##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended March 31, 2006
 OR
 o
    
    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.
  Texas
    
    75-0724417(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)2819 Walnut Hill Lane, Dallas, Texas
    
    75229(Address of Principal Executive Offices)
    
    (Zip code)
 (214) 357-6181
 þ o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer þ
  o þ




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##### 



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
 TABLE OF CONTENTS
 PageNumberPART I:FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at March 31, 2006 (unaudited)
and June 30, 2005
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the three and
nine months ended March 31, 2006 and 2005
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 2006 and 2005.
    
    
    5Notes to the Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    39PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    40Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3. Defaults Upon Senior Securities
    
    
    40Item 4. Submission of Matters to a Vote of Security Holders
    
    
    40Item 5. Other Information
    
    
    40Item 6. Exhibits
    
    
    41SIGNATURES
    
    
    42Employment Agreement - Sean P. McMenaminCertification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)Certification of Chief Executive Officer Pursuant to Section 1350Certification of Chief Financial Officer Pursuant to Section 1350
  Page 2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PEERLESS MFG. CO. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands)
 March 31, 2006
    
    
    June 30, 2005(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    6,343
    
    
    $
    8,277Accounts receivable  principally trade  net of
allowance for uncollectible accounts of $262 at
March 31, 2006 and $352 at June 30, 2005
    
    
    13,260
    
    
    
    11,613Inventories, net
    
    
    5,704
    
    
    
    3,297Costs and earnings in excess of billings
on uncompleted contracts
    
    
    10,709
    
    
    
    10,140Deferred income taxes
    
    
    1,163
    
    
    
    1,163Other   net
    
    
    1,949
    
    
    
    1,206Total current assets
    
    
    39,128
    
    
    
    35,696Property, plant and equipment  net
    
    
    3,018
    
    
    
    3,315Other assets
    
    
    876
    
    
    
    784Other assets of discontinued operations
    
    
    9
    
    
    
    9$
    43,031
    
    
    $
    39,804LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccount payable  trade
    
    $
    11,648
    
    
    $
    8,572Billings in excess of costs and earnings
on uncompleted contracts
    
    
    2,395
    
    
    
    2,081Commissions payable
    
    
    1,023
    
    
    
    762Product warranties
    
    
    742
    
    
    
    845Accrued liabilities and other
    
    
    2,544
    
    
    
    3,058Liabilities of discontinued operations
    
    
    220
    
    
    
    106Total current liabilities
    
    
    18,572
    
    
    
    15,424Deferred income taxes
    
    
    90
    
    
    
    90Shareholders equityCommon stock
    
    
    3,102
    
    
    
    3,036Additional paid-in capital
    
    
    2,945
    
    
    
    2,114Other
    
    
    (48
    )
    
    
    171Retained earnings
    
    
    18,370
    
    
    
    18,969Total shareholders equity
    
    
    24,369
    
    
    
    24,290Total liabilities and shareholders equity
    
    $
    43,031
    
    
    $
    39,804
 See accompanying notes to the consolidated financial statements.
 Page 3




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
  Three months ended
    
    
    Nine months endedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    18,121
    
    
    $
    12,999
    
    
    $
    41,297
    
    
    $
    35,061Cost of goods sold
    
    
    12,778
    
    
    
    9,155
    
    
    
    30,455
    
    
    
    25,063Gross profit
    
    
    5,343
    
    
    
    3,844
    
    
    
    10,842
    
    
    
    9,998Operating expensesSales and marketing
    
    
    1,662
    
    
    
    1,558
    
    
    
    4,769
    
    
    
    4,440Engineering and project management
    
    
    914
    
    
    
    892
    
    
    
    2,560
    
    
    
    2,724General and administrative
    
    
    1,314
    
    
    
    1,200
    
    
    
    4,539
    
    
    
    3,6123,890
    
    
    
    3,650
    
    
    
    11,868
    
    
    
    10,776Operating income (loss)
    
    
    1,453
    
    
    
    194
    
    
    
    (1,026
    )
    
    
    (778
    )Other income (expense)Foreign exchange gain (loss)
    
    
    (24
    )
    
    
    3
    
    
    
    33
    
    
    
    68Other income  net
    
    
    87
    
    
    
    53
    
    
    
    269
    
    
    
    9263
    
    
    
    56
    
    
    
    302
    
    
    
    160Earnings (loss) from continuing operations before income taxes
    
    
    1,516
    
    
    
    250
    
    
    
    (724
    )
    
    
    (618
    )Income tax benefit (expense)
    
    
    (513
    )
    
    
    (45
    )
    
    
    246
    
    
    
    250Net earnings (loss) from continuing operations
    
    
    1,003
    
    
    
    205
    
    
    
    (478
    )
    
    
    (368
    )Discontinued operationsLoss from discontinued operations
    
    
    (133
    )
    
    
    
    
    
    
    (183
    )
    
    
    (80
    )Income tax benefit
    
    
    45
    
    
    
    
    
    
    
    62
    
    
    
    27Net loss from discontinued operations
    
    
    (88
    )
    
    
    
    
    
    
    (121
    )
    
    
    (53
    )Net earnings (loss)
    
    $
    915
    
    
    $
    205
    
    
    $
    (599
    )
    
    $
    (421
    )BASIC EARNINGS (LOSS) PER SHARE *Earnings (loss) from continuing operations
    
    $
    0.32
    
    
    $
    0.07
    
    
    $
    (0.16
    )
    
    $
    (0.12
    )Loss from discontinued operations
    
    
    (0.03
    )
    
    $
    
    
    
    
    (0.04
    )
    
    
    (0.02
    )Basic earnings (loss) per share
    
    $
    0.30
    
    
    $
    0.07
    
    
    $
    (0.20
    )
    
    $
    (0.14
    )DILUTED EARNINGS (LOSS) PER SHARE *Earnings (loss) from continuing operations
    
    $
    0.32
    
    
    $
    0.07
    
    
    $
    (0.16
    )
    
    $
    (0.12
    )Loss from discontinued operations
    
    
    (0.03
    )
    
    $
    
    
    
    
    (0.04
    )
    
    
    (0.02
    )Diluted earnings (loss) per share
    
    $
    0.29
    
    
    $
    0.07
    
    
    $
    (0.20
    )
    
    $
    (0.14
    )
 
 *
    
    Certain earnings (loss) per share amounts may not total due to rounding See accompanying notes to the consolidated financial statements.
 Page 4




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands 
 Nine months ended March 31,2006
    
    
    2005(Revised)Cash flows from operating activities:Net loss
    
    $
    (599
    )
    
    $
    (421
    )Adjustments to reconcile net loss from operations to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    496
    
    
    
    487Provision for bad debts
    
    
    218
    
    
    
    268Provision for warranty expense
    
    
    216
    
    
    
    419Inventory valuation reserve
    
    
    130
    
    
    
    37Foreign exchange gain
    
    
    (33
    )
    
    
    (68
    )Gain on sale of property
    
    
    (22
    )
    
    
    Stock based compensation
    
    
    94
    
    
    
    Other
    
    
    19
    
    
    
    70Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,879
    )
    
    
    4,003Inventories
    
    
    (2,539
    )
    
    
    (1,010
    )Costs and earnings in excess of billings on uncompleted contracts
    
    
    (572
    )
    
    
    2,094Other current assets
    
    
    (596
    )
    
    
    (488
    )Other assets
    
    
    (92
    )
    
    
    62Accounts payable
    
    
    3,067
    
    
    
    (795
    )Billings in excess of costs and earnings on uncompleted contracts
    
    
    314
    
    
    
    2,124Commissions payable
    
    
    261
    
    
    
    (107
    )Product warranties
    
    
    (319
    )
    
    
    (359
    )Excess tax benefits from stock-based payment arrangements
    
    
    (145
    )
    
    
    (43
    )Income taxes payable
    
    
    
    
    
    
    (524
    )Accrued liabilities and other
    
    
    (521
    )
    
    
    (178
    )Net cash provided by (used in) operating activities:
    
    
    (2,502
    )
    
    
    5,571Cash flow from investing activities:Purchases of property and equipment
    
    
    (209
    )
    
    
    (347
    )Proceeds from the sale of equipment
    
    
    32
    
    
    
    Net cash used in investing activities of continuing operations
    
    
    (177
    )
    
    
    (347
    )Cash flows from financing activities:Proceeds from sale of common stock
    
    
    485
    
    
    
    140Excess tax benefits from stock-based payment arrangements
    
    
    145
    
    
    
    43Net cash provided by financing activities of continuing operations
    
    
    630
    
    
    
    183Cash flow from discontinued operations  revised:Cash provided by (used in) operating activities
    
    
    114
    
    
    
    (73
    )Cash provided by (used in) investing activities
    
    
    
    
    
    
    Cash provided by (used in) financing activities
    
    
    
    
    
    
    Net cash provided by (used in) discontinued operations
    
    
    114
    
    
    
    (73
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    1
    
    
    
    5Net increase (decrease) in cash and cash equivalents
    
    
    (1,934
    )
    
    
    5,339Cash and cash equivalents at beginning of period
    
    
    8,277
    
    
    
    4,119Cash and cash equivalents at end of period
    
    $
    6,343
    
    
    $
    9,458
 See accompanying notes to consolidated financial statements.
 Page 5




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Amounts in thousands, except per share amounts)
 1. Basis of Presentation
    2. Accounts Receivable
  Page 6




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 2. Accounts Receivable  Continued
  Three months ended
    
    
    Nine months endedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Balance at beginning of period
    
    $
    224
    
    
    $
    427
    
    
    $
    352
    
    
    $
    431Bad debt expense
    
    
    74
    
    
    
    51
    
    
    
    218
    
    
    
    268Accounts written off, net
    
    
    (36
    )
    
    
    
    
    
    
    (308
    )
    
    
    (221
    )Balance at end of period
    
    $
    262
    
    
    $
    478
    
    
    $
    262
    
    
    $
    478
 3. Inventories
   March 31,
    
    
    June 30,2006
    
    
    2005Material and component parts
    
    $
    4,989
    
    
    $
    3,027Work in progress
    
    
    873
    
    
    
    232Finished goods
    
    
    290
    
    
    
    3566,152
    
    
    
    3,615Reserve for obsolete and slow-moving inventory
    
    
    (448
    )
    
    
    (318
    )$
    5,704
    
    
    $
    3,297
  Three months ended
    
    
    Nine months endedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Balance at beginning of period
    
    $
    423
    
    
    $
    218
    
    
    $
    318
    
    
    $
    196Additions
    
    
    25
    
    
    
    15
    
    
    
    130
    
    
    
    37Amounts written off
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of period
    
    $
    448
    
    
    $
    233
    
    
    $
    448
    
    
    $
    233
 Page 7




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 4. Revenue Recognition and Cost and Earnings on Uncompleted Contracts
 Accounting for Performance of
Construction-Type and Certain Production-Type Contracts
   March 31,
    
    
    June 30,2006
    
    
    2005Costs incurred on uncompleted contracts and
estimated earnings
    
    $
    33,106
    
    
    $
    34,978Less billings to date
    
    
    (24,792
    )
    
    
    (26,919
    )$
    8,314
    
    
    $
    8,059
  March 31,
    
    
    June 30,2006
    
    
    2005Costs and earnings in excess of billings on
uncompleted contracts
    
    $
    10,709
    
    
    $
    10,140Billings in excess of costs and earnings on
uncompleted contracts
    
    
    (2,395
    )
    
    
    (2,081
    )$
    8,314
    
    
    $
    8,059
 Page 8




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 5. Product Warranties
  Three months ended
    
    
    Nine months endedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Balance at beginning of period
    
    $
    697
    
    
    $
    984
    
    
    $
    845
    
    
    $
    982Provision for warranty expenses
    
    
    57
    
    
    
    213
    
    
    
    216
    
    
    
    419Warranty charges
    
    
    (12
    )
    
    
    (155
    )
    
    
    (319
    )
    
    
    (359
    )Balance at end of period
    
    $
    742
    
    
    $
    1,042
    
    
    $
    742
    
    
    $
    1,042
 6. Contingencies
   Page 9




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 6. Contingencies  Continued
   7. Accrued Liabilities
  March 31,
    
    
    June 30,2006
    
    
    2005Accrued start-up expense
    
    $
    1,111
    
    
    $
    974Accrued compensation
    
    
    528
    
    
    
    691Sales and use tax payable
    
    
    54
    
    
    
    523Accrued property tax expense
    
    
    59
    
    
    
    111Other
    
    
    792
    
    
    
    759$
    2,544
    
    
    $
    3,058
 8. Stock Based Compensation
   Page 10




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 8. Stock Based Compensation  Continued
    Three months ended
    
    
    Nine months endedMarch 31, 2005
    
    
    March 31, 2005Net earnings (loss), as reported
    
    $
    205
    
    
    $
    (421
    )Deduct: Total stock-based employee compensation
expense determined using
the fair value based
method
for all awards, net of tax
    
    
    (48
    )
    
    
    (118
    )Pro forma net earnings (loss)
    
    $
    157
    
    
    $
    (539
    )Earnings (loss) per share:Basic  as reported
    
    $
    0.07
    
    
    $
    (0.14
    )Basic  pro forma
    
    $
    0.05
    
    
    $
    (0.18
    )Diluted  as reported
    
    $
    0.07
    
    
    $
    (0.14
    )Diluted  pro forma
    
    $
    0.05
    
    
    $
    (0.18
    )
  Page 11




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except share and per share amounts)
 8. Stock Based Compensation  Continued
  Weighted
    
    
    AggregateWeighted
    
    
    Average
    
    
    Grant DateAverage
    
    
    Remaining
    
    
    FairNo. of Options
    
    
    Exercise
    
    
    Term
    
    
    Value(exact quantity)
    
    
    Price
    
    
    (in years)
    
    
    (in thousands)Balance at July 1, 2005
    
    
    237,950
    
    
    $
    11.22Granted
    
    
    
    
    
    $
    Exercised
    
    
    (250
    )
    
    $
    12.64Forfeited before vesting
    
    
    (2,800
    )
    
    $
    14.02Forfeited after vesting
    
    
    
    
    
    $
    Balance at September 30, 2005
    
    
    234,900
    
    
    $
    11.18
    
    
    
    6.03
    
    
    $
    1,259Granted
    
    
    4,000
    
    
    $
    16.95Exercised
    
    
    (39,750
    )
    
    $
    6.56Forfeited before vesting
    
    
    (25,000
    )
    
    $
    12.94Forfeited after vesting
    
    
    (500
    )
    
    $
    19.50Balance at December 31, 2005
    
    
    173,650
    
    
    $
    12.10
    
    
    
    6.27
    
    
    $
    993Granted
    
    
    18,000
    
    
    $
    18.39Exercised
    
    
    (15,375
    )
    
    $
    14.36Forfeited before vesting
    
    
    Forfeited after vesting
    
    
    Balance at March 31, 2006
    
    
    176,275
    
    
    $
    12.54
    
    
    
    6.33
    
    
    $
    1,026Exercisable at March 31, 2006
    
    
    130,364
    
    
    $
    11.49
    
    
    
    5.42
    
    
    $
    716
  Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Expected volatility
    
    
    47.7
    %
    
    
    36.8
    %
    
    
    47.7 % - 52.6
    %
    
    
    36.8% - 46.4
    %Expected term (years)
    
    
    4.05
    
    
    
    5.00
    
    
    
    4.05 - 5.66
    
    
    
    5.00Risk free interest rate
    
    
    4.63
    %
    
    
    4.00
    %
    
    
    4.12% - 4.63
    %
    
    
    4.00
    %Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Weighted average grant
date fair value
    
    $
    7.88
    
    
    $
    5.65
    
    
    $
    8.08
    
    
    $
    5.76
  Three months ended
    
    Nine months endedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Total cash received
    
    $
    221
    
    
    $
    22
    
    
    $
    485
    
    
    $
    140Income tax benefits
    
    $
    11
    
    
    $
    6
    
    
    $
    145
    
    
    $
    43Total grant-date fair value
    
    $
    109
    
    
    $
    12
    
    
    $
    259
    
    
    $
    78
 Page 12




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except share and per share amounts)
 8. Stock Based Compensation  Continued
  Three months ended
    
    
    Nine months endedMarch 31, 2006
    
    
    March 31, 2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageGrant Date
    
    
    
    
    
    
    Grant DateNo. of Options
    
    
    Fair Value
    
    
    No. of Options
    
    
    Fair ValueUnvested at beginning of period
    
    
    33,050
    
    
    $
    5.95
    
    
    
    70,100
    
    
    $
    5.98New Grants
    
    
    18,000
    
    
    $
    7.88
    
    
    
    18,000
    
    
    $
    7.88Vested
    
    
    (5,139
    )
    
    $
    5.95
    
    
    
    (14,389
    )
    
    $
    6.00Forfeited
    
    
    
    
    
    $
    
    
    
    
    (27,800
    )
    
    $
    5.94Unvested at end of period
    
    
    45,911
    
    
    $
    6.74
    
    
    
    45,911
    
    
    $
    6.74
   WeightedAverageGrant DateNo. of Shares
    
    
    Fair ValueBalance at July 1, 2005
    
    
    
    
    
    $
    Granted
    
    
    
    
    
    $
    Vested
    
    
    
    
    
    $
    Forfeited
    
    
    
    
    
    $
    Balance at September 30, 2005
    
    
    
    
    
    $
    Granted
    
    
    10,000
    
    
    $
    17.06Vested
    
    
    
    
    
    $
    Forfeited
    
    
    
    
    
    $
    Balance at December 31, 2005
    
    
    10,000
    
    
    $
    17.06Granted
    
    
    
    
    
    $
    Vested
    
    
    
    
    
    $
    Forfeited
    
    
    
    
    
    $
    Balance at March 31, 2006
    
    
    10,000
    
    
    $
    17.06
 Page 13




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 9. Discontinued Operations
   Three months ended
    
    
    Nine months endedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cost of goods sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Gross loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75
    )Operating expenses
    
    
    133
    
    
    
    
    
    
    
    183
    
    
    
    5Operating loss
    
    
    (133
    )
    
    
    
    
    
    
    (183
    )
    
    
    (80
    )Income tax benefit
    
    
    45
    
    
    
    
    
    
    
    62
    
    
    
    27Net loss from operations
    
    $
    (88
    )
    
    $
    
    
    
    $
    (121
    )
    
    $
    (53
    )Diluted loss per share
    
    $
    (0.03
    )
    
    $
    
    
    
    $
    (0.04
    )
    
    $
    (0.02
    )
  March 31,
    
    
    June 30,2006
    
    
    2005AssetsEquipment  net of accumulated depreciation of $11
at March 31, 2006 and June 30, 2005
    
    $
    9
    
    
    $
    9Total assets of discontinued operations
    
    $
    9
    
    
    $
    9LiabilitiesProduct warranties and other reserves
    
    $
    220
    
    
    $
    106Total current liabilities of discontinued operations
    
    $
    220
    
    
    $
    106
 Page 14




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 10. Comprehensive Loss
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net earnings (loss) from continuing
operations
    
    $
    1,003
    
    
    $
    205
    
    
    $
    (478
    )
    
    $
    (368
    )Net loss from discontinued operations
    
    
    (88
    )
    
    
    
    
    
    
    (121
    )
    
    
    (53
    )Foreign currency translation
adjustment
    
    
    (8
    )
    
    
    (42
    )
    
    
    (67
    )
    
    
    78Comprehensive earnings (loss)
    
    $
    907
    
    
    $
    163
    
    
    $
    (666
    )
    
    $
    (343
    )
 11. Earnings (Loss) Per Share
 Certain loss per share
amounts may not total due to rounding.
 Three months ended
    
    
    Nine months endedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net earnings (loss) from continuing operations
    
    $
    1,003
    
    
    $
    205
    
    
    $
    (478
    )
    
    $
    (368
    )Loss from discontinued operations
    
    
    (88
    )
    
    
    
    
    
    
    (121
    )
    
    
    (53
    )Net earnings (loss)
    
    $
    915
    
    
    $
    205
    
    
    $
    (599
    )
    
    $
    (421
    )Basic weighted average common shares outstanding
    
    
    3,088
    
    
    
    3,032
    
    
    
    3,056
    
    
    
    3,026Effect of dilutive options
    
    
    48
    
    
    
    43
    
    
    
    
    
    
    
    Diluted weighted average common shares outstanding
    
    
    3,136
    
    
    
    3,075
    
    
    
    3,056
    
    
    
    3,026BASIC EARNINGS (LOSS) PER SHAREEarnings (loss) from continuing operations
    
    $
    0.32
    
    
    $
    0.07
    
    
    $
    (0.16
    )
    
    $
    (0.12
    )Loss from discontinued operations
    
    
    (0.03
    )
    
    
    
    
    
    
    (0.04
    )
    
    
    (0.02
    )Net earnings (loss) per share
    
    $
    0.30
    
    
    $
    0.07
    
    
    $
    (0.20
    )
    
    $
    (0.14
    )DILUTED LOSS PER SHAREEarnings (loss) from continuing operations
    
    $
    0.32
    
    
    $
    0.07
    
    
    $
    (0.16
    )
    
    $
    (0.12
    )Loss from discontinued operations
    
    
    (0.03
    )
    
    
    
    
    
    
    (0.04
    )
    
    
    (0.02
    )Net earnings (loss) per share
    
    $
    0.29
    
    
    $
    0.07
    
    
    $
    (0.20
    )
    
    $
    (0.14
    )
  Page 15




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 12. Segment Information
   Three months ended
    
    
    Nine months endedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005RevenuesEnvironmental
    
    $
    6,490
    
    
    $
    6,549
    
    
    $
    13,385
    
    
    $
    15,526Separation Filtration
    
    
    11,631
    
    
    
    6,450
    
    
    
    27,912
    
    
    
    19,535Consolidated
    
    $
    18,121
    
    
    $
    12,999
    
    
    $
    41,297
    
    
    $
    35,061Operating income (loss)Environmental
    
    $
    1,384
    
    
    $
    645
    
    
    $
    1,375
    
    
    $
    1,919Separation Filtration
    
    
    1,383
    
    
    
    749
    
    
    
    2,138
    
    
    
    915Reconciling items
    
    
    (1,314
    )
    
    
    (1,200
    )
    
    
    (4,539
    )
    
    
    (3,612
    )Consolidated
    
    $
    1,453
    
    
    $
    194
    
    
    $
    (1,026
    )
    
    $
    (778
    )
 Page 16




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 13. Industry Segment and Geographic Information
  United
    
    
    UnitedStates
    
    
    Kingdom
    
    
    Eliminations
    
    
    ConsolidatedThree months ended March 31, 2006Net sales to unaffiliated customers
    
    $
    15,214
    
    
    $
    2,907
    
    
    $
    
    
    
    $
    18,121Transfers between geographic areas
    
    
    267
    
    
    
    
    
    
    
    (267
    )
    
    
    Total
    
    $
    15,481
    
    
    $
    2,907
    
    
    $
    (267
    )
    
    $
    18,121Identifiable long-lived assets
    
    $
    2,971
    
    
    $
    47
    
    
    $
    
    
    
    $
    3,018Three months ended March 31, 2005Net sales to unaffiliated customers
    
    $
    10,242
    
    
    $
    2,757
    
    
    $
    
    
    
    $
    12,999Transfers between geographic areas
    
    
    1,128
    
    
    
    
    
    
    
    (1,128
    )
    
    
    Total
    
    $
    11,370
    
    
    $
    2,757
    
    
    $
    (1,128
    )
    
    $
    12,999Identifiable long-lived assets
    
    $
    2,829
    
    
    $
    84
    
    
    $
    
    
    
    $
    2,913Nine months ended March 31, 2006Net sales to unaffiliated customers
    
    $
    33,095
    
    
    $
    8,202
    
    
    $
    
    
    
    $
    41,297Transfers between geographic areas
    
    
    477
    
    
    
    
    
    
    
    (477
    )
    
    
    Total
    
    $
    33,572
    
    
    $
    8,202
    
    
    $
    (477
    )
    
    $
    41,297Identifiable long-lived assets
    
    $
    2,971
    
    
    $
    47
    
    
    $
    
    
    
    $
    3,018Nine months ended March 31, 2005Net sales to unaffiliated customers
    
    $
    28,842
    
    
    $
    6,219
    
    
    $
    
    
    
    $
    35,061Transfers between geographic areas
    
    
    1,809
    
    
    
    
    
    
    
    (1,809
    )
    
    
    Total
    
    $
    30,651
    
    
    $
    6,219
    
    
    $
    (1,809
    )
    
    $
    35,061Identifiable long-lived assets
    
    $
    2,829
    
    
    $
    84
    
    
    $
    
    
    
    $
    2,913
   Page 17




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 14. Lines of Credit
   15. Supplemental cash flow Information
  Three months ended
    
    Nine months endedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Income taxes paid
(received)
    
    $
    
    
    
    $
    
    
    
    $
    (150
    )
    
    $
    660
 Page 18




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
   Overview
  Environmental Systems.
 Separation Filtration Systems.
 Page 19




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Amounts in thousands, except per share amounts)
 Critical Accounting Policies
   Revenue Recognition
  Product Warranties.
 Page 20




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
  Allowance for Doubtful Accounts.
 Reserve for Obsolete and Slow-Moving Inventory.
 Deferred Tax Asset  Valuation Allowance.
 Page 21




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
 Results of Operations
  Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    70.5
    
    
    
    70.4
    
    
    
    73.7
    
    
    
    71.5Gross profit
    
    
    29.5
    
    
    
    29.6
    
    
    
    26.3
    
    
    
    28.5Operating expenses
    
    
    21.5
    
    
    
    28.1
    
    
    
    28.8
    
    
    
    30.7Operating earnings (loss)
    
    
    8.0
    
    
    
    1.5
    
    
    
    (2.5
    )
    
    
    (2.2
    )Other income
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.7
    
    
    
    0.5Net earnings (loss) from continuing
operations before income taxes
    
    
    8.3
    
    
    
    1.9
    
    
    
    (1.8
    )
    
    
    (1.7
    )Income tax benefit (expense)
    
    
    (2.8
    )
    
    
    (0.3
    )
    
    
    0.6
    
    
    
    0.7Net earnings (loss) from continuing operations
    
    
    5.5
    
    
    
    1.6
    
    
    
    (1.2
    )
    
    
    (1.0
    )Loss from discontinued operations, net of tax
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.2
    )Net earnings (loss)
    
    
    5.0
    %
    
    
    1.6
    %
    
    
    (1.5)
    %
    
    
    (1.2)
    %
      Page 22




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
 Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
 Results of Operations  Consolidated
 Revenues
  Three months ended March 31,2006
    
    
    % of Total
    
    
    2005
    
    
    % of TotalDomestic
    
    $
    11,365
    
    
    
    62.7
    %
    
    $
    7,827
    
    
    
    60.2
    %International
    
    $
    6,756
    
    
    
    37.3
    %
    
    $
    5,172
    
    
    
    39.8
    %Total revenues
    
    $
    18,121
    
    
    
    100.0
    %
    
    $
    12,999
    
    
    
    100.0
    %
  Gross Profit
  Three months ended March 31,2006
    
    
    % of Revenue
    
    
    2005
    
    
    % of RevenueRevenues
    
    $
    18,121
    
    
    
    100.0
    %
    
    $
    12,999
    
    
    
    100.0
    %Cost of goods sold
    
    
    12,778
    
    
    
    70.5
    %
    
    
    9,155
    
    
    
    70.4
    %Gross profit
    
    $
    5,343
    
    
    
    29.5
    %
    
    $
    3,844
    
    
    
    29.6
    %
  Page 23




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
 Operating Expenses
  Three months ended March 31,2006
    
    
    % of Sales
    
    
    2005
    
    
    % of SalesSales and marketing
    
    $
    1,662
    
    
    
    9.2
    %
    
    $
    1,558
    
    
    
    12.0
    %Engineering & project management
    
    
    914
    
    
    
    5.0
    %
    
    
    892
    
    
    
    6.9
    %General and administrative
    
    
    1,314
    
    
    
    7.3
    %
    
    
    1,200
    
    
    
    9.2
    %Total operating expenses
    
    $
    3,890
    
    
    
    21.5
    %
    
    $
    3,650
    
    
    
    28.1
    %
  Other Income and Expense
  Three months ended March 31,2006
    
    
    % of Sales
    
    
    2005
    
    
    % of SalesForeign exchange gain (loss)
    
    $
    (24
    )
    
    
    -0.1
    %
    
    $
    3
    
    
    
    0.0
    %Other income, net
    
    
    87
    
    
    
    0.4
    %
    
    
    53
    
    
    
    0.4
    %Total other income
    
    $
    63
    
    
    
    0.3
    %
    
    $
    56
    
    
    
    0.4
    %
  Income Taxes
  Page 24




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
 Net Earnings from Continuing Operations
  Discontinued Operations
  Net Earnings
  Nine months Ended March 31, 2006 Compared to Nine months Ended March 31, 2005
 Results of Operations  Consolidated
 Revenues
 
 Nine months ended March 31,2006
    
    
    % of Total
    
    
    2005
    
    
    % of TotalDomestic
    
    $
    22,898
    
    
    
    55.4
    %
    
    $
    21,224
    
    
    
    60.5
    %International
    
    
    18,399
    
    
    
    44.6
    %
    
    
    13,837
    
    
    
    39.5
    %Total revenues
    
    $
    41,297
    
    
    
    100.0
    %
    
    $
    35,061
    
    
    
    100.0
    %
  Page 25




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
 Gross Profit
  Nine months ended March 31,2006
    
    
    % of Revenue
    
    
    2005
    
    
    % of RevenueRevenues
    
    $
    41,297
    
    
    
    100.0
    %
    
    $
    35,061
    
    
    
    100.0
    %Cost of goods sold
    
    
    30,455
    
    
    
    73.7
    %
    
    
    25,063
    
    
    
    71.5
    %Gross profit
    
    $
    10,842
    
    
    
    26.3
    %
    
    $
    9,998
    
    
    
    28.5
    %
   Operating Expenses
  Nine months ended March 31,2006
    
    
    % of Sales
    
    
    2005
    
    
    % of SalesSales and marketing
    
    $
    4,769
    
    
    
    11.5
    %
    
    $
    4,440
    
    
    
    12.6
    %Engineering & project management
    
    
    2,560
    
    
    
    6.2
    %
    
    
    2,724
    
    
    
    7.8
    %General and administrative
    
    
    4,539
    
    
    
    11.0
    %
    
    
    3,612
    
    
    
    10.3
    %Total operating expenses
    
    $
    11,868
    
    
    
    28.7
    %
    
    $
    10,776
    
    
    
    30.7
    %
  Page 26




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
  Other Income and Expense
  Nine months ended March 31,2006
    
    
    % of Sales
    
    
    2005
    
    
    % of SalesForeign exchange gain (loss)
    
    $
    33
    
    
    
    0.1
    %
    
    $
    68
    
    
    
    0.2
    %Other income, net
    
    
    269
    
    
    
    0.6
    %
    
    
    92
    
    
    
    0.3
    %Total other income
    
    $
    302
    
    
    
    0.7
    %
    
    $
    160
    
    
    
    0.5
    %
  Income Taxes
  Net Loss from Continuing Operations
  Discontinued Operations
  Page 27




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
  Net Loss
  Results of Operations  Segments
  Environmental Systems
   Three months ended March 31,2006
    
    2005
    
    % ChangeRevenue
    
    $
    6,490
    
    
    $
    6,549
    
    
    
    -0.9
    %Operating income
    
    $
    1,384
    
    
    $
    645
    
    
    
    114.6
    %Operating income as % of revenue
    
    
    21.3
    %
    
    
    9.8
    %
 Nine months ended March 31,2006
    
    2005
    
    % ChangeRevenue
    
    $
    13,385
    
    
    $
    15,526
    
    
    
    -13.8
    %Operating income
    
    $
    1,375
    
    
    $
    1,919
    
    
    
    -28.3
    %Operating income as % of revenue
    
    
    10.3
    %
    
    
    12.4
    %
 Page 28




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
     Separation Filtration Systems
  Page 29




---



##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
   Three months ended March 31,2006
    
    2005
    
    % ChangeRevenue
    
    $
    11,631
    
    
    $
    6,450
    
    
    
    80.3
    %Operating income
    
    $
    1,383
    
    
    $
    749
    
    
    
    84.6
    %Operating income as % of revenue
    
    
    11.9
    %
    
    
    11.6
    %
 Nine months ended March 31,2006
    
    2005
    
    % ChangeRevenue
    
    $
    27,912
    
    
    $
    19,535
    
    
    
    42.9
    %Operating income
    
    $
    2,138
    
    
    $
    915
    
    
    
    133.7
    %Operating income as % of revenue
    
    
    7.7
    %
    
    
    4.7
    %
    Page 30




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
  Corporate Level Expenses
  Three months ended March 31,2006
    
    
    2005
    
    
    % ChangeCorporate level expenses
    
    $
    1,314
    
    
    $
    1,200
    
    
    
    9.5
    %
 Nine months ended March 31,2006
    
    
    2005
    
    
    % ChangeCorporate level expenses
    
    $
    4,539
    
    
    $
    3,612
    
    
    
    25.7
    %
  Contingencies
   Page 31




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
  Backlog
  Financial Position
 Assets.
 Liabilities and Shareholders Equity.
 Liquidity and Capital Resources
   Page 32




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
        Page 33




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
   Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
  Factors That May Affect Our Operating Results and Other Risk Factors
  Changes in the power generation industry and/or the economy could have an adverse impact on sales
of our Environmental Systems and our operating results.
  Changes in the price, supply or demand for natural gas could have an adverse impact on our sales of
Separation Filtration Systems and our operating results.
  Changes in current environmental legislation could have an adverse impact on the sale of our
Environmental Systems and on our operating results.
  Page 34




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
  Competition could result in lower sales and decreased margin.
  We enter into fixed-priced contracts. If our actual costs exceed our original estimates, our
profits will be reduced.
  Our backlog may not be indicative of our future revenue.
  Page 35




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
 Our ability to conduct business outside the United States may be adversely affected by factors
outside of our control and our revenues and profits from international sales could be adversely
impacted.
  Our financial performance may vary significantly from period to period, making it difficult to
estimate future revenue.
  Our gross profit margin is affected by shifts in our product mix.
  Our products are covered by warranties. Unanticipated warranty costs for defective products could
adversely affect our financial condition and results of operations and reputation.
  Page 36




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
  Product liability claims not covered by insurance could adversely affect our financial condition
and results of operations.
  Large contracts represent a significant portion of our accounts receivable, which increases our
exposure to credit risk.
  Changes in billing terms can increase our exposure to working capital and credit risk.
  The terms and conditions of our credit facility impose restrictions on our operations. We may not
be able to raise additional capital, if needed.
   Page 37




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
  Our business is subject to risks of terrorist acts, acts of war and natural disasters.
  Our common stock is thinly traded, which may result in low liquidity.
  The inability of our engineering and/or manufacturing operations to sufficiently scale up
operations in the short term, in response to unexpected spikes in orders with short cycle times,
directly impacts our ability to optimize absorption of our manufacturing overhead expense.
  Our customers may require us to execute portions of our projects in their local countries.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  Page 38




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
   
 Item 4. Controls and Procedures
      Page 39




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  Items 2, 3, 4, and 5 are not applicable and have been omitted.
 Page 40




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
 
 Item 6. Exhibits
 (a)
    
    Exhibits
  ExhibitNumber
    
    Exhibit3(a)
    
    
    Articles of Incorporation, as amended to date (filed as Exhibit 3(a) to
our Quarterly Report on Form 10-Q (file No. 0-5214) for the fiscal
quarter ended December 31, 1997, and incorporated herein by reference).3(b)
    
    
    Bylaws, as amended to date (filed as Exhibit 3(b) to our Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2004, and
incorporated herein by reference).4(a)
    
    
    Rights Agreement dated May 22, 1997 between Peerless Mfg. Co. and Mellon
Investor Services, LLC (formerly ChaseMellon Shareholder Services,
L.L.C.), as Rights Agent (filed as Exhibit 1 to our Registration
Statement on Form 8-A (file No. 0-5214), dated May 22, 1997, and
incorporated herein by reference).4(b)
    
    
    Amendment to Rights Agreement dated August 23, 2001, between Peerless
Mfg. Co. and Mellon Investor Services, LLC, as Rights Agent (filed as
Exhibit 2 to our Registration Statement on Form 8-A dated August 30,
2001, and incorporated herein by reference).10(a)
    
    
    Employment Agreement dated January 11, 2006, by and
between Peerless Mfg. Co. and Sean P. McMenamin. *31(a)
    
    
    Rule 13a  14(a)/15d  14(a) Certification of Chief
Executive Officer. *31(b)
    
    
    Rule 13a  14(a)/15d  14(a) Certification of Chief
Financial Officer. *32(a)
    
    
    Section 1350 Certification of Chief Executive Officer. **32(b)
    
    
    Section 1350 Certification of Chief Financial Officer. **
 
 *
    
    Filed herewith**
    
    Furnished herewith Page 41




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##### Table of Contents



PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2006  (Amounts in thousands, except per share amounts)
 
 Signatures
  PEERLESS MFG. CO.Date: May 15, 2006
    
    /s/ Sherrill StoneSherrill StoneChairman and Chief Executive OfficerDate: May 15, 2006
    
    /s/ Henry G. Schopfer, IIIHenry G. Schopfer, IIIChief Financial Officer(Principal Financial and Accounting Officer)
 Page 42