----

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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 MARCH 31, 2007**

**OR**

| o | **TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934** |
|---|-------------------------------------------------------------------------------------------------------------------------------------------|

**Commission        File No. 0-30066**

**SANDERS      MORRIS HARRIS GROUP INC.**

| **Texas**                                               |   | **76-0583569**                     |
|---------------------------------------------------------|--------|------------------------------------|
| (State                or other jurisdiction of          |   | (I.R.S.                Employer    |
| incorporation                or organization)           |   | Identification                No.) |
|                                                    |   |                               |
| **600                Travis, Suite 3100**               |   |                               |
| **Houston,                Texas**                       |   | **77002**                          |
| (Address                of principal executive offices) |   | (Zip                code)          |

**(713)      993-4610**

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----

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**SANDERS      MORRIS HARRIS GROUP INC. AND SUBSIDIARIES**

**INDEX**

|                        |   |                                                                                                                                                        |   | Page   |
|-----------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| **PART              I.**    |   |  **FINANCIAL                INFORMATION**                                                                                                              |   |   |
|                        |   |                                                                                                                                                        |   |   |
| Item                1.      |   | Financial                Statements                                                                                                                         |   | 2      |
|                        |   |                                                                                                                                                        |   |   |
|                        |   | Condensed                Consolidated Balance Sheet as of March 31, 2007 (unaudited) and December                31, 2006                                   |   | 2      |
|                        |   |                                                                                                                                                        |   |        |
|                        |   | Condensed                Consolidated Statement of Income for the Three Months Ended March                31, 2007                and 2006 (unaudited)      |   | 3      |
|                        |   |                                                                                                                                                        |   |   |
|                        |   | Condensed                Consolidated Statement of Shareholders' Equity for the Three Months                Ended                March 31, 2007 (unaudited) |   | 4      |
|                        |   |                                                                                                                                                        |   |        |
|                        |   | Condensed                Consolidated Statement of Cash Flows for the Three Months Ended March                31,                2007 and 2006 (unaudited)  |   | 5      |
|                        |   |                                                                                                                                                        |   |        |
|                        |   | Notes                to Condensed Consolidated Financial Statements (unaudited)                                                                             |   | 6      |
|                        |   |                                                                                                                                                        |   |   |
| Item                2.      |   | Management's                Discussion and Analysis of Financial Condition and Results of                Operations                                         |   | 18     |
|                        |   |                                                                                                                                                        |   |        |
| Item                3.      |   | Quantitative                and Qualitative Disclosures About Market Risk                                                                                   |   | 24     |
|                        |   |                                                                                                                                                        |   |   |
| Item                4.      |   | Controls                and Procedures                                                                                                                      |   | 24     |
|                        |   |                                                                                                                                                        |   |   |
| **PART                II.** |   | **OTHER                INFORMATION**                                                                                                                        |   |   |
|                        |   |                                                                                                                                                        |   |   |
| Item                1.      |   | Legal                Proceedings                                                                                                                            |   | 25     |
|                        |   |                                                                                                                                                        |   |   |
| Item                6.      |   | Exhibits                                                                                                                                                    |   | 26     |

----

**PART      I. FINANCIAL INFORMATION**

**Item        1. *F***
***inancial        Statements***

| **SANDERS                  MORRIS HARRIS GROUP INC. AND SUBSIDIARIES**               |
|--------------------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED BALANCE SHEET**                            |
| **As                  of March 31, 2007 and December 31, 2006**                      |
| (in                  thousands, except share and per share                  amounts) |

|                                                                                                                                    |   | **March                    31,** |    | **December                    31,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|-------------------------------------|--------|
|                                                                                                                                    |   | **2007**                         |    | **2006**                            |   |
|                                                                                                                                    |   | **(unaudited)**                  |    |                                |   |
|                                                                                                                                    |   |                             |    |                                |   |
| **ASSETS**                                                                                                                              |   |                             |    |                                |   |
| Cash                    and cash equivalents                                                                                            |   | $                                | 48,539  |                                | $      | 68,861 |   |
| Receivables,                    net of allowance of $238 and $227, respectively                                                         |   |                             |    |                                |   |   |   |
| Broker-dealers                    and clearing organizations                                                                            |   |                             | 350     |                                |   | 505 |   |
| Customers                                                                                                                               |   |                             | 19,505  |                                |   | 16,720 |   |
| Related                    parties                                                                                                      |   |                             | 8,425   |                                |   | 6,212 |   |
| Other                                                                                                                                   |   |                             | 4,044   |                                |   | 5,587 |   |
| Deposits                    with clearing organizations                                                                                 |   |                             | 1,087   |                                |   | 1,084 |   |
| Securities                    owned                                                                                                     |   |                             | 84,905  |                                |   | 82,462 |   |
| Securities                    available for sale                                                                                        |   |                             | 1,399   |                                |   | 1,467 |   |
| Furniture,                    equipment, and leasehold improvements, net                                                                |   |                             | 12,020  |                                |   | 12,323 |   |
| Other                    assets and prepaid expenses                                                                                    |   |                             | 2,846   |                                |   | 2,048 |   |
| Goodwill                    and other intangibles                                                                                       |   |                             | 84,773  |                                |   | 84,773 |   |
| Total                    assets                                                                                                         |   | $                                | 267,893 |                                | $      | 282,042 |   |
|                                                                                                                                    |   |                             |    |                                |   |   |   |
| **LIABILITIES                    AND SHAREHOLDERS' EQUITY**                                                                             |   |                             |    |                                |   |   |   |
| Liabilities:                                                                                                                            |   |                             |    |                                |   |   |   |
| Accounts                    payable and accrued liabilities                                                                             |   | $                                | 18,188  |                                | $      | 25,550 |   |
| Borrowings                                                                                                                              |   |                             | 555     |                                |   | 555 |   |
| Deferred                    tax liability, net                                                                                          |   |                             | 2,852   |                                |   | 3,037 |   |
| Securities                    sold, not yet purchased                                                                                   |   |                             | 13,687  |                                |   | 20,107 |   |
| Payable                    to broker-dealers and clearing organizations                                                                 |   |                             | 547     |                                |   | 733 |   |
| Total                    liabilities                                                                                                    |   |                             | 35,829  |                                |   | 49,982 |   |
|                                                                                                                                    |   |                             |    |                                |   |   |   |
| Commitments                    and contingencies                                                                                        |   |                             |    |                                |   |   |   |
|                                                                                                                                    |   |                             |    |                                |   |   |   |
| Minority                    interests                                                                                                   |   |                             | 10,753  |                                |   | 12,124 |   |
|                                                                                                                                    |   |                             |    |                                |   |   |   |
| 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;                    25,451,240 and 25,273,437 shares issued,                                                                 |   |                             |    |                                |   |   |   |
| respectively                                                                                                                            |   |                             | 254     |                                |   | 253 |   |
| Additional                    paid-in capital                                                                                           |   |                             | 200,026 |                                |   | 199,176 |   |
| Retained                    earnings                                                                                                    |   |                             | 24,435  |                                |   | 23,902 |   |
| Accumulated                    other comprehensive income                                                                               |   |                             | 77      |                                |   | 86 |   |
| Treasury                    stock, at cost, 739,411 shares                                                                              |   |                             | (3,481  | )                                   |   | (3,481 | ) |
| Total                    shareholders' equity                                                                                           |   |                             | 221,311 |                                |   | 219,936 |   |
| Total                    liabilities and shareholders' equity                                                                           |   | $                                | 267,893 |                                | $      | 282,042 |   |
|                                                                                                                                    |   |                             |    |                                |   |   |   |
| The                    accompanying notes are an integral part of these condensed consolidated                    financial statements. |

----

| **SANDERS                  MORRIS HARRIS GROUP INC. AND SUBSIDIARIES** |
|------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENT OF INCOME**        |
| (in                  thousands, except per share amounts)              |
| (unaudited)                                                            |

|                                                                                |   | **Three                    Months Ended** |   |
|-------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                |   | **March                    31,**          |   |
|                                                                                |   | **2007**                                  |   | **2006** |   |
| Revenues:                                                                           |   |                                      |   |   |   |
| Commissions                                                                         |   | $                                         | 13,518 |   | $ | 14,782 |   |
| Investment                    banking                                               |   |                                      | 10,159 |   |   | 9,925 |   |
| Investment                    advisory and related services                         |   |                                      | 14,860 |   |   | 8,311 |   |
| Principal                    transactions                                           |   |                                      | 3,322  |   |   | 6,170 |   |
| Interest                    and dividends                                           |   |                                      | 1,940  |   |   | 1,419 |   |
| Other                    income                                                     |   |                                      | 1,684  |   |   | 1,396 |   |
| Total                    revenues                                                   |   |                                      | 45,483 |   |   | 42,003 |   |
| Expenses:                                                                           |   |                                      |   |   |   |   |   |
| Employee                    compensation and benefits                               |   |                                      | 26,516 |   |   | 25,029 |   |
| Floor                    brokerage, exchange, and clearance fees                    |   |                                      | 1,505  |   |   | 1,780 |   |
| Communications                    and data processing                               |   |                                      | 2,270  |   |   | 2,000 |   |
| Occupancy                                                                           |   |                                      | 3,031  |   |   | 2,476 |   |
| Interest                                                                            |   |                                      | 12     |   |   | 201 |   |
| Other                    general and administrative                                 |   |                                      | 5,673  |   |   | 5,127 |   |
| Total                    expenses                                                   |   |                                      | 39,007 |   |   | 36,613 |   |
| Income                    from continuing operations before equity in (loss) income |   |                                      |   |   |   |   |   |
| of                    limited partnerships, minority interests, and income taxes    |   |                                      | 6,476  |   |   | 5,390 |   |
| Equity                    in (loss) income of limited partnerships                  |   |                                      | (315   | ) |   | 1,825 |   |
| Income                    from continuing operations before minority interests      |   |                                      |   |   |   |   |   |
| and                    income taxes                                                 |   |                                      | 6,161  |   |   | 7,215 |   |
| Minority                    interests in net income of consolidated companies       |   |                                      | (1,839 | ) |   | (1,403 | ) |
| Income                    from continuing operations before income taxes            |   |                                      | 4,322  |   |   | 5,812 |   |
| Provision                    for income taxes                                       |   |                                      | 1,581  |   |   | 2,353 |   |
| Income                    from continuing operations                                |   |                                      | 2,741  |   |   | 3,459 |   |
| Loss                    from discontinued operations, net of tax                    |   |                                      | -      |   |   | (699 | ) |
| Net                    income                                                       |   | $                                         | 2,741  |   | $ | 2,760 |   |
|                                                                                |   |                                      |   |   |   |   |   |
| Basic                    earnings (loss) per common share:                          |   |                                      |   |   |   |   |   |
| Continuing                    operations                                            |   | $                                         | 0.11   |   | $ | 0.18 |   |
| Discontinued                    operations                                          |   |                                      | -      |   |   | (0.03 | ) |
| Net                    earnings                                                     |   | $                                         | 0.11   |   | $ | 0.15 |   |
| Diluted                    earnings (loss) per common share:                        |   |                                      |   |   |   |   |   |
| Continuing                    operations                                            |   | $                                         | 0.11   |   | $ | 0.18 |   |
| Discontinued                    operations                                          |   |                                      | -      |   |   | (0.04 | ) |
| Net                    earnings                                                     |   | $                                         | 0.11   |   | $ | 0.14 |   |
|                                                                                |   |                                      |   |   |   |   |   |
| Weighted                    average common shares outstanding:                      |   |                                      |   |   |   |   |   |
| Basic                                                                               |   |                                      | 24,611 |   |   | 18,989 |   |
| Diluted                                                                             |   |                                      | 24,939 |   |   | 19,482 |   |

| The                  accompanying notes are an integral part of these condensed consolidated                  financial statements. |
|-------------------------------------------------------------------------------------------------------------------------------------|

----

| **SANDERS                  MORRIS HARRIS GROUP INC. AND SUBSIDIARIES**                                    |
|-----------------------------------------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'                  EQUITY** |
| **For                  the three months ended March 31, 2007**                                            |
| (in                  thousands, except shares and per share amounts)                                      |
| (unaudited)                                                                                               |

|                                                                                                    |   | Amounts |        |   |   | Shares |   |
|---------------------------------------------------------------------------------------------------------|--------|---------|-------------|--------|--------|--------|--------|
| **Common                  stock**                                                                       |   |    |        |   |   |   |   |
| Balance,                  beginning of period                                                           |   | $       | 253         |   |   |   |   |   | 25,273,437 |   |
| Stock                  issued pursuant to employee benefit plan                                         |   |    | 1           |   |   |   |   |   | 177,803 |   |
| Balance,                  end of period                                                                 |   |    | 254         |   |   |   |   |   | 25,451,240 |   |
| **Additional                  paid-in capital**                                                         |   |    |        |   |   |   |   |   |   |   |
| Balance,                  beginning of period                                                           |   |    | 199,176     |   |   |   |   |   |   |   |
| Stock                  issued pursuant to employee benefit plan; including tax                  benefit |   |    | 252         |   |   |   |   |   |   |   |
| Stock-based                  compensation expense                                                       |   |    | 598         |   |   |   |   |   |   |   |
| Balance,                  end of period                                                                 |   |    | 200,026     |   |   |   |   |   |   |   |
| **Retained                  earnings**                                                                  |   |    |        |   |   |   |   |   |   |   |
| Balance,                  beginning of period                                                           |   |    | 23,902      |   |   |   |   |   |   |   |
| Cash                  dividends ($0.09 per share)                                                       |   |    | (2,208      | )      |   |   |   |   |   |   |
| Net                  income                                                                             |   |    | 2,741       |   |   | 2,741  |   |   |   |   |
| Balance,                  end of period                                                                 |   |    | 24,435      |   |   | 2,741  |   |   |   |   |
| **Accumulated                  other comprehensive income (loss)**                                      |   |    |        |   |   |   |   |   |   |   |
| Balance,                  beginning of period                                                           |   |    | 86          |   |   |   |   |   |   |   |
| Net                  change in unrealized appreciation                                                  |   |    |        |   |   |   |   |   |   |   |
| on                  securities available for sale                                                       |   |    | (15         | )      |   | (15    | )      |   |   |   |
| Income                  tax benefit on change in unrealized                                             |   |    |        |   |   |   |   |   |   |   |
| appreciation                  on securities available for sale                                          |   |    | 6           |   |   | 6      |   |   |   |   |
| Balance,                  end of period                                                                 |   |    | 77          |   |   | (9     | )      |   |   |   |
| **Comprehensive                  income**                                                               |   |    |        |   |   | 2,732  |   |   |   |   |
| **Treasury                  stock**                                                                     |   |    |        |   |   |   |   |   |   |   |
| Balance,                  beginning of period                                                           |   |    | (3,481      | )      |   |   |   |   | (739,411 | ) |
| Balance,                  end of period                                                                 |   |    | (3,481      | )      |   |   |   |   | (739,411 | ) |
| **Total                  shareholders' equity and common shares                  outstanding**          |   | $       | **221,311** |   |   |   |   |   | **24,711,829** |   |

| The                  accompanying notes are an integral part of these condensed consolidated                  financial statements. |
|-------------------------------------------------------------------------------------------------------------------------------------|

----

| **SANDERS                  MORRIS HARRIS GROUP INC. AND SUBSIDIARIES**  |
|-------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENT OF CASH FLOWS**     |
| **For                  the three months ended March 31, 2007 and 2006** |
| (in                  thousands)                                         |
| (unaudited)                                                             |

|                                                                                                                              |   | **2007** |    | **2006**       |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------------|--------|
|                                                                                                                              |   |     |    | **(Restated)** |   |
| CASH                    FLOWS FROM OPERATING ACTIVITIES:                                                                          |   |     |    |           |   |
| Net                    income                                                                                                     |   | $        | 2,741   |           | $      | 2,760 |   |
| Adjustments                    to reconcile net income to net cash (used in) provided by operating                    activities: |   |     |    |           |   |   |   |
| Realized                    gain on securities available for sale                                                                 |   |     | -       |           |   | (1 | ) |
| Gain                    on sales of assets                                                                                        |   |     | (3      | )              |   | - |   |
| Depreciation                                                                                                                      |   |     | 843     |           |   | 624 |   |
| Provision                    for bad debts                                                                                        |   |     | 3       |           |   | 66 |   |
| Stock-based                    compensation expense                                                                               |   |     | 598     |           |   | 485 |   |
| Deferred                    income taxes                                                                                          |   |     | (179    | )              |   | 1,444 |   |
| Equity                    in loss (income) of limited partnerships                                                                |   |     | 315     |           |   | (1,825 | ) |
| Minority                    interests in net income of consolidated companies                                                     |   |     | 1,839   |           |   | 1,398 |   |
| Net                    change in:                                                                                                 |   |     |    |           |   |   |   |
| Receivables                                                                                                                       |   |     | (3,303  | )              |   | 1,699 |   |
| Deposits                    with clearing organizations                                                                           |   |     | (3      | )              |   | (2 | ) |
| Securities                    owned                                                                                               |   |     | (2,758  | )              |   | (103,807 | ) |
| Other                    assets and prepaid expenses                                                                              |   |     | (798    | )              |   | (48 | ) |
| Accounts                    payable and accrued liabilities                                                                       |   |     | (8,467  | )              |   | (4,450 | ) |
| Securities                    sold, not yet purchased                                                                             |   |     | (6,420  | )              |   | 95,659 |   |
| Payable                    to broker-dealers and clearing organizations                                                           |   |     | (186    | )              |   | 8,074 |   |
| Net                    cash (used in) provided by operating activities                                                            |   |     | (15,778 | )              |   | 2,076 |   |
| CASH                    FLOWS FROM INVESTING ACTIVITIES:                                                                          |   |     |    |           |   |   |   |
| Capital                    expenditures                                                                                           |   |     | (541    | )              |   | (2,861 | ) |
| Proceeds                    from sales and maturities of securities available for sale                                            |   |     | 53      |           |   | 65 |   |
| Proceeds                    from sales of assets                                                                                  |   |     | 4       |           |   | - |   |
| Net                    cash used in investing activities                                                                          |   |     | (484    | )              |   | (2,796 | ) |
| CASH                    FLOWS FROM FINANCING ACTIVITIES:                                                                          |   |     |    |           |   |   |   |
| Proceeds                    from shares issued pursuant to employee benefit plan                                                  |   |     | 199     |           |   | 784 |   |
| Tax                    benefit of stock options exercised                                                                         |   |     | 54      |           |   | 377 |   |
| Collection                    of receivables for shares issued                                                                    |   |     | -       |           |   | 15 |   |
| Proceeds                    from borrowings                                                                                       |   |     | -       |           |   | 7,000 |   |
| Repayment                    of borrowings                                                                                        |   |     | -       |           |   | (1,320 | ) |
| Distributions                    to minority interests                                                                            |   |     | (3,210  | )              |   | (1,041 | ) |
| Payments                    of cash dividends                                                                                     |   |     | (1,103  | )              |   | (850 | ) |
| Net                    cash (used in) provided by financing activities                                                            |   |     | (4,060  | )              |   | 4,965 |   |
| Net                    (decrease) increase in cash and cash equivalents                                                           |   |     | (20,322 | )              |   | 4,245 |   |
| CASH                    AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                               |   |     | 68,861  |           |   | 17,867 |   |
| CASH                    AND CASH EQUIVALENTS AT END OF PERIOD                                                                     |   | $        | 48,539  |           | $      | 22,112 |   |
| Supplemental                    cash flow information:                                                                            |   |     |    |           |   |   |   |
| Cash                    refund for income taxes, net                                                                              |   | $        | (8      | )              | $      | (636 | ) |
| Cash                    paid for interest                                                                                         |   | $        | 10      |           | $      | 129 |   |
| Noncash                    financing activites:                                                                                   |   |     |    |           |   |   |   |
| Dividends                    declared not yet paid                                                                                |   | $        | 1,105   |           | $      | 856 |   |

| The                  accompanying notes are an integral part of these condensed consolidated                  financial statements. |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|

----

**SANDERS      MORRIS HARRIS GROUP INC. AND SUBSIDIARIES**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

**1. **
**BASIS      OF PRESENTATION**

*Nature      of Operations*

*Principles      of Consolidation*

*Management’s      Estimates*

----

*Recent      Accounting Pronouncements*

** **
*Accounting      for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.      109*
*Accounting      for Income Taxes*

*Fair      Value Measurements. *

*The        Fair Value Option for Financial Assets and Financial Liabilities — Including an        Amendment of FASB Statement No. 115. *
*Accounting        for Certain Investments in Debt and Equity Securities, *

----

**2. **
**RESTATEMENT**

|                                                              |   | **Three                  Months Ended March 31,** |   |
|-------------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                              |   | **2006**                                          |   |
|                                                              |   | **As                  Reported**                  |   | **As                  Restated** |   |
|                                                              |   |                                              |   |   |   |
| Change                  in payable to broker-dealers and clearing |   |                                              |   |   |   |
| organizations                                                     |   | $                                                 | 11,329 |   | $ | 8,074 |   |
| Net                  cash provided by operating activities        |   |                                              | 5,331  |   |   | 2,076 |   |
| Net                  increase in cash and cash equivalents        |   |                                              | 7,500  |   |   | 4,245 |   |
| Cash                  and cash equivalents at beginning of period |   |                                              | 14,612 |   |   | 17,867 |   |
| Cash                  and cash equivalents at end of period       |   |                                              | 22,112 |   |   | 22,112 |   |

**3.  **
**SECURITIES      OWNED AND SECURITIES SOLD, NOT YET PURCHASED**

|                                          |   | **March                  31, 2007** |   |  **December                  31, 2006** |   |
|-----------------------------------------------|--------|-------------------------------------|--------|----------------------------------------------|--------|
|                                          |   | **Owned**                           |   | **Sold,                  Not Yet Purchased** |   | **Owned** |   | **Sold,                  Not Yet Purchased** |   |
|                                          |   | **(in                  thousands)** |   |
| Marketable:                                   |   |                                |   |                                         |   |   |   |   |   |
| U.S.                  government and agency   |   | $                                   | 130    |                                         | $      | 15 |   | $ | 260 |   | $ | 15 |   |
| Corporate                  stocks and options |   |                                | 19,761 |                                         |   | 13,632 |   |   | 36,843 |   |   | 20,051 |   |
| Corporate                  bonds              |   |                                | -      |                                         |   | 40 |   |   | - |   |   | 41 |   |
|                                          |   |                                | 19,891 |                                         |   | 13,687 |   |   | 37,103 |   |   | 20,107 |   |
| Not                  readily marketable:      |   |                                |   |                                         |   |   |   |   |   |   |   |   |   |
| Limited                  partnerships         |   |                                | 55,601 |                                         |   | - |   |   | 36,095 |   |   | - |   |
| Warrants                                      |   |                                | 8,740  |                                         |   | - |   |   | 8,795 |   |   | - |   |
| Equities                  and options         |   |                                | 673    |                                         |   | - |   |   | 469 |   |   | - |   |
|                                          |   |                                | 65,014 |                                         |   | - |   |   | 45,359 |   |   | - |   |
|                                          |   | $                                   | 84,905 |                                         | $      | 13,687 |   | $ | 82,462 |   | $ | 20,107 |   |

----

**4. **
**SECURITIES      AVAILABLE FOR SALE**

|                                                      |   | **Amortized**                               |   | **Gross                    Unrealized** |   | **Estimated** |   |
|-----------------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------------------|--------|---------------|--------|
|                                                      |   | **Cost**                                    |   | **Gains**                               |   | **Losses**    |   | **Fair                    Value** |   |
|                                                      |   |  **(in                    thousands)** |   |
|                                                      |   |                                        |   |                                    |   |          |   |   |   |
| U.S.                    government and agency obligations |   | $                                           | 663    |                                    | $      | 3             |   | $ | (3 | ) | $ | 663 |   |
| Corporate                    bond                         |   |                                        | 250    |                                    |   | -             |   |   | (2 | ) |   | 248 |   |
| Marketable                    equity securities           |   |                                        | 359    |                                    |   | 129           |   |   | - |   |   | 488 |   |
| Total                                                     |   | $                                           | 1,272  |                                    | $      | 132           |   | $ | (5 | ) | $ | 1,399 |   |

|                               |   | **Amortized                    Cost** |   | **Estimated****Fair                    Value** |   |
|------------------------------------|--------|---------------------------------------|--------|------------------------------------------------|--------|
|                               |   | **(in                    thousands)** |   |
|                               |   |                                  |   |                                           |   |
| Within                    one year |   | $                                     | 750    |                                           | $      | 745 |   |
| Over                    25 years   |   |                                  | 163    |                                           |   | 166 |   |
| Total                              |   | $                                     | 913    |                                           | $      | 911 |   |

**5. **
**BORROWINGS**

----

**6. **
**INCOME      TAXES**

|                                                                                                          |   | **Three                    Months Ended March 31,** |   |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                                                          |   | **2007**                                            |   | **2006** |   |
|                                                                                                          |   | **(in                    thousands)**               |   |
|                                                                                                          |   |                                                |   |   |   |
| Expected                    federal tax at statutory rate of 35% for 2007 and 34% for                    2006 |   | $                                                   | 1,513  |   | $ | 1,976 |   |
| State                    and other income taxes                                                               |   |                                                | 68     |   |   | 377 |   |
| Total                                                                                                         |   | $                                                   | 1,581  |   | $ | 2,353 |   |

**7. **
**ACCOUNTING        FOR STOCK-BASED COMPENSATION**
**        PLANS**

|                                                                            |   | **Number                    of****Shares** |      | **Weighted****Average****Exercise                    Price** |   |
|---------------------------------------------------------------------------------|--------|--------------------------------------------|-----------|--------------------------------------------------------------|--------|
|                                                                            |   |                                       |      |                                                         |   |
| Outstanding                    at January 1, 2007                               |   |                                       | 911,585   |                                                         | $      | 8.08 |   |
| Granted                                                                         |   |                                       | -         |                                                         |   | - |   |
| Exercised                                                                       |   |                                       | (25,000   | )                                                            |   | 4.85 |   |
| Outstanding                    at March 31, 2007                                |   |                                       | 886,585   |                                                         | $      | 8.17 |   |
|                                                                            |   |                                       |      |                                                         |   |   |   |
| Options                    exercisable at March 31, 2007                        |   |                                       | 748,460   |                                                         | $      | 6.94 |   |
|                                                                            |   |                                       |      |                                                         |   |   |   |
| Incentive                    award shares available for grant at March 31, 2007 |   |                                       | 2,216,649 |                                                         |   |   |   |

----

|                                                          |   | **Number                    of****Shares** |    | **Weighted****Average****Grant                    Date****Fair                    Value** |   |
|---------------------------------------------------------------|--------|--------------------------------------------|---------|-------------------------------------------------------------------------------------------|--------|
|                                                          |   |                                       |    |                                                                                      |   |
| Nonvested                    at January 1, 2007               |   |                                       | 523,302 |                                                                                      | $      | 14.46 |   |
|                                                          |   |                                       |    |                                                                                      |   |   |   |
| Nonvested                    at March 31, 2007                |   |                                       | 628,024 |                                                                                      | $      | 13.60 |   |
|                                                          |   |                                       |    |                                                                                      |   |   |   |
| For                    the three months ended March 31, 2007: |   |                                       |    |                                                                                      |   |   |   |
|                                                          |   |                                       |    |                                                                                      |   |   |   |
| Granted                                                       |   |                                       | 156,403 |                                                                                      | $      | 10.74 |   |
|                                                          |   |                                       |    |                                                                                      |   |   |   |
| Vested                                                        |   |                                       | 48,081  |                                                                                      | $      | 13.69 |   |
|                                                          |   |                                       |    |                                                                                      |   |   |   |
| Forfeited                                                     |   |                                       | 3,600   |                                                                                      | $      | 12.36 |   |

----

**8. **
**EARNINGS      PER COMMON SHARE**

|                                                                     |   | **Three                    Months Ended March 31,**             |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|
|                                                                     |   | **2007**                                                        |   | **2006** |   |
|                                                                     |   | **(in                    thousands, except per share amounts)** |   |
|                                                                     |   |                                                            |   |   |   |
| Income                    from continuing operations                     |   | $                                                               | 2,741  |   | $ | 3,459 |   |
| Loss                    from discontinued operations, net of tax         |   |                                                            | -      |   |   | (699 | ) |
| Net                    income                                            |   | $                                                               | 2,741  |   | $ | 2,760 |   |
|                                                                     |   |                                                            |   |   |   |   |   |
| Basic                    earnings (loss) per common share:               |   |                                                            |   |   |   |   |   |
| Continuing                    operations                                 |   | $                                                               | 0.11   |   | $ | 0.18 |   |
| Discontinued                    operations                               |   |                                                            | -      |   |   | (0.03 | ) |
| Net                    earnings                                          |   | $                                                               | 0.11   |   | $ | 0.15 |   |
|                                                                     |   |                                                            |   |   |   |   |   |
| Diluted                    earnings (loss) per common share:             |   |                                                            |   |   |   |   |   |
| Continuing                    operations                                 |   | $                                                               | 0.11   |   | $ | 0.18 |   |
| Discontinued                    operations                               |   |                                                            | -      |   |   | (0.04 | ) |
| Net                    earnings                                          |   | $                                                               | 0.11   |   | $ | 0.14 |   |
|                                                                     |   |                                                            |   |   |   |   |   |
| Weighted                    average number of common shares outstanding: |   |                                                            |   |   |   |   |   |
| Basic                                                                    |   |                                                            | 24,611 |   |   | 18,989 |   |
| Incremental                    common shares issuable under stock        |   |                                                            |   |   |   |   |   |
| option                    plan, net                                      |   |                                                            | 328    |   |   | 493 |   |
| Diluted                                                                  |   |                                                            | 24,939 |   |   | 19,482 |   |

**9. **
**COMMITMENTS      AND CONTINGENCIES**

----

**10. **
**BUSINESS      SEGMENT INFORMATION**

----

| ·   | The                  Investment Banking division provides corporate securities underwriting,                  private financings, and financial advisory services. The Company                  participates in corporate securities distributions as a manager,                  co-manager, or member of an underwriting syndicate or of a selling                  group                  in public offerings managed by other underwriters. Fees earned                  for our                  role as an advisor, manager, or underwriter are included in the                  investment                  banking business. Sales credits associated with the distribution                  of                  investment banking products are reported in the Institutional Brokerage                  division or the Asset/Wealth Management segment depending on the                  relevant                  distribution channel. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                Institutional Brokerage division distributes equity and fixed income                products through its distribution network to its institutional clients.                Institutional revenues consist of commissions and principal credits                earned                on transactions in customer brokerage accounts, net interest on customers’                margin loan and credit account balances, and sales credits from the                distribution of investment banking                products. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                Prime Brokerage Services division provides trade execution, clearing,                custody, and other back-office services to hedge funds and other                professional traders. Prime broker revenues consist of commissions                and                principal credits earned on equity and fixed income transactions,                interest                income from securities lending services to customers, and net interest                on                customers’ margin loan and credit account                balances. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                                                                                                                                                                      |   | **Three                    Months Ended** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                                                                                                                                                      |   | **March                    31,**          |   |
|                                                                                                                                                                                                                      |   | **2007**                                  |   | **2006** |   |
|                                                                                                                                                                                                                      |   | **(in                    thousands)**     |   |
| Revenues:                                                                                                                                                                                                                 |   |                                      |   |   |   |
| Asset/Wealth                    Management                                                                                                                                                                                |   | $                                         | 23,684 |   | $ | 18,611 |   |
| Capital                    Markets:                                                                                                                                                                                       |   |                                      |   |   |   |   |   |
| Investment                    banking                                                                                                                                                                                     |   |                                      | 7,224  |   |   | 7,052 |   |
| Institutional                    brokerage                                                                                                                                                                                |   |                                      | 4,644  |   |   | 6,176 |   |
| Prime                    brokerage services                                                                                                                                                                               |   |                                      | 8,869  |   |   | 8,147 |   |
| Capital                    Markets Total                                                                                                                                                                                  |   |                                      | 20,737 |   |   | 21,375 |   |
| Corporate                    Support                                                                                                                                                                                      |   |                                      | 1,062  |   |   | 2,017 |   |
|         Total                                                                                                                                                                     |   | $                                         | 45,483 |   | $ | 42,003 |   |
|                                                                                                                                                                                                                      |   |                                      |   |   |   |   |   |
| Income                      (loss) from continuing operations before equity in (loss) income                      of                      limited partnerships, minority interests and income                      taxes: |   |                                      |   |   |   |   |   |
| Asset/Wealth                    Management                                                                                                                                                                                |   | $                                         | 6,432  |   | $ | 3,502 |   |
| Capital                    Markets:                                                                                                                                                                                       |   |                                      |   |   |   |   |   |
| Investment                    banking                                                                                                                                                                                     |   |                                      | 1,571  |   |   | 2,608 |   |
| Institutional                    brokerage                                                                                                                                                                                |   |                                      | 626    |   |   | 760 |   |
| Prime                    brokerage services                                                                                                                                                                               |   |                                      | 1,073  |   |   | 469 |   |
| Capital                    Markets Total                                                                                                                                                                                  |   |                                      | 3,270  |   |   | 3,837 |   |
| Corporate                    Support                                                                                                                                                                                      |   |                                      | (3,226 | ) |   | (1,949 | ) |
|         Total                                                                                                                                                                     |   | $                                         | 6,476  |   | $ | 5,390 |   |
|                                                                                                                                                                                                                      |   |                                      |   |   |   |   |   |
| Equity                    in (loss) income of limited partnerships:                                                                                                                                                       |   |                                      |   |   |   |   |   |
| Asset/Wealth                    Management                                                                                                                                                                                |   | $                                         | (588   | ) | $ | 1,475 |   |
| Capital                    Markets:                                                                                                                                                                                       |   |                                      |   |   |   |   |   |
| Investment                    banking                                                                                                                                                                                     |   |                                      | -      |   |   | - |   |
| Institutional                    brokerage                                                                                                                                                                                |   |                                      | -      |   |   | - |   |
| Prime                    brokerage services                                                                                                                                                                               |   |                                      | -      |   |   | - |   |
| Capital                    Markets Total                                                                                                                                                                                  |   |                                      | -      |   |   | - |   |
| Corporate                    Support                                                                                                                                                                                      |   |                                      | 273    |   |   | 350 |   |
|         Total                                                                                                                                                                     |   | $                                         | (315   | ) | $ | 1,825 |   |
|                                                                                                                                                                                                                      |   |                                      |   |   |   |   |   |
| Minority                      interests in net income of consolidated companies:                                                                                                                                          |   |                                      |   |   |   |   |   |
| Asset/Wealth                    Management                                                                                                                                                                                |   | $                                         | (1,839 | ) | $ | (1,403 | ) |
| Capital                    Markets:                                                                                                                                                                                       |   |                                      |   |   |   |   |   |
| Investment                    banking                                                                                                                                                                                     |   |                                      | -      |   |   | - |   |
| Institutional                    brokerage                                                                                                                                                                                |   |                                      | -      |   |   | - |   |
| Prime                    brokerage services                                                                                                                                                                               |   |                                      | -      |   |   | - |   |
| Capital                    Markets Total                                                                                                                                                                                  |   |                                      | -      |   |   | - |   |
| Corporate                    Support                                                                                                                                                                                      |   |                                      | -      |   |   | - |   |
|         Total                                                                                                                                                                     |   | $                                         | (1,839 | ) | $ | (1,403 | ) |
|                                                                                                                                                                                                                      |   |                                      |   |   |   |   |   |
| Income                    (loss) from continuing operations before income taxes:                                                                                                                                          |   |                                      |   |   |   |   |   |
| Asset/Wealth                    Management                                                                                                                                                                                |   | $                                         | 4,005  |   | $ | 3,574 |   |
| Capital                    Markets:                                                                                                                                                                                       |   |                                      |   |   |   |   |   |
| Investment                    banking                                                                                                                                                                                     |   |                                      | 1,571  |   |   | 2,608 |   |
| Institutional                    brokerage                                                                                                                                                                                |   |                                      | 626    |   |   | 760 |   |
| Prime                    brokerage services                                                                                                                                                                               |   |                                      | 1,073  |   |   | 469 |   |
| Capital                    Markets Total                                                                                                                                                                                  |   |                                      | 3,270  |   |   | 3,837 |   |
| Corporate                    Support                                                                                                                                                                                      |   |                                      | (2,953 | ) |   | (1,599 | ) |
|         Total                                                                                                                                                                     |   | $                                         | 4,322  |   | $ | 5,812 |   |

----

**11. **
**RELATED      PARTIES**

**12. **
**DISCONTINUED      OPERATIONS**

|                                                             |   | **Three                    Months Ended****March                    31,** |   |
|------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|
|                                                             |   | **2006**                                                                  |   |
|                                                             |   | **(in                    thousands)**                                     |   |
|                                                             |   |                                                                      |   |
| Operating                    activities:                         |   |                                                                      |   |
| Revenues                                                         |   | $                                                                         | 1,440  |   |
| Expenses                                                         |   |                                                                      | 2,619  |   |
| Loss                    from discontinued operations             |   |                                                                      |   |   |
| before                    minority interests and income taxes    |   |                                                                      | (1,179 | ) |
| Minority                    interests in net loss of             |   |                                                                      |   |   |
| consolidated                    companies                        |   |                                                                      | 5      |   |
| Loss                    from discontinued operations             |   |                                                                      |   |   |
| before                    income taxes                           |   |                                                                      | (1,174 | ) |
| Benefit                    for income taxes                      |   |                                                                      | (475   | ) |
| Loss                    from operations, net of tax              |   |                                                                      | (699   | ) |
| Costs                    related to exit of business, net of tax |   |                                                                      | -      |   |
| Loss                    from discontinued operations             |   | $                                                                         | (699   | ) |

----

**Item      2. **
***Management’s      Discussion and Analysis of Financial Condition and Results of      Operations***

**Overview**

*Asset/Wealth      Management*

*      Capital Markets *

*Investment      Banking*

*Institutional      Brokerage*

*Prime      Brokerage*
*Services*

----

**Components        of Revenues and Expenses**

*Revenues*

*Expenses.*

**Results      of Operations**

*Three      Months Ended March 31, 2007 Compared to Three Months Ended March 31,      2006*

----

----

**Asset/Wealth      Management**

|                                                                   |   | **Three                  Months Ended March 31,** |   |
|------------------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                   |   | **2007**                                          |   | **2006** |   |
|                                                                   |   | **(in                  thousands)**               |   |
|                                                                   |   |                                              |   |   |   |
| Revenues                                                               |   | $                                                 | 23,684 |   | $ | 18,611 |   |
|                                                                   |   |                                              |   |   |   |   |   |
| Income                  from continuing operations before income taxes |   | $                                                 | 4,005  |   | $ | 3,574 |   |

**Capital      Markets**

*Investment*
*Banking*

|                                                                   |   | **Three                  Months Ended March 31,** |   |
|------------------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                   |   | **2007**                                          |   | **2006** |   |
|                                                                   |   | **(in                  thousands)**               |   |
|                                                                   |   |                                              |   |   |   |
| Revenues                                                               |   | $                                                 | 7,224  |   | $ | 7,052 |   |
|                                                                   |   |                                              |   |   |   |   |   |
| Income                  from continuing operations before income taxes |   | $                                                 | 1,571  |   | $ | 2,608 |   |

----

*Institutional      Brokerage*

|                                                                   |   | **Three                  Months Ended March 31,** |   |
|------------------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                   |   | **2007**                                          |   | **2006** |   |
|                                                                   |   | **(in                  thousands)**               |   |
|                                                                   |   |                                              |   |   |   |
| Revenues                                                               |   | $                                                 | 4,644  |   | $ | 6,176 |   |
|                                                                   |   |                                              |   |   |   |   |   |
| Income                  from continuing operations before income taxes |   | $                                                 | 626    |   | $ | 760 |   |

*Prime      Brokerage Services*

|                                                                   |   | **Three                  Months Ended March 31,** |   |
|------------------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                   |   | **2007**                                          |   | **2006** |   |
|                                                                   |   | **(in                  thousands)**               |   |
|                                                                   |   |                                              |   |   |   |
| Revenues                                                               |   | $                                                 | 8,869  |   | $ | 8,147 |   |
|                                                                   |   |                                              |   |   |   |   |   |
| Income                  from continuing operations before income taxes |   | $                                                 | 1,073  |   | $ | 469 |   |

**Corporate      Support**

|                                                                 |   | **Three                  Months Ended March 31,** |   |
|----------------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                 |   | **2007**                                          |   | **2006** |   |
|                                                                 |   | **(in                  thousands)**               |   |
|                                                                 |   |                                              |   |   |   |
| Revenues                                                             |   | $                                                 | 1,062  |   | $ | 2,017 |   |
|                                                                 |   |                                              |   |   |   |   |   |
| Loss                  from continuing operations before income taxes |   | $                                                 | (2,953 | ) | $ | (1,599 | ) |

----

**Liquidity      and Capital Resources**

**Factors      Affecting Forward-Looking Statements**

----

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

**Market      Risks**

**Item      4. **
***Controls      and Procedures***

* *

----

**PART      II. OTHER INFORMATION**

**Item      1. **
***Legal      Proceedings***

----

**Item      6**
**.      **
***Exhibits***

**INDEX      TO EXHIBITS**

| **Exhibit                    Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|---------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.1                                   |   | Articles                    of Incorporation of the Company, as amended (Filed as Exhibit                    3.1 to the                    Company’s Annual Report on Form 10-K for the year ended December 31,                    2001                    (File No. 000-30066), and incorporated herein by                    reference).                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.2                                   |   | Amended                    and Restated Bylaws of the Company (Filed as Exhibit 3.2 to the                    Company’s                    Quarterly Report on Form 10-Q for the quarter ended June 30,                    2004 (File                    No. 000-30066), and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| †10.01                          |   | Sanders                    Morris Harris Group Inc. 1998 Incentive Plan as amended (Filed                    as Appendix                    A to the Definitive Proxy Statement on Schedule 14A of the Company                    dated                    May 3, 2002 (File No. 000-30066), and incorporated herein by                    reference).                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| †10.02                          |   | Sanders                    Morris Harris Group Inc. Capital Incentive Program (Filed as                    Exhibit 10.1                    to the Company’s Form 10-Q for the quarter ended September 30, 2001 (File                    No. 000-30066), and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| †10.03                          |   | Form                    of Option Agreement pursuant to 1998 Incentive Plan (Filed as                    Exhibit                    10.03 to the Company’s Annual Report on Form 10-K for the year ended                    December 31, 2005 (File No. 000-30066), and incorporated herein                    by                    reference).                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| †10.04                          |   | Form                    of Restricted Stock Agreement pursuant to 1998 Incentive Plan                    (Filed as                    Exhibit 10.04 to the Company’s Annual Report on Form 10-K for the year                    ended December 31, 2005 (File No. 000-30066), and incorporated                    herein by                    reference).                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.05                                 |   | Sublease                    Agreement dated January 19, 1994, between Texas Commerce Bank                    National                    Association and Harris Webb & Garrison, Inc., as amended by that                    certain First Amendment to Sublease Agreement dated February                    23, 1994, the                    Second Amendment to Sublease Agreement dated April 26, 1994,                    and the Third                    Amendment to Sublease Agreement dated January 19, 1995 (Filed                    as Exhibit                    10.16 to the Proxy Statement/Prospectus of the Company dated                    December 31,                    1998 (File No. 333-65417), and incorporated herein by                    reference). |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.06                                 |   | On-Line                    Services Agreement dated as of June 1, 2005, between Innovest                    Systems, LLC                    and Pinnacle Trust Co., LTA. (Filed as Exhibit 10.05 to the Company’s                    Quarterly Report on Form 10-Q for the quarter ended September                    30, 2005                    (File No. 000-30066), and incorporated herein by                    reference).                                                                                                                                                                                                                                                                                                                                                |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.07                                 |   | Office                    Lease Agreement and related amendments dated September 25, 1996,                    between                    Texas Tower Limited and Sanders Morris Mundy Inc. (Filed as Exhibit                    10.3                    to the Company’s Quarterly Report on Form 10-Q for the quarter ended March                    31, 2000 (File No. 000-30066), and incorporated herein by                    reference).                                                                                                                                                                                                                                                                                                                                   |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.08                                 |   | Credit                    Agreement dated as of May 9, 2005, between Sanders Morris Harris                    Group                    Inc. and JPMorgan Chase Bank, National Association (Filed as                    Exhibit 10.7                    to the Company’s Quarterly Report on Form 10-Q for the quarter ended June                    30, 2005 (File No. 000-30066), and incorporated herein by                    reference).                                                                                                                                                                                                                                                                                                                                     |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.09                                 |   | Reorganization                    and Purchase Agreement dated as of May 10, 2005, among Sanders                    Morris                    Harris Group Inc., The Edelman Financial Center, Inc., The Edelman                    Financial Center, LLC, and Fredric M. Edelman (Filed as Exhibit                    2.1 to the                    Company’s Current Report on Form 8-K dated May 10, 2005 (File No.                    000-30066), and incorporated herein by reference).                                                                                                                                                                                                                                                                                     |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *31.1                                 |   | Rule                    13a-14(a)/15d-14(a) Certification of Chief Executive                    Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *31.2                                 |   | Rule                    13a-14(a)/15d-14(a) Certification of Chief Financial                    Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *32.1                                 |   | Certification                    Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906                    of the                    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *32.2                                 |   | Certification                    Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906                    of the                    Sarbanes-Oxley Act of                    2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

----

----

**SIGNATURES**

|         |                                                |                                              |
|--------------|-----------------------------------------------------|---------------------------------------------------|
|         | **SANDERS                MORRIS HARRIS GROUP INC.** |
|    |                                           |                                         |
|              | By                                        | /s/              BEN              T. MORRIS  |
|         | **Ben                T. Morris**                    |
|         | **Chief                Executive Officer**          |
|                                   |                                                                    |                        |
|----------------------------------------|-------------------------------------------------------------------------|-----------------------------|
|                                   |                                                                    |                        |
|                                        | By                                                            | /s/              RICK BERRY |
|                                   | **Rick                Berry****Chief                Financial Officer** |
|                                   |                                                                    |
| Date: May                10, 2007 |                                                                    |

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