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, 1998 OR

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


          Commission file number 1-2199


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


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

          1126 South 70th Street
          West Allis, Wisconsin                                   53214-3151
    (Address of principal executive offices)                      (Zip code)


                                  (414)475-2000
               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 October 23, 1998 there were 1,003,028 shares of Common Stock outstanding.

<PAGE>

                                                                               2


PART I.  FINANCIAL INFORMATION
         ---------------------
ITEM 1.  FINANCIAL STATEMENTS
-----------------------------
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
--------------------------------------------------------
STATEMENT OF OPERATIONS
-----------------------

                                     Three Months Ended       Nine Months Ended
                                        September 30            September 30
                                        ------------            ------------
                                      1998         1997      1998       1997
                                      ----         ----      ----       ----
                                           (Thousands, except per share)

Sales                                $ 943       $ 813      $3,695    $ 2,826
Cost of sales                          670         652       2,624      2,186
                                     -----       -----      ------    -------
    Gross Margin                       273         161       1,071        640

Marketing and administrative 
  expense                              426         356       1,300      1,080
                                      ----        ----      ------     ------

    Loss from Operations              (153)       (195)       (229)      (440)

Other income (expense)
   Interest income                       7          10          19         36
   Interest expense                    (10)         (8)        (28)       (28)
   Pension expense                       0        (465)          0     (1,397)
   Other                               836           0         858         13
                                      ----        -----       -----    -------

    Net Income/(Loss)                $ 680       $(658)     $  620    $(1,816)
                                     =====       ======     ======    ========
    Net Income/(Loss) per 
      Common Share                   $ .68       $(.66)     $  .62    $ (1.81)
                                     =====       ======     ======    ========


                        STATEMENT OF ACCUMULATED DEFICIT

                      Nine Months Ended September 30     1998            1997
                      ------------------------------     ----            ----
                                                              (thousands)
Accumulated deficit - 
  beginning of year                                    $(76,291)       $(9,746)

Net income/(loss)                                           620         (1,816)

Accumulated deficit - September 30                     $(75,671)      $(11,562)
                                                       =========      =========
This interim statement is unaudited.

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

<PAGE>

                                                                               3

ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
--------------------------------------------------------
STATEMENT OF FINANCIAL CONDITION
--------------------------------

                                                  September 30,     December 31,
                                                     1998             1997
                                                   --------         --------
                                                           (thousands)
Assets

Cash and short-term investments                  $    426           $    699
Trade receivables, net                                477                683
Inventories, net                                       70                101
Other current assets                                  135                121
                                                      ---                ---
       Total Current Assets                         1,108              1,604

Net property, plant and equipment                   1,284              1,107
                                                    -----              -----
       Total Assets                              $  2,392           $  2,711
                                                 --------           --------

Liabilities and Shareholders' Deficit

Current maturities of long-term debt             $     55           $     38
Trade accounts payable                                163                219
Accrued employee benefits                             137                123
Reserve for legal expenses                            174                174
Accrued pension liability                          67,901             68,801
Other current liabilities                             126                110
                                                   ------             ------
       Total Current Liabilities                   68,556             69,465

Accrued pension liability                               -                  -
Accrued postretirement benefit obligations            950                990
Long-term debt                                        250                240

Shareholders' deficit
  Common stock, ($.15 par value, authorized
   2,000,000 shares, outstanding 1,003,028
   at September 30, 1998 and December 31, 1997)       152                152
  Capital in excess of par value                    8,155              8,155
  Accumulated deficit (accumulated deficit of
   $424,208 eliminated on December 2, 1988)       (75,671)           (76,291)
                                                  --------           --------

       Total Shareholders' Deficit                (67,364)           (67,984)
                                                  --------            -------
Commitments and contingent liabilities

       Total Liabilities and Shareholders'
        Deficit                                  $  2,392           $  2,711
                                                 ========           ========


This interim statement is unaudited.

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

<PAGE>
                                                                               4

ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENT OF CASH FLOWS


                                                             Nine Months Ended
                                                                September 30
                                                                ------------
                                                               1998         1997
                                                               ----         ----
                                                                  (thousands)

Cash flows from operating activities:
  Net income/(loss)                                           $ 620     $(1,816)
  Adjustments to reconcile net loss to net cash
    (used) provided by operating activities:
      Depreciation and amortization                             138         107
      Gain on sale of fixed assets                               (2)        (13)
      Change in working capital:
        Decrease in receivables, net                            206         206
        Decrease (increase) in inventories                       31         (19)
        Decrease in trade accounts payable                      (56)         (3)
        Decrease (increase) in other current items               16        (273)
      (Decrease) increase in accrued pension liability, net    (900)      1,398
      Other                                                     (40)        (62)
                                                               -----      ------
        Net cash (used) provided by operating activities         13        (475)

Cash flows from investing activities:
  Capital expenditures                                         (313)       (245)
  Proceeds from sale of equipment                                 0          15
                                                               -----       -----
        Net cash used by investing activities                  (313)       (230)

Cash flows from financing activities:
  Net proceeds from issuance of long-term debt                   71           -
  Payment of long-term debt                                     (44)        (41)
                                                                ----       -----
        Net cash (used) by financing activities                  27         (41)

Net decrease in cash and short-term
 investments                                                   (273)       (746)

Cash and short-term investments at
 beginning of period                                            699       1,568
                                                                ---       -----
Cash and short-term investments at
 end of period                                                $ 426      $  822
                                                              =====      ======
Supplemental information - interest paid                      $  28      $   28
                                                              =====      ======


This interim statement is unaudited.

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

<PAGE>

                                                                               5

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 the Company's 1997 Annual Report.

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
Allis-Chalmers operating results for a full year.

NOTE 2 - POSTRETIREMENT OBLIGATIONS--PENSION PLAN

In 1994, the Company's independent pension actuaries changed the assumptions for
mortality and  administrative  expenses used to determine the liabilities of the
Allis-Chalmers  Consolidated  Pension Plan (Consolidated  Plan).  Primarily as a
result of the changes in mortality  assumptions to reflect  decreased  mortality
rates of the Company's  retirees,  the  Consolidated  Plan was  underfunded on a
present  value  basis.  In the first  quarter of 1996,  the Company  made a cash
contribution to the Consolidated Plan in the amount of $205,000. The Company did
not, however,  have the financial  resources to make the other required payments
to the  Consolidated  Plan  during  1996 and 1997.  Given the  inability  of the
Company  to fund such  obligations  with its  limited  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 have
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 has estimated that the unfunded benefit liabilities and the accumulated
funding  deficiencies  (together,  the PBGC Liability) total approximately $67.9
million.

In  September  1997,  Allis-Chalmers  and the PBGC  entered into an agreement in
principle for the  settlement of the PBGC Liability  (the PBGC  Agreement).  The
PBGC Agreement calls for the PBGC to release Allis-Chalmers and its subsidiaries
from the PBGC  Liability in return for that number of shares of  Allis-Chalmers'
common  stock  that  represents  35% of the total  number of shares  issued  and
outstanding on a fully-diluted basis.

The PBGC Agreement is subject to negotiation of definitive  documentation and to
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 percent 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 percent of such  accumulated  funding
deficiency if the


<PAGE>

                                                                               6


deficiency is not "corrected" within a specified period. Liability for the taxes
imposed under section 4971 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  first-tier  taxes  under Code  section  4971(a)  of  approximately
$900,000.

On March 2, 1998,  Allis-Chalmers  sent the  Internal  Revenue  Service  (IRS) a
formal Offer in Compromise  of the  Company's  tax liability  under Code section
4971. On July 16, 1998, the parties reached a settlement  agreement in principle
in the amount of $75,000.  Following final IRS approval,  payment of this amount
was made on August 11, 1998. In the meantime,  discussions  regarding definitive
documentation  continue with the PBGC on certain issues  contained in a proposed
Shareholder  Agreement  between  the  Company  and  the  PBGC.  The  Company  is
encouraged by the progress made in these discussions. However, if a satisfactory
agreement cannot be negotiated with the PBGC, Allis-Chalmers will evaluate other
alternatives, including a bankruptcy filing.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------
Results of Operations

Sales in the third  quarter of 1998  totaled  $943,000  an  increase of 16% from
$813,000 in the third quarter of 1997.  This increase was due to better pricing,
new customers served and expanded services  provided.  Operations of the Company
consist of Houston Dynamic Service,  Inc. (HDS), the Company's  machinery repair
and service subsidiary.

Gross margin,  as a percentage of sales, was 28.9% in the third quarter of 1998,
a  significant  increase from 19.8% in 1997.  However,  this increase is in line
with all of 1998.

Marketing and  administrative  expense was $426,000 in the third quarter of 1998
compared  with  $356,000 in the prior year.  The increase  reflects  $103,000 of
expenditures in our continuing pursuit of an acquisition.  A significant portion
of the Company's  administrative  expenses relate to expenses for Securities and
Exchange  Commission  and  other  governmental   reporting  as  well  as  legal,
accounting  and audit,  tax,  insurance and other  corporate  requirements  of a
publicly held company.

There was no pension expense in the third quarter of 1998 as compared to pension
expense  in the third  quarter  of 1997 of  $466,000.  However,  there was other
income of $825,000  resulting  from the  settlement  reached with the IRS in the
amount of $75,000 for a liability previously recorded in the amount of $900,000.
See Note 2 to the Financial Statements for further discussion.

The Company had net income of $680,000,  or $.68 per common share,  in the third
quarter of 1998 compared with a net loss of $685,000,  or $.66 per common share,
in the same period of 1997.

<PAGE>

                                                                               7

In the first nine  months of 1998,  the  Company had a net profit of $620,000 or
$.62 per common share  compared  with a loss of  $1,816,000  or $1.81 per common
share in the same period of 1997.

Financial Condition and Liquidity

Cash and short term  investments  totaled  $426,000 at  September  30,  1998,  a
decrease from $699,000 at December 31, 1997.  The decrease in cash was partially
due to the IRS  payment of $75,000  along with higher  corporate  administrative
expenses.

Net trade receivables at September 30, 1998 were $477,000, reflecting a decrease
from  the  December  31,  1997  level  of  $683,000.  This  decrease  was due to
aggressive collection activity and drop off in sales.

Net  property,  plant and  equipment  was  $1,284,000  at September 30, 1998, an
increase from  $1,107,000  million at year end 1997.  For the nine months ending
September 30, 1998,  $313,000 of capital  expenditures  were made to insure cost
competitiveness and the ability to reach new markets.

The A-C Reorganization Trust, pursuant to the Plan of Reorganization,  funds all
costs incurred by  Allis-Chalmers  which relate to implementation of the Plan of
Reorganization,  thus  avoiding  additional  demands  on  the  liquidity  of the
Company.  Such costs include an allocated share of certain  expenses for Company
employees, professional fees and certain other administrative expenses.

In 1994, the Company's independent pension actuaries changed the assumptions for
mortality and  administrative  expenses used to determine the liabilities of the
Consolidated Plan. Primarily as a result of the changes in mortality assumptions
to reflect decreased mortality rates of the Company's retirees, the Consolidated
Plan was underfunded on a present value basis. In the first quarter of 1996, the
Company  made a cash  contribution  to the  Consolidated  Plan in the  amount of
$205,000. The Company did not, however, have the financial resources to make the
other required payments to the Consolidated Plan during 1996 and 1997. Given the
inability  of the Company to fund such  obligations  with its limited  financial
resources, in February 1997, Allis-Chalmers applied to the PBGC for a "distress"
termination of the  Consolidated  Plan under section 4041(c) of 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 have
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 has estimated that the unfunded benefit liabilities and the accumulated
funding  deficiencies  (together,  the PBGC Liability) total approximately $67.9
million.

In  September  1997,  Allis-Chalmers  and the PBGC  entered into an agreement in
principle for the  settlement of the PBGC Liability  (the PBGC  Agreement).  The
PBGC Agreement calls for the PBGC to release Allis-Chalmers and its subsidiaries
from the PBGC Liability in return for that


<PAGE>

                                                                               8

number of shares of  Allis-Chalmers'  common  stock that  represents  35% of the
total number of shares issued and outstanding on a fully-diluted basis.

The PBGC Agreement is subject to negotiation of definitive  documentation and to
satisfactory  resolution of  Allis-Chalmers  tax obligations with respect to the
Consolidated  Plan under section 4971 of the Code.  Section  4971(a) of the Code
imposes,  for each taxable year, a first-tier tax of 10 percent on the amount of
the accumulated  funding  deficiency  under a plan like the  Consolidated  Plan.
Section  4971(b) of the Code imposes an additional,  third-tier tax equal to 100
percent  of  such  accumulated  funding  deficiency  if  the  deficiency  is not
"corrected"  within a specified  period.  Liability  for the taxes imposed under
section  4971  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  have
resulted  in  first-tier  taxes  under Code  section  4971(a)  of  approximately
$900,000.

On March 2, 1998,  Allis-Chalmers  sent the  Internal  Revenue  Service  (IRS) a
formal Offer in Compromise  of the  Company's  tax liability  under Code section
4971. On July 16, 1998, the parties reached a settlement  agreement in principle
in the amount of $75,000.  Following final IRS approval,  payment of this amount
was made on August 11, 1998. In the meantime,  discussions  regarding definitive
documentation  continue with the PBGC on certain issues  contained in a proposed
Shareholder  Agreement  between  the  Company  and  the  PBGC.  The  Company  is
encouraged by the progress made in these discussions. However, if a satisfactory
agreement cannot be negotiated with the PBGC, Allis-Chalmers will evaluate other
alternatives, including a bankruptcy filing.

The  Environmental  Protection  Agency  (EPA) and  certain  state  environmental
protection  agencies  have  requested  information  in  connection  with  eleven
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. The EPA's claims with respect to one other site
were  withdrawn  in 1994  based  upon  settlements  reached  with the EPA in the
bankruptcy  proceeding.  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 one of these  instances a former site  operator has
joined  Allis-Chalmers  and  47  other  potentially  responsible  parties  as  a
third-party  defendant in a lawsuit  involving  cleanup of one of the sites.  In
each instance the environmental  claims asserted against the Company 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.  In one particular  site, the EPA's Region III has
concurred with the Company's position that claims for environmental cleanup were
discharged pursuant to the bankruptcy.  While each site is unique with different
circumstances,  the Company has notified  other  Regional  offices of the EPA of
this  determination  associated  with the Region III site.  The  Company has not
received responses from the other Regional offices. No environmental claims have
been asserted against the Company involving its postbankruptcy operations.




<PAGE>
                                                                               9

The only function that is year 2000 sensitive is our accounting  system. We have
received written  assurances from our software  provider that the system is year
2000 compliant.

The Company's  principal sources of cash include earnings from the operations of
HDS and interest income on marketable  securities.  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.

The  necessity  to  assure  liquidity  emphasizes  the need for the  Company  to
continue in a prudent manner its search for appropriate  acquisition  candidates
in order to increase the  Company's  operating  base and generate  positive cash
flow.


PART II.  OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-------------------------
See PART I. Item 2, "Management's Discussion and Analysis."


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
(a)  Exhibits:  (27) - Financial Data Schedule

(b)  Reports on Form 8-K  - No report on Form 8-K was filed during the third 
     quarter of 1998.



                                    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/ John T. Grigsby, Jr.
                                                  John T. Grigsby, Jr.
                                                  Vice Chairman, Executive Vice
                                                  President and Chief Financial
                                                  Officer


November 11, 1998