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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2009.

OR

For the transition period from              to             

Commission File No: 333-108818

SUMMIT FINANCIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)

980 North Federal Highway

Suite 310

Boca Raton, FL 33432

(Address of principal executive offices)

(Zip Code)

(561) 338-2800

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

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

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

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

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SUMMIT FINANCIAL SERVICES GROUP, INC.

INDEX

FORWARD LOOKING STATEMENTS

This Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project” or “intend” and similar expressions identify forward-looking statements regarding events, conditions and financial trends in connection with our future plan of operations, business strategy, operating results and financial position. Discussions containing such forward-looking statements may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Current shareholders and prospective investors are cautioned that any forward-looking statements are not guarantees of future performance. Such forward-looking statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company’s control, and actual results for future periods could differ materially from those discussed in this Report, depending on a variety of important factors, among which are the success or failure of management’s efforts to implement its business strategy; the level of acquisition opportunities available to the Company and the Company’s ability to price and negotiate such transactions on a favorable basis; the Company’s ability to properly manage growth and successfully integrate acquired companies and operations; the Company’s ability to compete with major established companies; the Company’s ability to attract and retain qualified personnel; the regulatory environment, economic and financial market conditions generally; and other risks and uncertainties which may be described from time to time in the Company’s filings with the Securities and Exchange Commission (the “SEC”), including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

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PART I. FINANCIAL INFORMATION

SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

See accompanying notes to unaudited condensed consolidated financial statements.

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SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

See accompanying notes to unaudited condensed consolidated financial statements.

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SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

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

See accompanying notes to unaudited condensed consolidated financial statements.

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SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

September 30, 2009

NOTE 1—GENERAL

The condensed consolidated financial statements for the three- and nine-month periods ended September 30, 2009 and September 30, 2008 reflect all adjustments (consisting only of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods indicated. The condensed consolidated financial statements herein should be read in conjunction with the audited consolidated financial statements and notes thereto, together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 for Summit Financial Services Group, Inc. (the “Company” or “SFSG”). The results of operations for the three- and nine-month periods ended September 30, 2009 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2009.

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.

Certain amounts from the prior year have been reclassified to conform to the current-year presentation. These reclassifications had no impact on the reported net income for the three- and nine-month periods ended September 30, 2008.

NOTE 2—STOCKHOLDERS’ EQUITY

Basic earnings per share is computed by dividing the net income available to common shareholders for the relevant period by the weighted average number of shares of common stock issued and outstanding during the period. For purposes of calculating diluted earnings per share, the denominator includes both the weighted average number of shares of common stock and the number of dilutive common stock equivalents (“CSEs”). The number of dilutive common stock equivalents includes the effect of stock options and warrants calculated using the treasury stock method and the number of issuable common shares upon the conversion of preferred stock using the “if converted” method. For purposes of computing the diluted earnings per share for the three- and nine-month periods ended September 30, 2009 and September 30, 2008, respectively, the Company has assumed the exercise of those securities as follows:

(Shares and CSEs in 000’s)

Preferred stock dividends in arrears as of September 30, 2009 approximated $23,000.

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SUMMIT FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED—(Continued)

FINANCIAL STATEMENTS

September 30, 2009

Stock-Based Awards

The Company accounts for stock-based compensation using the fair market value method under the provisions of SFAS No. 123(R). Most often, options are granted for the provision of future services, such as continued employment or, in the case of independent financial advisors, their affiliation with the Company. Consequently, the options typically provide for vesting over a period of years, with a certain percentage of the options vesting each year upon the anniversary date of the grant if the grantee is then still affiliated with the Company. Any unearned stock compensation is generally amortized over the period the underlying options are earned, which is typically the vesting period. The fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. The amortization of earned stock expense related to issuances to employees is included in the accompanying consolidated statements of income under the caption “Employee Compensation and Benefits”, while the amortization of earned stock expense related to issuances to non-employees is included under the caption “Other Operating Expenses.”

The following schedule is intended to reflect the total fair market values of options issued to both employees and non-employees during the three- and nine-month periods ended September 30, 2009 and 2008, respectively, as well as the net amortization expense recognized by the Company during those periods related to the issuance of options in the current and prior periods:

NOTE 3—INCOME TAXES

For the three- and nine-month periods ended September 30, 2009, the Company’s provision for income taxes reflects an estimated income tax accrual of approximately $222,000 based on the Company’s estimated effective tax rate for the year ending December 31, 2009. For the three- and nine-month periods ended September 30, 2008, the Company’s provision for income taxes reflects an estimated income tax accrual of approximately $101,000 and $212,000 respectively, based on the Company’s estimated effective tax rate for the year ended December 31, 2008. The Company’s income tax provision in any period will be affected by, among other things, permanent, as well as timing differences, in the deductibility of certain items, including stock-based compensation and the amortization of intangible assets. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, its current tax expense divided by its pre-tax book income) from period to period, regardless of the Company’s effective tax rate for purposes of determining its federal and state income tax liability.

NOTE 4—NET CAPITAL REQUIREMENT

Summit Brokerage Services, Inc., the Company’s wholly-owned broker-dealer subsidiary (“Summit Brokerage” or “SBS”), is subject to the SEC Uniform Net Capital Rule (SEC Rule 15c3-1), which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At September 30, 2009, Summit Brokerage had net capital of approximately $2.22 million, which was $1.92 million in excess of its SEC-required minimum net capital of $305,000. Under SEC Rule 15c3-1, Summit Brokerage’s aggregate indebtedness to net capital ratio was 2.06 to 1 at September 30, 2009.

NOTE 5—CONTINGENCIES

The Company is, or may become, a party to legal proceedings relating to various claims and lawsuits arising in the normal course of business. Management has provided an accrual for estimated probable losses which could result from asserted matters. Management believes that, to the best of its knowledge, the range of potential net losses resulting from currently asserted proceedings in excess of the accrued amount, if any, will not be material to the Company’s financial position or results of operations. Management cannot currently determine with any certainty the effect that any unasserted proceedings may have on the Company’s financial position or results of operations.

NOTE 6—SUBSEQUENT EVENTS

In May 2009, the Financial Accounting Standards Board issued new professional standards related to subsequent events (“Standards”) which establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The standards provide guidance on the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The Company adopted the Standards during the second quarter of 2009, and its adoption of the Standards had no impact on the Company’s condensed consolidated financial statements. Management evaluated subsequent events through the date the accompanying financial statements were issued, which was November 16, 2009.

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The following discussion and analysis of the Company’s financial condition and results of its operations for the three- and nine-month periods ended September 30, 2009 and 2008 should be read in conjunction with the Company’s condensed consolidated financial statements included as Item 1 herein. When used in the following discussions, the words “believes,” “anticipates,” “intends,” “expects,” and similar expressions are intended to identify forward-looking statements. As further explained in the section entitled “Forward Looking Statements” on page 2 herein, such statements are subject to certain risks and uncertainties, which could cause results to differ materially from those projected.

Overview

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

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

As of October 2009, we had approximately 300 financial advisors operating from approximately 190 offices located throughout the country. Our financial advisors service retail, and to a much lesser extent, institutional clients. The number of financial advisors in each affiliate office typically ranges from one to five, although the number of financial advisors in certain offices may exceed this amount. With the exception of our Boca Raton, Florida branch (the “Boca Branch”), all of our branch offices and satellite locations are owned and operated by independent owners, whom we refer to as affiliates, who maintain all appropriate licenses and are responsible for all of their respective office overhead and expenses. Our financial advisors offer a broad range of investment products and services. These products and services allow us to generate both commissions (from transactions in securities and other investment products) and fee income (for providing investment advisory services, namely managing a client’s account). The investment products and services offered include mutual funds, annuities, insurance, individual stocks and bonds, and managed money accounts. Historically, many of our affiliates have also provided financial planning services to their clients, wherein the financial advisor evaluates a client’s financial needs and objectives, develops a detailed plan, and then implements the plan with the client’s approval. When the implementation of such objectives involves the purchase or sale of securities (including the placement of assets within a managed account) such transactions are effected through Summit Brokerage, for which we earn either a commission or a fee. The following table reflects the various sources of revenue and the percentage of total revenues for the three-month and nine-month periods ended September 30, 2009 and 2008:

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We do not hold any funds or securities of our customers, but instead utilize, on a fully disclosed basis, the services of First Clearing, LLC (a division of Wachovia Corporation) and Pershing LLC (an affiliate of the Bank of New York Mellon) as our clearing brokers (the “Clearing Brokers”). Our clearing arrangements provide us with back office support, transaction processing services on all principal national and international securities exchanges, and access to many other financial services and products. These arrangements allows us to offer a range of products and services that are generally offered only by firms that are larger and have more capital than Summit Brokerage.

By their nature, our business activities are highly competitive and are subject to, among other things, general market conditions, including the volatility of the trading markets and the attractiveness of various forms of investment products. Consequently, our revenues and net income or loss are subject to substantial positive and negative fluctuations due to a variety of factors that cannot be predicted with great certainty and may result in revenues and net income or loss in any particular period that may not be representative of future results, and may vary significantly from period to period. Furthermore, our mix of business in any particular period will be impacted by several factors, including the attractiveness of any particular type of investment when compared with other types of investments, and the types of investments sold by newly added financial advisors to our Company, many of whom specialize in the sale of specific types of investment products.

In general, our financial results can be impacted by a number of factors, including general market conditions and volatility, as well as our ability to recruit and retain financial advisors. During the three- and nine-month periods ended September 30, 2009, our revenues were positively impacted (when compared with the same periods of the prior year) by the net addition of new financial advisors, which more than offset a decline in per advisor production resulting from a lack of investor confidence in the financial markets, as well as concern about the economy, during the first quarter of 2009. Prospectively, a lack of investor confidence, including as a result of concerns about both the national as well as global economy, will negatively impact our operating results.

Although we expect our results, in general, to be impacted by macroscopic forces such as the state of the economy, as well as overall market conditions and investor confidence, we may experience fluctuations in our revenue that do not follow such trends, or mirror trends experienced by the financial services industry as a whole. This is because, given our size, we may add, or lose, financial advisors who generate a significant amount of commissions from the sale of a particular type of investment product. As we grow larger, we anticipate that the ability of any branch office to impact the overall revenue mix will be diminished. However, due to our size, it is possible that the addition or loss of financial advisors (and their customers) who focus on certain products over other products will be a factor in causing fluctuations in our revenue and/or revenue mix from period to period which may not be representative of results in other periods or reflective of general market conditions or economic trends.

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

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

As we continue to grow, we may also incur increases in expenses related to, among other things, marketing and recruiting, personnel, office space, and the amortization of forgivable loans provided to newly recruited financial advisors. There can be no assurance that any increased revenue from growth will be sufficient to offset any increased expenses. In addition, the Company may elect to expand the types of trading activities in which it serves as a principal, which transactions are inherently more risky than transactions in which the Company serves as an agent. Furthermore, the Company has determined that its long term growth strategy

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can best be maximized through the reinvestment of its earnings into the development of its infrastructure and its recruiting and business development efforts, including through the payment of upfront amounts in the form of both forgivable and non-forgivable loans to financial advisors. As of September 30, 2009, the net carrying value of these loans was approximately $992,000, compared with approximately $512,000 as of December 31, 2008 and $439,000 as of September 30, 2008. As a result, the Company’s future earnings will be impacted by the amortization expense related to, or the possible write-off of, such notes.

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

Results of Operations

The following discussion relates to the results of operations for the three-month and nine-month periods ended September 30, 2009 (the “2009 Quarter” and the “2009 Period”, respectively) and the comparable period in the prior year (the “2008 Quarter” and the “2008 Period”, respectively).

Comparison of Three Months Ended September 30, 2009 and September 30, 2008

Revenue

Commission revenue of approximately $12.16 million for 2009 Quarter represents an increase of approximately $3.75 million, or 45%, over the $8.41 million of commission revenue reported for the 2008 Quarter. For the 2009 Quarter, our revenues were positively impacted by the net addition of new financial advisors, as well as by an increase in investor confidence as measured by increases in the major market indices.

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

Interest and dividends increased by approximately $40,000 from approximately $318,000 in the 2008 Quarter to approximately $358,000 in the 2009 Quarter. Interest and dividend income is comprised primarily of that portion of the interest income earned from, and the interest expense charged to, clients of Summit Brokerage that are received from our Clearing Brokers. Should interest rates decline in the future, the amount that Summit Brokerage earns may also decline. The loss of a significant amount of these payments could have a material adverse impact on the Company’s operating results.

Expenses:

Commissions and clearing costs increased to approximately $10.27 million in the 2009 Quarter, which represents an increase of $3.44 million, or 50%, from the approximately $6.83 million reported for the 2008 Quarter. Typically, commissions and clearing costs will increase or decrease in approximately the same proportion as commission revenue rises or falls. For the 2009 Quarter, the increase in commissions and clearing costs exceeded the increase in commission revenue primarily due to a greater percentage of our commissions being generated by our independent financial advisors who, because they are responsible for the payment of all costs associated with operating their offices, are paid a higher percentage of the commissions they generate (typically 80% to 90%). Commissions and clearing costs were also impacted as a result of a temporary increase in the percentage of the gross commissions that Summit Brokerage was paying to its newly recruited financial advisors as an incentive for joining the Firm. As a result, the percentage of commissions and clearing costs to commission revenue increased from 81.2% during the 2008 Quarter to 84.5% during the 2009 Quarter.

Employee compensation and benefits increased to approximately $1.25 million in the 2009 Quarter, which represents an increase of approximately $100,000, or 9%, from the approximately $1.15 million reported for the 2008 Quarter. This increase was due, in part, primarily to the addition of several employees. Additionally, we include within employee compensation and benefits those net

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expenses related to the issuance of common stock and common stock equivalents, such as options, to our employees. For the 2009 and 2008 Quarters, a total of approximately $63,000 and $55,000, respectively, was expensed (net of recaptured amortization), all of which related to the amortization of unearned stock compensation for employees.

Communications costs increased by approximately $11,000, or 11%, to $115,000 in the 2009 Quarter from approximately $104,000 in the 2008 Quarter. The increase was due primarily to an increase in fees paid to outside parties for the maintenance and support of our technology infrastructure.

Other operating expenses include the general and administrative costs incurred by the Company, to the extent such costs are not included elsewhere. Other operating expenses increased by approximately $280,000, or 112%, to approximately $529,000 during the 2009 Quarter from approximately $249,000 for the 2008 Quarter. This difference was due primarily to increases in litigation costs, advertising and marketing costs, and the costs of recruiting financial advisors. These increases were partially offset by a decrease in our net insurance costs. Additionally, we include within other operating expenses those net expenses related to the issuance of common stock and common stock equivalents, such as options, to non-employees. For the 2009 and 2008 Quarters, a total of approximately $35,000 and $33,000, respectively, was expensed (net of recaptured amortization) for such issuances, all of which related to the amortization of unearned stock compensation.

For the 2009 Quarter, the Company recorded a tax provision of approximately $222,000. For the 2008 Quarter, the Company recorded a tax provision of approximately $101,000. For the 2009 Quarter, the Company’s tax provision represented approximately 68% of the Company’s pre-tax income. This percentage, which is significantly greater than the Company’s estimated approximately 38% combined federal and state statutory rate, resulted from both permanent and timing differences in the deductibility of certain items, including stock-based compensation. For the 2009 Quarter, the Company’s pre-tax book earnings included a charge of approximately $98,000 for stock-based compensation, which amount is not deductible for tax purposes until such time as the underlying options are actually exercised.

Net Income:

For the 2009 Quarter, we generated net income of approximately $103,000, or $0.00 per basic and diluted share, as compared to net income reported for the 2008 Quarter of approximately $151,000, or $0.00 per basic and diluted share.

Comparison of Nine Months Ended September 30, 2009 and September 30, 2008

Revenue:

Commission revenue of $29.57 million for the 2009 Period represents an increase of $4.7 million, or 19%, when compared to commission revenue of $24.87 million for the 2008 Period. We believe the main factor contributing to this increase was the net addition of new financial advisors, as well as an increase in investor confidence as measured by increases in the major market indices.

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

Expenses:

Commissions and clearing costs increased to $24.70 million during the 2009 Period, which represents an increase of $4.56 million, or 23%, from the $20.14 million reported for the 2008 Period. In general, commissions and clearing costs are directly related to commission revenue, and will typically increase or decrease proportionately as commission revenue rises. For the 2009 Period, the increase in commissions and clearing costs exceeded the increase in commission revenue primarily due to a greater percentage of our commissions being generated by our independent financial advisors who, because they are responsible for the payment of all costs associated with operating their offices, are paid a higher percentage of the commissions they generate (typically 80% to 90%). Commissions and clearing costs were also impacted as a result of a temporary increase in the percentage of the gross commissions that Summit Brokerage was paying to its newly recruited financial advisors as an incentive for joining the Firm. Commissions and clearing costs, as a percentage of commission revenue, increased to approximately 83.5% in the 2009 Period versus approximately 81.0% in the 2008 Period.

Employee compensation and benefits, occupancy and equipment, and communications costs remained approximately the same for the 2009 and 2008 Periods.

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Other operating expenses include the general and administrative costs incurred by the Company, to the extent such costs are not included elsewhere. Other operating expenses increased by approximately $647,000, or 78%, to approximately $1,476,000 during the 2009 Period from approximately $829,000 for the 2008 Period. This difference was due primarily to increases in litigation costs, advertising and marketing costs, and the costs of recruiting financial advisors. These increases were partially offset by a decrease in our net insurance costs. Additionally, we include within other operating expenses those net expenses related to the issuance of common stock and common stock equivalents, such as options, to non-employees. For the 2009 and 2008 Periods, a total of approximately $92,000 and $99,000, respectively, was expensed (net of recaptured amortization) for such issuances, all of which related to the amortization of unearned stock compensation.

For the 2009 Period, the Company recorded a tax provision of approximately $222,000. For the 2008 Period, the Company recorded a tax provision of approximately $212,000. For the 2009 Period, the Company’s tax provision represented approximately 68% of the Company’s pre-tax income. This percentage, which is significantly greater than the Company’s estimated approximately 38% combined federal and state statutory rate, resulted from both permanent and timing differences in the deductibility of certain items, including stock-based compensation. For the 2009 Period, the Company’s pre-tax book earnings included a charge of approximately $351,000 for stock-based compensation, which amount is not deductible for tax purposes until such time as the underlying options are actually exercised.

Net Income:

For the 2009 Period, we generated net income of approximately $106,000, or $0.00 per basic and diluted share, as compared to the net income reported for the 2008 Period of approximately $353,000, or $0.01 per basic and diluted share.

Liquidity and Capital Resources

Net cash provided by operating activities totaled approximately $.77 million during the 2009 Period, compared to net cash generated by operating activities of approximately $1.73 million for the 2008 Period. Cash provided by, or used in, operating activities for any period includes net income or loss for that period adjusted for non-cash items and the effects of changes in working capital. The change between the 2009 and 2008 Periods is due primarily to larger increases during the 2009 Period in commissions and notes receivable ($2.25 million) compared to the 2008 Period ($.43 million). Furthermore, accounts payable and accrued expenses, as well as accrued commission expense, increased during the 2009 Period by approximately $2.04 million, compared with an increase of only $272,000 during the 2008 Period. Cash provided by operations for the 2008 Period was also impacted by the release from escrow of approximately $667,000 in amounts placed into deposit at December 31, 2007 in connection with the repurchase of common stock (and a stock option) held by a former officer and shareholder.

Cash and cash equivalents increased by approximately $740,000 to approximately $5,907,000 at September 30, 2009 from approximately $5,167,000 at December 31, 2008. This increase was due almost entirely to the cash generated by operations as previously described.

During the 2009 Period, we purchased approximately $22,000 of property and equipment, which amount was $64,000 less than the approximately $86,000 purchased during the 2008 Period. We do not project material capital expenditures over the next twelve months, although the Company anticipates making certain capital expenditures in connection with the anticipated relocation of its headquarters to another location in Boca Raton, Florida in the first quarter of 2010.

Financing activities used cash of approximately $11,000 during the 2009 Period, all of which related to the payment of dividends on our Series A preferred stock. For the 2008 Period, financing activities were comprised primarily of the purchase (approximately $673,000) by the Company of the common stock (and a stock option) held by a former officer and shareholder, as well as the receipt of approximately $31,000 from the exercise of common stock purchase warrants.

Inflation. Inflation has not been a major factor in our business since inception.

Not Applicable

The Company’s Chief Executive Officer and the Company’s Chief Financial Officer evaluated the Company’s disclosure controls and procedures as of September 30, 2009. Based upon this evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission.

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During the quarter ended September 30, 2009, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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SUMMIT FINANCIAL SERVICES GROUP, INC.

SIGNATURES

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

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EXHIBIT INDEX

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