<PAGE>

                 UNITED STATE SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                    FORM 10-K
                                   (Mark One)

       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 OR

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

                          COMMISSION FILE NUMBER 1-2199

                           ALLIS-CHALMERS CORPORATION
                           --------------------------

             (Exact name of registrant as specified in its charter)

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

                  7660 WOODWAY, SUITE 200, HOUSTON, TEXAS 77063
                  ---------------------------------------------
               (Address of principal executive offices) (Zip code)

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

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

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     COMMON STOCK, PAR VALUE $0.15 PER SHARE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if the disclosure of delinquent filers pursuant to ITEM
405 of Regulation S-K (ss.220.405 of this Chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate market value of the common equity held by non-affiliates of the
registrant, computed using the average of the bid and ask price of the common
stock of $1.52 per share on April 2, 2004, as reported on the OTC Bulletin
Board, was approximately $3,009,298 (affiliates included for this computation
only: directors, executive officers and holders of more than 5% of the
registrant's common stock).

At April 14, 2004, there were 31,393,789 shares of common stock outstanding.

DOCUMENTS INCORPORATED
BY REFERENCE:

Portions of the Allis-Chalmers Corporation Proxy Statement prepared for the 2004
annual meeting of shareholders, pursuant to Regulation 14A, are incorporated by
reference into Part III of this Report.



<PAGE>

                             2003 FORM 10-K CONTENTS
                             -----------------------

                                     PART I

   ITEM                                                                     PAGE
   ----                                                                     ----

    1.  Business............................................................. 3
    2.  Properties........................................................... 9
    3.  Legal Proceedings.................................................... 9
    4.  Submission of Matters to a Vote of Security Holders..................10

                                     PART II

    5.  Market for Registrant's Common Equity and Related Stockholder
        Matters..............................................................11
    6.  Selected Financial Data..............................................13
    7.  Management's Discussion and Analysis of Financial Condition and
        Results of Operations................................................14
    7A. Quantitative and Qualitative Disclosures about Market Risk...........27
    8.  Financial Statements.................................................28
    9.  Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.................................................53

    9A. Controls and Procedures..............................................53

                                    PART III

    10. Directors and Executive Officers of the Registrant...................54
    11. Executive Compensation...............................................54
    12. Security Ownership of Certain Beneficial Owners and Management.......54
    13. Certain Relationships and Related Transactions.......................54
    14. Principal Accounting Fees and Services...............................54

                                     PART IV

    15. Exhibits, Financial Statement Schedules and Reports on Form 8-K......55

    Signatures and Certifications............................................48

                                       2


<PAGE>

                                     PART I.
ITEM 1. BUSINESS

This document contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from the results
discussed in such forward-looking statements. Factors that might cause such
differences include, but are not limited to, the general condition of the oil
and natural gas drilling industry, demand for our oil and natural gas service
and rental products, and competition. Other factors are identified in our
Securities and Exchange Commission filings and elsewhere in this Form 10-K under
the heading "Risk Factors" located at the end of "Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations."

GENERAL
-------

Allis-Chalmers Corporation (the "Company" or "Allis-Chalmers") was incorporated
in 1913 under Delaware law. We reorganized in bankruptcy in 1988, and sold all
of our major businesses. In May 2001, we consummated a merger in which we
acquired OilQuip Rentals, Inc. (OilQuip) and its wholly owned subsidiary,
Mountain Compressed Air, Inc. ("Mountain Air"), in exchange for shares of our
common stock, which upon issuance represented over 85% of our outstanding common
stock. In February 2002, we acquired approximately 81% of the capital stock of
Jens' Oilfield Service, Inc. ("Jens'") and substantially all of the capital
stock of Strata Directional Technology, Inc. ("Strata"). In December 2001, we
sold Houston Dynamic Services, Inc., which conducted a machine repair business.
In July 2003, through our subsidiary Mountain Air, we entered into a limited
liability company operating agreement with a division of M-I L.L.C. ("M-I"), a
joint venture between Smith International and Schlumberger N.V. (Schlumberger
Limited), to form a Texas limited liability company named AirComp LLC
("AirComp"). M-I and Mountain Air contributed assets with an aggregate net book
value $6.3 million and $6.8 million , respectively. The Company owns 55% and M-I
owns 45% of AirComp. We have consolidated AirComp into our financial statements
beginning with the quarter ending September 30, 2003. Our business conducted in
2001 did not include the operations of Jens', Strata, and AirComp, each of which
will be material to our continuing business operations.

Through Mountain Air, AirComp, Jens' and Strata, and through additional
acquisitions in the oil and natural gas drilling services industry, we intend to
exploit opportunities in the oil and natural gas service and rental industry.
Currently, we receive 80% to 85% of our revenues from natural gas drilling
services and the balance from oil drilling services; however, most of our
services can be utilized for either activity. Mountain Air, AirComp, Strata and
Jens' had revenues of approximately $2.2 million, $4.5 million, $16.0 million
and $10.0 million, respectively, during the year ended December 31, 2003. See
"Item 8. Financial Statements," for additional asset, revenue and profit and
loss information for each of our subsidiaries.

INDUSTRY OVERVIEW
-----------------

Oil and natural gas producers tend to focus on their core competencies on
identifying reserves, which has resulted in the extensive outsourcing of
drilling and service functions. The use of service companies allows gas
companies to avoid the capital and maintenance costs of the equipment in what is
already a capital intensive industry.

As drilling becomes increasingly more technical and costly, exploration and
production companies are increasingly demanding higher quality equipment and
service from equipment and service providers. Major oil and gas exploration and
production companies are currently consolidating their supplier base to
streamline their purchasing operations and generate economies of scale by
purchasing from just a few suppliers. Producers are favoring larger suppliers
that provide a comprehensive list of products and services. Companies that can
meet customer's demands will continue to earn new and repeat business. We
believe many businesses in the highly fragmented oilfield industry lack
sufficient size (many businesses generate annual revenues of less than $15
million), lack depth of management (many businesses are family-owned and
managed) and have unsophisticated production techniques and control
capabilities. Accordingly, we believe we can offer customers crucial advantages
over our smaller competitors. In addition, we believe that opportunities exist
to acquire these competing businesses and successfully integrate and enhance
their operations within our operating structure.

                                       3


<PAGE>

We believe that opportunities exist in the oil and gas service industry, and
that consolidation among larger oilfield service providers has created an
opportunity for us to compete effectively in certain niche markets which are
under-served by larger oilfield service and equipment companies and in which we
can provide better products and services than the smaller, competitors currently
providing a significant portion of the services in this industry.

BUSINESS STRATEGY
-----------------

Our strategy is based on broadening the geographic scope of our products and
services primarily within two areas of the oilfield services and equipment
industry: (a) casing and tubing handling services and equipment and (b) drilling
services. We intend to implement this growth strategy through internal expansion
and the acquisition of companies operating within these segments. We intend to
seek to identify and acquire companies with significant management and field
expertise, strong client relationships and high quality products and services.
With typically less than $15 million in revenues, each target company is likely
to have limited financial resources for expansion and few exit alternatives for
the owners. As discussed under "Risk Factors" at the end of "Item 7,
Management's Discussion and Analysis of Results of Operation and Financial
Condition", there can be no assurance that we will be able to complete any
further acquisitions.

DESCRIPTION OF SUBSIDIARIES' BUSINESSES
---------------------------------------

JENS' OILFIELD SERVICE, INC.

 Jens', founded in 1982, is headquartered in Edinburg, Texas. Jens' supplies
specialized equipment and trained operators to install casing and tubing, change
out drill pipe and retrieve production tubing for both onshore and offshore
drilling and work over operations. Most wells drilled for oil and natural gas
require some form of casing and tubing to be installed in the completion phase
of a well.

Jens' has an extensive inventory of specialized equipment consisting of casing
tongs and laydown machines in various sizes, powered by diesel motors and driven
by hydraulic pumps. Non-powered equipment consists of elevators, slips, links
and projectors. Jens' also maintains a fleet of other revenue generating
equipment such as forklifts and delivery trucks that transport Jens' various
rental equipment and transfer the customers' casing from truck to pipe rack.
Jens' charges its customer for tong trucks, laydown trucks, and personnel on
hourly basis portal to portal and rental equipment on a daily basis portal to
portal. The customer is liable for damaged or lost equipment.

Jens' has been operating in the Rio Grande Valley in South Texas for over 20
years. Jens' currently provides service primarily to South Texas and Mexico
areas. Although there are two large companies, Frank's Casing Crew and Rental
Tools Inc. and Weatherford International Inc. ("Weatherford"), which have a
substantial portion of the casing crew market, that market remains highly
competitive and fragmented with at least 30 casing crew companies working in the
U.S. Jens' believes it has several competitive advantages including:

o A well-established, loyal customer base in South Texas and Mexico
o An experienced management team with at least 15 years of service with Jens'
o An extensive inventory of specialized equipment; and a reputation for customer
  responsiveness
o Substantial experience drilling in South Texas, primarily a natural gas market
o An excellent relationship with its Mexican joint venture partner (discussed
  below), which enables Jens' to penetrate the Mexican market.

Management believes that through geographic expansion, Jens can optimize the
utilization of both its equipment and personnel by accessing additional niche
markets underserved by the larger oilfield service companies in the U.S. and
Mexico.

Jens' operates in Mexico through Jens' Mexican joint venture partner, Materiales
y Equipo Petroleo, S.A. de C.V. ("Maytep") in Villa Hermosa, Reynosa, Vera Cruz,
and Ciudad de Carmen, Mexico. Jens' provides substantially all of the necessary
equipment and Maytep provides all personnel, repairs, maintenance, insurance,
and supervision for provision of the casing crew and torque turn service. In
addition, Maytep is responsible for the preparation of billing invoices,
collection of receivables, and the import and export of equipment. The joint
venture provides services solely for Petroleos Mexicanos ("Pemex"). Bidding
protocol for Pemex requires that service providers with Mexican ownership like
Maytep be awarded contracts as long as they are reasonably competitive. Jens'
has approximately $8.0 million of equipment in Mexico, and has operated
profitably in Mexico since 1997.

                                       4


<PAGE>

Maytep is responsible for payment to Jens', even if it is unable to collect
payment on a timely basis, though in the past the Company's receipt of payments
has been delayed for significant periods of time by failure of Pemex to pay
amounts due Maytep on a timely basis. Jens' primary competitors in Mexico are
South American Enterprises and Weatherford, both of which provide similar
products and services.

For the years ended December 31, 2003, 2002 and 2001, Jens' Mexico operations
accounted for approximately $3.7 million, $2.7 million and $2.4 million,
respectively, of Jens' revenues, and the loss of Pemex as a customer could have
a material adverse effect on our business. The Company provides extended payment
terms to Maytep and maintains a high account receivable balance due to these
terms. The account receivable balance reached a maximum of approximately $1.6
million during 2003 and was $1,354,000 at December 31, 2003. A default on this
receivable could have a material adverse effect on the Company.

For the years ended December 31, 2003 and 2002, El Paso Energy Corp, accounted
for approximately $1.3 million, or 21%, and approximately $1.4 million or 18%,
respectively, of Jens' domestic revenues. Jens' top ten domestic customers
accounted for $6.2 million, or 57%, and $4.1 million, or 52%, of revenues for
the years ended December 31, 2003 and 2002, respectively. The loss of El Paso
Energy Corp. as a customer could have a material adverse effect on our business.

The following table details Jens' revenues by class for the year ended December
31, 2003 and from February 2002 through December 31, 2002.

                                                     February 2002
                          December 31,              through December
                              2003      Percentage      31, 2002      Percentage
                          ------------  ----------  ----------------  ----------
    Revenues by class:

    Laydown machines      $ 2,426,000      24.1%    $     2,136,000      27.4%
    Casing installation     3,828,000      38.2%          2,849,000      36.6%
    Mexico operations       3,729,000      34.6%          2,696,000      34.6%
    Other                      53,000       3.1%            115,000       1.4%
                          ------------              ----------------
    Total revenues        $10,036,000     100.0%    $     7,796,000     100.0%
                          ============              ================

STRATA DIRECTIONAL TECHNOLOGY, INC.

Strata Directional Technology, Inc. ("Strata"), founded in 1996, is
headquartered in Houston, Texas. Strata provides high quality directional,
horizontal and measure while drilling (`MWD"), services to oil and gas companies
operating both onshore and offshore in Texas and Louisiana. Management believes
there are several advantages to horizontal and directional drilling applications
including:

o Improvement of total cumulative recoverable reserves
o Faster payouts to the E&P companies
o Improved reservoir production performance beyond conventional vertical wells
o Reduction of the number of field development wells
o Reduction of water and gas coning problems

Strata provides specialized directional drilling services in niche markets,
including the Austin Chalk, where specialized, technically focused applications
are necessary. Strata's teams of experienced personnel utilizing state of the
art tools provide services ,including well planning and engineering to meet
drilling performance and geological or reservoir targets set by the customer,
directional drilling tool configuration, well site directional drilling
supervision and guidance, new well and reentry drilling, steerable drilling, and
log while drilling ("LWD").

El Paso Energy Corp. accounted for approximately $3.3 million, or 20% of
Strata's revenue in 2003. Swift Energy and Anadarko Petroleum each accounted for
more than 10% of Strata's annual revenues in 2002. The loss of any as a customer
could have a material adverse effect on our business. Strata's top ten customers
accounted for $10.6 million, or 66%, and $5.2 million, or 75%, of revenues for
2003 and 2002, respectively.

                                       5


<PAGE>

There are three directional drilling companies, Schlumberger, Halliburton and
Baker Hughes, that dominate the market both worldwide and in the U.S., as well
as numerous small regional players, including Strata. There are believed to be
at least 50 regional directional and horizontal drilling companies operating in
the U.S. Management estimates that the regional market companies account for
approximately 15% of the domestic market.

The following table details Strata's revenues by class for the year ended
December 31, 2003 and from February 2002 through December 31, 2002.

                                                     February 2002
                          December 31,              through December
                              2003      Percentage      31, 2002      Percentage
                          ------------  ----------  ----------------  ----------
    Revenues by class:

    Drilling operations   $13,188,000      82.4%    $     4,477,000      68.6%
    Other                   2,820,000      17.6%          2,052,000      31.4%
                          ------------              ----------------
    Total revenues        $16,008,000     100.0%    $     6,529,000     100.0%
                          ============              ================

AIRCOMP LLC.

The formation of AirComp in July 2003 by Allis-Chalmers and M-I has created the
world's second largest provider of compressed air and related products and
services for the air drilling, workover, completion, and transmission segments
of the oil, gas and geothermal industries. The Company believes compressed air
products and services represent more than 10% of an overall $750-$900 million
under balanced drilling operations market.

Under balanced drilling operations include some or all of the following products
and services:

         o    Engineering Services
         o    Compressed Air
         o    Nitrogen (Membrane Separators, Cyrogenic, etc.)
         o    Chemicals (Foamers, Defoamers, Polymers, Shale Stabilizers,
              Corrosion Inhibitors, etc.)
         o    Specialized Bits
         o    Hammers and other Downhole Tools
         o    Surface Blow-Out Prevention Equipment
         o    Multi-Phase Separation Equipment

AirComp LLC provides engineering services, compressed air and chemicals. These
products and services can be used exclusive of the other under balanced
components in traditional air, mist and foam drilling applications or as part of
a more sophisticated under balanced drilling operations package employing most
or all of the elements listed above.

AirComp's services are provided primarily in Eastern Oklahoma, North Texas, West
Texas, throughout the Rocky Mountains, and California. AirComp's operations
offices are in Fort Stockton, Texas; Farmington, New Mexico; Grand Junction,
Colorado; and Healdsburg, California. AirComp has a sales and technical support
office in Denver, Colorado and headquarters in Houston, Texas. AirComp's
management believes that its operational facilities are well located for quick
logistical response to customer needs.

AirComp is recognized in its markets for providing superior compressed air
equipment, chemicals and personnel for under balanced drilling. These operations
include air, mist, foam and aerated mud drilling, completion and workover as
well as pipeline testing and commissioning. AirComp has a combined fleet of over
80 compressors and boosters including:

         o    Gardner-Denver two-stage reciprocating compressors (35)
         o    Clark four stage reciprocating (15)
         o    GHH-Rand three stage screw (12)
         o    IR four stage screw (3)
         o    MDY two stage booster (15)
         o    Ariel two stage booster (4)

This broad and diversified product line enables AirComp to compete in the under
balanced market with an equipment package engineered and customized to
specifically meet customer requirements. All the revenues of AirComp are derived
from the rental of equipment and personnel.

In addition to the oil and gas industry, AirComp is a world leader in providing
specialized air equipment and experienced personnel in geothermal applications.
Geothermal activities involving air compression are concentrated in California,
with some activity in Nevada, Idaho, Japan, Sweden and the Philippines.

                                       6


<PAGE>

AirComp's largest competitor is Weatherford International. Weatherford offers a
complete line of under balanced drilling operations products and services and
has service centers throughout the world. Weatherford focuses on large projects,
complete package, under balanced applications, but also competes in the more
common air, mist, foam, and aerated mud drilling applications. Other AirComp
competition comes from smaller independently owned companies with a one-region
only presence; e.g. Rocky Mountains only, West Texas only. AirComp competes
successfully with Weatherford and others through:

         o    Diversified fleet allowing customized packages
         o    Multi-region presence
         o    Highly experienced and effective personnel
         o    Customer relationships
         o    Assistance of Sales Personnel from M-I and from other
              Allis-Chalmers companies.
         o    Reputation of predecessor companies: M-I Air Drilling Services and
              Mountain Compressed Air, each of which had over a 30 year history
              of superior service

AirComp had revenues for the six month period July 1, 2003 through December 31,
2003 of $4.57 million, over 95% of which was in the United States. The largest
single customer was Burlington Resources. The loss of Burlington Resources as a
customer could have a material adverse effect on our business. AirComp's top ten
customers represent 86% of total revenues in 2003.

There is a continuing trend in the industry to drill, complete, and work over
wells with under balanced drilling operations. Multi-component (complete
package) under balanced drilling operations are found in the Middle East, Latin
America, Western Canada and other areas. Under balanced drilling shortens the
time required to drill a well, and enhances production by minimizing formation
damage. The older, depleted, low permeability reservoirs in many areas of the
Western United States are particularly good applications. AirComp expects the
market to continue to grow.

CYCLICAL NATURE OF EQUIPMENT RENTAL AND SERVICES INDUSTRY
---------------------------------------------------------

The oil and gas equipment rental and services industry is highly cyclical. The
most critical factor in assessing the outlook for the industry is worldwide
supply and demand for oil and natural gas (the supply and demand for oil and gas
are generally correlative). The peaks and valleys of demand are further apart
than those of many other cyclical industries. This is primarily a result of the
industry being driven by commodity demand and corresponding price increases. As
demand increases, producers raise their prices. The price escalation enables
producers to increase their capital expenditures. The increased capital
expenditures ultimately result in greater revenues and profits for services and
equipment companies. The increased capital expenditures also ultimately result
in greater production, which, historically, has resulted in reduced prices.

After experiencing a strong market throughout most of 2000 and the first half of
2001, the energy services industry experienced a significant drop-off due to
lower demand for hydrocarbons (particularly natural gas), which the Company
believes was largely a function of the U.S. recession, a warm winter and
increased inventory levels. This trend continued for most of 2002; however, in
the fourth quarter of 2002, the market experienced an increase in demand due to
a colder than expected winter and decreased natural gas inventory levels. Demand
for the Company's services was strong throughout 2003 and Management believes
demand will remain strong throughout 2004 due to increased demand and declining
production costs for natural gas as compared to other energy sources. Because of
these market fundamentals for natural gas, management believes the long-term
trend of activity in the oilfield services market is favorable; however, these
factors could be more than offset by other developments affecting the worldwide
supply and demand for oil and natural gas products.

COMPETITION
-----------

As discussed above, we experience significant competition in all areas of our
business. In general, the markets in which we compete are highly fragmented, and
a large number of companies offer services that overlap and are competitive with
our services and products. We believe that the principal competitive factors are
technical and mechanical capabilities, management experiences, past performance
and price. While we have considerable experience, there are many other companies
that have comparable skills. Many of our competitors are larger and have greater
financial resources than we do.

                                       7


<PAGE>

SUPPLIERS
---------

AIRCOMP

Where possible, AirComp purchases equipment from a number of suppliers and at
auctions on an opportunistic basis. The equipment provided by these suppliers is
customized and often times overhauled by AirComp in order to improve
performance. In other instances, equipment must be made to order. As a result of
purchasing the majority of its equipment at auction, AirComp is not
significantly dependent upon any one supplier.

STRATA

The equipment required for Strata's operations is generally leased, and Strata
has only a single supplier for most or all of each type of equipment it uses
(down hole motors, tubing, and MWD and LWD equipment); therefore Strata is
dependent upon these suppliers. However, other suppliers of such equipment are
available. Strata has entered into preferred leasing agreements with its current
suppliers, which are intended to assure the availability of equipment through
2006 for its tubing, MWD and LWD equipment. Strata has an indefinite contract
with its supplier of down hole motors.

JENS'

Historically, Jens' has sought to purchase equipment at auction or on an
opportunistic basis; however, there is currently a shortage of casing and tubing
equipment, which is available new from four suppliers. Management believes there
is a six to eight month backlog on orders to these suppliers. However, Jens'
currently owns sufficient equipment for its projected operations over the next
12 months, and believes the shortage of equipment will result in increased
demand for its services.

BACKLOG
-------

We do not have a significant backlog of orders because our customers utilize our
services on an as-needed basis without significant on-going commitments.

EMPLOYEES
---------

Our strategy is to acquire companies with strong management and to enter into
long-term employment contracts with key employees in order to preserve customer
relationships and assure continuity following acquisition. We believe we have
good relations with our employees, none of whom are represented by a union. We
actively train employees across various functions, which we believe is crucial
to motivate our workforce and maximize efficiency. Employees showing a higher
level of skill are trained on the more technically complex equipment and given
greater responsibility. All employees are responsible for on-going quality
assurance.

At December 31, 2003, we had 195 employees, which included 60 AirComp employees,
75 Jens' employees, 57 Strata employees and 3 employees of Allis-Chalmers
Corporation.

INSURANCE
---------

We carry a variety of insurance for our operations, and are partially
self-insured for certain claims in amounts that we believe to be customary and
reasonable. However, there is a risk that our insurance may not be sufficient to
cover any particular loss or that insurance may not cover all losses. Finally,
insurance rates have in the past been subject to wide fluctuation, and changes
in coverage could result in less coverage, increases in cost or higher
deductibles and retentions.

FEDERAL REGULATIONS AND ENVIRONMENTAL MATTERS
---------------------------------------------

Our operations are subject to federal, state and local laws and regulations
relating to the energy industry in general and the environment in particular.
Environmental laws have in recent years become more stringent and have generally
sought to impose greater liability on a larger number of potentially responsible
parties. Because we provide services to companies producing oil and gas, which
are toxic substances, we may become subject to claims relating to the release of
such substances into the environment. While we are not currently aware of any
situation involving an environmental claim that would likely have a material
adverse effect on us, it is possible that an environmental claim could arise
that could cause our business to suffer.

                                       8


<PAGE>

In addition to claims based on our current operations, we are from time to time
subject to environmental claims relating to our activities prior to our
bankruptcy in 1988 (See, "Item 2. Legal Proceedings").

HOUSTON DYNAMIC SERVICE, INC.
-----------------------------

Houston Dynamic Service, Inc., which we sold on December 12, 2001, serviced and
repaired various types of mechanical equipment, including compressors, pumps,
turbines, engines and other machinery, providing repair, inspection, testing and
other services for various industrial customers, including those in the
petrochemical, chemical, refinery, utility, waste and waste treatment, minerals
processing, power generation, pulp and paper and irrigation industries.

INTELLECTUAL PROPERTY RIGHTS
----------------------------

Except for our relationships with our customers and suppliers described above,
we do not own any patents, trademarks, licenses, franchises or concessions which
we believe are material to the success of our business. As part of our overall
corporate strategy to focus on our core business of providing services to the
oil and gas industry and to increase shareholder value, we are investigating the
sale or license of our worldwide rights to trade names and logos for products
and services outside the energy sector.

ITEM 2. PROPERTIES

AirComp leases an approximate 6,000 square foot facility in Grand Junction,
Colorado, which includes offices, shop and a warehouse; an approximate 10,000
square foot facility in Farmington, New Mexico, which includes offices, shop and
a warehouse; a yard in Fort Stockton, Texas and a yard and facility in
Healdsburg, California.

Jens' owns facilities located in Edinburg, Texas on approximately 8 acres. One
building has approximately 5,000 square feet of office space, 5,000 square feet
of additional expansion capacity and 2,500 square feet of storage capability.
Additionally, there is a 10,000 square foot mechanical repair, tool storage and
maintenance facility. In addition to the property above, Jens' leases yards
located in Victoria and Pearsall, Texas. The yard in Pearsall is owned by Jens
Mortensen, a current executive of the Company.

Strata leases office space and a shop in Houston, Texas. In connection with the
acquisition of Strata, we relocated our principal executive offices to Strata's
offices in Houston, Texas.

ITEM 3. LEGAL PROCEEDINGS

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY
---------------------------------------------------------------------------
CODE.
-----

On June 29, 1987, we filed for reorganization under Chapter 11 of the United
States Bankruptcy Code. Our plan of reorganization was confirmed by the
Bankruptcy Court after acceptance by our creditors and stockholders, and was
consummated on December 2, 1988.

At confirmation of our plan of reorganization, the United States Bankruptcy
Court approved the establishment of the A-C Reorganization Trust as the primary
vehicle for distributions and the administration of claims under our plan of
reorganization, two trust funds to service health care and life insurance
programs for retired employees and a trust fund to process and liquidate future
product liability claims. The trusts assumed responsibility for substantially
all remaining cash distributions to be made to holders of claims and interests
pursuant to our plan of reorganization. We were thereby discharged of all debts
that arose before confirmation of our plan of reorganization.

We do not administer any of the aforementioned trusts and retain no
responsibility for the assets transferred to or distributions to be made by such
trusts pursuant to our plan of reorganization.

As part of our plan of reorganization, we settled U.S. Environmental Protection
Agency ("EPA") claims for cleanup costs at all known sites where we were alleged
to have disposed of hazardous waste. The EPA settlement included both past and
future cleanup costs at these sites and released us of liability to other
potentially responsible parties in connection with these specific sites. In
addition, we negotiated settlements of various environmental claims asserted by
certain state environmental protection agencies.

                                       9


<PAGE>

Subsequent to our bankruptcy reorganization, the EPA and state environmental
protection agencies have in certain cases asserted we are liable for cleanup
costs or fines in connection with several hazardous waste disposal sites
containing products manufactured by us prior to consummation of the Plan of
Reorganization. In each instance, we have taken the position that the cleanup
cost or other liabilities related to these sites were discharged in the
bankruptcy, and the cases have been disposed of without material cost. A number
of Federal Courts of Appeal have issued rulings consistent with this position
and based on such rulings we believe that we will continue to prevail in our
position that our liability to the EPA and third parties for claims for
environmental cleanup costs that had pre-petition triggers have been discharged.
A number of claimants have asserted claims for environmental cleanup costs that
had pre-petition triggers, and in each event, the A-C Reorganization Trust,
under its mandate to provide Plan of Reorganization implementation services to
us, has responded to such claims, generally, by informing claimants that the
Company's liabilities were discharged in the bankruptcy. Each of such claims has
been disposed of without material cost. However, there can be no assurance that
we will not be subject to environmental claims relating to pre-bankruptcy
activities that would have a material, adverse effect on us.

The EPA and certain state agencies continue from time to time to request
information in connection with various waste disposal sites containing products
manufactured by us before consummation of the Plan of Reorganization that were
disposed of by other parties. Although we have been discharged of liabilities
with respect to hazardous waste sites, we are under a continuing obligation to
provide information with respect to our products to federal and state agencies.
The A-C Reorganization Trust, under its mandate to provide Plan of
Reorganization implementation services to us, has responded to these
informational requests because pre-bankruptcy activities are involved.

We have been advised that the A-C Reorganization Trust will be terminated and
its assets distributed during 2004, and as a result we will assume the
responsibility of responding to claimants and to the EPA and state agencies
previously undertaken by the A-C Reorganization Trust. However, we have been
advised by the A-C Reorganization Trust that its cost of providing these
services has not been material in the past, and therefore we do not expect to
incur material expenses as a result of responding to such requests. However,
there can be no assurance that we will not be subject to environmental claims
relating to pre-bankruptcy activities that would have a material, adverse effect
on us.

No environmental claims have been asserted against us involving our
post-bankruptcy operations. However, there can be no assurance that we will not
be subject to material environmental claims in the future.

We are named as a defendant from time to time in product liability lawsuits
alleging personal injuries resulting from our activities prior to our
reorganization involving asbestos. These claims are referred to and handled by a
special products liability trust formed to be responsible for such claims in
connection with our reorganization. As with environmental claims, we do not
believe we are liable for product liability claims relating to our business
prior to our bankruptcy; moreover, the products liability trust is defending all
such claims. However, there can be no assurance that we will not be subject to
material product liability claims in the future.

We are subject to legal proceedings, claims and litigation arising in the
ordinary course of business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Effective November 25, 2003, pursuant to a Consent in Lieu of Annual Meeting of
Stockholders (the "Written Consent"), the Stockholders of the Company approved
resolutions (1) electing directors of the Company as set forth below, (2)
approving a resolution which permits the Board of Directors to effect a reverse
stock split at any time prior to November 25, 2004, ranging from one share for
each three shares outstanding to one share for each ten shares outstanding , (3)
approving an amendment to the terms of the Company's outstanding Series A 10%
Cumulative Convertible Preferred Stock (the "Preferred Stock") reducing the
conversion price of the Preferred Stock to $0.50 per share (the Preferred Stock
has since been converted into common stock), (4) approving the Company's 2003
Incentive Stock Plan (See "Item 5 - Market For Registrant's Common Equity and
Related Stockholder Matters") and (5) ratifying the reappointment of Gordon,
Hughes & Banks, LLP as the Company's independent accountants for fiscal year
2003. Holders of more than 85% of the Company's common stock and holders of 100%
of the Company's Series A 10% Cumulative Convertible Preferred Stock executed
the Written Consent. The following persons were reelected as directors pursuant
to the Written Consent:

                                       10


<PAGE>

NAME                                                     DIRECTOR SINCE
----                                                     --------------

David A. Groshoff                                        October 1999
Munawar H. Hidayatallah                                  May 2001
Jens H. Mortensen                                        February 2003
Robert E. Nederlander                                    May 1989
Saeed M. Sheikh                                          May 2001
James W. Spann                                           February 2002
Michael D. Tapp   (1)                                    February 2002
Leonard Toboroff                                         May 1989
Thomas O. Whitener, Jr.                                  February 2002

(1)      On January 6, 2004 Mike Tapp resigned as a director; on March 4, 2004,
         Christina Woods, who is an Accounting Manager for Energy Spectrum
         Partners LP ("Energy Spectrum"), was appointed as a director and as a
         member of the Company's Audit Committee.

A Notice of Consent in Lieu of Annual Meeting of Stockholders Information
Statement dated October 31, 2003, was distributed to Stockholders in connection
with the Written Consent.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

MARKET INFORMATION. There is no established public trading market for the common
stock, which is traded on the Over the Counter Bulletin Board. On March 15,
2004, we filed an application to list the common stock on the American Stock
Exchange. However, approval of listing of the common stock is subject to
numerous conditions, including that we effect a reverse stock split resulting in
an increase in our per share price to at least $3.00 per share, and meet certain
other quantitative and qualitative standards. While the stockholders and board
of directors have approved a reverse stock split (see "Item 4 - Submission of
Matters to a Vote of Security Holders"), there can be no assurance that we will
meet the listing requirements of the American Stock Exchange or any other
exchange .

The following table sets forth, for the periods indicated, the high and low bid
information for the common stock, as determined from sporadic quotations on the
Over-the-Counter Bulletin Board, as well as the total number of shares of common
stock traded during the periods indicated:

CALENDAR QUARTER                                  HIGH       LOW      VOLUME
--------------------------------------------------------------------------------
2002                                                              (# OF SHARES)
   First Quarter.............................      1.25      .40     239,800
   Second Quarter............................      2.00      .75      31,100
   Third Quarter.............................      1.40      .75      15,400
   Fourth Quarter............................      1.01      .12     243,100
2003
   First Quarter.............................       .90      .11      38,300
   Second Quarter............................      1.00      .45      31,300
   Third Quarter.............................       .90      .52      21,500
   Fourth Quarter............................      1.20      .52      64,019

The foregoing quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.

HOLDERS. As of April 2, 2004, there were approximately 6,100 holders of our
common stock. On April 2, 2004, the bid price for our common stock was $1.25,
and the last reported sale price was $1.52 on April 2, 2004.

DIVIDENDS. No dividends were declared or paid during the past three years, and
no dividends are anticipated to be declared or paid in the foreseeable future.

                                       11


<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2003 with respect to
the shares of the Company's common stock that may be issued under the Company's
existing equity compensation plans.

<TABLE>
<CAPTION>
                                   Number of                                  Number of securities
                                   securities to be      Weighted             remaining available
                                   issued upon           average              for future issuance
                                   exercise of           price of             under equity
                                   outstanding           outstanding,         compensation plans
                                   options, warrants     options, warrants    (excluding securities
Plan Category                      and rights            and rights           reflected in column A)
-------------                      -----------------     -----------------    ----------------------
<S>                                <C>                   <C>                  <C>
Equity compensation plans
approved by security holders(1)    4,342,500             $0.55                1,657,500(1)

Equity compensation plans
not approved by security holders   2,024,000             $0.41                        0
                                   ----------            ------               ----------
Total                              6,366,500             $0.50                1,657,500
</TABLE>

__________
(1)  In December 2003, the Company issued options to purchase 4,342,500 shares
     of common stock pursuant to the 2003 Incentive Stock Plan, leaving
     1,657,500 shares available for issuance under this plan.

Equity Compensation Plans Not Approved By Security Holders:
-----------------------------------------------------------

These plans comprise the following:

In 1999 and 2000, the Board compensated former and continuing Board members who
had served from 1989 to March 31, 1999 without compensation by issuing
promissory notes totaling $325,000 and by granting stock options to these same
individuals. Options to purchase 24,000 shares of common stock were granted with
an exercise price of $2.75. These options vested immediately and may be
exercised any time prior to March 28, 2010. During 2000 or 2001, none of these
options were exercised.

On May 31, 2001, our Board granted to one of our directors, Leonard Toboroff, an
option to purchase 500,000 shares of common stock at $0.50 per share,
exercisable for 10 years from October 15, 2001. The option was granted for
services provided by Mr. Toboroff to OilQuip prior to the merger of OilQuip
Rentals, Inc. and Allis-Chalmers Corporation, including providing financial
advisory services, assisting in OilQuip's capital structure and assisting
OilQuip Rentals, Inc. in finding strategic acquisition opportunities.

In February 2001, we issued two warrants ("Warrants A and B") for the purchase
of 1,165,000 total shares of the Company's common stock at an exercise price of
$0.15 per share and one warrant for the purchase of 335,000 shares of the
Company's common stock at an exercise price of $1.00 per share in connection
with the subordinated debt financing of Mountain Air in 2001. These Warrants
expire in February 2011.

Private Placement of Common Stock and Warrants Subsequent to Year-End.
----------------------------------------------------------------------
On April 2, 2004, the Company entered into the following transactions:

         o    In exchange for an investment of $2 million, the Company issued
              3,100,000 shares of common stock for a purchase price equal to
              $0.50 per share, and warrants to purchase 4,000,000 shares of
              common stock at an exercise price of $0.50 per share, expiring on
              April 1, 2006, to an investor group (the "Investor Group")
              consisting of entities affiliated with Donald and Christopher
              Engel and directors Robert Nederlander and Leonard Toboroff. The
              aggregate purchase price for the common stock was $1,550,000, and
              the aggregate purchase price for the warrants was $450,000.

         o    Energy Spectrum converted its 3,500,000 shares of Series A 10%
              Cumulative Convertible Preferred Stock, including accrued dividend
              rights, into 8,590,449 shares of common stock.

                                       12


<PAGE>

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

         o    Wells Fargo Credit, Inc. and Wells Fargo Energy Capital, Inc.
              extended the maturity dates for certain obligations (which at
              December 31, 2003, aggregated approximately $9,768,000) from
              January and February of 2005 to January and February 2006. As a
              condition of the extension, the Company will make a $400,000
              initial payment and 24 monthly principal payments in the amount of
              $25,000 each to Wells Fargo Energy Capital, Inc. As part of the
              extension, the lenders waived certain defaults including defaults
              relating to the failure of Jens' and Strata to comply with certain
              covenants relating to the amount of their capital expenditures,
              and amended certain covenants set forth in the loan agreements on
              an on-going basis. In addition, Wells Fargo Credit, Inc. increased
              Strata's line of credit from $2.5 million to $4.0 million.

As a result of the foregoing transactions, the parties to the stockholders
agreement own 86.4% of the outstanding common stock of the Company, calculated
in accordance with Rule 13d-3 of the Securities and Exchange Commission. The
proceeds of the sale of the common stock and warrants will be used by the
Company to reduce debt, to fund potential acquisitions and for general corporate
purposes. The issuance and sale of the common stock and warrants was exempt from
federal registration requirements under the Securities Act under Regulation D of
the Securities and Exchange Commission and because the transaction did not
involve a public offering.

ITEM 6. SELECTED FINANCIAL DATA.

As discussed in "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation", in May 2001, for financial reporting
purposes, we were deemed to be acquired by OilQuip Rentals, Inc. Accordingly,
the following data for periods prior to May 2001 reflect only the operations of
OilQuip Rentals, Inc., which was incorporated in February 2000, and, from
February 2001, its subsidiary, Mountain Air.

                   CONSOLIDATED STATEMENTS OF OPERATIONS DATA

                                                   Year Ended December 31,
                                           (in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:                  2003       2002         2001
                                             ---------  ---------   ---------
Sales                                        $ 32,724   $ 17,990    $  4,796
Income (loss) from operations                $  2,624   $ (1,170)   $ (1,433)
Net income (loss)                            $    548   $ (3,969)   $ (4,577)
Net income (loss) attributed to common
shareholders                                 $   (108)  $ (4,290)   $ (4,577)

Per Share Data:
Net (loss) income per common share:
    Basic                                    $  (0.01)   $  (0.23)   $  (1.15)
    Diluted                                  $  (0.01)   $  (0.23)   $  (1.15)

Weighted average number of common
  shares outstanding:
    Basic                                      19,633     18,831       3,952
    Diluted                                    19,633     18,831       3,952

                                       13


<PAGE>

                         CONSOLIDATED BALANCE SHEET DATA

                                                   Year Ended December 31,
STATEMENT OF OPERATIONS DATA:                  2003       2002         2001
                                             ---------  ---------   ---------
Total Assets                                 $ 48,873   $ 34,778    $ 12,465
Long-term debt classified as:
    Current                                  $  5,150   $ 13,890    $  1,023
    Long Term                                $ 27,083   $  7,731    $  6,833
Stockholders' Equity                         $  1,207   $  1,009    $  1,250

Book value per share                         $   0.06   $   0.05    $   0.32

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The information in this Item 7 contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of risks and uncertainties, including, but not limited
to, those discussed below under "Risk Factors", and those discussed in other
reports filed with the Securities and Exchange Commission. You should not rely
on these forward-looking statements, which reflect our position as of the date
of this report. We are under no obligation to revise or update any
forward-looking statements.

BACKGROUND
----------

Prior to May 2001, we operated primarily through Houston Dynamic Services, Inc
("HDS"). In May 2001, as part of a strategy to acquire and develop businesses in
the natural gas and oil services industry, we consummated a merger (the "OilQuip
Merger") in which we acquired 100% of the capital stock of OilQuip Rentals, Inc.
("OilQuip"), which owned 100% of the capital stock of Mountain Air. In December
2001, we disposed of HDS, and in February 2002, we acquired substantially all of
the capital stock of Strata and approximately 81% of the capital stock of Jens'.
Our business conducted in 2001 did not include the operations of Jens' and
Strata. In July 2003, through our subsidiary Mountain Air, we entered into a
limited liability company operating agreement with a division of M-I L.L.C.
("M-I"), a joint venture between Smith International and Schlumberger N.V.
(Schlumberger Limited) to form a Texas limited liability company named AirComp
LLC ("AirComp"). Mountain Air contributed assets with a net book value of
approximately $6.3 million and M-I contributed assets with a net book value of
approximately $6.8 million to AirComp L.L.C. The Company owns 55% and M-I owns
45% of AirComp. We have consolidated AirComp into our financial statements
beginning with the quarter ending September 30, 2003.

For accounting purposes, the OilQuip Merger was treated as a reverse acquisition
of Allis-Chalmers and financial statements presented herein for periods prior to
May 2001 present the results of operations and financial condition of OilQuip.
As a result of the OilQuip Merger, the fixed assets, and goodwill and other
intangibles of Allis-Chalmers in existence immediately prior to the Merger (the
"Prior A-C Assets") were increased by $2,691,000.

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

We have identified the policies below as critical to our business operations and
the understanding of our results of operations. The impact and any associated
risks related to these policies on our business operations is discussed
throughout Management's Discussion and Analysis of Financial Condition and
Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note 1 in the Notes to the Consolidated Financial
Statements in "Item 8 -- Financial Statements." Note that our preparation of
this Annual Report on Form 10-K requires us to make estimates and assumptions
that affect the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial statements, and
the reported amounts of revenue and expenses during the reporting period. There
can be no assurance that actual results will not differ from those estimates.

                                       14


<PAGE>

ALLOWANCE FOR DOUBTFUL ACCOUNTS. The determination of the collectibility of
amounts due from our customers requires us to use estimates and make judgments
regarding future events and trends, including monitoring our customer payment
history and current credit worthiness to determine that collectibilty is
reasonably assured, as well as consideration of the overall business climate in
which our customers operate. Inherently, those uncertainties require us to make
frequent judgments and estimates regarding our customers' ability to pay amounts
due us in order to determine the appropriate amount of valuation allowances
required for doubtful accounts. Provisions for doubtful accounts are recorded
when it becomes evident that the customers will not be able to make the required
payments at either contractual due dates or in the future. Over the past two
years, reserves for doubtful accounts, as a percentage of total accounts
receivable before reserves, have ranged from 1% to 2%. At December 31, 2003 and
2002, reserves for doubtful accounts totaled $168,000, or 2%, and $32,000, or 1%
of total accounts receivable before reserves, respectively. We believe that our
reserve for doubtful accounts is adequate to cover anticipated losses under
current conditions; however, uncertainties regarding changes in the financial
condition of our customers, either adverse or positive, could impact the amount
and timing of any additional provisions for doubtful accounts that may be
required.

REVENUE RECOGNITION. Our revenue recognition policy is significant because our
revenue is a key component of our results of operations. In addition, our
revenue recognition policy determines the timing of certain expenses, such as
commissions. We follow very specific and detailed guidelines in measuring
revenue. Revenue results are difficult to predict, and any shortfall in revenue
or delay in recognizing revenue could cause our operating results to vary
significantly from quarter to quarter and could result in future operating
losses. Revenues are recognized by the Company and its subsidiaries as services
are rendered, pricing is fixed or determinable, and collection is reasonably
assured. The Securities and Exchange Commission's (SEC) Staff Accounting
Bulletin (SAB) No. 104, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, provides
guidance on the SEC staff's views on application of generally accepted
accounting principles to selected revenue recognition issues. Our revenue
recognition policy is in accordance with generally accepted accounting
principles and SAB No. 104.

IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets, which include property,
plant and equipment, goodwill and other intangibles, comprise a significant
amount of the Company's total assets. The Company makes judgments and estimates
in conjunction with the carrying value of these assets, including amounts to be
capitalized, depreciation and amortization methods and useful lives.
Additionally, the carrying values of these assets are reviewed for impairment or
whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable. An impairment loss is recorded in the period in which it
is determined that the carrying amount is not recoverable. This requires the
Company to make long-term forecasts of its future revenues and costs related to
the assets subject to review. These forecasts require assumptions about demand
for the Company's products and services, future market conditions and
technological developments. Significant and unanticipated changes to these
assumptions could require a provision for impairment in a future period.

GOODWILL AND OTHER INTANGIBLES - The Company has recorded approximately
$7,661,000 of goodwill and $2,290,000 of other identifiable intangible assets.
The Company performs purchase price allocations to intangible assets when it
makes a business combination. Business combinations and purchase price
allocations have been consummated for purchase of the Mountain Air, Strata and
Jens' operating segments. The excess of the purchase price after allocation of
fair values to tangible assets is allocated to identifiable intangibles and
thereafter to goodwill. Subsequently, the Company has performed its initial
impairment tests and annual impairment tests in accordance with Financial
Accounting Standards Board No. 141, BUSINESS COMBINATIONS, and Financial
Accounting Standards Board No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. These
initial valuations required the use of third-party valuation experts who in turn
developed assumptions to value the carrying amount of the individual reporting
units. Significant and unanticipated changes to these assumptions could require
a provision for impairment in future periods.

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

                                       15


<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

In September 2003, the FASB approved SFAS No. 150, ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY ("SFAS
No. 150"). SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after September 15, 2003. The effect on the
Company's financial position includes the fact that beginning on July 1, 2003
redeemable warrants will be classified as liabilities and not shown in the
mezzanine equity section of the balance sheet. The adoption of SFAS No. 150
could also affect the Company's debt covenant calculations for purposes of its
bank loans.

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

Results of operations for 2001 reflect the business operations of OilQuip. From
its inception on February 4, 2000 to February 6, 2001, OilQuip was in the
developmental stage. OilQuip's activities for the period 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
the period prior to February 6, 2001 reflect no sales, cost of sales, or
marketing and administrative expenses that would be reflective of an operating
company. On February 6, 2001, OilQuip acquired the assets of Mountain Air, which
provides air drilling services to natural gas exploration operations
("Compressed Air Drilling Services"). On May 9, 2001, OilQuip acquired the Prior
A-C Assets, including the operations of HDS. The results of operation of HDS,
which was sold in December 2001, are included in discontinued operations from
May 9, 2001. On February 6, 2002, Allis-Chalmers acquired 81% of the outstanding
stock for Jens' Oilfield Service, Inc., which supplies highly specialized
equipment and operations to install casing and production tubing required to
drill and complete oil and gas wells ("Casing Services"). On February 6, 2002,
the Company also purchased substantially all the outstanding common stock and
preferred stock of Strata Directional Technology, Inc., which provides high-end
directional and horizontal drilling services for specific targeted reservoirs
that cannot be reached vertically ("Directional Drilling Services"). The results
from Jens' and Strata's operations are included from February 1, 2002. In July
2003, through our subsidiary Mountain Air, we entered into a limited liability
company operating agreement with a division of M-I L.L.C. ("M-I"), a joint
venture between Smith International and Schlumberger N.V. (Schlumberger Limited)
to form a Texas limited liability company named AirComp LLC ("AirComp"). Both
Companies contributed assets with a net book value of approximately $13 million
to AirComp L.L.C. ("AirComp"). The Company owns 55% and M-I owns 45% of AirComp.
We have consolidated AirComp into our financial statements beginning with the
quarter ending September 30, 2003.

YEAR ENDED DECEMBER 31, 2003 COMPARED TO DECEMBER 31, 2002:
-----------------------------------------------------------

Sales for the year 2003 totaled $32,724,000, reflecting the revenue of AirComp,
a joint venture between the Company and M-I consummated in July, 2003, Mountain
Air from January 1, 2003 through June 30, 2003, and the entire year for Jens'
and Strata. In the comparable period of 2002, revenues were $17,990,000
reflecting the revenue of Jens' and Strata, which were acquired in February,
2002, and the entire year for Mountain Air. Revenues for the year ended December
31, 2003 for the Casing Services, Directional Drilling Services, and Compressed
Air Drilling Services segments were $10,036,000, $16,008,000 and $6,680,000,
respectively. Revenues for the year ended December 31, 2002 for the Casing
Services, Directional Drilling Services, and Compressed Air Drilling Services
segments were $7,796,000, $6,529,000 and $3,665,000, respectively. Revenues for
the Compressed Air Drilling Services segment increased from $3,665,000 for the
year ended December 31, 2002 primarily due to joint venture between the Company
and M-I. The Company through AirComp was able to expand the geographical areas
in which it operates to include geothermal drilling in California and natural
gas drilling in West Texas along with the drilling and work over operations
Mountain Air was operating in the San Juan basin. Revenues also increased as a
result of an overall upturn in the petroleum industry. Rig counts in the United
States provide a measure of oil and natural gas drilling activities. These rig
counts increased from 862 on December 31, 2002 to 1,126 on December 31, 2003,
according to the Baker Hughes gulf coast region rig count. According to the
Baker Hughes "drilling type" survey, directional and horizontal rigs counts
increased from 283 on December 31, 2002 to 381 on December 31, 2003, which
accounted for 32.8% and 33.8% of total U.S. rig count, respectively. As of April
2004, this trend has continued, with directional and horizontal rigs climbing to
399, which was 35.1% of the 1,138 total U.S. rig counts on such date.

                                       16


<PAGE>

Gross margin ratio, as a percentage of sales, was 25.9% for the year ended
December 31, 2003 compared with 18.6% for the year ended December 31, 2002. The
gross margin ratio increased as a result of increased utilization of equipment
and personnel and increased pricing in the Casing Services, Directional Drilling
Services and Compressed Air Drilling Services segments. Because we have made
significant investments in equipment and have a constant number of personnel,
many of our costs are fixed, and as a result, our gross profit margins are
impacted by either increases or decreases in revenues.

General and administrative expense was $6,169,000 in 2003 compared with
$3,792,000 in 2002. The general and administrative expenses increased in 2003
compared to 2002 due to the costs associated with AirComp and the hiring of
additional sales force and operations personnel due to the upturn in the market.

Operating income for the year 2003 totaled $2,624,00, reflecting the inclusion
of operating income of AirComp, which limited liability company was formed in
July 2003. In the comparable period of 2002, operating (loss) was ($1,170,000).
Operating income (loss) for the year ended December 31, 2003 for the Casing
Services, Directional Drilling Services, Compressed Air Drilling Services and
General Corporate segments were $3,628,000, $1,103,000, $115,000 and
($2,222,000), respectively. Operating income (loss) for the year ended December
31, 2002 for the Casing Services, Directional Drilling Services, Compressed Air
Drilling Services and General Corporate segments were $2,495,000, ($576,000),
($945,000) and ($2,144,000), respectively. Operating income for the segments
increased from an aggregate loss of ($1,170,000) for the year ended December 31,
2002 primarily due to higher revenues resulting from the overall upturn in the
petroleum industry. During the third quarter of 2002, the Company reorganized
itself in order to contain costs and recorded charges related to the
reorganization in the amount of $495,000. These charges consisted of related
payroll costs for terminated employees of $307,000, consulting fees of $113,000,
and costs associated with a terminated rent obligation of $75,000. The Company
also recorded one-time charges for costs related to abandoned acquisitions and
an abandoned private placement in the amount of $233,000.

We had a net loss attributed to common shareholders of $(108,000), or $(0.01)per
common share, for the year ended December 31, 2003 compared with a loss of
($4,290,000), or ($0.23) per common share, for the year end December 31, 2002.
The net income for 2003 included a one-time gain on the reduction of a note
payable of $1,034,000 in the third quarter as a result of settling a lawsuit
against the former owners of Mountain Air Drilling Service Co. Inc. The gain was
calculated in part by discounting the note payable to $1,469,152 using a present
value calculation and accreting the note payable to $1,863,195, the amount due
in September 2007. We will record interest expense totaling $394,043 over the
life of the note payable beginning July 2003. The net loss for 2002 included a
discount given to the holder of the HDS note in the amount of $191,000 as an
incentive to pay-off the note in September 2002. The Company's outstanding
Preferred Stock was converted to common stock in April 2004. Had the conversion
occurred prior to January 1, 2003, the net income per common share would have
been $548,000, or $0.02 per share.

PRO FORMA RESULTS

The following unaudited pro forma consolidated summary financial information
illustrates the effects of the formation of AirComp on the Company's results of
operations, based on the historical statements of operations, as if the
transaction had occurred as of the beginning of the periods presented. Pro forma
results of operations set forth below includes results of operations for all of
2003 and 2002. These financial statements should be read in conjunction with the
pro forma financial statements included herein.

Pro forma sales for the year 2003 totaled $33,605,000, reflecting the revenue of
AirComp. In the comparable period of 2002, pro forma sales were $20,443,000. The
increase in 2003 compared to 2002 was primarily due to higher revenues resulting
from the overall upturn in the petroleum industry.

Pro forma gross margin, as a percentage of sales, was 26.9% for the year ended
December 31, 2003 compared with a pro forma gross margin of 19.4 % for the year
ended December 31, 2002. The gross margin ratio increased as a result of
increased market share and increased pricing in the Casing Services, Directional
Drilling Services and Compressed Air Drilling Services segments. Because we have
made significant investments in equipment and have a constant number of
personnel, many of our costs are fixed, and as a result, our gross profit
margins are impacted by either increases or decreases in revenues.

Pro forma general and administrative expense was $5,958,000 in 2003 compared
with $4,841,000 in 2002. The pro forma general and administrative expense
increased in 2003 due to the costs associated with the formation of AirComp and
the hiring of additional sales force and operations personnel due to the upturn
in the market.

                                       17


<PAGE>

The Company had pro forma operating income for the year 2003 of $3,098,000 as
compared to pro forma operating (loss) of ($867,000) in 2002. The increase in
pro forma operating income for 2003 was primarily due to higher revenues
resulting from the overall upturn in the petroleum industry.

The Company incurred a pro forma net income of $577,000, or $0.03 per common
share, for the year ended December 31, 2003 compared with a pro forma net loss
of ($3,821,000), or ($0.19) per common share, for the year ended December 31
2002. The pro forma net income for 2003 included a one-time gain on the
reduction of the note payable $1,034,000 in the third quarter as a result of
settling a lawsuit against the former owners of Mountain Air Drilling Service
Company. The gain was calculated by discounting the note payable to $1,469,152
using a present value calculation and accreting the note payable to $1,863,195,
the amount due in September 2007. The pro forma net loss for 2002 included a
factoring discount given to the holder of the HDS note in the amount of $191,000
as an incentive to pay-off the note by September 30, 2002. During the third
quarter of 2002, the Company reorganized itself in order to contain costs and
recorded charges related to the reorganization in the amount of $495,000. These
charges consisted of related payroll costs for terminated employees of $307,000,
consulting fees of $113,000, and costs associated with a terminated rent
obligation of $75,000. The Company also recorded one-time charges for costs
related to an abandoned acquisitions and an abandoned private placement in the
amount of $233,000.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO DECEMBER 31, 2001:
-----------------------------------------------------------

Sales for the year 2002 totaled $17,990,000, reflecting the revenue of Jens' and
Strata, which were acquired in February, 2002. In the comparable period of 2001,
revenues were $4,796,000. Revenues for the year ended December 31, 2002 for the
Casing Services, Directional Drilling Services, and Compressed Air Drilling
Services segments were $7,796,000, $6,529,000 and $3,665,000, respectively.
Revenues for the Compressed Air Drilling Services segment decreased from
$4,796,000 for the year ended December 31, 2001 primarily due to lower revenues
resulting from the decline in revenues from Burlington Resources, from
$3,310,788 to $1,827,681. Burlington Resources represented 49.9% and 62.6% of
the Compressed Air Drilling Services revenues in 2002 and 2001, respectively.
Revenues also declined as a result of an overall downturn in the petroleum
industry. Rig counts in the United States decreased from an average of 1,156 in
2001 to an average of 830 in 2002, according to the Baker Hughes rig count.

Gross margin ratio, as a percentage of sales, was 18.6% for the year ended
December 31, 2002 compared with 30.5% for the year ended December 31, 2001. The
gross margin ratio declined as a result of the Jens' and Strata acquisitions in
2002 and lower gross margin ratios at Mountain Air resulting from lower
revenues. Because we have made significant investments in equipment and have a
constant number of personnel, many of our costs are fixed, and as a result, our
gross profit margins are severely impacted by decreases in revenues.

General and administrative expense was $3,792,000 in 2002 compared with
$2,898,000 in 2001. The general and administrative expenses increased in 2002
compared to 2001 due to the acquisition of Jens' and Strata. During the third
quarter of 2002, the Company restructured itself in order to contain costs and
recorded charges related to the reorganization in the amount of $495,000. These
charges consisted of related payroll costs for terminated employees of $307,000,
consulting fees of $113,000, and costs associated with a terminated rent
obligation of $75,000. The Company also recorded one-time charges for costs
related to abandoned acquisitions and an abandoned private placement in the
amount of $233,000.

Operating income (loss) for the year 2002 totaled ($1,170,000), reflecting the
operating income (loss) of Jens' and Strata, which were acquired in February
2002. In the comparable period of 2001, operating income (loss) was
($1,433,000). Operating income (loss) for the year ended December 31, 2002 for
the Casing Services, Directional Drilling Services, Compressed Air Drilling
Services and General Corporate segments were $2,495,000, ($576,000), ($945,000)
and ($2,144,000), respectively. Operating income for the Compressed Air Drilling
Services segment decreased from income of $433,000 for the year ended December
31, 2001 primarily due to lower revenues resulting from the overall downturn in
the petroleum industry. Operating (loss) for the General Corporate segment
increased from ($1,866,000) for the year ended December 31, 2001. During the
third quarter of 2002, the Company reorganized itself in order to contain costs
and recorded charges related to the reorganization in the amount of $495,000.
These charges consisted of related payroll costs for terminated employees of
$307,000, consulting fees of $113,000, and costs associated with a terminated
rent obligation of $75,000. The Company also recorded one-time charges for costs
related to abandoned acquisitions and an abandoned private placement in the
amount of $233,000.

                                       18


<PAGE>

We incurred a net loss attributed to common shareholders of ($4,290,000), or
($0.23) per common share, for the year ended December 31, 2002 compared with a
loss of ($4,577,000), or ($1.15) per common share, for the year end December 31
2001. The net loss for 2002 included a discount given to the holder of the HDS
note in the amount of $191,000 as an incentive to pay-off the note in September
2002. During the third quarter of 2002, the Company reorganized itself in order
to contain costs and recorded charges related to the reorganization in the
amount of $495,000. These charges consisted of related payroll costs for
terminated employees of $307,000, consulting fees of $113,000, and costs
associated with a terminated rent obligation of $75,000. The Company also
recorded one-time charges for costs related to abandoned acquisitions and an
abandoned private placement in the amount of $233,000.

PRO FORMA RESULTS

The following unaudited pro forma consolidated summary financial information
illustrates the effects of the acquisitions of Jens', Strata and Mountain Air
and the merger with OilQuip on the Company's results of operations, based on the
historical statements of operations, as if the transactions had occurred as of
the beginning of the periods presented. The discontinued HDS operations are not
included in the pro forma information. Pro forma results of operations set forth
below includes results of operations for all of 2002 and 2001. These financial
statements should be read in conjunction with the pro forma financial statements
included herein.

Pro forma sales for the year 2002 totaled $19,142,000, reflecting the revenue of
Mountain Air, Jens' and Strata. In the comparable period of 2001, pro forma
sales were $28,244,000. Pro forma revenues for the year ended December 31, 2002
for the Casing Services, Directional Drilling Services, and Compressed Air
Drilling Services segments were $8,500,000, $6,977,000 and $3,665,000,
respectively. Pro forma revenues for the year ended December 31, 2001 for the
Casing Services, Directional Drilling Services and Compressed Air Drilling
Services segments were $9,949,000, $12,986,000 and $5,289,000, respectively. The
decrease in 2002 compared to 2001 was primarily due to lower revenues resulting
from the overall downturn in the petroleum industry. Revenues for Casing
Services, Directional Drilling Services and Compressed Air Drilling Services
declined 15%, 47% and 31% in 2002 compared to 2001.

Pro forma gross margin, as a percentage of sales, was 18.4% for the year ended
December 31, 2002 compared with a pro forma gross margin of 33.8 % for the year
ended December 31, 2001. The gross margin ratio declined as a result of the
Jens' and Strata acquisitions in 2002 and lower gross margin ratios at Mountain
Air resulting from lower revenues.

Pro forma general and administrative expense was $3,040,000 in 2002 compared
with $4,719,000 in 2001. The pro forma general and administrative expense
decreased in 2002 due to cost reductions at Strata and Corporate.

The Company had pro forma operating (loss) for the year 2002 of ($401,000) as
compared to pro forma operating income of $4,089,000 in 2001. Pro forma
operating income (loss) for the year ended December 31, 2002 for the Casing
Services, Directional Drilling Services, Compressed Air Drilling Services and
General Corporate segments were $2,756,000, ($584,000), ($795,000) and
($1,778,000), respectively. The pro forma operating income for the year ended
December 31, 2001 for the Casing Services, Directional Drilling Services,
Compressed Air Drilling Services and General Corporate segments were $3,954,000,
$1,420,000, $581,000 and ($1,866,000), respectively. The decrease in pro forma
operating income for 2002 was primarily due to lower revenues resulting from the
overall downturn in the petroleum industry.

The Company incurred a pro forma net loss of ($4,431,000), or ($0.24) per common
share, for the year ended December 31, 2002 compared with a pro forma net loss
of ($71,000), or ($0.02) per common share, for the year ended December 31 2001.
The pro forma net loss for 2002 included a factoring discount given to the
holder of the HDS note in the amount of $191,000 as an incentive to pay-off the
note by September 30, 2002. During the third quarter of 2002, the Company
reorganized itself in order to contain costs and recorded charges related to the
reorganization in the amount of $495,000. These charges consisted of related
payroll costs for terminated employees of $307,000, consulting fees of $113,000,
and costs associated with a terminated rent obligation of $75,000. The Company
also recorded one-time charges for costs related to an abandoned acquisitions
and an abandoned private placement in the amount of $233,000.

SCHEDULE OF CONTRACTUAL OBLIGATIONS

The following table summarizes the Company's obligations and commitments to make
future payments under its notes payable, operating leases, employment contracts
and consulting agreements for the periods specified as of December 31, 2003.

                                       19


<PAGE>

<TABLE>
<CAPTION>
                                     PAYMENTS DUE BY PERIOD
                                     ---------------------------------------------------------------
                                                                                             AFTER 5
CONTRACTUAL OBLIGATIONS                 TOTAL         1 YEAR       2-3 YEARS    4-5 YEARS     YEARS
---------------------------------    ------------  ------------  ------------  ------------  -------
<S>                                  <C>           <C>           <C>           <C>           <C>
Note payable                         $32,233,000   $ 6,800,000   $14,998,000   $10,434,000   $   --
Interest Payments on note payable      2,088,000       431,000       973,000       684,000       --
Operating Lease                          814,000       318,000       323,000       173,000       --
Employment Contracts                     750,000       750,000            --            --       --

Total Contractual Cash Obligations   $35,885,000   $ 8,299,000   $16,249,000   $11,291,000   $   --
                                     ============  ============  ============  ============  =======
</TABLE>

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

Cash and cash equivalents totaled $1,299,000 at December 31, 2003 as compared to
$146,000 at December 31, 2002.

Net trade receivables at December 31, 2003 were $8,852,000 as compared to
$4,409,000 at December 31, 2002, due to increased revenues and the formation of
AirComp.

Net property, plant and equipment were $26,339,000 at December 31, 2003 as
compared to $17,124,000 at December 31, 2002, as a result of the formation of
AirComp. Capital expenditures for the year 2003 were $5,354,000. Capital
expenditures for the year 2002 were $518,000. Capital expenditures for 2004 are
projected to be approximately $2,000,000.

Trade accounts payable at December 31, 2003 were $3,133,000 as compared to
$2,106,000 at December 31, 2002, primarily due to the formation of AirComp.

At December 31, 2003, other current liabilities, excluding the current portion
of long-term debt and trade accounts payable, were $3,291,000 consisting of
interest in the amount of $152,000, accrued salary and benefits in the amount of
$591,000, income taxes payable of $45,000, accrued restructuring costs of
$296,000, related party payables of $787,000, accrued operating expenses of
$1,358,000, and legal and professional expenses payable in the amount of
$62,000. Included in accrued restructuring costs was compensation in the amount
of $166,000 due to former employees of the Company. At December 31, 2002, other
current liabilities, excluding the current portion of long-term debt and trade
accounts payable, were $2,597,000 consisting of interest in the amount of
$811,000, accrued salary and benefits in the amount of $280,000, income taxes
payable of $45,000, accrued restructuring costs of $606,000, advance from
officers of the Company of $99,000, accrued operating expenses of $ 543,000, and
legal and professional expenses payable in the amount of $213,000. Included in
accrued restructuring costs was compensation in the amount of $244,000 due to
former employees of the Company.

Long-term debt including current maturities was $32,233,000 at December 31, 2003
as compared to $21,221,000 at December 31, 2002. The increase in long-term debt
was primarily a result of debt recorded in structuring AirComp in July 2003 and
the increase in the amount of the term loan at Jens' in October 2003 by
approximately $2,100,000. The long-term debt is as follows:

MOUNTAIN AIR. At December 31, 2003, Mountain Air had the following debt
outstanding:

o A note to the sellers of Mountain Air Drilling Service Co. Inc. assets in the
original amount of $2,200,000 at 5.75% simple interest was reduced to $1,469,151
as a result of the settlement of a legal action against the sellers. At December
31, 2003, the outstanding amount due, including accrued interest, was
$1,511,000. The principal and accrued interest is due on September 30, 2007 in
the amount of $1,863,195.

o In connection with incurring subordinated debt that was subsequently
extinguished in connection with the formation of AirComp, Mountain Air issued
redeemable warrants, which have been recorded as a liability of $600,000. The
redeemable warrants remain outstanding.

o A term loan in the original amount of $267,000 at an interest rate of 5%, with
principal and interest payments of $5,039 due on the last day of each month. At
December 31, 2003, the outstanding amount due was $247,000. The maturity date of
the loan is June 30, 2008.

                                       20


<PAGE>

In conjunction with the purchase of assets of Mountain Compressed Air, Inc. in
February of 2001, we issued a common stock warrant for 620,000 shares to a
third-party investment firm that assisted the Company in its initial
identification and purchase of the assets. The warrant entitles the holder to
acquire up to 620,000 shares of common stock of Mountain Air at an exercise
price of $.01 per share over a nine-year period commencing on February 7, 2001.

JENS'. On December 31, 2003, Jens' had the following debt outstanding:

o A term loan payable to Wells Fargo Credit, Inc. in the original amount of
$4,042,396 that was increased in October 2003 to $5,100,000 at a floating
interest rate with monthly principal payments of $85,000 plus 25% of Jens'
receipt of any payment from Maytep (the interest rate was 6.0% at December 31,
2003). At December 31, 2003, the outstanding amount due was $4,654,000. The
maturity date of the loan was January 31, 2005 and in April 2004 was extended to
January 31, 2006.

o A seller's note payable to Jens Mortensen in the original amount of $4,000,000
at 7.5% simple interest with quarterly interest payments. At December 31, 2003
$533,000 of interest was accrued and was included in accrued interest. The
principal and interest are due on January 31, 2006.

o A real estate loan payable to Wells Fargo Credit, Inc. in the amount of
$532,000 at a floating interest rate with monthly principal payments of $14,778
plus interest (the interest rate was 6.0% at December 31, 2003). At December 31,
2003, the outstanding amount due was $207,000. The principal will be due on
February 1, 2005.

o A $1,000,000 line of credit at Wells Fargo Credit, Inc. of which $26,000 was
outstanding at December 31, 2003. The committed line of credit was due on
January 31, 2005 but in April 2004 the maturity date was extended to January 31,
2006. Interest accrues at a floating rate plus 3% (7.0% at December 31, 2003)
for the committed portion. Additionally, Jens pays a 0.05% fee for the
uncommitted portion.

o In conjunction with the purchase of Jens', the Company agreed to cause Jens'
to pay a total of $1,234,560 to the Seller of Jens' in exchange for a
non-compete agreement. Jens' is to make monthly payments of $20,576 through the
period ended January 31, 2007. As of December 31, 2003, the balance due is
approximately $761,000 including $247,000 classified as short-term.

o A term loan payable to Texas State Bank in the original amount of $397,080 at
a floating interest rate (6.0% at December 31, 2003) with monthly principal
payments of $11,000 plus interest. The balance at December 31, 2003 was
$354,000. The maturity date of the loan is September 17, 2006.

STRATA. On December 31, 2003, Strata had the following debt outstanding:

o A $2,500,000 line of credit at Wells Fargo Credit, Inc. of which $2,413,000
was outstanding at December 31, 2003. All amounts borrowed under the line of
credit were due on January 31, 2005 but in April 2004 the maturity date was
extended to January 31, 2006 and the amount of the credit line was increased to
$4 million. Interest accrues at a floating rate plus 3% (7.0% at December 31,
2003) for the committed portion. Additionally, Strata pays a 0.05% annual fee
for the uncommitted portion.

o In December 2003, Strata entered into a short-term vendor financing agreement
in the original amount of $1,746,000 with a major supplier of drilling motors
for drilling motor rentals, motor lease costs and motor repair costs. The
agreement provides for repayment of all amounts due no later than December 30,
2005. Payment of the interest on the note is due monthly and three principal
payments are due in October 2004, April 2005, and December 2005. The vendor
financing incurs interest at a rate of 8.0%. As of December 31, 2003, the
outstanding balance is approximately $1,746,000.

o In October 2003, Strata entered into a short-term vendor financing agreement
in the original amount of $779,000 with a major supplier of drilling motors for
the purchase of fifty (50) drilling motors. The agreement provides for repayment
of all amounts due no later than October 31, 2004. Payment is due monthly in the
amount of $71,000 plus interest. The vendor financing incurs interest at a rate
of 8.0%. As of December 31, 2003, the outstanding balance is approximately
$637,000.

                                       21


<PAGE>

ALLIS-CHALMERS. At December 31, 2003, Allis-Chalmers had the following debt and
other obligations outstanding:

o Subordinated debt payable to Wells Fargo Energy Capital, Inc. in the original
amount of $3,000,000 at 12% interest, of which $2,675,000 was outstanding at
December 31, 2003. The principal amount was due on January 31, 2005, but in
April 2004 was extended to January 31, 2006. In connection with incurring the
debt, the Company issued redeemable warrants, which have been recorded as a
liability of $900,000 and as a discount to the face amount of the debt. This
amount is amortizable over three years beginning February 6, 2002, as additional
interest expense. $300,000 was amortized in 2003 and $275,000 was amortized in
2002. The debt is recorded at $2,675,000, net of unamortized portion of the put
obligation.

o In connection with the acquisition of Strata we issued 3,500,000 shares of
Series A 10% Cumulative Convertible Preferred Stock. Those shares, along with
accrued and unpaid dividend rights, were redeemable at the option of the holder
on February 1, 2004, for $4,293,000.
The Preferred Stock, including accrued dividend rights, was converted into
8,590,449 shares of common stock on April 2, 2004 (See, "Recent Developments.")

o In 1999 the Company compensated former and continuing directors who had served
on the board of directors from 1989 to March 31, 1999 without compensation by
issuing promissory notes totaling $325,000. The notes bear interest at the rate
of 5% and are due March 28, 2005. At December 31, 2003, the principal and
accrued interest on these notes totaled approximately $386,000.

o The Company issued redeemable warrants that are exercisable for up to
1,165,000 shares of the Company's common stock at an exercise price of $0.15 per
share ("Warrants A and B") and non-redeemable warrants that are exercisable for
a maximum of 335,000 shares of the Company's common stock at $1.00 per share
("Warrant C"). The warrants were issued in connection with the issuance of a
subordinated debt instrument for Mountain Air in 2001, subsequently repaid in
connection with the formation of AirComp in July 2003 and the related issuance
of the $3 million subordinated debt discussed above (collectively, the
"Subordinated Debt"). Warrants A and B are subject to cash redemption provisions
("puts") in the amount of $600,000 and $900,000, respectively, at the discretion
of the warrant holders beginning at the earlier of the final maturity date of
the Subordinated Debt or three years from the closing of the Subordinated Debt
(January 31, 2005). Warrant C does not contain any such puts or provisions. In
April 2004 the maturity date of the debt was extended to February 1, 2006. The
Company has recorded a liability of $600,000 at Mountain Air and $900,000 at
Allis-Chalmers for a total of $1,500,000 and is amortizing the effects of the
puts to interest expense over the life of the Subordinated Debt.

AIRCOMP LLC. At December 31, 2003, AirComp LLC had the following debt
outstanding:

o A $1,000,000 line of credit at Wells Fargo bank, of which $369,000 was
outstanding at December 31, 2003. The committed line of credit is due on January
31, 2005. Interest accrues at a floating rate plus 2.25% (6.25% at December 31,
2003) for the committed portion. Additionally, AirComp pays a 0.05% fee for the
uncommitted portion.

o A term loan in the original amount of $8,000,000 at variable interest rates
related to the Prime or LIBOR rates (4.09% at December 31, 2003), interest
payable quarterly, with quarterly principal payments of $286,000 due on the last
day of the quarter beginning in July 2003. The maturity date of the loan is June
27, 2007 and the balance at December 31, 2003 was $7,429,000. MCA and M-I have
guaranteed 55% and 45%, respectively, of this debt.

o A delayed draw term loan in an amount of up to $1,000,000 with interest at a
rate equal to the LIBOR rate plus 2.0% to 2.75%, with quarterly payments of
interest currently and quarterly payments of principal equal to 5% of the
outstanding balance commencing in the first quarter of 2005. The maturity date
of the loan is June 27, 2007. AirComp has not yet drawn down on this note and
there was no outstanding balance at December 31, 2003.

o Subordinated debt payable to M-I L.L.C. in the amount of $4,818,000 bearing an
annual interest rate of 5% in conjunction with the joint venture. In 2007, each
party has the right to cause Aircomp to sell its assets (or the other party may
buy out such party's interest), and this debt is due in such an event. The note
is due and payable when M-I sells its interest or a termination of AirComp
occurs. At December 31, 2003 $120,000 of interest was accrued and was included
in accrued interest.

                                       22


<PAGE>

CAPITAL REQUIREMENTS

Our long-term capital needs are to repay and/or refinance our existing debt,
provide funds for existing operations, and to secure funds for acquisitions in
the oil and gas equipment rental and services industry. In order to pay our
debts as they become due, including the amounts due to the Bank Lenders
described above, we will require additional financing, which may include the
issuance of new warrants, or other equity or debt securities, as well as secured
and unsecured loans. See "Recent Developments" below for a discussion of capital
transactions completed subsequent to year-end. In March 2004 the Company entered
into an agreement with Morgan Joseph & Co. Inc. to assist the Company in
restructuring its outstanding debt and to effect a public offering of its common
stock. However, there can be no assurance that the Company will be successful in
such efforts. Any new issuance of equity securities may further dilute existing
shareholders.

FORMATION OF AIRCOMP LLC JOINT VENTURE

The Company through its subsidiary, Mountain Compressed Air, Inc. and M-I
L.L.C., contributed assets with a fair market value in excess of $27 million to
AirComp L.L.C. ("AirComp"), which the Company believes will be the world's
second largest provider of air compressor products and services to the oil,
natural gas and geothermal drilling work over and completion industries.
Allis-Chalmers will own 55% and M-I L.L.C. will own 45% of AirComp L.L.C.

In connection with the transaction, AirComp obtained financing of $8 million, of
which $7.3 million was distributed to the Company. The Company used these funds
to retire debt of Mountain Compressed Air, Inc. and for general working capital
purposes at AirComp.

RECENT DEVELOPMENTS

On April 2, 2004, the Company entered into the following transactions:

         o    In exchange for an investment of $2 million, the Company issued
              3,100,000 shares of common stock for a purchase price equal to
              $0.50 per share, and warrants to purchase 4,000,000 shares of
              common stock at an exercise price of $0.50 per share, expiring on
              April 1, 2006, to an investor group (the "Investor Group")
              consisting of entities affiliated with Donald and Christopher
              Engel and directors Robert Nederlander and Leonard Toboroff. The
              aggregate purchase price for the common stock was $1,550,000, and
              the aggregate purchase price for the warrants was $450,000.

         o    Energy Spectrum converted its 3,500,000 shares of Series A 10%
              Cumulative Convertible Preferred Stock, including accrued dividend
              rights, into 8,590,449 shares of common stock.

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

         o    Wells Fargo Credit, Inc. and Wells Fargo Energy Capital, Inc.
              extended the maturity dates for certain obligations (which at
              December 31, 2003, aggregated approximately $9,768,000) from
              January and February of 2005 to January and February 2006. As a
              condition of the extension, the Company will make a $400,000
              initial payment and 24 monthly principal payments in the amount of
              $25,000 each to Wells Fargo Energy Capital, Inc. As part of the
              extension, the lenders waived certain defaults including defaults
              relating to the failure of Jens' and Strata to comply with certain
              covenants relating to the amount of their capital expenditures,
              and amended certain covenants set forth in the loan agreements on
              an on-going basis. In addition, Wells Fargo Credit, Inc. increased
              Strata's line of credit from $2.5 million to $4.0 million.

As a result of the foregoing transactions, the parties to the stockholders
agreement own 86.4% of the outstanding common stock of the Company, calculated
in accordance with Rule 13d-3 of the Securities and Exchange Commission. The
proceeds of the sale of the common stock and warrants will be used by the
Company to reduce debt, to fund potential acquisitions and for general corporate
purposes.

                                       23


<PAGE>

                                  RISK FACTORS

This Annual Report on Form 10-K (including without limitation the following Risk
Factors) contains forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934) regarding our business, financial condition,
results of operations and prospects. Words such as expects, anticipates,
intends, plans, believes, seeks, estimates and similar expressions or variations
of such words are intended to identify forward-looking statements, but are not
the exclusive means of identifying forward-looking statements in this Annual
Report on Form 10-K.

Although forward-looking statements in this Annual Report on Form 10-K reflect
the good faith judgment of our management, such statements can only be based on
facts and factors we currently know about. Consequently, forward-looking
statements are inherently subject to risks and uncertainties, and actual results
and outcomes may differ materially from the results and outcomes discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences in results and outcomes include, but are not limited to, those
discussed below and elsewhere in this Annual Report on Form 10-K and in our
other SEC filings and publicly available documents. Readers are urged not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this Annual Report on Form 10-K. We undertake no obligation to
revise or update any forward-looking statements in order to reflect any event or
circumstance that may arise after the date of this Annual Report on Form 10-K.

Low prices for oil and natural gas will adversely affect the demand for our
---------------------------------------------------------------------------
services and products.
----------------------

The oil and natural gas exploration and drilling business is highly cyclical. As
market prices decrease, exploration and drilling activity declines as marginally
profitable projects become uneconomic and either are delayed or eliminated. A
decline in the number of operating oil and natural gas rigs would adversely
affect our business. Accordingly, when oil and natural gas prices are relatively
low, our revenues and income will suffer. The oil and gas industry is extremely
volatile and subject to change based on political and economic factors outside
our control.

We are Highly Leveraged.
------------------------

As a result of acquisition financing, we are highly leveraged. At December 31,
2003, and April 1, 2004, we had approximately $32,233,000 and $30,903,000,
respectively, of debt outstanding. Our high level of debt will impair our
ability to obtain additional financing, makes us more vulnerable to economic
downturns and declines in oil and natural gas prices, makes us more vulnerable
to increases in interest rates. We may not maintain sufficient revenues to meet
our debt obligations. Even if we do achieve profitability, we may not sustain or
increase profitability on a quarterly or annual basis in the future.

To service our indebtedness, we will require a significant amount of cash. Our
------------------------------------------------------------------------------
ability to generate cash depends on many factors beyond our control.
--------------------------------------------------------------------

Our ability to fund operations, to make payments on or refinance our
indebtedness, and to fund planned acquisitions and capital expenditures will
depend on our ability to generate cash in the future. This ability, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.

Our failure to obtain additional financing may adversely affect us.
-------------------------------------------------------------------

Expansion of our operations through the acquisition of additional companies will
require substantial amounts of capital. In addition, we are required to
refinance our existing debt upon its maturity. The availability of financing may
affect our ability to refinance our debt or to expand.
There can be no assurance that such funds, whether from equity or debt
financings or other sources, will be available or, if available, will be on
terms satisfactory to us. We may also enter into strategic partnerships for the
purpose of developing new businesses. Our future growth may be limited if we are
unable to complete acquisitions or strategic partnerships.

                                       24


<PAGE>

We may have difficulties integrating acquired businesses.
---------------------------------------------------------

We may not be able to successfully integrate the business of our operating
subsidiaries or any business we acquire in the future. The integration of the
businesses will be complex and time consuming and may disrupt our future
business. We may encounter substantial difficulties, costs and delays involved
in integrating common information and communication systems, operating
procedures, financial controls and human resources practices, including
incompatibility of business cultures and the loss of key employees and
customers. The various risks associated with our acquisition of businesses and
uncertainties regarding the profitability of such operations could have a
material adverse effect on us.

Our success is dependent upon our ability to acquire and integrate additional
-----------------------------------------------------------------------------
businesses.
-----------

Our business strategy is to acquire companies operating in the oil and natural
gas equipment rental and services industry. However, there can be no assurance
that we will be successful in acquiring any additional companies. Our successful
acquisition of new companies will depend on various factors, including our
ability to obtain financing, the competitive environment for acquisitions, as
well as the integration issues described in the preceding paragraph. There can
be no assurance that we will be able to acquire and successfully operate any
particular business or that we will be able to expand into areas that we have
targeted.

We may not experience expected synergies.
-----------------------------------------

We may not be able to achieve the synergies we expect from the combination of
businesses, including our plans to reduce overhead through shared facilities and
systems, to cross-market to the business' customers, and to access a larger pool
of customers due to the combined businesses' ability to provide a larger range
of services.

There is no trading market for our common stock.
------------------------------------------------

Our common stock is not registered on any exchange or NASDAQ and is traded only
sporadically on the Over the Counter Bulletin Board. On March 15, 2004, we filed
an application to list the common stock on the American Stock Exchange. However,
approval of the listing of the common stock is subject to numerous conditions,
including that we effect a reverse stock split resulting in an increase in our
per share price to at least $3.00 per share, and meet certain other quantitative
and qualitative standards. While the stockholders and board of directors have
approved a future reverse stock split (see "Item 4 - Submission of Matters to a
Vote of Security Holders"), there can be no assurance that we will meet the
listing requirements of the American Stock Exchange or any other exchange. There
can be no assurance that an active market for our common stock will develop in
the future.

We do not expect to pay dividends on our common stock.
------------------------------------------------------

We have not within the last ten years paid, and have no intentions in the
foreseeable future to pay, any cash dividends on our common stock. Therefore an
investor in our common stock, in all likelihood, will realize a profit on his
investment only if the market price of our common stock increases in value.

Existing stockholders may be diluted in connection with additional financings.
------------------------------------------------------------------------------

We expect to issue additional equity securities to repay debt, in connection
with the acquisition of additional businesses, as well as in connection with
employee benefit plans and other plans. Such issuances will dilute the holdings
of existing stockholders. Such securities may have a dividend, liquidation, or
other preferences or may be on parity with our common stock.

Competition could cause our business to suffer.
-----------------------------------------------

The natural gas equipment rental and services industry is highly competitive,
and a number of individual and regional operators compete with us throughout our
existing and targeted markets. Some of our competitors are significantly larger
and have greater financial, technological and operating resources than we do.
These competitors compete with us both for customers and for acquisitions of
other businesses. This competition may cause our business to suffer.

                                       25


<PAGE>

Our products and services may become obsolete.
----------------------------------------------

Our business success is dependent upon providing our customers efficient,
cost-effective oil and gas drilling equipment and technology. It is possible
that competing technologies may render our equipment and technologies obsolete,
and have a material adverse effect on us.

Our historical results are not an indicator of future operations.
-----------------------------------------------------------------

Our business is conducted through three subsidiaries, one of which was acquired
in February 2001 and two of which were acquired in February 2002. As a result,
past performance is not indicative of future results and our likelihood of
success must be considered in light of the volatility of our industry, our
leveraged condition, competition, and other factors set forth herein.

We are controlled by a few stockholders.
----------------------------------------

A small number of stockholders effectively control us. As discussed in
"Management's Discussion and Analysis of Results of Operation and Financial
Condition - Recent Developments," Energy Spectrum, the Investor Group, our Chief
Executive Officer and Chairman Munawar H. Hidayatallah, our President and
director Jens H. Mortensen, and director Saeed M. Sheikh are parties to a
stockholders agreement which includes provision for the election of six
directors to our board of directors. This group of stockholders beneficially
owns approximately 86.4% of our common stock. This group thus has the power to
elect a majority of the Board of Directors of the Company, and to control its
affairs.

Dependence upon key personnel.
------------------------------

We are dependent upon the efforts and skills of our executives, including our
Chief Executive Officer and Chairman Munawar H. Hidayatallah, our President and
Chief Operating Officer Jens H. Mortensen, and President and Chief Executive
Officer of Strata, David Wilde, to manage our business as well as to identify
and consummate additional acquisitions. In addition, our business strategy is to
acquire businesses, which are dependent upon skilled management personnel, and
to retain such personnel to operate the business. The loss of the services of
Mr. Hidayatallah or one or more of our key personnel at our operating
subsidiaries could have a material adverse effect on us. We do not maintain key
man insurance on any of our personnel. In addition, our development and
expansion will require additional experienced management and operations
personnel. No assurance can be given that we will be able to identify and retain
such employees.

Our customers' credit risks could cause our business to suffer.
---------------------------------------------------------------

Our customers are engaged in the oil and natural gas drilling business in the
southwestern United States and Mexico. This concentration of customers may
impact our overall exposure to credit risk, in that customers may be similarly
affected by changes in economic and industry conditions.

We are vulnerable to personal injury and property damage.
---------------------------------------------------------

Our services are used for the exploration and production of oil and natural gas.
These operations are subject to inherent hazards that can cause personal injury
or loss of life, damage to or destruction of property, equipment, the
environment and marine life, and suspension of operations. Litigation arising
from an accident at a location where our products or services are used or
provided may result in our being named as a defendant in lawsuits asserting
potentially large claims. We maintain customary insurance to protect our
business against these potential losses. However, we could become subject to
material uninsured liabilities.

Government regulations could cause our business to suffer.
----------------------------------------------------------

We are subject to various federal, state and local laws and regulations relating
to the energy industry in general and the environment in particular.
Environmental laws have in recent years become more stringent and have generally
sought to impose greater liability on a larger number of potentially responsible
parties. Although we are not aware of any proposed material changes in any such
statutes, rules or regulations, any changes could cause our business to suffer.

                                       26


<PAGE>

Labor costs or the unavailability of skilled workers could cause our business to
--------------------------------------------------------------------------------
suffer.
-------

We are dependent upon the available labor pool of skilled employees. We are also
subject to the Fair Labor Standards Act, which governs such matters as a minimum
wage, overtime and other working conditions. A shortage in the labor pool or
other general inflationary pressures or changes in applicable laws and
regulations could require us to enhance our wage and benefits packages. There
can be no assurance that our labor costs will not increase. Any increase in our
operating costs could cause our business to suffer.

We may be subject to certain environmental liabilities relating to discontinued
-------------------------------------------------------------------------------
operations.
-----------

We were reorganized under the bankruptcy laws in 1988; since that time, a number
of parties, including the Environmental Protection Agency (the "EPA"), have
asserted that we are responsible for the cleanup of hazardous waste sites. These
assertions have been made only with respect to our pre-bankruptcy activities. We
believe such claims are barred by applicable bankruptcy law; however, if we do
not prevail with respect to these claims, we could become subject to material
environmental liabilities.

We may be subject to certain products liability claims.
-------------------------------------------------------

We were reorganized under the bankruptcy laws in 1988; since that time we have
been regularly named in products liability lawsuits primarily resulting from our
manufacture of products containing asbestos. In connection with our bankruptcy,
a special products liability trust was established to be responsible for such
claims. We believe that claims against Allis-Chalmers Corporation are banned by
applicable bankruptcy law, and that the Products Liability Trust will continue
to be responsible for these claims, and since 1988 no court has ruled that we
are responsible for such claims. However, if the products liability trust were
terminated and its funds disbursed, or we were otherwise subject to product
liability claims and did not prevail in our claim that our bankruptcy bars
claims against us, we could become subject to material products liabilities
related to our pre-bankruptcy activities. We have not manufactured products
containing asbestos since our bankruptcy.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

None.

                                       27


<PAGE>

ITEM 8. FINANCIAL STATEMENTS.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

                                                                           PAGE
                                                                           ----

Financial Statements:

Independent Auditors' Report                                                29

Consolidated Statements of Operations for the Years Ended
     December 31, 2003, December 31, 2002 and December 31,
     2001                                                                   30

Consolidated Balance Sheets as of December 31, 2003 and 2002                31

Consolidated Statement of Stockholders' Equity for the Years
     Ended December 31, 2003, December 31, 2002 and December
     31, 2001                                                               32

Consolidated Statements of Cash Flows for the Years Ended
     December 31, 2003, December 31, 2002 and December 31,
     2001                                                                   33

Notes to Consolidated Financial Statements                                  34

                                       28


<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Allis-Chalmers Corporation
Houston, Texas

We have audited the accompanying consolidated balance sheets of Allis-Chalmers
Corporation as of December 31, 2003 and 2002 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2003. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Allis-Chalmers
Corporation as of December 31, 2003 and 2002, and the results of consolidated
operations and cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America.


                                                /s/GORDON, HUGHES & BANKS, LLP

March 3, 2004
Greenwood Village, Colorado

                                       29


<PAGE>

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

<CAPTION>
                                                        Year Ended    Year Ended    Year Ended
                                                       December 31,  December 31,  December 31,
                                                           2003          2002          2001
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Revenues                                                $   32,724    $   17,990    $    4,796
Cost of revenues                                            23,931        14,640         3,331
                                                        -----------   -----------   -----------
    Gross margin                                             8,793         3,350         1,465

General and administrative expense                           6,169         3,792         2,898
Personnel restructuring costs                                   --           495            --
Abandoned acquisition/private placement costs                   --           233            --
                                                        -----------   -----------   -----------
   Total operating expenses                                  6,169         4,520         2,898
                                                        -----------   -----------   -----------
Income/ (loss) from operations                               2,624        (1,170)       (1,433)

Other income (expense):
   Interest income                                               3            49            41
   Interest expense                                         (2,467)       (2,256)         (869)
   Minority interests in income of subsidiaries               (387)         (189)           --
   Factoring costs on note receivable                           --          (191)           --
   Settlement on lawsuit                                     1,034            --            --
   Other                                                       111            58           (12)
                                                        -----------   -----------   -----------
Total other income (expense)                                (1,706)       (2,529)         (840)
                                                        -----------   -----------   -----------
Net income/(loss) before income taxes                          918        (3,699)       (2,273)

   Provision for foreign income tax                            370           270            --
                                                        -----------   -----------   -----------
Net income/(loss) from continuing operations                   548        (3,969)       (2,273)

(Loss) from discontinued operations                             --            --          (291)
(Loss) on sale of discontinued operations                       --            --        (2,013)
                                                        -----------   -----------   -----------
Net (loss) from discontinued operations                         --            --        (2,304)

         Net income/(loss)                                     548        (3,969)       (4,577)
         Preferred stock dividend                             (656)         (321)           --
                                                        -----------   -----------   -----------
Net income/(loss) attributed to common stockholders     $     (108)   $   (4,290)   $   (4,577)
                                                        ===========   ===========   ===========

Income/(loss) per common share basic
                    Continuing operations               $     (0.01)  $    (0.23)   $    (0.57)
                    Discontinued operations                     --            --         (0.58)
                                                        -----------   -----------   -----------
                                                        $     (0.01)  $     (.23)   $    (1.15)
                                                        ===========   ===========   ===========

Income/(loss) per common share diluted
                    Continuing operations               $     (0.01)  $    (0.23)   $    (0.57)
                    Discontinued operations                     --            --         (0.58)
                                                        -----------   -----------   -----------
                                                        $     (0.01)  $     (.23)   $    (1.15)
                                                        ===========   ===========   ===========
Weighted average number of common shares outstanding:
                    Basic                                   19,633        18,831         3,952
                                                        ===========   ===========   ===========
                    Diluted                                 19,633        18,831         3,952
                                                        ===========   ===========   ===========

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

                                            30
</TABLE>


<PAGE>

ALLIS-CHALMERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)

                                                                December 31
                                                             2003         2002
                                                           ---------   ---------
ASSETS

Cash and cash equivalents                                  $  1,299    $    146
Trade receivables, net of allowance for doubtful
     accounts of $168 and $32, respectively                   8,823       4,409
Lease deposit                                                    --         525
Lease receivable, current (Note 13)                             180         180
Prepaids and other current assets                               887         317
                                                           ---------   ---------
   Total current assets                                      11,189       5,577

Property and equipment, net of accumulated
     depreciation of $2,487 and $2,340 at
     December 31, 2003 and 2002, respectively                26,339      17,124
Goodwill                                                      7,661       7,661
Other intangible assets, net of accumulated
     amortization of $1,254 and $726 at
     December 31, 2003 and 2002, respectively                 2,290       2,818
Debt issuance costs, net of accumulated
     amortization of $462 and $331 at
     December 31, 2003 and 2002, respectively                   567         515
Lease receivable, less current portion (Note 13)                787       1,042
Other assets                                                     40          41
                                                           ---------   ---------
      Total Assets                                         $ 48,873    $ 34,778
                                                           =========   =========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current maturities of long-term debt (Note 8)              $  5,150    $ 13,890
Trade accounts payable                                        3,133       2,106
Accrued salaries, benefits and payroll taxes                    591         280
Accrued interest                                                152         811
Accrued expenses                                              1,761       1,506
Accounts payable, related parties (Note 14)                     787          --
                                                           ---------   ---------
    Total current liabilities                                11,574      18,593

Accrued postretirement benefit obligations (Note 3)             545         670
Long-term debt, net of current maturities (Note 8)           27,083       7,331
Other long-term liabilities                                     270         270
Redeemable warrants (Notes 8 and 12)                          1,500       1,500
Redeemable convertible preferred stock, $0.01 par value
     (4,200,000 shares authorized; 3,500,000 issued and
     outstanding at December 31, 2003) ($1 redemption
     value) including accrued dividends (Note 10)             4,171       3,821
                                                           ---------   ---------
    Total liabilities                                        45,143      32,185

Commitments and Contingencies (Note 9 and Note 19)

Minority interests                                            2,523       1,584

COMMON STOCKHOLDERS' EQUITY (NOTE 10)
   Common stock, $.15 par value (110,000,000 shares
     authorized; 19,633,340 issued and outstanding)           2,945       2,945
   Capital in excess of par value                             6,887       7,237
   Accumulated (deficit)                                     (8,625)     (9,173)
                                                           ---------   ---------
    Total shareholders' equity                                1,207       1,009
                                                           ---------   ---------
    Total liabilities and shareholders' equity             $ 48,873    $ 34,778
                                                           =========   =========

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

                                       31


<PAGE>

<TABLE>
ALLIS-CHALMERS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except number of shares)

<CAPTION>
                                            PREFERRED STOCK            COMMON STOCK         CAPITAL IN
                                        ----------------------  --------------------------   EXCESS OF     ACCUMULATED
                                           SHARES      AMOUNT      SHARES        AMOUNT      PAR VALUE      (DEFICIT)       TOTAL
                                        ------------  --------  ------------  ------------  ------------   ------------   ---------
<S>                                       <C>         <C>        <C>          <C>           <C>            <C>            <C>
Balances, December 31, 2000                      --        --       400,000            60         2,915           (627)      2,348

Issuance of common stock in
connection with Recapitalization                 --        --    11,188,128         1,678         1,101             --       2,779

Issuance of stock options for
services                                         --        --            --            --           500             --         500

Issuance of stock purchase warrants
for services                                     --        --            --            --           200             --         200

Net (loss)                                       --        --            --            --            --         (4,577)     (4,577)
                                        ------------  --------  ------------  ------------  ------------   ------------   ---------
Balances, December 31, 2001                      --        --    11,588,128         1,738         4,716         (5,204)      1,250

Issuance of common stock in
connection with the purchase of Jens'            --        --     1,397,849           210           420             --         630

Issuance of stock purchase warrants
in connection with the purchase of
Jens'                                            --        --            --            --            47             --          47

Issuance of preferred and common
stock in connection with the
purchase of Strata                        3,500,000     3,500     6,559,863           984         1,968             --       2,952

Issuance of stock purchase warrants
in connection with the purchase of
Strata                                           --        --            --            --           267             --         267

Issuance of common stock in
connection with the purchase of
Strata                                           --        --        87,500            13           140             --         153

Accrual of preferred dividends                   --       321            --            --          (321)            --        (321)

Net (Loss)                                       --        --            --            --            --         (3,969)     (3,969)
                                        ------------  --------  ------------  ------------  ------------   ------------   ---------
Balances, December 31, 2002               3,500,000   $ 3,821    19,633,340   $     2,945   $     7,237    $    (9,173)   $  1,009

Accrual of preferred dividends                   --       350            --            --          (350)            --        (350)

Net Income                                       --        --            --            --            --            548         548
                                        ------------  --------  ------------  ------------  ------------   ------------   ---------
                                          3,500,000   $ 4,171    19,633,340   $     2,945   $     6,887    $    (8,625)   $  1,207
                                        ============  ========  ============  ============  ============   ============   =========

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

                                                           32
</TABLE>


<PAGE>

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

<CAPTION>
                                                               Year Ended    Year Ended    Year Ended
                                                                December      December      December
                                                                31, 2003      31, 2002      31, 2001
                                                               -----------   -----------   -----------
<S>                                                            <C>           <C>           <C>
Cash flows from operating activities:
     Net income/(loss)                                         $      548    $   (3,969)   $   (4,577)
     Adjustments to reconcile net (loss) to net
           cash provided by operating activities:
     Depreciation expense                                           1,954         1,837           621
     Amortization expense                                             884           744           482
     Issuance of stock options for services                            --            --           500
     Amortization of discount on debt                                 516           475           183
     Gain on change in PBO liability                                 (125)           --            --
     Gain on settlement of lawsuit                                 (1,034)           --            --
     Minority interest in income of subsidiaries                      387           189            --
     Loss on sale of property                                          82           119            --
     Changes in working capital:
          Decrease (increase) in accounts receivable               (4,414)         (713)         (511)
          Decrease (increase) in due from related party                --            61            43
          Decrease (increase) in other current assets              (1,260)        1,644          (139)
          Decrease (increase) in other assets                           1           902            --
          Decrease (increase) lease deposit                           525           176            --
          (Decrease) increase in accounts payable                   2,251         1,316           238
          (Decrease) increase in accrued interest                    (126)          651           176
          (Decrease) increase in accrued expenses                     397          (339)          156
          (Decrease) increase in other long-term liabilities           --          (123)           --
          (Decrease) increase in accrued employee
              benefits and payroll taxes                              426          (788)          463
     Discontinued operations
          Loss on sale of HDS operations                               --            --         2,013
          Operating cash provided (used)                               --            --           381
          Depreciation and amortization                                --            --           124
                                                               -----------   -----------   -----------
     Net cash provided by operating activities                      1,879         2,182           153

Cash flows from investing activities:
         Recapitalization, net of cash received                        --            --           (88)
         Business acquisition costs                                    --            --          (141)
         Acquisition of MADSCO assets, net of cash Acquired            --            --        (9,534)
         Acquisition of Jens', net of cash acquired                    --        (8,120)           --
         Acquisition of Strata, net of cash acquired                   --          (179)           --
         Purchase of equipment                                     (5,354)         (518)         (402)
         Proceeds from sale-leaseback of equipment,
                net of lease deposit                                   --            --         2,803
        Proceeds from sale of equipment                               843           367            45
                                                               -----------   -----------   -----------
     Net cash (used) by investing activities                       (4,511)       (8,450)       (7,317)

Cash flows from financing activities:
         Proceeds from issuance of long-term debt                  14,127         9,683         5,832
         Payments on long-term debt                               (10,826)       (4,079)         (489)
         Payment on related party debt                               (246)           --            --
         Proceeds from issuance of common stock, net                   --            --         1,838
         Borrowings on lines of credit                             30,537         7,050           375
         Payments on lines of credit                              (29,399)       (5,804)           --
         Debt issuance costs                                         (408)         (588)         (244)
                                                               -----------   -----------   -----------
    Net cash provided by financing activities                       3,785         6,262         7,312
                                                               -----------   -----------   -----------
    Net increase (decrease) in cash and cash equivalents            1,153            (6)          148

Cash and cash equivalents at beginning of year                        146           152             4
                                                               -----------   -----------   -----------
Cash and cash equivalents at end of year                       $    1,299    $      146    $      152
                                                               ===========   ===========   ===========

Supplemental information - interest paid                       $    2,341    $    1,082    $      802
                                                               ===========   ===========   ===========

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

                                       33
</TABLE>


<PAGE>

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION OF BUSINESS

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

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

On May 9, 2001, OilQuip merged into a subsidiary of Allis-Chalmers Corporation
("Allis-Chalmers" or the "Company"). In the merger, all of OilQuip's outstanding
common stock was converted into 10,000,000 shares of Allis-Chalmers' common
stock.

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

On November 30, 2001, the Company entered into an agreement to sell its wholly
owned subsidiary, Houston Dynamic Service, Inc. ("HDS"), to the general manager
of HDS in a management buy-out. The sale of HDS was finalized on December 12,
2001.

In conjunction with the sale of HDS, the Company formally discontinued the
operations related to precision machining of rotating equipment, which was the
principal HDS business.

On February 6, 2002, Allis-Chalmers acquired 81% of the outstanding stock of
Jens' Oilfield Service, Inc. ("Jens'"), which supplies highly specialized
equipment and operations to install casing and production tubing required to
drill and complete oil and gas wells. The Company also purchased substantially
all the outstanding common stock and preferred stock of Strata Directional
Technology, Inc. ("Strata"), which provides high-end directional and horizontal
drilling services for specific targeted reservoirs that cannot be reached
vertically.

In July 2003, through our subsidiary Mountain Air, we entered into a limited
liability company operating agreement with a division of M-I L.L.C. ("M-I"), a
joint venture between Smith International and Schlumberger N.V. (Schlumberger
limited), to form a Texas limited liability company named AirComp LLC
("AirComp"). Both Companies contributed assets with a net book value of
approximately $13 million to AirComp L.L.C. ("AirComp"). The Company owns 55%
and M-I owns 45% of AirComp. Because the Company controls AirComp, the Company
has accounted for the joint venture as a business combination.

VULNERABILITIES AND CONCENTRATIONS

The Company provides oilfield services in several regions including the states
of California, Texas, Utah, Louisiana and New Mexico, the Gulf of Mexico and
southern portions of Mexico. The nature of the Company's operations and the many
regions in which it operates subject it to changing economic, regulatory and
political conditions. The company believes it is vulnerable to the risk of
near-term and long-term severe changes in the demand for and prices of oil and
natural gas.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Future events and their effects cannot be perceived
with certainty. Accordingly, the Company's accounting estimates require the
exercise of judgment. While management believes that the estimates and
assumptions used in the preparation of the consolidated financial statements are

                                       34


<PAGE>

appropriate, actual results could differ from those estimates. Estimates are
used for, but are not limited to, determining the following: allowance for
doubtful accounts, recoverability of long-lived assets and intangibles, useful
lives used in depreciation and amortization, income taxes and related valuation
allowances. The accounting estimates used in the preparation of the consolidated
financial statements may change as new events occur, as more experience is
acquired, as additional information is obtained and as the Company's operating
environment changes.

PRINCIPLES OF CONSOLIDATION

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

REVENUE RECOGNITION

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

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable are customer obligations due under normal trade terms. The
Company sells their services to oil and natural gas drilling companies. The
Company performs continuing credit evaluations of their customers' financial
condition and although the Company generally does not require collateral,
letters of credit may be required from customers in certain circumstances.

The Company records an allowance for doubtful accounts based on specifically
identified amounts that are uncollectible. The Company has a limited number of
customers with individually large amounts due at any given balance sheet date.
Any unanticipated change in any one of those customer's credit worthiness or
other matters affecting the collectibility of amounts due from such customers,
could have a material effect on the results of operations in the period in which
such changes or events occur. After all attempts to collect a receivable have
failed, the receivable is written off against the allowance. As of December 31,
2003 and 2002, the Company had recorded an allowance for doubtful accounts of
$168,000 and $32,000, respectively. Bad debt expense was $136,000, $32,000 and
$0 for the years ended December 31, 2003, 2002 and 2001, respectively.

CASH EQUIVALENTS

The Company considers all highly liquid investments with an original maturity of
three months or less at the time of purchase to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost less accumulated depreciation.

Maintenance and repairs are charged to operations when incurred. Refurbishments
and renewals are capitalized when the value of the equipment is enhanced for an
extended period and the cost exceeds a minimum amount of $1,000. When property
and equipment are sold or otherwise disposed of, the asset account and related
accumulated depreciation account are relieved, and any gain or loss is included
in operations.

The cost of property and equipment currently in service is depreciated over the
estimated useful lives of the related assets, which range from three to fifteen
years. Depreciation is computed on the straight-line method for financial
reporting purposes. Depreciation expense charged to operations was $1,954,000
for the year ended December 31, 2003, $1,837,000 for the year ended December 31,
2002, and $621,000 for the year ended December 31, 2001.

                                       35


<PAGE>

GOODWILL, INTANGIBLE ASSETS AND AMORTIZATION

On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("SFAS No.
142"). Goodwill, including goodwill associated with equity method investments,
and intangible assets with infinite lives are not amortized, but tested for
impairment annually or more frequently if circumstances indicate that impairment
may exist. Intangible assets with finite useful lives are amortized either on a
straight-line basis over the asset's estimated useful life or on a basis that
reflects the pattern in which the economic benefits of the intangible assets are
realized.

The Company performs impairment tests on the carrying value of its goodwill at
each reporting unit on an annual basis as of June 30th and December 31st for the
Mountain Air and Strata operating subsidiaries, respectively. As of December 31,
2003 and 2002, no evidence of impairment exists.

As a result of the formation of AirComp on July 1, 2003, the Company and its
subsidiary Mountain Air contributed assets whose cost was less than Mountain
Air's underlying equity in the net assets of AirComp. This difference between
the cost of the investment and the amount of the Company's underlying equity in
net assets of Aircomp has been accounted for similar to a business combination
per the requirements of SFAS No. 141, BUSINESS COMBINATIONS. The difference of
approximately $1,551,000 has been recorded pro-rata as a contra-asset against
the historical net book values of the property and equipment of AirComp, the
effects of which are reflected in the accompanying consolidated financial
statements that include the majority-owned and controlled joint venture,
AirComp. Over the period of the applicable depreciable lives of the assets, the
Company will amortize such basis differences against depreciation expense.

In 2001, goodwill was amortized using the straight-line method over its expected
useful life of 20 years. For the period ended December 31, 2001, the Company
recorded $403,000 of amortization expense related to it's goodwill.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets, which include property, plant and equipment, goodwill and
other intangibles, and certain other assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recorded in the period in which it is
determined that the carrying amount is not recoverable. The determination of
recoverability is made based upon the estimated undiscounted future net cash
flows, excluding interest expense. The impairment loss is determined by
comparing the fair value, as determined by a discounted cash flow analysis, with
the carrying value of the related assets.

FINANCIAL INSTRUMENTS

Financial instruments consist of cash and cash equivalents, accounts receivable
and payable, and debt. The carrying values of cash and cash equivalents,
accounts receivable and payable approximate fair value. The Company believes the
fair values and the carrying value of the debt would not be materially different
due to the instruments' interest rates approximating market rates for similar
borrowings at December 31, 2003 and 2002.

CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of significant concentration of credit risk regardless
of the degree of such risk.

Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents and trade accounts
receivable. The Company transacts its business with several financial
institutions. However, the amount on deposit in three financial institutions
exceeded the $100,000 federally insured limit at December 31, 2003 by a total of
$1,050,793. Management believes that the financial institutions are financially
sound and the risk of loss is minimal.

Approximately 25% of the Company's revenues for the year ended December 31, 2003
were derived from two customers as compared to approximately 20% of the
Company's revenues for the year ended December 31, 2002. Approximately 20% of
the Company's revenues for the year ended December 31, 2002 were derived from
two customers as compared to approximately 79% of the Company's revenues for the
year ended December 31, 2001, including one customer that accounted for 65% of
the Company's revenues in 2001. Accounts receivable at December 31, 2003
includes $1,387,000 as compared to $706,000 at December 31, 2002 from these two
customers.

                                       36


<PAGE>

Jens's largest customer, Maytep, had revenues of $3,329,000, which accounted for
33% of Jens' total revenues for the year ended December 31, 2003 and had
revenues of $2,699,000, which accounted for 35% of Jens' total revenues for the
year ended December 31, 2002. The Company provides extended payment terms to
Maytep and maintains a high account receivable balance due to these terms. The
account receivable reached a maximum of approximately $1.6 million during 2003
and was $1,354,000 at December 31, 2003. A default on this receivable could have
a material adverse effect on the Company.

DEBT ISSUANCE COSTS

The costs related to the issuance of debt are capitalized and amortized to
interest expense using the straight-line method over the maturity periods of the
related debt. The maturity periods range from 2 to 5 years.

ADVERTISING

The Company expenses advertising costs as they are incurred. Advertising
expenses for the years ended December 31, 2003, 2002, and 2001, totaled $41,000,
$96,500 and $31,400, respectively.

INCOME TAXES

The Company has adopted the provisions of SFAS No. 109, ACCOUNTING FOR INCOME
TAXES ("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or income tax returns. Under this
method, the deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

COMPREHENSIVE INCOME

Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" requires the presentation and disclosure of all changes in equity from
non-owner sources as "Comprehensive Income". The Company had no items of
comprehensive income in the reported periods.

RECLASSIFICATIONS AND RESTATEMENT OF FORM 10-Q

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

A reclassification on the accompanying consolidated balance sheet as of December
31, 2003 has occurred since the Company's September 30, 2003 interim condensed
balance sheet was reported in the Company's September 30, 2003 Form 10-Q. The
basis differences created between the Company's cost of its investment in
AirComp and the Company's underlying equity in the net assets of Aircomp has
been reclassified from additional paid in capital to reflect the pro rata
reduction of the Company's property and equipment balances. There was no effect
on the results of operations as previously reported in the Company's September
30, 2003 Form 10-Q and the current year presentation conforms with generally
accepted accounting principles.

The accompanying 2003 financial statements have been restated from the
previously filed interim financial statements included in Form 10-Q for the
first, second and third quarters of 2003. As discussed in Note 7 to the
accompanying financial statements, an adjustment was recorded in the fourth
quarter of 2003 to reflect a change in estimate of the recoverability of foreign
taxes paid in 2002 and 2003. The effect of the this significant fourth quarter
adjustment on the individual quarterly financial statements is as follows:
<TABLE>
<CAPTION>

                                        Three Months  Three Months  Three Months
                                        Ended March   Ended June    Ended September
                                        31, 2003      30, 2003      30, 2003
                                        --------      --------      --------
<S>                                       <C>           <C>         <C>
Net income (loss) attributed to
    common shareholders
Previously reported                       $  (183)      $  (330)    $   1,136
Adjustment                                   (158)          (92)          (93)
Restated                                     (335)         (422)        1,043

Net income (loss) per share, basic
    And diluted
Previously reported                       $ (0.01)      $ (0.02)    $    0.06
Adjustment                                  (0.01)        (0.00)        (0.01)
Restated                                    (0.02)        (0.02)         0.05
</TABLE>

Certain amounts in the accompanying statement of operations for the year ended
December 31, 2002 have been reclassified to conform to the restatement including
the reclassification of the foreign income taxes from cost of goods sold to
foreign tax expense.

PERSONNEL RESTRUCTURING COSTS

The Company has recorded and classified separately from recurring selling,
general and administrative costs of approximately $495,000 incurred to terminate
and relocate several members of management that occurred in September 2002.

                                       37


<PAGE>

BUSINESS ACQUISITION COSTS

The Company capitalizes direct costs associated with successful business
acquisitions and expenses acquisition costs for unsuccessful acquisition
efforts.

STOCK-BASED COMPENSATION

The Company accounts for its stock-based compensation using Accounting Principle
Board Opinion No. 25 ("APB No. 25"). Under APB 25, compensation expense is
recognized for stock options with an exercise price that is less than the market
price on the grant date of the option. For stock options with exercise prices at
or above the market value of the stock on the grant date, the Company adopted
the disclosure-only provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"). The Company also adopted the disclosure-only
provisions of SFAS No. 123 for the stock options granted to the employees and
directors of the Company. Accordingly, no compensation cost has been recognized
under APB No. 25. Had compensation expense for the options granted been recorded
based on the fair value at the grant date for the options, consistent with the
provisions of SFAS 123, the Company's net income/(loss) and net income/(loss)
per share for the years ended December 31, 2003, 2002, and 2001 would have been
decreased to the pro forma amounts indicated below.

                                            FOR THE YEAR ENDED DECEMBER 31,
                                         ------------------------------------
                                           (in thousands, except per share)

                                            2003         2002         2001
                                         ----------   ----------   ----------
Net income/ (loss):        As reported   $    (108)   $  (3,969)   $  (4,577)
                           Pro forma        (2,457)      (3,969)   $  (4,577)
                                         ==========   ==========   ==========

Net (loss) per share:
     Basic                 As reported   $   (0.01)   $   (0.23)   $   (1.15)
                           Pro forma         (0.10)       (0.23)   $   (1.15)
                                         ==========   ==========   ==========

     Diluted               As reported   $   (0.01)   $   (0.23)   $   (1.15)
                           Pro forma         (0.10)       (0.23)   $   (1.15)
                                         ==========   ==========   ==========

There were options granted in 2003 and 2001. See Note 11 for further disclosures
regarding stock options.

                         FOR THE YEAR ENDED DECEMBER 31,

                                            2003         2002         2001
                                         ----------   ----------   ----------

Expected dividend yield                         0         --            --
Expected price volatility                  265.08%        --           100%
Risk-free interest rate                      6.25%        --             5%
Expected life of options                  7 years         --       4 years

SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

The Company discloses the results of its segments in accordance with SFAS No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS
No. 131"). The Company designates the internal organization that is used by
management for allocating resources and assessing performance as the source of
the Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas and major customers. At December 31,
2003 and 2002, the Company operates in three segments organized by service line:
casing services, directional drilling services and compressed air drilling
services. At December 31, 2001, the Company operated in only one segment. Please
see Note 15 for further disclosure in accordance with SFAS No. 131.

PENSION AND OTHER POST RETIREMENT BENEFITS

SFAS No. 132, EMPLOYER'S DISCLOSURES ABOUT PENSION AND OTHER POST RETIREMENT
BENEFITS ("SFAS No. 132"), requires certain disclosures about employers' pension
and other post retirement benefit plans and specifies the accounting and
measurement or recognition of those plans. SFAS No. 132 requires disclosure of
information on changes in the benefit obligations and fair values of the plan
assets that facilitates financial analysis. Please see Note 3 for further
disclosure in accordance with SFAS No. 132.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
("SFAS No. 133"), establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Currently, the Company has no derivative
instruments.

                                       38



<PAGE>
INCOME (LOSS) PER COMMON SHARE

The Company computes income (loss) per common share in accordance with the
provisions of SFAS No. 128, EARNINGS PER SHARE ("SFAS No. 128"). SFAS No. 128
requires companies with complex capital structures to present basic and diluted
earnings per share. Basic earnings per share are measured as the income or loss
available to common stockholders divided by the weighted average outstanding
common shares for the period. Diluted earnings per share is similar to basic
earnings per share, but presents the dilutive effect on a per share basis of
potential common shares (e.g., convertible securities, stock options, etc.) as
if they had been converted at the beginning of the periods presented. Potential
dilutive common shares that have an anti-dilutive effect (e.g., those that
increase income per share or decrease loss per share) are excluded from diluted
earnings per share. As a result of the Company's net loss for the years ended
December 31, 2002 and 2001, common stock equivalents have been excluded because
their effect would be anti-dilutive.

NEW ACCOUNTING PRONOUNCEMENTS

In September 2003, the FASB approved SFAS No. 150, ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY ("SFAS
No. 150"). SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. This Statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after September 15, 2003. The effect on the
Company's financial position include the fact that beginning on July 1, 2003
redeemable warrants will be classified as liabilities and not shown in the
mezzanine equity section of the balance sheet. The adoption of SFAS No. 150
could also affect the Company's debt covenant calculations for purposes of its
bank loans. As of December 31, 2003, the Company was in default of certain
covenants at Jens's and Strata and has obtained waivers for these covenant
defaults from its lender.

NOTE 2 - EMERGENCE FROM CHAPTER 11

Allis-Chalmers Corporation emerged from Chapter 11 proceedings on October 31,
1988 under a plan of reorganization, which was consummated on December 2, 1988.
The Company was thereby discharged of all debts that arose before confirmation
of its First Amended and Restated Joint Plan of Reorganization ("Plan of
Reorganization"), and all of its capital stock was cancelled and made eligible
for exchange for shares of common stock of the reorganized Company. On May 9,
2001, the reverse merger with OilQuip described in Note 1 constituted the event
whereby the exchange of shares of common stock of the reorganized Company
occurred.

NOTE 3 - PENSION AND POST RETIREMENT BENEFIT 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 (the "Consolidated Plan"), and as a
result the Consolidated Plan was under funded on a present value basis. The
Company was unable to fund its obligations and in September 1997 obtained from
the Pension Benefit Guaranty Corporation ("PBGC") 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 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, the Company and its subsidiaries incurred a liability to the PBGC that the
PBGC estimated to be approximately $67.9 million (the "PBGC Liability").

In September 1997, the Company and the PBGC entered into an agreement in
principle for the settlement of the PBGC Liability, which required, among other
things, satisfactory resolution of the Company's tax obligations with respect to
the Consolidated Plan under Section 4971 of the Internal Revenue Code of 1986,
as amended ("Code"). In August 1998, the Company and the Internal Revenue
Service ("IRS") settled the Company's tax liability under Code Section 4971 for
$75,000.

In June 1999, the Company 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, the Company issued 585,100 shares of its common stock to
the PBGC, reducing the pension liability by the estimated fair market value of
the shares to $66.9 million (the Company has a right of first refusal with
respect to the sale of such shares). In connection with the PBGC Agreement, the
Company and the PBGC entered into the following agreements: (i) a Registration
Rights Agreement (the "Registration Rights Agreement"); and (ii) a Lock-Up
Agreement by and among Allis-Chalmers, the PBGC, and others. In connection with
the merger with OilQuip described below, the Lock-Up Agreement was terminated
and the Registration Rights Agreement was amended to provide the PBGC the right
to have its shares of common stock registered under the Securities Act of 1933
on Form S-3 during the 12 month period following the Merger (to the extent the
Company is eligible to use Form S-3 which it currently is not) and thereafter to
have its shares registered on Form S-1 or S-2.

                                       39



<PAGE>

In order to satisfy and discharge the PBGC Liability, the PBGC Agreement
provided that the Company had to either: (i) receive, in a single transaction or
in a series of related transactions, debt financing which made available to the
Company 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 Merger, the Company and the PBGC agreed that the PBGC
should have the right to appoint one member of the Board of Directors of the
Company for so long as it holds at least 117,020 shares of the common stock. In
connection with the Merger, the Lock-Up Agreement was terminated in its
entirety. As of December 31, 2003 and 2002, the Company is no longer liable for
any obligations of the Consolidated Plan.

MEDICAL AND LIFE
----------------

Pursuant to the Plan of Reorganization, the Company assumed the contractual
obligation to Simplicity Manufacturing, Inc. (SMI) to reimburse SMI for 50% of
the actual cost of medical and life insurance claims for a select group of
retirees (SMI Retirees) of the prior Simplicity Manufacturing Division of
Allis-Chalmers. The actuarial present value of the expected retiree benefit
obligation is determined by an actuary and is the amount that results from
applying actuarial assumptions to (1) historical claims-cost data, (2) estimates
for the time value of money (through discounts for interest) and (3) the
probability of payment (including decrements for death, disability, withdrawal,
or retirement) between today and expected date of benefit payments. As of
December 31, 2003 and 2002, the Company has recorded post-retirement benefit
obligations of $545,000 and $670,000, respectively, associated with this
transaction.

401(k) SAVINGS PLAN
-------------------

On January 1, 2003 the Company adopted the 401(k) Profit Sharing Plan (the
"Plan"). The Plan is a defined contribution savings plan designed to provide
retirement income to eligible employees of the Company and its subsidiaries. The
Plan is intended to be qualified under Section 401(k) of the Internal Revenue
Code of 1986, as amended. It is funded by voluntary pre-tax contributions from
eligible employees who may contribute a percentage of their eligible
compensation, limited and subject to statutory limits. The Plan is also funded
by discretionary matching employer contributions from the Company. Eligible
employees cannot participate in the Plan until they have attained the age of 21
and completed six-months of service with the Company. Upon leaving the Company,
each participant is 100% vested with respect to the participants' contributions
while the Company's matching contributions are vested over a three-year period
in accordance with the Plan document. Contributions are invested, as directed by
the participant, in investment funds available under the Plan. Matching
contributions of approximately $10,000 were paid in 2003.

NOTE 4 - ACQUISITIONS

On February 6, 2001, Mountain Air acquired the business and certain assets of
MADSCO, 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
$3,661,000 and other identifiable intangible assets of $800,000 were 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 initially into
400,000 shares of Allis-Chalmers' common stock plus 9,600,000 shares of
Allis-Chalmers' common stock issued on October 15, 2001. The acquisition was
accounted for using the purchase method of accounting as a reverse acquisition.
Goodwill of $290,000 and other identifiable intangible assets of $719,000 were
recorded in connection with the merger. Effective on the date of the merger,
OilQuip retroactively became the reporting company. As a result, financial
statements prior to the merger are those of OilQuip.

The Company completed two acquisitions and related financing on February 6,
2002.

The Company purchased 81% of the outstanding stock of Jens'. Jens' supplies
highly specialized equipment and operations to install casing and production
tubing required to drill and complete oil and gas wells. The Company also
purchased substantially all the outstanding common stock and preferred stock of
Strata. Strata provides high-end directional and horizontal drilling technology
for specific targeted reservoirs that cannot be reached vertically.

The aggregate purchase price for Jens' and Strata was (i) $10,250,000 in cash,
(ii) a $4,000,000 note payable due in four years, (iii) $1,234,560 for a
non-compete agreement payable over five years, (iv) 7,957,712 shares of common
stock of the Company, (v) 3,500,000 shares of a newly created Series A 10%
Cumulative Convertible Preferred Stock of the Company ("Preferred Stock") and

                                       40


<PAGE>

(vi) an additional payment estimated to be from $1,000,000 to $1,250,000, based
upon Jens' working capital on February 1, 2002. The actual working capital
adjustment was approximately $983,000. In addition, in connection with the
Strata acquisition, Energy Spectrum Partners LP was issued warrants to purchase
437,500 shares of Company common stock at an exercise price of $0.15 per share.

The acquisitions were accounted for using the purchase method of accounting.
Goodwill of $4,168,000 and other identifiable intangible assets of $2,035,000
were recorded with the acquisitions.

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

Pursuant to the terms of the AirComp operating agreement, the Company
contributed approximately $6.3 million in assets through its subsidiary Mountain
Air in exchange for a 55% ownership in AirComp and M-I contributed approximately
$6.8 million in exchange for a 45% ownership in AirComp. As a result of the
Company's controlling interest, the Company has consolidated AirComp in its
financial statements.

The following unaudited pro forma consolidated summary financial information
illustrates the effects of the formation of AirComp on the Company's results of
operations as of December 31, 2003 and the acquisitions of Jens' and Strata on
the Company's results of operations for December 31, 2002, based on the
historical statements of operations, as if the transactions had occurred as of
the beginning of the periods presented.

                                                    YEAR ENDED DECEMBER 31,
                                                 -----------------------------
                                                           (UNAUDITED)
                                               (in thousands, except per share)
                                                     2003             2002
                                                 ------------     ------------

        Revenues                                 $    33,605      $    19,142

        Operating income (loss)                  $     3,098             (401)

        Net income (loss)                        $       577           (4,431)

        Net income (loss) per common share

               Basic                             $       .03      $     (0.24)
               Diluted                           $       .02      $     (0.24)

NOTE 5 - DISCONTINUED OPERATIONS

On December 12, 2001, the Company consummated the sale of its wholly owned
subsidiary, HDS, to the general manager of HDS (the "Buyer"), in a management
buy-out with an effective date of November 30, 2001. Under the terms of the
sale, the Company received a promissory note from the Buyer in the amount of
$790,500 due on November 30, 2007, secured by certain HDS equipment. The note
was to accrue interest at a rate of 7% through the payment date. On September
30, 2002, the Company received cash in the amount of $600,000 and recorded
$191,000 in factoring costs related to the early termination of the promissory
note from the buyer of HDS. A loss on the sale of approximately $2.0 million was
recorded in the year ended December 31, 2001.

In conjunction with the sale of HDS, the Company formally discontinued the
operations related to precision machining of rotating equipment, which was the
principal HDS business.

The operating results of the business sold have been reported separately as
discontinued operations in the accompanying statement of operations and consists
of the following:

                                       41


<PAGE>

                           Period May 9, 2001 through
                                November 30, 2001
                                 (in thousands)

Revenues                                                                $ 1,925
Cost of sales                                                             1,486
                                                                        --------
Gross profit                                                                439
Operating expenses                                                          594
Depreciation and amortization                                               124
                                                                        --------
(Loss) from operations                                                     (279)

Other (expense) income
     Interest expense                                                       (12)
                                                                        --------
 (Loss) from discontinued operations                                    $  (291)
                                                                        ========
Loss on sale of discontinued operations                                 $(2,013)
                                                                        ========

NOTE 6 - PROPERTY AND OTHER INTANGIBLES ASSETS

Property and equipment is comprised of the following at December 31:

                                            Depreciation
                                            Period           2003        2002
                                            -------------  ---------   ---------
                                                               (in thousands)
Land                                                       $     27     $    25
Building and improvements                   15 - 20 years       729         706
Machinery and equipment                      3 - 15 years    23,972      14,674
Tools, furniture, fixtures and
     leasehold improvements                  3 - 7 years      4,098       4,059
                                                           ---------   ---------
    Total                                                    28,726      19,464

Less: accumulated depreciation                               (2,487)     (2,340)
                                                           ---------   ---------
Property and equipment, net                                $ 26,339    $ 17,124
                                                           =========   =========

Other intangible assets are as follows at December 31:

                                            Amortization
                                            Period           2003         2002
                                            -------------  ---------   ---------
                                                               (in thousands)

Intellectual Property                   20 years              1,009       1,009
Non-compete agreements                  3 - 5 years           1,535       1,535
Other intangible assets                 3 - 10 years          1,000       1,000
                                                           ---------   ---------
    Total                                                     3,544       3,544

Less: accumulated amortization                               (1,254)       (726)
                                                           ---------   ---------
Other intangible assets, net                               $  2,290     $ 2,818
                                                           =========   =========

NOTE 7 - INCOME TAXES

Temporary differences are differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements that will
result in differences between income for tax purposes and income for financial
statement purposes in future years. A valuation allowance is established for
deferred tax assets when management, based upon available information, considers
it more likely than not that a benefit from such assets will not be realized.
The Company has recorded a valuation allowance equal to the excess of deferred
tax assets over deferred tax liabilities as the Company was unable to determine
that it is more likely than not that the deferred tax asset will be realized.

The Tax Reform Act of 1986 contains provisions that limit the utilization of net
operating loss and tax credit carry forwards if there has been a "change of
ownership" as described in Section 382 of the Internal Revenue Code. Such a
change of ownership may limit the Company's utilization of its net operating
loss and tax credit carry forwards, and could be triggered by a public offering
or by subsequent sales of securities by the Company or its stockholders.

                                       42


<PAGE>

Deferred income tax assets and the related allowance as of December 31, 2003 and
2002 are as follows:

                                                           2003          2002
                                                         ---------     ---------
                                                              (in thousands)
Deferred non-current income tax assets:

Net future tax deductible items                          $    500      $    500
Net operating loss carry forwards                           2,975         2,033
A-C Reorganization Trust claims                            35,000        35,000
                                                         ---------     ---------
Total deferred non-current income tax assets               38,475        37,533

Valuation allowance                                       (38,475)      (37,533)
                                                         ---------     ---------
Net deferred non-current income taxes                    $     --      $     --
                                                         =========     =========

Net operating loss carry forwards for tax purposes at December 31, 2003 and 2002
are estimated to be $8.5 million and $5.9 million, respectively, expiring
through 2022.

Net future tax-deductible items relate primarily to differences in book and tax
depreciation and amortization and to compensation expense related to the
issuance of stock options. Gross deferred tax liabilities at December 31, 2003
and 2002 are not material.

The Company and its subsidiaries file a consolidated U.S. federal income tax
return. The Company has no current tax expense for the years ended December 31,
2003, 2002 and 2001, respectively. The Company and specifically, its Jens'
subsidiary, does pay foreign income taxes within the country of Mexico related
to its earnings on Mexico revenues. The Company paid $370,000 and $270,000 in
foreign income taxes to Mexico during the years ended December 31, 2003 and
2002, respectively. There is approximately $640,000 of U.S. foreign tax credits
available to the Company and of that amount, the Company has determined that
approximately $205,000 will be recoverable in a future period by applying the
credits back to the taxable income of the Jens' subsidiary in 2001 and 2000. The
$205,000 of recoverable foreign income taxes has been recorded as "other current
assets" on the accompanying balance sheet of the Company as of December 31,
2003. The remaining $435,000 of available U.S. foreign tax credits may or may
not be recoverable by the Company depending upon the availability of taxable
income in future years and therefore, have not been recorded as an asset as of
December 31, 2003. The foreign tax credits available to the Company begin to
expire in the year 2007.

The following table reconciles income taxes based on the U.S. statutory tax rate
to the Company's income tax expense from continuing operations:

                                              2003         2002          2001
                                           -----------  -----------  -----------
Income tax expense based on the U.S.
  statutory tax rate                       $       --   $       --   $       --
Foreign income subject to foreign taxes
  a rate different than the U.S.
  statutory rate                              370,468      269,568           --
                                           -----------  -----------  -----------
Total                                      $  370,468   $  269,568   $       --
                                           ===========  ===========  ===========

The Plan of Reorganization established the A-C Reorganization Trust to settle
claims and to make distributions to creditors and certain shareholders. The
Company transferred cash and certain other property to the A-C Reorganization
Trust on December 2, 1988. Payments made by the Company to the A-C
Reorganization Trust did not generate tax deductions for the Company upon the
transfer but generate deductions for the Company as the A-C Reorganization Trust
makes payments to holders of claims.

The Plan of Reorganization also created a trust to process and liquidate product
liability claims. Payments made by the A-C Reorganization Trust to the product
liability trust did not generate current tax deductions for the Company.
Deductions are available to the Company as the product liability trust makes
payments to liquidate claims or incurs other expenses.

The Company believes the above-named trusts are grantor trusts and therefore
includes the income or loss of these trusts in the Company's income or loss for
tax purposes, resulting in an adjustment of the tax basis of net operating and
capital loss carry forwards. The income or loss of these trusts is not included
in the Company's results of operations for financial reporting purposes.

NOTE 8 - DEBT

Debt is as follows at December 31:
<TABLE>
<CAPTION>
                                                                                   2003      2002
                                                                                 --------  --------
                                                                                   (in thousands)

<S>                                                                              <C>       <C>
Line of Credit with Wells Fargo - Mountain Air                                   $    --   $   330
Note payable to Wells Fargo - Term Note-Mountain Air                                  --     2,392
Note payable to Wells Fargo - Subordinated Debt - Mountain Air, net                   --     1,783

                                       43


<PAGE>

Note payable to Wells Fargo -Equipment Term Loan-Mountain Air                         --       160
Note payable to Wells Fargo - Equipment leasing - Mountain Air                       247        --
Note payable to Seller of Mountain Air Drilling Service Company - Mountain Air     1,511     2,200
Note payable to Wells Fargo -Term Note - Jens'                                     4,654     3,369
Note payable to Wells Fargo -Real Estate Note - Jens'                                207       384
Line of Credit with Wells Fargo - Jens'                                               26        67
Subordinated Note payable to Seller of Jens - Jens'                                4,000     4,000
Note payable to Seller of Jens' for non-compete agreement - Jens'                    761     1,008
Note payable to Texas State Bank - Term Note - Jens'                                 354        --
Note payable to Wells Fargo -Term Note - Strata                                       --     1,041
Vendor financing - Strata                                                          2,383       455
Line of Credit with Wells Fargo - Strata                                           2,413     1,275
Note payable to former shareholder - Strata                                           --        12
Notes payable to certain former Directors - Allis-Chalmers                           386       370
Note payable to Wells Fargo - Subordinated Debt - Allis-Chalmers, net              2,675     2,375
Line of Credit to Wells Fargo - AirComp                                              369        --
Note payable to Wells Fargo - Term Note-AirComp                                    7,429        --
Subordinated Note payable to M-I L.L.C - AirComp                                   4,818        --
                                                                                 --------  --------
Total debt                                                                        32,233    21,221
Less short-term debt and current maturities                                        5,150    13,890
                                                                                 --------  --------
Long-term debt obligations                                                       $27,083   $ 7,331
                                                                                 ========  ========
</TABLE>

The debt above is stated as of December 31, 2003 and 2002, net of the remaining
put obligations totaling approximately $325,000 and $842,000 respectively that
are disclosed further in "REDEEMABLE WARRANTS" below. As of December 31, 2003
and 2002, the gross debt is equal to approximately $32,558,000 and $22,063,000,
respectively.

Substantially all of the Company's assets are pledged as collateral to the
outstanding debt agreements. As of December 31, 2003, the Company's weighted
average interest rate for all of its outstanding debt is approximately 6.34%. As
of December 31, 2002, the Company's weighted average interest rate for all of
its outstanding debt was approximately 8.5%.

Maturities of debt obligations at December 31, 2003 are as follows:

                                            Maturities of Debt
                                            ------------------
                                              (in thousands)
            Year ended:
December 31, 2004                                $   6,800
December 31, 2005                                    9,465
December 31, 2006                                    5,533
December 31, 2007                                    5,581
December 31, 2008 and thereafter                     4,854
                                            ------------------
                 Total                           $  32,233
                                            ==================

In April 2004, as discussed in "Note 20 - Recent Developments," the maturity
dates of obligations aggregating $9,768,000 were extended from January and
February 2005 to January and February 2006, which will delay the maturity of a
portion of the amounts set forth above as having maturity dates during the years
ending December 31, 2004 and December 31, 2005.

The debt agreements are as follows:

MOUNTAIN AIR

NOTES PAYABLE TO WELLS FARGO - EQUIPMENT LEASING - A term loan in the original
amount of $267,000 at an interest rates of 5%, interest payable monthly, with
monthly principal payments of $5,039 due on the last day of the month. The
maturity date of the loan is June 30, 2008. The balance at December 31, 2003 was
247,000.

NOTE PAYABLE TO SELLER OF MOUNTAIN AIR DRILLING SERVICE COMPANY ("MADSCO") - A
note to the sellers of MADSCO assets in the original amount of $2,200,000 at
5.75% simple interest was reduced to $1,469,151 as a result of the settlement of
a legal action against the sellers. The principal and accrued interest is due on
September 30, 2007 in the amount of $1,863,195. See Note 15 for information
regarding the modification to the terms of this agreement. The balance at
December 31, 2003 was $1,511,000.

JENS'

NOTE PAYABLE TO WELLS FARGO CREDIT, INC. - TERM NOTE - A term loan in the
original amount of $4,042,396 was amended in October 2003 to $5,100,000 at a
floating interest rate (6.0% at December 31, 2003) with monthly principal
payments of $85,000 plus 25% of Jens' receipt of any payment from Maytep. The
maturity date of the loan was January 31, 2005 but in April 2004 was extended to
January 31, 2006. The balance at December 31, 2003 was $4,654,000.

NOTE PAYABLE TO WELLS FARGO CREDIT INC. - REAL ESTATE NOTE - A real estate loan
in the amount of $532,000 at floating interest rate (6.0% at December 31, 2003)
with monthly principal payments of $14,778 plus accrued interest. The principal
will be due on Janaury 31, 2005. The balance at December 31, 2003 was $207,000.
                                       44


<PAGE>

LINE OF CREDIT WITH WELLS FARGO CREDIT, INC. - At December 31, 2003, Jens had a
$1,000,000 line of credit at Wells Fargo Credit, Inc., of which $26,000 was
outstanding. The committed line of credit is due on January 31, 2005 but in
April 2003 was extended to January 31, 2006. Interest accrues at a floating rate
plus 3% (7.0% at December 31, 2003) for the committed portion. Additionally,
Jens' pays a 0.5% fee for the uncommitted portion.

SUBORDINATED NOTE PAYABLE TO SELLER OF JENS' -A subordinated seller's note in
the original amount of $4,000,000 at 7.5% simple interest. At December 31, 2003,
$533,000 of interest was accrued and was included in accrued interest. The
principal and interest are due on January 31, 2006. The note is subordinated to
the rights of the Company's bank lenders.

NOTE PAYABLE TO SELLER OF JENS' FOR NON-COMPETE AGREEMENT - In conjunction with
the purchase of Jens' (Note 4), the Company agreed to cause Jens' to pay a total
of $1,234,560 to the Seller of Jens' in exchange for a non-compete agreement
signed simultaneously. Jens' is to make monthly payments of $20,576 through the
period ended January 31, 2007. As of December 31, 2003, the balance was
approximately $761,000 including $247,000 classified as short-term.

NOTE PAYABLE TO TEXAS STATE BANK - TERM NOTE - A term loan in the original
amount of $397,080 at a floating interest rate (6.0% at December 31, 2003) with
monthly principal payments of $11,000 plus interest. The maturity date of the
loan is September 17, 2006. As of December 31, 2003, the outstanding balance was
$354,000.

STRATA

VENDOR FINANCING - In December 2003, Strata entered into a short-term vendor
financing agreement in the original amount of $1,746,000 with a major supplier
of drilling motors for drilling motor rentals, motor lease costs and motor
repair costs. The agreement provides for repayment of all amounts due no later
than December 30, 2005. Payment of the interest on the note is due monthly and
three principal payments are due in October 2004, April 2005 and December 2005.
The vendor financing incurs interest at a rate of 8.0%. As of December 31, 2003,
the outstanding balance was approximately $1,746,000.

VENDOR FINANCING - In October 2003, Strata entered into a short-term vendor
financing agreement in the original amount of $779,000 with a major supplier of
drilling motors for the purchase of fifty (50) drilling motors. The agreement
provides for repayment of all amounts due no later than October 31, 2004.
Paymenton the note is due monthly in the amount of $71,000 plus interest. The
vendor financing incurs interest at a rate of 8.0%. As of December 31, 2003, the
outstanding balance was approximately $637,000.

LINE OF CREDIT WITH WELLS FARGO CREDIT, INC.- At December 31, 2003, Strata has a
$2,500,000 line of credit at Wells Fargo Credit, Inc., of which $2,413,000 was
outstanding. The committed line of credit was due on January 31, 2005 but in
April 2004 was extended to January 31, 2006. Interest accrues at a floating
interest rate plus 3% (7.0% at December 31, 2003) for the committed portion.
Additionally, Strata pays a 0.5% annual fee for the uncommitted portion.

ALLIS-CHALMERS

NOTES PAYABLE TO WELLS FARGO ENERGY CAPITAL, INC. - SUBORDINATED DEBT AND
AMORTIZATION OF REDEEMABLE WARRANT - Secured subordinated debt issued to
partially finance the acquisitions of Jens' and Strata in the original amount of
$3,000,000 at 12% interest payable monthly. Of this amount $2,675,000 was
outstanding on December 31, 2003. The principal was due on January 31, 2005 but
in April 2004 was extended to February 1, 2006. In connection with incurring the
debt, the Company issued redeemable warrants valued at $900,000, which have been
recorded as a discount to the subordinated debt and as a liability (see
REEDEMABLE WARRANTS below and Note 12). The discount is amortizable over three
years beginning February 6, 2002 as additional interest expense of which
$300,000 has been recognized for the year ended December 31, 2003. The debt is
recorded at $2,675,000, net of the unamortized portion of the put obligation.

NOTES PAYABLE TO CERTAIN FORMER DIRECTORS - The Allis-Chalmers Board established
an arrangement by which to compensate former and continuing Board members who
had served from 1989 to March 31, 1999 without compensation. Pursuant to the
arrangement in 1999, Allis-Chalmers issued promissory notes totaling $325,000 to
current or former directors and officers. The notes bear interest at the rate of
5%, compounded quarterly, and are due March 28, 2005. At December 31, 2003, the
notes are recorded at $386,000, including accrued interest.

REDEEMABLE WARRANTS o The Company issued redeemable warrants that are
exercisable for up to 1,165,000 shares of the Company's common stock at an
exercise price of $0.15 per share ("Warrants A and B") and non-redeemable
warrants that are exercisable for a maximum of 335,000 shares of the Company's
common stock at $1.00 per share ("Warrant C"). The warrants were issued in
connection with the issuance of a subordinated debt instrument for Mountain Air
in 2001, subsequently repaid in connection with the formation of AirComp in July
2003 and the related issuance of the $3 million subordinated debt discussed
above (collectively, the "Subordinated Debt"). Warrants A and B are subject to
cash redemption provisions ("puts") in the amount of $600,000 and $900,000,
respectively, at the discretion of the warrant holders beginning at the earlier
of the final maturity date of the Subordinated Debt or three years from the
closing of the Subordinated Debt (January 31, 2005). Warrant C does not contain
any such puts or provisions. In April 2004 the maturity date of the debt was
extended to February 1, 2006. The Company has recorded a liability of $600,000

                                       45


<PAGE>

at Mountain Air and $900,000 at Allis-Chalmers for a total of $1,500,000 and is
amortizing the effects of the puts to interest expense over the life of the
Subordinated Debt.

GUARANTEE OF SUBSIDIARY OBLIGATIONS. The Company guarantees many of its
subsidiaries' obligations. In addition, the Company's Chief Executive Officer
and Chairman, Munawar H. Hidayatallah, and his wife, guarantee substantially all
of the Company's obligations.

AIRCOMP LLC

LINE OF CREDIT WITH WELLS FARGO BANK - a $1,000,000 line of credit at Wells
Fargo bank, of which $369,000 was outstanding at December 31, 2003. Interest
accrues at a floating interest rate plus 2.25% (6.25% at December 31, 2003) for
the committed portion and is payable quarterly starting in September 2003.
Additionally, AirComp pays a 0.5% annual fee for the uncommitted portion. The
line of credit must be repaid on June 27, 2007.

NOTES PAYABLE TO WELLS FARGO - TERM NOTE - A term loan in the original amount of
$8,000,000 at variable interest rates related to the Prime or LIBOR rates (4.09%
at December 31, 2003), interest payable quarterly, with quarterly principal
payments of $286,000 due on the last day of the quarter beginning in July 2003.
The maturity date of the loan is June 27, 2007. The balance at December 31, 2003
was $7,429,000

NOTE PAYABLE TO WELLS FARGO - EQUIPMENT TERM LOAN - A delayed draw term loan in
the amount of $1,000,000 with interest at a rate equal to the LIBOR rate plus
2.0% to 2.75%, with quarterly payments of interest and quarterly payments of
principal equal to 5% of the outstanding balance commencing in the first quarter
of 2005. The maturity date of the loan is June 27, 2007. AirComp has not yet
drawn down on this note and there was no outstanding balance at December 31,
2003.

NOTE PAYABLE TO M-I L.L.C. - SUBORDINATED DEBT - Subordinated debt in the amount
of $4,818,000 bearing an annual interest rate of 5% in conjunction with the
joint venture. The note is due and payable when M-I sells its interest or a
termination of AirComp occurs. At December 31, 2003, $120,000 of interest was
accrued and included in accrued interest.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

The Company rents office space on a five-year lease, which expires February 5,
2006. The Company and its subsidiaries also rent certain other facilities and
shop yards for equipment storage and maintenance. Facility rent expense for the
years ended December 31, 2003, 2002 and 2001 was $370,000, $303,000 and $90,000,
respectively. The Company has no further lease obligations.

At December 31, 2003, future minimum rental commitments for all operating leases
are as follows:

                                            Operating Leases
                                            -----------------
                                              (in thousands)
            Year ended:
December 31, 2004                                    $   318
December 31, 2005                                        207
December 31, 2006                                        116
December 31, 2007                                        115
December 31, 2008 and thereafter                          58
                                            -----------------
                 Total                               $   814
                                            =================
NOTE 10 - SHAREHOLDERS' EQUITY

The equity and per share data on the financial statements as of December 31,
2001 have been presented so as 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 OilQuip is considered to have been exchanged for the
10,000,000 shares of Allis-Chalmers that were issued on the date of the reverse
acquisition to the owners of OilQuip.

For legal purposes, Allis-Chalmers acquired OilQuip, the parent company of
Mountain Air. However, for accounting purposes OilQuip was treated as the
acquiring company in a reverse acquisition of Allis-Chalmers. 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 February 6, 2002, in connection with the acquisition of 81% of the
outstanding stock of Jens' (Note 4), the Company issued 1,397,849 shares of
common stock to the seller of Jens', an individual presently employed as the
President of the Company. The business combination was accounted for as a
purchase. As a result, $630,000, the fair value of the Company's common stock
issued at the date of the acquisition, was added to shareholders' equity.

                                       46


<PAGE>

On February 6, 2002, in connection with the acquisition of 95% of the
outstanding stock of Strata (Note 4), the Company issued 6,559,863 shares of
common stock to the seller of Strata, Energy Spectrum. The business combination
was accounted for as a purchase. As a result, $2,952,000, the fair value of the
Company's common stock issued at the date of the acquisition, was added to
shareholders' equity.

On May 31, 2002, the Company acquired the remaining 5% of the outstanding stock
of Strata and issued 87,500 shares of common stock to the seller, Energy
Spectrum. As a result, $153,000, the fair value of the Company's common stock
issued at the date of the purchase, was added to shareholders' equity.

In connection with the Strata purchase, the Company authorized the creation of
Preferred Stock. The Preferred Stock has cumulative dividends at ten percent per
annum payable in additional shares of Preferred Stock or if elected and declared
by the Company, in cash. Additionally, the Preferred Stock was convertible into
common stock of the Company. The Preferred Stock is also subject to mandatory
redemption on or before February 4, 2004 or earlier from the net proceeds of new
equity sales and optional redemption by the Company at any time. The redemption
price of the Preferred Stock was $1.00 per share plus accrued dividend rights.

The Preferred Stock, including accrued dividend rights, was converted into
8,590,449 shares of common stock on April 2, 2004 (See, "Recent Developments.")

For the year ended December 31, 2003, the Company has accrued $671,000 of
dividends payable to the Preferred Stock holders. No dividends have been
declared or paid to date. On April 2, 2004, the outstanding Preferred Stock,
including accrued dividends, was converted into 8,590,449 shares of common
stock.

In connection with the Strata Acquisition, the Company issued to Energy Spectrum
a warrant to purchase 437,500 shares of the Company's common stock at an
exercise price of $0.15 per share, and on February 19, 2003, the Company issued
an additional warrant to purchase 875,000 shares of the Company's common stock
at an exercise price of $0.15 per share. The warrant issued on February 19, 2003
was valued in accordance with the Black-Scholes valuation model at approximately
$306,000. The fair value of this warrant issuance was recorded similar to a
preferred share dividend.

NOTE 11 - STOCK OPTIONS

In 2000, in conjunction with the promissory notes issued to certain current and
former Directors (Note 8), Allis-Chalmers' Board of Directors also granted stock
options to these same individuals. Options to purchase 24,000 shares of common
stock were granted with an exercise price of $2.75. These options vested
immediately and may be exercised any time prior to March 28, 2010. As of
December 31, 2003, none of the stock options were exercised. No compensation
expense has been recorded for these options that were issued with an exercise
price approximately equal to the fair value of the common stock at the date of
grant.

On May 31, 2001, the Board granted to Leonard Toboroff, a director of
Allis-Chalmers an option to purchase 500,000 shares of common stock at $0.50 per
share, exercisable for 10 years from October 15, 2001. 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
Company recorded compensation expense of $500,000 for the issuance of the option
for the year ended December 31, 2001.

On December 16, 2003, the Board granted to the employees of the Company options
to purchase 4,272,500 shares of common stock, and issued options to purchase
70,000 shares of common stock to non-employee directors and to Energy Spectrum
Partners LP as compensation for services rendered by directors in 2002 and 2003.
These options are exercisable for 10 years from December 16, 2003 at $0.55 per
share. As of December 31, 2003, none of the stock options were exercised.

A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
                         December 31, 2003           December 31, 2002             December 31, 2001
                                 Weighted Avg.                Weighted Avg.                Weighted Avg.
                    Shares Under   Exercise      Shares Under   Exercise      Shares Under   Exercise
                      Option         Price         Option         Price         Option         Price
                    -----------  --------------  -----------  --------------  -----------  --------------
<S>                  <C>         <C>                <C>       <C>                <C>       <C>
Beginning balance      524,000   $        0.60      524,000   $        0.60       24,000   $        2.75
Granted              4,342,500            0.55           --              --      500,000             .50
Canceled                    --              --           --              --           --              --
Exercised                   --              --           --              --           --              --
                    -----------  --------------  -----------  --------------  -----------  --------------

Ending balance       4,866,500   $        0.56      524,000   $        0.60      524,000   $         .60
                    ===========  ==============  ===========  ==============  ===========  ==============
</TABLE>

                                       47


<PAGE>

The following table summarizes additional information about the Company's stock
options outstanding as of December 31, 2003:

                                      Weighted Average
                                          Remaining     Weighted Average
Exercise Price  Shares Under Option   Contractual Life     Fair Value
--------------  --------------------  ----------------  ----------------
$0.50                       500,000      7.75 years          $1.00
$2.75                        24,000      6.25 years          $1.97
$0.55                     4,342,500     10.00 years          $0.55
------                    ---------     ------------         ------
$0.56                     4,866,500      9.75 years          $0.63
======                    =========     ============         ======

There were no stock options issued to employees or directors in the year ended
December 31, 2002.

NOTE 12 - STOCK PURCHASE WARRANTS

In conjunction with the Mountain Air purchase by OilQuip in February of 2001,
Mountain Air issued a common stock warrant for 620,000 shares to a third-party
investment firm that assisted the Company in its initial identification and
purchase of the Mountain Air assets. The warrant entitles the holder to acquire
up to 620,000 shares of common stock of Mountain Air at an exercise price of
$.01 per share over a nine-year period commencing on February 7, 2001. The stock
purchase warrant has been recorded at a fair value of $200,000 for the year
ended December 31, 2001.

As more fully described in Note 8, Mountain Air and Allis-Chalmers issued two
warrants ("Warrants A and B") for the purchase of 1,165,000 total shares of the
Company's common stock at an exercise price of $0.15 per share and one warrant
for the purchase of 335,000 shares of the Company's common stock at an exercise
price of $1.00 per share ("Warrant C") in connection with their subordinated
debt financing. The holders may redeem Warrants A and B for a total of
$1,500,000 as of January 31, 2005. The fair value of Warrant C was established
in accordance with the Black-Scholes valuation model and as a result, $47,000
was added to shareholders' equity. The following assumptions were utilized to
determine fair value: no dividend yield; expected volatility of 67.24%; risk
free interest rate of 5%; and expected lives of four years.

On February 6, 2002, in connection with the acquisition of substantially all of
the outstanding stock of Strata (Note 4), the Company issued a warrant for the
purchase of 437,500 shares of the Company's common stock at an exercise price of
$1.00 per share over the term of four years. The fair value of the warrant was
established in accordance with the Black-Scholes valuation model and as a
result, $267,000 was added to shareholders' equity. The following assumptions
were utilized to determine fair value: no dividend yield; expected volatility of
67.24%; risk free interest rate of 5%; and expected lives of four years.

In connection with the Strata Acquisition, on February 19, 2003, the Company
issued Energy Spectrum an additional warrant to purchase 875,000 shares of the
Company's common stock at an exercise price of $0.15 per share.

The Preferred Stock, including accrued dividend rights, was converted into
8,590,449 shares of common stock on April 2, 2004 (See, "Recent Developments.")

NOTE 13 - LEASE RECEIVABLE

In June 2002, the Company's subsidiary, Strata, sold its measurement while
drilling (MWD) assets to a third party. Under the terms of the sale, the Company
will receive at least $15,000 per month for thirty-six months. After thirty-six
months, the purchaser has the option to pay the remaining balance or continue
paying a minimum of $15,000 per month for twenty-four additional months. After
the expiration of the additional twenty-four months, the purchaser must repay
any remaining balance. This transaction has been accounted for as a direct
financing lease with the nominal residual gain from the asset sale deferred into
income over the life of the lease. During the year ended December 31, 2003, the
Company received a total of $251,000 in payments from the third party related to
this lease.

NOTE 14 - RELATED PARTY TRANSACTIONS

At December 31, 2003 and 2002, the Company owed the Chief Executive Officer of
the Company $193,000 related to deferred compensation, and for advances totaling
$49,000, respectively. Also the Company owed a former Executive Vice President
and shareholder of the Company advances totaling $70,000, and deferred
compensation of $42,000.

                                       48


<PAGE>

The Company's Chief Executive Officer, Munawar H. Hidayatallah, and his wife
have guaranteed substantially all of the debt obligations of the Company and its
subsidiaries. The Company has agreed to compensate the Chief Executive Officer
annual fee equal to 1/4 of 1% of the amount of debts of the Company and its
subsidiaries guaranteed by Mr. Hidayatallah and his wife payable quarterly
beginning on March 31, 2004.

The President of the Company is the former owner of Jens' and currently holds a
19% minority interest in Jens'. This same individual is the holder of a
$4,000,000 subordinated note payable issued by Jens' and is also owed $533,000
in accrued interest and $761,000 related to the obligation of a non-compete
agreement (Note 8).

The President of the Company and formerly the sole proprietor of Jens' owns a
shop yard, which he leases to Jens' on a monthly basis. The annual lease
payments to the President under the terms of the lease were $28,800 for each of
the years ended December 31, 2003 and 2002.

In addition, the President of the Company and members of his family own 100% of
Tex-Mex Rental & Supply Co., a Texas corporation, that sold approximately
$173,000 and $290,000 of equipment and other supplies to Jens' for the years
ended December 31, 2003 and 2002, respectively. Management of the Company
believes these transactions were on terms at least as favorable to Jens' as
could have been obtained from unrelated third parties.

As further explained in Note 8, former directors of the Company were provided
with promissory notes in 2000 in lieu of compensation for past services
provided. A total of $386,000 included in the long-term debt of the Company is
due the former directors and current shareholders of the Company as of December
31, 2003.

At December 31, 2003, Mountain Air owes its other joint venture partner in
AirComp, LLC, M-I Fluids, LLC a total of $73,000.

NOTE 15 - SETTLEMENT ON LAWSUIT

In June 2003, Mountain Air filed a lawsuit against the former owners of Mountain
Air Drilling Service Company (the "Sellers") for breaches in the asset purchase
agreement. The Sellers stored hazardous materials on the property leased by
Mountain Air without the consent of Mountain Air and violated the non-compete
clause in the asset purchase agreement.

On July 15, 2003, Mountain Air entered into a settlement agreement with the
Sellers. As of the date of the agreement, Mountain Air owed the Sellers a total
of $2,563,195 including $2.2 million in principal and $363,195 in accrued
interest. As part of the settlement agreement, the note payable to the Sellers
was reduced from $2.2 million to $1.5 million. The note payable no longer
accrues interest and the due date of the note payable was extended from February
6, 2006 to September 30, 2007. The lump-sum payment due the Sellers at that date
will be $1,863,195. Mountain Air recorded a one-time gain on the reduction of
the note payable to the Sellers of $1,034,000 in the third quarter of 2003. The
gain was calculated by discounting the note payable to $1,469,152 using a
present value calculation and accreting the note payable to $1,863,195, the
amount due in September 2007. The Company will record interest expense totaling
$394,043 over the life of the note payable beginning July 2003.

NOTE 16 - SEGMENT INFORMATION

The Company has three operating segments including Casing Services (Jens'),
Directional Drilling Services (Strata) and Compressed Air Drilling Services
(AirComp). All of the segments provide services to the petroleum industry. The
Company only operated in one reporting segment for the year ended December 31,
2001. The revenues, operating income (loss), depreciation and amortization,
interest, capital expenditures and assets of each of the reporting segments plus
the Corporate function are reported below for the years ended December 31, 2003
and 2002:

                                       49


<PAGE>

                                                         Year Ended December 31,
                                                           2003          2002
                                                             (in thousands)

REVENUES:
Casing services                                          $ 10,037      $  7,796
Directional drilling services                              16,008         6,529
Compressed air drilling services                            6,679         3,665
                                                         ---------     ---------

Total revenues                                           $ 32,724      $ 17,790
                                                         =========     =========

OPERATING INCOME (LOSS):
Casing services                                          $  3,628      $  2,495
Directional drilling services                               1,103          (576)
Compressed air drilling services                              115          (945)
General corporate                                          (2,222)       (2,144)
                                                         ---------     ---------

Total income/(loss) from operations                      $  2,624      $ (1,170)
                                                         =========     =========

DEPRECIATION AND AMORTIZATION EXPENSE:
Casing services                                          $  1,413      $  1,265
Directional drilling services                                 275           295
Compressed air drilling services                            1,041           955
General corporate                                             109            65
                                                         ---------     ---------

Total depreciation and amortization expense              $  2,838      $  2,580
                                                         =========     =========

INTEREST EXPENSE:
Casing services                                          $  1,044      $    643
Directional drilling services                                 268           215
Compressed air drilling services                              839           761
General corporate                                             316           637
                                                         ---------     ---------

Total interest expense                                   $  2,467      $  2,256
                                                         =========     =========

CAPITAL EXPENDITURES
Casing services                                          $  2,176      $    137
Directional drilling services                               1,066            83
Compressed air drilling services                            2,093           288
General corporate                                              19            10
                                                         ---------     ---------

Total capital expenditures                               $  5,354      $    518
                                                         =========     =========

ASSETS:
Casing services                                          $ 18,191      $ 15,681
Directional drilling services                              11,529         8,888
Compressed air drilling services                           17,946         9,138
General corporate                                           1,207         1,071
                                                         ---------     ---------

Total assets                                             $ 48,873      $ 34,778
                                                         =========     =========

The following table contains the customers that represent more than 10% of the
revenues for each of the three operating segments at December 31, 2003 and 2002:

                                       50


<PAGE>

<TABLE>
<CAPTION>
                                                     2003                                     2002

      <S>                               <C>                                        <C>
      Casing Services                   El Paso Production Oil & Gas               El Paso Production Oil & Gas
                                        Materiales Y Equipos Petroleros            Materiales Y Equipos Petroleros

      Directional drilling services     Anadarko Petroleum Corporation             Anadarko Petroleum Corporation
                                        El Paso Production Oil & Gas               El Paso Production Oil & Gas
                                                                                   Santos USA Corporation

      Compressed air drilling services  Burlington Resources Oil & Gas Co., L.P.   Burlington Resources Oil & Gas Co., L.P.
                                        Calpine Corporation                        Devon Energy Production Co.
                                                                                   Texaco Exploration and Production
</TABLE>

NOTE 17 - SUPPLEMENTAL CASH FLOWS INFORMATION

<TABLE>
<CAPTION>
                                                            December    December    December
                                                             31, 2003    31, 2002    31, 2001
                                                            ---------   ---------   ---------
                                                                      (in thousands)
<S>                                                         <C>         <C>         <C>

Non-cash investing and financing transactions in
connection with the acquisition of Mountain Air
assets and merger of Allis-Chalmers and OilQuip:

Fair value of net assets acquired                           $     --    $     --    $ (7,183)
Goodwill and other intangibles                                    --          --      (2,732)
Notes payable to Seller of Mountain Air                           --          --       2,200
Fair value of common stock exchanged                        $     --    $     --    $ (2,799)
Fair value of net assets, net of cash received                    --          --         892
                                                            ---------   ---------   ---------
Net cash paid to acquire subsidiary and consummate merger   $     --    $     --    $ (6,829)
                                                            =========   =========   =========

Non-cash investing and financing transactions in
connection with the acquisitions of Jens' and Strata:

Fair value of net assets acquired                           $     --    $(13,945)   $     --
Goodwill and other intangibles                                    --      (5,903)         --
Note payable to Seller of Jens' Oilfield Service                  --       4,000          --
Value of common stock issued                                      --       3,735          --
Issuance of preferred stock                                       --       3,500          --
Fair value of warrants issued                                     --         314          --
                                                            ---------   ---------   ---------
Net cash paid to acquire subsidiary                         $     --    $ (8,299)   $     --
                                                            =========   =========   =========

Other non-cash investing and financing transactions:

Sale of property & equipment in connection with
     the direct financing lease (Note 13)                   $     --    $  1,193    $     --

(Gain) on settlement of debt                                $ (1,034)   $     --    $     --

Amortization of discount on debt                            $    442    $     --    $     --

Purchase of equipment financed through assumption of
      debt or accounts payable                              $    906    $     --    $     --

Other non-cash investing and financing transactions
in connection with AirComp:

Issuance of debt to joint venture by M-I                    $ (4,818)   $     --    $     --

Contribution of property, plant and equipment by
M-I to joint venture                                        $  6,369    $     --    $     --

Difference of Company's investment cost basis in
AirComp and their share of underlying equity of net
assets of AirComp                                           $ (1,551)   $     --    $     --
                                                            ---------   ---------   ---------
Net cash paid in connection with the joint venture          $     --    $     --    $     --
                                                            =========   =========   =========

                                            51
</TABLE>


<PAGE>

NOTE 18 - QUARTERLY RESULTS (UNAUDITED)

                                    First       Second      Third       Fourth
                                    Quarter     Quarter     Quarter     Quarter
                                   ---------   ---------   ---------   ---------
                                      (In thousands, except per share amounts)
YEAR 2003

Revenues                           $  6,999    $  7,340    $  8,089    $ 10,296

Operating income (loss)               1,023         910         727         (36)

Net income (loss)                        59        (335)      1,131        (307)
                                   ---------   ---------   ---------   ---------
Preferred stock dividend               (394)        (87)        (88)        (87)
                                   ---------   ---------   ---------   ---------
Net income (loss) attributed to
common shares                      $   (335)   $   (422)   $  1,043    $   (394)
                                   =========   =========   =========   =========
Income (loss) per common share
  Basic:                           $  (0.02)   $  (0.02)   $   0.05    $  (0.02)
                                   =========   =========   =========   =========
Income (loss) per common share
  Diluted:                         $  (0.02)   $  (0.02)   $   0.05    $  (0.02)
                                   =========   =========   =========   =========

YEAR 2002

Revenues                           $  3,253    $  4,238    $  4,775    $  5,724

Operating income (loss)                (133)       (729)       (540)        232

Net income (loss)                      (640)       (869)     (1,505)       (955)
                                   ---------   ---------   ---------   ---------
Preferred stock dividend                (58)        (87)        (87)        (89)
                                   ---------   ---------   ---------   ---------
Net income (loss) attributed to
common shares                      $   (698)   $   (956)   $ (1,592)   $ (1,044)
                                   =========   =========   =========   =========
Income (loss) per common share
  (Basic and diluted)              $  (0.04)   $  (0.05)   $  (0.08)   $  (0.06)
                                   =========   =========   =========   =========

NOTE 19 - LEGAL MATTERS

The Company is involved in various legal proceedings that arose in the ordinary
course of various business. The legal proceedings are at different stages. In
addition, special trusts established in connection with the Company's
reorganization (See Note 2 - Emergence From Chapter 11) are responsible for
certain costs and expenses related to the Company's pre-bankruptcy
obligations. In the opinion of management and their legal counsel, the ultimate
gain or loss, if any, to the Company from all such proceedings can not be
reasonably estimated at this time.

NOTE 20 - SUBSEQUENT EVENTS

On March 15, 2004, the Company filed an application to list the common stock on
the American Stock Exchange. However, approval of listing of the common stock is
subject to numerous conditions, including that the Companywe effect a reverse
stock split resulting in an increase in the per share price to at least $3.00
per share, and meet certain other quantitative and qualitative standards. While
the stockholders and board of directors have approved a future reverse stock
split (see "Item 4 - Submission of Matters to a Vote of Security Holders"),
there can be no assurance that the Company will meet the listing requirements of
the American Stock Exchange or any other exchange.

On April 2, 2004, the Company entered into the following transactions:

         o    In exchange for an investment of $2 million, the Company issued
              3,100,000 shares of common stock for a purchase price equal to
              $0.50 per share, and warrants to purchase 4,000,000 shares of
              common stock at an exercise price of $0.50 per share, expiring on
              April 1, 2006, to an investor group (the "Investor Group")
              consisting of entities affiliated with Donald and Christopher
              Engel and directors Robert Nederlander and Leonard Toboroff. The
              aggregate purchase price for the common stock was $1,550,000, and
              the aggregate purchase price for the warrants was $450,000.

                                       52


<PAGE>

         o    Energy Spectrum converted its 3,500,000 shares of Series A 10%
              Cumulative Convertible Preferred Stock, including accrued dividend
              rights, into 8,590,449 shares of common stock.

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

         o    Wells Fargo Credit, Inc. and Wells Fargo Energy Capital, Inc.
              extended the maturity dates for certain obligations (which at
              December 31, 2003, aggregated approximately $9,768,000) from
              January and February of 2005 to January and February 2006. As a
              condition of the extension, the Company will make a $400,000
              initial payment and 24 monthly principal payments in the amount of
              $25,000 each to Wells Fargo Energy Capital, Inc. As part of the
              extension, the lenders waived certain defaults including defaults
              relating to the failure of Jens' and Strata to comply with certain
              covenants relating to the amount of their capital expenditures,
              and amended certain covenants set forth in the loan agreements on
              an on-going basis. In addition, Wells Fargo Credit, Inc. increased
              Strata's line of credit from $2.5 million to $4.0 million.

ITEM 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.

NONE.

ITEM 9A. CONTROLS AND PROCEDURES.

(a). EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our chief executive
officer and our chief accounting officer, after evaluating the effectiveness of
the Company's "disclosure controls and procedures" (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this Report
(the "Evaluation Date"), have concluded that, as of the Evaluation Date, our
disclosure controls and procedures were effective in timely alerting them to
material information relating to our Company (and its consolidated subsidiaries)
required to be included in our periodic SEC filings. Since the Evaluation Date,
there have not been any significant changes in our internal controls, or in
other factors that could significantly affect these controls subsequent to the
Evaluation Date.

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

                                       53


<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by Item 10 is incorporated by reference from the
section entitled "Election of Directors" and "Executive Compensation and Other
Matters" and other relevant portions of the Information Statement (the
"Information Statement") on Schedule 14C to be filed by the registrant not later
than 120 days following December 31, 2003.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by Item 11 is incorporated by reference from the
section entitled "Executive Compensation and Other Matters" and other relevant
portions of the Information Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by Item 12 is incorporated by reference from the
section entitled "Security Ownership of Management and Certain Beneficial
Owners" and other relevant portions of the Information Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by Item 13 is incorporated by reference from the
section entitled "Certain Relationships and Related Transactions" and other
relevant portions of the Information Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by Item 14 is incorporated by reference from the
section entitled "Corporate Governance" and other relevant portions of the
Information Statement.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) LIST OF DOCUMENTS FILED

The Index to Financial Statements is included on page 28 of this report.
Financial statements Schedules not included in this report have been omitted
because they are not applicable or the required information is included in the
Financial Statements or Notes thereto. The exhibits listed on the Exhibit Index
located at Page 56 of this Annual Report are filed as part of this Form 10K.


(b) REPORTS ON FORM 8-K

None.

(c) EXHIBITS

The exhibits listed on the Exhibit Index located at Page 56 of this Annual
Report are filed as part of this Form 10K.

(d) FINANCIAL STATEMENT SCHEDULES

None.
                                       54


<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on April 14, 2004.

                    /S/ MUNAWAR H. HIDAYATALLAH
                    ------------------------------------
                    MUNAWAR H. HIDAYATALLAH
                    CHIEF EXECUTIVE OFFICER AND CHAIRMAN

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, this report has been signed on the date indicated by
the following persons on behalf of the registrant and in the capacities
indicated.

<TABLE>
<CAPTION>
NAME                                  TITLE                                     DATE
--------------------------------      ------------------------------------      ------------------
<S>                                   <C>                                         <C>
/S/ MUNAWAR H. HIDAYATALLAH           Chairman and Chief Executive Officer        April 14, 2004
--------------------------------      (Principal Financial Officer and
Munawar H. Hidayatallah               Principle Executive Officer)

/S/ JENS H. MORTENSEN                 President, Chief Operating Officer          April 14, 2004
--------------------------------      and Director
Jens H. Mortensen

/S/ TODD SEWARD                       Chief Accounting Officer                    April 14, 2004
--------------------------------      (Principal Accounting Officer)
Todd Seward

/S/ DAVID A. GROSHOFF                 Director                                    April 14, 2004
--------------------------------
David A. Groshoff

/S/ SAEED SHEIKH                      Director                                    April 14, 2004
--------------------------------
Saeed Sheikh

/S/ LEONARD TOBOROFF                  Director                                    April 14, 2004
--------------------------------
Leonard Toboroff

/S/ JAMES W. SPANN                    Director                                    April 14, 2004
--------------------------------
James W. Spann

/S/ ROBERT E. NEDERLANDER             Director                                    April 14, 2004
--------------------------------
Robert E. Nederlander

/S/ CHRISTINA E. WOODS                Director                                    April 14, 2004
--------------------------------
Christina E. Woods

/S/ THOMAS O. WHITENER, JR.           Director                                    April 14, 2004
--------------------------------
Thomas O Whitener, Jr.

</TABLE>

                                       55


<PAGE>

                                  EXHIBIT INDEX

2.1      First Amended Disclosure Statement pursuant to Section 1125 of the
         Bankruptcy Code, which includes the First Amended and Restated Joint
         Plan of Reorganization dated September 14, 1988 (incorporated by
         reference to the Company's Report on Form 8-K dated December 1, 1988).

2.2      Agreement and Plan of Merger by and among Allis-Chalmers Corporation,
         Allis-Chalmers Acquisition Corp. and OilQuip Rentals, Inc. dated as of
         May 9, 2001(incorporated by reference to the Company's Report on Form
         8-K filed May 15, 2001).

2.3.     Stock Purchase Agreement dated November 30, 2001 by and between Clayton
         Lau and Mountain Compressed Air, Inc. (incorporated by reference to the
         Company's Report on Form 8-K dated December 27, 2001).

2.4.     Promissory Note executed by Clayton Lau dated November 30, 2001
         (incorporated by reference to the Company's Report on Form 8-K dated
         December 27, 2001).

2.5.     Security Agreement dated November 30, 2001 by and between Clayton Lau
         and Mountain Compressed Air, Inc., (incorporated by reference to the
         Company's Report on Form 8-K dated December 27, 2001).

2.6.     Stock Purchase Agreement dated February 1, 2002 by and between
         Allis-Chalmers Corporation, a Delaware corporation ("Buyer") and Jens
         H. Mortensen, Jr. (incorporated by reference to the Company's Report on
         Form 8-K filed February 21, 2002).

2.7.     Shareholder's Agreement among Jens' Oilfield Services, Inc., a Texas
         corporation, Jens H. Mortensen, Jr., and Allis-Chalmers Corporation
         (incorporated by reference to the Company's Report on Form 10-K for the
         year ended December 31, 2001).

2.8.     Stock Purchase Agreement dated February 1, 2002 by and between
         Allis-Chalmers Corporation, Energy Spectrum Partners, LP, and Strata
         Directional Technology, Inc. (incorporated by reference to the
         Company's Report on Form 10-K for the year ended December 31, 2001).

2.9      Registration Rights Agreement dated by and among Allis-Chalmers
         Corporation and Energy Spectrum Partners LP (incorporated by reference
         to the Company's Report on Form 10-K for the year ended December 31,
         2001).

2.10     Shareholders' Agreement among Allis-Chalmers Corporation and the
         Shareholders and Warrant holder signatories thereto dated February 1,
         2002 (incorporated by reference to the Company's Report on Form 10-K
         for the year ended December 31, 2001).

3.1      Amended and Restated Certificate of Incorporation of Allis-Chalmers
         Corporation (incorporated by reference to the Company's Report on Form
         10-K for the year ended December 31, 2001).

3.2      Certificate of Designation, Preferences and Rights of the SERIES A 10%
         CUMULATIVE CONVERTIBLE PREFERRED STOCK ($.01 Par Value) of Allis
         Chalmers Corporation (incorporated by reference to the Company's Report
         on Form 8-K filed February 21, 2002)

3.3      Amended and Restated By-laws of Allis-Chalmers Corporation
         (incorporated by reference to the Company's Report on Form 10-K for the
         year ended December 31, 2001).

*10.1    Amended and Restated Retiree Health Trust Agreement between
         Allis-Chalmers Corporation and Wells Fargo Bank (incorporated by
         reference to Exhibit C-1 of the First Amended and Restated Joint Plan
         of Reorganization dated September 14, 1988 included in the Company's
         Report on Form 8-K dated December 1, 1988).

*10.2    Amended and Restated Retiree Health Trust Agreement between
         Allis-Chalmers Corporation and Firstar Trust Company (incorporated by
         reference to Exhibit C-2 of the First Amended and Restated Joint Plan
         of Reorganization dated September 14, 1988 included in the Company's
         Report on Form 8-K dated December 1, 1988).

10.3     Reorganization Trust Agreement between Allis-Chalmers Corporation and
         John T. Grigsby, Jr., Trustee (incorporated by reference to Exhibit D
         of the First Amended and Restated Joint Plan of Reorganization dated
         September 14, 1988 included in the Company's Report on Form 8-K dated
         December 1, 1988).



<PAGE>

10.4.    Product Liability Trust Agreement between Allis-Chalmers Corporation
         and Bruce W. Strausberg, Trustee (incorporated by reference to Exhibit
         E of the First Amended and Restated Joint Plan of Reorganization dated
         September 14, 1988 included in the Company's Report on Form 8-K dated
         December 1, 1988).

*10.5    Allis-Chalmers Savings Plan (incorporated by reference to the Company's
         Report on Form 10-K for the year ended December 31, 1988).

*10.6    Allis-Chalmers Consolidated Pension Plan (incorporated by reference to
         the Company's Report on Form 10-K for the year ended December 31,
         1988).

10.7     Agreement dated as of March 31, 1999, by and between Allis-Chalmers
         Corporation and the Pension Benefit Guaranty Corporation (incorporated
         by reference to the Company's Report on Form 10-Q for the quarter ended
         June 30, 1999).

10.8     Registration Rights Agreement dated as of March 31, 1999, by and
         between Allis-Chalmers Corporation and the Pension Benefit Guaranty
         Corporation (incorporated by reference to the Company's Report on Form
         10-Q for the quarter ended June 30, 1999).

10.9     Letter Agreement between Allis-Chalmers Corporation and the Pension
         Benefit Guarantee Corporation dated as of May 9, 2001 (incorporated by
         reference to the Company's Report on Form 8-K filed on May 15, 2002).

10.10    Termination Agreement between Allis-Chalmers Corporation, the Pension
         Benefit Guarantee Corporation and others, dated as of May 9,
         2001(incorporated by reference to the Company's Report on Form 8-K
         filed on May 15, 2002).

*10.11   Employment Agreement dated February 7, 2001 by and between OilQuip
         Rentals, Inc. and Munawar H. Hidayatallah (incorporated by reference to
         the Company's Report on Form 10-K for the year ended December 31,
         2001).

10.12    Asset Purchase Agreement entered into as of February 6, 2001 by and
         among Mountain Compressed Air, Inc., Mountain Drilling Service Co.,
         Inc. and Rod and Linda Huskey with related Promissory Note.

*10.13   Option Agreement dated October 15, 2001 between Allis-Chalmers
         Corporation and Leonard Toboroff (incorporated by reference to the
         Company's Report on Form 10-Q for the quarter ended September 30,
         2001).

10.14    Credit and Security Agreement dated February 1, 2002 by and between
         Jens' Oil Field Service, Inc. and Wells Fargo Credit, Inc.
         (incorporated by reference to the Company's Report on Form 8-K filed
         February 21, 2002).

10.15    Amended and Restated Credit and Security Agreement dated February 1,
         2002 by and between Strata Directional Technology, Inc. and Wells Fargo
         Credit, Inc. (incorporated by reference to the Company's Report on Form
         8-K filed February 21, 2002).

10.16    Credit Agreement dated February 1, 2002 by and between Allis-Chalmers
         Corporation and Wells Fargo Energy Capital, Inc. (incorporated by
         reference to the Company's Report on Form 8-K filed February 21, 2002)

10.17    Warrant Purchase Agreement dated February 1, 2002 by and between
         Allis-Chalmers Corporation and Wells Fargo Energy Capital, Inc.
         (incorporated by reference to the Company's Report on Form 8-K filed
         February 21, 2002)

*10.18   Employment Agreement dated February 1, 2002, by Jens' Oil Field
         Service, Inc. and Jens H. Mortensen, Jr. (incorporated by reference to
         the Company's Report on Form 8-K filed February 21, 2002).

10.19    Credit Agreement between Mountain Compressed Air, Inc., and Wells Fargo
         Bank Texas NA, including Renewal Term Note, Renewed and Extended
         Revolving Line of Credit Note, and Renewal Delayed Draw Term Note, each
         dated February 6, 2001. (incorporated by reference to the Company's
         Annual Report on Form 10-K for the period ended December 31, 2002)

10.20    First Amendment to Credit Agreement between Mountain Compressed Air,
         Inc., and Wells Fargo Bank Texas NA, including Renewal Term Note,
         Renewed and Extended Revolving Line of Credit Note, and Renewal Delayed
         Draw Term Note, each dated August 9, 2001. (incorporated by reference
         to the Company's Annual Report on Form 10-K for the period ended
         December 31, 2002)



<PAGE>

10.21    Second Amendment to Credit Agreement between Mountain Compressed Air,
         Inc., and Wells Fargo Bank Texas NA, including Renewal Term Note,
         Renewed and Extended Revolving Line of Credit Note, and Renewal Delayed
         Draw Term Note, each dated November 30, 2001. (incorporated by
         reference to the Company's Annual Report on Form 10-K for the period
         ended December 31, 2002)

10.22    Third Amendment to Credit Agreement between Mountain Compressed Air,
         Inc., and Wells Fargo Bank Texas NA, including Renewal Term Note,
         Renewed and Extended Revolving Line of Credit Note, and Renewal Delayed
         Draw Term Note, each dated January 31, 2002. (incorporated by reference
         to the Company's Annual Report on Form 10-K for the period ended
         December 31, 2002)

10.23    Fourth Amendment to Credit Agreement between Mountain Compressed Air,
         Inc., and Wells Fargo Bank Texas NA, including Renewal Term Note,
         Renewed and Extended Revolving Line of Credit Note, and Renewal Delayed
         Draw Term Note, each dated April 30, 2002. (incorporated by reference
         to the Company's Annual Report on Form 10-K for the period ended
         December 31, 2002)

10.24    Fifth Amendment to Credit Agreement between Mountain Compressed Air,
         Inc., and Wells Fargo Bank Texas NA, including Renewal Term Note,
         Renewed and Extended Revolving Line of Credit Note, and Renewal Delayed
         Draw Term Note, each dated August 6, 2002. (incorporated by reference
         to the Company's Annual Report on Form 10-K for the period ended
         December 31, 2002)

10.25    Sixth Amendment to Credit Agreement between Mountain Compressed Air,
         Inc., and Wells Fargo Bank Texas NA, including Renewal Term Note,
         Renewed and Extended Revolving Line of Credit Note, and Renewal Delayed
         Draw Term Note, each dated January 1, 2003. (incorporated by reference
         to the Company's Annual Report on Form 10-K for the period ended
         December 31, 2002)

10.26    Forbearance Agreement and Second Amendment to Amended and Restated
         Credit Agreement dated March 21, 2003, by and between Strata
         Directional Technology, Inc., and Wells Fargo Credit, Inc.
         (incorporated by reference to the Company's Annual Report on Form 10-K
         for the period ended December 31, 2002)

10.27    Forbearance Agreement and First Amendment to Credit Agreement between
         Jens' Oilfield Services, Inc., and Wells Fargo Credit, Inc., dated
         March 21, 2003. (incorporated by reference to the Company's Annual
         Report on Form 10-K for the period ended December 31, 2002)

10.28    Forbearance Agreement between Mountain Compressed Air, Inc., and Wells
         Fargo Equipment Finance, Inc., dated January 17, 2003. (incorporated by
         reference to the Company's Annual Report on Form 10-K for the period
         ended December 31, 2002)

10.29    Ratification of Previously Executed Security Agreement dated August 9,
         2001, by and between Mountain Compressed Air, Inc. and Wells Fargo
         Energy Capital, Inc. (incorporated by reference to the Company's Annual
         Report on Form 10-K for the period ended December 31, 2002)

10.30    Subordination and Intercreditor Agreement by and among Mountain
         Compressed Air, Inc., Wells Fargo Energy Capital, Inc. and Wells Fargo
         Equipment Finance, Inc. (incorporated by reference to the Company's
         Annual Report on Form 10-K for the period ended December 31, 2002)

10.31    Credit Agreement dated as of February 6, 2001, by and between Mountain
         Compressed Air, Inc. and Wells Fargo Energy Capital, Inc., with related
         Term Note, Warrant Purchase Agreement and Warrant. (incorporated by
         reference to the Company's Annual Report on Form 10-K for the period
         ended December 31, 2002)

10.32    First Amendment to Credit Agreement dated as of February 1, 2002, by
         and between Mountain Compressed Air, Inc. and Wells Fargo Energy
         Capital Inc. (incorporated by reference to the Company's Annual Report
         on Form 10-K for the period ended December 31, 2002)

10.33    Joint Venture Agreement entered into as of June 27, 2003 by and between
         Mountain Compressed Air, Inc. and M-I L.L.C. (incorporated by reference
         to the Company's Current Report on Form 8-K filed July 16, 2003)

10.34    Credit and Security Agreement by and between AirComp, L.L.C. and Wells
         Fargo Bank Texas NA, including Term Note, Revolving Line of Credit, and
         Delayed Draw Term Note, each filed as of June 27, 2003. (incorporated
         by reference to the Company's Current Report on Form 8-K filed July 16,
         2003)



<PAGE>

10.35    Security Agreement by and between AirComp, L.L.C. and Wells Fargo Bank
         Texas NA, filed as of June 27, 2003. (incorporated by reference to the
         Company's Current Report on Form 8-K dated July 16, 2003)

10.36    Employment Agreement dated July 1, 2003, by and between AirComp, L.L.C
         and Terry Keane. (incorporated by reference to the Company's Current
         Report on Form 8-K filed July 16, 2003)

10.37    Second Amendment to Credit Agreement dated as of February 1, 2003, by
         and between Mountain Compressed Air, Inc. and Wells Fargo Energy
         Capital Inc. (incorporated by reference to the Company's Quarterly
         Report on Form 10-Q for the period ended September 30, 2003)

10.38    Second Amendment to Credit Agreement dated as of September 30 2003, by
         and between Jens Oilfield Service, Inc. and Wells Fargo Credit Inc.
         (incorporated by reference to the Company's Quarterly Report on Form
         10-Q for the period ended September 30, 2003)

10.39    Third Amendment to Credit Agreement dated as of September, 2003, by and
         between Strata Directional Technology, Inc., and Wells Fargo Credit
         Inc. (incorporated by reference to the Company's Quarterly Report on
         Form 10-Q for the period ended September 30, 2003)

10.40    First Amendment to Credit Agreement dated as of October 1, 2003, by and
         between Allis-Chalmers Corporation and Wells Fargo Energy Capital Inc.
         (incorporated by reference to the Company's Quarterly Report on Form
         10-Q for the period ended September 30, 2003)

*10.41   Form of Option Certificate issued pursuant to 2003 Stock Incentive
         Plan.

*10.42   2003 Stock Incentive Plan

14.1     Code of Ethics

21.1     Subsidiaries of Allis-Chalmers Corporation.

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

31.2     Certification of President pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.

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

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

* Compensation Plan or Agreement