<PAGE>
                 UNITED STATE SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                   FORM 10-K/A
                                 AMENDMENT NO. 2
                                   (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 ENERGY INC.
                           --------------------------
             (Exact name of registrant as specified in its charter)


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


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

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

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

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






<PAGE>


                           2003 FORM 10-K/A CONTENTS
                           -------------------------


                                     PART II

6. Selected Financial Data.................................................    4

7. Management's Discussion and Analysis of Financial Condition and
     Results of Operations.................................................    4

8. Financial Statements....................................................   24

9A. Controls and Procedures................................................   49

                                     PART IV

15. Exhibits, Financial Statement Schedules and Reports on Form 8-K........   50

Signatures and Certifications..............................................   50



                                       2



<PAGE>


                                INTRODUCTORY NOTE

Allis Chalmers Energy Inc. is filing this Amendment No. 2 ("Amendment No. 2") to
the Company's Annual Report on Form 10-K for the year ended December 31, 2003
(the "Original Filing"), which was originally filed on April 14, 2004 (the
"Original Filing Date") to reflect the restatement of our financial results
resulting from our determination to change the manner in which we accounted for
the formation of our AirComp LLC subsidiary in July 2003. The restatement is
discussed in more detail in Note 2 to the accompanying consolidated financial
statements. The following Items of the Original Filing are amended by this
Amendment No. 2:


                                     PART II

6. Selected Financial Data.................................................    4

7. Management's Discussion and Analysis of Financial Condition and
     Results of Operations.................................................    4

8. Financial Statements....................................................   24

9A. Controls and Procedures................................................   49

                                     PART IV

15. Exhibits, Financial Statement Schedules and Reports on Form 8-K........   50

Signatures and Certifications..............................................   50



Unaffected items have not been repeated in this Amendment No. 2.

      PLEASE NOTE THAT THE INFORMATION CONTAINED IN THIS AMENDMENT NO. 2,
INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES THERETO, DOES NOT REFLECT
EVENTS OCCURRING AFTER THE ORIGINAL FILING DATE. SUCH EVENTS INCLUDE, AMONG
OTHERS, THE EVENTS DESCRIBED IN OUR QUARTERLY REPORTS ON FORM 10-Q FOR THE
PERIODS ENDED MARCH 31, 2004, JUNE 30, 2004 AND SEPTEMBER 30, 2004 AND THE
EVENTS DESCRIBED IN OUR CURRENT REPORTS ON FORM 8-K FILED SUBSEQUENT TO THE
ORIGINAL FILING DATE. FOR A DESCRIPTION OF THESE EVENTS, PLEASE READ OUR
EXCHANGE ACT REPORTS FILED SINCE THE ORIGINAL FILING DATE INCLUDING ALL
AMENDMENTS THERETO.


                                       3



<PAGE>


                                     PART II

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.
<TABLE>

                                  CONSOLIDATED STATEMENTS OF OPERATIONS DATA

                                                                    Year Ended December 31,
                                                             (in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:                                2003             2002             2001
                                                          ------------    ------------     ------------
                                                           (Restated)
<S>                                                       <C>             <C>              <C>
Sales                                                     $    32,724     $    17,990      $     4,796
Income (loss) from operations                             $     2,526     $    (1,170)     $    (1,433)
Net income (loss)                                         $     2,927     $    (3,969)     $    (4,577)
Net income (loss) attributed to common
shareholders                                              $     2,271     $    (4,290)     $    (4,577)

Per Share Data:
Net (loss) income per common share:
    Basic                                                 $      0.12     $     (0.23)     $     (1.15)
    Diluted                                               $      0.08     $     (0.23)     $     (1.15)

Weighted average number of common shares outstanding:
    Basic                                                       19,633          18,831            3,952
    Diluted                                                     28,805          18,831            3,952

                                        CONSOLIDATED BALANCE SHEET DATA

                                                                      YEAR ENDED DECEMBER 31,
                                                              2003             2002             2001
                                                          ------------    ------------     ------------
                                                           (Restated)
Total Assets                                              $    53,662     $    34,778      $    12,465
Long-term debt classified as:
    Current                                               $     3,992     $    13,890      $     1,023
    Long Term                                             $    28,241     $     7,731      $     6,833
Stockholders' Equity                                      $     4,541     $     1,009      $     1,250

Book value per share                                      $      0.23     $      0.05      $      0.32
</TABLE>

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.

OVERVIEW OF OUR BUSINESS

We provide services and equipment to the oil and gas drilling industry. Our
customers are principally small independent and major oil and gas producers
engaged in the exploration and development of oil and gas wells. Our operations
are conducted principally in the Texas Gulf Coast, offshore in the United States
Gulf of Mexico, West Texas, and the Rocky Mountain regions of New Mexico and
Colorado. We also operate in Mexico through a Mexican partner.

                                       4



<PAGE>

We provide casing and tubing handling services and drilling services, which
includes our directional drilling services segment and compressed air drilling
services segment. Our casing and tubing services segment 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
workover operations. Our directional drilling operations provide directional,
horizontal and "measure while drilling" services to oil and gas companies
operating both onshore and offshore in Texas and Louisiana. Our compressed air
drilling segment provides compressed air and related products and services for
the air drilling, workover, completion, and transmission segments of the oil,
gas and geothermal industries. We plan to broaden the geographic regions in
which we operate and to expand the types of services and equipment we provide to
the oil and gas drilling industry.

We derive operating revenues from rates per day and rates per job that we charge
for the labor and equipment required to provide a service. The rates vary widely
from project to project depending upon the scope of services we are asked to
provide. The price we charge for our services depends upon several factors,
including the level of oil and gas drilling activity in the particular
geographic regions in which we operate and the competitive environment.
Contracts are awarded based on price, quality of service and equipment, and
general reputation and depth of operations and management personnel. The demand
for drilling services has historically been volatile and is affected by the
capital expenditures of oil and gas exploration and development companies, which
in turn are impacted by the prices of oil and natural gas, or the expectation
for the prices of oil and natural gas.

The number of working drilling rigs is an important indicator of activity levels
in the oil and gas industry, typically referred to as the "rig count." The rig
count in the U.S. increased from 862 as of December 31, 2002 to 1,126 on
December 31, 2003, according to the Baker Hughes rig count. According to the
Baker Hughes rig count, the directional and horizontal rig counts increased from
283 as of December 31, 2002 to 381 on December 31, 2003, which accounted for
32.8% and 33.8% of the total U.S. rig count, respectively.

Our operating expenses represent all direct and indirect costs associated with
the operation and maintenance of our equipment. The principal elements of these
costs are direct and indirect labor and benefits, repairs and maintenance of our
equipment, insurance, equipment rentals and fuel. Operating expenses do not
necessarily fluctuate in proportion to changes in revenues because we have a
fixed base of inventory of equipment and facilities to support our operations,
and we may also seek to preserve labor continuity to market our services and
maintain our equipment.

Prior to May 2001, we operated primarily through Houston Dynamic Services, Inc.,
which conducted a machine repair business. 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 in which we acquired 100% of the capital stock of OilQuip
Rentals, Inc., which owned Mountain Compressed Air, Inc., which provided
compressed air drilling services. In December 2001, we disposed of Houston
Dynamic Service, Inc., and in February 2002, we acquired substantially all of
the capital stock of Strata Directional Technology, Inc. and approximately 81%
of the capital stock of Jens' Oilfield Service, Inc. In July 2003, through
Mountain Compressed Air, we entered into a limited liability company operating
agreement with M-I L.L.C., a joint venture between Smith International and
Schlumberger N.V. to form a Texas limited liability company named AirComp LLC.
We own 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 Rentals merger was treated as a reverse
acquisition by OilQuip Rentals of Allis-Chalmers and financial statements
presented herein for periods prior to May 2001 present the results of operations
and financial condition of OilQuip Rentals. As a result of the OilQuip Rentals
merger, the fixed assets and other intangibles of Allis-Chalmers in existence
immediately prior to the merger were increased by $2.7 million.


                                       5



<PAGE>

RESTATEMENT

In connection with the formation of AirComp in 2003, the Company and M-I
contributed assets to AirComp in exchange for a 55% interest and 45% interest,
respectively, in AirComp. We originally accounted for the formation of AirComp
as a joint venture, but in February 2005 determined that the transaction should
have been accounted for using purchase accounting pursuant to Statement of
Financial Accounting Standard ("SFAS") No. 141, "Business Combinations" and SEC
Staff Accounting Bulletin ("SAB") No. 51 "Accounting for Sales of Stock by a
Subsidiary". Consequently, we have restated our financial statements for the
year ended December 31, 2003 and for the three quarters ended September 30,
2004.

RESULTS OF OPERATIONS

Results of operations for 2001 reflect the business operations of OilQuip
Rentals. From its inception on February 4, 2000 to February 6, 2001, OilQuip
Rentals was in the developmental stage. OilQuip Rentals' 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 Rentals
acquired the assets of Mountain Air, which provides compressed air drilling
services to natural gas exploration operations.

On May 9, 2001, OilQuip Rentals merged with a subsidiary of Allis-Chalmers, and
was deemed to acquire the assets of Allis-Chalmers, including the operations of
Houston Dynamic Services. The results of operation of Houston Dynamic Services,
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 specialized equipment and
operations to install casing and production tubing required to drill and
complete oil and gas wells.

On February 6, 2002, we also purchased substantially all the outstanding common
stock and preferred stock of Strata Directional Technology, Inc., which provides
directional and horizontal drilling services for specific targeted reservoirs
that cannot be reached vertically.

The results from our casing and tubing services and directional drilling
services are included in our operating results 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., a joint
venture between Smith International and Schlumberger N.V. to form AirComp. We
own 55% and M-I owns 45% of AirComp. We have consolidated AirComp into our
financial statements beginning with the quarter ending September 30, 2003.

Comparison of Years Ended December 31, 2003 and 2002
----------------------------------------------------

Revenues for the year ended December 31, 2003 totaled $32.7 million, an increase
of 81.7% from the $18.0 million in revenues for the year ended December 31,
2002. The increase in revenues is due to the general increase in oil and gas
drilling activity and the inclusion of AirComp, our compressed air drilling
venture, beginning in July 2003. The increase in revenues is also due to 2003
being the first full year of revenue contribution from the casing and tubing
services segment and the directional drilling segment, both of which were
acquired in February 2002.

Our gross profit for the year ended December 31, 2003 was $8.7 million, or 26.5%
of revenues, compared to $3.4 million, or 18.9 % of revenues for the year ended
December 31, 2002, due to increased utilization of our equipment and personnel
and increased pricing in each of our business segments due to the increase in
industry activity. Our cost of revenues consist principally of our labor costs
and benefits, equipment rentals, maintenance and repairs of our equipment,
insurance and fuel. Because many of our costs are fixed, our gross profit as a
percentage of revenues is generally affected by our level of revenues. Gross
profit as a percentage of revenues increased as a result of higher revenues and
better pricing for our services.

                                       6



<PAGE>

General and administrative expenses were $6.2 million, or 19.0% of revenues, in
2003 compared to $3.8 million, or 21.1% of revenues, in 2002. The increase in
general and administrative expenses in absolute terms was due to the inclusion
of general and administrative expenses for AirComp, which created a larger
operation compared to our previous Mountain Air subsidiary, the hiring of
additional sales force and operations personnel due to the improvement in the
oil and gas drilling market, and the inclusion of the operations of our casing
and tubing services and directional drilling services segments for a full year
in 2003.

Depreciation and amortization expenses increased to $2.9 million in 2003
compared to $2.6 million in 2002, due to the formation of AirComp in July 2003,
and the acquisition of our casing and tubing services and directional drilling
services segments in February 2002.

Income from operations for the year 2003 totaled $2.5 million reflecting the
general increase in oil and gas drilling activity and the inclusion of revenues
and operating income contributed by M-I through the formation of AirComp in July
2003. In the comparable period of 2002, we incurred an operating loss of $1.2
million. During the third quarter of 2002, we reorganized 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. We also recorded one-time charges for
costs related to abandoned acquisitions and an abandoned private placement in
the amount of $233,000.

Interest expense increased to $2.5 million in 2003, compared to $2.3 million in
the prior year due to increased debt associated with acquisitions completed in
2002, and debt associated with the formation of AirComp in July 2003.

Minority interest in income of subsidiaries for 2003 was $343,000 compared to
$189,000 in 2003 due to the increase in the net income of our casing and tubing
services subsidiary, which until September 30, 2004, was owned 19% by Jens
Mortensen; and the formation, in July 2003, of AirComp, which is owned 45% by
M-I.

In the year ended December 31, 2003 we recorded a one-time gain on the reduction
of a note payable of $1.0 million 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 $1.5 million
using a present value calculation and accreting the note payable to $1.9
million, the amount due in September 2007. We will record interest expense
totaling $394,043 over the life of the note payable beginning July 2003. In
addition, we also recorded a one-time non-operating gain on the sale of an
interest in a subsidiary of $2.4 million in connection with the formation of
AirComp. The Company has adopted a policy that any gain or loss in the future
incurred on the sale in the stock of a subsidiary would be recognized as such in
the income statement.

The net loss for 2002 included a discount given to the holder of the Houston
Dynamic Services note in the amount of $191,000 as an incentive to pay-off the
note in September 2002.

We had a net income attributed to common stockholders of $2.3 million, or $0.12
per common share, for the year ended December 31, 2003 compared with a net loss
of ($4.3 million), or ($0.23) per common share, for the year ended December 31,
2002.

                                       7



<PAGE>

The following table compares revenues and income from operations for each of our
business segments for the years ended December 31, 2003, 2002 and 2001. Income
from operations consists of our revenues less cost of revenues, general and
administrative expenses, and depreciation and amortization:

<TABLE>

                                                                            Revenues
                                            2003              2002            Change             2001             Change
                                       --------------    --------------    -------------     ------------     -------------
<S>                                    <C>               <C>               <C>               <C>              <C>
Casing services                        $       10,037    $       7,796     $      2,241      $         --     $      7,796
Directional drilling services                  16,008            6,529            9,479                --     $      6,529
Compressed air drilling services                6,679            3,665            3,014             4,796           (1,131)
General corporate                                  --               --               --                --               --
                                       --------------    --------------    -------------     ------------     -------------
Total                                  $       32,724    $      17,990     $     14,734      $      4,796     $     13,194
                                       ==============    ==============    =============     ============     =============

                                                                  Income (Loss) from Operations
                                            2003              2002            Change             2001             Change
                                       --------------    --------------    -------------     ------------     -------------
                                         (Restated)                         (Restated)
Casing services                        $        3,628    $       2,495     $      1,133      $         --     $      2,495
Directional drilling services                   1,103             (576)           1,679                --     $       (576)
Compressed air drilling services                   17             (945)             962               434           (1,379)
General corporate                              (2,222)          (2,144)             (78)           (1,867)            (277)
                                       ---------------   --------------    -------------     -------------    -------------
Total                                  $        2,526    $      (1,170)    $      3,696      $     (1,433)    $        263
                                       ==============    ==============    =============     =============    =============
</TABLE>


CASING AND TUBING SERVICES SEGMENT

Revenues for the year ended December 31, 2003 for the casing and tubing services
segment were $10.0 million, an increase of 28.2% from the $7.8 million in
revenues for the year ended December 31, 2002. Revenues from domestic operations
increased to $6.3 million in 2003 from $5.1 million in 2002 as a result of a
general improvement in oil and gas drilling activity in South Texas and the
inclusion of this segment, which was acquired in February 2002, for a full year
in 2003. Revenues from Mexican operations increased to $3.7 million in 2003 from
$2.7 million in 2002 as a result of increased drilling activity in Mexico.
Income from operations increased 45.4% to $3.6 million in 2003 from $2.5 million
in 2002 due to the increase in revenues.

DIRECTIONAL DRILLING SERVICES SEGMENT

Revenues for 2003 for directional drilling services were $16.0 million, an
increase of 146.2% from $6.5 million in revenues for 2002 due to increased
drilling activity in the Texas and Gulf Coast areas in 2003. Operating income
increased to $1.1 million for 2003 compared to a loss from operations of
($576,000) for the same period in 2002 due to the increase in revenues, which
more than offset an increase in operating expenses due to the addition of
operations and sales personnel.


                                       8



<PAGE>

COMPRESSED AIR DRILLING SERVICES SEGMENT

Our compressed air drilling revenues were $6.7 million in 2003, an increase of
81.1% compared to $3.7 million in revenues in 2002. Revenues increased in 2003
due to the inclusion of revenues contributed by M-I through the formation of
AirComp in July 2003. Operating income increased to $17,000 in 2003 from a
($945,000) loss from operations in 2002 due to the inclusion, for six months in
the 2003 period, of the business contributed by M-I in connection with the
formation of AirComp in July 2003. Through this venture, we have been able to
expand the geographical areas in which we operate to include gas drilling in
West Texas along with the drilling and workover operations of Mountain Air in
the San Juan basin in New Mexico.

PRO FORMA RESULTS

The 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 $21,595,000. 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 26.3% for the year ended
December 31, 2003 compared with a pro forma gross margin of 17.5 % 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.

The Company had pro forma operating income for the year 2003 of $2,902,000 as
compared to pro forma operating (loss) of ($24,000) 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 $2,882,000 or $0.15 per common
share, for the year ended December 31, 2003 compared with a pro forma net loss
of ($4,070,000), or ($0.22) 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. In addition, we also recorded a one-time
non-operating gain on the sale of an interest in a subsidiary of $2.4 million in
connection with the formation of AirComp. 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.

                                       9



<PAGE>

Comparison of Years Ended December 31, 2002 and 2001
----------------------------------------------------

Revenues for the year 2002 totaled $18.0 million compared to $4.8 million in
2001. The 275.0% increase in revenues reflects the revenues of our casing and
tubing services and directional drilling services segments, which were acquired
in February 2002.

Revenues for the year ended December 31, 2002 for the casing and tubing
services, directional drilling services, and compressed air drilling services
segments were $7.8 million, $6.5 million and $3.7 million, respectively. We had
no revenues from casing and tubing services and directional drilling services in
2001 as those operations were acquired in February 2002. Revenues for the
compressed air drilling services segment decreased to $3.7 million in 2002 from
$4.8 million for the year ended December 31, 2001, primarily due to lower
revenues from Burlington Resources, which decreased from $3.3 million in 2001 to
$1.8 million in 2002. 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 decline in drilling activity.
The rig count 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.

Our gross profit for the year ended December 31, 2002 was $3.3 million, or 18.9%
of revenues, compared to $1.5 million, or 31.2% of revenues for the year ended
December 31, 2001, due to the acquisition of the casing and tubing services and
directional drilling services segments in 2002 and a decreased gross margin in
our compressed air drilling operation due to reduced revenues at Mountain Air.
Our cost of revenues consists principally of our labor costs and benefits,
equipment rentals, maintenance and repairs of our equipment, insurance and fuel.

General and administrative expense was $3.8 million, or 21.1% of revenues in
2002, compared with $2.9 million, or 60.4% of revenues in 2001. The general and
administrative expenses increased in absolute terms in 2002 compared to 2001 due
to the acquisition of our casing and tubing services and directional drilling
services segments in February 2002.

In 2002 we reported a ($1.2) million loss from operations compared to a loss
from operations of ($1.4) million in 2001. The loss from operations in 2002
includes the restructuring and other one-time charges totaling $728,000.

Interest expense in 2002 was $2.3 million, compared to $869,000 in 2001, due to
the increase in debt associated with the acquisitions of our casing and tubing
services and directional drilling services operations.

We incurred a net loss attributed to common stockholders of ($4.3 million), or
($0.23) per common share, for the year ended December 31, 2002 compared with a
loss of ($4.6 million), or ($1.15) per common share, for the year ended December
31, 2001. The net loss for 2002 included a discount given to the holder of the
Houston Dynamic Services note in the amount of $191,000 as an incentive to
pay-off the note in September 2002. The net loss in 2001 included a ($2.0
million) loss from the sale of discontinued operations.

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.

                                       10



<PAGE>

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.

LIQUIDITY AND CAPITAL RESOURCES

Our on-going capital requirements arise primarily from our need to service our
debt and retire redeemable securities, to acquire and maintain equipment, for
working capital and for acquisitions. Our primary sources of liquidity are
borrowings under our revolving lines of credit, proceeds from the issuance of
equity securities and cash flows from operations. We had cash and cash
equivalents of $1.3 million at December 31, 2003 and compared to $146,000 at
December 31, 2002.

OPERATING ACTIVITIES

For the 12 months ended December 31, 2003, we generated $1.9 million in cash
from operating activities compared to $2.2 million in cash from operating
activities for the same period in 2002. Net income for the 2003 period improved
to $2.9 million, compared to a net loss of ($4.0 million) in the comparable 2002
period, due to the increase in revenues and gross profit in 2003 due to the
general increase in oil and gas drilling activity and the inclusion of AirComp,
our compressed air drilling subsidiary in July 2003. Net income for 2003 also
includes a $1.0 million gain from the settlement of a lawsuit and a $2.4 million
gain on sale of interest in AirComp. Non-cash adjustments to net income totaled
$305,000 in 2003 net of $3.4 million of non-cash gains, including the $1.0
million non-cash gain from the settlement of a lawsuit, compared to $3.4 million
of non-cash gains in 2002, consisting principally of depreciation and
amortization expense, including amortization of discount on debt, and minority
interest in the income of a subsidiary.


                                       11

<PAGE>

During the 12 months ended December 31, 2003, changes in working capital used
$1.3 million in cash compared to changes in working capital, which provided $2.8
million in cash in the 2002 period, principally due, in 2003, to an increase in
accrued expenses of $1.7 million, an increase in accounts receivable and other
current assets of $5.6 million, and an increase in accounts payable of $2.2
million. The increase in accrued expenses is due to a decrease in accrued
interest of $126,000 due to the retirement of the subordinated debt carrying an
interest rate of 12% and lower interest rates on other debt with variable
interest rates, an increase in accrued expenses of $397,000 due to accrued motor
costs and related expenses, and an increase in accrued employee benefits and
payroll taxes of $1.3 million due to the payroll cycle ending at December 31,
2003. Accounts receivable increased $4.4 million due to increased revenues in
our directional drilling services segment, compressed air drilling services
segment from the inclusion of the business contributed by M-I to AirComp in July
2003, and our casing and tubing services segment. Other current assets decreased
primarily because of the recovery of a lease deposit related to an equipment
lease, which was paid off in June 2003. Accounts payable increased by $2.3
million in the 2003 period due to increased costs related to increased revenues,
and the inclusion of the accounts payable of AirComp in July 2003.

INVESTING ACTIVITIES

During the 12 month period ended December 31, 2003, we used $4.5 million in
investing activities, consisting of the purchases of equipment of $5.4 million,
which was partially offset by the proceeds from the sales of equipment of
$843,000. This compares to net cash used in investing activities in the
comparable 2002 period of $8.5 million, due to the acquisitions of our Jens' and
Strata subsidiaries for a total of $8.3 million, purchases of other equipment of
$518,000, and proceeds from the sales of equipment of $367,000.

FINANCING ACTIVITIES

During the year ended December 31, 2003 financing activities provided a net of
$3.8 million in cash compared to a net of $6.3 million in cash from financing
activities in the prior year. In 2003, we received $14.1 million from the
issuance of long-term debt and $30.5 million from borrowings under our lines of
credit. These proceeds were used to pay long-term debt in the amount of $10.8
million and make principal payments on outstanding borrowings under our lines of
credit in the amount of $29.4 million. We also used $408,000 in cash for debt
issuance costs in 2003. In 2002, we received $9.7 million from the issuance of
long-term debt and $7.1 million from borrowings under our lines of credit. These
proceeds were used to pay long-term debt in the amount of $4.1 million and make
principal payments on outstanding borrowings under our lines of credit in the
amount of $5.8 million. We also used $588,000 in cash for debt issuance costs in
2002.

We have several bank credit facilities and other debt instruments at
Allis-Chalmers and at our three operating subsidiaries. Allis-Chalmers
guarantees the loans owed by Jens' and Strata, and Mountain Compressed Air, a
wholly-owned subsidiary, guarantees AirComp's bank debt. All three of our
subsidiaries are consolidated on our financial statements. At December 31, 2003,
we had $32.2 million in outstanding indebtedness, of which $28.2 million was
long-term debt and $4.0 million was the current portion of long-term debt.

Through Jens', our casing and tubing services subsidiary, at December 31, 2003,
we had two principal bank facilities. We had a term loan in the original amount
of $4.0 million that was increased, in October 2003, to $5.1 million. We were
required to make monthly principal payments of $85,000 plus 25% of our
collections from our operations in Mexico. Interest accrued at a floating rate
plus a margin. The interest rate on the term loan was 6.00% at December 31, 2003
and the outstanding amount was $3.0 million. We also had a $1.0 million bank
line of credit of which $26,000 was outstanding at December 31, 2003. Interest
accrued at a floating rate plus a margin. The interest rate on the line of
credit was 7.00% at December 31, 2003. We paid a 0.5% per annum fee on the
undrawn portion of the line of credit.

Our Jens' subsidiary also has a note payable to Jens Mortensen, who sold Jens'
to us and is a director and the President of Jens'. The note is in the original
amount of $4.0 million at 7.5% simple interest with quarterly interest payments.
At December 31, 2003, $533,000 of interest was accrued and was included in
accounts payable to related parties. The principal and interest are due on
January 31, 2006. In connection with the purchase of Jens', we also agreed to
pay a total of $1.2 million to Mr. Mortensen in exchange for a non-compete
agreement. We are required to make monthly payments of $20,576 through January
31, 2007. As of December 31, 2003, the balance due is approximately $761,000,
including $247,000 classified as short-term.

                                       12



<PAGE>

Jens' also had outstanding two term loans at December 31, 2003. One was a real
estate bank loan in the amount of $532,000 at a floating interest rate with
monthly principal payments of $14,778 plus interest. The interest rate was 6.00%
at December 31, 2003 and the outstanding amount due was $207,000. The second
loan is a bank loan in the original amount of $397,080 at a floating interest
rate with monthly principal payments of $11,000 plus interest. At December 31,
2003 the interest rate was 6.00% and the balance due was $354,000. The final
maturity date of the loan is September 17, 2006.

Through Strata, our directional drilling services operating subsidiary, we had a
$2.5 million bank line of credit of which $2.4 million was outstanding at
December 31, 2003. The interest rate was 7.00% at December 31, 2003 and we paid
a 0.5% per annum fee on the undrawn portion of the line of credit.

In December 2003, Strata entered into a short-term vendor financing agreement in
the original amount of $1.7 million with a major supplier for drilling motor
rentals, motor lease costs and motor repair costs. The agreement provides for
repayment of all amounts not later than December 31, 2005. Payment of interest
is due monthly and principal payments of $582,000 are due in each of October
2004, April 2005, and December 2005. The interest rate is fixed at 8.0%. As of
December 31, 2003 the outstanding balance was $1.7 million.

AirComp had the following facilities at December 31, 2003:

*        A $1.0 million bank line of credit of which $369,000 was outstanding at
         December 31, 2003. Interest accrues at a floating rate plus a margin
         and was 6.25% at December 31, 2003. We paid a 0.5% per annum fee on the
         undrawn portion. Borrowings under the line of credit were subject to a
         borrowing base consisting of eligible accounts receivable.

*        A term loan in the original amount of $8.0 million with a floating
         interest rate based on either prime or the London interbank offered
         rate ("LIBOR") plus a margin. The interest rate averaged 4.09% at
         December 31, 2003. Principal payments of $286,000 were due quarterly,
         plus interest, with a final maturity date of June 27, 2007. The
         remaining balance at December 31, 2003. was $7.4 million.

*        A "delayed draw" term loan facility in the amount of $1.0 million to be
         used for capital expenditures. Interest accrues at a rate equal to
         LIBOR plus a margin. Quarterly principal payments commence on March 31,
         2005 in an amount equal to 5.0% of the outstanding balance as of
         December 31, 2004. AirComp had not yet drawn on this facility as of
         December 31, 2003.

The AirComp credit facilities are secured by liens on substantially all of
AirComp's assets. The agreement governing these credit facilities contains
customary events of default and requires that AirComp satisfy various financial
covenants. It also limits AirComp's ability to incur additional indebtedness,
make capital expenditures, pay dividends or make other distributions, create
liens, and sell assets. Mountain Compressed Air guaranteed the obligations of
AirComp under these facilities.

AirComp also has a subordinated note payable to M-I in the amount of $4.8
million bearing interest at an annual rate of 5.0%. 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 in such event this note (including accrued interest) is
due and payable. The note is also due and payable if M-I sells its interest in
AirComp or upon a termination of AirComp. At December 31, 2003, $120,000 of
interest was included in accrued interest. Neither the Company nor Mountain
Compressed Air is liable for the obligations of AirComp under this note.

The Company has a subordinated note in the original amount of $3.0 million with
a fixed interest rate of 12.0%. The outstanding balance was $2.7 million at
December 31, 2003. In connection with this note, we issued redeemable warrants,
which were recorded as a liability of $900,000 and as a discount to the face
amount of the debt. This amount is amortized as additional interest expense over
the term of the note. The debt was recorded at $2.7 million net of unamortized
portion of the put obligation.


                                       13



<PAGE>

In connection with the issuance of the $3.0 million subordinated note, we issued
redeemable warrants that are exercisable for up to 233,000 shares of our common
stock at an exercise price of $0.75 per share and non-redeemable warrants that
are exercisable for a maximum of 67,000 shares of our common stock at $5.00 per
share. The warrants were exercisable for $0.75 per share are subject to cash
redemption provisions in the amount of $900,000 at the discretion of the warrant
holders at any time after January 31, 2005. We recorded a liability of $900,000
in respect of the warrant redemption rights, and amortize the effects of the
puts to interest expense over the life of the $3.0 million subordinated debt.

In 1999 we compensated directors who 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 5.0% and are due on March 28,
2005. At December 31, 2003, the principal and accrued interest on these notes
totaled approximately $386,000.

As part of the acquisition of Mountain Air in 2001, we issued a note to the
sellers of Mountain Air in the original amount of $2.2 million at 5.75% simple
interest which was reduced to $1.5 million 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 $1.5 million.

Mountain Air has a term loan in the original amount of $267,000 at an interest
rate of 5.0%, 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
and the final maturity date is June 30, 2008.

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 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.
<TABLE>

                                                                        PAYMENTS BY PERIOD
                                                                          (IN THOUSANDS)
                                                                                                                   AFTER
                                            TOTAL            1 YEAR          2-3 YEARS         4-5 YEARS          5 YEARS
                                       --------------    --------------    -------------     ------------     -------------
CONTRACTUAL OBLIGATIONS
<S>                                    <C>               <C>               <C>               <C>              <C>
Notes Payable                          $       32,233    $        3,992     $     14,998     $     10,434     $          --
Interest Payments on notes payable              2,088               431              973              684                --
Operating Lease                                   814               318              323              173                --
Employment Contracts                              760               750              --                --                --
                                       --------------    --------------    -------------     ------------     -------------

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


We have no off balance sheet arrangements that have or are likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues, expenses, results of operations, liquidity, capital
expenditures or capital resources. We do not guarantee obligations of any
unconsolidated entities.


                                       14



<PAGE>

We intend to implement a growth strategy of increasing the scope of services
through both internal growth and acquisitions. We are regularly involved in
discussions with a number of potential acquisition candidates. We expect to make
capital expenditures to acquire and to maintain our existing equipment. Our
performance and cash flow from operations will be determined by the demand for
our services, which, in turn, are affected by our customers' expenditures for
oil and gas exploration and development and industry perceptions and
expectations of future oil and gas prices in the areas where we operate. We will
need to refinance our existing debt facilities as they become due and provide
funds for capital expenditures and acquisitions. To effect our expansion plans,
we will require additional equity or debt financing in excess of our current
working capital and amounts available under credit facilities. There can be no
assurance that we will be successful in raising the additional debt or equity
capital or that we can do so on terms that will be acceptable to us.

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 included elsewhere in this Report. Our preparation of this report
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.

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 collectibility is
reasonably assured, as well as consideration of the overall business climate in
which our customers operate. 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, changes in the financial condition of our customers
could impact the amount of provisions for doubtful accounts.

REVENUE RECOGNITION. Our revenue recognition policy is significant because
revenue is a key component of the results of operations. In addition, revenue
recognition determines the timing of certain expenses, such as commissions and
royalties. We provide rental equipment and drilling services to our customers at
per day and per job contractual rates and recognize the drilling related revenue
as the work progresses and when collectibility 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. 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.

                                       15



<PAGE>

GOODWILL AND OTHER INTANGIBLES. The Company has recorded approximately
$7,661000 of goodwill and $2,290000 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 used two approaches to determine the carrying amount of the
individual reporting units. The first approach is the Discounted Cash Flow
Method, which focuses on the expected cash flow of the Company. In applying this
approach, the cash flow available for distribution is projected for a finite
period of years. Cash flow available for distribution is defined as the amount
of cash that could be distributed as a dividend without impairing the future
profitability or operation of the Company. The cash flow available for
distribution and the terminal value (the value of the Company at the end of the
estimation period) are then discounted to present value to derive an indication
of value of the business enterprise. This valuation method is dependent upon the
assumptions made regarding future cash flow and cash requirements. The second
approach is the Guideline Company Method, which focuses on comparing the Company
to selected reasonably similar publicly traded companies. Under this method,
valuation multiples are: (i) derived from operating data of selected similar
companies; (ii) evaluated and adjusted based on the strengths and weaknesses of
the Company relative to the selected guideline companies; and (iii) applied to
the operating data of the Company to arrive at an indication of value. This
valuation method is dependent upon the assumption that the value of the Company
can be evaluated by analysis of its earnings and its strengths and weaknesses
relative to the selected similar companies. Significant and unanticipated
changes to these assumptions could require a provision for impairment in a
future period.

AIRCOMP AND SALE OF INTEREST IN VENTURE. The Company has adopted SEC Staff
Accounting Bulletin (SAB) No. 51, Accounting for Sales of Stock by a Subsidiary,
to account for its investment in AirComp. AirComp operates in a manner similar
to a joint venture but has been accounted for and consolidated as a subsidiary
under SFAS No. 141, BUSINESS COMBINATIONS. Pursuant to SAB No. 51, the Company
has recorded its own contribution of assets and liabilities at its historical
cost basis. Since liabilities exceeded assets, the Company's basis in AirComp
was a negative amount. The Company has accounted for the assets contributed from
M-I at a fair market value as determined by an outside appraiser. The Company
gave M-I a 45% interest in AirComp in exchange for the assets contributed. As a
result of the formation of the venture and its retention of 55% interest in the
venture, the Company realized an immediate gain to the extent of its negative
basis and its 55% interest in the combined assets and liabilities of the
venture. In accordance with SAB No. 51, the Company has recorded its negative
basis investment in AirComp as an addition to equity and its share of the
combined assets and liabilities realized from M-I assets as non-operating
income.

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.

Quantitative and Qualitative Disclosure About Market Risk.
----------------------------------------------------------

We are exposed to market risk primarily from changes in interest rates and
foreign currency exchange risks.

                                       16



<PAGE>

         INTEREST RATE RISK.

Fluctuations in the general level of interest rates on our current and future
fixed and variable rate debt obligations expose us to market risk. We are
vulnerable to significant fluctuations in interest rates on our variable rate
debt and on any future repricing or refinancing of our fixed rate debt and on
future debt.

At December 31, 2003 we were exposed to interest rate fluctuations on
approximately $32.2 million of notes payable and bank credit facility borrowings
carrying variable interest rates. A hypothetical one hundred basis point
increase in interest rates for these notes payable would increase our annual
interest expense by approximately $332,000. Due to the uncertainty of
fluctuations in interest rates and the specific actions that might be taken by
us to mitigate the impact of such fluctuations and their possible effects, the
foregoing sensitivity analysis assumes no changes in our financial structure.

We have also been subject to interest rate market risk for short-term invested
cash and cash equivalents. The principal of such invested funds would not be
subject to fluctuating value because of their highly liquid short-term nature.

         FOREIGN CURRENCY EXCHANGE RATE RISK.

We conduct business in Mexico through our Mexican partner, Matyep. This business
exposes us to foreign exchange risk. To control this risk, we provide for
payment in U.S. dollars. However, we have historically provided our partner a
discount upon payment equal to 50% of any loss suffered by our partner as a
result of devaluation of the Mexican peso between the date of invoicing and the
date of payment. During 2003 and 2002 the discounts have not exceeded $10,000
per year.

Failure to Maintain Effective Internal Controls Could Have a Material Adverse
Effect on Our Operations.
-----------------------------------------------------------------------------

We are in the process of documenting and testing our internal control procedures
in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act,
which requires annual management assessments of the effectiveness of our
internal controls over financial reporting and a report by our Independent
Auditors addressing these assessments. During the course of our testing we may
identify deficiencies which we may not be able to remediate in time to meet the
deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements
of Section 404. In addition, if we fail to achieve and maintain the adequacy of
our internal controls, as such standards are modified, supplemented or amended
from time to time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal controls over financial reporting
in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective
internal controls are necessary for us to produce reliable financial reports and
are important to helping prevent financial fraud. If we cannot provide reliable
financial reports or prevent fraud, our business and operating results could be
harmed, investors could lose confidence in our reported financial information,
and the trading price of our stock could drop significantly.

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.

                                       17



<PAGE>

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.

                                  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.

                                       18



<PAGE>

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.

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.

                                       19



<PAGE>

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.

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.

                                       20



<PAGE>

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.

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.

                                       21



<PAGE>

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.






<PAGE>


ITEM 8. FINANCIAL STATEMENTS.

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


                                                                            PAGE
                                                                            ----

                          INDEX TO FINANCIAL STATEMENTS

Financial Statements:

ALLIS CHALMERS CORPORATION

Report of Independent Registered Public Accounting Firm                      F-3

Restated Consolidated Balance Sheets as of December 31, 2003 and 2002        F-4

Restated Consolidated Statements of Operations for the Years Ended
     December 31, 2003, December 31, 2002 and December 31, 2001              F-5

Restated Consolidated Statement of Stockholders' Equity for the Years Ended
     December 31, 2003, December 31, 2002 and December 31, 2001              F-6

Restated Consolidated Statements of Cash Flows for the Years Ended
     December 31, 2003, December 31, 2002 and December 31, 2001              F-7

Notes to Restated Consolidated Financial Statements                          F-8








<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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 consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 consolidated 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.

As discussed in Note 2 to the consolidated financial statements, the Company
restated the consolidated financial statements as of and for the year ended
December 31, 2003.

                                               /S/ GORDON, HUGHES & BANKS, LLP
                                               -------------------------------

March 3, 2004, except to Note 2,
which date is February 10, 2005,
and Note 20, which date is April 2, 2004
Greenwood Village, Colorado



                                      F-3




<PAGE>

ALLIS-CHALMERS CORPORATION.
CONSOLIDATED BALANCE SHEETS
(in thousands)

                              SEE EXPLANATORY NOTE

                                                           DECEMBER 31,
                                                        2003         2002
                                                      ---------   ---------
                                                      (Restated)
ASSETS

Cash and cash equivalents                             $  1,299    $    146
Trade receivables, net of allowance for
  doubtful accounts of $168 and $32 at
  December 31, 2003 and 2002, respectively               8,823       4,409
Lease Deposit                                               --         525
Lease receivable, current (Note 14)                        180         180
Prepaid expenses and other                                 887         317
                                                      ---------   ---------

     Total current assets                               11,189       5,577

Property and equipment, net of accumulated
  depreciation of $2,586 and $2,340 at December
  31, 2003 and 2002, respectively                       31,128      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 14)           787       1,042
Other Assets                                                40          41
                                                      ---------   ---------

      Total Assets                                    $ 53,662    $ 34,778
                                                      =========   =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current maturities of long-term debt (Note 9)         $  3,992    $ 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 15)                787          --
                                                      ---------   ---------

Total current liabilities                               10,416      18,593

Accrued postretirement benefit obligations (Note 4)        545         670
Long-term debt, net of current maturities (Note 9)      28,241       7,331
Other long-term liabilities                                270         270
Redeemable warrants (Notes 9 and 13)                     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 11)                                    4,171       3,821
                                                      ---------   ---------
Total liabilities                                       45,143      32,185

Commitments and Contingencies (Note 10 and Note 21)

Minority interests                                       3,978       1,584

COMMON STOCKHOLDERS' EQUITY (NOTE 11)

Common stock, $0.01 par value (10,000,000 shares
  authorized; 19,633,340 issue and outstanding)          2,945       2,945
Capital in excess of par value                           7,842       7,237
Accumulated (deficit)                                   (6,246)     (9,173)
                                                      ---------   ---------

      Total stockholders' equity                         4,541       1,009
                                                      ---------   ---------

      Total liabilities and stockholders' equity      $ 53,662    $ 34,778
                                                      =========   =========

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

                                       F-4



<PAGE>

<TABLE>
<CAPTION>
ALLIS-CHALMERS CORPORATION.
CONSOLIDATED STATEMENTS OF OPERATIONS                        YEARS ENDED DECEMBER 31.
(in thousands, except per share amounts)                  2003         2002        2001
                                                        ---------   ---------   ---------
                                                        (Restated)

<S>                                                     <C>         <C>         <C>
Revenues                                                $ 32,724    $ 17,990    $  4,796
Cost of revenues                                          24,029      14,640       3,331
                                                        ---------   ---------   ---------
Gross margin                                               8,695       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                             2,526      (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                (343)       (189)         --
Factoring costs on note receivable                            --        (191)         --
Settlement on lawsuit                                      1,034          --          --
Gain on sale of interest in AirComp                        2,433          --          --
Other                                                        111          58         (12)
                                                        ---------   ---------   ---------
Total other income (expense)                                 771      (2,529)       (840)
                                                        ---------   ---------   ---------
Net income/ (loss) before income taxes                     3,297      (3,699)     (2,273)
Provision for foreign income tax                            (370)       (270)          --
                                                        ---------   ---------   ---------
Net income/ (loss) from continuing operations              2,927      (3,969)     (2,273)

(Loss) from discontinued operations                           --          --        (291)
(Loss) from sale of discontinued operations                   --          --      (2,013)
                                                        ---------   ---------   ---------
Net (loss) from discontinued operations                       --          --      (2,304)
                                                        ---------   ---------   ---------
Net income/ (loss)                                         2,927      (3,969)     (4,577)
Preferred stock dividend                                    (656)       (321)         --
                                                        ---------   ---------   ---------
Net income/ (loss) attributed to common stockholders    $  2,271   $  (4,290)   $ (4,577)
                                                        =========   =========   =========

Income/ (loss) per common share - basic
                             Continued operations       $   0.12   $   (0.23)   $  (0.57)
                             Discontinued operations          --          --       (0.58)
                                                        ---------   ---------   ---------
                                                        $   0.12   $   (0.23)   $  (1.15)
                                                        =========   =========   =========

Income/ (loss) per common share - diluted
                             Continued operations       $   0.08   $   (0.23)   $  (0.57)
                             Discontinued operations          --          --       (0.58)
                                                        ---------   ---------   ---------
                                                        $   0.08   $   (0.23)   $  (1.15)
                                                        =========   =========   =========

Weighted average number of common shares outstanding:
                              Basic                       19,633      18,831       3,952
                                                        =========   =========   =========
                              Diluted                     28,805      18,831       3,952
                                                        =========   =========   =========

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

                                           F-5




<PAGE>
<TABLE>

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

                                               PREFERRED STOCK             COMMON STOCK        CAPITAL IN
                                           ------------------------  ------------------------   EXCESS OF   ACCUMULATED
                                             SHARES       AMOUNT       SHARES       AMOUNT      PAR VALUE    (DEFICIT)      TOTAL
                                           -----------  -----------  -----------  -----------  -----------  -----------  -----------
<S>                                        <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

Effect of Consolidation of AirComp                                                                    955                       955

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

Net Income                                          -            -            -            -            -        2,927        2,927
(Restated)
                                           -----------  -----------  -----------  -----------  -----------  -----------  -----------
Balances, December 31, 2003                3,500,000   $    4,171   19,633,340   $     2,945  $     7,842   $   (6,246)  $    4,541
(Restated)                                 ===========  ===========  ===========  ===========  ===========  ===========  ===========

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

                                                     F-6
</TABLE>



<PAGE>
<TABLE>
<CAPTION>
ALLIS-CHALMERS CORPORATION.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                                                             YEARS ENDED DECEMBER 31,
                                                          2003        2002        2001
                                                       ---------   ---------   ---------
                                                       (Restated)
<S>                                                    <C>         <C>         <C>
Cash flows from operating activities:
Net income / (loss)                                    $  2,927    $ (3,969)   $ (4,577)
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Depreciation expense                                      2,052       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)         --          --
(Gain) on sale of interest in AirComp                    (2,433)         --          --
Minority interest in income of subsidiaries                 343         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) in 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                                       1,293        (788)        463
Discontinued operations
     Loss on sale of HDS operations                          --          --       2,013
     Operating cash provided                                 --          --         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)
Payments 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 (used) 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:
Beginning of year                                           146         152           4
                                                       ---------   ---------   ---------
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.

                                       F-7
</TABLE>



<PAGE>
                           ALLIS-CHALMERS CORPORATION

                     NOTES TO FINANCIAL STATEMENTS
                               (RESTATED)
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

PLEASE NOTE THAT THESE FINANCIAL STATEMENTS AND THE NOTES THERETO DO NOT REFLECT
EVENTS OCCURRING AFTER APRIL 14, 2004. FOR A DESCRIPTION OF THESE EVENTS, PLEASE
READ OUR EXCHANGE ACT REPORTS FILED SINCE THE DATE OF THE ORIGINAL FILING.

EXPLANATORY NOTE

This Amendment No. 2 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2003 (the "Original Filing"), includes restatements related
to our unaudited consolidated financial statements for the period ended December
31, 2003. The restatement is discussed in Note 2.

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 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 segment 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 the subsidiary Mountain Air, the Company 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 combined value of
approximately $16.6 million to AirComp. The assets contributed by Mountain Air
were recorded at Mountain Air's historical cost of $6.3 million, and the assets
contributed by M-I was recorded at a fair market value of $10.3 million. The
Company owns 55% and M-I owns 45% of AirComp. Because the Company controls
AirComp, the Company has consolidated the joint venture's financial position and
operations into those of the Company.

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.

                                       F-8




<PAGE>

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
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 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
provides rental equipment and drilling services to its customers at per day and
per job contractual rates and recognizes the drilling related revenue as the
work progresses and when collectibility 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 its services to oil and natural gas drilling companies. The
Company performs continuing credit evaluations of its 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 these 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. Maintenance and
repairs expense was $568,996, $631,939, and $126,436 for the years ended
December 31, 2003, 2002 and 2001, respectively. 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.

                                       F-9




<PAGE>

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 $2,052,000
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.

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 of
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.

In 2001, goodwill associated with subsidiaries 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 its goodwill. Amortization ceased after 2001 in accordance with SFAS
No. 142.

AIRCOMP AND SALE OF INTEREST IN VENTURE

The Company has adopted SEC Staff Accounting Bulletin (SAB) No.51, Accounting
for Sales of Stock by a Subsidiary, to account for its investment in AirComp.
AirComp operates in a manner similar to a joint venture but has been accounted
for and consolidated as a subsidiary under SFAS No. 141, BUSINESS COMBINATIONS.
Pursuant to SAB No. 51, the Company has recorded its own contribution of assets
and liabilities at its historical cost basis. Since liabilities exceeded assets,
the Company's basis in AirComp was a negative amount. The Company has accounted
for the assets contributed from M-I at a fair market value as determined by an
outside appraiser. The Company gave M-I a 45% interest in AirComp in exchange
for the assets contributed. As a result of the formation of the venture and its
retention of 55% interest in the venture, the Company realized an immediate gain
to the extent of its negative basis and its 55% interest in the combined assets
and liabilities of the venture. In accordance with SAB No. 51, the Company has
recorded its negative basis investment in AirComp as an addition to equity and
its share of the combined assets and liabilities realized from M-I assets as
non-operating income.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets, which include property, plant and equipment and other
intangible assets, 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.

CONCENTRATION OF CREDIT AND CUSTOMER RISK

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.

                                       F-10




<PAGE>

The Company sells its services to major and independent domestic and
international oil and gas companies. See Note 18 for further information on
major customers. The Company performs ongoing credit valuations of its customers
and provides allowance for probable credit losses where necessary.

Two customers comprised 25% of the Company's domestic revenues for the year
ended December 31, 2003 as compared to approximately 21% of the Company's
domestic revenues for the year ended December 31, 2002.

Customer                                2003     % of total  2002     % of total
                                        Revenue  revenue     Revenue  revenue
--------------------------------------- -------  ----------  -------  ----------
El Paso Production Oil and Gas           $4,529    13.8       $1,831    10.2
--------------------------------------- -------  ----------  -------  ----------
Burlington Reserve Oil & Gas Co., L.P    $3,646    11.1       $1,828    11.1
--------------------------------------- -------  ----------  -------  ----------

One customer comprised 100% of the Company's international revenues for the
years ended December 31, 2003 and 2002, respectively.

Customer                                2003     % of total  2002     % of total
                                        Revenue  revenue     Revenue  revenue
--------------------------------------- -------  ----------  -------  ----------
Materiales Y Equipo Petroleos            $3,329    10.1       $2,699    15.0
--------------------------------------- -------  ----------  -------  ----------

Two customers comprised 21% of the Company's domestic revenues for the year
ended December 31, 2002 as compared to approximately 79% of the Company's
domestic revenues for the year ended December 31, 2001.

Customer                                2002     % of total  2001     % of total
                                        Revenue  revenue     Revenue  revenue
--------------------------------------- -------  ----------  -------  ----------
El Paso Production Oil and Gas           $1,831    10.2       $  -        -
--------------------------------------- -------  ----------  -------  ----------
Burlington Reserve Oil & Gas Co., L.P    $1,828    11.1       $3,311    64.7%
--------------------------------------- -------  ----------  -------  ----------
Devon Energy Production Company              --     --        $  730    14.2%
--------------------------------------- -------  ----------  -------  ----------

One customer comprised 100% of the Company's international revenues for the year
ended December 31, 2002 and we had no international sales year ended December
31, 2001.

Customer                                2002     % of total  2001     % of total
                                        Revenue  revenue     Revenue  revenue
--------------------------------------- -------  ----------  -------  ----------
Materiales Y Equipo Petroleos            $2,699    15.0       $  -        -
--------------------------------------- -------  ----------  -------  ----------

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

SFAS 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.

                                       F-11




<PAGE>

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.

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
                                           --------      --------       --------
                                           (Restated)

Net income/ (loss):        As reported     $  2,271      $(3,969)       $(4,577)
                           Pro forma           (117)      (3,969)        (4,577)
                                           ========      ========       ========

Net (loss) per share:
        Basic              As reported     $  0.12       $ (0.21)       $ (1.16)
                           Pro forma         (0.01)        (0.21)         (1.16)
                                           ========      ========       ========

         Diluted           As reported     $  0.08       $ (0.21)       $ (1.16)
                           Pro forma         (0.01)        (0.21)         (1.16)
                                           ========      ========       ========

There were options granted in 2003 and 2001. See Note 12 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%          --        5.0%
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 18 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 4 for further
disclosure in accordance with SFAS No. 132.

                                      F-12




<PAGE>

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.

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 is computed on the basis of the
weighted average number of shares of common stock outstanding during the period.
Preferred dividends are deducted from net income (loss) and have been considered
in the calculation of income available to common stockholders in computing basic
earnings per share. 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 preferred stock, stock options, etc.) as if they had
been converted. 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.

The components of basic and diluted earnings per share are as follows:

<TABLE>
Year Ended December 31,2003,                                             2003
                                                                      (Restated)
                                                             (In thousands, except earnings
                                                                      per share)

<S>                                                                      <C>
Net income available for common stockholders (A)                       $  2,271

Weighted average outstanding shares of common stock (B)                  19,633

Dilutive effect of assumed conversion of preferred shares
and employee stock options and awards                                     9,172
                                                                       --------
Common stock and common stock equivalents (C)                            28,805

Earnings per share:
Basic (A/B)                                                            $   0.12
                                                                       =========

Diluted (A/C)                                                          $   0.08
                                                                       =========
</TABLE>

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' and Strata and has obtained waivers for these covenant
defaults from its lender.

NOTE 2 - RESTATEMENT

In connection with the formation of AirComp in 2003, the Company and M-I
contributed assets in exchange for a 55% interest and 45% interest,
respectively, in AirComp. We originally accounted for the formation of AirComp
as a joint venture, but in February 2005, determined that the transaction should
have been accounted for using purchase accounting pursuant to SFAS No. 141,
BUSINESS COMBINATIONS and accounting for the sale of an interest in a subsidiary
in accordance with SAB No. 51. Consequently, we have restated our financial
statements for the year ended December 31, 2003 to reflect the following
adjustments:

                                      F-13

<PAGE>

INCREASE IN BOOK VALUE OF FIXED ASSETS. Under joint venture accounting, we
originally recorded the value of the assets contributed by M-I to AirComp at
M-I's historical cost of $6,932,000. Under purchase accounting, we increased the
recorded value of the assets contributed by M-I by approximately $3,337,000 to
$10,269,000 to reflect their fair market value as determined by a third party
appraisal. In addition, under joint venture accounting, we established negative
goodwill which reduced fixed assets in the amount of $1,550,000. Under purchase
accounting, we increased fixed assets by $1,550,000 to reverse the negative
goodwill previously recorded. Therefore, fixed assets have been increased by a
total of $4,887,000.

INCREASE IN MINORITY INTEREST AND PAID IN CAPITAL. Under purchase accounting,
minority interest and paid in capital were increased by $1,499,000 and $955,000,
respectively.

RECOGNITION OF NON-OPERATING GAIN. Under joint venture accounting, no gain or
loss was recognized in connection with the formation of AirComp. Under purchase
accounting, we recorded a $2,433,000 non-operating gain in the third quarter of
2003.

REDUCTION IN NET INCOME. As a result of the increase in fixed assets, during the
year ended December 31, 2003 depreciation expense increased by $98,000 and
minority interest expense decreased by $44,000, resulting in reduction in net
income attributable to common stockholders of $54,000. As a result of recording
the above non-operating gain and recording the reduction in income, net income
attributed to common stockholders increased by $2,379,000.

A restated consolidated balance sheet at December 31, 2003, a restated
consolidated of operations and a restated consolidated statement of cash flows
for the year ended December 31, 2003, reflecting the above adjustments, is
presented below. The amounts are in thousands, except for share amounts:

                                      F-14




<PAGE>
<TABLE>
                                                                 At December 31, 2003
                                                                 --------------------
                                                           As          Restatement
                                                        Reported       Adjustments    As Restated
                                                        --------       -----------    -----------
ASSETS

<S>                                                     <C>              <C>          <C>
Cash and cash equivalents                               $  1,299                      $  1,299
Trade receivables, net of allowance for
doubtful accounts                                          8,823                         8,823
Lease Receivable, current                                    180                           180
Prepaid expenses and other                                   887                           887
                                                        ---------                     ---------
Total current assets                                      11,189                        11,189

Property and equipment, net of accumulated
depreciation                                              26,339           4,789        31,128
Goodwill                                                   7,661                         7,661
Other intangible assets, net of accumulated
amortization                                               2,290                         2,290
Debt issuance costs, net of accumulated
amortization                                                 567                           567
Lease receivable, less current portion                       787                           787
Other Assets                                                  40                            40
                                                        ---------        --------     ---------
Total Assets                                            $ 48,873         $ 4,789      $ 53,662
                                                        =========        ========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current maturities of long-term debt                     $ 3,992                      $  3,992
Trade accounts payable                                     3,133                         3,133

Accrued salaries, benefits and payroll taxes                 591                           591
Accrued interest                                             152                           152
Accrued expenses                                           1,761                         1,761
Accounts payable, related parties                            787                           787
                                                        ---------                     ---------
Total current liabilities                                 10,416                        10,416

Accrued postretirement benefit obligations                   545                           545
Long-term debt, net of current maturities                 28,241                        28,241
Other long-term liabilities                                  270                           270
Redeemable warrants                                        1,500                         1,500
Redeemable convertible preferred stock
including accrued dividends                                4,171                         4,171
                                                        ---------                     ---------
Total liabilities                                         45,143                        45,143

Commitments and Contingencies

Minority interests                                         2,523           1,455         3,978

COMMON STOCKHOLDERS' EQUITY

Common stock                                               2,945                        2,945
Capital in excess of par value                             6,887             955        7,842
Accumulated (deficit)                                     (8,625)          2,379       (6,246)
                                                        ---------        --------     ---------

Total stockholders' equity                                 1,207           3,334         4,541
                                                        ---------        --------     ---------

Total liabilities and stockholders' equity              $ 48,873         $ 4,789      $ 53,662
                                                        =========        ========     =========
</TABLE>

                                                F-15




<PAGE>
<TABLE>
                                                                     Year Ended December 31, 2003
                                                                     ----------------------------
                                                                   As         Restatement        As
                                                                Reported      Adjustments     Restated
                                                                --------      -----------     --------
<S>                                                             <C>            <C>            <C>
Revenues                                                        $ 32,724                      $ 32,724
Cost of revenues                                                  23,931             98         24,029
                                                                ---------      ---------      ---------

Gross margin                                                       8,793            (98)         8,695

General and administrative expense                                 6,169             --          6,169
                                                                ---------      ---------      ---------

Income/ (loss) from operations                                     2,624            (98)         2,526

Other income (expense):
Interest income                                                        3             --              3
Interest expense                                                  (2,467)            --         (2,467)
Minority interests in income of subsidiaries                        (387)            44           (343)
Settlement on lawsuit                                              1,034             --          1,034
Gain on sale of stock in a subsidiary                                 --          2,433          2,433
Other                                                                111             --            111
                                                                ---------      ---------      ---------

Total other income (expense)                                      (1,706)         2,477            771
                                                                ---------      ---------      ---------

Net income/ (loss) before income taxes                               918          2,379          3,297

Provision for foreign income tax                                    (370)            --           (370)
                                                                ---------      ---------      ---------

Net income/ (loss)                                                   548          2,379          2,927

Preferred stock dividend                                            (656)            --           (656)
                                                                ---------      ---------      ---------

Net income attributed to common stockholders                    $   (108)      $  2,379       $  2,271
                                                                =========      ========       =========

Income/ (loss) per common share - basic                         $  (0.01)                     $   0.12
                                                                =========                     =========

Income/ (loss) per common share - diluted                       $  (0.01)                    $   0.08
                                                                =========                     =========

Weighted average number of common shares outstanding:
        Basic                                                      19,633                          19,633
                                                                =========                      =========
        Diluted                                                    19,633                          28,805
                                                                =========                      =========
</TABLE>

                                                F-16




<PAGE>
<TABLE>
                                                                   Year Ended December 31, 2003
                                                                   ----------------------------
                                                                 As       Restatement
                                                              Reported     Adjustment     As Restated
                                                              --------     ----------     -----------
<S>                                                          <C>            <C>            <C>
Cash flows from operating activities:
Net income/ (loss)                                           $    548       $  2,379      $   2,927
Adjustments to reconcile net income/ (loss) to net cash
provided by operating activities:
Depreciation expense                                            1,954             98          2,052
Amortization expense                                              884             --            884
Issuance of stock options for services                             --             --             --
Amortization of discount on debt                                  516             --            516
(Gain) / loss on change PBO liability                            (125)            --           (125)
(Gain) / loss on settlement of lawsuit                         (1,034)            --         (1,034)
(Gain) / loss on sale of interest in AirComp                       --         (2,433)        (2,433)
Minority interest in income of subsidiaries                       387            (44)           343
Loss on sale of property                                           82             --             82
Changes in working capital:
Decrease (increase) in accounts receivable                     (4,414)            --         (4,414)
Decrease (increase) in due from related party                      --             --             --
Decrease (increase) in other current assets                    (1,260)            --         (1,260)
Decrease (increase) in other assets                                 1             --              1
Decrease (increase) in lease deposit                              525             --            525
Increase (decrease) in accounts payable                         2,251             --          2,251
Increase (decrease) in accrued interest                          (126)            --           (126)
Increase (decrease) in accrued expenses                           397             --            397
Increase (decrease) in other long-term liabilities                 --             --             --
Increase (decrease) in accrued employee benefits and
payroll taxes                                                   1,293             --          1,293
                                                             ---------     ---------       ---------

Net cash provided by operating activities                       1,879             --          1,879
                                                             ---------     ---------       ---------

Cash flows from investing activities:
Recapitalization, net of cash received                             --                          --
Business acquisition costs                                         --                          --
Acquisition of MADSCO assets, net of cash acquired                 --                          --
Acquisition of Jens', net of cash acquired                         --                          --
Acquisition of Strata, net of cash acquired                        --                          --
Purchase of equipment                                          (5,354)                     (5,354)
Proceeds from sale-leaseback of equipment, net of lease
deposit                                                            --                          --
Proceeds from sale of equipment                                   843                         843
                                                             ---------                   ---------

Net cash (used) by investing activities                        (4,511)            --       (4,511)
                                                             ---------     ---------     ---------

Cash flows from financing activities:
Proceeds from issuance of long-term debt                       14,127                      14,127
Payments on long-term debt                                    (10,826)                    (10,826)
Payments on related party debt                                   (246)                       (246)
Proceeds from issuance of common stock, net                        --                          --
Borrowing on lines of credit                                   30,537                      30,537
Pay,ents on lines of credit                                   (29,399)                    (29,399)
Debt issuance costs                                              (408)                       (408)
                                                             ---------                   ---------

Net cash provided (used) by financing activities                3,785                       3,785
                                                             ---------                    ---------

Net increase (decrease) in cash and cash equivalents            1,153                       1,153

Cash and cash equivalents:

Beginning of the year                                             146                         146
                                                             ---------                   ---------

End of the year                                              $  1,299                    $  1,299
                                                             =========                   =========

Supplemental information:

Interest paid                                                $  2,341             --     $  2,341
                                                             =========    ==========     =========
</TABLE>

                                      F-17




<PAGE>

In addition, 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 8 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 significant fourth quarter
adjustment on the individual quarterly financial statements is as follows:

<TABLE>
<CAPTION>
                                        Three Months     Three Months     Three Months
                                        Ended            Ended            Ended
                                        March 31, 2003   June 30, 2003    September 30, 2003
                                        --------------   -------------    ------------------
<S>                                     <C>              <C>              <C>
Net income (loss) attributed to
    common stockholders
Previously reported                     $   (183)        $  (330)         $  1,136
Adjustment - gain on sale of stock
in a subsidiary                               --              --             2,433
Adjustment - depreciation expense             --              --               (49)
Adjustment - minority interest expense        --              --                22
Adjustment - foreign tax expense            (158)            (92)              (93)
Restated                                    (341)           (422)            3,449

Net income (loss) per share, basic
    and diluted
Previously reported                     $  (0.01)        $ (0.02)         $   0.06
Total adjustments                          (0.01)          (0.01)             0.12
Restated                                   (0.02)          (0.03)             0.17
</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.

NOTE 3 - 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 4 - 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.

                                      F-18




<PAGE>

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.

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 5 - 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 as a business combination using the purchase method of
accounting. Goodwill of $3,661,000 and other identifiable intangible assets of
$800,000 were recorded on consolidation.

                                      F-19




<PAGE>

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 and other identifiable intangible assets of $1,009,000 were recorded on
consolidation. 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
(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 consolidation of the acquisitions.

In July 2003, through the subsidiary Mountain Air, the Company 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").

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 assets which
the Company recorded at fair market value of $10.3 million in exchange for a 45%
ownership in AirComp. The assets contributed by Mountain Air were recorded at
historical cost basis and the assets contributed by M-I were contributed at fair
market value. As a result of the Company's controlling interest and operating
control, the Company has consolidated AirComp in its financial statements.
AirComp is in the compressed air drilling services industry

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                                           $ 34,446          $ 19,142

Operating income (loss)                            $  3,008          $   (401)

Net income ( loss)                                 $    411          $ (4,431)

Net income (loss) per common share

       Basic                                       $   0.02          $  (0.23)
       Diluted                                     $   0.01          $  (0.23)

                                      F-20




<PAGE>

NOTE 6 - 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 segment related to precision machining of rotating equipment in 2001.
All assets involved in the discontinued operation were disposed of prior to
December 31, 2001.

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:

                       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)
                                                                        ========

                                      F-21




<PAGE>

NOTE 7 - PROPERTY AND OTHER INTANGIBLES ASSETS

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

<TABLE>
<CAPTION>
                                                         Depreciation
                                                            Period           2003         2002
                                                                             ----         ----
                                                                          (Restated)
<S>                                                       <C>            <C>          <C>
Land                                                                     $      27    $       25
Building and improvements                                 15 - 20 years        729           706
Machinery and equipment                                     3 -15 years     28,860        14,674
Tools, furniture, fixtures and leasehold improvements       3 - 7 years      4,098         4,059
                                                                         ----------   -----------

Total                                                                    $  33,714    $   19,464

Less: accumulated  depreciation                                             (2,586)       (2,340)
                                                                         ----------   -----------

Property and equipment, net                                              $  31,128    $   17,124
                                                                         ==========   ===========

Intangible assets are as follows at December 31:

                                                        Amortization
                                                           Period           2003          2002
                                                                            ----          ----

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)
                                                                         ----------   -----------

Intangibles assets, net                                                  $   2,290    $    2,818
                                                                         ==========   ===========


                                          2003                                2002
                           Gross   Accumulated   Current year   Gross   Accumulated   Current year
                           Value   amortization  amortization   value   amortization  amortization
                           ------  ------------  ------------   ------  ------------  ------------

Intellectual property     $1,009   $        183  $         46   $1,009  $        137  $          46

Non-compete agreements     1,535            731           347    1,535           384            324

Other intangible assets    1,000            340           135    1,000           205            132
                          ------   ------------  ------------   ------  ------------  -------------
Total                     $3,544   $      1,254  $        528   $3,544  $        726  $         502
                          ======   ============  ============   ======  ============  =============

Amortization of intangible assets at December 31, is as follows:


                                             INTANGIBLE AMORTIZATION BY PERIOD
                                             ---------------------------------
                                                     (in thousands)
                                                  Year ended December 31,
                                                                                     2008 and
                                         2004      2005        2006        2007     thereafter
                                     ----------  ----------  ----------  ----------  ----------
Intangible Assets Amortization

Intellectual property                $      50   $      50   $      50   $      50   $     625
Non-compete agreements                     286         250         247          21          --
Other intangible assets                    135         135          99          65         226
                                     ----------  ----------  ----------  ----------  ----------

Total Intangible Amortization        $     471   $     435   $     396   $     136   $     851
                                     ==========  ==========  ==========  ==========  ==========

                                      F-22
</TABLE>




<PAGE>

NOTE 8 - 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.

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

                                                            2003          2002
                                                          ---------    ---------
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.

                                      F-23





<PAGE>

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

<TABLE>
<CAPTION>
                                                             2003       2002       2001
                                                           ---------  ---------  -------

<S>                                                        <C>        <C>        <C>
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   $   --
                                                           =========  =========  =======
</TABLE>

The Plan of Reorganization established the A-C Reorganization Trust to settle
claims and to make distributions to creditors and certain stockholders. 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.

                                      F-24





<PAGE>

NOTE 9 - DEBT

Debt is as follows at:

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                                    (in thousands)
                                                                    --------------
                                                                    2003      2002
                                                                  --------  --------
<S>                                                               <C>       <C>
Debt of Mountain Air
Line of Credit with Wells Fargo                                   $    --   $   330
Note payable to Wells Fargo - Term Note                                --     2,392
Note payable to Wells Fargo - Subordinated Debt, net                   --     1,783
Note payable to Wells Fargo - Equipment Term Note                      --       160
Note payable to Wells Fargo - Equipment leasing                       247        --
Note payable to Seller of Mountain Air Drilling Service Company     1,511     2,200

Debt of Jens'
Line of Credit with Wells Fargo                                        26        67
Note payable to Wells Fargo - Term Note                             4,654     3,369
Note payable to Wells Fargo - Real Estate Note                        207       384
Subordinated Note payable to Seller of Jens'                        4,000     4,000
Note payable to Seller of Jens' for non-compete agreement             761     1,008
Note payable to Texas State Bank - Term Note                          354        --

Debt of Strata
Line of Credit with Wells Fargo                                     2,413     1,275
Note payable to Wells Fargo - Term Note                                --     1,041
Vendor financing                                                    2,383       455
Note payable to former stockholder                                     --        12

Debt of Allis-Chalmers
Notes payable to certain former Directors                             386       370
Note payable to Wells Fargo - Subordinated debt                     2,675     2,375

Debt of AirComp
Line of Credit with Wells Fargo                                       369        --
Note payable to Wells Fargo - Term Note                             7,429        --
Subordinated Note Payable to M-I L L C                              4,818        --
                                                                  --------  --------

Total Debt                                                        $32,233   $21,221

Less: short-term debt and current maturities                        3,992    13,890
                                                                  -------   -------
Long-term debt obligations                                        $28,241   $ 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                                    $      3,992
December 31, 2005                                           9,465
December 31, 2006                                           7,973
December 31, 2007                                           5,950
December 31, 2008 and thereafter                            4,853
                                                     -------------

Total                                                $     32,233
                                                     =============

                                      F-25




<PAGE>

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 rate 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 16 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 January 31, 2005. The balance at December 31, 2003 was $207,000.

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 at December 31, 2003. 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 accounts payable, related
parties. 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 5), 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.
Payment on 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.

                                      F-26




<PAGE>

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 at December 31, 2003. 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
Redeemable Warrants below and Note 13). The discount is amortizable over three
years beginning February 6, 2002 as additional interest expense of which
$300,000 was recognized for the year ended December 31, 2003. The debt is
recorded at $2,675,000 at December 31, 2003, 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. 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 were
recorded at $386,000, including accrued interest.

REDEEMABLE WARRANTS - 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.

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.

                                      F-27




<PAGE>

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 10 - 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 11 - STOCKHOLDERS' 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 stockholders' 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 5), 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 stockholders' equity.

On February 6, 2002, in connection with the acquisition of 95% of the
outstanding stock of Strata (Note 5), 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
stockholders' 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 stockholders' equity.

                                      F-28




<PAGE>

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 but unpaid
dividends.

The Preferred Stock, including accrued dividends, 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.

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 $0.75 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.

In connection with the formation of AirComp in July 2003, the Company recorded
$955,000, as the effect of the consolidation of the AirComp venture in which the
Company realized a benefit by elimination of its negative investment in the cost
basis of the venture. The business combination was accounted for as a purchase.
As a result, the Company recognized the benefit of $955,000 as an increase in
its stockholders equity rather than as period income.

NOTE 12 - STOCK OPTIONS

In 2000, in conjunction with the promissory notes issued to certain current and
former Directors (Note 9), 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 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.
As further disclosed in Note 1, the Company accounts for its stock-based
compensation using APB No. 25. The Company has 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
for these options. 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          0.50
Canceled                            -              -                -                -                 -              -
Exercised                           -              -                -                -                 -              -
                      ---------------- -------------- --------------- ---------------- ----------------- --------------

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

                                      F-29




<PAGE>

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

<TABLE>
<CAPTION>
       Fair Value                              Weighted Average Remaining
       Exercise Price    Shares Under Option       Contractual Life         Weighted Average
       ----------------  --------------------  --------------------------  ------------------
<S>    <C>                           <C>             <C>                            <C>
       $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
       =======                    =========        ============                   ======
</TABLE>

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

NOTE 13 - 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 9, 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 stockholders' 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 5), the Company issued a warrant for the
purchase of 437,500 shares of the Company's common stock at an exercise price of
$0.15 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 stockholders' 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 dividends, was converted into 8,590,448
shares of common stock on April 2, 2004 (See, "Recent Developments")(unaudited).

NOTE 14 - 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.

                                      F-30




<PAGE>

NOTE 15 - 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 stockholder of the Company advances totaling $70,000, and deferred
compensation of $42,000.

During the years ended December 31, 2003 and 2002, the Company's Chief Executive
Officer, Munawar H. Hidayatallah, and his wife guaranteed substantially all of
the debt obligations of the Company and its subsidiaries. The Company agreed to
pay the Chief Executive Officer an 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 9).

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 9, 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 stockholders 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 16 - 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.

                                      F-31




<PAGE>

NOTE 17 - GAIN ON SALE OF INTEREST IN A SUBSIDIARY

In July 2003, through the subsidiary Mountain Air, the Company entered into a
limited liability company operating agreement with a division of M-I to form a
Texas limited liability company named AirComp. AirComp is being operated in a
manner similar to a joint-venture, however, the Company controls daily operating
decisions and has a majority interest in the venture. Both companies contributed
assets with a combined value of $16.6 million to AirComp. The contributed assets
from Mountain Air were contributed at a historical book value of approximately
$6,252,000 and the assets contributed by M-I were contributed at a fair market
value of approximately $10,269,000. The value of $10,269,000 was arrived at by a
third party evaluation of the business enterprise using the income approach
based on the present value of the cash flows expected to be grated in the future
by M-I assets being contributed immediately prior to the formation of AirComp.
Prior to the formation of AirComp, the Company owned 100% of Mountain Air and
after the formation of AirComp, the Company owns 55% and M-I owns 45% of the
business combination. The business combination was accounted for as a purchase
and recorded a one-time non-operating gain on the sale of the 45% interest in
the subsidiary of approximately $2,433,000. The gain was calculated after
recording the assets contributed by M-I of approximately $10,269,000 less the
subordinated note issued to M-I in the amount of approximately 4,818,000,
recording minority interest of approximately $2,049,000 and an increase in
equity of $955,000 in accordance with Staff Accounting Bulletin No. 51 ("SAB
51"). The Company has not recorded any deferred income taxes because the
increase in assets and gain is a permanent timing difference. The Company has
adopted a policy that any gain or loss in the future incurred on the sale in the
stock or an interest of a subsidiary would be recognized as such in the income
statement.

NOTE 18 - 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:
                                                         Year Ended December 31,
                                                           2003          2002
                                                         ---------     ---------
                                                         (Restated) (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      $ 17,990
                                                         =========     =========
OPERATING INCOME (LOSS):
Casing services                                          $  3,628      $  2,495
Directional drilling services                               1,103          (576)
Compressed air drilling services                               17          (945)
General corporate                                          (2,222)       (2,144)
                                                         ---------     ---------

Total income/(loss) from operations                      $  2,526      $ (1,170)
                                                         =========     =========
DEPRECIATION AND AMORTIZATION EXPENSE:
Casing services                                          $  1,413      $  1,265
Directional drilling services                                 275           295
Compressed air drilling services                            1,139           955
General corporate                                             109            65
                                                         ---------     ---------

Total depreciation and amortization expense              $  2,936      $  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
                                                         =========     =========

                                      F-32




<PAGE>

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                           22,735         9,138
General corporate                                           1,207         1,071
                                                         ---------     ---------
Total assets                                             $ 53,662      $ 34,778
                                                         =========     =========
REVENUES
United States                                            $ 29,395      $ 15,291
Mexico                                                      3,329         2,699
                                                         ---------     ---------
TOTAL                                                    $ 32,724      $ 17,990
                                                         =========     =========

                                      F-33




<PAGE>

NOTE 19 - SUPPLEMENTAL CASH FLOWS INFORMATION

<TABLE>
<CAPTION>
                                                                December    December    December
                                                                31, 2003    31, 2002    31, 2001
                                                                ---------   ---------   ---------
                                                                (Restated)
                                                                       (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                                             $     --    $     --    $ (9,622)
                                                                =========   =========   =========
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 14)                          $     --    $  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    $     --    $     --

Non-cash investing and financing transactions in connection with the formation
  of AirComp:

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                                          $ 10,268    $     --    $     --
Increase in minority interest                                   $ (2,063)   $     --    $     --
(Gain) on sale of stock in a subsidiary                         $ (2,433)   $     --    $     --
Difference of Company's investment cost basis in AirComp
  and their share of underlying equity of net assets
  of AirComp                                                    $   (955)   $     --    $     --
                                                                ---------   ---------   ---------
Net cash paid in connection with the joint venture              $     --    $     --    $     --
                                                                =========   =========   =========
</TABLE>

                                      F-34




<PAGE>

NOTE 20 - QUARTERLY RESULTS (UNAUDITED)

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

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

Operating income (loss)               1,023         910         475         118

Net income (loss)                        53        (335)      2,974         235
                                   ---------   ---------   ---------   ---------
Preferred stock dividend               (394)        (87)        (88)        (87)
                                   ---------   ---------   ---------   ---------
Net income (loss) attributed to
common shares                      $   (341)   $   (422)   $  2,886    $    148
                                   =========   =========   =========   =========
Income (loss) per common share
  Basic:                           $  (0.02)   $  (0.02)   $   0.15    $   0.01
                                   =========   =========   =========   =========
Income (loss) per common share
  Diluted:                         $  (0.02)   $  (0.02)   $   0.11    $   0.01
                                   =========   =========   =========   =========

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 20 - LEGAL MATTERS

The Company is named from time to time in legal proceedings related to the
Company's activities prior to its bankruptcy in 1988; however, the Company
believes that it was discharged from liability for all such claims in the
bankruptcy and believes the likelihood of a material loss relating to any such
legal proceeding is remote.

The Company is involved in various other legal proceedings in the ordinary
course of business. The legal proceedings are at different stages; however, the
Company believes that the likelihood of material loss relating to any such legal
proceeding is remote.

                                      F-35





<PAGE>

NOTE 21 - SUBSEQUENT EVENTS


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 dividends,
         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.

                                      F-36




<PAGE>

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, and to ensure that such
information is accumulated and communicated to our management, including our
chief executive officer and chief accounting officer, to allow timely decisions
regarding required disclosure. 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.
                                     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 xv 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 51 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 51-- of this Annual
Report are filed as part of this Form 10K.

(d) Financial Statement Schedules

None.

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 March 7, 2005.





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







<PAGE>


                                  EXHIBIT INDEX

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. (i)