##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D. C.
    20549
   Form 10-K/A
 Amendment No. 2
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED
    DECEMBER 31, 2005ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD
    FROM          
    TO   Commission file number 1-2199
  ALLIS-CHALMERS ENERGY
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

39-0126090(State or other jurisdiction
    of

(I.R.S. Employerincorporation or
    organization)

Identification No.)5075 WESTHEIMER, SUITE 890,
    HOUSTON, TEXAS

77056(Zip code)(Address of principal executive
    offices)   (713)
    369-0550
 Registrants telephone
    number, including area code
  SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
    ACT:
  Title of Security:

Name of Exchange:Common Stock, par value
    $0.01 per share

American Stock Exchange   SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
    ACT:
 NONE
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ




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##### Table of Contents



EXPLANATORY
    NOTE
  Form 10-K/A-2
  Rule 12b-15 Form 10-K/A-2
  Form 10-K/A-2, Rule 12b-15 Form 10-K Form 10-K/A-2 Form 10-K,




---



##### 



2005
    FORM 10-K/A-2
    CONTENTS
  Item



PagePART II5.


Market for
    Registrants Common Equity and Related Stockholder
    Matters


18.


Financial
    Statements


3PART IV15.


Exhibits and
    Financial Statement Schedules


45Signatures


46Certification of CEO pursuant to Section 302Certification of CFO pursuant to Section 302Certification of CEO and CFO pursuant to 18 U.S.C. 1350   i




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##### Table of Contents



PART
    II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS.  MARKET
    PRICE INFORMATION
  one-to-five
  Calendar Quarter

High


Low2003First Quarter


4.50



.55Second Quarter


5.00



2.25Third Quarter


4.50



2.60Fourth Quarter


6.00



2.602004First Quarter


10.05



2.55Second Quarter


10.25



4.25Third Quarter


9.75



4.75Fourth Quarter


5.40



3.252005First Quarter


7.25



3.64Second Quarter


6.00



4.38Third Quarter


14.70



5.65Fourth Quarter


13.75



8.61   Holders
    Dividends
   1




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##### Table of Contents



EQUITY
    COMPENSATION PLAN INFORMATION








|                                                               |  |                   |           |  |                   |   |      |                      |  |  |         | 
|-------------------------------------------------------------- |  | ----------------- | --------- |  | ----------------- | - | ---- | -------------------- |  |  | ------- | 
|                                                               |  | Number of         |           |  |                   |   |      |                      | 
|                                                               |  | Securities to be  |           |  | Weighted          |   |      |                      | 
|                                                               |  | Issued Upon       |           |  | Average Exercise  |   |      | Number of Securities | 
|                                                               |  | Exercise of       |           |  | Price of          |   |      | Remaining Available  | 
|                                                               |  | Outstanding       |           |  | Outstanding       |   |      | for Future Issuance  | 
|                                                               |  | Options, Warrants |           |  | Options, Warrants |   |      | Under Equity         | 
|Plan Category                                                  |  | and Rights        |           |  | and Rights        |   |      | Compensation Plans   | 
|                                                              
|Equity compensation plans approved
    by security holders     |  |                   | 2,756,067 |  |                   | $ | 5.18 |                      |  |  | 210,100 | 
|Equity compensation plans not
    approved by security holders |  |                   | 489,243   |  |                   | $ | 2.97 |                      |  |  |        | 
|                                                               |  |                   |           |  |                   |   |      |                      |  |  |         | 
|Total                                                          |  |                   | 3,245,310 |  |                   | $ | 4.85 |                      |  |  | 210,100 | 
|                                                               |  |                   |           |  |                   |   |      |                      |  |  |         | 





Equity
    Compensation Plans Not Approved By Security
    Holders






















2



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##### Table of Contents



|        |                          
|------- | -------------------------
|ITEM 8. | FINANCIAL
    STATEMENTS.



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

































3



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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              GORDON,
    HUGHES & BANKS, LLP
       4




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2005


2004(In thousands, except for share amounts)ASSETSCash and cash equivalents

$
1,920


$
7,344Trade receivables, net of
    allowance for doubtful accounts of $383 and $265 at
    December 31, 2005 and 2004, respectively


26,964



12,986Inventory


5,945



2,373Lease receivable, current






180Prepaid expenses and other


823



1,495Total current assets


35,652



24,378Property and equipment, at costs
    net of accumulated depreciation of $9,996 and $5,251 at
    December 31, 2005 and 2004, respectively


80,574



37,679Goodwill


12,417



11,776Other intangible assets, net of
    accumulated amortization of $3,163 and $2,036 at
    December 31, 2005 and 2004, respectively


6,783



5,057Debt issuance costs, net of
    accumulated amortization of $299 and $828 at December 31,
    2005 and 2004, respectively


1,298



685Lease receivable, less current
    portion






558Other assets


631



59Total assets

$
137,355


$
80,192LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent maturities of long-term
    debt

$
5,632


$
5,541Trade accounts payable


9,018



5,694Accrued salaries, benefits and
    payroll taxes


1,271



615Accrued interest


289



470Accrued expenses


4,350



1,852Accounts payable, related parties


60



740Total current liabilities


20,620



14,912Accrued postretirement benefit
    obligations


335



687Long-term debt, net of current
    maturities


54,937



24,932Other long-term liabilities


588



129Total liabilities


76,480



40,660Commitments and ContingenciesMinority interest






4,423Stockholders
    EquityPreferred stock, $0.01 par
    value (25,000,000 shares authorized, none issued)






Common stock, $0.01 par value
    (100,000,000 shares authorized;16,859,988 issued and
    outstanding at December 31, 2005 and 20,000,000 shares
    authorized and 13,611,525 issued and outstanding at
    December 31, 2004)


169



136Capital in excess of par value


58,889



40,331Retained earnings (deficit)


1,817



(5,358
)Total stockholders equity


60,875



35,109Total liabilities and
    stockholders equity

$
137,355


$
80,192     5




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 31,2005


2004


2003(Restated)


(Restated)(In thousands, except pershare amounts)Revenues

$
105,344


$
47,726


$
32,724Cost of revenuesDirect costs


69,889



32,598



21,977Depreciation


4,874



2,702



2,052Gross margin


30,581



12,426



8,695General and administrative expense


15,928



7,135



5,285Amortization


1,787



876



884Post-retirement medical costs


(352
)


188



(99
)Income from operations


13,218



4,227



2,625Other income (expense):Interest expense


(4,397
)


(2,808
)


(2,467
)Settlement on lawsuit










1,034Gain on sale of interest in AirComp










2,433Other


186



304



15Total other income (expense)


(4,211
)


(2,504
)


1,015Income before minority interest
    and income taxes


9,007



1,723



3,640Minority interest in income of
    subsidiaries


(488
)


(321
)


(343
)Provision for income taxes


(1,344
)


(514
)


(370
)Net income


7,175



888



2,927Preferred stock dividend






(124
)


(656
)Net income attributed to common
    stockholders

$
7,175


$
764


$
2,271Income per common
    share  basic

$
0.48


$
0.10


$
0.58Income per common
    share  diluted

$
0.44


$
0.09


$
0.50Weighted average number of common
    shares outstanding:Basic


14,832



7,930



3,927Diluted


16,238



9,510



5,850     6




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  CONSOLIDATED
    STATEMENT OF STOCKHOLDERS EQUITY
  Capital in


RetainedCommon Stock


Excess of


EarningsShares


Amount


Par Value


(Deficit)


Total(In thousands, except share amounts)Balances, December 31, 2002


3,926,668


$
39


$
10,143


$
(9,173
)

$
1,009Net income (restated)














2,927



2,927Effect of consolidation of AirComp










955







955Accrual of preferred dividends










(350
)






(350
)Balances, December 31, 2003,
    as restated


3,926,668



39



10,748



(6,246
)


4,541Net income














888



888Issuance of common stock:Acquisitions


1,868,466



19



8,592







8,611Private placement


6,081,301



61



15,600







15,661Services


17,000







99







99Conversion of preferred stock


1,718,090



17



4,278







4,295Issuance of stock purchase warrants










1,138







1,138Accrual of preferred dividends










(124
)






(124
)Balances, December 31, 2004


13,611,525



136



40,331



(5,358
)


35,109Net income














7,175



7,175Issuance of common stock:Acquisitions


411,275



4



1,746







1,750Secondary public offering


1,761,034



18



15,441







15,459Stock options and warrants
    exercised


1,076,154



11



1,371







1,382Balances, December 31, 2005


16,859,988


$
169


$
58,889


$
1,817


$
60,875    7




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2005


2004


2003(Restated)(In thousands)Cash Flows from Operating
    Activities:Net income

$
7,175


$
888


$
2,927Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation


4,874



2,702



2,052Amortization


1,787



876



884Write-off of deferred financing
    fees due to refinancing


653







Issuance of stock options for
    services






14



Amortization of discount on debt


9



350



516(Gain) on change in PBO liability


(352
)






(125
)(Gain) on settlement of lawsuit










(1,034
)(Gain) on sale of interest in
    AirComp










(2,433
)Minority interest in income of
    subsidiaries


488



321



343(Gain) loss on sale of property


(669
)






82Changes in working capital:(Increase) in accounts receivable


(10,437
)


(2,292
)


(4,414
)(Increase) in due from related
    party






(7
)


(Increase) in other current assets


(2,143
)


(612
)


(1,260
)Decrease (increase) in other assets


(936
)


(19
)


1Decrease in lease deposit










525Increase in accounts payable


2,373



1,140



2,251(Decrease) increase in accrued
    interest


324



299



(126
)(Decrease) increase in accrued
    expenses


(97
)


(276
)


397(Decrease) increase in other
    long-term liabilities


86



(141
)


Increase in accrued
    salaries,benefits and payroll taxes


443



19



1,293Net cash provided by operating
    activities


3,578



3,262



1,879Cash Flows from Investing
    Activities:Acquisitions, net of cash acquired


(36,888
)


(4,459
)


Purchase of property and equipment


(17,767
)


(4,603
)


(5,354
)Proceeds from sale of property and
    equipment


1,579







843Net cash used in investing
    activities


(53,076
)


(9,062
)


(4,511
)Cash Flows from Financing
    Activities:Proceeds from issuance of
    long-term debt


56,251



8,169



14,127Payments on long-term debt


(28,202
)


(13,259
)


(10,826
)Payments on related party debt


(1,522
)


(246
)


(246
)Net borrowings on lines of credit


2,527



689



1,138Proceeds from issuance of common
    stock


15,459



16,883



Proceeds from exercise of options
    and warrants


1,382







Debt issuance costs


(1,821
)


(391
)


(408
)Net cash provided by financing
    activities


44,074



11,845



3,785Net increase (decrease) in cash
    and cash equivalents


(5,424
)


6,045



1,153Cash and cash equivalents at
    beginning of year


7,344



1,299



146Cash and cash equivalents at end
    of year

$
1,920


$
7,344


$
1,299    8




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial Statements
  NOTE 1 
    NATURE OF
    BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES  Organization
    of Business
                 9




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
               Vulnerabilities
    and Concentrations
    Use
    of Estimates
   10




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Principles
    of Consolidation
    Revenue
    Recognition
  Revenue Recognition In Financial Statements
  Allowance
    for Doubtful Accounts
      Cash
    Equivalents
    Inventories
    Property
    and Equipment
   11




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
       Goodwill,
    Intangible Assets and Amortization
      Impairment
    of Long-Lived Assets    Financial
    Instruments
    Concentration
    of Credit and Customer Risk
     12




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Debt
    Issuance Costs
    Income
    Taxes
      Stock-Based
    Compensation
  Accounting For Stock-Based
    Compensation
 13




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    For the Years Ended December 31,2005


2004


2003(Restated)


(Restated)Net income attributed to common
    stockholders as reported:



$
7,175


$
764


$
2,271Less total stock based employee
    compensation expense determined under fair value based method
    for all awards net of tax related effects




(4,284
)


(1,072
)


(2,314
)Pro-forma net income (loss)
    attributed to common stockholders



$
2,891


$
(308
)

$
(43
)Net income/(loss) per common share:Basic

As reported

$
0.48


$
0.10


$
0.58Pro forma

$
0.19


$
(0.04
)

$
(0.01
)Diluted

As reported

$
0.44


$
0.09


$
0.50Pro forma

$
0.18


$
(0.04
)

$
(0.01
)     For the Years Ended December 31,2005


2004


2003Expected dividend yield










Expected price volatility


84.28%



89.76%



265.08%Risk-free interest rate


5.6%



7.00%



6.25%Expected life of options


7 years



7 years



7 yearsWeighted average fair value of
    optionsgranted at market value

$
5.02


$
3.19


$
2.78   Segments
    of an Enterprise and Related Information
  Disclosures About Segments Of An
    Enterprise And Related Information
  Pension
    and Other Post Retirement Benefits
  Employers Disclosures About
    Pension And Other Post Retirement Benefits
  Income
    Per Common Share
  Earnings Per Share
 14




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      For the Years Ended December 31,2005


2004


2003(Restated)


(Restated)Numerator:Net income available for common
    stockholders

$
7,175


$
764


$
2,271Plus income impact of assumed
    conversions:Preferred stock dividends/interest






124



656Net income applicable to common
    stockholders plus assumed conversions

$
7,175


$
888


$
2,927Denominator:Denominator for basic earnings per
    share  weighted average shares outstanding


14,832



7,930



3,927Effect of potentially dilutive
    common shares:Convertible preferred stock and
    employee and director stock options


1,406



1,580



1,923Weighted average shares
    outstanding and assumed conversions


16,238



9,510



5,850Basic earnings per share

$
0.48


$
0.10


$
0.58Diluted earnings per share

$
0.44


$
0.09


$
0.50   Reclassification
    New
    Accounting Pronouncements
  Accounting Changes and Error Corrections.
 15




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Share-Based Payment. Accounting for Stock-Based
    Compensation
  Inventory Costs
  NOTE 2 
    RESTATEMENT  Earnings
    Per Share
      Three Months Ended March 31, 2005AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.09


$
0.02


$
0.11Weighted average number of common
    shares outstanding:Diluted


17,789



(3,094
)


14,695   16




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Year Ended December 31, 2004AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.07


$
0.02


$
0.09Weighted average number of common
    shares outstanding:Diluted


11,959



(2,449
)


9,510   Three Months Ended September 30, 2004AsPreviously





AsReported


Adjustments


RestatedIncome per common
    share  basic

$
0.04


$
0.02


$
0.06Income per common share- diluted

$
0.04


$
0.01


$
0.05Weighted average number of common
    shares outstanding:Basic


11,599



(3,301
)


8,298Diluted


14,407



(4,579
)


9,828   Three Months Ended June 30, 2004AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.04


$
0.01


$
0.05Weighted average number of common
    shares outstanding:Diluted


10,237



(2,618
)


7,619   Three Months Ended March 31, 2004AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.05


$
0.03


$
0.08Weighted average number of common
    shares outstanding:Diluted


5,762



478



6,240   Year Ended December 31, 2003AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.39


$
0.11


$
0.50Weighted average number of common
    shares outstanding:Diluted


5,761



89



5,850   17




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Three Months Ended September 30, 2003AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.60


$
(0.01
)

$
0.59Weighted average number of common
    shares outstanding:Diluted


5,761



208



5,969   AirComp
    Acquisition
  Business
    Combinations Accounting for Sales of Stock by a
    Subsidiary.
  Increase
    in Book Value of Fixed Assets.
    Increase
    in Minority Interest and Capital in Excess of Par
    Value.
   18




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     At December 31, 2003AsPreviously


Restatement


AsReported


Adjustments


RestatedAssetsCash and cash equivalents

$
1,299


$



$
1,299Trade receivables, net


8,823







8,823Lease receivable, current


180







180Prepaid expenses and other


887







887Total current assets


11,189







11,189Property and equipment, net


26,339



4,789



31,128Goodwill


7,661







7,661Other intangible assets, net


2,290







2,290Debt issuance costs, net


567







567Lease receivable, less current
    portion


787







787Other


40







40Total Assets

$
48,873


$
4,789


$
53,662Liabilities and
    Stockholders EquityCurrent maturities of long-term
    debt

$
3,992


$



$
3,992Trade accounts payable


3,133







3,133Accrued salaries, benefits and
    payroll taxes


591







591Accrued interest


152







152Accrued expenses


1,761







1,761Accounts payable, related parties


787







787Total current liabilities


10,416







10,416Accrued postretirement benefit
    obligations


545







545Long-term debt, net of current
    maturities


28,241







28,241Other long-term liabilities


270







270Redeemable warrants


1,500







1,500Redeemable convertible preferred
    stock and dividends


4,171







4,171Total Liabilities


45,143







45,143Commitments and contingenciesMinority interests


2,523



1,455



3,978Stockholders
    EquityCommon stock


39







39Capital in excess of par value


9,793



955



10,748Accumulated (deficit)


(8,625
)


2,379



(6,246
)Total Stockholders Equity


1,207



3,334



4,541Total Liabilities and
    Stockholders Equity

$
48,873


$
4,789


$
53,662  19




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Increase
    in Net Income.
        Year Ended December 31, 2003AsPreviously


Restatement


AsReported


Adjustments


RestatedRevenue

$
32,724


$



$
32,724Cost of revenuesDirect costs


21,977







21,977Depreciation


1,954



98



2,052Gross margin


8,793



(98
)


8,695General and administrative expense


5,285







5,285Amortization


884







884Income (loss) from operations


2,624



(98
)


2,526Other income (expense):Interest, net


(2,464
)






(2,464
)Settlement on lawsuit


1,034







1,034Gain on sale of stock in a
    subsidiary






2,433



2,433Other


111







111Total other income (expense)


(1,319
)


2,433



1,114Net income before minority
    interest and income taxes


1,305



2,335



3,640Minority interest in income of
    subsidiaries


(387
)


44



(343
)Provision for foreign income tax


(370
)






(370
)Net income


548



2,379



2,927Preferred stock dividend


(656
)






(656
)Net income (loss) attributed to
    common stockholders

$
(108
)

$
2,379


$
2,271Net income per common
    share  basic

$
(0.03
)





$
0.58Net income per common
    share  diluted

$
(0.03
)





$
0.39Weighted average number of common
    shares outstanding:Basic


3,927







3,927Diluted


5,761







5,761  20




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     Year Ended December 31, 2003AsPreviously


Restatement


AsReported


Adjustments


RestatedCash Flows From Operating
    Activities:Net income

$
548


$
2,379


$
2,927Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation and amortization
    expense


2,838



98



2,936Amortization of discount on debt


516







516(Gain) on change PBO liability


(125
)






(125
)(Gain) on settlement of lawsuit


(1,034
)






(1,034
)(Gain) on sale of interest in
    AirComp






(2,433
)


(2,433
)Minority interest in income of
    subsidiaries


387



(44
)


343Loss on sale of property


82







82Changes in operating assets and
    liabilities:(Increase) in accounts receivable


(4,414
)






(4,414
)(Increase) in other current assets


(1,260
)






(1,260
)Decrease in other assets


1







1Decrease in lease deposit


525







525Increase in accounts payable


2,251







2,251(Decrease) in accrued interest


(126
)






(126
)Increase in accrued expenses


397







397Increase in accrued employee
    benefits and payroll taxes


1,293







1,293Net cash provided by operating
    activities


1,879







1,879Cash Flows From Investing
    Activities:Purchase of equipment


(5,354
)






(5,354
)Proceeds from sale of equipment


843







843Net cash used by investing
    activities


(4,511
)






(4,511
)Cash Flows From Financing
    Activities:Proceeds from issuance of
    long-term debt


14,127







14,127Repayments of long-term debt


(10,826
)






(10,826
)Repayments on related party debt


(246
)






(246
)Borrowing on lines of credit


30,537







30,537Repayments on lines of credit


(29,399
)






(29,399
)Debt issuance costs


(408
)






(408
)Net cash provided by financing
    activities


3,785







3,785Net decrease in cash and cash
    equivalents


1,153







1,153Cash and cash equivalents at
    beginning of the year


146







146Cash and cash equivalents at end
    of the period

$
1,299


$



$
1,299Supplemental
    information:Interest paid

$
2,341


$



$
2,341  21




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Form 10-Q
  Three Months


Three Months


Three MonthsEnded


Ended


EndedMarch 31,


June 30,


September 30,2004


2004


2004Net income (loss) attributed to
    common stockholdersPreviously reported

$
501


$
434


$
576Adjustment 
    depreciation expense


(139
)


(79
)


(79
)Adjustment  minority
    interest expense


22



22



22Restated

$
384


$
377


$
519Net income (loss) per share, basicPreviously reported

$
0.13


$
0.07


$
0.05Total adjustments


(0.03
)


(0.01
)


(0.01
)Restated

$
0.10


$
0.06


$
0.04   Form 10-Q
  Three Months


Three Months


Three MonthsEnded


Ended


EndedMarch 31,


June 30,


September 30,2003


2003


2003Net income (loss) attributed to
    common stockholdersPreviously reported

$
(183
)

$
(330
)

$
1,136Adjustment  gain on
    sale of stock in a subsidiary










2,433Adjustment 
    depreciation expense










(49
)Adjustment  minority
    interest expense










22Adjustment  foreign tax
    expense


(158
)


(92
)


(93
)Restated

$
(341
)

$
(422
)

$
3,449Net income (loss) per share, basic
    and dilutedPreviously reported

$
(0.05
)

$
(0.08
)

$
0.29Total adjustments


(0.04
)


(0.03
)


0.58Restated

$
(0.09
)

$
(0.11
)

$
0.87   NOTE 3 
    POST
    RETIREMENT BENEFIT OBLIGATIONS  Medical
    And Life
   22




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    401(k)
    Savings Plan
    NOTE 4 
    ACQUISITIONS        M-I L.L.C.
 23




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
                    24




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Years Ended December 31,2005


2004


2003Revenues

$
110,383


$
70,988


$
52,588Operating income

$
14,143


$
8,233


$
4,276Net income

$
8,180


$
4,000


$
2,459Net income per common shareBasic

$
0.55


$
0.46


$
0.53Diluted

$
0.50


$
0.48


$
0.48   NOTE 5 
    INVENTORIES    December 31,


December 31,2005


2004Hammer bitsFinished goods

$
1,402


$
857Work in process


787



385Raw materials


233



151Total hammer bits


2,422



1,393Hammers


584



417Drive pipe


666



Rental supplies


64



Chemicals


201



254Coiled tubing and related inventory


1,145



309Shop supplies and related inventory


863



Total inventory

$
5,945


$
2,373   NOTE 6 
    PROPERTY
    AND OTHER INTANGIBLE ASSETS    DepreciationPeriod

2005


2004Land



$
27


$
27Building and improvements

15-20 years


637



633Transportation equipment

3-7 years


7,772



4,854Machinery and equipment

3-20 years


77,002



36,411Furniture, computers, software and
    leasehold improvements

3-7 years


2,073



1,005Construction in
    progress  equipment

N/A


3,059



Total




90,570



42,930Less: accumulated depreciation




(9,996
)


(5,251
)Property and equipment, net



$
80,574


$
37,679  25




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
       AmortizationPeriod

2005


2004Intellectual property

20 years

$
1,009


$
1,009Non-compete agreements

3-5 years


4,630



2,856Patent

15 years


496



496Other intangible assets

3-10
    years


3,811



2,732Total



$
9,946


$
7,093Less: accumulated amortization




(3,163
)


(2,036
)Intangibles assets, net



$
6,783


$
5,057   2005


2004Gross


Accumulated


Current Year


Gross


Accumulated


Current YearValue


Amortization


Amortization


Value


Amortization


AmortizationIntellectual property

$
1,009


$
293


$
54


$
1,009


$
239


$
56Non-compete agreements


4,630



1,916



884



2,856



1,032



300Patent


496



39



33



496



6



6Other intangible assets


3,811



915



277



2,732



759



420Total

$
9,946


$
3,163


$
1,248


$
7,093


$
2,036


$
782     Intangible Amortization by PeriodYears Ended December 31,2010 and2006


2007


2008


2009


ThereafterIntellectual property

$
55


$
55


$
55


$
55


$
496Non-compete agreements


1,043



804



480



327



60Patent


33



33



33



33



325Other intangible assets


395



370



359



359



1,413Total Intangible Amortization

$
1,526


$
1,262


$
927


$
774


$
2,294  26




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   NOTE 7 
    INCOME
    TAXES    Years Ended December 31,2005


2004


2003Current ProvisionFederal

$
123


$



$
State


595







Foreign


626



514



370$
1,344


$
514


$
370       Years Ended December 31,2005


2004


2003Income tax expense based on the
    U.S. statutory tax rate


34.0
%


34.0
%


34.0
%State taxes, net of federal benefit


6.1







Foreign income at other than
    U.S. rate


7.3



36.6



11.2Valuation allowances


(98.7
)


(209.4
)


28.6Nondeductible items, permanent
    differences and other


67.1



175.4



(62.6
)Effective tax rate


15.8
%


36.6
%


11.2
%      27




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     2005


2004Deferred non-current income tax
    assets:Net future (taxable) deductible
    items

$
384


$
533Net operating loss carry forwards


5,656



4,894A-C Reorganization Trust claims


29,098



30,112Total deferred non-current income
    tax assets


35,138



35,539Valuation allowance


(27,131
)


(30,367
)Net deferred non-current income
    taxes

$
8,007


$
5,172Deferred non-current income tax
    liabilitiesDepreciation

$
(8,007
)

$
(5,172
)Net deferred income tax assets

$



$
          28




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   NOTE 8 
    DEBT    December 31,2005


2004Bank term loans

$
42,090


$
13,373Revolving line of credit


6,400



3,873Subordinated note payable to M-I
    LLC


4,000



4,818Subordinated seller note


3,031



4,000Seller note


850



1,600Notes payable under non-compete
    agreements


698



664Notes payable to former directors


96



402Notes payable to former
    shareholders






49Real estate loan


548



Vendor financing






1,164Equipment & vehicle
    installment notes


1,939



530Capital lease obligations


917



Total debt


60,569



30,473Less: short-term debt and current
    maturities


5,632



5,541Long-term debt obligations

$
54,937


$
24,932       Debt


Capital Leases


TotalYear Ending:December 31, 2006

$
5,158


$
474


$
5,632December 31, 2007


49,620



443



50,063December 31, 2008


4,267







4,267December 31, 2009


69







69December 31, 2010


538







538Thereafter










Total

$
59,652


$
917


$
60,569   Bank
    loans and line of credit agreements
    
    A $13.0 million revolving line of credit. Borrowings were
    limited to 85% of eligible accounts receivable plus 50% of
    eligible inventory (up to a maximum of $2.0 million of
    borrowings based on inventory). This line of credit was used to
    finance working capital requirements and other general corporate
    purposes, including the issuance of standby letters of credit.
    Outstanding borrowings under 29




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  this line of credit were $6.4 million at a margin above
    prime and LIBOR rates plus margin averaging approximately 8.1%
    as of December 31, 2005.  
    Two term loans totaling $42.0 million. Outstanding
    borrowings under these term loans were $42.0 million as of
    December 31, 2005. These loans were at LIBOR rates plus a
    margin which averages approximately 7.8%.          
    A $10.0 million revolving line of credit. Borrowings were
    limited to 85% of eligible accounts receivables, as defined.
    Outstanding borrowings under this line of credit were
    $2.4 million as of December 31, 2004.
    A term loan in the amount of $6.3 million to be repaid in
    monthly payments of principal of $105,583 per month. We
    were also required to prepay this term loan by an amount equal
    to 20% of receipts from our largest customer in Mexico. Proceeds
    of the term loan were used to prepay the term loan owed by
    Tubular Services and to prepay the 12% $2.4 million
    subordinated note and retire its related warrants. The
    outstanding balance was $6.3 million as of
    December 31, 2004.
    A $6.0 million capital expenditure and acquisition line of
    credit. Borrowings under this facility were payable monthly over
    four years beginning in January 2006. Availability of this
    capital expenditure term loan facility was subject to security
    acceptable to the lender in the form of equipment or other
    acquired collateral. There were no outstanding borrowings as of
    December 31, 2004.   30




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
       
    A $3.5 million bank line of credit. Interest accrued at an
    adjustable rate based on the prime rate. We paid a 0.5% per
    annum fee on the undrawn portion. Borrowings under the line of
    credit were subject to a borrowing base consisting of 80% of
    eligible accounts receivable. The balance at December 31,
    2004 was $1.5 million.
    A $7.1 million term loan that accrued interest at an
    adjustable rate based on either LIBOR or the prime rate.
    Principal payments of $286,000 plus interest were due quarterly,
    with a final maturity date of June 27, 2007. The balance at
    December 31, 2004 was $6.8 million.
    A delayed draw term loan facility in the amount of
    $1.5 million to be used for capital expenditures. Interest
    accrued at an adjustable rate based on either the LIBOR or the
    prime rate. Quarterly principal payments were to commence on
    March 31, 2006 in an amount equal to 5.0% of the
    outstanding balance as of December 31, 2005, with a final
    maturity of June 27, 2007. There were no borrowings
    outstanding under this facility as of December 31, 2004.      Notes
    payable and real estate loan
   31




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
                  Other
    debt
   32




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     NOTE 9 
    COMMITMENTS
    AND CONTINGENCIES        Years Ending:December 31, 2006

$
926December 31, 2007


833December 31, 2008


629December 31, 2009


446December 31, 2010


44Thereafter


Total

$
2,878   NOTE 10 
    STOCKHOLDERS
    EQUITY       33




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      
    In exchange for an investment of $2.0 million, we issued
    620,000 shares of our common stock for a purchase price
    equal to $2.50 per share, and issued warrants to purchase
    800,000 shares of our common stock at an exercise price of
    $2.50 per share, expiring on April 1, 2006, to an
    investor group (the Investor Group) consisting of
    entities affiliated with Donald and Christopher Engel and
    directors Robert Nederlander and Leonard Toboroff. The aggregate
    purchase price for the common stock was $1.55 million and
    the fair value for the warrants was $450,000.
    Energy Spectrum converted its 3,500,000 shares of
    Series A 10% Cumulative Convertible Preferred Stock,
    including accrued dividend rights, into 1,718,090 shares of
    common stock. Energy Spectrum was granted the preferred stock in
    connection with the Strata acquisition.             34




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
         NOTE 11 
    REVERSE STOCK SPLIT
    NOTE 12 
    STOCK OPTIONS
       35




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     December 31, 2005


December 31, 2004


December 31, 2003Shares


Weighted Ave.


Shares


Weighted Avg.


Shares


Weighted Avg.Under


Exercise


Under


Exercise


Under


ExerciseOption


Price


Option


Price


Option


PriceBeginning balance


1,215,000


$
3.20



973,300


$
2.78



104,800


$
3.00Granted


1,695,000



6.44



248,000



4.85



868,500



2.75Canceled


(15,300
)


3.33



(6,300
)


2.78







Exercised


(33,833
)


2.80















Ending balance


2,860,867


$
5.10



1,215,000


$
3.20



973,300


$
2.78     Weighted AverageShares Under


RemainingExercise Price


Option


Contractual Life

Options Exercisable


Exercise Price$
2.50



100,000


5.79 years


100,000


$
2.50$
2.75



829,067


7.96 years


829,067


$
2.75$
3.86



920,000


9.09 years


306,667


$
3.86$
4.85



259,000


8.73 years


172,667


$
4.85$
4.87



154,000


9.40 years


51,333


$
4.87$
10.85



594,000


9.96 years


198,000


$
10.85$
13.75



4,800


4.24 years


4,800


$
13.75$
5.11



2,860,867


8.82 years


1,662,534


$
4.22   NOTE 13  STOCK
    PURCHASE WARRANTS
       36




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
                NOTE 14  LEASE
    RECEIVABLE
   37




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   NOTE 15  RELATED
    PARTY TRANSACTIONS
                NOTE 16  SETTLEMENT
    OF LAWSUIT
   38




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    NOTE 17  GAIN
    ON SALE OF INTEREST IN A SUBSIDIARY
  M-I
 39




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   NOTE 18  SEGMENT
    INFORMATION
    Years Ended December 31,2005


2004


2003(Restated)Revenues:Directional drilling services

$
43,901


$
24,787


$
16,008Compressed air drilling services


25,662



11,561



6,679Casing and tubing services


20,932



10,391



10,037Rental tools


5,059



611



Production services


9,790



376



Total revenues

$
105,344


$
47,726


$
32,724Operating Income
    (Loss):Directional drilling services

$
7,389


$
3,061


$
1,103Compressed air drilling services


5,612



1,169



17Casing and tubing services


4,994



3,217



3,628Rental tools


1,300



(71
)


Production services


(99
)


4



General corporate


(5,978
)


(3,153
)


(2,123
)Total income from operations

$
13,218


$
4,227


$
2,625Depreciation and Amortization
    Expense:Directional drilling services

$
887


$
466


$
275Compressed air drilling services


1,946



1,329



1,139Casing and tubing services


2,006



1,597



1,413Rental tools


492



40



Production services


912



26



General corporate


418



120



109Total depreciation and
    amortization expense

$
6,661


$
3,578


$
2,936   40




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Years Ended December 31,2005


2004


2003(Restated)Capital Expenditures:Directional drilling services

$
2,922


$
1,552


$
1,066Compressed air drilling services


7,008



1,399



2,093Casing and tubing services


5,207



1,285



2,176Rental tools


435



232



Production services


1,514



106



General corporate


681



29



19Total capital expenditures

$
17,767


$
4,603


$
5,354Goodwill:Directional drilling services

$
4,168


$
4,168


$
4,168Compressed air drilling services


3,950



3,510



3,493Casing and tubing services


3,673



3,673



Rental tools










Production services


626



425



General corporate










Total goodwill

$
12,417


$
11,776


$
7,661   As of December 31,2005


2004


2003Assets:Directional drilling services

$
20,960


$
14,166


$
11,529Compressed air drilling services


46,045



29,147



22,735Casing and tubing services


45,351



21,197



18,191Rental tools


8,034



1,291



Production services


12,282



5,806



General corporate


4,683



8,585



1,207Total assets

$
137,355


$
80,192


$
53,662   Years Ended December 31,2005


2004


2003Revenues:United States

$
98,583


$
42,466


$
28,995International


6,761



5,260



3,729Total

$
105,344


$
47,726


$
32,724  41




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   NOTE 19  SUPPLEMENTAL
    CASH FLOWS INFORMATION (in thousands)
  Years Ended December 31,2005


2004


2003(Restated)Interest paid

$
3,924


$
2,159


$
2,341Income taxes paid

$
676


$
514


$
370Other non-cash investing and
    financing transactions:Sale of property &
    equipment in connection with direct financing lease
    (Note 14)(Gain) on settlement of debt

$



$



$
(1,034
)Amortization of discount on debt










442Purchase of equipment financed
    through assumption of debt or accounts payable


592







906$
592


$



$
314AirComp formation:Issuance of debt to joint venture
    by M-I

$



$



$
(4,818
)Contribution of property, plant
    and equipment by M-I to joint venture










10,268Increase in minority interest










(2,063
)(Gain) on sale of stock in a
    subsidiary










(2,433
)Difference of our investment cost
    basis in AirComp and their share of underlying equity of net
    assets of AirComp










(954
)Net cash paid in connection with
    the joint venture

$



$



$
Non-cash investing and financing
    transactions in connection with acquisitions:Fair value of net assets acquired

$



$
(4,867
)

$
Goodwill and other intangibles






(3,839
)


Value of common stock, issued


1,750



2,177



Value of minority interest
    contribution






2,070



$
1,750


$
(4,459
)

$
Acquisition of the remaining 19%
    of Jens:Fair value of net assets acquired

$



$
(813
)

$
Goodwill and other intangibles






(3,676
)


Value of common stock issued






6,434



Value of minority interest
    retirement






(1,945
)


$



$



$
  42




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   NOTE 20  QUARTERLY
    RESULTS (UNAUDITED) (in thousands, except per share
    amounts)
  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(Restated)Year 2005Revenues

$
19,334


$
23,588


$
28,908


$
33,514Operating income


2,247



2,914



3,524



4,533Net income


1,567



1,769



1,293



2,546Preferred stock dividend














Net income attributed to common
    shares

$
1,567


$
1,769


$
1,293


$
2,546Income per common share:Basic

$
0.12


$
0.13


$
0.09


$
0.15Diluted

$
0.11


$
0.12


$
0.08


$
0.14   First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(Restated)Year 2004Revenues

$
9,661


$
11,422


$
11,906


$
14,737Operating income


1,030



1,150



1,237



810Net income (loss)


472



413



515



(512
)Preferred stock dividend


(88
)


(36
)






Net income (loss) attributed to
    common shares

$
384


$
377


$
515


$
(512
)Income (loss) per common share:Basic

$
0.10


$
0.06


$
0.06


$
(0.04
)Diluted

$
0.08


$
0.05


$
0.05


$
(0.04
)   NOTE 21 
    LEGAL
    MATTERS      NOTE 22 
    SUBSEQUENT
    EVENTS   43




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
            44




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##### Table of Contents



PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    Form 10-K/A-2 Form 10-K/A-2.
 45




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##### Table of Contents



SIGNATURES    /s/  MUNAWAR
    H. HIDAYATALLAH
  Munawar H. Hidayatallah
    Chief Executive Officer and Chairman
 46




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##### Table of Contents



EXHIBIT INDEX  Exhibit

Description31
.1

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.31
.2

Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32
.1

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