##### 



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

|           |  |                                                                                   
|---------- |  | ----------------------------------------------------------------------------------
|(Mark One) |  |                                                                                   
|x          |  | Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934    
|           |  | For the fiscal year ended December 31, 2001                                       
|           |  | or                                                                                
|o          |  | Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|           |  | For the transition period from  to                                                

000-29337
(Commission File No.)

SUMMIT BROKERAGE SERVICES, INC.
(Name of Small Business Issuer in Its Charter)

|                                                              |  |                                     
|------------------------------------------------------------- |  | ------------------------------------
|FLORIDA                                                       |  | 59 - 3202578                        
|(State or other jurisdiction of incorporation or
organization |  | (I.R.S. Employer
Identification No.)
|                                                              |  |                                     
|25 FIFTH AVENUE, INDIALANTIC, FLORIDA                         |  | 32903                               
|(Address of principal executive offices)                      |  | (Zip Code)                          

Issuers Telephone Number, including area code: (321) 245-3636

Securities registered under Section 12(b)
of the Securities Exchange Act of 1934:

NONE

Securities registered under Section 12(g)
of the Securities Exchange Act of 1934:

COMMON STOCK, $.0001 PAR VALUE

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 
o

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. 
o

Issuers revenues for its most recent fiscal year were $7,223,410.

As of March 25, 2002, the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was
recently sold was $1,083,334.

As of March 25, 2002, there were 5,691,080 shares of issuers common stock
outstanding.





---



##### 

TABLE OF CONTENTS



|                                     |                                                                                                                          |  |  |  |  |  |  | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I                              
|                                     | Item 1. Description of Business.                                                                                        
|                                     | Item 2. Description of Property                                                                                         
|                                     | Item 3. Legal Proceedings                                                                                               
|                                     | Item 4. Submission of Matters to a Vote of Security Holders                                                             
|PART II                             
|                                     | Item 5. Market for Common Equity and Related Stockholder Matters                                                        
|                                     | Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations                           
|                                     | Item 7. Financial Statements.                                                                                           
|                                     | Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.                           
|PART III                            
|                                     | Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
|                                     | Item 10. Executive Compensation.                                                                                        
|                                     | Item 11. Security Ownership of Certain Beneficial Owners.                                                               
|                                     | Item 12. Certain Relationships and Related Transactions.                                                                
|                                     | Item 13. Exhibits and Reports on Form 8-K                                                                               
|SIGNATURES                          
|Michael Dujorne Employment Agreement
|Ronald Caprilla Employment Agreement
|Letter from Hoyman, Dobson & Company
|Suibsidiaries of the Company        

TABLE OF CONTENTS

|         |  |                                                                                                             |    |  |    | 
|-------- |  | ----------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|PART I   |  |                                                                                                             | 1  | 
|         |  |                                                                                                             |    |  |    | 
|Item 1.  |  | Description of Business                                                                                     |    |  | 1  | 
|Item 2.  |  | Description of Property                                                                                     |    |  | 5  | 
|Item 3.  |  | Legal Proceedings                                                                                           |    |  | 5  | 
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                         |    |  | 5  | 
|         |  |                                                                                                             |    |  |    | 
|PART II  |  |                                                                                                             | 6  | 
|         |  |                                                                                                             |    |  |    | 
|Item 5.  |  | Market for Common Equity and Related Stockholder Matters                                                    |    |  | 6  | 
|Item 6.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                       |    |  | 6  | 
|Item 7   |  | Financial Statements                                                                                        |    |  | 11 | 
|Item 8.  |  | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure                        |    |  | 11 | 
|         |  |                                                                                                             |    |  |    | 
|PART III |  |                                                                                                             | 12 | 
|         |  |                                                                                                             |    |  |    | 
|Item 9.  |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange |    |  |    | 
|         |  | Act                                                                                                         |    |  | 12 | 
|Item 10. |  | Executive Compensation                                                                                      |    |  | 13 | 
|Item 11. |  | Security Ownership of Certain Beneficial Owners                                                             |    |  | 17 | 
|Item 12. |  | Certain Relationships and Related Transactions                                                              |    |  | 17 | 
|Item 13. |  | Exhibits and Reports on Form 8-K                                                                            |    |  | 18 | 

Introductory Comment

Throughout this Annual Report on Form 10-KSB, the terms we, us, our,
Summit and the Company refer to Summit Brokerage Services, Inc., a Florida
corporation, and, unless the context indicates otherwise, includes our
subsidiaries.

Forward Looking Statements

This contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. When used in this Annual Report, the words
may, will, expect, anticipate, continue, estimate, project or
intend and similar expressions identify forward-looking statements regarding
events, conditions and financial trends in connection with our future plan of
operations, business strategy, operating results and financial position.
Discussions containing such forward-looking statements may be found in
Managements Discussion and Analysis of Financial Condition and Results of
Operations. Current shareholders and prospective investors are cautioned that
any forward-looking statements are not guarantees of future performance. Such
forward-looking statements by their nature involve substantial risks and
uncertainties, certain of which are beyond our control, and actual results for
future periods could differ materially from those discussed in this Annual
Report, depending on a variety of important factors, among which are the
success or failure of our managements efforts to implement our business
strategy; the level of acquisition opportunities available to us and our
ability to price and negotiate such transactions on a favorable basis, our
ability to properly manage growth and successfully integrate acquired companies
and operations, our ability to compete with major established companies, our
ability to attract and retain qualified personnel, and other risks which may be
described from time to time in future filings with the Securities and Exchange
Commission.

i



---



##### 






PART I




Item 1. Description of Business.

General Overview and History

We are an independent broker dealer licensed in 46 states and offer
financial services to clients across the country. We are a member of the
National Association of Securities Dealers (NASD), as well as the Securities
Investor Protection Corporation (SIPC). As of the date of this Annual Report,
we currently have over 100 Registered Representatives working as independent
contractors out of our 54 locations nationwide, through
which we provide our services.

We provide the following financial services to our clients through our Registered Representatives:



| | - |  | Full service and discount stock and bond brokerage services;                        
| | - |  | ------------------------------------------------------------------------------------
| | - |  | Load and no-load mutual fund executions;                                            
| | - |  | Asset allocation services for mutual funds, stocks and bonds;                       
| | - |  | Mortgage origination;                                                               
| | - |  | Life, health and disability insurance coverage;                                     
| | - |  | Money market funds;                                                                 
| | - |  | Clearing services for our
branch offices through our third-party clearing companies;
| | - |  | Registered investment advisor services; and                                         
| | - |  | Financial planning services.                                                        

Richard Parker, the founder of our company, is our Chairman of the Board,
Chief Executive Officer and majority shareholder. Mr. Parker founded Summit in
1993 as a one-man firm, and was our companys sole source of revenue and
management.

Our branch offices are located throughout the United States, with the
majority located in Florida. While we service retail customers for the most
part, we also service a number of corporate and institutional clients. We are
essentially a financial planning firm, whereby a Registered Representative,
whom we sometimes refer to as Planners, discusses a clients financial needs
and objectives in detail, develops a plan (at no cost), and implements the plan
with the clients approval.

We have a history of significant operating losses, as outlined in Item 6.
Managements Discussion and Analysis of Financial Condition and Results of
Operations. While we believe that our operations and current capital
resources will be sufficient to fund our working capital needs through fiscal
year 2002, we cannot assure you that we will be able to limit our future
negative cash flow or that we will be able to obtain any outside financing that
we may require in the future. Additionally, unless we are able to continue
increasing our revenues, adding new branch offices and Registered
Representatives, and/or significantly reduce our operating costs, we may need
to fund any future negative cash flows from additional debt or equity
financing. Our failure to obtain the amount of any financing that we may need
in the future could have a material adverse effect on our operations and our
ability to continue as a going concern.

Organization

Summit, incorporated under the laws of the State of Florida in September
1993, has three wholly-owned subsidiaries:



| |  |  | Summit Financial Group, Inc., which is a
Registered Investment Advisor under the Investment Advisors
Act of 1940, as amended;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
| |  |  | SBS Insurance Agency of Florida, Inc., which is
an insurance sales agency licensed in 24 states; and                         
| |  |  | Summit Holding Group, Inc., which currently has
no operations;                                                               

1



---



##### 



Our common stock is quoted on the Over-the-Counter Electronic Bulletin
Board under the symbol SUBO and began trading in June 1998.

We are located in the Summit Building located at 25 Fifth Avenue,
Indialantic, Florida, 32903; telephone: 321-724-2303; web site: www.summitbrokerage.com.

Industry Background

The financial services industry has been in existence for over 100 years.
The industry evolved from three separate areas: the banking industry, the
brokerage industry and the insurance industry. Over the last 25 years, the
three industries have slowly merged together to form an industry now commonly
referred to as financial services. The industry offers financial planning
services to a wide array of individuals and companies. With the introduction
of the Internet, a host of industry publications, and several financial
television networks, the general public has become increasingly versed with the
financial instruments available and much more knowledgeable about investments
in general.

Over the last two decades, 401(k) plans have become the investment of
choice for many investors. Companies desiring to limit their ongoing liability
have moved away from defined benefit and profit sharing plans, electing to
utilize the 401(k) to invest retirement funds for their employees. Many
investors begin working with the financial services industry through
participation in their companys 401(k) plan.

Products

Summit offers a broad range of products to the investing public through
Registered Representatives working as independent contractors out of our branch
offices. These products include mutual funds, variable annuities, individual
stocks, bonds, insurance products and managed money accounts.

We earn income, which we record as commission revenue, as products are
sold by our Registered Representatives. We receive commission revenue from our
product suppliers, such as mutual fund companies or insurance companies. We
then pay out a percentage of this amount, which we record as commission
expense, to the Registered Representative who sold the product, in accordance
with the agreement each Registered Representative enters into with us.

Our Registered Representatives offer package products to the investing
public which include, among other things, mutual funds, variable annuities and
unit investment trusts. The term package product describes a package of
securities, usually common stocks, which are managed by an investment company.
While many are licensed to sell individual stocks and bonds, that is a
relatively small percentage of our business, amounting to less than 3% of
revenue. We believe that the use of a package product provides:



| |  |  | More suitable products to the general public;              
| | - |  | -----------------------------------------------------------
| |  |  | More efficient management of the funds;                    
| |  |  | A reduction of risks from buying individual securities; and
| |  |  | An easier supervision process for our compliance team.     

The managed accounts are charged a fee which provides a steady base of
revenue for Summit in both good and bad markets. This provides a more
predictable stream of income. While investors are sometimes reluctant to buy
individual securities and to pay what they may consider high commission fees,
they have invested heavily in mutual funds and variable annuities in recent
years. These products are usually part of a group of mutual funds sometimes
referred to as a family. It is possible for the investor, through management
of these accounts, to move from fund to fund within the family, and take
advantage of sectors of the economy which are experiencing growth which may be
greater than that of other sectors at that particular time. For example, an
investor may be in a growth and income fund and move to a technology fund based
upon the advice of an investment adviser. By managing the investors portfolio
within the mutual fund family and advising as to when the move should be made,
the adviser continues to earn the fee from the amount of money under management
rather than a one-time commission, which may or may not materialize based upon
whether or not the stock markets move up or down.

2



---



##### 



For example, if an investor has $200,000 under management, Summit will
realize a management fee of 1.75%, or $3,500, on an annual basis. Even if the
value of portfolio decreases to $150,000, Summit continues to realize income
from the management fee in the amount of $2,625, which is less than in the
previous year. On the positive side, if the portfolio grew to $250,000, Summit
will realize an annual fee of $4,375. Currently, Summit has over $28 million
under management and is adding funds on a monthly basis. By offering our
product mix, we believe that our Registered Representatives will be viewed more
as advisers than traditional stockbrokers. This helps by creating personal
relationships with the clients that provide a long and mutually beneficial
working relationship.

Revenues, by product, for fiscal 2001 and 2000 are as follows:

|                      |       |   |           |           |      |  |    |     |   |   |           |           |  |  |    |     |  
|--------------------- | ----- | - | --------- | --------- | ---- |  | -- | --- | - | - | --------- | --------- |  |  | -- | --- | -
|                      |       |   | 2001      |           | 2000
|                      |       |   |           |           |     
|Mutual funds          |       | $ | 3,236,438 |           |      |  | 45 | %   |   | $ | 2,775,635 |           |  |  | 45 | %  
|Variable annuities    |       | $ | 1,936,226 |           |      |  | 27 | %   |   | $ | 2,082,181 |           |  |  | 34 | %  
|Equities              |       | $ | 228,240   |           |      |  | 3  | %   |   | $ | 576,645   |           |  |  | 9  | %  
|Registered Investment |       |   |           |           |      |  |    |     |   |   |           |           |  |  |    |    
|Advisory Fees         |       | $ | 152,970   |           |      |  | 2  | %   |   | $ | 278,091   |           |  |  | 7  | %  
|Insurance             |       | $ | 1,577,557 |           |      |  | 22 | %   |   | $ | 348,547   |           |  |  | 5  | %  
|Miscellaneous         |       | $ | 91,979    |           |      |  | 1  | %   |   | $ | 787,873   |           |  |  | 12 | %  
|                      |       |   |           |           |      |  |    |     |   |   |           |           |  |  |    |    
|                      | Total |   | $         | 7,223,410 |      |  |    | 100 | % |   | $         | 6,848,973 |  |  |    | 100 | %
|                      |       |   |           |           |      |  |    |     |   |   |           |           |  |  |    |    

Business Strategy

Since 1995, we have implemented a strategy of affiliating independent
financial planning offices across the country with our company. These
independent offices bear the full expense of the day-by-day operations of their
independently owned locations. We receive, on average, a 10% to 20% over-ride
of the gross revenue provided by these locations. In addition, there are
several other forms of income we derive from these offices.

One additional source of revenue is Registered Investment Advisory (RIA)
fees. We derive such revenue in the form of fee-based management of individual
stocks and/or bond accounts and mutual fund accounts offered by our Registered
Representatives. Much of the management of these funds is out-sourced to
outside managers for the day-by-day management.

Another source of revenue comes from the wide array of insurance products
we offer, including life insurance, fixed annuities, long-term care and
disability insurance.

Revenues are also derived from our Master Marketing Area business model.
In order to build a more rapid method of distribution, we contract with
experienced and well-capitalized industry producers for a geographical location
in the country, usually three-to-five counties. These producers receive the
right to add offices and Registered Representatives in that area in return for
the contractual obligation to build out that territory within a specific period
of time, which is usually three years.

One of the positive aspects of the financial services industry is that
virtually any person or company is a potential client. In the early years of
life, young families invest for college funding and begin to prepare for their
retirement. Middle age families focus more on retirement planning and capital
accumulation to achieve other financial goals. The seniors market focuses on
preservation of capital and providing income through the retirement years.

With a growing population, there is no sign that these trends will
diminish. Based on interaction with our clients, it is our belief that most
people feel that the days of relying on government to provide for their
retirement via Social Security are all but gone. To maintain sufficient income
during retirement requires investing on an ongoing basis throughout their
lifetime. This only serves to help the financial services industry continue
the same growth it has seen for the last 12 years. It is our belief, based
upon current economic conditions, that for individuals

3



---



##### 



investments to appreciate, they must find alternative products, other than
savings accounts, CDs and the like, in which to invest their money.
Securities investments, while representing an inherent risk to principal, also
provide a means for appreciation. While future performance of the securities
markets cannot be predicted from past performance, we believe as long as
individuals seek these alternative means for capital appreciation, securities
markets have the potential to grow over the long term.

Seasonality and Cyclical Factors

Our revenues are affected only slightly by the traditional U.S. vacation
seasons, such as July, August and December. Our revenues may be more adversely
affected by cyclical factors, such as financial market downturns, problems or
recessions in the U.S. or global economies. These downturns may cause investor
concern, which has historically resulted in fewer transactions and less
investing through broker/dealers and financial planners such as Summit, thereby
reducing our revenues and potential profits. Such conditions would present
risk in that we would need to raise additional capital to offset related
significant reductions in revenues.

Competition

We compete with numerous investment banking and brokerage firms,
consulting firms and financial service companies that are larger, have more
financial resources, have longer operating histories and, in some cases, offer
more services to a client than we do. In addition, there is increasing
competition from businesses such as commercial banking and insurance companies
and certain accounting firms that now offer financial services. Businesses in
the securities industry compete primarily in the following areas:



| |  |  | Quality and ability of professional personnel;   
| | - |  | -------------------------------------------------
| |  |  | Experience and reputation of the firm;           
| |  |  | Relative prices of services and products offered;
| |  |  | The scope of products and services; and          
| |  |  | The efficiency of back office operations.        

We have focused our efforts on positioning our company competitively by
targeting our services to individuals and middle-market companies and providing
them with competitively priced products and services. Our targeted markets are
those we believe are not adequately served by, and not the primary focus of,
the larger firms.

Employees

As of December 31, 2001, we employed 15 full-time people, consisting of
five in management and 10 in general staff positions. We also contract with
over 100 licensed Registered Representatives, who are engaged by us as
independent contractors. None of our employees are represented by a labor
union or are subject to a collective bargaining agreement. We believe that our
relations with our employees are good.

Regulation

The securities industry in the United States is subject to extensive
regulation under various federal and state laws and regulations. While the SEC
administers most of the federal securities laws, much of the regulation of the
securities industry is subject to various self-regulatory organizations such as
the NASD. The self-regulatory organizations, among other things, promulgate
regulations and provide oversight in the following areas:



| |  |  | Sales practices;                                            
| | - |  | ------------------------------------------------------------
| |  |  | Trade practices among broker-dealers;                       
| |  |  | Capital requirements;                                       
| |  |  | Record keeping; and                                         
| |  |  | Conduct of employees and affiliates of member organizations.

The SEC and the self regulatory organizations also have the authority to
conduct administrative proceedings which can result in the censure, fine,
suspension or expulsion of a broker-dealer, its employees or

4



---



##### 



officers. Also, new legislation, changes in the rules and regulations
promulgated by the SEC or self regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules often directly affect
the operation and profitability of broker-dealers. The stated purpose of much
of the regulation of broker-dealers is the protection of customers and the
securities markets, rather than the protection of creditors and shareholders of
broker-dealers.

Subsequent Event

On March 22, 2002, Marshall T. Leeds, in a privately negotiated
transaction, agreed to purchase an aggregate of 5,000,000 shares of our common
stock for a total purchase price of $500,000, or $.10 per share. The stock
purchase is subject to certain conditions, including approval of the resulting
change in control of the Company by the National Association of Securities
Dealers, Inc. (NASD) and receipt by Mr. Leeds of appropriate clearance under
a non-competition agreement he has with another company, by May 15, 2002.
Assuming Mr. Leeds acquisition of the shares, Mr. Leeds would become our
largest shareholder as well as our Chief Executive Officer and Chairman of the
Board of Directors. Richard Parker, the Companys current Chairman and Chief
Executive Officer would become President, Chief Operating Officer and Vice
Chairman. Two of our Board members, Mr. Parker and Harry Green, would remain
on the Board and Mr. Leeds and two of his designees would round out a new
5-member Board. Mr. Parker would also grant Mr. Leeds voting control of his
beneficially-owned shares for a period of time. The Leeds transaction also
includes the grant to him of options for 7,000,000 shares of common stock at an
exercise price of $.25 per share, upon his becoming CEO and Chairman.




Item 2. Description of Property

We lease approximately 6,000 square feet of office space for approximately
$9,600 a month pursuant to a lease that expires in October 2007. The lessor is
First America Living Trusts, Inc., an entity wholly-owned by Richard Parker,
our Chairman and Chief Executive Officer.




Item 3. Legal Proceedings

From time to time we are engaged in various legal and regulatory
proceedings arising in the normal course of business. While it is not possible
to determine with certainty the outcome of these matters, we are of the opinion
the eventual resolution of such proceedings will not have a material adverse
effect on our financial position or operating results.




Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

5



---



##### 






PART II




Item 5. Market for Common Equity and Related Stockholder Matters

Market Information

Our common stock is traded in the Over-the-Counter market and is quoted on
the Electronic Bulletin Board under the symbol SUBO. The following table
represents the range of the high and the low last sale prices, as reported by
the NASDAQ Trading and Market Services, for each fiscal quarter for the last
two fiscal years ended December 31, 2000 and 2001. These quotations represent
prices between dealers, may not include retail mark-ups, markdowns or
commissions, and may not necessarily represent actual transactions.

|                     |  |     |      |      |  |   |      | 
|-------------------- |  | --- | ---- | ---- |  | - | ---- | 
|Fiscal Quarter Ended |  | Low |      | High
|                     |  |     |      |     
|March 31, 2000       |  | $   | 3.00 |      |  | $ | 4.50 | 
|June 30, 2000        |  | $   | 2.69 |      |  | $ | 4.38 | 
|September 30, 2000   |  | $   | 1.56 |      |  | $ | 3.75 | 
|December 31, 2000    |  | $   | 0.66 |      |  | $ | 1.13 | 
|March 31, 2001       |  | $   | .25  |      |  | $ | 1.06 | 
|June 30, 2001        |  | $   | .44  |      |  | $ | 1.05 | 
|September 30, 2001   |  | $   | .22  |      |  | $ | 1.13 | 
|December 31, 2001    |  | $   | .20  |      |  | $ | .35  | 

On March 25, 2002, the closing price of our common stock was $.85 and we
had approximately 173 holders of record.

Dividends and Dividend Policy

We have not paid any cash dividends on our common stock during the last
two fiscal years and we do not anticipate paying any cash dividends on our
common stock in the foreseeable future. We currently intend to retain any
future earnings for reinvestment in our business. Any future determination to
pay cash dividends will be at the discretion of our Board of Directors and will
be dependent on our financial condition, results of operations, capital
requirements and other relevant factors.




Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our consolidated financial
condition and results of operations for the fiscal years ended December 31,
2001 and December 31, 2000 should be read in conjunction with our consolidated
financial statements included elsewhere in this Annual Report.

When used in conjunction in the following discussions, the words
believes, anticipates, intends, expects, and similar expressions are
intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties, which could cause results to differ
materially from those projected, including, but not limited to, those set forth
in Factors That May Affect Future Results and Market Price of Our Stock of
this Item 6.

Overview of the Company

Summit, a NASD member firm, is a licensed, independent broker-dealer
offering financial services to clients across the country through Registered
Representatives working as independent contractors out of Summits branch and
non-branch offices.

In 1997, we began an aggressive expansion of new branch offices. In order
to accomplish this, it was necessary to build up our infrastructure, including
additional management and staff personnel, computer systems

6



---



##### 



and offices. These increased expenditures resulted in lower earnings and
the need for additional capital infusions. Therefore, from 1997 through 2001,
our financial statements reflect significant losses during this period of
building current and future revenues, while we were raising the necessary
capital through two private offerings of our common stock and one offering of
convertible preferred stock.

For more information about our ability to continue as a going concern,
please refer to the notes 17 and 18 to our consolidated financial statements included
elsewhere in this Annual Report.

Results of Operations

Fiscal Year Ended December 31, 2001 Compared to Fiscal Year Ended December 31, 2000

Revenues increased in fiscal 2001 by $243,724, or 3.5%, to $7,223,410 from
$6,979,686 in fiscal 2000. This small increase was primarily due to the
downturn in the economy and the related impact on the financial markets, which
in turn reduced investor activity and lowered our revenues. In addition, the
events of September 11, 2001 caused substantial disruptions in our industry and
in our business as well. Specifically, our revenues for the third and fourth
quarters were negatively affected by these circumstances.

Expenses increased in fiscal 2001 by $146,113, or 1.9%, to $7,771,158 from
$7,625,045 in fiscal 2000. The higher expenses were attributable to the
related cost of the increased revenue  commissions expense, which represents
payments to our Registered Representatives for their portion of the revenue.
Commissions expense in 2001 increased by $438,795 to $6,021,991 from $5,583,196
in 2000. Non-commission expenses decreased by $292,682 to $1,749,167 in 2001
from $2,041,849 in 2000.

Non-cash expenses for amortization of unearned stock compensation
decreased in fiscal 2001 by $147,638, to $201,390 from $349,028 in fiscal 2000.

Fiscal Year Ended December 31, 2000 Compared to Fiscal Year Ended December 31, 1999

Revenues increased in fiscal 2000 by $2,223,067, or 47%, to $6,979,686
from $4,756,619 in fiscal 1999. The increase was due to several factors:



| |  |  | the large increase, from 39 to 51, in the number
of branch offices from 1999 to 2000;        
| | - |  | ---------------------------------------------------------------------------------------------
| |  |  | the increased revenues from existing branch
offices, which are those added prior to 1999; and
| |  |  | an increase in new offices with higher producing
registered representatives.                 

Expenses increased in fiscal 2000 by $2,134,416, or 39%, to $7,625,045
from $5,490,629 in fiscal 1999. The higher expenses were also attributable to
the related cost of the increased revenue  commissions expense, which
represent the payments to the Registered Representatives for their portion of
the revenue.

Non-cash expenses for amortization of unearned stock compensation
increased in fiscal 2000 by $134,524, to $349,028 from $214,504 in 1999.

Liquidity and Capital Resources

Historically, our cash flows from operations have been negative and have
been funded by stock issuances. During the third quarter of fiscal 2001, until
the events of September 11, we succeeded in building our revenue base to a
level at which we could provide sufficient cash flow to meet existing operating
costs. Until this level of revenue resumes, we will have a need for additional
outside capital in order to meet operating costs in the near term. We are
presently attempting to increase revenue through additional new sources, such
as insurance products sold through our new insurance division, and through
increased equities transactions provided by our new trading desk revenue
center.

Additionally, it is probable that additional capital will be required for
future acquisition purposes in order to achieve more rapid additional revenue
growth. As a result, our business plan calls for additional capital to be
raised,

7



---



##### 



through a registered offering either in fiscal 2002 or 2003, as market
conditions permit. In addition, we will continue to pursue merger or
acquisition possibilities, as well as outside capital investors.

On March 7, 2002, we determined, in connection with the audit of our 2001
fiscal year, that on one day, December 31, 2001, we were not in
compliance with our net capital or aggregate indebtedness to net
capital ratio requirements under the rules of the NASD. On that date were out of
net capital compliance by
approximately $90,000 and our aggregate indebtedness to net capital
ratio was (21) to 1 instead of the maximum allowed under the rules of 15
to 1. We have been and are in compliance since that date.

If necessary, additional liquidity is available to us through a commitment
from Richard Parker, our majority shareholder, to enter into a subordinated
debt agreement of at least $100,000. For purposes of compliance with NASD Net
Capital Rules, a subordinated loan of $40,000 from this commitment was funded
on February 24, 2000, and approved by the NASD on March 14, 2000.

Our net cash used in
operations was $(263,535) for the year ended December 31, 2001 and
$(567,830) for the year ended December 31, 2000. The $304,295
decrease in cash flows used in
operations is mainly the result of timing, as we received commissions at
year-end, but the related commission liability was not paid until January 2002.

Cash flows from financing activities were $176,983 in fiscal year 2001 and
$414,223 in fiscal year 2000. As previously mentioned, these cash inflows
resulted from the sale of convertible preferred stock in 2001, and from the
issuance of our common stock in the previous period.

Significant Business Relationships

On January 26, 1994, we entered into a clearing agreement with First
Clearing Corporation, a subsidiary of First Union Bank (formerly Wheat First
Securities, Inc.), to execute securities orders and maintain accounts for
clients on behalf of our company.

On November 1, 2000, we entered into a second clearing agreement with Dain
Correspondent Services, a subsidiary of Dain Rauscher Incorporated, to execute
securities orders and maintain accounts for clients on behalf of our company.

On December 17, 1993, we entered into a Broker-Dealer Management Agreement
with Summit Group of Companies, Inc., which we refer to as the management
company, to provide management services for the broker-dealer aspect of our
business. These services included administrative, clerical, accounting
functions, and other services necessary to conduct our broker-dealer business.
The management company is wholly-owned by Richard Parker, our Chairman, Chief
Executive Officer and majority shareholder. However, we were never dependent
upon the services of the management company, and the relationship ceased as of
January 1, 2000.

Factors That May Affect Future Results and Market Price of Our Stock

We operate in a rapidly changing environment that involves numerous risks,
some of which are beyond our control. The following discussion highlights some
of these risks.

We have had recent losses.We realized net losses for the twelve months
ended December 31, 2001 and 2000 of $547,748 and $645,359 respectively, and we
cannot assure you that we will be profitable in the near future or that our
revenues will grow.

Our auditors have qualified their report on our financial statements with
respect to our ability to continue as a going concern.As noted in the Report
of Independent Certified Public Accountants included elsewhere herein, we have
experienced recurring net losses which raise substantial doubt about our
ability to continue as a going concern. Our financial statements do not
include any adjustments that might result from this uncertainty.

Our business could be harmed by market volatility, declines in general
economic conditions and other securities industry risks.Our revenues are
derived primarily from securities brokerage and related services, and we expect
this business to continue to account for almost all of our revenues. We, like
other securities firms, are directly affected by economic and political
conditions, broad trends in business and finance and changes in the conditions
of the securities markets in which our customers trade. Over the past several
years, the securities markets in the United States have fluctuated
considerably.

8



---



##### 



A downturn in these markets such as we have experienced during the past year,
adversely affects our operating results. Recently, the markets for technology
and Internet-related stocks have been especially volatile, and a continued
downturn would have an even greater effect on us. In previous major stock
market declines, many firms in the securities industry suffered financial
losses, and the level of individual investor trading activity decreased after
these events. When trading volume is low, our profitability is adversely
affected because a significant portion of our costs does not vary with revenue.
For these reasons, severe market fluctuations have a material adverse effect
on our business, financial condition and operating results. Some of our
competitors with more diversified business lines might withstand such a
downturn in the securities industry better than we would.

Our business relies heavily on computers and other electronic systems and
capacity constraints and failures of these systems could harm our business. As
our business expands, we face risks relating to the need to expand and upgrade
our transaction processing systems, network infrastructure and other aspects of
our technology. While many of our systems are designed to accommodate
additional growth without redesign or replacement, we may nevertheless need to
make significant investments in additional hardware and software to accommodate
growth. We cannot assure you that we will be able to predict accurately the
timing or rate of such growth, or expand and upgrade our systems and
infrastructure on a timely basis.

We operate in a highly regulated industry and compliance failures could
adversely affect our business.The securities industry in the jurisdictions in
which we operate is subject to extensive regulation covering all aspects of the
securities business. The various governmental authorities and industry
self-regulatory organizations that supervise and regulate us generally have
broad enforcement powers to censure, fine, issue cease-and-desist orders or
suspend or expel us or any of our officers or employees who violate applicable
laws or regulations. Our ability to comply with all applicable laws and rules
is largely dependent on our establishment and maintenance of compliance and
reporting systems, as well as our ability to attract and retain qualified
compliance and other personnel. We could be subject to disciplinary or other
regulatory or legal actions in the future due to noncompliance. In addition,
it is possible that any past noncompliance could subject us to future civil
lawsuits, the outcome of which could have a material adverse effect on our
financial condition and operating results.

In addition, we use the Internet as a major distribution channel to
provide products and services to our customers. Due to the increasing
popularity of the Internet, it is possible that new laws and regulations may be
adopted dealing with such issues as user privacy, content and pricing. Such
laws and regulations might increase our cost of using, or limit our ability to
use, the Internet as a distribution channel. In addition, the growth of the
Internet as a means of conducting international business has raised many legal
issues regarding, among other things, the circumstances in which countries or
other jurisdictions have the right to regulate Internet services that may be
available to their citizens from service providers located elsewhere. In many
cases, there are no laws, regulations, judicial decisions or governmental
interpretations that clearly resolve these issues. This uncertainty may
adversely affect our ability to use the Internet to expand our international
operations, and creates the risk that we could be subject to disciplinary
sanctions or other penalties for failure to comply with applicable laws or
regulations.

We face substantial competition which could reduce our market
share and harm our financial performance.All aspects of our business are
highly competitive. We compete directly with national and regional full
service broker-dealers and, to a lesser extent, with discount brokers, dealers,
investment banking firms, investment advisors and certain commercial banks.
The financial services industry has become considerably more concentrated as
numerous securities firms have either ceased operations or have been acquired
by or merged into other firms. These mergers and acquisitions have increased
competition from these firms, many of which have significantly greater equity
capital and financial and other resources than we do. With respect to retail
brokerage activities, certain regional firms with which we compete have
operated in certain markets longer than we have and have established
long-standing client relationships. In addition, we expect competition from
commercial banks to increase because of recent and anticipated legislative and
regulatory initiatives in the United States to remove or relieve certain
restrictions on commercial banks securities activities. We also compete with
others in the financial services industry in recruiting new employees and
retaining current employees.

We expect to face increasing competition from companies offering
electronic brokerage services, which is a rapidly developing industry. These
competitors may have lower costs or provide fewer services, and may offer
certain customers more attractive pricing or other terms, than we offer. In
addition, disintermediation may occur as issuers attempt to sell their
securities directly to purchasers, including sales using electronic media such
as the Internet. To the extent that issuers and purchasers of securities
transact business without the assistance of financial intermediaries like us,
our operating results could be adversely affected.

We may be unable to hire, integrate or retain qualified personnel.Most
aspects of our business are dependent on highly skilled individuals. We devote
considerable resources to recruiting, training and compensating these
individuals. In addition, one component of our strategy is to increase market
penetration by recruiting experienced Registered

9



---



##### 



Representatives. We cannot assure that these recruiting efforts will be
successful or, if successful, that they will enhance our business, results of
operations, or financial condition.

Competition for key personnel is intense. We cannot assure that losses of
key personnel due to such competition, or for other reasons, will not occur in
the future. The loss of any key employee, particularly Richard Parker, our
Chairman and Chief Executive Officer, could materially and adversely affect our
operating results.

While we generally do not have employment agreements with employees other
than senior management, we attempt to retain employees with incentives such as
long-term deferred compensation plans, stock issuances or other investment
opportunities conditioned on continued employment, and options to buy stock
that vest over a number of years of employment. These incentives, however, may
be insufficient in light of the increasing competition for experienced
professionals in the securities industry, particularly if our stock price were
to decline, or fail to appreciate sufficiently. If that happened, our
long-term deferred compensation plans might no longer be a competitive
incentive for our key employees to stay with us.

Failure to introduce new services and products in a timely manner may
affect our ability to compete effectively.Our future success will depend in
large part on our ability to develop and enhance our services and products. We
operate in a very competitive industry in which the ability to develop and
deliver advanced services through the Internet and other channels is a key
competitive factor. There are significant technical risks in the development
of new or enhanced services and products, including the risk that we will be
unable to:



| |  |  | effectively use new technologies;                                   
| | - |  | --------------------------------------------------------------------
| |  |  | adapt our services and products to emerging industry standards; or  
| |  |  | develop, introduce and market enhanced or new services and products.

Historically, we have been able to develop and introduce enhanced or new
products and services in response to market and customer requirements and
emerging industry standards. However, if in the future we are unable to
develop and introduce enhanced or new services and products quickly enough to
respond to market or customer requirements or to comply with emerging industry
standards, or if these services and products do not achieve market acceptance,
our business, financial condition and operating results could be materially
adversely affected.

We need to comply with stringent capital requirements.Many of the
regulatory agencies, securities exchanges and other industry self-regulatory
organizations that regulate us have stringent rules with respect to the
maintenance of specific levels of net capital by securities broker-dealers.
Net capital is the net worth of a broker or dealer, less deductions for certain
types of assets. If we fail to maintain the required net capital, we may be
subject to suspension or revocation of our licenses, which could ultimately
lead to us being liquidated. If such net capital rules are changed or
expanded, or if there is an unusually large charge against net capital, we
might be required to limit or discontinue those portions of our business that
require the intensive use of capital. A large operating loss or charge against
net capital could adversely affect our ability to expand or even maintain our
present levels of business.

On March 7, 2002, we determined, in connection with the audit of our 2001
fiscal year, that on one day, December 31, 2001, we were not in
compliance with our net capital or aggregate indebtedness to net
capital ratio requirements under the rules of the NASD. On that date were out of
net capital compliance by
approximately $90,000 and our aggregate indebtedness to net capital
ratio was (21) to 1 instead of the maximum allowed under the rules 15
to 1. Although we have been and are in compliance since that date, if
we do not meet net capital requirements in the future, our business
and operations could be materially adversely affected, as discussed
above.

Because we rely on encryption technology, our business is vulnerable to
security risks which may compromise our customer transaction data.A
significant barrier to Internet commerce is the secure transmission of
confidential information over public networks. We rely on third-party
encryption and authentication technology to facilitate secure transmission of
confidential information. We cannot assure you that advances in computer and
cryptography capabilities or other developments will not result in a compromise
of the algorithms we use to protect customer transaction data.

Our rapid growth has placed significant demands on our management and
other resources and is likely to continue.To manage the currently
anticipated growth of our business, we will need to attract, hire and retain
highly skilled and motivated officers and employees. In particular, we
currently need to contract with a

10



---



##### 



significant number of Registered Representatives and other service
personnel to support the expansion of our branch offices and expect that a need
for increased staffing will continue. In addition, most of our competitors are
facing similar staffing shortages, making the competition for qualified
employees particularly strong. We will also need to improve existing systems
and/or implement new systems for transaction processing, operational and
financial management and training, integrating and managing our growing
employee base. We cannot assure you that we will be able to attract the
employees or conduct the system improvements necessary to manage this growth
effectively or that we will be able to achieve the rate of growth we have
experienced in the past.

Our exposure to possible securities litigation could adversely affect our
business.Many aspects of the securities brokerage business involve
substantial risks of liability. In recent years, there has been an increasing
incidence of litigation involving the securities brokerage industry, including
class action and other suits that generally seek substantial damages, including
in some cases punitive damages. Any such litigation brought in the future
could have a material adverse effect on our business, financial condition and
operating results.




Item 7. Financial Statements.

The financial statements required by this item are set forth on pages F-1
through F-19 and are incorporated herein by this reference.




Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

Effective
October 4, 2001, we dismissed Hoyman, Dobson & Company, P.A. as
the independent auditors of our financial statements, and appointed Moore
Stephens Lovelace, P.A., as our new independent auditors. The decision to change accountants was approved by our
Board of Directors.

No report of Hoyman, Dobson & Company, P.A. on our financial statements
for the past two years contained an adverse opinion or disclaimer of opinion, nor
was any such report qualified or modified as to uncertainty, audit scope, or
accounting principles. During the two most recent fiscal years and through the
date of its letter, there were no disagreements nor differences of opinion
with Hoyman on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Hoyman, would cause it to make reference to
the subject matter of the disagreements in connection with its report. During
the two most recent fiscal years and through the date of its letter, Hoyman
did not advise us of any events as listed in paragraphs (1) through (3) of Item
304(a)(1)(iv)(B) of Regulation S-B.

We have furnished Hoyman with a copy of our above statements, which are
made in response to Item 304 (a)(1) of the SEC Regulation S-B and have
requested that Hoyman furnish us with a letter addressed to the SEC, stating
whether or not Hoyman agrees with such statements. A copy of Hoymans letter,
dated April 11, 2002 is attached as an exhibit to this Annual Report.

11



---



##### 






PART III




Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.

The executive officers and directors of the Company are as follows:

|                   |  |     |    |                |  |                                                    
|------------------ |  | --- | -- | -------------- |  | ---------------------------------------------------
|Name               |  | Age |    | Title Director
|                   |  |     |    |               
|Richard Parker     |  |     | 50 |                |  | (Chairman of the Board) and Chief Executive Officer
|Mark F. Caulfield  |  |     | 43 |                |  | Chief Financial Officer, Secretary and Treasurer   
|Ronald F. Caprilla |  |     | 62 |                |  | Vice President  Operations                        
|Ronald George      |  |     | 51 |                |  | Vice President and Director of Trading             
|Michael Dujovne    |  |     | 34 |                |  | Vice President  Compliance                        
|Lester P. Wilmeth  |  |     | 48 |                |  | Director of Business Development and a Director    
|Harry Green        |  |     | 60 |                |  | Director                                           

Richard Parker, Director (Chairman of the Board) and Chief Executive
Officer. Mr. Parker has served as our Chairman of the Board and Chief
Executive Officer since founding the Company in 1993. Mr. Parker began his
career in the financial services industry in 1974 as a licensed realtor. In
1975, he became the youngest licensed broker in the history of the Lakeland
Board of Real Estate when he and his mother, Doris Parker, opened R/D Parker
Realty, a franchise of Century 21, the nations largest real estate sales
organization. From 1975 to 1986, Mr. Parker sold, developed, built and managed
real estate projects primarily throughout Polk County. During that time, he
was recognized as a national sales leader for Century 21. In 1986, Mr. Parker
became fully licensed to sell securities and insurance with Dean Witter.
Following his tenure with Dean Witter, he became the branch manager of Anchor
National Financial, a SunAmerica company. With Anchor National, Mr. Parker was
the second highest producer nationally among the companys several hundred
licensed representatives. During this time, Mr. Parker incorporated and began
doing business as Summit Financial Group, Inc. and Summit Group of Companies.
Summit Brokerage Service Inc., a NASD licensed broker/dealer, was then formed
by Mr. Parker in September 1993. Mr. Parker holds series 7, 63, 65 and 24
licenses, as well as life insurance and real estate licenses. Mr. Parker is
employed full-time at Summit. Mr. Parker is also the sole shareholder of
Educational Seminars of America, Inc., a provider of seminars for the financial
planning industry.

Mark Caulfield,
Chief Financial Officer, Secretary and Treasurer. Mr.
Caulfield has served as our Chief Financial Officer, Secretary and Treasurer
since January 1998. Mr. Caulfield is a Certified Public Accountant with over
23 years in financial management, serving in such key roles as Chief Financial
Officer, Vice President of Finance and Administration, as well as Controller.
During 1997-98, Mr. Caulfield served as CFO of Kallmart Telecommunications, a
communications service provider. Prior to 1997, he had been involved with a
number of similar rapidly growing companies, in such industries as hospitality
management, travel and tourism, restaurants, and service contracting. He has
served on numerous business, charitable, and community boards and committees.
He and his family currently devote a great deal of time to church and Rotary
involvement. He is also a member of several professional associations,
including the American Institute of Certified Public Accountants. Mr.
Caulfield is employed full-time at Summit.

Ronald Caprilla, Vice President  Operations. Mr. Caprilla has been Vice
President of Operations of the Company since December, 2000. Prior to joining
the Company, Mr. Caprilla had been a financial consultant and registered sales
representative with A.G. Edwards & Sons, Inc, Melbourne, Florida, from 1982 to
December 2000. Mr. Caprilla has worked in financial services during his entire
career starting in military finance for the United States Army  Ft. Benning,
Columbus, Georgia, after which he received a Bachelors Degree in Finance from
the University of Central Florida, Orlando, Florida. Subsequent to graduation,
he spent two years in the Peace Corps working for a Columbia development bank
where he set up business management systems for small companies. Upon his
return to the United States and prior to joining A.G. Edwards & Sons, Inc., Mr.
Caprilla purchased and operated for four years a General Business Services
franchise in Melbourne, Florida, that provided accounting and tax services to
small businesses.

12



---



##### 



Ronald George, Vice President and Director of Trading.Mr. George, has
been Vice President and Director of Trading for the Company since May, 2000.
Mr. George is also currently involved with several other businesses and is an
officer, director and principal owner of Trine, Ltd., an investment company
located in Naples, Florida, with which he has been associated since January
1994. He is also an officer, director and principal owner of Euro-American
Private Client Services, Inc., Bonita Springs, Florida, since December 2000,
whose business is financial planning. He is an officer, director and principal
owner of Euro-American Futures, Inc., Bonita Springs, Florida, a securities
firm. From February 1999 to May 2000, Mr. George was a registered
representative with and branch manager for First American Investment Banking
Corporation, Naples, Florida; and, from January l998 to February 1999 he was a
registered representative and branch manager of Securities & Investment
Planning Co., Naples, Florida.

Michael Dujovne, Vice President  Compliance.Mr. Dujovne joined the
Company in September 2000 as Vice President overseeing Compliance (Chief
Compliance Officer), and also as Director of Licensing and as corporate
counsel. Prior to joining the Company, Mr. Dujovne practiced law with Reinman,
Harrell, Graham, Mitchell & Waltwood, Melbourne, Florida, from 1991 through
1994. Thereafter, he practiced law as a sole practitioner in Melbourne,
Florida from January 1995 through November 2000, during which time he
represented the Company on certain matters. Mr. Dujovne received his Juris
Doctor from The Georgetown University Law Center, Washington, D.C.

Harry S. Green, Director. Mr. Green was elected a director of Summit in
August 1998. From 1966 until he retired in 1994, Mr. Green worked for Wal-Mart
Stores, Inc. After graduation from University of Arkansas in 1970, he started
in Wal-Marts management program and was promoted to District Manager in 1977.
In 1984, he was promoted to Regional Vice President and in 1988 he was Regional
Vice President of Sams, an affiliate of Wal-Mart. From 1990 to 1994, he
worked with SuperCenters and was Operations Director for Buds, an affiliate of
Wal-Mart. Mr. Green is not employed full-time at Summit.

Lester P. Wilmeth, Director, and Director of Business Development.Mr.
Wilmeth joined the Company in May 2001 as Director of Business Development and
was appointed a director of Summit in August, 2001. Prior to joining the
Company, Mr. Wilmeth served as Managing Director of the Retail Division of
Midsouth Capital, Inc., Columbia, South Carolina, from October 1995 to May
2001. He holds active Series 4, 7, 8, 24, 63 and 65 licenses and graduated
from the University of South Carolina with a B. Sc. in Business Administration.
He has served as a registered principal and/or registered representative with
various companies prior to October 1995, including MFI Investments, Bryan, Ohio
from July 1994 to October 1995, First Affiliated Securities, LaJolla,
California, from January 1992 to July 1994, and NCNB Securities, Charlotte,
North Carolina from May 1987 to January 1992.

Section 16(A) Beneficial Ownership Reporting Compliance

Based solely upon a review of Forms 3, 4 and 5 and amendments to these
forms furnished to us, all parties subject to the reporting requirements of
Section 16(a) of the Exchange Act filed all such required reports with respect
to fiscal year 2001. All such reports, however, were not filed on a timely
basis. Mr. Richard Parker, Chairman and CEO filed two late reports on Form 4
and Mr. Harry Green, a director, filed one late report on Form 4.




Item 10. Executive Compensation.

The following table sets forth all compensation awarded to, earned by, or
paid for all services rendered to Summit during the fiscal years ended December
31, 1999, 2000 and 2001 by our Chief Executive Officer and any executive
officer who received compensation in excess of $100,000 during those years.

13



---



##### 



SUMMARY COMPENSATION TABLE

|                   |                         |        |          |          |  |       |                         |         |                     |  |     |                       |  |  |           |         |    
|------------------ | ----------------------- | ------ | -------- | -------- |  | ----- | ----------------------- | ------- | ------------------- |  | --- | --------------------- |  |  | --------- | ------- | ---
|                   |                         |        |          |          |  |       |                         |         |                     |  |     |                       |  |  | Long-Term
|                   |                         |        |          |          |  |       | Annual Compensation (1) |         | Compensation Awards
|                   |                         |        |          |          |  |       |                         |         |                    
|Name And Principal |                         | Fiscal |          |          |  |       |                         |         |                     |  |     | Securities Underlying
|Position           |                         | Year   |          | Salary   |  | Bonus |                         | Options
|                   |                         |        |          |          |  |       |                         |        
|Richard Parker     |                         |        | 12/31/01 |          |  | $     | 77,675                  |         |                     |  | -0- |                       |  |  | 91,860    | (2)    
|                   | Chairman and            |        |          | 12/31/00 |  |       | $                       | 45,756  |                     |  |     | -0-                   |  |  |           | 404,440 | (3)
|                   | Chief Executive Officer |        |          | 12/31/99 |  |       | $                       | 188,471 |                     |  |     | -0-                   |  |  |           | 95,000  | (4)



---

|(1) |  | The amounts reflected in the above table do not include any amounts for
perquisites and other personal benefits extended to the Named Executive
Officer. The aggregate amount of such compensation for the named
executive officer is less than 10% of the total annual salary and bonus.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Represents 10,000 options granted in 2001 that are exercisable at $1.00
per share until December 31, 2011, and 81,860 options granted in 2001 that
are exercisable at $ .50 per share until December 31, 2011.                                                                           
|(3) |  | Represents options granted in 2000 that are exercisable at $2.50 per
share until 2010, 394,440 of which replaced the options granted in 1999 in
footnote 4 below.                                                                                                                        
|(4) |  | Represents an option granted in 1999 that is exercisable at $2.50 per
share until December 31, 2009. This option was canceled and replaced by
the options described in footnote 3 above.                                                                                                 

A total of 91,860 stock option grants were made to the named executive
officer in fiscal 2001. No stock options were exercised by the named executive
officer in fiscal 2001.

Employment Agreements

We entered into a two-year employment agreement with Richard Parker, our
Chief Executive Officer, in May 2000. The Parker employment agreement provides
that, in consideration for Mr. Parkers services, he is to be paid a base
salary of $155,000 during the first year of the agreement, and granted an
option to purchase 320,000 shares of our common stock at an option price of
$2.50 per share. During the second year of the agreement, Mr. Parker receives
a $5,000 increase in his base salary. The Parker employment agreement expired
on December 31, 2001 and has not been renewed as of this date. On May 16,
2000, in connection with an adjustment to Mr. Parkers compensation
arrangements, all previously granted options, none of which were exercised,
were canceled and we granted Mr. Parker immediately exercisable non-qualified
options to purchase 394,440 shares of common stock at $2.50 per share pursuant
to a stock option agreement between us and Mr. Parker.

2000 Incentive Compensation Plan

Our 2000 Incentive Compensation Plan (the Plan) was approved by our
Board of Directors and shareholders in 2000. Our Plan is currently
administered by the Companys Board of Directors. The Plan provides for the
grant of options (incentive and non-statutory), stock appreciation rights and
restricted stock to officers, directors, employees and independent contractors
capable of contributing to the Companys performance. The Company has reserved
an aggregate of 900,000 shares of common stock for grants under the Plan.
Incentive stock options may be granted only to employees eligible to receive
them under the Internal Revenue Code of 1986, as amended. As of December 31,
2001, the Company had outstanding options (only non-statutory) for a total of
626,738 shares of the Companys common stock, leaving a total of
273,262 shares
available for future grants. Options have a term of ten years, unless earlier
terminated in accordance with the provisions of the Plan and applicable stock
option agreements. The exercise prices of the options range from $.50 per
share to $2.50 per share, and generally have scheduled vesting. As of December
31, 2001, options for 438,121 shares were vested. Upon expiration of
unexercised options, the unpurchased shares subject to such options will again
be available for purposes of the Plan.

Options Granted Outside of Our 2000 Incentive Compensation Plan

As of December 31, 2001, we had outstanding options to purchase an
aggregate of 1,008,478 shares of common stock, all of which have an
exercise price of $2.50 per share. All such options have a
term of ten years from the date of grant unless otherwise terminated in
accordance with their terms. Of such outstanding options granted

14



---



##### 



outside of our Plan, options for approximately
861,701 shares are immediately
exercisable.

Director Compensation

Currently, directors do not receive compensation for serving on our Board
other than the grant of stock options from time to time at the discretion of
our Board. Directors are reimbursed for their reasonable expenses incurred in
attending Board or Committee meetings. As of December 31, 2001,
the Company had granted options for a total of 91,000 shares of
common stock to directors in connection with their service on the
Board.

15



---



##### 



REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION

General

The Compensation Committee of the Board of Directors during fiscal year
2001 consisted of H. Lee Rust and Les Wilmeth, effective August 4, 2001. Mr.
Rust resigned as a director in March 2002. Each Compensation Committee member
is a non-employee director of the Company. The Compensation Committee
administers the Companys executive compensation program, monitors corporate
performance and its relationship to compensation for executive officers, and
makes appropriate recommendations concerning matters of executive compensation.

Compensation Philosophy

The Company has developed and implemented a compensation program that is
designed to attract, motivate, reward and retain the broad-based management
talent required to achieve the Companys business objectives and increase
shareholder value. There are two major components of the Companys
compensation program: base salary and incentives, each of which is intended to
serve the overall compensation philosophy.

Base Salary

The Companys salary levels for executive officers, including its Chief
Executive Officer, are intended to be consistent with competitive pay practices
of similarly-sized companies within the industry. In determining executive
officers salaries, the Compensation Committee considers level of
responsibility, competitive trends, the financial performance and resources of
the Company, general economic conditions, as well as factors relating to the
particular individual, including overall job performance, level of experience
and prior service, ability, and knowledge of the job.

Incentives

Incentives consist of stock options. The Compensation Committee strongly
believes that the compensation program should provide employees with an
opportunity to increase their ownership and potential for financial gain from
increases in the Companys stock price. This approach closely aligns the best
interests of shareholders and Registered Representatives, executives and
employees. Therefore, executives and other employees and Registered
Representatives are eligible to receive stock options, giving them the right to
purchase shares of the Companys common stock at a specified price in the
future. Stock option grants are determined by the Companys Board of Directors
for all employees except the four most highly compensated, and as to those
executives, the compensation committee determines stock options. The grant of
options is based primarily on an individuals potential contribution to the
Companys growth and profitability, as measured by the market value of the
Companys common stock.

| |  |                           
| |  | --------------------------
| |  | Respectfully submitted,   
| |  |                           
| |  | THE COMPENSATION COMMITTEE
| |  |                           
| |  | Les Wilmeth               

16



---



##### 






Item 11. Security Ownership of Certain Beneficial Owners.

The following table sets forth certain information as of March 20, 2002
with respect to the beneficial ownership of common stock by:



| |  |  | each person who, to our knowledge, beneficially
owned or had the right to acquire more than 5% of the
outstanding common stock;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------
| |  |  | each executive officer named
in the Summary Compensation Table;                                                                
| |  |  | each of our directors; and                                                                                                     
| |  |  | all executive officers and directors as a group:                                                                               

|                                                      |  |                  |           |            |  |  |      |  
|----------------------------------------------------- |  | ---------------- | --------- | ---------- |  |  | ---- | -
|Name Of Beneficial Owner (1)(2)                       |  | Number Of Shares |           | Percentage
|                                                      |  |                  |           |           
|Richard Parker (3)                                    |  |                  | 5,022,765 |            |  |  | 72.5 | %
|Harry S. Green (4)                                    |  |                  | 97,500    |            |  |  | 1.4  | %
|Les Wilmeth (5)                                       |  |                  | 10,000    |            |  |  | *    |  
|All
officers and directors as a group (6 persons) (6) |  |                  | 5,546,730 |            |  |  | 80.0 | %



---

|*   |  | Less than one percent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Unless otherwise noted, the address of each person or entity listed is
Summit Brokerage Services, Inc., 25 Fifth Avenue, Indialantic, Florida
32903.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(2) |  | Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Shares of common stock subject to options, warrants or
convertible securities that are currently exercisable, or exercisable
within 60 days of March 20, 2002, are deemed outstanding for computing the
percentage of the person holding such options, warrants or convertible
securities but are not deemed outstanding for computing the percentage of
any other person. Except as indicated by footnote and subject to
community property laws where applicable, the persons named in the table
have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
|(3) |  | Comprised of (i) 3,743,920 shares owned solely and directly by Mr.
Parker, (ii) 497,675 shares owned jointly with his spouse, (iii) 27,000
shares owned solely by his spouse, (iv) 549,170 shares issuable pursuant
to currently exercisable stock options owned solely and directly by Mr.
Parker, (vi) an aggregate of 45,000 shares issued to two foundations and a
trust benefiting family members of Mr. Parker, of which Mr. Parker and/or
his spouse serves as trustee, and (vii) 160,000 shares issuable pursuant
to currently exercisable stock options owned solely and directly by Mr.
Parkers spouse.                                                                                                                                                               
|(4) |  | Includes 33,000 shares
issuable pursuant to stock purchase options currently exercisable or
exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(5) |  | Includes 10,000 shares issuable pursuant to stock
purchase options currently exercisable or
exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(6) |  | Includes 1,148,635 shares
issuable pursuant to stock purchase options currently exercisable or
exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       




Item 12. Certain Relationships and Related Transactions.

We advanced certain funds on behalf of companies
wholly-owned by Richard Parker, a principal shareholder and an executive
officer of our company. During fiscal 1999, we paid expenses of $5,739 on
behalf of Educational Seminars of America, Inc., a company wholly-owned by Mr.
Parker (ESA). ESA conducts educational and training seminars for financial
planners and generates income from fees paid by participants. At December 31,
2001, there remained a receivable of $1,456 for such expenses. The receivable
was not evidenced in writing and was repaid in fiscal 2002.

ESA occupies a desk and 15% of the work space at Summits headquarters.
ESA conducts training seminars for financial planners. Frequently the seminar
attendees become Registered Representatives of Summit, bringing not only their
expertise to Summit, but their customer base as well.
We received $29,015 in commissions in fiscal 1999 from ESA for referrals
to the seminars conducted by ESA.

We lease approximately 6,000 square feet of office space for our
headquarters from First America Living Trust, Inc., a company wholly-owned by
Mr. Parker (First America). Annual lease payments are $109,200 from

17



---



##### 



2000 through 2007. The lease expires October 31, 2007. We paid rent
under this lease of $109,200 in each of fiscal 2001 and fiscal 2000.
At December 31, 2000, the Company had advanced $3,251 to First
America for expenses paid on behalf of First America, which amount
was repaid during 2001.

The Company advanced
expenses for Summit Group of Companies, Inc., wholly-owned by Richard
Parker, which outstanding unpaid balance at December 31, 2001 and
2000 was $16,183 and $19,233, respectively. The receivable is not
evidenced in writing.

At December 31, 2000,
the Company had a note receivable of $22,294 from an officer of the
Company. The note was repaid during 2001.

At December 31, 2001,
the Company had $30,000 due from Richard Parker. The outstanding
balance was noninterest-bearing and was repaid in January 2002.

In December 1993, we entered into a written management agreement with
Summit Group of Companies, Inc., a corporation wholly-owned by Richard Parker,
whereby we paid a management fee to cover overhead expenses related to
administrative services, and clerical and accounting matters. Under this
agreement, the management fee was equal to 95% of our prior months net income.
For purposes of the agreement, net income was defined as gross income from
whatever source, less commissions paid to Registered Representatives and
commissions re-allowed to other broker-dealer firms and other expenses,
excluding the monthly management fee and income taxes incurred by us. The
management fees may be reduced or waived for any month where necessary to
insure that our net capital does not fall below $100,000 and/or the ratio of
our aggregate indebtedness to net capital does not exceed 1,000%, as such terms
are defined by the NASD. The term of the agreement was for one year and can be
extended for additional consecutive one-year terms unless either party notifies
the other at least one month prior to the completion of any one-year term of
its desire to terminate the agreement. The management agreement was terminated
effective January 1, 2000. In order to reflect the true costs of the support
services, we have, instead of following the management agreement, reflected all
support services costs paid by such management company on our behalf in our
financial statements at December 31, 1999 and 1998. The total fees paid to
this related party pursuant to the agreement were $1,156,235 and $885,482 for
1999 and 1998, respectively.

We believe that the terms of the foregoing arrangements were no less
favorable to us than we could have obtained from non-affiliated third parties.
We anticipate that all future transactions with our affiliates, if any, will be
on terms believed by our management to be no less favorable than are available
from unaffiliated third parties and will be approved by a majority of
disinterested directors.




Item 13. Exhibits and Reports on Form 8-K

A.     Exhibits

Set forth below is a list of the exhibits to this Annual Report on Form
10-KSB.

|       |  |                                                                                                     
|------ |  | ----------------------------------------------------------------------------------------------------
|Number |  | Name                                                                                                
|       |  |                                                                                                     
|3.1    |  | Amended and Restated Articles of Incorporation (1)                                                  
|3.1.1  |  | Amendment to Amended and Restated Articles of Incorporation (1)                                     
|3.2    |  | Amended and Restated Bylaws (2)                                                                     
|10.1   |  | 2000 Incentive Compensation Plan (3)                                                                
|10.2   |  | Stock Option Agreement between the Company and Richard Parker (4)                                   
|10.3   |  | Stock Option Agreement between the Company and Mark F. Caulfield (4)                                
|10.4   |  | Employment Agreement between the Company and Richard Parker (5)                                     
|10.5   |  | Employment Agreement between the Company and Mark F. Caulfield (5)                                  
|10.6   |  | Secured Demand Note Collateral Agreement between the Company and
Summit Group of Companies, Inc. (6)
|10.7   |  | Amendment to Secured Demand Note Collateral Agreement (6)                                           
|10.8   |  | Employment Agreement between the Company and Michael Dujovne*                                       
|10.9   |  | Employment Agreement between the Company and Ronald Caprilla*                                       
|16.1   |  | Letter from Hoyman, Dobson & Company*                                                               
|21.1   |  | Subsidiaries of the Company*                                                                        

18



---



##### 





---

|*   |  | Filed herewith                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Incorporated by reference to the Companys Quarterly Report on Form 10-QSB for
the fiscal quarter ended June 30, 2001, filed August 20, 2001, file no. 000-29337.                                                                                                                                                                                                                                                                                               
|(2) |  | Exhibit 3.2 filed with the Companys Quarterly Report on Form 10-QSB for the
fiscal quarter ended June 30, 2001 was filed prematurely and subsequently not
adopted by the Board of Directors. As a result, the Amended and Restated Bylaws
dated July 21, 2000 remain in effect and were re-filed with, and are incorporated
by reference to, the Companys Quarterly Report for the fiscal quarter ended
September 30, 201, on Form 10-QSB, file no. 000-29337.
|(3) |  | Incorporated by reference to the Companys Proxy Statement on Schedule 14A,
filed July 31, 2000, file no. 000-29337.                                                                                                                                                                                                                                                                                                                                            
|(4) |  | Incorporated by reference to the Companys Information Statement on Schedule
14C, filed September 26, 2000, file no. 000-29337.                                                                                                                                                                                                                                                                                                                                 
|(5) |  | Incorporated by reference to the Companys Quarterly Report for the fiscal
quarter ended June 30, 2000 on Form 10-QSB, filed August 14, 2000 and amended
August 15, 2000, file no. 000-29337.                                                                                                                                                                                                                                                                   
|(6) |  | Incorporated by reference to the Companys Quarterly Report for the fiscal
quarter ended March 31, 2001 on Form 10-QSB filed May 21, 2001, file no. 000-29337.                                                                                                                                                                                                                                                                                                  

B.     Reports on Form 8-K

On October 9, 2001, the Company filed a Current Report on Form 8-K to
report a change in the Companys certifying accountant. On October 18, 2001,
the Company filed an Amended Current Report on Form 8-K/A revising certain
information contained in its Current Report on Form 8-K filed October 9, 2001.

19



---



##### 






SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934,
as amended, Summit Brokerage Services, Inc. has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

| |  |                                                  
| |  | -------------------------------------------------
| |  | SUMMIT BROKERAGE SERVICES, INC                   
| |  |                                                  
| |  |                                                  
| |  | /s/ RICHARD PARKER                               
| |  |                                                  
| |  | Richard Parker                                   
| |  | Chairman of the Board and Chief Executive Officer
| |  | (principal executive officer)                    

Date: April 11, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of Summit Brokerage Securities, Inc. and in the capacities and on the dates
indicated.

|                                         |  |                                                                                |  |               
|---------------------------------------- |  | ------------------------------------------------------------------------------ |  | --------------
|Signature                                |  | Title                                                                          |  | Date          
|                                         |  |                                                                                |  |               
|                                         |  |                                                                                |  |               
|/s/ RICHARD PARKER                       |  | President and Chief Executive Officer and Director                             |  | April 11, 2002
|                                         |  | (principal executive officer)                                                  |  |               
|Richard Parker                           |  |                                                                                |  |               
|                                         |  |                                                                                |  |               
|/s/ MARK F. CAULFIELD

Mark F. Caulfield |  | Chief Financial Officer, Secretary and Treasurer
(principal financial officer) |  | April 11, 2002
|                                         |  |                                                                                |  |               
|/s/ HARRY S. GREEN                       |  | Director                                                                       |  | April 11, 2002
|                                         |  |                                                                                |  |               
|Harry S. Green                           |  |                                                                                |  |               
|                                         |  |                                                                                |  |               
|/s/ LES WILMETH                          |  | Director                                                                       |  | April 11, 2002
|                                         |  |                                                                                |  |               
|Les Wilmeth                              |  |                                                                                |  |               

20



---



##### 



Summit Brokerage Services, Inc.
and Subsidiaries

CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2001 and 2000





---



##### 



C O N T E N T S



---

|                                                                                   |                                                                                              |  |        |      | 
|---------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- |  | ------ | ---- | 
|                                                                                   |                                                                                              |  | Page  
|                                                                                   |                                                                                              |  | Number
|                                                                                   |                                                                                              |  |       
|                                                                                   |                                                                                              |  |        |     
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -
Moore Stephens Lovelace, P.A  |                                                                                              |  | F-1    |     
|                                                                                   |                                                                                              |  |        |     
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -
Hoyman, Dobson & Company, P.A |                                                                                              |  | F-2    |     
|                                                                                   |                                                                                              |  |        |     
|CONSOLIDATED FINANCIAL STATEMENTS                                                  |                                                                                              |  |        |     
|                                                                                   |                                                                                              |  |        |     
|                                                                                   | Consolidated Statements of Financial Condition                                               |  |        | F-3  | 
|                                                                                   |                                                                                              |  |        |     
|                                                                                   | Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss)                     |  |        | F-4  | 
|                                                                                   |                                                                                              |  |        |     
|                                                                                   | Consolidated Statements of Changes in Stockholders Equity                                   |  |        | F-5  | 
|                                                                                   |                                                                                              |  |        |     
|                                                                                   | Consolidated Statement of Changes in Liabilities Subordinated
to Claims of General Creditors |  |        | F-6  | 
|                                                                                   |                                                                                              |  |        |     
|                                                                                   | Consolidated Statements of Cash Flows                                                        |  |        | F-7  | 
|                                                                                   |                                                                                              |  |        |     
|                                                                                   | Notes to Consolidated Financial Statements                                                   |  |        | F-8  | 
|                                                                                   |                                                                                              |  |        |     
|                                                                                   | Supplemental Information                                                                     |  |        | F-17 | 





---



##### 



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
Summit Brokerage Services, Inc. and Subsidiaries
Indialantic, Florida

We have audited the accompanying consolidated statement of financial condition
of Summit Brokerage Services, Inc. and Subsidiaries as of December 31, 2001,
and the related consolidated statement of income (loss) and comprehensive
income (loss), changes in stockholders equity, changes in liabilities
subordinated to claims of general creditors, and cash flows for the year then
ended that you are filing pursuant to Rule 17a-5 under the Securities Exchange
Act of 1934. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the 2001 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Summit
Brokerage Services, Inc. and Subsidiaries as of December 31, 2001, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States
of America.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information contained in Schedule I
is presented for purposes of additional analysis and is not a required part of
the basic financial statements, but is supplementary information required by
Rule 17a-5 under the Securities Exchange Act of 1934. Such information has
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 18 to the
financial statements, the Company has suffered recurring losses from operations
and was not in compliance with its net capital requirements at December 31,
2001, which raises substantial doubt about its ability to continue as a going
concern. Managements plans regarding those matters are also described in Note
18. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.

/s/ Moore Stephens Lovelace, P.A.
Certified Public Accountants

Orlando, Florida
March 6, 2002, except
for Note 20 as to which
the date is March 22, 2002

F-1



---



##### 



Summit Brokerage Services, Inc. and Subsidiaries
Indialantic, Florida

We have audited the accompanying consolidated statement of financial condition
of Summit Brokerage Services, Inc. (a Florida Corporation) and Subsidiaries as
of December 31, 2000, and the related consolidated statements of income (loss)
and comprehensive income (loss), changes in stockholders equity, and cash
flows for the year then ended that you are filing pursuant to rule 17a-5 under
the Securities Exchange Act of 1934. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.

We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position
of Summit Brokerage Services, Inc. and Subsidiaries as of December 31, 2000 and
the results of their operations and their cash flows for the year then ended in
conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 18 to the
financial statements, the Company has suffered recurring losses from operations
at December 31, 2000, which raises substantial doubt about its ability to
continue as a going concern. Managements plans regarding those matters also
are described in Note 18. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ Hoyman, Dobson & Company, P.A.
Melbourne, FL
February 27, 2001

F-2



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

December 31, 2001 and 2000

|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |           |            |         |         | 
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------- | -------------------------- | ---------- | ------- | ------- | --------- | ---------- | ------- | ------- | 
|                                                        |                                                                                                                                                                                                              |                   |                            |            | 2001    |         | 2000     
|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |          
|ASSETS                                                  |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|                                                        | Cash                                                                                                                                                                                                         |                   | $                          | 43,218     |         |         | $         | 226,150    |        
|                                                        | Cash with clearing broker                                                                                                                                                                                    |                   |                            | 25,062     |         |         |           | 25,141     |        
|                                                        | Investments available-for-sale                                                                                                                                                                               |                   |                            | 14,810     |         |         |           | 13,925     |        
|                                                        | Commissions receivable                                                                                                                                                                                       |                   |                            | 524,572    |         |         |           | 508,990    |        
|                                                        | Prepaid expenses                                                                                                                                                                                             |                   |                            | 63,438     |         |         |           | 46,780     |        
|                                                        | Other receivable, net of $14,020 allowance for doubtful
accounts at December 31, 2001 and 2000                                                                                                               |                   |                            | 154,022    |         |         |           | 17,855     |        
|                                                        | Due from related parties                                                                                                                                                                                     |                   |                            | 47,639     |         |         |           | 44,778     |        
|                                                        | Secured demand notes receivable                                                                                                                                                                              |                   |                            | 40,000     |         |         |           | 40,000     |        
|                                                        | Property and equipment, net                                                                                                                                                                                  |                   |                            | 156,424    |         |         |           | 105,603    |        
|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|Total assets                                            |                                                                                                                                                                                                              | $                 | 1,069,185                  |            |         | $       | 1,029,222 |           
|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|LIABILITIES AND STOCKHOLDERS EQUITY                    |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|Liabilities                                             |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|                                                        | Accounts payable and accrued expenses                                                                                                                                                                        |                   | $                          | 160,147    |         |         | $         | 77,025     |        
|                                                        | Accrued commission expense                                                                                                                                                                                   |                   |                            | 463,884    |         |         |           | 380,634    |        
|                                                        | Deferred income                                                                                                                                                                                              |                   |                            | 52,333     |         |         |           | 21,333     |        
|                                                        | Note payable                                                                                                                                                                                                 |                   |                            | 50,000     |         |         |           |           |        
|                                                        | Obligations under capital leases                                                                                                                                                                             |                   |                            | 11,500     |         |         |           | 12,055     |        
|                                                        | Due to related party                                                                                                                                                                                         |                   |                            | 200        |         |         |           | 200        |        
|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|                                                        |                                                                                                                                                                                                              | Total liabilities |                            |            | 738,064 |         |           |            | 491,247 |        
|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|Liabilities subordinated to claims of general creditors |                                                                                                                                                                                                              |                   | 40,000                     |            |         |         | 40,000    |           
|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|Stockholders equity                                    |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|                                                        | Preferred stock, 12% cumulative convertible; par value $0.0001
per share; authorized 5,000,000 shares; 125,000 issued and
outstanding (liquidation preference of $125,000)                                   |                   |                            | 13         |         |         |           |           |        
|                                                        | Common stock, par value $0.0001 per share; authorized
20,000,000 shares; 4,700,064 issued and 4,691,080
outstanding at December 31, 2001 and 4,698,525 issued and
4,691,224 outstanding at December 31, 2000 |                   |                            | 470        |         |         |           | 470        |        
|                                                        | Additional paid-in capital                                                                                                                                                                                   |                   |                            | 3,023,897  |         |         |           | 2,898,910  |        
|                                                        | Unearned stock compensation                                                                                                                                                                                  |                   |                            | (6,342     | )       |         |           | (207,732   | )      
|                                                        | Treasury stock, at cost                                                                                                                                                                                      |                   |                            | (16,238    | )       |         |           | (29,857    | )      
|                                                        | Accumulated other comprehensive income                                                                                                                                                                       |                   |                            | 2,660      |         |         |           | 1,775      |        
|                                                        | Subscriptions receivable                                                                                                                                                                                     |                   |                            | (10,250    | )       |         |           | (10,250    | )      
|                                                        | Accumulated deficit                                                                                                                                                                                          |                   |                            | (2,703,089 | )       |         |           | (2,155,341 | )      
|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|                                                        |                                                                                                                                                                                                              |                   | Total stockholders equity |            |         | 291,121 |           |            |         | 497,975 | 
|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           
|Total liabilities and stockholders equity              |                                                                                                                                                                                                              | $                 | 1,069,185                  |            |         | $       | 1,029,222 |           
|                                                        |                                                                                                                                                                                                              |                   |                            |            |         |         |           |           

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

F-3



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
For the years ended December 31, 2001 and 2000

|                                                                        |                                                                 |   |           |           |      |   |           |           |  
|----------------------------------------------------------------------- | --------------------------------------------------------------- | - | --------- | --------- | ---- | - | --------- | --------- | -
|                                                                        |                                                                 |   | 2001      |           | 2000
|                                                                        |                                                                 |   |           |           |     
|Revenues                                                                |                                                                 |   |           |           |      |   |           |          
|                                                                        | Commissions                                                     |   | $         | 7,131,431 |      |   | $         | 6,847,362 |  
|                                                                        | Interest and dividends                                          |   |           | 64,522    |      |   |           | 51,685    |  
|                                                                        | Other                                                           |   |           | 27,457    |      |   |           | 80,639    |  
|                                                                        |                                                                 |   |           |           |      |   |           |           |  
|                                                                        |                                                                 |   | 7,223,410 |           |      |   | 6,979,686 |          
|                                                                        |                                                                 |   |           |           |      |   |           |           |  
|Expenses                                                                |                                                                 |   |           |           |      |   |           |          
|                                                                        | Commissions                                                     |   |           | 6,021,991 |      |   |           | 5,583,196 |  
|                                                                        | Occupancy                                                       |   |           | 96,460    |      |   |           | 115,752   |  
|                                                                        | Amortization of unearned stock compensation/consultant expenses |   |           | 201,390   |      |   |           | 349,028   |  
|                                                                        | Salaries and benefits                                           |   |           | 664,850   |      |   |           | 659,245   |  
|                                                                        | Recruiting expense                                              |   |           | 121,135   |      |   |           | 146,406   |  
|                                                                        | Legal expense                                                   |   |           | 118,712   |      |   |           | 137,054   |  
|                                                                        | Other operating expenses                                        |   |           | 546,620   |      |   |           | 634,364   |  
|                                                                        |                                                                 |   |           |           |      |   |           |           |  
|                                                                        |                                                                 |   | 7,771,158 |           |      |   | 7,625,045 |          
|                                                                        |                                                                 |   |           |           |      |   |           |           |  
|Net loss before income taxes                                            |                                                                 |   | (547,748  | )         |      |   | (645,359  | )        
|                                                                        |                                                                 |   |           |           |      |   |           |          
|Provision for income taxes                                              |                                                                 |   |          |           |      |   |          |          
|                                                                        |                                                                 |   |           |           |      |   |           |           |  
|Net loss                                                                |                                                                 | $ | (547,748  | )         |      | $ | (645,359  | )        
|                                                                        |                                                                 |   |           |           |      |   |           |          
|Weighted average common shares and
common share equivalents outstanding |                                                                 |   | 4,693,970 |           |      |   | 4,575,534 |          
|                                                                        |                                                                 |   |           |           |      |   |           |           |  
|Basic and diluted loss per share                                        |                                                                 | $ | (0.117    | )         |      | $ | (0.141    | )        
|                                                                        |                                                                 |   |           |           |      |   |           |           |  
|Other comprehensive income (loss), net of tax:                          |                                                                 |   |           |           |      |   |           |          
|                                                                        | Net loss                                                        |   | $         | (547,748  | )    |   | $         | (645,359  | )
|                                                                        |                                                                 |   |           |           |      |   |           |          
|Unrealized gain on securities:                                          |                                                                 |   |           |           |      |   |           |          
|                                                                        | Unrealized holding gains arising during the year                |   |           | 885       |      |   |           | 1,775     |  
|                                                                        |                                                                 |   |           |           |      |   |           |           |  
|Other comprehensive income                                              |                                                                 |   | 885       |           |      |   | 1,775     |          
|                                                                        |                                                                 |   |           |           |      |   |           |           |  
|Comprehensive loss                                                      |                                                                 | $ | (546,863  | )         |      | $ | (643,584  | )        
|                                                                        |                                                                 |   |           |           |      |   |           |          

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



F-4



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity
For the Years Ended December 31, 2001 and 2000

|                                                                |                                  |  |                 |   |              |   |             |   |           |  |           |   |         |   |            |   |         |   |             |   |         |   |          |         |           |   |         |   |        |   |       |   |  |   |         |   |  |   |            |   |  |   |          |         | 
|--------------------------------------------------------------- | -------------------------------- |  | --------------- | - | ------------ | - | ----------- | - | --------- |  | --------- | - | ------- | - | ---------- | - | ------- | - | ----------- | - | ------- | - | -------- | ------- | --------- | - | ------- | - | ------ | - | ----- | - |  | - | ------- | - |  | - | ---------- | - |  | - | -------- | ------- | 
|                                                                |                                  |  | Preferred Stock |   | Common Stock |   |             |   |           |  |           |   |         |   |            |   |         |   | Accumulated |   |         |   |          |         |           |   |         |   |        |   |      
|                                                                |                                  |  |                 |   |              |   |             |   |           |  | Unearned  |   |         |   |            |   | Other   |   |             |   |         |   |          |         |           |   | Total  
|                                                                |                                  |  | Number of       |   |              |   |             |   | Number of |  |           |   |         |   | Additional |   | Stock   |   |             |   |         |   | Compre-  |         | Subscrip- |   | Accumu- |   | Stock-
|                                                                |                                  |  | Shares          |   | Par          |   | Shares      |   | Par       |  | Paid-In   |   | Compen- |   | Treasury   |   | hensive |   | tion        |   | lated   |   | holders'
|                                                                |                                  |  | Outstanding     |   | Value        |   | Outstanding |   | Value     |  | Capital   |   | sation  |   | Stock      |   | Income  |   | Receivable  |   | Deficit |   | Equity  
|                                                                |                                  |  |                 |   |              |   |             |   |           |  |           |   |         |   |            |   |         |   |             |   |         |   |         
|Balances, December 31, 1999                                     |                                  |  |                |   |              | $ |            |   |           |  | 4,538,132 |   |         | $ | 454        |   |         | $ | 2,559,389   |   |         | $ | (517,223 | )       |           | $ | (18,578 | ) |        | $ |      |   |  | $ | (94,000 | ) |  | $ | (1,509,982 | ) |  | $ | 420,060  |        
|Issuance of common stock for cash                               |                                  |  |                |   |              |   |            |   |           |  | 150,000   |   |         |   | 15         |   |         |   | 299,985     |   |         |   |         |         |           |   |        |   |        |   |      |   |  |   |        |   |  |   |           |   |  |   | 300,000  |        
|Issuance of common stock for unearned
compensation              |                                  |  |                |   |              |   |            |   |           |  | 16,768    |   |         |   | 1          |   |         |   | 39,536      |   |         |   | (39,537  | )       |           |   |        |   |        |   |      |   |  |   |        |   |  |   |           |   |  |   |         |        
|Amortization of unearned stock                                  |                                  |  |                |   |              |   |            |   |           |  |           |   |         |   |            |   |         |   |             |   |         |   |          |         |           |   |         |   |        |   |       |   |  |   |         |   |  |   |            |   |  |   |          |        
|                                                                | compensation/consultant expenses |  |                 |  |              |   |             |  |           |  |           |  |         |   |            |  |         |   |             |  |         |   |          | 349,028 |           |   |         |  |        |   |       |  |  |   |         |  |  |   |            |  |  |   |          | 349,028 | 
|Retirement of common stock                                      |                                  |  |                |   |              |   |            |   |           |  | (10,000   | ) |         |   |           |   |         |   |            |   |         |   |         |         |           |   |        |   |        |   |      |   |  |   |        |   |  |   |           |   |  |   |         |        
|Purchase of treasury stock                                      |                                  |  |                |   |              |   |            |   |           |  | (27,090   | ) |         |   |           |   |         |   |            |   |         |   |         |         |           |   | (91,850 | ) |        |   |      |   |  |   |        |   |  |   |           |   |  |   | (91,850  | )      
|Sale of treasury stock                                          |                                  |  |                |   |              |   |            |   |           |  | 23,414    |   |         |   |           |   |         |   |            |   |         |   |         |         |           |   | 80,571  |   |        |   |      |   |  |   |        |   |  |   |           |   |  |   | 80,571   |        
|Accumulated unrealized gain on
investments                      |                                  |  |                |   |              |   |            |   |           |  |          |   |         |   |           |   |         |   |            |   |         |   |         |         |           |   |        |   |        |   | 1,775 |   |  |   |        |   |  |   |           |   |  |   | 1,775    |        
|Collection of subscription receivable                           |                                  |  |                |   |              |   |            |   |           |  |          |   |         |   |           |   |         |   |            |   |         |   |         |         |           |   |        |   |        |   |      |   |  |   | 83,750  |   |  |   |           |   |  |   | 83,750   |        
|Net loss                                                        |                                  |  |                |   |              |   |            |   |           |  |          |   |         |   |           |   |         |   |            |   |         |   |         |         |           |   |        |   |        |   |      |   |  |   |        |   |  |   | (645,359   | ) |  |   | (645,359 | )      
|                                                                |                                  |  |                 |   |              |   |             |   |           |  |           |   |         |   |            |   |         |   |             |   |         |   |          |         |           |   |         |   |        |   |       |   |  |   |         |   |  |   |            |   |  |   |          |        
|Balances, December 31, 2000                                     |                                  |  |                |   |              |   |            |   |           |  | 4,691,224 |   |         |   | 470        |   |         |   | 2,898,910   |   |         |   | (207,732 | )       |           |   | (29,857 | ) |        |   | 1,775 |   |  |   | (10,250 | ) |  |   | (2,155,341 | ) |  |   | 497,975  |        
|Issuance of preferred stock for cash                            |                                  |  | 125,000         |   |              |   | 13          |   |           |  |          |   |         |   |           |   |         |   | 124,987     |   |         |   |         |         |           |   |        |   |        |   |      |   |  |   |        |   |  |   |           |   |  |   | 125,000  |        
|Purchase of treasury stock                                      |                                  |  |                |   |              |   |            |   |           |  | (6,500    | ) |         |   |           |   |         |   |            |   |         |   |         |         |           |   | (7,800  | ) |        |   |      |   |  |   |        |   |  |   |           |   |  |   | (7,800   | )      
|Issuance of treasury stock                                      |                                  |  |                |   |              |   |            |   |           |  | 4,817     |   |         |   |           |   |         |   |            |   |         |   |         |         |           |   | 21,419  |   |        |   |      |   |  |   |        |   |  |   |           |   |  |   | 21,419   |        
|Other                                                           |                                  |  |                |   |              |   |            |   |           |  | 1,539     |   |         |   |           |   |         |   |            |   |         |   |         |         |           |   |        |   |        |   |      |   |  |   |        |   |  |   |           |   |  |   |         |        
|Amortization of unearned stock
compensation/consultant expenses |                                  |  |                |   |              |   |            |   |           |  |          |   |         |   |           |   |         |   |            |   |         |   | 201,390  |         |           |   |        |   |        |   |      |   |  |   |        |   |  |   |           |   |  |   | 201,390  |        
|Unrealized gain on securities                                   |                                  |  |                |   |              |   |            |   |           |  |          |   |         |   |           |   |         |   |            |   |         |   |         |         |           |   |        |   |        |   | 885   |   |  |   |        |   |  |   |           |   |  |   | 885      |        
|Net loss                                                        |                                  |  |                |   |              |   |            |   |           |  |          |   |         |   |           |   |         |   |            |   |         |   |         |         |           |   |        |   |        |   |      |   |  |   |        |   |  |   | (547,748   | ) |  |   | (547,748 | )      
|                                                                |                                  |  |                 |   |              |   |             |   |           |  |           |   |         |   |            |   |         |   |             |   |         |   |          |         |           |   |         |   |        |   |       |   |  |   |         |   |  |   |            |   |  |   |          |        
|Balances, December 31, 2001                                     |                                  |  | 125,000         |   |              | $ | 13          |   |           |  | 4,691,080 |   |         | $ | 470        |   |         | $ | 3,023,897   |   |         | $ | (6,342   | )       |           | $ | (16,238 | ) |        | $ | 2,660 |   |  | $ | (10,250 | ) |  | $ | (2,703,089 | ) |  | $ | 291,121  |        
|                                                                |                                  |  |                 |   |              |   |             |   |           |  |           |   |         |   |            |   |         |   |             |   |         |   |          |         |           |   |         |   |        |   |       |   |  |   |         |   |  |   |            |   |  |   |          |        

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

F-5



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Liabilities Subordinated to Claims of General Creditors
For the Year Ended December 31, 2001

|                             |  |   |        | 
|---------------------------- |  | - | ------ | 
|Balance at December 31, 2000 |  | $ | 40,000 | 
|Increases                    |  |   |       | 
|Decreases                    |  |   |       | 
|                             |  |   |        | 
|Balance at December 31, 2001 |  | $ | 40,000 | 
|                             |  |   |        | 

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

F-6



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2001 and 2000

|                                               |                                                                            |                                                     |                                       |                                       |         |          |          |          |         |          |          |  
|---------------------------------------------- | -------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------- | ------------------------------------- | ------- | -------- | -------- | -------- | ------- | -------- | -------- | -
|                                               |                                                                            |                                                     |                                       |                                       |         | 2001     |          | 2000    
|                                               |                                                                            |                                                     |                                       |                                       |         |          |          |         
|Cash flows from operating activities           |                                                                            |                                                     |                                       |                                       |         |          |          |         
|                                               | Net loss                                                                   |                                                     | $                                     | (547,748                              | )       |          | $        | (645,359 | )      
|                                               | Adjustments to reconcile net loss to net cash used in
operating activities |                                                     |                                       |                                       |         |          |          |          |        
|                                               |                                                                            | Depreciation                                        |                                       |                                       | 56,640  |          |          |          | 43,323  |         
|                                               |                                                                            | Amortization of unearned stock compensation expense |                                       |                                       | 201,390 |          |          |          | 349,028 |         
|                                               |                                                                            | Changes in:                                         |                                       |                                       |         |          |          |          |         |         
|                                               |                                                                            |                                                     | Cash with clearing broker             |                                       |         | 79       |          |          |         | (9       | )       
|                                               |                                                                            |                                                     | Commissions receivable                |                                       |         | (15,582  | )        |          |         | (45,634  | )       
|                                               |                                                                            |                                                     | Other receivable                      |                                       |         | (136,167 | )        |          |         | (17,855  | )       
|                                               |                                                                            |                                                     | Prepaid expenses                      |                                       |         | (16,658  | )        |          |         | (19,648  | )       
|                                               |                                                                            |                                                     | Due from related parties              |                                       |         | (2,861   | )        |          |         | 23,620   |         
|                                               |                                                                            |                                                     | Accounts payable and accrued expenses |                                       |         | 83,122   |          |          |         | 13,129   |         
|                                               |                                                                            |                                                     | Accrued commission expense            |                                       |         | 83,250   |          |          |         | (265,291 | )       
|                                               |                                                                            |                                                     | Deferred income                       |                                       |         | 31,000   |          |          |         | (3,334   | )       
|                                               |                                                                            |                                                     | Due to related party                  |                                       |         |         |          |          |         | 200      |         
|                                               |                                                                            |                                                     |                                       |                                       |         |          |          |          |        
|                                               |                                                                            |                                                     |                                       | Net cash used in operating activities |         |          | (263,535 | )        |         |          | (567,830 | )
|                                               |                                                                            |                                                     |                                       |                                       |         |          |          |         
|Cash flows from investing activities           |                                                                            |                                                     |                                       |                                       |         |          |          |         
|                                               | Purchase of investments                                                    |                                                     |                                       |                                      |         |          |          | (12,150  | )      
|                                               | Purchase of property and equipment                                         |                                                     |                                       | (96,380                               | )       |          |          | (17,050  | )      
|                                               |                                                                            |                                                     |                                       |                                       |         |          |          |          |        
|                                               |                                                                            | Net cash used in investing activities               |                                       |                                       | (96,380 | )        |          |          | (29,200 | )       
|                                               |                                                                            |                                                     |                                       |                                       |         |          |          |         
|Cash flows from financing activities           |                                                                            |                                                     |                                       |                                       |         |          |          |         
|                                               | Issuance of preferred stock                                                |                                                     |                                       | 125,000                               |         |          |          |         |        
|                                               | Purchase of treasury stock                                                 |                                                     |                                       | (7,800                                | )       |          |          | (91,850  | )      
|                                               | Issuance of treasury stock                                                 |                                                     |                                       | 21,419                                |         |          |          | 80,571   |        
|                                               | Issuance of common stock                                                   |                                                     |                                       |                                      |         |          |          | 300,000  |        
|                                               | Proceeds received from subscription receivable                             |                                                     |                                       |                                      |         |          |          | 131,750  |        
|                                               | Proceeds from note payable                                                 |                                                     |                                       | 50,000                                |         |          |          |         |        
|                                               | Payments on capital lease obligation                                       |                                                     |                                       | (11,636                               | )       |          |          | (6,248   | )      
|                                               |                                                                            |                                                     |                                       |                                       |         |          |          |          |        
|                                               |                                                                            | Net cash provided by financing activities           |                                       |                                       | 176,983 |          |          |          | 414,223 |         
|                                               |                                                                            |                                                     |                                       |                                       |         |          |          |         
|Net decrease in cash and cash equivalents      |                                                                            |                                                     | (182,932                              | )                                     |         |          | (182,807 | )       
|                                               |                                                                            |                                                     |                                       |                                       |         |          |          |         
|Cash and cash equivalents at beginning of year |                                                                            |                                                     | 226,150                               |                                       |         |          | 408,957  |         
|                                               |                                                                            |                                                     |                                       |                                       |         |          |          |         
|Cash and cash equivalents at end of year       |                                                                            | $                                                   | 43,218                                |                                       |         | $        | 226,150  |         
|                                               |                                                                            |                                                     |                                       |                                       |         |          |          |         

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

F-7



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000

NOTE 1  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS  Summit Brokerage Services Inc. (the Company) is a National
Association of Securities Dealers (NASD) member firm. The Company is an
independent broker-dealer offering financial services to clients across the
country through its 50 independent broker-dealer branch offices.

CONSOLIDATION POLICY  The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries. The Companys
subsidiaries include Summit Holding Group, Inc. (a holding company) and its
wholly owned subsidiaries Summit Financial Group, Inc. (a registered investment
advisor) and Summit Insurance Agency Corporation (an insurance business).
Intercompany transactions and balances have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS  The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.

CASH WITH CLEARING BROKER  The Company has an interest-bearing reserve deposit
with a clearing broker. The clearing broker requires this deposit of all
introducing brokers for whom it transacts business.

INVESTMENTS AVAILABLE FOR SALE  Available-for-sale securities are recorded at
fair value in investments with the change in fair value during the period
excluded from earnings and recorded net of tax as a component of other
comprehensive income.

COMMISSION RECEIVABLE  The Company considers commissions receivable fully
collectible; accordingly, no allowance is required.

PROPERTY AND EQUIPMENT  Property and equipment is stated at cost.
Depreciation, for financial reporting purposes, is based on the straight-line
and double-declining balance methods over the estimated useful lives of the
related assets, generally 3 to 7 years.

DEFERRED INCOME  Deferred income represents advances received from the
clearing broker for unearned commissions.

TREASURY STOCK  Treasury stock is shown at cost.

COMMISSIONS REVENUE AND EXPENSES  Commissions revenue is recorded on a
trade-date basis as transactions occur. The Company receives commissions on
products sold by its branch offices and independent brokers. The Company
receives all commissions from the transactions, takes its commission based on
the terms agreed to in the registered representative agreements and remits all
remaining commissions to the branch offices.

INCOME TAXES  Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related to operating losses. The deferred tax assets and
liabilities represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred tax also is recognized for operating losses and
tax credits that are available to offset future taxable income.

F-8



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000

NOTE 1   NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

EARNINGS (LOSS) PER SHARE  Basic earnings (loss) per share for the years ended
December 31, 2001 and 2000 have been computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted earnings
(loss) per share for the years ended December 31, 2001 and 2000 did not differ
from amounts computed under the basic computation.

ESTIMATES  The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

NOTE 2  INVESTMENTS AVAILABLE FOR SALE

All available-for-sale securities are invested in common stock. The fair value
of this stock at December 31, 2001, is $14,810. The securities have a gross
unrealized gain at December 31, 2001 of $2,660. There were no realized gains
or losses during fiscal years 2001 and 2000.

NOTE 3  DUE FROM/TO RELATED PARTIES

At December 31, 2001 and 2000, the Company had a receivable of $16,183 and
$19,233, respectively, from a related company for expenses paid by Summit
Brokerage Services, Inc. on behalf of the related company. The related company
is 100% owned by a shareholder, who is also the majority shareholder of Summit
Brokerage Services, Inc. The receivable is unwritten.

At December 31, 2000, the Company had advances outstanding of $3,251 to an
entity 100% owned by a shareholder who is also the Companys majority
shareholder. These advances were for expenses paid by Summit Brokerage
Services, Inc. on the related companys behalf. This related company owns an
office building that the Company leases. The advances were repaid during 2001.

At December 31, 2000, the Company had a note receivable of $22,294 from an
officer of the Company. The note was repaid during 2001.

At December 31, 2001, the Company had $1,456 due from a related company for
expenses paid on its behalf. The related company is 100% owned by a
shareholder, who is also the majority shareholder of Summit Brokerage Services,
Inc. This related company conducts educational and training seminars, which
generate income from fees paid by the participants.

At December 31, 2001, the Company had $30,000 due from the majority shareholder
of Summit Brokerage Services, Inc. The outstanding balance is
noninterest-bearing and there are no written terms of repayment. The amount
was repaid in January 2002.

At December 31, 2001 and 2000, the Company owed $200 to a related company for
an advance for operating expenses. This amount is expected to be repaid in the
next fiscal year.

F-9



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000

NOTE 4  PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31:

|                                                 |       |                                |                              |         |          |         |         |         |          |         | 
|------------------------------------------------ | ----- | ------------------------------ | ---------------------------- | ------- | -------- | ------- | ------- | ------- | -------- | ------- | 
|                                                 |       |                                |                              |         | 2001     |         | 2000   
|                                                 |       |                                |                              |         |          |         |        
|Computer systems and software                    |       | $                              | 119,410                      |         |          | $       | 114,764 |        
|Equipment and furniture                          |       |                                | 30,563                       |         |          |         | 27,371  |        
|Equipment and furniture held under capital lease |       |                                | 37,854                       |         |          |         | 16,809  |        
|Leasehold improvements                           |       |                                | 139,530                      |         |          |         | 60,952  |        
|                                                 |       |                                |                              |         |          |         |         |        
|                                                 | Total |                                |                              | 327,357 |          |         |         | 219,896 |         
|                                                 |       | Less: accumulated depreciation |                              |         | (170,933 | )       |         |         | (114,293 | )      
|                                                 |       |                                |                              |         |          |         |         |        
|                                                 |       |                                | Total property and equipment |         | $        | 156,424 |         |         | $        | 105,603 | 
|                                                 |       |                                |                              |         |          |         |         |        

Depreciation expense was $56,640 and $43,323 for the years ended December 31,
2001 and 2000, respectively.

In April, 2000, the Company obtained $52,609 of equipment in exchange for a
reduction in due from related party of $34,306 and assuming a capital lease
obligation of $18,303.

NOTE 5  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at December
31:

|                                   |  |      |         |      |  |   |        | 
|---------------------------------- |  | ---- | ------- | ---- |  | - | ------ | 
|                                   |  | 2001 |         | 2000
|                                   |  |      |         |     
|Accounts payable                   |  | $    | 146,844 |      |  | $ | 38,303 | 
|Accrued interest payable           |  |      |        |      |  |   | 3,600  | 
|Accrued wages and salaries payable |  |      | 3,257   |      |  |   | 2,264  | 
|Accrued benefits payable           |  |      |        |      |  |   | 4,969  | 
|Other payable to brokers           |  |      | 10,046  |      |  |   | 27,889 | 
|                                   |  |      |         |      |  |   |        | 
|                                   |  | $    | 160,147 |      |  | $ | 77,025 | 
|                                   |  |      |         |      |  |   |        | 

NOTE 6  OBLIGATIONS UNDER CAPITAL LEASES

The following is a schedule by years of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of December 31, 2001:

|                                            |      |        |        |        | 
|------------------------------------------- | ---- | ------ | ------ | ------ | 
|Year Ending                                 |      |        |        |       
|December 31,                                |      | Amount
|                                            |      |       
|                                            | 2002 |        | $      | 11,700 | 
|                                            | 2003 |        |        | 1,044  | 
|                                            |      |        |        |       
|Total minimum lease payments                |      |        | 12,744 |       
|Less: Amount representing interest          |      |        | (1,244 | )     
|                                            |      |        |        |       
|Present value of net minimum
lease payments |      | $      | 11,500 |       
|                                            |      |        |        |        | 

F-10



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000

NOTE 7  NOTE PAYABLE

At December 31, 2001, the Company had a $50,000 note payable to an individual.
The note is unsecured and bears interest at 12%. The note is due on December
15, 2002.

Interest expense was $18,796 and $5,133 for 2001 and 2000, respectively. Cash
paid for interest was $22,396 and $1,533 for 2001 and 2000, respectively.

NOTE 8  LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS

On March 31, 2000, the Company entered into a secured demand note collateral
agreement with a corporation 100% owned by Summit Brokerage Services, Inc.s
majority shareholder. The note is due on April 30, 2002 and accrues interest
at 12.0% per annum. The subordinated borrowing is available in computing net
capital under the SECs uniform net capital rate. To the extent that such
borrowings are required for the Companys continued compliance with minimum net
capital requirements, it may not be repaid.

NOTE 9  COMMON STOCK

On July 16, 1997, the Company established a restricted stock bonus plan as an
incentive for employees and certain consultants to remain in the employment or
service of the Company. The shares granted under the plan were in the form of
restricted stock vesting over a two-year period beginning after the date of
grant of the award. Since the stock issued is subject to forfeiture until
two-years of continuous employment or service from the date of the grant award,
unearned compensation is recorded at the fair market value at the date awarded
as a reduction of stockholders equity. Compensation and consultant expense is
recognized pro rata over the period during which the shares are earned, in
accordance with FASB 123. The Company amortized $201,390 and $349,028 of
unearned stock compensation and consultant expenses for the years ended
December 31, 2001 and 2000, respectively.

On January 13, 1999, the Company granted 15,000 shares of restricted stock to
an attorney as payment for services rendered through the end of 2000. When the
shares were issued, unearned compensation for consulting services of $54,450
was recorded at the fair market value of the stock on the date of issue as a
reduction of stockholders equity. Consultant expenses are recognized pro rata
over the period during which the services are being performed. Consultant
expenses recognized for the year ended December 31, 2000, were $27,225.

On July 29, 1999, the Company placed into escrow 100,000 shares of restricted
stock in the name of a placement agent for services to be performed. The stock
issued is being held in escrow as of December 31, 2001 pending performance of
these services. The fair value of these shares will be determined and
additional costs recorded when the services are performed or, if the services
are not performed, the shares will be returned to the Company.

In March, 2000, the Company issued 16,768 shares of common stock for $39,537 of
unearned compensation.

In August 2001, the Company amended its Articles of Incorporation to increase
the number of its authorized common shares from 10,000,000 to 20,000,000.

F-11



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000

NOTE 10  PREFERRED STOCK

On September 1, 2000, the Company amended its Articles of Incorporation. The
amendment created blank preferred stock, par value $.0001 per share, and
authorized 5,000,000 shares. During the year ended December 31, 2001, the
Company issued 125,000 shares of 12% cumulative convertible preferred stock for
$125,000. The number of shares of common stock which may be issued in respect
of the shares of preferred stock shall be determined by dividing (i) a
numerator equal to the number of shares of Series A 12% Convertible Preferred
Stock being converted multiplied by 115% of the subscription price, (ii) a
denominator representing the per share price that is the lower of the closing
price and the average closing sale price for the 20 trading days immediately
preceding the Series A conversion date; provided, however, in no event shall
the denominator be less than the subscription price. All such preferred stock
is non-voting stock. The holders of Series A 12% Convertible Preferred Stock
shall be entitled to receive, out of funds legally available for that purpose,
cash dividends at the rate of $0.12 per annum, subject to voluntary conversion.
Such dividends shall accrue and be cumulative from the issue date. Dividends
shall be payable in arrears, when and as declared by the Board of Directors, on
March 31, June 30, September 30 and December 31 of each year; provided,
however, the first dividend payment date shall not occur before the last
calendar day of the first full fiscal quarter following the issue date.
Undeclared dividends in arrears as of December 31, 2001 approximated $8,300.
In the event of any liquidation, dissolution or winding up of the Companys
affairs for a price per share which is less than the subscription price set
forth herein, holders of the preferred shares will be entitled to a liquidation
preference of $1.00 per preferred share, plus the dividends set forth above,
prior to any distribution to the holders of common stock in full and complete
liquidation of the interest of the holders of preferred shares. In the event
that the Company does not have sufficient funds to pay the full liquidation
preference payable to the holders of preferred shares, and any other shares
issued on a parity with the preferred shares (Parity Shares), the existing
funds will be allocated among the holders of all such preferred shares and
Parity Shares pro rata in proportion to the full amounts to which they would
respectively be entitled. At any time after August 1, 2002, the Company may,
unless otherwise prevented by law, redeem from the holder thereof, the holders
preferred shares at the subscription price ($1.00 per share), together with any
accrued but unpaid dividends thereon to and including the date of redemption,
in whole or, from time to time, in part. Any partial redemption shall be
allocated among the holders of preferred shares pro rata or by lot, as
determined by the Company.

NOTE 11  TREASURY STOCK

Treasury stock is shown at cost, and consists of 8,984 and 7,301 shares of
common stock at December 31, 2001 and 2000, respectively.

F-12



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000

NOTE 12  STOCK OPTIONS

Stock option activity during 2001 and 2000, was as follows:

|                                        |           |  |           |           |                |   |           |      | 
|--------------------------------------- | --------- |  | --------- | --------- | -------------- | - | --------- | ---- | 
|                                        |           |  |           |           |                |   | Weighted-
|                                        |           |  | Number of |           | average       
|                                        |           |  | Options   |           | Exercise Price
|                                        |           |  |           |           |               
|Outstanding at December 31, 1999        |           |  | 155,000   |           |                | $ | 2.50      |     
|                                        | Cancelled |  |           | (155,000  | )              |   | $         | 2.50 | 
|                                        | Granted   |  |           | 1,245,473 |                |   | $         | 2.50 | 
|                                        | Forfeited |  |           | (82,750   | )              |   | $         | 2.50 | 
|                                        |           |  |           |           |                |   |           |     
|Outstanding at December 31, 2000        |           |  | 1,162,723 |           |                | $ | 2.50      |     
|                                        | Granted   |  |           | 504,141   |                |   | $         | 0.77 | 
|                                        | Forfeited |  |           | (31,648   | )              |   | $         | 2.50 | 
|                                        |           |  |           |           |                |   |           |     
|Outstanding at December 31, 2001        |           |  | 1,635,216 |           |                | $ | 1.97      |     
|                                        |           |  |           |           |                |   |           |     
|Shares exercisable at December 31, 2001 |           |  | 1,299,821 |           |                | $ | 2.08      |     
|                                        |           |  |           |           |                |   |           |     

The range of exercise prices for options outstanding at December 31, 2001 was
$.50 to $2.50. The following table summarizes information about options
outstanding at December 31, 2001:

|                         |  |                     |           |                 |  |                |      |          |  |   |      | 
|------------------------ |  | ------------------- | --------- | --------------- |  | -------------- | ---- | -------- |  | - | ---- | 
|                         |  | Outstanding Options
|                         |  |                    
|                         |  |                     |           |                 |  | Weighted       |      |          |  |  
|                         |  |                     |           |                 |  | Average        |      |          |  |  
|                         |  |                     |           |                 |  | Remaining      |      | Weighted
|                         |  | Number of           |           | Contractual     |  | Average       
|Range of Exercise Prices |  | Shares              |           | Life (in years) |  | Exercise Price
|                         |  |                     |           |                 |  |               
|$0.50                    |  |                     | 234,560   |                 |  |                | 10.0 |          |  | $ | 0.50 | 
|$1.00                    |  |                     | 268,581   |                 |  |                | 9.6  |          |  | $ | 1.00 | 
|$2.50                    |  |                     | 1,132,075 |                 |  |                | 8.5  |          |  | $ | 2.50 | 
|                         |  |                     |           |                 |  |                |      |          |  |   |      | 
|                         |  |                     | 1,635,216 |                 |  |                |      |          |  | $ | 1.97 | 
|                         |  |                     |           |                 |  |                |      |          |  |   |      | 

|                         |  |                     |           |                |  |          |      | 
|------------------------ |  | ------------------- | --------- | -------------- |  | -------- | ---- | 
|                         |  | Exercisable Options
|                         |  |                    
|                         |  |                     |           |                |  | Weighted
|                         |  | Number of           |           | Average       
|Range of Exercise Prices |  | Shares              |           | Exercise Price
|                         |  |                     |           |               
|$0.50                    |  |                     | 234,560   |                |  | $        | 0.50 | 
|$1.00                    |  |                     | 53,916    |                |  | $        | 1.00 | 
|$2.50                    |  |                     | 1,011,345 |                |  | $        | 2.50 | 
|                         |  |                     |           |                |  |          |      | 
|                         |  |                     | 1,299,821 |                |  | $        | 2.08 | 
|                         |  |                     |           |                |  |          |      | 

The Company accounts for its options and warrants according to Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and
follows the disclosure provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation. Accordingly, if
options or warrants are granted to employees for services and other
consideration with an exercise price below the fair market value on the date of
the grant, the difference between the exercise price and the fair market value
is charged to operations. No amounts were charged to operations during 2001
and 2000. The fair value of the options granted during the fiscal years ended
December 31, 2001 and 2000, reported below, has been estimated at the dates of
grant using the Black-Scholes Option Valuation Model with the following
assumptions:

F-13



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000

NOTE 12  STOCK OPTIONS(Continued)

|                         |  |      |      |      |  |  |      |  
|------------------------ |  | ---- | ---- | ---- |  |  | ---- | -
|                         |  | 2001 |      | 2000
|                         |  |      |      |     
|Expected life (in years) |  |      | 10.0 |      |  |  | 10.0 |  
|Risk-free interest rate  |  |      | 5.0  | %    |  |  | 5.7  | %
|Volatility               |  |      | 225  | %    |  |  | 25.5 | %
|Dividend yield           |  |      | 0.0  | %    |  |  | 0.0  | %

The Black-Scholes Option Valuation Model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Companys options have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period. The Companys pro
forma information is as follows:

|                         |  |      |          |      |  |   |            |  
|------------------------ |  | ---- | -------- | ---- |  | - | ---------- | -
|                         |  | 2001 |          | 2000
|                         |  |      |          |     
|Pro forma net loss       |  | $    | (667,272 | )    |  | $ | (2,326,019 | )
|Pro forma loss per share |  | $    | (0.14    | )    |  | $ | (0.51      | )

The effects on pro forma disclosures of applying SFAS 123 are not necessarily
indicative of the effects on pro forma disclosures of future years.

NOTE 13  OPERATING LEASES

The Company leases office space under a noncancelable operating lease with an
entity whose major shareholder is also the Companys major shareholder. Under
the terms of the lease, the Company leases office space for its headquarters.
In addition, the Company has operating leases for a vehicle and office
equipment. The leases expire from 2003 to 2007. Minimum future rental
payments for each of the next five years and subsequent thereto are as follows:

|             |      |        |        |         | 
|------------ | ---- | ------ | ------ | ------- | 
|Year Ended   |      |        |        |        
|December 31, |      | Amount
|             |      |       
|             | 2002 |        | $      | 118,500 | 
|             | 2003 |        | $      | 114,600 | 
|             | 2004 |        | $      | 109,200 | 
|             | 2005 |        | $      | 109,200 | 
|             | 2006 |        | $      | 109,200 | 
|Thereafter   |      | $      | 91,000 |        

Total rent expense, including month-to-month leases, for the years ending
December 31, 2001 and 2000 was $130,419 and $115,752, respectively.

F-14



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000

NOTE 14  INCOME TAXES

A summary of the provision for income taxes at December 31, is as follows:

|                                                   |                                    |  |         |        |      |  |          |        | 
|-------------------------------------------------- | ---------------------------------- |  | ------- | ------ | ---- |  | -------- | ------ | 
|                                                   |                                    |  | 2001    |        | 2000
|                                                   |                                    |  |         |        |     
|Deferred tax benefit due to temporary differences: |                                    |  |         |        |      |  |          |       
|                                                   | Federal                            |  | $       | 52,000 |      |  | $        | 96,804 | 
|                                                   | State                              |  |         | 17,000 |      |  |          | 32,268 | 
|Change in valuation allowance                      |                                    |  | (69,000 | )      |      |  | (129,072 | )     
|                                                   |                                    |  |         |        |      |  |          |       
|                                                   | Total income tax benefit (expense) |  | $       |       |      |  | $        |       | 
|                                                   |                                    |  |         |        |      |  |          |       

The deferred tax asset at December 31, is as follows:

|                                       |                        |   |          |   |      |   |          |   | 
|-------------------------------------- | ---------------------- | - | -------- | - | ---- | - | -------- | - | 
|                                       |                        |   | 2001     |   | 2000
|                                       |                        |   |          |   |     
|Deferred tax asset  NOL carryforwards |                        | $ | 482,000  |   |      | $ | 412,933  |  
|Valuation allowance                    |                        |   | (482,000 | ) |      |   | (412,933 | )
|                                       |                        |   |          |   |      |   |          |  
|                                       | Net deferred tax asset |   | $        |  |      |   | $        |  | 
|                                       |                        |   |          |   |      |   |          |  

A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company
has established a valuation allowance for the entire deferred tax asset, which
consists of net operating loss carryforwards.

The Company has net operating loss carryforwards of approximately $1,950,000
for federal and state income tax purposes, which are available to offset future
taxable income. These loss carryforwards expire in various years through 2016.

Total income tax expense/benefit differed from the amounts computed by applying
the U.S. federal income tax rates of 34% for both 2001 and 2000 to income
(loss) before income taxes, primarily due to the effects of net operating loss
carryforwards, the valuation allowance and non-deductible stock compensation
expense.

Under U.S. federal tax laws, certain changes in ownership of a company may
cause severe limitations on future utilization of these loss carryforwards.

NOTE 15  CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of temporary cash investments. The Company
places its temporary cash investments with financial institutions.

All financial instruments are carried at amounts that approximate fair value
because of the short maturity of these instruments.

NOTE 16  RELATED-PARTY TRANSACTIONS

The Company paid rent of $109,200 during 2001 and 2000 to a related company
owned by the majority shareholder. The related company owns the building the
Company is leasing (see Note 13).

F-15



---



##### 



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000

NOTE 17  NET CAPITAL REQUIREMENT

The Company is a Fully Disclosed Broker-Dealer. The Company does not carry
customer accounts and does not accept customer funds or securities. Instead,
it has entered into a clearing agreement with a clearing broker and has fully
disclosed all of its customer accounts to this broker.

The Company is subject to the Securities and Exchange Commission Uniform Net
Capital Rule (SEC Rule 15C 3-1), which requires the maintenance of minimum net
capital.

The fully phased-in net capital requirement for fully disclosed
brokers-dealers that receive but do not hold, customer or other securities, is
$50,000. The rule also requires that the ratio of aggregate indebtedness to
net capital shall not exceed 15 to 1.

At December 31, 2001 and 2000, the Company had net capital of $(32,866) and
$75,169, respectively. The Companys aggregate indebtedness to net capital
ratio was (21) to 1 and 6 to 1 at December 31, 2001 and 2000, respectively.
The Company was not in compliance with its net capital or aggregate
indebtedness to net capital ratio requirements as of December 31, 2001 (see
Note 18).

NOTE 18  GOING CONCERN

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern. However, the
Company has had recurring net losses and was not in compliance with its net
capital or aggregate indebtedness to net capital ratio requirements (see Note
17). The consequences of failing to meet these requirements can be severe and
may affect the Companys ability to continue as a going concern. These matters
raise substantial doubt about the entitys ability to continue as a going
concern. Management plans to do a public offering in the future and is seeking
a merger or acquisition candidate. However, the Companys ability to continue
as a going concern is contingent on its meeting its net capital requirements,
the success of future operations and the potential for merging with or
acquiring a company. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

NOTE 19  OFF BALANCE SHEET RISK

Included in the Companys clearing agreement with its clearing broker is an
indemnification clause. This clause relates to instances where the Companys
customers fail to settle security transactions. In the event this occurs, the
Company has indemnified the clearing broker to the extent of the net loss on
the unsettled trade. At December 31, 2001, management of the Company had not
been notified by the clearing broker, nor were they otherwise aware, of any
potential losses relating to this indemnification.

NOTE 20  SUBSEQUENT EVENT

On March 22, 2002, Marshall T. Leeds, in a
separately negotiated transaction, agreed to purchase an aggregate of
5,000,000 shares of the Company's common stock for a total purchase
price of $500,000, or $.10 per share. The stock purchase is subject
to certain conditions, including approval of the resulting change in
control of the Company by the National Association of Securities
Dealers, Inc. ("NASD") and receipt by Mr. Leeds of appropriate
clearance under a non-competition agreement he has with another
company, by May 15, 2002. Assuming Mr. Leeds' acquisition of the
shares, Mr. Leeds would become the Company's largest shareholder, as
well as the Company's Chief Executive Officer and Chairman of the
Board of Directors. Richard Parker, the Company's current Chairman
and Chief Executive Officer would become President, Chief Operating
Officer and Vice Chairman. Two of the Company's existing Board
Members, Mr. Parker and Harry Green, would remain on the Board and
Mr. Leeds and two of his designees would round out a new
five-member Board. Mr. Parker would also grant Mr. Leeds voting
control of his beneficially-owned shares for a period of time. The
Leeds' transaction also includes the grant to him of options for
7,000,000 shares of common stock at an exercise price of $.25 per
share, upon his becoming CEO and Chairman.  Additionally, Mr. Parker
would receive options for 900,000 shares of the Company's common
stock; 400,000 options to be exercisable at $.50 per share and
500,000 options to be exercisable at $.10 per share.

F-16



---



##### 











SUPPLEMENTAL INFORMATION









F-17



---



##### 



Schedule I

SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Computation of Net Capital Under Rule 15c3-1 of the
Securities and Exchange Commission
As of December 31, 2001

|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         |             |          |   |         | 
|------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------- | --------------------------------------------------------------- |  | - | ------- | ----------- | -------- | - | ------- | 
|Net Capital                                                                                                         |                                                                 |                         |                                                                 |  |   |         |             |         
|                                                                                                                    |                                                                 |                         | Total consolidated stockholders equity                         |  |   |         |             |          | $ | 291,121 | 
|                                                                                                                    | Add:                                                            |                         |                                                                 |  |   |         |             |          |  
|                                                                                                                    |                                                                 |                         | Subordinated borrowings allowable in computation
of net capital |  |   |         |             |          |   | 40,000  | 
|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         |             |         
|                                                                                                                    | Total capital and allowable subordinated borrowings             |                         |                                                                 |  |   |         |             | 331,121  |  
|                                                                                                                    | Deductions and/or charges:                                      |                         |                                                                 |  |   |         |             |          |  
|                                                                                                                    | Non-allowable assets:                                           |                         |                                                                 |  |   |         |             |          |  
|                                                                                                                    |                                                                 |                         | Securities not readily marketable                               |  | $ | 3,300   |             |          |   |         | 
|                                                                                                                    |                                                                 |                         | Property and equipment, net                                     |  |   | 156,424 |             |          |   |         | 
|                                                                                                                    |                                                                 |                         | Commissions receivable                                          |  |   | 35,634  |             |          |   |         | 
|                                                                                                                    |                                                                 |                         | Receivables from non-customers                                  |  |   | 103,922 |             |          |   |         | 
|                                                                                                                    |                                                                 |                         | Other assets                                                    |  |   | 63,438  |             |          |   |         | 
|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         |             |         
|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         | 362,718     |         
|                                                                                                                    |                                                                 | Haircuts on securities: |                                                                 |  |   |         |             |          |   |        
|                                                                                                                    |                                                                 |                         | Contractual securities commitments                              |  |   |         |             |          |   | 1,269   | 
|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         |             |         
|                                                                                                                    | Net capital                                                     |                         |                                                                 |  |   |         | $           | (32,866  | )
|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         |             |         
|Aggregate Indebtedness                                                                                              |                                                                 |                         |                                                                 |  |   |         |             |         
|                                                                                                                    | Items included in consolidated statement of
financial condition
|                                                                                                                    |                                                                 |                         | Accrued commission expense                                      |  |   |         |             |          | $ | 463,884 | 
|                                                                                                                    |                                                                 |                         | Accounts payable, accrued liabilities,
expenses and other       |  |   |         |             |          |   | 212,680 | 
|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         |             |         
|                                                                                                                    | Total aggregate indebtedness                                    |                         |                                                                 |  |   |         | $           | 676,564  |  
|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         |             |         
|Computation of Basic Net Capital Requirement
Minimum net capital required                                           |                                                                 |                         |                                                                 |  |   | $       | 50,000      |         
|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         |             |         
|                                                                                                                    | Excess net capital at 1,500 percent                             |                         |                                                                 |  |   |         | $           | (77,970  | )
|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         |             |         
|                                                                                                                    | Excess net capital at 1,000 percent                             |                         |                                                                 |  |   |         | $           | (100,522 | )
|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         |             |         
|                                                                                                                    | Ratio: Aggregate indebtedness to net capital                    |                         |                                                                 |  |   |         | (20.6) to 1
|                                                                                                                    |                                                                 |                         |                                                                 |  |   |         |             |         
|Reconciliation with Companys Computation (Included
in Part II of the Amended Form X-17A-5 as of
December 31, 2001) |                                                                 |                         |                                                                 |  |   |         |             |         

A reconciliation is not considered necessary pursuant to Rule 17a-5(d)(4), as
there are no material differences between the Companys computation of net
capital under Rule 15c3-1 and the computation of net capital included on this
schedule.

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

F-18



---



##### 



REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS ON INTERNAL CONTROL STRUCTURE REQUIRED
BY SEC RULE 17a-5 FOR A BROKER-DEALER CLAIMING AN
EXEMPTION FROM SEC RULE 15c3-3

Board of Directors and Shareholders
Summit Brokerage Services, Inc. and Subsidiaries
Indialantic, Florida

In planning and performing our audit of the consolidated financial statements
and supplemental schedule of Summit Brokerage Services, Inc. and Subsidiaries,
for the year ended December 31, 2001, we considered its internal control,
including control activities for safeguarding securities, in order to determine
our auditing procedures for the purpose of expressing our opinion on the
consolidated financial statements and not to provide assurance on internal
control.

Also, as required by Rule 17a-5(g)(1) of the Securities and Exchange Commission
(SEC), we have made a study of the practices and procedures followed by the
Company, including tests of such practices and procedures that we considered
relevant to the objectives stated in Rule 17a-5(g) in making the periodic
computations of aggregate indebtedness (or aggregate debits) and net capital
under Rule 17a-3(a)(11) and for determining compliance with the exemptive
provisions of Rule 15c3-3. Because the Company does not carry securities
accounts for customers or perform custodial functions relating to customer
securities, we did not review the practices and procedures followed by the
Company in any of the following:



|1. |  | Making quarterly securities examinations, counts, verifications, and
comparisons                                                                                         
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Recordation of differences required by Rule 17a-13                                                                                                                       
|  
|3. |  | Complying with the requirements for prompt payment for securities under
Section 8 of Federal Reserve Regulation T of the Board of Governors of the
Federal Reserve System

The management of the Company is responsible for establishing and maintaining
internal control and the practices and procedures referred to in the preceding
paragraph. In fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and related costs of
controls and of the practices and procedures referred to in the preceding
paragraph and to assess whether those practices and procedures can be expected
to achieve the SECs above-mentioned objectives. Two of the objectives of
internal control and the practices and procedures are to provide management
with reasonable but not absolute assurance that assets for which the Company
has responsibility are safeguarded against loss from unauthorized use or
disposition and that transactions are executed in accordance with managements
authorization and recorded properly to permit the preparation of financial
statements in conformity with generally accepted accounting principles. Rule
17a-5(g) lists additional objectives of the practices and procedures listed in
the preceding paragraph.

F-19



---



##### 



Because of inherent limitations in internal control or the practices and
procedures referred to above, error or fraud may occur and not be detected.
Also, projection of any evaluation of them to future periods is subject to the
risk that they may become inadequate because of changes in conditions or that
the effectiveness of their design and operation may deteriorate.

Our consideration of internal control would not necessarily disclose all
matters in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of the
specific internal control components does not reduce to a relatively low level
the risk that error or fraud in amounts that would be material in relation to
the financial statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their assigned
functions. However, we noted no matters involving internal control, including
control activities for safeguarding securities, that we consider to be material
weaknesses, as defined above.

We understand that practices and procedures that accomplish the objectives
referred to in the second paragraph of this report are considered by the SEC to
be adequate for its purposes, in accordance with the Securities Exchange Act of
1934 and related regulations, and that practices and procedures that do not
accomplish such objectives in all material respects indicate a material
inadequacy for such purposes. Based on this understanding and on our study, we
believe that the Companys practices and procedures were adequate at December
31, 2001, to meet the SECs objectives.

This report is intended solely for the information and use of the Board of
Directors, management, the SEC, the National Association of Securities Dealers,
and other regulatory agencies that rely on Rule 17a-5(g) under the Securities
Exchange Act of 1934 in their regulation of registered brokers and dealers, and
is not intended to be, and should not be, used by anyone other than these
specified parties.

/s/ Moore Stephens Lovelace, P.A.
Certified Public Accountants

Orlando, Florida
March 6, 2002

F-20



---



##### 



EXHIBIT INDEX

|       |  |                                                             
|------ |  | ------------------------------------------------------------
|Number |  | Name                                                        
|       |  |                                                             
|10.8   |  | Employment Agreement between the Company and Michael Dujovne
|10.9   |  | Employment Agreement between the Company and Ronald Caprilla
|16.1   |  | Letter from Hoyman, Dobson & Company                        
|21.1   |  | Subsidiaries of the Company