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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 September 30, 2010.

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 November 11,
2010
|Common Stock Par value $0.0001 per share |  | 26,061,713                         









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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 September 30, 2010(unaudited) and December 31, 2009  |    |      | 3  | 
|                              |  | Condensed Consolidated Statements of Income for the Three Months ended September 30, 2010 and 2009(unaudited)    |    |      | 4  | 
|                              |  | Condensed Consolidated Statements of Income for the Nine Months ended September 30, 2010 and 2009(unaudited)     |    |      | 5  | 
|                              |  | Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2010 and 2009(unaudited) |    |      | 6  | 
|                              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                   |    |      | 7  | 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |    |      | 8  | 
|Item 4.                       |  | Controls and Procedures                                                                                          |    |      | 13 | 
|Part II. Other Information    |  |                                                                                                                  | 13 |     
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                      |    |      | 13 | 
|Item 6.                       |  | Exhibits                                                                                                         |    |      | 14 | 
|Signatures                    |  |                                                                                                                  | 15 |     

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; 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, 2009.



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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



|                                                                                                                                                                                                                   |  |                   |            |   |                  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                                                                                                                                                                   |  | September 30,2010 |            |   | December 31,2009 |  
|                                                                                                                                                                                                                   |  | (unaudited)       |            |   |                  |  
|ASSETS                                                                                                                                                                                                             |  |                   |            |   |                  |   |            |  
|Cash and cash equivalents                                                                                                                                                                                          |  | $                 | 8,897,320  |   |                  | $ | 6,301,921  |  
|Deposits held at clearing brokers                                                                                                                                                                                  |  |                   | 128,724    |   |                  |   | 128,696    |  
|Commissions receivable, net                                                                                                                                                                                        |  |                   | 2,014,356  |   |                  |   | 1,302,021  |  
|Notes receivable, net                                                                                                                                                                                              |  |                   | 530,410    |   |                  |   | 826,912    |  
|Other receivables, net                                                                                                                                                                                             |  |                   | 208,899    |   |                  |   | 162,657    |  
|Securities owned, at fair value                                                                                                                                                                                    |  |                   | 45,614     |   |                  |   | 9,381      |  
|Prepaid expenses and other assets                                                                                                                                                                                  |  |                   | 455,977    |   |                  |   | 707,739    |  
|Property and equipment, net                                                                                                                                                                                        |  |                   | 558,248    |   |                  |   | 216,251    |  
|Goodwill                                                                                                                                                                                                           |  |                   | 500,714    |   |                  |   | 500,714    |  
|                                                                                                                                                                                                                   |  |                   |            |   |                  |   |            |  
|                                                                                                                                                                                                                   |  |                  
|TOTAL ASSETS                                                                                                                                                                                                       |  | $                 | 13,340,262 |   |                  | $ | 10,156,292 |  
|                                                                                                                                                                                                                   |  |                   |            |   |                  |   |            |  
|                                                                                                                                                                                                                   |  |                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                               |  |                   |            |   |                  |   |            |  
|LIABILITIES                                                                                                                                                                                                        |  |                   |            |   |                  |   |            |  
|Accounts payable and accrued expenses                                                                                                                                                                              |  | $                 | 1,885,769  |   |                  | $ | 1,306,597  |  
|Accrued commissions expense                                                                                                                                                                                        |  |                   | 3,580,787  |   |                  |   | 2,425,738  |  
|                                                                                                                                                                                                                   |  |                   |            |   |                  |   |            |  
|                                                                                                                                                                                                                   |  |                  
|TOTAL LIABILITIES                                                                                                                                                                                                  |  |                   | 5,466,556  |   |                  |   | 3,732,335  |  
|                                                                                                                                                                                                                   |  |                  
|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; 26,045,417 issued and 26,030,505 outstanding at
September 30, 2010 and 25,735,200 issued and 25,720,288 outstanding at December 31, 2009 |  |                   | 2,605      |   |                  |   | 2,573      |  
|                                                                                                                                                                                                                   |  |                  
|Additional paid-in capital                                                                                                                                                                                         |  |                   | 11,574,781 |   |                  |   | 10,612,693 |  
|Unearned stock-based compensation                                                                                                                                                                                  |  |                   | (1,265,075 | ) |                  |   | (1,114,477 | )
|Treasury stock (14,912 shares, at cost)                                                                                                                                                                            |  |                   | (10,884    | ) |                  |   | (10,884    | )
|Accumulated deficit                                                                                                                                                                                                |  |                   | (2,427,734 | ) |                  |   | (3,065,961 | )
|                                                                                                                                                                                                                   |  |                   |            |   |                  |   |            |  
|                                                                                                                                                                                                                   |  |                  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                                                                         |  |                   | 7,873,706  |   |                  |   | 6,423,957  |  
|                                                                                                                                                                                                                   |  |                   |            |   |                  |   |            |  
|                                                                                                                                                                                                                   |  |                  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                         |  | $                 | 13,340,262 |   |                  | $ | 10,156,292 |  
|                                                                                                                                                                                                                   |  |                   |            |   |                  |   |            |  

See accompanying notes to unaudited condensed consolidated financial statements.



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SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income



|                                            |  |                                         |            |  |             |   |            | 
|------------------------------------------- |  | --------------------------------------- | ---------- |  | ----------- | - | ---------- | 
|                                            |  | For The Three Months EndedSeptember 30, |           
|                                            |  | 2010                                    |            |  | 2009        |  
|                                            |  | (Unaudited)                             |            |  | (Unaudited) |  
|Revenues                                    |  |                                         |            |  |             |   |            | 
|Commissions                                 |  | $                                       | 15,229,385 |  |             | $ | 12,156,651 | 
|Interest and dividends                      |  |                                         | 380,146    |  |             |   | 358,287    | 
|Other                                       |  |                                         | 314,817    |  |             |   | 148,594    | 
|                                            |  |                                         |            |  |             |   |            | 
|                                            |  |                                        
|                                            |  |                                         | 15,924,348 |  |             |   | 12,663,532 | 
|                                            |  |                                        
|Expenses                                    |  |                                         |            |  |             |   |            | 
|Commissions and clearing costs              |  |                                         | 13,065,341 |  |             |   | 10,271,137 | 
|Employee compensation and benefits          |  |                                         | 1,449,692  |  |             |   | 1,246,775  | 
|Occupancy and equipment                     |  |                                         | 191,602    |  |             |   | 158,136    | 
|Communications                              |  |                                         | 58,322     |  |             |   | 115,229    | 
|Depreciation and amortization               |  |                                         | 43,669     |  |             |   | 18,075     | 
|Other operating expenses                    |  |                                         | 422,455    |  |             |   | 529,264    | 
|                                            |  |                                         |            |  |             |   |            | 
|                                            |  |                                        
|                                            |  |                                         | 15,231,081 |  |             |   | 12,338,616 | 
|                                            |  |                                         |            |  |             |   |            | 
|                                            |  |                                        
|Income before income taxes                  |  |                                         | 693,267    |  |             |   | 324,916    | 
|                                            |  |                                        
|Provision for income taxes                  |  |                                         | 202,858    |  |             |   | 222,104    | 
|                                            |  |                                         |            |  |             |   |            | 
|                                            |  |                                        
|Net income                                  |  | $                                       | 490,409    |  |             | $ | 102,812    | 
|                                            |  |                                         |            |  |             |   |            | 
|                                            |  |                                        
|Basic income per common share               |  | $                                       | 0.02       |  |             | $ | 0.00       | 
|                                            |  |                                         |            |  |             |   |            | 
|                                            |  |                                        
|Diluted income per common share             |  | $                                       | 0.02       |  |             | $ | 0.00       | 
|                                            |  |                                         |            |  |             |   |            | 
|                                            |  |                                        
|Weighted average common shares outstanding: |  |                                         |            |  |             |   |            | 
|Basic                                       |  |                                         | 25,956,357 |  |             |   | 25,458,634 | 
|                                            |  |                                         |            |  |             |   |            | 
|                                            |  |                                        
|Diluted                                     |  |                                         | 31,765,517 |  |             |   | 29,417,520 | 
|                                            |  |                                         |            |  |             |   |            | 

See accompanying notes to unaudited condensed consolidated financial statements.



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SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income



|                                            |  |                                        |            |  |             |   |            | 
|------------------------------------------- |  | -------------------------------------- | ---------- |  | ----------- | - | ---------- | 
|                                            |  | For The Nine Months EndedSeptember 30, |           
|                                            |  | 2010                                   |            |  | 2009        |  
|                                            |  | (Unaudited)                            |            |  | (Unaudited) |  
|Revenues                                    |  |                                        |            |  |             |   |            | 
|Commissions                                 |  | $                                      | 44,380,927 |  |             | $ | 29,571,111 | 
|Interest and dividends                      |  |                                        | 1,075,128  |  |             |   | 982,196    | 
|Other                                       |  |                                        | 748,652    |  |             |   | 388,480    | 
|                                            |  |                                        |            |  |             |   |            | 
|                                            |  |                                       
|                                            |  |                                        | 46,204,707 |  |             |   | 30,941,787 | 
|Expenses                                    |  |                                        |            |  |             |   |            | 
|Commissions and clearing costs              |  |                                        | 38,060,443 |  |             |   | 24,699,998 | 
|Employee compensation and benefits          |  |                                        | 4,607,484  |  |             |   | 3,585,448  | 
|Occupancy and equipment                     |  |                                        | 602,287    |  |             |   | 468,446    | 
|Communications                              |  |                                        | 230,015    |  |             |   | 328,029    | 
|Depreciation and amortization               |  |                                        | 136,097    |  |             |   | 55,628     | 
|Other operating expenses                    |  |                                        | 1,380,526  |  |             |   | 1,476,022  | 
|                                            |  |                                        |            |  |             |   |            | 
|                                            |  |                                       
|                                            |  |                                        | 45,016,852 |  |             |   | 30,613,571 | 
|                                            |  |                                        |            |  |             |   |            | 
|                                            |  |                                       
|Income before income taxes                  |  |                                        | 1,187,855  |  |             |   | 328,216    | 
|                                            |  |                                       
|Provision for income taxes                  |  |                                        | 538,377    |  |             |   | 222,104    | 
|                                            |  |                                        |            |  |             |   |            | 
|                                            |  |                                       
|Net income                                  |  | $                                      | 649,478    |  |             | $ | 106,112    | 
|                                            |  |                                        |            |  |             |   |            | 
|                                            |  |                                       
|Basic income per common share               |  | $                                      | 0.02       |  |             | $ | 0.00       | 
|                                            |  |                                        |            |  |             |   |            | 
|                                            |  |                                       
|Diluted income per common share             |  | $                                      | 0.02       |  |             | $ | 0.00       | 
|                                            |  |                                        |            |  |             |   |            | 
|                                            |  |                                       
|Weighted average common shares outstanding: |  |                                        |            |  |             |   |            | 
|                                            |  |                                       
|Basic                                       |  |                                        | 25,875,300 |  |             |   | 25,458,634 | 
|                                            |  |                                        |            |  |             |   |            | 
|                                            |  |                                       
|Diluted                                     |  |                                        | 29,797,924 |  |             |   | 29,887,365 | 
|                                            |  |                                        |            |  |             |   |            | 

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 Nine Months EndedSeptember 30, |          
|                                                                                  |  | 2010                                   |           |   | 2009        |  
|                                                                                  |  | (Unaudited)                            |           |   | (Unaudited) |  
|Cash flows from operating activities:                                             |  |                                        |           |   |             |   |            |  
|Net income                                                                        |  | $                                      | 649,478   |   |             | $ | 106,112    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                        |           |   |             |   |            |  
|Depreciation and amortization                                                     |  |                                        | 136,097   |   |             |   | 55,628     |  
|Stock based compensation, net                                                     |  |                                        | 713,816   |   |             |   | 350,766    |  
|Amortization of advisor notes                                                     |  |                                        | 313,930   |   |             |   | 178,007    |  
|Changes in:                                                                       |  |                                        |           |   |             |   |            |  
|Deposits held at clearing brokers                                                 |  |                                        | (29       | ) |             |   | (33        | )
|Commissions receivable                                                            |  |                                        | (712,336  | ) |             |   | (1,590,118 | )
|Notes receivable                                                                  |  |                                        | (17,429   | ) |             |   | (657,822   | )
|Other receivables                                                                 |  |                                        | (46,242   | ) |             |   | 41,088     |  
|Prepaid expenses and other assets                                                 |  |                                        | 251,762   |   |             |   | 254,071    |  
|Securities owned                                                                  |  |                                        | (36,233   | ) |             |   | (2,591     | )
|Accounts payable and accrued expenses                                             |  |                                        | 579,172   |   |             |   | 706,546    |  
|Accrued commission expense                                                        |  |                                        | 1,155,050 |   |             |   | 1,332,601  |  
|                                                                                  |  |                                        |           |   |             |   |            |  
|                                                                                  |  |                                       
|Net cash provided by operating activities                                         |  |                                        | 2,987,036 |   |             |   | 774,255    |  
|                                                                                  |  |                                       
|Cash flows from investing activities:                                             |  |                                        |           |   |             |   |            |  
|Purchase of property and equipment                                                |  |                                        | (478,093  | ) |             |   | (22,141    | )
|                                                                                  |  |                                        |           |   |             |   |            |  
|                                                                                  |  |                                       
|Net cash used in investing activities                                             |  |                                        | (478,093  | ) |             |   | (22,141    | )
|Cash flows from financing activities:                                             |  |                                        |           |   |             |   |            |  
|Payment of preferred stock dividend                                               |  |                                        | (11,250   | ) |             |   | (11,250    | )
|Proceeds from exercise of options and warrants                                    |  |                                        | 97,706    |   |             |   |           |  
|                                                                                  |  |                                        |           |   |             |   |            |  
|                                                                                  |  |                                       
|Net cash provided by (used in) financing activities                               |  |                                        | 86,456    |   |             |   | (11,250    | )
|                                                                                  |  |                                        |           |   |             |   |            |  
|                                                                                  |  |                                       
|Net increase in cash and cash equivalents                                         |  |                                        | 2,595,399 |   |             |   | 740,864    |  
|Cash and cash equivalents at beginning of period                                  |  |                                        | 6,301,921 |   |             |   | 5,166,614  |  
|                                                                                  |  |                                        |           |   |             |   |            |  
|                                                                                  |  |                                       
|Cash and cash equivalents at end of period                                        |  | $                                      | 8,897,320 |   |             | $ | 5,907,478  |  
|                                                                                  |  |                                        |           |   |             |   |            |  

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

September 30, 2010

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 for the fiscal year ended December 31, 2009 for Summit Financial Services Group, Inc. (the Company or
SFSG). The results of operations for the three- and nine-month periods ended September 30, 2010 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2010. 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.

Certain amounts from the prior year have been reclassified to conform to the current-year presentation. These
reclassifications had no impact on the reported net income for the three- and nine-month periods ended September 30, 2009.

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- and nine-month periods ended September 30,
2010 and September 30, 2009, respectively, the Company has assumed the exercise, delivery or conversion of those securities as follows:

(Shares in 000s)



|                          |  |                                          |        |  |                                         |  |        |              |  |  |       |  |  |          |        |  |              |  |        |       |  |  |          |  |  |              |        |  |       |  |        |          |  |  |              |  |  |  |        |  |  |  |        |   |  |  |       | 
|------------------------- |  | ---------------------------------------- | ------ |  | --------------------------------------- |  | ------ | ------------ |  |  | ----- |  |  | -------- | ------ |  | ------------ |  | ------ | ----- |  |  | -------- |  |  | ------------ | ------ |  | ----- |  | ------ | -------- |  |  | ------------ |  |  |  | ------ |  |  |  | ------ | - |  |  | ----- | 
|                          |  | For The Three Months Ended September 30, |        |  | For The Nine Months Ended September 30, | 
|                          |  | 2010                                     |        |  | 2009                                    |  |        | 2010         |  |  | 2009  | 
|                          |  |                                          |        |  |                                         |  |        |              |  |  |       | 
|                          |  | Total                                    |        |  | Dilutive                                |  |        | Non-Dilutive |  |  | Total |  |  | Dilutive |        |  | Non-Dilutive |  |        | Total |  |  | Dilutive |  |  | Non-Dilutive |        |  | Total |  |        | Dilutive |  |  | Non-Dilutive | 
|Options                   |  |                                          | 15,977 |  |                                         |  | 11,201 |              |  |  | 4,776 |  |  |          | 18,057 |  |              |  | 10,771 |       |  |  | 7,286    |  |  |              | 15,977 |  |       |  | 9,885  |          |  |  | 6,092        |  |  |  | 18,057 |  |  |  | 10,771 |   |  |  | 7,286 | 
|Deferred Stock            |  |                                          | 2,800  |  |                                         |  |       |              |  |  | 2,800 |  |  |          |       |  |              |  |       |       |  |  |         |  |  |              | 2,800  |  |       |  |       |          |  |  | 2,800        |  |  |  |       |  |  |  |       |   |  |  |      | 
|Warrants                  |  |                                          | 509    |  |                                         |  | 509    |              |  |  |      |  |  |          | 783    |  |              |  | 783    |       |  |  |         |  |  |              | 509    |  |       |  | 509    |          |  |  |             |  |  |  | 783    |  |  |  | 783    |   |  |  |      | 
|Preferred Stock           |  |                                          | 144    |  |                                         |  |       |              |  |  | 144   |  |  |          | 144    |  |              |  |       |       |  |  | 144      |  |  |              | 144    |  |       |  |       |          |  |  | 144          |  |  |  | 144    |  |  |  |       |   |  |  | 144   | 
|                          |  |                                          |        |  |                                         |  |        |              |  |  |       |  |  |          |        |  |              |  |        |       |  |  |          |  |  |              |        |  |       |  |        |          |  |  |              |  |  |  |        |  |  |  |        |   |  |  |       | 
|Total CSEs                |  |                                          | 19,430 |  |                                         |  | 11,710 |              |  |  | 7,720 |  |  |          | 18,984 |  |              |  | 11,554 |       |  |  | 7,430    |  |  |              | 19,430 |  |       |  | 10,394 |          |  |  | 9,036        |  |  |  | 18,984 |  |  |  | 11,554 |   |  |  | 7,430 | 
|                          |  |                                          |        |  |                                         |  |        |              |  |  |       |  |  |          |        |  |              |  |        |       |  |  |          |  |  |              |        |  |       |  |        |          |  |  |              |  |  |  |        |  |  |  |        |   |  |  |       | 
|Shares Deemed Repurchased |  |                                          |        |  |                                         |  | (5,900 | )            |  |  |       |  |  |          |        |  |              |  | (7,595 | )     |  |  |          |  |  |              |        |  |       |  | (6,471 | )        |  |  |              |  |  |  |        |  |  |  | (7,126 | ) |  |  |       | 
|                          |  |                                          |        |  |                                         |  |        |              |  |  |       |  |  |          |        |  |              |  |        |       |  |  |          |  |  |              |        |  |       |  |        |          |  |  |              |  |  |  |        |  |  |  |        |   |  |  |       | 
|Net Shares Deemed Issued  |  |                                          |        |  |                                         |  | 5,810  |              |  |  |       |  |  |          |        |  |              |  | 3,959  |       |  |  |          |  |  |              |        |  |       |  | 3,923  |          |  |  |              |  |  |  |        |  |  |  | 4,428  |   |  |  |       | 
|Common Shares             |  |                                          |        |  |                                         |  | 25,956 |              |  |  |       |  |  |          |        |  |              |  | 25,459 |       |  |  |          |  |  |              |        |  |       |  | 25,875 |          |  |  |              |  |  |  |        |  |  |  | 25,459 |   |  |  |       | 
|                          |  |                                          |        |  |                                         |  |        |              |  |  |       |  |  |          |        |  |              |  |        |       |  |  |          |  |  |              |        |  |       |  |        |          |  |  |              |  |  |  |        |  |  |  |        |   |  |  |       | 
|Total Shares and CSEs     |  |                                          |        |  |                                         |  | 31,766 |              |  |  |       |  |  |          |        |  |              |  | 29,418 |       |  |  |          |  |  |              |        |  |       |  | 29,798 |          |  |  |              |  |  |  |        |  |  |  | 29,887 |   |  |  |       | 
|                          |  |                                          |        |  |                                         |  |        |              |  |  |       |  |  |          |        |  |              |  |        |       |  |  |          |  |  |              |        |  |       |  |        |          |  |  |              |  |  |  |        |  |  |  |        |   |  |  |       | 

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.



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The following schedule
is intended to reflect the total fair market values of options issued to both employees and non-employees during the three- and nine-month periods ended September 30, 2010 and 2009, respectively, as well as the net amortization expense
recognized by the Company during those periods related to the issuance of options in the current and prior period:



|                                                           |  |                                         |        |  |                                       |   |        |      |  |   |         |  |  |   |         | 
|---------------------------------------------------------- |  | --------------------------------------- | ------ |  | ------------------------------------- | - | ------ | ---- |  | - | ------- |  |  | - | ------- | 
|                                                           |  | For The Three MonthsEnded September 30, |        |  | For The Nine MonthsEnded September 30 |  
|                                                           |  | 2010                                    |        |  | 2009                                  |   |        | 2010 |  |   | 2009    | 
|Fair market value of options issued - employees, net       |  | $                                       | -0-    |  |                                       | $ | 500    |      |  | $ | 334,000 |  |  | $ | 73,000  | 
|Fair market value of options issued - non-employees, net   |  | $                                       | 3,000  |  |                                       | $ | -0-    |      |  | $ | 54,000  |  |  | $ | 8,000   | 
|Fair market value of deferred stock issued, net            |  | $                                       | -0-    |  |                                       | $ | -0-    |      |  | $ | 549,000 |  |  | $ | -0-     | 
|Net amortization expense - options issued to employees     |  | $                                       | 86,000 |  |                                       | $ | 63,000 |      |  | $ | 599,000 |  |  | $ | 259,000 | 
|Net amortization expense - options issued to non-employees |  | $                                       | 42,000 |  |                                       | $ | 35,000 |      |  | $ | 115,000 |  |  | $ | 92,000  | 

In January 2010,
options entitling the Chairman, CEO and President of the 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- and nine-month periods ended September 30, 2010, the Companys provision for income taxes reflects an estimated
income tax accrual of approximately $203,000 and $538,000, respectively, based on the Companys estimated effective tax rate for the year ending December 31, 2010. For the three- and nine-month periods ended September 30, 2009, the
Companys provision for income taxes reflects an estimated income tax accrual of approximately $222,000 based on the Companys estimated effective tax rate for the year ending December 31, 2009. 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 allowance
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 September 30, 2010, Summit Brokerage had net capital of
approximately $3.6 million, which was approximately $3.2 million in excess of its SEC-required minimum net capital of approximately $0.4 million. Under SEC Rule 15c3-1, Summit Brokerages aggregate indebtedness to net capital ratio was 1.52 to
1 at September 30, 2010.

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.



|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- and
nine-month periods ended September 30, 2010 and 2009 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.



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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 September 30, 2010, we had approximately 310
financial advisors operating from approximately 190 offices located throughout the country. 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 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 and nine-month periods ended September 30, 2010 and 2009:



|                           |  |                                         |            |  |                                        |  |     |      |  |   |            |  |  |  |     |   |  |   |            |  |  |  |     |   |  |   |            |  |  |  |     |  
|-------------------------- |  | --------------------------------------- | ---------- |  | -------------------------------------- |  | --- | ---- |  | - | ---------- |  |  |  | --- | - |  | - | ---------- |  |  |  | --- | - |  | - | ---------- |  |  |  | --- | -
|                           |  | For The Three Months
EndedSeptember 30, |            |  | For The Nine Months
EndedSeptember 30, | 
|                           |  | 2010                                    |            |  | 2009                                   |  |     | 2010 |  |   | 2009       | 
|Insurance related products |  | $                                       | 5,651,647  |  |                                        |  | 36  | %    |  | $ | 4,205,421  |  |  |  | 33  | % |  | $ | 15,885,766 |  |  |  | 34  | % |  | $ | 10,016,310 |  |  |  | 32  | %
|Equities                   |  |                                         | 2,960,047  |  |                                        |  | 19  |      |  |   | 3,375,359  |  |  |  | 27  |   |  |   | 9,132,914  |  |  |  | 20  |   |  |   | 7,985,350  |  |  |  | 26  |  
|Mutual funds               |  |                                         | 2,142,954  |  |                                        |  | 13  |      |  |   | 1,601,010  |  |  |  | 12  |   |  |   | 6,371,707  |  |  |  | 14  |   |  |   | 3,632,495  |  |  |  | 12  |  
|Investment advisory fees   |  |                                         | 2,647,855  |  |                                        |  | 17  |      |  |   | 1,626,295  |  |  |  | 13  |   |  |   | 8,022,569  |  |  |  | 17  |   |  |   | 4,098,844  |  |  |  | 13  |  
|Other commission income    |  |                                         | 1,826,882  |  |                                        |  | 11  |      |  |   | 1,348,567  |  |  |  | 11  |   |  |   | 4,967,970  |  |  |  | 11  |   |  |   | 3,838,112  |  |  |  | 12  |  
|Miscellaneous              |  |                                         | 694,963    |  |                                        |  | 4   |      |  |   | 506,880    |  |  |  | 4   |   |  |   | 1,823,781  |  |  |  | 4   |   |  |   | 1,370,676  |  |  |  | 5   |  
|                           |  |                                         |            |  |                                        |  |     |      |  |   |            |  |  |  |     |   |  |   |            |  |  |  |     |   |  |   |            |  |  |  |     |  
|                           |  |                                         |            |  |                                        |  |     |     
|Total                      |  | $                                       | 15,924,348 |  |                                        |  | 100 | %    |  | $ | 12,663,532 |  |  |  | 100 | % |  | $ | 46,204,707 |  |  |  | 100 | % |  | $ | 30,941,787 |  |  |  | 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 September 30, 2010, our revenues were positively impacted (when compared with the same period of the prior year) by a significant net addition of new financial
advisors in the months prior to the quarter, as well as an improvement in investor confidence.



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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 allowed Summit Brokerage to significantly increase the number
of affiliated financial advisors. Because of a decline in such movement during 2010, the Companys recruiting efforts have been negatively impacted. 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 then 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.

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 September 30, 2010 (the 2010 Quarter) and the comparable period in the prior year (the 2009 Quarter), as well as the results of operations for the nine months ended
September 30, 2010 (the 2010 Period) and the comparable period in the prior year (the 2009 Period).

Comparison of Three Months Ended September 30, 2010 and September 30, 2009

Revenue:

Commission
revenue of approximately $15.2 million for 2010 Quarter represents an increase of approximately $3.1 million, or 25.3%, over the approximately $12.2 million of commission revenue reported for the 2009 Quarter. For the 2010 Quarter, our revenues were
positively impacted by an increase in the number of financial advisors affiliated with the Company during the 2010 Quarter compared with the 2009 Quarter. Commission revenue also benefited from an improvement in investor confidence. For the 2009
Quarter, our revenues were negatively impacted by the turmoil experienced by the financial markets, and the related loss of investor confidence, which resulted in a decline in the average production per financial advisor.

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.).



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Interest and dividends
increased by approximately $22,000, or 6.1% from approximately $358,000 in the 2009 Quarter to approximately $380,000 in the 2010 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 decline further from current levels, we would expect the amounts received by Summit Brokerage to decline over amounts
received in prior periods. In addition, in November 2010, the Company was notified by one of its Clearing Brokers that the applicable percentage used to determine interest income paid to Summit Brokerage related to client balances will be
significantly reduced. 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 $166,000, or 111.9%, from approximately $149,000 in the 2009
Quarter to approximately $315,000 in the 2010 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 $13.1 million in the 2010 Quarter, which represents an increase of approximately $2.8 million, or 27.2%, from the approximately $10.3 million reported for the 2009 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, increased in the 2010
Quarter to 85.8% from 84.5% in the 2009 Quarter. Commissions and clearing costs as a percentage of commission revenues can also be impacted by several other factors. For example, commissions and clearing costs as a percentage of commission revenue
increased as a result of certain newly recruited advisors electing to take a greater payout for a limited period of time in lieu of upfront, forgivable loans. The Company also includes within commissions and clearing costs the amortization related
to the issuance of forgivable advisor notes, which amounts approximated $94,000 and $80,000 in the 2010 Quarter and 2009 Quarter, respectively. Prospectively, we would expect this percentage to continue to increase as we recruit more independent
financial advisors. 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 $1.5 million in the 2010 Quarter, which represents an increase of approximately $0.2 million, or 16.6%, from the approximately $1.2 million
reported for the 2009 Quarter. This increase was due primarily to an increase in salaries and wages, due, in part, to an increase in the average number of employees for the 2010 Quarter when compared with the 2009 Quarter, as well as increases in
performance-based compensation and certain employee benefit 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 2010
and 2009 Quarters, a total of approximately $86,000 and $63,000, respectively, was expensed (net of recaptured amortization), all of which related to the amortization of unearned stock compensation for employees.

Occupancy and equipment costs increased by 21.2%, or $33,000, to approximately $192,000 in the 2010 Quarter from approximately $158,000
in the 2009 Quarter. This increase was due primarily to an increase in rent expense associated with the Companys relocation of its corporate headquarters and Boca Branch in the first quarter of 2010.

Communications expense decreased by approximately $57,000, or 49.4%, to approximately $58,000 in the 2010 Quarter from approximately
$115,000 in the 2009 Quarter, due primarily to a decrease in net technology-related costs.

Depreciation and amortization
expense increased by approximately $26,000, or 141.6%, to approximately $44,000 for the 2010 Quarter. This increase is due to the acquisition, and related depreciation and amortization, of approximately $478,000 of property, equipment and leasehold
improvements associated with the Companys relocation of its corporate headquarters and Boca Branch in the first quarter of 2010.

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 decreased by approximately
$106,000, or 20.2%, to approximately $423,000 during the 2010 Quarter from approximately $529,000 for the 2009 Quarter. This decrease was due primarily to decreases in legal expenses of approximately $57,000, net licensing expenses of approximately
$35,000, and net insurance expense of approximately $26,000. These decreases were partially offset by an increase of in recruiting expenses of approximately $41,000. 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 the 2010 and 2009 Quarters, a total of approximately $42,000 and $35,000, respectively, 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
tax was approximately $203,000 for the 2010 Quarter compared to approximately $222,000 for the 2009 Quarter. Our provision for income tax 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
2010 Quarter, we generated net income of approximately $490,000, or $0.02 per basic and per diluted share, as compared to net income reported for the 2009 Quarter of approximately $103,000, or $0.00 per basic and diluted share.

Comparison of Nine Months Ended September 30, 2010 and September 30, 2009

Revenue:

Commission
revenue of approximately $44.4 million for the 2010 Period represents an increase of approximately $14.8 million, or 50.1%, over the $29.6 million of commission revenue recorded for the 2009 Period. For the 2010 Period, our revenues were positively
impacted by an increase in the average number of financial advisors affiliated with Summit Brokerage during the 2010 Period compared to the 2009 Period. Commission revenue also benefited from an improvement in investor confidence. For the 2009
Period, our revenues were negatively impacted by the turmoil experienced by the financial markets, and the related loss of investor confidence, which resulted in a decline in the average production per advisor.

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 increased by approximately $93,000 from approximately $982,000 in the 2009 Period to approximately $1,075,000 in
the 2010 Period. 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
decline further from current levels, we would expect the amounts received by Summit Brokerage to decline over amounts received in prior periods. In addition, in November 2010, the Company was notified by one of its Clearing Brokers that the
applicable percentage used to determine interest income paid to Summit Brokerage related to client balances will be significantly reduced. 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.



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Other revenue
increased by approximately $360,000, or 92.7%, from approximately $388,000 in the 2009 Period to $749,000 in the 2010 Period. This increase is due primarily to an increase in gains resulting from Summit Brokerage acting as a principal in certain
types of securities transactions, as well as from rebates received by the Company.

Expenses:

Commissions and clearing costs increased to approximately $38.1 million in the 2010 Period, which represents an increase of $13.3 million,
or 54.1%, from the approximately $24.7 million reported for the 2009 Period. 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, increased in the 2010 Period to 85.8% from 83.5% in the 2009 Period. Commissions and clearing costs as a percentage of commission revenues can also be impacted by
several other factors. For example, commissions and clearing costs as a percentage of commission revenue increased as a result of certain newly recruited advisors electing to take a greater payout for a limited period of time in lieu of upfront,
forgivable loans. The Company also includes within commissions and clearing costs the amortization related to the issuance of forgivable advisor notes, which amounts approximated $314,000 and $178,000 in the 2010 Period and 2009 Period,
respectively. Prospectively, we would expect this percentage to continue to increase as we recruit more independent financial advisors. 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 $4.6 million in the 2010 Period, which represents an increase
of approximately $1.0 million, or 28.6%, from the approximately $3.6 million reported for the 2009 Period. This increase was due primarily to an increase in salaries and wages, due, in part, to an increase in the average number of employees for the
2010 Period when compared with the 2009 Period, as well as increases in performance-based compensation and certain employee benefit 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 2010 and 2009 Periods, a total of approximately $599,000 and $259,000, respectively, was expensed (net of recaptured amortization), all of which related to the amortization of
unearned stock compensation for employees.

Occupancy and equipment costs increased by approximately $134,000, or 28.6%, to
approximately $602,000 in the 2010 Period from approximately $468,000 in the 2009 Period. This increase was due primarily to an increase in rent expense associated with the Companys relocation of its corporate headquarters and Boca Branch in
the first quarter of 2010.

Communications expense decreased by approximately $98,000, or 29.9%, to approximately $230,000 in
the 2010 Period from approximately $328,000 in the 2009 Period due primarily to a decrease in net technology-related costs.

Depreciation and amortization expense increased by approximately $80,000, or 144.7%, to approximately $136,000 for the 2010 Period. This
increase is due primarily to the acquisition, and related depreciation and amortization, of approximately $478,000 of property, equipment and leasehold improvements associated with the Companys relocation of its corporate headquarters and Boca
Branch in the first quarter of 2010.

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 decreased by approximately $0.1 million, or 6.5%, to approximately $1.4 million during the 2010 Period from approximately $1.5 million for the 2009 Period. This
decrease was due primarily to decreases in net licensing expenses of approximately $62,000, legal fees of approximately $55,000, and advertising and promotion of approximately $30,000 offset by an increase in the cost of attracting and retaining
financial advisors of approximately $42,000. 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 the 2010 and 2009
Periods, a total of approximately $115,000 and $92,000, respectively, was expensed (net of recaptured amortization) for such issuances, all of which related to the amortization of unearned stock compensation.

Provision for income tax increased 142.4% to approximately $538,000 for the 2010 Period compared to approximately $222,000 for the 2009
Period. Our provision for income tax 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 2010 Period, we generated net income of approximately $649,000, or $0.02 per basic and diluted share, as compared to net income
reported for the 2009 Period of approximately $106,000 or $0.00 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 2010 Period totaled approximately $3.0 million, which was primarily due to net income of approximately $649,000 increased
by non cash adjustments of approximately $714,000 of stock based compensation, net, approximately $314,000 related to the amortization of advisor notes, and $136,000 related to depreciation and amortization. Net cash provided by operating activities
during the 2009 Period totaled approximately $774,000, which was primarily due to net income of approximately $106,000 increased by non cash adjustments of approximately $351,000 of stock based compensation, net, approximately $178,000 related to
the amortization of advisor notes, and $56,000 related to depreciation and amortization.

Net cash used in investing
activities during the 2010 Period was approximately $478,000, which represents the purchase of property and equipment primarily attributable to the Companys move to its new headquarters during the 2010 Period. Net cash used in investing
activities during the 2009 Period was approximately $22,000 representing the purchase of property and equipment. We do not project material capital expenditures over the next twelve months.

Financing activities provided cash of approximately $86,000 during the 2010 Period as a result of proceeds of approximately $98,000 from
the exercise of options and common stock purchase warrants partially offset by dividends paid on our Series A preferred stock of $11,250. For the 2009 Period, financing activities used cash of $11,250 which was entirely for dividends paid on our
Series A preferred stock.

Overall, cash and cash equivalents increased during the 2010 Period by approximately $2.6 million
to approximately $8.9 million at September 30, 2010 from approximately $6.3 million at December 31, 2009. This increase was due primarily to cash provided by operations as previously described partially offset by the purchase of property
and equipment.



|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 September 30, 2010. 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.

PART II. OTHER INFORMATION



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

In August and September 2010, the Company issued 36,021 shares of its common stock to three persons upon such persons exercise of common stock options with exercise prices of $.24 per share (31,637
shares) and $.28 per share (4,384 shares). All of the shares of common stock were issued in reliance upon the exemption from the registration requirements under the Securities Act of 1933, as amended, afforded by Section 4(2) of such Act.



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During the quarter
ended September 30, 2010, 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: November 15, 2010 |  | 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: November 15, 2010 |  | /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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