SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                 FORM 10-K
                     FOR ANNUAL AND TRANSITION REPORTS
                  PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934
  (Mark One)
  x  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

  For the fiscal year ended June 30, 1998
                                     OR
     TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

  For the transition period from ________ to ________

                       Commission File Number 0-5214
                             PEERLESS MFG. CO.

           (Exact name of registrant as specified in its charter)
                   Texas                          75-0724417
      (State or Other Jurisdiction of           (IRS Employer
      Incorporation or Organization)          Identification No.)

   2819 Walnut Hill Lane, Dallas, Texas             75229
 (Address of Principal Executive Offices)         (Zip Code)

 Registrant's telephone number, including area code:  (214) 357-6181

  Securities registered pursuant to Section 12(g) of the Act:

      Title of each class        Name of Each Exchange on Which Registered
 Common Stock, par value $1.00   The Nasdaq Stock Market's National Market

        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 disclosure of delinquent filers  pursuant
  to Item 405 of Regulation S-K 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

  At September 18, 1998, Peerless Mfg. Co. had 1,457,492 shares of  common
  stock, $1.00  par value  outstanding.   The Company  estimates that  the
  aggregate market value of the common stock on September 18, 1998  (based
  upon the closing price of these shares on Nasdaq) held by non-affiliates
  was approximately $17,300,000.

                    DOCUMENTS INCORPORATED BY REFERENCE
  Portions of  the  Registrant's Proxy  Statement  for Annual  Meeting  of
  Shareholders to be held on or about November 25, 1998 (to be filed)  are
  incorporated by reference into Part III of this Form 10-K.
<PAGE>

                            TABLE OF CONTENTS

  Item                                                          Page

  PART I

       1    Business..............................................2

       2    Properties............................................6

       3    Legal Proceedings.....................................6

       4    Submission of Matters to a Vote
              of Security Holders ................................6

  PART II

       5    Market for Registrant's Common Equity and
              Related Stockholder Matters ........................7

       6    Selected Financial Data...............................8

       7    Management's Discussion and Analysis of Financial
              Condition and Results of Operations ................8

       8    Financial Statements and Supplementary Data..........15

       9    Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosure ............36

  PART III

       10   Directors and Executive Officers of
              the Registrant ....................................36

       11   Executive Compensation...............................36

       12   Security Ownership of Certain Beneficial
              Owners and Management .............................36

       13   Certain Relationships and Related
              Transactions ......................................36

  PART IV

       14   Exhibits, Financial Statement Schedule,
              and Reports on Form 8-K ...........................37

<PAGE>
                                     PART I

  ITEM 1.   BUSINESS.

       Peerless Mfg. Co. (the "Company" or "Registrant") was organized  in
  1933 as a proprietorship and was incorporated as a Texas corporation  in
  1946.  The Company has wholly-owned subsidiaries in the Netherlands, the
  United Kingdom and Barbados.

  Products and Operations

       The Company is engaged in  the business of designing,  engineering,
  manufacturing and selling  highly specialized products,  referred to  as
  "separators" or "filters," which are used  for a variety of purposes  in
  cleaning gases and liquids  as they move through  a piping system.   The
  Company packages  these products  on  skids complete  with  instruments,
  controls and  related  valves  and piping.    These  products  are  used
  primarily to remove solid and liquid contaminants from natural gas,  and
  salt water aerosols  from the combustion  intake air of  ship board  gas
  turbine and diesel engines.

       The  Company  also  designs,  engineers,  manufactures  and   sells
  specialized products  known as  "pulsation  dampeners," which  are  used
  primarily  to  reduce  or  eliminate  vibrations  caused  by  acoustical
  pulsations  commonly  found   in  piping   connected  to   reciprocating
  compressors.    Pulsation   dampeners  reduce   noise  levels,   improve
  efficiency and prolong the life of piping systems.

       The Company's products  are also  used as  components in  selective
  catalytic reduction systems.  Selective catalytic reduction equipment is
  used to  separate  nitrogen oxide  (NOx)  emissions from  exhaust  gases
  caused by burning hydrocarbon  fuels such as  gasoline, natural gas  and
  oil.    Additionally,  the  Company  sells  gas  odorization  equipment,
  quick-opening closures, parts for  its products and other  miscellaneous
  items and renders certain engineering services.

       Although the Company  manufactures and stocks  a limited number  of
  items of  equipment for  immediate delivery,  the vast  majority of  its
  products are designed and constructed for specific customer requirements
  or specifications.    In  certain  cases,  the  Company's  products  and
  components are designed  by the Company  but produced by  subcontractors
  under Company supervision.

       The Company markets its  products worldwide through  manufacturers'
  representatives, who  sell  on  a commission  basis  under  the  general
  direction of an officer of the Company.  The Company also sells products
  directly to customers.
<PAGE>
  Customers and Export Sales

       Gas separators  and  filters are  sold  to gas  producers  and  gas
  gathering, transmission  and  distribution companies,  and  to  chemical
  manufacturers and oil refineries, either directly or through contractors
  engaged  to  build  plants  and  pipelines,  and  to  manufacturers   of
  compressors, turbines  and  nuclear and  conventional  steam  generating
  equipment.  Marine separation/filtration  systems are sold primarily  to
  ship builders.  Pulsation  dampeners are purchased  by customers in  the
  same industries as  purchasers of  separators and  filters (except  ship
  builders and  steam  generating  equipment  manufacturers).    Selective
  catalytic  reduction  equipment  is  sold  to  gas  turbine   operators,
  refineries and others who desire or  may be required to reduce  nitrogen
  oxide (NOx) emissions.

       The Company is not dependent upon  any single customer or group  of
  customers.  The custom-designed nature of the Company's business and the
  nature of  the  products  cause  year to  year  variance  in  its  major
  customers.  No customer  accounted for 10% or  more of Company  revenues
  during fiscal years  1998 and 1996.   During fiscal  1997, one  customer
  accounted for 12% of revenues.

       Sales to international customers have been a part of the  Company's
  business for more than forty years.   During fiscal 1998, foreign  sales
  amounted to $27 million, or 63% of total consolidated revenue.  Sales in
  Asia were approximately $7 million, or 17% of and $11 million, or 27% of
  net sales in fiscal 1998 and 1997 respectively.  The custom-designed and
  project-specific nature of its products enables  the Company to sell  to
  any geographic region.  Please see  Note J of the Notes to  Consolidated
  Financial Statements  for a  breakdown  of the  Company's  international
  sales by geographic area during fiscal 1998 and 1997.

       The Company's international sales  involve certain risks.   Foreign
  purchasers may default in the payment of amounts due, causing collection
  on an international  account to be  more difficult than  for a  domestic
  account.  Foreign exchange rates  may fluctuate adversely affecting  the
  Company and the  U.S. and/or foreign  governments may impose  regulatory
  burdens upon exports and imports of the Company's products.  The Company
  also  incurs   greater  expenses  on  foreign  sales  because  of  added
  selling expenses incurred in other  countries.  To date, the Company has
  not incurred  substantial  expenses related  to  these risks.

       The Company has reduced its credit  and collection risks because  a
  substantial part of  foreign sales are  made to large,  well-established
  international companies and/or to  international operations of  domestic
  companies.  When  sales are made  to smaller international  enterprises,
  the Company  generally  requires  progress payments  or  an  appropriate
  guarantee of  payment,  such  as  a letter  of  credit  from  a  banking
  institution.  The Company attempts to minimize the risks of  fluctuating
  currency exchange rates by requiring payment in U.S. dollars (or in  the
  functional currency of its foreign subsidiaries) for most of its foreign
  product sales.  The Company hedges against substantial exposures that it
  may have to currency fluctuations.
<PAGE>
  Backlog

       The Company's backlog  of incomplete orders  at June  30, 1998  was
  approximately $22 million compared to approximately $20 million at  June
  30, 1997.    Backlog has  been  calculated under  the  Company's  normal
  practice  of  including   incomplete  orders  for   products  that   are
  deliverable in future periods but that may be changed or cancelled.

  Competition

       There are  many  competitors,  both larger  and  smaller  than  the
  Company, in the  manufacturing and  selling of  separators, filters  and
  pulsation dampeners.  Management believes that performance,  reliability
  and warranty service are the prime competitive factors in the  Company's
  markets.  The Company believes that it strongly competes in these  areas
  and has  become a  world leader  in  sales of  custom-built  separators,
  filters and pulsation dampeners.

  Patents, Licenses and Product Development

       The Company considers itself to be a world leader in the technology
  required to design and apply its high efficiency vapor/liquid separation
  and filtration equipment.  The Company believes that it is also a leader
  in the design, manufacture and application of high efficiency  pulsation
  dampeners for  reciprocating  compressors,  and  in  the  production  of
  selective  catalytic  reduction  component  equipment.    The  Company's
  expenditures  for  new   product  development   and  improvements   were
  approximately $580,000 in fiscal 1998 and $554,000 in fiscal 1997.   The
  Company expects  product development  expenditures to  be  approximately
  $500,000 in fiscal 1999.

       The Company has existing patents and patent applications pending on 
  some of its  products and processes that are important to its  business.
  These   include   patents   on   vane   designs,    separator  profiles,
  marine/separator  filtration systems and  pressure testing capabilities.
  In addition, most  of the  Company's products  are  proprietary  and are 
  sold  utilizing  the  Company's  proven technology  and knowledge of the 
  applications.   However, other  companies  are   marketing   competitive 
  products  that  may  not infringe  upon the Company's  patents and there 
  can  be  no assurance  that other companies won't sell  products similar 
  to the Company's proprietary products.

       In 1992,  the  Company  shifted its  emphasis  from  licensing  its
  foreign  sales  to  a  strategy  of  focusing  on  direct  international
  marketing through its Singapore sales branch and European  subsidiaries,
  Peerless Europe B.V. and Peerless Europe Ltd.  The Company also  derives
  royalty income  from  license arrangements  in  France and  England  and
  engineering fees  on  certain projects.    Royalty and  engineering  fee
  revenues, which are  included in net  sales, were  $1,828,000 in  fiscal
  1998 and $359,000 in fiscal 1997.

  Employees

       At  June  30,   1998,  the   Company  and   its  subsidiaries   had
  approximately 175 employees.
<PAGE>
  Raw Materials

       The Company purchases raw  materials and component parts  essential
  to its business  from established sources  and has  not experienced  any
  unusual problems  in  purchasing  required materials  and  parts.    The
  Company  believes  that  raw  materials  and  component  parts  will  be
  available in sufficient quantities to meet anticipated demand.  However,
  there can be no assurance that the Company will continue to find its raw
  materials in quantities or at prices satisfactory to the Company.

  Environmental Regulation

       The Company  does not  believe that  its compliance  with  federal,
  state or local statutes or regulations relating to the protection of the
  environment has  had  any  material effect  upon  capital  expenditures,
  earnings or  the  competitive position  of  the Company.  The  Company's
  manufacturing processes do not emit substantial foreign substances  into
  the environment.  Regulations related to nitrogen oxide (NOx)  emissions
  have in the past resulted in increased sales of the Company's  component
  parts for selective catalytic reduction equipment.

  Market Risk

       Although the Company generally requires payment in U.S. dollars  on
  its international projects, the  Company sometimes conducts business  in
  foreign currencies and is subject to foreign currency exchange rate risk
  on cash flows  related to  such transactions.   The  Company makes  very
  limited use of currency exchange contracts to reduce the risk of adverse
  foreign  currency  movements   related  to   certain  foreign   currency
  transactions.  Exposure from market  rate fluctuations related to  these
  contracts is not material.
<PAGE>
  Executive Officers of the Company

       The executive officers  of the Company  on September  23, 1998  are
  listed below.  Each of these  officers has been employed by the  Company
  for at least  five years  in the same  position or  a similar  capacity,
  except as noted:

          Name and Age             Position

          Sherrill Stone, 61       Chairman of the Board,
                                   President and Chief
                                   Executive Officer (1)

          G. D. Cornwell, 54       Sr. Vice President (2)


          Paul W. Willey, 60       Chief Financial Officer,
                                   Treasurer and Secretary (3)

          Edward Perry, 60         Sr. Vice President (4)


          Kent J. Van Houten, 44   Comptroller (5)

          Ken Fewel, 45            Vice President (6)

          Ray Muzyka, 60           Vice President (7)

  ____________________

  (1)  Mr. Stone  is  responsible  for formulation  of  corporate  policy,
       investment and new business opportunities.   Mr. Stone assumed  the
       duties of Chairman of the Board and Chief Executive Officer of  the
       Company on March 31, 1993.

  (2)  Mr.  Cornwell   is  responsible   for  sales,   manufacturing   and
       engineering.

  (3)  Mr. Willey is responsible for financial administration and has been
       employed by the Company since March 25, 1998.  He was Treasurer  of
       Dresser Industries, Inc. from 1983 to 1997.

  (4)  Mr. Perry is responsible for the general administrative functions.

  (5)  Mr. Van Houten  is responsible for  accounting operations, and  has
       been employed by the company since May 22, 1995.  He was Manager of
       Financial Accounting at The Austin Company from 1987 to 1994.

  (6)  Mr.  Fewel  is  responsible   for  the  research  and   development
       activities.

  (7)  Mr. Muzyka is responsible for the sales effort.
<PAGE>
  ITEM 2.   PROPERTIES.

       The Company owns its principal executive offices located in Dallas,
  Texas, which  include office,  warehouse and  manufacturing  facilities.
  Approximately 4,000 square feet of space is used for executive and sales
  offices, 3,600 square feet used for research and development and  20,000
  square feet of a 40,000 square foot building located on the same site is
  used  for  administrative,  engineering  and  drafting  offices.     The
  remaining portion of this building and another 80,000 square feet for  a
  manufacturing facility are leased  to third parties.   The Company  owns
  approximately 21,600 additional square feet of manufacturing  facilities
  in Denton, Texas, and approximately 29,000 square feet of  manufacturing
  facilities in Carrollton, Texas.  The  Company believes that its  office
  and manufacturing facilities are adequate  and suitable for its  present
  requirements.   Future  needs  can  be  met  by  building  manufacturing
  facilities at the Denton, Texas location,  where space is available  for
  expansion.

  ITEM 3.   LEGAL PROCEEDINGS.

       The Company is involved in various legal proceedings arising in the
  ordinary course  of business  that are  not  material to  the  Company's
  financial condition.

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

       None.
<PAGE>

                               PART II

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

       The Company's Common Stock is listed  on the Nasdaq Stock  Market's
  National Market under the symbol PMFG.  The Company's Board of Directors
  reviews the financial position of the Company periodically to  determine
  the advisability of paying dividends.   The following table sets  forth,
  for the periods indicated, the range  of the daily high and low  closing
  bid prices for the  Company's Common Stock as  reported by Nasdaq  Stock
  Market's National Market and cash dividends paid per share.


     Quarter Ended:                 Closing Bid     Cash Dividends
                                     Prices 
                                  High      Low        Per Share
                                 ------    -----       ---------
     Fiscal 1997
     September 30, 1996         $13-3/4    $9-1/4        $.125
     December 31, 1996           14-7/8    11-5/8         .125
     March 31, 1997              13-1/4     9-1/2         .125
     June 30, 1997               11         9-1/8         .125

     Fiscal 1998
     September 30, 1997         $15-1/2   $12            $.125
     December 31, 1997           13-5/8     9-7/8         .125
     March 31, 1998              12-1/2    10-1/8         .125
     June 30, 1998               13-1/2    11-3/8         .125


       There were  197 record  holders of  the Company's  Common Stock  on
  August  14,  1998.    The  Company  estimates  that  approximately   700
  additional shareholders own shares in broker names.
<PAGE>
  ITEM 6.   SELECTED FINANCIAL DATA

       The following selected financial data should be read in conjunction
  with Consolidated  Financial Statements  and related  Notes included  in
  this report.

                                            Year ended June 30

                       1998        1997        1996        1995        1994
                    ----------  ----------  ----------  ----------  ----------

Net sales          $43,455,136 $41,486,492 $33,643,998 $32,089,132 $25,567,560

Gross profit        15,239,806  11,525,289  10,213,237  10,583,128   9,038,606

Earnings before      3,522,138     537,996   1,182,148   1,908,661   1,227,959
income taxes

Net earnings        $2,449,561    $537,416    $789,721  $1,226,246    $780,275
                     =========     =======     =======   =========     ======= 
Earnings per
common share- basic      $1.68        $.37        $.55        $.85        $.54
and diluted              =====        ====        ====        ====        ====

Total assets       $23,756,221 $19,046,720 $18,191,426 $17,156,055 $18,022,466
                    ==========  ==========  ==========  ==========  ========== 

Long-term                ---         ---         ---         ---         ---
obligations

Cash dividend per
common share       $       .50 $       .50 $       .50 $       .50  $      .50
                    ==========  ==========  ==========  ==========  ========== 




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

  Liquidity And Capital Resources

       The Company believes that it maintains corporate liquidity adequate
  to support existing operations and planned  growth, as well as  continue
  operations  during  reasonable   periods  of  unanticipated   adversity.
  Management  directs  additional  resources  to  strategic  new   product
  development, market  expansion and  continuing improvement  of  existing
  products to enhance  the Company's position  as a market  leader and  to
  promote planned internal growth and profitability.
<PAGE>
       The Company  has historically  financed  and continues  to  finance
  working  capital   requirements,  expansion,   equipment  purchases   or
  acquisitions primarily  through  the  retention of  earnings,  which  is
  reflected by the absence of long-term debt on the Company's consolidated
  balance sheet.  In addition to  retained earnings, the Company has  used
  short term  bank  credit  lines  of  $7,500,000  to  supplement  working
  capital.  The Company believes that these sources will be sufficient  to
  satisfy its needs  in the foreseeable  future.  During  fiscal 1998  and
  fiscal 1997, it was necessary for the Company to use its short-term bank
  credit lines  in  order to  finance  a temporary  shortfall  in  working
  capital.  At June 30, 1998,  the Company had $200,000 outstanding  under
  its credit lines. The Company pays an annual commitment fee of 0.25%  of
  the unused balance under the credit lines.  The Company has no  material
  commitments for capital expenditures other than replacing equipment  and
  maintaining its existing plants and equipment.   During fiscal 1998  the
  Company purchased fixed assets  totaling $262,000, consisting  primarily
  of replacement manufacturing equipment, computer hardware and  software,
  office equipment  and  building  improvements.    This  is  compared  to
  purchases of $596,000 during fiscal 1997.

       Working  capital  was  $10,000,000   at  June 30,  1998,  up   from
  $8,600,000 at June 30, 1997, an increase of 16%.  This increase was  due
  primarily to increased receivables resulting from higher fourth  quarter
  sales.

       The following  table  sets  forth certain  information  related  to
  working capital for the Company's last three fiscal years:

                                           1998        1997      1996  
                                          ------      ------    ------
           Average working capital as
           a percentage of net sales       20.5%       20.8%     25.6%

           Annual accounts receivable
              turnover(1)                   5.0         4.3       3.8

           Annual inventory                 6.3         6.6       5.7
              turnover(2)


  (1)  Annual accounts receivable turnover is computed by dividing  annual
       net sales by the average monthly accounts receivable.

  (2)  Annual inventory turnover is computed by dividing the cost of goods
       sold by the average monthly inventory and contract costs.

       The average working capital as a percentage of net sales  decreased
  slightly  because  of  the  increased  sales  volume  of   approximately
  $2,000,000 reported in fiscal  1998 over fiscal 1997.   The increase  in
  annual accounts receivable turnover reflects improved collection methods
  used by the  Company in  fiscal 1998.   Average  inventory turnover  has
  stabilized at  6.3 in  fiscal 1998.   Peerless  management continues  to
  monitor and streamline the Company's receivable collection and inventory
  purchasing procedures to maximize cash flow.
<PAGE>
  Results of Operations

       The following  table sets  forth  various measures  of  performance
  expressed as  percentages of  net sales  for  the Company's  last  three
  fiscal years, as well as the Company's effective income tax rate for the
  same periods:

                                    1998        1997         1996  
                                   ------      ------       ------
  Gross profit margin               35.1%       27.8%        30.4%

  Operating expenses                26.7%       26.8%        26.8%

  Earnings before income taxes      8.1%         1.3%        3.5%

  Effective income tax rate         30.5%        0.1%        33.2%


       Inflation did not have a material impact on the Company's operating
  results during the last three fiscal years.

  Comparison of Fiscal 1998 to Fiscal 1997

  Net Sales

       The Company's  net  sales increased  approximately  $1,968,644,  or
  4.7%, from $41,486,492  in fiscal 1997  to $43,455,136  in fiscal  1998.
  Domestic sales  increased  1.9%  from  $15,881,000  in  fiscal  1997  to
  $16,181,000  in  fiscal  1998.    Foreign  sales  increased  6.5%   from
  $25,605,000 in fiscal 1997 to $27,274,000 in fiscal 1998.  The  increase
  in international sales resulted primarily from additional sales realized
  in Canada and South America.

       The Company's backlog of unfilled orders increased from $20,000,000
  at June 30, 1997 to $22,000,000 at June 30, 1998.  Approximately 85%  of
  the backlog at June 30, 1998 is expected to ship in fiscal 1999.

  Gross Profit Margin

       The Company's gross profit margin increased from 27.8% of net sales
  in fiscal 1997  to 35.1%  of net  sales in  fiscal 1998.   The  increase
  resulted from a relative increase in engineering revenues in fiscal 1998
  versus fiscal 1997.  Such revenues provide a higher gross profit margin.
  Revenues  from  engineering  fees  with  higher  gross  profits  margins
  increased approximately 400% from $359,000 in fiscal 1997 to  $1,828,000
  in fiscal 1998.

  Operating Expenses

       Operating expenses increased 4.3%  from $11,118,000 in fiscal  1997
  to $11,595,000 in fiscal 1998.  This increase in operating expenses  was
  primarily due to  increased sales in  fiscal 1998.   However,  operating
  expenses as a percent of sales  were comparable at 26.8% in fiscal  1997
  compared to 26.7% in fiscal 1998.
<PAGE>
  Income Tax

       The Company's effective income  tax rate was  30.5% in fiscal  1998
  compared to .1% in  fiscal 1997.  Foreign  deferred tax benefits,  which
  offset domestic  tax expenses,  were not  available  to the  Company  in
  fiscal 1998 as they were  in Fiscal 1997.   For a further discussion  of
  the  Company's  federal  income  taxes,  see  Note H  to  the  Company's
  Consolidated Financial Statements.

       The Company's effective  income tax  rate decreased  from 33.2%  in
  fiscal 1996 to 0.1% in fiscal 1997.  This decrease resulted from foreign
  deferred tax  benefits, which  offset domestic  tax expenses  in  fiscal
  1997.

  Comparison of Fiscal 1997 to Fiscal 1996

  Net Sales

       The Company's  net  sales increased  approximately  $7,842,000,  or
  23.3%, to $41,486,000 in  fiscal 1997 from  $33,644,000 in fiscal  1996.
  Domestic sales increased  by 11.5% from  $14,244,000 in  fiscal 1996  to
  $15,886,000  in  fiscal  1997.    Foreign  sales  increased  32.0%  from
  $19,400,000 in fiscal 1996 to $25,600,000 in fiscal 1997.  The  increase
  resulted primarily from additional sales realized in Asia.

       The Company's  backlog  of  unfilled orders  increased  32.0%  from
  $15,300,000 at June 30, 1996 to $20,200,000 at June 30, 1997.

  Gross Profit Margin

       The Company's gross profit margin decreased from 30.4% of net sales
  in fiscal  1996 to  27.8% of  net  sales in  fiscal 1997.  The  decrease
  resulted from a change in product mix of orders completed in fiscal 1997
  and adverse  effects of  a  one-time cost  overrun  related to  a  major
  international project in the Company's environmental equipment  division
  in the third  quarter of  fiscal 1997.   The Company  has increased  its
  controls on cost estimates  and does not expect  to encounter such  cost
  overruns in the future.

  Operating Expenses

       Operating expenses increased 23.4%  from $9,009,000 in fiscal  1996
  to $11,118,000 in fiscal 1997. This  increase in operating expenses  was
  primarily due  to  increased sales  and  additional personnel  hired  to
  support the  increased  level  of  sales  anticipated  by  the  Company.
  However, operating expenses as a percent  of sales remained the same  at
  26.8% in both fiscal 1996 and fiscal 1997.

  Income Tax

       The Company's effective  income tax  rate decreased  from 33.2%  in
  fiscal 1996 to  0.1% in fiscal  1997.  This  decrease resulted from  the
  Company's use of  foreign deferred tax  benefits, which offset  domestic
  tax expenses.  For a further discussion of the Company's federal  income
  taxes, see Note H to the Company's Consolidated Financial Statements.
<PAGE>
  Year 2000 Compliance

       The inability of computers, software and other equipment  utilizing
  microprocessors to recognize and properly process data fields containing
  a two-digit year  is commonly referred  to as the  Year 2000  Compliance
  issue.   As the  Year 2000  approaches, such  systems may  be unable  to
  accurately process certain date-based information.

       As is the case with most  other companies using computers in  their
  operations, the Company is in the processing of addressing the Year 2000
  Compliance issue.  The Company began converting its information  systems
  in 1996 through the purchase of a new information system that is already
  Year 2000 compliant.  The Company has incurred approximately $450,000 to
  date in implementing this new system and expects to incur an  additional
  $50,000  for  future  modifications,  testing  and  services.    Planned
  implementation is expected by  January 1, 1999 with  testing of the  new
  system for  a  three- to  six-month  period.   The  vendor  has  assured
  management that the new system will be Year 2000 compliant.  These  cost
  and timing estimates  are based  on management's  best estimates,  which
  were derived  utilizing numerous  assumptions regarding  future  events,
  including the  continued  availability  of  certain  resources  and  the
  accuracy of  third-party  representations.   However,  there can  be  no
  guarantee that the estimates will be achieved, and actual results  could
  differ from those plans.

       The Company purchases computer hardware and software products  from
  third parties for  incorporation into  the Company's  products and  such
  third-party products may be  affected by the Year  2000 problem.   There
  can be no  guarantee, however,  that these  products or  the systems  of
  other companies on which the Company's systems and operations rely  will
  be timely converted or that the failure of these systems would not  have
  an adverse effect on the Company's systems.  The Company has advised its
  customers inquiring about  this issue to  contact the Company's  vendors
  for Year 2000 information.  The Company has consulted with such  vendors
  in an effort to assure that the vendors have minimized the risk of  Year
  2000 problems in the systems currently used by the Company.

  Sales in Southeast Asia

       The Company  markets  a  significant portion  of  its  products  in
  Southeast Asia.   See  Note J  to the  Company's consolidated  Financial
  Statements.  Southeast Asia  has recently experienced economic  decline,
  and the Company expects that revenues derived in the region will  remain
  flat or  decline  slightly in  the future.  However, a  worsening of the 
  region's economic condition or in the oil and gas industry (in which the
  Company   derives  most of  its Asian   revenues) could  materially  and
  adversely  affect  the Company.  The Company's  Asian  revenues declined
  $3,710,000, or 33.7%, from fiscal 1997 to fiscal 1998.  This decline was 
  exaggerated by  additional revenues of approximately $5,000,000  derived
  in fiscal 1997 that were  related to a one-time  unprofitable project in 
  the region.  The Company  believes that its fiscal 1996 and  fiscal 1998
  revenues  better   reflect   the Company's  performance  in the  region. 
  Management believes  that increased  sales to  Canada and  Latin America
  will continue to make up for declines in Southeast Asia.
<PAGE>
  Outlooks and Uncertainties

       This Annual Report  on Form 10-K  contains certain  forward-looking
  statements within the meaning  of Section 27A of  the Securities Act  of
  1933, as amended,  and Section  21E of  the Securities  Exchange Act  of
  1934, as amended. Such  statements refer to events  that could occur  in
  the future or may be  identified by the use  of words such as  "expect,"
  "intend," "plan," "believe,"  correlative words,  and other  expressions
  indicating that future events  are contemplated and  may be included  in
  the Company's  business description  or in  Management's Discussion  and
  Analysis of Results of Operations  and Financial Condition, among  other
  places.     Such  statements   are  subject   to  inherent   risks   and
  uncertainties, and  actual results  could differ  materially from  those
  projected in the forward-looking  statements as a  result of certain  of
  the risk factors set forth below and elsewhere in this Annual Report  on
  Form 10-K.   In  addition to  the other  information contained  in  this
  Annual Report  on Form  10-K, investors  should carefully  consider  the
  following risk factors.   The Company does not  undertake to update  any
  forward-looking statements.

       Competition.  The  Company operates in  highly competitive  markets
  worldwide.   The  Company competes  with  manufacturers and  sellers  of
  separators, filters and  pulsation dampeners, some  of which are  larger
  than the Company  and have greater  financial resources.   In  addition,
  several smaller  manufacturers  also produce  custom-designed  equipment
  that  is  competitive  with  the  Company's  specialized  products   and
  services.  There can be  no assurance that the  Company will be able  to
  compete successfully with current or future competitors.

       International  Operations.    The  Company  derives  a  significant
  portion of its revenues from international sales, particularly in  Asia.
  Economic conditions across  international regions  could materially  and
  adversely affect  the  Company.   The  operations and  earnings  of  the
  Company throughout  the  world have  been  and  may in  the  future  be,
  affected from time to time in varying degree by, political  developments
  and foreign laws and regulations, such as forced divestiture of  assets,
  restrictions on  production, imports  and exports,  price controls,  tax
  cancellation of  contract rights  and  environmental regulations.    The
  likelihood of such occurrences and their overall effect upon the Company
  vary greatly from country to country and are not predictable.

       Further, foreign purchasers may default  in the payment of  amounts
  due, causing collection on an international account to be more difficult
  than for  a domestic  account.   Foreign  exchange rates  may  fluctuate
  adversely affecting the Company and the U.S. and/or foreign  governments
  may impose regulatory burdens upon exports and imports of the  Company's
  products.  The Company  also incurs  greater expenses  on foreign  sales 
  because of  added  selling  expenses incurred  in  other countries.  The  
  occurrence of any  one or more  of the foregoing  could adversely affect 
  the Company's operations.
<PAGE>
     Concentrations of  Credit Risk.   The  Company continues  to  closely
  monitor the creditworthiness  of its customers  and has not  experienced
  significant credit  losses  to  date.   A  significant  portion  of  the
  Company's sales are to customers whose activities are related to the oil
  and gas industry,  including some who  are located  in other  countries.
  The Company generally extends credit to  these customers.  Its  exposure
  to credit  risk  is  affected  by conditions  within  the  oil  and  gas
  industry. When sales are made to smaller international enterprises,  the
  Company generally requires progress payments or an appropriate guarantee
  of payment, such as a letter of credit from a banking institution.

       Backlog.   The  Company's backlog  represents  incomplete  customer
  orders.  The  Company has historically  completed and shipped  virtually
  all of its backlog.   However, customers  may cancel outstanding  orders
  prior to  their  completion.   In  such  cases, the  Company  would  not
  recognize revenues for  canceled orders.   The  Company has  contractual
  protection to recover from its customers the Company's costs related  to
  canceled orders.
<PAGE>

  ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                    Index to Financial Statements

                                                               Page

  REPORT OF INDEPENDENT CERTIFIED PUBLIC
       ACCOUNTANTS ...........................................   16

  CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1998 AND 1997.......   17

  CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS
       ENDED JUNE 30, 1998, 1997 AND 1996.....................   19

  CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
       EQUITY FOR THE YEARS ENDED JUNE 30, 1998,
       1997 AND 1996..........................................   20

  CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
       ENDED JUNE 30, 1998, 1997 AND 1996.....................   21

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
       YEARS ENDED JUNE 30, 1998, 1997 AND 1996...............   23

  REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
       ON SCHEDULE............................................   34

  SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT..............   35

<PAGE>

             Report of Independent Certified Public Accountants

  Board of Directors
  Peerless Mfg. Co.

  We have audited the accompanying consolidated balance sheets of Peerless
  Mfg. Co. and Subsidiaries as of June 30, 1998 and 1997, and the  related
  consolidated statements of  earnings, changes  in stockholders'  equity,
  and cash flows for each of the three years in the period ended June  30,
  1998.    These  financial  statements  are  the  responsibility  of  the
  Company's management.  Our  responsibility is to  express an opinion  on
  these financial statements based on our audits.

  We conducted our audits in  accordance with generally accepted  auditing
  standards.  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 our
  audits provide a reasonable basis for our opinion.

  In our  opinion, the  financial statements  referred to  above,  present
  fairly, in all material respects, the consolidated financial position of
  Peerless Mfg. Co. and Subsidiaries as of June 30, 1998 and 1997, and the
  consolidated results  of their  operations and  their consolidated  cash
  flows for each of the three years in the period ended June 30, 1998,  in
  conformity with generally accepted accounting principles.


  GRANT THORNTON LLP

  Dallas, Texas
  September 2, 1998
<PAGE>
<TABLE>
                 Peerless Mfg. Co. and Subsidiaries

                     CONSOLIDATED BALANCE SHEETS

                              June 30,

                 ASSETS                           1998          1997      
                                               ----------    ----------
  <S>                                         <C>           <C>
  CURRENT ASSETS
   Cash and cash equivalents                  $   428,482   $   772,553
   Short-term investments                         268,065       259,007
   Accounts receivable - principally trade
    - net of allowance for uncollectible
    accounts of $806,200 and $312,450 in
    1998 and 1997, respectively                14,241,036     9,671,067
   Inventories                                  2,419,845     2,993,855
   Costs and earnings in excess of billings
    on uncompleted contracts                    1,838,641     1,871,817
   Deferred income taxes                          433,596       269,721
   Other                                          165,631       298,605
                                               ----------    ----------
                Total current assets           19,795,296    16,136,625

  PROPERTY, PLANT AND EQUIPMENT - AT COST,
      less accumulated depreciation             1,506,465     1,527,856

  PROPERTY HELD FOR INVESTMENT - AT COST,
      less accumulated depreciation               830,840       888,383

  OTHER ASSETS                                    623,620       493,856
                                               ----------    ----------
                                              $22,756,221   $19,046,720
                                               ==========    ==========
</TABLE>
<PAGE>
<TABLE>

                 Peerless Mfg. Co. and Subsidiaries

               CONSOLIDATED BALANCE SHEETS - CONTINUED

                              June 30,


     LIABILITIES AND STOCKHOLDERS' EQUITY         1998          1997     
                                               ----------    ----------
  <S>                                         <C>           <C>
  CURRENT LIABILITIES
      Accounts payable - trade                $ 5,566,068   $ 5,054,532
      Notes payable                               200,000         -  
      Billings in excess of costs and
        earnings on uncompleted contracts          49,977       363,257
      Commissions payable                       1,205,391       779,474
      Accrued expenses
          Compensation                          1,499,443       656,082
          Warranty reserve                        434,588       406,903
          Other                                   366,408       291,953
                                               ----------    ----------
                Total current liabilities       9,321,875     7,552,201

  DEFERRED INCOME TAXES                            38,543        65,089

  COMMITMENTS                                         -             -  

  STOCKHOLDERS' EQUITY
      Common stock - authorized, 10,000,000 and
        4,000,000 shares of $1 par value in 1998
        and 1997, respectively; issued and
        outstanding, 1,457,492 and 1,451,992
        shares in 1998 and 1997, respectively   1,457,492     1,451,992
      Additional paid-in capital                2,583,701     2,535,221
      Unamortized value of restricted
       stock grants                               (51,385)      (44,625)
      Cumulative foreign currency
       translation adjustment                     (79,849)      (93,944)
      Retained earnings                         9,485,844     7,580,786
                                               ----------    ----------
                                               13,395,803    11,429,430
                                               ----------    ----------
                                              $22,756,221   $19,046,720
                                               ==========    ==========

      The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
                 Peerless Mfg. Co. and Subsidiaries

                 CONSOLIDATED STATEMENTS OF EARNINGS

                         Year ended June 30,

                                        1998         1997         1996  
                                     ----------   ----------   ----------
  <S>                               <C>          <C>          <C>
  Net sales                         $43,455,136  $41,486,492  $33,643,998

  Cost of goods sold                 28,215,330   29,961,203   23,430,761
                                     ----------   ----------   ----------
            Gross profit             15,239,806   11,525,289   10,213,237

  Operating expenses
   Marketing and engineering          8,932,180    9,129,347    7,524,363
   General and administrative         2,662,725    1,988,618    1,485,113
                                     ----------   ----------   ----------
                                     11,594,905   11,117,965    9,009,476
                                     ----------   ----------   ----------
            Operating profit          3,644,901      407,324    1,203,761

  Other income (expense)
   Interest income                       34,055       24,687       45,559
   Interest expense                     (27,430)     (55,475)     (16,858)
   Foreign exchange gains (losses)      (90,050)     103,583      (28,628)
   Other, net                           (39,338)      57,877      (21,686)
                                     ----------   ----------   ----------
                                       (122,763)     130,672      (21,613)

       Earnings before income taxes   3,522,138      537,996    1,182,148

  Income tax expense (benefit)
   Current                            1,262,998       65,766      397,023
   Deferred                            (190,421)     (65,186)      (4,596)
                                     ----------   ----------   ----------
                                      1,072,577          580      392,427

            NET EARNINGS           $  2,449,561  $   537,416  $   789,721
                                      =========    =========    =========
  Earnings per common share - basic
     and diluted                          $1.68         $.37         $.55
                                           ====          ===          ===
   The accompanying notes are an integral part of these statements.

</TABLE>
<PAGE>
<TABLE>
                           Peerless Mfg. Co. and Subsidiaries

           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                                                      Cumulative 
                                                          Unamortized   foreign   
                                              Additional    value of   currency  
                                     Common    paid-in    restricted  translation  Retained  
                                     stock     capital   stock grants adjustment   earnings     Total      
                                    ---------  ---------   ---------   --------   ---------   ----------
  <S>                              <C>        <C>         <C>         <C>        <C>         <C>                  <
  Balances as of July 1, 1995      $1,446,742 $2,493,428  $ (97,107)  $  56,110  $7,886,806  $11,785,979
                                                            
  Net earnings                            -          -          -           -       789,721      789,721
  Translation adjustment                  -          -          -       (32,268)        -        (32,268)
  Cash dividends ($.50 per share)         -          -          -           -      (723,384)    (723,384)
  Amortization of restricted stock
    grants                                -          -       63,357         -           -         63,357
  Income tax expense related to
    restricted stock plans                -       (3,549)       -           -           -         (3,549)
                                    ---------  ---------   ---------   --------   ---------   ----------
  Balances as of June 30, 1996      1,446,742  2,489,879    (33,750)     23,842   7,953,143   11,879,856

  Net earnings                            -          -          -           -       537,416      537,416
  Issuance of 8,000 shares of
   common stock                         8,000     72,250    (80,250)        -           -            -  
  Forfeiture of 4,000 shares of
   common stock                        (4,000)   (38,750)    42,750         -           -            -  
  Stock options exercised               1,250     10,312        -           -           -         11,562
  Translation adjustment                  -          -          -      (117,786)        -       (117,786)
  Cash dividends paid ($.50 per share)    -          -          -           -      (727,149)    (727,149)
  Cash dividends declared ($.125
   per share)                             -          -          -           -      (182,624)    (182,624)
  Amortization of restricted
   stock grants                           -          -       26,625         -           -         26,625
  Income tax benefit related to
   restricted stock plans                 -        1,530        -           -           -          1,530
                                    ---------  ---------   ---------   --------   ---------   ----------
  Balances as of June 30, 1997      1,451,992  2,535,221    (44,625)    (93,944)  7,580,786   11,429,430

  Net earnings                            -         -           -           -     2,449,561    2,449,561
  Issuance of 3,000 shares of
   common stock                         3,000     28,875    (31,875)        -           -            -  
  Stock options exercised               2,500     20,625        -           -           -         23,125
  Translation adjustment                  -          -          -        14,095         -         14,095
  Cash dividends ($.375 per share)        -          -          -           -      (544,503)    (544,503)
  Amortization of restricted
   stock grants                           -          -       25,115         -           -         25,115
  Income tax expense related to
   restricted stock plans                 -       (1,020)       -           -           -         (1,020)
                                    ---------  ---------   ---------   --------   ---------   ----------
  Balances as of June 30, 1998     $1,457,492 $2,583,701  $ (51,385)  $ (79,849) $9,485,844  $13,395,803
                                    =========  =========   =========   ========   =========   ==========

         The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>

                 Peerless Mfg. Co. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS

                         Year ended June 30,

                                            1998          1997        1996     
                                         ----------    ----------   ---------
  <S>                                   <C>           <C>          <C>
  Cash flows from operating activities
   Net earnings                         $ 2,449,561   $   537,416  $  789,721
   Adjustments to reconcile net
     earnings to net cash provided
      by (used in) operating activities
       Depreciation and amortization        379,752       370,526     416,207
       Deferred income taxes               (190,421)      (65,186)     (4,596)
       Foreign exchange loss (gain)          90,050      (103,583)     28,628
       Other                                 (1,020)        1,530      (2,342)
       Changes in operating assets
         and liabilities
        Accounts receivable              (4,703,504)   (1,586,991)    508,764
        Inventories                         544,993       (11,463)   (154,231)
        Cost and earnings in excess
          of billings on
          uncompleted contracts              33,176      (468,618) (1,287,644)
        Other current assets                132,974       (59,501)   (285,196)
        Other assets                       (231,004)      (40,466)    156,025
        Accounts payable                    837,205       791,364   1,240,661
        Billings in excess of costs
          and earnings
          on uncompleted contracts         (353,174)      363,257    (197,010)
        Commissions payable                 425,917       212,708      57,254
        Accrued expenses                    985,395        22,497     266,563
                                         ----------    ----------   ---------
                                         (2,049,661)     (573,926)    743,083

          Net cash provided by (used
            in) operating activities        399,900       (36,510)  1,532,804

  Cash flows from investing activities
   Net purchases of short-term
      investments                            (9,058)      (12,348)    (24,691)
   Purchase of property and equipment      (262,362)     (596,395)   (273,593)
                                         ----------    ----------   ---------

  Net cash used in investing activities    (271,420)     (608,743)   (298,284)
</TABLE>
<PAGE>
<TABLE>
                 Peerless Mfg. Co. and Subsidiaries

          CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                         Year ended June 30,

                                            1998          1997        1996     
                                         ----------    ----------   ---------
  <S>                                   <C>           <C>          <C>
  Cash flows from financing activities
   Sale of common stock                 $   23,125    $    11,562  $      -
    
   Advances on short-term borrowings       200,000            -           -  
   Dividends paid                         (727,127)      (727,149)   (723,384)
                                         ----------    ----------   ---------
       Net cash used in financing
        activities                        (504,002)      (715,587)   (723,384)

  Effect of exchange rate changes
    on cash and cash  equivalents           31,451         51,064       9,446
                                         ----------    ----------   ---------
     Net increase (decrease) in cash
        and cash equivalents              (344,071)    (1,309,776)    520,582

  Cash and cash equivalents at
    beginning of year                      772,553      2,082,329   1,561,747
                                         ----------    ----------   ---------
  Cash and cash equivalents at
    end of year                         $  428,482    $   772,553  $2,082,329
                                         =========      =========   =========

  Supplemental information on cash flows:

  Interest paid                        $    29,956    $    55,475  $   16,858
  Income taxes paid                    $   957,860    $   379,347  $  138,018


      The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
                 Peerless Mfg. Co. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    June 30, 1998, 1997 and 1996


  NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
            POLICIES

   Nature of Operations

   Peerless  Mfg. Co.  designs,  engineers, and  manufactures  specialized
   products  for the removal  of contaminants from  gases and liquids  and
   for air pollution  abatement.  The Company's products are  manufactured
   principally at plants  located in Dallas, Texas and are sold  worldwide
   with  the principal markets  located in the  United States and  Europe.
   Primary customers are equipment manufacturers, engineering  contractors
   and operators of power plants.

   A summary  of the significant accounting policies consistently  applied
   in   the  preparation  of   the  accompanying  consolidated   financial
   statements follows.

   Consolidation

   The   Company   consolidates   the   accounts   of   its   wholly-owned
   subsidiaries, all  of which are foreign.  All significant  intercompany
   accounts and transactions have been eliminated in consolidation.

   Cash Equivalents

   For purposes of the statement of cash flows, the Company considers  all
   highly liquid investments purchased with an original maturity of  three
   months or less to be cash equivalents.

   Inventories

   Inventories are  stated at the lower  of cost (first-in, first-out)  or
   market.

   Depreciable Assets

   Depreciation is provided  for in amounts sufficient to relate the  cost
   of  depreciable  assets  to operations  over  their  estimated  service
   lives, principally by the straight-line method.

   Revenue Recognition

   The  Company generally recognizes  sales of custom-contracted  products
   at  the completion of  the manufacturing process.   The  percentage-of-
   completion  method   is  used  for  significant  long-term   contracts.
   Percentage-of-completion  is  generally  determined  based  upon  labor
   hours incurred.
<PAGE>

  NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
           POLICIES - Continued

   Stock-Based Compensation

   Statement  of  Financial  Accounting  Standards  No.  123  (SFAS  123),
   Accounting  for  Stock-Based  Compensation, encourages,  but  does  not
   require,  companies   to  record  compensation  cost  for   stock-based
   employee compensation plans  at fair value.  The Company has chosen  to
   account for  stock-based compensation using the intrinsic value  method
   prescribed  in Accounting  Principles Board  Opinion No.  25 (APB  25),
   Accounting for Stock Issued to Employees, and related interpretations.

   Earnings Per Common Share

   Statement  of  Financial  Accounting  Standards  No.  128  (SFAS  128),
   Earnings Per Share, is effective for financial statements issued  after
   December  15, 1997.   The new standard  requires presentation of  basic
   and diluted earnings  per share.  The provisions of SFAS 128 have  been
   applied retroactively to all periods presented.

   Basic earnings  per common share is  computed by dividing net  earnings
   by  the weighted  average number  of common  shares outstanding  during
   each year presented.  Diluted earnings per common share give effect  to
   the  assumed issuance of  shares pursuant to  outstanding stock  option
   plans, when dilutive.

   Foreign Currency

   All  balance sheet accounts of  foreign operations are translated  into
   U.S.  dollars  at the  year-end  rate  of exchange  and  statements  of
   earnings  items are translated at  the weighted average exchange  rates
   for the year.  The resulting translation adjustments are made  directly
   to  a separate  component of stockholders'  equity.   Gains and  losses
   from  foreign currency transactions, such  as those resulting from  the
   settlement  of foreign  receivables or  payables, are  included in  the
   consolidated statements of earnings.

   From time to  time, the Company enters into forward exchange  contracts
   in anticipation of  future movements in certain foreign exchange  rates
   and  to hedge  against  foreign currency  fluctuations.   Realized  and
   unrealized  gains and  losses on these  contracts are  included in  net
   income,  except that gains  and losses on  contracts to hedge  specific
   foreign currency commitments are deferred and accounted for as part  of
   the underlying transaction.

   Financial Instruments

   The  carrying  amounts of  cash  and cash  equivalents  and  short-term
   investments approximate fair value because of the short-term nature  of
   these items.
<PAGE>

  NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
           POLICIES - Continued

   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.


  NOTE B - CONCENTRATIONS OF CREDIT RISK

   A  significant portion of  the Company's sales  are to customers  whose
   activities are related to the oil and gas industry, including some  who
   are  located  in foreign  countries.   The  Company  generally  extends
   credit to these customers.  Its exposure to credit risk is affected  by
   conditions  within the oil  and gas industry.   Also,  with respect  to
   foreign  sales, collection  may be  more difficult  in the  event of  a
   default.

   However,  the Company  closely monitors  extensions of  credit and  has
   never  experienced  significant  credit  losses.    Substantially   all
   foreign  sales are  made  to large,  well-established companies.    The
   Company  generally requires collateral or  guarantees on foreign  sales
   to smaller companies.

   Sales  to one customer  accounted for approximately  12.3% of  revenues
   for  the year ended June 30,  1997.  No  single customer accounted  for
   more than 10% of revenues in the years ended June 30, 1998 or 1996.


  NOTE C - INVENTORIES

   Principal components of inventories are as follows:
                                                     June 30,
                                                1998         1997     
                                              ---------    ---------
     Raw materials                           $  973,906   $1,084,890
     Work in process                          1,114,524    1,586,213
     Finished goods                             331,415      322,752
                                              ---------    ---------
                                             $2,419,845   $2,993,855
                                              =========    =========

    At June 30, 1998 and 1997, progress payments of $100,472 and $318,043,
    respectively, have  been  offset  against  inventories  and  costs  of
    uncompleted contracts.
<PAGE>

  NOTE D - PROPERTY, PLANT AND EQUIPMENT AND PROPERTY HELD FOR INVESTMENT


    Property, plant and equipment is summarized as follows:

                                                     June 30,
                                                1998           1997     
                                             ----------    -----------
     Buildings                              $ 1,387,406   $  1,380,241
     Equipment                                2,683,630      2,432,792
     Furniture and fixtures                   1,587,383      1,585,930
                                             ----------    -----------
                                              5,658,419      5,398,963
       Less accumulated depreciation         (4,412,170)    (4,131,323)
                                             ----------    -----------
                                              1,246,249      1,267,640
     Land                                       260,216        260,216
                                             ----------    -----------
                                            $ 1,506,465   $  1,527,856
                                             ==========    ===========
    Property held for investment is
      summarized as follows:
                                                     June 30,
                                                1998           1997      
                                             ----------     ----------
     Buildings                              $ 1,641,769    $ 1,641,769
     Equipment                                  158,771        158,171
                                             ----------     ----------
                                              1,800,540      1,799,940
       Less accumulated depreciation         (1,499,110)    (1,440,967)
                                             ----------     ----------
                                                301,430        358,973
     Land                                       529,410        529,410
                                             ----------     ----------
                                           $    830,840    $   888,383
                                             ==========     ==========

  NOTE E - CREDIT ARRANGEMENT

    The Company has  banking agreements for  unsecured revolving lines  of
    credit in  the combined  amount of  $7,500,000 due  upon demand,  with
    interest at the  banks' prime lending  rate (8.5% at  June 30,  1998),
    payable monthly.   The banks charge  usage fees at  an annual rate  of
    .25% of the  average daily unused  portion of the  line.  At  June 30,
    1998, $200,000 was outstanding under the lines of credit.  The Company
    had letters  of  credit  outstanding under  separate  arrangements  of
    $3,027,911 and $3,597,646  at June  30, 1998  and 1997,  respectively.
    Other assets with a cost of  approximately $526,000 and $566,000  were
    pledged against the letters of credit outstanding at June 30, 1998 and
    1997, respectively.
<PAGE>

  NOTE F - STOCKHOLDERS' EQUITY

    The Company has  a 1985 restricted  stock plan (the  1985 Plan)  under
    which 75,000  shares  of common  stock  were reserved  for  awards  to
    employees.  Restricted stock grants made under the 1985 Plan generally
    vest ratably over  a three-year  period.   The  Company  awarded 8,000
    shares  (fair value  at  date  of  grant  of  $80,250), of which 3,000
    shares  were  subsequently  forfeited,  in  fiscal  1997,  and   3,000
    shares  (fair  value at  date  of  grant  of $31,875) in  fiscal 1998.
    Compensation expense for stock grants is charged to earnings over  the
    restriction period and  amounted to  $25,115, $26,625  and $63,357  in
    fiscal 1998,  1997,  and  1996,  respectively.    The  tax  effect  of
    differences between compensation expense  for financial statement  and
    income tax  purposes  is charged  or  credited to  additional  paid-in
    capital.

    In December 1995, the  Company adopted a  stock option and  restricted
    stock plan (the 1995  Plan), which provides for  a maximum of  100,000
    shares of common  stock to be  issued.  Stock  options are granted  at
    market value, generally vest ratably over  four years, and expire  ten
    years from date of grant.

    At June 30,  1998, 43,250 shares  of common stock  were available  for
    issuance under the 1995  Plan, and 1,750  shares were available  under
    the 1985 Plan.

    The Company has  adopted the disclosure  provisions of SFAS  123.   It
    applies APB 25  and related  interpretations in  accounting for  stock
    options issued and, therefore, does not recognize compensation expense
    for stock options  granted at or  greater than market  value.  If  the
    Company had elected to recognize  compensation expense based upon  the
    fair value at  the grant date  for awards under  this plan  consistent
    with the  methodology  prescribed  by SFAS  123,  the  effect  on  net
    earnings and earnings per share would have been as follows:

                                                 Year ended    
                                 -------------------------------------------
                                 June 30, 1998  June 30, 1997  June 30, 1996
                                 -------------  -------------  -------------
     Net earnings - as reported    $2,449,561      $537,416     $789,721
     Net earnings - pro forma       2,440,327       527,012      784,896

     Basic earnings per share
       As reported                       1.68           .37          .55
       Pro forma                         1.68           .36          .54

     Diluted earnings per share
       As reported                       1.68           .37          .55
       Pro forma                         1.67           .36          .54

    The fair value  of these options  was estimated at  the date of  grant
    using the  Black-Scholes  option  pricing  model  with  the  following
    weighted-average assumptions:  expected  volatility of 41% for  fiscal
    1998 and  45%  for fiscal  1997  and 1996;  risk-free  interest  rates
    ranging from 4.6% to 5.6%; dividend yield  of 5.6%, 3.8%  and 5.4%  in
    fiscal 1998, 1997 and 1996, respectively;  and expected lives of  five
    to seven years.
<PAGE>

  NOTE F - STOCKHOLDERS' EQUITY - Continued

    Additional information with respect  to options outstanding under  the
    plan is as follows:


                                               Number of    Weighted
                                                 shares      average 
                                               underlying   exercise 
          Stock options                         options       price   
                                                 -------    --------
     Outstanding at July 1, 1995                     -     $     -
     Granted                                      34,000        9.25
                                                  ------
     Outstanding at June 30, 1996                 34,000        9.25
     Granted                                       2,500       13.33
     Exercised                                    (1,250)       9.25
     Canceled/forfeited                           (3,750)       9.25
                                                  ------
     Outstanding at June 30, 1997                 31,500        9.57
     Granted                                      24,000       10.73
     Exercised                                    (2,500)       9.25
                                                  ------       -----
     Outstanding at June 30, 1998                 53,000       10.11
                                                  ======       =====

   Options exercisable at June 30, 1996              -
                                                  ======
   Options exercisable at June 30, 1997            9,250
                                                  ======
   Options exercisable at June 30, 1998           16,125  
                                                  ======

   Weighted average fair value of options granted:

       Year ended  June 30, 1997                   $3.22

       Year ended June 30, 1998                    $1.39
<PAGE>

  NOTE F - STOCKHOLDERS' EQUITY - Continued

   The  following  table summarizes  information  about the  Plan's  stock
   options at June 30, 1998:

                                           Options outstanding                 

                                        Weighted average
         Range of           Number    remaining contractual  Weighted average
     Exercise Prices      outstanding    life (in years)      exercise price   
     ---------------      ------------   ---------------      --------------
     $9.25                      26,500         7.6              $    9.25
     $13.125-$13.375             2,500         8.5                 13.325
     $10.625-$11.875            24,000         9.6                 10.729
                                ------
                                53,000

                                         Options exercisable

          Range of                  Number            Weighted average
     Exercise Prices              exercisable          exercise price  
     ----------------             -----------          --------------

     $9.25                          12,000                $    9.25
     $13.125-$13.375                 2,125                    13.360
     $11.875                         2,000                    11.875
                                    ------
                                    16,125

   On  May 21, 1997,  the Board of  Directors declared a  dividend of  one
   common share purchase right for each outstanding share of common  stock
   to  shareholders of record at  the close of business  on June 2,  1997.
   Each Right entitles the registered holder to purchase from the  Company
   one common share  at a price of $30.00, subject to adjustment, as  more
   fully set forth in a Rights Agreement dated May 22, 1997.

   The Rights  will become exercisable only in  the event that any  person
   or  group of  affiliated  persons acquires,  or  obtains the  right  to
   acquire, beneficial ownership of 20% or more of the outstanding  common
   shares  or commences a  tender or exchange  offer, the consummation  of
   which would result in the beneficial ownership by a person or group  of
   20%  or  more  of such  outstanding  common  shares.   The  rights  are
   redeemable under certain  circumstances at $.01 each and expire in  May
   2007.



  NOTE G - EMPLOYEE BENEFIT PLANS

    The Company has  a 401(k) Plan  to provide eligible  employees with  a
    retirement savings plan.  All employees are eligible to participate in
    the plan upon completing  90 days of  service.  Company  contributions
    are voluntary and at the discretion  of the Board of Directors of  the
    Company.  The Company's contribution expense for the years ended  June
    30, 1998,  1997 and  1996 was  approximately $128,000,  $119,500,  and
    $109,000, respectively.
<PAGE>

  NOTE H - FEDERAL INCOME TAXES

    Deferred taxes are provided for the temporary differences between  the
    financial reporting bases and  the tax bases  of the Company's  assets
    and liabilities.   The  temporary differences  that give  rise to  the
    deferred tax assets or liabilities are as follows:
                                                      June 30,     
                                                   1998        1997    
                                                 --------    --------
     Deferred tax assets
       Restricted stock grants                  $  10,760   $  13,938
       Inventories                                 22,349      28,362
       Foreign subsidiaries' net
          operating loss carryforwards            115,473     145,157
       Accrued expenses                           253,012     243,090
       Other                                      148,983      52,701
                                                 --------    --------
                                                  550,577     483,248
       Less valuation allowance                       -       (29,710)
                                                 --------    --------
                                                  550,577     453,538
     Deferred tax liabilities
       Property, plant and equipment             (111,762)   (110,396)
       Uncompleted contracts                      (40,258)   (135,006)
       Other                                       (3,504)     (3,504)
                                                 --------    --------
                                                 (155,524)   (248,906)
                                                 --------    --------
             Net deferred tax asset             $ 395,053   $ 204,632
                                                 ========    ========   
    Deferred tax assets and liabilities included
      in the balance sheet are as follows:

                                                        June 30,   
                                                   1998         1997    
                                                 --------     --------
    Current deferred tax asset                   $433,596     $269,721
    Noncurrent deferred tax liability             (38,543)     (65,089)
                                                 --------     --------
                                                 $395,053     $204,632
                                                  =======      =======

<PAGE>
  NOTE H - FEDERAL INCOME TAXES - Continued

    The provision for income taxes consisted of the following:

                                         1998       1997         1996    
                                      ---------    -------      -------
     Federal
       Current                       $1,157,345   $ 41,765     $348,830
       Deferred                        (190,421)   (65,185)      (4,596)
     State                              105,653     24,000       48,193
                                      ---------    -------      -------
                                     $1,072,577   $    580     $392,427
                                      =========    =======      =======

   The Company had provided a valuation allowance at June 30, 1997 related
   to deferred  tax  assets  of  foreign   subsidiaries. These assets  are
   recoverable  only   from  future  income   of  the  respective  foreign
   subsidiaries.   Because of a  recapitalization and a reorganization  of
   European operations, the Company concluded  at  June  30, 1997 that  it
   was  more likely than  not  that  certain of the  deferred  tax  assets
   are  recoverable.   The valuation  allowance  was  reduced  in 1997 and
   eliminated in 1998.  Utilization of foreign net operating carryforwards
   reduced  income tax  expense  by  approximately  $12,000, $130,000  and
   $19,000 for 1998, 1997 and 1996, respectively.

   The  effective income tax  rate varies from the  statutory rate due  to
   the following:

                                                    As a percentage    
                                                  of pretax earnings   
                                                 1998     1997    1996 
                                                 -----    -----   -----
     Income tax expense at statutory rate        34.0%    34.0%   34.0%
     Increase (decrease) in income taxes
       resulting from State tax, net of
       federal benefits                           2.0      2.9     2.8
       Foreign sales corporation exclusions      (6.7)   (10.2)   (1.5)
       Change in valuation allowance             (0.8)   (24.3)    3.5
       Other                                      2.0     (2.3)   (5.6)
                                                 -----    -----   -----
     Income tax expense at effective rate        30.5%     0.1%   33.2%
                                                 =====    =====   =====
<PAGE>
<TABLE>
NOTE I - EARNINGS PER SHARE

  Summarized basic and diluted earnings per common share for each of the three years ended June 30, 1998 is as follows:


                                 1998                       1997                             1996                        
                                              Per                            Per                            Per   
                        Net                  share       Net                share    Net                   share  
                     earnings     Shares    amount    earnings   Shares    amount  earnings    Shares     amount
                     ---------   ---------   ----     -------   --------    ----    -------   ---------    ----
  <S>               <C>          <C>         <C>     <C>        <C>         <C>     <C>       <C>          <C>
  Basic earnings
  per share         $2,449,561   1,454,277   $1.68   $537,416   1,454,045   $.37    789,721   1,446,742    $.55
  Effect of
  dilutive
  options                  -         2,698                -         1,034               -           -  
                     ---------   ---------            -------   --------            -------   --------- 
  Diluted earnings
  per share         $2,449,561   1,456,975   $1.68   $537,416   1,455,079   $.37   $789,721   1,446,742    $.55
                     =========   =========    ====    =======   =========    ===    =======   =========     ===
</TABLE>
<PAGE>


  NOTE J - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

   The  Company's operations consist of  a dominant industry segment,  the
   designing and manufacturing of specialized products for the removal  of
   contaminants  from gases and liquids  and for air pollution  abatement,
   principally in the United States and the United Kingdom.

   Information  about the  Company's  operations in  different  geographic
   areas as of and for the years ended June 30, 1998, 1997 and 1996 is  as
   follows:
<TABLE>

                                  United     United    
                                  States     Kingdom        Other      Eliminations    Consolidated
                                ----------   ---------     ---------    ----------       ----------
 <S>                           <C>          <C>           <C>          <C>              <C>
 1998
   Net sales to unaffiliated
     customers                 $37,357,000  $5,011,000    $1,087,000   $        -       $43,455,000
   Transfers between
     geographic areas            1,847,000       1,000          -        (1,848,000)            -  
                                ----------   ---------     ---------    ----------       ----------
   Total                       $39,204,000  $5,012,000    $1,087,000    $(1,848,000)    $43,455,000
                                ==========   =========     =========     ==========      ==========
   Operating profit (loss)     $ 3,630,000  $    5,000    $   10,000    $       -       $ 3,645,000
                                ==========   =========     =========     ==========      ==========
   Identifiable assets         $20,736,000  $3,793,000    $  728,000    $(2,501,000)    $22,756,000
                                ==========   =========     =========     ==========      ==========
 1997
   Net sales to unaffiliated
     customers                 $35,553,000  $4,601,000    $1,332,000    $       -       $41,486,000
   Transfers between
     geographic areas              889,000       4,000           -         (893,000)            -  
                                ----------   ---------     ---------    ----------       ----------
   Total                       $36,442,000  $4,605,000    $1,332,000    $  (893,000)    $41,486,000
                                ==========   =========     =========     ==========      ==========
   Operating profit (loss)     $   549,000  $ (129,000)   $  (12,000)   $    (1,000)    $   407,000
                                ==========   =========     =========     ==========      ==========
   Identifiable assets         $18,129,000  $2,790,000    $1,027,000    $(2,144,000)    $19,082,000
                                ==========   =========     =========     ==========      ==========
 1996
   Net sales to unaffiliated
     customers                 $26,775,000  $4,764,000    $2,105,000    $       -       $33,644,000
   Transfers between
     geographic areas              984,000     630,000          -        (1,614,000)            -  
                                ----------   ---------     ---------    ----------       ----------
   Total                       $27,759,000  $5,394,000    $2,105,000    $(1,614,000)    $33,644,000
                                ==========   =========     =========     ==========      ==========
   Operating profit (loss)     $ 1,119,000  $  145,000    $  (39,000)   $   (21,000)    $ 1,204,000
                                ==========   =========     =========     ==========      ==========
     Identifiable assets       $17,244,000  $2,112,000    $1,599,000    $(2,764,000)    $18,191,000
                                ==========   =========     =========     ==========      ==========
</TABLE>
<PAGE>

  Transfers between the geographic areas primarily represent  intercompany
   export sales  and are accounted for  based on established sales  prices
   between the related  companies.  In computing operating profit  (loss),
   no allocations of general corporate expenses have been made.

   Identifiable  assets of geographic  areas are those  assets related  to
   the Company's  operations in each area.   United States assets  consist
   of all other operating assets of the Company.

   Export  sales  account  for a  significant  portion  of  the  Company's
   revenues and are summarized by geographic area as follows:

                                      1998           1997         1996
                                   ----------     ----------  -----------
      North and South America
       (excluding U.S.A.)        $  9,923,000   $  5,899,000 $  5,864,000
      Europe                        5,972,000      5,213,000    6,627,000
      Asia                          7,313,000     11,023,000    5,188,000
      Other                         4,066,000      3,470,000    1,756,000
                                   ----------     ----------  -----------
                                  $27,274,000    $25,605,000  $19,435,000
                                   ==========     ==========   ==========

<PAGE>

   Report of Independent Certified Public Accountants on Schedules
 

  Board of Directors
  Peerless Mfg. Co.

  In connection with our audit of the consolidated financial statements of
  Peerless Mfg.  Co. and  Subsidiaries referred  to  in our  report  dated
  September 2, 1998, which is  included in Part II  of this form, we  have
  also audited Schedule II for each of the three years in the period ended
  June 30, 1998.   In our opinion, this  schedule presents fairly, in  all
  material respects, the information required to be set forth therein.




  GRANT THORNTON LLP

  Dallas, Texas
  September 2, 1998

<PAGE>
<TABLE>

                            Peerless Mfg. Co. and Subsidiaries

                     SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                         June 30,

                               Balance at           Additions                    
                              beginning of  Charged to     Charged to                      Balance at
   Description                   period      expenses    other accounts(1) Deductions(2)  end of period
<S>                              <C>        <C>              <C>           <C>             <C>
1998
Allowance for uncollectible
  accounts                       $312,450   $621,560         $   -         $ 127,810 (2)   $806,200
                                  =======    =======          =======       ========        =======
Deferred tax valuation allowance $ 29,710   $    -           $   -         $  29,710 (3)   $    -   
                                  =======    =======          =======       ========        =======

1997
Allowance for uncollectible
  accounts                       $100,000   $249,612         $   -         $  37,162 (2)   $312,450
                                  =======    =======          =======       ========        =======
Deferred tax valuation allowance $160,405   $    -           $   -         $ 130,695 (3)   $ 29,710
                                  =======    =======          =======       ========        =======
1996
Allowance for uncollectible
  accounts                       $ 99,082   $ 44,307         $   852       $  44,241 (2)   $100,000
                                  =======    =======          =======       ========        =======
Deferred tax valuation allowance $121,091   $ 39,314         $  -          $     -         $160,405
                                  =======    =======          =======       ========        =======

(1) Collections on accounts previously written off.

(2) Write offs.

(3) Utilization and/or revaluation of deferred tax assets.
</TABLE>
<PAGE>

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

            None.


                              PART III


  ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

       For information concerning  the Company's  Directors, reference  is
  made to  the  information  set forth  under  the  caption  "Election  of
  Directors"  and  "Common  Stock  Ownership  of  Management  and  Certain
  Beneficial Owners"  in  the Company's  Proxy  Statement for  the  Annual
  Meeting of  Shareholders  to  be held  November  25,  1998  (the  "Proxy
  Statement"), which information is incorporated herein by reference.

       For information concerning  the Company's  Executive Officers,  see
  Item 1, "Business - Executive Officers of the Company."


  ITEM 11.  EXECUTIVE COMPENSATION.

       For information  concerning the  Company's executive  compensation,
  reference is  made  to  the information  set  forth  under  the  caption
  "Executive Compensation" in  the Proxy Statement,  which information  is
  incorporated herein by reference.


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

       For  information  concerning  the  security  ownership  of  certain
  beneficial owners and management, reference  is made to the  information
  set forth under the  caption "Election of  Directors" and "Common  Stock
  Ownership of  Management and  Certain Beneficial  Owners" in  the  Proxy
  Statement, which information is incorporated herein by reference.


  ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

       For  information  concerning  certain  relationships  and   related
  transactions, reference is made to the  information set forth under  the
  caption "Compensation Committee Interlocks and Insider Participation" in
  the  Proxy  Statement,  which  information  is  incorporated  herein  by
  reference.
<PAGE>
                                    PART IV

  ITEM 14.  EXHIBITS, FINANCIAL  STATEMENT SCHEDULE  AND REPORTS  ON  FORM
            8-K.

  (a)  1.   All Financial Statements:   see Item  8 "Financial  Statements
            and Supplementary Data" in Part II of this Report.

       2.   Financial Statement Schedule and Exhibits filed in Part IV  of
            this report are as follows:

            SCHEDULES*:

            II   -    Valuation and Qualifying Account - Years Ended  June
                      30, 1998, 1997 and 1996

            *All  other  schedules  are   omitted  because  the   required
            information is inapplicable or the information is presented in
            the financial statements and the related notes.

  (b)  Reports on Form 8-K: None

  (c)  Exhibits: see Index to Exhibits, pages 41-42.

<PAGE>
                               SIGNATURES

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

                               PEERLESS MFG. CO.
                                 (Registrant)

                               By:  /s/ Sherrill Stone
                                    Sherrill Stone, Chairman,
                                    President, and Chief Executive Officer

  Date: September 28, 1998.

       Pursuant to  the requirements  of the  Securities Exchange  Act  of
  1934, this report  has been  signed below  by the  following persons  on
  behalf of  the  registrant  and  in the  capacities  and  on  the  dates
  indicated.

  Date:

  September 28, 1998                  /s/ Sherrill Stone
                                      Sherrill Stone, Chairman of the
                                      Board, President, Director and
                                      Chief Executive Officer

  September 28, 1998                  /s/ Paul W. Willey
                                      Paul W. Willey,
                                      Principal Financial Officer,

  September 28, 1998                  /s/ Kent J. Van Houten
                                      Kent J. Van Houten,
                                      Principal Accounting Officer

  September 28, 1998                  /s/ Donald A. Sillers, Jr.
                                      Donald A. Sillers, Jr., Director

  September 28, 1998                  /s/ J. V. Mariner, Jr.
                                      J. V. Mariner, Jr. Director

  September 28, 1998                  /s/ Bernard S. Lee
                                      Bernard S. Lee, Director

  September 28, 1998                  /s/ D. D. Battershell
                                      D. D. Battershell, Director
<PAGE>

                          INDEX TO EXHIBITS


  REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

  FINANCIAL STATEMENT SCHEDULES:

       II   Valuation and Qualifying  Accounts   -  Years  Ended
            June 30, 1998, 1997 and 1996 (included in Item 8)

  EXHIBITS:

       3(a) The Company's Articles  of Incorporation, as amended
            to  date (filed  as  Exhibit 3(a)  to the  Company's
            Quarterly  Report on Form  10-Q, dated  December 31,
            1997, and incorporated herein by reference).

       3(b) The Company's  Bylaws, as amended to  date (filed as
            Exhibit 3(b) to the  Company's Annual Report on Form
            10-K, dated  June 30, 1997, and  incorporated herein
            by reference.)

       10(a)Incentive  Compensation  Plan effective  January  1,
            1981, as amended January  23, 1991 (filed as Exhibit
            10(b) to  the Company's Annual Report  on Form 10-K,
            dated  June  30, 1991,  and  incorporated herein  by
            reference).

       10(b)1985  Restricted Stock Plan  for Peerless  Mfg. Co.,
            effective December 13, 1985  (filed as Exhibit 10(b)
            to the  Company's Annual Report on  Form 10-K, dated
            June   30,   1993,   and  incorporated   herein   by
            reference).

       10(c)1991   Restricted   Stock  Plan   for   Non-Employee
            Directors of  Peerless Mfg. Co., adopted  subject to
            shareholder approval  May 24, 1991, and  approved by
            shareholders  November 20,  1991  (filed as  Exhibit
            10(e)  to the Company's  Annual Report on  Form 10-K
            dated  June  30, 1991,  and  incorporated herein  by
            reference).
       
       10(d)Employment  Agreement, dated as  of April  29, 1994,
            by  and  between  the  Company  and  Sherrill  Stone
            (filed  as  Exhibit 10(d)  to  the Company's  Annual
            Report on Form 10-K  for the Fiscal  year ended June
            30, 1994, and incorporated herein by reference).

       10(e)Agreement,  dated  as  of  April  29,  1994  by  and
            between  Company   and  Sherrill  Stone   (filed  as
            Exhibit  10(e)  to the  Company's  Annual Report  on
            Form  10-K  dated  June  30, 1994  and  incorporated
            herein by reference).
<PAGE>

       10(f)Sixth Amended and Restated  Loan Agreement, dated as
            of January 12, 1998  between  NationsBank of  Texas,
            N.A. and the Company (filed as Exhibit 10(f) to  the
            Company's  Quarterly  Report on  Form  10-Q for  the
            quarter   ended  December 31, 1997 and  incorporated
            herein by reference).


       10(g)Amended  and Restated  Loan Agreement,  dated  as of
            January 12, 1998 by and  between Texas Commerce Bank
            National  Association  and  the  Company  (filed  as
            Exhibit 10(g)  to the Company's Quarterly  Report on
            Form  10-Q for the  quarter ended  December 31, 1997
            and incorporated herein by reference).

       10(h)Peerless Mfg.  Co. 1995 Stock Option  and Restricted
            Stock  Plan,  adopted  by  the  Board  of  Directors
            December 31,  1995 and approved by  the Shareholders
            of the  Company November 21, 1996  (filed as Exhibit
            10(h)  to the Company's  Annual Report on  Form 10-K
            for  the year ended  June 30, 1997  and incorporated
            herein by reference).

       10(i)     Rights Agreement between Peerless  Mfg. Co. and
            ChaseMellon  Shareholder  Services, L.L.C.,  adopted
            by  the Board of  Directors May  21, 1997  (filed as
            Exhibit   1 to the Company's  Registration Statement
            on  Form  8-A (File  No.  0-05214) and  incorporated
            herein by reference).

       21   Subsidiaries of the Company  (filed as Exhibit 21 to
            the  Company's Annual  Report on  Form 10-K  for the
            year ended June 30, 1997  and incorporated herein by
            reference).

       27   Financial Data Schedule.*


  ______________
  * Filed herewith