<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 SEPTEMBER 30, 2001

                                       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 November 19, 2001, Registrant had outstanding 48,430,593 shares of $.001 par
value common stock.
<PAGE>
PART I. FINANCIAL INFORMATION                                               PAGE
Item 1.  Financial Statements
         Unaudited Condensed Consolidated Balance Sheets as of December
           31, 2000 and September 30, 2001                                     1
         Unaudited Condensed Consolidated Statements of Operations for
           the nine months ended September 30, 2000 and 2001                   2
         Unaudited Condensed Consolidated Statements of Operations for
           the three months ended September 30, 2000 and 2001                  3
         Unaudited Condensed Consolidated Statement of Changes in
           Stockholders' Equity for the nine months ended
           September 30, 2001                                                  4
         Unaudited Condensed Consolidated Statements of Cash Flows for
           the nine months ended September 30, 2000 and 2001                   5
         Notes to Unaudited Condensed Consolidated Financial Statements     6-15

Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                       16-43

Item 3.  Quantitative and Qualitative Disclosures About Market Risk           43

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                    45

Item 2.  Not Applicable                                                       46

Item 3.  Not Applicable                                                       46

Item 4.  Not Applicable                                                       46

Item 5.  Other Information                                                    46

Item 6.  Exhibits and Reports on Form 8-K                                     46


SIGNATURES                                                                    47

EXHIBIT INDEX                                                                 48
<PAGE>
PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements:
                             PINNACLE HOLDINGS INC.

                 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     December 31,    September 30,
                                                                        2000             2001
                                                                     -----------      -----------
                                                                                      (unaudited)
                                                                  (in thousands, except per share data)
<S>                                                                <C>            <C>
                                 Assets
Current assets:
  Cash and cash equivalents                                          $    44,233      $    16,060
  Accounts receivable, net                                                18,056           15,523
  Prepaid expenses and other current assets                               10,984            9,332
                                                                     -----------      -----------
    Total current assets                                                  73,273           40,915

Fixed assets, net                                                      1,307,945          927,158
Leasehold interests, net                                                  62,482           35,549
Assets held for sale                                                        --             40,305
Deferred debt issue costs, net                                            18,094           18,438
Other assets                                                               7,813           10,352
                                                                     -----------      -----------
                                                                     $ 1,469,607      $ 1,072,717
                                                                     ===========      ===========


               Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable                                                   $     4,993      $     5,797
  Accrued expenses                                                        22,735           26,769
  Deferred revenue                                                         6,795           11,505
  Interest rate swap liability                                              --             14,242
  Current portion of long-term debt                                       16,868          896,852
                                                                     -----------      -----------
    Total current liabilities                                             51,391          955,165
Long-term debt                                                           869,392             --
Other liabilities                                                         14,400            9,344
                                                                     -----------      -----------
                                                                         935,183          964,509

Minority interest in subsidiary                                              321             --

Commitments and contingencies (Note 10)                                     --               --

Stockholders' equity:
  Preferred stock, $.001 par value, 5,000,000 shares authorized;
    0 shares issued and outstanding at December 31, 2000 and
    September 30, 2001                                                      --               --
  Common Stock, $.001 par value, 100,000,000 shares authorized;
    48,430,593 shares issued and outstanding at
    December 31, 2000 and September 30, 2001                                  48               48
  Additional paid-in capital                                             773,240          773,231
  Accumulated other comprehensive income loss                               (403)          (1,596)
  Accumulated deficit                                                   (238,782)        (663,475)
                                                                     -----------      -----------
                                                                         534,103          108,208
                                                                     -----------      -----------
                                                                     $ 1,469,607      $ 1,072,717
                                                                     ===========      ===========
</TABLE>


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


                                       1
<PAGE>
                             PINNACLE HOLDINGS INC.

            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                           Nine Months Ended
                                                                             September 30,
                                                                       ------------------------
                                                                          2000           2001
                                                                       ---------      ---------
                                                                      (unaudited)    (unaudited)
                                                                             (in thousands,
                                                                         except per share data)
<S>                                                                    <C>            <C>

Revenues                                                               $ 129,596      $ 143,894

Direct operating expenses, excluding depreciation and amortization        46,261         55,969
                                                                       ---------      ---------
Gross margin, excluding depreciation and amortization                     83,335         87,925
Other expenses:
  General and administrative                                               8,230         28,366
  Corporate development                                                   27,710         14,320
  State franchise, excise and minimum taxes                                  843          1,405
  Depreciation and amortization                                           82,400         95,924
  Impairment on assets held for use                                         --          254,186
  Impairment on assets held for sale                                        --           47,600
  Loss on disposal of assets                                                --            5,615
                                                                       ---------      ---------
                                                                         119,183        447,416
                                                                       ---------      ---------
Loss from operations                                                     (35,848)      (359,491)
Interest expense, net                                                     27,102         48,072
Amortization of original issue discount and debt issuance costs           20,211         22,476
Foreign currency transaction loss                                           --              848
Minority interest in net loss of subsidiary                                  (60)          (172)
                                                                       ---------      ---------
Loss before income tax benefit                                           (83,101)      (430,715)
Income tax benefit                                                          --            6,022
                                                                       ---------      ---------
Net loss                                                               $ (83,101)     $(424,693)
                                                                       =========      =========


Basic and diluted net loss per common share                            $   (1.74)     $   (8.77)
                                                                       =========      =========
Weighted average number of common shares outstanding                      47,746         48,431
                                                                       =========      =========
</TABLE>


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


                                       2
<PAGE>
                             PINNACLE HOLDINGS INC.

            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                                                            September 30,
                                                                       ------------------------
                                                                         2000            2001
                                                                       ---------      ---------
                                                                      (unaudited)    (unaudited)
                                                                             (in thousands,
                                                                         except per share data)
<S>                                                                    <C>            <C>

Revenues                                                               $  45,313      $  46,499

Direct operating expenses, excluding depreciation and amortization        16,958         19,454
                                                                       ---------      ---------
Gross margin, excluding depreciation and amortization                     28,355         27,045
Other expenses:
  General and administrative                                               4,031         16,384
  Corporate development                                                   14,187          1,471
  State franchise, excise and minimum taxes                                  101            455
  Depreciation and amortization                                           30,634         31,062
  Impairment on assets held for use                                         --          254,186
  Impairment on assets held for sale                                        --           13,037
  Loss on disposal of assets                                                --            3,753
                                                                       ---------      ---------
                                                                          48,953        320,348
                                                                       ---------      ---------
Loss from operations                                                     (20,598)      (293,303)
Interest expense, net                                                     10,792         18,536
Amortization of original issue discount and debt issuance costs            6,961          7,716
Foreign currency transaction loss                                           --              600
Minority interest in net loss of subsidiary                                  (60)           (42)
                                                                       ---------      ---------
Loss before income tax benefit                                           (38,291)      (320,113)
Income tax benefit                                                          --            4,727
                                                                       ---------      ---------
Net loss                                                               $ (38,291)     $(315,386)
                                                                       =========      =========


Basic and diluted net loss per common share                            $   (0.79)     $   (6.51)
                                                                       =========      =========
Weighted average number of common shares outstanding                      48,408         48,431
                                                                       =========      =========
</TABLE>


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


                                       3
<PAGE>
                             PINNACLE HOLDINGS INC.

  UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                 (in thousands)

                                                                       Additional   Accumulated Other
                                                   Common Stock          Paid-in      Comprehensive    Accumulated  Stockholders'
                                                Shares       Amount      Capital      Income (Loss)       Deficit       Equity
                                               --------    ---------    ---------       ---------       ----------      ---------
<S>                                            <C>         <C>          <C>             <C>             <C>             <C>

Balance at December 31, 2000                     48,431    $      48    $ 773,240       $    (403)      $ (238,782)     $ 534,103
Unaudited:
Comprehensive income (loss):
  Net loss                                                                                                (424,693)      (424,693)
  Foreign currency translation gain                                                         1,308                           1,308
  Cumulative effect of change in accounting
    for derivative financial instruments,
    net of applicable income taxes                                                         (4,002)                         (4,002)
  Losses (gains) reclassified into earnings
    from other comprehensive income (loss)
    net of applicable income taxes                                                          1,501                           1,501
                                                                                                                        ---------
Total comprehensive loss                                                                                                 (425,886)

Repurchase of common stock                                                     (9)                                             (9)
                                               --------    ---------    ---------       ---------       ----------      ---------
  Balance at September 30, 2001                  48,431    $      48    $ 773,231       $  (1,596)      $ (663,475)     $ 108,208
                                               ========    =========    =========       =========       ==========      =========
</TABLE>


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


                                       4
<PAGE>
                             PINNACLE HOLDINGS INC.

            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                               NINE MONTHS ENDED
                                                                                 SEPTEMBER 30,
                                                                            ------------------------
                                                                               2000          2001
                                                                            ---------      ---------
                                                                           (unaudited)    (unaudited)
                                                                                 (in thousands)
<S>                                                                        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                    $ (83,101)     $(424,693)
Adjustments to reconcile net loss to net cash provided
  by operating activities:
    Depreciation and amortization                                              82,400         95,924
    Amortization of original issue discount and debt issuance costs            20,211         22,476
    Income tax benefit                                                           --           (6,216)
    Reserve for doubtful accounts                                                 432          9,087
    Disposal of fixed assets                                                     --            5,615
    Impairment of capitalized acquisitions and construction costs               8,684          3,864
    Impairment on assets held for use and sale                                   --          302,949
    Minority share of net loss of subsidiary                                      (60)          (172)
    Change in value of derivative financial instruments                          --           11,741
    (Increase) decrease in:
      Accounts receivable, gross                                               (7,961)        (6,747)
      Prepaid expenses and other current assets                                (6,086)         1,566
      Other assets                                                             (3,267)        (1,525)
    Increase (decrease) in:
      Accounts payable                                                          2,372            958
      Accrued expenses                                                         (9,127)         4,511
      Deferred revenue                                                          3,253          4,710
      Other liabilities                                                           127              1
                                                                            ---------      ---------
                                                                               90,978        448,742
                                                                            ---------      ---------
Net cash provided by operating activities                                       7,877         24,049
                                                                            ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Payments made in connection with acquisitions:
      Fixed assets                                                           (410,383)       (17,304)
      Net current liabilities acquired                                            177           --
    Capital expenditures:
      Fixed assets                                                            (23,872)       (24,796)
                                                                            ---------      ---------
Net cash used in investing activities                                        (434,078)       (42,100)
                                                                            ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Borrowings under long-term debt, net                                      319,501          5,250
    Repayment of long-term debt                                              (202,038)       (14,273)
    Deferred debt issue costs                                                    --           (2,663)
    Proceeds from issuance of common stock, net                               284,162             (9)
    Minority interest in subsidiary                                               500            700
                                                                            ---------      ---------
Net cash provided by (used in) financing activities                           402,125        (10,995)
                                                                            ---------      ---------
Effect of exchange rate changes on cash                                          (616)           873
                                                                            ---------      ---------

Net increase (decrease) in cash and cash equivalents                          (24,692)       (28,173)
Cash and cash equivalents, beginning of period                                 94,863         44,233
                                                                            ---------      ---------
Cash and cash equivalents, end of period                                    $  70,171      $  16,060
                                                                            =========      =========


SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Cash paid for interest                                                      $  24,157      $  35,676
                                                                            =========      =========


Non-cash Transactions:
    Seller debt issued in acquisition                                       $   9,929           --
    Interest swap liability recorded to other comprehensive income, net          --        $   2,501
</TABLE>


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


                                       5
<PAGE>
                             PINNACLE HOLDINGS INC.

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

         As used in this Quarterly Report on Form 10-Q for the period ending
September 30, 2001, 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.  BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial statements
reflect the financial position and results of operations and cash flows of
Pinnacle Holdings Inc. and its wholly owned subsidiaries: Pinnacle Towers Inc.,
Pinnacle Towers Canada Inc., Coverage Plus Antenna Systems, Inc., PT III, PT IV,
PT V and Tower Systems, Inc.; as well as our majority owned subsidiary Pinnacle
Towers Ltd. We took several actions during the first quarter of 2001 to
restructure our investments in PT III and PT IV in order to take advantage of
changes in the REIT tax laws, which became effective on January 1, 2001, as well
as to permit the REIT qualifying assets of PT III to fall under the REIT
election of Pinnacle Holdings Inc. Pinnacle Towers Inc. acquired all of the
voting common stock of PT III and PT IV originally held by certain officers of
Pinnacle, upon which PT III became a wholly owned "qualified REIT subsidiary" of
Pinnacle Holdings Inc. and PT IV became a wholly owned "taxable REIT subsidiary"
of Pinnacle Holdings Inc. Prior to the acquisition described in the preceding
sentence, PT III transferred substantially all of its non-REIT qualifying assets
to PT V, a wholly owned subsidiary of PT III, and PT V thereupon became a
"taxable REIT subsidiary" of Pinnacle Holdings Inc. Pinnacle Towers Inc. has
contributed $12.4 million in capital, including $7.6 million during the nine
months ended September 30, 2001, to a newly created entity, Pinnacle Towers,
Ltd., to establish a 91% interest in the entity. Pinnacle Towers Ltd. used the
capital to purchase telecommunication sites throughout the United Kingdom 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 September 30, 2001 unaudited
condensed consolidated balance sheet.

         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 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) considered necessary for the fair presentation have been included.
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, 2000.

2.  ADOPTION OF SFAS NO. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
    ACTIVITIES

         Effective January 1, 2001, we adopted SFAS No. 133 as amended by SFAS
No. 137 and 138. These statements require us to recognize all derivative
instruments on the balance sheet at their fair value. These statements also
establish new accounting rules for hedging instruments, which depend on the
nature of the hedge relationship. As disclosed in further detail below, the
third quarter 2001 unaudited condensed consolidated financial statements include
the provisions required by SFAS No. 133, while the third quarter 2000 unaudited
condensed consolidated financial statements were prepared in accordance with the
applicable professional literature for derivatives and hedging instruments in
effect at that time.

         The adoption of SFAS No. 133 resulted in Pinnacle recording a
transition adjustment to recognize our derivative instruments at fair value and
to recognize the change in fair value of our derivatives. The cumulative effect
of this transition adjustment was an after-tax reduction to other comprehensive
income of approximately $4.0 million. The reduction in other comprehensive
income is primarily related to


                                       6
<PAGE>
the change in the fair value of our interest rate swap agreement. We estimated
that we would reclassify into earnings during the twelve-month period ending
December 31, 2001, approximately $2.0 million of net losses relating to the
transition adjustment recorded as of January 1, 2001.

         We recorded our interest rate swaps in the unaudited condensed
consolidated balance sheet at September 30, 2001, at fair value. The fair value
of derivatives used to modify our risks fluctuates over time. These fair value
amounts should not be viewed in isolation, but rather in relation to the fair
values or cash flows of the underlying hedged transactions and other exposures
and to the overall reduction in our risk relating to adverse fluctuations in
interest rates and other market factors. In addition, the earnings impact
resulting from our derivative instruments is recorded in the same line item
within the unaudited condensed consolidated statement of operations as the
underlying exposure being hedged.

         As a condition of our senior credit facility we are required to enter
into and maintain at all times interest hedge contracts covering a minimum of
50% of the debt outstanding under the senior credit facility. Pinnacle enters
into interest rate swap agreements to manage the interest rate risk associated
with certain of our variable rate debt. 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 September 30, 2001, and December 31, 2000, 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.

         Because of the written option feature, the interest rate swap agreement
does not meet the criteria to be accounted for as a hedge under SFAS No. 133.
Accordingly, the changes in the fair value of this agreement, subsequent to the
adoption of the statement on January 1, 2001, are recorded in earnings
immediately. The earnings impact recorded during the three and nine month
periods ending September 30, 2001, relating to this interest rate swap was
approximately $6.2 million and $11.7 million, respectively, and is recorded in
interest expense in the unaudited condensed consolidated statement of
operations. For the three months ended September 30, 2001, approximately $5.7
million represents a decrease in the fair value of the interest rate swap
agreement and approximately $0.5 million represents the reversal of the
underlying exposure previously recognized in comprehensive loss into interest
expense. For the nine months ended September 30, 2001, approximately $10.2
million represents the additional decline in the fair value of the interest rate
swap agreement since January 1, 2001, and approximately $1.5 million represents
the reversal of the underlying exposure previously recognized in comprehensive
loss into interest expense.

3.  COMPREHENSIVE LOSS

         Total comprehensive loss for the nine months ended September 30, 2001,
was ($425.9) million, composed of a net loss of ($424.7) 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 of
approximately $1.3 million and approximately $1.5 million in losses reclassified
into earnings from other comprehensive loss. Total comprehensive loss was
($82.9) million for the nine months ended September 30, 2000.

4.  NEW ACCOUNTING PRONOUNCEMENTS

          In June 2001, the Financial Accounting Standard Board issued
Statements of Financial Accounting Standards No. 141, "Business Combinations,"
and No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years
beginning after December 15, 2001. 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.


                                       7
<PAGE>
         We will apply the new rules on accounting for goodwill and other
intangible assets beginning January 1, 2002. As of September 30, 2001, 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. As of
September 30, 2001, the applications of the non-amortization provisions of the
Statement and the requirements for impairment testing are being evaluated.

         In August 2001, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standard No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," effective for fiscal years
beginning after December 15, 2001, and early adoption is permitted. The new
rules on asset impairment supersede 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.

         We will apply the new rules on accounting for impairment or disposal of
long-lived assets beginning January 1, 2002. We are currently evaluating the
effects, if any, of the application of this standard.

5.  ACQUISITIONS

         Historically, we actively acquired communications sites and related
real estate assets.

         On August 31, 1999, we consummated the acquisition of the North
American Antenna Site Business (the "Motorola Antenna Site Acquisition") of
Motorola, Inc., acquiring approximately 1,858 communications sites and related
assets from Motorola for $254.0 million, comprised of $245.0 million in cash and
418,520 shares of common stock, valued at $9.0 million, plus fees and initial
other closing costs of approximately $2.2 million. This acquisition results in
us having sites in all fifty States and nine Canadian Provinces. We transferred
certain of the rooftop communications sites we acquired from Motorola to PT III.

         Included in the initial total purchase price recorded on the
acquisition date of the Motorola Antenna Site Acquisition were incurred
transaction costs of approximately $2.2 million. These incurred and accrued
transaction costs were comprised primarily of employee severance and relocation
costs totaling $0.5 million, and contract and title work related to
telecommunications sites, due diligence and closing costs totaling $1.7 million.
Subsequently, we incurred an additional $24.6 million of costs associated with
post-closing work associated with the acquisition, $17.3 million of which we
subsequently capitalized and $7.3 million of which we subsequently expensed.

         There is a working capital adjustment component of the Motorola Antenna
Site Acquisition. As of September 30, 2001, Pinnacle recorded a net receivable
due from Motorola as a result of this working capital adjustment component of
$0.2 million in prepaid expenses and other current assets. As this adjustment
has not been agreed upon and settled, in finalizing this adjustment with
Motorola we may settle on a different amount. Any significant adjustments to
this estimated working capital adjustment component upon settlement will be
reflected in income and disclosed accordingly.

         Also in conjunction with the Motorola Antenna Site Acquisition,
Motorola performed certain services on our behalf under a Transition Services
Agreement, including the receipt of cash payments from tenants for a one month
period and payment of vendor invoices for a two month period subsequent to
closing. Accordingly, there is an amount of cash settlement, net of the fees
charged by Motorola for this service, due us of $4.6 million recorded as prepaid
expenses and other current assets as of September 30, 2001. These amounts have
been recorded based on information provided to us by Motorola in connection with
their receipt of cash and payment of vendors. As the final amount due us has not
yet been agreed upon with Motorola, in finalizing this amount with Motorola we
may settle on a different amount. Any significant adjustments to this amount
upon settlement will be reflected in income and disclosed accordingly.

         During the year ended December 31, 2000, we completed 226 acquisitions
of 1,467 communications


                                       8
<PAGE>
sites and related assets, each of which was individually insignificant to
Pinnacle, from various sellers for an aggregate purchase price of $405.8 million
consisting of $395.8 million in cash and $10.1 million of notes payable to the
former communications site owners.

         During the nine months ended September 30, 2001, we completed seven
acquisitions of communications sites and related assets for an aggregate
purchase price 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 with
those of Pinnacle from the dates of the respective acquisitions. The pro forma
results of operations listed below reflect purchase accounting and pro forma
adjustments as if the transactions occurred as of January 1, 2000. The unaudited
pro forma consolidated financial statements are not necessarily indicative of
the results that would have occurred if the assumed transactions had occurred on
the dates indicated and are not necessarily indicative of the expected financial
position or results of operations in the future.

<TABLE>
<CAPTION>
                                                       PRO FORMA NINE MONTHS ENDED
                                               ------------------------------------------
                                                 (in thousands except per share amounts)
                                               SEPTEMBER 30, 2000      SEPTEMBER 30, 2001
                                               ------------------      ------------------
                                                   (unaudited)             (unaudited)
<S>                                            <C>                     <C>

Revenue                                             $ 142,246               $ 143,932

Gross margin, excluding depreciation and               93,621                  87,983
amortization

Net loss                                              (95,209)               (424,637)

Basic and diluted net loss per share common         $   (1.99)              $   (8.77)
</TABLE>


6.       ASSETS HELD FOR SALE

         Colocation Facilities

         On June 7, 2001, we adopted a plan to dispose of certain operating
assets pursuant to management's decision to dedicate resources to improving the
financial results of communications site operations. As a result of the adoption
of this plan, five colocation properties acquired in 2000 and located in Texas
and St. Louis, Missouri have been deemed assets held for sale. In accordance
with Statement of Financial Account Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
assets held for sale are reported at the lower of their net historical basis or
estimated fair market value less costs to sell.

         The historical carrying value of the properties, which were acquired
during 2000, as of September 30, 2001, prior to any write down, was
approximately $65.0 million. During the nine months ended September 30, 2001, we
recognized a write-down adjustment of approximately $39.8 million, which is
included in impairment on assets held for sale. Of this amount $34.6 million was
recognized in the three months ended June 30, 2001, and $5.2 million was
recognized in the three months ended September 30,2001. This amount represents
the difference between the carrying values and the estimated fair market value
less costs to sell for these five properties. We estimated the fair market value
less costs to sell based upon two pending Purchase and Sale Agreements for three
of the five properties and by calculating the estimated purchase price based on
an anticipated multiple of cash flows for the remaining two properties.
Depreciation expense has not been recognized since the date the colocation
assets were classified as held for sale. There can be no assurance the current
pending proposals will result in a completed transaction.

         For the three and nine months ended September 30, 2001, excluding the
write-down adjustment, these properties had a net operating income and (loss) of
$0.7 million and ($0.2) million respectively. For the three months ended
September 30, 2001, the combined properties produced revenues of $1.8 million,


                                       9
<PAGE>
had operating expenses of $1.0 million, and tax charges of $0.1 million. For the
nine months ended September 30, 2001, the combined properties produced revenues
of $5.0 million, had operating expenses of $2.7 million, and tax and
depreciation charges of $2.5 million. We are in the process of marketing the
remaining two properties and foresee being able to dispose of them within a
reasonable period.

         Land

         On September 27, 2001, we adopted a plan to dispose of additional
operating assets. As a result of the adoption of this plan, our interest in 88
parcels of owned land and leasehold interests principally under towers currently
owned by other tower companies have been deemed assets held for sale. In
accordance with Statement of Financial Account Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", assets held for sale are reported at the lower of their net historical
basis or estimated fair market value less costs to sell.

         The historical carrying value of the properties as of September 30,
2001, prior to any write down, was approximately $12.9 million. During the three
months ended September 30, 2001, we recognized a write-down adjustment of
approximately $5.0 million, which is included in impairment on assets held for
sale. This amount represents the difference between the carrying values and the
estimated fair market value less costs to sell these 88 parcels. We estimated
the fair market value less costs to sell based upon a Letter of Intent with an
interested third party. There can be no assurance the current pending proposal
will result in a completed transaction.

         For the three and nine months ended September 30, 2001, excluding the
write-down adjustment, these properties had a net operating income of $211,700
and $719,900, respectively. For the three months ended September 30, 2001, the
combined properties produced revenues of $253,000, had operating expenses of
$17,800, and tax and amortization charges of $23,500. For the nine months ended
September 30, 2001, the combined properties produced revenues of $845,600, had
operating expenses of $52,500, and tax and amortization charges of $73,200. We
anticipate being able to complete the transaction to dispose of these properties
within a reasonable period.

         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. In accordance with Statement of Financial Account Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", assets held for sale are reported at the lower of their net
historical basis or estimated fair market value less costs to sell.

         The historical carrying value of our $12.4 million investment as of
September 30, 2001, prior to any write down, was approximately $9.8 million.
During the three months ended September 30, 2001, we recognized a write-down
adjustment of approximately $2.8 million, which is included in impairment on
assets held for sale. This amount represents the difference between the carrying
values and the estimated fair market value less costs to sell this subsidiary.
We estimated the fair market value less costs to sell based upon a pending
proposal from an interested third party. Depreciation expense has not been
recognized since the date this investment was classified as held for sale. There
can be no assurance the current pending proposal will result in a completed
transaction.

         For the three and nine months ended September 30, 2001, excluding the
write-down adjustment, these properties had net operating losses of $0.5 million
and $1.7 million, respectively. For the three months ended September 30, 2001,
the investment produced revenues of $0.2 million, had operating expenses of $0.6
million, and tax and depreciation charges of $0.1 million. For the nine months
ended September 30, 2001, the investment produced revenues of $0.3 million, had
operating expenses of $1.9 million, and tax and depreciation charges of $0.1
million. We anticipate being able to complete the transaction to dispose of this
investment within a reasonable period.

7.  IMPAIRMENT

         Statement of Financial Accounting Standard No. 121, "Accounting For The
Impairment of Long Lived Assets and for Long Lived Assets to Be Disposed Of",
requires impairment losses to be recognized for long-


                                       10
<PAGE>
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. Due to continuing negative developments during 2001 in
the U. S. economy as a whole, and the continuing current year downturn in the
telecommunications industry including the recent deteriorating financial
conditions of some of our key customers in the paging and wireless data segments
of the industry, coupled with the significant decline in valuation multiples
over the past six months for the tower sector in general and Pinnacle
specifically, it is our opinion that the recoverability of the carrying value of
these assets may be in doubt. Accordingly, we evaluated the recoverability of
each of our over 5,000 telecommunications assets on a site by site basis as of
September 30, 2001. Based on this evaluation, we determined that assets with a
carrying amount of $395.7 million were impaired and wrote them down by $254.2
million to their fair value. Fair value was based on estimated future cash flows
to be generated, discounted at an interest rate commensurate with our cost of
capital.

8.  LONG-TERM DEBT

         For the quarter ended September 30, 2001, we were out of compliance
with all financial ratio covenants contained in our senior credit facility
except for the consolidated fixed charge coverage ratio. Our noncompliance
represented an event of default under the senior credit facility. On November
16, 2001, we entered into a Forbearance Agreement with our bank group wherein
the banks agreed not to exercise their rights related to our existing defaults
until December 12, 2001, so long as additional events of default do not occur.
In addition, the Forbearance Agreement (i) reduced availability under the senior
credit facility to the amounts outstanding at September 30, 2001, and eliminated
our ability to incur additional indebtedness, (ii) increased the interest rates
under the senior credit facility by 1.0% from LIBOR plus 2.75% and LIBOR plus
3.0% to LIBOR plus 3.75% and LIBOR plus 4.0%, respectively, so long as an
additional event of default does not occur, (iii) provides the banks with
certain additional security, and (iv) allows us to sell our St. Louis and
Beaumont Texas colocation facilities so long as the proceeds are utilized to
reduce outstanding borrowings under our senior credit facility including our
December 31, 2001, $7.3 million amortization payment and to establish a $2.5
million escrow account to further securitize outstanding letters of credit. We
are currently working on an amendment to our senior credit facility to cure our
events of default and to establish new covenant levels for the future. We would
expect that any amendment to our credit facility would likely contain a
shortened maturity date. There can be no assurances that an amendment to our
senior credit facility will be reached and our inability to reach an amendment
could have an adverse effect on our ongoing operations. 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 sheet at September 30, 2001.

         Prior to the Forbearance Agreement discussed above, our senior credit
facility provided $670.0 million of financing of which $520.0 million was
committed at September 30, 2001, and December 31, 2000, and $418.7 million and
$428.9 million was utilized at September 30, 2001, and December 31, 2000,
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 three months ended September 30, 2001, at our option, the
senior credit facility indebtedness bore an average interest at LIBOR plus a
margin for the period of 2.3% to 3.3% or the bank's Base Rate plus an average
margin for the period of 2.75% to 3.0 %. Advances under our senior credit
facility bear interest payable in quarterly installments. In addition, we are
required to pay commitment and customary facility fees on the total amount of
commitments. As of September 30, 2001, and December 31, 2000, the current
effective interest rate on outstanding borrowings was 8.43% and 8.05%,
respectively.

         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,
or prepay subordinated debt.

         For the fiscal quarter ended December 31, 2000, we were not in
compliance with two financial ratio covenants under our bank loan agreement. In
February 2001, we entered into an amendment to our senior credit facility, which
adjusted substantially all of our ratio covenants, primarily aimed at lessening
requirements for covenant periods in 2001. In addition to the covenant changes,
the amendment also changed permitted levels of investment in our Canadian and UK
subsidiaries. In consideration for the amendment, we paid the lenders in our
senior credit facility a fee equal to 25 basis points, plus we agreed to
increase the pricing grid by 25 basis points for 2001. In April, 2001, we
obtained a one-time waiver with


                                       11
<PAGE>
respect to covenant breaches so long as actual ratios met the amended
requirements. The amendment also adjusted the interest rates charged on the loan
based on the quarterly leverage ratio calculations for periods subsequent to the
date of the waiver. Additionally, fees paid of $1.8 million to the banks as a
result of this amendment will be deferred and amortized over the remaining term
of the underlying debt agreement.

         On March 22, 2000, we completed a private placement of $200 million of
the 5.5% Convertible Subordinated Notes due 2007 to certain institutional
purchasers pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"). We repaid
outstanding revolving debt under our senior credit facility with the net
proceeds of $193.5 million from this private placement. Interest is payable on
the notes on March 15 and September 15 of each year. The notes will mature on
September 15, 2007, unless previously redeemed or repurchased. The notes are
convertible into Pinnacle's common stock at the option of the note holders at an
initial price of $78.375 per share, which conversion price is subject to
adjustment under the terms of the notes. We may redeem the notes on or after
March 21, 2003. The events of default related to our senior credit facility
caused a cross-default in the notes. As such, the outstanding amounts have been
reclassified as current liabilities in the accompanying unaudited condensed
consolidated balance sheet at September 30, 2001. Pursuant to a Registration
Rights Agreement dated March 22, 2000, we filed a registration statement on May
23, 2000, to cover resales of the notes and the shares of our common stock
issuable upon conversion of the notes, which was declared effective by the
Securities and Exchange Commission ("SEC") on June 20, 2001.

         Under the terms of the Registration Rights Agreement, because the
registration statement was not declared effective by the SEC by September 18,
2000, the interest rate on the notes increased by 0.5%. Thereafter, because the
registration statement was not declared effective by December 17, 2000, the
interest rate on the notes increased by an additional 0.5%. The rate on the
notes could not increase to greater than 6.5% under the terms of the
Registration Rights Agreement. As a result of the effectiveness of the
registration statement on June 20, 2001, the additional interest that began
accruing on the notes on September 19, 2000 has ceased accruing.

         As a condition of our senior credit facility we are required to enter
into and maintain at all times 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 agreements effectively convert 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 on an amount equal to the notional value of the interest rate swap. We
are exposed to credit losses in the event of non-performance by counter-parties
on these agreements, which we do not believe are significant. See Note 2,
Adoption of SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities."

         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 our option. Accordingly, the changes in the fair value of this
agreement are recorded in earnings immediately. The earnings impact recorded
during the three and nine month periods ending September 30, 2001, relating to
the interest rate swap amounted to $6.2 million and $11.7 million, respectively.
For the three months ended September 30, 2001, approximately $5.7 million
represents a decrease in the fair value of the interest rate swap agreement and
approximately $0.5 million represents the reversal into current year income of
the underlying exposure previously recognized in comprehensive loss. For the
nine months ended September 30, 2001, approximately $10.2 million represents the
additional decline in the fair value of the interest rate swap agreement since
January 1, 2001, and approximately $1.5 million represents the reversal into
current year income of the underlying exposure previously recognized in
comprehensive loss. See Note 2, Adoption of SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities."


                                       12
<PAGE>
9.  PUBLIC OFFERINGS AND STOCKHOLDERS' EQUITY

         Secondary Offerings

         On January 24, 2000, we completed a secondary offering of common stock
whereby we sold 7,200,000 shares of our common stock. The price per share was
$41.00, resulting in net proceeds of approximately $283.0 million. The proceeds
were invested initially in short-term liquid securities and were used with
borrowings made under our senior credit facility to fund acquisitions, the
construction of new communications sites and improvements to existing
communications sites all of which was used as of September 30, 2001. The total
shares sold included a concurrent exercise of the underwriters' over-allotment
option whereby 1,350,000 shares were sold (including 450,000 shares sold by
certain of our stockholders).

         Other Issuances of Stock

         During the nine months ended September 30, 2000 and 2001, we issued
136,122 and no shares, respectively, of our common stock upon exercise of
various stock options granted to our employees.

         Unsuccessful Offering Costs and SEC Investigation

         We are involved in an SEC investigation and the SEC Staff has requested
information from us, our current independent accountants, Ernst & Young LLP
("E&Y") and our former independent accountants, PricewaterhouseCoopers LLP
("PWC"), as part of its investigation. The SEC's investigation appears to be
focused primarily on the Motorola Antenna Site Acquisition and on the
independence of PWC as Pinnacle's auditor. We have cooperated and intend to
continue to cooperate with the SEC in its investigation.

         During August 2000, we discontinued a secondary offering of common
stock due to market conditions relative to our stock price as influenced by our
announcement regarding the SEC investigation. We believe that we currently
remain unable to access the equity and debt markets on attractive terms.
Accordingly, we have written off as an expense for the year ended December 31,
2000, $1.3 million in non-recurring costs incurred related to this unsuccessful
equity offering process, which costs would have been recorded as a reduction of
additional paid in capital from the offering had the offering been completed.

     We cannot predict the outcome of the SEC's investigation. Regardless of the
outcome, however, we have incurred substantial costs and the investigation has
caused a diversion of our management's time and attention.

         In March 2001, we announced that in order to remove uncertainty with
respect to the independence issues, the Audit Committee of Pinnacle's Board of
Directors authorized the engagement of the accounting firm of E&Y to re-audit
our financial statements for the year ended December 31, 1999, and audit the
year ended December 31, 2000. As a result of the re-audit of 1999 and the audit
of 2000, we revised our accounting for certain costs capitalized in connection
with the Motorola Antenna Site Acquisition. In our revised financial statements,
we capitalized all costs that related directly to the acquisition except those
post-closing costs that were deemed to more than incidentally reduce our need to
incur ongoing business expense necessary to integrate those assets into our
operations.

10. COMMITMENTS AND CONTINGENCIES

         As of and subsequent to September 30, 2001, we had a pending commitment
to purchase 40 microwave tower sites for $7.0 million, which was committed to in
2000.

         During 2000, we entered into a tower services agreement with a service
provider to provide us with 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 provides for us to purchase a minimum level of tower services
of $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 were unable to fulfill our minimum purchase requirement.
The service provider has requested arbitration to


                                       13
<PAGE>
resolve this dispute and has made a claim for $4.1 million. In addition, in
November 2001, the service provider attached $4.1 million of our cash,
which has effectively restricted our use of such cash. We plan to vigorously
defend our position that the service provider breached the contract and as such,
the minimum purchase requirement is not applicable. In addition, we are
challenging the service providers attachment on our cash account. On November
13, 2001, the lien on our cash account was overturned, however the order to
overturn was stayed for ten days. This service contract has been terminated.

         On July 2, 2001, we approved a plan to reduce our workforce by 14
positions, a 6% reduction from the December 31, 2000, workforce total of
approximately 237 full-time employees. We recorded a $0.2 million accrual for
these general and administrative charges. As of September 30, 2001, $0.15
million of the accrual was disbursed, leaving a remaining accrual of $0.05
million.

         Recently the board terminated the employment of Robert J. Wolsey as
Senior Advisor to the CEO. We recorded a severance accrual in accordance with
the terms of the Amendment to Executive Employment Agreement dated June 30,
2001, of $0.2 million for these general and administrative charges. We expect
that the severance costs will be fully paid by the first quarter of 2003.

         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 recently 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, 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 of 1933, by
permitting the publication and dissemination of the prospectus for the January
18, 2000, secondary 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. Wolsey
and Day are vicariously liable pursuant to Section 15 of the Securities Act for
Pinnacle's alleged violation of Section 11. 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.

         The plaintiffs further allege that Pinnacle, Messrs. Wolsey, Day, and
Card, and the other named defendants violated Section 10(b) of the Securities
Exchange Act of 1934 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, Wolsey, and Card
violated Section 20 of the Securities Exchange Act, which imposes vicarious
liability on those persons who control a primary violator of Section 10(b) and
Rule 10b-5.

         Plaintiffs have requested compensatory damages, interest, their costs
and expenses incurred in the action including attorneys' and experts' fees, and
other relief.

         On October 31, 2001, the defendants filed their motions to dismiss this
complaint. An effect of this motion is to postpone any discovery in this case
until after the court rules on the motion.

         We intend to respond appropriately and in the best interests of
Pinnacle to the consolidated action; however, we cannot assure you that we will
prevail in such litigation. Securities lawsuits may result in


                                       14
<PAGE>
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.

11. SUBSEQUENT EVENTS

         On November 2, 2001, the service provider under a tower service
agreement attached $4.1 million of our operating cash account. In accordance
with the terms of the disputed contract, they have requested that we pursue
settlement via arbitration. We have responded and are pursuing all legal avenues
to remove the attachment.


                                       15
<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.

         We restated our audited financial statements for the year ended
December 31, 1999, and our unaudited financial statements for the quarters ended
March 31, 2000, June 30, 2000, and September 30, 1999 and 2000, to expense
certain costs previously capitalized as direct costs of the Motorola Antenna
Site Acquisition and to accrue direct costs of the Motorola Antenna Site
Acquisition only as the related services were performed. Direct costs incurred
in connection with a purchased business are required to be capitalized and
indirect costs are required to be expensed. Determining under available
accounting guidance which costs or portions thereof are direct, as opposed to
indirect, requires the exercise of a certain amount of judgment. Upon completion
of the Motorola Antenna Site Acquisition, after consultation with our outside
auditors at the time, PricewaterhouseCoopers LLP ("PWC"), we determined to
capitalize all pre- and post-closing costs directly related to the acquisition.
Such treatment was reflected in our subsequent periodic financial statements
including those contained in our annual Report on Form 10-K that contained
financial statements audited by PWC. Following an inquiry by the SEC, and after
consideration of comments received from the Division of Corporate Finance at the
SEC in connection with our Registration Statement on Form S-11 and consulting
with our new independent auditors, Ernst & Young, LLP ("E&Y"), we reconsidered
our previous accounting judgment and concluded it was appropriate to capitalize
all costs that related directly to the acquisition except those post-closing
costs that are deemed to more than incidentally reduce our need to incur ongoing
business expenses necessary to integrate those assets into our operations.
Additionally, we had previously, at the date of the acquisition, accrued
estimated direct costs of acquisitions regardless of whether the costs had been
incurred as of that date. We have now concluded that such costs should be
accrued as the services are incurred.

OVERVIEW

         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.

         We have previously been an active acquirer of communication 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. Our
previous acquisition 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


                                       16
<PAGE>
who are deploying or expanding wireless communications networks. However, as a
result of our inability to access additional capital we have ceased our
acquisition program and are now only making acquisitions to fulfill commitments
we previously made. Should we be able to access capital in the future on terms
and conditions that are acceptable to us, we could restart our acquisition
strategy.

         We acquired five carrier neutral colocation facilities located in Texas
and St. Louis, Missouri for an aggregate purchase price of $68.8 million during
2000. Colocation facilities are buildings that provide telecommunications
service providers, such as incumbent local exchange carriers, competitive local
exchange carriers, fiber optic network carriers, Internet backbone providers,
application service providers and Internet data centers, square footage space to
house their equipment (i.e. switches, servers, routers) and access to an
interexchange carrier (typically known as long distance carriers). Independently
owned carrier neutral colocation facilities provide interconnectivity to
multiple communications carriers versus carrier-owned facilities that offer
interconnectivity to just their own network. On June 7, 2001, we adopted a plan
to dispose of certain operating assets pursuant to management's decision to
focus resources on improving the financial results of communications site
operations. As a result of the adoption of this plan, five colocation properties
located in Texas and St. Louis, Missouri have been deemed assets held for sale.
In accordance with Statement of Financial Account Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," assets held for sale are reported at the lower of their net historical
basis or estimated fair market value less costs to sell.

         The historical carrying value of the colocation facility properties
which were acquired during 2000, as of September 30, 2001, prior to any
write-down, was approximately $65.0 million. During the nine months ended
September 30, 2001, we recognized a write-down adjustment of approximately $39.8
million, which is included in impairment on assets held for sale. This
write-down was composed of a write-down of $34.6 million in our second quarter
ended June 30, 2001, and $5.2 million in our third quarter ended September 30,
2001. These amounts represent the difference between the carrying values and the
estimated fair market value less costs to sell for these five properties at the
end of the applicable quarter. We estimated the fair market value less costs to
sell based upon two pending Purchase and Sale Agreements for three of the five
properties and by calculating the estimated purchase price based on an
anticipated multiple of cash flow for the remaining two properties. Depreciation
expense has not been recognized since the date the colocation assets were
classified as held for sale. As part of the Forbearance Agreement dated November
16, 2001, and discussed elsewhere herein, we obtained approval from our senior
secured lenders to sell our two St. Louis and our Beaumont Texas colocation
facilities and expect to close on these dispositions during the fourth quarter
of 2001.

         For the three and nine months ended September 30, 2001, excluding the
write-down adjustment, these properties had a net operating income and (loss) of
$0.7 million and ($0.2) million respectively. For the three months ended
September 30, 2001, the combined properties produced revenues of $1.8 million,
had operating expenses of $1.0 million, and tax charges of $0.1 million. For the
nine months ended September 30, 2001, the combined properties produced revenues
of $5.0 million, had operating expenses of $2.7 million, and tax and
depreciation charges of $2.5 million. We are in the process of marketing the
remaining two properties and foresee being able to dispose of them within a
reasonable period. There can be no assurance the current pending proposal will
result in a completed transaction.

         On September 27, 2001, we adopted a plan to dispose of additional
operating assets. As a result of the adoption of this plan, our interest in 88
parcels of owned land and leasehold interests principally under towers currently
owned by other tower companies have been deemed assets held for sale as well as
our investment in a majority owned subsidiary, Pinnacle Towers Ltd. In
accordance with Statement of Financial Account Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," assets held for sale are reported at the lower of their net historical
basis or estimated fair market value less costs to sell.

         The historical carrying value of our interest in the 88 parcels of
owned land and leasehold interests as of September 30, 2001, prior to any
write-down, was approximately $12.9 million. During the three months ended
September 30, 2001, we recognized a write-down adjustment of approximately $5.0
million, which is included in impairment on assets held for sale. This amount
represents the difference between the carrying values and the estimated fair
market value less costs to sell these 88 parcels. We estimated the fair market
value less costs to sell based upon a letter of intent with an interested third
party for the purchase of such land and leasehold interests. Amortization
expense has not been recognized since the date these assets were classified as
held for sale.


                                       17
<PAGE>
         For the three and nine months ended September 30, 2001, excluding the
write-down adjustment, these properties had a net operating income of $211,700
and $719,900 respectively. For the three months ended September 30, 2001, the
combined properties produced revenues of $253,000, had operating expenses of
$17,800, and tax and amortization charges of $23,500. For the nine months ended
September 30, 2001, the combined properties produced revenues of $845,600, had
operating expenses of $52,500, and tax and amortization charges of $73,200. We
anticipate being able to complete the transaction to dispose of these properties
within a reasonable period. There can be no assurance the current pending
proposal will result in a completed transaction.

         The historical carrying value of our $12.4 million investment in
Pinnacle Towers Ltd. as of September 30, 2001, prior to any write-down, was
approximately $9.8 million. During the three months ended September 30, 2001, we
recognized a write-down adjustment of approximately $2.8 million, which is
included in impairment on assets held for sale. This amount represents the
difference between the carrying values and the estimated fair market value less
costs to sell this subsidiary. We estimated the fair market value less costs to
sell based upon a pending proposal from an interested third party. Depreciation
expense has not been recognized since the date this investment was classified as
held for sale.

         For the three and nine months ended September 30, 2001, excluding the
write-down adjustment, our interest in Pinnacle Towers Ltd. had net operating
losses of $0.5 million and $1.7 million respectively. For the three months ended
September 30, 2001, the investment produced revenues of $0.2 million, had
operating expenses of $0.6 million, and tax and depreciation charges of $0.1
million. For the nine months ended September 30, 2001, the investment produced
revenues of $0.3 million, had operating expenses of $1.9 million, and tax and
depreciation charges of $0.1 million. We anticipate being able to complete the
transaction to dispose of this investment within a reasonable period. There can
be no assurance the current pending proposal will result in a completed
transaction.

         As discussed earlier, we previously were an active acquirer of
communication sites. 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 September 30, 2001.
Dispositions include managed and leased sites, which generated negative cash
flow and sites where we have terminated our rights and obligations with respect
to such sites in an effort to improve overall profitability. Non-revenue
producing sites are those sites that are not generating revenue that were
acquired as part of larger, more profitable acquisitions of sites. Non-revenue
producing sites that begin producing revenue, are reclassified into the
appropriate category of revenue producing sites. No value is assigned to
non-revenue producing sites.

<TABLE>
<CAPTION>
                                     Revenue Producing Sites
             ---------------------------------------------------------------------------    Non-Revenue                 Acquisitions
              Owned        Managed       Leased         Built    Co Location    Subtotal       Sites         Total        Completed
             --------     --------      --------      --------   -----------    --------    -----------     --------    ------------
<S>          <C>          <C>           <C>           <C>        <C>            <C>         <C>             <C>         <C>

1995               29         --            --               4         --             33          --              33            13

1996              119         --            --               4         --            123          --             123            49

1997              134         --            --              22         --            156          --             156            72

1998              517         --            --              47         --            564          --             564            82

1999              858          584           858            23         --          2,323           722         3,045           130

2000              699          (19)           78             5            5          768           434         1,202           226

YTD 2001           42           35          (120)            2         --            (41)          (50)          (91)            7
             --------     --------      --------      --------     --------     --------        --------      --------      --------

Total           2,398          600           816           107            5        3,926         1,106         5,032           579
             --------     --------      --------      --------     --------     --------        --------      --------      --------
</TABLE>

         Subsequent to September 30, 2001, we have not completed any
acquisitions. We committed to a few acquisitions in 2000 and 2001, which we may
complete by the end of the fiscal year. We have identified additional potential
acquisition sites that we are not actively pursuing because of our limited
ability to access capital as discussed elsewhere in this report. However, should
we become able to access additional capital on reasonable terms, we would likely
resume efforts to evaluate acquiring those and other sites.


                                       18
<PAGE>
         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.

         Owned sites as depicted in the table above are 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.

         We have experienced new lease activity with respect to our telephony
customers, which includes PCS, cellular and digital SMR (specialized mobile
radio). In addition, we have experienced growth in our business from the new
technology market segments, which include data, LMDS, wireless internet,
satellite radio and 911 location customers. We expect that new lease activity
with respect to our telephony customers will continue as they continue their
systems build-outs, and 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 and some have filed for bankruptcy.
There can be no assurance that our new technology customers will be able to
access additional capital to fund their business plans.

         We have also experienced varying levels of tenant lease churn during
2000 and throughout 2001. During 2000, higher churn rates resulted primarily
from one customer's deconstruction of its analog SMR network and the effects of
certain private land mobile tenants shifting to using one of the many commercial
wireless services now available. We have substantially less exposure now to
churn related to deconstruction of analog sites and we expect that the churn
from the smaller land mobile tenants will level out soon. During 2001, primarily
in the third quarter, 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.

         We have generated net losses since inception and at September 30, 2001,
had an accumulated deficit totaling approximately ($663.5) million. Due to our
significant investment in fixed assets and our high levels of debt, we expect
that charges relating to depreciation of existing and future assets and interest
expense associated with related debt balances will be substantial. Also, to the
extent we are able to secure additional capital and use this capital to grow
through acquisitions, we could incur significantly higher levels of corporate
development expenses. Accordingly, we expect to continue to generate losses for
the foreseeable future.

         Our annualized run rate revenue is calculated as of a given date by
annualizing the monthly rental rates then in effect for customer lease contracts
as of such date. We believe that growth in our annualized run rate revenue is a
meaningful indicator of our performance. As of September 30, 2001, our
annualized run rate revenue was approximately $192.7 million.

         On August 31, 1999, we completed the Motorola Antenna Site Acquisition
and acquired approximately 1,858 communications sites from Motorola consisting
of approximately 499 owned sites, 526 managed sites and 833 leased sites, for
$254.0 million in cash and stock, plus fees and expenses. We had previously
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


                                       19
<PAGE>
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; and (4) properly evaluate all record 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. Such efforts did not reveal any unanticipated information
regarding matters that had a material adverse effect on our operations and
liquidity.

         Motorola's representations and warranties in the definitive purchase
agreement between us and Motorola (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
consents (and the need to make payments to obtain such consents) or other
site-related and other unanticipated issues is 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.

         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 EBITDA margin performance on
managed and leased sites. Accordingly, the acquisition of managed and leased
sites in the Motorola Antenna Site Acquisition or any potential future
acquisitions will substantially decrease our site level operating margins.

         Following the closing of the Motorola Antenna Site Acquisition we
transferred a portion of the rooftop communication sites we acquired from
Motorola to PT III in order to minimize the risk that the ownership of, or
income from, such assets might negatively affect our qualification as a REIT,
and received in exchange $9.8 million of nonvoting convertible preferred stock,
approximately 9% of the outstanding voting common stock and a $39.2 million
convertible promissory note. Certain of our executive officers owned the
remaining outstanding voting common stock of PT III until March 2001, when PT
III became a wholly owned "qualified REIT subsidiary" of ours. We also agreed to
make our personnel, facilities and general and administrative overhead available
to PT III, and PT III agreed to reimburse us for our costs incurred in doing so.
During 2000, we purchased approximately $2.5 million of additional nonvoting
convertible preferred stock of PT III and approximately $10.0 million of
additional convertible promissory notes. PT III used such funds to acquire all
of the stock of two corporations which own and manage communications sites, and
to acquire certain assets used in communications site management and related
activities. Substantially all of the income derived from the activities
described in the preceding sentence constitute income which is non-REIT
qualifying. The assets and liabilities and results of operations of PT III are
included with those of Pinnacle Towers Inc. in the consolidated financial
statements.

         During 2000, we invested funds in PT IV, which used the funds to
acquire all of the stock of another corporation engaged in the management of
rooftop communication sites on behalf of third party property owners, which
constitutes an activity the income from which is non-REIT qualifying. In return
for our total investment of approximately $12 million in PT IV, we received a
$9.6 million PT IV convertible promissory note, $2.4 million of PT IV nonvoting
convertible preferred stock and approximately 9% of the outstanding voting
common stock of PT IV. Certain of our executive officers owned the remaining
outstanding voting common stock of PT IV until March 2001 when PT IV became a
wholly owned "taxable REIT subsidiary" of ours. We also agreed to make our
personnel, facilities, and general and administrative overhead available to PT
IV, and PT IV agreed to reimburse us for our costs incurred in doing so.

         On July 18, 2000, the Internal Revenue Service issued a private letter
ruling to PT III confirming that the ownership of, and receipt of income from,
its rooftop sites and related equipment will be considered qualifying assets and
income for REIT purposes. Although PT III had initially planned to make its own
REIT election provided that the Internal Revenue Service ruled favorably with
respect to such assets and


                                       20
<PAGE>
income, PT III did not elect to be taxed as a REIT for the 2000 calendar year
because the non-REIT income received by PT III as a result of the acquisitions
on non-REIT qualifying assets which it made during 2000 prevented PT III from
satisfying certain of the gross income requirements for REIT qualification.

         We have taken several actions during 2001 to restructure our
investments in PT III and PT IV in order to take advantage of changes in the
REIT tax law which became effective on January 1, 2001. Such restructuring will
also permit the REIT qualifying assets and income of PT III, which were the
subject of PT III's favorable July 18, 2000, ruling of the Internal Revenue
Service, to fall under our REIT election. PT III transferred substantially all
of its non-REIT qualifying assets to PT V, a wholly owned subsidiary of PT III.
Following such transfer, we acquired all of the PT III voting common stock owned
by certain officers of Pinnacle, upon which PT III, as a wholly owned
subsidiary, became a "qualified REIT subsidiary" of ours. As a "qualified REIT
subsidiary," the assets and income of PT III will be considered ours and covered
by our REIT election on and after the date on which PT III became wholly owned
by us. We and PT V jointly elected to treat PT V as a "taxable REIT subsidiary."
We and PT IV jointly elected to treat PT IV as a "taxable REIT subsidiary."
After the making of the "taxable REIT subsidiary" election for PT IV, we
acquired all of the outstanding voting common stock of PT IV owned by certain of
our officers, thereby making PT IV a wholly owned "taxable REIT subsidiary" of
ours.

         Each of PT III, PT IV and PT V has entered into a cost and expense
sharing and reimbursement agreement with Pinnacle Towers Inc., pursuant to which
Pinnacle Towers Inc. has provided and will continue to provide personnel,
facilities and general administrative services and overhead to each of PT III,
PT IV and PT V, in return for which each such company has agreed to reimburse
Pinnacle Towers for its cost and expense allocable thereto. Each of PT III, PT
IV and PT V is required to guarantee our senior credit facility and each is
required to grant a security interest in all of its assets to secure such
guarantee.

         During 2000, and the nine month period ending September 30, 2001, we
made investments in a subsidiary we formed to do business in the United Kingdom,
Pinnacle Towers Ltd. As of September 30, 2001, we owned approximately 91% of
that subsidiary. The business of Pinnacle Towers Ltd. is the acquisition and
operation of communications sites. In some cases, the sites have towers located
on them, and in other cases, we expect to construct towers on the sites we have
acquired. As of September 30, 2001, we have invested a total of $12.4 million in
Pinnacle Towers Ltd., which has a carrying value of $9.8 million before the
impairment adjustment. On September 27, 2001, a decision was made to divest this
investment. We have recently received a proposal from an interested third party
concerning their potential investment in this business and pursuant to this plan
of disposition, have reclassified this investment as assets held for sale and
recognized write down adjustments for our interest in Pinnacle Towers Ltd. There
can be no assurance that the proposal we received from the interested third
party will result in our disposition of our interest in Pinnacle Towers Ltd.

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 consolidated financial
statements and notes thereto included elsewhere herein.


                                       21
<PAGE>
<TABLE>
<CAPTION>
                                                                         NINE MONTHS ENDED:                 THREE MONTHS ENDED:
                                                                  --------------------------------   -------------------------------
                                                                  SEPT. 30, 2000    SEPT. 30, 2001   SEPT. 30, 2000   SEPT. 30, 2001
                                                                  --------------    --------------   --------------   --------------
                                                                    (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, excluding
    depreciation and amortization                                        35.7%            38.9%            37.4%            41.8%
                                                                      -------          -------          -------          -------
Gross margin, excluding
    depreciation and amortization                                        64.3%            61.1%            62.6%            58.2%
Other expenses
  General and administrative                                              6.3%            19.7%             8.9%            35.2%
  Corporate development                                                  21.4%            10.0%            31.3%             3.2%
  State franchise, excise and minimum taxes                               0.7%             1.0%             0.2%             1.0%
  Depreciation and amortization                                          63.6%            66.7%            67.7%            66.8%
  Impairment loss on assets held for use                                  0.0%           176.6%             0.0%           546.6%
  Impairment loss on assets held for sale                                 0.0%            33.1%             0.0%            28.0%
  Loss on disposal of assets                                              0.0%             3.9%             0.0%             8.1%
                                                                      -------          -------          -------          -------
Loss from operations                                                    -27.7%          -249.9%           -45.5%          -630.7%
Interest expense, net                                                    20.9%            33.4%            23.8%            39.9%
Amortization of original issue discount and debt issuance costs          15.6%            15.6%            15.4%            16.6%
Foreign currency translation gain(loss)                                   0.0%             0.6%             0.0%             1.3%
Minority interest in net loss of subsidiary                               0.0%            -0.1%            -0.1%            -0.1%
Income tax benefit                                                        0.0%            -4.2%             0.0%           -10.2%
                                                                      -------          -------          -------          -------
Net loss                                                                -64.2%          -295.2%           -84.6%          -678.2%
                                                                      -------          -------          -------          -------
</TABLE>

Nine Months Ended September 30, 2001 Compared to Nine Months Ended
 September 30, 2000

         Revenues increased by $14.3 million, or 11.0%, to $143.9 million for
the nine month period ended September 30, 2001, from $129.6 million for the nine
month period ended September 30, 2000. The majority of the revenue increase is
related to acquisitions completed during 2000, which based on the acquisition
closing dates were either included in a portion of the first nine months of 2000
or which closed after September 30, 2000 and were not included in 2000 revenues.
During the first nine months of 2000 we completed 194 acquisitions, which were
included in 2000 revenue for the portion of the period they were owned while
subsequent to September 30, 2000 we completed 32 acquisitions. In addition, a
portion of our revenue increase was a result of internally generated same-site
growth. Same-site organic growth is a result of expanded marketing efforts to
increase the number of customers per site, renegotiating leases that are subject
to renewal and contractual price escalations for existing customers. Revenues
were negatively impacted during the nine month period ended September 30,
2001, by $0.9 million due to a recalculation of the straight-line adjustment
required under SFAS No. 13 "Accounting for Leases."

          Direct operating expenses, excluding depreciation and amortization,
increased by $9.7 million or 21.0% to $56.0 million for the nine month period
ended September 30, 2001, from $46.2 million for the nine month period ended
September 30, 2000. Over this period, rent expense increased by $2.8 million as
a result of an increase in rents related to our managed and leased sites where
we often pay a portion of the rent based on the revenue we obtain on the site
and as a result of rent escalators contained in many of our land lease
agreements as well as in our managed and leased site agreements. Expenses for
utilities increased by $1.6 million largely due to our colocation facilities as
well as higher utility rates in many markets. The execution of new site
management contracts in November 2000, resulted in a $1.5 million increase in
site management expenses. We have recently made a strategic decision to provide
site management services using internal personnel and have canceled these
contracts. In addition, professional fees for mapping, surveys and engineering
services increased by $2.0 million over this period. These fees largely relate
to our efforts to have more detailed information on various acquired sites to
enable us to better respond to customer inquiries regarding leasing space on one
of our sites. The remaining $1.8 million increase is attributed to repair and
maintenance type expenses. Direct operating expenses as a percentage of revenue
increased to 38.9% for the nine-month period ended September 30, 2001, from
35.7% for the nine month period ended September 30, 2000.


                                       22
<PAGE>
         General and administrative expenses increased for the nine month period
ended September 30, 2001, to $28.4 million from $8.2 million for the nine month
period ended September 30, 2000. The increase in general and administrative
expenses relates to an increase of (i) $5.1 million in salaries and benefits as
a result of increasing head count in our operations and finance areas, (ii) $8.5
million in bad debt expense as a result of our decision to increase reserves
relative to the general economic downturn and the specific financial distress of
some of our key customers, (iii) $1.9 million in professional fees, (iv) $1.5
million of contingent liabilities related to a site management contract, and (v)
an increase in the percentage of certain common costs allocated to general and
administrative versus corporate development expenses. We allocate certain
support costs between general and administrative expenses and corporate
development expenses based on the cost of personnel in each of these groups. As
a result of a significant decrease in the number of people associated with our
corporate development efforts and a significant increase in the number of people
supporting our administrative and operations groups, the amount of cost
allocated to general and administrative cost increased. As a percentage of
revenue, general and administrative expenses increased to 19.7% of revenue for
the nine month period ended September 30, 2001, from 6.4% for the nine month
period ended September 30, 2000.

         Corporate development expense decreased by $13.4 million or 48.3% to
$14.3 million for the nine month period ended September 30, 2001, from $27.7
million for the nine month period ended September 30, 2000. The decrease in
corporate development expense relates to (i) a decrease in salaries and benefits
of $2.2 million relating to a reduction in head count brought on by the
cessation of most of our acquisition activities, (ii) a decrease of $5.2 million
in aborted acquisitions and construction efforts directly related to our
inability to access capital to complete our acquisition strategy in effect
during the third quarter of 2000, (iii) a $2.3 million decrease in professional
fees, and (iv) a decrease in the percentage of certain common costs allocated to
corporate development expense versus general and administrative expense. We
allocate certain support costs between general and administrative expenses and
corporate development expenses based on the cost of personnel in each of these
groups. As a result of a significant decrease in the number of people associated
with our corporate development efforts and a significant increase in the
number of people supporting our administrative and operations groups the
amount of cost allocated to corporate development decreased. Our diminished
acquisition and site development activity starting in the fourth quarter of
2000, due to our inability to access additional capital from the equity and debt
markets on terms we believe are attractive, related to the ongoing SEC
investigation which began during the third quarter of 2000, resulted in the
significant decrease in the number of people supporting our corporate
development efforts. Corporate development expenses decreased as a percentage of
revenue to 10.0% for the nine month period ended September 30, 2001, compared to
21.4% for the nine month period ended September 30, 2000.

         State franchise, excise and minimum taxes, which represent taxes
assessed in connection with our operations in various state jurisdictions,
increased to $1.4 million for the nine month period ended September 30, 2001,
from $0.8 for the nine month period ended September 30, 2000. 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. The increase in expense is related to the growth in the business, the
allocations of this growth, and related activity during this same period.

         Interest expense, net of amortization of original issue discount and
interest income, increased 77.4% to $48.1 million for the nine month period
ended September 30, 2001, from $27.1 million for the nine month period ended
September 30, 2000. The increase is partially attributable to the adoption of
SFAS No. 133 that resulted in us recording an additional $11.7 million of
interest expense for the nine month period ended September 30, 2001, related to
our interest rate swap. Of the total, $10.2 million represents the additional
decline in the fair value of the interest rate swap agreement as of September
30, 2001, and approximately $1.5 million represents the reversal into current
year income of the underlying exposure previously recognized in comprehensive
loss. Interest income recorded as a reduction of interest expense, decreased by
$7.3 million due to the decline in our interest bearing cash balances, from
$44.2 million at September 30, 2000, to $16.1 million at September 30, 2001.
Also, $1.0 million of the increase is attributable to an increase in the
weighted average senior debt outstanding.

         Impairment loss on assets held for sale represents the $47.6 million
write-down of the five colocation properties,


                                       23
<PAGE>
88 parcels of land and the investment in Pinnacle Towers Ltd. that are now held
for sale. In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," assets held for
sale are reported at the lower of their net historical basis or estimated fair
market value less costs to sell.

         Statement of Financial Accounting Standard No. 121, "Accounting For The
Impairment of Long Lived Assets and for Long Lived Assets to Be Disposed Of,"
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.
Due to continuing negative developments during 2001 in the U. S. economy as a
whole, and the continuing current year downturn in the telecommunications
industry, including the recent deteriorating financial conditions of some of our
key customers in the paging and wireless data segments of the industry, coupled
with the significant decline in valuation multiples over the past six months for
the tower sector in general and for Pinnacle specifically, it is our opinion
that the recoverability of the carrying value of these assets may be in doubt.
Accordingly, we evaluated the recoverability of each of our over 5,000
telecommunications assets on a site by site basis as of September 30, 2001.
Based on this evaluation, we determined that assets with a carrying amount of
$395.7 million were impaired and wrote them down by $254.2 million to their fair
value. Fair value was based on estimated future cash flows to be generated. Cash
flow was calculated from current run rate revenue for each site less an average
of expenses over the past twelve months. We discounted the cash flow, which
included a 4.0% annual growth in revenue and a 3.0% annual growth in expense,
over the remaining useful life of the asset, assuming a discount rate
commensurate with our current cost of capital.

Three Months Ended September 30, 2001 Compared to Three Months Ended
 September 30, 2000

         Revenues increased by $1.2 million, or 2.6%, to $46.5 million for the
three month period ended September 30, 2001, from $45.3 million for the three
month period ended September 30, 2000. Revenue increased due to growth from
acquisition as well as same-site organic growth. Same-site organic growth is a
result of expanded marketing efforts to increase the number of customers per
site, renegotiating leases that are subject to renewal and contractual price
escalations for existing customers. Revenues were negatively impacted during the
three month period ended September 30, 2001 by $1.5 million due to a
recalculation of the straight-line adjustment required under SFAS No. 13
"Accounting for Leases."

         Direct operating expenses, excluding depreciation and amortization,
increased by $2.5 million or 14.7% to $19.5 million for the three month period
ended September 30, 2001, from $17.0 million for the three month period ended
September 30, 2000. Over this period, rent expense increased by $1.0 million as
a result of an increase in rents related to our managed and leased sites where
we often pay a portion of the rent based on the revenue we obtain on the site
and as a result of rent escalators contained in many of our land lease
agreements as well as in our managed and leased site agreements. Expenses for
utilities increased by $0.4 million largely due to our colocation facilities as
well as higher utility rates in many markets. Professional fees for mapping,
surveys and engineering services increased by $0.7 million over this period.
Direct operating expenses as a percentage of revenue increased to 41.8% for the
three month period ended September 30, 2001, from 37.4% for the three month
period ended September 30, 2000.

         General and administrative expenses increased for the three month
period ended September 30, 2001, to $16.4 million from $4.0 million for the
three month period ended September 30, 2000. The increase in general and
administrative expenses relates to an increase of (i) $2.3 million in salaries
and benefits as a result of increasing head count in our operations and finance
areas, (ii) $7.8 million in bad debt expense as a result of our decision to
increase reserves relative to the general economic down turn and the specific
financial distress of some of our key customers, (iii) $1.9 million of
contingent liabilities related to a site management contract, and (iv) an
increase in the percentage of certain common costs allocated to general and
administrative versus corporate development expenses. We allocate certain
support costs between general and administrative expenses and corporate
development expenses based on the cost of personnel in each of these groups. As
a result of a significant decrease in the number of people associated with our
corporate development efforts and a significant increase in the number of people
supporting our administrative and operations groups, the amount of cost
allocated to general and administrative cost increased. As a percentage of
revenue, general and administrative expenses increased to 35.2% of revenue for
the three month period ended September 30, 2001, from 8.9% for the three month
period ended September 30, 2000.


                                       24
<PAGE>

         Corporate development expense decreased by $12.7 million or 89.6% to
$1.5 million for the three month period ended September 30, 2001, from $14.2
million for the three month period ended September 30, 2000. The decrease in
corporate development expense relates to (i) a decrease in salaries and benefits
of $2.0 million relating to a decreasing head count brought on by the cessation
of most of our acquisition activities, (ii) a decrease of $8.4 million in
aborted acquisitions and construction efforts directly related to our inability
to access capital to complete our acquisition strategy in effect during the
third quarter of 2000, (iii) a $0.5 million decrease in professional fees, and
(iv) a decrease in the percentage of certain common costs allocated to corporate
development expense versus general and administrative expenses. We allocate
certain support costs between general and administrative expenses and corporate
development expenses based on the cost of personnel in each of these groups. As
a result of a significant decrease in the number of people associated with our
corporate development efforts and a significant increase in the number of people
supporting our administrative and operations groups, the amount of cost
allocated to corporate development decreased. Our diminished acquisition and
site development activity starting in the fourth quarter of 2000, due to our
inability to access additional capital from the equity and debt markets on terms
we believe are attractive, related to the ongoing SEC investigation which began
during the third quarter of 2000, resulted in the significant decrease in the
number of people supporting our corporate development efforts. Corporate
development expenses decreased as a percentage of revenue to 3.2% for the three
month period ended September 30, 2001, compared to 31.3% for the three month
period ended September 30, 2000.

         State franchise, excise and minimum taxes, which represent taxes
assessed in connection with our operations in various state jurisdictions,
increased to $0.5 million for the three month period ended September 30, 2001,
from $0.1 for the three month period ended September 30, 2000. 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. The increase in expense is related to the growth in the business, the
allocation of this growth, and related activity during this same period.

         Interest expense, net of amortization of original issue discount and
interest income, increased 71.8% to $18.5 million for the three month period
ended September 30, 2001, from $10.8 million for the three month period ended
September 30, 2000. The increase is primarily attributable to the adoption of
SFAS No. 133, which resulted in us recording an additional $6.2 million of
interest expense for the three month period ended September 30, 2001. Of the
total, $5.7 million represents the additional decline in the fair value of the
interest rate swap agreement as of September 30, 2001, and approximately $0.5
million represents the reversal into current year income of the underlying
exposure previously recognized in comprehensive loss. The remaining increase is
due to a decrease in interest income, recorded as a reduction of interest
expense, due to the decline in our interest bearing cash balances, from $44.2
million at September 30, 2000, to $16.1 million at September 30, 2001.

         Impairment loss on assets held for sale represents the $47.6 million
write-down of the five colocation properties, 88 parcels of land and the
investment in Pinnacle Towers Ltd. that are now held for sale. In accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," assets held for sale are reported at the
lower of their net historical basis or estimated fair market value less costs to
sell.

         Statement of Financial Accounting Standard No. 121, "Accounting For The
Impairment of Long Lived Assets and for Long Lived Assets to Be Disposed Of,"
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.
Due to continuing negative developments during 2001 in the U. S. economy as a
whole, and the continuing current year downturn in the telecommunications
industry, including the recent deteriorating financial conditions of some of our
key customers in the paging and wireless data segments of the industry, coupled
with the significant decline in valuation multiples over the past six months for
the tower sector in general and for Pinnacle specifically, it is our opinion
that the recoverability of the carrying value of these assets may be in doubt.
Accordingly, we evaluated the recoverability of each of our over 5,000
telecommunications assets on a site by site basis as of September 30, 2001.
Based on this evaluation, we determined that assets with a carrying amount of
$395.7 million were impaired and wrote them down by $254.2 million to their fair
value. Fair value was based on estimated future cash flows to be generated. Cash
flow was calculated from current run rate revenue for each site less an average
of expenses over the past twelve months. We discounted the cash flow, which
included a 4.0% annual growth in revenue and a 3.0% annual growth in expense,
over the remaining useful life of the asset, assuming a discount rate
commensurate with our current cost of capital.


                                       25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

         Our liquidity needs arise from our acquisition-related activities
including earn-out payments, debt service obligations, working capital needs and
capital expenditures. We have historically funded our liquidity needs with
proceeds from public equity offerings, bank borrowings, debt offerings, and cash
flow from operations. Since the beginning of the previously disclosed SEC
investigation, the Company has been unable to access additional capital through
public equity or debt offerings. In addition, as a result of our entering into a
forbearance agreement with our bank group discussed in more detail below, we are
unable to borrow additional capital under our senior credit facility. As a
result, until such time as additional sources of capital become available to us,
our primary source of liquidity will be cash flows from operations as well as
capital generated from asset sales to the extent such sales are approved by our
bank group and then only to the extent such proceeds are not required to be
applied to reduce our outstanding borrowings under our senior credit facility.
As a result of our noncompliance with the financial covenants contained in our
senior credit facility and the related Forbearance Agreement we entered into
with our lenders, we have reclassified all our outstanding borrowings to current
liabilities. We had a net working capital deficit of $45.5 million, excluding
amounts related to long term debt classified as a current liability due to
events of default, and net working capital of $21.9 million as of September 30,
2001, and December 31, 2000, respectively. Our ratio of total debt to
stockholders' equity was 8.3 to 1.0 at September 30, 2001, and 1.7 to 1.0 at
December 31, 2000.

         Senior Credit Facility

         For the quarter ended September 30, 2001, we were out of compliance
with all financial covenants contained in our senior credit facility except for
the consolidated fixed charge coverage ratio. This noncompliance represented an
event of default. On November 16, 2001, we entered into a forbearance agreement
with our bank group. Under this forbearance agreement, which is effective
through December 12, 2001, our banks agreed not to exercise certain rights they
have under an event of default. As a result, we have classified the outstanding
borrowings under our senior credit facility as a current liability.

         In addition, the forbearance agreement (i) increases the interest rate
on our borrowings by 1.0% to LIBOR plus 3.75% and LIBOR plus 4.0%, (ii)
eliminates our ability to borrow under the senior credit facility, (iii) allows
us to sell our two St. Louis and our Beaumont Texas colocation facilities so
long as the net proceeds are used as specified in the forbearance agreement
which is primarily to establish a $2.5 million escrow account to collateralize
outstanding letters of credit and to reduce outstanding borrowings under the
senior credit facility including the payment of our December 31, 2001, scheduled
amortization payment and (iv) limits our ability to make investments including
capital expenditures and to incur additional indebtedness.

         We are in the process of attempting to negotiate an amendment to our
senior credit facility to waive compliance with our financial covenants as of
September 30, 2001, and to establish new financial covenants for future periods.
While there can be no assurance that we will be able to reach an agreement on an
amendment, we would expect that any amendment, if entered into, would eliminate
our ability to borrow additional amounts under our senior credit facility and
would shorten the maturity under our senior credit facility. Should we not be
able to reach an amendment with our bank group it would have a material adverse
impact on our ongoing operations. In addition if we are not able to reach an
agreement on an amendment or should the maturity of the senior credit facility
be shortened, we would likely be required to write-off certain deferred debt
issuance cost related to our senior credit facility.

         For the fiscal quarter ended December 31, 2000, we were not in
compliance with two financial ratio covenants under our bank loan agreement. In
February 2001, we entered into an amendment to our senior credit facility, which
adjusted substantially all of our ratio covenants, primarily aimed at lessening
requirements for covenant periods in 2001. In addition to the covenant changes,
the amendment also changed permitted levels of investment in our Canadian and UK
subsidiaries. In consideration for the amendment, we paid the lenders in our
senior credit facility a fee equal to 25 basis points, plus we agreed to
increase the pricing grid by 25 basis points for 2001.

         In April 2001, we obtained a one-time waiver with respect to covenant
breaches so long as actual ratios met the amended requirements.

         The waiver also adjusted the interest rates charged on the loan based
on the quarterly leverage ratio calculations for the periods subsequent to the
date of the waiver. The amendment did not adjust the amended ratio requirements
for future measurement dates. Additionally, fees paid of $1.8 million to the
banks as a result of this amendment were deferred and are being amortized over
the remaining term of the underlying debt agreement.

         Senior Discount Notes

         In March 1998, we completed an offering of the 10% Senior Discount
Notes due 2008. We received net proceeds of approximately $192.8 million from
that offering. The proceeds were used to repay outstanding borrowings under our
senior credit facility, to repay in full and retire a $12.5 million bridge


                                       26
<PAGE>

loan from our then largest stockholder, ABRY Broadcast Partners II, L.P., and
accrued interest thereon and a $20.0 million subordinated term loan and accrued
interest thereon and to pay a distribution preference to certain holders of our
common stock. The notes will mature on March 15, 2008. Cash interest does not
accrue on the notes prior to March 15, 2003. Thereafter, the notes will require
semi-annual cash interest payments of $16.25 million.

         Convertible Notes

         On March 22, 2000, we completed a private placement of $200.0 million
of 5.5% Convertible Subordinated Notes due 2007 to certain institutional
purchasers pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act. We repaid outstanding revolving debt under our senior
credit facility with the net proceeds of $193.5 million from this private
placement. Interest is payable on the notes on March 15 and September 15 of each
year. The notes will mature on September 15, 2007 unless previously redeemed or
repurchased. The notes are convertible into Pinnacle's common stock at the
option of the note holders at an initial price of $78.375 per share, which
conversion price is subject to adjustment under the terms of the notes. We may
redeem the notes on or after March 21, 2003. Pursuant to a Registration Rights
Agreement dated March 22, 2000, we filed a registration statement on May 23,
2000, to cover resales of the notes and the shares of our common stock issuable
upon conversion of the notes, which was declared effective by the SEC on
June 20, 2001.

         Under the terms of the Registration Rights Agreement, because the
registration statement was not declared effective by the SEC by September 18,
2000, the interest rate on the notes increased by 0.5%. Thereafter, because the
registration statement was not declared effective by December 17, 2000, the
interest rate on the notes increased by an additional 0.5%. The interest rate on
the notes could not increase to greater than 6.5% under the terms of the
Registration Rights Agreement. As a result of the effectiveness of the
registration statement on June 20, 2001, the additional interest that began
accruing on September 19, 2000 has ceased accruing.

         Other Indebtedness

         We also use seller financing to fund certain of our communications site
acquisitions. As of September 30, 2001, we had $29.3 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.

         Public Offerings

         On January 24, 2000, we completed a secondary offering of common stock
whereby we sold 7,200,000 shares of our common stock. The price per share was
$41.00, resulting in net proceeds of approximately $283.0 million. The proceeds
were invested initially in short-term liquid securities and were used along with
borrowings made under the senior credit facility to fund acquisitions, the
construction of new communications sites and improvements to existing
communications sites, all of which was used as of September 30, 2001. The total
shares sold included a concurrent exercise of the underwriters' over-allotment
option whereby 1,350,000 shares were sold (including 450,000 shares sold by
certain of our stockholders).

         Capital Investments

         Capital investments, including acquisitions and earn-out payments for
the nine month period ended September 30, 2001, were $42.1 million, compared to
$434.1 million in the comparable 2000 period. A portion of our historical and
ongoing capital expenditures relates to expenditures required to maintain our
communication sites and generally cannot be curtailed. Due to our inability to
access additional capital and to capital expenditure restrictions imposed by our
senior credit facility and the forbearance agreement we entered into with our
bank group, we expect to make limited additional capital investments for
acquisitions, construction and upgrading of additional towers until such time as
we may have access to additional capital. Limitations on our ability to upgrade
or replace towers could impact our ability to add new customers to certain of
our towers, and eventually our ability to retain existing customers on our
sites.


                                       27
<PAGE>
         We do not expect to enter into any additional acquisition agreements
until such time as we can access additional capital. Among the factors affecting
our ability to complete all probable acquisitions are the availability of
financing from our lenders and other sources of public or private debt and
equity. As discussed elsewhere herein we have found accessing capital on
attractive terms to be a challenge. We had to discontinue an equity offering
during the third quarter of 2000. Additionally, we are precluded from making
additional borrowings under our senior credit facility.

         On June 7, 2001 we adopted a plan to dispose of certain operating
assets pursuant to management's decision to dedicate resources to improving the
financial results of communications site operations. As a result of the adoption
of this plan, five colocation properties located in Texas and St. Louis,
Missouri have been deemed assets held for sale. In accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," assets held for sale are reported at the lower of their net
historical basis or estimated fair market value less costs to sell.

         The historical carrying value of the properties, which were acquired
during 2000, as of September 30, 2001, prior to any write-down was approximately
$65.0 million. During the nine months ended September 30, 2001, the Company
recognized a write-down adjustment of approximately $34.6 million, which is
included in impairment on assets held for sale. This amount represents the
difference between the carrying values and the estimated fair market value less
costs to sell these five properties. We estimated the fair market value less
costs to sell by calculating the estimated purchase price based on an
anticipated multiple of cash flows, which is materially consistent with recent
third party offers. Depreciation expense has not been recognized since the date
the colocation assets were classified as held for sale. There can be no
assurance the current pending proposal will result in a completed transaction.

         We have obtained approval from our senior credit facility lending group
to sell our two St. Louis and our Beaumont Texas colocation facilities. The net
proceeds from these sales will primarily be used to establish a $2.5 million
cash collateral account to support our outstanding letters of credit and to
repay outstanding borrowings under our senior credit facility including the
payment of our December 31, 2001, scheduled amortization payment of $7.3
million.

         On September 27, 2001, we adopted a plan to dispose of additional
operating assets. As a result of the adoption of this plan, our interest in 88
parcels of owned land and leasehold interests principally under towers currently
owned by other tower companies have been deemed assets held for sale as well as
our investment in a majority owned subsidiary, Pinnacle Towers Ltd. In
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," assets held for sale are reported at the lower of their net historical
basis or estimated fair market value less costs to sell.

         The historical carrying value of our interest in the 88 parcels of
owned land and leasehold interests as of September 30, 2001, was approximately
$12.9 million. During the three months ended September 30, 2001, we recognized a
write-down adjustment of approximately $5.0 million, which is included in
impairment on assets held for sale. This amount represents the difference
between the carrying values and the estimated fair market value less costs to
sell these 88 parcels. We estimated the fair market value less costs to sell
based upon a Letter of Intent with an interested third party. Amortization
expense has not been recognized since the date these assets were classified as
held for sale. There can be no assurance the current pending proposal will
result in a completed transaction.

         The historical carrying value of our investment in Pinnacle Towers Ltd
as of September 30, 2001, was approximately $9.8 million. During the three
months ended September 30, 2001, we recognized a write-down adjustment of
approximately $2.8 million, which is included in impairment on assets held for
sale. This amount represents the difference between the carrying values and the
estimated fair market value less costs to sell this subsidiary. We estimated the
fair market value less costs to sell based upon a pending proposal from an
interested third party. Depreciation expense has not been recognized since the
date this investment was classified as held for sale. There can be no assurance
the current pending proposal will result in a completed transaction.

         We will need the approval of our senior credit facility lending group
to sell the 88 land parcels and our interest in Pinnacle Towers Ltd. We would
expect a substantial portion of the net proceeds from the sale of these assets,
or any other assets which we may subsequently decide to sell, to be used to pay
outstanding borrowings under our senior credit facility.


                                       28
<PAGE>
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT

         Effective January 1, 2001, we adopted SFAS No. 133 as amended by SFAS
No. 137 and 138. These statements require us to recognize all derivative
instruments in the balance sheets at the fair value. These statements also
establish new accounting rules for hedging instruments, which depend on the
nature of the hedge relationship. As disclosed in further detail below, the
second quarter 2001 unaudited condensed consolidated financial statements
include the provisions required by SFAS No. 133, while the second quarter 2000
unaudited condensed consolidated financial statements were prepared in
accordance with the applicable professional literature for derivatives and
hedging instruments in effect at that time.

         The adoption of SFAS No. 133 resulted in us recording a transition
adjustment to recognize our derivative instruments at fair value and to
recognize the change in fair value of our derivatives. The cumulative effect of
these transition adjustments was an after-tax reduction to other comprehensive
income of approximately $4.0 million. The reduction in other comprehensive net
income is primarily related to the change in the fair value of our interest rate
swap agreement. We estimated that we would reclassify into earnings during the
twelve-month period ending December 31, 2001, approximately $2.0 million of net
losses relating to the transition adjustment recorded as of January 1, 2001.

         The earnings impact recorded during the three and nine month periods
ending September 30, 2001, relating to this interest rate swap was approximately
$6.2 million and $11.7 million, respectively, and is recorded in interest
expense in the unaudited condensed consolidated statement of operations. For the
three months ended September 30, 2001, approximately $5.7 million represents a
decrease in the fair value of the interest rate swap agreement and approximately
$0.5 million represents the reversal of the underlying exposure previously
recognized in comprehensive loss into interest expense. For the nine months
ended September 30, 2001, approximately $10.2 million represents the decline in
the fair value of the interest rate swap agreement since January 1, 2001, and
approximately $1.5 million represents the reversal of the underlying exposure
previously recognized in comprehensive loss into interest expense.

         In June 2001, the Financial Accounting Standard Board issued Statements
of Financial Accounting Standards No. 141, "Business Combinations", and No. 142,
"Goodwill and Other Intangible Assets", effective for fiscal years beginning
after December 15, 2001. 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 will apply the new rules on accounting for goodwill and other
intangible assets beginning January 1, 2002. As of September 30, 2001, 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. As of
September 30, 2001, the applications of the non-amortization provisions of the
Statement and the requirements for impairment testing are being evaluated.

         In August 2001, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standard No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," effective for fiscal years
beginning after December 15, 2001, and early adoption is permitted. The new
rules on asset impairment supersede 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 mode 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.

         We will apply the new rules on accounting for impairment or disposal of
long-lived assets beginning January 1, 2002. We are currently evaluating the
effects, if any, of the application of this standard.


                                       29
<PAGE>
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.

We will not be able to effect our business plan if we do not have the required
 cash.

         We were not in compliance as of September 30, 2001 with certain
financial covenants contained in our senior credit facility. Because this
noncompliance represents an event of default, we have negotiated a limited
Forbearance Agreement wherein our senior banks have agreed to forgo certain
rights they have through December 12, 2001. During the effective period of the
Forbearance Agreement we will try to renegotiate portions of the senior credit
facility to waive our current noncompliance as of September 30, 2001, and to
establish new financial covenants in the future. There can be no assurance that
we will be able to negotiate a suitable amendment to our senior credit facility.
However, should we be able to negotiate an amendment to our senior credit
facility it will likely contain a significantly shortened maturity date. It is
highly unlikely that cash generated from our operations will be sufficient by
itself to make the principal payment due at maturity should the maturity be
shortened. Therefore, if we are unable to raise additional capital and then
unable to further renegotiate our credit facility, we will likely default on our
obligation to make the required principal payment. In such circumstances, we
might have to seek bankruptcy protection. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

         In addition, we must make interest payments on our senior discount
notes beginning in September of 2003. Unless we are able to access additional
capital, we may not have sufficient liquidity to make those interest payments.
Therefore, if we are unable to raise additional capital and then unable to
renegotiate our senior discount notes, we will likely default on our obligation
to make the required interest and principal payments. In such circumstances, we
might have to seek bankruptcy protection. If we are unable to generate
sufficient cash flow from operations to service our indebtedness and fund our
other liquidity needs, we will be forced to adopt an alternative strategy that
may include further elimination of acquisitions, tower construction and other
capital expenditures, selling assets, restructuring or refinancing our
indebtedness or seeking additional equity capital. We cannot assure you that any
of these alternative strategies could be effected on satisfactory terms, if at
all, and the implementation of any of these alternative strategies could have a
negative impact on our business. In addition, to qualify and remain qualified as
a REIT, we must distribute to our stockholders 90% of our taxable income
computed without regard to net capital gains and deductions for distributions to
our stockholders and 90% of certain foreclosure income. If made, such
distributions could further reduce the amount of cash available to us to effect
our business plan.

The loss of any significant customer could adversely affect our business.

         We have certain customers that account for a significant portion of our
revenue. For the nine months ended September 30, 2001, Arch Communications Inc.
(which acquired MobileMedia Communications in 1999 and PageNet, Inc. in 2000),
Nextel and Motorola represented 12.9%, 5.7% and 3.5%, respectively, of our
revenue, on a run rate basis. On August 24, 2001, Arch Wireless Holdings Inc.,
wholly owned subsidiary of Arch Communications Inc., announced that it was in
default under its credit agreement for nonpayment of interest. On November 9,
2001 Arch Wireless Holdings Inc. further announced that certain holders of its
12 3/4% senior notes commenced an involuntary case under Chapter 11 of the
United States Bankruptcy Code. The loss of one or more of our major customers,
or a reduction in their utilization of our communications site rental space due
to their insolvency or other inability or unwillingness to pay, could have a
material adverse effect on our business, results of operations and financial
condition.


The terms of our indebtedness impose significant restrictions on us.

           Our senior credit facility requires us to comply with certain
financial ratios and tests, under which we are required to achieve certain
financial and operating results. As of September 30, 2001, we were not in
compliance with the financial covenants contained in our senior credit facility,
which represents an event of default. As a result, the lenders of our senior
credit facility may declare the indebtedness immediately due and payable, which
would result in a default under the convertible notes and the senior discount
notes. Our senior credit facility lenders have entered into a forbearance
agreement under which they have agreed to forgo certain rights they have related
to our existing events of default through December 12, 2001. During this time we
will attempt to negotiate an amendment to our senior credit facility to waive
our noncompliance and to establish new covenant levels for the future. We cannot
assure that we will be able to negotiate an amendment or an additional
forbearance and should we not, we do not have sufficient liquid assets to pay
indebtedness outstanding under our senior credit facility, the notes and the
senior discount notes.

          In addition, certain provisions of the indenture governing our 5.5%
convertible subordinated notes due 2007 and the indenture governing our 10%
senior discount notes due 2008 by and between us and The Bank of New York, as
trustee, contain covenants that restrict our ability to:

         -    incur additional indebtedness;

         -    incur liens;

         -    make investments;

         -    pay dividends or make certain other restricted payments;

         -    consummate certain asset sales;

         -    consolidate with any other person; and

         -    sell, assign, transfer, lease, convey or otherwise dispose of all
              or substantially all of our assets.

         The source of funds for any repurchase required as a result of any
change of control will be our available cash or cash generated from operating or
other sources, including borrowings, sales of assets, sales of equity or funds
provided by a new controlling entity. We cannot assure you, however, that
sufficient funds will be available at the time of any change of control to make
any required repurchases of the convertible notes or the senior discount notes
tendered and to repay debt under our senior credit facility. Furthermore, the
use of available cash to fund the potential consequences of a change of control
may impair our ability to obtain additional financing in the future. Any future
credit agreements or other agreements relating to indebtedness to which we may
become a party may contain similar restrictions and provisions.

The Change of Control Provisions contained in the notes, the senior discount
notes and the 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 discount notes may require Pinnacle Holdings
Inc. to offer to repurchase all of their notes. Additionally, a "change of
control" (as defined in the indenture governing the convertible notes and the
senior discount notes indenture) 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 these notes and
the senior discount notes indenture. Based on our current market capitalization
any significant equity investment in the Company could trigger the change of
control depending on the structure of the equity investment. As a result, the
change of control provisions contained in our debt agreements could result in
new equity investors being unwilling to make an investment in the Company.

Our business depends on demand for wireless communications.

         Substantially all of our revenue is derived from leases of
communications site space. Most of those leases are with wireless communications
providers including approximately 30% of which are 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, paging and other wireless communications services. The paging and
wireless data industry in general is currently experiencing financial
difficulties. Our largest customer Arch Communications has announced that they
are in default of their senior bank agreement and has indicated that they may
seek Bankruptcy protection as part of their reorganization plan. In addition,
two smaller paging customers recently filed for bankruptcy and rejected certain
of their site leases with us during their 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.

                                       30
<PAGE>
         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, SMR, 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:

         -    demand for wireless services;

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

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

         -    government licensing of broadcast rights;

         -    changes in telecommunications regulations; and

         -    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 services 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.


We are involved in an SEC investigation.

         As previously disclosed, we are involved in an SEC investigation and
the SEC Staff has requested information from us and our former independent
accountants, PWC, as part of its inquiry. The SEC's investigation appears to be
focused primarily on the Motorola Antenna Site Acquisition and on the
independence of PWC as our auditor. We have cooperated and intend to continue to
cooperate with the SEC in its investigation.

         We cannot predict the outcome of the SEC's investigation, or predict
when the investigation will be resolved. Regardless of the outcome, however, we
have incurred substantial costs and the investigation has caused a diversion of
our management's time and attention. Additionally, Pinnacle may suffer loss of
investor confidence because of the SEC investigation. The longer it takes to
resolve the investigation, and the less favorable the eventual outcome of the
investigation is to Pinnacle, the greater the


                                       31
<PAGE>
loss of investor confidence may be. As a result, the market prices at which
Pinnacle's securities will trade could be adversely affected.

         In March of 2001, we announced that in order to remove uncertainty with
respect to the independence issues, the Audit Committee of Pinnacle's Board of
Directors authorized the engagement of E&Y to re-audit our financial statements
for the year ended December 31, 1999 and audit the year ended December 31, 2000.
As a result of the re-audit of 1999 and the audit of 2000, we revised our
accounting for certain costs capitalized in connection with the Motorola Antenna
Site Acquisition. In our revised financial statements, we have determined to
capitalize all costs that relate directly to the acquisition except those
post-closing costs that are deemed to more than incidentally reduce our need to
incur ongoing business expenses necessary to integrate those assets into our
operations.

We previously depended on acquisitions and the integration of those acquisitions
into our business.

         Historically, our business plan has been materially dependent upon the
acquisition of additional communications sites. Due to our current inability to
access additional capital, we are unable to fund any material amount of
acquisitions. We historically have financed our capital expenditures, including
acquisitions, through a combination of borrowings under bank credit facilities,
two debt offerings, bridge financing, equity issuance's, seller financing and
cash flow from operations. We have no borrowing capacity under our credit
facility. In addition, we have effectively been precluded from accessing
necessary capital in light of the investigation of us by the SEC and as a result
of market conditions, including a significant decline in the stock market's
valuation of tower sector public companies over the last several months. We
cannot assure you that adequate funding for future acquisitions will become
available or, if available, on terms acceptable to us or permitted under the
terms of our existing indebtedness.

         If we regain access to capital, we could refocus our business on
acquiring 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
recently, 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. Although we believe that opportunities may exist for us to
grow through acquisitions, we cannot assure you that we will be able to identify
and consummate acquisitions on terms we find acceptable. Certain provisions of
our senior credit facility and the notes may limit our ability to effect
acquisitions. 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 future
acquisitions may not have a material adverse effect on our financial condition
and results of operations.

We have a history of operating losses. We have generated losses from operations
 and negative cash flow, and we may continue to do so.

         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,
1998, 1999 and 2000, and the nine months ended September 30, 2001, our earnings
were insufficient to cover combined fixed charges and preferred dividends by
approximately $6.7 million, $8.8 million, $44.5 million and $368.1 million,
respectively. We expect to continue to experience net losses in the future,
principally due to interest charges on outstanding indebtedness and substantial
charges relating to depreciation of our existing and future assets. These net


                                       32
<PAGE>
losses may be greater than the net losses we have experienced in the past.

Our substantial indebtedness could adversely affect our financial condition; we
 may incur substantially more debt.

         We have a high level of indebtedness. As of September 30, 2001, we had
approximately $896.9 million of indebtedness outstanding. We are currently not
in compliance with certain financial covenants contained in our senior credit
facility, which represents an event of default.

         Our high level of indebtedness could have important consequences to
you. For example, it could:

         -    make it more difficult for us to satisfy our obligations with
              respect to our indebtedness;

         -    increase our vulnerability to general adverse economic and
              industry conditions;

         -    limit our ability to obtain additional financing;

         -    require the dedication of a substantial portion of our cash flow
              from operations to the payment of principal of, and interest on,
              our indebtedness, thereby reducing the availability of such cash
              flow to fund our growth strategy, working capital, capital
              expenditures or other general corporate purposes;

         -    limit our flexibility in planning for, or reacting to, changes in
              our business and the industry; and

         -    place us at a competitive disadvantage relative to our competitors
              with less debt.

         We may incur substantial additional debt in the future. While the terms
of our outstanding debt do not fully prohibit us from doing so, we currently are
prohibited from doing so as a result of the Forbearance Agreement we entered
into with our senior credit facility lenders. In addition, we would expect that
any amendment entered into to cure our event of default may restrict our ability
to incur additional indebtedness. If new debt is added to our current levels,
the related risks described above could intensify.

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 thorough 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; and (4) properly evaluate all record 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 of which was incurred post-closing.

         Motorola's representations and warranties in the purchase agreement
between us and Motorola 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 consents (and the need to make payments to
obtain such consents) or other site-related and other unanticipated issues is
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


                                       33
<PAGE>
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.

         Of the over 5,000 sites that the Company reviewed, pursuant to SFAS
No. 121, to determine whether its long-lived assets were impaired, some 830
sites determined to be impaired were those acquired in the Motorola Antenna
Site Acquisition. Of the total $254.2 write-down previously described, some
$46.7 million, or 18.4% of the total write-down relates to these 830 sites. The
revenue from all sites acquired in the Motorola Antenna Site Acquisition
accounts for 40.7% of the Company's total revenues from its tower sites on a
run rate basis.

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 Wolsey, were named defendants in a lawsuit filed in the United States
District Court for the Middle District of Florida, Tampa Division. Subsequently,
one or more substantially identical lawsuits were filed in the same court. The
named plaintiffs in these lawsuits claimed to have filed the lawsuits on behalf
of all persons who purchased our securities during the "class period" between
January 18, 2000 and March 17, 2001. The Plaintiffs allege that Pinnacle and the
officer defendants violated Section 11 of the Securities Act of 1933 and Section
10 of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated under it by making misleading statements relating to certain of our
financial statements, the Motorola Antenna Site Acquisition and other related
matters in various press releases and filings with the SEC. The Plaintiffs have
requested compensatory damages, attorneys' fees, experts' fees and other relief.
We intend to respond appropriately and in the best interests of Pinnacle to
these matters; however, we cannot assure you that we will prevail in such
litigation. Securities lawsuits could result in substantial costs and divert
management's attention and resources, which may have a material adverse effect
on our financial condition and results of operations.



                                       34
<PAGE>

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 notes and the senior discount 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 convertible notes and the senior
discount notes, and any of its future obligations.

         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 therefor. 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. Pinnacle Holdings Inc. will need
sufficient funds available to pay cash interest on the convertible notes and,
beginning on September 15, 2003, the senior discount notes and to repay the
convertible notes and the senior discount notes when required. We cannot assure
you that Pinnacle Holdings Inc.'s subsidiaries will generate cash flow
sufficient to pay dividends or distributions to Pinnacle Holdings Inc. in order
to pay interest or other payments on the convertible notes and the senior
discount notes. 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 September 30, 2001, 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 $964.5 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 discount notes.
Accordingly, holders of the convertible notes and senior discount notes are
effectively subordinated to the claims of Pinnacle Holdings Inc.'s subsidiaries'


                                       35
<PAGE>
creditors to the extent of the assets of the indebted subsidiary. This
subordination could adversely affect Pinnacle Holdings Inc.'s ability to pay its
obligations on the convertible notes and the senior discount notes. We
anticipate that Pinnacle Holdings Inc.'s subsidiaries will incur additional
indebtedness, including indebtedness under our senior credit facility, which
could adversely affect Pinnacle Holdings Inc.'s ability to pay its obligations
on its notes.

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 our ability to:

         -    recover under title policies, the policy limits of which may be
              less than the purchase price of the particular site;

         -    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; and

         -    we rely on title covenants from landlords contained in leases.


There are significant risks associated with construction of new towers.

         The success of our growth 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
significant increase in 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
necessary construction could have a material adverse effect on our business,
financial condition and results of operations.

Competition for site leasing customers is intense.

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

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

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

         -    other independent communications site companies; and

         -    traditional local independent communications site operators.


                                       36
<PAGE>
         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.

We compete with companies that have greater financial resources.

         We face competition for customers from various sources, including:

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

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

         -    other independent communications site companies; and

         -    traditional local independent communications site operators.

         Wireless communications providers that own and operate their own
communications site networks generally are substantially larger and have greater
financial resources than we have. We believe that site locations 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; our potential divestment of our interest in colocation
 facilities could result in a loss.

         We recently acquired certain 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 we nor you have the benefit of a comparable
historical business model to analyze the colocation facilities and its
prospects. As a result of our decision not to pursue 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. We are currently attempting to divest of these assets,
which could result in an additional loss.


                                       37
<PAGE>
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 the Federal Aviation Administration (the "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.

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


                                       38
<PAGE>
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 with certain of our employees, we
cannot assure you that the services of such personnel will continue to be
available to 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.
Such agreements may be viewed by wireless service providers 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. 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.

         The demand for carrier neutral colocation facility sites will also be
affected by evolving industry standards and changes in customer demands. Future
advances in technology may be beneficial to, or compatible with, colocation
facilities, and technological advances may not be able to be incorporated on a
cost-effective and timely basis. For example, the further development of
wireless communications capabilities could lead to a reduced need for colocation
facilities' products and services.

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


                                       39
<PAGE>
assessments, which must be reviewed by the FCC staff prior to registration and
construction of the particular towers.

         Our carrier neutral colocation facilities contain 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 and colocation facilities 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 colocation facilities and
general liability insurance to protect us in the event of an accident involving
a communications site or colocation facility, but we do not maintain business
interruption insurance. Accordingly, damage to a group of our communications
sites or colocation facilities 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 or colocation facility 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 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 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 we have been organized and operated to date in such a
manner as to qualify for taxation as a REIT. However, 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. 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


                                       40
<PAGE>
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 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 affect 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.

Although 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 in 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 or other
disposition of "foreclosure property" that is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying 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)


                                       41
<PAGE>
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 above 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 as to any future such acquisition. 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. In addition, no judicial,
administrative or other precedent or authority addresses what effect the
recognition of such income in respect of such acquisitions may have on our REIT
election for the year of recognition and subsequent years, if either such
extension is not granted by the IRS.

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

Our growth may be difficult to manage.

         Our wireless communications site business has grown rapidly. This
growth has placed and we expect will continue to place a significant strain on
operational, financial, management information and other systems and resources.
Our ability to manage growth effectively will require us to continue to
implement and improve our operational, financial and management information
systems; continue to develop the management skills of our managers and
supervisors and continue to train, motivate and manage our employees. Our
failure to effectively manage growth could have a material adverse effect on our
results of operations.

We expect to experience volatility in our stock price that could affect
 your investment.

         The stock market has from time to time experienced significant price
and volume fluctuations that have affected the market price for the common stock
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 material decline in the
market price of our common stock. 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 expenses and
diversion of management's attention and


                                       42
<PAGE>
resources associated with the 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 recently 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.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

         We are exposed to market risks from changes in interest rates charged
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
September 30, 2001, and December 30, 2000, pursuant to the requirements of our
senior credit facility, we had $385.3 million and $392.4, respectively, in
long-term debt subject to variable interest rates of which $260.0 million was
effectively hedged using interest rate swap agreements for both periods. The
remaining $511.5 million and $493.9 million of long term debt as of September
30, 2001 and December 30, 2000, respectively, is subject to fixed rates of
interest. Our variable rate debt, net of hedged amounts, exposed to changes in
market interest rates was $125.3 million and $132.4 million as of September 30,
2001 and December 31, 2000, 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 our 10% Senior Discount Notes due 2008, $200.0 million under
our 5.5% Convertible Subordinated Notes due 2007, and $392.6 million under our
senior credit facility as of September 30, 2001:

<TABLE>
<CAPTION>
                                                                      Expected Maturity Date
                                                                      ----------------------
                                             2001          2002          2003          2004          2005        Thereafter
                                         -----------   ------------   -----------   -----------   -----------   ------------
<S>                                      <C>           <C>            <C>           <C>           <C>           <C>
Liabilities
Long-term Debt
  Fixed Rate (7.97%)                     525,000,000            --           --            --            --             --
  Variable Rate (Weighted Average
   Interest Rate of 8.43%)               392,620,442            --           --            --            --             --
</TABLE>

         Our primary market risk exposure relates to the following:

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

         -    our ability to refinance the senior discount notes and the
              convertible subordinated notes at maturity at market rates;

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

         -    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. While we cannot predict or manage


                                       43
<PAGE>
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.

INFLATION

         Because of the relatively low levels of inflation experienced in 2000
and the nine months ended September 30, 2001, inflation did not have a
significant effect on our results in such periods.


                                       44
<PAGE>
PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         SEC Investigation

         As previously disclosed, we are involved in a SEC investigation and the
SEC Staff has requested information from us, our current independent auditors,
E&Y, and our former independent auditors, PWC, as part of its inquiry. The SEC's
investigation appears to be focused primarily on the Motorola Antenna Site
Acquisition and on the independence of PWC as Pinnacle's auditor. We have
cooperated and intend to continue to cooperate with the SEC in its
investigation.

         We cannot predict the outcome of the SEC's investigation. Regardless of
the outcome, however, we have incurred substantial costs and the investigation
has caused a diversion of our management's time and attention.

         In March 2001, we announced that in order to remove uncertainty with
respect to the independence issues, the Audit Committee of Pinnacle's Board of
Directors authorized the engagement of E&Y to re-audit our financial statements
for the year ended December 31, 1999 and audit the year ended December 31, 2000.
As a result of the re-audit of 1999 and the audit of 2000, we revised our
accounting for certain costs capitalized in connection with the Motorola Antenna
Site Acquisition. In our revised financial statements, we have capitalized all
costs that relate directly to the acquisition except those post-closing costs
that are deemed to more than incidentally reduce our need to incur ongoing
business expenses necessary to integrate those assets into our operations.

         Stockholder Class Actions

              Pinnacle, its Chief Operating 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 recently 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, 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 of 1933, by
permitting the publication and dissemination of the prospectus for the January
18, 2000, secondary 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. Wolsey
and Day are vicariously liable pursuant to Section 15 of the Securities Act for
Pinnacle's alleged violation of Section 11. 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.

         The plaintiffs further allege that Pinnacle, Messrs. Wolsey, Day and
Card, and the other named defendants violated Section 10(b) of the Securities
Exchange Act of 1934 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.


                                       45
<PAGE>
         The plaintiffs have also alleged that Messrs. Day, Wolsey, and Card
violated Section 20 of the Securities Exchange Act, which imposes vicarious
liability on those persons who control a primary violator of Section 10(b) and
Rule 10b-5.

         Plaintiffs have requested compensatory damages, interest, their costs
and expenses incurred in the action including attorneys' and experts' fees, and
other relief.

         On October 31, 2001, the defendants filed their motion to dismiss this
complaint. An effect of this motion is to postpone any discovery in this case
until after the court rules on the motion.

         We intend to respond appropriately and in the best interests of
Pinnacle to the consolidated action; however we cannot assure you that we will
prevail in such litigation. 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.

         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.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

         Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         Not applicable.

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

         Not applicable

ITEM 5.  OTHER INFORMATION.

         Mr. Wolsey's employment as a Senior Advisor to the CEO was recently
terminated by the Company's Board of Directors.


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)  During the quarter ended September 30, 2001, we filed no Current Reports on
Form 8-K with the SEC.


                                       46
<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  November 19, 2001           By: /s/ William T. Freeman
                                     ---------------------------------
                                       William T. Freeman
                                       Chief Financial Officer and Secretary

                                  Duly Authorized Officer and Principal
                                   Financial Officer.







                                       47
<PAGE>
                                  EXHIBIT INDEX



  EXHIBIT NO.                           DESCRIPTION
  -----------                           -----------

    10.1                 Limited Forbearance Agreement, dated as of November
                         16, 2001, among Pinnacle Towers Inc., each of its
                         subsidiaries and the several lending institutions that
                         are a party thereto and Bank of America, N.A. as
                         administrative agent for the lenders.
    10.2                 Purchase and Sale Agreement, dated as of September
                         17, 2001 between Pinnacle Towers Inc., and Benn W.
                         Bundy.









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