<PAGE>
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                    -----------------------------------------


                                    FORM 10-Q

      (Mark One)
    X             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
---------         SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

                  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)
<TABLE>
<S>                                                              <C>
                           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)
</TABLE>


                                 (214) 357-6181
              (Registrant's Telephone Number, Including Area Code)

Indicate by check 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 past 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 ______

         As of November 12, 2001, there were 2,977,484 shares of the
Registrant's common stock outstanding.

------------------------------------------------------------------------------


<PAGE>



                       PEERLESS MFG. CO. AND SUBSIDIARIES
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                   PAGE
                                                                                                  NUMBER
                                                                                                  ------
<S>                                                                                              <C>
PART I:  FINANCIAL INFORMATION

         Item 1.    Consolidated Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets at September 30, 2001
         and June 30, 2001.......................................................................      1

         Condensed Consolidated Statements of Operations for the
         three months ended September 30, 2001 and 2000..........................................      2

         Condensed Consolidated Statements of Cash Flows for
         the three months ended September 30, 2001 and 2000......................................      3

         Notes to the Condensed Consolidated Financial Statements................................      4

         Item 2.    Management's Discussion and Analysis of Financial
         Condition and Results of Operations. ...................................................      8

         Item 3.    Quantitative and Qualitative Disclosures About Market Risk...................     10


PART II:.OTHER INFORMATION

         Item 6.    Exhibits and Reports on Form 8-K.............................................     12

SIGNATURES.......................................................................................     13
</TABLE>



<PAGE>

PART  I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                       PEERLESS MFG. CO. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       September 30,           June 30,
                                                                           2001                  2001
                                                                       -------------          ---------
                                                                       (UNAUDITED)

<S>                                                                    <C>                 <C>
                           ASSETS
Current assets:
     Cash and cash equivalents                                            $    227           $  2,577
     Short term investments                                                    302                300
     Accounts receivable-principally trade-net                              31,966             28,987
     Inventories                                                             2,250              2,084
     Costs and earnings in excess of billings                                5,649              6,328
     Deferred income taxes                                                     704                704
     Other                                                                   1,191                751
                                                                         ---------          ----------
       Total current assets                                                 42,289             41,731

     Property, plant and equipment-net                                       3,751              3,365
     Other assets                                                            1,041              1,060
                                                                         ---------          ---------
                                                                           $47,081            $46,156
                                                                         =========          =========
     LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable-trade                                                 12,643             10,172
     Billings in excess of costs and earnings                                9,444              9,618
     Current maturities of long-term debt                                       -                 400
     Commissions payable                                                     1,511              1,443
     Income taxes payable                                                      657              1,754
     Accrued liabilities and other                                           4,135              3,729
                                                                         ---------           --------
       Total current liabilities                                            28,390             27,116

     Long-term debt, net of current maturities                                  -               1,200
     Deferred income taxes                                                     147                147

Shareholders' equity:
     Common stock                                                            2,978              2,954
     Additional paid-in capital                                              1,433              1,327
     Unamortized value of restricted stock grants                              (27)               (35)
     Cumulative foreign currency
        translation adjustment                                                (121)               (66)
     Retained earnings                                                      14,281             13,513
                                                                         ---------           --------
        Total shareholders' equity                                          18,544             17,693
                                                                         ---------           --------
                                                                           $47,081            $46,156
                                                                         =========           ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


<PAGE>




                       PEERLESS MFG. CO. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                Three Months Ended
                                                                                   September 30,
                                                                              -----------------------
                                                                               2001            2000
                                                                              -------       ---------
<S>                                                                         <C>             <C>
Revenues                                                                       $23,709        $11,059
Cost of goods sold                                                              16,743          7,982
                                                                              --------      ---------
     Gross profit                                                                6,966          3,077

Operating expenses                                                               5,743          3,616
                                                                              --------      ---------
     Operating income (loss)                                                     1,223           (539)

Other income (expense)
     Interest expense, net                                                          --           (184)
     Foreign exchange gains (losses)                                                68            (90)
     Other, net                                                                    (72)           (31)
                                                                              --------      ---------
                                                                                    (4)          (305)
                                                                              --------      ---------

Earnings (loss) before income tax                                                1,219           (844)

Income tax expense (benefit)                                                       451           (312)
                                                                              --------      ---------
Net earnings (loss)                                                                768           (532)
                                                                              ========      =========

Basic earnings (loss) per share                                              $    0.26      $   (0.18)
                                                                             =========      =========

Diluted earnings (loss) per share                                            $    0.25      $   (0.18)
                                                                             =========      ==========
</TABLE>



      See accompanying notes to condensed consolidated financial statements

                                      -2-

<PAGE>


                       PEERLESS MFG. CO. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                             Three months ended
                                                                                September 30,
                                                                         -------------------------
                                                                           2001             2000
                                                                         -------        ----------
<S>                                                                     <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net earnings (loss)                                                 $   768          $   (532)
     Adjustments to reconcile net earnings to cash
     provided by (used in) operating activities:
         Depreciation and amortization                                       143               126
     Changes in assets and liabilities:
              Accounts receivable                                         (2,959)           (7,289)
              Inventories                                                   (168)           (1,350)
              Cost and earnings in excess of billings                        679             5,538
              Other current assets                                          (481)             (730)
              Other assets                                                    24                76
              Accounts payable                                             2,385             3,149
              Billings in excess of costs and earnings                      (174)            1,437
              Commissions payable                                             68                15
              Accrued liabilities                                           (669)              (87)
                                                                       ---------          --------
                                                                          (1,152)               85
                                                                       ---------          --------
     Net cash provided by (used in) operating activities                    (384)              353

CASH FLOWS FROM INVESTING ACTIVITIES:
         Net purchases of short-term investments                              (2)               --
         Net purchases of property and equipment                            (529)               (5)
                                                                       ---------          --------
         Net cash used in investing activities                              (531)               (5)

CASH FLOWS FROM FINANCING ACTIVITIES:
         Net change in borrowings                                         (1,600)              886
         Proceeds from issuance of common stock                              137                40
         Dividends paid                                                       -               (184)
                                                                       ---------          --------

     Net cash provided by (used in) financing activities                  (1,463)              742

     Effect of exchange rate changes on cash and cash equivalents             28                62
                                                                       ---------          --------

     Net increase (decrease) in cash and cash equivalents                 (2,350)            1,152

     Cash and cash equivalents at beginning of period                      2,577               561
                                                                       ---------          --------
     Cash and cash equivalents at end period                           $     227          $  1,713
                                                                       =========          ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                      -3-

<PAGE>


                       PEERLESS MFG. CO. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1.       BASIS OF PRESENTATION.

         These unaudited condensed consolidated financial statements of Peerless
         Mfg. Co. and its subsidiaries have been prepared in accordance with
         accounting principles generally accepted in the United States of
         America for interim financial reporting. Accordingly, they do not
         include all of the information and footnotes required by accounting
         principles generally accepted in the United States of America for
         complete financial statements and should be read in conjunction with
         the company's annual report on Form 10-K for the fiscal year ended June
         30, 2001. All significant intercompany transactions and balances have
         been eliminated in consolidation. In the opinion of management, all
         adjustments (consisting only of normal recurring adjustments)
         considered necessary for a fair presentation of the interim financial
         information have been included.

         Operating results for the interim periods are not necessarily
         indicative of results that may be expected for the fiscal year ending
         June 30, 2002. Certain fiscal year 2001 items have been reclassified to
         conform with the fiscal year 2002 presentation.

2.       EARNINGS (LOSS) PER SHARE.

         Basic earnings (loss) per share have been computed by dividing net
         earnings (loss) available to common shareholders by the weighted
         average number of common shares outstanding during the period. Diluted
         earnings (loss) per share reflect the potential dilution that could
         occur if options or other contracts to issue common shares were
         exercised or converted into common stock.

         The following table presents the calculation of earnings (loss) per
         share for the periods indicated. All share and per share data reflect
         the two-for-one split of the Company's common stock on October 18,
         2001.

<TABLE>
<CAPTION>

                                                                  Three Months Ended
                                                                     September 30,
                                                              ------------------------
                                                                 2001             2000
                                                                 ----             ----
         <S>                                                 <C>              <C>
         Net earnings (loss)                                  $   768         $   (532)
                                                              -------         --------

         Basic weighted average common
         shares outstanding                                     2,968            2,942

         Effect of dilutive options                               121              --
                                                              -------         --------
         Diluted weighted average common
         shares outstanding                                     3,089            2,942

         Net income (loss) per share - basic                  $  0.26         $ (0.18)

         Net income (loss) per share - diluted                $  0.25         $ (0.18)
</TABLE>


                                      -4-
<PAGE>

                       PEERLESS MFG. CO. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

         The company excluded 0 and 76 outstanding stock options from its
         calculation of diluted earnings (loss) per share for the three months
         ended September 30, 2001 and 2000, respectively, because their effect
         was anti-dilutive.

3.       COMPREHENSIVE INCOME (LOSS).

         Comprehensive income (loss) is defined as the change in equity during a
         period from transactions or other events and circumstances from
         non-ownership sources. It includes all changes in equity during a
         period, except those resulting from investments by owners and
         distributions to owners. The components of comprehensive income (loss)
         were as follows:

<TABLE>
<CAPTION>

                                                                  Three Months Ended
                                                                       September 30,
                                                                ----------------------
                                                                  2001           2000
                                                                --------       -------
         <S>                                                    <C>            <C>

         Net earnings (loss)                                     $  768        $ (532)

         Foreign currency translation adjustment                    (55)           62
                                                                 ------        ------

         Comprehensive income (loss)                             $  713        $ (470)
                                                                 ======        ======
</TABLE>


4.       SUPPLEMENTAL CASH FLOW INFORMATION.

         Net cash flows from operating activities reflects cash payments for
         interest and income taxes as follows:

<TABLE>
<CAPTION>

                                                                  Three Months Ended
                                                                       September 30,
                                                                ----------------------
                                                                  2001           2000
                                                                --------       -------
         <S>                                                    <C>            <C>

         Interest paid                                           $   114        $   96
         Income taxes paid                                        $1,550        $   90
</TABLE>


5.       USE OF ESTIMATES.

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States of America requires
         management to make estimates and assumptions that affect the amounts
         reported in the financial statements and accompanying notes. Actual
         results could differ from those estimates.

                                      -5-
<PAGE>


                       PEERLESS MFG. CO. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

6.       INVENTORIES.

         Inventories are stated at the lower of cost or market. Principal
         components of inventories are as follows:
<TABLE>
<CAPTION>

                                                               September 30,    June 30,
                                                                   2001           2001
                                                              --------------    --------
                 <S>                                          <C>              <C>

                  Raw materials                                  $ 1,392        $ 1,151
                  Work in process                                    490            583
                  Finished goods                                     368            350
                                                                 -------        -------

                  Total inventories                              $ 2,250        $ 2,084
                                                                 =======        =======
</TABLE>

7.       SEGMENT INFORMATION.

         The company identifies reportable segments based on management
         responsibility within the corporate structure. The company has two
         reportable industry segments: SCR Systems and gas/liquid filtration.
         The SCR Systems segment produces selective catalytic reduction systems
         ("SCR") used to separate nitrogen oxide (NOx) emissions from exhaust
         gases caused by burning hydrocarbon fuels such as coal, gasoline,
         natural gas and oil. We combine these systems with our components as
         totally integrated systems. Many of the company's components are
         packaged on skids complete with instruments, controls and related
         valves and piping. The gas/liquid filtration segment produces various
         types of separators and filters used for removing liquids and solids
         from gases and air. The segment also provides engineering design and
         services, pulsation dampners, natural gas odorizers, quick-opening
         closures and parts for its products.

         In addition to our two primary business segments, we also design,
         engineer, manufacture and sell packaged boilers and other steam
         generating equipment through our Texas subsidiary that does business as
         ABCO Industries ("ABCO"). This equipment is used to produce steam which
         is used in processes, heating, drying, driving steam turbines and a
         variety of other applications. ABCO is also used to support the
         manufacturing needs of other Peerless products.

         Segment profit and loss is based on revenue, less allocated costs of
         the segment before allocation of general and administrative costs.
         There were no sales or transfers between segments. The company does not
         allocate assets, expenditures for assets or depreciation expense on a
         segment basis for internal management reporting and, therefore, such
         information is not presented. Segment information and a reconciliation
         to operating profit for the three months ended September 30, 2001 and
         2000 are presented below. Certain fiscal 2001 items have been
         reclassified to conform with the fiscal 2002 presentation.


                                      -6-
<PAGE>


                       PEERLESS MFG. CO. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>


                                       SCR           Gas/Liquid        Unallocated
                                    Systems          Filtration        Overhead        Consolidated
                                    ----------------------------------------------------------------
<S>                                 <C>                <C>                 <C>           <C>
THREE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues from customers              $14,513            $  9,196             $ -             $23,709

Segment profit (loss)                  3,215                 128            (2,120)            1,223

THREE MONTHS ENDED
SEPTEMBER 30, 2000

Revenues from customers             $  6,402             $ 4,657             $ -             $11,059

Segment profit (loss)                    511                 (24)           (1,026)             (539)
</TABLE>



                                      -7-

<PAGE>


                       PEERLESS MFG. CO. AND SUBSIDIARIES

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

The company's fiscal year ends on June 30th. References herein to fiscal 2002
and fiscal 2001 refer to our fiscal years ended June 30, 2002 and 2001,
respectively.

The following table displays the company's statements of operations as a
percentage of net revenues:

<TABLE>
<CAPTION>

                                                         Three Months Ended
                                                            September 30,
                                                       ----------------------
                                                         2001          2000
                                                       --------       -------
<S>                                                     <C>            <C>

Net revenues                                              100.0%        100.0%
Cost of revenues                                           70.6          72.2
                                                         ------       -------
    Gross margin                                           29.4          27.8

Operating expenses                                         24.2          32.7
                                                        -------       -------
    Operating income (loss)                                 5.2          (4.9)

Interest income (expense), net                              0.0          (1.7)
Other, net                                                 (0.1)         (1.0)
                                                        -------       -------

    Earnings (loss) before income taxes                     5.1          (7.6)

Income tax expense (benefit)                                1.9          (2.8)
                                                        -------       -------

Net earnings (loss)                                         3.2%         (4.8)%
                                                        =======       =======
</TABLE>

THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2000

Net revenues increased $12.6 million, or 114%, from $11.1 million for the three
months ended September 30, 2000 to $23.7 million for the three months ended
September 30, 2001. The increase in revenues was attributable to both reportable
segments. The increased demand for our SCR products caused a 127% increase in
revenues from our SCR Systems segment for the three months ended September 30,
2001 compared to the same period of the prior fiscal year. In addition, the
increased demand for our gas/liquid filtration products caused revenues from our
gas/liquid filtration segment to increase 98% over the same period of the prior
fiscal year.

Due to the new gas turbine powered electric generating facilities currently
under construction in the United States to fulfill our country's demand for
electricity, we anticipate the demand for our SCR products will continue to
increase. These new generating facilities use clean burning gas, which in turn
drives demand for our gas cleaning equipment. Coal fired electric power plants
are also contributing to the stronger demand we are seeing for our ammonia
handling systems. We provide ammonia storage and delivery systems to be used as
part of the NOx reduction systems to be installed at these coal fired plants.

                                      -8-
<PAGE>

                       PEERLESS MFG. CO. AND SUBSIDIARIES

Our backlog of unfilled orders was $69.5 million at September 30, 2001, compared
to approximately $24 million at September 30, 2000. The increase is primarily
due to significant SCR orders booked during the last nine months.

Our gross profit increased $3.9 million, or 126%, from $3.1 million for the
three months ended September 30, 2000 to $7.0 million for the three months ended
September 30, 2001. Gross profit, as a percentage of sales, increased to 29.4%
for the current quarter from 27.8% for the same period in fiscal 2001. The
higher gross margin was primarily attributable to increased margins recognized
on our SCR revenues.

Operating expenses increased by $2.1 million, or 59%, from $3.6 million for the
three months ended September 30, 2000 to $5.7 million for the three months ended
September 30, 2001. The increase in operating expenses was due the additional
costs of engineering and project management required for the increased SCR
activities, as well as increased general and administrative expenses to support
the overall increase in revenues. Operating expenses decreased as a percentage
of sales from 32.7% for the three months ended September 30, 2000 to 24.2% for
the same period in the current year.

Interest expense decreased by $0.2 million due to the fact that we had no
outstanding balances under our revolving line of credit or the ABCO installment
note as of September 30, 2001, compared to $6.6 million outstanding under our
revolver and $1.9 million outstanding on the ABCO installment note at September
30, 2000. We prepaid, in full, $1.6 million of the ABCO installment note early
in the first quarter of fiscal 2002. The lower effective borrowing rate under
our credit facilities also contributed to the lower interest expense we
incurred.

As a result of the factors discussed above, we recorded net earnings for the
quarter ended September 30, 2001, of $0.8 million, compared to a net loss of
$0.5 million for the same period in fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES

Effective August 31, 2001, we entered into a new $10 million revolving line of
credit facility that expires in October 2003. The credit line carries a floating
interest rate based on the prime rate less 0.25% (5.75% at September 30, 2001)
and is secured by substantially all of our assets. Our interest rate is subject
to change based on our financial performance. As of September 30, 2001, we had
no outstanding balance under the credit line, and $1.9 million outstanding under
letters of credit, leaving us with $8.1 million of availability under the credit
line. We pay an annual commitment fee of 0.25% of the unused balance under the
credit line. The credit line contains financial covenants, restrictions on
capital expenditures, acquisitions, asset dispositions, additional debt, and
other customary covenants.

We have historically been a net provider of cash from operations and have
financed our working capital requirements and capital expenditures through the
retention of earnings and the use of our short-term credit lines. However, cash
was used in operating activities for the first three months of fiscal 2002 in
the amount of $0.4 million, compared to cash provided by operating activities of
$0.4 million for the same period in fiscal 2001. The change was primarily the
result of the increases in accounts payable which were offset by an increase in
our accounts receivable and a decrease in our accrued liabilities.

The increases in accounts receivable are not attributable to our customers not
timely paying us, but rather are directly related to the nature of our business.
Because we are engaged in the business of manufacturing custom systems, our
progress billing practices are event oriented rather

                                      -9-
<PAGE>

                       PEERLESS MFG. CO. AND SUBSIDIARIES


than date oriented, and vary from contract to contract. We customarily bill our
customers after the occurrence of certain project milestones. For example, after
we complete engineering drawings for a customized product or after ordering raw
materials to produce that product. Once we bill our customer, our accounts
receivable balance increases as does our balance of billings in excess of costs
and earnings on uncompleted contracts. Consequently, we focus on the difference
between our accounts receivable balance and our billings in excess of costs
balance to determine our "net working capital impact" related to billings for a
particular period. As of September 30, 2001, our net working capital impact was
approximately $22.5 million, and as of September 30, 2000, that balance was
$17.8 million

A period to period analysis of our balance of accounts receivable must also take
into account any changes in our backlog (uncompleted orders less revenue
recognized under the percentage of completion method). The increase to our
accounts receivable balance from September 30, 2000, to September 30, 2001 was
directly related to the growth in demand for our products. Because we are
engaged in the business of manufacturing custom systems, our balances of
accounts receivables, billings in excess of costs and earnings, and costs and
earnings in excess of billings change in direct correlation to the quantity and
mix of our backlog, as well as the specific terms of each of our customer
contracts.

Although historically our capital expenditure requirements have not been
significant, we may have to increase our level of capital expenditures in the
future to expand our manufacturing capacity if the demand for our SCR System
continues to increase at the current rate.

We believe we maintain adequate liquidity to support existing operations and
planned growth, as well as to 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 our position as a market leader and to promote planned
internal growth and profitability. Although historically we have usually paid
quarterly dividends, we announced in January 2001 that we would not pay a
dividend for the quarter ending March 31, 2001, and thereafter in order to
preserve working capital for future growth. Our Board of Directors has decided
to continue the policy of preserving working capital for the quarter ended
September 30, 2001. Consequently, no dividend will be paid for that quarter.

NEW ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board issued FAS 141 "Business
Combinations" ("FAS 141") and FAS 142 "Goodwill and Other Intangible Assets"
("FAS 142"). FAS 141 addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination
initiated after June 30, 2001. FAS 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination,
whether acquired individually or with a group of other assets, and the
accounting and reporting for goodwill and other intangibles subsequent to their
acquisition. These standards require all future business combinations to be
accounted for using the purchase method of accounting. Goodwill will no longer
be amortized but instead will be subject to impairment tests at least annually.
The company will adopt FAS 142 on July 1, 2002. As a result of implementing
these new standards, the company will discontinue the amortization of goodwill
as of June 30, 2002.


                                      -10-
<PAGE>

                       PEERLESS MFG. CO. AND SUBSIDIARIES

In October 2001, the Financial Accounting Standards Board issued FAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144").
FAS 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement supersedes FAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("FAS 121") and related literature and establishes a single accounting
model, based on the framework established in FAS 121, for long-lived assets to
be disposed of by sale. The company is required to adopt FAS 144 for fiscal
years beginning after December 15, 2001.

The effect of adopting these standards will be immaterial to the company.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

The company occasionally makes forward-looking statements concerning its plans,
goals, product and service offerings, and anticipated financial performance.
These forward-looking statements may generally be identified by introductions
such as "outlook" for an upcoming period of time, or words and phrases such as
"should", "expect", "hope", "plans", "projected", "believes", "forward-looking"
(or variants of those words and phrases) or similar language indicating the
expression of an opinion or view concerning the future.

These forward-looking statements are subject to risks and uncertainties based on
a number of factors and actual results or events may differ materially from
those anticipated by such forward-looking statements. These factors include, but
are not limited to: the growth rate of the company's revenue and market share;
the consummation of new, and the non-termination of, existing contracts; the
company's ability to effectively manage its business functions while growing its
business in a rapidly changing environment; the company's ability to adapt and
expand its services in such an environment; the company's ability to
successfully refinance or extend its lines of credit or obtain alternative
sources of financing; the company's ability to effectively and efficiently
manage its backlog, large contracts for its SCR Systems, inventory levels and
processing of sales orders; the quality of the company's plans and strategies;
the company's ability to execute such plans and strategies; the company's
ability to manage its SCR Systems business if a slowdown occurs in the
construction or refurbishment of power plants; the company's ability to adapt to
changes in regulatory standards; and the size and value of product warranty
claims submitted to the company by customers.

In addition, forward-looking statements concerning the company's expected
revenue or earnings levels are subject to many additional uncertainties
applicable to competitors generally and to general economic conditions over
which the company has no control. The company does not plan to generally
publicly update prior forward-looking statements for unanticipated events or
otherwise and, accordingly, prior forward-looking statements should not be
considered to be "fresh" simply because the company has not made additional
comments on those forward-looking statements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There were no significant changes in market risk since June 30, 2001.


                                      -11-

<PAGE>
                       PEERLESS MFG. CO. AND SUBSIDIARIES

PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

A.       Exhibits.

         The following exhibits are filed as part of this report:

Exhibit
Number                              Exhibit
--------                           ---------

10(i) Employment Agreement dated July 20, 2001, by and between Sherrill Stone
      and the company.

10(j) Employment Agreement dated July 20, 2001, by and between Roy C. Cuny and
      the company.


10(k) Agreement dated July 20, 2001, by and between Sherrill Stone and the
      company.

10(l) Agreement dated July 20, 2001, by and between Roy C. Cuny and the company.

B.       Reports on Form 8-K.

         None.

                                      -12-
<PAGE>
                       PEERLESS MFG. CO. AND SUBSIDIARIES

                                   SIGNATURES


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

                                 PEERLESS MFG. CO.



Dated: November 14, 2001         /s/   Sherrill Stone
                                 ---------------------------------------------
                                 Sherrill Stone, Chairman, President and Chief
                                 Executive Officer


                                 /s/   Robert J. Boutin
                                 --------------------------------------------
                                 Robert J. Boutin, Chief Financial Officer
                                 (Principal Financial and Accounting Officer)


                                      -13-




<PAGE>



                                  EXHIBIT INDEX


Exhibit
Number                              Exhibit
-------                          -------------


10(i) Employment Agreement dated July 20, 2001, by and between Sherrill Stone
      and the company.

10(j) Employment Agreement dated July 20, 2001, by and between Roy C. Cuny and
      the company.

10(k) Agreement dated July 20, 2001, by and between Sherrill Stone and the
      company.

10(l) Agreement dated July 20, 2001, by and between Roy C. Cuny and the company.