<PAGE>

================================================================================

                       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
         MARCH 31, 2001

                                       or

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                           Commission file No. 0-30066

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

                           PINNACLE GLOBAL GROUP, INC.
             (Exact name of registrant as specified in its charter)

            TEXAS                                                76-0583569
(STATE OR OTHER JURISDICTION OF                               (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)                             IDENTIFICATION NO.)

                             600 TRAVIS, SUITE 2900
                              HOUSTON, TEXAS 77002
                     (Address of principal executive office)

                                 (713) 993-4610
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES __X__ NO _____

     The number of shares of Common Stock, par value $0.01 per share,
outstanding as of May 10, 2001, was 15,938,075.

================================================================================
<PAGE>

                  PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                       Page
                                                                                                       ----
<S>                                                                                                    <C>
PART I.       CONDENSED CONSOLIDATED FINANCIAL INFORMATION

       Item 1.    Financial Statements...............................................................    2

                  Condensed Consolidated Balance Sheet as of March 31, 2001 and
                    December 31, 2000 (unaudited)....................................................    2

                  Condensed Consolidated Statement of Operations for the Three Months
                    Ended March 31, 2001 and 2000 (unaudited) .......................................    3

                  Condensed Consolidated Statement of Shareholders' Equity for the Three
                    Months Ended March 31, 2001 (unaudited)..........................................    4

                  Condensed Consolidated Statement of Cash Flows for the Three Months
                    Ended March 31, 2001 and 2000 (unaudited)........................................    5

                  Notes to Condensed Consolidated Financial Statements (unaudited)...................    6

       Item 2.    Management's Discussion and Analysis of Financial Condition and Results of
                    Operations.......................................................................   15

       Item 3.    Quantitative and Qualitative Disclosures About Market Risks........................   19

PART II.      OTHER INFORMATION

       Item 1.    Legal Proceedings..................................................................   19

       Item 6.    Exhibits and Reports on Form 8-K...................................................   20

PART III.     SIGNATURES.............................................................................   21
</TABLE>

                                       1
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                  PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              MARCH 31,        DECEMBER 31,
                                                                                2001               2000
                                                                           --------------     --------------
<S>                                                                        <C>                <C>
                              ASSETS

Cash and cash equivalents                                                  $       20,616     $       25,059
Receivables, net of allowance of $615:
  Broker-dealers                                                                      682              1,643
  Customers                                                                         1,613              2,601
  Related parties                                                                   8,236              5,017
  Other                                                                               412                397
Deposits with clearing brokers                                                        250                250
Securities owned                                                                   11,213              9,675
Securities available for sale                                                       3,495              4,143
Intangible assets, net of accumulated amortization
  of $2,598 and $2,096                                                             44,601             45,103
Furniture and equipment                                                             2,388              2,359
Deferred income taxes                                                               2,451              2,280
Other assets                                                                          914                687
                                                                           --------------     --------------
      Total assets                                                         $       96,871     $       99,214
                                                                           ==============     ==============

               LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
  Accounts payable and accrued liabilities                                 $        6,223     $        6,800
  Payable to clearing broker-dealers                                                   19                 35
  Securities sold, not yet purchased                                                   96                591
  Net liabilities of discontinued operations                                          171              1,676
                                                                           --------------     --------------
      Total liabilities                                                             6,509              9,102
                                                                           --------------     --------------

Commitments and contingencies

Minority interests                                                                    146                186

Shareholders' equity:
  Preferred stock, $0.10 par value; 10,000,000 shares authorized;
    no shares issued and outstanding                                                    -                  -
  Common stock, $0.01 par value; 100,000,000 shares authorized;
  16,168,041 and 16,100,512 shares issued at March 31,
    2001 and December 31, 2000, respectively                                          162                161
  Additional paid-in capital                                                      104,157            103,670
  Receivables for shares issued                                                      (558)              (558)
  Accumulated deficit                                                              (8,809)            (9,711)
  Accumulated other comprehensive loss                                               (784)              (452)
  Unearned compensation                                                              (251)                 -
  Treasury stock at cost, 918,966 and 802,124 shares at
    March 31, 2001 and December 31, 2000, respectively                             (3,701)            (3,184)
                                                                           --------------     --------------
      Total shareholders' equity                                                   90,216             89,926
                                                                           --------------     --------------
      Total liabilities and shareholders' equity                           $       96,871     $       99,214
                                                                           ==============     ==============
</TABLE>

                The accompanying notes are an integral part of
               the condensed consolidated financial statements.

                                       2
<PAGE>

                  PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              THREE MONTHS ENDED
                                                                                   MARCH 31,
                                                                           2001                2000
                                                                                           RECLASSIFIED
                                                                      ---------------      ------------
<S>                                                                   <C>                  <C>
Revenues:
  Commissions                                                         $         6,611       $    3,116
  Principal transactions                                                        1,994            1,711
  Investment banking                                                            3,914            3,062
  Fiduciary, custodial and advisory fees                                        1,608            1,072
  Interest and dividends                                                          711              474
  Other income                                                                    514              409
                                                                      ---------------       ----------
      Total revenues                                                           15,352            9,844
                                                                      ---------------       ----------

Expenses:
  Employee compensation and benefits                                            8,818            4,828
  Floor brokerage, exchange and clearance fees                                    871              540
  Communications and data processing                                              868              465
  Occupancy                                                                       871              440
  Amortization of intangible assets                                               502              291
  Other general and administrative                                              1,375              982
                                                                      ---------------       ----------
      Total expenses                                                           13,305            7,546
                                                                      ---------------       ----------
Income from continuing operations before
  equity in loss of limited partnerships,
  income taxes and minority interests                                           2,047            2,298
Equity in loss of limited partnerships                                           (175)            (429)
Provision for income taxes                                                     (1,010)            (853)
Minority interests in net loss of consolidated companies                           40              113
                                                                      ---------------       ----------
Income from continuing operations                                                 902            1,129
Loss from discontinued operations, net of tax                                       -              (53)
                                                                      ---------------       ----------
Net income                                                            $           902       $    1,076
                                                                      ===============       ==========

Net income per share:
  Basic:
    From continuing operations                                        $          0.06       $     0.09
    From discontinued operations                                                 -                0.00
                                                                      ---------------       ----------
      Basic net income per share                                      $          0.06       $     0.09
                                                                      ===============       ==========
  Diluted:
    From continuing operations                                        $          0.06       $     0.09
    From discontinued operations                                                 -                0.00
                                                                      ---------------       ----------
      Diluted net income per share                                    $          0.06       $     0.09
                                                                      ===============       ==========

Weighted average shares outstanding
  Basic                                                                    15,238,876       11,787,916
                                                                      ===============       ==========
  Diluted                                                                  15,389,709       11,787,916
                                                                      ===============       ==========
</TABLE>

                 The accompanying notes are an integral part of
                the condensed consolidated financial statements.

                                       3
<PAGE>

                  PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED MARCH 31, 2001
                                 (IN THOUSANDS)
                                   (unaudited)

<TABLE>
<CAPTION>

                                             COMMON STOCK         TREASURY STOCK       ADDITIONAL  RECEIVABLES
                                        ---------------------  --------------------     PAID-IN    FOR SHARES        RETAINED
                                          SHARES      AMOUNT    SHARES      AMOUNT      CAPITAL      ISSUED      EARNINGS(DEFICIT)
                                        ----------    -------  --------   ---------    ---------  ------------   -----------------
<S>                                     <C>           <C>      <C>        <C>          <C>        <C>            <C>
Balance, December 31, 2000                  16,101     $ 161      (802)   $ (3,184)    $ 103,670  $      (558)         $   (9,711)

Acquisition of treasury stock                                     (117)       (517)

Issuance of restricted stock                    67         1                                 487

Amortization of unearned compensation

Comprehensive income:
  Net income                                                                                                                   902
  Net change in unrealized depreciation
    of securities available for sale,
    net of deferred taxes of $171
      Total comprehensive income
                                        ----------    ------   -------    --------     ---------  -----------          ----------
Balance, March 31, 2001                     16,168     $ 162      (919)   $ (3,701)    $ 104,157  $      (558)         $   (8,809)
                                        ==========    ======   =======    ========     =========  ===========          ==========


                                                           ACCUMULATED
                                                             OTHER
                                              UNEARNED    COMPREHENSIVE
                                            COMPENSATION      LOSS            TOTAL
                                            ------------ --------------   ---------------
<S>                                         <C>          <C>              <C>
Balance, December 31, 2000                    $      -   $         (452)  $        89,926

Acquisition of treasury stock                                                        (517)

Issuance of restricted stock                      (253)                               235

Amortization of unearned compensation                2                                  2

Comprehensive income:
  Net income                                                                          902
  Net change in unrealized depreciation
    of securities available for sale,
    net of deferred taxes of $171                                  (332)             (332)
                                                                          ---------------
      Total comprehensive income                                                      570

                                              --------   --------------   ---------------
Balance, March 31, 2001                       $   (251)  $         (784)  $        90,216
                                              ========   ==============   ===============
</TABLE>

              The accompanying notes are an integral part of
             the condensed consolidated financial statements.

                                       4
<PAGE>

                  PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
                                 (IN THOUSANDS)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                            2000
                                                                                        2001            RECLASSIFIED
                                                                                    -------------       ------------
<S>                                                                                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                        $         902        $    1,076
  Adjustments to reconcile net income to net cash
    (used in) provided by operating activities:
      Gain on sale of securities available for sale                                             -              (227)
      Depreciation                                                                            193               128
      Amortization of intangible assets                                                       502               291
      Minority interests in net loss of consolidated companies                                (40)             (113)
      Changes in operating assets and liabilities:
        (Increase) decrease in receivables                                                 (1,285)           75,166
        (Increase) decrease in securities owned                                            (1,538)           31,314
        Decrease in deposits with clearing brokers                                              -               197
        Decrease in securities sold, not yet purchased                                       (495)          (33,322)
        (Increase) decrease in other assets                                                  (227)               74
        Increase (decrease) in assets and liabilities of
          discontinued operations                                                          (1,505)              140
        Decrease in payable to clearing broker-dealers                                        (16)          (68,618)
        Decrease in accounts payable and accrued liabilities                                 (577)           (1,531)
                                                                                    -------------        ----------
          Net cash (used in) provided by operating activities                              (4,086)            4,575
                                                                                    -------------        ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                                       (234)              (85)
  Acquisitions, net of cash acquired of $0 and $11,801                                          -            11,658
  Proceeds from the sale of assets                                                             14                 -
  Purchase of securities available for sale                                                  (429)           (1,595)
  Proceeds from sales and maturities of securities available for sale                         574             1,662
                                                                                    -------------        ----------
          Net cash (used in) provided by investing activities                                 (75)           11,640
                                                                                    -------------        ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Purchase of treasury stock                                                                 (517)             (553)
  Issuance of restricted stock                                                                235                 -
                                                                                    -------------        ----------

          Net cash used in investing activities                                              (282)             (553)
          Net (decrease) increase in cash and cash equivalents                             (4,443)           15,662

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                           25,059            10,495
                                                                                    -------------        ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                          $      20,616        $   26,157
                                                                                    =============        ==========

Noncash investing and financing activities:
  Common stock issued for acquisitions                                              $           -        $   36,267
  Cash refund for taxes                                                             $          12        $        -
</TABLE>

                The accompanying notes are an integral part of
               the condensed consolidated financial statements.

                                       5
<PAGE>

1.       BASIS OF PRESENTATION

NATURE OF OPERATIONS

     Through its operating subsidiaries consisting of Pinnacle Management &
Trust ("PMT"), Sanders Morris Harris Inc. ("SMH"), Blackford Securities
Corporation ("Blackford"), and Cummer/Moyers Capital Advisors ("CMCA"), the
Company provides a broad range of financial services, including institutional
and retail brokerage, investment banking, merchant banking, trust related
services and investment management. The Company serves a diverse group of
institutional, corporate and individual clients.

     The Company merged with and acquired such operating subsidiaries during
2000 and 1999. The acquisitions were accounted for using the purchase method
and as a result current period results are not comparable to the prior period.

CONSOLIDATION

     The unaudited condensed consolidated financial statements of the Company
include the accounts of its wholly owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.

     In management's opinion, the unaudited condensed consolidated financial
statements include all adjustments necessary for a fair presentation of
financial position at March 31, 2001, results of operations for the three
months ended March 31, 2001 and 2000, and cash flows for the three months
ended March 31, 2001 and 2000. All such adjustments are of a normal recurring
nature. Interim results are not necessarily indicative of results for a full
year.

     These financial statements and notes should be read in conjunction with
the Company's annual report on Form 10-K for the year ended December 31, 2000.

RECENTLY ISSUED ACCOUNTING STANDARD

     On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The standard, as amended by
Statement of Financial Accounting Standards No. 137, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE
DATE OF FASB STATEMENT NO. 133, AN AMENDMENT OF FASB STATEMENT NO. 133, and
Statement of Financial Accounting Standards No. 138, ACCOUNTING FOR CERTAIN
DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FASB
STATEMENT NO. 133 (referred to hereafter as "FAS 133"), is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1,
2001 for the Company). FAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or in other
comprehensive income, depending on whether a derivative is designated as part
of a hedging relationship and, if it is, depending on the type of hedging
relationship. Due to the Company's limited use of derivative instruments, the
adoption of FAS 133 on January 1, 2001, did not have a significant effect on
the Company's results of operations or its financial position.

PROPOSED ACCOUNTING STANDARD

     The FASB recently announced that it proposes to change the accounting
for certain acquisitions and goodwill. This pronouncement, if finally
adopted, could affect the way the structure of future acquisitions are
accounted. Rules implementing the announced standards are not final and no
definitive date has been established for adopting the final standard.

                                       6
<PAGE>

2.       ACQUISITIONS

     On January 29, 1999, the Company acquired Harris Webb & Garrison, Inc.
("HWG,") PMT, and Spires Financial, L.P. ("Spires"). The former owners of
HWG, PMT, and Spires received 3,562,500 shares of the Company's common stock,
which represented 49.98% of the outstanding common stock. The acquisitions
were accounted for as purchases and, accordingly, the financial information
of HWG, PMT, and Spires is included in the Company's consolidated financial
statements from the date of acquisition. The purchase price of approximately
$31 million exceeded the fair value of identifiable net assets acquired by
approximately $22 million, which has been recorded as goodwill and is being
amortized on a straight-line basis over 25 years. During the second quarter
of 2000, the Company charged off approximately $8.3 million of goodwill
related to the discontinuance of operations of Spires.

     On January 31, 2000, HWG merged with Sanders Morris Mundy Inc. ("SMM").
SMM survived the merger, became a wholly owned subsidiary of the Company and
was renamed SMH. The former owners of SMM received 7,125,220 shares of the
Company's common stock in the merger, which represented approximately 50% of
the Company's outstanding common stock. The merger was accounted for as a
purchase and, accordingly, the financial information of SMM has been included
in the Company's consolidated financial statements from February 1, 2000. The
purchase price of approximately $37 million exceeded the fair value of
identifiable net assets acquired by approximately $23 million, which has been
recorded as goodwill and is being amortized on a straight-line basis over 25
years.

     On June 30, 2000, SMH acquired Blackford. The former owners of Blackford
received 1,000,000 shares of the Company's common stock and $5.5 million in
cash. The acquisition was accounted for as a purchase and, accordingly, the
financial information of Blackford has been included in the Company's
consolidated financial statements from June 30, 2000. The purchase price of
approximately $9.3 million exceeded the fair value of identifiable net assets
acquired by approximately $7.1 million, which has been recorded as goodwill
and is being amortized on a straight-line basis over 20 years.

     On October 2, 2000 the Company acquired the Cummer/Moyers companies
("C/M"). The former owners of C/M received a total of 850,000 of the
Company's common shares during October 2000 and subsequently earned an
additional 150,000 common shares for exceeding specified performance levels.
The additional 150,000 shares were issued in May 2001. The acquisition was
accounted for as a purchase and, accordingly, the financial information of
C/M has been included in the Company's consolidated financial statements from
October 2, 2000. The purchase price of approximately $5.9 million exceeded
the fair value of identifiable net assets acquired by approximately $5.9
million, which has been recorded as goodwill and is being amortized on a
straight-line basis over 20 years. In conjunction with the acquisition,
Cummer/Moyers Securities, Inc. ("CMS"), the broker-dealer division of C/M,
was merged into SMH, and CMCA, the asset manager division of C/M, became a
subsidiary of PGG.

     The following summarized unaudited pro forma financial information
assumes the SMM merger and the Blackford and C/M acquisitions occurred on
January 1, 2000 and further assumes the discontinuance of Spires on January
1, 2000:

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED MARCH 31,
                                                                    2000
                                                                 -----------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                               <C>
     Revenues                                                    $    18,014
     Income from continuing operations                                 2,330
     Basic and diluted earnings per share
       from continuing operations                                $      0.15
</TABLE>

     These unaudited pro forma amounts are derived from the historical
financial information of the acquired businesses and reflect adjustments for
amortization of intangible assets and for income taxes. The unaudited pro

                                       7
<PAGE>

forma financial information does not necessarily represent results that would
have occurred if the acquisitions had taken place on the basis assumed above,
nor are they indicative of the results of future combined operations.

3.       SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED

     Securities owned and securities sold, not yet purchased as of March 31,
2001 were as follows:

<TABLE>
<CAPTION>
                                                                            SOLD, NOT YET
                                                            OWNED             PURCHASED
                                                        ------------          ----------
                                                                  (IN THOUSANDS)
<S>                                                     <C>                 <C>
     Marketable:
       U.S. government and agency obligations           $        301          $        -
       Corporate stocks                                        4,585                 (96)
                                                        ------------          ----------
                                                               4,886                 (96)
     Not readily marketable:
       Partnerships                                            3,390                   -
       Corporate stocks and warrants                           2,937                   -
                                                        ------------          ----------
                                                        $     11,213          $      (96)
                                                        ============          ==========
</TABLE>

     Securities not readily marketable include investment securities (a) for
which there is no market on a securities exchange or no independent publicly
quoted market, (b) that cannot be publicly offered or sold unless
registration has been effected under the Securities Act of 1933, or (c) that
cannot be offered or sold because of other arrangements, restrictions, or
conditions applicable to the securities or to the Company.

     Securities not readily marketable consist of investments in limited
partnerships,  equities,  options and warrants.  The investments in limited
partnerships,  which are less than 5% ownership interests and are accounted
for using the equity method, consist of Environmental  Opportunities Fund,
L.P.,  Environmental  Opportunities Fund II, L.P.,  Environmental
Opportunities Fund II (Institutional),  L.P., Corporate Opportunities Fund,
L.P., Corporate Opportunities Fund (Institutional),  L.P., Sanders
Opportunity Fund, L.P., Sanders Opportunity Fund (Institutional),  L.P.,
LifeSciences  Opportunity Fund, L.P., and Tactical Opportunities High Yield
Fund, L.P.


                                       8
<PAGE>

4.       SECURITIES AVAILABLE FOR SALE

Securities available for sale at March 31, 2001 were as follows:

<TABLE>
<CAPTION>
                                                                          Gross Unrealized
                                                          Amortized   ------------------------    Estimated
                                                            Cost        Gains        Losses      Fair Value
                                                        ------------  ----------   -----------   -----------
                                                                            (in thousands)
<S>                                                     <C>           <C>          <C>           <C>
U.S. Government and agency obligations                  $      1,183  $       41   $         -   $     1,224
Corporate bonds                                                  100           -            (2)           98
Marketable equity securities                                   3,400           -        (1,227)        2,173
                                                        ------------  ----------   -----------   -----------
  Total                                                 $      4,683  $       41   $    (1,229)  $     3,495
                                                        ============  ==========   ===========   ===========

The contractual maturities of debt securities available for sale at March 31,
2001 were as follows:

Due after 1 year through 5 years                                                                 $     1,224
Due after 5 years through 10 years                                                                        98
                                                                                                 -----------
                                                                                                 $     1,322
                                                                                                 ===========
</TABLE>

     Gross gains on sales of securities available for sale were $96,000 and
$278,000 for the three months ended March 31, 2001 and 2000 respectively.
Gross losses on sales of securities available for sale were $96,000 and
$51,000 for the three months ended March 31, 2001 and 2000 respectively.

     Management evaluates the realizability of securities available for sale
to determine if a decline in value is other than temporary. Such evaluation
considers the length of time and the extent to which market value has been
less than cost, the financial condition and near-term prospects of the
issuer, and the intent and ability of the Company to retain its investment in
the issuer for a period of time sufficient to allow for any anticipated
recovery in market value. Management believes the unrealized losses are
temporary at March 31, 2001. However, no assurance can be given that a
write-down accounted for as a realized loss, will not be necessary in the
future.

5.       INCOME TAXES

     The differences between the effective tax rate reflected in the income
tax provision for continuing operations and the statutory federal rate were
as follows:

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED
                                                             MARCH 31,
                                                         2001        2000
                                                      ----------   ---------
                                                           (IN THOUSANDS)
<S>                                                   <C>          <C>
Tax computed using the statutory rate                 $      636   $     635
Nondeductible amortization of goodwill                       171          99
State income taxes and other                                 203         119
                                                      ----------   ---------
Total                                                 $    1,010   $     853
                                                      ==========   =========
</TABLE>

     The Company's effective tax rate was 54% and 46% at March 31, 2001 and
2000.

                                       9
<PAGE>

6.   DISCONTINUED OPERATIONS

ENGINEERED SYSTEMS, INC.

     Engineered Systems, Inc.'s ("ESI") operations were discontinued as of
December 31, 1995. The assets of ESI were disposed of on December 23, 1997,
for a $500,000 interest bearing note due in 2002. The purchaser also agreed
to complete customer contracts that were in process at the time of the sale.
However, the Company remains liable for costs incurred by the purchaser in
excess of amounts recoverable from customers. Through the third quarter of
1998, the Company believed, based in part on information provided by the
purchaser, that it had no additional liability with respect to the contracts
in process. Subsequent to December 31, 1998, the Company was notified that a
major customer cancelled its contract and that the other contracts in process
had incurred costs in excess of amounts recoverable from customers. As a
result, during the fourth quarter of 1998 the Company recorded an additional
loss related to ESI of $1,344,000, net of tax. In the second quarter of 1999,
the Company paid the purchaser $1,000,000 to satisfy a portion of those
liabilities. In the third quarter of 1999, the Company was notified that
additional costs would be incurred to complete certain customer contracts
and, therefore, the Company recorded an additional loss of $73,000, net of
tax. In March 2000, the Company was informed by certain customers that
payment would not be made based on delivery delays and failure to perform
under the terms of the contract. Therefore, the Company recorded an
additional loss of $1,200,000 during the fourth quarter of 1999. The Company
recorded additional losses of $100,000 during the second quarter and $200,000
during the fourth quarter of 2000 as a result of those continuing
liabilities. In March 2000, the Company paid the purchaser $420,000, and in
July 2000 the Company paid the purchaser an additional $1.4 million to
satisfy a portion of those liabilities. A final payment of approximately
$250,000 was made during April 2001 to reimburse the purchaser for completion
costs.

SPIRES FINANCIAL, L.P.

     Spires' operations were discontinued in June 2000 due to departures of
certain key employees and changes in the mortgage-backed securities market
resulting in part from interest rate increases. Spires incurred net losses of
$10.8 million for the year ended December 31, 2000, including goodwill
impairment of $8.3 million and $2.5 million, net of tax, for operating
losses, abandoned leases, and other expenses. The Company retained cash,
receivables from broker-dealers, deposits with clearing brokers, and
securities owned, but the other assets and liabilities of Spires totaling
$463,000, including proprietary software, databases, and property, were held
for sale at December 31, 2000 and were sold to a company associated with a
former officer and director of the Company in January 2001. No additional
gain or loss was recorded on the sale.

7.   COMMITMENTS AND CONTINGENCIES

     There were no firm underwriting commitments open at March 31, 2001. The
Company and its subsidiaries have obligations under operating leases that
expire by 2007 with initial noncancelable terms in excess of one year. During
the first quarter of 2001, the Company entered into agreements to sublease
two of its office spaces to independent parties.

     The Company has contingent liabilities and potential loss exposures
related to discontinued operations. The Company may also be exposed to
certain liabilities and claims associated with the discontinued liquid waste
business. In connection with the sale Energy Recovery Resources, Inc.
("ERRI,") the Company remains contingently liable for certain environmental
claims with a maximum exposure of $2.2 million until January 2002. A portion
of these potential environmental claims is covered by insurance with a
maximum deductible of $50,000 per occurrence. However, at March 31, 2001 the
Company is not aware of the existence of any such environmental claims. The
Company believes such potential claims will not have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.

     The former owners of C/M received a total of 850,000 of the Company's
common shares during October 2000 and subsequently earned an additional
150,000 common shares for exceeding specified performance levels. The
additional 150,000 shares were issued in May 2001.

                                       10
<PAGE>

     The Company is a party to various legal proceedings that are of an
ordinary or routine nature incidental to its operations. The Company believes
it has adequately reserved for such litigation matters and that they will not
have a material adverse effect on financial condition, results of operations,
or cash flows.

     The Company has uncommitted financing arrangements with clearing brokers
that finance customer accounts, certain broker-dealer balances and firm
trading positions. Although these customer accounts and broker-dealer
balances are not reflected on the balance sheet for financial accounting
reporting purposes, the Company has generally agreed to indemnify these
clearing brokers for losses they may sustain in connection with the accounts
and therefore, retains risk on these accounts. The Company is required to
maintain certain cash or securities on deposit with its clearing broker.

8.       TREASURY STOCK

     The Company repurchases its common stock from time to time primarily to
offset the dilutive effect of its employee stock options and stock purchase
plan. Such repurchases are accounted for using the cost method. During the
three months ended March 31, 2001, the Company reacquired 116,842 shares of
its common stock at a weighted average price of $4.42 per share, for an
aggregate purchase price of $517,000.

     Subsequent to March 31, 2001, the Company reacquired 61,000 shares of
its common stock at a weighted average price of $4.92 per share, totaling
$300,000. Additionally on April 5, 2001, the Company issued 600,000 of its
treasury shares to acquire Kissinger Financial Services, Inc. (See Note 14).

9.       EARNINGS PER COMMON SHARE

     Basic and diluted earnings per-share computations for the periods
indicated were as follows:

<TABLE>
<CAPTION>
                                                                                        THREE MONTHS ENDED MARCH 31,
                                                                                             2001          2000
                                                                                          ---------    ------------
                                                                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                                                <C>                <C>
Computation of basic and diluted earnings per common share for the three months
  ended March 31:
    Net income applicable to common stock                                                 $     902    $      1,076
                                                                                          =========    ============
    Weighted average number of common shares outstanding                                     15,239          11,788
    Common shares issuable under stock option plan                                              986               -
    Less shares assumed repurchased with proceeds                                              (835)              -
                                                                                          ---------    ------------
      Weighted average common shares outstanding                                             15,390          11,788
                                                                                          =========    ============
      Basic earnings per common share                                                     $    0.06    $       0.09
                                                                                          =========    ============
      Diluted earnings per common share                                                   $    0.06    $       0.09
                                                                                          =========    ============
</TABLE>

     Stock options outstanding of 50,000 and 1,070,050 at March 31, 2001 and
2000, respectively, have not been included in diluted earnings per common
share because their inclusion would have been antidilutive for the periods
presented.

                                       11
<PAGE>

10.      BUSINESS SEGMENT INFORMATION

     The Company's continuing businesses operate in two reportable business
segments. The Company's investment banking and brokerage segment includes the
operations of SMH and its predecessor, HWG. SMH is an investment banking and
brokerage services firm whose activities primarily include securities
underwriting and retail brokerage services. The Company's investment
management segment includes the operations of PMT and CMCA. PMT is a state
chartered trust company providing a variety of trust services including
investment management, estate settlement, and retirement planning. CMCA
provides investment management services to investors who prefer fixed-income
securities as a major part of their investment portfolios. The Spires segment
was discontinued during the second quarter of 2000. The following summarizes
certain financial information of each reportable segment for the three months
ended March 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                         AS OF OR FOR THE            AS OF OR FOR THE
                                                        THREE MONTHS ENDED          THREE MONTHS ENDED
                                                          MARCH 31, 2001              MARCH 31, 2000
                                                     -------------------------  ---------------------------
                                                     INVESTMENT                  INVESTMENT
                                                     BANKING AND    INVESTMENT  BANKING AND      INVESTMENT
                                                      BROKERAGE     MANAGEMENT   BROKERAGE       MANAGEMENT
                                                     -----------    ----------  -----------      ----------
                                                           (IN THOUSANDS)             (IN THOUSANDS)
<S>                                                  <C>            <C>         <C>              <C>
Revenues                                               $ 14,477     $     732    $    8,228      $     818
Income before equity in loss
  of limited partnerships, income
  taxes and minority interests                            2,860            38         1,915            328
Equity in loss of limited partnerships                     (176)            -          (429)             -
Total assets                                             63,346         5,424        28,439          5,519
</TABLE>

     The following table reconciles the reportable segments to the
consolidated income from continuing operations before equity in loss of
limited partnerships, income taxes and minority interests reported in the
consolidated statement of operations for the three months ended March 31,
2001 and 2000:

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED
                                                                            MARCH 31,
                                                                       2001           2000
                                                                    -----------     ---------
                                                                          (IN THOUSANDS)
<S>                                                                 <C>             <C>
Income before equity in loss of limited partnerships,
  income taxes and minority interests:

    Investment Banking and Brokerage                                $     2,860     $   1,915
    Investment Management                                                    38           328
                                                                    -----------     ---------
                                                                          2,898         2,243

Amortization of intangible assets                                          (502)         (291)
Corporate revenues and expenses, net                                       (349)          346
                                                                    -----------     ---------
Income from continuing operations
  before equity in loss of limited partnerships,
  income taxes and minority interests                               $     2,047     $   2,298
                                                                    ===========     =========
</TABLE>

                                       12
<PAGE>

11.      INCENTIVE PLAN

     Effective January 1, 2001, the Company adopted a deferred compensation
plan in which eligible employees may purchase shares of the Company's
restricted common stock at a price equal to 66.6% of the 20-day average of
the closing sales prices for a share of the Company's common stock, as
reported on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), ending on the day prior to the date the shares
are issued. The amount paid by the employees is recorded as compensation
expense on the issue date of the shares. The shares issued are valued at the
closing sales price on the date the shares are issued. The difference between
the value of the shares issued and the compensation expense recorded is
classified as unearned compensation and is shown as a separate component of
shareholders' equity. During the first quarter of 2001, 67,529 restricted
shares of the Company's common stock were granted under the deferred
compensation plan. Unearned compensation is being amortized to expense over
the three year vesting period and totaled $1,600 for the three months ended
March 31, 2001.

12.      COMPREHENSIVE INCOME

     Comprehensive income consists of the following:

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED MARCH 31,
                                                              2001           2000
                                                           ---------     ------------
                                                                 (IN THOUSANDS)
<S>                                                        <C>           <C>
Net income                                                 $     902     $      1,076
                                                           ---------     ------------
Other comprehensive income (loss), net of tax:
  Unrealized depreciation on securities                         (332)             (92)
  Reclassification adjustment for gains
    included in net income                                         -              150
                                                           ---------     ------------
Net change in unrealized depreciation
  on securities available for sale, net of tax                  (332)              58
                                                           ---------     ------------
      Total comprehensive income                           $     570     $      1,134
                                                           =========     ============
</TABLE>

13.      RELATED PARTIES

     The Company earned advisory fees from SMH's investments in limited
partnerships of $802,082 and $520,080 during the three months ended March 31,
2001 and 2000, respectively.

     The Company consolidated certain notes receivable and advanced an
additional $1.3 million to the limited partnerships during the three months
ended March 31, 2001. The new note in the original principal amount of
$2,847,000 matures on December 31, 2001, accrues interest at 11% and is
collateralized by certain promissory notes issued by the limited partnerships.

     During the first quarter of 2001, the Company amended the notes
receivable from shareholders to allow the shareholders to defer payments of
principal and interest until the fourth anniversary of the note and continue
for seven years.

                                       13
<PAGE>

14.      SUBSEQUENT EVENTS

     On April 5, 2001, the Company acquired Kissinger Financial Services,
Inc. ("Kissinger"), a Baltimore, Maryland based financial planning firm. The
former owner of Kissinger received a total of 600,000 of the Company's common
shares. The shares were issued in a transaction exempt from registration
pursuant to Section 4(2) of the Securities Act. As part of the acquisition,
the former owner of Kissinger agreed not to sell or transfer the common
shares received in the acquisition until after April 5, 2002. The Company
also granted registration rights to the former owner of Kissinger to include
these common shares in a shelf registration statement to be filed before
April 5, 2002. The acquisition was accounted for as a purchase and,
accordingly the financial information of Kissinger will be included in the
Company's consolidated financial statements from the date of acquisition. The
purchase price totaled approximately $3.4 million.


















                                       14
<PAGE>

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

     The following discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and their related notes thereto.

GENERAL

     We provide diversified financial services through our subsidiaries,
including institutional and retail brokerage, investment banking, merchant
banking, trust related services and investment management. All of these
activities are highly competitive and are sensitive to many factors outside
our control, including those factors listed under "Factors Affecting
Forward-Looking Statements."

     We closely monitor our operating environment to enable us to respond
promptly to market cycles. In addition, we seek to lessen earnings volatility
by controlling expenses, increasing fee-based business and developing new
revenue sources. Nonetheless, operating results of any individual period
should not be considered representative of future performance.

     We are the successor issuer to TEI, Inc., which is now a wholly owned
subsidiary. During 1995, 1996 and 1997, we disposed of all of its operations
other than its liquid waste business and the related facility located in
Charlotte, North Carolina. The liquid waste business and the related facility
were sold during 2000.

     From January 1997 through the first quarter of 1998, our management
actively evaluated strategies and financial alternatives for maximizing
shareholder value. In late April 1998, we reached an agreement in principle
to combine with three Houston-based financial services firms. These firms
were Harris Webb & Garrison, Inc., a full service regional investment
banking, brokerage and financial services firm serving the southwestern
United States; Pinnacle Management & Trust, a Texas state-chartered trust
company and investment management firm; and Spires Financial, L.P., a
regional institutional brokerage services and investment banking firm
specializing in fixed-income securities and whole loan and loan servicing
transactions.

     On January 29, 1999, TEI completed its combination with Harris Webb &
Garrison, Pinnacle Management & Trust and Spires Financial, with Pinnacle
Global Group emerging as the new public holding company. In the combination,
just over 50% of our outstanding common shares were issued to TEI's former
shareholders in exchange for their TEI common shares, and slightly less than
50%, or 3,562,500 common shares, were issued to the former owners of the
financial services firms.

     On January 31, 2000, we completed the merger of Harris Webb and
Garrison, our investment banking subsidiary with Sanders Morris Mundy Inc.
("SMM"). SMM survived the merger, was renamed Sanders Morris Harris Inc.
("SMH") and became our wholly owned subsidiary. In the merger, we issued
7,125,220 of our common shares to the former shareholders of SMM.

     On June 30, 2000, we acquired Blackford Securities Corporation
("Blackford") for 1,000,000 of our common shares and $5.5 million in cash.
Blackford, based in Garden City, New York, specializes in providing prime
brokerage services to investment partnerships and execution services to
institutions.

     Spires' operations were discontinued in June 2000 due to departures of
certain key employees and changes in the mortgage-backed securities market
resulting in part from interest rate increases. The Company retained cash,
receivables from broker-dealers, deposits with clearing brokers, and
securities owned, but the other assets and liabilities of Spires totaling
$463,000, including proprietary software, databases, and property, were held
for sale at December 31, 2000 and were sold to a company associated with a
former officer and director of the Company in January 2001. No additional
gain or loss was recorded on the sale.

     On October 2, 2000, we acquired the Cummer/Moyers companies. The former
owners of Cummer/Moyers received a total of 850,000 of our common shares
during October 2000 and subsequently earned an additional 150,000 common
shares for exceeding specified performance levels. The additional 150,000
shares were issued

                                       15
<PAGE>

in May 2001. The Cummer/Moyers companies, based in Fort Worth, Texas consist
of Cummer/Moyers Securities, a broker-dealer; and Cummer/Moyers Capital
Advisors, a specialist in providing fixed income investment portfolios to
institutional and individual clients (collectively, "C/M").

     On April 5, 2001, we acquired Kissinger Financial Services, Inc.
("Kissinger"). The former owner of Kissinger received a total of 600,000 of
our common shares. Kissinger, based in Baltimore, Maryland, provides
financial planning services to individuals.

     The historical financial information contained in this document for 2000
reflects the discontinuance of Spires. The following description of our
business includes the operation of the combined company after giving effect
to the January 1999 combination, the January 2000 SMM merger, the June 2000
Blackford acquisition, and the October 2000 C/M acquisitions, except for our
discontinued businesses.

COMPONENTS OF REVENUES AND EXPENSES

     REVENUES. Our revenues are comprised primarily of (1) commission revenue
from retail and institutional brokerage transactions, fees from asset-based
advisory services, and principal and agent transactions, (2) investment
banking revenue from corporate finance fees, mergers and acquisitions fees
and merchant banking fees and (3) fees from asset management and fiduciary
services. We also earn interest on the cash held and dividends received from
the equity securities held by us for our corporate capital accounts and have
gains (or losses) in our inventory account. Interest income results from
interest earned on our inventories of fixed-income securities prior to sale
and from interest and dividends earned on investments in our capital
accounts. Other sources of revenue include revenue earned from gains on the
sale of securities held in our corporate accounts, and from realized and
unrealized gains (or losses), on securities in our possession.

     EXPENSES. Our expenses consist of (1) compensation and benefits, (2)
brokerage and clearing costs, (3) interest expense and (4) other expenses.
Compensation and benefits is our largest expense item and includes wages,
salaries, commissions paid to retail and institutional brokers and investment
and merchant bankers, and benefits. During the first quarter of 2001,
compensation and benefits represented 66% as a percentage of total expenses,
and 57% as a percentage of total revenues. Compensation and benefits have
both a variable component based on revenue production, and a fixed component.
The variable component includes institutional and retail sales commissions,
bonuses, overrides, trading desk incentives, and management compensation.
Retail and institutional commissions are based on a competitive commission
schedule. The investment banking group and the research group receive a
salary and discretionary bonus as compensation. The fixed component includes
administrative and executive salaries, payroll taxes, employee benefits and
temporary employee costs.

     Brokerage and clearance expenses include clearing and settlement costs
associated with the retail and institutional brokerage business at SMH. SMH
clears its transactions primarily through the Pershing Division of Donaldson,
Lufkin and Jenrette Securities Corporation, a Credit Suisse First Boston
Company and other clearing brokers.

     Other expenses include (1) occupancy and equipment expenses, such as
rent and utility charges for facilities, and (2) communications and data
processing expense, such as third-party systems, data, and software program
providers.

     Amortization expense reflects the amortization of the goodwill recorded
through mergers and acquisitions.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31,2000

     Our financial results for the first quarter of 2000 include the results
of operations of HWG and PMT for the entire period, and SMM from the date of
merger, January 31, 2000. Blackford and C/M were acquired on June 30, 2000
and October 2, 2000, respectively; hence their operating results are not
included in the Company's

                                       16
<PAGE>

financial statements for the first three months of 2000. The data for the
three months ended March 31, 2001 reflects the operating results of SMH, PMT,
Blackford and C/M for the entire quarter.

     Total revenues rose to $15.4 million in 2001 from $9.8 million in 2000
primarily due to an increase in the number of sales and marketing
professionals due to the mergers with SMM, C/M and Blackford. Total expenses
for the period increased to $13.3 million from $7.5 million in the previous
year principally from compensation and benefits paid to employees who joined
the Company as a result of the SMM, C/M and Blackford mergers. Income from
continuing operations for the three months ended March 31, 2001 declined to
$902,000 in 2001 from $1.1 million in 2000. Basic and diluted income per
share from continuing operations was $0.06 for the three months ended March
31, 2001 compared to $0.09 for the same period in 2000.

     Commissions revenue increased to $6.6 million in 2001 from $3.1 million
in 2000 primarily as a result of the addition of approximately 18,000
brokerage accounts serviced by SMH, Blackford and C/M. At the beginning of
2000, HWG serviced approximately 3,000 accounts. Principal transactions
revenue totaled $2.0 million in 2001 versus $1.7 million in 2000. The first
three months of 2001 include approximately $1.0 million of principal
transaction revenues related to fixed income brokerage, a service that SMH
first offered during the third quarter of 2000. During the first quarter of
2000, principal transaction revenues include an unrealized gain of $660,000
associated with an increase in value of one of the Company's investments.
Investment banking revenue from advisory services and private security
offerings rose to $3.9 million in 2001 from $3.1 million in 2000 mainly due
to the inclusion of SMH for the entire first quarter of 2001. During the
first three months of 2001, SMH raised total gross proceeds for clients of
approximately $30 million. Fiduciary, custodial and advisory fees revenue
increased to $1.6 million in 2001 compared to $1.1 million in 2000 resulting
principally from the addition of fee based accounts obtained through the
acquisition of C/M as well as an increase in advisory fees raised from SMH's
investments in limited partnerships. Interest and dividend income rose to
$711,000 in 2001 from $474,000 in the same period last year primarily due to
the inclusion of SMH for the entire first quarter of 2001 versus only two
months during the prior year quarter.

     In the three months ended March 31, 2001, employee compensation and
benefits, increased to $8.8 million from $4.8 million in the same period last
year. Due to the merger with SMH and the acquisitions of Blackford and C/M,
total employees increased from 108 at January 1, 2000 to 208 at March 31,
2001. Floor brokerage, exchange and clearance fees increased to $871,000 in
2001 from $540,000 in 2000 mainly due to the inclusion of brokerage
operations at SMH, Blackford and C/M for the entire first three months of
2001 as well as the opening of the Dallas office and the addition of the
fixed-income trading division at SMH. Communication and data processing
costs, primarily related to costs at SMH and upgrades in technology and
services, including quotes and market data services, increased to $868,000 in
2001 from $465,000 in the same period last year principally due to the
inclusion of SMM, Blackford and C/M for the full first quarter in 2001.
Occupancy costs increased to $871,000 in 2001 from $440,000 in 2000 primarily
from the additional rent expense for office leases at SMH, Blackford and C/M.
The company leases office space in eleven offices throughout the United
States. Intangible asset amortization increased to $502,000 from $291,000 as
a result of additional goodwill recorded in the SMM, C/M and Blackford
mergers. Other general and administrative expenses increased to $1.4 million
from $1.0 million mainly due to the mergers with SMM, Blackford and C/M.

     The effective tax rate from continuing operations was 54% for the three
months ended March 31, 2001 compared to 46% for the three months ended March
31, 2000. Our effective tax rate exceeds the federal statutory income tax
rate primarily as a result of nondeductible goodwill amortization and state
income taxes.

LIQUIDITY AND CAPITAL RESOURCES

     We intend to satisfy a large portion of our funding needs with our own
capital resources, consisting largely of internally generated earnings and
liquid assets we held before the January 1999 combination.

     At March 31, 2001, we had approximately $20.6 million in cash and cash
equivalents, which together with liquid assets, consisting of receivables
from broker-dealers, deposits with clearing brokers, securities owned, and
securities available for sale represented about 37% of our total assets at
quarter-end.

                                       17
<PAGE>

     For the three months ended March 31, 2001, net cash used in operations
totaled $4.1 million versus net cash provided by operations of $4.6 million
during 2000. Current year cash used in operations is the result of increases
in working capital changes and other adjustments totaling $5 million offset
by net income of $902,000.

     Capital expenditures for the first quarter of 2001 were $234,000, mainly
from the purchase of furniture and computer equipment and software, as well
as for leasehold improvements, necessary for our growth. During the first
three months of 2001, we reacquired 117,000 of our common shares at a total
cost of approximately $517,000.

     At March 31, 2001, SMH, our registered broker-dealer subsidiary, was in
compliance with the net capital requirements of the Securities and Exchange
Commission's Uniform Net Capital Rules and had capital in excess of the
required minimum. PMT was in compliance with the Texas Department of Banking
net capital requirement and had capital in excess of the required minimum.

     We are a party to various legal proceedings that are of an ordinary or
routine nature incidental to our operations. We believe we have adequately
reserved for such litigation matters and that they will not have a material
adverse effect on our financial condition, results of operations, or cash
flows.

     We may be exposed to certain liabilities and claims associated with our
discontinued liquid waste business. In connection with the sale of ERRI, we
remain contingently liable for potential environmental claims with a maximum
exposure of $2.2 million until January 2002. However, at March 31, 2001, we
are not aware of the existence of any such environmental claims. A portion of
such potential claims is covered by insurance with a maximum deductible of
$50,000 per occurrence. We believe such potential claims will not have a
material adverse effect on our financial condition, results of operations, or
cash flows.

     A portion of our assets is highly liquid and short-term in nature,
consisting of cash and assets readily convertible into cash. Securities
borrowed and securities loaned, along with receivables from customers and
payables to customers, fluctuate as a result of the changes in the level of
positions held to facilitate customer transactions and changes in market
conditions. Receivables from others and payables to others fluctuate
primarily due to the change in adjustment to securities owned on a trade date
basis.

FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

      This quarterly report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended, (the "Acts"). These forward-looking statements may relate to such
matters as anticipated financial performance, future revenues or earnings,
business prospects, projected ventures, new products, anticipated market
performance and similar matters. The Private Securities Litigation Reform Act
of 1995 provides a safe harbor for forward-looking statements. To comply with
the terms of the safe harbor, the Company cautions readers that a variety of
factors could cause the Company's actual results to differ materially from
the anticipated results or other expectations expressed in the Company's
forward-looking statements. These risks and uncertainties, many of which are
beyond the Company's control, include, but are not limited to (1) trading
volume in the securities markets; (2) volatility of the securities markets
and interest rates; (3) changes in regulatory requirements which could affect
the demand for the Company's services or the cost of doing business; (4)
general economic conditions, both domestic and foreign, especially in the
regions where the Company does business; (5) changes in the rate of inflation
and related impact on securities markets; (6) competition from existing
financial institutions and other new participants in the securities markets;
(7) legal developments affecting the litigation experience of the securities
industry; (8) successful implementation of technology solutions and (9)
demand for the Company's services. The Company does not undertake any
obligation to publicly update or revise any forward-looking statements.

                                       18
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

MARKET RISKS

     The following discussion relates to our market risk sensitive
instruments as of March 31, 2001, and thus, includes such instruments held by
PMT and SMH.

     At March 31, 2001, PMT had equity securities under management with a
fair value of $517 million. PMT's fee income for the period ended March 31,
2001 would have been reduced by approximately $84,000 assuming a hypothetical
10% decrease in the value of its equity securities under management. PMT's
fee income could also be reduced from changes in interest rates to the extent
that such changes reduce the carrying value of securities under management.
Additionally, PMT's securities available for sale are recorded at a fair
value of approximately $3.5 million at March 31, 2001. These securities are
subject to equity price risk. This risk would amount to $350,000 based on a
potential loss in fair value from a hypothetical 10% decrease in the market
value of such equity securities. The actual equity price risk related to the
trading equity securities may differ substantially.

     SMH's trading equity securities are marked to market on a daily basis.
At March 31, 2001, SMH's trading equity securities were recorded at a fair
value of $4.6 million. These trading equity securities are subject to equity
price risk. This risk would amount to $460,000 based on a potential loss in
fair value from a hypothetical 10% decrease in the market value of such
equity securities. The actual equity price risk related to the trading equity
securities may differ substantially.

PART II.   OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     We are a party to various legal proceedings that are of an ordinary or
routine nature incidental to our operations. Certain of our litigation and
claims are covered by insurance with a maximum deductible of $50,000. We
believe we have adequately reserved for such litigation matters and that they
will not have a material adverse effect on our financial condition, results
of operations, or cash flows.

    We may be exposed to certain liabilities and claims associated with our
discontinued liquid waste business. In connection with the sale of ERRI, we
remain contingently liable for certain environmental claims with a maximum
exposure of $2.2 million until January 2002. However, at March 31, 2001, we
are not aware of the existence of any such environmental claims. A portion of
such potential claims is covered by insurance with a maximum deductible of
$50,000 per occurrence. We believe such potential claims will not have a
material adverse effect on our financial condition, results of operations, or
cash flows.



                                       19
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
EXHIBIT
NUMBER   DESCRIPTION
------   -----------
<S>      <C>
3.1      Articles of Incorporation of the Company, as amended (Filed as Appendix
         F to the Proxy Statement/Prospectus of the Company dated December 31,
         1998 (Reg. No. 333-65417) and incorporated herein by reference).

3.2      Amended and Restated Bylaws of the Company (Filed as an exhibit to the
         Company's Form 10-K for the year ending December 31, 1998 (File No.
         333-65417) and incorporated herein by reference).
</TABLE>


* Filed herewith.

       (b) Reports on Form 8-K.

      There were no reports on Form 8-K filed during the three-month period
ended March 31, 2001.









                                       20
<PAGE>

                                    PART III

                                   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, thereunto duly authorized.


                            PINNACLE GLOBAL GROUP, INC.

                            By   /s/   ROBERT E. GARRISON II
                                ------------------------------------------
                                          Robert E. Garrison II
                                   President & Chief Executive Officer


                            By  /s/  RICK BERRY
                                ------------------------------------------
                                                Rick Berry
                                          Chief Financial Officer



DATE:    MAY 10, 2001




                                       21