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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 333-65417
------------------------
PINNACLE GLOBAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0583569
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5599 SAN FELIPE, SUITE 555
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
(713) 993-4610
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
The number of shares of Common Stock, par value $0.01 per share,
outstanding as of August 1, 1999, was 7,125,253.
================================================================================
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I. CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
Item 1. Financial Statements............................ 2
Condensed Consolidated Balance Sheet
as of June 30, 1999 and December
31, 1998 (unaudited).......................... 2
Condensed Consolidated Statement of
Operations for the Three and Six
Months Ended June 30, 1999 and 1998
(unaudited)................................... 3
Condensed Consolidated Statement of
Shareholders' Equity for the Six
Months Ended June 30, 1999
(unaudited)................................... 4
Condensed Consolidated Statement of
Cash Flows for the Six Months Ended
June 30, 1999 and 1998
(unaudited)................................... 5
Notes to Condensed Consolidated
Financial Statements (unaudited).............. 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................. 13
Item 3. Quantitative and Qualitative
Disclosures About Market Risks................ 17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders.............................. 19
Item 5. Other Information............................... 19
Item 6. Exhibits and Reports on Form 8-K................ 20
PART III. SIGNATURES...................................... 21
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
ASSETS
Cash and cash equivalents............ $ 13,978,782 $ 13,292,644
Securities available for sale........ 8,638,055 14,637,575
Receivable from broker-dealers and
clearing organizations............. 31,281,655 --
Deposits with clearing brokers....... 1,524,996 --
Securities owned..................... 51,989,381 --
Intangible assets, net............... 21,880,039 --
Other assets......................... 2,850,493 3,990,060
Net assets of discontinued
operations......................... 4,213,790 3,074,960
------------ ------------
Total assets.................... $136,357,191 $ 34,995,239
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities................... $ 325,080 $ 1,295,476
Payable to clearing
broker-dealers................ 45,598,463 --
Securities sold, not yet
purchased..................... 27,850,450 --
------------ ------------
Total liabilities.......... 73,773,993 1,295,476
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.10 par value;
10,000,000 shares authorized;
no shares issued and
outstanding................... -- --
Common stock, $.01 par value;
100,000,000 shares authorized;
7,125,253 and 3,801,559 shares
issued at June 30,
1999 and December 31, 1998,
respectively.................. 71,253 38,016
Additional paid-in capital...... 58,667,821 33,248,729
Receivables for shares issued... (1,311,675) --
Retained earnings............... 5,247,687 4,606,689
Accumulated other comprehensive
loss.......................... (91,888) (6,000)
Treasury stock at cost, 238,806
shares at December 31, 1998... -- (4,187,671)
------------ ------------
Total shareholders' equity...... 62,583,198 33,699,763
------------ ------------
Total liabilities and
shareholders' equity.......... $136,357,191 $ 34,995,239
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Commission......................... $ 2,288,338 $ -- $ 4,830,338 $ --
Principal transactions............. 1,687,263 -- 2,375,077 --
Investment banking................. 479,779 -- 1,074,501 --
Fiduciary, custodial and advisory
fees............................. 443,248 -- 758,133 --
Interest and dividends............. 480,833 393,741 925,240 778,962
Other income....................... 44,851 -- 68,691 --
------------ ------------ -------------- ------------
Total revenues................ 5,424,312 393,741 10,031,980 778,962
------------ ------------ -------------- ------------
Expenses:
Employee compensation and
benefits......................... 3,043,929 157,644 5,214,394 286,396
Floor brokerage, exchange and
clearance fees................... 330,033 -- 414,247 --
Communications and data
processing....................... 286,130 10,308 517,231 10,308
Interest........................... 242,845 20,000 286,577 20,000
Occupancy.......................... 293,854 24,591 457,873 43,182
Amortization of intangible
assets........................... 222,448 -- 370,848 --
Other general and administrative... 751,033 140,258 1,513,880 455,371
------------ ------------ -------------- ------------
Total expenses................ 5,170,272 352,801 8,775,050 815,257
------------ ------------ -------------- ------------
Income (loss) from continuing operations
before income taxes................... 254,040 40,940 1,256,930 (36,295)
Provision (benefit) for income
taxes............................ 178,442 13,800 615,932 (12,340)
------------ ------------ -------------- ------------
Income (loss) from continuing
operations............................ 75,598 27,140 640,998 (23,955)
Income (loss) from discontinued
operations, net of tax........... -- 53,575 -- 14,095
------------ ------------ -------------- ------------
Net income (loss)....................... $ 75,598 $ 80,715 640,998 $ (9,860)
============ ============ ============== ============
Basic and diluted income (loss) per
share:
From continuing operations......... $ .01 $ .01 $ .10 $ (.01)
From discontinued operations....... -- .01 -- .01
------------ ------------ -------------- ------------
Net income (loss) per share............. $ .01 $ .02 $ .10 $ .00
============ ============ ============== ============
Weighted average shares outstanding..... 7,125,253 3,562,753 6,531,503 3,562,753
============ ============ ============== ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL RECEIVABLES
--------------------- ----------------------- PAID-IN FOR SHARES
SHARES AMOUNT SHARES AMOUNT CAPITAL ISSUED
----------- ------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998.............. 3,801,559 $38,016 (238,806) $ (4,187,671) $ 33,248,729 $ --
Issuance of common stock in
acquisitions.......................... 3,562,500 35,625 -- -- 29,604,375 --
Retirement of treasury stock............ (238,806) (2,388) 238,806 4,187,671 (4,185,283) --
Receivables for shares issued........... -- -- -- -- -- (1,311,675)
Comprehensive income:
Net income.......................... -- -- -- -- -- --
Net change in unrealized
depreciation of securities
available for sale................ -- -- -- -- -- --
Total comprehensive income..... -- -- -- -- -- --
----------- ------- -------- ------------ ------------ ------------
Balance, June 30, 1999.................. 7,125,253 $71,253 -- $ -- $ 58,667,821 $(1,311,675)
=========== ======= ======== ============ ============ ============
<CAPTION>
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
EARNINGS LOSS TOTAL
----------- -------------- ------------
<S> <C> <C> <C>
Balance, December 31, 1998.............. $ 4,606,689 $ (6,000) $ 33,699,763
Issuance of common stock in
acquisitions.......................... -- -- 29,640,000
Retirement of treasury stock............ -- -- --
Receivables for shares issued........... -- -- (1,311,675)
Comprehensive income:
Net income.......................... 640,998 -- 640,998
Net change in unrealized
depreciation of securities
available for sale................ -- (85,888) (85,888)
------------
Total comprehensive income..... -- -- 555,110
----------- -------------- ------------
Balance, June 30, 1999.................. $ 5,247,687 $ (91,888) $ 62,583,198
=========== ============== ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1999 1998
-------------- ---------------
Cash flows from operating activities:
Net income (loss).................. $ 640,998 $ (9,860)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Amortization of intangible
assets..................... 370,848 --
Other, net.................... (50,968) (66,470)
Change in operating assets and
liabilities:
Continuing operations......... 5,332,348 --
Discontinued operations....... (1,035,330) (637,872)
-------------- ---------------
Net cash provided by (used in)
operating activities.............. 5,257,896 (714,202)
-------------- ---------------
Cash flows from investing activities:
Purchase of securities available
for sale.......................... (7,513,724) (16,026,345)
Maturities of securities available
for sale.......................... 2,153,617 17,509,179
Capital expenditures............... (961,577) (402,787)
Acquisition costs.................. (1,287,887) --
Discontinued operations, net....... (103,500) 15,733
-------------- ---------------
Net cash (used in) provided by
investing activities.............. (7,713,071) 1,095,780
-------------- ---------------
Cash of businesses acquired............. 3,141,313 --
-------------- ---------------
Net increase in cash and cash
equivalents....................... 686,138 381,578
Cash and cash equivalents at beginning
of period............................. 13,292,644 12,810,100
-------------- ---------------
Cash and cash equivalents at end of
period................................ $ 13,978,782 $ 13,191,678
============== ===============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Through a series of transactions on January 29, 1999, the shareholders of
TEI, Inc. ("TEI") exchanged all common shares of TEI for 3,562,753 common
shares of Pinnacle Global Group, Inc. (the "Company"), then a newly formed
public holding company. The Company simultaneously acquired three financial
services firms: Harris Webb & Garrison, Inc. ("HWG"), Pinnacle Management &
Trust Company ("PMT") and Spires Financial, L.P. ("Spires"), by exchanging
3,562,500 of its common shares (slightly less than 50% of outstanding common
shares) for all of the ownership interests of the three financial services
firms. TEI is now a wholly-owned subsidiary of the Company. As a result of the
acquisitions, and the discontinued operations described below, the Company now
provides a broad range of financial services, including institutional and retail
brokerage, investment banking, merchant banking, investment management,
secondary market loan and loan servicing placement and trust related services.
Therefore, results of operations are not comparable to the prior period.
PRINCIPLES OF CONSOLIDATION
The unaudited condensed consolidated financial statements of the Company
include the accounts of its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated in consolidation.
In management's opinion, the unaudited condensed consolidated financial
statements include all adjustments necessary for a fair presentation of
financial position at June 30, 1999, results of operations for the three and six
months ended June 30, 1999 and 1998, and cash flows for the six months ended
June 30, 1999 and 1998. All such adjustments are of a normal recurring nature.
Interim results are not necessarily indicative of results for a full year.
CASH EQUIVALENTS
Highly liquid debt instruments with original maturities of three months or
less when purchased are considered to be cash equivalents.
SECURITIES AVAILABLE FOR SALE
Securities available for sale include marketable equity securities and debt
instruments with maturities greater than three months when purchased, are
recorded at cost, and are adjusted for unrealized holding gains and losses due
to market fluctuations. These unrealized gains or losses, net of tax, are
recorded as a separate component of other comprehensive income (loss). Gains and
losses are recorded upon sale based upon the specific identification method.
SECURITIES TRANSACTIONS
Marketable securities owned, marketable securities sold not yet purchased,
and deposits held by clearing brokers and dealers are valued at market value.
Securities not readily marketable are valued at estimated fair value as
determined by management. Realized and unrealized gains and losses are included
in income.
Principal securities transactions are recorded on the trade date, as if
they had settled. Profit and loss arising from securities transactions entered
into for the account and risk of the Company are recorded on a trade date basis.
Customers' securities transactions are reported on a settlement date basis with
related commission income and expenses reported on a trade date basis.
6
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENT BANKING
Investment banking revenues include fees earned from providing
merger-and-acquisition advice, financial advisory services and assistance in
raising both debt and equity capital. Investment banking fees from acting as an
agent in securities offerings are recorded at the time the engagement is
completed and the income is reasonably determinable.
FIDUCIARY, CUSTODIAL AND ADVISORY FEES
Fiduciary, custodial and advisory fees are recorded monthly for most trust
accounts, based on a percentage of each individual account's market value on the
last day of the month then ended.
MANAGEMENT'S ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of consolidated assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. The Company's most significant estimates relate to estimated
recoverable amounts of assets and estimated liabilities of discontinued
operations and to the estimated fair value of securities not readily marketable.
It is reasonably possible that those estimates will change.
2. ACQUISITIONS
On January 29, 1999, the Company acquired HWG, PMT, and Spires. The former
owners of HWG, PMT, and Spires received consideration consisting of 3,562,500
shares of the Company's common stock which represents about 49.98% of the
outstanding common stock. The acquisitions were accounted for as purchases and,
accordingly, the financial information of HWG, PMT, and Spires is included in
the Company's consolidated financial statements from the date of acquisition.
The purchase price of approximately $31 million exceeded the fair value of
identifiable net assets acquired by approximately $22 million, which is being
amortized on a straight-line basis over 25 years. The purchase price has been
allocated to the individual assets acquired and liabilities assumed based upon
preliminary estimated fair value. The actual allocation may be different from
the preliminary allocation due to refinements in the estimates of the fair
values of the net assets acquired; however, such differences are not expected to
be material.
The following summarized unaudited pro forma financial information assumes
the acquisitions had occurred on January 1, 1998:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------ ----------------------------
1998 1999 1998
------------ -------------- ------------
<S> <C> <C> <C>
Revenues............................. $3,830,095 $ 11,348,241 $ 8,772,619
Income from continuing operations.... 65,753 758,741 333,516
Basic and diluted earnings per share
from continuing operations......... .01 .11 .05
</TABLE>
These unaudited pro forma amounts are derived from the historical financial
information of the acquired businesses and reflect adjustments for amortization
of intangible assets and for income taxes. The unaudited pro forma financial
information does not necessarily represent results which would have occurred if
the acquisitions had taken place on the basis assumed above, nor are they
indicative of the results of future combined operations.
7
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During July 1999, the Company entered into a letter of intent to acquire
all ownership of a financial services firm for $6.6 million in cash and 733,333
shares of the Company's common stock. The Company intends to fund the cash
portion of the aggregate purchase price using currently available cash. The
proposed transaction is subject to approval by the Company's Board of Directors,
the receipt of approvals by various regulatory agencies, the absence of adverse
changes in the financial condition of the parties involved, and the execution of
a definitive agreement for the transaction.
3. SECURITIES AVAILABLE FOR SALE
Securities available for sale were as follows at June 30, 1999:
<TABLE>
<CAPTION>
GROSS UNREALIZED
---------------------- ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Government and agency
obligations........................ $ 542,848 $ 2,070 $ 183 $ 544,735
Corporate bonds...................... 1,462,928 -- 11,192 1,451,736
Commercial paper..................... 4,384,849 -- -- 4,384,849
Marketable equity securities......... 2,377,570 130,887 251,722 2,256,735
----------- ---------- ---------- -----------
$ 8,768,195 $ 132,957 $ 263,097 $ 8,638,055
=========== ========== ========== ===========
</TABLE>
4. RECEIVABLE FROM AND PAYABLE TO BROKER-DEALERS AND CLEARING ORGANIZATIONS
Amounts receivable from and payable to broker-dealers and clearing
organizations at June 30, 1999 were as follows:
RECEIVABLE PAYABLE
----------- -----------
Payable to clearing broker-dealers... $ -- $45,598,463
Receivable from clearing
organizations...................... 28,724,010 --
Fees and commissions receivable...... 2,557,645 --
----------- -----------
$31,281,655 $45,598,463
=========== ===========
The Company clears certain of its proprietary and customer transactions
through other broker-dealers on a fully disclosed basis. The amount payable to
the clearing broker relates to the aforementioned transactions and is
collateralized by securities owned by the Company.
5. DEPOSITS HELD BY CLEARING BROKERS AND DEALERS
Under its clearing agreements, the Company is required to maintain a
certain level of cash or securities on deposit with clearing broker-dealers.
Should the clearing broker-dealers suffer a loss due to the failure of a
customer of the Company to complete a transaction, the Company is required to
indemnify the clearing broker-dealer. The Company has funds invested in U.S.
Treasury bills and in a money market account on deposit with clearing
broker-dealers to meet this requirement.
6. SECURITIES OWNED AND SECURITIES SOLD NOT YET PURCHASED
Securities owned consisted of U.S. government and agency obligations,
corporate bonds, commercial paper, and equity securities, including at June 30,
1999, $1,490,643 of not readily marketable securities valued at estimated fair
value as determined by management. Securities sold not yet purchased consisted
of U.S. government and agency obligations.
8
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMPREHENSIVE INCOME
Total comprehensive income for the three and six months ended June 30, 1999
was $106,868 and $555,110, respectively. For the three months and six months
ended June 30, 1998, there were no additional components of comprehensive income
other than net income.
8. INCOME TAXES
The differences between the effective tax rate reflected in the income tax
provision for continuing operations and the statutory federal rate for the
period indicated are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1999
------------------- -----------------
<S> <C> <C>
Tax computed using the statutory rate... $ 86,373 $ 427,356
Nondeductible amortization of
goodwill.............................. 69,696 126,088
State income taxes...................... 19,185 49,272
Other................................... 3,188 13,216
--------- ---------
Total.............................. $ 178,442 $ 615,932
========= =========
</TABLE>
The effective tax rate for continuing operations was approximately 49% and
34% for the six months ended June 30, 1999 and 1998, respectively.
9. DISCONTINUED OPERATIONS
The Board of Directors adopted a plan to discontinue the operations of
Energy Recovery Resources, Inc. ("ERRI") effective December 31, 1998.
Accordingly, the operating results of ERRI have been segregated from continuing
operations and reported as a discontinued operation in the statement of
operations. A provision for estimated loss on disposition of ERRI of $2,164,000
net of tax, consisting of a write down of goodwill and property and equipment,
was recorded during the fourth quarter of 1998.
Engineered Systems, Inc.'s ("ESI") operations were discontinued as of
December 31, 1995. The assets of ESI were disposed of on December 23, 1997, for
a $500,000 interest bearing note due in 2002. The purchaser has also agreed to
complete customer contracts in process at the time of the sale. However, the
Company remains liable for costs incurred by the purchaser in excess of amounts
recoverable from customers. Through the third quarter of 1998, the Company
believed, based in part from information provided by the purchaser, that it had
no additional liability with respect to the contracts in process. Subsequent to
December 31, 1998, the Company was notified that a major customer cancelled its
contract and that the other contracts in process have incurred costs in excess
of amounts recoverable from customers. As a result, during the fourth quarter of
1998 the Company recorded an additional loss related to ESI of $1,344,000, net
of tax. The Company currently estimates that it will not incur any additional
losses with respect to contracts to be completed by the purchaser; however, the
Company has experienced significant changes in these estimates in the past and
it is reasonably possible that such changes could occur in future periods.
10. CONCENTRATIONS OF CREDIT RISK
Financial investments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
securities available for sale, securities owned, and all receivables, including
those from discontinued operations. Risks and uncertainties associated with
financial investments include credit exposure, interest rate volatility,
regulatory changes, and changes in market values of equity securities. Future
changes in market trends and conditions may occur which could cause actual
results to differ materially from the estimates used in preparing the
accompanying financial statements.
9
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company and its subsidiaries are engaged in various trading and
brokerage activities in which counterparties primarily include broker-dealers,
banks, and other financial institutions. If counterparties do not fulfill their
obligations, the Company may be exposed to risk. The risk of default depends on
the creditworthiness of the counterparty or issuer of the instrument. It is the
Company's policy to review, as necessary, the credit standing of each
counterparty.
11. COMMITMENTS
In the normal course of business, the Company enters into underwriting
commitments. Transactions relating to underwriting commitments that were open at
June 30, 1999, and were subsequently settled, had no material effect on the
consolidated financial statements as of that date.
The Company and its subsidiaries have obligations under operating leases
with initial noncancelable terms in excess of one year. Aggregate annual rentals
for office space and computer and office equipment are as follows:
1999................................. $ 1,204,000
2000................................. 1,317,000
2001................................. 1,249,000
2002................................. 1,251,000
2003................................. 1,205,000
Thereafter........................... 203,000
12. LEGAL MATTERS
The Company is involved in litigation and routine claims from time to time.
Certain of the Company's litigation and claims are covered by insurance with a
maximum deductible of $50,000. In addition, the Company is contingently liable
for up to $600,000 for liabilities relating to services performed by Tanknology
Corporation International, Tanknology Canada (1988), Inc., and USTMAN
Industries, Inc. prior to October 25, 1996. The Company has fully provided for
that contingency as of June 30, 1999. The Company believes the ultimate outcome
of the litigation and claims will not have a material adverse effect to the
Company's consolidated financial position, results of operations or cash flows.
13. NET CAPITAL REQUIREMENTS OF SUBSIDIARIES
HWG and Spires are subject to the Securities and Exchange Commission's
Uniform Net Capital Rule (SEC rule 15c3-1), which requires the maintenance of
minimum net capital and requires that the ratio of aggregate indebtedness to net
capital, both as defined, shall not exceed 15 to 1 (and the rule of the
"applicable" exchange also provides that equity capital may not be withdrawn
or cash dividends paid if the resulting net capital ratio would exceed 10 to 1).
PMT is required by the Texas Department of Banking to maintain minimum capital
of $1,500,000.
14. BORROWING ARRANGEMENT
The Company has a $300,000 unsecured line of credit agreement with a bank
expiring on December 1, 1999. Interest is charged at the bank's prime rate plus
.75%. At June 30, 1999, no amount is outstanding under the line of credit.
10
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. EARNINGS (LOSS) PER COMMON SHARE
Basic and diluted per-share computations for the periods indicated were as
follows:
1999 1998
------------ ------------
Computation of basic and diluted
earnings (loss) per common share
for the three months ended June 30:
Net income (loss) applicable to
common stock.................. $ 75,598 $ 80,715
============ ============
Weighted average number of
common shares outstanding..... 7,125,253 3,562,753
Common shares issuable under
stock option plan............. -- --
Less shares assumed repurchased
with proceeds................. -- --
------------ ------------
Weighted average common
shares outstanding...... 7,125,253 3,562,753
============ ============
Basic and diluted earnings
(loss) per common
share................... $ .01 $ .02
============ ============
1999 1998
------------ ------------
Computation of basic and diluted
earnings (loss) per common share
for the six months ended June 30:
Net income (loss) applicable to
common stock.................. $ 640,998 $ (9,860)
============ ============
Weighted average number of
common shares outstanding..... 6,531,503 3,562,753
Common shares issuable under
stock option plan............. -- --
Less shares assumed repurchased
with proceeds................. -- --
------------ ------------
Weighted average common
shares outstanding...... 6,531,503 3,562,753
============ ============
Basic and diluted earnings
(loss) per common
share................... $ .10 $ .00
============ ============
Stock options outstanding have not been included in diluted earnings per
common share because to do so would have been antidilutive for the periods
presented.
16. BUSINESS SEGMENT INFORMATION
The Company's continuing businesses operate in two reportable business
segments. HWG and Spires are regional investment banking and brokerage services
firms whose activities primarily include securities underwriting, retail and
institutional brokerage services, and trading of fixed income and equity
securities, among others. PMT is a state chartered trust company providing a
variety of trust services including investment management, estate settlement,
and retirement planning, among others. The following summarizes certain
financial information of each reportable segment for the three and six months
ended June 30, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999 SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------- --------------------------------
INVESTMENT BANKING INVESTMENT BANKING
AND BROKERAGE TRUST AND BROKERAGE TRUST
SERVICES SERVICES SERVICES SERVICES
------------------- --------------- ------------------ ----------
<S> <C> <C> <C> <C>
Revenues............................. $ 5,011,177 $ 500,269 $ 8,715,168 $ 860,664
Income before income taxes........... 1,205,396 166,126 2,158,417 310,027
Total assets......................... 95,141,562 4,101,980 95,141,562 4,101,980
</TABLE>
11
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reconciles income before income taxes of the reportable
segments to the consolidated income from continuing operations before income
taxes reported in the consolidated statement of operations for the three and six
months ended June 30, 1999:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1999
------------------- -----------------
Income before income taxes of
reportable segments:
Investment banking and brokerage
services...................... $ 1,205,396 $ 2,158,417
Trust services.................. 166,126 310,027
----------- -----------
1,371,522 2,468,444
Amortization of intangible assets.... (222,448) (370,848)
Corporate revenues and expenses,
net................................ (895,034) (840,666)
----------- -----------
Income from continuing operations
before income taxes................ $ 254,040 $ 1,256,930
=========== ===========
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and their related notes thereto.
GENERAL
The Company is a holding company that provides diversified financial
services through its subsidiaries, including institutional and retail brokerage,
investment banking, merchant banking, secondary market loan and loan servicing
placement, trust related services and investment management. All of these
activities are highly competitive and are sensitive to many factors outside the
control of the Company, including those factors listed under "Factors Affecting
Forward-Looking Statements."
The Company closely monitors its operating environment to enable it to
respond promptly to market cycles. In addition, the Company seeks to lessen
earnings volatility by controlling expenses, increasing fee-based business and
developing new revenue sources. Nonetheless, operating results of any individual
period should not be considered representative of future performance.
On January 29, 1999, the Company completed the acquisitions of HWG, PMT and
Spires. In the acquisitions, just over 50% of the Company's outstanding shares
were issued to TEI's former shareholders in exchange for their TEI shares, and
slightly less than 50%, or 3,562,500 Company shares, were issued to the former
owners of the financial services firms. The acquisitions were accounted for as
purchases by the Company of each of the three financial services firms. The
following discussion of the results of operations includes the operations of
HWG, PMT and Spires since January 29, 1999.
In March 1999, the Company's new management decided to discontinue the
operations of TEI's liquid waste subsidiary effective December 31, 1998. These
operations, which are conducted primarily in Charlotte, North Carolina and
surrounding areas, involve the treating, recycling, and handling of wastewater,
waste oil and other non-hazardous fluid waters for owners and operators of under
and above ground storage tanks and other commercial and industrial waste
generators. Management believes the sale of the liquid waste business and
related Charlotte, North Carolina facility will be consummated within the next
six months.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
As explained in Note 2 of the Notes to Condensed Consolidated Financial
Statements for the Company, the financial results of the Company for the three
months ended June 30, 1999 include the results of operations of the financial
services firms (HWG, PMT and Spires). Total revenues increased $5.0 million to
$5.4 million and total expenses increased $4.8 million to $5.2 million,
primarily as a result of the acquisitions described in Note 2 of the Notes to
Condensed Consolidated Financial Statements. Basic and diluted income per share
from continuing operations was $.01 for the three months ended June 30, 1999 and
1998.
Commission revenue was $2.3 million and was derived from retail and
institutional brokerage operations at Spires and HWG. Principal transactions
revenue was $1.7 million, consisting primarily of trading gains net of hedging
costs. Investment banking revenue was $0.5 million, and consisted primarily of
investment banking fees earned from advisory services and private security
offerings. Fiduciary, custodial and advisory fees revenue was $0.4 million
derived primarily from fee-based account business at PMT.
Employee compensation and benefits increased $2.9 million to $3.0 million
primarily due to additional employees in connection with the acquisitions
described in Note 2 of the Condensed Consolidated Financial Statements for the
Company. Employee compensation and benefits includes commissions paid to retail
and institutional brokers and investment bankers at HWG and Spires.
Communication and data processing costs were $0.3 million primarily related to
upgrades in technology and services, including quotes and market data services.
Occupancy costs were $0.3 million primarily due to rent expense for office
leases of the newly acquired financial services firms.
13
<PAGE>
The effective tax rate from continuing operations was 70% and 34% during
the three months ended June 30, 1999 and 1998, respectively. The increase in the
rate is primarily the result of non-deductible goodwill amortization.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
As explained in Note 2 of the Notes to Condensed Consolidated Financial
Statements for the Company, the financial results of the Company for the six
months ended June 30, 1999 only include the results of operations of the
financial services firms (HWG, PMT and Spires) from the date of their
acquisition, or January 29, 1999. Therefore, the Company's results for the six
months ended June 30, 1999 include five months of results from the financial
services firms. Total revenues increased $9.3 million to $10.0 million and total
expenses increased $8.0 million to $8.8 million, primarily as a result of the
acquisitions. Basic and diluted income (loss) per share from continuing
operations increased from a loss of ($.01) to income of $.10 for the six months.
Commission revenue was $4.8 million and was derived from retail and
institutional brokerage operations at Spires and HWG. Principal transactions
revenue was $2.4 million, consisting primarily of trading gains net of hedging
costs. Investment banking revenue was $1.1 million and consisted primarily of
investment banking fees earned from advisory services and private security
offerings. Fiduciary, custodial and advisory fees revenue was $0.8 million
derived primarily from fee-based account business at PMT.
Employee compensation and benefits increased $4.9 million to $5.2 million
primarily due to additional employees in connection with the acquisitions
described in Note 2 of the Condensed Consolidated Financial Statements for the
Company. Employee compensation and benefits includes commissions paid to retail
and institutional brokers and investment bankers at HWG and Spires.
Communication and data processing costs were $0.5 million primarily related to
upgrades in technology and services including quotes and market data services.
Occupancy costs were $0.5 million primarily due to rent expense for office
leases of the newly acquired financial services firms.
The effective tax rate from continuing operations was 49% and 34% during
the six months ended June 30, 1999 and 1998, respectively. The increase in the
rate is primarily the result of non-deductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
The Company intends to satisfy a large portion of its funding needs with
its own capital resources, consisting largely of internally generated earnings
and liquid assets held by the Company prior to the acquisitions described in
Note 2 of the Notes to Condensed Consolidated Financial Statements. A large
portion of the Company's assets are highly liquid and short term in nature. The
Company's cash, cash equivalents and liquid assets, consisting of securities
available for sale, receivables from broker-dealers and clearing organizations,
deposits with clearing brokers and securities owned, represented about 79% of
the Company's total assets at June 30, 1999. At June 30, 1999, the Company had
approximately $22.6 million in cash and cash equivalents and securities
available for sale. The Company had $21.9 million in intangible assets at June
30, 1999 as a result of the acquisitions described in Note 2 of the Notes to
Condensed Consolidated Financial Statements. Total assets increased $101.4
million from $35.0 million at December 31, 1998 to $136.4 million at June 30,
1999.
The Company's broker-dealer subsidiaries are subject to the requirements of
the Securities and Exchange Commission ("SEC") relating to liquidity, net
capital standards and the use of client funds and securities. PMT is also
subject to requirements of the Texas Banking Commission relating to, among other
things, liquidity, net capital standards and client bonding requirements. The
Company has historically operated in excess of the minimum net capital
requirements.
During July 1999, the Company entered into a letter of intent to acquire
all ownership of a financial services firm for $6.6 million in cash and 733,333
shares of the Company's common stock. The Company intends to fund the cash
portion of the aggregate purchase price using currently available cash. The
proposed transaction is subject to approval by the Company's Board of Directors,
the receipt of approvals
14
<PAGE>
by various regulatory agencies, the absence of adverse changes in the financial
condition of the parties involved, and the execution of a definitive agreement
for the transaction.
YEAR 2000
The Company utilizes software and related information technologies that
will be affected by the date change in the year 2000. The year 2000 issue exists
because many computer systems and applications currently use two-digit date
fields to designate a year. When the century date change occurs, certain date-
sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may result in a systems
failure or cause systems to process critical financial and operational
information incorrectly. Additionally, the Company relies on certain
non-information technology systems such as communications and building
operations systems that could also be affected by the date change. The failure
of these non-information technology systems could interrupt or shutdown business
operations for some period of time.
The Company's financial services subsidiaries are heavily dependent on
their own computer programs and systems, all of which may be affected by the
year 2000 problem. In addition, these subsidiaries have material relationships
with third parties related to the performance of the Company's financial
services who must also address the year 2000 problem. These third parties
include:
o trading counter parties
o financial intermediaries
o securities exchanges
o depositories
o software providers
o clearing agencies
o clearing houses
The operations of the Company's financial services subsidiaries may be
adversely affected if these third parties do not adequately address the year
2000 problem and the Company is unable to make timely contingency plans. A year
2000 failure at any of the Company's financial service subsidiaries or at their
material third parties could have a material adverse affect on the Company's
financial services businesses by impairing its ability to, among other things:
o gather and process information vital to strategic decision making by
both the Company and its customers;
o perform pricing calculations;
o execute customer transactions;
o maintain accurate books and records and provide timely reports;
o access audit facilities for both the Company and its customers; and
o undertake risk management functions.
The Company also relies on many third-party vendors and suppliers for a
variety of goods and services necessary for most business, including operating
supplies, banking, telecommunications and utilities, such as water and
electricity. Many of the Company's operations would be adversely affected if
these supplies and services were curtailed as a result of a vendor's or
supplier's year 2000 problems.
The Company has contacted those third parties whose services or functions,
if curtailed, would have a material adverse effect on the Company. The Company
intends to make further inquiry during the third quarter of 1999 with those
third parties who did not respond by June 30, 1999.
The Company's broker-dealer subsidiaries, HWG and Spires, were required to
conduct complete reviews of the potential impact of year 2000 issues and report
their findings to the National Association of Securities Dealers ("NASD") and
the SEC no later than August 31, 1998. HWG filed its initial report with
15
<PAGE>
the NASD and SEC on August 6, 1998, and Spires filed its initial report with
both agencies on August 31, 1998. Both reports were received without comment
from the NASD or the SEC. An updated report by both subsidiaries was due and was
filed on April 30, 1999.
The Company's trust company subsidiary, PMT, was required to conduct a
complete review of the potential impact of the year 2000 issues and report its
findings to the Texas Banking Commission. PMT filed its initial report on August
3, 1998.
The Company has developed the following multi-phase plan to resolve potential
Year 2000 problems relating to its information technology ("IT") systems at
all of its operations:
Phase I: Identify and evaluate all IT systems according to their
potential business impact.
Phase II: Identify IT systems that use date functions and assess them for
year 2000 functionality.
Phase III: Reprogram or replace equipment/systems, where necessary, to
ensure year 2000 readiness.
Phase IV: Test code modifications and material equipment/systems to ensure
successful operation in a post-1999 environment.
Phase V: Adoption of contingency plans in the case of potential year 2000
failures.
The Company has completed Phases I through III, and has partially completed
Phases IV and V of its plan at a cost of about $50,000 for modifying or
purchasing new software and for upgrading or purchasing new computer systems.
The Company expects to complete Phases IV and V of its plan by September 30,
1999 at an additional cost estimated not to exceed $200,000. Of these total year
2000 costs, about $30,000 are expected to be used for remediation, which
represents an estimated 10% of the Company's 1999 information technology budget.
Some of these costs may be recurring. The Company believes that cash on hand and
cash from operations will be sufficient to fund these costs. No information
technology projects have been deferred due to the Company's year 2000 efforts.
The Company has begun to develop a firm-wide contingency/recovery plan
aimed at ensuring the continuity of critical business functions before and after
December 31, 1999. As part of this process, the Company will develop reasonably
likely failure scenarios for its critical IT systems and material third-party
relationships. Once these scenarios are identified, the Company will develop
plans designed to reduce the impact to the Company, and provide methods of
returning to normal operations, if one or more of those scenarios occur. The
Company cannot guarantee that it will be able to resolve all of its year 2000
issues, and any critical unresolved year 2000 issues at the Company or any of
its material third parties could have a material adverse effect on the Company's
results of operations and financial condition. The Company expects its
contingency and recovery planning to be substantially complete by September 30,
1999.
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, (the
"Acts"). These forward-looking statements may relate to such matters as
anticipated financial performance, future revenues or earnings, business
prospects, projected ventures, new products, anticipated market performance and
similar matters. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. To comply with the terms of the safe
harbor, the Company cautions readers that a variety of factors could cause the
Company's actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. These
risks and uncertainties, many of which are beyond the Company's control,
include, but are not limited to (1) trading volume in the securities markets;
(2) volatility of the securities markets and interest rates; (3) changes in
regulatory requirements which could affect the demand for the Company's services
or the cost of doing business; (4) general economic conditions, both domestic
and foreign, especially in the regions where the Company does business; (5)
changes in the rate of inflation and related impact on securities markets; (6)
competition from existing financial institutions and other new participants in
the securities markets; (7) legal developments affecting the litigation
experience of the securities industry; (8) successful implementation of
technology solutions and (9) demand for the Company's
16
<PAGE>
services. The Company does not undertake any obligation to publicly update or
revise any forward-looking statements.
The Company's discussion of the issues surrounding year 2000 contain
forward-looking statements as defined in the Acts. These forward-looking
statements could relate to, but are not limited to (1) the financial impact of
the year 2000 project; (2) the Company's estimated timetables for completion of
each phase of the project; (3) the Company's estimates of the availability of
vendor software upgrades and consulting services; (4) the readiness of
third-party service providers; and (5) contingency plans. The Company cautions
that many factors, including those outside of the control of the Company, could
cause actual results to be materially different than those anticipated and
expressed in the forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
MARKET RISKS
Market risk generally represents the risk of loss that may result from the
potential change in value of a financial instrument as a result of fluctuations
in interest rates, equity prices, and changes in credit ratings of the issuer.
The Company's exposure to market risk is directly related to its role as a
financial intermediary in customer-related transactions and to its proprietary
trading activities.
Interest rate risk is a consequence of maintaining inventory positions and
trading in interest-rate sensitive financial instruments. To facilitate its
proprietary trading in fixed income securities, the Company maintains an active
inventory of interest rate sensitive instruments. As of June 30, 1999 the
Company's fixed income trading inventory consisted principally of $44.3 million
in mortgage-related instruments with a weighted average life approximating four
years.
Market prices on the Company's fixed income inventory fluctuate with
changes in interest rates, credit and liquidity spreads. The Company uses
various hedging strategies to protect its market value exposure to changes in
interest rates. On June 30, 1999, management determined that the short sale of
$27.9 million of thirty-year mortgage-backed securities best hedged its
inventory against changes in both interest rates.
The Company's fixed income activities also expose it to the risk of loss
related to changes in credit and liquidity spreads. Credit spread risk arises
from the potential that changes in an issuer's credit rating or credit
perception could effect the value of financial instruments. In management's
opinion, the Company's inventory at June 30, 1999, consisting entirely of high
quality securities of relatively short duration, exposes the Company to minimal
risk associated with changes in credit spreads.
Liquidity spread risk arises from the potential that changes in the
liquidity (ease of marketability) of a financial instrument or market sector
could effect the value of financial instruments. In management's opinion, the
Company's inventory at June 30, 1999, consisting entirely of high quality
securities of relatively short duration, exposes the Company to minimal risk
associated with changes in liquidity spreads.
The Company is exposed to equity price risk as a result of making markets
in equity securities. Equity price risk results changes in the level or
volatility of equity prices, which affect the value of equity securities or
instruments that derive their value from a particular stock, a basket of stocks
or a stock index.
Credit risk arises from the potential nonperformance by counterparties to
trading activities, customers or debt security issuers. The Company is exposed
to credit risk as a trading counterparty to dealers and customers, as a holder
of securities and as a member of exchanges and clearing organizations.
The Company manages risk exposure through the involvement of various levels
of management. Position limits in trading and inventory accounts are well
established and monitored on an ongoing basis. Current and proposed
underwriting, banking and other commitments are subject to due diligence reviews
by senior management, as well as professionals in the appropriate business and
support units involved. Credit risk related to various financing activities is
reduced by the industry practice of obtaining and maintaining collateral. The
Company monitors its exposure to counterparty risk through the use of credit
exposure information, the monitoring of collateral values and the establishment
of credit limits.
17
<PAGE>
The Company has performed an analysis of the Company's financial
instruments and has assessed the related risk and materiality in accordance with
the rules. Based on this analysis, in the opinion of management, the market risk
associated with the Company's financial instruments at June 30, 1999 will not
have a material adverse effect on the Company's consolidated financial position
or operating results.
DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument represents a contractual agreement
between counterparties and has value that is derived from changes in the value
of some other underlying asset such as the price of another security, interest
rates (such as the Prime Rate, or LIBOR), indices (i.e. S&P 500), or the value
referenced in the contract.
The Company does not act as dealer, trader, or end-user of complex
derivative contracts such as swaps, collars and caps. However, the Company does
act as a dealer and trader of mortgage-derivative securities and collateralized
mortgage obligations (CMOs or REMICs). Mortgage-derivative securities
redistribute the risks associated with its underlying mortgage collateral by
redirecting cash flows, according to specific formulas or algorithms, to various
tranches or classes in accordance with specific investor objectives.
18
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 3, 1999, the Company held its annual meeting of Shareholders, the
purpose of which was to vote upon the persons nominated for election to the
Company's Board of Directors. The results of the votes were as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
NAME & NOMINEE SHARES VOTED FOR SHARES VOTED AGAINST SHARES ABSTAINED
- ------------------------------------- ---------------- -------------------- ----------------
<S> <C> <C> <C>
Class I directors:
John H. Styles.................. 5,686,889 28,107
Sean Dobson..................... 5,685,889 29,107
Stephen M. Reckling............. 5,686,639 28,357
Richard C. Webb................. 5,686,539 28,457
</TABLE>
ITEM 5. OTHER INFORMATION.
During July 1999, the Company entered into a letter of intent to acquire
all ownership of a financial services firm for $6.6 million in cash and 733,333
shares of the Company's common stock. The Company intends to fund the cash
portion of the aggregate purchase price using currently available cash. The
proposed transaction is subject to approval by the Company's Board of Directors,
the receipt of approvals by various regulatory agencies, the absence of adverse
changes in the financial condition of the parties involved, and the execution of
a definitive agreement for the transaction.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibits, from which schedules and exhibits have been omitted
and will be furnished to the Commission upon its request, are filed with this
Current Report on Form 10-Q:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Articles of Incorporation of the
Company, as amended (Filed as Appendix F
to the Proxy Statement/Prospectus of the
Company dated December 31, 1998 (Reg.
No. 333-65417) and incorporate herein by
reference).
3.2 -- Amended and Restated Bylaws of the
Company (Filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K as
filed with the Commission on April 1,
1999 and incorporated herein by
reference).
10.1 -- Amended and Restated Agreement and Plan
of Reorganization dated October 2, 1998
among the Company, TEI, Inc. ("TEI"),
Harris Webb & Garrison, Inc. ("HWG"),
Pinnacle Management & Trust Company
("PMT"), Spires Financial, L.P.
("Spires") and certain direct and
indirect owners of HWG, PMT and Spires
(Filed as Appendix A to the Proxy
Statement/Prospectus of the Company
dated December 31, 1998 (Reg. No.
333-65417) and incorporated herein by
reference).
10.2 -- Plan of Merger dated October 2, 1998,
among TEI, TEI Combination Corporation
and the Company (Filed as Appendix B to
the Proxy Statement/Prospectus of the
Company dated December 31, 1998 (Reg.
No. 333-65417) and incorporated herein
by reference).
10.3 -- Plan of Merger dated October 2, 1998,
among HWG, HWG Combination Corporation
and the Company (Filed as Appendix C to
the Proxy Statement/Prospectus of the
Company dated December 31, 1998 (Reg.
No. 333-65417) and incorporated herein
by reference).
10.4 -- Plan of Merger dated October 2, 1998,
among PMT, PMT Combination Corporation
and the Company (Filed as Appendix D to
the Proxy Statement/Prospectus of the
Company dated December 31, 1998 (Reg.
No. 333-65417) and incorporated herein
by reference).
10.5 -- Sublease Agreement dated January 19,
1994 between Texas Commerce Bank
National Association and Harris Webb &
Garrison, Inc., as amended by the First
Amendment to Sublease Agreement dated
February 23, 1994, the Second Amendment
to Sublease Agreement dated April 26,
1994, and the Third Amendment to
Sublease Agreement dated January 19,
1995 (Filed as an exhibit to the Proxy
Statement/Prospectus of the Company
dated December 31, 1998 (Reg. No.
333-65417) and incorporated herein by
reference.)
10.6 -- Office Lease Agreement dated February 1,
1998 between 5599 San Felipe, Ltd. and
Harris Webb & Garrison, Inc. (Filed as
an exhibit to the Proxy
Statement/Prospectus of the Company
dated December 31, 1998 (Reg. No.
333-65417) and incorporated herein by
reference).
10.7 -- Office Lease Agreement dated January 19,
1999 between 5599 San Felipe, Ltd. and
the Company (Filed as Exhibit 10.17 to
the Company's Annual Report on Form 10-K
as filed with the Commission on April 1,
1999 and incorporated herein by
reference).
10.8 -- Letter Agreement dated January 14, 1994
between S.G. Cowen & Company and Harris
Webb & Garrison, Inc., as amended
January 19, 1994 (Filed as an exhibit to
the Proxy Statement/Prospectus of the
Company dated December 31, 1998 (Reg.
No. 333-65417) and incorporated herein
by reference.)
10.9 -- Autotrust Agreement dated January 9,
1998 between SunGard Trust Systems, Inc.
and Pinnacle Management & Trust Company
(Filed as an exhibit to the Proxy
Statement/ Prospectus of the Company
dated December 31, 1998 (Reg. No.
333-65417) and incorporated herein by
reference).
*27.1 -- Financial Data Schedule for the three
months ended June 30, 1999.
- ------------
* Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period covered by this
Quarterly Report.
20
<PAGE>
PART III.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PINNACLE GLOBAL GROUP, INC.
By /s/ ROBERT E. GARRISON II
ROBERT E. GARRISON II
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
By /s/ DONALD R. CAMPBELL
DONALD R. CAMPBELL
VICE-CHAIRMAN AND PRINCIPAL
FINANCIAL OFFICER
Date: August 16, 1999
21
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 13,979 13,979
<RECEIVABLES> 31,282 31,282
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 51,989 51,989
<PP&E> 0 0
<TOTAL-ASSETS> 136,357 136,357
<SHORT-TERM> 0 0
<PAYABLES> 45,923 45,923
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 27,850 27,850
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 71 71
<OTHER-SE> 62,512 62,512
<TOTAL-LIABILITY-AND-EQUITY> 136,357 136,357
<TRADING-REVENUE> 1,687 2,375
<INTEREST-DIVIDENDS> 481 925
<COMMISSIONS> 2,288 4,830
<INVESTMENT-BANKING-REVENUES> 480 1,075
<FEE-REVENUE> 443 758
<INTEREST-EXPENSE> 243 287
<COMPENSATION> 3,044 5,214
<INCOME-PRETAX> 254 1,257
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 76 641
<EPS-BASIC> .01 .10
<EPS-DILUTED> .01 .10
</TABLE>
