##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-KSB/A

(Mark
One)x
    
    Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934For the fiscal year ended December 31, 2002oro
    
    Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934For the transition period from    to


000-29337
(Commission File No.)

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

FLORIDA
(State or other jurisdiction ofincorporation or organization)
    
    59-3202578
(I.R.S. Employer
Identification No.)


980 NORTH FEDERAL HIGHWAY, SUITE 310
BOCA RATON, FLORIDA
(Address of principal executive offices)
    
    33432
(Zip Code)


Issuers Telephone Number,
including area code: (561) 338-2800

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. x

Issuers revenues for its most recent fiscal year were $6,154,854

As of March 19, 2003, 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 $11,135,655.

As of March 19, 2003, there were 23,140,064 shares of issuers common stock
outstanding.





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TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Business.                                                                            
|PART II                                           
|                                                   | Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 7. Financial Statements.                                                                
|PART III                                          
|                                                   | Item 10. Executive Compensation                                                              
|                                                   | Item 11. Security Ownership of Certain Beneficial Owners                                     
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
|Ex-31.1 Section 302 CEO Certification             
|Ex-31.2 Section 302 CFO Certification             
|Ex-99.1 Section 906 CEO Certification             
|Ex-99.2 Section 906 CFO Certification             



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TABLE OF CONTENTS

The following items are amended herein:PART I
    
    
    1Item 1.
    
    Business
    1PART II
    
    
    11Item 6.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    11Item 7.
    
    Financial Statements
    15PART III
    
    
    15Item 10.
    
    Executive Compensation
    15Item 11.
    
    Security Ownership of Certain Beneficial Owners
    18Item 13.
    
    Exhibits and Reports on Form 8-K
    19Item 14.
    
    Controls and Procedures
    21


Introductory Comment

Throughout this amendment to our 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 amendment to our annual report 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



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PART I




Item 1. Business.

Introduction

Summit Brokerage Services, Inc., a Florida corporation organized in 1993,
is a Florida-based full service retail brokerage firm providing a broad range
of securities brokerage and investment services to primarily individual
investors. We also sell insurance products, predominantly fixed and variable
annuities and life insurance, through a subsidiary, SBS Insurance Agency of
Florida, Inc., a Florida corporation (SBSIA). Through another of our
subsidiaries, Summit Financial Group, Inc., a Florida corporation and
registered investment advisor (SFG), we provide asset management services.
Summit, together with its subsidiaries, is referred to herein alternately as
Summit, Company, we, our, or us.

Summit is registered as a broker-dealer with the Securities and Exchange
Commission (SEC), the National Association of Securities Dealers Regulation,
Inc. (NASDR), the Municipal Securities Rule Making Board (MSRB), and the
Securities Investor Protection Corporation (SIPC) and is licensed to conduct
its brokerage activities in 46 states. SFG, our investment advisory firm, is
registered or eligible to conduct business as an investment advisor in 23
states.

In May 2002, a controlling interest in Summit Brokerage was acquired by
Marshall T. Leeds, who assumed the role of Chairman and Chief Executive Officer
at that time. Shortly thereafter, we began a private placement of our common
stock, which resulted in the receipt of gross proceeds of approximately
$3,000,000 as of the closing of the offering in March 2003. Concurrent with
our efforts to raise capital, we undertook several measures designed to not
only enhance our revenue (through the addition of registered representatives,
both individually as well as through the acquisition of assets of other firms),
but also to improve our ability to more efficiently and effectively service our
registered representatives. Toward that end, in 2002 we hired several new
employees, including members of senior management, and leased additional office
space in Boca Raton, Florida to house these employees. We also undertook
improvements to our information technology systems. In January 2003, we
acquired the Boca Raton branch office of Wachovia Securities Financial Network,
Inc., which branch generated, in the 12 month period prior to its acquisition,
approximately $5.6 million in gross revenue.

We have a history of operating losses. In 2002 and 2001, we reported
losses of $1,619,010 and $547,748, respectively. In general, our financial
results can be impacted by a number of factors, including our ability to
recruit and retain registered representatives as well as general market
conditions and volatility, which is often an expression of investor confidence.
In periods of waning investor confidence, such as 2002, our revenues suffer as
our clients make fewer investments. Furthermore, our results during that
period were negatively impacted by the growth in, and improvements to our
infrastructure undertaken in 2002. As we continue to grow, we may also
continue to have increases in expenses associated with growth such as increased
personnel and office space costs. There is no assurance that any increased
revenue from growth will be sufficient to offset increased expenses.

As of March 31, 2003, we had approximately 100 registered representatives
operating from approximately 50 offices located throughout the country, with
approximately one-half of those offices located in Florida and the Southeast
United States. The number of registered representatives in our affiliate
offices typically range from one to five, although the number of registered
representatives in certain offices may exceed this amount. With the exception
of the Boca Raton office, all of our branch offices and satellite locations are
owned and operated by independent owners, whom we refer to as affiliates, who
maintain all appropriate licenses and are responsible for all of their
respective office overhead and expenses. Historically, many of our affiliates
have also provided financial planning services to their clients, wherein the
registered representative evaluates a clients financial needs and objectives,
develops a detailed plan, and then implements the plan with the clients
approval. When the implementation of such objectives involves the purchase or
sale of securities (including the placement of assets within a managed account)
such transactions are effected through the Company, for which we earn either a
commission or a fee.

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We do not hold any funds or securities of our customers, but instead
utilize, on a fully disclosed basis, the services of both First Clearing
Corporation (a division of Wachovia Corporation) (FCC) and RBC Dain
Correspondent Services (a division of RBC Dain Rauscher Incorporated) (Dain)
as our clearing brokers (collectively, the Clearing Brokers). Our clearing
arrangements provide us with back office support, transaction processing
services on all principal national and international securities exchanges, and
access to many other financial services and products. The agreements allow us
to offer a range of products and services that are generally offered only by
firms that are larger and have more capital than Summit.

Our revenues consist primarily of commissions and fee income earned from
securities transactions and related activities, such as fees for managing a
clients assets (asset managed accounts). The majority of our commissions
have traditionally come from the sale of mutual fund shares and annuity
products. The following table reflects the various sources of revenue and the
percentage of total revenues for each of the last two fiscal years:

2002
    
    2001Mutual funds
    
    $
    2,031,102
    
    
    
    33
    %
    
    $
    3,171,414
    
    
    
    45
    %Annuities
    
    $
    1,477,165
    
    
    
    24
    %
    
    $
    1,902,848
    
    
    
    27
    %Insurance
    
    $
    1,169,422
    
    
    
    19
    %
    
    $
    1,550,469
    
    
    
    22
    %Equities
    
    $
    861,680
    
    
    
    14
    %
    
    $
    211,428
    
    
    
    3
    %Registered Investment Advisory Fees (1)
    
    $
    369,291
    
    
    
    6
    %
    
    $
    140,952
    
    
    
    2
    %Miscellaneous (2)
    
    $
    246,194
    
    
    
    4
    %
    
    $
    70,476
    
    
    
    1
    %Total
    
    $
    6,154,854
    
    
    
    100
    %
    
    $
    7,047,587
    
    
    
    100
    %




|(1) |  | Represents management fees derived from managed accounts.
|--- |  | ---------------------------------------------------------



|(2) |  | Miscellaneous includes interest and other income.
|--- |  | -------------------------------------------------

By their nature, our business activities are highly competitive and are
subject to, among other things, general market conditions, including the
volatility of the trading markets and the attractiveness of various forms of
investment products. Consequently, our revenues and net income are subject to
substantial positive and negative fluctuations due to a variety of factors that
cannot be predicted with great certainty and may result in revenues and net
income in any particular period that may not be representative of full-year
results and may vary significantly from period to period. Furthermore, our
mix of business in any particular quarter will be impacted by several factors,
including the attractiveness of any particular type of investment when compared
with other types of investments, and the types of investments sold by newly
added brokers to our company, many of whom specialize in the sale of specific
types of investment products. While economic conditions in 2002 suppressed
investments generally, as is reflected in the above table, our commission
revenues derived from the sale of equities (i.e., trades in individual stocks
for customers) and registered investment advisory fees (i.e., fees from asset
managed accounts) increased over 2001. We believe those increases are
primarily attributable to the type of business conducted by registered
representatives we added in 2002 as well as a shift in investors preferences.

Our business plan is focused on increasing our network of affiliated
registered representatives, primarily through recruiting efforts. Although we
will continue to recruit those registered representatives who serve as
financial planners (who sell primarily annuities, insurance and mutual funds),
we also intend to pursue the addition of registered representatives who focus
on the sale of different types of securities, namely equities and fixed income
products. There can be no assurance that we will be successful in our
recruiting efforts. We will also pursue the acquisition of the assets of
brokerage firms. Our ability to realize growth through acquisitions, however,
will depend on the availability of target broker/dealer firms and our ability
to successfully negotiate favorable terms, and there can be no assurance that
we will be able to consummate such acquisitions. Further, there are costs
associated with the assimilation of new businesses and personnel, which may be
more than we anticipate at the time. Thus, there is no assurance that we will
achieve or maintain profitability.

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We believe that our operations and current capital resources will be
sufficient to fund our working capital needs through fiscal year 2003.
However, 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. Unless we are able to increase our revenues, add 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. In addition, we anticipate that our
strategy of growth through acquisitions will necessitate additional debt and/or
equity financing, although there can be no assurances that this will happen.
Our failure to obtain sufficient 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.

Affiliate Program

Our primary method of operation is through an affiliate program, which
allows registered representatives to operate as independent contractors. As of
March 31, 2003, all but approximately 20 of our registered representatives are
affiliates. A registered representative who becomes a Summit affiliate
establishes his/her own office and is solely responsible for the payment of all
expenses associated with the operation of the branch office (including rent,
utilities, furniture, equipment, stock quotations, and general office supplies)
although all of that branchs revenues from securities brokerage transactions
accrue to Summit. Because our affiliates bear the responsibility for these
expenses, we pay to them a significant percentage, typically 80% to 90%, of the
commissions they generate. This compares with a payout rate of approximately
20% to 45% to registered representatives working in a traditional brokerage
setting where the brokerage firm bears substantially all of the costs of
maintaining its sales forces, including providing employee benefits, office
space, sales assistants, telephone service, and supplies. The affiliate program
permits the Company to expand its base of revenue and its network for the
retail distribution of securities without the capital expenditures that would
be required to open company-owned offices and the additional administrative and
other costs of hiring registered representatives as in-house employees.

Affiliates must possess a sufficient level of commission brokerage
business and experience to enable the individual to independently support
his/her own office. Financial professionals such as insurance agents, financial
planners, and accountants, who already provide financial services to their
clients, can often affiliate with Summit and obtain the required licenses to
become registered representatives. Affiliation enables these professionals to
offer financial products and services to their clients through Summit and earn
commissions and fees for these transactions and services. Affiliates are given
broad discretion to structure their own practices and to specialize in
different areas of the securities market, subject to Summits supervisory
procedures.

Summit provides full support services to each of the affiliates, including
access to stock and options execution and over-the-counter stock trading;
products such as insurance, mutual funds, unit trusts and investment advisory
programs; and research, compliance, supervision, accounting and related
services.

Each affiliate is required to obtain and maintain in good standing each
license required by the SEC and NASD to conduct the type of securities business
in which the affiliate will engage, and to register in the various states in
which he/she intends to service customers. Summit is ultimately responsible for
supervising all of its registered representatives, whether affiliates or
in-house registered representatives. We can incur substantial liability from
improper actions of any of our registered representatives. We maintain a
professional liability errors and omissions insurance policy which provides
coverage for certain actions taken and/or omissions made by our registered
representatives, employees and other agents in connection with the purchase and
sale of securities. There is no assurance, however, that such insurance will
cover any and all claims that may be asserted against Summit or, if such claims
are asserted and are deemed to be within the scope of coverage, that such
coverage will be sufficient to cover the amount of any judgment.

Commission Revenues

The most significant portion of our revenues is derived from commissions
generated by our brokerage activities, including from the sale of annuities
(through SBSIA) and mutual fund shares. We also generate commissions from the
purchase or sale of equities and fixed income products for our customers from
other dealers on an agency basis. For transactions executed on an agency basis, we are paid a
commission by our client for processing that clients buy or sell order. At
this time, we anticipate that the percentage of revenue that we derive

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form the sale of each type of investment product will change as investors preferences
change. Our mix of business will also change depending on the types of
registered representatives we recruit and the types of investment products on
which they focus. In addition to commissions, we also generate fees, primarily
paid to us in connection with the management of a clients account through SFG.
We do not currently make markets in any securities.

We record commissions earned from the sale of securities, annuities and
insurance as commission revenue, as investment products are sold by our
registered representatives. We also record as commission revenue the fees we
are paid to manage our customers accounts at the time we receive such fees. 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. In
general, these agreements provide for either a fixed payout percentage or a
tiered payout percentage based on total gross production, and do not take into
account the type of security sold giving rise to the commission.

Mutual Funds.We have agreements with numerous mutual fund management
companies under which we sell shares in a variety of mutual funds. Mutual fund
commissions are derived from standard dealers discounts that are a small
percentage of the purchase price of the shares depending upon the terms of the
dealer agreement and the size of the transaction. In addition, most funds
permit the Company to receive additional periodic fees based upon the
customers investment maintained in particular funds. For 2002, we earned
gross commissions of approximately $2.0 million from the purchase and sale of
mutual fund shares, which represented approximately 33% of our total revenue.

Agency Transactions (Equities).We charge commissions to our clients in
accordance with our established commission schedule. In certain instances,
varying discounts from the schedule are given, generally based upon the
clients level of business, the trade size and other relevant factors. Because
our commissions are transaction-based revenues, they are influenced by the
number, size and market value of client transactions and the mix of investment
products being sold. For 2002, we earned gross commissions of approximately
$861,000 on agency equity transactions, which represented approximately 14% of
our total revenue.

SBS Insurance Agency

Our registered representatives offer fixed and variable annuities and life
insurance products to their clients through our subsidiary, SBS Insurance
Agency of Florida, Inc. (SBSIA). As an agent for any particular insurance
company, we receive commissions equal to some percentage, typically between 5%
and 7%, of the amount invested, or, in the case of life insurance, some
percentage of the premium. Summit has executed agency agreements with various
national insurance companies and is able to offer life insurance, long term
care insurance, and fixed and variable annuities to its customers through
substantially all of its investment representatives who hold insurance sales
licenses. In 2002, the Company earned gross commissions of $2.6 million from
the sale of insurance and annuity products, which represented approximately 43%
of our total revenue.

Asset Management and Portfolio Advisory Services

Through our Registered Investment Adviser, Summit Financial Group, Inc.
(SFG), we provide investment advisory services to clients through
independent, third-party sponsored advisory programs. SFG is registered or
eligible to conduct business as an investment adviser in 23 states. As of
December 31, 2002, SFG had over $30 million of assets under management.

Clients who utilize our investment advisory services pay us a quarterly
fee, which typically equals some percentage multiplied by the value of the
assets, as of the beginning of the quarter, which they have placed with us to
manage. In general, a client will pay from 1.0% to 3.0%, on an annualized
basis, of the amount of assets placed under management as a management fee.
The actual fee charged to a particular client is based on, among other things,
the value of the assets under management and the particular management fee
program in which that investor is participating. To the extent that the value
of the assets under management for any individual investor changes between one
quarter and the next, the fees that we are paid by that investor will also
change. Because clients with managed accounts are paying this fee, they are
not charged a per-transaction commission each time a transaction is
effected in their accounts. In 2002, the Company earned management fees of
approximately $370,000, which represented approximately 6% of our total
revenue.

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Clearing Broker

We do not hold any funds or securities of our securities brokerage
customers. Rather, we use the services of our Clearing Brokers on a fully
disclosed basis. Our Clearing Brokers process all securities transactions and
maintain customer accounts on a fee basis. The services provided include
billing, credit review and control (including for margin accounts), receipt,
and custody and delivery of securities. The Clearing Brokers also lend funds to
our customers through the use of margin credit. These loans are made to
customers on a secured basis, with the Clearing Brokers maintaining collateral
in the form of saleable securities, cash or cash equivalents. However, if the
Companys customers do not pay or deliver securities for a trade or if they do
not properly maintain their credit balances on margin accounts, and there is
a loss for which the Company cannot collect from our customer, the Company is
generally liable for such losses.

Customer accounts are protected through the Securities Investor Protection
Corporation for up to $500,000 per account, of which coverage for cash balances
is limited to $100,000. Additional protection up to the entire net asset value
of a clients account is provided through private insurance carriers. Pursuant
to the terms of our agreements with our Clearing Brokers, we have agreed to
indemnify and hold each of them harmless from certain liabilities and claims,
including claims arising from transactions of our customers. We believe that,
in general, the Clearing Brokers are able to provide the Company and its
clients with services at a total cost which is less than it would cost us to
process such transactions on our own.

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 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 encounter intense competition in all aspects of our business. In
general, we compete directly with other providers of financial services focused
on meeting the needs of individual investors. Some of the strongest
competition comes from companies who have greater marketing, financial and
technical resources than ours. These competitors can offer a wider range of
services and financial products than we can. Some of our competitors also have
greater name recognition and more extensive client bases. Firms such as
Merrill Lynch & Co., Inc., Citigroup Global Markets Holdings, Inc. (Salomon
Smith Barney), Morgan Stanley, Charles Schwab & Co., Inc. and Edward D. Jones &
Co., L.P. have collectively garnered a significant percentage of the overall
retail financial services industry. Furthermore, we compete with numerous
regional and local securities firms, as well as with firms that provide online
trading, such as E*Trade Group, Inc. and Ameritrade Holding Corporation.
Additionally, there has recently been increasing competition from other
sources, such as commercial banks, insurance companies, and accounting and
consulting firms that have entered the securities industry. We believe that
the principal factors affecting competition in the securities industry are the
quality and ability of professional personnel and relative prices of services
and products offered.

In addition to competing for clients, we compete with other financial
services providers to attract and retain experienced and productive investment
professionals, especially those firms offering independent affiliate programs
such as Raymond James & Associates and LPL Financial Services. To date, we
have not undertaken any significant marketing initiatives with respect to
recruiting registered representatives. Rather, we have attracted registered
representatives as a result of the extensive relationships developed by senior
management throughout their years of involvement in the financial services
industry, as well as through referrals and the use of both in-house and outside
recruiters. We have also not undertaken any marketing efforts designed to
attract retail customers. Rather, we rely on each registered representative to attract his or her own clientele,
which most typically occurs through referrals

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from other clients. Additionally, many of our registered representatives hold seminars to educate
potential clients about various investment opportunities.

Employees

As of December 31, 2002, we employed 18 full-time people, consisting of 5
in management and 13 in general staff positions. As of December 31, 2002,
there were approximately 100 registered representatives licensed with the firm,
the majority of whom are engaged by us as independent contractors, although
some are engaged as employees (including in an operational capacity). 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 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 Events

On January 2, 2003, the Company acquired, in an asset purchase agreement,
the Boca Raton branch of Wachovia Securities Financial Network, Inc. (the
Branch). The Branch was an affiliated retail branch office of Wachovia
Securities Financial Network, Inc. (Wachovia), with approximately 22
registered representatives conducting retail brokerage business. The purchase
price was approximately $1,800,000, payable to Wachovia over four years. The
purchase price contemplated the signing of an employment agreement with each of
the registered representatives. Management believes that the acquisition will
expand its market presence and overall customer base.

In March 2003, the Company completed a private offering of its common
stock that it commenced in October 2002. In that offering, the Company raised
approximately $3 million with the sale of approximately 12,000,000 shares of
common stock. The investors in that private placement have certain piggy-back
registration rights and the Company is obligated to file with the SEC within
the next 60 days (subject to extension or delay up to 180 days under certain
circumstances), a registration statement registering the private investors
common shares for subsequent re-sale. However, the shares are subject to a
lock-up that provides that one-half of the shares may be sold commencing six
months after the effective date of the registration statement and all common
shares may be sold commencing 12 months after the effective date of the
registration statement.

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Risk Factors

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 fiscal years
ended December 31, 2002 and 2001 of $1,619,010 and $547,748 respectively, and
we cannot assure you that we will be profitable in the near future or that our
revenues will grow. Additionally, our revenues and profitability have been,
and may continue to be, negatively impacted by current economic conditions as
well as international political unrest.

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, including, but not limited to the following:



| |  |  | acts of war, terrorism and other political unrest;
| | - |  | --------------------------------------------------



| |  |  | broad trends in business and finance, and
| | - |  | -----------------------------------------



| |  |  | changes in the conditions of the securities markets in which our customers trade.
| | - |  | ---------------------------------------------------------------------------------

A downturn in these markets such as we have experienced recently adversely
affects our operating results. In major stock market declines, many firms in
the securities industry suffer financial losses, and the level of individual
investor trading activity decreases 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.

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.

There is considerable fluctuation during any year and from year-to-year in
the volume of transactions we must process. We record transactions and post
our books on a daily basis. Operations personnel monitor operations to
determine compliance with applicable laws, rules and regulations. Failure to
keep current and accurate books and records can render us liable to
disciplinary action by governmental and self-regulatory authorities, as well as
to claims by our clients.

In addition, we use the Internet to provide information to our registered
representatives and, to a lesser extent, 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. 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.

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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. As of December 31, 2002, we had net capital of
$1,377,156, which was $1,327,156 in excess of our minimum net capital
requirement of $50,000.

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, 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 registered representatives and new employees as well as
retaining current personnel, and we could be adversely affected in the event we
were to lose registered representatives who either individually or in the
aggregate accounted for a significant percentage of our revenues.

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.

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 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 growth strategy is to increase
market penetration by recruiting experienced registered representatives. In
connection with our recruiting efforts, we rely significantly on the extensive
relationships developed by senior management, particularly Marshall T. Leeds,
through their years of

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involvement in the financial services industry, in addition to relying on
referrals and the use of both in-house and outside recruiters. 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 Marshall T. Leeds, our
Chairman and Chief Executive Officer, could materially and adversely affect our
operating results.

Other than Mr. Leeds, we do not have employment agreements with any other
members of senior management. We attempt to retain employees with incentives
such as incentive compensation plans, including stock options conditioned on
continued 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 benefit plans might no longer
be a competitive incentive for our key employees to stay with us.

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 expect that a need for
increased staffing will continue for service personnel to support the expansion
of our branch offices. We will also need to continue improving our 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.

We may not be able to grow as planned.As part of our long-term growth
strategy, we recruit individual registered representatives and we evaluate the
acquisition of other firms or assets that would complement or expand our
business in attractive service markets or that would broaden our customer
relationships. We cannot assure you that we will be successful in our
recruiting efforts or that we will be able to identify suitable acquisition
candidates available for sale at reasonable prices or that we will be able to
consummate any acquisition. Further, future acquisitions may further increase
our leverage or, if we issue equity securities to pay for the acquisitions, our
shareholders could suffer dilution of their interests.

We may have difficulty integrating businesses and/or generating acceptable
returns from future acquisitions.Even if we are able to identify acquisition
candidates and complete the acquisition on terms favorable to us, we cannot
assure you that we will be able to successfully integrate any acquired business
into our operations. The success of any completed acquisition will depend in
large measure on our ability to integrate the operations of the acquired
business with our operations and otherwise to maintain and improve the results
of operations of the acquired business. Acquisitions involve a number of
special risks and present financial, managerial and operational challenges,
some of which include:



| |  |  | diversion of managements attention;
| | - |  | ------------------------------------



| |  |  | unanticipated events or circumstances;
| | - |  | --------------------------------------



| |  |  | existence of unknown liabilities;
| | - |  | ---------------------------------



| |  |  | potential disputes with sellers; and
| | - |  | ------------------------------------



| |  |  | adverse effects on our reported earnings
per share in the event acquired intangible net assets, if
any, become impaired.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

An acquisition increases the risk that any business may lose customers or
employees, including key employees of the acquired business. An acquired
business could under perform relative to our expectations and we may not
realize the value we expect from the acquisition. Adverse market conditions or
poor investment or other performance by an acquired company may adversely
affect revenue. We could also experience financial or other setbacks if an
acquired company has problems of which we are not aware. Although we conduct
due diligence reviews of potential acquisition candidates, we may not identify
all material liabilities or risks related to acquisition candidates. Some or
all of these risks could have a material adverse effect on our business,
financial condition and

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results of operations. Further, future acquisitions may further increase
our leverage or, if we issue equity securities to pay for the acquisitions, our
shareholders could suffer dilution of their interests.

Our exposure to possible securities litigation could adversely affect our
business.From time to time we are engaged in various legal and regulatory
proceedings arising in the normal course of 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.
We currently maintain errors and omissions insurance, the proceeds of which may
help to reduce the amount we may otherwise be required to pay with respect to
certain types of claims. However, there can be no assurance that we will be
able to obtain errors and omissions insurance in the future. If it can be
obtained, the price for such insurance may be unreasonable. Even if such
insurance is in force, the amount of any award may exceed the maximum coverage
provided by such insurance, in which case we will be required to pay any
uncovered portion. 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. Any such litigation brought in the future could have a
material adverse effect on our business, financial condition and operating
results.

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. Additionally, our business may be negatively
impacted by acts of cyberterrorism.

We may not be able to completely protect ourselves from various forms of
business interruption.Although we maintain business interruption insurance,
the net proceeds from such insurance may not be sufficient to cover lost
revenues and earnings. Additionally, in the future, it may not be possible to
obtain business interruption insurance on terms that management deems
acceptable, especially if such interruption relates to acts of terror,
including acts of cyberterrorism.

We depend on our headquarters and operations center for continued
operation of our business. A disaster directly affecting our headquarters or
operations center may have a material adverse impact on our ability to continue
to operate our business without interruption. Although we have disaster
recovery programs in place, there can be no assurance that these will be
sufficient to mitigate the harm that may result from such a disaster. In
addition, insurance and other safeguards might only partially reimburse us for
our losses. Furthermore, we rely on third parties to perform certain back
office and trade execution functions on our behalf. In the event these third
parties are unable to provide these services, including as a result of a
natural disaster or such other event that results in an interruption of their
business activities, our operations could be materially negatively impacted.

We may have to indemnify our directors and officers for certain actions.
Our Amended and Restated Articles of Incorporation require us to indemnify (to
the fullest extent permitted under Florida law) each of our directors and
officers against liabilities imposed upon them (including reasonable amounts
paid in settlement) and expenses incurred by them in connection with any claim
made against them or any action, suit or proceeding to which they may be a
party by reason of their being or having been directors or officers of our
company. The foregoing provisions may reduce the likelihood of derivative
litigation against directors and may discourage or deter shareholders or
management from suing directors for breaches of their duty of care, even though
such an action, if successful, might otherwise benefit our shareholders and us.
We maintain officers and directors liability insurance coverage in the amount
of $1 million. There can be no assurance that such insurance will be available
in the future, or that if available, it will be available on terms that are
acceptable to us. Furthermore, there can be no assurance that the insurance
coverage provided will be sufficient to cover the amount of any judgment
awarded against an officer or director (either individually or in the
aggregate). Consequently, if such judgment exceeds the coverage under the
policy, we may be forced to pay such difference.

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PART II




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,
2002 and December 31, 2001 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 is registered as a broker-dealer with the Securities and Exchange
Commission (SEC), the National Association of Securities Dealers Regulation,
Inc. (NASDR), the Municipal Securities Rule Making Board (MSRB), and the
Securities Investor Protection Corporation (SIPC) and is licensed to conduct
its brokerage activities in 46 states. SFG, our investment advisory firm, is
registered or eligible to conduct business as an investment advisor in 23
states.

In May 2002, a controlling interest in Summit Brokerage was acquired by
Marshall T. Leeds, who assumed the role of Chairman and Chief Executive Officer
at that time. Shortly thereafter, we began a private placement of our common
stock, which resulted in the receipt of gross proceeds of approximately
$3,000,000 as of the closing of the offering in March 2003. Concurrent with
our efforts to raise capital, we undertook several measures designed to not
only enhance our revenue (through the addition of registered representatives,
both individually as well as through the acquisition of assets of other firms),
but also to improve our ability to more efficiently and effectively service our
registered representatives. Toward that end, in 2002 we hired several new
employees, including members of senior management, and leased additional office
space in Boca Raton, Florida to house these employees. We also undertook
improvements to our information technology systems. In January 2003, we
acquired the Boca Raton branch office of Wachovia Securities Financial Network,
Inc., which branch generated, in the 12 month period prior to its acquisition,
approximately $5.6 million in gross revenue.

We have a history of operating losses. In 2002 and 2001, we reported
losses of $1,619,010 and $547,748, respectively. In general, our financial
results can be impacted by a number of factors, including our ability to
recruit and retain registered representatives as well as general market
conditions and volatility, which are often expressions of investor confidence.
In periods of waning investor confidence, such as 2002, our revenues suffer as
our clients make fewer investments. Furthermore, our results during that
period were negatively impacted by the growth in, and improvements to our
infrastructure undertaken in 2002. As we continue to grow, we may also
continue to have increases in expenses associated with growth such as increased
personnel and office space costs. There is no assurance that any increased
revenue from growth will be sufficient to offset increased expenses.

Our revenues consist primarily of commissions and fee income earned from
securities transactions and related activities, such as fees for managing a
clients assets (asset managed accounts). The majority of our commissions
have traditionally come from the sale of mutual fund shares and annuity
products. The following table reflects the various sources of revenue and the
percentage of total revenues for each of the last two fiscal years:

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2002
    
    2001Mutual funds
    
    $
    2,031,102
    
    
    
    33
    %
    
    $
    3,171,414
    
    
    
    45
    %Annuities
    
    $
    1,477,165
    
    
    
    24
    %
    
    $
    1,902,848
    
    
    
    27
    %Insurance
    
    $
    1,169,422
    
    
    
    19
    %
    
    $
    1,550,469
    
    
    
    22
    %Equities
    
    $
    861,680
    
    
    
    14
    %
    
    $
    211,428
    
    
    
    3
    %Registered Investment Advisory Fees (1)
    
    $
    369,291
    
    
    
    6
    %
    
    $
    140,952
    
    
    
    2
    %Miscellaneous (2)
    
    $
    246,194
    
    
    
    4
    %
    
    $
    70,476
    
    
    
    1
    %Total
    
    $
    6,154,854
    
    
    
    100
    %
    
    $
    7,047,587
    
    
    
    100
    %




| | (1) |  | Represents management fees derived from managed accounts.
| | --- |  | ---------------------------------------------------------



| | (2) |  | Miscellaneous includes interest and other income.
| | --- |  | -------------------------------------------------

By their nature, our business activities are highly competitive and are
subject to, among other things, general economic and market conditions,
including the volatility of the trading markets and the attractiveness of
various forms of investment products. Consequently, our revenues and net
income are generally subject to substantial positive and negative fluctuations
due to a variety of factors that cannot be predicted with great certainty and
may result in revenues and net income in any particular period that may not be
representative of full-year results and may vary significantly from period to
period.

Furthermore, our mix of business in any particular quarter will be
impacted by several additional factors, including the types of investments sold
by newly added registered representatives to our Company, many of whom
specialize in the sale of specific types of investment products, and the
preferences of their customers. While economic conditions in 2002 suppressed
investments generally, as is reflected in the above table, our commission
revenues derived from the sale of equities (i.e., trades in individual stocks
for customers) and registered investment advisory fees (i.e., fees from asset
managed accounts) increased over 2001. We believe those increases are
attributable to the business conducted by registered representatives we added
in 2002, as well as a shift in investor preferences.

Our business plan is focused on increasing our network of affiliated
registered representatives, through recruiting efforts as well as acquisitions
of assets of other broker/dealer firms. Our recruiting efforts are directed
toward the addition of registered representatives who also serve as financial
planners (who sell primarily annuities, insurance and mutual funds) as well as
registered representatives who focus primarily on equities and fixed income
products. As we add new registered representatives, our revenue mix from
period to period (e.g., commissions received from transactions in individual
equities, mutual funds, annuities, etc.) may vary disproportionately and
perhaps contrary to the then current market trends. Thus, for example, our
commission revenues from transactions in individual equities or fees earned on
managed accounts may show a significant increase in a particular period or
periods as a result of the focus of new registered representatives we have
hired and their customer base, and such increase may not be indicative of
general market trends or a change in the focus of the Company. On the other
hand, if the new registered representatives that are hired focus on annuities,
for a period of time we may show increased revenue from sales of that product
over sales of individual equities or mutual funds. As we continue to add
registered representatives, we anticipate that our business mix will constantly
change.

Thus, in addition to the macroscopic affects on revenues such as overall
trends in economic and market conditions and investor confidence generally,
fluctuations in our revenue between periods may or may not follow such trends.
Given our current size, it is possible that fluctuations in our mix of business
may not mirror those experienced by the financial services industry as a whole.
This is because we may add, or lose, registered representatives who generate a
significant amount of commissions from the sale of a particular type of
investment product. As we grow larger, we anticipate that the ability of any
new branch office to impact the overall revenue mix will be diminished, as it
is with larger firms when they hire new registered representatives. However,
due to our size, it is possible that the addition of new registered
representatives (and their customer base) who focus on certain product(s) over
other products will be a factor in causing fluctuations in our revenue and/or
revenue mix

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from period to period which may not be representative of full-year results
or reflective of general market or economic trends.

Results of Operations

Fiscal Year Ended December 31, 2002 Compared to Fiscal Year Ended December 31, 2001

Revenues decreased in fiscal 2002 by $892,733, or (12.7%), to $6,154,854
from $7,047,587 in fiscal 2001. This decrease 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. However, while
revenues decreased overall due to general economic and market conditions, the
commissions that we earned from executing trades in equities and the fees that
we earned from managed accounts increased. We believe such increases are due,
in significant part, to the focus of new registered representatives that we
added during the year, and the focus of their particular customer base. As
discussed above, we anticipate that while we grow, the addition of new
registered representatives (and their customers) who focus on certain products
over other products will be a factor in causing fluctuations in our revenue
and/or revenue mix from period to period which may not be representative of
full-year results or reflective of general market or economic trends.

Expenses increased in fiscal 2002 by $178,529, or 2.4%, to $7,773,864 from
$7,595,335 in fiscal 2001. The higher expenses were largely attributable to
the increase in legal and professional fees, due in part to the stock
transaction as described under the Change of Control section in Item 11 below.
These costs increased by $145,642, or 92%, to $303,265 from $157,623 in fiscal
2001.

Commissions decreased to $5,275,867 during the year, which represents a
decrease of $587,826, or 10%, over the $5,863,693 reported for 2001. In
general, commissions and clearing costs are directly related to commission
revenue, and will typically increase, or decrease, proportionately as
commission revenue rises or declines. Commissions as a percentage of commission
revenue for 2002 were 87% versus 85% for 2001.

Employee compensation and benefits increased to $917,062 during 2002,
which represents an increase of $16,085, or 2%, over 2001. This increase was
due primarily to the addition of new employees, and their related benefit
costs, during 2002, offset by a decrease of $75,769 in employee stock based
compensation.

Occupancy and equipment cost increased to $188,253 during 2002, which
represents an increase of $18,268, or 11%, over $169,985 reported for 2001.
This increase was largely due to an increase in rent expense, resulting from
our need to acquire additional space in Boca Raton for certain of our
operations.

Communications costs decreased by $13,279, or 10%, to $116,445 in 2002
from $129,724 in 2001. The principal reason for this overall decrease was a
decline in our quote service expenses, which decrease was partially offset by
increases in our telephone expense.

Professional fees increased by $486,817, or 163%, to $785,486 in 2002 from
$298,669 in 2001. Contributing to this increase in fees was an increase in
legal fees of approximately $100,000, which increase was due primarily to the
acquisition of a controlling interest in the Company by Marshall Leeds.
Professional fees also increased as a result of an increase in consulting costs
by approximately $140,000. In 2002, we relied heavily on the use of
consultants, as opposed to employees, in our efforts to improve upon our
infrastructure as well as for other purposes. During 2002, accounting fees
also increased, by approximately $40,000, as did licensing and registration
fees, by approximately $90,000. In addition, non-employee stock based
compensation increased approximately $160,000. This overall increase was
offset by a decrease in recruiting costs of approximately $44,000.

Other operating expenses increased to $490,751 during 2002, which
represents an increase of $258,464, or 111%, over $232,287 reported for 2001.
Several of the items that we include within other operating expenses
experienced increases, including contract labor costs, which increased by
approximately $45,000, and costs associated with being a public company, which
increased by approximately $33,000. Furthermore, we experienced increases in
the costs incurred in connection with certain meetings that we hold for our
registered representatives, as

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well as for office supplies and printing, both increases of which approximated
$30,000. We also incurred approximately $40,000 more in insurance expense
during 2002 than in 2001.

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

Revenues increased in fiscal 2001 by $67,901, or 1.0%, to $7,047,587 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 decreased in fiscal 2001 by $29,710, or .4%, to $7,595,335 from
$7,625,045 in fiscal 2000. The reduction was largely attributable to lower
operating costs, specifically the reduction in payroll related costs due to
personnel layoffs following the events of September 11, 2001. Total operating
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.

Liquidity and Capital Resources

Historically, our cash flows from operations have been negative and
therefore have been funded by stock issuances. There can he no assurance that
in the future we will not need to raise additional capital in order to meet
operating costs. We are presently attempting to increase revenue primarily
through the opening and acquisition of new branch offices either by hiring
registered representatives through our affiliate program or by acquiring branch
offices of other broker/dealer firms. Because each of our affiliated branch
offices is independent (with the exception of the Boca Raton branch), the
registered representative who owns that branch is solely responsible for the
payment of all expenses associated with the operation of that branch, including
rent, utilities, furniture, equipment, stock quotation machines, and general
office supplies. Consequently, we believe we can open a significant number of
branch offices with little increase in our expenses. To the extent we acquire
a branch office, we may be required to pay consideration to the firm that sold
that branch to us. Other than the acquisition of the Boca Raton branch, we
have not, to date, acquired any branch offices from other firms. We will
evaluate, on a case-by-case basis, the economics of each possible acquisition
to determine its attractiveness to us. We do not employ a single formula for
determining the attractiveness of a particular acquisition. Rather, we
consider, among other things, the total gross revenue generated by that office,
the mix of investment products sold, and the number of registered
representatives affiliated with that branch.

On October 14, 2002, we commenced a common stock private offering of up to
20,000,000 shares of our common stock to accredited investors at a purchase
price of $.25 per share. During the year ended December 31, 2002, we received
$2,050,000 in cash proceeds from the sale of 8,200,000 shares of common stock
related to the private placement. This offering closed in March 2003 and at
March 19, 2003, we had received $3,010,000 in cash proceeds from the sale of
12,040,000 shares of common stock related to the private placement.

Our net cash used in operations was $(1,190,711) for the year ended
December 31, 2002 and $(263,535) for the year ended December 31, 2001. The
$927,176 decrease in cash flows was primarily the result of our net loss of
$(1,619,010) for fiscal 2002.

Cash flows from financing activities were $2,766,169 in fiscal year 2002
and $176,983 in fiscal year 2001. The $2,589,186 increase in cash resulted
from our common stock private offering, as well as from the stock transaction
as described under the Change of Control discussion in Item 11 below.

During 2002, we issued 100,000 shares of our common stock for services,
which we valued at $66,000. We did not issue stock for services in 2001.

14



---



##### Table of Contents



During the year ended December 31, 2002, Marshall T. Leeds, the Companys
Chairman and Chief Executive Officer, exercised an option for 1,400,000 shares
of common stock at $.25 per share, for gross proceeds to the Company of
$350,000.

Under the terms of his employment agreement, Mr. Leeds may receive 3% of
the first 12 months gross production generated by brokers recruited by him who
remain with the company for at least 12 months. As of December 31, 2002, Mr.
Leeds and the company agreed to forego payment for any production generated in
2002 by brokers recruited by him. Accordingly, no liability was recorded at
December 31, 2002. Beginning in 2003, Mr. Leeds may begin to take such
overrides. At the present time, to the extent we cannot predict with any
certainty the level of gross production to be generated by those registered
representatives recruited by Mr. Leeds, if any. We cannot estimate the
potential impact the payment of such overrides may have on our liquidity or
operations, although we do not expect such impact to be material.

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.




Item 7. Financial Statements.

The financial statements required by this item are set forth on pages F-1
through F-18 and are incorporated herein by this reference.




PART III




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, 2000, 2001, and 2002 by our Chief Executive Officer and any executive
officer who received compensation in excess of $100,000 during those years
(each a Named Executive Officer).

SUMMARY COMPENSATION TABLE

Long-TermAnnual Compensation(1)
    
    Compensation AwardsName And Principal
    
    Fiscal
    
    
    
    
    
    
    
    
    
    Securities
    
    All OtherPosition
    
    Year
    
    Salary
    
    Bonus
    
    Underlying Options
    
    CompensationMarshall T. Leeds
Chairman and
Chief
    
    
    12/31/02
    
    
    $
    35,000
    
    
    
    -0-
    
    
    
    7,000,000
    (2)
    
    
    -0-Executive
Officer
    
    
    12/31/01
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-12/31/00
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Richard
Parker
Vice Chairman, President
and Chief Operating Officer
    
    
    12/31/02
    
    
    $
    73,627
    
    
    
    -0-
    
    
    
    952,870
    (3)
    
    $
    134,742
    (6)12/31/01
    
    
    $
    77,675
    
    
    
    -0-
    
    
    
    91,860
    (4)
    
    $
    1,539
    (6)12/31/00
    
    
    $
    45,756
    
    
    
    -0-
    
    
    
    404,440
    (5)
    
    
    -0-




---

|(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 7,000,000 options granted in 2002 that are exercisable at $.25
per share until December 31, 2007. These options were granted outside of
the companys 2000 Incentive Compensation Plan. The closing
price of a share of the companys                                         

15



---



##### Table of Contents



|    |  | common stock as reported on the OTC Electronic Bulletin Board on March 15,
2002, the last date the stock was traded before the option was granted, was
$.20 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | Represents (a) 400,000 options granted in 2002 and which vest over two
years, have an exercise price of $.50 per share, and expire on December
31, 2007; (b) 500,000 options granted in 2002 that are exercisable at $.10
per share until December 31, 2007, and (c) 52,870 options granted in 2002
that are exercisable at $.50 per share until March 21, 2012. The options
for 400,000 shares and 500,000 shares were granted outside of the
companys 2000 Incentive Compensation Plan. The closing price of a share
of the companys common stock as reported on the OTC Electronic Bulletin
Board on March 15, 2002, the last date the stock was traded before the
options were granted, was $.20 per share.
|   
|(4) |  | Represents 10,000 options granted in 2001 exercisable at $1.00 per share
until December 31, 2011, and 81,860 options granted in 2001 exercisable at
$.50 per share until December 31, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(5) |  | Represents options granted in 2000 exercisable at $2.50 per share until
2010, 394,440 of which replaced options granted in 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(6) |  | Represents commissions paid to Mr. Parker in connection with trades
executed by him on behalf of his clients.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Stock Options Granted in Fiscal 2002

The following table sets forth certain information concerning grants of
options made during fiscal 2002 to the Named Executive Officers.

Number of
    
    PercentSecurities
    
    of Total OptionsUnderlying Options
    
    Granted to
    
    Exercise or Base
    
    Fair Market Value
    
    ExpirationName
    
    Granted(#)
    
    Employees in 2002
    
    Price ($/Sh)
    
    on Date of Grant
    
    DateMarshall T. Leeds
    
    
    7,000,000
    (1)
    
    
    70.2
    %%
    
    $
    0.25
    
    
    $
    .20
    
    
    
    12/31/2007Richard Parker
    
    
    500,000
    (1)
    
    
    5.0
    %
    
    
    0.10
    
    
    $
    .20
    
    
    
    12/31/2007452,870
    (1)
    
    
    4.5
    %
    
    
    0.50
    
    
    $
    .20
    
    
    
    12/31/2007




---

|(1) |  | These options were granted outside of the companys 2000 Incentive
Compensation Plan.
|--- |  | -------------------------------------------------------------------------------------

Aggregate Stock Option Exercises and Year-End Option Value Table

The following table sets forth certain information concerning option
exercises in fiscal 2002, the number of stock options held by the Named
Executive Officers as of December 31, 2002 and the value (based on the fair
market value of a share of stock at fiscal year-end) of in-the-money options
outstanding as of such date.

Number of Unexercised
    
    Value of UnexercisedOptions Held at
    
    In-the-Money OptionsNumber of Shares
    
    
    
    
    
    Fiscal Year-End(#)
    
    at Fiscal Year-End(1)Acquired
    ValueName
    
    on Exercise
    (#)
Realized($)(1)
    
    Exercisable
    Unexercisable
    
    Exercisable
    
    UnexercisableMarshall T. Leeds
    
    
    1,400,000
    
    $
    1,064,000
    
    
    
    
    5,600,000
    
    
    
    
    
    
    $
    4,256,000
    
    
    
    Richard Parker
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    $
    455,000
    
    
    
    
    
    
    
    
    
    
    
    52,870
    
    
    
    400,000
    
    
    $
    26,963
    
    
    $
    204,000
    
    
    
    
    
    
    
    
    
    
    
    496,300
    
    
    
    
    
    
    
    




---

|(1) |  | Options are in-the-money if the fair market value of the common stock
exceeds the exercise price of the option. The closing sale price for
Summit Brokerages common stock as reported by the NASDAQ Trading and
Market Services on December 31, 2002 was $1.01 per share. Value is
calculated by multiplying (a) the difference between $1.01 and the option
exercise price by (b) the number of shares of common stock underlying the
option.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment Agreements

The Company entered into an employment agreement with Marshall T. Leeds
dated March 22, 2002 pursuant to which he was employed by the Company as its
Director of Recruiting in connection with its broker recruitment efforts and
other strategic matters. In connection with his employment, Mr. Leeds received
an option exercisable for 7,000,000 shares of common stock at an exercise price
of $.25 per share pursuant to an option agreement dated March 22, 2002. On May
22, 2002, his employment agreement was amended and restated for a

16



---



##### Table of Contents



term of two years and pursuant to which Mr. Leeds became the Companys
Chief Executive Officer and Chairman. The employment agreement, as amended and
restated, provides that, in consideration for Mr. Leeds services, he is to be
paid a base salary of $50,000 and will be reviewed annually. He will receive
an override or fee equal to 3% of the first twelve months gross production
generated by brokers recruited by him who remain with the Company for at least
12 months. Mr. Leeds will also receive commission income generated by him for
his production as a registered representative with the Company. The agreement
provides for a 12-month severance arrangement upon termination without cause or
in connection with a change of control, as such terms are defined in the
employment agreement. Mr. Leeds has the right to terminate the employment
agreement upon 60-days notice to the Company. The agreement also prohibits Mr.
Leeds from disclosing or using for his benefit confidential information about
the Company during and after his employment with the Company. Further, during
his employment with the Company and for a 12-month period after termination of
employment, he may not divert, attempt to divert or solicit any prospective or
existing customers of the Company for the benefit of any competitor of the
company or employ, hire or seek to employ or hire an employee or independent
registered representative of the Company, or otherwise directly or indirectly
induce or solicit such persons to leave their employment with the Company. Mr.
Leeds employment agreement was subsequently modified to include a
non-competition agreement pursuant to which Mr. Leeds may not compete with the
company during the term of his employment with Company or within the 12 month
period after termination or expiration of his employment.

Effective May 22, 2002, the Company entered into a two-year employment
agreement with Richard Parker who is the Companys President, Chief Operating
Officer and Vice Chairman. The employment agreement provides that, in
consideration for Mr. Parkers services, he is to be paid a base salary of
$50,000 initially which will be subject to increase upon specified Company
performance goals being met. He will receive an override or fee equal to 3% of
the first twelve months gross production generated by brokers recruited by him
or his affiliate, Educational Seminars of America, Inc., who remain with the
Company for at least 12 months. Mr. Parker will also receive commission income
generated by him for his production as a registered representative with the
Company. The agreement provides for severance in the amount of his base salary
as of the date of termination, payable over 12 months upon termination without
cause or in connection with a change of control, as such terms are defined in
the employment agreement. Mr. Parker has the right to terminate the employment
agreement upon 60-days notice to the Company. Mr. Parker received an
immediately exercisable option for 500,000 shares of the Companys common stock
at an exercise price of $.10 per share, and an option for 400,000 shares at an
exercise price of $.50 per share, vesting over three years, pursuant to option
agreements dated March 22, 2002. The agreement also prohibits Mr. Parker from
disclosing or using for his benefit confidential information about the Company
during and after his employment with the Company. Further, during his
employment with the Company and for a 12-month period after termination of
employment, he may not divert, attempt to divert or solicit any prospective or
existing customers of the Company for the benefit of any competitor of the
company or employ, hire or seek to employ or hire an employee or independent
registered representative of the Company, or otherwise directly or indirectly
induce or solicit such persons to leave their employment with the Company. Mr.
Parker received an immediately exercisable option for 500,000 shares of our
common stock at an exercise price of $.10 per share, and an option for 400,000
shares at an exercise price of $.50 per share, vesting over three years,
pursuant to option agreements dated March 22, 2002.

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 4,000,000 shares of common stock for grants under the Plan,
pursuant to an amendment to the Plan approved by the shareholders in August
2002. 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, 2002, the Company had outstanding options (only non-statutory) for
a total of 2,218,513 shares of the Companys common stock, leaving a total of
1,781,487 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. Upon expiration of unexercised options, the unpurchased shares
subject to such options will again be available for purposes of the Plan.

17



---



##### Table of Contents



Options Granted Outside of Our 2000 Incentive Compensation Plan

As of December 31, 2002, we had outstanding options to purchase an
aggregate of 7,653,646 shares of common stock with a range of exercise prices
from $.10 to $2.50 per share. Options for a total 6,500,000 shares expire on
December 31, 2007, unless terminated earlier in accordance with their terms.
All other non-plan 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 outside of our Plan, options for approximately
6,961,701 shares are immediately exercisable as of December 31, 2002.

Director Compensation

In serving on our Board, directors receive compensation of $350 for each
meeting attended, as well as the grant of stock options from time to time at
the discretion of our Board. Directors are also reimbursed for their
reasonable expenses incurred in attending Board or Committee meetings.
Additional fees and options may be granted for chairing special committees,
such as the Audit Committee. As of December 31, 2002, the Company had granted
options for a total of 176,000 shares of common stock to directors in
connection with their service on the Board or a committee.




Item 11. Security Ownership of Certain Beneficial Owners

The following table sets forth certain information as of March 19, 2003
with respect to the beneficial ownership of common stock by: (i) each
shareholder known by the Company to be the beneficial owner of more than 5% of
the Companys common stock; (ii) each director; (iii) each executive officer
named in the Summary Compensation Table; and (iv) all executive officers and
directors as a group.

Name of BeneficialOwner(1)(2)
    
    No. of shares
    
    PercentageMarshall T. Leeds
    
    
    16,722,765
    (3)
    
    
    51.7
    %Richard Parker
    
    
    4,722,765
    (4)
    
    
    14.6
    %Harry S. Green (5)
    
    
    117,500
    
    
    
    0.4
    %Steven C. Jacobs (6)
    
    
    45,000
    
    
    
    0.1
    %Sanford B. Cohen (7)
    
    
    20,000
    
    
    
    0.1
    %The Equity Group, Inc. Profit Sharing Plan & Trust (8)
    
    
    1,600,000
    
    
    
    6.9
    %All officers and directors
as a group (8 persons)
    
    
    22,259,868
    (9)
    
    
    68.9
    %




---

|(1) |  | Unless otherwise noted, the address of each person or entity listed is
Summit Brokerage Services, Inc., 25 Fifth Avenue, Indialantic, Florida
32903.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Based on 23,140,064 shares actually outstanding, and additional shares
deemed to be outstanding as to a particular person in accordance with the
following applicable rules of the SEC. 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
exercisable within 60 days of the date of March 19, 2003, 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) |  | Includes: (a) 6,400,000 shares of common stock; (b) 5,600,000 shares
issuable pursuant to options that are exercisable within the next 60 days;
and (c) 4,722,765 shares of common stock beneficially owned by Mr. Parker
but for which Mr. Leeds has sole voting power pursuant to a Shareholders
Voting Agreement and Irrevocable Proxy (Voting Agreement) granted to him
by Mr. Parker and his spouse in connection with the closing of the Leeds
Transaction, which shares are represented as follows: (i) 3,313,595
outstanding shares beneficially owned by Mr. Parker; and (ii) 1,409,170 shares issuable
pursuant to stock options which are                                                                                                                                                                                                                                                                                                    

18



---



##### Table of Contents



|    |  | exercisable within the next 60 days (the
Voting Trust Shares). Excludes 200,000 shares issuable pursuant to stock
options held by Mr. Parker which are not exercisable within the next 60
days, and which shares are also subject to the Voting Agreement.                                                                                                                                                                                                   
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(4) |  | Includes (i) 2,743,920 shares of common stock; (ii) 497,675 shares owed
jointly with his spouse; (iii) 27,000 shares owned by his spouse; (iv)
1,249,170 shares issuable pursuant to stock options exercisable within the
next 60 days; (iv) 45,000 shares he and/or his spouse control as trustees
of two foundations and a trust; and (v) 160,000 shares issuable pursuant
to stock options held by his spouse which are exercisable within the next
60 days.
|   
|(5) |  | Includes 117,500 shares issuable pursuant to stock options exercisable
within the next 60 days.                                                                                                                                                                                                                                                                                                                                                                
|   
|(6) |  | Includes 45,000 shares issuable pursuant to stock options exercisable
within the next 60 days. Excludes 40,000 common stock purchase warrants
to which Mr. Jacobs is entitled.                                                                                                                                                                                                                                                                                 
|   
|(7) |  | Includes 20,000 shares issuable pursuant to stock options exercisable
within the next 60 days.                                                                                                                                                                                                                                                                                                                                                                 
|   
|(8) |  | Address: 800 Third Avenue, 36th Floor, New York, NY 10022. The
co-trustees of the Equity Group, Inc. Profit Sharing Plan & Trust are
Robert Goldstein and Loren Mortman, either of whom has voting authority
over the Trusts investments. Also, Ms. Mortman and her spouse jointly
own 200,000 shares of common stock.
(9) Includes 7,739,508 shares issuable pursuant to stock options exercisable
within the next 60 days.                                  
|   
|(9) |  | Includes 7,739,508 shares issuable
pursuant to stock options exercisable within the next 60 days.                                                                                                                                                                                                                                                                                                                                                              

Change of Control

On May 22, 2002, Marshall T. Leeds, our current Chairman, Chief Executive
Officer and principal shareholder, closed on the acquisition of a controlling
interest in the Company pursuant to a privately negotiated transaction (the
Leeds Transaction). Mr. Leeds acquired 5,000,000 shares of our common stock
for a total purchase price of $500,000, or $.10 per share. Upon the closing,
Mr. Leeds assumed the officer positions he now holds and Richard Parker, the
Companys then Chairman and CEO became President, Chief Operating Officer and
Vice Chairman. Two of the then existing board members, Mr. Parker and Harry
Green, remained on the board of directors, while Mr. Leeds, Steven C. Jacobs
and Sanford B. Cohen were appointed to the board. The new officers and
reconstituted board were confirmed by our shareholders at our annual
shareholders meeting held in August 2002. The closing of the Leeds
Transaction included the execution and delivery of a Shareholders Voting
Agreement and Irrevocable Proxy (the Voting Agreement) whereby Richard
Parker, the current President and Chief Operating Officer, and his spouse
granted to Mr. Leeds voting control with respect to their shares of outstanding
common stock of the Company, owned individually and jointly, in addition to
voting control over certain of Mr. Parkers shares issuable upon exercise of
stock options by him.

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
    
    Name3.1
    
    Amended and Restated Articles of Incorporation (1)3.1.1
    
    Amendment to Amended and Restated Articles of Incorporation (1)3.1.2
    
    Amendment to Amended and Restated Articles of Incorporation (8)3.2
    
    Amended and Restated Bylaws (2)10.1
    
    2000 Incentive Compensation Plan (3)10.1.2
    
    2000 Incentive Compensation Plan, as amended (9)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 Ronald Caprilla (7)10.9
    
    Stock Purchase Agreement by and among the Company, Richard Parker and Marshall T.
Leeds,


19



---



##### Table of Contents



Number
    
    Namedated March 22, 2002 (8)10.10
    
    Employment Agreement between the Company and Marshall T. Leeds dated March 22, 2002
(8)10.11
    
    Stock Option Agreement between the Company and Marshall T. Leeds dated March 22, 2002
(8)10.12
    
    Stock Option Agreement between the Company and Richard Parker dated March 22, 2002 (8)10.13
    
    Stock Option Agreement between the Company and Richard Parker dated March 22, 2002 (8)10.14
    
    Employment Agreement between the Company and Richard Parker dated May 22, 2002 (10)10.15
    
    Amended and Restated Employment Agreement between the Company and Marshall T. Leeds
dated May 22, 2002 (10)10.16
    
    Shareholders Voting Agreement and Irrevocable Proxy by and among the Company,
Marshall T. Leeds, Richard Parker and Joan Parker, dated May 22, 2002. (10)10.17
    
    Commercial Lease between the Company and First America Living Trust, dated May 22,
2002 (10)10.18
    
    Form of Registration Rights Agreement between the Company and certain investors (11)16.1
    
    Letter from Hoyman, Dobson & Company (11)21.1
    
    Subsidiaries of the Company (11)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*99.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*99.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*




---

|*    |  | Filed herewith                                                                                                                                                                                                                                                                                                                                                                                                                    
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(1)  |  | Incorporated by reference to the 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 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 Form 10-QSB for the fiscal quarter ended June 30,
2000, filed August 14, 2000 and amended August 15, 2000, file no. 000-29337.                                                                                                                                                                                                                                                         
|    
|(6)  |  | Incorporated by reference to the Companys Form 10-QSB for the fiscal quarter ended March 31,
2001, filed May 21, 2001, file no. 000-29337.                                                                                                                                                                                                                                                                                       
|    
|(7)  |  | Incorporated by reference to the Companys Form 10-KSB for the fiscal year ended December 31,
2001, filed April 15, 2002, file no. 000-29337.                                                                                                                                                                                                                                                                                     
|    
|(8)  |  | Incorporated by reference to the Companys Form 10-QSB for the fiscal quarter ended March 31,
2002, filed May 24, 2002, file no. 000-29337.                                                                                                                                                                                                                                                                                       
|    
|(9)  |  | Incorporated by reference to the Companys definitive Proxy Statement filed August 12, 2002,
file no. 000-29337.                                                                                                                                                                                                                                                                                                                  
|    
|(10) |  | Incorporated by reference to the Companys Form 10-QSB for the fiscal quarter ended June 30,
2002, filed August 19, 2002, file no. 000-29337.                                                                                                                                                                                                                                                                                     
|    
|(11) |  | Incorporated herein by reference to the Companys Form 10-KSB for the fiscal year ended
December 31, 2002, filed May 14, 2003, file no. 000-29337.                                                                                                                                                                                                                                                                                

B. Reports on Form 8-K

On March 22, 2002, the Company filed a Current Report on Form 8-K to annex
a press release announcing the stock purchase agreement between the Company,
Richard Parker and Marshall T. Leeds.

20



---



##### Table of Contents



On June 6, 2002, the Company filed a Current Report on Form 8-K to report
the closing of the stock purchase agreement between it, Richard Parker and
Marshall T. Leeds and the acquisition of a controlling interest in the Company
by Mr. Leeds.

Item 14. Controls and Procedures

The Companys Chief Executive Officer and the Companys Chief Financial
Officer evaluated the Companys disclosure controls and procedures as of the
end of the period covered by this amended report. Based upon this evaluation,
the Companys Chief Executive Officer and the Companys Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective
in ensuring that material information required to be disclosed is included in
the reports that it files with the Securities and Exchange Commission.

During the fourth fiscal quarter of the period covered by this report,
there were no changes in our internal controls over financial reporting that
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

[Signature Page Follows]

21



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##### Table of Contents



SIGNATURES

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

SUMMIT BROKERAGE SERVICES, INC./s/ Marshall T. LeedsMarshall T. Leeds
Chairman of the Board and Chief Executive Officer
(principal executive officer)Date:  February 6, 2004/s/ Steven C. JacobsSteven C. JacobsExecutive Vice President and Chief Financial Officer
(principal financial officer)Date:  February 6, 2004


22



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##### Table of Contents



Summit Brokerage Services, Inc.
and Subsidiaries

CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2002 and 2001





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##### Table of Contents



C O N T E N T S
_________

PageNumberREPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
    
    
    F-1CONSOLIDATED FINANCIAL STATEMENTSConsolidated Statement of Financial Condition
    
    
    F-2Consolidated Statements of Loss
    
    
    F-3Consolidated Statements of Changes in Stockholders Equity
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6SUPPLEMENTAL INFORMATIONSchedule I  Computation of Net Capital Under Rule 15c3-1
of the Securities and Exchange Commission
    
    
    F-16Report 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
    
    
    F-17






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##### Table of Contents






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, 2002,
and the related consolidated statements of loss, changes in stockholders
equity and cash flows for the years ended December 31, 2002 and 2001 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 audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits 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
audits provide a reasonable basis for our opinion.

In our opinion, the 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, 2002, and the results of
their operations and their cash flows for the years ended December 31, 2002 and
2001 in conformity with accounting principles generally accepted in the United
States of America.

Our audits were 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 supplemental 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 audits 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.

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



Orlando, Florida
February 17, 2003

F-1



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##### Table of Contents



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statement of Financial Condition
December 31, 2002

ASSETSCash and cash equivalents
    
    $
    1,607,674Deposit held at clearing broker
    
    
    25,045Deposit held at clearing broker  related party
    
    
    45,459Commissions receivable
    
    
    346,920Other receivables
    
    
    109,646Securities owned, at fair value
    
    
    3,300Prepaid expenses
    
    
    77,643Property and equipment, net
    
    
    116,088Total assets
    
    $
    2,331,775LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesAccounts payable and accrued expenses
    
    $
    210,091Accrued commission expense
    
    
    310,640Note payable  related party
    
    
    40,200Total liabilities
    
    
    560,931Stockholders equityPreferred stock, 12% cumulative convertible;
par value $0.0001 per share;
authorized 150,000 shares; 125,000 issued and
outstanding (liquidation preference of $125,000)
    
    
    13Common stock, par value $0.0001 per share; authorized
50,000,000 shares; 20,200,064 issued and 20,192,148
outstanding
    
    
    2,020Additional paid-in capital
    
    
    6,336,751Unearned stock compensation
    
    
    (237,123
    )Treasury stock, at cost
    
    
    (3,718
    )Accumulated deficit
    
    
    (4,327,099
    )Total stockholders equity
    
    
    1,770,844Total liabilities and stockholders equity
    
    $
    2,331,775


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

F-2



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##### Table of Contents



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Loss
For The Years Ended December 31, 2002 and 2001

2002
    
    2001RevenuesCommissions
    
    $
    6,065,976
    
    
    $
    6,899,311Interest and dividends
    
    
    76,202
    
    
    
    107,811Other
    
    
    12,676
    
    
    
    40,4656,154,854
    
    
    
    7,047,587ExpensesCommissions
    
    
    5,275,867
    
    
    
    5,863,693Employee compensation and benefits
    
    
    917,062
    
    
    
    900,977Occupancy and equipment
    
    
    188,253
    
    
    
    169,985Communications
    
    
    116,445
    
    
    
    129,724Professional expenses
    
    
    785,486
    
    
    
    298,669Other operating expenses
    
    
    490,751
    
    
    
    232,2877,773,864
    
    
    
    7,595,335Net loss before income taxes
    
    
    (1,619,010
    )
    
    
    (547,748
    )Provision for income taxes
    
    
    
    
    
    
    Net loss
    
    $
    (1,619,010
    )
    
    $
    (547,748
    )Weighted average common shares and
common share equivalents outstanding
    
    
    10,264,778
    
    
    
    4,693,970Basic and diluted loss per share
    
    $
    (0.16
    )
    
    $
    (0.12
    )


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

F-3



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##### Table of Contents



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity
For The Years Ended December 31, 2002 and 2001

Preferred Stock
    
    CommonNumber of Shares
    
    
    
    
    
    Number of SharesOutstanding
    
    Par Value
    
    Outstanding
    
    Par ValueBalances, December 31, 2000
    
    
    
    
    
    $
    
    
    
    
    4,691
    
    
    $
    470Issuance of preferred stock for cash
    
    
    125,000
    
    
    
    13
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (6,500
    )
    
    
    Issuance of treasury stock
    
    
    
    
    
    
    
    
    
    
    4,817
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    1,539
    
    
    
    Amortization of unearned
stock
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balances, December 31, 2001
    
    
    125,000
    
    
    
    13
    
    
    
    4,691,080
    
    
    
    470Preferred stock dividend
    
    
    (5,000
    )
    
    
    (5,000
    )Issuance of treasury stock
    
    
    
    
    
    
    
    
    
    
    1,068
    
    
    
    Cancellation of stock subscription
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    14,000,000
    
    
    
    1,400Issuance of common stock
for
services  non employee
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    10Exercise of common stock options
    
    
    
    
    
    
    
    
    
    
    1,400,000
    
    
    
    140Options issued for services  non
employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options issued for services
    
    
    employee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of unearned
stock
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reduction in unrealized gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balances, December 31, 2002
    
    
    125,000
    
    
    $
    13
    
    
    
    20,192,148
    
    
    $
    2,020


AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    TotalPaid-In
    
    Unearned Stock
    
    Treasury
    
    Comprehensive
    
    Subscription
    
    Accumulated
    
    Stockholders'Capital
    
    Compensation
    
    Stock
    
    Income
    
    Receivable
    
    Deficit
    
    EquityBalances, December 31, 2000
    
    $
    2,898,910
    
    
    $
    (207,732
    )
    
    $
    (29,857
    )
    
    $
    1,775
    
    
    $
    (10,250
    )
    
    $
    (2,155,341
    )
    
    $
    497,975Issuance of preferred stock for cash
    
    
    124,987
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (7,800
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,800
    )Issuance of treasury stock
    
    
    
    
    
    
    
    
    
    
    21,419
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,419Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of unearned
stock
compensation
    
    
    
    
    
    
    201,390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    201,390Unrealized gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    885
    
    
    
    
    
    
    
    
    
    
    
    885Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (547,748
    )
    
    
    (547,748
    )Balances, December 31, 2001
    
    
    3,023,897
    
    
    
    (6,342
    )
    
    
    (16,238
    )
    
    
    2,660
    
    
    
    (10,250
    )
    
    
    (2,703,089
    )
    
    
    291,121Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,000
    )
    
    
    (5,000
    )Issuance of treasury stock
    
    
    
    
    
    
    
    
    
    
    12,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,520Cancellation of stock subscription
    
    
    (10,250
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,250
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    2,457,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,458,649Issuance of common stock
for
services  non employee
    
    
    65,990
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,000Exercise of common stock options
    
    
    349,860
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350,000Options issued for services  non
employees
    
    
    345,755
    
    
    
    (298,362
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,393Options issued for services
employee
    
    
    104,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,250Amortization of unearned
stock
compensation
    
    
    
    
    
    
    67,581
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,581Reduction in unrealized gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,660
    )
    
    
    
    
    
    
    
    
    
    
    (2,660
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,619,010
    )
    
    
    (1,619,010
    )Balances, December 31, 2002
    
    $
    6,336,751
    
    
    $
    (237,123
    )
    
    $
    (3,718
    )
    
    $
    
    
    
    $
    
    
    
    $
    (4,327,099
    )
    
    $
    1,770,844


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

F-4



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##### Table of Contents



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For The Years Ended December 31, 2002 and 2001

2002
    
    2001Cash flows from operating activitiesNet loss
    
    $
    (1,619,010
    )
    
    $
    (547,748
    )Adjustments to reconcile net loss to net cash used in
operating activitiesProvision for doubtful advances receivable
    
    
    4,721
    
    
    
    Depreciation
    
    
    51,338
    
    
    
    56,640Stock-based compensation and consulting
    
    
    285,224
    
    
    
    201,390Changes in:Deposit held at clearing broker
    
    
    17
    
    
    
    79Deposit held at clearing broker  related party
    
    
    6,051
    
    
    
    Commission receivable
    
    
    120,598
    
    
    
    15,418Other receivables
    
    
    92,016
    
    
    
    (136,167
    )Prepaid expenses
    
    
    (14,205
    )
    
    
    (16,658
    )Due from related party, net
    
    
    
    
    
    
    (2,861
    )Accounts payable and accrued expenses
    
    
    35,783
    
    
    
    83,122Accrued commissions expense
    
    
    (153,244
    )
    
    
    83,250Net cash used in operating activities
    
    
    (1,190,711
    )
    
    
    (263,535
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (11,002
    )
    
    
    (96,380
    )Net cash used in investing activities
    
    
    (11,002
    )
    
    
    (96,380
    )Cash flows from financing activities(Payment) proceeds on note payable
    
    
    (50,000
    )
    
    
    50,000Issuance of preferred stock
    
    
    
    
    
    
    125,000Dividends paid  preferred stock
    
    
    (5,000
    )
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (7,800
    )Issuance of treasury stock
    
    
    12,520
    
    
    
    21,419Issuance of common stock
    
    
    2,808,649
    
    
    
    Payments on capital lease obligation
    
    
    
    
    
    
    (11,636
    )Net cash provided by financing activities
    
    
    2,766,169
    
    
    
    176,983Net increase (decrease) in cash and cash equivalents
    
    
    1,564,456
    
    
    
    (182,932
    )Cash and cash equivalents at beginning of year
    
    
    43,218
    
    
    
    226,150Cash and cash equivalents at end of year
    
    $
    1,607,674
    
    
    $
    43,218


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

F-5



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##### Table of Contents



SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

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
primary subsidiaries include Summit Holding Group, Inc. (a holding
company) and its wholly owned subsidiaries Summit Financial Group, Inc.
(a registered investment advisor) and SBS Insurance Agency Of Florida,
Inc. (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.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | DEPOSIT HELD AT CLEARING BROKERS  The Company has an interest-bearing
reserve deposit with certain clearing brokers. These clearing brokers
require deposits of all introducing brokers for whom they transact
business. One of the Companys deposits is from a related party of the
Company (see Note 4).
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | COMMISSIONS RECEIVABLE  Based upon past experience and a review of the
individual accounts, management believes the commissions receivable as of
December 31, 2002 are fully collectible; accordingly, no allowance has
been recorded.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SECURITIES OWNED, AT FAIR VALUE  Securities owned are valued at
estimated fair value as determined by management. The resulting
differences between cost and estimated fair value are included in the
consolidated statements of loss.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | PROPERTY AND EQUIPMENT  Property and equipment is stated at cost.
Depreciation, for financial reporting purposes, is primarily based on the
straight-line method over the estimated useful lives of the related
assets, generally 3 to 7 years.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TREASURY STOCK  Treasury stock is reflected at cost.
| |  |  | -----------------------------------------------------



| |  |  | COMMISSION REVENUE AND EXPENSES  Commission revenues and the
corresponding commission expense are recorded on a trade-date basis. The
Company receives commissions on securities transactions sold by
registered representatives of the branch offices. The Company receives
the gross amount of commissions due from the transactions and remits a
percentage of that amount to the registered representatives based on a
formal commission payout schedule maintained with each representative.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | INCOME TAXES  Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist primarily
of taxes currently due plus deferred taxes related to net 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 may also be recognized for operating losses and tax credits
that are available to offset future taxable income.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-6



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##### Table of Contents



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

STOCK OPTIONS  The Company accounts for its options issued to employees
in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. If options are granted to
employees for services and other consideration with an exercise price
below the fair market value of the common stock on the date of the grant,
the difference between the fair market value and the exercise price is
charged to either stock-based compensation expense (where the options are
issued for services previously performed) or unearned stock compensation
(where the options are issued for services to be performed in the
future). Stock based compensation expense and any amortization of
unearned stock compensation related to employees is included in employee
compensation and benefits in the accompanying statements of loss.

The Company accounts for its options issued to non-employees in
accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (FAS 123). FAS 123 requires
that options granted for services are to be recorded at fair market value
at the date of grant, regardless of the exercise price of the options.
The Company determines fair market value by using the Black-Scholes
option pricing model. The fair market value is charged to stock-based
compensation (where the options are issued for services previously
performed) or unearned stock compensation (where the options are issued
for services to be performed in the future). Stock based compensation
and any amortization of unearned stock compensation related to
non-employees is included in professional expenses in the accompanying
statements of loss.

Unearned stock compensation is recorded for options issued to either
employees or non-employees for services to be rendered in the future.
The Company amortizes any amounts recorded as unearned stock compensation
on a pro-rata basis over the period that the options are earned, which
generally is the vesting period. Many of the Companys registered
representatives are independent, and are therefore considered
non-employees by the Company for purposes of accounting for stock option
activity.

FAS 123 and Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure,
require the Company to provide pro forma information regarding net income
(loss) as if compensation cost for the Companys stock option plans had
been determined in accordance with the fair value based method prescribed
in FAS 123. To provide the required pro forma information, the Company
estimates the fair value of each stock option at the grant date by using
the Black-Scholes option pricing model. Statement of Financial
Accounting Standards No. 148 also provides for alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. The Company has
elected to continue to account for stock-based employee compensation
under Accounting Principles Board Opinion No. 25.

LOSS PER SHARE  Basic loss per share for the years ended December 31,
2002 and 2001 have been computed by dividing net loss less preferred
dividends of $15,000 and $8,300, respectively, by the weighted average
number of common shares outstanding. Diluted loss per share for the
years ended December 31, 2002 and 2001 are the same as basic, as the
dilutive calculation would have an anti-dilutive effect because of the
net loss. The weighted average number of potentially dilutive securities
(options, warrants, convertible preferred stock) that were excluded from
the fully diluted calculation for the years ended December 31, 2002 and
2001, totaled 8,221,508 and 1,402,393, respectively.

ESTIMATES  The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America 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.

RECLASSIFICATIONS  Certain amounts from the prior year have been
reclassified to conform to the current year presentation.

F-7



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##### Table of Contents



NOTE 2  PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2002:

Computer systems and software
    
    $
    126,489Equipment and furniture
    
    
    70,040Leasehold improvements
    
    
    151,743Total
    
    
    348,272Less: accumulated depreciation
    
    
    (232,184
    )Total property and equipment
    
    $
    116,088


Depreciation expense was $51,338 and $56,640 for the years ended December
31, 2002 and 2001, respectively.

NOTE 3  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at
December 31, 2002:

Accounts payable
    
    $
    198,479Accrued wages and other
    
    
    11,612$
    210,091


NOTE 4  NOTE PAYABLE  RELATED PARTY

On March 31, 2000, the Company entered into a demand note collateral
agreement with a corporation 100% owned by a shareholder and officer of
the Company. The collateral for the note was held as a clearing deposit
with one of the Companys clearing firms. The note became due on April
30, 2002 and accrues interest at 12.0% per annum. As of November 1,
2002, the Company no longer was allowed to use the subordinated agreement
for net capital purposes. As of December 31, 2002, the outstanding
balance is $40,200 and is due on demand.

During the year ended December 31, 2002, the Company paid off a $50,000
note payable to an unrelated third party.

Cash paid for interest was $22,593 and $22,396 for 2002 and 2001,
respectively.

NOTE 5  COMMON STOCK

On July 16, 1997, the Company established an unwritten and informal
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 and
vested over a period ranging up to two years after the date of grant of
the award. Since the stock issued was subject to continuous employment
or service from the date of the grant award, unearned compensation was
recorded at the fair market value at the date awarded as a reduction of
stockholders equity. This informal plan was ended in 2000.

On May 22, 2002, Marshall T. Leeds, in a privately negotiated
transaction, purchased an aggregate of 5,000,000 shares of our common
stock for a total purchase price of $500,000, or $0.10 per share. Mr.
Leeds became our largest shareholder, as well as our Chief Executive
Officer and Chairman of the Board of Directors. Richard Parker, the
Companys former Chairman and Chief Executive Officer, became President,
Chief Operating Officer and Vice Chairman. Two of our Board members, Mr.
Parker and Harry Green, remained on the Board, and Mr. Leeds and two of
his designees comprised a new five-member Board. Mr. Parker has also
granted Mr. Leeds voting control of 3,354,927 of his beneficially owned
shares

F-8Table of Contents

NOTE 5  COMMON STOCK(Continued)

and up to 500,000 shares potentially issuable under options held by Mr.
Parker. Mr. Leeds has voting control until the earlier of (a) May 22,
2007, (b) the date Mr. Leeds is no longer an executive officer or
director of the Company, or (c) the occurrence of certain change of
control events. Mr. Leeds became a consultant to the Company in March
2002, and an employee in May, 2002.

In connection with this transaction, on March 15, 2002 and March 28,
2002, Mr. Parker borrowed a total of $250,000 from Marshall T. Leeds for
use by Mr. Parker to purchase a total of 2,500,000 shares of the
Companys common stock. On May 17, 2002, Mr. Parker borrowed an
additional $100,000 from Mr. Leeds to purchase an additional 1,000,000
shares of common stock. The total loans of $350,000 were secured by a
pledge to Mr. Leeds from Mr. Parker of the 3,500,000 shares he purchased,
plus 2,500,000 other shares of common stock previously owned by Mr.
Parker. The loans were drawn from the $500,000 amount contemplated by
the Stock Purchase Agreement paid by Mr. Leeds to purchase 5,000,000
shares of the Companys common stock. The loans provided the Company
with capital that was needed immediately in order for it to fund
operations and certain of its business obligations. At the closing of
the stock purchase discussed in the preceding paragraph, Mr. Leeds
purchased the 3,500,000 shares acquired by Mr. Parker from the Company
with the $350,000 of loan proceeds, in exchange for the cancellation of
Mr. Parkers indebtedness to Mr. Leeds for the loans. Mr. Leeds also
purchased the remaining 1,500,000 shares for an additional cash payment
of $150,000, bringing his total stock purchased to 5,000,000 shares for a
total price of $500,000.

On August 20, 2002, the Company amended its Articles of Incorporation to
increase the number of authorized common shares from 20,000,000 to
50,000,000.

On October 9, 2002, 100,000 shares of common stock was issued to outside
consultants for services performed for the Company. The Company recorded
$66,000 stock-based compensation expense in professional expenses in the
statement of loss as the estimated fair value of the stock at the date of
issuance.

On October 14, 2002, the Company approved the Common Stock Private
Offering (the Offering), which consists of a private placement of up to
20,000,000 shares of its common stock to accredited investors at a
purchase price of $.25 per share. The Company also authorized the
issuance of up to 2,000,000 of common stock purchase warrants to selling
broker-dealers in the Offering. These warrants have an exercise price
equal to 120% of the per share price of the common stock sold in the
Offering and vest immediately upon issuance. During the year ended
December 31, 2002, the Company issued 8,200,000 shares of common stock
related to the Offering for $2,050,000. In addition, as of December 31,
2002, the Company issued 530,000 warrants to selling broker-dealers at an
exercise price of $.30. These warrants were fair valued in accordance
with FAS 123 at approximately $390,000. The entire $390,000 is
considered offering costs and was charged against additional paid-in
capital, which resulted in no net effect to equity. Additionally, other
Offering costs of approximately $270,000 were charged against paid-in
capital.

During the year ended December 31, 2002, the Companys Chief Executive
Officer exercised an option for 1,400,000 shares of common stock at $.25
per share.

At various other periods during 2002, common stock was issued for cash to
various individuals exclusive of the Offering. During the year ended
December 31, 2002, 5,000,000 shares of common stock were issued for $.10
a share and in July 2002, the Company sold 200,000 shares of Series B
Preferred Stock for net proceeds of approximately $180,000 in a private
placement of Series B Preferred Stock. The Series B Preferred Stock
private placement was subsequently terminated without further sales and
the investors shares of Series B Preferred Stock were converted into
800,000 shares of common stock of the Company at an effective conversion
rate of $0.25 per share.

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NOTE 6  PREFERRED STOCK

On March 27, 2002, the Company amended its Articles of Incorporation to
reduce the preferred stock, par value $.0001 per share, from 5,000,000
authorized shares to 150,000. 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, by (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. The estimated number of shares that
would have been issued if the convertible preferred stock were converted
as of December 31, 2002 is 143,750. 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. During the year ended
December 31, 2002, $5,000 in cash dividends was paid. As of December 31,
2002, undeclared dividends in arrears approximated $18,300. 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 7  TREASURY STOCK

Treasury stock is reflected at cost, and consists of 7,916 and 8,984
shares of common stock at December 31, 2002 and 2001, respectively.

NOTE 8  STOCK OPTIONS AND WARRANTS

In March 2002, the Company issued to the Companys current President, COO
and Vice Chairman 900,000 options to purchase the Companys common stock
in connection with his employment contract with the Company. Of this
total, 500,000 options have an exercise price of $0.10 per share and
vested upon issuance and 400,000 options have an exercise price of $0.50
per share and vest over a two-year period. All options expire on
December 31, 2007. Stock-based compensation of approximately $50,000 was
recorded as a result of issuing these options and is included in employee
compensation and benefits in the statements of loss.

In March 2002, the Company issued to the Companys current CEO and
Chairman of the Board of Directors, 7,000,000 options to purchase the
Companys common stock at an exercise price of $0.25 per share. These
options vested upon issuance and expire on December 31, 2007. These
options were issued in connection with his employment contract with the
Company. No compensation expense was recorded, as the fair market value
of the Companys stock on the grant date was equal to or less than the
exercise price.

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NOTE 8  STOCK OPTIONS AND WARRANTS(Continued)

During 2002, the Company issued 1,092,215 options to non-employees with a fair
market value of $345,755, all of which was recorded as unearned stock based
compensation. For the years ended December 31, 2002 and 2001, amortization
of unearned stock based compensation expense related to non-employees was
$61,239 and $15,468, respectively. During 2002 and 2001, the Company issued
8,945,405 and 504,141 options to employees which were recorded at their
intrinsic value of $104,250 and $0, respectively. For the years ended
December 31, 2002 and 2001, amortization of unearned stock based compensation
expense related to employees was $6,342 and $185,922, respectively.

Stock option activity during 2002 and 2001, was as follows:

Weighted-Number of
    
    averageOptions
    
    Exercise PriceOutstanding at December 31, 2000
    
    
    1,162,723
    
    
    $
    2.50Granted
    
    
    504,141
    
    
    $
    .77Forfeited
    
    
    (31,648
    )
    
    $
    2.50Outstanding at December 31, 2001
    
    
    1,635,216
    
    
    $
    1.97Granted
    
    
    10,037,620
    
    
    $
    0.32Exercised
    
    
    (1,400,000
    )
    
    $
    .25Forfeited
    
    
    (400,677
    )
    
    $
    1.30Outstanding at December 31, 2002
    
    
    9,872,159
    
    
    $
    0.56Shares exercisable at December 31, 2002
    
    
    8,094,922
    
    
    $
    0.55


The range of exercise prices for options outstanding at December 31, 2002 was
$.10 to $2.50. The following table summarizes information about options
outstanding at December 31, 2002:

Outstanding OptionsWeightedAverageRemaining
    
    WeightedNumber of
    
    Contractual
    
    AverageRange of Exercise Prices
    
    Shares
    
    Life (in years)
    
    Exercise Price$0.10
    
    
    500,000
    
    
    
    5.0
    
    
    $
    0.10$0.25
    
    
    5,769,905
    
    
    
    5.1
    
    
    $
    0.25$0.50
    
    
    1,755,290
    
    
    
    9.3
    
    
    $
    0.50$0.75
    
    
    594,215
    
    
    
    9.6
    
    
    $
    0.75$1.00
    
    
    262,690
    
    
    
    8.9
    
    
    $
    1.00$2.50
    
    
    990,059
    
    
    
    7.5
    
    
    $
    2.509,872,159
    
    
    
    
    
    
    $
    0.57


Exercisable OptionsWeightedNumber of
    
    AverageRange of Exercise Prices
    
    Shares
    
    Exercise Price$0.10 - $0.25
    
    
    6,269,905
    
    
    $
    0.24$0.50 - $1.00
    
    
    868,298
    
    
    $
    0.62$2.50
    
    
    956,719
    
    
    $
    2.508,094,922
    
    
    $
    .55


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NOTE 8  STOCK OPTIONS AND WARRANTS(Continued)

As of December 31, 2002, the Company had 530,000 warrants outstanding for the
purchase of the Companys common stock at an exercise price of $.30 per share.
These warrants expire in November 2007.

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 FAS 123. Accordingly, if options or
warrants are granted to employees for services and other consideration with an
exercise price below the fair market value of the common stock on the date of
the grant, the difference between the exercise price and the fair market value
is charged to operations and/or unearned stock compensation. The fair value of
the options and warrants granted during the fiscal years ended December 31,
2002 and 2001, reported below, has been estimated at the dates of grant using
the Black-Scholes Option Valuation Model with the following assumptions:

2002
    
    2001Expected life (in years)
    
    
    1.0 -10.0
    
    
    
    10.0Risk-free interest rate
    
    
    5.0
    %
    
    
    5.0
    %Volatility
    
    
    211.0
    %
    
    
    225
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %


The Black-Scholes Option Valuation Model was developed for use in estimating
the fair value of traded options and warrants 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 and warrants 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 periods. The Companys pro
forma information is as follows:

2002
    
    2001Net loss, as reported
    
    $
    (1,619,010
    )
    
    $
    (547,748
    )Deduct: Total stock-based employee
compensation expense determined under the
fair value-based method for all awards
    
    
    (2,299,413
    )
    
    
    (119,524
    )Pro forma net loss
    
    $
    (3,918,423
    )
    
    $
    (667,272
    )Loss per share:Basic and diluted  as reported
    
    $
    (0.16
    )
    
    $
    (0.12
    )Basic and diluted  pro forma
    
    $
    (0.38
    )
    
    $
    (0.14
    )


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

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##### Table of Contents



NOTE 9  COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases office space under a noncancelable operating lease
with an entity whose major shareholder is also an officer and shareholder
of the Company. Under the terms of the lease, the Company leases office
space for its headquarters at a rate of approximately $8,800 per month.
The lease expires in May 2004.

Total rent expense, including month-to-month leases, for the years ending
December 31, 2002 and 2001 was $153,827 and $137,643, respectively.

LEGAL PROCEEDINGS

The Company is a party to legal proceedings relating to various claims
and lawsuits arising in the normal course of business. Management
believes that the range of potential net loss resulting from these
proceedings will not be material to the Companys financial position or
results of operations.

EMPLOYMENT AGREEMENT

In conjunction with the CEOs May 22, 2002 employment agreement, the CEO
is entitled to a fee equal to 3% of the first twelve months production
generated by brokers recruited by him who remain with the Company for at
least twelve months. The CEO and the Company have agreed to forego
payment for any production generated by brokers recruited by the CEO
through December 31, 2002. Accordingly, no liability has been recorded
at December 31, 2002 in the statement of financial condition.

NOTE 10  INCOME TAXES

Due to the net operating losses and valuation allowance, there was no
provision for both federal or state taxes for the years ended December
31, 2002 and 2001.

Deferred tax assets and their approximate tax effect totaled $758,000 and
$482,000 for the years ended December 31, 2002 and 2001, respectively.
The significant components of the deferred tax assets were comprised of
net operating losses of $707,000 and $439,000 and amortization of
unearned stock compensation of $48,000 and $40,000 for the years ended
December 31, 2002 and 2001, respectively.

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 due to recurring losses since the Companys inception.

The valuation allowance increased $276,000 and $60,000 for the years
ended December 31, 2002 and 2001, respectively.

The Company has net operating loss carryforwards of approximately
$3,280,000 for federal and state income tax purposes, which are available
to offset future taxable income. These loss carryforwards expire in
various years through 2017.

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NOTE 10  INCOME TAXES(Continued)

The Companys effective tax rate differs from the statutory federal
income tax rate due to the following:

December 31,2002
    
    
    
    
    
    2001Tax at statutory rate
    
    
    34
    %
    
    
    
    
    
    
    34
    %Increase (decrease) resulting from:Effect of reducing federal corporate tax rate to the lowest tax
bracket due to recurring losses incurred by the Company
    
    
    (19
    %)
    
    
    
    
    
    
    (19
    %)Effect of state income tax
    
    
    5
    %
    
    
    
    
    
    
    5
    %Effect on non-deductibility of stock-based compensation
    
    
    (3
    %)
    
    
    
    
    
    
    (10
    %)Effect of valuation allowance
    
    
    (17
    %)
    
    
    
    
    
    
    (10
    %)Effective tax rate
    
    
    
    
    
    
    
    
    
    
    


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 11  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 12  RELATED-PARTY TRANSACTIONS

The Company paid rent of approximately $133,000 and $109,200 during 2002
and 2001, respectively, to a related company owned by an individual who
is an officer and shareholder of the Company. The related company owns
one of the buildings the Company is leasing.

The Company has a $40,200 note payable due on demand with a related
company owned by an individual who is an officer and shareholder of the
Company.

During the year ended December 31, 2002, the Company reimbursed an entity
wholly-owned by an officer and shareholder of the Company approximately
$97,000 for costs related to the Companys private placement of its
common stock.

NOTE 13  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.

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NOTE 13  NET CAPITAL REQUIREMENT(Continued)

At December 31, 2002, the Company had net capital of $1,377,156 and the
Companys aggregate indebtedness to net capital ratio was 0.4 to 1.

NOTE 14  OTHER

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. As shown in the accompanying financial statements, the Company
has incurred losses of approximately $1,619,000 and $548,000 and negative
cash flows from operations of approximately $1,191,000 and $264,000 for
the years ended December 31, 2002 and 2001, respectively; however,
management believes that it has sufficient resources to continue as a
going concern through December 31, 2003. Management plans to continue to
raise capital through equity offerings and to make strategic acquisitions
to increase its volume.

NOTE 15  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, 2002,
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 16  SUBSEQUENT EVENT

On January 2, 2003, the Company acquired, in an asset purchase agreement,
the Boca Raton Branch of Wachovia Securities Financial Network, Inc. (the
Branch). The Branch was an affiliated retail branch office of Wachovia
Securities Financial Network, Inc. (Wachovia), with approximately 30
registered representatives conducting retail brokerage business. The
purchase price was approximately $1,800,000, payable to Wachovia over
four years. The purchase price contemplated the signing of an employment
agreement with each of the registered representatives. Management
believes that the acquisition will expand its market presence and overall
customer base. In accordance with Financial Accounting Standards
(SFAS) No. 141, Business Combinations, the results of operations of
the Branch will be included in the Companys financial statements as of
the date of acquisition.

Based upon managements preliminary estimates, the purchase price,
including estimated transaction costs, will be allocated as follows:
Customer list  $1,142,000; Goodwill  $708,000; Equipment  $6,000.
Customer list will be amortized over its estimated beneficial life of six
years.

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SUPPLEMENTAL INFORMATION

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SUMMIT BROKERAGE SERVICES, INC. AND SUBSIDIARIES
    
    Schedule I


Computation of Net Capital Under Rule 15c3-1 of the
Securities and Exchange Commission
As of December 31, 2002

Net CapitalTotal consolidated stockholders equity
    
    $
    1,770,844Deductions and/or charges:Non-allowable assets:Commissions receivable
    
    $
    82,997Other receivables
    
    
    109,646Prepaid expenses
    
    
    77,643Property and equipment, net
    
    
    116,088386,374Haircuts on securities:15% haircut on marketable equity securities
    
    
    7,314Net capital
    
    $
    1,377,156Aggregate IndebtednessItems included in consolidated statement of
financial conditionAccrued payable and accrued expenses
    
    $
    210,091Accrued commissions
    
    
    310,640Note payable
    
    
    40,200Total aggregate indebtedness
    
    $
    560,931Computation of Basic Net Capital RequirementMinimum net capital required
    
    $
    50,000Excess net capital at 1,500 percent
    
    $
    1,339,761Excess net capital at 1,000 percent
    
    $
    1,321,063Ratio: Aggregate indebtedness to net capital
    
    
    0.4 to 1Reconciliation with Companys Computation (Included
in Part II of the Amended Form X-17A-5 as of December 31, 2002)


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.

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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, 2002, 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.

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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, 2002, 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
February 17, 2003

F-19



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##### Table of Contents



EXHIBIT INDEX

Number
    
    Name31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.99.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.99.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002