##### Table of Contents

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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 March 31, 2005.



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 ofincorporation or organization) |  | (I.R.S. EmployerIdentification 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



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



|                                         |  |                              
|---------------------------------------- |  | -----------------------------
|Class                                    |  | Outstanding as of May 1, 2005
|Common Stock Par value $0.0001 per share |  | 28,195,080                   



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 March 31, 2005 (unaudited)                          |  | 3   
|                                                                                                               | 
|Condensed Consolidated Statements of Income for the Three Months ended March 31, 2005 and 2004 (unaudited)     |  | 4   
|                                                                                                               | 
|Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004 (unaudited) |  | 5   
|                                                                                                               | 
|Notes to Unaudited Condensed Consolidated Financial Statements                                                 |  | 6   
|                                                                                                               | 
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations                  |  | 9   
|                                                                                                               | 
|Item 3.
Controls and Procedures                                                                                |  | 12  
|                                                                                                               | 
|PART II -
OTHER INFORMATION                                                                                    |  |     
|                                                                                                               | 
|Item 6.
Exhibits                                                                                               |  | 13  
|                                                                                                               | 
|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; 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, 2004 (file no. 0-29337).



2



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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

March 31, 2005 (Unaudited)



|                                                                                                                                                                                                        |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------- | -
|ASSETS                                                                                                                                                                                                  |  |   |            |  
|Cash and cash equivalents                                                                                                                                                                               |  | $ | 2,821,221  |  
|Deposit held at clearing broker                                                                                                                                                                         |  |   | 76,266     |  
|Securities owned                                                                                                                                                                                        |  |   | 3,210      |  
|Commissions receivable                                                                                                                                                                                  |  |   | 1,068,848  |  
|Prepaid expenses                                                                                                                                                                                        |  |   | 150,962    |  
|Other receivables, net                                                                                                                                                                                  |  |   | 162,483    |  
|Goodwill & customer list, net                                                                                                                                                                           |  |   | 1,175,368  |  
|Property and equipment at cost, less accumulated depreciation of $28,209                                                                                                                                |  |   | 54,254     |  
|                                                                                                                                                                                                        |  |   |            |  
|TOTAL ASSETS                                                                                                                                                                                            |  | $ | 5,512,612  |  
|                                                                                                                                                                                                        |  |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                    |  |   |            |  
|                                                                                                                                                                                                        | 
|LIABILITIES                                                                                                                                                                                             |  |   |            |  
|                                                                                                                                                                                                        | 
|Accounts payable and accrued expenses                                                                                                                                                                   |  | $ | 566,923    |  
|Accrued commission expense                                                                                                                                                                              |  |   | 979,462    |  
|Note payable, net                                                                                                                                                                                       |  |   | 857,466    |  
|                                                                                                                                                                                                        |  |   |            |  
|TOTAL LIABILITIES                                                                                                                                                                                       |  |   | 2,403,851  |  
|                                                                                                                                                                                                        | 
|STOCKHOLDERS EQUITY                                                                                                                                                                                    |  |   |            |  
|Preferred stock, 150,000 authorized shares designated as Series A 12% cumulative convertible; par value $0.0001 per share; 125,000 Series A
issued and outstanding (liquidation preference of $125,000) |  |   | 13         |  
|Common stock, par value $0.0001 per share; authorized 60,000,000 shares; 28,209,992 issued and 28,195,080 outstanding                                                                                   |  |   | 2,821      |  
|Additional paid-in capital                                                                                                                                                                              |  |   | 8,875,842  |  
|Unearned stock compensation                                                                                                                                                                             |  |   | (420,099   | )
|Treasury stock (at cost)                                                                                                                                                                                |  |   | (10,884    | )
|Accumulated deficit                                                                                                                                                                                     |  |   | (5,338,932 | )
|                                                                                                                                                                                                        |  |   |            |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                                                              |  |   | 3,108,761  |  
|                                                                                                                                                                                                        |  |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                              |  | $ | 5,512,612  |  
|                                                                                                                                                                                                        |  |   |            |  



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 Three Months Ended March 31,
|                                    |  | 2005                                 |            | 2004       
|                                    |  | (Unaudited)                          |            | (Unaudited)
|REVENUES                            |  |                                      |            |             |   |           
|Commissions                         |  | $                                    | 4,415,726  |             | $ | 4,789,757 
|Interest and dividends              |  |                                      | 165,687    |             |   | 132,919   
|Other                               |  |                                      | 82,339     |             |   | 97,112    
|                                    |  |                                      |            |             |   |           
|                                    |  |                                      | 4,663,752  |             |   | 5,019,788 
|                                    |  |                                      |            |             |   |           
|EXPENSES                            |  |                                      |            |             |   |           
|Commissions and clearing costs      |  |                                      | 3,449,065  |             |   | 3,857,671 
|Employee compensation and benefits  |  |                                      | 656,005    |             |   | 604,128   
|Occupancy and equipment             |  |                                      | 114,588    |             |   | 111,489   
|Communications                      |  |                                      | 84,947     |             |   | 95,556    
|Professional expenses               |  |                                      | 121,191    |             |   | 114,393   
|Depreciation and amortization       |  |                                      | 49,222     |             |   | 52,352    
|Other operating expenses            |  |                                      | 96,873     |             |   | 118,702   
|                                    |  |                                      |            |             |   |           
|                                    |  |                                      | 4,571,891  |             |   | 4,954,291 
|                                    |  |                                      |            |             |   |           
|NET INCOME BEFORE INCOME TAXES      |  |                                      | 91,861     |             |   | 65,497    
|                                    |  |                                     
|PROVISION FOR INCOME TAXES          |  |                                      |           |             |   |          
|                                    |  |                                      |            |             |   |           
|NET INCOME                          |  | $                                    | 91,861     |             | $ | 65,497    
|                                    |  |                                      |            |             |   |           
|BASIC EARNINGS PER SHARE            |  | $                                    | 0.00       |             | $ | 0.00      
|                                    |  |                                      |            |             |   |           
|DILUTED EARNINGS PER SHARE          |  | $                                    | 0.00       |             | $ | 0.00      
|                                    |  |                                      |            |             |   |           
|WEIGHTED AVERAGE SHARES OUTSTANDING |  |                                      |            |             |   |           
|BASIC                               |  |                                      | 28,195,080 |             |   | 28,139,016
|                                    |  |                                      |            |             |   |           
|DILUTED                             |  |                                      | 29,976,958 |             |   | 30,521,067
|                                    |  |                                      |            |             |   |           



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 Cash Flows



|                                                                             |  |                                     |           |   |             |   |           |  
|---------------------------------------------------------------------------- |  | ----------------------------------- | --------- | - | ----------- | - | --------- | -
|                                                                             |  | For The Three MonthsEnded March 31, |          
|                                                                             |  | 2005                                |           |   | 2004        |  
|                                                                             |  | (Unaudited)                         |           |   | (Unaudited) |  
|Cash flows from operating activities                                         |  |                                     |           |   |             |   |           |  
|Net income                                                                   |  | $                                   | 91,861    |   |             | $ | 65,497    |  
|Adjustments to reconcile net income to net cash used by operating activities |  |                                     |           |   |             |   |           |  
|Depreciation                                                                 |  |                                     | 4,246     |   |             |   | 4,771     |  
|Stock based compensation / consultant expenses, net                          |  |                                     | 32,723    |   |             |   | 30,183    |  
|Amortization of customer list and imputed interest                           |  |                                     | 55,693    |   |             |   | 61,558    |  
|Changes in:                                                                  |  |                                     |           |   |             |   |           |  
|Deposit held at clearing broker                                              |  |                                     | (106      | ) |             |   | (11       | )
|Commissions receivable                                                       |  |                                     | (789,859  | ) |             |   | (553,001  | )
|Other receivables                                                            |  |                                     | 1,165     |   |             |   | 51,989    |  
|Prepaid expenses and other                                                   |  |                                     | 119,243   |   |             |   | (11,151   | )
|Securities owned                                                             |  |                                     | (150      | ) |             |   | 255       |  
|Accounts payable and accrued expenses                                        |  |                                     | (231,618  | ) |             |   | 18,690    |  
|Accrued commission expense                                                   |  |                                     | 55,230    |   |             |   | 233,019   |  
|                                                                             |  |                                     |           |   |             |   |           |  
|Net cash used by operating activities                                        |  |                                     | (661,572  | ) |             |   | (98,201   | )
|                                                                             |  |                                     |           |   |             |   |           |  
|Cash flows from investing activities                                         |  |                                     |           |   |             |   |           |  
|Purchase of property and equipment                                           |  |                                     | (3,566    | ) |             |   | (1,513    | )
|                                                                             |  |                                     |           |   |             |   |           |  
|Net cash used by investing activities                                        |  |                                     | (3,566    | ) |             |   | (1,513    | )
|                                                                             |  |                                     |           |   |             |   |           |  
|Cash flows from financing activities                                         |  |                                     |           |   |             |   |           |  
|Payment of preferred stock dividend                                          |  |                                     | (6,000    | ) |             |   | (3,000    | )
|Payments on debt obligations                                                 |  |                                     |          |   |             |   | (114,284  | )
|                                                                             |  |                                     |           |   |             |   |           |  
|Net cash used by financing activities                                        |  |                                     | (6,000    | ) |             |   | (117,284  | )
|                                                                             |  |                                     |           |   |             |   |           |  
|Net decrease in cash and cash equivalents                                    |  |                                     | (671,138  | ) |             |   | (216,998  | )
|                                                                             |  |                                    
|Cash and cash equivalents at beginning of period                             |  |                                     | 3,492,359 |   |             |   | 3,111,117 |  
|                                                                             |  |                                     |           |   |             |   |           |  
|Cash and cash equivalents at end of period                                   |  | $                                   | 2,821,221 |   |             | $ | 2,894,119 |  
|                                                                             |  |                                     |           |   |             |   |           |  



See accompanying notes
to unaudited condensed consolidated financial statements.



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SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS



March 31, 2005



NOTE 1 - GENERAL



The condensed consolidated financial statements for the three-month periods ended March 31, 2005 and March 31, 2004 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, 2004 for Summit Financial Services Group, Inc. (the Company). The results of operations for the three-month period ended March 31, 2005 are not necessarily indicative of the
results for the entire fiscal year ending December 31, 2005.



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.



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 shares upon the conversion of preferred stock.



As of March 31, 2005, the Company had options and warrants outstanding
entitling the holders thereof to purchase a total of approximately 13.5 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 7.6 million shares only, since the options and warrants for the remaining approximately 6.0 million shares are either non- or
anti-dilutive, as are the shares issuable upon conversion of the preferred stock.



Preferred stock dividends in arrears as of March 31, 2005 approximated $15,000.



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Stock-Based Awards



In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure (SFAS No. 148). SFAS No. 148 provides companies alternative methods of transitioning to the fair value method of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) to account for stock-based employee compensation. SFAS No. 148 also requires certain disclosures in both annual and quarterly
financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 does not mandate fair value accounting for stock-based employee compensation, but does
require all companies to meet the disclosure requirements. The Company has not adopted fair value accounting for its employee stock options. During the three-month period ended March 31, 2005, the Company issued, or committed to issue, options
entitling the holders thereof to purchase up to approximately 100,000 shares of common stock at exercise prices ranging from $0.32 to $0.70 per share.



The Company currently accounts for stock-based employee compensation using the intrinsic value method under the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). 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. SFAS No. 123 also
requires that companies electing to continue to use the intrinsic value method for options issued to employees make pro forma disclosure of net income and net income per share as if the fair value method of accounting had been applied. The Company
uses the Black-Scholes option pricing model to estimate the fair value of these options. The effects of applying SFAS No. 123 during the periods ended March 31, 2005 and 2004 are as follows:



|                                                                                                                                  |  |                                     |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                  |  | For The Three MonthsEnded March 31, |        
|                                                                                                                                  |  | 2005                                |         |   | 2004 |  
|Net income as reported:                                                                                                           |  | $                                   | 91,861  |   |      | $ | 65,497  |  
|Deduct: Additional stock-based compensation expense determined under fair value method for all awards, net of related tax
effects |  |                                     | (62,373 | ) |      |   | (72,215 | )
|                                                                                                                                  |  |                                     |         |   |      |   |         |  
|Pro forma net income (loss)                                                                                                       |  | $                                   | 29,538  |   |      | $ | (6,718  | )
|                                                                                                                                  |  |                                     |         |   |      |   |         |  
|Net earnings (loss) per share:                                                                                                    |  |                                     |         |   |      |   |         |  
|Basic and diluted  as reported                                                                                                   |  | $                                   | 0.00    |   |      | $ | 0.00    |  
|                                                                                                                                  |  |                                     |         |   |      |   |         |  
|Basic and diluted  pro forma                                                                                                     |  | $                                   | 0.00    |   |      | $ | (0.00   | )
|                                                                                                                                  |  |                                     |         |   |      |   |         |  



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.



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NOTE 3  INCOME TAXES



The Companys provision for income taxes reflects an estimated income tax accrual for the three months ended March 31,
2005 of approximately $20,000, 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 March 31, 2005,
Summit Brokerage had net capital of $542,451, which was $292,451 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 1.50 to 1 at March 31,
2005.



The Companys computation of Summit
Brokerages net capital at March 31, 2005 reflects the determination of the SEC in January 2005 that the unamortized amount of the note payable in connection with the Companys acquisition of the Boca Branch (the Boca Note)
should not be added back to the net capital of Summit Brokerage for purposes of SEC Rule 15c3-1 computations. For periods ended prior to December 31, 2004, the Companys practice had been to include the Boca Note as an addition to net capital,
based upon the Companys belief that the Boca Note is in legal substance an obligation of a subsidiary of Summit Brokerage containing no provision giving the holder of the Boca Note recourse against Summit Brokerage. The Company was not
required to restate net capital for any prior period.



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.



NOTE 6 - OTHER



The Companys Condensed Consolidated Statements of Cash Flows do not include certain non-cash reductions to the note payable incurred in connection
with its acquisition in 2003 of a branch from Wachovia Securities (the Boca Branch). Pursuant to the terms of the acquisition, the Company may, under certain circumstances, reduce the carrying value of the note should certain registered
representatives cease working for the Company. During the period ended March 31, 2005, there were no such reductions.



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



The following discussion and analysis of the Companys financial condition and results of its operations for the three-month periods ended March 31,
2005 and 2004 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
registered investment advisor subsidiary, Summit Financial Group, Inc. (SFG), Summit Brokerage provides asset management services.



Effective March 2, 2004, we reorganized into a holding company structure (the Reorganization), whereby Summit Brokerage became the
Companys wholly-owned subsidiary, and the Company became the parent of Summit Brokerage and the successor reporting company under the Exchange Act. Prior to the Reorganization, the common stock of Summit Brokerage was registered under Section
12(b) of the Exchange Act. Upon the consummation of the Reorganization, the Companys common stock was automatically deemed registered under Section 12(b) of the Exchange Act pursuant to Rule 12g-3(a) of the Exchange Act, and the Company
succeeded to Summit Brokerage as the reporting company under the Exchange Act. The Companys common stock commenced trading on the Over-the-Counter Bulletin Board under the symbol SFNS on March 2, 2004.



Summit Brokerage is a financial services firm that provides full service
retail securities brokerage through its network of approximately 170 registered representatives serving retail and, to a much lesser extent, institutional customer accounts. With the exception of our Boca Branch, which we acquired from Wachovia
Securities in January 2003, our approximately 75 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 licensed to conduct
business in 29 states.



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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##### Table of Contents

Although we reported a profit for both the three-month periods ended March 31, 2005 and 2004, as well as
for the year ended December 31, 2004, we have a history of operating losses. We believe our improved performance, when compared with our results for comparable prior periods, is due primarily to the addition of higher producing registered
representatives, as well as the reduction of certain costs. In general, our financial results can be impacted by a number of factors, including our ability to recruit and retain registered representatives as well as general market conditions and
volatility, which are often expressions of investor confidence. In periods of waning investor confidence, 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.



On August 18, 2003, we terminated for cause the employment of Richard Parker, our then Vice Chairman, President and Chief
Operating Officer. In connection with such termination, we filed an action against Mr. Parker for breach of contract, breach of fiduciary duty and injunctive relief. The litigation is continuing. We believe that Summit Brokerage will prevail on the
merits of its complaint, regardless of whether the matter is determined to be subject to arbitration, as Mr. Parker asserts, or judicial resolution, as the Company asserts. Nevertheless, the ultimate outcome cannot be predicted.



Results of Operations



The following discussion relates to the results of operations for the three
months ended March 31, 2005 (the 2005 Quarter) and the comparable period in the prior year (the 2004 Quarter).



Comparison of Three Months Ended March 31, 2005 and March 31, 2004



Revenue:



Commission revenue of approximately $4.4 million for the 2005 Quarter represents a decrease of approximately $400,000, or 8%, when compared to commission
revenue of approximately $4.8 million for the 2004 Quarter. Although we added several higher-producing registered representatives during the 2005 Quarter, the commissions generated by such new persons were not sufficient to offset the elevated level
of commissions in the 2004 Quarter resulting from better market conditions.



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.).



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Expenses:



Commission and clearing costs decreased to approximately $3.4 million during the 2005 Quarter, which represents a decline of approximately $400,000, or
11%, when compared with the approximately $3.9 million reported for the 2004 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, decreased in the 2005 Quarter to 78% from 80% in the 2004 Quarter, which change was primarily attributable to a decline in certain transaction costs.
Furthermore, 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 $52,000 to approximately $656,000 during the 2005 Quarter, or an approximate increase of 9%
when compared with the approximately $604,000 reported for the 2004 Quarter. This increase was due primarily to an increase in both salaries and benefit costs, including health insurance premiums. 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 2005 Quarter, a total of $24,000 of such expenses related to the amortization of unearned
stock compensation. For the 2004 Quarter, we expensed a total of approximately $12,000 related to the amortization of unearned stock compensation.



Occupancy and equipment cost for the 2005 Quarter and 2004 Quarter did not significantly vary.



Professional expenses increased by $7,000, or 6%, from approximately $114,000
during the 2004 Quarter to approximately $121,000 during the 2005 Quarter. During the 2005 Quarter, the Company benefited from a significant reduction in legal fees, which reduction was offset by an increase in certain contractual recruiting costs.
Professional expenses for the 2005 Quarter also include approximately $9,000 attributable to the net amortization of unearned stock compensation related to the issuance of common stock equivalents to non-employees. This compares with amortization of
unearned stock compensation of $18,000 recorded for the 2004 Quarter.



Communications costs decreased by approximately $11,000, or 11%, to approximately $85,000 in the 2005 Quarter from $96,000 in the 2004 Quarter. The reduction in communications costs between the 2005 Quarter and the 2004 Quarter is due to
the absence in the 2005 Quarter of certain costs associated with the clearing firm agreement between Summit Brokerage and RBC Dain Correspondent Services (a division of RBC Dain Rauscher Incorporated), which was terminated on November 30, 2004.



Other operating expenses decreased by approximately $22,000,
or 18%, to approximately $97,000 during the 2005 Quarter versus approximately $119,000 for the 2004 Quarter. Other operating expenses typically include the general and administrative costs incurred by the Company, to the extent such costs are not
included elsewhere. Examples of other operating expenses include insurance expense, office supplies and printing, postage and related expenses, and interest expense. For the 2005 Quarter, other operating expenses decreased from amounts reported in
the 2004 Quarter primarily as a result of, among other things, a decrease in certain costs associated with being public.



Net Income:



For the 2005 Quarter, we generated net income of approximately $92,000, or $0.00 per basic and diluted share, as compared to the net income reported for
the 2004 Quarter of approximately $65,000, or $0.00 per basic and diluted share. Although our commissions revenues declined during the 2005 Quarter when compared to the 2004 Quarter, our results benefited significantly from a reduction in certain
transaction processing costs. Our results also benefited from an increase in revenues from interest and dividends, which increase helped offset a reduction in revenues from other income.



Liquidity and Capital Resources



Net cash used by operating activities totaled approximately $662,000 during the 2005 Quarter, compared to net cash used of approximately $98,000 for the
2004 Quarter. The increase in cash used by operating activities in



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the 2005 Quarter, compared to the 2004 Quarter, was due largely to an increase of approximately $790,000 in commissions
receivable during the 2005 Quarter, versus approximately $553,000 during the 2004 Quarter. Cash flows from operating activities were also negatively impacted by a decrease in accounts payable and accrued expenses during the 2005 Quarter of
approximately $232,000, versus an increase of approximately $19,000 during the 2004 Quarter. In addition, an increase in accrued commission expense contributed only approximately $55,000 to the Companys cash flows from operating activities in
the 2005 Quarter, versus a contribution of more than $233,000 in the 2004 Quarter. These factors were only partially offset by the increase in net income during the 2005 Quarter compared to the 2004 Quarter, and by a cash contribution of more than
$119,000 due to an increase in prepaid expenses and other during the 2005 Quarter, versus a decrease in prepaid expenses and other of approximately $11,000 during the 2004 Quarter.



Cash and cash equivalents decreased during the 2005 Quarter by approximately $670,000 to approximately $2,820,000. This
decrease was due almost entirely to the increase in cash used by operations as previously described.



During the 2005 Quarter, we purchased approximately $4,000 of property and equipment, which amount was $2,000 more than the approximately $2,000 purchased
during the 2004 Quarter. The Company does not project material capital expenditures over the next twelve months.



Financing activities used cash of $6,000 during the 2005 Quarter, all of which related to the payment of dividends on our preferred stock.



Inflation. Inflation has not been a major factor in the Companys business since
inception. There can be no assurances that this will continue if and when the Company completes an acquisition or merger.



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                                                                                                                                                                        
|2.1    |  | Merger Agreement by and among the Registrant, Summit Brokerage Services, Inc. and Summit Transitory Sub, Inc. dated July 17, 2003 (1)                                       
|       | 
|3.1    |  | Amended and Restated Articles of Incorporation (2)                                                                                                                          
|       | 
|3.2    |  | Bylaws (2)                                                                                                                                                                  
|       | 
|10.1   |  | 2000 Incentive Compensation Plan, as amended (8)                                                                                                                            
|       | 
|10.2   |  | Stock Purchase Agreement by and among the Summit Brokerage Services, Inc., Richard Parker and Marshall T. Leeds, dated March 22, 2002 (3)                                   
|       | 
|10.3   |  | Stock Option Agreement between Summit Brokerage Services, Inc. and Marshall T. Leeds dated March 22, 2002 (3)                                                               
|       | 
|10.4   |  | Employment Agreement between the Registrant and Marshall T. Leeds effective July 19, 2004 (9)                                                                               
|       | 
|10.5   |  | Shareholders Voting Agreement and Irrevocable Proxy by and among Summit Brokerage Services, Inc., Marshall T. Leeds, Richard Parker and Joan Parker, dated May 22,
2002.(4)
|       | 
|10.6.1 |  | Commercial Lease between Summit Brokerage Services, Inc. and First America Living Trust, dated May 22, 2002 (4)                                                             
|       | 
|10.6.2 |  | Employment Agreement between Summit Brokerage Services, Inc. and Richard Parker, dated May 22, 2004 (4)                                                                     
|       | 
|10.6.3 |  | Stock Option Agreement between Summit Brokerage Services, Inc. and Richard Parker, dated May 22, 2004 (3)                                                                   
|       | 
|10.6.4 |  | Stock Option Agreement between Summit Brokerage Services, Inc. and Richard Parker, dated May 22, 2004 (3)                                                                   
|       | 
|10.7   |  | Form of Registration Rights Agreement between Summit Brokerage Services, Inc. and certain investors (5)                                                                     
|       | 
|10.8   |  | Form of Warrants dated effective March 19, 2003 (6)                                                                                                                         
|       | 
|10.9   |  | Warrant Agreement between Summit Brokerage Services, Inc. and Steven C. Jacobs dated effective March 19, 2003 (8)                                                           
|       | 
|10.10  |  | Warrant Agreement between Summit Brokerage Services, Inc. and Steven C. Jacobs dated effective April 11, 2003 (8)                                                           
|       | 
|10.11  |  | Stock Purchase Agreement between Summit Brokerage Services, Inc. and Antares Capital Fund III Limited Partnership, dated April 11, 2003 (7)                                 
|       | 
|10.12  |  | Supplemental Letter between Summit Brokerage Services, Inc., Antares Capital Fund III Limited Partnership, and Marshall T. Leeds, dated April 11, 2003 (7)                  
|       | 
|10.13  |  | Registration Rights Agreement between Summit Brokerage Services, Inc. and Antares Capital Fund III Limited Partnership, dated April 11, 2003 (7)                            
|       | 
|10.14  |  | Co-Sale and Voting Rights Agreement between Marshall T. Leeds and Antares Capital Fund III Limited Partnership, dated April 11, 2003 (7)                                    
|       | 
|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*                                                                         

---

|* | Filed herewith
|- | --------------

|(1) | Incorporated by reference to the Registrants Registration Statement on Form S-4, filed on September 15, 2003, File No. 333-108818
|--- | ----------------------------------------------------------------------------------------------------------------------------------



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|(2) | Incorporated by reference to the Registrants Registration Statement on Form S-4 (Amendment No. 2), filed on February 12, 2004, File No. 333-108818.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to the Form 10-QSB for the fiscal quarter ended September 30, 2002 of Summit Brokerage Services, Inc., filed May 24, 2002, file no. 0-29337.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the Form 10-QSB for the fiscal quarter ended September 30, 2002 of Summit Brokerage Services, Inc., filed August 19, 2002, file no. 0-29337.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the Form 10-KSB for the fiscal year ended December 31, 2002, of Summit Brokerage Services, Inc., filed March 31, 2003, file no. 0-29337.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to the Form 10-QSB for the fiscal quarter ended September 30, 2003, of Summit Brokerage Services, Inc., filed November 14, 2003, file no. 0-29337.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Form 8-K filed on April. 21, 2003 by Summit Brokerage Services, Inc., file no. 0-29337.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to the Registrants Form 10-KSB for the fiscal year ended December 31, 2003, filed March 30, 2004, file no. 0-29337.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------



[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: May 16, 2005 |  | Summit Financial Services Group, Inc. (Registrant)                             
|                   | 
|                   |  | /s/ Marshall T. Leeds                                                          
|                   |  | Marshall T. Leeds, Chairman of the Board, Chief Executive Officer and President
|                   |  | (Principal Executive Officer)                                                  
|                   | 
|Date: May 16, 2005 |  | /s/ Steven C. Jacobs                                                           
|                   |  | Steven C. Jacobs, Executive Vice President and Chief Financial Officer         
|                   |  | (Principal Accounting Officer)                                                 



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EXHIBIT INDEX



|              |  |                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  | 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 



16