Allis Chalmers Energy 8-K/A Financial Statements and Exhibits

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): July 11, 2005

ALLIS-CHALMERS ENERGY INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE	1-2199
(STATE OR OTHER JURISDICTION	(COMMISSION FILE NUMBER)
OF INCORPORATION)

39-0126090

(I.R.S. EMPLOYER

IDENTIFICATION NO.)

5075 WESTHEIMER, SUITE 890

HOUSTON, TEXAS 77056

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: 713-369-0550

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (SEE General Instruction A.2. below):

[  ] Written Communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ] Soliciting material pursuant to Rule 14a-12 under the exchange ct (17 CFR 240.14a-12)

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Section 9. Financial Statements and Exhibits

Item 9.01 - Financial Statements and Exhibits

(a) Financial Statements of business acquired.

	(1) Financial Statements of W. T. Enterprises, Inc.:
	Independent Auditors' Report	F-2
	Balance Sheets as of March 31, 2005, December 31, 2004 and 2003	F-3
	Statements of Income for the Three Months Ended March 31, 2005, and Years Ended December 31, 2004 and 2003	F-4
	Statements of Stockholders’ Equity for the Three Months Ended March 31, 2005, and Years Ended December 31, 2004 and 2003	F-5
	Statements of Cash Flows for the Three Months Ended March 31, 2005, and Years Ended December 31, 2004 and 2003	F-6
	Notes to Financial Statements	F-7
	Balance Sheet as of June 30, 2005	F-11
	Statements of Income and Retained Earnings for the Six Months ended June 30, 2005 and June 30, 2004	F-12
	Schedule of Cost of Revenue and Operating Expenses for the Six Months ended June 30, 2005 and June 30, 2004	F-13
	Statements of Cash Flows for the Six Months ended June 30, 2005 and June 30, 2004	F-14
(b) Pro Forma Financial Information.
	Unaudited Pro Forma Consolidated Condensed Financial Statements	F-15
	Unaudited Pro Forma Consolidated Condensed Statement of Financial Position as of June 30, 2005	F-17
	Unaudited Pro Forma Consolidated Condensed Statement of Operations for the Six Months Ended March 31, 2005	F-18
	Unaudited Pro Forma Consolidated Condensed Statement of Operations for the Year Ended December 31, 2004	F-19
	Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements	F-20

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

ALLIS-CHALMERS ENERGY, INC.

	ALLIS-CHALMERS ENERGY, INC.
Date: September 2, 2005	By:	/s/ Victor M. Perez
		Victor M. Perez Chief Financial Officer

INDEX TO FINANCIAL STATEMENTS

W. T. ENTERPRISES, INC.
Independent Auditors’ Report	F-2
Balance Sheets as of March 31, 2005, December 31, 2004 and 2003	F-3
Statements of Income for the Three Months Ended March 31, 2005, and Years Ended December 31, 2004 and 2003	F-4
Statements of Stockholders’ Equity for the Three Months Ended March 31, 2005, and Years Ended December 31, 2004 and 2003	F-5
Statements of Cash Flows for the Three Months Ended March 31, 2005, and Years Ended December 31, 2004 and 2003	F-6
Notes to Financial Statements	F-7

Balance Sheet as of June 30, 2005	F-11
Statements of Income and Retained Earnings for the Six Months ended June 30, 2005 and June 30, 2004	F-12
Schedule of Cost of Revenue and Operating Expenses for the Six Months ended June 30, 2005 and June 30, 2004	F-13
Statements of Cash Flows for the Six Months ended June 30, 2005 and June 30, 2004	F-14
PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Consolidated Condensed Financial Statements	F-15
Unaudited Pro Forma Consolidated Condensed Statement of Financial Position as of June 30, 2005	F-17
Unaudited Pro Forma Consolidated Condensed Statement of Operations for the Six Months Ended March 31, 2005	F-18
Unaudited Pro Forma Consolidated Condensed Statement of Operations for the Year Ended December 31, 2004	F-19
Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements	F-20

F-1

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Stockholders

of W.T. Enterprises, Inc.

      We have audited the accompanying balance sheets of W.T. Enterprises, Inc. (a Texas Corporation) (the Company) as of March 31, 2005, and December 31, 2004 and 2003 and the related statements of income, stockholders’ equity, and cash flows for the three months ended March 31, 2005 and the years ended December 31, 2004 and 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

      We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.

      In our opinion the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of W.T. Enterprises, Inc. as of March 31, 2005 and December 31, 2004 and 2003, and the results of its operations and its cash flows for the three months ended March 31, 2005 and the years ended December 31, 2004 and 2003 in conformity with accounting principles generally accepted in the United States of America.

Accounting & Consulting Group, LLP

Carlsbad, New Mexico

June 10, 2005

F-2

W.T. ENTERPRISES, INC.

BALANCE SHEETS

March 31, 2005, December 31, 2004 and 2003

			March 31,			December 31,			December 31,
			2005			2004			2003
ASSETS
Current Assets:
	Cash and cash equivalents		$	123,093		$	49,695		$	39,821
	Accounts receivable			359,875			418,290			446,646
	Unbilled receivables			129,325			101,400			47,000
	Related party receivable (Note 2)			7,967			9,673			15,991
	Prepaid income taxes			—			—			3,507
	Prepaid expenses			10,497			11,593			11,697
		Total Current Assets		630,757			590,651			564,662
Property and Equipment:
	Transportation equipment			137,555			137,555			137,555
	Machinery and equipment			1,905,235			1,867,336			1,248,414
	Office furniture and equipment			7,131			7,131			7,131
	Accumulated depreciation			(748,646	)		(677,475	)		(428,031	)
		Total Property and Equipment		1,301,275			1,334,547			965,069
		Total Assets	$	1,932,032		$	1,925,198		$	1,529,731
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Current maturities of long-term debt (Note 4)		$	283,194		$	312,414		$	235,137
	Short-term notes payable (Note 3)			54,601			86,765			149,995
	Accounts payable			82,369			117,928			129,895
	Accrued expenses			131,188			62,726			63,514
	Deferred income taxes (Note 9)			68,644			72,204			33,425
		Total Current Liabilities		619,996			652,037			611,966
Long-Term Debt (Note 4)				89,959			153,675			279,349
Deferred income taxes (Note 9)				136,593			132,577			78,565
		Total Liabilities		846,548			938,289			969,880
Stockholders’ Equity:
	Common stock, par value $10 100 shares issued and outstanding			1,000			1,000			1,000
	Retained earnings			1,084,484			985,909			558,851
		Total stockholders’ equity		1,085,484			986,909			559,851
		Total liabilities and stockholders’ equity	$	1,932,032		$	1,925,198		$	1,529,731

The accompanying notes are an integral part of these financial statements.

F-3

W.T. ENTERPRISES, INC.

STATEMENTS OF INCOME

For the Three Months Ended March 31, 2005

and Years Ended December 31, 2004 and 2003

			March 31,		December 31,		December 31,
			2005		2004		2003
Revenue
	Service revenue		$	926,906	$	3,862,005	$	2,415,266
	Other income			—		—		2,800
		Total revenue		926,906		3,862,005		2,418,066
Expenses
	Service-related expenses			552,472		2,514,373		1,582,313
	Selling, general, and administrative expenses			150,499		514,211		459,186
	Depreciation and amortization			71,171		249,444		174,386
	Interest expense			8,656		44,344		27,604
		Total expenses		782,798		3,322,372		2,243,489
		Operating income		144,108		539,633		174,577
Other income
	Gain (loss) on sale of assets			—		—		6,723
	Interest income			93		585		905
Income before income taxes				144,201		540,218		182,205
Federal and state income taxes (Note 9)				45,626		113,160		37,121
Net income			$	98,575	$	427,058	$	145,084

The accompanying notes are an integral part of these financial statements.

F-4

W.T. ENTERPRISES, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2005 and

The Years Ended December 31, 2004 and 2003

	Common		Paid-in		Retained
	Stock		Capital		Earnings		Total
Balance, January 1, 2003	$	1,000	$	—	$	413,767	$	414,767
Net Income		—		—		145,084		145,084
Dividends paid		—		—		—		—
Balance, December 31, 2003		1,000		—		558,851		559,851
Net Income		—		—		427,058		427,058
Dividends paid		—		—		—		—
Balance, December 31, 2004		1,000		—		985,909		986,909
Net Income		—		—		98,575		98,575
Dividends paid		—		—		—		—
Balance, March 31, 2005	$	1,000	$	—	$	1,084,484	$	1,085,484

The accompanying notes are an integral part of these financial statements.

F-5

W.T. ENTERPRISES, INC.

STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2005 and

The Years Ended December 31, 2004 and 2003

			March 31,			December 31,			December 31,
			2005			2004			2003
Cash flows from operating activities:
Net income			$	98,575		$	427,058		$	145,084
Adjustments to reconcile net income to net cash provided (used) by operating activities:
	Depreciation and amortization			71,171			249,444			174,386
	Gain (loss) on sale of property, plant, and equipment			—			—			(6,723	)
	Deferred income taxes			457			92,791			37,121
Change in operating assets and liabilities:
	Accounts receivable			30,490			(26,044	)		(309,046	)
	Shareholder loans			1,707			6,318			5,695
	Prepaid expenses			1,096			104			(858	)
	Prepaid income tax			—			3,507			(3,507	)
	Accounts payable			(35,559	)		(11,967	)		81,718
	Accrued payroll and employee benefits			29,696			(14,467	)		31,379
	Income tax payable			38,764			13,679			(2,076	)
	Net Cash Provided (Used) by Operating Activities			236,397			740,423			153,173
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment				—			—			25,000
Capital expenditures on property, plant, and equipment				(37,899	)		(406,618	)		(220,385	)
	Net Cash Provided (Used) by Investing Activities			(37,899	)		(406,618	)		(195,385	)
Cash flows from financing activities:
Repayment of long-term debt				(92,936	)		(322,686	)		(190,748	)
Proceeds from issuance of long-term debt				—			160,000			155,105
Repayment of short-term debt				(32,164	)		(1,550,165	)		(479,550	)
Proceeds from issuance of short-term debt				—			1,388,920			561,260
	Net Cash Provided (Used) by Financing Activities			(125,100	)		(323,931	)		46,067
Net Increase (Decrease) in Cash and Cash Equivalents				73,398			9,874			3,855
Cash and Cash Equivalents at Beginning of Year				49,695			39,821			35,966
Cash and Cash Equivalents at End of Year			$	123,093		$	49,695		$	39,821
Supplemental Schedule of Noncash Investing and Financing Activities:
		Purchase of equipment financed with debt proceeds	$	—		$	212,303		$	378,396
	Cash paid for interest		$	8,954		$	44,045		$	27,022

The accompanying notes are an integral part of these financial statements.

F-6

W.T. ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

March 31, 2005, December 31, 2004 and 2003

Note 1: Summary of Significant Accounting Policies

     Nature of Operations. W.T. Enterprises, Inc. (the Company), is primarily engaged in the business of providing compressed air for the drilling of oil and gas wells in the state of Texas. The work is generally performed under fixed price per day contracts.

     Cash and Cash Equivalents. Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less. The Company places its temporary cash investments with a high credit quality financial institution. At times such deposits may be in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit.

     Trade Accounts Receivable. Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest. Trade accounts receivable are periodically evaluated for collectibility based on past credit history with customers and their current financial condition. Trade receivables are considered fully collectible and therefore no allowance for doubtful accounts has been provided.

     Unbilled Receivables. Unbilled receivables represent revenue earned in the current period but not billed to the customer until future dates, usually within one month.

     Property, plant and equipment. Property, plant and equipment are recorded at cost less depreciation and amortization. Depreciation is provided over the estimated useful life of each class of depreciable asset and is computed using the straight line method. Estimated useful lives for equipment and transportation equipment range from three to seven years. Betterments and large renewals which extend the life of the asset are capitalized whereas maintenance and repairs and small renewals are expensed as incurred.

     Revenue Recognition. Revenue is recognized in the financial statements in the period the services were provided.

     Advertising Costs. Advertising costs are expensed as incurred.

     Income Taxes. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. The Company files its income tax returns on the cash basis of accounting. The Company’s temporary differences relate primarily to accounts receivable, accounts payable and accrued expenses and property and equipment. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

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

F-7

W.T. ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 2: Related-Party Transactions

      A summary of amounts due from shareholders follows:

			December 31,
	March 31,
	2005		2004		2003
Note receivables from shareholders, due upon demand, bearing interest of 0%, unsecured	$	7,967	$	9,673	$	15,991

      The Company leases equipment and a storage facility from shareholders under informal month-to-month operating leases. Rental expense for these leases totaled $8,700, $34,800 and $6,000 for the three months ended March 31, 2005 and the years ended December 31, 2004 and 2003, respectively.

Note 3: Pledged Assets and Short-Term Notes Payable

      Short-term notes payable are collateralized by equipment and receivables and as of March 31, 2005 and December 31, 2004 and 2003 consisted of the following:

			December 31,
	March 31,
	2005		2004		2003
Note payable, FNB, $150,000 line of credit, 6.0 to 6.25% interest rate	$	—	$	—	$	103,850
Note payable, FNB, $53,485, 6.0 to 7.75% interest rate		—		—		24,299
Note payable, FNB, $53,485, 6.25 to 8.75% interest rate		—		—		21,846
Note payable, FNB, $46,145, 6.0 to 7.25% interest rate		13,380		21,106		—
Note payable, CAT Financial, $98,013, 6.7% interest rate		41,221		65,659		—
	$	54,601	$	86,765	$	149,995

Note 4: Pledged Assets and Long-Term Debt

      Long-term debt and the related assets pledged thereon as of March 31, 2005, and December 31, 2004 and 2003, consisted of the following:

				December 31,
		March 31,
		2005		2004		2003
Various notes payable to banks and financing companies for vehicles and equipment, due in installments through March, 2008 at fixed interest rates ranging from 0.0% to 8.75%, collateralized by vehicles, equipment and accounts receivable		$	138,594	$	160,674	$	250,893
Various notes payable to banks and financing companies for vehicles and equipment, due in installments through March, 2007 at variable interest rates ranging from 4.15% to 7.25%, collateralized by vehicles, equipment and accounts receivable			234,559		305,415		263,593
Subtotal			373,153		466,089		514,486
	Less current maturities		283,194		312,414		235,137
Total Long-term debt		$	89,959	$	153,675	$	279,349

F-8

W.T. ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      As of March 31, 2005, principal payments required to amortize the debt are summarized below:

Year Ending March 31,
2006	$	283,194
2007		79,845
2008		10,114
	$	373,153

Note 5: Leases

      The Company has two non-cancelable operating leases for compressor equipment, which expire on November 30, 2005. The company also leases compressor equipment on various cancelable leases. Future minimum lease payments payable under non-cancelable operating lease are due as follows:

Year Ending March 31,
2006	$	144,000

      Rental expense for all operating leases totaled $186,936, $912,594, and $472,272 for the three months ended March 31, 2005 and the years ended December 31, 2004 and 2003, respectively.

Note 6: Stockholders’ Equity

      At March 31, 2005, December 31, 2004 and 2003, the number of authorized and issued common stock and related par value and dividends paid are as follows:

			December 31,
	March 31,
	2005		2004		2003
Common stock authorized		100		100		100
Common stock issued		100		100		100
Common stock outstanding		100		100		100
Common stock, per share par value	$	10	$	10	$	10
Cash dividends paid on common stock		—		—		—

Note 7: Dependence on Key Customers

      For the three months ended March 31, 2005 and for the years ended December 31, 2004 and December 31, 2003 the Company’s revenues were almost entirely attributable to one customer. As of March 31, 2005 approximately 85% of the Company’s accounts receivable were attributable to this one customer.

Note 8: Subsequent Events

      The Company’s management is currently negotiating the sale of substantially all the Company’s assets. The anticipated sales date is June 30, 2005. The estimated sales price of the assets is substantially in excess of their book value. Upon consummation of the sale, the Company will exercise options to purchase equipment, currently under operating leases, for $550,000 and then include this equipment in the assets the Company sells.

      Subsequent to March 31, 2005 the Company purchased approximately $240,000 of equipment, which was 100% financed through short-term bank loans.

F-9

W.T. ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 9: Income Tax Matters

      Net deferred tax liabilities as of March 31, 2005, December 31, 2004 and 2003 consist of the following components:

				December 31,
		March 31,
		2005		2004		2003
Deferred Tax Liabilities:
	Property and equipment	$	136,593	$	132,577	$	78,565
	Cash basis receivables		95,394		101,340		96,261
	Prepaid expenses		2,047		2,261		2,281
			234,034		236,178		177,107
Deferred Tax Assets:
	Net operating loss carryforward		—		—		31,099
	Cash basis accounts payable and accrued expenses		28,797		31,397		34,018
			28,797		31,397		65,117
Net deferred tax liabilities		$	205,237	$	204,781	$	111,990

      Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income.

      As of March 31, 2005 and December 31, 2004 and 2003, the deferred tax amounts mentioned above have been classified on the accompanying balance sheets as follows:

			December 31,
	March 31,
	2005		2004		2003
Current liabilities	$	68,644	$	72,204	$	33,425
Noncurrent liabilities		136,593		132,577		78,566
	$	205,237	$	204,781	$	111,991

      The provision for income taxes charged to operation for the three months ended March 31, 2005 and the years ended December 31, 2004 and 2003 consists of the following:

			December 31,
	March 31,
	2005		2004			2003
Current tax expense	$	45,169	$	51,469		$	—
Deferred tax expense		457		92,790			37,121
Benefit of operating loss carryforward		—		(31,099	)		—
	$	45,626	$	113,160		$	37,121

      For the three months ended March 31, 2005 and the years ended December 31, 2004 and 2003 the difference between the expected tax expense that would result from applying domestic federal statutory rates to pretax income and the provision for income tax expense is due mainly to the lower average graduated tax rate expected to apply to the estimated taxable income in the years the temporary differences reverse as well as the accrual of state income taxes.

F-10

W.T. ENTERPRISES, INC.

BALANCE SHEET

June 30, 2005

(unaudited)

ASSETS
Current Assets
	Cash			$	153,254.16
	Trade Receivables				422,900.00
	Trade Receivables-WIP				111,225.00
	Loans to Shareholder				6,242.36
	Prepaid Expense				19,120.50
		Total Current Assets					$	712,742.02
Property and Equipment
	Transportation Equipment				178,238.71
	Machinery & Equipment				2,140,792.13
	Office Furniture & Equipment				7,131.34
	Accumulated Depreciation				(829,395.00	)
		Net Property and Equipment						1,496,767.18
			Total Assets				$	2,209,509.20
LIABILITIES AND EQUITY
Current Liabilities
	Accounts Payable			$	85,265.16
	Accrued Expenses				114,569.38
	Income Tax Payable				80,329.09
	Deferred Income Taxes				71,781.00
	Notes Payable				246,301.98
	Current Portion of L.T. Debt				206,298.26
		Total Current Liabilities					$	804,544.87
Deferred Income Tax								158,816.00
Long-Term Debt, Net of Current Portion								16,014.91
Stockholders’ Equity
	Common Stock, $10 Par Value				1,000.00
	Retained Earnings				1,229,133.42
		Total Stockholders’ Equity						1,230,133.42
			Total Liabilities & Stockholders’ Equity				$	2,209,509.20

F-11

W.T. ENTERPRISES, INC.

STATEMENT OF INCOME AND RETAINED EARNINGS

(unaudited)

			Six Months Ended						Six Months Ended
			Jun. 30, 2005			Pct			Jun. 30, 2004			Pct
Revenue
	Service Revenue		$	1,949,131.25			100.00		$	1,839,365.00			100.00
		Total Revenue		1,949,131.25			100.00			1,839,365.00			100.00
Cost of Revenue				1,257,348.70			64.51			1,421,254.04			77.27
		Gross Profit		691,782.55			35.49			418,110.96			22.73
Operating Expenses				328,061.99			16.83			269,719.48			14.66
		Income From Operations		363,720.56			18.66			148,391.48			8.07
Other Income (Expense)
	Interest Income			168.77			0.01			343.36			0.02
	Interest Expense			(16,139.41	)		(0.83	)		(24,819.02	)		(1.35	)
		Total Other Income (Expense)		(15,970.64	)		(0.82	)		(24,475.66	)		(1.33	)
		Income Before Taxes		347,749.92			17.84			123,915.82			6.74
Income Taxes
	Current Income Tax			78,710.75			4.04
	Deferred Income Taxes			25,816.00			1.32			23,830.00			1.30
				104,526.75			5.36			23,830.00			1.30
		Net Income		243,223.17			12.48			100,085.82			5.44
Beginning Retained Earnings				985,910.25						558,852.46
		Ending Retained Earnings	$	1,229,133.42					$	658,938.28

F-12

W.T. ENTERPRISES, INC.

SCHEDULE OF COST OF REVENUE & OPERATING EXPENSES

For the Period Ended June 30, 2005 and 2004

(unaudited)

			Six Months Ended				Six Months Ended
			Jun. 30, 2005		Pct		Jun. 30, 2004		Pct
Cost of Revenue
	Contract Air			191,500.00		9.83		352,300.00		19.15
	Freight & Trucking			11,529.98		0.59		13,788.47		0.75
	Auto Expense			57,800.36		2.97		57,554.74		3.13
	Depreciation			148,285.00		7.61		110,875.00		6.03
	Fuel			0.00		0.00		12,906.32		0.70
	Insurance			27,634.49		1.42		21,697.12		1.18
	Laundry/ Uniforms			1,365.96		0.07		5,223.46		0.28
	Maintenance & Repairs			95,822.66		4.92		73,610.05		4.00
	Equipment Rental			141,320.17		7.25		175,289.72		9.53
	Subcontracting — Other			2,942.50		0.15		1,800.00		0.10
	Supplies			104,745.30		5.37		139,860.66		7.60
	Taxes			34,631.08		1.78		33,779.21		1.84
	Travel			2,666.50		0.14		0.00		22.97
	Wages			437,054.70		22.42		422,569.29		22.97
		Total Cost of Revenue	$	1,257,348.70		64.51	$	1,421,254.04		77.27
Operating Expenses
	Advertising & Promotional			0.00		0.00		454.56		0.02
	Bank Charges			0.00		0.00		632.62		0.03
	Contract Labor			0.00		0.00		924.00		0.05
	Car & Truck Expense			3,400.29		0.17		0.00		0.05
	Contributions			2,250.00		0.12		1,000.00		0.05
	Depreciation			3,635.00		0.19		3,341.00		0.18
	Dues & Subscriptions			71.70		0.00		170.40		0.01
	Insurance			21,057.11		1.08		20,040.54		1.09
	Laundry & Uniforms			1,748.23		0.09		0.00		1.09
	Life Insurance			288.00		0.01		269.00		0.01
	Medical Reimbursement			0.00		0.00		3,621.06		0.20
	Meals & Entertainment			7,604.96		0.39		1,441.28		0.08
	Office Expense			936.47		0.05		1,510.61		0.08
	Professional fees			5,171.03		0.27		1,054.00		0.06
	Rent			6,026.48		0.31		6,938.15		0.38
	Repairs & Maintenance			154.20		0.01		0.00		0.38
	Supplies			497.90		0.03		40.00		0.00
	Taxes			19,904.64		1.02		11,195.41		0.61
	Travel			6,104.48		0.31		1,564.70		0.09
	Utilities & Telephone			13,329.50		0.68		8,322.15		0.45
	Wages			43,482.00		2.23		8,322.15		0.45
	Salaries-Officers			192,400.00		9.87		207,200.00		11.26
		Total Operating Expenses	$	328,061.99		16.83	$	269,719.48		14.66

F-13

W.T. ENTERPRISES, INC.

STATEMENT OF CASH FLOWS

For the Period Ended June 30, 2005 and 2004

(unaudited)

				6 Months Ended			6 Months Ended
				Jun. 30, 2005			Jun. 30, 2004
Cash Flow from Operating Activities
	Net Income (Loss)			$	242,223.17		$	100,085.82
	Adjustments to Reconcile Cash Flow
		Depreciation			151,920.00			114,216.00
		Deferred Income Tax			25,816.00			23,830.00
	Decrease (Increase) in Current Assets
		Trade Receivables			(4,610.00	)		56,721.00
		Trade Receivable WIP			(9,825.00	)		(30,025.00	)
		Loans to Shareholder			3,432.23			2,959.58
		Prepaid Expense			(7,527.57	)		(321.51	)
		Prepaid Income Taxes			0.00			894.00
	Increase (Decrease) in Current Liabilities
		Accounts Payable			(32,662.73	)		(19,411.84	)
		Accrued Expenses			65,522.20			2,781.13
		Credit Cards Payable			66,650.50			10,690.02
			Total Adjustments		258,714.63			162,333.38
			Cash Provided (Used) by Operations		501,937.80			262,419.20
Cash Flow From Investing Activities
	Sales (Purchases) of Assets
		Machinery & Equipment			(314,139.87	)		(397,016.47	)
			Cash Provided (Used) by Investing		(314,139.87	)		(397,016.47	)
Cash Flow From Financing Activities
	Cash (Used) or provided by:
		Short-Term Debt			159,537.27			42,475.87
		Long-Term Debt			(243,775.81	)		137,312.81
			Cash Provided (Used) by Financing		(84,238.54	)		179,788.68
			Net Increase (Decrease) in Cash		103,559.39			45,191.41
			Cash at Beginning of Period		49,694.77			39,821.42
			Cash at End of Period	$	153,254.16		$	85,012.83

See accompanying accountant’s compilation report

F-14

ALLIS-CHALMERS ENERGY INC.

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

      The pro forma financial statements set forth below illustrate the effects of the following acquisition transactions:

      CAPCOIL TUBING SERVICES, INC. TRANSACTION. In May 2005, Allis-Chalmers acquired 100% of the outstanding stock of Capcoil Tubing Services, Inc., a Texas corporation, based in Kilgore, Texas from four stockholders for approximately $2,750,000 in cash, 168,161 shares of Allis-Chalmers’ common stock and the payment of Capcoil secured debt in the amount of $1,190,783. Capcoil is engaged in the sale, installation and service of small diameter capillary tubing and larger diameter coil tubing for servicing producing oil and gas wells. Both types of tubing are installed in wells and used as a delivery system for chemicals and other agents to enhance production from existing oil and gas wells.

      DELTA RENTAL SERVICE, INC. TRANSACTION. In April 2005, Allis-Chalmers acquired 100% of the outstanding stock of Delta Rental Service, Inc., a Louisiana corporation, from three stockholders in Lafayette, Louisiana for approximately $4,650,000 in cash, 223,114 shares of Allis-Chalmers’ Common Stock and the issuance of two promissory notes by Allis-Chalmers in the aggregate principal amount of $350,000. Delta is a rental tool company headquartered in Lafayette, Louisiana and rents specialty rental items to the oil and gas industry such as heavy weight spiral drill pipe, spacer spools and assorted handling tools.

      DOWNHOLE INJECTION SYSTEMS, LLC TRANSACTION. In December 2004, Allis-Chalmers acquired all the equity interests in Downhole Injection Services, LLC from an investor group for approximately $1,100,000 in cash, 508,466 shares of Allis-Chalmers’ Common Stock and payment or assumption of approximately $950,000 of debt. Downhole is headquartered in Midland, Texas and provides solutions to downhole chemical treating problems through the installation of small diameter, stainless steel coiled tubing into producing oil and gas wells.

      DIAMOND AIR TRANSACTION. In November 2004, Allis-Chalmers, through its 55% owned subsidiary, AirComp, purchased substantially all the assets of Diamond Air Drilling Services, Inc. and Marquis Bit Co., L.L.C. for $4,600,000 in cash and the assumption of approximately $450,000 in liabilities. Allis-Chalmers and its joint-venture partner M-I L.L.C. contributed $2,530,000 and $2,070,000, respectively, to the equity of AirComp. Diamond Air and Marquis manufacture hammer bits and provide air hammer and hammer bits and related services required to drill and complete oil and gas wells.

      M-I FLUIDS TRANSACTION. In July 2005, Allis-Chalmers acquired the 45% minority interest in AirComp LLC owned by M.I. Fluids and a $4.8 million subordinated note issued by AirComp to M-I, making AirComp 100% owned by Allis-Chalmers. The purchase price consisted of $8.5 million in cash and the issuance of a subordinated note in the amount of $4.0 million.

      W.T. ENTERPRISES, INC. TRANSACTION. In July 2005, Allis-Chalmers acquired 100% of the compressed air drilling assets of W.T. Enterprises, Inc., a Texas corporation, for approximately $6.0 million in cash. These assets included air compressors, boosters, mist pumps, rolling stock and other equipment complementary to the services and equipment provided by AirComp.

      The accompanying unaudited pro forma consolidated condensed financial statements are based on the historical statements of operations and statements of financial position of Allis-Chalmers and the acquired subsidiaries for the year ended December 31, 2004 and as of and for the six months ended June 30, 2005. The unaudited pro forma consolidated condensed statements of operation illustrate the effects of the acquisition transactions on our results of operations as if the transactions had occurred as of the beginning of the periods presented. The pro forma consolidated statement of financial position illustrates the effects of the acquisition of Delta Rental Service, Inc., Capcoil Tubing Services, Inc., W.T. Enterprises, Inc. and the minority interest in AirComp on our financial position as if the transactions had occurred as of June 30, 2005.

F-15

ALLIS-CHALMERS ENERGY INC.

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      Certain information normally included in the financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited pro forma consolidated condensed financial statements should be read in conjunction with our consolidated financial statements appearing elsewhere herein. The unaudited pro forma consolidated condensed financial statements do not purport to be indicative of the results of operation or financial position that actually would have been achieved if the transactions had been consummated on the dates indicated, nor do they project Allis-Chalmers’ results of operations or financial position for any future period or date.

F-16

ALLIS-CHALMERS ENERGY INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED

STATEMENT OF FINANCIAL POSITION

As of June 30, 2005

(in thousands, except per share data)

		Allis-					W. T. Enterprises			M-I			Allis-
		Chalmers			W. T. Enterprises		Purchase			Purchase			Chalmers
		Consolidated			Historical		Adjustments			Adjustments			Consolidated
ASSETS
Cash and cash equivalents		$	2,693		$	153	$	(153	)(G)	$	—		$	2,693
														—
Trade Receivables			18,001			534		(534	)(G)		—			18,001
Inventories, net			3,901			—		—			—			3,901
Lease receivable, net			180			—		—			—			180
Prepaids and other current assets			1,650			25		(25	)(G)		—			1,650
	Total Current Assets		26,425			712		(712	)		—			26,425
Net Property, plant and equipment			49,585			1,497		2,900	(J)		940	(R)		54,860
								(62	)(A)
								—
Goodwill			12,392			—		1,103	(K)					13,495
Other intangibles, net			5,675			—		500	(K)		—			6,150
								(25	)(E)
Debt issuance costs, net			671								—			671
Lease receivable			432								—			432
Other assets			119			—		—			—			119
	Total Assets	$	95,299		$	2,209	$	3,704		$	940		$	102,152
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current maturities of long-term debt		$	3,952		$	206	$	(206	)(G)	$	—		$	3,952
Trade accounts payable			6,907			85		(85	)(G)		—			6,907
Accrued employee benefits			834			—		—			—			834
Accrued interest			509			—		113	(I)		(75	)(N)		547
Accrued expenses			2,815			267		(267	)(G)		—			2,815
Accounts payable, related parties			75			—		—			—			75
	Total Current Liabilities		15,092			558		(446	)		(75	)		15,130
Accrued postretirement benefit obligations			661			—		—			—			661
Long-term debt			33,938			262		5,738	(H)		6,292	(M)		46,230
Other long-term liabilities			502			159		(159	)(G)					502
Redeemable Warrant			0											0
Preferred Stock			0			—		—			—			0
			50,193			979		5,134			6,217			62,523
Minority Interest			4,911			—		—			(4,911	)(P)		0
Shareholders’ equity
	Common stock		140			1		(1	)(G)		—			140
Capital in excess of par value			42,077			—		—			—
								—			—
			—			—		—			—
								—			—			42,077
Accumulated earnings (deficit)			(2,022	)		1,229		(1,229	)(G)		(366	)(N)		(2,588	)
								(62	)(A)
								(25	)(E)		—
								(113	)(I)
	Total Shareholders’ Equity		40,195			1,230		(1,430	)		(366	)		39,629
	Total Liabilities and Shareholders’ Equity	$	95,299		$	2,209	$	3,704		$	940		$	102,152

See notes to unaudited pro forma consolidated financial statements.

F-17

ALLIS-CHALMERS ENERGY INC.

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2005

(in thousands, except per share data)

		Allis-																		W.T.
		Chalmers						Delta						Capcoil			W.T.			Enterprises			M-I			Allis-
		Consolidated			Delta			Purchase			Capcoil			Purchase			Enterprises			Purchase			Purchase			Chalmers
		Historical			Historical			Adjustments			Historical			Adjustments			Historical			Adjustments			Adjustments			Consolidated
Sales		$	42,922		$	821		$	—		$	2,161					$	1,949								$	47,853
Cost of Sales			30,483			211			75	(A)		1,458			133	(A)		1,261			(271	)(O)		—			33,350
Gross Profit			12,439			610			(75	)		703			(133	)		688			271			—			14,503
Marketing and Administrative Expense			7,279			985			(665	)(B)		421			28	(E)		324			23	(E)		—			8,395
																											—
Income (Loss) from Operations			5,160			(375	)		590			282			(160	)		364			248			—			6,108
Other Income
	Interest Income		—			3			—			—			—			—			—			—			3
	Interest Expense		(1,166	)		(11	)		11	(C)		(26	)		(16	)(F)		(16	)		(97	)(I)		(366	)(N)		(1,687	)
	Settlement on lawsuit		103																								103
	Other		55			116			—			—			—												172
Income (Loss) Before Taxes			4,152			(267	)		601			256			(176	)		348			151			(366	)		4,698
Minority Interest			(488	)		—			—			—			—									488	(P)		0
Taxes			(329	)		(142	)		142	(D)		(87	)		87	(D)		(105	)		105	(D)		—			(329	)
Net Income/(Loss)			3,336			(409	)		743			169			(89	)		243			256			122			4,370
	Preferred Dividend		—			—			—			—			—			—			—			—			—
Net income/(loss) attributed to common shares		$	3,336		$	(409	)	$	743		$	169		$	(89	)	$	243		$	256		$	122		$	4,370
Pro forma net income (loss) per common share
Basic		$	0.24																							$	0.32
Diluted		$	0.22																							$	0.29
Weighted average shares outstanding
Basic			13,800																								13,800
Diluted			14,900																								14,900

See notes to unaudited pro forma consolidated financial statements.

F-18

ALLIS-CHALMERS ENERGY INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2004

(in thousands, except per share data)

		Allis-
		Chalmers						Diamond						Downhole						Delta						Capcoil						W.T. Enterprises			M-I			Allis-
		Consolidated			Diamond			Purchase			Downhole			Purchase			Delta			Purchase			Capcoil			Purchase			W.T. Enterprises			Purchase			Purchase			Chalmers
		Historical			Historical			Adjustments			Historical			Historical			Historical			Adjustments			Historical			Adjustments			Historical			Adjustments			Adjustments			Consolidated
Sales		$	47,726		$	5,584		$	—		$	4,793		$	—		$	3,249		$	—		$	5,774		$	—		$	3,862					$	—		$	70,988
Cost of Sales			35,300			3,566			—			3,876			—			826			298	(A)		4,400			398	(A)		2,764		$	(904	)(Q)		—			50,523
Gross Profit			12,426			2,018			—			917			—			2,423			(298	)		1,374			(398	)		1,098			904			—			20,464
Marketing and Administrative Expense			8,199			664			163	(E)		872			83	(E)		1,798			(940	)(B)		676			110			514			93	(E)		—			12,232
Income (Loss) from Operations			4,227			1,354			(163	)		45			(83	)		625			642			698			(508	)		584			811			—			8,232
Other Income
	Interest Income		32			—			—			—			—			4			—			—			—			—			—			—			36
	Interest Expense		(2,808	)		(59	)		59	(C)		(74	)		74	(C)		(49	)		49	(C)		(74	)		74	(C)		(44	)		(406	)(I)		(733	)(N)		(3,991	)
	Other		272			(26	)		—			—			—			114			—			—			—			—			—			—			360
Income (Loss) Before Taxes			1,723			1,269			(104	)		(29	)		(9	)		694			691			624			(434	)		540			405			(733	)		4,637
Minority Interest			(321	)		—			(524	)		—			—			—			—			—			—			—			—			845	(P)		(0	)
Taxes			(514	)		—			—			—			—			(265	)		265	(D)		—			—			(113	)		113	(D)		—			(514	)
Net Income/(Loss)			888			1,269			(628	)		(29	)		(9	)		429			956			624			(434	)		427			518			112			4,123
	Preferred Dividend		(124	)		—			—			—			—			—			—			—			—			—			—			—			(124	)
Net income/(loss) attributed to common shares		$	764		$	1,269		$	(628	)	$	(29	)	$	(9	)	$	429		$	956		$	624		$	(434	)	$	427		$	518		$	112		$	3,999
Pro forma net income (loss) per common share
Basic		$	0.10																																			$	0.48
Diluted		$	0.06																																			$	0.41
Weighted average shares outstanding
Basic			7,930																																				8,321
Diluted			11,959																																				9,901

See notes to unaudited pro forma consolidated financial statements.

F-19

ALLIS-CHALMERS ENERGY INC

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED

CONDENSED FINANCIAL STATEMENTS

      The following pro forma adjustments have been made to the historical financial statements of the Company:

      A.) Increase in depreciation due to the increase in the fair value of assets acquired.

      B.) Elimination of the year end bonus paid to the employees of Delta.

      C.) Reduction interest expense due to the reduction on debt not assumed.

      D.) Elimination of tax provision due to the Company’s net operating losses to offset the income form operations thus reducing the amount of federal income tax liability.

      E.) Increase in amortization due to the increase in other intangible asset value of acquired company.

      F.) To record interest expense related to cash borrowed to purchase Capcoil.

      G.) Elimination of assets and liabilities not acquired.

      H.) To record cash borrowed to purchase W.T. Enterprises.

      I.) To record interest expense related to cash borrowed to purchase W.T. Enterprises.

      J.) Recognition of fair value of assets in connection with the acquisition of W.T. Enterprises.

      K.) Recognition of goodwill and other intangible assets in connection with the acquisition of W.T. Enterprises.

      L.) To record the elimination of M-I’s 45% as time of purchase in AirComp.

      M.) To record cash borrowed to purchase M-I’s 45% of AirComp.

      N.) To record interest expense related to cash borrowed to purchase M-I’s 45% in AirComp.

      O.) To record elimination of lease expense not assumed net of additional depreciation expense of $333,000 due to the increase value of assets acquired at W.T. Enterprises.

      P.) Elimination of M-I’s 45% minority interest expense.

      Q.) To record elimination of lease expense not assumed net of additional depreciation expense of $249,000 due to the increase value of assets acquired at W.T. Enterprises.

      R.) Recognition of fair value of assets in connection with the acquisition of M-I’s 45%.

F-20