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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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

For the quarterly period ended June 30, 2006.

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: 0-29337



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SUMMIT FINANCIAL SERVICES GROUP,
INC.

(Exact name of registrant as specified in its charter)



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

980 North Federal Highway

Suite 310

Boca Raton, FL 33432

(561) 338-2800

(Address, including
zip code, and telephone number, including area code, of Registrants principal executive offices)



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

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

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 August 6, 2005
|Common Stock Par value $0.0001 per share |  | 28,210,075                      

Transitional Small Business Disclosure Format ̈Yes    x  No



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##### Table of Contents

SUMMIT FINANCIAL SERVICES GROUP, INC.

INDEX



|                               |  |                                                                                                                   |  |     
|------------------------------ |  | ----------------------------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                                                   |  | Page
|PART I -
FINANCIAL INFORMATION |  |                                                                                                                  
|                               |  |                                                                                                                  
|Item 1.                        |  | Financial Statements                                                                                              |  |     
|                               |  |                                                                                                                  
|                               |  | Condensed Consolidated Statement of Financial Condition at June 30, 2006(unaudited)                               |  | 3   
|                               |  |                                                                                                                  
|                               |  | Condensed Consolidated Statements of Income and Loss for the Three Months ended June 30, 2006 and 2005(unaudited) |  | 4   
|                               |  |                                                                                                                  
|                               |  | Condensed Consolidated Statements of Income for the Six Months ended June 30, 2006 and 2005(unaudited)            |  | 5   
|                               |  |                                                                                                                  
|                               |  | Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2006 and 2005(unaudited)        |  | 6   
|                               |  |                                                                                                                  
|                               |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                    |  | 7   
|                               |  |                                                                                                                  
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                             |  | 9   
|                               |  |                                                                                                                  
|Item 3.                        |  | Controls and Procedures                                                                                           |  | 13  
|                               | 
|PART II
OTHER INFORMATION     |  |                                                                                                                  
|                               |  |                                                                                                                  
|Item 6.                        |  | Exhibits                                                                                                          |  | 14  
|                               | 
|SIGNATURES                     |  | 16                                                                                                               

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; 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-KSB for the
fiscal year ended December 31, 2005 (file no. 0-29337).



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of
Financial Condition

June 30, 2006 (Unaudited)



|                                                                                                                                                                                   |  |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------- | -
|ASSETS                                                                                                                                                                             |  |   |            |  
|Cash and cash equivalents                                                                                                                                                          |  | $ | 2,922,369  |  
|Deposit held at clearing broker                                                                                                                                                    |  |   | 26,343     |  
|Securities owned, at fair value                                                                                                                                                    |  |   | 8,970      |  
|Commissions receivable                                                                                                                                                             |  |   | 1,075,060  |  
|Prepaid expenses                                                                                                                                                                   |  |   | 197,343    |  
|Other receivables, net                                                                                                                                                             |  |   | 399,537    |  
|Goodwill & customer list, net                                                                                                                                                      |  |   | 950,483    |  
|Property and equipment at cost, less accumulated depreciation of $59,655                                                                                                           |  |   | 98,533     |  
|                                                                                                                                                                                   |  |   |            |  
|TOTAL ASSETS                                                                                                                                                                       |  | $ | 5,678,638  |  
|                                                                                                                                                                                   |  |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                               |  |   |            |  
|LIABILITIES                                                                                                                                                                        |  |   |            |  
|Accounts payable and accrued expenses                                                                                                                                              |  | $ | 818,634    |  
|Accrued commission expense                                                                                                                                                         |  |   | 1,481,086  |  
|Note payable, net                                                                                                                                                                  |  |   | 282,094    |  
|                                                                                                                                                                                   |  |   |            |  
|TOTAL LIABILITIES                                                                                                                                                                  |  |   | 2,581,814  |  
|                                                                                                                                                                                   | 
|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         |  
|Common stock, par value $0.0001 per share; authorized 60,000,000 shares; 28,224,987 issued and 28,210,075 outstanding                                                              |  |   | 2,821      |  
|Additional paid-in capital                                                                                                                                                         |  |   | 9,000,041  |  
|Unearned stock compensation                                                                                                                                                        |  |   | (278,078   | )
|Treasury stock (14,912 shares, at cost)                                                                                                                                            |  |   | (10,884    | )
|Accumulated deficit                                                                                                                                                                |  |   | (5,617,089 | )
|                                                                                                                                                                                   |  |   |            |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                                         |  |   | 3,096,824  |  
|                                                                                                                                                                                   |  |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                         |  | $ | 5,678,638  |  
|                                                                                                                                                                                   |  |   |            |  

See accompanying notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of
Income and Loss



|                                       |  |                                    |            |             |   |            |  
|-------------------------------------- |  | ---------------------------------- | ---------- | ----------- | - | ---------- | -
|                                       |  | For The Three Months EndedJune 30, |           
|                                       |  | 2006                               |            | 2005        |  
|                                       |  | (Unaudited)                        |            | (Unaudited) |  
|REVENUES                               |  |                                    |            |             |   |            |  
|Commissions                            |  | $                                  | 6,769,985  |             | $ | 5,143,052  |  
|Interest and dividends                 |  |                                    | 236,624    |             |   | 187,300    |  
|Other                                  |  |                                    | 112,902    |             |   | 51,355     |  
|                                       |  |                                    |            |             |   |            |  
|                                       |  |                                    | 7,119,511  |             |   | 5,381,707  |  
|                                       |  |                                    |            |             |   |            |  
|EXPENSES                               |  |                                    |            |             |   |            |  
|Commissions and clearing costs         |  |                                    | 5,574,628  |             |   | 4,140,519  |  
|Employee compensation and benefits     |  |                                    | 759,753    |             |   | 736,726    |  
|Occupancy and equipment                |  |                                    | 110,208    |             |   | 114,136    |  
|Communications                         |  |                                    | 94,049     |             |   | 81,431     |  
|Legal, accounting and litigation costs |  |                                    | 183,004    |             |   | 30,988     |  
|Depreciation and amortization          |  |                                    | 53,875     |             |   | 49,373     |  
|Other operating expenses               |  |                                    | 306,092    |             |   | 246,855    |  
|                                       |  |                                    |            |             |   |            |  
|                                       |  |                                    | 7,081,609  |             |   | 5,400,028  |  
|                                       |  |                                    |            |             |   |            |  
|NET INCOME (LOSS) BEFORE INCOME TAXES  |  |                                    | 37,902     |             |   | (18,321    | )
|PROVISION FOR INCOME TAXES             |  |                                    |           |             |   |           |  
|                                       |  |                                    |            |             |   |            |  
|NET INCOME (LOSS)                      |  | $                                  | 37,902     |             | $ | (18,321    | )
|                                       |  |                                    |            |             |   |            |  
|BASIC EARNINGS (LOSS) PER SHARE        |  | $                                  | 0.00       |             | $ | (0.00      | )
|                                       |  |                                    |            |             |   |            |  
|DILUTED EARNINGS (LOSS) PER SHARE      |  | $                                  | 0.00       |             | $ | (0.00      | )
|                                       |  |                                    |            |             |   |            |  
|WEIGHTED AVERAGE SHARES OUTSTANDING    |  |                                    |            |             |   |            |  
|BASIC                                  |  |                                    | 28,210,075 |             |   | 28,198,540 |  
|                                       |  |                                    |            |             |   |            |  
|DILUTED                                |  |                                    | 29,565,864 |             |   | 28,198,540 |  
|                                       |  |                                    |            |             |   |            |  

See accompanying notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of
Income



|                                       |  |                                  |            |             |   |           
|-------------------------------------- |  | -------------------------------- | ---------- | ----------- | - | ----------
|                                       |  | For The Six Months EndedJune 30,
|                                       |  | 2006                             |            | 2005       
|                                       |  | (Unaudited)                      |            | (Unaudited)
|REVENUES                               |  |                                  |            |             |   |           
|Commissions                            |  | $                                | 13,059,871 |             | $ | 9,575,594 
|Interest and dividends                 |  |                                  | 474,446    |             |   | 352,987   
|Other                                  |  |                                  | 203,574    |             |   | 129,752   
|                                       |  |                                  |            |             |   |           
|                                       |  |                                  | 13,737,891 |             |   | 10,058,333
|                                       |  |                                  |            |             |   |           
|EXPENSES                               |  |                                  |            |             |   |           
|Commissions and clearing costs         |  |                                  | 10,682,742 |             |   | 7,602,457 
|Employee compensation and benefits     |  |                                  | 1,554,859  |             |   | 1,392,731 
|Occupancy and equipment                |  |                                  | 227,133    |             |   | 228,724   
|Communications                         |  |                                  | 190,675    |             |   | 166,378   
|Legal, accounting and litigation costs |  |                                  | 253,001    |             |   | 58,808    
|Depreciation and amortization          |  |                                  | 105,591    |             |   | 98,595    
|Other operating expenses               |  |                                  | 625,021    |             |   | 437,100   
|                                       |  |                                  |            |             |   |           
|                                       |  |                                  | 13,639,022 |             |   | 9,984,793 
|                                       |  |                                  |            |             |   |           
|NET INCOME BEFORE INCOME TAXES         |  |                                  | 98,869     |             |   | 73,540    
|PROVISION FOR INCOME TAXES             |  |                                  |           |             |   |          
|                                       |  |                                  |            |             |   |           
|NET INCOME                             |  | $                                | 98,869     |             | $ | 73,540    
|                                       |  |                                  |            |             |   |           
|BASIC EARNINGS PER SHARE               |  | $                                | 0.00       |             | $ | 0.00      
|                                       |  |                                  |            |             |   |           
|DILUTED EARNINGS PER SHARE             |  | $                                | 0.00       |             | $ | 0.00      
|                                       |  |                                  |            |             |   |           
|WEIGHTED AVERAGE SHARES OUTSTANDING    |  |                                  |            |             |   |           
|BASIC                                  |  |                                  | 28,210,075 |             |   | 28,196,820
|                                       |  |                                  |            |             |   |           
|DILUTED                                |  |                                  | 29,314,940 |             |   | 30,002,949
|                                       |  |                                  |            |             |   |           

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 Six Months EndedJune 30, |          
|                                                                                |  | 2006                             |           |   | 2005        |  
|                                                                                |  | (Unaudited)                      |           |   | (Unaudited) |  
|Cash flows from operating activities                                            |  |                                  |           |   |             |   |           |  
|Net income                                                                      |  | $                                | 98,869    |   |             | $ | 73,540    |  
|Adjustments to reconcile net income to net cash used by operating activities    |  |                                  |           |   |             |   |           |  
|Depreciation                                                                    |  |                                  | 15,385    |   |             |   | 8,643     |  
|Stock based compensation / consultant expenses, net                             |  |                                  | 38,753    |   |             |   | 63,453    |  
|Amortization of customer list, imputed interest and forgivable notes receivable |  |                                  | 107,330   |   |             |   | 110,189   |  
|Changes in:                                                                     |  |                                  |           |   |             |   |           |  
|Deposit held at clearing broker                                                 |  |                                  | (494      | ) |             |   | 50,667    |  
|Commissions receivable                                                          |  |                                  | (456,102  | ) |             |   | (243,959  | )
|Other receivables                                                               |  |                                  | (148,770  | ) |             |   | (207,778  | )
|Prepaid expenses and other                                                      |  |                                  | 93,189    |   |             |   | 92,731    |  
|Securities owned                                                                |  |                                  | 1,584     |   |             |   | (2,598    | )
|Accounts payable and accrued expenses                                           |  |                                  | (407,784  | ) |             |   | (228,843  | )
|Accrued commission expense                                                      |  |                                  | 534,656   |   |             |   | 147,715   |  
|                                                                                |  |                                  |           |   |             |   |           |  
|Net cash used by operating activities                                           |  |                                  | (123,384  | ) |             |   | (136,240  | )
|                                                                                |  |                                  |           |   |             |   |           |  
|Cash flows from investing activities                                            |  |                                  |           |   |             |   |           |  
|Purchase of property and equipment                                              |  |                                  | (48,101   | ) |             |   | (6,808    | )
|                                                                                |  |                                  |           |   |             |   |           |  
|Net cash used by investing activities                                           |  |                                  | (48,101   | ) |             |   | (6,808    | )
|                                                                                |  |                                  |           |   |             |   |           |  
|Cash flows from financing activities                                            |  |                                  |           |   |             |   |           |  
|Payment of preferred stock dividend                                             |  |                                  | (15,877   | ) |             |   | (9,000    | )
|Payments on debt obligations                                                    |  |                                  | (338,516  | ) |             |   | (169,257  | )
|                                                                                |  |                                  |           |   |             |   |           |  
|Net cash used by financing activities                                           |  |                                  | (354,393  | ) |             |   | (178,257  | )
|                                                                                |  |                                  |           |   |             |   |           |  
|Net decrease in cash and cash equivalents                                       |  |                                  | (525,878  | ) |             |   | (321,305  | )
|Cash and cash equivalents at beginning of period                                |  |                                  | 3,448,247 |   |             |   | 3,492,359 |  
|                                                                                |  |                                  |           |   |             |   |           |  
|Cash and cash equivalents at end of period                                      |  | $                                | 2,922,369 |   |             | $ | 3,171,054 |  
|                                                                                |  |                                  |           |   |             |   |           |  

See accompanying notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

June 30, 2006

NOTE 1 GENERAL

The condensed consolidated financial statements for the three-month and six-month periods ended June 30, 2006 and June 30, 2005 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 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-KSB for the fiscal year ended December 31, 2005 for Summit Financial Services
Group, Inc. (the Company). The results of operations for the three- and six-month periods ended June 30, 2006 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2006.

In the event the Companys operations are negatively impacted by downturns in the economy, in general, or the financial markets, in particular, the Company may need
to raise or borrow additional funds to support its operating requirements. There can be no assurance that any such sources of financing would be available when needed, on commercially reasonable terms, or at all. Also, in the normal course of
business, the Company evaluates acquisitions of businesses that compliment its business. In connection with any acquisitions, the Company may issue additional securities, which could result in dilution for existing shareholders. The Company may also
issue additional securities in connection with a financing, the purpose of which would be to provide the capital necessary to accelerate the Companys growth plans, especially as such plans relate to the payment of amounts to financial advisors
in connection with their joining the Company.

Certain amounts from the prior period have been reclassified to conform to the current-year presentation.
These reclassifications had no impact on the reported net income for the three and six month periods ended June 30, 2006.

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. The number of dilutive common stock equivalents includes the effect of stock options calculated using the treasury stock method and the number of issuable common shares upon the conversion of
preferred stock using the if converted method.

As of June 30, 2006, the Company had options and warrants outstanding entitling the
holders thereof to purchase a total of approximately 14.2 million shares of common stock. The Company also had outstanding shares of preferred stock convertible into approximately 140,000 shares of common stock. For purposes of computing
diluted earnings per share, the Company has assumed the exercise of options and warrants for approximately 6.1 million shares only, since the options and warrants for the remaining approximately 8.2 million shares are either non- or
anti-dilutive.

Preferred stock dividends in arrears as of June 30, 2006 approximated $19,000.

Stock-Based Awards

In December 2004, the Financial Accounting Standards
Board (FASB) issued SFAS No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However,
SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

In April 2005, the Securities and Exchange Commission amended the effective date of SFAS No. 123(R) to the first period of the first fiscal year beginning after
June 15, 2005. The Company was required to adopt SFAS No. 123(R) on January 1, 2006. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods: (1) a modified prospective method
in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS
No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date; or (2) a modified retrospective method which includes the requirements of the modified
prospective method described above, but also permits entities to restate all prior periods presented based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures. The Company has adopted SFAS
No. 123(R) using the modified-prospective method.

The Company accounts for stock-based compensation of non-employees using the fair market value
method under the provisions of SFAS No. 123.

Most often, options are granted for the provision of future services, such as continued employment or,
in the case of independent registered representatives, 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. In certain instances, unearned stock compensation is recorded for options issued to either employees or non-employees for services to be rendered in the future.
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. In addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in managements opinion, the existing models (including Black-Scholes) do not necessarily provide a reliable single measure of the fair value of the Companys employee stock options.

During the three-month period ended June 30, 2006, the Company issued, in the aggregate, options to non-employees with a fair market value of approximately
$35,000 and options to employees with a fair market value of $145. During the same period, the Company recognized net amortization expense of approximately $(22,000) and $23,000 of expense related to the issuance in the current and prior periods of
options to employees and non-employees, respectively. Net amortization expense in any period is equal to the amortization expense related to outstanding options, which amount is reduced by the recapture of previously amortized amounts related to
forfeited options.



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Prior to January 1, 2006, the Company accounted for stock-based employee compensation using the intrinsic value
method in accordance with APB No. 25. In accordance with the modified prospective transition method, the Company has not restated its results for the three and six-month periods ended June 30, 2005 included herein as part of the Condensed
Consolidated Statements of Income. Had compensation costs for the shared-based awards to employees been determined consistent with SFAS No. 123(R) for those periods, the Company would have recorded a net loss for the three month and six month
periods of $92,862 and $63,373 and net income per share  both basic and diluted  of $0.00 per share.



|                                                                                                                                        |  |                              |         |   |                              |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---------------------------- | - | -------- | -
|                                                                                                                                        |  | 3 Months Ended June 30, 2005 |         |   | 6 Months Ended June 30, 2005 |  
|Net income (loss) as reported:                                                                                                          |  | $                            | (18,321 | ) |                              | $ | 73,540   |  
|Deduct: Additional stock-based compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                              | (74,541 | ) |                              |   | (136,913 | )
|                                                                                                                                        |  |                              |         |   |                              |   |          |  
|Pro forma net loss                                                                                                                      |  | $                            | (92,862 | ) |                              | $ | (63,373  | )
|                                                                                                                                        |  |                              |         |   |                              |   |          |  
|Net income (loss) per share:                                                                                                            |  |                              |         |   |                              |   |          |  
|Basic and diluted  as reported                                                                                                         |  | $                            | (0.00   | ) |                              | $ | (0.00    | )
|                                                                                                                                        |  |                              |         |   |                              |   |          |  
|Basic and diluted  pro forma                                                                                                           |  | $                            | (0.00   | ) |                              | $ | (0.00    | )
|                                                                                                                                        |  |                              |         |   |                              |   |          |  

NOTE 3INCOME TAXES

The Companys provision for income taxes reflects an estimated income tax accrual for the three and six months ended June 30, 2006, which is fully offset by the use of an equal portion of the Companys
net operating loss carryforward.

NOTE 4NET CAPITAL REQUIREMENT

Summit Brokerage Services, Inc., the Companys wholly-owned broker-dealer subsidiary (Summit Brokerage), is subject to the Securities and Exchange Commission 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 June 30, 2006, Summit Brokerage had net capital of approximately
$1.2 million, which was approximately $950,000 in excess of its SEC-required minimum net capital of $250,000. Under SEC Rule 15c3-1, Summit Brokerages aggregate indebtedness to net capital ratio was 2.17 to 1 at June 30, 2006.



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NOTE 5CONTINGENCIES

The Company is 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 these matters.
Management believes that the range of potential net losses resulting from these 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 or Plan of Operation

The following discussion and
analysis of the Companys financial condition and results of its operations for the three- and six-month periods ended June 30, 2006 and 2005 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 our 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, through its SBS Insurance Agency of Florida, Inc. (SBSIA) subsidiary and related entities. Through its investment
advisor subsidiary, Summit Financial Group, Inc. (SFG), which is registered with the Securities and Exchange Commission, Summit Brokerage provides asset management services.

Summit Brokerage is a financial services firm that provides full service retail securities brokerage through its network of approximately 190 registered
representatives serving retail and, to a much lesser extent, institutional customer accounts. With the exception of a single branch, which we acquired from Wachovia Securities in January 2003, our approximately 100 other branch offices are owned and
operated by independent owners who maintain all appropriate licenses and are responsible for all office overhead and expenses. Because these independent operators, many of whom are financial planners, are required to pay their own expenses, we
generally pay them a much greater percentage of the commissions and fee income they generate, typically 80% - 90%.

Our registered
representatives 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.

Summit Brokerage is registered as a broker-dealer with the Securities and Exchange Commission, and is a member of NASD, the Securities Investor
Protection Corporation and the Municipal Securities Rulemaking Board. Summit Brokerage is licensed to conduct our brokerage activities in all 50 states, as well as the District of Columbia. Our registered investment advisor, SFG, is registered with
the Securities and Exchange Commission and licensed to conduct business in 32 states, as well as the District of Columbia.

Summit
Brokerage is a fully-disclosed broker dealer, and therefore relies on its clearing firm to provide the back office support and transaction processing services necessary to effect transactions on all principal national and international securities
exchanges. Additionally, because the clearing firm provides us with access to many other financial products and services that we would not otherwise be able to offer, we are able to provide our clients with products and services comparable to much
larger brokerage firms. In exchange for providing these services, the clearing firm typically charges us a fee every time they effect a transaction on behalf of the firm or its clients. We have a clearing arrangement with First Clearing, LLC (a
subsidiary of Wachovia Corporation).



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We believe our improved revenue performance, when compared with our results for the comparable prior
period, is due primarily to the addition of higher producing registered representatives. Our results, however, were negatively impacted by an increase in the percentage of commissions generated that we must pay to our financial advisors, as well as
the incurrence of additional expenses related to the development of our infrastructure, as well as costs to attract and retain financial advisors. In addition to the aforementioned, our financial results, in general, can be impacted by a number of
factors, including our ability to recruit and retain registered representatives as well as general market conditions and volatility, which are often expressions of investor confidence. In periods of waning investor confidence, our revenues may
suffer as our clients make fewer investments. Furthermore, our results during any particular period may be negatively impacted by the incurrence of costs necessary to support our actual and projected growth. As we continue to grow, we may continue
to have increases in expenses such as increased personnel and office costs.

Our business plan is focused primarily on increasing our
network of affiliated registered representatives, which may permit the Company to expand its base of revenue and its network for the retail distribution of securities without the capital expenditures that would be required to open company-owned
offices and the additional administrative and other costs of hiring registered representatives as in-house employees. As was the case with the Boca Branch, however, we will opportunistically evaluate acquisitions, including those that would result
in registered representatives in acquired branches becoming employees of 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 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 losses) in any particular period that may not be representative of
full-year results and may vary significantly from year to year and from quarter to quarter.

Results of Operations

The following discussion relates to the results of operations for the three months and six months ended June 30, 2006 (the 2006 Quarter
and the 2006 Period, respectively) and the comparable period in the prior year (the 2005 Quarter and the 2005 Period, respectively).

Comparison of Three Months Ended June 30, 2006 and June 30, 2005

Revenue:

Commission revenue of approximately $6.77 million for the 2006 Quarter represents an increase of approximately $1.63 million, or 31.6%,
when compared to commission revenue of approximately $5.14 million for the 2005 Quarter. This increase in revenue was due primarily to the net addition of registered representatives during 2005 and 2006.

In any quarter, 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 quarter, we may add or lose a significant number of registered representatives who focus
only on the sale of a particular type or types of investment product(s) (e.g., insurance, equities, fixed income, etc.).

Expenses:

Commission and clearing costs increased to approximately $5.57 million during the 2006 Quarter, which represents an increase of approximately $1.43
million, or 34.6%, when compared with the approximately $4.14 million reported for the 2005 Quarter. In general, commissions and clearing costs are directly related to commission revenue, and will typically increase or decrease proportionately as
commission revenues rise and fall. Commissions and clearing costs, as a percentage of commission revenues, increased in the 2006 Quarter to 82.3% from 80.5% in the 2005 Quarter, which change was primarily attributable to an increase in the
percentage of revenue derived from our independent registered representatives. Because we pay our independent registered representatives at a higher rate than we pay the employee registered representatives in the Boca Branch, fluctuations in the
relative percentage of total commissions generated by the independent network will generally result in similar fluctuations in the ratio of commission expense and clearing costs to commission revenues.



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Employee compensation and benefits increased by approximately $23,000 to approximately $760,000 during
the 2006 Quarter, or an approximate increase of 3% when compared with the approximately $736,000 reported for the 2005 Quarter. This increase was due primarily to an increase in salary and other employee compensation-related expenses, including from
the addition of new employees, as well as a decrease in net benefit costs. Additionally, we include within employee compensation and benefits those net expenses related to the issuance of common stock and common stock equivalents, such as options,
to our employees. For the 2006 Quarter, we recorded $7,000 of amortization related to options outstanding as of June 30, 2006. During the 2006 Quarter, however, we also recaptured, due the holders forfeiture of such options, $28,000 of
amortization that was previously expensed. Consequently, our net amortization expense for the 2006 Quarter was $(21,000). For the 2005 Quarter, we recorded $30,000 of amortization related to options outstanding as of June 30, 2005. During the 2005
Quarter, no options were forfeited. As a result, we did not recapture any previously amortized expense.

Occupancy and equipment costs
decreased by approximately $4,000, or 3%, to approximately $110,000 in the 2006 Quarter from approximately $114,000 in the 2005 Quarter. This decrease was due principally to a reduction in net utility costs resulting from the receipt of certain
reimbursements.

Communications costs increased by approximately $13,000, or 15%, to approximately $94,000 in the 2006 Quarter from
approximately $81,000 in the 2005 Quarter. The increase in communications costs between the 2006 Quarter and the 2005 Quarter is due primarily to an increase in usage charges, as well as an increase in communication infrastructure costs.

Legal, accounting and litigation expenses increased by approximately $152,000, or 491%, to approximately $183,000 during the 2006 Quarter from
approximately $31,000 during the 2005 Quarter. This increase in costs during the 2006 Quarter is largely attributable to settlement costs related to certain arbitrations.

Other operating expenses typically include the general and administrative costs we incurred, to the extent such costs are not included elsewhere. Other operating expense increased by approximately $59,000 to $306,000,
or 24%, from approximately $247,000 during the 2005 Quarter. The increase in costs is mainly associated with business development and financial advisor-related activities incurred during the 2006 Quarter, as well as fees paid to consultants. These
cost increases were partially offset by decreases in net registration and insurance costs. Other operating expenses for the 2006 Quarter expenses related to the issuance of options to non-employees. For the 2006 Quarter, we recorded $31,000 of
amortization related to options outstanding as of June 30, 2006. During the 2006 Quarter, however, we also recaptured, due the holders forfeiture of such options, $8,000 of amortization that was previously expensed. Consequently, our net
amortization expense for the 2006 Quarter was $23,000. For the 2005 Quarter, we recorded $26,000 of amortization related to options outstanding as of June 30, 2005. During the 2005 Quarter, however, we also recaptured, due the holders
forfeiture of such options, $25,000 of amortization that was previously expensed. Consequently, our net amortization expense for the 2005 Quarter was $1,000.

Net Income:

For the 2006 Quarter, we generated net income of approximately $38,000, or $0.00 per basic and diluted share,
as compared to a net loss reported for the 2005 Quarter of approximately $18,000, or $0.00 per basic and diluted share. This improvement in earnings was due primarily to an increase in the Companys overall gross margin, although our gross
margin, as a percentage of revenues, declined as a result of a greater percentage of our revenues being generated by independent financial advisors who receive a higher payout than the advisors operating from our captive branch. This increase in
gross margin was partially offset by an increase in expenses related to the development of our infrastructure, as well as costs to attract and retain financial advisors.

Comparison of Six Months Ended June 30, 2006 and June 30, 2005

Revenue:

Commission revenue of approximately $13.06 million for the 2006 Period represents an increase of approximately $3.48 million, or 36.4%, when compared to
commission revenue of approximately $9.58 million for the 2005 Period. This increase in revenue was due primarily to the net addition of registered representatives during 2005 and 2006.

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 registered representatives 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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Expenses:

Commissions and clearing costs increased to approximately $10.68 million during the 2006 Period, which represents an increase of approximately $3.08 million, or 41%, when compared with the approximately $7.60 million reported for the 2005
Period. In general, commissions and clearing costs are directly related to commission revenues, and will typically increase or decrease proportionately as commission revenues rise and fall. Commissions and clearing costs, as a percentage of
commission revenues, increased in the 2006 Period to 81.8% from 79.4% in the 2005 Period, which change was primarily attributable to an increase in the percentage of revenue derived from our independent registered representatives. Because we pay our
independent registered representatives at a higher rate than we pay the employee registered representatives in the Boca Branch, fluctuations in the relative percentage of total commissions generated by the independent network will generally result
in similar fluctuations in the ratio of commission expense and clearing costs to commission revenues.

Employee compensation and benefits
increased by approximately $160,000 to approximately $1.55 million during the 2006 Period, or an approximate increase of 12% when compared with the approximately $1.39 million reported for the 2005 Period. This increase was due primarily to an
increase in salary and other employee compensation-related expenses, including from the addition of new employees, as well as a decrease in net benefit costs. Additionally, we include within employee compensation and benefits those net expenses
related to the issuance of common stock and common stock equivalents, such as options, to our employees. For the 2006 Period, we recorded $14,000 of amortization related to options outstanding as of June 30, 2006. During the 2006 Period, however, we
also recaptured, due the holders forfeiture of such options, $28,000 of amortization that was previously expensed. Consequently, our net amortization expense for the Period was $(14,000). For the 2005 Period, we recorded $61,000 of
amortization related to options outstanding as of June 30, 2005. During the 2005 Period, however, we also recaptured, due the holders forfeiture of such options, $7,000 of amortization that was previously expensed. Consequently, our net
amortization expense for the 2005 Period was $54,000.

Occupancy and equipment costs decreased by approximately $2,000, or 1%, to
approximately $227,000 in the 2006 Period from approximately $229,000 in the 2005 Period. This decrease was due principally to a reduction in net utility costs resulting from the receipt of certain reimbursements.

Communications costs increased by approximately $24,000, or 15%, to approximately $191,000 in the 2006 Period from approximately $167,000 in the 2005
Period. The increase in communications costs between the 2006 Period and the 2005 Period is due primarily to an increase in usage charges, as well as an increase in communication infrastructure costs.

Legal, accounting and litigation expenses increased by approximately $194,000, or 330%, to approximately $253,000 during the 2006 Period from
approximately $59,000 during the 2005 Period. This increase in costs during the 2006 Quarter is largely attributable to settlement costs related to certain arbitrations, as well as an increase in accounting and auditing fees.

Other operating expenses typically include the general and administrative costs we incurred, to the extent such costs are not included elsewhere. Other
operating expense increased by approximately $188,000, or 43%, to approximately $625,000 during the 2006 Period versus approximately $437,000 for the 2005 Period. The increase in costs is mainly associated with business development and financial
advisor-related activities incurred during the 2006 Period, as well as fees paid to consultants. These cost increases were partially offset by decreases in net insurance costs. Other operating expenses for the 2006 Period also include expenses
related to the issuance of options to non-employees. For the 2006 Period, we recorded $61,000 of amortization related to options outstanding as of June 30, 2006. During the 2006 Period, however, we also recaptured, due the holders
forfeiture of such options, $8,000 of amortization that was previously expensed. Consequently, our net amortization expense for the 2006 Period was $53,000. For the 2005 Period, we recorded $52,000 of amortization related to options outstanding as
of June 30, 2005. During the 2005 Period, however, we also recaptured, due the holders forfeiture of such options, $43,000 of amortization that was previously expensed. Consequently, our net amortization expense for the 2005 Period was
$9,000.

Net Income:

For the 2006
Period, we generated net income of approximately $99,000, or $0.00 per basic and diluted share, as compared to net income reported for the 2005 Period of approximately $74,000, or $0.00 per basic and diluted share. This improvement in earnings was
due primarily to an increase in the Companys overall gross margin, although our gross margin, as a percentage of revenues, declined as a result of a greater percentage of our revenues being generated by independent financial advisors who
receive a higher payout than the advisors operating from our captive branch. This increase in gross margin was partially offset by an increase in expenses related to the development of our infrastructure, as well as costs to attract and retain
financial advisors.

Liquidity and Capital Resources

Net cash used by operating activities totaled approximately $123,000 during the 2006 Period, compared to net cash used of approximately $136,000 for the
2005 Period. Although the cash used by operating activities was not materially different between the 2006 Period and the 2005 Period, the change in balances comprising the cash flow calculation were different as they relate to commissions receivable
(($456,000) versus ($244,000)), accounts payable and accrued expenses (($408,000) versus ($228,000)), and accrued commission expense ($534,000 versus $147,000).



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During the 2006 Period, we purchased approximately $48,000 of property and equipment, which amount was
approximately $41,000 more than the approximately $7,000 purchased during the 2005 Period. The Company does not project material capital expenditures over the next twelve months.

Financing activities used cash of approximately $354,000 during the 2006 Period, all but $16,000 of which related to payments on the note to Wachovia
Securities.

Cash and cash equivalents decreased during the 2005 Period by approximately $525,000 to approximately $2.92 million. This
decrease was due principally to the decrease in cash resulting from operating activities (as previously described), as well as payments made on debt obligations.

Inflation. Inflation has not been a major factor in the Companys business since inception. There can be no assurances that this will continue.

Item 3. Controls and Procedures

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

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



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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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[Signature Page Follows]



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SUMMIT FINANCIAL SERVICES GROUP, INC.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                      |  |                                                                                                              
|--------------------- |  | -------------------------------------------------------------------------------------------------------------
|Date: August 14, 2006 |  | 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: August 14, 2006 |  | /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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