<PAGE>

                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

                                       OR

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

          For the Transition Period From ____________ to ______________

                         COMMISSION FILE NUMBER 0-24773

                             PINNACLE HOLDINGS INC.

     Incorporated in Delaware I.R.S. Employer Identification No. 65-0652634

             301 North Cattlemen Road, Sarasota, Florida 34232-6427

                            Telephone: (941) 364-8886


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

At August 19, 2002 Registrant had outstanding 48,589,444 shares of $.001 par
value common stock.

<PAGE>

<TABLE>
<CAPTION>

                                                                                                                    Page
                                                                                                                    ----
<S>           <C>                                                                                                   <C>
PART I. FINANCIAL INFORMATION

Item 1.       Financial Statements

              Unaudited Condensed Consolidated Balance Sheets as of December 31, 2001 and June 30, 2002              1

              Unaudited Condensed Consolidated Statements of Operations for the six months ended
                June 30, 2001 and 2002                                                                               2

              Unaudited Condensed Consolidated Statements of Operations for the three months ended
                June 30, 2001 and 2002                                                                               3

              Unaudited Condensed Consolidated Statement of Changes in
                Stockholders' Equity for the six months ended June 30, 2002                                          4

              Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended
                June 30, 2001 and 2002                                                                               5

              Notes to Unaudited Condensed Consolidated Financial Statements                                      6-16

Item 2.       Management's Discussion and Analysis of Financial Condition and
                Results of Operations                                                                            17-45

Item 3.       Quantitative and Qualitative Disclosures About Market Risk                                            46

PART II.      OTHER INFORMATION

Item 1.       Legal Proceedings                                                                                     48

Item 2.       Not Applicable                                                                                        50

Item 3.       Defaults Under Senior Securities                                                                      50

Item 4.       Not Applicable                                                                                        50

Item 5.       Other Information                                                                                     50

Item 6.       Exhibits and Reports on Form 8-K                                                                      50


SIGNATURES                                                                                                          51

EXHIBIT INDEX                                                                                                       52

</Table>
<PAGE>

PART I. FINANCIAL INFORMATION
Item 1.  FINANCIAL STATEMENTS:


                             PINNACLE HOLDINGS INC.
                             (DEBTOR-IN-POSSESSION)
                 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>



                                                                                 December 31,          June 30,
                                                                                     2001                2002
                                                                                  -----------         -----------
                                                                                                      (unaudited)
                                                                               (in thousands, except per share data)
<S>                                                                               <C>                 <C>
                                Assets
Current assets:
   Cash and cash equivalents                                                      $    13,187         $     8,629
   Accounts receivable, net                                                            10,441               9,774
   Prepaid expenses and other current assets                                           11,498              10,858
                                                                                  -----------         -----------
    Total current assets                                                               35,126              29,261

Restricted cash                                                                         7,091                 316
Fixed assets, net                                                                     917,961             870,085
Leasehold interests, net                                                               25,693              13,628
Assets held for sale                                                                   18,982              11,051
Deferred debt issue costs, net                                                         18,113               7,510
Other assets                                                                           11,367              13,449
                                                                                  -----------         -----------
                                                                                  $ 1,034,333         $   945,300
                                                                                  ===========         ===========

                 Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
   Accounts payable                                                               $     4,244         $     2,888
   Accrued expenses                                                                    22,401              18,156
   Deferred revenue                                                                    16,286               8,235
   Liabilities on assets held for sale                                                     --               1,982
   Interest rate swap liability                                                        12,859              10,058
   Current portion of long-term debt                                                  885,471             382,905
   Liabilities subject to compromise (Note 5)                                              --             519,838
                                                                                  -----------         -----------
    Total current liabilities                                                         941,261             944,062

Other liabilities                                                                       9,274               9,014
                                                                                  -----------         -----------
    Total liabilities                                                                 950,535             953,076

Commitments and contingencies (Note 14)                                                    --                  --

Stockholders' equity (deficit):
   Preferred stock, $.001 par value, 5,000,000 shares authorized;
    0 shares issued and outstanding at December 31, 2001 and
    June 30, 2002                                                                          --                  --
   Common Stock, $.001 par value, 100,000,000 shares authorized;
    48,430,593 shares issued and outstanding at
    December 31, 2001 and 48,589,444 outstanding at June 30, 2002                          48                  49
   Additional paid-in capital                                                         773,231             785,681
   Accumulated other comprehensive loss                                                (2,497)             (2,504)
   Accumulated deficit                                                               (686,984)           (791,002)
                                                                                  -----------         -----------
                                                                                       83,798              (7,776)
                                                                                  -----------         -----------
                                                                                  $ 1,034,333         $   945,300
                                                                                  ===========         ===========

</TABLE>




The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
         are an integral part of these condensed financial statements.



                                       1
<PAGE>

                             PINNACLE HOLDINGS INC.
                             (DEBTOR-IN-POSSESSION)
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                           Six Months Ended June 30,
                                                                          ---------------------------
                                                                            2001              2002
                                                                          ---------         ---------
                                                                         (unaudited)       (unaudited)
                                                                     (in thousands, except per share data)

<S>                                                                       <C>               <C>
Revenues                                                                  $  97,395         $  90,966

Direct operating expenses, excluding depreciation and amortization           36,515            32,136
                                                                          ---------         ---------
Gross margin, excluding depreciation and amortization                        60,880            58,830
Other expenses:
   Selling, general and administrative                                       24,831            15,537
   State franchise, excise and minimum taxes                                    950             1,029
   Depreciation and amortization                                             64,862            49,862
   Loss on assets held for sale                                              34,563             1,007
   Loss on assets held for use                                                   --            23,867
   Loss/(Gain) on disposal of assets                                          1,862              (454)
   Reorganization cost (Note 6)                                                  --            40,511
                                                                          ---------         ---------
                                                                            127,068           131,359
                                                                          ---------         ---------
Loss from operations                                                        (66,188)          (72,529)
Interest expense, net                                                        29,536            19,588
Amortization of original issue discount and debt issuance costs              14,760            12,953
Foreign currency transaction loss/(gain)                                        248              (134)
Minority interest in net income/(loss) of subsidiary                           (130)                2
                                                                          ---------         ---------
Loss before income tax benefit                                             (110,602)         (104,938)
Deferred tax benefit                                                          1,295               920
                                                                          ---------         ---------
Net loss                                                                  $(109,307)        $(104,018)
                                                                          =========         =========

Basic and diluted net loss per common share                               $   (2.26)        $   (2.14)
Weighted average number of common shares outstanding                         48,431            48,562
                                                                          =========         =========


</TABLE>








The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
         are an integral part of these condensed financial statements.







                                       2
<PAGE>
                             PINNACLE HOLDINGS INC.
                             (DEBTOR-IN-POSSESSION)
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                                          Three Months Ended
                                                                                June 30,
                                                                       -------------------------
                                                                         2001             2002
                                                                       --------         --------
                                                                     (unaudited)      (unaudited)
                                                                 (in thousands, except per share data)
<S>                                                                    <C>              <C>
Revenues                                                               $ 49,120         $ 44,062
Direct operating expenses                                                18,952           15,520
                                                                       --------         --------
Gross margin                                                             30,168           28,542
Other expenses:
   Selling, general and administrative                                   14,674            7,339
   State franchise, excise and minimum taxes                                472              476
   Depreciation and amortization                                         31,962           24,932
   Loss on assets held for sale                                          34,563              990
   Loss on assets held for use                                               --           21,346
   Loss/(Gain) on disposal of assets                                      2,016             (535)
   Reorganization costs (Note 6)                                             --           36,806
                                                                       --------         --------
                                                                         83,687           91,354
                                                                       --------         --------
Loss from operations                                                    (53,519)         (62,812)
Interest expense, net                                                    11,812           11,014
Amortization of original issue discount and debt issuance costs           7,572            5,016
Foreign currency transaction gain                                          (118)            (142)
Minority interest in net income/(loss) of subsidiary                        (52)               3
                                                                       --------         --------
Loss before income tax benefit                                          (72,733)         (78,703)
Deferred tax benefit                                                        989              101
                                                                       --------         --------
Net loss                                                               $(71,744)        $(78,602)
                                                                       ========         ========

Basic and diluted net loss per common share                            $  (1.48)        $  (1.62)
Weighted average number of common shares outstanding                     48,431           48,589
                                                                       ========         ========


</TABLE>





The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
         are an integral part of these condensed financial statements.




                                       3
<PAGE>

                             PINNACLE HOLDINGS INC.
                             (DEBTOR-IN-POSSESSION)
            UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
                              STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>

                                                                              (in thousands)
                                              ------------------------------------------------------------------------------------
                                                                                        Accumulated
                                                     Common Stock          Additional      Other
                                              ------------------------       Paid-in    Comprehensive   Accumulated  Stockholders'
                                                Shares         Amount        Capital    Income (Loss)     Deficit        Equity
                                              ---------      ---------     ----------   -------------   -----------  ------------
<S>                                              <C>         <C>            <C>           <C>            <C>            <C>
Balance at December 31, 2001                     48,431      $      48      $ 773,231     $  (2,497)     $(686,984)     $  83,798
Comprehensive income (loss):
   Net loss                                                                                               (104,018)      (104,018)
   Foreign currency translation loss                                                           (674)                         (674)
   Gains reclassified into earnings
     from other comprehensive income (loss)
     net of applicable income taxes                                                             667                           667
                                                                                                                        ---------
   Total comprehensive loss                                                                                              (104,025)

Conversion of convertible notes                     158              1         12,450                                      12,451
                                              ---------      ---------      ---------     ---------      ---------      ---------
 Balance at June 30, 2002                        48,589      $      49      $ 785,681     $  (2,504)     $(791,002)     $  (7,776)
                                              =========      =========      =========     =========      =========      =========


</TABLE>





The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
         are an integral part of these condensed financial statements.



                                       4
<PAGE>

                             PINNACLE HOLDINGS INC.
                             (DEBTOR-IN-POSSESSION)
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                          Six Months Ended
                                                                                                June 30,
                                                                                      ---------------------------
                                                                                        2001               2002
                                                                                      ---------         ---------
                                                                                     (unaudited)       (unaudited)
                                                                                            (in thousands)
<S>                                                                                   <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                              $(109,307)        $(104,018)
Adjustments to reconcile net loss to net cash provided
     by operating activities:
        Depreciation and amortization                                                    64,862            49,862
        Amortization of original issue discount and debt issuance costs                  14,760            12,953
        Deferred tax benefit                                                             (1,367)               --
        Reserve for doubtful accounts                                                     1,300             1,441
        Write-off of aborted acquisitions and construction costs                          3,520               118
        (Gain)/Loss on disposal of fixed assets                                           1,862              (454)
        Loss on assets held for use and sale                                             34,561            24,720
        Minority share of net (loss)/income of subsidiary                                  (130)                2
        Change in value of derivative financial instruments                               5,487            (2,134)
        Reorganization items                                                                 --            31,560
        (Increase) decrease in:
           Restricted cash                                                                   --             6,775
           Accounts receivable, gross                                                    (5,834)             (785)
           Prepaid expenses and other current assets                                        257               585
           Other assets                                                                  (2,327)           (1,999)
        Increase (decrease) in:
           Accounts payable                                                                 415            (1,490)
           Accrued expenses                                                               5,463             4,118
           Deferred revenue                                                                 166            (7,979)
           Other liabilities                                                                122              (260)
                                                                                      ---------         ---------
                                                                                        123,117           117,033
                                                                                      ---------         ---------
Net cash provided by operating activities                                                13,810            13,015

CASH FLOWS FROM INVESTING ACTIVITIES:
        Payments made in connection with acquisitions                                   (12,636)             (120)
        Capital expenditures                                                            (20,353)           (6,305)
        Proceeds from the sale of assets                                                     --             1,724
                                                                                      ---------         ---------
Net cash used in investing activities                                                   (32,989)           (4,701)

CASH FLOWS FROM FINANCING ACTIVITIES:
        Borrowings under long-term debt, net                                                330             2,562
        Repayment of long-term debt                                                      (1,313)          (14,903)
        Deferred debt issuance costs                                                     (2,630)               --
        DIP facility issuance costs                                                          --              (540)
        Proceeds from issuance of common stock, net                                          (9)               --
        Minority interest in subsidiary                                                     700                --
                                                                                      ---------         ---------
Net cash used in financing activities                                                    (2,922)          (12,881)

Effect of exchange rate changes on cash                                                     778                 9
                                                                                      ---------         ---------

Net decrease in cash and cash equivalents                                               (21,323)           (4,558)
Cash and cash equivalents, beginning of period                                           44,233            13,187
                                                                                      ---------         ---------
Cash and cash equivalents, end of period                                              $  22,910         $   8,629
                                                                                      =========         =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Cash paid for interest                                                                $  17,969         $  18,139
Non-cash transactions:
     Interest swap liability recorded to other comprehensive income, net              $   3,002         $    (667)
     Issuance of common stock for debt                                                $      --         $  12,450




</TABLE>




The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
         are an integral part of these condensed financial statements.



                                       5
<PAGE>




                             Pinnacle Holdings Inc.
                             (Debtor-in-possession)
         Notes to Unaudited Condensed Consolidated Financial Statements

         As used in this Quarterly Report on Form 10-Q for the period ending
June 30, 2002, unless the context otherwise requires, "we," "us," "our,"
"Company," or "Pinnacle" refers to Pinnacle Holdings Inc. and its consolidated
subsidiaries, including Pinnacle Towers Inc., Pinnacle Towers III Inc. ("PT
III"), Pinnacle Towers IV Inc. ("PT IV"), Pinnacle Towers V Inc. ("PT V"), and
Pinnacle Towers, Ltd.

         1. DEBT RESTRUCTURING

         On May 21, 2002 (the "Petition Date"), Pinnacle and certain of its
wholly owned subsidiaries, Pinnacle Towers Inc., PT III and
Pinnacle San Antonio LLC (collectively, the "Debtors") filed petitions for
relief (the "Bankruptcy Case") under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court"). Since the Petition Date,
we have continued to operate our businesses as debtors-in-possession under the
Bankruptcy Code.

         On July 30, 2002, the Bankruptcy Court entered an order (the
"Confirmation Order") confirming the joint "pre-negotiated" reorganization plan
(the "Plan"). It was contemplated that the Plan would be funded by two new
sources of capital: (1) an equity investment of up to approximately $205.0
million by Fortress Investment Group ("Fortress") and Greenhill Capital Partners
("Greenhill," and together with Fortress, the "Investors") pursuant to the terms
of the Securities Purchase Agreement (the "Stock Purcahse Agreement") entered
into as of April 25, 2002, and (2) an approximately $340.0 million new credit
facility. As previously disclosed, the Investors have been pursuing such new
credit facility pursuant to a Commitment Letter dated April 25, 2002, from
Deutsche Bank Securities Inc. and Bank of America, N. A. issued to the Investors
(the "Commitment Letter").

         As previously announced, since the Bankruptcy Court entered the
Confirmation Order confirming the Plan, we have been informed by the Investors
that the Investors believe that, based on current market conditions,
particularly as they relate to extensions of senior credit to companies
associated with the telecommunications industry, the new credit facility
contemplated by the Commitment Letter is unlikely to be able to be consummated
on terms commercially acceptable to the Investors. We understand from the
Investors that they are continuing to pursue financing to consummate the
transaction contemplated by the Stock Purchase Agreement.

         On August 8, 2002, the administrative agent for the lenders under our
senior credit facility that was outstanding prior to the filing for Chapter 11
reorganization (loans under such senior credit facility continue to remain
outstanding) filed a motion with the Bankruptcy Court for reconsideration of the
Confirmation Order. The motion asserts that without the new credit facility that
was to be provided pursuant to the Commitment Letter, the Plan cannot be
consummated. Pending the Bankruptcy Court's ruling on such motion (a hearing on
which has been set for September 18, 2002), the primary effect of the motion is
to preserve the status quo and prevent the Confirmation Order from becoming
final and nonappealable prior to the Bankruptcy Court ruling on such motion. We
have not yet responded to such motion, and are currently considering our options
in light of the events described herein that have occurred since the Bankruptcy
Court entered the Confirmation Order.

         In light of the events described above, we continue to monitor relevant
developments and evaluate our rights and obligations under the Stock Purchase
Agreement consistent with our obligations to the various constituencies of
Pinnacle and its subsidiaries. A condition precedent to the consummation of the
transactions contemplated by the Stock Purchase Agreement is the receipt of
financing on terms not materially different from those set forth in the
Commitment Letter. There can be no assurance that financing will be available to
satisfy such financing condition. If the closing contemplated by the Stock
Purchase Agreement is not consummated on or before August 20, 2002, votes in
favor of the Plan could be withdrawn, which could result in the need to
re-solicit votes on the Plan. If certain of the terms of any alternative credit
facility were to vary materially from those contemplated by the Commitment
Letter, we might need to re-solicit votes in favor of the Plan, amend




                                       6
<PAGE>

the Plan or seek an alternative to the Plan which could result in our
constituencies receiving different or less consideration than that contemplated
by the current Plan.

         Under the terms of the Stock Purchase Agreement, Pinnacle Holdings will
be merged into a newly formed Delaware corporation formed by the Investors ("New
Pinacle"). Fortress will purchase up to 13,735,000 shares of common stock of New
Pinnacle (the "Fortress Shares") and Greenhill will purchase up to 6,765,000
shares of common stock of New Pinnacle (the "Greenhill Shares" and together with
the Fortress Shares, the "Investor Shares"). The Stock Purchase Agreement
provides for the cancellation of our 10% Senior Notes due 2008 (the "Senior
Notes") in exchange for up to $114.0 million (or $350.77 per $1,000 par value
bond) in cash or, at the Senior Note holders' election, a combination of cash
and up to 49.9% of New Pinnacle's outstanding common stock. The number of
Investor Shares (and hence their cash investment) will be proportionately
decreased by the number of shares purchased by holders of the Senior Notes.

         The Stock Purchase Agreement also provides for the cancellation of our
5.5% Convertible Notes due 2007 (the "Convertible Notes") in exchange for up to
$0.5 million in cash and five-year warrants to purchase up to approximately
205,000 shares of New Pinnacles common stock at approximately two times the
price of the Investor Shares. Convertible Note holders can double this amount to
a total of $1.0 million in cash and warrants to purchase 410,000 shares,
representing approximately 2.0% of New Pinnacle's equity capitalization, if the
Convertible Note holders agree to give certain releases. The Stock Purchase
Agreement further provides for cancellation of the outstanding shares of
Pinnacle common stock. Former stockholders and plaintiffs in a stockholder class
action shall receive five-year warrants to purchase up to 102,500 shares of New
Pinnacle common stock (representing approximately 0.5% of New Pinnacle's equity
capitalization) at approximately two times the price of the Investor Shares.
This amount can be doubled to 205,000 shares, representing approximately 1.0% of
New Pinnacle's capitalization, if the stockholders agree to give certain
releases.

         We have received approval from the Bankruptcy Court to pay or otherwise
honor in the ordinary course of business certain of our pre-petition
obligations, including pre-petition wages up to a set level, vacation pay,
employee benefits and reimbursement of employee business expenses. The
Bankruptcy Court has also given us approval to pay our trade creditors who
continue to provide us with goods and services on customary and otherwise
acceptable terms in full during the pendency of the Bankruptcy Case, as well as
up to $10,000 per vendor of pre-petition claims. To date, substantially all of
our trade creditors have been providing acceptable trade terms to us, and we
have been paying them in the ordinary course of business. Certain pre-petition
liabilities are classified in the unaudited condensed consolidated balance sheet
as liabilities subject to compromise (see Note 5).

         2. BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial statements
reflect the financial position, results of operations and cash flows of Pinnacle
Holdings Inc. as debtor-in-possession and its wholly owned subsidiaries
including Pinnacle Towers Inc. as debtor-in-possession, Pinnacle Towers Canada
Inc., Coverage Plus Antenna Systems, Inc., PT III as debtor-in-possession, PT
IV, PT V and Tower Systems, Inc. Pinnacle Towers Inc. has established a 91%
interest in Pinnacle Towers Ltd., a United Kingdom ("U.K.") subsidiary. This
investment is currently being held for sale and consequently the assets and
liabilities are presented as held for sale on our June 30, 2002 balance sheet.

         As a result of our recurring losses, the Bankruptcy Case and
circumstances relating to this event, including our debt structure and current
economic conditions surrounding the telecommunication industry, we believe the
realization of assets and liquidation of liabilities are subject to significant
uncertainty. These matters among others, raise substantial doubt about our
ability to continue as a going concern. Continuation of our business after the
approval of a plan of reorganization by the Bankruptcy Court is dependent on our
ability to achieve successful future operations. See discussion above related to
the July 30, 2002 confirmation of our plan of reorganization and subsequent
events.

         Results of operations for any interim period are not necessarily
indicative of results of any other periods or for the year. The accompanying
unaudited condensed consolidated financial




                                       7
<PAGE>

statements have been prepared in conformity with generally accepted accounting
principles in the United States for interim financial statements and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include
all information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments and other adjustments resulting
from our status as debtor-in-possession), considered necessary for the fair
presentation have been included. Certain amounts from prior years have been
reclassified for consistency with current presentation. These reclassifications
were not material to the condensed consolidated financial statements.
These unaudited condensed consolidated financial statements should be read in
conjunction with Pinnacle's consolidated financial statements and notes thereto
included in Pinnacle's Annual Report on Form 10-K for the year ended December
31, 2001.

         In connection with the Bankruptcy Case, we are required to report in
accordance with Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7 provides
guidance for financial reporting by entities that have filed petitions with the
Bankruptcy Court and expect to reorganize under Chapter 11 of the Bankruptcy
Code. Under SOP 90-7, the financial statements of an entity in a Chapter 11
reorganization proceeding should distinguish transactions and events that are
directly associated with the reorganization from those of the operations of the
ongoing business as it evolves. Accordingly, SOP 90-7 requires the following
financial reporting or accounting treatments in respect to each of the financial
statements:

         Balance sheet

         The balance sheet separately classifies liabilities as (i) those
subject to compromise (generally unsecured and undersecured claims) and (ii)
those not subject to compromise (including fully secured claims). Pre-petition
liabilities subject to compromise are reported on the basis of the expected
amount of such allowed claims, as opposed to the amounts for which those allowed
claims may be settled. Accordingly, we accelerated the accretion of the original
issue discount on our Senior Notes and wrote-off deferred debt issuance costs
related to our Senior Notes and Convertible Notes, by recording an expense of
approximately $31.9 million during the quarter ended June 30, 2002, which is
included as reorganization costs on the unaudited condensed consolidated
statement of operations. Under an approved final plan of reorganization, those
claims will likely be settled at amounts substantially less than their allowed
amounts.

         Statement of operations

         Pursuant to SOP 90-7, revenues and expenses, realized gains and losses,
and provisions for losses resulting from the reorganization and restructuring of
the business are reported in the statement of operations separately as
reorganization items. Professional fees are expensed as incurred. Interest
expense is reported only to the extent that it will be paid during the
proceeding or that it is probable that it will be an allowed claim. As a result
of the Chapter 11 filing, no principal or interest payments will be made on the
$325.0 million of Senior Notes or on the $187.5 million of Convertible Notes. We
accelerated the accretion of the original issue discount on our Senior Notes and
recorded an expense of approximately $23.0 million which was included as
reorganization costs on the unaudited condensed consolidated statement of
operations. Also, no interest expense on the Convertible Notes has been accrued
on or after the Petition Date. Had such amounts been accrued, the interest
expense for the second quarter of 2002 would have been approximately $12.1
million, which is $1.1 million in excess of reported amounts. We wrote-off
deferred debt costs of $8.9 million associated with the Senior Notes and
Convertible Notes, which is included as reorganization costs on the unaudited
condensed consolidated statement of operations.

         Statement of cash flows

         Reorganization items are reported separately within the operating,
investing and financing categories of the statement of cash flows.

         "Fresh Start" reporting

         As of the effective date of the Plan, we will adopt "fresh start"
reporting pursuant to the guidance provided by SOP 90-7. Under "fresh start"
reporting, the reorganization value of the entity is allocated to the entity's
assets. If any portion of the reorganization value cannot be attributed to
specific tangible or identified intangible assets, it will be classified as
"reorganization value in excess of



                                       8
<PAGE>

book". As a result of adopting "fresh start" reporting upon emerging from
Chapter 11 status, the amounts in our consolidated balance sheet could
materially change. Our financial statements may not be comparable with those
prepared before the Plan is consummated, including the historical financial
statements included in this quarterly report.

         3. CRITICAL ACCOUNTING POLICIES

         The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. We evaluate our estimates and judgments on an
on-going basis. We base our estimates on historical experience and on
assumptions that we believe to be reasonable under the circumstances. Our
experience and assumptions form the basis for our judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may vary from what we anticipate and different
assumptions or estimates about the future could change our reported results. We
believe the following accounting policies are the most critical to us, in that
they are important to the portrayal of our financial statements and they require
our most difficult, subjective or complex judgments in the preparation of our
financial statements:

          Revenue recognition

          We recognize revenue from lease arrangements with tenants on our
communication sites on a straight-line basis over the life of the related lease
agreements in accordance with Statement of Financial Accounting Standard
("SFAS") No. 13, "Accounting for Leases" and FASTB 85-3, "Accounting for
Operating Leases with Scheduled Rent Increases." Revenue is recorded in the
month in which it is earned.

         We further evaluate our revenue recognition policy in accordance with
SAB 101, "Revenue Recognition" and defer any revenue if the following criteria
is not met: persuasive evidence of an arrangement exists, payment is not
contingent upon other performance or other obligations, the price is fixed or
determinable or collectibility is not reasonably assured. We record a reserve
against revenue for estimated credit memos. Any rental amounts received in
advance of the month earned are recorded as deferred revenue.

          Allowances for doubtful accounts

          Allowances for uncollectible accounts receivable are maintained based
on historical payment patterns, aging of accounts receivable, write-off history
and industry trends.

         Impairment of long-lived assets

         In assessing the recoverability of our long-lived assets, we must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. If these estimates or their related
assumptions change in the future, we may be required to record impairment
charges for these assets.

         Reorganization costs

         We have incurred costs related to our recapitalization efforts and the
execution of the Stock Purchase Agreement. These nonrecurring costs include the
acceleration of the accretion of the original issue discount on our Senior
Notes, the write-off of deferred debt issuance costs associated with the Senior
Notes and Convertible Notes, additional legal fees, professional consultant
fees, and the retention plan costs incurred as part of our reorganization
process.


         4. LONG-TERM DEBT

         Senior credit facility

         Our current senior credit facility is with a syndicate of lenders with
Bank of America, N.A. as administrative agent. The senior credit facility is
secured by a lien on substantially all of our assets



                                       9
<PAGE>

and a pledge of substantially all of the capital stock of our subsidiaries. The
senior credit facility contains customary covenants such as limitations on our
ability to incur indebtedness, to incur liens or encumbrances on assets, to make
certain investments, to make distributions to stockholders, and to prepay
subordinated debt.

         Since the quarter ended September 30, 2001, we have been out of
compliance with financial covenants contained in our senior credit facility,
which non-compliance represented an event of default under our senior credit
facility. We entered into a forbearance agreement with the lenders under our
senior credit facility on November 16, 2001, as amended on December 12, 2001 and
February 6, 2002, and as amended and restated on March 8, 2002 and further
amended on April 11, 2002, and amended and restated on May 1, 2002 pursuant to
which the lenders agreed not to exercise remedies available to them as a result
of this event of default under our senior credit facility. Accordingly, we
classified the outstanding borrowings under our senior credit facility as a
current liability. The terms of the forbearance agreement are as follows: (1)
increase the interest rate on our borrowings by 1.0%; (2) eliminate Pinnacle
Towers' ability to make additional draws under the senior credit facility; (3)
restrict the amount of money that can be invested in capital expenditures by
Pinnacle Towers and its subsidiaries; (4) limit Pinnacle Towers' and its
subsidiaries ability to incur additional debt; (5) limit Pinnacle Towers'
ability to distribute funds to Pinnacle Holdings in connection with Pinnacle
Holdings Convertible Notes; and (6) require us to establish a $2.5 million cash
escrow account to support outstanding letters of credit.

         The following table summarizes the initial covenant requirements and
the amended requirements for the period ended June 30, 2002 and our actual
ratios at the respective dates, based on our unaudited financial statements:


<TABLE>
<CAPTION>

Covenant                                           Original Requirement        Amended Requirement      Actual
--------                                           --------------------        -------------------   -------------
<S>                                                   <C>                        <C>                  <C>
Leverage Ratio                                        <=3.50 to 1.00             <=3.50 to 1.00       5.03 to 1.00
Consolidated Leverage Ratio                           <=7.50 to 1.00             <=7.75 to 1.00      11.40 to 1.00
Consolidated Interest Coverage Ratio                  >=2.50 to 1.00             >=2.50 to 1.00       1.22 to 1.00
Pro-Forma Debt Service Coverage Ratio                 >=1.50 to 1.00             >=1.50 to 1.00       1.31 to 1.00
Fixed Charge Coverage Ratio                           >=1.25 to 1.00             >=1.10 to 1.00       0.68 to 1.00

</TABLE>

         Prior to the forbearance agreement discussed above, our senior credit
facility provided up to $670.0 million of financing of which $386.0 million and
$400.5 million was committed and utilized at June 30, 2002, and December 31,
2001, respectively. In connection with our November 16, 2001, forbearance
agreement, the commitments under the facility were reduced to the amount of the
outstanding borrowings and the outstanding letters of credit.

         During the six months ended June 30, 2002, the senior credit facility
indebtedness bore interest at our option, at LIBOR plus a margin of 3.75% to
4.0% or the bank's base rate plus a margin of 3.75% to 4.0%. Advances under our
senior credit facility, as amended by the forbearance agreement, bear interest
payable in monthly installments. In addition, we are required to pay commitment
and customary facility fees on the total amount of commitments. As of June 30,
2002, the overall effective interest rate, excluding amortization of discounts
and issuance costs, on outstanding borrowings was 5.89%.

         DIP facility

         In connection with the filing of the Bankruptcy Case, on May 21, 2002,
the Bankruptcy Court approved, on an interim basis, a debtor-in-possession
revolving loan credit facility in the aggregate principal amount up to $15.0
million, with a sublimit of up to $5.0 million for letters of credit (the "DIP
Facility"), with Bank of America, N.A. as administrative agent and a syndicate
of lenders. Our obligations under the DIP Facility are secured by first priority
liens and security interests on all of the pre-petition and post-petition
property of Pinnacle Towers Inc. and its domestic subsidiaries, senior to all
liens and claims in the Bankruptcy Case other than fees and disbursements of
professional services incurred and allowed and payable in the Bankruptcy Case
and fees of the United States Trustee and the clerk of the Bankruptcy Court
required by law. Our ability to incur financing under the DIP Facility and to
use cash collateral are subject to and limited by a monthly budget approved by




                                       10
<PAGE>

the post-petition lenders and disclosed to the Bankruptcy Court. As a result of
our losses during the quarter ended June 30, 2002, we are not in compliance
with certain of the financial covenants included within the DIP Facility. In
addition, availability under the DIP Facility is subject to the continued
existence of the commitment Letter, which, as we indicated previously, the
Investors may bot utilize. No borrowings have been made under the DIP Facility.
While we currently believe we have sufficient liquidity to fund operational
needs in the near term, we are evaluating what actions we may take in light of
our noncompliance with certain DIP Facility covenants and the Commitment Letter
condition. As a result of these events, we may not have access to the DIP
Facility should we need it. The lack of such access could adversely effect our
operations and the success of our Plan.

         Interest rate swap

         As a condition of our senior credit facility, we are required to enter
into and maintain interest rate hedge contracts covering a minimum of 50% of the
debt outstanding under the senior credit facility. We enter into interest rate
swap agreements to manage the interest rate risk associated with certain of our
variable rate debt. The swap agreement effectively converts $260.0 million
through December 31, 2002 and $130.0 million at the banks option during calendar
2003 of the credit agreement floating rate debt from LIBOR plus a margin, as
defined in the agreement, to a fixed rate debt plus the applicable margin under
the credit agreement. We are exposed to credit losses in the event of
non-performance by counter-parties on these agreements, the risks of which we do
not believe are significant.

         Prior to our adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," the interest rate swap agreement qualified
for hedge accounting treatment. As such, and in accordance with the transition
provisions of SFAS No. 133, we recorded a derivative liability for the fair
value of the swap on January 1, 2001, for $4.0 million as a component of other
comprehensive income. Upon adoption of SFAS No. 133, the interest rate swap
agreement no longer qualified as hedge due to the embedded written option
exercisable at the option of the counterparty. Accordingly, the changes in the
fair value of this agreement are recorded in earnings immediately. The earnings
impact recorded during the three months ending June 30, 2002 and June 30, 2001
relating to the interest rate swap amounted to $3.7 million and $(0.7) million,
respectively, and is recorded as additional interest expense. For the three
months ended June 30, 2002, approximately $3.4 million represents a decrease in
the fair value of the interest rate swap agreement since March 31, 2002, and
approximately $0.3 million represents the reversal into current year income of
the underlying exposure previously recognized in comprehensive loss. For the
three months ended June 30, 2001, approximately $1.2 million represents an
increase in the fair value of the interest rate swap agreement since March 1,
2001, and approximately $0.5 million represents the reversal into current year
income of the underlying exposure previously recognized in comprehensive loss.

         The earnings impact recorded during the six months ending June 30, 2002
and June 30, 2001 relating to the interest rate swap amounted to $3.5 million
and $4.8 million, respectively, and is recorded as additional interest expense.
For the six months ended June 30, 2002, approximately $2.8 million represents a
decrease in the fair value of the interest rate swap agreement since December,
31, 2001, and approximately $0.7 million represents the reversal into current
year income of the underlying exposure previously recognized in comprehensive
loss. For the six months ended June 30, 2001, approximately $3.8 million
represents the additional decline in the fair value of the interest rate swap
agreement since January 1, 2001 and approximately $1.0 million represents the
reversal into current year income of the underlying exposure previously
recognized in comprehensive loss.

         Other indebtedness

         We also use seller financing to fund certain of our communications site
acquisitions. As of June 30, 2002, we had approximately $18.8 million of seller
notes outstanding, bearing interest at rates ranging from 8.0% to 13.0% per
annum. These amounts are supported by letters of credit issued by our agent
bank.

         5. LIABILITIES SUBJECT TO COMPROMISE

         Liabilities subject to compromise refer to liabilities incurred prior
to the filing of a petition for protection under the Bankruptcy Code, except
those claims that will not be impaired. These liabilities



                                       11
<PAGE>

subject to compromise represent our best estimate of known or potential claims
to be resolved in connection with the Chapter 11 filing. Such claims may be
subject to future adjustment depending on Bankruptcy Court action, further
developments with respect to disputed claims, or other events. The principal
categories of claims classified as liabilities subject to compromise consist of
the following at June 30, 2002:

                                           (in thousands)
                                           --------------
Accrued interest                              $  7,288
10% Senior Notes due 2008                      325,000
5.5% Convertible Notes due 2007                187,550
                                              --------

                                              $519,838
                                              ========

         Under the Bankruptcy Code, we may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts and
other pre-petition executory contracts, subject to Bankruptcy Court approval. We
are presently in the process of either renegotiating or rejecting certain land
leases and managed site agreements. This process consists of evaluating site
profitability, strategic fit and future returns in consideration of our core
strategic goals. Those land leases and site management agreements that do not
correspond with our strategic plans will be rejected during the course of the
bankruptcy proceedings. As of June 30, 2002 no land leases or managed site
agreements have been rejected.

         We have received approval from the Bankruptcy Court to pay or otherwise
honor in the ordinary course of business certain of our pre-petition
obligations, including pre-petition wages up to a set level, vacation pay,
employee benefits and reimbursement of employee business expenses. The
Bankruptcy Court has also given us approval to pay our trade creditors who
continue to provide us with goods and services on customary and otherwise
acceptable terms in full during the pendency of the Bankruptcy Case, as well as
up to $10,000 per vendor of pre-petition claims. To date, substantially all of
our trade creditors have been providing acceptable trade terms to us, and we
have been paying them in the ordinary course of business.

         6. REORGANIZATION ITEMS

         Reorganization expenses are comprised of items that were realized or
incurred by us as a result of our decision to reorganize under Chapter 11 of the
Bankruptcy Code. Such items for the three and six months ended June 30, 2002
consist of the following:

                                                     (in thousands)
                                               ----------------------------
                                               Three Months      Six Months
                                                  Ended            Ended
                                               ------------      ----------
Accelerated accretion of original issue
 discount and debt issuance costs              $  31,987         $  31,987
Professional fees                                  3,641             6,866
DIP facility issuance costs                          540               540
Retention plan costs                                 480               960
Printing and distribution                            158               158
                                               ---------         ---------

                                               $  36,806         $  40,511
                                               =========         =========

         7. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

         We adopted the new rules under SFAS No. 141, "Business Combinations,"
and No. 142,





                                       12
<PAGE>

"Goodwill and Other Intangible Assets," effective January 1, 2002. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment testing in
accordance with the statements. Other intangible assets will continue to be
amortized over their useful lives. We do not have any recorded goodwill or
indefinite lived intangible assets. If warranted by future acquisitions, we will
comply with the requirements for non-amortization and for periodic impairment
tests as deemed necessary.

         We adopted the new rules under SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," effective January 1, 2002. The new
rules on asset impairment supercede SFAS No. 121, "Accounting For The Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and provide a
single accounting method for long-lived assets to be disposed of. Although
retaining many of the fundamental recognition and measurement provisions of SFAS
No. 121, the new rules significantly change the criteria that would have to be
met to classify an asset as held for sale.

         As a result of our adoption of the new rules, our June 30, 2002 balance
sheet includes classification of assets held for sale separate from liabilities
held for sale. As a condition of our recently executed Stock Purchase Agreement,
certain parcels of land previously held for sale have been reclassified as held
for use in accordance with SFAS No. 144. For reclassification purposes the asset
is measured at the lower of the carrying amount of the asset before it was
classified as held for sale, adjusted for any depreciation (amortization)
expense that would have been recognized had the asset been continuously
classified as held and used, or the fair value of the asset at the date of the
subsequent decision not to sell. We reclassified $7.9 million, the current
estimated fair market value, into assets held for use.

         On September 30, 2001 we evaluated our entire asset portfolio for
impairment in accordance with the provisions of SFAS No. 121, the existing
standard at that time. In accordance with the adoption of SFAS No. 144, we are
still required to evaluate our assets for impairment when indicators of
impairment are present and the undiscounted cash flows are not sufficient to
recover the assets' carrying value. Any impairment loss is measured by comparing
the fair value of the asset to its carrying value. Due to the pending sale of a
non-core asset, we recorded a $2.5 million asset impairment loss in the first
quarter of 2002, as a result of the execution of a letter of intent to sell this
specific property, that we ultimately sold on July 18, 2002. We recorded a $21.3
million asset impairment loss in the second quarter of 2002, as a result of the
impairment of our 320 microwave tower communication sites.

         8. NEW ACCOUNTING PRONOUNCEMENTS

         In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". For most companies, SFAS No. 145
will require gains and losses on extinguishments of debt to be classified as
income or loss from continuing operations rather than as extraordinary items as
previously required under SFAS No. 4. Extraordinary treatment will be required
for certain extinguishments as provided in APB Opinion No. 30. SFAS No. 145 also
amends SFAS No. 13 to required certain modifications to capital leases to be
treated as sale-leaseback and modifies the accounting for sub-leases when the
original lessee remains a secondary obligor (or guarantor). In addition, the
FASB rescinded SFAS No. 44 which addressed the accounting for intangible assets
of motor carriers and made numerous technical corrections.

         9. COMPREHENSIVE LOSS

         Total comprehensive loss for the three months ended June 30, 2002, was
($78.6) million, composed of a net loss of ($78.6) million, a foreign currency
translation loss of approximately ($0.3) million and approximately $0.3 million
in gains reclassified into earnings from other comprehensive loss. Total
comprehensive loss was ($71.5) million for the three months ended June 30, 2001
composed of a net loss of ($71.7) million, a foreign currency translation loss
of approximately ($0.2) million and approximately $0.5 million in gains
reclassified into earnings from other comprehensive loss.



                                       13
<PAGE>

         For the six months ended June 30, 2002, total comprehensive loss was
($104.0) million, composed of a net loss of ($104.0) million, a foreign currency
translation loss of approximately ($0.7) million and approximately $0.7 million
in gains reclassified into earnings from other comprehensive loss. Total
comprehensive loss for the six months ended June 30, 2001, was ($111.5) million,
comprising net loss of ($109.3) million, cumulative effect of change in
accounting for derivative financial instruments net of taxes of ($4.0) million,
offset by a net reduction for foreign currency translation gain of approximately
$0.8 million and approximately $1.0 million in losses reclassified into earnings
from other comprehensive loss.

         10. ACQUISITIONS

         Historically we actively acquired communications sites and related real
estate assets. However, due to our inability to secure additional financing and
our current debtor-in-possession status in accordance with Chapter 11
restructuring, we have not actively pursued tower acquisitions since the fourth
quarter of 2000 and during the six months ended June 30, 2002, we completed no
material acquisitions.

         During the year ended December 31, 2001, we completed nine acquisitions
of communications sites and related assets for an aggregate purchase price of
$0.8 million. We incurred an additional $6.2 million of costs associated with
post transaction expenditures consisting of contingent purchase price payments
of $5.5 million and additional acquisition costs of $0.7 million.

         We account for our acquisitions using the purchase method of
accounting. The results of operations of the acquired assets are included from
the dates of the respective acquisitions. Since there were no significant
acquisitions in 2001 or the current quarter, the pro forma results of operations
calculated to reflect purchase accounting and pro forma adjustments as if the
transactions occurred as of January 1, 2001, do not differ materially from the
unaudited condensed consolidated financial statements presented in this report.

         11. ASSETS HELD FOR SALE

         Colocation facilities

         On June 7, 2001, we adopted a plan to dispose of certain non-core
assets pursuant to management's decision to dedicate resources to improving the
financial results of communications site operations. Of the original five
colocation properties held for sale, three were sold in 2001 and the Harlingen,
Texas facility was sold on March 15, 2002, which leaves the San Antonio, Texas
facility as the only remaining colocation asset held for sale at June 30, 2002.

         The historical carrying value of the San Antonio property, which was
acquired on October 13, 2000, prior to any write-down was approximately $8.7
million. During the year ended December 31, 2001, we recognized an asset
impairment loss of approximately $3.8 million, which is included in operating
expenses in loss on assets held for sale for the year then ended. During the six
months ended June 30, 2002 we recorded an additional $0.9 million asset
impairment loss as a result of a revised purchase and sale agreement. The
execution of this adjusted purchase and sale agreement is dependent on the
final resolution of certain environmental studies. We believe we will complete
this sale during the second half of 2002. Depreciation expense has not been
recognized since the date the colocation asset was classified as held for sale.

         For the three months ended June 30, 2002, exclusive of the asset
impairment loss, the San Antonio colocation facility had net operating income of
$0.2 million. For the three months ended June 30, 2002, the property produced
revenues of $0.3 million and had operating expenses of $0.1 million. Exclusive
of the asset impairment loss, net operating income for the six months ended June
30, 2002 was $0.4 million. For the six months ended June 30, 2002, the property
produced revenues of $0.7 million and had operating expenses of $0.3 million.

         Land

         On September 27, 2001, we adopted a plan to dispose of additional
non-core assets. As a result of the adoption of this plan, our interest in 88
parcels of owned land, principally located under towers currently owned by other
tower companies and telecommunications service providers, were deemed assets
held for sale. The carrying value of these land parcels is currently $7.9
million.



                                       14
<PAGE>

         As a condition of the Stock Purchase Agreement, these land parcels can
no longer be sold. They have therefore been reclassified into assets held for
use in accordance with SFAS No. 144. For reclassification purposes the asset is
measured at the lower of the carrying amount of the asset before it was
classified as held for sale, adjusted for any depreciation (amortization)
expense that would have been recognized had the asset been continuously
classified as held and used, or the fair value of the asset at the date of the
subsequent decision not to sell. We reclassified $7.9 million, the current
estimated fair market value, into assets held for use.

         Investment in Pinnacle Towers Ltd.

         On September 27, 2001, we adopted a plan to dispose of our investment
in a majority owned subsidiary, Pinnacle Towers Ltd. As a result of the adoption
of this plan, our investment in this subsidiary has been deemed assets held for
sale.

         The historical carrying value of our $12.4 million investment in
Pinnacle Towers Ltd. as of June 30, 2002, prior to any asset impairment loss,
was approximately $9.0 million. During the year ended December 31, 2001, we
recognized an asset impairment loss of approximately $4.0 million, which was
included in operating expenses in loss on assets held for sale for the year then
ended. During the six months ended June 30, 2002, no additional substantive
asset impairment loss was taken. We estimated the fair market value less costs
to sell based upon a proposal, which has subsequently expired, from an
interested third party. This estimate continues to be our best estimate of the
fair value of these assets. Depreciation expense has not been recognized since
the date this investment was classified as held for sale.

         For the three months ended June 30, 2002, the investment produced
revenues of $0.2 million and had operating expenses of $0.1 million. The
investment produced revenues of $0.4 million and had operating expenses of $0.3
million for the six months ended June 30, 2002.

         12. IMPAIRMENT ON ASSETS HELD FOR USE

         SFAS No. 144, "Accounting For The Impairment or Disposal of Long-Lived
Assets", requires impairment losses to be recognized for long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows are not sufficient to recover the assets' carrying value. Any
impairment loss is measured by comparing the fair value of the asset to its
carrying value. We have been actively involved in litigation with the major
customer for our 320 microwave tower communication sites since last year.
Earlier this year, this customer suspended rent payments for these sites. During
the second quarter, we filed various eviction actions at the state court level
as well as an adversarial proceeding in the Bankruptcy Court, each in an effort
to remedy the customer's failure to pay rent. As a result of this ongoing
dispute and the customer's nonpayment, coupled with uncertainty surrounding the
customer's ability to pay, we ceased recognizing rental revenue on an accrual
basis beginning in the second quarter. Since this customer is the primary
customer for our microwave communication sites, we recorded an asset impairment
charge on assets held for use totaling $21.3 million in the second quarter. In
addition, during the first quarter of 2002, we also recorded a $2.5 million
asset impairment loss on a non-core property we subsequently sold on July 18,
2002.

         13. STOCKHOLDERS' EQUITY

         On January 22, 2002, $12.5 million of Convertible Notes were redeemed
for 158,851 shares of Pinnacle's common stock at the stated conversion price per
share of $78.375, reducing our outstanding obligation under the Convertible
Notes to $187.5 million at June 30, 2002, which is classified as liabilities
subject to compromise in the condensed consolidated balance sheet.

         14. COMMITMENTS AND CONTINGENCIES

          We have entered into a memorandum of understanding to settle the
consolidated securities class action lawsuit that is currently pending against
Pinnacle, its Chief Executive Officer, Steven R. Day, its former Chief Financial
Officer, Jeffrey J. Card, its former Chief Executive Officer, Robert J. Wolsey,
various current and former directors of Pinnacle, Pinnacle's former accountants,




                                       15
<PAGE>

PricewaterhouseCoopers, LLP, and the underwriters of Pinnacle's January 18, 2000
secondary offering. The litigation related to alleged misrepresentations
contained in a prospectus for Pinnacle's January 18, 2000 secondary stock
offering and alleged misleading statements contained in press releases and other
filings with the SEC relating to certain of Pinnacle's financial statements, the
acquisition of approximately 1,858 communications sites from Motorola, Inc.,
Pinnacle's relationship with its former accountants and other matters. The
settlement, which has been agreed to by all of the parties to the litigation,
provides that the claims against Pinnacle and its current and former officers
and directors will be dismissed. In agreeing to the proposed settlement,
Pinnacle and its current and former officers and directors specifically deny any
wrongdoing.

         The settlement provides for a cash payment of approximately $8.2
million, all of which will be paid directly by Pinnacle's insurance. Of the $8.2
million payment, $4.1 million shall be deemed to have been made on behalf of
Pinnacle, and $4.1 million shall be deemed to have been made on behalf of the
individual defendants. In addition, the settlement provides for additional cash
payments of approximately $2.6 million by PricewaterhouseCoopers and $200,000 by
the underwriter defendants. The settlement is subject to certain customary
conditions, including preliminary and final approval by the Bankruptcy Court,
the U.S. federal district court in which the action is pending and notice to the
class. Once the courts give preliminary approval to this settlement, formal
notices with the details of the settlement will be sent to the purported class
members who purchased Pinnacle common stock during the period of June 29, 1999
to August 14, 2001.

         In January 2002, we became aware that four U.K. entities, in which we
have owned since 2000 a direct or indirect equity interest, each failed to file
a timely election with the Internal Revenue Services to be treated for U.S. tax
purposes as a pass-through entity rather than as a corporation, which is the
default classification in the absence of a timely election. An application was
filed with the Internal Revenue Service for an extension of time to file such
election retroactive to 2000, and such application was approved by the IRS on
July 30, 2002. However, in accordance with such IRS approval, an election to be
classified as a partnership or disregarded entity must be timely filed with the
IRS by each such entity no later than 60 days after July 30, 2002. We intend to
cause such election to be duly and timely filed by each such entity. However, if
we fail to do so then the equity interests which we own, directly or indirectly,
in such U.K. entities will constitute the ownership of securities of a
corporation in excess of the REIT-qualification limitation described above which
could result in the loss of our REIT status for 2000 and up to the four
succeeding years. We have not provided for this exposure in our financial
statements as we intend to cause such election to be duly and timely filed by
each such entity.

         We also recently became aware that we may have failed to make elections
on a timely basis in the manner contemplated by Notice 88-19 and the temporary
regulations. However, based on informal written guidance which we obtained from
the IRS national office on May 16, 2002, we now believe that, pursuant to the
temporary regulations, we will be eligible to make such elections retroactively
on our federal income tax return for 2001 which is required to be filed on or
before September 16, 2002, provided that we have filed certain amended tax
returns with the IRS. We intend to file such amended tax returns and intend to
make such election on our 2001 federal tax return. We estimate that the
aggregate amount of tax, interest and penalties for all such acquisitions is
approximately $30.0 million, however we have not provided for this exposure. To
the extent we are required to recognize the "built-in gain" in the year of
acquisition, the "built-in gain" would not be subject to Federal income tax upon
a sale by us of the assets involved.

         15. SUBSEQUENT PROPERTY SALES

         On July 18, 2002 we sold an office complex we owned in Oldsmar,
Florida. The property was sold for gross proceeds of $2.8 million dollars.
There was no additional loss incurred at the time of the sale, as the property
had previously been considered impaired and written down.




                                       16
<PAGE>

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

         This Quarterly Report on Form 10-Q contains forward-looking statements
that have been made pursuant to the provisions of the Private Securities
Litigation Reform Act of 1995. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results may differ materially from those expressed or
forecasted in any such forward-looking statements. In addition, we may from time
to time make oral forward-looking statements. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events, or otherwise. Such statements appear in a number
of places in this report and include statements regarding the intent, belief or
current expectations of Pinnacle, its directors or its officers with respect to,
among other things: (1) trends affecting our financial condition or results of
operation; (2) the industry in which the Company operates; (3) our business and
growth strategies; and (4) other matters. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. We refer you to the subsection below entitled "Factors
That May Affect Future Results" for important factors that could cause actual
results to differ materially from those indicated in the forward-looking
statements as a result of various factors. Readers are cautioned not to place
undue reliance on these forward-looking statements.

OUR FINANCIAL CONDITION

         On May 21, 2002 (the "Petition Date"), Pinnacle and certain of its
wholly owned subsidiaries, Pinnacle Towers Inc., Pinnacle Towers III Inc. and
Pinnacle San Antonio LLC (collectively, the "Debtors") filed petitions for
relief (the "Bankruptcy Case") under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court"). Since the Petition Date,
we have continued to operate our businesses as debtors-in-possession under the
Bankruptcy Code.

         On July 30, 2002, the Bankruptcy Court entered an order (the
"Confirmation Order") confirming the joint "pre-negotiated" reorganization plan
(the "Plan"). It was contemplated that the Plan would be funded by two new
sources of capital: (1) an equity investment of up to approximately $205.0
million by Fortress Investment Group ("Fortress") and Greenhill Capital Partners
("Greenhill," and together with Fortress, the "Investors") pursuant to the terms
of the Securities Purchase Agreement (the "Stock Purchase Agreement") entered
into as of April 25, 2002, and (2) an approximately $340.0 million new credit
facility. As previously disclosed, the Investors have been pursuing such new
credit facility pursuant to a Commitment Letter dated April 25, 2002, from
Deutsche Bank Securities Inc. and Bank of America, N. A. issued to the Investors
(the "Commitment Letter").

         As previously announced, since the Bankruptcy Court entered the
Confirmation Order confirming the Plan, we have been informed by the Investors
that the Investors believe that, based on current market conditions,
particularly as they relate to extensions of senior credit to companies
associated with the telecommunications industry, the new credit facility
contemplated by the Commitment Letter is unlikely to be able to be consummated
on terms commercially acceptable to the Investors. We understand from the
Investors that they are continuing to pursue financing to consummate the
transaction contemplated by the Stock Purchase Agreement.

         On August 8, 2002, the administrative agent for the lenders under our
senior credit facility that was outstanding prior to the filing for Chapter 11
reorganization (loans under such senior credit facility continue to remain
outstanding) filed a motion with the Bankruptcy Court for reconsideration of the
Confirmation Order. The motion asserts that without the new credit facility that
was to be provided pursuant to the Commitment Letter, the Plan cannot be
consummated. Pending the Bankruptcy Court's ruling on such motion (a hearing on
which has been set for September 18, 2002), the primary effect of the motion is
to preserve the status quo and prevent the Confirmation Order from becoming
final and nonappealable prior to the Bankruptcy Court ruling on such motion. We
have not



                                       17
<PAGE>

yet responded to such motion, and are currently considering our options in light
of the events described herein that have occurred since the Bankruptcy Court
entered the Confirmation Order.

         In light of the events described above, we continue to monitor relevant
developments and evaluate our rights and obligations under the Stock Purchase
Agreement consistent with our obligations to the various constituencies of
Pinnacle and its subsidiaries. A condition precedent to the consummation of the
transactions contemplated by the Stock Purchase Agreement is the receipt of
financing on terms not materially different from those set forth in the
Commitment Letter. There can be no assurance that financing will be available to
satisfy such financing condition. If the closing contemplated by the Stock
Purchase Agreement is not consummated on or before August 20, 2002, votes in
favor of the Plan could be withdrawn, which could result in the need to
re-solicit votes on the Plan. If certain of the terms of any alternative credit
facility were to vary materially from those contemplated by the Commitment
Letter, we might need to re-solicit votes in favor of the Plan, amend the Plan
or seek an alternative to the Plan which could result in our constituencies
receiving different or less consideration than that contemplated by the current
Plan.

         Under the terms of the Stock Purchase Agreement, Pinnacle Holdings will
be merged into a newly formed Delaware corporation formed by the Investors ("New
Pinacle"). Fortress will purchase up to 13,735,000 shares of common stock of New
Pinnacle (the "Fortress Shares") and Greenhill will purchase up to 6,765,000
shares of common stock of New Pinnacle (the "Greenhill Shares" and together with
the Fortress Shares, the "Investor Shares"). The Stock Purchase Agreement
provides for the cancellation of our 10% Senior Notes due 2008 (the "Senior
Notes") in exchange for up to $114.0 million (or $350.77 per $1,000 par value
bond) in cash or, at the Senior Note holders' election, a combination of cash
and up to 49.9% of New Pinnacle's outstanding common stock. The number of
Investor Shares (and hence their cash investment) will be proportionately
decreased by the number of shares purchased by holders of the Senior Notes.

         The Stock Purchase Agreement also provides for the cancellation of our
5.5% Convertible Notes due 2007 (the "Convertible Notes") in exchange for up to
$0.5 million in cash and five-year warrants to purchase up to approximately
205,000 shares of New Pinnacles common stock at approximately two times the
price of the Investor Shares. Convertible Note holders can double this amount to
a total of $1.0 million in cash and warrants to purchase 410,000 shares,
representing approximately 2.0% of New Pinnacle's equity capitalization, if the
Convertible Note holders agree to give certain releases. The Stock Purchase
Agreement further provides for cancellation of the outstanding shares of
Pinnacle common stock. Former stockholders and plaintiffs in a stockholder class
action shall receive five-year warrants to purchase up to 102,500 shares of New
Pinnacle common stock (representing approximately 0.5% of New Pinnacle's equity
capitalization) at approximately two times the price of the Investor Shares.
This amount can be doubled to 205,000 shares, representing approximately 1.0% of
New Pinnacle's capitalization, if the stockholders agree to give certain
releases.

         We have received approval from the Bankruptcy Court to pay or otherwise
honor in the ordinary course of business certain of our pre-petition
obligations, including pre-petition wages up to a set level, vacation pay,
employee benefits and reimbursement of employee business expenses. The
Bankruptcy Court has also given us approval to pay our trade creditors who
continue to provide us with goods and services on customary and otherwise
acceptable terms in full during the pendency of the Bankruptcy Case, as well as
up to $10,000 per vendor of pre-petition claims. To date, substantially all of
our trade creditors have been providing acceptable trade terms to us, and we
have been paying them in the ordinary course of business.

OVERVIEW OF OUR BUSINESS

         We lease space on a portfolio of owned, managed and leased
communications sites to a broad base of wireless communication service
providers, operators of private networks, government agencies and other
customers. We also maintain these sites for our tenants. These sites are
primarily composed of towers and rooftops where wireless communication providers
can locate their antennas and equipment. Since our formation in May 1995, we
have created a portfolio of wireless communications site clusters in high growth
markets such as Atlanta, Birmingham, Boston, Chicago, Dallas, Houston, Los
Angeles, New Orleans, New York, Orlando, and Tampa.



                                       18
<PAGE>

          Our objective is to create value by growing cash flow. We believe we
can do this by aggressively marketing existing communications sites as well as
by selectively constructing new towers. Our prior business strategy was largely
based on making acquisitions of existing communications sites in areas we
perceived to have high demand for wireless services. As a result of our
inability to access additional capital we have ceased our acquisition strategy
and curtailed our construction of new towers and have focused on aggressively
marketing existing communications sites.

         We market rental space on our communications sites to
leverage our fixed costs over a broad base of customers. Our customers are
generally responsible for the installation of their own equipment and, in many
cases, the utility costs associated with operating their equipment. In addition,
adding customers to an existing communications site does not increase our
monitoring or maintenance costs. Accordingly, when customers are added to an
existing owned site, there is little additional expense and the additional
revenue increases our cash flow margins.

         We believe that opportunities for growth exist by leasing additional
space to wireless communication service providers on our existing communications
sites. Because the costs of operating a communications site are primarily fixed
on owned sites, increasing tower utilization significantly improves tower level
operating margins on these sites.

         We were previously an active acquirer of communications sites with an
objective of acquiring or constructing clusters of rental communications sites
in areas where there is significant existing and expected growth in the demand
for rental communications sites by wireless communications providers. The
strategy focused on obtaining a significant ownership position of communications
site assets in our targeted markets in order to offer "one-stop shopping" to
wireless communications providers who are deploying or expanding wireless
communications networks. Should we be able to access capital in the future on
terms and conditions that are acceptable to us, and should acquisition prices
decline to levels we deem acceptable, we could restart our acquisition strategy.

         An additional element of our business strategy is to selectively
construct new towers in and around major markets where we already have a
presence to enhance our existing communications site clusters. However, as a
result of our inability to access new capital, we have curtailed our new tower
construction program. Tower construction is generally initiated after at least
one anchor tenant is identified and after we have determined, based on market
research, that the capital outlay for the construction project would not exceed
our minimum required return on invested capital. We do not engage in speculative
construction projects or pursue large "build-to-suit" mandates.

         The table below outlines the number of acquisitions and dispositions we
have completed and the corresponding wireless communications sites and carrier
neutral colocation facilities held as of June 30, 2002. Dispositions include the
termination of our rights and obligation on managed and leased sites that
generated negative cash flow. These terminations are consistent with our
strategy to improve overall profitability on a site by site basis. Non-revenue
producing sites are those sites that are not generating revenue; were acquired
as part of a larger, more profitable acquisition of sites; and do not have an
active tenant. Once a non-revenue producing site begins producing revenue it is
reclassified into the appropriate category of revenue producing sites.





                                       19
<PAGE>

<TABLE>
<CAPTION>


                                  Revenue Producing Sites
              ------------------------------------------------------------------     Non-Revenue                  Acquisitions
              Owned         Managed        Leased       CoLocation      Subtotal        Sites          Total        Completed
              -----         -------        ------       ----------      --------     -----------       -----      ------------
<S>              <C>         <C>            <C>           <C>           <C>            <C>            <C>            <C>
 1995            33             --             --             --             33             --             33             13
 1996           123             --             --             --            123             --            123             49
 1997           156             --             --             --            156             --            156             72
 1998           564             --             --             --            564             --            564             82
 1999           881            584            858             --          2,323            722          3,045            130
 2000           704            (19)            78              5            768            434          1,202            226
 2001            44             12           (173)            (2)          (119)          (532)          (651)             9
 2002           (28)           (27)           (37)            (1)           (93)             5            (88)            --
             ------         ------         ------         ------         ------         ------         ------         ------
Total         2,477            550            726              2          3,755            629          4,384            581
             ======         ======         ======         ======         ======         ======         ======         ======

</TABLE>


         Owned sites as depicted in the table above are generally those where we
own either the land, the tower or both on a tower site, or have a permanent
easement on a rooftop. This would contrast to other sites in our portfolio where
we have: 1) contractual rights to manage towers or rooftops, either exclusively
or non-exclusively; 2) have a non-permanent easement right on a rooftop site;
or, 3) lease a space on a tower owned by another tower owner for the purpose of
sub-leasing to one of our tenants who needed space on a site in an area where we
had no site inventory in existence.

         Because of our financial condition and reductions in new site
deployments by telephony customers, we have experienced lower than normal new
lease activity with respect to our telephony customers. We expect our telephony
customers will continue to expand their networks and that we will continue to
add new telephony customers as they continue their systems build-outs. We also
look for our new technology customers to grow over time as they find additional
capital to fund their business plans. These new technology customers are
attracted to most of our communications sites because they deploy at higher
elevations and our portfolio of sites generally accommodates these elevations.
However, many of our new technology customers have experienced financial
difficulties. As of June 30, 2002 approximately 45 of our customers,
representing less than 1% of our revenue, have or we believe are in the process
of filing for bankruptcy. There can be no assurance that our new technology
customers will be able to access additional capital to fund their business
plans. In addition there can be no assurance that the rate of new leases we
sign with telephony customers will return to a level consistent with our past
experience.

         We have also experienced higher than anticipated levels of tenant churn
throughout 2001 and during the first six months of 2002. During 2001, primarily
in the third and fourth quarters, we experienced significant churn from paging
customers with a large portion of this churn coming from paging customers who
filed for bankruptcy and rejected certain of our leases during the bankruptcy
case proceedings. In addition, during the third quarter of 2001, we experienced
churn related to our customers located on the World Trade Center. During the
first quarter of 2002, South Carolina Telephone executed a buyout agreement and
canceled approximately 90 leases representing an annual revenue run rate of $1.6
million. In addition, during 2002, we have experienced churn from the loss of
management rights on managed and leased sites as well as from churn from
financially troubled customers.

         Our common stock was previously listed on the NASDAQ national market.
We were notified by NASDAQ that we were not in compliance with the minimum
listing requirements, and that, unless prior to May 15, 2002, the minimum
closing bid price of our common stock was at or above $1.00 for 10-Q consecutive
trading days, our common stock would be delisted from the NASDAQ National
Market. We did not meet the NASDAQ minimum listing requirements and on May 23,
2002 we received notification from NASDAQ that our stock was delisted. At this
time we have no plans to list our common stock for trading on another exchange.

         We have generated net losses since inception and at June 30, 2002, had
an accumulated deficit totaling approximately $791.0 million. It is expected
that continuing charges relating to depreciation of existing assets and interest
expense associated with our debt will be substantial. Accordingly, we expect to
continue to generate losses for the foreseeable future.

         On August 31, 1999, we completed the acquisition of approximately 1,858
communications sites, including 499 owned sites, 526 managed sites, and 833
leased sites from Motorola, Inc. ("Motorola") for $254.0 million in cash and
stock, plus fees and expenses (the "Motorola Antenna Site Acquisition"). The
Motorola communications sites that we acquired are largely clustered in urban
areas throughout the United States and Canada with over 50% of the owned sites
overlapping with our existing communications site portfolio. We believe that the
Motorola Antenna Site Acquisition greatly enhances our ability to offer our
customers attractive tower clusters in high growth markets



                                       20
<PAGE>

and transportation corridors. In addition, the Motorola managed sites that we
acquired enable us to provide our customers with urban rooftop sites. These
sites have enabled us to further diversify our customer base by providing us
with an inventory of high altitude sites in urban areas. Since we closed this
acquisition, we have expended considerable effort and cost to properly identify
the specific details of the assets and liabilities we acquired in connection
with the sites we purchased. Additionally, our employees have spent a
significant amount of time integrating these assets and the data related to the
individual assets into our business operations.

         Prior to the Motorola Antenna Site Acquisition, we did not have a
significant number of managed or leased sites in our portfolio. Generally,
managed and leased sites have higher operating costs relative to their revenues
than do owned towers, primarily as a result of higher rental costs related to
revenue sharing with the site owners. In addition, on leased sites we generally
have a right to lease only a limited portion of a site, which limits total
revenue potential. Higher relative operating costs and limited revenue growth
results in substantially lower tower cash flow and Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") margin performance on managed
and leased sites. Accordingly, the acquisition of managed and leased sites in
the Motorola Antenna Site Acquisition has decreased, and any potential future
acquisitions of managed and leased sites will decrease, our site level operating
margins.

         Pinnacle Towers Inc. contributed $12.4 million in capital to a United
Kingdom ("U.K.") entity, Pinnacle Towers, Ltd., to establish a 91% interest in
the entity. Pinnacle Towers Ltd. used the capital to purchase telecommunications
sites throughout the U.K. and continental Europe. On September 27, 2001, a
decision was made to divest this investment and we have reclassified the assets
and liabilities of Pinnacle Towers Ltd. to assets held for sale in our June 30,
2002, unaudited condensed consolidated balance sheet.

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, each
statement of operations item as a percentage of revenue. The results of
operations are not necessarily indicative of results for any future period. The
following data should be read in conjunction with our unaudited condensed
consolidated financial statements and notes thereto included elsewhere herein.


<TABLE>
<CAPTION>

                                                                            Six months ended:             Three months ended:
                                                                     -----------------------------   -----------------------------
                                                                     June 30, 2001   June 30, 2002   June 30, 2001   June 30, 2002
                                                                      (unaudited)     (unaudited)     (unaudited)     (unaudited)
                                                                     -------------   -------------   -------------   -------------
<S>                                                                       <C>             <C>             <C>             <C>
Statement of Operations Data:
Revenue                                                                   100.0%          100.0%          100.0%          100.0%
Direct operating expenses                                                  37.5%           35.3%           38.6%           35.2%
                                                                         ------          ------          ------          ------
Gross margin                                                               62.5%           64.7%           61.4%           64.8%
Other expenses
    General and administrative                                             25.5%           17.1%           29.9%           16.7%
    State franchise, excise and minimum taxes                               1.0%            1.1%            1.0%            1.1%
    Depreciation and amortization                                          66.6%           54.8%           65.1%           56.6%
    Loss on assets held for sale                                           35.5%            1.1%           70.4%            2.2%
    Loss on assets held for use                                             0.0%           26.2%            0.0%           48.4%
    Loss/(gain) on disposal of assets                                       1.9%           (0.5%)           4.1%           (1.2%)
    Reorganization costs                                                    0.0%           44.5%            0.0%           83.5%
                                                                         ------          ------          ------          ------
Loss from operations                                                      (68.0%)         (79.6%)        (109.1%)        (142.5%)
Interest expense, net                                                      30.3%           21.5%           24.0%           25.0%
Amortization of original issue discount and debt issuance costs            15.2%           14.2%           15.4%           11.4%
Foreign currency translation (loss)/gain                                    0.3%           (0.1%)          (0.2%)          (0.3%)
Minority interest in net loss/(gain) of subsidiary                         (0.1%)           0.0%           (0.1%)           0.0%
Income tax benefit                                                         (1.3%)          (1.0%)          (2.0%)          (0.2%)
                                                                         ------          ------          ------          ------
Net loss                                                                 (112.4%)        (114.2%)        (146.2%)        (178.4%)
                                                                         ======          ======          ======          ======

</Table>

                                       21
<PAGE>

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

         Revenues decreased by $6.4 million, or 6.6%, to $91.0 million for the
six month period ended June 30, 2002, from $97.4 million for the six month
period ended June 30, 2001. Major contributors to the year-over-year decline in
revenue relate to the loss of the World Trade Center site ($1.0 million impact),
the sale of the company's colocation facility sites ($2.5 million impact), the
loss of two major management agreements ($0.7 million impact), the impact of
switching to a cash basis of revenue recognition for our primary customer on our
microwave tower sites ($0.7 million impact), the renegotiation of the master
lease agreement with our largest customer ($0.5 million impact) and the net
effect of customer churn offset by $1.4 million of revenue recognized in the
first quarter of 2002 related to South Carolina Phone's buy out of its remaining
leases.

         Direct operating expenses, excluding depreciation and amortization,
decreased by $4.4 million or 12.0% to $32.1 million for the six month period
ended June 30, 2002, from $36.5 million for the six month period ended June 30,
2001. This decline is due largely to decreases in site management ($1.2 million
impact), professional services ($1.0 million impact) and rent and tower level
utilities ($2.2 million impact). These reductions are the result of our focus on
operational tower efficiencies through the in-sourcing of site maintenance
related functions and our continued commitment to contain our operating level
costs. In addition, the decline in rent expense and tower level utilities is in
part due to our decline in revenue. We also continue to actively assess and
dispose of under-performing sites. Direct operating expenses as a percentage of
revenue decreased to 35.3% for the six month period ended June 30, 2002, from
37.5% for the six month period ended June 30, 2001.

         Selling, general and administrative expenses decreased for the six
month period ended June 30, 2002, to $15.5 million from $24.8 million for the
six month period ended June 30, 2001, a decrease of $9.3 million or 37.4%. The
decrease is due primarily to, the decline in aborted construction efforts
representing construction projects we were forced to abandon in early 2001 due
to our inability to access capital markets ($3.4 million impact), a decline in
salary and benefits due to a severance accrual in March 2001, a one-time bonus
payment in April 2001 and the effects of a workforce reduction in July 2001
($2.7 million impact), a decline in professional fees and services ($1.3 million
impact) and a decline in the use of temporary help ($0.7 million impact). As a
percentage of revenue, general and administrative expenses decreased to 17.1% of
revenue for the six month period ended June 30, 2002, from 25.5% for the six
month period ended June 30, 2001.

         State franchise, excise and minimum taxes, which represent taxes
assessed in connection with our operations in various state jurisdictions,
remained unchanged for the six month period ended June 30, 2002, as compared to
the six month period ended June 30, 2001 at approximately $1.0 million. Such
taxes are calculated using various methods such as a portion of our property
within a given state, our capital structure or based upon a minimum tax in lieu
of income taxes.

         As a result of our reorganization efforts, we have incurred $40.5
million in nonrecurring costs related to the recapitalization efforts and
bankruptcy filing discussed elsewhere herein. These costs include the
acceleration of the accretion of the original issue discount on the Senior Notes
of $23.0 million and the write-off of deferred debt issuance costs on the Senior
Notes and Convertible Notes of $8.9 million. Also, included in these costs are
$8.6 million of additional legal fees, consultant fees, the reimbursement of due
diligence fees to two parties that performed confirmatory due diligence and
retention plan costs.

         Interest expense, net of amortization of original issue discount and
interest income, decreased 33.6% to $19.6 million for the six month period ended
June 30, 2002, from $29.5 million for the six month period ended June 30, 2001.
The decrease of $9.9 million is primarily due to (i) changes in the average
interest rate charged for our senior credit facility, which declined from 7.9%
at June 30, 2001 to 5.9% at June 30, 2002, resulting in a $5.8 million decline
in interest expense, (ii) a $2.4 million decrease in interest on the Convertible
Notes due to interest rate penalties related to the late registration of the
bonds accruing in 2001 but not in 2002, and as of May 21, 2002 we stopped
accruing interest due to our bankruptcy filing and (iii) a $1.3 million decline
in interest related to the swap liability.



                                       22
<PAGE>

         Statement of Financial Accounting Standard ("SFAS") No. 144,
"Accounting For The Impairment or Disposal of Long-Lived Assets", requires
impairment losses to be recognized for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows are not
sufficient to recover the assets' carrying value. Any impairment loss is
measured by comparing the fair value of the asset to its carrying value. We have
been actively involved in litigation with the major customer for our 320
microwave tower communication sites since last year. Earlier this year, this
customer suspended rent payments for these sites. During the second quarter, we
filed various eviction actions at the state court level as well as an
adversarial proceeding in the Bankruptcy Court, each in an effort to remedy the
customer's failure to pay rent. As a result of this ongoing dispute and the
customer's nonpayment, coupled with uncertainty surrounding the customer's
ability to pay, we ceased recognizing rental revenue on an accrual basis
beginning in the second quarter. Since this customer is the primary customer for
our microwave communication sites, we recorded an asset impairment charge on
assets held for use totaling $21.3 million in the second quarter. In addition,
during the first quarter of 2002, we also recorded a $2.5 million asset
impairment loss on a non-core property we subsequently sold on July 18, 2002.

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

         Revenues decreased by $5.0 million, or 10.3%, to $44.1 million for the
three month period ended June 30, 2002, from $49.1 million for the three month
period ended June 30, 2001. This decline in revenue is partially the result of
the renegotiation of the master lease agreement with our largest customer in
June 2002 which now generates approximately $0.5 million less in monthly revenue
than the previous master lease as well as the loss of certain revenue producing
sites such as the World Trade Center ($0.5 million impact), the sale of four
colocation facilities ($1.5 million impact), the impact of switching to a cash
basis of revenue recognition for our primary customer on our microwave tower
sites ($0.7 million impact), and the loss of two major management agreements
($0.4 million impact).

         Direct operating expenses, excluding depreciation and amortization,
decreased by $3.5 million or 18.1% to $15.5 million for the three month period
ended June 30, 2002, from $19.0 million for the three month period ended June
30, 2001. This decline in operating expenses is primarily the result of
decreases in tower rent expense ($1.5 million impact), professional
services ($0.9 million impact), general operating expenses ($0.6 million) and
site management ($0.6 million impact) resulting from the in-sourcing of many
tower level activities. In addition, the decline in rent expense and general
operating expenses is in part due to our declining revenue. Direct operating
expenses as a percentage of revenue decreased to 35.2% for the three month
period ended June 30, 2002, from 38.6% for the three month period ended June 30,
2001.

         Selling, general and administrative expenses decreased by approximately
50.0% for the three month period ended June 30, 2002, to $7.3 million from $14.7
million for the three month period ended June 30, 2001. The decrease of $7.3
million is due in part to a reduction in salaries and benefits due to the
effects of a workforce reduction and a one-time bonus in April 2001 ($1.1
million impact) a reduction in aborted construction costs written-off in 2001
representing construction projects we were forced to abandon in early 2001 due
to our inability to access additional capital ($3.2 million impact), and a
reduction in professional fees and services ($2.0 million impact). As a
percentage of revenue, general and administrative expenses decreased to 16.7% of
revenue for the three month period ended June 30, 2002, from 29.9% for the three
month period ended June 30, 2001.

         State franchise, excise and minimum taxes, which represent taxes
assessed in connection with our operations in various state jurisdictions,
remained unchanged for the three month period ended June 30, 2002, as compared
to the three month period ended June 30, 2001 at $.5 million. Such taxes are
calculated using various methods such as a portion of our property within a
given state, our capital structure or based upon a minimum tax in lieu of income
taxes.

         As a result of our reorganization efforts, we have incurred $36.8
million in nonrecurring charges related to the recapitalization efforts
discussed elsewhere herein. These costs include the acceleration of the
accretion of the original issue discount on the Senior Notes of $23.0 million
and the write-off of deferred debt issuance costs on the Senior Notes and
Convertible Notes of $8.9 million.



                                       23
<PAGE>

Also, included in these costs are $4.9 million of additional legal fees,
consultant fees, DIP facility financing fees and retention plan costs.

         Interest expense, net of amortization of original issue discount and
interest income, decreased 6.8% to $11.0 million for the three month period
ended June 30, 2002, from $11.8 million for the three month period ended June
30, 2001. The decrease of $0.8 million is primarily due to (i) changes in the
average interest rate charged for our senior credit facility,, which declined
from 7.9% at June 30, 2001 to 5.9% at June 30, 2002, resulting in a $3.0 million
decline in interest expense, (ii) a $1.9 million decrease in interest on the
Convertible Notes due to interest rate penalties related to the late
registration of the bonds accruing in 2001 but not in 2002, and as of May 21,
2002 we stopped accruing interest due to our bankruptcy filing, (iii) a $0.2
million decline in seller note interest and a $0.1 million decline in
miscellaneous penalty interest charges, offset by (iv) a $4.4 million increase
in interest related to the swap liability.

         SFAS No. 144, "Accounting For The Impairment or Disposal of Long-Lived
Assets", requires impairment losses to be recognized for long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows are not sufficient to recover the assets' carrying value. Any
impairment loss is measured by comparing the fair value of the asset to its
carrying value. We have been actively involved in litigation with the major
customer for our 320 microwave tower communication sites since last year.
Earlier this year, this customer suspended rent payments for these sites. During
the second quarter, we filed various eviction actions at the state court level
as well as an adversarial proceeding in the Bankruptcy Court, each in an effort
to remedy the customer's failure to pay rent. As a result of this ongoing
dispute and the customer's nonpayment, coupled with uncertainty surrounding the
customer's ability to pay, we ceased recognizing rental revenue on an accrual
basis beginning in the second quarter. Since this customer is the primary
customer for our microwave communication sites, we recorded an asset impairment
charge on assets held for use totaling $21.3 million in the second quarter.

LIQUIDITY AND CAPITAL RESOURCES

         Our liquidity needs arise from debt service obligations, working
capital needs, capital expenditures, and earn-out payments related to prior
acquisitions. We have historically funded our liquidity needs with proceeds from
public equity offerings, bank borrowings, debt offerings and cash flow from
operations. We have been unable to access additional capital through public
equity or debt offerings since August 2000.

         As previously disclosed, on May 21, 2002, Pinnacle and certain of its
wholly owned subsidiaries, Pinnacle Towers Inc., PT III and
Pinnacle San Antonio LLC filed petitions for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of New York. Since the Petition Date, we have continued to operate our
businesses as debtors-in-possession under the Bankruptcy Code.

         The Bankruptcy Case was commenced in order to implement a financial
restructuring of Pinnacle through funding by two new sources of capital: (1) an
equity investment of up to $205.0 million by the Investors pursuant to the terms
of the Stock Purchase Agreement, and (2) an approximately $340.0 million new
credit facility. As previously disclosed, the Investors have been pursuing such
new credit facility pursuant to the Commitment Letter.

         Under the terms of the Stock Purchase Agreement, Pinnacle Holdings will
be merged into a newly formed Delaware corporation formed by the Investors.
Fortress will purchase up to 13,735,000 shares of common stock of New Pinnacle
and Greenhill will purchase up to 6,765,000 shares of common stock of New
Pinnacle. The Stock Purchase Agreement provides for the cancellation of our
Senior Notes in exchange for up to $114.0 million (or $350.77 per $1,000 par
value bond) in cash or, at the Senior Note holders' election, a combination of
cash and up to 49.9% of New Pinnacle's outstanding common stock. The number of
Investor Shares (and hence their cash investment) will be proportionately
decreased by the number of shares purchased by holders of the Senior Notes.

         The Stock Purchase Agreement also provides for the cancellation of our
Convertible Notes in



                                       24
<PAGE>

exchange for up to $0.5 million in cash and five-year warrants to purchase up to
approximately 205,000 shares of New Pinnacles common stock at approximately two
times the price of the Investor Shares. Convertible Note holders can double this
amount to a total of $1.0 million in cash and warrants to purchase 410,000
shares, representing approximately 2.0% of New Pinnacle's equity capitalization,
if the Convertible Note holders agree to give certain releases. The Stock
Purchase Agreement further provides for cancellation of the outstanding shares
of Pinnacle common stock. Former stockholders and plaintiffs in a stockholder
class action shall receive five-year warrants to purchase up to 102,500 shares
of New Pinnacle common stock (representing approximately 0.5% of New Pinnacle's
equity capitalization) at approximately two times the price of the Investor
Shares. This amount can be doubled to 205,000 shares, representing approximately
1.0% of New Pinnacle's capitalization, if the stockholders agree to give certain
releases.

         On July 30, 2002, the Bankruptcy Court confirmed our plan of
reorganization under the Bankruptcy Code. The Plan will not be effective until
certain conditions are met including the financing of our new credit facility.
Since the Bankruptcy Court entered the Confirmation Order confirming the Plan,
we have been informed by the Investors that the Investors believe that, based on
current market conditions, particularly as they relate to extensions of senior
credit to companies associated with the telecommunications industry, the new
credit facility contemplated by the Commitment Letter is unlikely to be able to
be consummated on terms commercially acceptable to the Investors. We understand
from the Investors that they are continuing to pursue financing to consummate
the transaction contemplated by the Stock Purchase Agreement.

         On August 8, 2002, the administrative agent for the lenders under our
senior credit facility that was outstanding prior to the filing for Chapter 11
reorganization (loans under such senior credit facility continue to remain
outstanding) filed a motion with the Bankruptcy Court for reconsideration of the
Confirmation Order. The motion asserts that without the new credit facility that
was to be provided pursuant to the Commitment Letter, the Plan cannot be
consummated. Pending the Bankruptcy Court's ruling on such motion (a hearing on
which has been set for September 18, 2002), the primary effect of the motion is
to preserve the status quo and prevent the Confirmation Order from becoming
final and nonappealable prior to the Bankruptcy Court ruling on such motion. We
have not yet responded to such motion, and are currently considering our options
in light of the events described herein that have occurred since the Bankruptcy
Court entered the Confirmation Order.

         In light of the events described above, we continue to monitor relevant
developments and evaluate our rights and obligations under the Stock Purchase
Agreement consistent with our obligations to the various constituencies of
Pinnacle and its subsidiaries. A condition precedent to the consummation of the
transactions contemplated by the Stock Purchase Agreement is the receipt of
financing on terms not materially different from those set forth in the
Commitment Letter. There can be no assurance that financing will be available to
satisfy such financing condition. If the closing contemplated by the Stock
Purchase Agreement is not consummated on or before August 20, 2002, votes in
favor of the Plan could be withdrawn, which could result in the need to
re-solicit votes on the Plan. If certain of the terms of any alternative credit
facility were to vary materially from those contemplated by the Commitment
Letter, we might need to re-solicit votes in favor of the Plan, amend the Plan
or seek an alternative to the Plan which could result in our constituencies
receiving different or less consideration than that contemplated by the current
Plan.

         Senior credit facility

         Our current senior credit facility is with a syndicate of lenders with
Bank of America, N.A., as administrative agent. The senior credit facility is
secured by a lien on substantially all of our assets and a pledge of
substantially all of the capital stock of our subsidiaries. The senior credit
facility contains customary covenants such as limitations on our ability to
incur indebtedness, to incur liens or encumbrances on assets, to make certain
investments, to make distributions to stockholders, and to prepay subordinated
debt.

         Since the quarter ended September 30, 2001, we have been out of
compliance with financial covenants contained in our senior credit facility,
which non-compliance represented an event of default under our senior credit
facility. We entered into a forbearance agreement with the lenders under our
senior credit facility on November 16, 2001, as amended on December 12, 2001 and


                                       25
<PAGE>

February 6, 2002, and as amended and restated on March 8, 2002 and further
amended on April 11, 2002, and amended and restated on May 1, 2002 pursuant to
which the lenders agreed not to exercise remedies available to them as a result
of this event of default under our senior credit facility. Accordingly, we
classified the outstanding borrowings under our senior credit facility as a
current liability. The terms of the forbearance agreement are as follows: (1)
increase the interest rate on our borrowings by 1.0%; (2) eliminate Pinnacle
Towers' ability to make additional draws under the senior credit facility; (3)
restrict the amount of money that can be invested in capital expenditures by
Pinnacle Towers and its subsidiaries; (4) limit Pinnacle Towers' and its
subsidiaries ability to incur additional debt; (5) limit Pinnacle Towers'
ability to distribute funds to Pinnacle Holdings in connection with Pinnacle
Holdings Convertible Notes; and (6) require us to establish a $2.5 million cash
escrow account to support outstanding letters of credit.

         Because of the event of default, amounts outstanding under the senior
credit facility have been classified as current liabilities in the accompanying
unaudited condensed consolidated balance sheets at December 31, 2001 and June
30, 2002.

         The following table summarizes the initial covenant requirements and
the amended requirements for the period ended June 30, 2002 and our actual
ratios at the respective dates, based on our unaudited financial statements:

<TABLE>
<CAPTION>

Covenant                                           Original Requirement        Amended Requirement      Actual
--------                                           --------------------        -------------------   -------------
<S>                                                   <C>                        <C>                  <C>
Leverage Ratio                                        <=3.50 to 1.00             <=3.50 to 1.00       5.03 to 1.00
Consolidated Leverage Ratio                           <=7.50 to 1.00             <=7.75 to 1.00      11.40 to 1.00
Consolidated Interest Coverage Ratio                  >=2.50 to 1.00             >=2.50 to 1.00       1.22 to 1.00
Pro-Forma Debt Service Coverage Ratio                 >=1.50 to 1.00             >=1.50 to 1.00       1.31 to 1.00
Fixed Charge Coverage Ratio                           >=1.25 to 1.00             >=1.10 to 1.00       0.68 to 1.00

</TABLE>

         Prior to the forbearance agreement discussed above, our senior credit
facility provided up to $670.0 million of financing of which $386.0 million and
$400.5 million was committed and utilized at June 30, 2002, and December 31,
2001, respectively. In connection with our November 16, 2001, forbearance
agreement, the commitments under the facility were reduced to the amount of the
outstanding borrowings and the outstanding letters of credit.

         During the six months ended June 30, 2002, the senior credit facility
indebtedness bore interest at our option, at LIBOR plus a margin of 3.75% to
4.0% or the bank's base rate plus a margin of 3.75% to 4.0%. Advances under our
senior credit facility, as amended by the forbearance agreement, bear interest
payable in monthly installments. In addition, we are required to pay commitment
and customary facility fees on the total amount of commitments. As of June 30,
2002, the overall effective interest rate, excluding amortization of discounts
and issuance costs, on outstanding borrowings was 5.89%.

         DIP facility

         In connection with the filing of the Bankruptcy Case, on May 21, 2002,
the Bankruptcy Court approved, on an interim basis, a debtor-in-possession
revolving loan credit facility in the aggregate principal amount up to $15.0
million, with a sublimit of up to $5.0 million for letters of credit (the "DIP
Facility"), with Bank of America, N.A. as administrative agent and a syndicate
of lenders. Our obligations under the DIP Facility are secured by first priority
liens and security interests on all of the pre-petition and post-petition
property of Pinnacle Towers Inc. and its domestic subsidiaries, senior to all
liens and claims in the Bankruptcy Case other than fees and disbursements of
professional services incurred and allowed and payable in the Bankruptcy Case
and fees of the United States Trustee and the clerk of the Bankruptcy Court
required by law. Our ability to incur financing under the DIP Facility and to
use cash collateral are subject to and limited by a monthly budget approved by
the post-petition lenders and disclosed to the Bankruptcy Court. As a result of
our losses during the quarter ended June 30, 2002, we are not in compliance
with certain of the financial covenants included within the DIP Facility. In
addition, availability under the DIP Facility is subject to the continued
existence of the Commitment Letter, which, as we indicated previously, the
Investors may not utilize. No borrowings have been made under the DIP Facility.
While we currently believe we have sufficient liquidity to fund operational
needs in the near term, we are evaluating what actions we may take in light of
our noncompliance with certain DIP Facility covenants and the Commitment Letter
condition. As a result of these events, we may not have access to the DIP
Facility should we need it. The lack of such access could adversely effect
our operations and the success of our Plan.



                                       26
<PAGE>

         Interest rate swap

         As a condition of our senior credit facility, we are required to enter
into and maintain interest rate hedge contracts covering a minimum of 50% of the
debt outstanding under the senior credit facility. We enter into interest rate
swap agreements to manage the interest rate risk associated with certain of our
variable rate debt. The swap agreement effectively converts $260.0 million
through December 31, 2002 and $130.0 million at the banks option during calendar
2003 of the credit agreement floating rate debt from LIBOR plus a margin, as
defined in the agreement, to a fixed rate debt plus the applicable margin under
the credit agreement. We are exposed to credit losses in the event of
non-performance by counter-parties on these agreements, the risks of which we do
not believe are significant.

         Prior to our adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," the interest rate swap agreement qualified
for hedge accounting treatment. As such, and in accordance with the transition
provisions of SFAS No. 133, we recorded a derivative liability for the fair
value of the swap on January 1, 2001, for $4.0 million as a component of other
comprehensive income. Upon adoption of SFAS No. 133, the interest rate swap
agreement no longer qualified as hedge due to the embedded written option
exercisable at the option of the counterparty. Accordingly, the changes in the
fair value of this agreement are recorded in earnings immediately. The earnings
impact recorded during the three months ending June 30, 2002 and June 30, 2001
relating to the interest rate swap amounted to $3.7 million and $(0.7) million,
respectively, and is recorded as additional interest expense. For the three
months ended June 30, 2002, approximately $3.4 million represents a decrease in
the fair value of the interest rate swap agreement since March 31, 2002, and
approximately $0.3 million represents the reversal into current year income of
the underlying exposure previously recognized in comprehensive loss. For the
three months ended June 30, 2001, approximately $1.2 million represents an
increase in the fair value of the interest rate swap agreement since March 1,
2001, and approximately $0.5 million represents the reversal into current year
income of the underlying exposure previously recognized in comprehensive loss.

         The earnings impact recorded during the six months ending June 30, 2002
and June 30, 2001 relating to the interest rate swap amounted to $3.5 million
and $4.8 million, respectively, and is recorded as additional interest expense.
For the six months ended June 30, 2002, approximately $2.8 million represents a
decrease in the fair value of the interest rate swap agreement since December,
31, 2001, and approximately $0.7 million represents the reversal into current
year income of the underlying exposure previously recognized in comprehensive
loss. For the six months ended June 30, 2001, approximately $3.8 million
represents the additional decline in the fair value of the interest rate swap
agreement since January 1, 2001 and approximately $1.0 million represents
the reversal into current year income of the underlying exposure previously
recognized in comprehensive loss.

         Other indebtedness

         We also use seller financing to fund certain of our communications site
acquisitions. As of June 30, 2002, we had approximately $18.8 million of seller
notes outstanding, bearing interest at rates ranging from 8.0% to 13.0% per
annum. These amounts are supported by letters of credit issued by our agent
bank.

CAPITAL INVESTMENTS

         Capital investments, including acquisitions and earn-out payments for
the six month period ended June 30, 2002, were $6.4 million, compared to $33.0
million in the same period in 2001. A portion of our historical and ongoing
capital expenditures relates to expenditures required to maintain our
communications sites and generally cannot be curtailed. Due to our Chapter 11
filing and certain capital expenditure restrictions imposed by our DIP Facility
we entered into with our DIP lenders, our ability to make additional capital
investments for acquisitions, construction and upgrading of towers is limited.
Limitations on our ability to upgrade or replace towers could impact our ability
to add new




                                       27
<PAGE>

customers to certain of our towers, and eventually our ability to retain
existing customers on our sites.

         Colocation facilities

         On June 7, 2001, we adopted a plan to dispose of certain non-core
assets pursuant to management's decision to dedicate resources to improving the
financial results of communications site operations. Of the original five
colocation properties held for sale, three were sold in 2001 and the Harlingen,
Texas facility was sold on March 15, 2002, which leaves the San Antonio, Texas
facility as the only remaining colocation asset held for sale at June 30, 2002.

         The historical carrying value of the San Antonio property, which was
acquired on October 13, 2000, prior to any write-down was approximately $8.7
million. During the year ended December 31, 2001, we recognized an asset
impairment loss of approximately $3.8 million, which is included in operating
expenses in loss on assets held for sale for the year then ended. During the six
months ended June 30, 2002 we recorded an additional $0.9 million asset
impairment loss as a result of a revised purchase and sale agreement. The
execution of this adjusted purchase and sale agreement is dependent on the
final resolution of certain environmental studies. We believe we will complete
this sale during the second half of 2002. Depreciation expense has not been
recognized since the date the colocation asset was classified as held for sale.

         For the three months ended June 30, 2002, exclusive of the asset
impairment loss, the San Antonio colocation facility had net operating income of
$0.2 million. For the three months ended June 30, 2002, the property produced
revenues of $0.3 million and had operating expenses of $0.1 million. Exclusive
of the asset impairment loss, net operating income for the six months ended June
30, 2002 was $0.4 million. For the six months ended June 30, 2002, the property
produced revenues of $0.7 million and had operating expenses of $0.3 million.

         Land

         On September 27, 2001, we adopted a plan to dispose of additional
non-core assets. As a result of the adoption of this plan, our interest in 88
parcels of owned land, principally located under towers currently owned by other
tower companies and telecommunications service providers, were deemed assets
held for sale. The carrying value of these land parcels is currently $7.9
million.

         As a condition of the Stock Purchase Agreement, these land parcels can
no longer be sold. They have therefore been reclassified into assets held for
use in accordance with SFAS No. 144. For reclassification purposes the asset is
measured at the lower of the carrying amount of the asset before it was
classified as held for sale, adjusted for any depreciation (amortization)
expense that would have been recognized had the asset been continuously
classified as held and used, or the fair value of the asset at the date of the
subsequent decision not to sell. We reclassified $7.9 million, the current
estimated fair market value, into assets held for use.

         Investment in Pinnacle Towers Ltd.

         On September 27, 2001, we adopted a plan to dispose of our investment
in a majority owned subsidiary, Pinnacle Towers Ltd. As a result of the adoption
of this plan, our investment in this subsidiary has been deemed assets held for
sale.

         The historical carrying value of our $12.4 million investment in
Pinnacle Towers Ltd. as of June 30, 2002, prior to any asset impairment loss,
was approximately $9.0 million. During the year ended December 31, 2001, we
recognized an asset impairment loss of approximately $4.0 million, which was
included in operating expenses in loss on assets held for sale for the year then
ended. During the six months ended June 30, 2002, no additional substantive
asset impairment loss was taken. We estimated the fair market value less costs
to sell based upon a proposal, which has subsequently expired, from an
interested third party. This estimate continues to be our best estimate of the
fair value of these assets. Depreciation expense has not been recognized since
the date this investment was classified as held for sale.

         For the three months ended June 30, 2002, the investment produced
revenues of $0.2 million and had operating expenses of $0.1 million. The
investment produced revenues of $0.4 million and had operating expenses of $0.3
million for the six months ended June 30, 2002.



                                       28
<PAGE>

CRITICAL ACCOUNTING POLICIES

         The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. We evaluate our estimates and judgments on an
on-going basis. We base our estimates on historical experience and on
assumptions that we believe to be reasonable under the circumstances. Our
experience and assumptions form the basis for our judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may vary from what we anticipate and different
assumptions or estimates about the future could change our reported results. We
believe the following accounting policies are the most critical to us, in that
they are important to the portrayal of our financial statements and they require
our most difficult, subjective or complex judgments in the preparation of our
financial statements:

          Revenue recognition

          We recognize revenue from lease arrangements with tenants on our
communication sites on a straight-line basis over the life of the related lease
agreements in accordance with SFAS No. 13, "Accounting for Leases" and FASTB
85-3, "Accounting for Operating Leases with Scheduled Rent Increases." Revenue
is recorded in the month in which it is earned.

         We further evaluate our revenue recognition policy in accordance with
SAB 101, "Revenue Recognition" and defer any revenue if the following criteria
is not met: persuasive evidence of an arrangement exists, payment is not
contingent upon other performance or other obligations, the price is fixed or
determinable or collectibility is not reasonably assured. We record a reserve
against revenue for estimated credit memos. Any rental amounts received in
advance of the month earned are recorded as deferred revenue.

          Allowances for doubtful accounts

          Allowances for uncollectible accounts receivable are maintained based
on historical payment patterns, aging of accounts receivable, write-off history
and industry trends.

         Impairment of long-lived assets

         In assessing the recoverability of our long-lived assets, we must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. If these estimates or their related
assumptions change in the future, we may be required to record impairment
charges for these assets.

         Reorganization costs

         We have incurred costs related to our recapitalization efforts and the
execution of the Stock Purchase Agreement. These nonrecurring costs include the
acceleration of the accretion of the original issue discount on our Senior
Notes, the write-off of deferred debt issuance costs associated with the Senior
Notes and Convertible Notes, additional legal fees, professional consultant
fees, and the retention plan costs incurred as part of our reorganization
process.

ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT

         We adopted the new rules under SFAS No. 141, "Business Combinations,"
and No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002.
Under the new rules, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment
testing in accordance with the statements. Other intangible assets will continue
to be amortized over their useful lives. We do not have any recorded goodwill or
indefinite lived intangible assets. If warranted by future acquisitions, we will
comply with the requirements for non-amortization and for periodic impairment
tests as deemed necessary.

         We adopted the new rules under SFAS No. 144, "Accounting for the
Impairment or Disposal of



                                       29
<PAGE>

Long-Lived Assets," effective January 1, 2002. The new rules on asset impairment
supercede SFAS No. 121, "Accounting For The Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" and provide a single accounting method
for long-lived assets to be disposed of. Although retaining many of the
fundamental recognition and measurement provisions of SFAS No. 121, the new
rules significantly change the criteria that would have to be met to classify an
asset as held for sale.

         As a result of our adoption of the new rules, our June 30, 2002 balance
sheet includes classification of assets held for sale separate from liabilities
held for sale. As a condition of our recently executed Stock Purchase Agreement,
certain parcels of land previously held for sale have been reclassified as held
for use in accordance with SFAS No. 144. For reclassification purposes the asset
is measured at the lower of the carrying amount of the asset before it was
classified as held for sale, adjusted for any depreciation (amortization)
expense that would have been recognized had the asset been continuously
classified as held and used, or the fair value of the asset at the date of the
subsequent decision not to sell. We reclassified $7.9 million, the current
estimated fair market value, into assets held for use.

         On September 30, 2001 we evaluated our entire asset portfolio for
impairment in accordance with the provisions of SFAS No. 121, the existing
standard at that time. In accordance with the adoption of SFAS No. 144, we are
still required to evaluate our assets for impairment when indicators of
impairment are present and the undiscounted cash flows are not sufficient to
recover the assets' carrying value. Any impairment loss is measured by comparing
the fair value of the asset to its carrying value. Due to the pending sale of a
non-core asset, we recorded a $2.5 million asset impairment loss in the first
quarter of 2002, as a result of the execution of a letter of intent to sell this
specific property, that we ultimately sold on July 18, 2002. We recorded a $21.3
million asset impairment loss in the second quarter of 2002, as a result of the
impairment of our 320 microwave tower communication sites.

NEW ACCOUNTING PRONOUNCEMENTS

         In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 145, "Rescission of FASB
Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". For most companies, SFAS No. 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under SFAS
No. 4. Extraordinary treatment will be required for certain extinguishments as
provided in APB Opinion No. 30. SFAS No. 145 also amends SFAS No. 13 to required
certain modifications to capital leases to be treated as sale-leaseback and
modifies the accounting for sub-leases when the original lessee remains a
secondary obligor (or guarantor). In addition, the FASB rescinded SFAS No. 44
which addressed the accounting for intangible assets of motor carriers and made
numerous technical corrections.

FACTORS THAT MAY AFFECT FUTURE RESULTS

         We operate in a rapidly changing environment that involves a number of
risks and uncertainties, some of which are beyond our control. The following
discussion highlights some of the risks and uncertainties that may affect our
future operating results.

OUR ABILITY TO CONTINUE AS A "GOING CONCERN" MAY BE ADVERSELY AFFECTED BY OUR
FAILURE TO IMPLEMENT THE PLAN OF REORGANIZATION APPROVED IN OUR CHAPTER 11
BANKRUPTCY CASE.

         Our consolidated financial statements included elsewhere in this report
have been prepared assuming we will continue as a "going concern." Our ability
to continue as a "going concern" may be adversely affected by our failure to
implement the plan of reorganization approved in our filing of a Chapter 11 case
under the Bankruptcy Code, and is dependent upon, among other things, our
ability to generate sufficient cash from operations to meet our obligations and
our ability to obtain exit financing to implement our bankruptcy plan. If the
"going concern" basis was not appropriate for our consolidated financial
statements, then significant adjustments would be necessary in the carrying
value of assets and liabilities, the revenues and expenses reported, and the
balance sheet classifications used.



                                       30
<PAGE>

THERE ARE SIGNIFICANT UNCERTAINTIES RELATING TO BANKRUPTCY PROCEEDINGS.

         Our future results are dependent upon our receipt of additional capital
and a successful recapitalization of Pinnacle. As previously discussed, we have
petitioned for relief under Chapter 11 of the Bankruptcy Code. We currently
anticipate that the investment and recapitalization of our Company will likely
be implemented through the confirmation and consummation of the plan of
reorganization confirmed by the Bankruptcy Court in the bankruptcy proceedings.
Although we currently anticipate emerging from Bankruptcy in the near term, it
is still not possible to predict with certainty the length of time we will
operate under the protection of Chapter 11, the outcome of the Chapter 11
proceedings in general, or the effect of the proceedings on our business or on
the interests of the various creditors and security holders. Numerous
circumstances could arise that could affect the timing or our ability to close
on the exit financing facility and emerge from bankruptcy. Though a plan of
reorganization has been submitted and confirmed by the Bankruptcy Court, our
operating results may be adversely affected by the possible reluctance of
prospective lenders, customers and suppliers to do business with a company in
bankruptcy or that recently emerged from bankruptcy proceedings. Other negative
consequences that could arise as a result of the bankruptcy proceedings include,
but are not limited to:

         o        limiting our flexibility in planning for, or reacting to,
                  changes in our business and the industry in which we operate;

         o        the incurrence of significant costs associated with the
                  reorganization;

         o        impacts on our relationship with suppliers and customers,
                  including loss of confidence in our ability to fulfill
                  contractual obligations due to financial uncertainty;

         o        placing us at a competitive disadvantage compared to our
                  competitors;

         o        making us more vulnerable to a continued downturn in our
                  industry or a downturn in the economy in general;

         o        limiting our ability to borrow additional funds; and

         o        employee attrition.

         Upon the commencement of the bankruptcy proceedings, the Bankruptcy
Court provided us with authorization to pay all accrued pre-petition salaries,
wages and commissions and applicable taxes thereon, as well as medical and other
benefits and other payroll related liabilities, on an uninterrupted basis. In
addition, we have continued to pay in full and on normal trade terms all of our
trade creditors that continue to provide us with goods and services on customary
terms and credit. To date, all of our trade creditors have been providing
acceptable trade terms to us, and we have been paying them in the ordinary
course of business. However, we can provide no assurance that they will continue
to provide goods and services on acceptable terms.

THE TERMS OF OUR INDEBTEDNESS IMPOSE SIGNIFICANT RESTRICTIONS ON US.

         Since the quarter ended September 30, 2001, we have been out of
compliance with financial covenants contained in our senior credit facility,
which non-compliance represented an event of default under our senior credit
facility. We entered into a forbearance agreement with the lenders under our
senior credit facility on November 16, 2001, as amended on December 12, 2001 and
February 6, 2002, and as amended and restated on March 8, 2002 and further
amended on April 11, 2002, and amended and restated on May 1, 2002 pursuant to
which the lenders agreed not to exercise remedies available to them as a result
of this event of default under our senior credit facility. Accordingly, we
classified the outstanding borrowings under our senior credit facility as a
current liability. The terms of the forbearance agreement are as follows: (1)
increase the interest rate on our borrowings by 1.0%; (2) eliminate Pinnacle
Towers' ability to make additional draws under the senior credit facility; (3)
restrict the amount of money that can be invested in capital expenditures by
Pinnacle Towers and its subsidiaries; (4) limit Pinnacle Towers' and its
subsidiaries ability to incur additional debt; (5) limit Pinnacle Towers'
ability to distribute funds to Pinnacle Holdings in



                                       31
<PAGE>

connection with Pinnacle Holdings Convertible Notes; and (6) require us to
establish a $2.5 million cash escrow account to support outstanding letters of
credit.

         Because of these defaults, the terms of the indentures governing the
Senior Notes and the Convertible Notes and our senior credit facility provide
that the holders of the Senior Notes and the Convertible Notes or the lenders
under our senior credit facility could declare a default and demand immediate
repayment and, unless we cure the defaults, they could seek a judgment and
attempt to seize our assets to satisfy the debt to them. The security for our
senior credit facility consists of substantially all of our assets including the
stock of our direct and indirect subsidiaries. The defaults under these
agreements could adversely affect our rights under commercial agreements.

         Our existing debt obligations also could affect our financial and
operational flexibility, as follows:

         o        they may impair our ability to obtain additional financing in
                  the future;

         o        they will require that a substantial portion of our cash flow
                  from operations and financing activities be dedicated to the
                  payment of interest on debt, which will reduce the funds
                  available for other purposes;

         o        they may limit our flexibility in planning for or reacting to
                  changes in market conditions; and

         o        they may cause us to be more vulnerable in the event of a
                  further downturn in our business.

         Even if our senior credit facility is amended in connection with the
implementation of a recapitalization, we will be subject to covenants that
restrict our operational flexibility and require us to maintain certain
financial ratios, and the lenders under the senior credit facility will have a
security interest in substantially all of our assets and the assets of our
subsidiaries.

THE LOSS OF ANY SIGNIFICANT CUSTOMER OR MULTIPLE CUSTOMERS TOTALING A
SIGNIFICANT AMOUNT COULD ADVERSELY AFFECT OUR BUSINESS.

         We have certain customers that account for a significant portion of our
revenue. As of June 30, 2002, Nextel, Arch Wireless, Cingular Wireless, Verizon,
and Sprint represented 10.6%, 10.2%, 4.7%, 4.6% and 3.6%, respectively, of our
revenue, on a run rate basis. Since we filed Chapter 11, these and other
customers have been hesitant to sign new leases with us. The loss of one or more
of these major customers, or a continued reduction in their utilization of our
communications site rental space due to their insolvency or inability or
unwillingness to pay, could have a material adverse effect on our business,
results of operations and financial condition. We also had approximately
forty-five customers file for Chapter 11 protection under the Bankruptcy Code
and have other customers that are having financial difficulties due to their
inability to access additional capital.

OUR SENIOR MANAGEMENT'S ABILITY TO MANAGE OUR DAY-TO-DAY BUSINESS OPERATIONS MAY
BE ADVERSELY IMPACTED BY ANY RESTRUCTURING AND ANY RELATED BANKRUPTCY
PROCEEDINGS.

         Our senior management may be required to expend a substantial amount of
time and effort effecting any restructuring of Pinnacle and any related
bankruptcy proceedings, which could have a disruptive impact on management's
ability to focus on the day-to-day operation of our business.

OUR COMMON STOCK WAS DELISTED FROM THE NASDAQ NATIONAL MARKET.

         Our common stock was previously listed on the NASDAQ national market.
We were notified by NASDAQ that we were not in compliance with the minimum
listing requirements, and that, unless prior to May 15, 2002, the minimum
closing bid price of our common stock was at or above $1.00 for 10 consecutive
trading days, our common stock would be delisted from the NASDAQ National
Market. We did not meet the NASDAQ minimum listing requirements and on May 23,
2002 we received notification from NASDAQ that our stock was delisted. At this
time we have no plans to list our common stock for



                                       32
<PAGE>

trading on another exchange. However, independent brokers may seek to create a
market for our common stock in over-the-counter markets such as the OTC Bulletin
Board or the Pink Sheets, although we are not currently aware of efforts to do
so. We do not currently intend to contact potential market makers regarding the
quotation of our common stock in any over-the-counter market. There can be no
assurances that our common stock will in fact be quoted in an over-the-counter
market, or that any market of our common stock will exist at all. In the event
that our common stock is quoted in a non-NASDQ over-the-counter market, sales of
our stock would be subject to Rule 15g-9, broker-dealers who sell "penny stocks"
to persons who are not established customers or accredited investors must make
specified suitability determinations and must receive the purchaser's written
consent to the transaction prior to the sale. We strongly encourage anyone
contemplating purchasing our securities to proceed cautiously and only after
careful review of all relevant publicly available information.

THE CHANGE OF CONTROL PROVISIONS CONTAINED IN THE CONVERTIBLE NOTES, THE SENIOR
NOTES AND OUR SENIOR CREDIT FACILITY MAY RESTRICT OUR ABILITY TO ATTRACT
ADDITIONAL CAPITAL.

         Upon the occurrence of certain change of control events, holders of the
Convertible Notes and the Senior Notes may require us to offer to repurchase all
of their notes. Additionally, a "change of control" (as defined in the
indentures governing the Convertible Notes and the Senior Notes) is an event of
default under our senior credit facility, which would permit the lenders to
accelerate the debt, which also would cause an event of default under the
indenture governing the Senior Notes. Based on our current market capitalization
any significant equity investment in Pinnacle could trigger a change of control.
As a result, new equity investors are likely to be unwilling to make an
investment in Pinnacle outside of Chapter 11 bankruptcy.

OUR BUSINESS DEPENDS ON DEMAND FOR WIRELESS COMMUNICATIONS.

         Substantially all of our revenue is derived from leases of
communications site space. Most of these leases are with wireless communications
providers, with approximately 31% being with companies in the paging and
wireless data industries. Accordingly, our future growth depends, to a
considerable extent, upon the continued growth and increased availability of
cellular, personal communications services ("PCS") and other wireless
communications services. The paging and wireless data industry in general is
currently experiencing financial difficulties. One of our largest customers,
Arch Wireless, announced on December 6, 2001, their filing for protection under
Chapter 11 of the Bankruptcy Code. In addition, several other smaller paging and
data customers have filed for bankruptcy and rejected certain of their site
leases with us during the bankruptcy proceedings. We cannot assure you that
additional paging and wireless data customers will not do the same. If they do,
it could have a material adverse effect on our results of operations.

         We also cannot assure you that the wireless communications industry
will not experience severe and prolonged downturns in the future or that the
wireless communications industry will expand as quickly as forecasted. The
wireless communications industry, which includes paging, cellular, PCS, fixed
microwave, specialized mobile radio ("SMR"), enhanced specialized mobile radio
("ESMR") and other wireless communications providers, has undergone significant
growth in recent years and remains highly competitive, with service providers in
a variety of technologies and two or more providers of the same service (up to
seven for PCS) within a geographic market competing for subscribers. The demand
for rental space on our communications sites is dependent on a number of factors
that are, to a large extent, beyond our control, including the following:

         o        demand for wireless services;

         o        financial condition and access to capital of wireless
                  communications providers;

         o        strategy of wireless communications providers with respect to
                  owning or leasing communications sites;

         o        government licensing of broadcast rights;




                                       33
<PAGE>

         o        changes in telecommunications regulations; and

         o        general economic conditions.

         The demand for space on our communications sites is primarily dependent
on the demand for wireless communications services. A slowdown in the growth of
the wireless communications industry in the United States would depress network
expansion activities and reduce the demand for our communications sites. In
addition, a downturn in a particular wireless segment as a result of
technological competition or other factors beyond our control could adversely
affect the demand for rental communications sites. Advances in technology could
also reduce the need for site-based transmission and reception. In addition,
wireless service providers often enter into "roaming" and "resale" arrangements
that permit providers to serve customers in areas where they do not have
facilities. In most cases, these arrangements are intended to permit a
provider's customers to obtain service in areas outside the provider's license
area or, in the case of resale arrangements, to permit a provider that does not
have any licenses to enter the wireless marketplace.

         The occurrence of any of these factors could have a material adverse
effect on our business, financial condition or results of operations.

IF WE ARE NOT SUCCESSFUL IN RAISING ADDITIONAL CAPITAL, WE MAY HAVE TO
DRASTICALLY ALTER OUR BUSINESS PLAN OR LIQUIDATE.

         Historically, our business plan has been materially dependent upon the
acquisition of additional communications sites. Due to our current inability to
access additional capital and our filing of petition for protection under
Chapter 11 of the Bankruptcy Code, we are unable to fund any material amount of
acquisitions. We historically have financed our capital expenditures, including
acquisitions, and serviced our debt through a combination of borrowings under
bank credit facilities, public debt offerings, bridge financing, equity
issuances, seller financing and cash flow from operations. We currently have no
borrowing capacity under our senior credit facility. In addition, we have
effectively been precluded from accessing necessary capital in light of the
investigation of us by the SEC, the stigma associated with the restatement of
our financial statements and as a result of market conditions, including a
significant decline in the stock valuation of tower sector public companies over
the last year. As a result of these factors, we have been actively seeking
additional capital and considering ways to deleverage our capital structure with
the assistance of our advisors. If our recapitalization plan is not implemented
or, as a result of these existing market conditions or other factors, we fail or
are unable to raise sufficient capital when needed, we may have to drastically
alter our business plan so as to conserve cash, or sell all or a portion of our
assets, possibly pursuant to liquidation proceedings in bankruptcy court, or
both.

WE FACE SUBSTANTIAL BARRIERS TO IMPLEMENTING AN ACQUISITION STRATEGY.

         If we are able to raise additional capital, should we emerge from
bankruptcy, and thereafter refocus our business on acquiring additional
communications sites, our strategy, consistent with our strategy in the past,
will be to acquire additional communications sites at prices we consider
reasonable in light of the operating cash flow we believe we will be able to
generate from these sites when acquired and our ability to finance such
acquisitions. Until last year, the prices of acquisitions within the industry
have generally increased over time. Additionally, we compete with certain
wireless communications providers, site developers and other independent
communications site owners and operators for acquisitions of communications
sites, some of which have greater financial and other resources than we have.
Increased demand for acquisitions may result in fewer acquisition opportunities
for us as well as higher acquisition prices. Our inability to grow by
acquisition or to accurately estimate the amount of revenue that will be
generated from such acquisitions may affect us adversely. Further, we cannot
assure you that we will be able to profitably manage and market the space on
additional communications sites acquired or successfully integrate acquired
sites with our operations and sales and marketing efforts without substantial
costs or delays. Acquisitions involve a number of potential risks, including the
potential loss of customers, increased leverage and debt service requirements,
and combining disparate company cultures and facilities and operating sites in
geographically diverse markets. Accordingly, we cannot assure you that one or
more of our past or



                                       34
<PAGE>

future acquisitions may not have a material adverse effect on our financial
condition and results of operations.

WE HAVE A HISTORY OF OPERATING LOSSES, ANTICIPATE FUTURE LOSSES AND MAY NEVER BE
PROFITABLE.

         We have incurred losses from continuing operations in each of the
fiscal years since our inception. As a result, for the years ended December 31,
2000 and 2001, and the six months ended June 30, 2002 our earnings were
insufficient to cover combined fixed charges and preferred dividends by
approximately $44.5 million, $262.8 million and $64.4 million, respectively. We
expect that losses from operations will continue over the next several years.

         Our existing operations do not currently, and are not expected in the
near future to generate cash flows from operations sufficient to pay interest
and principle payments on our currently outstanding indebtedness, and fund
continuing operations and planned capital expenditures. We cannot know when, if
ever, net cash generated by our operations will support our current debt
services, growth and continued operations.

THERE ARE CERTAIN RISKS ASSOCIATED WITH THE MOTOROLA ANTENNA SITE ACQUISITION.

         The Motorola Antenna Site Acquisition involved the acquisition of
approximately 1,858 communications sites. We have never completed a transaction
as large as the Motorola Antenna Site Acquisition. Due to the magnitude, timing,
logistical and other constraints of the Motorola Antenna Site Acquisition, we
were unable prior to closing the transaction to access, analyze and verify all
information needed to (1) ascertain the physical inventory and condition of the
assets acquired (including through engineering surveys of the assets); (2)
estimate the fair value of the assets acquired and liabilities assumed for
purposes of purchase price allocation in our financial statements; (3) identify,
evaluate and record the assets acquired and liabilities assumed for purposes of
determining the final purchase price; (4) assign certain associated Federal
Communications Commission ("FCC") licenses from Motorola or other entities to
Pinnacle Towers, and (5) properly evaluate all recorded title and mortgage
documents for acquired real estate assets. The total of our Motorola Antenna
Site Acquisition pre- and post-closing transaction related due diligence and
related efforts cost approximately $19.0 million, approximately $17.3 million of
which was incurred post-closing.

         Motorola's representations and warranties in the definitive purchase
agreement between Motorola and us (the "Motorola Purchase Agreement") did not
survive the closing of the acquisition. Therefore, our ability to obtain
compensation from Motorola for defects in title, the need for third party and
FCC consents (and the need to make payments to obtain such consents) or other
site-related and other unanticipated issues are limited. We may be able to seek
redress under certain other provisions of the Motorola Purchase Agreement,
including through the purchase price adjustment based on changes in working
capital and the covenant requiring Motorola to provide further assurances as
needed to convey the acquired assets. While we have substantially completed our
post-closing investigation, the future discovery of such issues could have an
impact on our operations and liquidity, which impact could be significant.

         In addition, we cannot assure you that tenants on the sites obtained in
the Motorola Antenna Site Acquisition will not cancel their leases. We have
experienced a reduction in the number of communications sites leased by Nextel
for its analog SMR business. We anticipate that Nextel will continue to phase
out its analog SMR business for the foreseeable future.

PINNACLE AND ONE OF ITS CURRENT OFFICERS AND TWO OF ITS FORMER OFFICERS ARE
DEFENDANTS IN SEVERAL STOCKHOLDER CLASS ACTION LAWSUITS.

         Pinnacle, its Chief Executive Officer, Steven R. Day, its former Chief
Financial Officer, Jeffrey J. Card, and its former Chief Executive Officer,
Robert J. Wolsey, various current and former directors of Pinnacle, Pinnacle's
former accountants, PricewaterhouseCoopers, LLP, and the underwriters of
Pinnacle's January 18, 2000 secondary offering, were named as defendants in a
consolidated class action complaint styled In re Pinnacle Holdings Corp.
Securities Litigation, Case No.8:01-CV-624-T-27MSS filed on August 8, 2001, in
the United States District Court for the Middle District of Florida,



                                       35
<PAGE>

in Tampa. The consolidated amended complaint filed August 8, 2001, consolidates
a number of securities class action suits previously filed in the same court.
The plaintiffs named in the consolidated action claim to represent all persons
who purchased our common stock during the period between June 29, 1999 and March
17, 2001.

         The plaintiffs allege that Pinnacle, the directors, the underwriters,
and Messrs. Day and Wolsey violated Section 11 of the Securities Act, by
permitting the publication and dissemination of the prospectus for the January
18, 2000, public offering. The plaintiffs allege that the prospectus contained
various misrepresentations concerning, among other things, the value of
Pinnacle's towers, our due diligence investigation and financial statements
relating to the Motorola Antenna Site Acquisition. The plaintiffs have also
alleged that the directors, and Messrs. Day and Wolsey are vicariously liable
pursuant to Section 15 of the Securities Act for Pinnacle's alleged violation of
Section 11 of the Securities Act. Section 15 of the Securities Act makes those
persons who control a "primary violator" vicariously liable for the primary
violator's violation of Section 11 of the Securities Act.

         The plaintiffs further allege that Pinnacle, Messrs. Day, Card and
Wolsey, and the other named defendants violated Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder,
by making various allegedly misleading statements relating to certain of our
financial statements, the Motorola Antenna Site Acquisition, the nature of the
SEC's investigation concerning our accounting practices and our relationship
with our former accountants, and other matters, in various press releases and
filings with the SEC. The plaintiffs have also alleged that Messrs. Day, Card
and Wolsey violated Section 20 of the Exchange Act, which imposes vicarious
liability on those persons who control a primary violator of Section 10(b) of
the Exchange Act and Rule 10b-5 promulgated thereunder.

         We have entered into a memorandum of understanding to settle the
consolidated securities class action lawsuit. The settlement, which has been
agreed to by all of the parties to the litigation, provides that the claims
against Pinnacle and its current and former officers and directors will be
dismissed. In agreeing to the proposed settlement, Pinnacle and its current and
former officers and directors specifically deny any wrongdoing.

         The settlement provides for a cash payment of approximately $8.2
million, all of which will be paid directly by Pinnacle's insurance. Of the $8.2
million payment, $4.1 million shall be deemed to have been made on behalf of
Pinnacle, and $4.1 million shall be deemed to have been made on behalf of the
individual defendants. In addition, the settlement provides for additional cash
payments of approximately $2.6 million by PricewaterhouseCoopers and $200,000 by
the underwriter defendants. The settlement is subject to certain customary
conditions, including preliminary and final approval by the Bankruptcy Court,
the U.S. federal district court in which the action is pending and notice to the
class. Once the courts give preliminary approval to this settlement, formal
notices with the details of the settlement will be sent to the purported class
members who purchased Pinnacle common stock during the period of June 29, 1999
to August 14, 2001.

         We intend to continue to respond appropriately and in the best
interests of Pinnacle to the consolidated action; however, we cannot assure you
that we will be able to execute this final settlement. Securities lawsuits may
result in substantial costs, divert management's attention and other resources,
and have a material and adverse effect on our financial condition and the
results of our operations in the future.

PINNACLE HOLDINGS INC. IS A HOLDING COMPANY. ITS ONLY SOURCE OF CASH IS FROM
DISTRIBUTIONS FROM ITS SUBSIDIARIES AND INTEREST EARNINGS OF CASH INVESTED.

         Pinnacle Holdings Inc. is a holding company with essentially no
operations of its own and conducts all of its business through its subsidiaries.
The Senior Notes and the Convertible Notes are obligations exclusively of
Pinnacle Holdings Inc. Pinnacle Holdings Inc.'s only significant asset is the
outstanding capital stock of its subsidiaries. Pinnacle Holdings Inc. is wholly
dependent on the cash flow of its subsidiaries and dividends and distributions
to it from its subsidiaries in order to service its current indebtedness,
including payment of principal, premium, if any, and interest on the Senior
Notes and Convertible Notes, and any of its future obligations.




                                       36
<PAGE>
         Pinnacle Holdings Inc.'s subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to its notes or to make any funds available therefore. The ability of
Pinnacle Holdings Inc.'s subsidiaries to pay such dividends and distributions
will be subject to, among other things, the terms of any debt instruments of its
subsidiaries then in effect and applicable law.

         Since the quarter ended September 30, 2001, we have been out of
compliance with financial covenants contained in our senior credit facility,
which non-compliance represented an event of default under our senior credit
facility. We entered into a forbearance agreement with the lenders under our
senior credit facility on November 16, 2001, as amended on December 12, 2001 and
February 6, 2002, and as amended and restated on March 8, 2002 and further
amended on April 11, 2002, and amended and restated on May 1, 2002 pursuant to
which the lenders agreed not to exercise remedies available to them as a result
of this event of default under our senior credit facility. Accordingly, we
classified the outstanding borrowings under our senior credit facility as a
current liability. The terms of the forbearance agreement are as follows: (1)
increase the interest rate on our borrowings by 1.0%; (2) eliminate Pinnacle
Towers' ability to make additional draws under the senior credit facility; (3)
restrict the amount of money that can be invested in capital expenditures by
Pinnacle Towers and its subsidiaries; (4) limit Pinnacle Towers' and its
subsidiaries ability to incur additional debt; (5) limit Pinnacle Towers'
ability to distribute funds to Pinnacle Holdings in connection with Pinnacle
Holdings Convertible Notes; and (6) require us to establish a $2.5 million cash
escrow account to support outstanding letters of credit.

         As of March 15, 2002, we stopped paying interest on all of our
Convertible Notes, which resulted in a default under the Convertible Notes
indenture and a cross default under our senior credit facility. There can be no
assurance that we will satisfy the terms necessary in order for our lenders to
continue forbearing from their remedies available as a result of our
noncompliance with our senior credit facility.

         Because of these defaults, or, in the case of our senior credit
facility, if we fail to satisfy the conditions under the forbearance agreement,
the terms of our indentures governing the Senior Notes and the Convertible Notes
and our senior credit facility provide that the holders of the Senior Notes and
the Convertible Notes or the lenders under our senior credit facility could
declare a default and demand immediate repayment and, unless we cure the
defaults, they could seek a judgment and attempt to seize our assets to satisfy
the debt owed to them. The security for our senior credit facility consists
substantially of all of our assets including the stock of our direct and
indirect subsidiaries. The defaults under these agreements could adversely
affect our rights under commercial agreements.

         Pinnacle Holdings Inc.'s rights, and the rights of its creditors, to
participate in the distribution of assets of any of its subsidiaries upon such
subsidiary's liquidation or reorganization will be subject to the prior claims
of such subsidiary's creditors, except to the extent that Pinnacle Holdings Inc.
is itself reorganized as a creditor of such subsidiary in which case our claims
would still be subject to the claims of any secured creditor of such subsidiary.
As of June 30, 2002, the aggregate amount of debt and other obligations of
Pinnacle Holdings Inc.'s subsidiaries (including long-term debt, guarantees of
Pinnacle Holdings Inc.'s debt, current liabilities and other liabilities) was
approximately $433.2 million.

         In addition, in the event of the insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of any of Pinnacle
Holdings Inc.'s subsidiaries, creditors of the subsidiary generally will have
the right to be paid in full before any distribution is made to Pinnacle
Holdings Inc. or the holders of the Convertible Notes or Senior Notes.
Accordingly, holders of the Convertible Notes and Senior Notes are effectively
subordinated to the claims of Pinnacle Holdings Inc.'s subsidiaries' creditors
to the extent of the assets of the indebted subsidiary.

         As is currently contemplated, of the Plan provides for the cancellation
of the Senior Notes in exchange for up to $114.0 million (or $350.77 per $1,000
par value bond) in cash or, at the Senior Note holder's election, a combination
of cash and up to 49.9% of New Pinnacle's outstanding common



                                       37
<PAGE>

stock. The number of Investor Shares (and hence their cash investment) will be
proportionately decreased by the number of shares purchased by holders of the
Senior Notes. The Plan also provides for the cancellation of our Convertible
Notes in exchange for up to $0.5 million in cash and five year warrants to
purchase up to approximately 205,000 shares of New Pinnacle's common stock at
approximately two times the price of the Investor Shares. Convertible Note
holders can double this amount to a total of $1.0 million in cash and warrants
to purchase 410,000 shares, representing approximately 2.0% of New Pinnacle's
equity capitalization, if the Convertible Note holders agree to give certain
releases.

IF WE FAIL TO PROTECT OUR RIGHTS AGAINST PERSONS CLAIMING SUPERIOR RIGHTS IN OUR
COMMUNICATIONS SITES, OUR BUSINESS MAY BE ADVERSELY AFFECTED.

         Our real property interests relating to our communications sites
consist of fee interests, leasehold interests, private easements and licenses,
easements and rights-of-way. For various reasons, we may not always have the
ability to access, analyze and verify all information regarding title and other
issues prior to completing an acquisition of communications sites. We generally
obtain title insurance on fee properties and leasehold interests we acquire and
rely on title warranties from sellers and landlords. Our ability to protect our
rights against persons claiming superior rights in communications sites depends
on the following factors:

         o        our ability to recover under title policies, the policy limits
                  of which may be less than the purchase price of the particular
                  site;

         o        in the absence of insurance coverage, we rely on title
                  warranties given by the sellers, which warranties often
                  terminate after the expiration of a specific period, typically
                  one to three years;

         o        we rely on title covenants from landlords contained in leases;
                  and

         o        there are significant risks associated with the construction
                  of new towers.

         The success of our business strategy is dependent in part on our
ability to construct new towers, which has been significantly curtailed due to
our inability to access capital markets. Such construction can be delayed by
factors beyond our control, including zoning and local permitting requirements,
availability of erection equipment and skilled construction personnel and
weather conditions. Certain communities have placed restrictions on new tower
construction or have delayed granting permits required for construction. In
addition, as the pace of tower construction has increased in recent years, the
demand for manpower and equipment needed to erect towers has been increasing.
Additionally, we cannot assure you that build opportunities will become
available that meet our economic criteria. Our expansion plans call for a
limited amount of construction activity. We cannot assure you that we will be
able to overcome the barriers to new construction or that the number of towers
planned for construction will be completed. Our failure to complete the
projected construction could have a material adverse effect on our business,
financial condition and results of operations.

COMPETITION FOR SITE LEASING CUSTOMERS IS INTENSE AND WE COMPETE WITH COMPANIES
THAT HAVE GREATER FINANCIAL RESOURCES.

         We face competition for site leasing customers from various sources,
including:

         o        wireless communications providers and utility companies that
                  own and operate their own communications site networks and
                  lease communications site space to other carriers;

         o        site development companies that acquire space on existing
                  communications sites for wireless communications providers and
                  manage new tower construction;

         o        other independent communications site companies; and




                                       38
<PAGE>

         o        traditional local independent communications site operators.

         Many of these competitors are substantially larger, have greater
financial resources, more customers, longer operating histories, greater brand
recognition and more established relationships than we have. We believe that
site location and capacity, price, quality of service, type of service and
density within a geographic market historically have been and will continue to
be the most significant competitive factors affecting communications site rental
companies. We believe that competition for communications site acquisitions will
increase and that additional competitors will enter the tower rental market,
certain of whom may have greater financial and other resources than we have.

THE COLOCATION FACILITY BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OF ITS SHORT
OPERATING HISTORY; THE DIVESTMENT OF OUR REMAINING COLOCATION FACILITY COULD
RESULT IN AN ADDITIONAL LOSS.

         During 2000, we acquired five carrier neutral colocation facilities.
The business of providing colocation facilities is a new industry. Although a
number of emerging companies are developing similar businesses, we are not aware
of any company that has successfully executed a business plan that includes
colocation facilities. Accordingly, neither you nor we have the benefit of a
comparable historical business model to analyze the colocation facilities
business and its prospects. As a result of our decision to stop pursuing these
colocation facility business opportunities, we have recorded a loss based on a
decline in the fair market value of these assets as compared to the purchase
price we paid for the assets. As of June 30, 2002, we have divested four of
these facilities and are currently attempting to divest the remaining asset,
which could result in an additional loss.

SERVICE AND OTHER INTERRUPTIONS COULD LEAD TO SIGNIFICANT COSTS AND DISRUPTIONS
THAT COULD REDUCE OUR REVENUE AND HARM OUR BUSINESS REPUTATION AND FINANCIAL
RESULTS.

         Because service interruptions are a very serious concern for our
prospective customers, a service interruption or breach of security could be
very costly to us and very damaging to our reputation. Our facilities and
customers' equipment are vulnerable to damage from human error, physical or
electronic security breaches, power loss, other facility failures, fire,
earthquake, water damage, sabotage, vandalism and similar events. In addition,
our customers would be adversely affected by the failure of carriers to provide
network access to our facilities as a result of any of these events. Any of
these events or other unanticipated problems at one or more of our facilities
could interrupt our customers' ability to provide their services from our
facilities. This could damage our reputation, make it difficult to attract new
customers and cause our existing customers to seek termination of their
contracts with us.

OUR BUSINESS REQUIRES COMPLIANCE AND APPROVAL WITH REGULATORY AUTHORITIES.

         The FCC and Federal Aviation Administration ("FAA") regulate towers
used for wireless communications transmitters and receivers. Such regulations
control siting, lighting and marking of towers and may, depending on the
characteristics of the tower, require registration of tower facilities. Wireless
communications equipment operating on communications sites is separately
regulated and independently licensed by the FCC. Certain proposals to construct
new towers or to modify existing towers are reviewed by the FAA to ensure that
the tower will not present a hazard to aviation. Tower owners may have an
obligation to paint towers or install lighting to conform to FAA standards and
to maintain such painting and lighting. Tower owners may also bear the
responsibility of notifying the FAA of any tower lighting failures. Failure to
comply with existing or future applicable requirements may lead to civil
penalties or other liabilities. Such factors could have a material adverse
effect on our financial condition or results of operations.

         We hold FCC licenses for our own communications needs in connection
with our tower operations. Those licenses must be renewed periodically and are
subject to revocation in the event of non-compliance with FCC regulations. The
revocation or non-renewal of any of such licenses could have a material adverse
effect on our operations.

         Local regulations, including municipal or local ordinances, zoning
restrictions and restrictive covenants imposed by community developers, vary
greatly, but typically require tower owners to



                                       39
<PAGE>

obtain approval from local officials or community standards organizations prior
to tower construction. Local regulations can delay or prevent new tower
construction or site upgrade projects, thereby limiting our ability to respond
to customer demand. In addition, such regulations increase costs associated with
new tower construction. We cannot assure you that existing regulatory policies
will not adversely affect the timing or cost of new tower construction or that
additional regulations will not be adopted that increase such delays or result
in additional costs to us. Such factors could have a material adverse effect on
our future growth. Our customers may also become subject to new regulations or
regulatory policies that adversely affect the demand for tower sites. We cannot
assure you that existing regulatory policies will not adversely affect the
timing or cost of new tower construction or that additional regulations will not
be adopted that increase such delays or result in additional costs to us. Such
factors could have a material adverse effect on our future growth. Our customers
may also become subject to new regulations or regulatory policies that adversely
affect the demand for tower sites.

         Our business strategy will be affected by, among other things, our
ability to obtain the permits, licenses and zoning relief necessary to build new
towers. The tower rental industry often encounters significant public resistance
when attempting to obtain the necessary permits, licenses and zoning relief for
construction or improvements of towers. We cannot assure you that we can obtain
the permits, licenses and zoning relief necessary to continue the expansion of
our communications site rental business. The failure to obtain such permits,
licenses and zoning relief would have a material adverse effect on our business,
financial condition and results of operations.

OUR SUCCESS DEPENDS UPON OUR RETAINING KEY EXECUTIVES.

         Our success depends to a significant degree upon the continued
contributions of key management, engineering, sales and marketing, customer
support and finance personnel, some of whom may be difficult to replace.
Although we maintain employment agreements and retention and other plans with
certain of our employees, we cannot assure you that the services of such
personnel will continue to be available to us. Uncertainties associated with our
current financial condition decrease the likelihood that they will remain with
us. We do not maintain key man life insurance policies on our executives that
would adequately compensate us for any loss of services of such executives. The
loss of the services of these executives could have a material adverse effect on
our business.

COMPETING TECHNOLOGIES AND OTHER ALTERNATIVES COULD REDUCE THE DEMAND FOR OUR
SERVICES OR REQUIRE US TO INCUR ADDITIONAL COSTS.

         Most types of wireless services currently require ground-based network
facilities, including communications sites, for transmission and reception. The
extent to which wireless service providers lease such communications sites
depends on a number of factors beyond our control, including the level of demand
for such wireless services, the financial condition and access to capital of
such providers, the strategy of providers with respect to owning or leasing
communications sites, government licensing of communications services, changes
in telecommunications regulations and general economic conditions. In addition,
wireless service providers frequently enter into agreements with competitors
allowing each other to utilize one another's wireless communications facilities
to accommodate customers who are out of range of their home provider's services.
Wireless service providers may view such agreements as a superior alternative to
leasing space for their own antenna on communications sites we own. The
proliferation of such agreements could have a material adverse effect on our
business, financial condition or results of operations.

         The emergence of new technologies that do not require terrestrial
antenna sites and can be substituted for those that do also could have a
negative impact on our operations. For example, the FCC has granted license
applications for four low-earth orbiting satellite systems that are intended to
provide mobile voice or data services. In addition, the FCC has issued licenses
for several low-earth orbiting satellite systems that are intended to provide
solely data services. Although such systems are currently highly
capital-intensive and technologically untested, mobile satellite systems could
compete with land-based wireless communications systems, thereby reducing the
demand for the infrastructure services we provide. The occurrence of any of
these factors could have a material adverse effect on our business, financial
condition or results of operations.



                                       40
<PAGE>

WE ARE SUBJECT TO ENVIRONMENTAL LAWS THAT IMPOSE LIABILITY WITHOUT REGARD TO
FAULT AND ENVIRONMENTAL REGULATIONS THAT COULD ADVERSELY AFFECT OUR OPERATIONS.

         Our operations are subject to Federal, state and local environmental
laws and regulations regarding the use, storage, disposal, emission, release and
remediation of hazardous and nonhazardous substances, materials or wastes. Under
certain of these laws, we could be held strictly, jointly and severally liable
for the remediation of hazardous substance contamination at our facilities or at
third-party waste disposal sites and also could be held liable for any personal
or property damage related to such contamination. Although we believe that we
are in substantial compliance with and have no material liability under all
applicable environmental laws, we cannot assure you that the costs of compliance
with existing or future environmental laws and liability related thereto will
not have a material adverse effect on our business, financial condition or
results of operations.

         The FCC requires tower owners subject to the agency's antenna structure
registration program to comply at the time of registration with federal
environmental rules that may restrict the siting of towers. Under these rules,
tower owners are required initially to identify whether proposed sites are in
environmentally sensitive locations. If so, the tower owners must prepare and
file environmental assessments, which must be reviewed by the FCC staff prior to
registration and construction of the particular towers.

         Our carrier neutral colocation facility contains tanks for the storage
of diesel fuel and significant quantities of lead acid batteries to provide
back-up power generation and uninterrupted operation of our customers'
equipment. We cannot assure you that these systems will at all times remain free
from leaks or that the use of these systems will not result in spills. Any leak
or spill, depending on such factors as the material involved, quantity and
environmental setting could result in interruptions to our operations and
expenditures that could have a material adverse effect on our business,
financial condition and results of operations.

IF WE SUSTAIN DAMAGE TO OUR COMMUNICATIONS SITES IN EXCESS OF OUR INSURANCE
COVERAGE, OUR BUSINESS COULD BE ADVERSELY AFFECTED.

         Our communications sites are subject to risks from vandalism and risks
associated with natural disasters such as tornadoes, hurricanes, fires and
earthquakes. We maintain certain insurance to cover the cost of replacing
damaged communications sites and general liability insurance to protect us in
the event of an accident involving a communications site, but we do not maintain
significant business interruption insurance. Accordingly, damage to a group of
our communications sites could result in a significant loss of revenue and could
have a material adverse effect on our results of operations and financial
condition. In addition, a communications site accident for which we are
uninsured or underinsured could have a material adverse effect on our financial
condition or results of operations.

WE COULD BE SUBJECT TO CLAIMS RELATING TO RISKS CONCERNING POTENTIAL NEGATIVE
HEALTH EFFECTS OF RADIO FREQUENCY EMISSIONS.

         Along with wireless communications providers that utilize our
communications sites, we are subject to government requirements and other
guidelines relating to radio frequency emissions. The potential connection
between radio frequency emissions and certain negative health effects, including
some forms of cancer, has been the subject of substantial study by the
scientific community in recent years. To date, the results of these studies have
been inconclusive. Although we have not been subject to any claims relating to
radio frequency emissions, we cannot assure you that we will not be subject to
such claims in the future, which could have a material adverse effect on our
results of operations and financial condition.

IF WE FAIL TO QUALIFY AS A REIT, WE WILL BE SUBJECT TO A VARIETY OF TAXES AND
PENALTIES.

         We have elected to be taxed as a REIT under Sections 856-860 of the
Internal Revenue Code of



                                       41
<PAGE>

1986, as amended (the "Code"). As a REIT, we and our "qualified REIT
subsidiaries" (other corporations wholly owned by us which are not "taxable REIT
subsidiaries") are not generally subject to Federal income tax. We believe that
from our inception through 1999, we have been organized and operated in such a
manner as to qualify for taxation as a REIT. For 2000 and subsequent years, we
believe that our qualification for taxation as a REIT is dependent on the
approval by the Internal Revenue Service of an application for an extension of
time for each of the four United Kingdom ("U.K.") entities in which we own a
direct or indirect equity interest to each file an election to be treated for
U.S. income tax purposes as a pass-through entity rather than a corporation.

         To qualify and remain qualified as a REIT, we are required on a
continuing basis to satisfy numerous, detailed requirements pertaining to our
organization, sources and amounts of income, level of distributions, assets
owned, and diversity of stock ownership, among others. Among the numerous
requirements that must be satisfied with respect to each taxable year in order
to qualify and remain qualified as such, a REIT generally must:

         o        distribute to stockholders 90% (95% prior to January 1, 2001)
                  of its taxable income computed without regard to net capital
                  gains and deductions for distributions to stockholders and 90%
                  (95% prior to January 1, 2001) of certain foreclosure income;

         o        maintain at least 75% of the value of its total assets in real
                  estate assets (generally real property and interests therein,
                  cash, cash items and government securities);

         o        derive at least 75% of its gross income from investments in
                  real property or mortgages on real property;

         o        derive at least 95% of its gross income from real property
                  investments described above and from dividends, interest and
                  gain from the sale or disposition of stock and securities and
                  certain other types of gross income;

         o        have transferable shares of ownership or beneficial interest;

         o        not have any accumulated "earnings and profits" attributable
                  to a non-REIT year as of the close of any taxable year,
                  including for this purpose any such accumulated "earnings and
                  profits" carried over or deemed carried over from a C
                  corporation;

         o        as of the end of each calendar quarter, not own securities of
                  any single issuer which possess greater than ten percent of
                  the total voting power of the outstanding securities of such
                  issuer and, effective on or after January 1, 2001, which have
                  a value of greater than ten percent of the total value of all
                  outstanding securities of any single issuer as well, unless
                  such other issuer is itself a REIT or is either a "qualified
                  REIT subsidiary" or a "taxable REIT subsidiary" with respect
                  to the REIT owning such securities; and

         o        as of the end of each calendar quarter, not own securities of
                  "taxable REIT subsidiaries" which collectively constitute in
                  excess of twenty percent of the total assets of the REIT and
                  not own securities of any single issuer other than a
                  "qualified REIT subsidiary" or a "taxable REIT subsidiary"
                  which have an aggregate value in excess of five percent of the
                  value of the total assets of such REIT.

         In January 2002, we became aware that four U.K. entities, in which we
have owned since 2000 a direct or indirect equity interest, each failed to file
a timely election with the Internal Revenue Services to be treated for U.S. tax
purposes as a pass-through entity rather than as a corporation, which is the
default classification in the absence of a timely election. An application was
filed with the Internal Revenue Service for an extension of time to file such
election retroactive to 2000, and such application was approved by the IRS on
July 30, 2002. However, in accordance with such IRS approval, an election to be
classified as a partnership or disregarded entity must be timely filed with the
IRS by each such entity no later than 60 days after July 30, 2002. We intend to
cause such election to be duly and timely filed by each such entity. However, if
we fail to do so then the equity interests which we own, directly or indirectly,
in such U.K. entities will constitute the ownership of



                                       42
<PAGE>

securities of a corporation in excess of the REIT-qualification limitation
described above which could result in the loss of our REIT status for 2000 and
up to the four succeeding years. We have not provided for this exposure in our
financial statements presented elsewhere as we intend to cause such election to
be duly and timely filed by each such entity. The loss of our REIT status may
adversely affect our ability to consummate a recapitalization with potential
investors and other third parties.

         The Federal tax rules and regulations relating to REITs are highly
technical and complex, and our qualification as a REIT during each taxable year
(including prior years) will depend on our continuing ability to meet these
requirements, through actual annual operating results, income distribution
levels, stock ownership, and assets owned and sources of income received.
Certain of these requirements involve factors that are not entirely within our
control. Therefore, we cannot be certain that we have operated or will operate
in a manner so as to qualify or remain qualified as a REIT even if the
extensions described in the preceding paragraph are timely filed. Any
distributions made on the belief that we qualify as a REIT would not be
recoverable from our stockholders in the event it is subsequently determined
that we did not qualify as a REIT during the taxable year of such distributions.

         Income tax regulations provide that "real estate assets," which are
required to constitute at least 75% of the value of our total assets, means land
or improvements thereon, such as buildings or other inherently permanent
structures thereon, including items that are structural components of such
buildings or structures. The Internal Revenue Service has ruled in a revenue
ruling that transmitting and receiving communications towers built upon pilings
or foundations similar to our towers, as well as ancillary buildings, heating
and air conditioning systems and fencing constitute inherently permanent
structures and are therefore "real estate assets" for purposes of the foregoing
requirement. However, a number of our acquisitions have involved, and our future
acquisitions may involve, assets different than the towers and related
structures that were the subject of such favorable revenue ruling and for which
there is no clear guidance concerning the potential impact that such assets may
have on our continued ability to satisfy the REIT qualification requirements.
Consequently, we are likely to encounter a greater number of interpretive issues
under the REIT qualification rules than other REITs. In addition, our
acquisitions will in many instances require special planning or structuring in
order to retain our qualification as a REIT, including, for example, acquiring
such assets through subsidiaries to the extent permissible under the REIT
qualification requirements. Although we have previously considered whether to
voluntarily terminate our REIT election because of the substantial limitations
imposed on our operations by the REIT qualification requirements, we currently
intend to maintain our REIT qualification. However, we may again in the future
consider whether to voluntarily terminate our REIT election. Moreover, depending
on our assessment of the strategic importance of acquisitions that may become
available to us in our existing line of business or in complementary non-real
estate based communications site or services activities, we may acquire, operate
and derive income from assets, businesses or entities that result in an
involuntary termination of our REIT election for failure to satisfy one or more
of the REIT qualification requirements. In this regard, we have previously
contractually committed to acquire, and in certain instances have acquired,
certain assets before confirming that such assets, and the income derived from
such assets, would permit us to continue to meet the qualification requirements
for a REIT, and we may do so again in the future. To date, subsequent to making
each such commitment or acquisition of non-REIT or potentially non-REIT assets,
we structured the ownership of the assets so acquired in a manner that we
believe ensured and will continue to ensure our qualification as a REIT.

         If we cease to remain qualified as a REIT and we cannot utilize any of
the relief provisions that may be applicable, or if we terminate our REIT
election voluntarily, we will remain disqualified as a REIT for that year and
the next four years, and will be subject to corporate level income tax at
regular corporate rates on our net income unreduced by distributions to
stockholders, together with interest and penalties to the extent applicable to
prior periods. However, because we have not reported any net taxable income
(determined before the deduction for dividends paid) in any of our corporate
income tax returns since our filing of an election to be taxed as a REIT, unless
our reported net taxable loss is adjusted, any corporate income tax liability
attributable to a retroactive determination by the Internal Revenue Service that
we, to date, failed to satisfy all of the requirements for REIT qualification
during any such year would likely be minimal. At the present time, we do not
anticipate that we will recognize net taxable income for the foreseeable future.
Nevertheless, with respect to any year in which we



                                       43
<PAGE>

recognize positive net taxable income, the loss of REIT status or a
determination that we did not qualify as a REIT may have a material adverse
effect on our financial condition or results from operations. In such
circumstances, we may have made distributions to our stockholders on the belief
that such distributions were necessary to retain our REIT status; however, we
would neither be entitled to receive such distributions back from our
stockholders nor be entitled to a tax deduction for such distributions.

EVEN IF WE QUALIFY AS A REIT, WE ARE REQUIRED TO PAY SOME INCOME AND PROPERTY
TAXES.

         Even if we qualify as a REIT, we are required to pay some Federal,
state and local taxes on our income and property. As a REIT, we will be subject
to Federal income tax under the following circumstances. First, we will be taxed
at regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, we may be
subject to the "alternative minimum tax" on undistributed items of tax
preference, if any. Third, if we have (i) net income from the sale of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if we have net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property (other than
foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if we
should fail to satisfy the gross income test, and nonetheless have maintained
our qualification as a REIT because certain other requirements have been met, we
will be subject to tax in an amount based on the extent to which we failed such
test. Sixth, if we should fail to distribute during each calendar year at least
the sum of (i) 90% (95% prior to January 1, 2001) of our REIT ordinary income
for such year, (ii) 90% (95% prior to January 1, 2001) of our REIT capital gain
net income for such year, and (iii) any undistributed taxable income from prior
periods, we would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. If we elect to retain and
pay income tax on our net long-term capital gain in a taxable year, any retained
amounts would be treated as having been distributed for purposes of the 4%
excise tax. Seventh, we will be subject to a 100% excise tax to the extent that
certain transactions between us or our tenants and a "taxable REIT subsidiary"
of ours are not conducted on an arm's length basis. Eighth, if we acquire any
asset from a C corporation (i.e., a corporation generally subject to full
corporate-level tax) in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset (or any other asset)
in the hands of the C corporation and we recognize gain on the disposition of
such asset during the 10-year period beginning on the date on which such asset
was acquired by us, then to the extent of such asset's "built-in gain" (i.e.,
the excess of the fair market value of such asset at the time of acquisition by
us over the adjusted basis in such asset at such time), such gain will be
subject to tax at the highest regular corporate rate.

         The results described in the last sentence of the preceding paragraph
with respect to the recognition of "built-in gain" assume that we have timely
and validly made the requisite election pursuant to IRS Notice 88-19 or the
temporary regulations as to such acquisitions and will do so in the future as to
past and future acquisitions. If we have not timely and validly made such
election in the manner described in such notice or temporary regulations, then
we are required to recognize on a current basis the "built-in-gain" with respect
to all of the assets so acquired for that year unless the IRS grants us relief
from such failures. We recently became concerned that we may have failed to make
elections on a timely basis in the manner contemplated by Notice 88-19 and the
temporary regulations. However, based on informal written guidance which we
obtained from the IRS national office on May 16, 2002, we now believe that,
pursuant to the temporary regulations, we will be eligible to make such
elections retroactively on our federal income tax return for 2001 which is
required to be filed on or before September 16, 2002, provided that we have
filed certain amended tax returns with the IRS. We intend to file such amended
tax returns and intend to make such election on our 2001 federal tax return. We
estimate that the aggregate amount of tax, interest and penalties for all such
acquisitions is approximately $30.0 million. To the extent we are required to
recognize the "built-in gain" in the year of acquisition, the "built-in gain"
would not be subject to Federal income tax upon a sale by us of the assets
involved.

         In addition, any net taxable income earned directly by our
non-controlled subsidiaries and our



                                       44
<PAGE>

"taxable REIT subsidiaries" will be subject to Federal, state and local
corporate tax. In addition, the REIT tax law limits each "taxable REIT
subsidiary" of ours in its ability to deduct interest payments made to us to
ensure that each is subject to any appropriate level of corporate income tax. In
addition, we will be subject to a 100% penalty tax on some payments that we
receive if the economic arrangements between us or our tenants, and any taxable
REIT subsidiary, are not comparable to similar arrangements between unrelated
parties.

WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE AND THE TRADING PRICE OF
THE SENIOR NOTES AND THE CONVERTIBLE NOTES THAT COULD AFFECT YOUR INVESTMENT IN
THEM.

         The securities markets have from time to time experienced significant
price and volume fluctuations that have affected the market price for the
securities of companies. In the past, certain broad market fluctuations have
been unrelated or disproportionate to the operating performance of these
companies. Any significant fluctuations in the future might result in a further
material decline in the market price of our securities. In the past, following
periods of volatility in the market price of a particular company's securities,
securities class action litigation has often been brought against such company.
We are currently involved in this type of litigation. We have incurred
substantial expense and diversion of management's attention and resources
associated with this litigation, which could have a material adverse effect upon
our business and operating results.

WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS THAT COULD AFFECT THE SALE OF PINNACLE
HOLDINGS INC.

         Provisions of Pinnacle Holdings Inc.'s certificate of incorporation,
its bylaws and Delaware law could make it more difficult for a third party to
acquire Pinnacle Holdings Inc., even if doing so would be beneficial to its
stockholders. We adopted a stockholder rights agreement, which could make it
considerably more difficult or costly for a person or group to acquire control
of Pinnacle in a transaction that our board of directors opposes. These
provisions, alone or in combination with each other, may discourage transactions
involving actual or potential changes of control, including transactions that
otherwise could involve payment of a premium over prevailing market prices to
holders of common stock, or could limit the ability of our stockholders to
approve transactions that they may deem to be in their best interests.

TERRORIST ATTACKS IN THE UNITED STATES COULD NEGATIVELY AFFECT OUR OPERATIONS
AND THE GENERAL ECONOMY.

         Some of our communications sites are located on the rooftops of
landmark or other tall or significant buildings located throughout the United
States. On September 11, 2001, the United States was the target of terrorist
attacks at the World Trade Center buildings in New York City and the Pentagon in
Washington, D.C. One of our communications sites was located on the rooftop of
the World Trade Center. These terrorist attacks have caused instability in the
global economy and have led to military action by the United States against
suspected terrorists. Such military action may lead to further acts of
terrorism, including terrorist attacks at locations where we have communications
sites, and/or civil disturbances in the United States or elsewhere, which may
have a material adverse effect on our business, financial condition and
operating results.



                                       45
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

         We are exposed to market risks from changes in interest rates earned on
our long-term debt. The impact on earnings and value of our long-term debt is
subject to change as a result of movements in market rates and prices. As of
June 30, 2002, and December 30, 2001, pursuant to the requirements of our senior
credit facility, we had $364.1 million and $367.8 million, respectively, in
long-term debt, classified as current liabilities due to the events of default,
subject to variable interest rates of which $260.0 million was effectively
hedged using interest rate swap agreements for both periods. Of the remaining
long term debt, all subject to fixed rates of interest, $512.5 million is
classified as liabilities subject to compromise at June 30, 2002, and $18.8
million and $517.7 million is classified as current liabilities due to the
events of default, as of June 30, 2002 and December 30, 2001, respectively. Our
variable rate debt, net of hedged amounts, exposed to changes in market interest
rates was $104.1 million and $107.8 million as of June 30, 2002 and December 31,
2001, respectively.

         The following table presents the future principal payment obligations
and weighted-average interest rates associated with our existing long-term debt
instruments assuming our actual level of long-term indebtedness of $325.0
million under the Senior Notes and $187.5 million under our Convertible Notes,
$18.8 million under our seller financed notes and $364.1 million under our
senior credit facility as of June 30, 2002:

<Table>
<Caption>
                                                          Expected Maturity Date (in thousands)
                                     --------------------------------------------------------------------------------
                                     2002          2003          2004          2005          2006          Thereafter
                                     ----          ----          ----          ----          ----          ----------
<S>                                <C>             <C>           <C>           <C>           <C>           <C>
Liabilities
Long-term Debt, in default
Fixed Rate (various)              $ 531,385         --            --            --            --              --
Variable Rate (Weighted Average
Interest Rate of 5.89%)           $ 364,070         --            --            --            --              --
</Table>

         Our primary market risk exposure relates to the following:

         o        the interest rate risk on long-term and short-term borrowings;

         o        the impact of interest rate movements on our ability to meet
                  interest expense requirements and exceed financial covenants;
                  and

         o        the impact of interest rate movements on our ability to obtain
                  adequate financing to fund future acquisitions.

         We manage interest rate risk on our outstanding long-term and
short-term debt through our use of fixed and variable rate debt and through the
use of interest rate swaps. The swap agreements convert the credit agreement
floating rate debt from LIBOR plus a margin, as defined in the agreement, to
fixed rate debt plus the applicable margin under the credit agreement on an
amount equal to the notional value of the interest rate swap. As of June 30,
2002, and December 31, 2001, we had one interest rate swap agreement for a
notional amount of $260.0 million which requires us to pay interest at a fixed
rate of 6.37% versus LIBOR and matures on December 31, 2002, and includes an
option whereby the counterparty may extend the maturity to December 31, 2003,
with all other terms remaining unchanged with the exception of the notional
amount, which will decrease to $130.0 million effective December 31, 2002.

          While we cannot predict or manage our ability to refinance existing
debt or the impact interest rate movements will have on our existing debt, we
continue to evaluate our financial position on an ongoing basis.



                                       46
<PAGE>

         INFLATION

         Because of the relatively low levels of inflation experienced in 2001
and the six months ended June 30, 2002, inflation did not have a significant
effect on our results in such periods.




                                       47
<PAGE>
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

         STOCKHOLDER CLASS ACTIONS

         We have entered into a memorandum of understanding to settle the
consolidated securities class action lawsuit that is currently pending against
Pinnacle, its Chief Executive Officer, Steven R. Day, its former Chief Financial
Officer, Jeffrey J. Card, its former Chief Executive Officer, Robert J. Wolsey,
various current and former directors of Pinnacle, Pinnacle's former accountants,
PricewaterhouseCoopers, LLP, and the underwriters of Pinnacle's January 18, 2000
secondary offering. The litigation related to alleged misrepresentations
contained in a prospectus for Pinnacle's January 18, 2000 secondary stock
offering and alleged misleading statements contained in press releases and other
filings with the SEC relating to certain of Pinnacle's financial statements, the
acquisition of approximately 1,858 communications sites from Motorola, Inc.,
Pinnacle's relationship with its former accountants and other matters. The
settlement, which has been agreed to by all of the parties to the litigation,
provides that the claims against Pinnacle and its current and former officers
and directors will be dismissed. In agreeing to the proposed settlement,
Pinnacle and its current and former officers and directors specifically deny any
wrongdoing.

         The settlement provides for a cash payment of approximately $8.2
million, all of which will be paid directly by Pinnacle's insurance. Of the $8.2
million payment, $4.1 million shall be deemed to have been made on behalf of
Pinnacle, and $4.1 million shall be deemed to have been made on behalf of the
individual defendants. In addition, the settlement provides for additional cash
payments of approximately $2.6 million by PricewaterhouseCoopers and $200,000 by
the underwriter defendants. The settlement is subject to certain customary
conditions, including preliminary and final approval by the Bankruptcy Court,
the U.S. federal district court in which the action is pending and notice to the
class. Once the courts give preliminary approval to this settlement, formal
notices with the details of the settlement will be sent to the purported class
members who purchased Pinnacle common stock during the period of June 29, 1999
to August 14, 2001.

         CLAIMS RELATED TO ACQUISITIONS

         We entered into a jointly structured transaction involving Pinnacle's
purchase of approximately 320 communications towers from Corban Communications,
Inc. ("Corban") and their agreement to lease the towers for the purpose of
operating a microwave transmission business. In the first transaction, Pinnacle
acquired from Corban the stock of QTI, Inc. ("QTI"), which owned approximately
170 such tower facilities, pursuant to a Stock Purchase Agreement dated February
24, 2000 (the "QTI Stock Purchase Agreement"). Pursuant to this agreement,
Pinnacle and Corban agreed to enter into a Master Lease Agreement for Corban's
lease of the sites (the "Master Lease Agreement") acquired by Pinnacle from QTI
and those sites to be acquired by Pinnacle from Western Tele-Communications,
Inc. ("WTCI"). Notwithstanding the parties' agreement, the Master Lease
Agreement was never executed. Pursuant to an Asset Purchase Agreement dated June
2, 2000, between Pinnacle and WTCI (The "WTCI Asset Purchase Agreement"),
Pinnacle acquired 150 tower sites from WTCI with the intent of leasing those
sites to Corban per the jointly structured transaction. Although the parties
never executed the Master Lease Agreement, Corban has occupied the sites
acquired by Pinnacle in both transactions and until the middle of 2001, paid the
gross amount of rent due per the QTI Stock Purchase Agreement and WTCI Asset
Purchase Agreement. Disputes regarding which party owned the equipment shelters
and buildings at the sites and expenses to be paid by the respective parties in
operating the sites arose between the parties while finalizing the terms of the
Master Lease Agreement. Corban unilaterally started to offset the rents due
Pinnacle by certain amounts it had purportedly paid for expenses that were
allegedly due by Pinnacle and Pinnacle forwarded to Corban a notice of default
for rent due. In November 2001, Corban filed a complaint in the 193rd District
Court, Dallas, Texas. Corban is seeking the court's declaration as to which
party is responsible for the expenses it claims to have paid, for injunctive
relief preventing Pinnacle from terminating Corban's occupancy rights at the
sites and for damages arising from Pinnacle's breach in performance under the
QTI Stock Purchase Agreement, WTCI Asset Purchase Agreement and the unexecuted
Master Lease Agreement.

         The parties submitted the dispute to mediation without success.
Pinnacle then initiated an



                                       48
<PAGE>

eviction proceeding in San Antonio, Texas and secured an Order evicting Corban
from that site. Corban appealed the Order of Eviction to a higher court.
Corban's appeal was pending on May 21, 2002 when Pinnacle filed bankruptcy. The
automatic stay of the bankruptcy action stayed the appeal as well as the action
in district court in Dallas, Texas. Other eviction proceedings which Pinnacle
had initiated against Corbin in the states of Oregon, Washington and Illinois
were dismissed. In June, 2002, the parties convened for a settlement conference
and reached a tentative agreement for Corban to repurchase the sites from
Pinnacle. However, that deal was not finalized and Pinnacle filed a turnover
action in bankruptcy court to remove Corban from all sites and recover
post-petition rent. Since that filing, the parties have reached a tentative
agreement for Corban to voluntarily vacate the sites, removal of certain
equipment, pay post-petition rent to Pinnacle and submit all remaining disputes
between the parties to the jurisdiction of the bankruptcy court in the Southern
District of New York. If the parties fail to consummate the foregoing agreement,
Pinnacle will actively pursue its turnover action in bankruptcy court.

         We agreed to execute a Master Lease Agreement with 210 N. Tucker, LLC
("210 N. Tucker") at the time of our purchase of a building in St. Louis from
210 N. Tucker (the "210 Master Lease Agreement"). Under the terms of the 210
Master Lease Agreement, 210 N. Tucker promised to pay monthly rent with the
amount of rent to be reduced by the amount of rent paid by new tenants after
July 1, 2000. In September 2001, we filed a Second Amended Complaint against 210
N. Tucker and Jerome and Judith Glick in the United States District Court for
the Eastern District of Missouri. Essentially, we assert three claims in several
counts: (1) claims under the 210 Master Lease Agreement for rent due for the
period July 1, 2000 until the termination as of October 1, 2001 and for the
present value of the remainder of the lease period, (2) a claim for rent that
Jerome Glick received from a tenant that should have been paid over to us, and
(3) an alternative claim of unjust enrichment on the theory that if the
defendants' position is correct, 210 N. Tucker was unjustly enriched because we
did not receive our full value at the time of purchase. The defendants have
asserted numerous defenses and deny any liability. The final resolution of these
claims cannot be determined at this time but we intend to vigorously assert our
claims, which total in excess of $3.6 million.

         SERVICE PROVIDER AGREEMENT

         During 2000, we entered into a tower services agreement with a service
provider to provide site audit, site maintenance, and program management
services regarding site improvement and capacity upgrades for an initial 204
sites and additional sites that may be added by mutual agreement. The tower
services agreement provided for us to purchase a minimum level of tower services
at $10.0 million per annum and a penalty payment of 40% of any shortfall in the
minimum purchase levels. Based on what we considered to be substandard
performance and the service provider's inability to respond to several of our
project requests, we did not fulfill our minimum purchase requirement and
terminated the services contract. The service provider made an original claim
for $4.1 million. In addition, in November 2001, the service provider obtained a
lien on $4.1 million of cash, which effectively restricted our use of such cash.
On January 25, 2002, we agreed to pay the service provider $2.0 million for
termination of the services contract. The amount was accrued by us as a charge
to current operations in the third quarter of fiscal year 2001. As a result, the
lien on the $4.1 million was released. In addition, as part of the settlement,
the service provider agreed to pay us $2.0 million as full payment of its
obligations under a separate master lease agreement with us.

         OTHERS

         We are also from time to time involved in ordinary litigation
incidental to the conduct of our business. We believe that none of such pending
litigation will have a material adverse effect on our business, financial
condition or results of operations.




                                       49
<PAGE>

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

         Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

         As part of our plan for recapitalization and restructuring of our debt,
described in the section of this report titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations," beginning in the
first quarter of 2002 we stopped paying interest payments on all of our
Convertible Notes. The following table lists the affected series of debt
securities, sets forth the scheduled debt payments that were not made during the
first quarter of 2002 and shows the payment arrearage as of June 30, 2002:

<TABLE>
<CAPTION>

Debt Series and
Aggregate Principal                              Type and Date                   Amount Unpaid        Total Arrearage At
Amount Outstanding                               of Defaulted Payment            in First Quarter     June 30, 2002
-------------------                              --------------------            -----------------    -------------
<C>                                              <C>                             <C>                  <C>
5.5 % Convertible Subordinate Notes              Interest March 15, 2002         $5,157,625           $5,157,625
     Due 2007 ($187.5 million)

</TABLE>

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

         Not applicable

ITEM 5. OTHER INFORMATION.

         Not applicable

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

     (a)  The Exhibits listed in the "Exhibit Index" are filed as part of this
          report.

     (b)  Reports on form 8-K.

     We filed a Form 8-K with the SEC on April 29, 2002 regarding the execution
     of a definitive agreement with Fortress Investment Group and Greenhill
     Capital Partners, pursuant to which Pinnacle will be recapitalized through
     a pre-negotiated bankruptcy plan.

     We filed a Form 8-K with the SEC on May 22, 2002 regarding the filing of
     voluntary petitions for reorganization under Chapter 11 of the United
     States Bankruptcy Code in the United State Bankruptcy Court for the
     Southern District of New York.

     We filed a Form 8-K with the SEC on August 14, 2002 regarding the
     confirmation of our pre-negotiated reorganization plan on July 30, 2002 as
     well as the motion filed by the administrative agent for the lenders under
     our senior credit facility with the Bankruptcy Court for reconsideration of
     the confirmation order.



                                       50
<PAGE>

                                   SIGNATURES



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

Pinnacle Holdings Inc.




Date: August 19, 2002                  By: /s/ William T. Freeman
                                           -------------------------------------
                                           William T. Freeman
                                           Chief Financial Officer
                                           and Secretary


                        Duly Authorized Officer and Principal Financial Officer.










                                       51

<PAGE>



EXHIBIT INDEX


Exhibit No.       Description
-----------       -----------
    2             Debtors' Amended Joint Plan of Reorganization, dated June 27,
                  2002 (1)

    3.1           Amended and Restated Certificate of Incorporation of Pinnacle
                  Holdings Inc. (2)

    3.2           Bylaws of Pinnacle Holdings Inc. (2)

    10.1          Amendment and Acknowledgement dated as of May 20, 2002. (3)

    99.1          Confirmation Order Confirming Debtors' Joint Reorganization
                  Plan, dated July 30, 2002 (1)

    99.2          Debtors' First Amended Disclosure Statement, dated June 27,
                  2002 (1)


(1)      Incorporated by reference to Pinnacle Holdings Inc.'s Current Report on
         Form 8-K filed with the Securities and Exchange Commission on August
         14, 2002.

(2)      Incorporated by reference to Pinnacle Holdings Inc.'s Registration
         Statement on Form S-4 filed with the Securities and Exchange Commission
         on April 1, 1998 (File No. 333-49147).

(3)      Incorporated by reference to Pinnacle Holdings Inc.'s Current Report on
         Form 8-K filed with the Securities and Exchange Commission on May 22,
         2002.