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SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2011.

OR



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File No: 333-108818





SUMMIT FINANCIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 05-0577932                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

595 South Federal Highway

Suite 500

Boca Raton, FL 33432

(Address of principal executive offices)

(Zip Code)

(561) 338-2800

(Registrants telephone number, including area code)



(Former name, former address and former fiscal
year, if changed since last report)





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

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |                                                 |  |                           |  |  
|----------------------- |  | ----------------------------------------------- |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                               |  | Accelerated filer         |  |  ̈
|                        |  |                                                 | 
|Non-accelerated filer   |  |  ̈ (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date:



|                                         |  |                              
|---------------------------------------- |  | -----------------------------
|Class                                    |  | Outstanding as of May 5,
2011
|Common Stock Par value $0.0001 per share |  | 26,855,384                   









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SUMMIT FINANCIAL SERVICES GROUP, INC.

INDEX



|                              |  |                                                                                                                |    |      |    | 
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                              |  |                                                                                                                |    | Page |   
|Part I. Financial Information |  |                                                                                                                |    |     
|                              |  |                                                                                                               
|Item 1.                       |  | Financial Statements                                                                                           |    |      | 3  | 
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of Financial Condition at March 31, 2011(unaudited) and December
31, 2010    |    |      | 3  | 
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2011 and 2010
(unaudited) |    |      | 4  | 
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2011 and 2010
(unaudited) |    |      | 5  | 
|                              |  |                                                                                                               
|                              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                 |    |      | 6  | 
|                              |  |                                                                                                               
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                          |    |      | 7  | 
|                              |  |                                                                                                               
|Item 4.                       |  | Controls and Procedures                                                                                        |    |      | 10 | 
|                              | 
|Part II. Other Information    |  |                                                                                                                | 11 |     
|                              |  |                                                                                                               
|Item 6.                       |  | Exhibits                                                                                                       |    |      | 11 | 
|                              | 
|Signatures                    |  |                                                                                                                | 12 |     

FORWARD LOOKING
STATEMENTS

This Report contains forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended (the Securities Act). When used in this 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 the Companys control, and actual results for future periods could differ materially from those discussed in this Report, depending on a variety of important factors, among which are the success or
failure of managements efforts to implement its business strategy; the level of acquisition opportunities available to the Company and the Companys ability to price and negotiate such transactions on a favorable basis; the Companys
ability to properly manage growth and successfully integrate acquired companies and operations; the Companys ability to compete with major established companies; the Companys ability to attract and retain qualified personnel; the
regulatory environment; economic and financial market conditions generally; investor confidence in the equity markets; and other risks and uncertainties which may be described from time to time in the Companys filings with the Securities and
Exchange Commission (the SEC), including the Companys annual report on Form 10-K for the fiscal year ended December 31, 2010.



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PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition



|                                                                                                                                                                                                               |  |               |            |   |                  |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                                                                                                                                                               |  | March 31,2011 |            |   | December 31,2010 |  
|                                                                                                                                                                                                               |  | (unaudited)   |            |   |                  |  
|ASSETS                                                                                                                                                                                                         |  |               |            |   |                  |   |            |  
|Cash and cash equivalents                                                                                                                                                                                      |  | $             | 9,488,710  |   |                  | $ | 9,439,672  |  
|Deposits held at clearing brokers                                                                                                                                                                              |  |               | 128,747    |   |                  |   | 128,736    |  
|Commissions receivable, net                                                                                                                                                                                    |  |               | 2,576,221  |   |                  |   | 1,272,677  |  
|Notes receivable, net                                                                                                                                                                                          |  |               | 395,042    |   |                  |   | 432,782    |  
|Other receivables, net                                                                                                                                                                                         |  |               | 160,245    |   |                  |   | 323,514    |  
|Securities owned, at fair value                                                                                                                                                                                |  |               | 33,513     |   |                  |   | 16,605     |  
|Prepaid expenses and other assets                                                                                                                                                                              |  |               | 715,174    |   |                  |   | 666,059    |  
|Property and equipment, net                                                                                                                                                                                    |  |               | 533,411    |   |                  |   | 538,217    |  
|Goodwill                                                                                                                                                                                                       |  |               | 500,714    |   |                  |   | 500,714    |  
|                                                                                                                                                                                                               |  |               |            |   |                  |   |            |  
|TOTAL ASSETS                                                                                                                                                                                                   |  | $             | 14,531,777 |   |                  | $ | 13,318,976 |  
|                                                                                                                                                                                                               |  |               |            |   |                  |   |            |  
|                                                                                                                                                                                                               |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                           |  |               |            |   |                  |   |            |  
|LIABILITIES                                                                                                                                                                                                    |  |               |            |   |                  |   |            |  
|Accounts payable and accrued expenses                                                                                                                                                                          |  | $             | 1,951,913  |   |                  | $ | 1,572,213  |  
|Accrued commissions expense                                                                                                                                                                                    |  |               | 3,114,211  |   |                  |   | 2,915,607  |  
|                                                                                                                                                                                                               |  |               |            |   |                  |   |            |  
|TOTAL LIABILITIES                                                                                                                                                                                              |  |               | 5,066,124  |   |                  |   | 4,487,820  |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                  |  |               |            |   |                  |   |            |  
|STOCKHOLDERS EQUITY                                                                                                                                                                                           |  |               |            |   |                  |   |            |  
|Preferred stock, undesignated; par value $0.0001 per share; authorized 4,850,000 shares; none issued and
outstanding                                                                                           |  |               |           |   |                  |   |           |  
|Preferred stock, Series A, 12% cumulative convertible; par value $0.0001 per share; authorized 150,000 shares; 125,000 issued and
outstanding (liquidation preference of $125,000)                             |  |               | 13         |   |                  |   | 13         |  
|Common stock, par value $0.0001 per share; authorized 100,000,000 shares; 26,824,867 issued and 26,809,955 outstanding at
March 31, 2011 and 26,821,597 issued and 26,806,685 outstanding at December 31, 2010 |  |               | 2,684      |   |                  |   | 2,683      |  
|Additional paid-in capital                                                                                                                                                                                     |  |               | 12,491,930 |   |                  |   | 12,342,284 |  
|Unearned stock-based compensation                                                                                                                                                                              |  |               | (1,566,040 | ) |                  |   | (1,717,512 | )
|Treasury stock (14,912 shares, at cost)                                                                                                                                                                        |  |               | (10,884    | ) |                  |   | (10,884    | )
|Accumulated deficit                                                                                                                                                                                            |  |               | (1,452,050 | ) |                  |   | (1,785,428 | )
|                                                                                                                                                                                                               |  |               |            |   |                  |   |            |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                                                                     |  |               | 9,465,653  |   |                  |   | 8,831,156  |  
|                                                                                                                                                                                                               |  |               |            |   |                  |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                     |  | $             | 14,531,777 |   |                  | $ | 13,318,976 |  
|                                                                                                                                                                                                               |  |               |            |   |                  |   |            |  

See accompanying notes to unaudited condensed consolidated financial statements.



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SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations



|                                            |  |                                     |            |  |             |   |            |  
|------------------------------------------- |  | ----------------------------------- | ---------- |  | ----------- | - | ---------- | -
|                                            |  | For The Three Months
EndedMarch 31, |           
|                                            |  | 2011                                |            |  | 2010        |  
|                                            |  | (Unaudited)                         |            |  | (Unaudited) |  
|Revenues                                    |  |                                     |            |  |             |   |            |  
|Commissions                                 |  | $                                   | 16,463,818 |  |             | $ | 14,520,117 |  
|Interest and dividends                      |  |                                     | 290,186    |  |             |   | 339,095    |  
|Other                                       |  |                                     | 343,528    |  |             |   | 200,048    |  
|                                            |  |                                     |            |  |             |   |            |  
|                                            |  |                                     | 17,097,532 |  |             |   | 15,059,260 |  
|                                            |  |                                     |            |  |             |   |            |  
|Expenses                                    |  |                                     |            |  |             |   |            |  
|Commissions and clearing costs              |  |                                     | 13,899,781 |  |             |   | 12,490,593 |  
|Employee compensation and benefits          |  |                                     | 1,764,134  |  |             |   | 1,719,259  |  
|Occupancy and equipment                     |  |                                     | 166,196    |  |             |   | 214,855    |  
|Communications                              |  |                                     | 78,310     |  |             |   | 102,529    |  
|Depreciation and amortization               |  |                                     | 44,924     |  |             |   | 48,676     |  
|Other operating expenses                    |  |                                     | 544,089    |  |             |   | 476,228    |  
|                                            |  |                                     |            |  |             |   |            |  
|                                            |  |                                     | 16,497,434 |  |             |   | 15,052,140 |  
|                                            |  |                                     |            |  |             |   |            |  
|Income before income taxes                  |  |                                     | 600,098    |  |             |   | 7,120      |  
|Provision for income taxes                  |  |                                     | 262,969    |  |             |   | 143,000    |  
|                                            |  |                                     |            |  |             |   |            |  
|Net income (loss)                           |  | $                                   | 337,129    |  |             | $ | (135,880   | )
|                                            |  |                                     |            |  |             |   |            |  
|Basic income (loss) per common share        |  | $                                   | 0.01       |  |             | $ | (0.01      | )
|                                            |  |                                     |            |  |             |   |            |  
|Diluted income (loss) per common share      |  | $                                   | 0.01       |  |             | $ | (0.01      | )
|                                            |  |                                     |            |  |             |   |            |  
|Weighted average common shares outstanding: |  |                                     |            |  |             |   |            |  
|Basic                                       |  |                                     | 26,809,301 |  |             |   | 25,726,863 |  
|                                            |  |                                     |            |  |             |   |            |  
|Diluted                                     |  |                                     | 32,087,978 |  |             |   | 25,726,863 |  
|                                            |  |                                     |            |  |             |   |            |  

See accompanying notes to unaudited condensed consolidated financial statements.



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SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows



|                                                                                         |  |                                      |            |   |             |   |           |  
|---------------------------------------------------------------------------------------- |  | ------------------------------------ | ---------- | - | ----------- | - | --------- | -
|                                                                                         |  | For The Three 
MonthsEnded March 31, |           
|                                                                                         |  | 2011                                 |            |   | 2010        |  
|                                                                                         |  | (Unaudited)                          |            |   | (Unaudited) |  
|Cash flows from operating activities:                                                    |  |                                      |            |   |             |   |           |  
|Net income (loss)                                                                        |  | $                                    | 337,129    |   |             | $ | (135,880  | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                      |            |   |             |   |           |  
|Depreciation and amortization                                                            |  |                                      | 44,924     |   |             |   | 48,676    |  
|Stock based compensation, net                                                            |  |                                      | 297,254    |   |             |   | 454,503   |  
|Amortization of advisor notes                                                            |  |                                      | 79,120     |   |             |   | 115,910   |  
|Changes in:                                                                              |  |                                      |            |   |             |   |           |  
|Deposits held at clearing brokers                                                        |  |                                      | (11        | ) |             |   | (7        | )
|Commissions receivable                                                                   |  |                                      | (1,303,544 | ) |             |   | (12,790   | )
|Notes receivable                                                                         |  |                                      | (41,380    | ) |             |   | 36,749    |  
|Other receivables                                                                        |  |                                      | 163,269    |   |             |   | 74,245    |  
|Prepaid expenses and other                                                               |  |                                      | (49,115    | ) |             |   | (23,937   | )
|Securities owned                                                                         |  |                                      | (16,908    | ) |             |   | 1,741     |  
|Accounts payable and accrued expenses                                                    |  |                                      | 379,700    |   |             |   | 525,473   |  
|Accrued commission expense                                                               |  |                                      | 198,604    |   |             |   | 674,148   |  
|                                                                                         |  |                                      |            |   |             |   |           |  
|Net cash provided by operating activities                                                |  |                                      | 89,042     |   |             |   | 1,758,831 |  
|                                                                                         |  |                                      |            |   |             |   |           |  
|                                                                                         |  |                                     
|Cash flows from investing activities:                                                    |  |                                      |            |   |             |   |           |  
|Purchase of property and equipment                                                       |  |                                      | (40,118    | ) |             |   | (409,866  | )
|                                                                                         |  |                                      |            |   |             |   |           |  
|Net cash used in investing activities                                                    |  |                                      | (40,118    | ) |             |   | (409,866  | )
|                                                                                         |  |                                      |            |   |             |   |           |  
|                                                                                         |  |                                     
|Cash flows from financing activities:                                                    |  |                                      |            |   |             |   |           |  
|Payment of preferred stock dividend                                                      |  |                                      | (3,750     | ) |             |   | (3,750    | )
|Proceeds from exercise of stock options and warrants                                     |  |                                      | 3,864      |   |             |   | 60,000    |  
|                                                                                         |  |                                      |            |   |             |   |           |  
|Net cash provided by financing activities                                                |  |                                      | 114        |   |             |   | 56,250    |  
|                                                                                         |  |                                      |            |   |             |   |           |  
|Net increase in cash and cash equivalents                                                |  |                                      | 49,038     |   |             |   | 1,405,215 |  
|Cash and cash equivalents at beginning of period                                         |  |                                      | 9,439,672  |   |             |   | 6,301,921 |  
|                                                                                         |  |                                      |            |   |             |   |           |  
|Cash and cash equivalents at end of period                                               |  | $                                    | 9,488,710  |   |             | $ | 7,707,136 |  
|                                                                                         |  |                                      |            |   |             |   |           |  

See accompanying notes to unaudited condensed consolidated financial statements.



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SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

March 31, 2011

NOTE 1GENERAL

The
accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and
operating results for the periods indicated. The condensed consolidated financial statements herein should be read in conjunction with the audited consolidated financial statements and notes thereto, together with Managements Discussion
and Analysis of Financial Condition and Results of Operations, contained in the Annual Report on Form 10-K (the Form 10-K) for the fiscal year ended December 31, 2010 for Summit Financial Services Group, Inc. (the
Company or SFSG). The results of operations for the three-month period ended March 31, 2011 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2011. Furthermore, certain
sources of revenues that have historically been available to the Company may be reduced or eliminated in the future, including 12b-1 fees, or trail commissions, from the sale of mutual fund shares, as well as remuneration paid by our clearing
brokers. Our results may also be negatively impacted by reductions in interest rates, as well as from decreases in certain compensation amounts paid by insurance companies and mutual funds with whom we do business. Additionally, increased
regulations, and the related cost of compliance therewith, could also impact our margins. A recent proposal to treat financial advisors licensed with independent broker-dealers as employees, rather than as independent contractors, could also
adversely affect our business.

NOTE 2STOCKHOLDERS EQUITY

Basic earnings per share is computed by dividing the net income available to common shareholders for the relevant period by the weighted
average number of shares of common stock issued and outstanding during the period. For purposes of calculating diluted earnings per share, the denominator includes both the weighted average number of shares of common stock and the number of dilutive
common stock equivalents (CSEs). The number of dilutive common stock equivalents includes the effect of stock options, warrants, and deferred stock calculated using the treasury stock method and the number of issuable common shares upon
the conversion of preferred stock using the if converted method. For purposes of computing the diluted earnings per share for the three-month period ended March 31, 2011, the Company has assumed the exercise, delivery or conversion
of those securities as follows:

(Shares in 000s)



|                          |  |                                     |        |  |          |  |        |              |  |  |       | 
|------------------------- |  | ----------------------------------- | ------ |  | -------- |  | ------ | ------------ |  |  | ----- | 
|                          |  | For The Three Months EndedMarch 31, |       
|                          |  | 2011                                |       
|                          |  | Total                               |        |  | Dilutive |  |        | Non-Dilutive | 
|Options                   |  |                                     | 16,730 |  |          |  | 12,152 |              |  |  | 4,578 | 
|Warrants                  |  |                                     | 559    |  |          |  | 509    |              |  |  | 50    | 
|Deferred Stock            |  |                                     | 2,800  |  |          |  | 400    |              |  |  | 2,400 | 
|Preferred Stock           |  |                                     | 144    |  |          |  |       |              |  |  | 144   | 
|                          |  |                                     |        |  |          |  |        |              |  |  |       | 
|Total CSEs                |  |                                     | 20,233 |  |          |  | 13,061 |              |  |  | 7,172 | 
|                          |  |                                     |        |  |          |  |        |              |  |  |       | 
|Shares Deemed Repurchased |  |                                     |        |  |          |  | (7,782 | )            |  |  |       | 
|                          |  |                                     |        |  |          |  |        |              |  |  |       | 
|Net Shares Deemed Issued  |  |                                     |        |  |          |  | 5,279  |              |  |  |       | 
|Common Shares             |  |                                     |        |  |          |  | 26,809 |              |  |  |       | 
|                          |  |                                     |        |  |          |  |        |              |  |  |       | 
|Total Shares and CSEs     |  |                                     |        |  |          |  | 32,088 |              |  |  |       | 
|                          |  |                                     |        |  |          |  |        |              |  |  |       | 

As of March 31, 2010, the Company had options, warrants and deferred shares outstanding
entitling the holders thereof to purchase a total of approximately 19.7 million shares of common stock. The Company also had outstanding shares of preferred stock convertible into approximately 140,000 shares of common stock. For purposes of
computing the diluted loss per share, the Company has not assumed the exercise of any options and warrants because the effect thereof would be either non- or anti-dilutive.

Stock-Based Awards

The Company accounts for stock-based
compensation using a fair market value method. Most often, options are granted for the provision of future services, such as continued employment or, in the case of independent financial advisors, their affiliation with the Company. Consequently,
the options typically provide for vesting over a period of years, with a certain percentage of the options vesting each year upon the anniversary date of the grant if the grantee is then still affiliated with the Company. Any unearned stock
compensation is generally amortized over the period the underlying options are earned, which is typically the vesting period. The fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model. The
Black-Scholes model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. The amortization of earned stock expense related to issuances to employees is included in the
accompanying condensed consolidated statements of income under the caption Employee Compensation and Benefits, while the amortization of earned stock expense related to issuances to non-employees is included under the caption Other
Operating Expenses.

The following schedule is intended to reflect the total fair market values of options and warrants
issued to both employees and non-employees during the three-month periods ended March 31, 2011 and 2010, respectively, as well as the net amortization expense recognized by the Company during those periods related to the issuance of options and
warrants in the current and prior period:



|                                                                    |      |                                      |         |      |  |   |         | 
|------------------------------------------------------------------- | ---- | ------------------------------------ | ------- | ---- |  | - | ------- | 
|                                                                    |      | For The Three 
MonthsEnded March 31, |        
|                                                                    | 2011 |                                      |         | 2010 | 
|Fair market value of options issuedemployees, net                  |      | $                                    | 11,532  |      |  | $ | 328,764 | 
|Fair market value of options and warrants issuednon-employees, net |      | $                                    | 133,854 |      |  | $ | 48,133  | 
|Fair market value of deferred stock issued, net                     |      | $                                    |        |      |  | $ | 549,096 | 
|Net amortization expenseoptions issued to employees                |      | $                                    | 254,393 |      |  | $ | 412,107 | 
|Net amortization expenseoptions issued to non-employees            |      | $                                    | 42,861  |      |  | $ | 42,396  | 



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In January 2010, options entitling the Chairman, CEO and President of our Company (the
Holder) to acquire up to 5,600,000 shares of our common stock at an exercise price of $.25 per share were cancelled, in consideration, in part, for the issuance of new options to acquire 2,800,000 shares of common stock, together with
2,800,000 shares of deferred stock. The new options and the deferred stock were issued subject to shareholder approval of certain amendments to our 2006 Incentive Compensation Plan (the Plan), to among other things, increase the number
of shares of common stock underlying the Plan. Such shareholder approval was received on October 6, 2010. The new options were issued with an exercise price of $.50 per share and became immediately exercisable upon shareholder approval of the
amendments to the Plan. The new options will expire, if not sooner exercised, on December 31, 2019. The deferred stock represents a contingent right to receive an equal number of shares of common stock, which will vest ratably over a period of
seven years, and will be delivered upon the earlier to occur of: (i) December 31, 2019; (ii) a change in control of the Company; or (iii) under certain circumstances, the termination of the Holders employment with the
Company.

NOTE 3INCOME TAXES

For the three-month period ended March 31, 2011, the Companys provision for income taxes reflects an estimated income tax accrual of approximately $263,000 based on the Companys estimated
effective tax rate for the year ending December 31, 2011. For the three-month period ended March 31, 2010, the Companys provision for income taxes reflects an estimated income tax accrual of approximately $143,000 based on the
Companys estimated effective tax rate for the year ending December 31, 2010. The Companys income tax provision in any period will be affected by, among other things, permanent, as well as timing differences in the deductibility of
certain items, including stock-based compensation, the amortization of intangible assets and in 2010, the increased allowable deductions for fixed asset additions and leasehold improvements. As a result, the Company may experience significant
fluctuations in the effective book tax rate (that is, its current tax expense divided by its pre-tax book income) from period to period.

NOTE 4NET CAPITAL REQUIREMENT

Summit Brokerage Services, Inc., the Companys wholly-owned broker-dealer subsidiary (Summit Brokerage or SBS), is subject to the SEC Uniform Net Capital Rule (SEC Rule
15c3-1), which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At March 31, 2011, Summit Brokerage had net capital of approximately
$3.8 million, which was approximately $3.5 million in excess of its SEC-required minimum net capital of approximately $0.3 million. Under SEC Rule 15c3-1, Summit Brokerages aggregate indebtedness to net capital ratio was 1.33 to 1 at
March 31, 2011.

NOTE 5CONTINGENCIES

The Company is, or may become, a party to legal proceedings relating to various claims and lawsuits arising in the normal course of business. Management has provided an accrual for estimated probable
losses which could result from asserted matters. Management believes that, to the best of its knowledge, the range of potential net losses resulting from the currently asserted proceedings in excess of the accrued amount, if any, will not be
material to the Companys financial position or results of operations. See our Form 10-K for the fiscal year ended December 31, 2010, for other potential loss contingencies.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis of the Companys financial condition and results of its operations for the three-month periods
ended March 31, 2011 and 2010 should be read in conjunction with the Companys condensed consolidated financial statements included as Item 1 herein. When used in the following discussions, the words believes,
anticipates, intends, expects, and similar expressions are intended to identify forward-looking statements. As further explained in the section entitled Forward Looking Statements on page 2 herein,
such statements are subject to certain risks and uncertainties, which could cause results to differ materially from those projected.

Overview

The
Company is a Florida-based financial services holding company that provides, through its Summit Brokerage Services, Inc. (Summit Brokerage) operating subsidiary, a broad range of securities brokerage and investment services to primarily
individual investors. Summit Brokerage also sells insurance products, predominantly fixed and variable annuities and life insurance, under licenses held by its SBS Insurance Agency of Florida, Inc. (SBSIA) subsidiary (or by SBSIAs
subsidiary entities). Summit Brokerage also provides, through its SEC registered investment advisor subsidiary, Summit Financial Group, Inc. (SFG), asset management and investment advisory services. SFSG was incorporated under the laws
of the State of Florida in 2003.

Summit Brokerage is registered as a broker-dealer with the SEC, is a member of the Financial
Industry Regulatory Authority (FINRA) (f/k/a National Association of Securities Dealers, Inc. (NASD)), the Municipal Securities Rule Making Board (MSRB), the National Futures Association (NFA) and the
Securities Investor Protection Corporation (SIPC), and is licensed to conduct its brokerage activities in all 50 states, plus the District of Columbia. SFG is registered or eligible to conduct business as an investment advisor in 36
states and the District of Columbia. SBSIA, directly or through its subsidiary entities, is licensed to sell insurance, or is not required to be so licensed, in all jurisdictions where the Company conducts its brokerage activities.

As of March 31, 2011, we had approximately 300 financial advisors operating from approximately 190 offices located throughout the
United States. Our financial advisors service retail, and to a much lesser extent, institutional clients. The number of financial advisors in each affiliate office typically ranges from one to five, although the number of financial advisors in
certain offices may exceed this amount. With the exception of our Boca Raton, Florida branch (the Boca Branch), 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. Our financial advisors offer a broad range of investment products and services. These products and services allow us to
generate both commissions (from transactions in securities and other investment products) and fee income (for providing investment advisory services, namely managing a clients account). The investment products and services offered include
mutual funds, annuities, insurance, individual stocks and bonds, and managed money accounts. Historically, many of our affiliates have also provided financial planning services to their clients, wherein the financial advisor evaluates



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a clients financial needs and objectives, develops a detailed plan, and then implements the plan with the clients 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 Summit Brokerage, for which we earn either a commission or a fee. The following table reflects the various sources of
revenue and the percentage of total revenues for the three-month periods ended March 31, 2011 and 2010:



|                           |  |                |            |  |                |  |     |   |  |   |            |  |  |  |     |  
|-------------------------- |  | -------------- | ---------- |  | -------------- |  | --- | - |  | - | ---------- |  |  |  | --- | -
|                           |  | March 31, 2011 |            |  | March 31, 2010 | 
|Insurance related products |  | $              | 5,984,896  |  |                |  | 35  | % |  | $ | 5,224,319  |  |  |  | 35  | %
|Equities                   |  |                | 3,414,906  |  |                |  | 20  |   |  |   | 3,114,632  |  |  |  | 21  |  
|Mutual funds               |  |                | 2,482,026  |  |                |  | 15  |   |  |   | 2,120,707  |  |  |  | 13  |  
|Investment advisory fees   |  |                | 3,170,127  |  |                |  | 19  |   |  |   | 2,588,151  |  |  |  | 17  |  
|Other commission income    |  |                | 1,411,862  |  |                |  | 8   |   |  |   | 1,472,308  |  |  |  | 10  |  
|Miscellaneous              |  |                | 633,715    |  |                |  | 3   |   |  |   | 539,143    |  |  |  | 4   |  
|                           |  |                |            |  |                |  |     |   |  |   |            |  |  |  |     |  
|Total                      |  | $              | 17,097,532 |  |                |  | 100 | % |  | $ | 15,059,260 |  |  |  | 100 | %
|                           |  |                |            |  |                |  |     |   |  |   |            |  |  |  |     |  

We do not hold any funds or securities of our customers, but instead utilize, on a fully disclosed basis,
the services of First Clearing, LLC (an affiliate of Wells Fargo & Company) and Pershing LLC (an affiliate of the Bank of New York Mellon) as our clearing brokers (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. These arrangements 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 Brokerage.

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 or loss 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 or loss in any particular period that may not be
representative of future results, and may vary significantly from period to period. Furthermore, our mix of business in any particular period 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 financial advisors to our Company, many of whom specialize in the sale of specific types of investment products.

In general, our financial results can be impacted by a number of factors, including general market conditions and volatility, as well as
our ability to recruit and retain financial advisors. During the quarter ended March 31, 2011, our revenues were positively impacted by an increase in the average production per financial advisor when compared with the quarter ended
March 31, 2010.

Although we expect our results, in general, to be impacted by macroscopic forces such as the state of
the economy, as well as overall market conditions and investor confidence, we may experience fluctuations in our revenue that do not follow such trends, or mirror trends experienced by the financial services industry as a whole. This is because,
given our size, we may add, or lose, financial advisors 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 branch office to impact our
overall revenue, or mix of revenue, will be diminished. However, due to our size, it is possible that the addition or loss of financial advisors (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 results in other periods or reflective of general market conditions or economic trends.

Our operating results may also be negatively impacted by other factors facing the financial services industry, in general, and the
independent broker-dealer channel, specifically. During 2009, the Company benefited from the considerable movement of financial advisors among firms, which movement declined during 2010 and the first quarter of 2011. As competition among
broker-dealers increases, margins may begin to decrease. Furthermore, increased competition among broker-dealers to hire financial advisors has increased the amounts that we are required to pay certain financial advisors. Additionally, certain
sources of revenues that have historically been available to the Company may be reduced or eliminated. For example, the Company currently receives 12b-1 fees, or trail commissions, from the sale of mutual fund shares. The SEC is currently reviewing
its policies with respect to such payments and recently proposed a cap limiting such fees to 0.25% of assets. In the event the SEC were to limit the ability of Summit Brokerage to receive such fees, our revenues and earnings could be negatively
impacted. Our earnings may also be negatively impacted by reductions in interest rates and remuneration paid by our Clearing Brokers, as well as from decreases in certain compensation amounts paid by insurance companies and mutual funds with whom we
do business. Additionally, increased regulations, and the related cost of compliance therewith, could also impact the manner in which we conduct our business, as well as potentially our margins. Our financial results of operations may also be
negatively impacted if any of our financial advisors fail to comply with such increased regulation. Furthermore, in July 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is widely expected to
have a significant impact on the manner in which many financial institutions operate. A recent proposal to treat financial advisors licensed with independent broker-dealers as employees, rather than as independent contractors, could also adversely
affect our business. Changes in the manner in which client claims against broker dealers are resolved may also negatively impact our financial results.

We continue to focus our business plan on increasing our network of affiliated financial advisors, primarily through recruiting efforts. Although we will continue to attempt to recruit those financial
advisors who serve as financial planners (who sell primarily annuities, insurance, mutual funds and fee-based products), we also intend to pursue the addition of financial advisors who focus on the sale of different types of securities, namely
equities, fixed income and investment advisory products. There can be no assurance that we will be successful in our recruiting efforts. By focusing our business plan on increasing our network of affiliated financial advisors, we believe we can
expand our base of revenue and our network for the retail brokerage of securities without the capital expenditures that would be required to open Company-owned offices and the additional administrative and other costs of hiring financial advisors
and their support staffs as in-house employees. As was the case with the Boca Branch, however, we may evaluate potential acquisitions, including those that would result in acquired financial advisors becoming employees of Summit Brokerage.
Historically, Summit Brokerage has recruited offices comprised of between one and three financial advisors. Prospectively, we expect to continue to recruit smaller offices, although we will also target larger offices comprised of many financial
advisors. Because of the size of these larger offices, we may be required to pay a greater percentage of the offices commissions than we would pay to a smaller office. As a result, if we are successful, of which no assurance can be given, we
may experience a potential decline in our gross margin percentage.

We may also pursue mergers with, or the acquisition of the
assets of, other brokerage firms. Our ability to realize growth through acquisitions, however, will depend on the availability of suitable broker-dealer candidates and our ability to successfully negotiate favorable terms (from both sellers as well
as financing sources, if necessary), and there can be no assurance that we will be able to consummate any such acquisitions. Further, there are costs associated with the integration of new businesses and personnel, which may be more than we
anticipate at that time. Thus, there is no assurance that we will be able to successfully execute such growth strategy.



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As we continue to grow, we may also incur increases in expenses related to, among other
things, marketing and recruiting, personnel, office space, and the amortization of forgivable loans provided to newly recruited financial advisors. There can be no assurance that any increased revenue from growth will be sufficient to offset any
increased expenses. In addition, the Company may elect to expand the types of trading activities in which it serves as a principal, which transactions are inherently more risky than transactions in which the Company serves as an agent. Furthermore,
the Company has determined that its long term growth strategy can best be maximized through the reinvestment of its earnings into the development of its infrastructure and its recruiting and business development efforts, including through the
payment of upfront amounts to financial advisors. As a result, the Companys future earnings may be significantly less than in prior years should our revenue growth be less than anticipated.

For our current level of operating activities, we believe that our operations and current capital resources will be sufficient to fund
our working capital needs through 2011. The Company may, however, seek additional capital within the next 12 months should it elect to continue pursuing a strategy that incorporates the use of both forgivable and non-forgivable loans to induce newly
recruited financial advisors to affiliate with the Company. In addition, we anticipate that our strategy of growth through acquisitions may necessitate additional debt and/or equity financing, although there can be no assurances that this will
happen. Our failure to obtain sufficient financing for either of these purposes could have a materially adverse affect on our ability to execute our growth strategy to the extent desired.

Results of Operations

The following discussion relates to the
results of operations for the three months ended March 31, 2011 (the 2011 Quarter) and the comparable period in the prior year (the 2010 Quarter).

Comparison of Three Months Ended March 31, 2011 and March 31, 2010

Revenue:

Commission
revenue of approximately $16.46 million for 2011 Quarter represents an increase of approximately $1.94 million, or 13.4%, over the approximately $14.52 million of commission revenue reported for the 2010 Quarter. For the 2011 Quarter, our revenues
were positively impacted by an increase in the average production per financial advisor affiliated with the Company during the 2011 Quarter compared with the 2010 Quarter. We believe this increase was due to, among other things, an improvement in
investor confidence as measured by increases in the major financial market indices.

In any period, our mix of business will
be impacted by several factors, including, among other things, investor confidence, as reflected by the movements of the equities markets, and the attractiveness of non-equity-related investment products, such as fixed income securities.
Additionally, during any period, we may add, or lose, a significant number of financial advisors who focus only on the sale of a particular type or types of investment product(s) (e.g., insurance, equities, fixed income, etc.).

Interest and dividends decreased by approximately $49,000, or 14.4% from approximately $339,000 in the 2010 Quarter to approximately
$290,000 in the 2011 Quarter. Interest and dividend income is comprised primarily of that portion of the interest income earned from, and the interest expense charged to, clients of Summit Brokerage that are received from our Clearing Brokers. If
interest rates or loan balances decline from current levels, we would expect the amounts received by Summit Brokerage to decline over amounts received in prior periods. Beginning in December 2010, one of our Clearing Brokers reduced the applicable
percentage used to determine interest income paid to Summit Brokerage related to client balances. The effect of such reduction will vary depending upon the aggregate amount of such client balances. Any significant
reduction in our interest and dividend income could materially adversely affect our operating results.

Other revenue
increased by approximately 143,000, or 71.7%, from approximately $200,000 in the 2010 Quarter to approximately $344,000 in the 2011 Quarter. This increase is due primarily to an increase in gains resulting from Summit Brokerage acting as a principal
in certain types of securities transactions.

Expenses:

Commissions and clearing costs increased to approximately $13.9 million in the 2011 Quarter, which represents an increase of approximately $1.41 million, or 11.3%, from the approximately $12.49 million
reported for the 2010 Quarter. In general, commissions and clearing costs are directly related to commission revenue, and will typically increase or decrease proportionately as commission revenue rises or falls. Commissions and clearing costs, as a
percentage of commission revenue, decreased in the 2011 Quarter to 84.4% from 86.0% in the 2010 Quarter. Commissions and clearing costs as a percentage of commission revenues can also be impacted by several other factors. The Company also includes
within commissions and clearing costs the amortization related to the issuance of forgivable advisor notes, which amounts approximated $79,000 and $116,000 in the 2011 Quarter and 2010 Quarter, respectively. Prospectively, we expect this percentage
to increase as we recruit more independent financial advisors, including those to whom we must provide forgivable loans. Because our independent financial advisors are responsible for the payment of all costs associated with operating their offices,
we must pay them a higher percentage of the commissions they generate (typically 80% to 90%), than we pay to those financial advisors working from the Boca Branch, where Summit pays the costs associated with operating the Boca Branch.

Employee compensation and benefits increased to approximately $1.76 million in the 2011 Quarter, which represents an increase of
approximately $45,000, or 2.6%, from the approximately $1.72 million reported for the 2010 Quarter. This increase was due primarily to an increase in salaries and wages, as well as increases in performance-based compensation costs. Additionally, we
include within employee compensation and benefits net expenses related to the issuance of common stock and common stock equivalents to our employees. For the 2011 and 2010 Quarters, a total of approximately $254,000 and $412,000, respectively, was
expensed (net of recaptured amortization), all of which related to the amortization of unearned stock compensation for employees.

Occupancy and equipment costs decreased by 22.6%, or $49,000, to approximately $166,000 in the 2011 Quarter from approximately $215,000 in the 2010 Quarter. This decrease was due to absence in the 2011
Quarter of additional rent and other occupancy costs incurred in connection with the move to the Companys new headquarters in the 2010 Quarter.

Communications expense decreased by approximately $24,000, or 23.6%, to approximately $78,000 in the 2011 Quarter from approximately $102,000 in the 2010 Quarter. This decrease was due primarily to a
decrease in our net technology-related costs.

Depreciation and amortization expense decreased by approximately $4,000, or
7.7%, to approximately $45,000 for the 2011 Quarter. This decrease is due primarily to assets being fully depreciated subsequent to the end of the 2010 Quarter.

Other operating expenses include the general and administrative costs incurred by the Company, to the extent such costs are not included elsewhere. Other operating expenses increased by approximately
$68,000, or 14.3%, to approximately $544,000 during the 2011 Quarter from approximately $476,000 for the 2010 Quarter. This increase was due primarily to increases in the costs to attract and retain financial advisors, which increases were only
partially offset by decreases in legal fees and litigation costs and licensing fees. Additionally, we include within other operating expenses those net expenses related to the issuance of common stock and common stock equivalents, such as options,
to non-employees. For each of the 2011 and 2010 Quarters, a total of approximately $42,000 was expensed (net of recaptured amortization) for such issuances, all of which related to the amortization of unearned stock compensation.



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Provision for income taxes was approximately $263,000 for the 2011 Quarter compared to
$143,000 for the 2010 Quarter. Our provision for income taxes in any period will be affected by, among other things, permanent, as well as timing differences in the deductibility of certain items, including stock-based compensation and the
amortization of intangible assets, and in 2010, the increased allowable deduction for fixed asset additions and leasehold improvements.

Net Income:

For the
2011 Quarter, we generated net income of approximately $337,000, or $0.01 per basic and per diluted share, as compared to a net loss for the 2010 Quarter of approximately $(136,000), or $(0.01) per basic and diluted share.

Liquidity and Capital Resources

Cash provided by, or used in, operating activities for any period includes the net income or loss for that period adjusted for non-cash items and the effects of changes in working capital. Net cash
provided by operating activities during the 2011 Quarter totaled approximately $90,000, which was primarily due to net income of approximately $337,000 increased by non cash adjustments of approximately $297,000 of net stock based compensation,
approximately $80,000 related to the amortization of advisor notes, and approximately $45,000 related to depreciation and amortization. During the 2011 Quarter, cash provided by, or used in, operating activities was impacted by changes in certain
balance sheet accounts, including commissions receivable, which decreased by approximately $1,304,000 and accounts payable and accrued expenses, which increased by approximately $380,000. Net cash provided by operating activities during the 2010
Quarter totaled approximately $1,759,000, which was primarily due to net loss of approximately $136,000 increased by non cash adjustments of approximately $455,000 of net stock based compensation, approximately $116,000 related to the amortization
of advisor notes, and approximately $49,000 related to depreciation and amortization. During the 2010 Quarter, cash provided by operating activities was impacted by increases of approximately $525,000 and $674,000 related to accounts payable and
accrued expenses, and accrued commission expense, respectively.

Net cash used in investing activities during the 2011 Period
was approximately $40,000, which represented the purchase of property and equipment. Net cash used in investing activities during the 2010 Period was approximately $410,000, which represented the purchase of property and equipment primarily
attributable to the Companys move to its new headquarters during the first quarter of 2010. We do not project material capital expenditures over the next twelve months.

During the 2011 Quarter, the receipt of proceeds from the exercise of stock options was approximately offset by the payment of preferred stock dividends. During the 2010 Quarter, however, the Company
generated approximately $56,000 from financing activities, which amount represented the difference between the proceeds of $60,000 from the exercise of common stock warrants, less the payment of preferred stock dividends.

Overall, cash and cash equivalents increased during the 2011 Period by approximately $49,000 to approximately $9.49 million at
March 31, 2011 from approximately $9.45 million at December 31, 2010. This increase was due primarily to cash provided by operations as previously described.



|Item 4. | 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 March 31, 2011. 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.



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During the quarter ended March 31, 2011, 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.

PART II. OTHER INFORMATION



|Item 6. | Exhibits
|------- | --------



|       |  |                                                                                                    
|------ |  | ---------------------------------------------------------------------------------------------------
|Number |  | Name                                                                                               
|       | 
|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.
|       | 
|32.1   |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|       | 
|32.2   |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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SUMMIT FINANCIAL SERVICES GROUP, INC.

SIGNATURES

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



|                   |  |                                                             
|------------------ |  | ------------------------------------------------------------
|Date: May 16, 2011 |  | Summit Financial Services Group, Inc.                       
|                   |  | (Registrant)                                                
|                   | 
|                   |  | /S/ MARSHALL T. LEEDS                                       
|                   |  | Marshall T. Leeds,                                          
|                   |  | Chairman of the Board, Chief Executive Officer and President
|                   |  | (Principal Executive Officer)                               
|                   | 
|Date: May 16, 2011 |  | /S/ STEVEN C. JACOBS                                        
|                   |  | Steven C. Jacobs,                                           
|                   |  | Executive Vice President and Chief Financial Officer        
|                   |  | (Principal Accounting Officer)                              



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EXHIBIT INDEX



|               |  |                                                                                                    
|-------------- |  | ---------------------------------------------------------------------------------------------------
|EXHIBIT
NUMBER |  | DESCRIPTION                                                                                        
|               | 
|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.
|               | 
|32.1           |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|               | 
|32.2           |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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