    |   |        |     
|Net Income/(Loss)                                             |                  | $ | 66,073         |        |         | $ | (408         | )    |             | $ | 114             |   |  | $ | (67,183   | )        |    | $ | (1,404 | )   
|                                                              |                  |   |                |        |         |   |              |      |             |   |                 |   |  |   |           |          |    |   |        |     
|Basic
          and Diluted Income
          (Loss) per Share |                  |   |                |        |         |   |              |      |             |   |                 |   |  |   |           |          |    | $ | (.12   | )   
|                                                              |                  |   |                |        |         |   |              |      |             |   |                 |   |  |   |           |          |    |   |        |     
|Outstanding:                                                  |                  |   |                |        |         |   |              |      |             |   |                 |   |  |   |           |          |    |   | 11,588 |     
|                                                              |                  |   |                |        |         |   |              |      |             |   |                 |   |  |   |           |          |    |   |        |     

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ALLIS-CHALMERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
AS OF SEPTEMBER 30, 2000
(In thousands, except for per share data)

|                                                               |                  |   |                |     |         |   |              |   |             |   |                 |    |  |   |           |          |    |   |        |      |  
|-------------------------------------------------------------- | ---------------- | - | -------------- | --- | ------- | - | ------------ | - | ----------- | - | --------------- | -- |  | - | --------- | -------- | -- | - | ------ | ---- | -
|                                                               |                  |   |                |     |         |   |              |   |             |   |                 |    |  |   | PRO FORMA |          |    |   |       
|                                                               |                  |   | ALLIS-CHALMERS |     | OILQUIP |   | MOUNTAIN AIR |   | ADJUSTMENTS |   | PRO FORMA TOTAL
|                                                               |                  |   |                |     |         |   |              |   |             |   |                
|Sales                                                          |                  | $ | 3,331          |     |         | $ |             |   |             | $ | 4,323           |    |  | $ |          |          |    | $ | 7,654  |     
|Cost of Sales                                                  |                  |   | 2,454          |     |         |   |             |   |             |   | 1,683           |    |  |   | 968       | 3,4      |    |   | 5,105  |     
|                                                               |                  |   |                |     |         |   |              |   |             |   |                 |    |  |   |           |          |    |   |        |     
|Gross Profit                                                   |                  |   | 877            |     |         |   |             |   |             |   | 2,640           |    |  |   | (968      | )        |    |   | 2,549  |     
|Marketing
          and 
          Administrative Expense      |                  |   | 1,064          |     |         |   | 274          |   |             |   | 550             |    |  |   | 232       | 2,5      |    |   | 2,120  |     
|                                                               |                  |   |                |     |         |   |              |   |             |   |                 |    |  |   |           |          |    |   |        |     
|Income
(Loss) from
Operations                                  |                  |   | (187           | )   |         |   | (274         | ) |             |   | 2,090           |    |  |   | (1,200    | )2,3,4,5 |    |   | 429    |     
|Other
 Income (Expense)                                        |                  |   |                |     |         |   |              |   |             |   |                 |    |  |   |           |          |    |   |        |     
|                                                               | Interest Income  |   |                | 5   |         |   |              |  |             |   |                 | 14 |  |   |           |         |    |   |        | 19   |  
|                                                               | Interest Expense |   |                | (27 | )       |   |              |  |             |   |                 |   |  |   |           | (651     | )6 |   |        | (678 | )
|                                                               | Other            |   |                |    |         |   |              |  |             |   |                 | 7  |  |   |           |         |    |   |        | 7    |  
|                                                               |                  |   |                |     |         |   |              |   |             |   |                 |    |  |   |           |          |    |   |        |     
|Net Income/(Loss)                                              |                  | $ | (209           | )   |         | $ | (274         | ) |             | $ | 2,111           |    |  | $ | (1,851    | )        |    | $ | (223   | )   
|                                                               |                  |   |                |     |         |   |              |   |             |   |                 |    |  |   |           |          |    |   |        |     
|Basic
          and Diluted Income 
          (Loss) per Share |                  |   |                |     |         |   |              |   |             |   |                 |    |  |   |           |          |    | $ | (.02   | )   
|                                                               |                  |   |                |     |         |   |              |   |             |   |                 |    |  |   |           |          |    |   |        |     
|Outstanding:                                                   |                  |   |                |     |         |   |              |   |             |   |                 |    |  |   |           |          |    |   | 11,588 |     
|                                                               |                  |   |                |     |         |   |              |   |             |   |                 |    |  |   |           |          |    |   |        |     

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ALLIS-CHALMERS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Basis Of Presentation

The accompanying pro forma consolidated financial statements are presented to
reflect the merger of OilQuip and Allis-Chalmers, accounted for as a reverse
acquisition, with the pre-merger operation of Allis-Chalmers and OilQuip
becoming the ongoing operations of the combined entities.

In February 2001, OilQuip, through its subsidiary MCA acquired the assets of
Mountain Air. OilQuip is currently a holding company for MCA.

The accompanying pro forma consolidated statements of operations combine the
historical operations of Allis-Chalmers, OilQuip, Mountain Air, and Mountain
Compressed Air for the nine months ended September 30, 2001 and the nine months
ended September 30, 2000 as if the acquisition had occurred at January 1, 2001
and January 1, 2000 of the period presented, respectively.

The accompanying pro forma results for the nine months ended September 30, 2001
and 2000, respectively, are comparable.

Note 2  Pro Forma Adjustment.

Certain assets of Mountain Air were acquired on February 7, 2001 by MCA, which
is a subsidiary of OilQuip. Mountain Airs operational data is for the period
January 1, 2001 through February 6, 2001. Pro forma adjustments for the
following equipment lease expense, depreciation and amortization expense have
been made for the period January 1 through February 6, 2001.



|1. |  | See Allis-Chalmers Note 2  Post Retirement Obligation-Pension Plan.
Pension liability discharge triggered by the Merger of Allis-Chalmers and
OilQuip.                                                                                                                                                                                                                                                                                                                            
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | For legal purposes, Allis-Chalmers acquired OilQuip, the parent company
of MCA. However, for accounting purposes OilQuip was treated as the
acquiring company in a reverse acquisition of Allis-Chalmers. As a result
the fixed assets, and goodwill and other intangibles of Allis-Chalmers are
increased by $2,515,000. Goodwill and other intangibles are being
amortized over 10 years and the fixed assets are being depreciated over 10
years and the building over 20 years.
|  
|3. |  | The equipment lease expense of certain assets acquired in the purchase of
Mountain Air, which became part of a sale/leaseback to help finance the
acquisition.                                                                                                                                                                                                                                                                                                                     
|  
|4. |  | Additional depreciation expense on assets acquired and adjusted to fair
value from the purchase of certain assets of Mountain Air and additional
corporate administrative expenses.                                                                                                                                                                                                                                                                                                

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|5. |  | Amortization expense for goodwill and other intangibles, net, as a result
of the acquisition of certain assets of Mountain Air. Goodwill is being
amortized over 20 years.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|6. |  | Interest costs as a result of the debt incurred in the acquisition of
certain assets of Mountain Air.                                                                     



| |  |  | A term loan in the amount of $3,550,000 at 8%, interest
payable monthly, with quarterly principal payments of $147,916.67
due on the last day of April, July, October and January. The
maturity date of the loan is February 7, 2007.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A sellers note in the amount of $2,200,000 at 5.75%
simple interest. The principal and interest are due on February
6, 2004.                                                                                                        
|
| |  |  | Subordinated debt in the amount of $2,000,000 at 12%
with interest payable monthly and principal due in 2004.                                                                                                                        
|
| |  |  | Deferred financing costs are being amortized over 6
years, the length of the term loan.                                                                                                                                              

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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 Hidayatallah
        Munawar Hidayatallah
        President, Chief Executive Officer
        And Chairman

November 15, 2001

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Exhibit Index

|               |  |                                                                                                                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                        
|               |  |                                                                                                                    
|10.1           |  | Option Agreement dated October 15, 2001, between the Company and Leonard
Toboroff (Employee Compensation Agreement)

26