UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

[ X ]    ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(D)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

[   ]    TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(D) OF THE  SECURITIES
         EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

                         COMMISSION FILE NUMBER 0-28008

                             SMARTSERV ONLINE, INC.
                 ----------------------------------------------
                 (Name of Small Business Issuer in its Charter)


            Delaware                                         13-3750708
-----------------------------------------          -----------------------------
(State or other jurisdiction of                          (I.R.S. employer
 incorporation or organization)                          identification no.)

One Station Place, Stamford, Connecticut                       06902
-----------------------------------------          -----------------------------
(Address of principal executive offices)                     (Zip Code)

Issuer's telephone number, including area code (203) 353-5950
                                               --------------

Securities registered pursuant to Section 12(b) of the Exchange Act:  None
                                                                      ----

Securities registered pursuant to Section 12(g) of the Exchange Act:

                               Title of each class
                          Common Stock, $0.01 Par Value
                         Common Stock Purchase Warrants

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 12 months (or for
such shorter period that the issuer was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

                Yes X      No
                   ---       ---

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure  will be contained,  to
the best of the  registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB.___

Issuer's revenues for the fiscal year ended December 31, 2001.        $3,297,806
                                                                      ----------

The aggregate market value of the voting and non-voting  common equity (based on
the  closing  price of such  stock on NASDAQ  National  Market  System)  held by
non-affiliates of the issuer as of April 5, 2002 was approximately  $27,315,000.
All  officers  and  directors  of the issuer  have been  deemed,  solely for the
purpose of the foregoing calculation, to be "affiliates" of the issuer.

There were 6,304,040 shares of Common Stock outstanding at April 5, 2002.

Transitional small business disclosure format  YES        NO X
                                                  ---       ---

                 DOCUMENTS INCORPORATED BY REFERENCE IN PART III

The Company's definitive proxy statement to be filed in connection with the 2002
Annual Meeting of Stockholders.

<PAGE>

                                TABLE OF CONTENTS

                                     PART I

Item                                                                        Page
----                                                                        ----

1.      Description of Business                                              2
2.      Description of Property                                              8
3.      Legal Proceedings                                                    8
4.      Submission of Matters to a Vote of Security Holders                  9

                                     PART II

5.      Market for Common Equity and Related Stockholder Matters            10
6.      Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                         14
7.      Financial Statements                                                22
8.      Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure                                          46

                                    PART III

9.      Directors, Executive Officers, Promoters and Control Persons:
          Compliance with Section 16(a) of the Exchange Act                 46
10.     Executive Compensation                                              46
11.     Security Ownership of Certain Beneficial Owners and Management      46
12.     Certain Relationships and Related Transactions                      46
13.     Exhibits and Reports on Form 8-K                                    47


                                      -1-
<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

THE COMPANY
-----------
SmartServ Online, Inc. (NASDAQ: SSOL) ("SmartServ" or the "Company"), a Delaware
corporation  formed  in  1993,  provides  Web  and  wireless   applications  and
infrastructure that allow financial institutions,  network service providers and
other businesses to deliver content and transaction-intensive  services to their
work forces and  customers - via virtually  any wired or  data-enabled  wireless
device.  SmartServ's products include content,  transaction processing and alert
engines,  proprietary W2W MiddlewareTM that optimizes content delivery to a full
array of present and future  devices,  and a suite of  applications  designed to
enable  businesses and their  customers to exploit the benefits of wireless data
exchange and transactional capability. Our products facilitate stock trading and
other m-commerce  transactions,  as well as the dissemination of real-time stock
quotes,  business and  financial  news,  sports  information,  national  weather
reports and other  business and  entertainment  information  in a  user-friendly
manner.

INDUSTRY OVERVIEW
-----------------
SmartServ  believes  that the wireless  data market is on the verge of explosive
growth. The changing business needs of wireless carriers, financial institutions
and other enterprises combined with advances in wireless technology have created
a strong  need for the types of data  applications  and  transaction  management
services offered by SmartServ.  Furthermore,  consumers have shown a willingness
to pay  for  well-targeted  wireless  data  applications  that  make  use of the
mobility benefits provided by existing wireless devices.

     BROAD  WIRELESS  DATA  SOLUTIONS  MARKET.  The  market  for  wireless  data
     solutions  is  projected  to grow  rapidly  over  the  next  five  years as
     enterprises and consumers take advantage of constantly  improving networks,
     devices and applications.
     o    The META  Group  estimates  the  percentage  of  corporate  users with
          wireless  access to data  should  grow from  about  10%  currently  to
          approximately 75% by 2005.
     o    Telecompetition, Inc. predicts that by 2010, there will be 1.5 billion
          mobile data subscribers worldwide, generating $318 billion in revenue.
     o    Cahners  In-Stat Group predicts that between 2001 and 2005, the number
          of US  wireless  data  subscribers  will grow from 8.4  million  to 52
          million, representing an annual growth rate of 58%.
     o    The Yankee Group estimates that revenue from wireless data services in
          Europe will reach $62 billion by 2006.
     o    International Data Corporation  predicts that the wireless application
          service  provider market will grow at an annual compound rate of 121%,
          achieving revenues of $732 million by 2004.
     o    Telecompetition,   Inc.  predicts  that  by  2006,  US  wireless  data
          subscribers  will grow from 1% of total  wireless  carrier  revenue to
          25%, representing a $27 billion market.
     o    Salomon Smith Barney  reports that global  wireless  carrier  industry
          innovators are targeting  17-25% of Average  Revenue Per User ("ARPU")
          to come from wireless data services over the next one to three years.

     WIRELESS   CARRIER   MARKET.   Wireless   carriers  around  the  world  are
     experiencing  declining  subscriber  growth rates,  high levels of customer
     churn,  declining  voice  ARPU,  and  the  need to  generate  a  return  on
     investment  for the  hundreds of billions of dollars  they are  spending on
     2.5G and 3G network  upgrades and spectrum  licenses.  These  carriers have
     identified  wireless  data  applications  as a way to  improve  both  their
     top-line revenue and profitability. Wireless data applications will improve
     ARPU,  increase  customer  loyalty through the use of branded data services
     and financially  justify the large investments in data-friendly 2.5G and 3G
     networks.


                                      -2-
<PAGE>

     SMS (SHORT MESSAGE SERVICE) ADOPTION.  Wireless carriers in Europe and Asia
     have already witnessed the impact of data revenues with the introduction of
     SMS.  According to the GSM  Association,  global  daily SMS volume  reached
     approximately  1  billion  messages  per day by the end of 2001.  SmartServ
     believes the  financial  impact of this SMS  explosion  will  accelerate as
     wireless  carriers  provide richer SMS data  offerings to their  customers.
     Through its SmartServQTM  application  SmartServ provides  alert-driven and
     mobile-originated  global market stock quotes and news to carriers that are
     looking to increase SMS revenues through value-added services.

     ROLLOUT OF NEXT-GENERATION  NETWORKS.  SmartServ believes that the increase
     in  SMS  traffic  represents  a  behavioral  shift  by  subscribers.   This
     behavioral  shift  indicates a growing  acceptance of the value of wireless
     data  applications  and will  provide a critical  bridge to the adoption of
     richer  third-generation  wireless  data  products.  SmartServ is poised to
     deliver its applications via next generation  wireless networks,  including
     General  Packet Radio Service  (GPRS),  1XRTT (CDMA 2000) and Wideband CDMA
     (WCDMA).   SmartServ   believes  the  faster   throughput  and  always-on,
     always-connected  characteristics  of the next generation  networks are key
     technology  enablers that will provide the foundation for broader  customer
     acceptance of mobile data services.

FINANCIAL  SERVICES MARKET.  The financial  services  industry has traditionally
been at the leading edge of technology adoption.  This trend has proven true for
wireless  technology as banks,  brokerage  firms and mutual fund  companies have
been among the earliest  organizations  to deploy  employee and customer  facing
wireless  applications.  Within this market,  SmartServ  targets top-tier global
brokerage firms and banks that wish to improve employee  productivity and extend
their  brand by  offering  their  financial  services,  proprietary  content and
transaction capabilities via mobile devices.

o    According to  TowerGroup,  $1.8 billion will be spent  globally on wireless
     financial services in 2005, up from $200 million in 2000.
o    The Yankee Group and  TowerGroup  predict  that between 2001 and 2005,  the
     number of people in the US that will regularly access financial information
     and  services  over their  wireless  devices  will grow from  500,000 to 27
     million.
o    Celent  Communications  projects that by 2005, 85% of the top 100 financial
     institutions will offer financial products over wireless-enabled devices.
o    Jupiter Media Metrix  predicts that wireless  brokerage  transactions  will
     create $1 billion in commission revenues in 2006.

Delays in the  build-out of carrier  data  networks  and the  unavailability  of
data-enabled  wireless  devices have caused the market for SmartServ's  data and
transaction  services to be virtually  non-existent  until now. Such delays have
resulted in the  Company's  inability to implement its business plan and related
marketing  strategies.  Additionally,  no assurance can be given that the market
for wireless data and  transaction  services will evolve as described  above, or
that the Company will generate future revenues or cash flow from operations,  or
that its products and services will be accepted in the marketplace.

STRATEGY
--------
SmartServ  is taking  the  following  steps to drive the  business  and meet its
growth objectives:

     SALES  STRATEGY.  SmartServ will continue to focus its direct sales efforts
     on leading  companies in key vertical  markets  that are  demanding  robust
     mobile  applications.  SmartServ has targeted  both the financial  services
     industry  and  wireless  carriers  because  they have been  among the early
     adopters  of  wireless  technology.  The focus on these two  verticals  has
     resulted in the Company's  development of key expertise and  relationships,
     both of which serve as important competitive differentiators.

     LEVERAGE  CHANNEL  PARTNERS.  SmartServ will continue to leverage the reach
     and revenue  needs of carriers and  technology  partners to  penetrate  the
     broader enterprise and consumer wireless data markets.


                                      -3-
<PAGE>

     SmartServ co-markets its applications with wireless market leaders Qualcomm
     and  Hewlett-Packard,  and seeks to tap the resources of additional channel
     partners.  SmartServ views carriers not only as customers, but as potential
     channel partners that can resell SmartServ  applications to enterprises the
     Company could not reach independently.

     SEIZE  OPPORTUNITIES IN SPECIFIC GLOBAL MARKETS.  SmartServ  recognizes the
     varying appetites for wireless applications  worldwide and will continue to
     take  advantage of growth  opportunities  unique to each market.  SmartServ
     expects to generate a significant  portion of its revenues  internationally
     through  the  sales  and  marketing  efforts  of its  London  and Hong Kong
     offices.

     CONTINUE TO DEVELOP NEW STATE-OF-THE-ART WIRELESS APPLICATIONS. SmartServ's
     team of engineers will continue to develop new, state-of-the-art,  wireless
     applications to meet the demands of its target markets.

THE SMARTSERV SOLUTION
----------------------

SmartServ has developed  applications  that  integrate and deliver  Internet and
intranet-based  information,  as well as effectuate m-commerce  transactions via
wired and  wireless  data  networks  and  devices.  SmartServ's  products  allow
businesses and consumers to exploit the merits of wireless data exchange.  These
applications are powered by SmartServ's proprietary W2W MiddlewareTM, a scalable
platform  that  optimizes  content and  applications  for virtually any wired or
data-enabled wireless device. This platform also contains transaction-processing
engines  capable of  executing  alerts  and  routing  transactions.  SmartServ's
applications  may be hosted in  SmartServ's  data centers  (Application  Service
Provider model) or partially  installed at the customer site (middleware  server
installed  behind customer  firewall) while SmartServ  maintains and manages the
back end data feeds, software and application platform.

SmartServ  offers   development,   integration,   implementation,   hosting  and
customization  services to customers.  By developing fully integrated solutions,
the  Company  provides  traditional  and  new-economy  companies  the ability to
leverage both the Internet and their own content for deployment via wireline and
wireless  networks.  SmartServ's  development  efforts  allow its  customers  to
rapidly  deliver   solutions  to  their  customers  with   significantly   lower
development  and  maintenance  costs  than if they  were  developed  internally.
SmartServ  maintains the systems while making sure the technology made available
to its customers remains state-of-the-art.

SmartServ believes its Web and wireless  applications and infrastructure will be
attractive  in the  marketplace.  Product  development  efforts  are  focused on
providing new solutions for user-level personalization and profiling, integrated
payment capabilities and other enhancements to the Company's current information
and  transaction  services.  Additionally,  SmartServ is  developing  new format
modifications  for  emerging  devices,  content  and feature  improvements,  and
customizations based on market requirements.  The Company intends to continue to
invest  in  this  area  and  believes  its  transaction-processing  engine,  W2W
MiddlewareTM and applications represent important competitive advantages.

The core functionality of the current SmartServ product suite includes:

     o    Stock quotes - real-time and delayed; domestic and international
     o    Stock watch lists
     o    News wire services
     o    Stock charts (daily, weekly, monthly, quarterly, historical)
     o    Alerts for quotes (periodic, price, volume, percentage) and news
     o    Equity and options trade order entry applications and routing systems


                                      -4-
<PAGE>

SmartServ's product suite consists of the following applications:

     MOBILEMARKETS(R).  MobileMarkets  provides access to the world's  financial
     markets from  virtually any wireless  device.  This  financial  application
     includes real-time quotes,  news, time and sales data, stock charts,  watch
     lists, currency conversions, market indices and trade order routing.

     SMARTSERVQ(TM).  SmartServQ  provides  access to stock  quotes  from  major
     international  exchanges and delivers  wireless  alerts and messages.  With
     SmartServQ,  parameters for customized alerts are user-set and triggered by
     any of several  specific  events:  stock price or  percentage  fluctuation,
     volume, symbol-based news, or time intervals. SmartServQ also provides snap
     quotes,  news headlines and symbol look-up retrieval via  Mobile-Originated
     Short Message Service (MOSMS) on CDMA and GSM networks.

     WIRELESS WALLSTREET(TM). Wireless WallStreet is a financial trading game in
     which  participants  compete  against each other to build the most valuable
     portfolio in a financially risk-free environment. Players can monitor their
     own progress and that of their competitors.

SALES AND MARKETING STRATEGY
----------------------------
SmartServ  has developed  its  applications  so that its customers may choose to
implement  them  in  phases,   beginning  with  core  functionality  and  adding
components as needed.

The Company concentrates its efforts in the following areas:

     TELECOMMUNICATIONS SOLUTIONS
     SmartServ provides a suite of solutions to help wireless carriers,  handset
     manufactures  and Internet service  providers  quickly deliver products and
     services to their  customers.  The Company's  applications  are designed to
     drive network  revenues by increasing  airtime usage and reducing  customer
     churn. SmartServ's  applications provide user authentication,  security and
     customer administration and management.

     FINANCIAL SERVICES SOLUTIONS
     SmartServ  continues to augment its customer base among both  institutional
     and retail  financial  services  enterprises by leveraging its  transaction
     routing engine and W2W  MiddlewareTM  platform with a suite of applications
     designed to meet the rigorous demands of the financial community. Customers
     have the ability to choose an entire suite of transaction  and  information
     services  or  select  only  those  products  that  are  relevant  to  their
     particular business needs.

SmartServ  expects its sources of revenue to include upfront,  maintenance,  per
user,  and/or  usage based  licensing  fees for the  Company's  Web and wireless
applications,  as well as hosting and development  fees.  SmartServ expects that
its customers will brand its information  and  transaction  products and promote
them to their customers.

STRATEGIC RELATIONSHIPS
-----------------------

SmartServ  continuously  seeks to improve  product  performance  and broaden its
distribution by maintaining  and building upon a network of strategic  partners.
SmartServ  has  developed   strategic   relationships  with  wireless  equipment
manufacturers,  carriers,  other  value-added  service  providers  and potential
corporate  partners.  By combining its applications and infrastructure  products
with  the  core  competencies  of its  strategic  partners,  SmartServ  offers a
packaged turnkey solution for extending  content and transactions to the Web and
wireless  environment.   Additionally,  the  Company  believes  these  strategic
alliances will provide valuable channel marketing and distribution  partners for
its products. SmartServ's alliances include:


                                      -5-
<PAGE>

     MICROSOFT.  SmartServ  is a  Microsoft  Mobile  Solution  Provider  Partner
     offering companion wireless  applications to Microsoft's Mobile Information
     Server and Pocket PC 2002 platforms.

     HEWLETT-PACKARD.  HP has provided  SmartServ with technology for use in the
     Company's  data center and  provided a vendor  finance  line of credit that
     funded the Company's major capital expenditures. HP and SmartServ have also
     entered into a joint sales, marketing and account development agreement.

     QUALCOMM.  SmartServ is a Select Binary  Runtime  Environment  for Wireless
     ("BREW") Developer and certified True BREW application provider.  SmartServ
     works with Qualcomm on both software  development and business  development
     fronts with the goal of driving the usage of the  millions of  BREW-enabled
     handsets projected to be in the US marketplace alone by 2003.  Qualcomm has
     commitments for BREW from 14 global  carriers  representing an aggregate of
     73 million subscribers.

GEOGRAPHIC EXPANSION
--------------------
SmartServ has identified the regional  markets that are most appropriate for its
current  sales  strategy and suite of products.  The Company's  dedicated  sales
teams in the US, United Kingdom and Hong Kong have allowed SmartServ to focus on
developing  deep industry  knowledge  and  relationships  in the most  lucrative
international  markets.   SmartServ  plans  to  leverage  these  experiences  to
facilitate entry into other regions. SmartServ has eliminated its sales presence
in Switzerland, Sweden and Germany and consolidated its European operations into
its European headquarters located in the UK.

CUSTOMERS
---------
SmartServ has signed contracts with the following customers:

     o    HUTCHISON  TELECOMMUNICATIONS.  The  SmartServQTM  and  MobileMarketsR
          applications    will    provide   the    subscribers    of   Hutchison
          Telecommunications,  Hong Kong's largest wireless carrier, with access
          to real-time financial market quotes,  indices and alerts from the New
          York Stock Exchange ("NYSE"), American Stock Exchange ("AMEX"), NASDAQ
          and London Stock Exchange ("LSE") financial markets from virtually any
          wireless device.

     o    SUNDAY  COMMUNICATIONS.  The SmartServQT  application will provide the
          subscribers of SUNDAY,  the 4th largest wireless carrier in Hong Kong,
          with applications  that include access to equity quotes,  personalized
          alerts,  customizable  "watch lists", and financial news for the NYSE,
          NASDAQ, AMEX and LSE on their wireless devices.

     o    ASIAN  WIRELESS  CARRIER.  The  SmartServQT  application  will provide
          subscribers of this wireless  carrier with  applications  that include
          access to equity quotes for the LSE, personalized alerts, customizable
          "watch lists", and financial news on their wireless devices.  Pursuant
          to a  non-disclosure  agreement,  the Company  cannot yet disclose the
          identity of this customer.

     o    GLOBAL  FINANCIAL  INSTITUTION.  SmartServ  will  provide  this global
          financial  institution with a customized version of its MobileMarketsR
          incorporating the customer's  proprietary research data. The financial
          institution  plans to provide this application to its employees and to
          select clients.  Pursuant to a non-disclosure  agreement,  the Company
          cannot yet disclose the identity of this customer.

COMPETITION
-----------
The market for wireless and Web-based information and transactional  services is
highly competitive and subject to rapid technological change,  shifting consumer
preferences   and  frequent  new  service   introductions.   The  Company  faces
competition  from a number of businesses that deliver similar  services  through
personal  computers and mobile devices.  The competitive arena includes:  Aether
Systems,  Inc., 724 Solutions,  Inc, Semotus Solutions and Everypath.  SmartServ
expects  competition  to  increase  from  existing   competitors  and


                                      -6-
<PAGE>

from new competitors,  possibly including telecommunications  companies. Most of
SmartServ's  competitors and potential  competitors have  substantially  greater
financial,  marketing and technical  resources than it has.  SmartServ  believes
that potential new  competitors,  including  large  multimedia  and  information
system  companies,   are  increasing  their  focus  on  transaction  processing.
Increased  competition  in the market for  SmartServ's  services could limit its
ability to expand and materially and adversely affect its results of operations.

The  information   content   provided  through   SmartServ's   applications  and
infrastructure  is  generally  purchased  through   non-exclusive   distribution
agreements.  While the Company is not  dependent  on any one  content  provider,
existing and  potential  competitors  may enter into  agreements  with these and
other  such  providers  and  thereby  acquire  the  ability  to  deliver  online
information and transactional  services  substantially similar to those provided
by SmartServ.  Additionally,  there are a relatively small number of information
providers that control pricing and access to information.

The  principal  competitive  factors  in both  the Web and  wireless  industries
include  content,   product  features  and  quality,  ease  of  use,  access  to
distribution  channels,  brand recognition,  reliability and price.  SmartServ's
strategy of  establishing  alliances with strategic  marketing  partners and its
ability to provide  what the  Company  believes  to be unique  applications  and
infrastructure should enable the Company to compete effectively.

PROPRIETARY RIGHTS
------------------
SmartServ has designed and developed its own "device  agnostic"  information and
transaction  platform,  made up of its  patent-pending  W2W MiddlewareTM and its
content  and  processing  engines.   This  platform  is  comprised  of  the  W2W
MiddlewareTM,  based on the Windows NT operating  system and the  authorization,
quote, news and transaction  engines,  based on  Hewlett-Packard  Company's Unix
operating  system and Oracle Corp.'s version 8i parallel server  database.  This
platform  supports a wide array of  browsers  operating  on  wireless  and wired
networks and seamlessly integrates real-time data and transaction  capabilities,
such as stock trade order routing and m-commerce services,  into a user-friendly
services interface.

SmartServ  relies upon a  combination  of  contract  provisions,  trade  secret,
patent,  trademark and copyright  laws to protect its  proprietary  rights.  The
Company licenses the use of its services under agreements that contain terms and
conditions  prohibiting the unauthorized use or reproduction of its software and
services. Although SmartServ intends to protect its rights vigorously, there can
be no assurance that any of the foregoing measures will be successful.

SmartServ granted Data Transmission  Network  Corporation an exclusive perpetual
worldwide license to its Internet-based  (1) real-time stock quote product,  (2)
online  trading  vehicle  for  customers  of small and  medium  sized  brokerage
companies,  (3) administrative reporting package for brokers of small and medium
sized brokerage companies and (4) order entry/routing  system. In November 2000,
SmartServ  and  Data  Transmission   Network  Corporation  amended  the  license
agreement to provide that, in consideration for a copy of the application source
code, Data  Transmission  Network  Corporation would return the marketing rights
for the software applications to SmartServ, effective August 31, 2001.

SmartServ  believes that none of its products,  services,  trademarks,  or other
proprietary rights infringe on the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company  with  respect to current  features,  content or services or
that any such  assertion  may not  require  the  Company to enter  into  royalty
arrangements or result in litigation.

GOVERNMENT REGULATION
---------------------
SmartServ is not currently  subject to direct  regulation other than federal and
state regulation  generally  applicable to businesses.  However, the current and
future  regulatory  environment  relating  to the


                                      -7-
<PAGE>

telecommunications  and media  industry  could  have an  effect  on  SmartServ's
business, including transborder data flow regulations,  regulatory changes which
directly or indirectly affect telecommunication costs or increase the likelihood
or  scope  of  competition  from  regional  telephone  companies.  Additionally,
legislative proposals from international,  federal and state governmental bodies
in the areas of content regulation, intellectual property and privacy rights, as
well as federal and state tax issues could  impose  additional  regulations  and
obligations  upon all online  service  providers.  SmartServ  cannot predict the
likelihood that any such legislation will pass, or the financial impact, if any,
the resulting regulation or taxation may have on SmartServ.

Moreover,  the  relevance to  application  service  providers  of existing  laws
governing  issues such as intellectual  property  ownership,  libel and personal
privacy  is  uncertain.  The use of the  Internet  for  illegal  activities  has
increased  public focus and could lead to increased  pressure on legislatures to
impose regulations on application  service providers such as SmartServ.  The law
relating to the liability of online service companies for information carried on
or disseminated through their systems is currently unsettled.  If an action were
to be initiated against SmartServ, the costs incurred as a result of such action
could have a material adverse effect on its business.

EMPLOYEES
---------
As of March 31,  2002,  SmartServ  employed  sixty-one  people,  of whom 55 were
employed  in the United  States,  3 were  employed in Hong Kong by our Hong Kong
subsidiary,  3 were  employed  in the  United  Kingdom  by  our  United  Kingdon
subsidiary.  All were full-time employees.  SmartServ  anticipates that staffing
requirements  associated with the  implementation  of its plan of operation will
result in the addition of a minimum of 20 people during the year ending December
31,  2002.  Such  personnel  will  be  added  to  assist  with  the  programming
requirements of customers'  product offerings,  for customer support,  and sales
and  marketing.  None of the  SmartServ  employees  are covered by a  collective
bargaining  agreement,  and the Company believes that its relationship  with its
employees is satisfactory.

ITEM 2. DESCRIPTION OF PROPERTY

The Company  occupies  approximately  10,300  square  feet in a leased  facility
located  in  Stamford,   Connecticut.   The  lease   expires  in  October  2010.
Additionally,  the Company  occupies  office space in London,  Hong Kong and New
York City on a month-to month basis.

ITEM 3. LEGAL PROCEEDINGS

On or about June 4, 1999,  Michael Fishman,  our former Vice President of Sales,
commenced an action against us, Sebastian E. Cassetta (our Chairman of the Board
and Chief Executive  Officer),  Steven Francesco (our former President) and four
others  in  the  Connecticut   Superior  Court  for  the  Judicial  District  of
Stamford/Norwalk at Stamford alleging breach of his employment contract,  breach
of the  duty of good  faith  and  fair  dealing,  fraudulent  misrepresentation,
negligent  misrepresentation,  intentional  misrepresentation and failure to pay
wages.  The defendants have answered the complaint and filed  counterclaims  for
fraudulent  inducement and breach of contract.  The fraud and  misrepresentation
claims have been  dismissed.  Plaintiff  has responded to the  counterclaim  and
discovery is proceeding. Although we are vigorously defending this action, there
can be no assurance that we will be successful.

On or about February 29, 2000, Commonwealth  Associates,  L.P.  ("Commonwealth")
filed a  complaint  against  us in the  Supreme  Court of the State of New York,
County of New York.  The  complaint  alleges  that on or about  August 19, 1999,
Commonwealth and SmartServ  entered into an engagement  letter pursuant to which
Commonwealth was to provide financial  advisory and investment  banking services
to SmartServ in connection  with a possible  combination  between  SmartServ and
Data  Link  Systems   Corporation.   The  engagement   letter


                                      -8-
<PAGE>

provided for a  nonrefundable  fee of $15,000 payable in cash or common stock at
SmartServ's  option. The complaint alleges that SmartServ elected to pay the fee
in stock and seeks 13,333 shares of common stock or at least $1,770,000 together
with  interest  and costs.  In our answer to the  complaint,  we have denied the
material allegations of the complaint,  including the allegation that we elected
to pay in stock.  Discovery has commenced.  Although we are vigorously defending
this action, there can be no assurance that we will be successful.

While we intend to vigorously defend these actions,  the unfavorable  outcome of
either  such  action  could  have a  material  adverse  effect on our  financial
condition, results of operations and cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE


                                      -9-
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

On May 16, 2000,  SmartServ's common stock, $.01 par value, commenced trading on
the Nasdaq  National  Market as SSOL. On that date, our Redeemable  Common Stock
Purchase  Warrants,  or public  warrants,  also commenced  trading on the Nasdaq
National Market as SSOLW.

SmartServ's securities traded on the OTC Bulletin Board from May 21, 1998 to May
15, 2000.

The following  table sets forth the high and low prices for the common stock and
public warrants during the periods  indicated as reported by the Nasdaq National
Market and the OTC Bulletin  Board,  as applicable.

<TABLE>
<CAPTION>

                                                  COMMON STOCK                     WARRANTS
                                                  ------------                     --------
                                               HIGH          LOW              HIGH          LOW
                                               ----          ---              ----          ---
<S>                                        <C>            <C>             <C>            <C>
Year Ending December 31, 2002
-----------------------------
First Quarter                              $    7.100     $   4.830       $   2.190      $  0.110
Second Quarter through April 5, 2002            5.990         5.070           0.870         0.570

Year Ended December 31, 2001
----------------------------
First Quarter                              $   14.187     $   4.156       $   6.250      $  1.530
Second Quarter                                 11.650         5.391           4.250         1.750
Third Quarter                                   9.550         4.260           3.700         0.320
Fourth Quarter                                  9.020         4.170           3.050         1.000

Six Months Ended December 31, 2000
----------------------------------
Quarter Ended September 30, 2000           $   70.250     $  26.875       $  27.000      $  9.688
Quarter Ended December 31, 2000                36.938         6.750          16.063         1.625

Year Ended June 30, 2000
------------------------
First Quarter                              $    1.531     $   0.719       $   0.156      $  0.063
Second Quarter                                 24.625         0.719           6.500         0.070
Third Quarter                                 186.000        17.625          64.000         5.000
Fourth Quarter                                129.000        25.000          47.031        10.500

</TABLE>

As of April 5, 2002, we had 6,304,040 shares of common stock outstanding held by
90 record  holders.  We estimate that our common stock is held by  approximately
4,000  beneficial  holders.  As of such date, we had 1,725,000  public  warrants
outstanding held by 18 record holders.

We have never paid a cash dividend on our common stock. It is our present policy
to retain  earnings,  if any,  to  finance  the  development  and  growth of our
business.  Accordingly,  we do not  anticipate  that cash dividends will be paid
until our earnings and financial condition justify such dividends, and there can
be no assurance that we can achieve such earnings.


                                      -10-
<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

In September  1998, we issued  warrants to purchase 3,000 shares of common stock
to Data Transmission  Network  Corporation for prepayment of certain  guaranteed
payments in accordance with the Software License and Service  Agreement  between
the parties dated April 23, 1998.  Such warrants were  exercisable  at $3.00 per
share of common  stock.  In January  2000,  in  consideration  of the receipt of
$324,000,  we issued to Data  Transmission  Network warrants for the purchase of
300,000  shares of our common  stock at $8.60 per  share.  These  warrants  were
issued in reliance upon the exemption  from  registration  provided by Section 4
(2) of the Securities  Act. No sales  commissions  were paid in connection  with
such  transaction.  In June and November 2000, we issued an aggregate of 303,000
shares of common  stock upon the  exercise of the  warrants.  Proceeds  from the
exercise of the  warrants  were  $2,589,000.  The  warrants  and the shares were
issued in reliance upon the exemption  from  registration  provided by Section 4
(2) of the Securities Act of 1933 (the "Securities Act").

During  November 1998 through  January 1999,  we issued  convertible  promissory
notes in the amount of  $550,000  and  warrants to  purchase  916,666  shares of
common stock to 7 investors for $550,000. Such warrants were exercisable at $.60
per share.  Spencer Trask  Securities,  Inc.,  the placement  agent,  received a
commission  of $55,000  and an  unaccountable  expense  allowance  of $16,500 in
connection with such transaction.  Additionally,  we issued warrants to purchase
183,334  shares of common stock to Spencer Trask  exercisable at $.72 per share.
These  promissory  notes and warrants were issued in reliance upon the exemption
from  registration  provided by Section 4 (2) of the Securities  Act. During the
year  ended  June 30,  2000,  we issued  1,015,176  shares of common  stock upon
exercise of these  warrants.  Proceeds from the exercise of these  warrants were
$572,000.

Between  January 1999 and March 2002,  an  aggregate  of 1,577 of the  Company's
Prepaid  Common Stock  Purchase  Warrants  were  converted  into an aggregate of
967,929 shares of our common stock. No sales commissions were paid in connection
with such  conversions.  The shares were issued in reliance  upon the  exemption
from registration provided by Section 3 (a) (9) of the Securities Act.

In  January  1999,  we issued  10,000  shares of  common  stock to  Arnhold & S.
Bleichroeder,  Inc., an investor in our Prepaid Warrants, in consideration of an
agreement to waive  certain  events of default under such Prepaid  Warrants.  No
sales  commissions were paid in connection with such  transaction.  These shares
were issued in reliance upon the exemption from registration provided by Section
4 (2) of the Securities Act.

In July  1999,  we  issued  180,000  shares  of  common  stock to  Arnhold  & S.
Bleichroeder,  Inc. to settle our obligation to Arnhold & S. Bleichroeder,  Inc.
pursuant to the default provisions of the Prepaid Warrants. No sales commissions
were paid in  connection  with such  transaction.  These  shares  were issued in
reliance upon the exemption from  registration  provided by Section 4 (2) of the
Securities Act.

In October 1999, we entered into a consulting  agreement with Steven Rosner.  As
consideration  for such  services,  we granted Mr.  Rosner a warrant to purchase
100,000  shares of common  stock at an exercise  price of $2.625 per share and a
warrant to  purchase  100,000  shares of common  stock at $3.625  per share.  In
consideration  of $125,000  and the  issuance of  warrants,  expiring on July 2,
2003, to purchase 8,000 shares of common stock at $18.375 per share, we extended
this agreement for a two-year period commencing  October 24, 2000. In July 2000,
we issued 200,000 shares of common stock to Mr. Rosner upon exercise of warrants
to  purchase  such  shares.  Proceeds  from the  exercise of the  warrants  were
$625,000.  No sales commissions


                                      -11-
<PAGE>

were paid in connection with such transactions. The warrants and the shares were
issued in reliance upon the exemption  from  registration  provided by Section 4
(2) of the Securities Act.

In October 1999, SmartServ entered into a restricted stock agreement with Robert
Pearl, Senior Vice President Business Development, providing for the sale to Mr.
Pearl of 76,818  shares of common  stock at a purchase  price of $.75 per share.
SmartServ  received  cash  in the  amount  of $768  and a 5  year,  non-recourse
promissory  note in the amount of $56,845.  The note is secured by the stock and
bears an interest rate of 7.50%. The stock purchase agreement provides SmartServ
with certain  repurchase options and provides Mr. Pearl with a put option in the
event of the termination of his employment without cause.

In November  1999,  Zanett  Lombardier,  Ltd.  exercised,  on a cashless  basis,
warrants to purchase 50,083 shares of common stock in exchange for 25,042 shares
of  common  stock.  No sales  commissions  were  paid in  connection  with  such
transactions.  The  shares  were  issued in  reliance  upon the  exemption  from
registration provided by Section 4 (2) of the Securities Act.

In November  1999,  we issued to Michael  Kramer,  a warrant to purchase  16,000
shares of common  stock at an exercise  price of $17.75 per share.  This warrant
was issued as partial consideration for technical systems consulting services to
be provided to SmartServ and expires on November 18, 2002. No sales  commissions
were paid in  connection  with such  transaction.  This  warrant  was  issued in
reliance upon the exemption from  registration  provided by Section 4 (2) of the
Securities Act.

In December  1999, we issued 16,666 shares of common stock to  Ehrenkrantz  King
and Nussbaum,  Inc.  upon the exercise of warrants to purchase  such shares.  No
sales commissions were paid in connection with such transaction. The shares were
issued in reliance upon the exemption  from  registration  provided by Section 4
(2) of the  Securities  Act.  Proceeds  from the exercise of the  warrants  were
$62,497.

In December  1999,  our Board of  Directors  approved  the  issuance of stock to
Sebastian E. Cassetta and Mario F. Rossi in  satisfaction of the bonuses payable
to them for 1999 under their employment  agreements.  Pursuant thereto, in March
2000, we issued 148,000 shares of common stock to Mr. Cassetta and 54,000 shares
to  Mr.  Rossi.  No  sales   commissions  were  paid  in  connection  with  such
transactions.  These  shares  were issued in reliance  upon the  exemption  from
registration provided by Section 4 (2) of the Securities Act.

In December  1999, we issued a warrant to purchase an aggregate of 10,000 shares
of common  stock at an exercise  price of $2.50 per share to the Andrew  Seybold
Group LLC. Thereafter,  these warrants were transferred by Andrew Seybold LLC to
Andrew Seybold and Barney Dewey,  principals of Andrew Seybold LLC. This warrant
was issued as partial  consideration for marketing  consulting services provided
to SmartServ and expires on December 31, 2002. No sales commissions were paid in
connection  with such  transaction.  These warrants were issued in reliance upon
the exemption from registration provided by Section 4 (2) of the Securities Act.
In December  2001,  we issued 5,000 shares to each of Messrs.  Seybold and Dewey
upon exercise of the  warrants.  Proceeds from the exercise of the warrants were
$25,000.

In  December  1999,  we issued to  Brauning  Associates  warrants to purchase an
aggregate  of 50,000  shares of common  stock at an exercise  price of $3.00 per
share.  Thereafter,  these warrants were  transferred by Brauning  Associates to
Michael  Silva and Todd  Peterson,  principals  of  Brauning  Associates.  These
warrants were issued as partial  consideration for marketing consulting services
provided to SmartServ and expire on December 31, 2002. No sales commissions were
paid in connection with such transaction. These warrants were issued in reliance
upon the exemption from registration provided by Section 4 (2) of the Securities
Act. In August and  September  2001,  we issued an aggregate of 50,000 shares to
Messrs.  Silva and Peterson  upon  exercise of the  warrants.  Proceeds from the
exercise of the warrants were $150,000.

In January  2000,  we issued  618,239  shares of common  stock to  Sebastian  E.
Cassetta in  connection  with a  restricted  stock  purchase  agreement  between
SmartServ and Mr. Cassetta.  SmartServ received cash in the


                                      -12-
<PAGE>

amount of $6,182 and a note in the amount of $457,497.  The note bears  interest
at 6.75% and is secured by the common stock. No sales  commissions  were paid in
connection  with such  transaction.  The shares were issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

In January 2000, we issued  206,080  shares of common stock to Mario F. Rossi in
connection with a restricted stock purchase  agreement between SmartServ and Mr.
Rossi.  SmartServ received cash in the amount of $2,061 and a note in the amount
of  $152,499.  The note  bears  interest  at 6.75% and is  secured by the common
stock. No sales commissions were paid in connection with such  transaction.  The
shares were issued in reliance upon the exemption from registration  provided by
Section 4 (2) of the Securities Act.

In January  2000,  we issued  233,000  shares of common  stock to 24  accredited
investors.  America First  Associates  Corp.,  the placement  agent,  received a
commission of 8% of the aggregate  purchase price of the shares purchased in the
offering,  an unaccountable expense allowance of $25,000 in connection with such
transaction  and  warrants to purchase  18,640  shares of our common stock at an
exercise  price of $15 per share.  These  shares  and  warrants  were  issued in
reliance upon the exemption from  registration  provided by Section 4 (2) of the
Securities Act. Proceeds from the issuance of these shares were $3,495,000.

In January  2000,  we issued  100,000  shares of common  stock to 14  additional
accredited  investors.  No sales  commissions  were paid in connection with such
transaction.  These  shares  were  issued in reliance  upon the  exemption  from
registration  provided by Section 4 (2) of the Securities Act. Proceeds from the
issuance of these shares were $1,500,000.

In February 2000, we issued 16,667 shares of common stock to Steven Francesco, a
former  SmartServ  officer,  upon exercise of warrants issued to him in November
1998 as partial  consideration  for the  settlement of his claims against us and
certain of our officers and  directors.  The shares were issued in reliance upon
the exemption from registration provided by Section 4 (2) of the Securities Act.
No sales  commissions  were paid in connection with such  transaction.  Proceeds
from the exercise of the warrants were $83,335.

In May 2000, we issued to Lindquist Global Advisors,  LLC, a warrant to purchase
50,000  shares of common  stock at an exercise  price of $49.50 per share.  This
warrant was issued as partial consideration for financial consulting services to
be provided to  SmartServ  and expires on April 30, 2003.  No sales  commissions
were paid in  connection  with such  transaction.  This  warrant  was  issued in
reliance upon the exemption from  registration  provided by Section 4 (2) of the
Securities Act.

In May  2000,  we issued  353,535  shares of our  common  stock to 3  accredited
investors.  Gross proceeds from this transaction amounted to $17,500,000.  Chase
Securities,  Inc.,  the placement  agent,  received a commission of $700,000 and
reimbursement of direct expenses of $17,700 in connection with this transaction.
The shares were issued in reliance upon the exemption from registration provided
by Section 4 (2) of the Securities Act.

Between May and August 2000,  we issued an  aggregate  of 102,615  shares of our
common stock to Wireless Acquisition Partners, LLC, at prices ranging from $4.70
to $7.69 per share upon the  cashless  exercise of  warrants  to  purchase  such
shares. No sales commissions were paid in connection with such transaction.  The
shares were issued in reliance upon the exemption from registration  provided by
Section 4 (2) of the Securities Act.

In  September  2000,  we issued  35,000  shares of our common  stock to Wireless
Acquisition  Partners,  LLC,  upon exercise of warrants to purchase such shares.
Proceeds from the exercise of these warrants were $512,264. No sales commissions
were paid in  connection  with  such  transaction.  The  shares  were  issued in
reliance upon the exemption from  registration  provided by Section 4 (2) of the
Securities Act.

In April 2001,  we issued a warrant to purchase an  aggregate of 2,000 shares of
common  stock to Randy  Granovetter  as  partial  consideration  for  consulting
services to be provided to  SmartServ  as a member of its  Advisory  Board.  The
warrant is  exercisable  after one year at an exercise  price of $9.36 per share
and expires on April 15, 2005. No sales commissions were paid in connection with
such  transaction.  This warrant was issued in reliance upon the exemption  from
registration provided by Section 4 (2) of the Securities Act.

Between  August and December  2001,  we issued  57,643 shares of common stock to
Bruno  Guazzoni upon the exercise of warrants to purchase such shares.  No sales
commissions  were paid in  connection  with such


                                      -13-
<PAGE>

transactions.  The  shares  were  issued in  reliance  upon the  exemption  from
registration  provided by Section 4(2) of the Securities Act.  Proceeds from the
exercise of the warrants were $250,000.

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

SmartServ  is a Web  and  wireless  applications  developer  providing  wireless
applications,  transaction  platforms and middleware to financial  institutions,
network  service   providers  and  other   commercial   enterprises  that  drive
device-independent,  real time,  transaction-intensive wireless data services to
their  workforces  and customers.  SmartServ's  breadth of products and services
ensures that  businesses  and their  customers  can fully  exploit the merits of
wireless  data  exchange,  using  virtually  any wired or mobile  device to make
informed  decisions  and execute  transactions  based on real-time  information.
SmartServ's solutions,  which may be hosted or installed,  speed time-to-market,
anticipate ever-changing technologies and lower costs.

SmartServ's plan of operation  includes programs for the sale of its information
and  transactional  application  services through strategic  marketing  partners
utilizing a "business-to-business"  strategy. Such a strategy provides access to
a large number of  potential  subscribers  and allows  SmartServ to maximize its
market  reach  at  minimal  operating  costs.  The  flexibility  of  SmartServ's
application  software and communications  architecture enables the customization
of each information package offered to each strategic marketing partner,  and in
turn to their end users.

As an early  entrant in the dynamic  market for the  distribution  of  financial
information  and  transaction  services  via  wireless  telephones  and personal
digital  assistants,  or  PDAs,  SmartServ  is  developing  strategic  marketing
relationships   with  wireless   equipment   manufacturers,   telecommunications
carriers,  value-added  service  providers  and  potential  corporate  partners.
SmartServ  continuously  seeks to  increase  product  performance  and widen its
distribution  by building and  maintaining  this network of strategic  marketing
partners.  Combining SmartServ's  application development and data platform with
the core competencies of its strategic marketing partners, SmartServ is offering
a packaged  turnkey  solution  for  extending  content and  transactions  to the
wireless  environment.  Management  believes  the wireless  area has  tremendous
potential for distribution of SmartServ's  information  products and as a source
of revenues from "fee based"  transactions  such as routing stock order entries;
however, we have yet to derive any revenues from such efforts.

Management  believes  that most of  SmartServ's  revenues  will  continue  to be
derived from  consumers who purchase its services  through  strategic  marketing
partners. SmartServ anticipates that strategic marketing partners will brand its
information  and  transaction  services with their own private label and promote
and distribute  SmartServ's packaged offering to their customers.  SmartServ has
the ability to customize the information package to be offered to each strategic
marketing partner by device.

Management   anticipates   that  staffing   requirements   associated  with  the
implementation of its plan of operation will result in the addition of a minimum
of twenty people during the year ending  December 31, 2002.  Such personnel will
be added to assist  primarily  with the  programming  requirements  of strategic
marketing  partners'  product  offerings,  for  customer  support  and sales and
marketing.


                                      -14-
<PAGE>

RESULTS OF OPERATIONS

In October  2000,  we  announced  the change of our year end from a fiscal  year
ending on June 30th to a  calendar  year  ending  on  December  31st in order to
conform to standard industry  practice.  This change in our fiscal year end gave
rise to a six month  transition  period ended  December 31, 2000.  The financial
statements for the six month period ended December 31, 2000 have been audited by
the Company's independent auditors.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                                            SIX MONTHS ENDED
                                                                            ----------------
                                          YEAR ENDED DECEMBER 31               DECEMBER 31                 YEAR ENDED JUNE 30
                                      ----------------------------    ----------------------------    ----------------------------
                                          2001             2000          2000             1999            2000            1999
                                      ------------   -------------    -----------    -------------    ------------    ------------
                                                        (unaudited)                    (unaudited)
<S>                                   <C>             <C>             <C>             <C>             <C>             <C>
Revenues                              $  3,297,806    $  4,207,696    $  2,232,476    $  1,720,913    $  3,696,133    $  1,443,781

Costs and expenses
  Operating costs                      (16,737,549)    (11,481,107)     (8,028,220)     (1,882,608)     (5,335,495)     (3,881,928)
  Stock based compensation              (1,260,125)       (471,226)      8,164,779     (21,635,019)    (30,271,024)     (1,312,324)
                                      ----------------------------    ----------------------------    ----------------------------

Total costs and expenses               (17,997,674)    (11,952,333)        136,559     (23,517,627)    (35,606,519)     (5,194,252)
                                      ----------------------------    ----------------------------    ----------------------------

Income (loss) from operations          (14,699,868)     (7,744,637)      2,369,035     (21,796,714)    (31,910,386)     (3,750,471)
                                      ----------------------------    ----------------------------    ----------------------------

Net interest  income  (expense) and
  other financing costs                   (119,992)        784,900         568,556         700,483         916,827      (3,373,655)
                                      ----------------------------    ----------------------------    ----------------------------

Net income (loss)                     $(14,819,860)   $ (6,959,737)   $  2,937,591    $(21,096,231)   $(30,993,559)   $ (7,124,126)
                                      ============================    ============================    ============================

Basic earnings (loss) per share       $      (2.52)   $      (1.56)   $       0.54    $     (15.19)   $     (11.42)   $      (6.44)
                                      ============================    ============================    ============================

Diluted earnings (loss) per share     $      (2.52)   $      (1.56)   $       0.34    $     (15.19)   $     (11.42)   $      (6.44)
                                      ============================    ============================    ============================

Weighted average shares
  outstanding - basic                    5,891,244       4,466,836       5,433,577       1,388,546       2,712,931       1,105,603
                                      ============================    ============================    ============================

Weighted average shares
  outstanding- diluted                   5,891,244       4,466,836       8,697,917       1,388,546       2,712,931       1,105,603
                                      ============================    ============================    ============================

BALANCE SHEET DATA:
-------------------
Total assets                          $ 12,461,064    $ 24,041,876    $ 24,041,876    $  2,459,843    $ 26,702,824    $  3,820,598
Note Payable                          $  6,723,156    $  1,446,256               -               -               -               -
Accumulated deficit                   $(64,821,833)    (50,001,973)    (50,001,973)   $(43,042,236)    (52,939,564)   $(21,946,005)
Stockholders' equity (deficiency)     $  3,713,669      16,780,970      16,780,970    $ (3,826,746)     19,981,937    $ (4,707,300)

</TABLE>

YEAR ENDED DECEMBER 31, 2001 VERSUS YEAR ENDED DECEMBER 31, 2000

During the year ended  December  31,  2001 and 2000,  we  recorded  revenues  of
$3,297,806 and $4,207,696, respectively. Substantially all of such revenues were
earned  through  our  licensing   agreement  with  Data   Transmission   Network
Corporation.  During the year ended  December 31, 2001 and 2000,  we  recognized
$2,577,000  and  $2,392,900,  respectively,  from the  amortization  of deferred
revenues,  and $667,000 and  $333,000,  respectively,  in  connection  with fees
earned for maintenance and operational  support  associated with this agreement.
Effective August 31, 2001, with the termination of the licensing agreement,  the
Company has fully amortized all deferred revenue associated with the agreement.


                                      -15-
<PAGE>

During the year ended  December  31,  2001,  we  incurred  costs of  services of
$6,976,540.  Such costs  consisted  primarily of information  and  communication
costs   ($372,000),   personnel   costs   ($2,432,300),    systems   consultants
($1,023,000),  computer  hardware  leases,  depreciation  and maintenance  costs
($1,753,400),  facilities  ($424,900)  and  amortization  expenses  relating  to
capitalized  software  development  costs  ($874,500).  During  the  year  ended
December  31,  2000,  we incurred  costs of services of  $4,066,124.  Such costs
consisted primarily of information and communication costs ($257,700), personnel
costs ($977,300),  systems consultants  ($1,441,100),  computer hardware leases,
depreciation and maintenance costs ($605,700) and amortization expenses relating
to capitalized  software  development  costs  ($601,500).  During the year ended
December 31, 2001 and 2000, we capitalized $429,487 and $902,356,  respectively,
of  development  costs in  accordance  with  Statement of  Financial  Accounting
Standards  No. 86,  "Accounting  for the Costs of Computer  Software to be Sold,
Leased or Otherwise Marketed" ("Statement No. 86").

During the year ended December 31, 2001, we incurred general and  administrative
expenses of $6,013,458.  Such costs were incurred  primarily for personnel costs
($2,994,600),  professional fees ($1,130,000),  facilities ($644,700), insurance
($474,700) and communications  costs ($180,900).  During the year ended December
31, 2000, we incurred general and  administrative  expenses of $4,868,362.  Such
costs were  incurred  primarily  for personnel  costs  ($2,470,600),  facilities
($370,200),   insurance   ($218,800),   professional   fees   ($1,372,900)   and
communications  costs  ($102,200).  During the year ended  December 31, 2001, we
incurred sales and marketing  expenses of  $3,747,551.  Such costs were incurred
primarily for personnel costs ($1,739,300), marketing consultants ($917,800) and
travel  ($608,200).  During  the year  ended  December  31,  2000,  we  incurred
advertising  and  marketing  expenses of  $2,546,621.  Such costs were  incurred
primarily for marketing consultants ($787,500),  personnel ($838,400) and travel
($443,100).

During the year ended December 31, 2001, the net noncash charge for  stock-based
compensation amounted to $1,260,125 compared to a net noncash charge of $471,226
during the year ended  December 31, 2000.  Such  noncash  amounts are  primarily
related  to  the  valuation  of  stock-based  compensation  in  accordance  with
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees"  ("APB No. 25").  Certain  employee  stock options are subject to the
variable plan requirements of APB No. 25, as they were repriced,  and therefore,
compensation  expense is recognized  for changes in the fair value of our common
stock.  Noncash charges for consulting  services for the year ended December 31,
2001 and 2000 were $1,202,720 and $1,331,120,  respectively, resulting primarily
from the  amortization  of deferred costs  associated with the prior issuance of
warrants to purchase common stock to various financial,  marketing and technical
consultants.

Interest  income for the year  ended  December  31,  2001 and 2000  amounted  to
$512,138 and $849,785, respectively. Such amounts were earned primarily from our
investments in highly liquid  commercial  paper and money fund accounts.  During
the year ended December 31, 2001 and 2000,  interest and other  financing  costs
were  $599,379 and  $64,885,  respectively.  During the year ended  December 31,
2001,  interest and other  financing  costs were incurred in connection with the
$20 million line of credit  facility with  Hewlett-Packard  Company.  During the
year ended December 31, 2000,  interest and other financing costs were primarily
related to the partial  redemption  of our Prepaid  Warrants.  Foreign  exchange
losses  amounted to $32,751 for the year ended  December 31, 2001 compared to $0
for the year ended December 31, 2000.

Basic and diluted loss per share was $2.52 for the year ended  December 31, 2001
compared  to a basic and  diluted  loss per  share of $1.56  for the year  ended
December  31,  2000.  The  weighted  average  shares  outstanding  increased  to
5,891,244 for the year ended December 31, 2001 from 4,466,836  weighted  average
shares outstanding for the year ended December 31, 2000.

SIX MONTHS ENDED DECEMBER 31, 2000 VERSUS SIX MONTHS ENDED DECEMBER 31, 1999

During the six months ended  December 31, 2000 and 1999 we recorded  revenues of
$2,232,476 and $1,720,913, respectively. Substantially all of such revenues were
earned  through  our  licensing   agreement  with


                                      -16-
<PAGE>

Data Transmission Network Corporation.  During the six months ended December 31,
2000 and 1999, we recognized  $1,564,598  and $828,312,  respectively,  from the
amortization of deferred revenues associated with this agreement.

During the six months ended  December 31, 2000, we incurred costs of services of
$3,013,797.  Such costs  consisted  primarily of information  and  communication
costs  ($242,071),  personnel  costs  ($815,906),  computer  hardware leases and
maintenance ($63,874), systems consultants ($1,330,165) and amortization expense
relating to capitalized  software  development costs ($392,100).  During the six
months ended December 31, 1999, we incurred costs of services of $579,634.  Such
costs consisted  primarily of information  and  communication  costs  ($87,300),
personnel  costs  ($137,000)  and  computer   hardware  leases  and  maintenance
($161,300),   and  amortization   expense   relating  to  capitalized   software
development costs ($120,700).  During the six months ended December 31, 2000 and
1999, we capitalized $333,648 and $553,295,  respectively,  of development costs
in  accordance  with  Statement  No. 86.  Product  development  costs  consisted
primarily of the amortization of capitalized software development costs.

During  the six  months  ended  December  31,  2000,  we  incurred  general  and
administrative expenses of $3,188,838 versus $1,083,096 for the six months ended
December 31, 1999.  During the six months  ended  December 31, 2000,  such costs
were incurred  primarily for personnel  costs  ($1,452,100),  professional  fees
($767,900),  facilities  ($277,100),  insurance  ($163,300),  and communications
costs ($48,300).  During the six months ended December 31, 1999, such costs were
incurred primarily for personnel costs ($522,800), professional fees ($347,800),
facilities ($97,100),  insurance ($30,200),  and communications costs ($33,800).
During the six months ended  December 31, 2000, we incurred  sales and marketing
expenses of  $1,825,585  versus  $219,878 for the six months ended  December 31,
1999.  During the six months ended  December 31, 2000,  such costs were incurred
primarily for personnel costs ($626,800),  marketing consultants ($549,300), and
travel  ($319,100).  During the six months ended  December 31, 1999,  such costs
were incurred  primarily for personnel costs  ($60,500),  marketing  consultants
($52,400), and travel ($51,300).

During the six months ended December 31, 2000, noncash stock-based  compensation
amounted to income of $8,164,779  compared to an expense of  $21,635,019  during
the six months  ended  December 31, 1999.  Such  noncash  amounts are  primarily
related to the valuation of stock-based  compensation in accordance with APB No.
25. Certain employee stock options are subject to the variable plan requirements
of APB No. 25, as they were  repriced,  and therefore,  compensation  expense is
recognized  for changes in the fair value of our common stock.  Noncash  charges
for  professional  fees for the six months ended December 31, 2000 and 1999 were
$643,710 and $682,510,  respectively,  resulting primarily from the amortization
of deferred  costs  associated  with the prior  issuance of warrants to purchase
common stock to various  financial,  marketing  and technical  consultants.  The
value of  substantially  all of such common  stock  purchase  warrants  has been
recorded in accordance with the Black-Scholes pricing methodology.

Interest  income for the six months ended December 31, 2000 amounted to $621,416
versus  $13,033 for the six months ended  December  31, 1999.  Such amounts were
earned  primarily from our investments in highly liquid  commercial  paper.  The
increase in interest  income  resulted from the  availability  of funds from our
January and May 2000 equity placements.  Interest costs for the six months ended
December  31,  2000  and  1999  were  $2,860  and  $30,250,  respectively.  Debt
origination  and other  financing  costs were  $50,000 for the six months  ended
December 31, 2000.  Such amounts were incurred in connection  with a $20 million
line of credit  facility  with  Hewlett-Packard  Company.  During the six months
ended December 31, 1999, the Company recorded a credit of $717,700 as a reversal
of penalties pursuant to the default provision of the Prepaid Warrants.

Basic  earnings were $0.54 per share for the six months ended  December 31, 2000
versus a loss of $15.19 per share for the six months  ended  December  31, 1999.
Diluted earnings per share for the six months ended December 31, 2000 were $0.34
per share  versus a loss of $15.19 per share for the six months  ended  December
31, 1999.


                                      -17-
<PAGE>

FISCAL YEAR ENDED JUNE 30, 2000 VERSUS FISCAL YEAR ENDED JUNE 30, 1999

During the years ended June 30, 2000 and 1999 we recorded revenues of $3,696,133
and  $1,443,781,  respectively.  Substantially  all of such revenues were earned
through our licensing  agreement  with Data  Transmission  Network  Corporation.
During the years  ended June 30, 2000 and 1999,  we  recognized  $1,656,600  and
$1,112,100,  respectively, from the amortization of deferred revenues associated
with this agreement.

During  the  year  ended  June 30,  2000,  we  incurred  costs  of  services  of
$1,337,090.  Such costs  consisted  primarily of information  and  communication
costs  ($182,000),  personnel  costs  ($260,900),  computer  hardware leases and
maintenance  ($356,000),  systems consultants ($104,400) and the amortization of
capitalized  software  development costs ($330,100).  During the year ended June
30, 1999,  we incurred  costs of services of  $1,185,929.  Such costs  consisted
primarily of information and  communication  costs  ($267,600),  personnel costs
($288,400),   computer  hardware  leases  and  maintenance  ($339,400),  systems
consultants  ($97,300) and the amortization of capitalized  software development
costs ($127,100).  During the years ended June 30, 2000 and 1999, we capitalized
$1,122,000 and $765,000,  respectively,  of development costs in accordance with
Statement No. 86.

During the year ended June 30,  2000,  we incurred  general  and  administrative
expenses  of  $3,057,491  versus  $2,285,662  for the year ended June 30,  1999.
During the year ended June 30,  2000,  such costs were  incurred  primarily  for
personnel  costs   ($1,541,300),   professional   fees  ($952,800),   facilities
($190,300),  insurance ($85,700), and communications costs ($87,700). During the
year ended June 30, 1999, such costs were incurred primarily for personnel costs
($676,800),   professional   fees   ($837,400),   facilities   ($204,200),   and
communications costs ($69,500). During the year ended June 30, 2000, we incurred
sales and marketing expenses of $940,914 versus $410,337 for the year ended June
30,  1999.  During  the year  ended June 30,  2000,  such  costs  were  incurred
primarily for personnel costs ($272,100),  marketing consultants ($290,600), and
travel ($175,300). During the year ended June 30, 1999, such costs were incurred
primarily for personnel costs ($147,200),  marketing consultants ($121,500), and
travel ($82,100).

During  the  year  ended  June  30,  2000,   noncash   charges  for  stock-based
compensation  amounted to  $30,271,000  compared to  $1,312,000  during the year
ended June 30, 1999.  Such  noncash  charges in 2000 were  primarily  related to
personnel  costs  ($28,991,100)  resulting  from the  valuation  of  stock-based
compensation in accordance  with APB No. 25. Certain  employee stock options are
subject to the variable plan  requirements of APB No. 25, as they were repriced,
and therefore,  compensation expense is recognized for changes in the fair value
of our common stock. During 1999, such costs were approximately $18,000. Noncash
charges  for  professional  fees for the years ended June 30, 2000 and 1999 were
$1,279,900 and $1,294,000, respectively, resulting from the issuance of warrants
to  purchase  common  stock  to  various  financial,   marketing  and  technical
consultants.  The  value of  substantially  all of such  common  stock  purchase
warrants  has  been  recorded  in  accordance  with  the  Black-Scholes  pricing
methodology.

Interest  income for the year ended June 30, 2000  amounted  to $241,402  versus
$4,767 for the year ended June 30, 1999. Such amounts were earned primarily from
our  investments  in highly liquid  commercial  paper.  The increase in interest
income  resulted  from the  availability  of funds from our January and May 2000
equity  placements.  Interest  costs for the years  ended June 30, 2000 and 1999
were  $2,275 and  $167,839,  respectively.  In 1999,  such  costs were  incurred
primarily in  connection  with the issuance of the 8%  convertible  notes.  Debt
origination and other financing  (credits)/costs  were $(677,700) and $3,210,583
for the years ended June 30, 2000 and 1999, respectively.  During the year ended
June 30, 1999, we recorded a charge of approximately $986,000 for our obligation
to holders of our Prepaid Warrants pursuant to the default  provisions  thereof.
During the year ended June 30,  2000,  we reversed  $717,700 of such charge as a
result of the conversion of certain  Prepaid  Warrants into our common stock and
the relisting of our common stock on the Nasdaq National Market, thus curing the
event of default.  In 1999,  $2,593,800 of debt  origination and other


                                      -18-
<PAGE>

financing costs  represents  noncash charges for the issuance of common stock as
settlement of certain default  obligations and warrants to purchase common stock
in connection with our 8% convertible notes.

Basic and  diluted  loss per share was  $11.42 per share for year ended June 30,
2000  versus  $6.44 per share for the year  ended  June 30,  1999.  Our net loss
increased  $23,869,433  while  our  weighted  average  shares  of  common  stock
outstanding in 2000 increased by 1,607,328 shares.

CAPITAL RESOURCES AND LIQUIDITY

In June 1999, SmartServ and Data Transmission Network Corporation entered into a
License Agreement that amended their previous agreement. In consideration of the
receipt of $5.175 million,  we granted Data Transmission  Network Corporation an
exclusive  perpetual worldwide license to our Internet-based (1) real-time stock
quote  product,  (2) online  trading  vehicle for  customers of small and medium
sized brokerage companies,  (3) administrative  reporting package for brokers of
small and medium sized brokerage companies and (4) order  entry/routing  system.
Additionally,  we  received  $324,000  in  exchange  for an  agreement  to issue
warrants to purchase  300,000 shares of our common stock at an exercise price of
$8.60 per share.  In November 2000, we amended the License  Agreement to provide
that  in  consideration  for  a  copy  of  the  application  source  code,  Data
Transmission  Network  Corporation  returned both the domestic and international
marketing  rights of the  software  applications  to  SmartServ.  As part of our
strategy for providing  information  and  transaction  capabilities  with device
independence,  SmartServ is marketing  these  applications  in both wireline and
wireless platforms in conjunction with strategic  marketing partners  worldwide.
Pursuant  to this  amendment,  SmartServ  provided  operational  support to Data
Transmission  Network  Corporation  through  August  2001.  Revenues  earned  by
SmartServ pursuant to this amendment were $83,000 per month through August 2001.

In January 2000,  America First Associates Corp.,  acting as placement agent for
SmartServ,  completed a private  placement of 233,000  shares of common stock at
$15.00 per share. We also completed a private placement of an additional 100,000
shares of common  stock at $15.00 per share  without the services of a placement
agent.  The net  proceeds of the two  placements  were used for general  working
capital requirements.

In May 2000,  Chase  Securities  Inc.,  acting as placement agent for SmartServ,
completed  a private  placement  of 353,535  shares of common  stock at $49.50 a
share.  The net proceeds of the placement of  $16,750,000  were used for general
working capital requirements.

In May 2000, we entered into a Business Alliance Agreement with  Hewlett-Packard
Company whereby the companies agreed to jointly market their respective products
and  services  and  to  work  on  the  build-out  of  SmartServ's  domestic  and
international infrastructure. In furtherance of these objectives Hewlett-Packard
provided us with a line of credit of up to  $20,000,000  for the  acquisition of
approved  hardware,  software  and  services.  As of  September  28,  2001,  the
expiration  date  of the  facility,  Hewlett-Packard  Company  had  advanced  us
$6,723,156  thereunder.  The debt is  evidenced  by a secured  note,  bearing an
interest rate of 11%,  with a three year maturity and may be converted  into our
common stock at $33.56 per share.

During the period January 1, 2000 through December 31, 2001, we issued 1,659,723
shares of common  stock to  investors  upon the exercise of warrants to purchase
such shares. Proceeds from the exercise of these warrants were $3,257,700.

At December 31, 2001,  we have  1,725,000  public  warrants  (SSOLW) and 300,000
warrants with terms  identical to the public warrants  outstanding.  In February
2002, the Company's Board of Directors  modified the terms of, and extended such
warrants which were due to expire on March 20, 2002. These warrants which had an
exercise  formula  requiring the surrender of 1.933  warrants and the payment of
$7.731 for each share of common stock were modified to provide for the surrender
of 2.5  warrants and the payment of $10.50 for each share of common  stock.  The
modified  warrants will expire on March 20, 2003 and are redeemable by


                                      -19-
<PAGE>

 SmartServ on not less than 30 days written  notice at the  redemption  price of
 $0.10 per  warrant,  provided the average  closing bid  quotation of the common
 stock as reported on the Nasdaq Stock Market has been at least 187.5%  ($19.69)
 of the current  exercise  price of the warrants for a period of 20  consecutive
 trading  days ending on the third day prior to the date on which we give notice
 of  redemption.  Proceeds  from the  exercise  of the  warrants  by the holders
 thereof would provide us with approximately $8,500,000.

Delays in the  build-out of carrier  data  networks  and the  unavailability  of
data-enabled  wireless  devices have caused the market for SmartServ's  data and
transaction  services to be virtually  non-existent  until now. Such delays have
resulted in the  Company's  inability to implement its business plan and related
marketing strategies. Consequently, the Company is in need of additional capital
to  compensate  for such delays and their impact on the  Company's  inability to
generate revenues.  The Company has engaged investment bankers to assist it with
the sale of equity to private  investors that  understand the wireless  industry
and the current state of the technology; however, no assurance can be given that
the Company will be able to raise additional capital on satisfactory terms.

The Company's  financial  statements  for the year ended  December 31, 2001 have
been prepared on a going concern basis which  contemplates  the  realization  of
assets and the settlement of liabilities and commitments in the normal course of
business.  The  Company  incurred a net loss of  $14,819,860  for the year ended
December 31, 2001,  and net losses of  $30,993,559  and $7,124,126 for the years
ended June 30, 2000 and 1999, respectively.  Additionally, it had an accumulated
deficit of $64,821,833 at December 31, 2001. These conditions raise  substantial
doubt about the Company's ability to continue as a going concern.  The financial
statements do not include any adjustments to reflect the possible future effects
on  the   recoverability  and  classification  of  assets  or  the  amounts  and
classification  of  liabilities  that  may  result  from  the  outcome  of these
uncertainties.

As carriers, such as Verizon, AT&T Wireless and Cingular, complete the build-out
of data  networks (a process that is currently  underway),  management  believes
that the demand for the Company's  products  will  increase from the  enterprise
customer, as well as the retail customers of the carriers themselves. Management
also believes that the  combination  of  additional  capital and the  successful
execution of its business plan will generate  sufficient  revenues and cash flow
from  operations  to enable the Company to meet its operating  requirements.  No
assurance  can be given that such goals will be  obtained  or that any  expected
revenues or cash flows will be achieved.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

The preparation of the  consolidated  financial  statements,  in conformity with
accounting  principles  generally  accepted in the United States,  requires that
management make critical decisions  regarding  accounting policies and judgments
concerning their  application.  Materially  different  amounts could be reported
under different circumstances and conditions.

Capitalized Software Development Costs
--------------------------------------
In  connection  with certain  contracts  entered into between  SmartServ and its
customers,  as well as other development projects, the Company capitalizes costs
related  to  certain  product  enhancements  and  application  development.  The
determination of related  estimated useful lives and whether or not these assets
are impaired involves significant  judgments.  Changes in strategy and/or market
conditions could significantly impact these judgments and require adjustments to
recorded asset balances.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective  January 1,  2002,  the  Company  will adopt  Statement  of  Financial
Accounting  Standards  ("SFAS")  No.  144,  "Accounting  for the  Impairment  or
Disposal  of  Long-Lived  Assets"  ("Statement  144"),  which


                                      -20-
<PAGE>

provides a single accounting model for measuring impairment of long-lived assets
and the disposal of such assets.  Provisions outlined in Statement 144 supersede
SFAS No.  121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and for
Long-Lived  Assets to Be  Disposed  Of" and  certain  provisions  of  Accounting
Principles  Board  Opinion  No. 30,  "Reporting  the  Results of  Operations  --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently  Occurring Events and  Transactions".  The Company does
not believe that adoption of this Statement  will have a material  effect on its
results of operations, financial position or cash flows.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Forward-looking  statements in this document and those made from time-to-time by
our  employees  are  made  under  the  safe  harbor  provisions  of the  Private
Securities Litigation Reform Act of 1995.  Forward-looking statements concerning
future plans or results are necessarily  only estimates and actual results could
differ  materially  from  expectations.  Certain  factors  that  could  cause or
contribute  to such  differences  include,  and are not  limited  to,  potential
fluctuations in quarterly results, the size and timing of awards and performance
on contracts,  dependence on large  contracts and a limited number of customers,
dependence on wireless and/or  internet  networks of  third-parties  for certain
products and services, lengthy sales and implementation cycles, availability and
cost of key  components,  market  acceptance  of new or  enhanced  products  and
services,   proprietary   technology   and  changing   technology,   competitive
conditions, system performance,  management of growth, the risk that our current
and future  products and services may contain errors or be affected by technical
problems that would be difficult and costly to detect and correct, dependence on
key personnel and general  economic and political  conditions  and other factors
affecting spending by customers, and other risks described in this Annual Report
on  Form  10-KSB  and  our  other  filings  with  the  Securities  and  Exchange
Commission.


                                      -21-
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----

Report of Independent Auditors                                               23

Consolidated Balance Sheets as of December 31, 2001
   and 2000 and June 30, 2000                                                24

Consolidated Statements of Operations for the year ended
   December 31, 2001, the six months ended December 31, 2000
   and for the years ended June 30, 2000 and 1999                            26

Consolidated Statement of Stockholders' Equity (Deficiency)
   for the year ended December 31, 2001, the six months ended
   December 31, 2000 and for the years ended June 30, 2000 and 1999          27

Consolidated Statements of Cash Flows for the year ended
   December 31, 2001, for the six months ended December 31, 2000
   and for the years ended June 30, 2000 and 1999                            30

Notes to Consolidated Financial Statements                                   31


                                      -22-
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


Stockholders and Board of Directors
SmartServ Online, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets of  SmartServ
Online, Inc. as of December 31, 2001 and 2000 and June 30, 2000, and the related
consolidated  statements of operations,  stockholders' equity (deficiency),  and
cash flows for the year ended  December 31, 2001,  the six months ended December
31, 2000, and the years ended June 30, 2000 and 1999. These financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
SmartServ Online,  Inc. at December 31, 2001 and 2000 and June 30, 2000, and the
consolidated  results  of its  operations  and its cash flows for the year ended
December 31, 2001,  the six months ended  December 31, 2000, and the years ended
June 30, 2000 and 1999,  in  conformity  with  accounting  principles  generally
accepted in the United States.

The accompanying  consolidated  financial statements have been prepared assuming
that  SmartServ  Online,  Inc. will continue as a going  concern.  As more fully
described in Note 1, the Company has incurred  recurring  operating losses which
raise  substantial  doubt about its ability to continue as a going concern.  The
financial  statements  do not include any  adjustments  to reflect the  possible
future effects on the recoverability and classification of assets or the amounts
and  classification  of  liabilities  that may result  from the  outcome of this
uncertainty.


/S/ ERNST & YOUNG LLP

New York, New York
March 4, 2002


                                      -23-
<PAGE>

                             SMARTSERV ONLINE, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                               DECEMBER 31            JUNE 30
                                                        -------------------------   -----------
                                                            2001         2000           2000
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
ASSETS
Current assets
   Cash and cash equivalents                            $ 6,532,323   $19,172,118   $24,016,345
   Accounts receivable                                       40,798       149,016       236,498
   Prepaid expenses                                         531,028       294,809       213,956
                                                        -----------   -----------   -----------
Total current assets                                      7,104,149    19,615,943    24,466,799

Property and equipment, net                               3,408,776     2,658,808       687,439

Other assets
  Capitalized software development costs, net of
    accumulated amortization of $268,619 and $804,345
    at December 31, 2001 and 2000, and $412,236 at
    June 30, 2000                                           973,594     1,416,751     1,475,212
  Security deposits                                         474,545       200,374        73,374
  Note receivable from officer                              500,000            --            --
  Deferred financing costs                                       --       150,000            --
                                                        -----------   -----------   -----------
                                                          1,948,139     1,767,125     1,548,586
                                                        -----------   -----------   -----------

Total Assets                                            $12,461,064   $24,041,876   $26,702,824
                                                        ===========   ===========   ===========
</TABLE>

See accompanying notes.


                                      -24-
<PAGE>

<TABLE>
<CAPTION>

                             SMARTSERV ONLINE, INC.

                           CONSOLIDATED BALANCE SHEETS

                                                               DECEMBER 31               JUNE 30
                                                      ----------------------------    ------------
                                                           2001           2000             2000
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable                                    $  1,329,105    $  1,880,399    $  1,482,019
  Accrued liabilities                                      695,134       1,357,270       1,097,289
                                                      ------------    ------------    ------------
Total current liabilities                                2,024,239       3,237,669       2,579,308

Deferred revenues                                               --       2,576,981       4,141,579

Note payable                                             6,723,156       1,446,256              --

Commitments and Contingencies - Note 11

STOCKHOLDERS' EQUITY
Preferred stock - $0.01 par value
  Authorized - 1,000,000 shares
  Issued and outstanding - None                                 --              --              --
Common Stock - $0.01 par value
  Authorized - 40,000,000 shares
  Issued and outstanding - 6,263,783 shares at
    December 31, 2001, 5,973,140 shares at December
    31, 2000, and 5,576,894 shares at June 30, 2000         62,638          59,731          55,768
Additional paid-in capital                              69,680,059      69,116,627      75,842,858
Notes receivable from officers                            (666,841)       (666,841)       (666,841)
Unearned compensation                                     (540,354)     (1,726,574)     (2,310,284)
Accumulated deficit                                    (64,821,833)    (50,001,973)    (52,939,564)
                                                      ------------    ------------    ------------
Total stockholders' equity                               3,713,669      16,780,970      19,981,937
                                                      ------------    ------------    ------------

Total Liabilities and Stockholders' Equity            $ 12,461,064    $ 24,041,876    $ 26,702,824
                                                      ============    ============    ============

</TABLE>

See accompanying notes.


                                      -25-
<PAGE>

                             SMARTSERV ONLINE, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                         YEAR ENDED     SIX MONTHS
                                         DECEMBER 31       ENDED
                                         -----------    DECEMBER 31          YEAR ENDED JUNE 30
                                            2001            2000            2000            1999
                                        ------------    ------------    ------------    ------------
<S>                                     <C>             <C>             <C>             <C>
Revenues                                $  3,297,806    $  2,232,476    $  3,696,133    $  1,443,781
                                        ------------    ------------    ------------    ------------

Costs and expenses
  Cost of services                        (6,976,540)     (3,013,797)     (1,337,090)     (1,185,929)
  Sales and marketing expenses            (3,747,551)     (1,825,585)       (940,914)       (410,337)
  General and administrative expenses     (6,013,458)     (3,188,838)     (3,057,491)     (2,285,662)
  Stock-based compensation                (1,260,125)      8,164,779     (30,271,024)     (1,312,324)
                                        ------------    ------------    ------------    ------------

Total costs and expenses                 (17,997,674)        136,559     (35,606,519)     (5,194,252)
                                        ------------    ------------    ------------    ------------

Income (loss) from operations            (14,699,868)      2,369,035     (31,910,386)     (3,750,471)
                                        ------------    ------------    ------------    ------------

Other income (expense):
  Interest income                            512,138         621,416         241,402           4,767
  Interest expense                          (449,379)         (2,860)         (2,275)       (167,839)
  Debt origination and other
   financing costs                          (150,000)        (50,000)        677,700      (3,210,583)
  Foreign exchange loss                      (32,751)             --              --              --
                                        ------------    ------------    ------------    ------------

                                            (119,992)        568,556         916,827      (3,373,655)
                                        ------------    ------------    ------------    ------------

Net income (loss)                       $(14,819,860)   $  2,937,591    $(30,993,559)   $ (7,124,126)
                                        ============    ============    ============    ============

Basic earnings (loss) per share         $      (2.52)   $       0.54    $     (11.42)   $      (6.44)
                                        ============    ============    ============    ============

Diluted earnings (loss) per share       $      (2.52)   $       0.34    $     (11.42)   $      (6.44)
                                        ============    ============    ============    ============

Weighted average shares outstanding -
 basic                                     5,891,244       5,433,577       2,712,931       1,105,603
                                        ============    ============    ============    ============

Weighted average shares outstanding -
 diluted
                                           5,891,244       8,697,917       2,712,931       1,105,603
                                        ============    ============    ============    ============

</TABLE>

See accompanying notes.


                                      -26-
<PAGE>

                             SMARTSERV ONLINE, INC.

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>

                                       COMMON STOCK                        NOTES
                                  -----------------------    COMMON       RECEIVABLE      ADDITIONAL
                                            PAR        STOCK          FROM        PAID-IN        UNEARNED        ACCUMULATED
                                  SHARES   VALUE     SUBSCRIBED     OFFICERS      CAPITAL      COMPENSATION        DEFICIT
                                  ---------------------------------------------------------------------------------------------
<S>                             <C>        <C>       <C>          <C>            <C>            <C>            <C>
Balances at July 1, 1998          836,227  $ 8,362   $       --   $        --    $ 18,184,580   $ (4,617,924)  $(14,821,879)

Conversion of 276.67 Prepaid
  Common Stock Purchase
  Warrants into Common Stock      178,560    1,786           --            --          (1,786)            --             --

Issuance of Common Stock to
  Prepaid Warrant holders for
  amending certain terms of the
  Prepaid Warrants                 60,000      600           --            --         146,713             --             --

Issuance of warrants to purchase
  Common Stock in connection
  with prepayments made by a
  marketing partner                    --       --           --            --           6,300             --             --

Issuance of warrants to purchase
  Common Stock in connection
  with the issuance of 8%
  convertible notes                    --       --           --            --       1,573,000             --             --

Beneficial conversion feature of
  8% convertible notes                 --       --           --            --         550,000             --             --

Issuance of Common Stock and
  warrants to purchase Common
  Stock in partial settlement
  of litigation                   125,000    1,250           --            --         144,500             --             --

Amortization of unearned
  compensation                         --       --           --            --              --      1,165,020             --

Common Stock subscriptions and
  notes receivable in connection
  with officers' employment
  agreements                           --       --    1,812,554    (1,812,554)             --             --             --

Issuance of warrants to purchase
  Common Stock as
  compensation for services            --       --           --            --          59,000             --             --

Redemption of Prepaid Common
  Stock Purchase Warrants              --       --           --            --        (325,000)            --             --

Issuance of warrants to purchase
  Common Stock in connection
  with a licensing agreement           --       --           --            --         324,000             --             --

Change in market value of
  employee stock options               --       --           --            --          18,304             --             --

Net loss for the year                  --       --           --            --              --             --     (7,124,126)
                                ------------------------------------------------------------------------------ -----------------

Balance at June 30, 1999        1,199,787  $11,998   $1,812,554   $(1,812,554)   $ 20,679,611   $ (3,452,904)  $(21,946,005)
                                ------------------------------------------------------------------------------ -----------------
</TABLE>

See accompanying notes.


                                      -27-
<PAGE>

                             SMARTSERV ONLINE, INC.

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                   (Continued)

<TABLE>
<CAPTION>

                                      COMMON STOCK                          NOTES
                                 -----------------------      COMMON      RECEIVABLE    ADDITIONAL
                                                   PAR         STOCK         FROM        PAID-IN         UNEARNED       ACCUMULATED
                                     SHARES       VALUE     SUBSCRIBED     OFFICERS      CAPITAL       COMPENSATION      DEFICIT
                                 ---------------------------------------------------------------------------------   ---------------
<S>                                <C>         <C>        <C>           <C>            <C>           <C>               <C>
Balance at June 30, 1999           1,199,787   $ 11,998   $ 1,812,554   $(1,812,554)   $ 20,679,611  $ (3,452,904)     $(21,946,005)

Issuance of Common Stock in
 settlement of obligations to
 a Prepaid Warrant holder            180,000      1,800            --            --         266,895            --                --

Issuance of Common Stock upon
  exercise of employee stock
  options                             47,808        478            --            --          80,290            --                --

Issuance of warrants to purchase
 334,000 shares of Common
 Stock for various consulting
 services                                 --         --            --            --         137,300       (77,400)               --

Conversion of 1,357 Prepaid
 Common Stock Purchase
 Warrants into Common Stock          810,785      8,107            --            --          (8,107)           --                --

Issuance of Common Stock in
 connection with Officers'
 Restricted Stock Purchase
 and Employment Agreements         1,103,137     11,031    (1,812,554)    1,145,713       3,997,821            --                --

Issuance of Common Stock upon
 exercise of warrants to
 purchase Common Stock             1,548,842     15,489            --            --       3,465,006            --                --

Amortization of unearned
 compensation                             --         --            --            --              --     1,220,020                --

Issuance of Common Stock and
 warrants to purchase 18,640
 shares of Common Stock in
 connection with private
 placements, net of direct
 costs of $1,073,900                 686,535      6,865            --            --      21,414,438            --                --

Change in market value of
 employee stock options and
 stock subscriptions                      --         --            --            --      25,809,604            --                --

Net loss for the year                     --         --            --            --              --            --       (30,993,559)
                                 -----------   --------   -----------   -----------    ------------  ------------      ------------

Balance at June 30, 2000           5,576,894   $ 55,768   $        --   $  (666,841)   $ 75,842,858  $ (2,310,284)     $(52,939,564)
                                 -----------   --------   -----------   -----------    ------------  ------------      ------------

</TABLE>

See accompanying notes.


                                      -28-
<PAGE>

                             SMARTSERV ONLINE, INC.

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                   (Continued)

<TABLE>
<CAPTION>
                                          COMMON STOCK                    NOTES
                                    --------------------     COMMON     RECEIVABLE    ADDITIONAL
                                                 PAR         STOCK         FROM        PAID-IN       UNEARNED      ACCUMULATED
                                     SHARES     VALUE      SUBSCRIBED    OFFICERS      CAPITAL     COMPENSATION      DEFICIT
                                    ---------------------------------------------------------------------------- --------------
<S>                                 <C>        <C>         <C>        <C>           <C>            <C>            <C>
Balance at June 30, 2000            5,576,894  $  55,768   $     --   $  (666,841)  $ 75,842,858   $ (2,310,284)  $(52,939,564)

Amortization of unearned
  compensation                             --         --         --            --             --        643,710             --

Issuance of Common Stock upon
  exercise of warrants to
  purchase Common Stock               337,946      3,380         --            --      1,984,414             --             --

Issuance of warrants to purchase
  50,000 shares of Common
  Stock for consulting services            --         --         --            --         60,000        (60,000)            --

Change in market value of
  employee stock options                   --         --         --            --     (8,808,489)            --             --

Issuance of Common Stock upon
  exercise of employee                                                                                                      --
  stock options                        36,871        369         --            --         38,058             --

Conversion of 30 Prepaid
  Common Stock Purchase                                                                                                     --
  Warrants into Common Stock           21,429        214         --            --           (214)            --

Net income for the period                  --         --         --            --             --             --      2,937,591
                                    ---------  ---------   --------   -----------   ------------   ------------    ------------

Balance at December 31, 2000        5,973,140     59,731         --      (666,841)    69,116,627     (1,726,574)   (50,001,973)

Issuance of Common Stock upon
  exercise of employee stock
  options                              65,142        651         --            --         66,783             --             --

Conversion of 151 Prepaid
  Common Stock Purchase
  Warrants into Common Stock          107,858      1,079         --            --         (1,079)            --             --

Issuance of warrants to purchase
  Common Stock as
  compensation for services                --         --         --            --         16,500             --             --

Issuance of Common Stock upon
  exercise of warrants                117,643      1,177         --            --        423,823             --             --

Amortization of unearned
  compensation over the terms of
  consulting agreement                     --         --         --            --             --      1,186,220             --

Change in market value of
  employee stock options                   --         --         --            --         57,405             --             --

Net loss for the year                      --         --         --            --             --             --    (14,819,860)
                                    ---------  ---------   --------   -----------   ------------   ------------    ------------

Balances at December 31, 2001       6,263,783  $  62,638   $     --   $  (666,841)  $ 69,680,059   $   (540,354)  $(64,821,833)
                                    =========  =========   ========   ===========   ============   ============    ============

</TABLE>

See accompanying notes.


                                      -29-
<PAGE>

                             SMARTSERV ONLINE, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                 SIX MONTHS
                                                                  YEAR ENDED       ENDED
                                                                  DECEMBER 31    DECEMBER 31          YEAR ENDED JUNE 30
                                                                 -------------   ------------    -----------------------------
                                                                     2001            2000             2000            1999
                                                                 -------------   ------------    ------------    -------------
<S>                                                              <C>             <C>             <C>             <C>
OPERATING ACTIVITIES
Net income (loss)                                                $(14,819,860)   $  2,937,591    $(30,993,559)   $ (7,124,126)
Adjustments  to reconcile  net income  (loss) to net
 cash provided by (used for) operating activities:
      Depreciation and amortization                                 2,429,486         703,541         560,472         278,646
      Provision for losses on receivables                                  --          24,133              --              --
      Noncash debt origination and other
        financing costs                                               150,000          50,000        (717,670)      2,606,332
      Noncash compensation costs                                       57,405      (8,808,489)     28,991,104          18,304
      Noncash consulting services                                   1,202,720         643,710       1,279,920       1,349,020
      Amortization of unearned revenues                            (2,576,981)     (1,564,598)     (1,656,632)     (1,112,138)
      Changes in operating assets and
      liabilities:
        Accounts receivable                                           108,218          63,349         111,780        (237,227)
        Prepaid expenses                                             (236,219)        (80,853)       (163,806)        (44,547)
        Accounts payable and accrued
          liabilities                                               1,452,653       1,220,564       1,057,632         817,399
        Deferred revenues                                                  --              --              --       6,121,776
        Security deposits                                            (274,171)       (127,000)          1,460          (4,397)
                                                                 ------------    ------------    ------------    ------------
Net cash provided by (used for) operating
  activities                                                      (12,506,749)     (4,938,052)     (1,529,299)      2,669,042
                                                                 ------------    ------------    ------------    ------------

INVESTING ACTIVITIES
Capitalization of software development costs                         (429,487)       (333,648)     (1,122,003)       (765,445)
Purchase of equipment                                                (558,366)     (1,398,748)       (419,335)        (84,449)
Note receivable from officer                                         (500,000)             --              --              --
                                                                 ------------    ------------    ------------    ------------
Net cash used for investing activities                             (1,487,853)     (1,732,396)     (1,541,338)       (849,894)
                                                                 ------------    ------------    ------------    ------------

FINANCING ACTIVITIES
Proceeds from the issuance of warrants                                     --              --          24,746         324,000
Proceeds from the issuance of common stock                            492,434       2,026,221      26,031,723              --
Proceeds from the issuance of common stock to
  officers                                                                 --              --           9,012              --
Proceeds from the issuance of notes                                   862,373              --              --         478,500
Repayment of notes                                                         --              --              --        (691,794)
Repayment of capital lease obligation                                      --              --         (70,147)        (83,528)
Proceeds of advances from DTN                                              --              --              --       2,058,300
Repayment of advances from DTN                                             --              --              --      (2,058,300)
Costs of issuing debt                                                      --        (200,000)             --              --
Costs of issuing securities                                                --              --      (1,073,903)        (35,000)
                                                                 ------------    ------------    ------------    ------------
Net cash provided by (used for) financing
  activities                                                        1,354,807       1,826,221      24,921,431          (7,822)
                                                                 ------------    ------------    ------------    ------------

Increase (decrease) in cash and cash equivalents                  (12,639,795)     (4,844,227)     21,850,794       1,811,326
Cash and cash equivalents - beginning of period                    19,172,118      24,016,345       2,165,551         354,225
                                                                 ------------    ------------    ------------    ------------
Cash and cash equivalents - end of period                        $  6,532,323    $ 19,172,118    $ 24,016,345    $  2,165,551
                                                                 ============    ============    ============    ============

</TABLE>

See accompanying notes.


                                      -30-
<PAGE>

                             SMARTSERV ONLINE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   NATURE OF BUSINESS

SmartServ Online,  Inc. commenced  operations on August 20, 1993. We provide Web
and wireless applications and infrastructure that allow financial  institutions,
network  service   providers  and  other   businesses  to  deliver  content  and
transaction-intensive  services  to  their  work  forces  and  customers  -  via
virtually  any  wired or  data-enabled  wireless  device.  SmartServ's  products
include  content,  transaction  processing  and alert engines,  proprietary  W2W
MiddlewareTM  that  optimizes  content  delivery  to a full array of present and
future devices,  and a suite of applications  designed to enable  businesses and
their   customers  to  exploit  the  benefits  of  wireless  data  exchange  and
transactional  capability.  Our  products  facilitate  stock  trading  and other
m-commerce transactions, as well as the dissemination of real-time stock quotes,
business and financial news,  sports  information,  national weather reports and
other business and entertainment information in a user-friendly manner.

Our plan of operation focuses on the business-to-business  strategy of marketing
our services in partnership with those companies that have an economic incentive
to provide our  information  and  transaction  services to their  customers.  We
continue  to  focus  on two  primary  areas:  telecommunications  and  financial
services.  For the  telecommunications  sector,  SmartServ  provides  a suite of
solutions  to help the  wireless  carriers,  handset  manufactures  and Internet
service  providers rapidly expand the delivery of products and services to their
customers.   The   Company's   platform   supports  an  array  of  features  and
transaction-enabling  applications  designed to drive  service usage and network
revenues.  For the  financial  services  sector,  SmartServ  seeks to expand its
customer base among both institutional and retail financial services enterprises
by leveraging its transaction  routing engine and W2W MiddlewareTM  with a suite
of  applications  designed  to  meet  the  rigorous  demands  of  the  financial
community.  Management believes that SmartServ's primary source of revenues will
be derived from  consumers  who purchase the services  through  these  strategic
marketing partners.

Delays in the  build-out of carrier  data  networks  and the  unavailability  of
data-enabled  wireless  devices have caused the market for SmartServ's  data and
transaction  services to be virtually  non-existent  until now. Such delays have
resulted in the  Company's  inability to implement its business plan and related
marketing strategies. Consequently, the Company is in need of additional capital
to  compensate  for such delays and their impact on the  Company's  inability to
generate revenues.  The Company has engaged investment bankers to assist it with
the sale of equity to private  investors that  understand the wireless  industry
and the current state of the technology.

The Company's  financial  statements  for the year ended  December 31, 2001 have
been prepared on a going concern basis which  contemplates  the  realization  of
assets and the settlement of liabilities and commitments in the normal course of
business.  The Company  incurred  net losses of  $14,819,860  for the year ended
December 31, 2001,  and net losses of  $30,993,559  and $7,124,126 for the years
ended June 30, 2000 and 1999, respectively.  Additionally, it had an accumulated
deficit of $64,821,833 at December 31, 2001. These conditions raise  substantial
doubt about the Company's ability to continue as a going concern.  The financial
statements do not include any adjustments to reflect the possible future effects
on  the   recoverability  and  classification  of  assets  or  the  amounts  and
classification  of  liabilities  that  may  result  from  the  outcome  of these
uncertainties.

As carriers, such as Verizon, AT&T Wireless and Cingular, complete the build-out
of data  networks (a process that is currently  underway),  management  believes
that the demand for the Company's  services  will  increase from the  enterprise
customer,   as  well  as  the  retail  customers  of  the  carriers  themselves.
Notwithstanding  the  execution of several  contracts in the latter part of 2001
and the continual  discussions  with potential  strategic


                                      -31-
<PAGE>

partners about future relationships,  the Company's ability to generate revenues
and working  capital may not be  sufficient to meet  management's  objectives as
presently structured. Additionally, increasing competition in the market for the
Company's  services could materially and adversely affect the Company's  results
of  operations  through  price  reductions  and loss of potential  market share.
Management recognizes that the Company must generate additional revenues,  raise
additional capital, consider modifications to its sales and marketing program or
institute cost reductions to allow it to continue to operate with available cash
resources.  There is no assurance that the Company will generate future revenues
or cash flow from operations,  raise additional  capital,  or that the Company's
products and services will continue to be accepted in the marketplace.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
---------------------
The financial  statements are prepared in conformity with accounting  principles
generally accepted in the United States.

In October  2000,  we  announced  the change of our year end from a fiscal  year
ending on June 30th to a  calendar  year  ending  on  December  31st in order to
conform to standard industry practice. This change in fiscal year end gives rise
to the six month transition  period ended December 31, 2000. The new fiscal year
commenced on January 1, 2001.

PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated  financial  statements  include the accounts of the Company and
its  subsidiaries,  all of  which  are  wholly-owned.  Significant  intercompany
accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

REVENUE RECOGNITION
-------------------
Revenues are recognized as services are provided.  Deferred revenues,  resulting
from customer  prepayments,  are recognized as services are provided  throughout
the term of the  agreement  with the  respective  customers.  Deferred  revenues
resulting from our agreement with Data Transmission  Network Corporation ("DTN")
were  amortized  over the  anticipated  future  revenue  stream,  a period of 42
months,  commencing  June 1, 1999. We amended our agreement  with DTN such that,
effective  September 1, 2000,  SmartServ  performed  maintenance and enhancement
services  through  December 2000 and  operational  support  through August 2001.
Therefore,  commencing  September 1, 2000,  deferred  revenues were amortized to
income on a straight-line basis over the period through August 2001.

EARNINGS PER SHARE
------------------

Basic  earnings per share is computed on the weighted  average  number of common
shares outstanding; however, does not include the unvested portion of restricted
shares in accordance with Statement of Financial  Accounting  Standards ("SFAS")
No. 128 "Earnings Per Share".  Diluted  earnings per share reflects the increase
in the weighted  average  common shares  outstanding  that would result from the
assumed  exercise of  outstanding  stock options  calculated  using the treasury
stock method when dilutive.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS
--------------------------------------
In  connection  with certain  contracts  entered into between  SmartServ and its
customers,  as well as other


                                      -32-
<PAGE>

development  projects,  we have  capitalized  costs  related to certain  product
enhancements  and  application  development  in  accordance  with  SFAS No.  86,
"Accounting for the Costs of Computer  Software to be Sold,  Leased or Otherwise
Marketed", effective July 1, 1998.

On an  ongoing  basis,  SmartServ  reviews  the  future  recoverability  of  its
capitalized  software  development  costs for  impairment or whenever  events or
changes  in  circumstances  indicate  that  the  carrying  amounts  may  not  be
recoverable. When such events or changes in circumstances do occur, we recognize
an  impairment  loss  if the  undiscounted  future  cash  flows  expected  to be
generated by the asset are less than its carrying  value.  The  impairment  loss
reduces the asset to its fair value.

FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amounts of our financial instruments  approximate fair value due to
their terms and maturities.

SUPPLEMENTAL CASH FLOW DATA
---------------------------
We consider all highly liquid  investments  with a maturity date of three months
or less when purchased to be cash equivalents.

During the year ended December 31, 2001, the Company  satisfied an obligation to
Hewlett-Packard  Company  ("HP") for the purchase of fixed assets and consulting
services of $2,922,903 and $1,491,624, respectively, by issuing HP a note in the
amount of $4,414,527.  In December 2000, the Company  satisfied an obligation to
HP for the  purchase of fixed  assets and  consulting  services of $884,053  and
$562,203,  respectively, by issuing HP a note in the amount of $1,446,256. These
transactions  are  considered  non-cash  transactions  for the  purposes  of the
Statement of Cash Flows.

Interest,  debt origination and other financing costs paid during the year ended
December 31, 2001 were  $261,750.  Such amounts paid during the six month period
ended  December  31,  2000  and the  years  ended  June 30,  2000 and 1999  were
$202,860, $2,275, and $101,974, respectively.

CONCENTRATION OF CREDIT RISK
----------------------------
Financial  instruments that potentially  subject  SmartServ to concentrations of
credit risk consist  primarily of its commercial paper  investments and accounts
receivable.  It is management's  policy to invest in only those companies with a
AAA credit rating;  therefore,  our commercial paper  investments are short-term
and highly liquid. At December 31, 2001, accounts receivable consist principally
of amounts due from financial  services  companies.  We perform  periodic credit
evaluations of our customers  and, if  applicable,  provide for credit losses in
the financial statements.

PROPERTY AND EQUIPMENT
----------------------
Property and equipment are stated at cost.  Equipment  purchased under a capital
lease is recorded at the present value of the future  minimum lease  payments at
the date of acquisition. Depreciation is computed using the straight-line method
over estimated useful lives of three to ten years.

ADVERTISING COSTS
-----------------
Advertising  costs are expensed as incurred and were  approximately  $85,300 for
the year ended December 31, 2001. Such costs were approximately $54,000, $91,700
and $20,500 in the six month period ended December 31, 2000 and the fiscal years
ended June 30, 2000 and 1999, respectively.

STOCK BASED COMPENSATION
------------------------
We maintain several stock option plans for employees and non-employee  directors
that provide for the granting of stock options for a fixed number of shares with
an exercise price equal to the fair value of the shares at the date of grant. We
account  for  these  stock  compensation  plans in  accordance  with  Accounting
Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to  Employees"
("APB No. 25").  Accordingly,  compensation  expense is recognized to the extent
that the fair value of the stock exceeds the exercise price of the option at the


                                      -33-
<PAGE>

measurement date. Certain options,  which have been repriced, are subject to the
variable  plan   requirements  of  APB  No.  25,  that  requires  us  to  record
compensation expense for changes in the fair value of our common stock.

FOREIGN CURRENCY TRANSLATION
----------------------------
The financial  statements of foreign subsidiaries have been translated into U.S.
dollars in accordance with FASB Statement No. 52, Foreign Currency  Translation.
All balance sheet  accounts  have been  translated  using the exchange  rates in
effect at the balance sheet date.  Income statement amounts have been translated
using the average  rate for the year.  The gains and losses  resulting  from the
changes  in  exchange  rates  from  year to year  have  been  reported  in other
comprehensive income.

RECLASSIFICATIONS
-----------------
Certain  amounts  reported in the financial  statements for the six month period
ended  December  31,  2000 and the years  ended June 30, 2000 and 1999 have been
reclassified to conform to the 2001 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In December  1999, the SEC staff  released  Staff  Accounting  Bulletin No. 101,
"Revenue  Recognition  in Financial  Statements"  ("SAB 101").  SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in the  financial  statements.  The  adoption of SAB 101 did not have a material
effect on our financial results.

Effective  January 1,  2002,  the  Company  will adopt  Statement  of  Financial
Accounting  Standards  ("SFAS")  No.  144,  "Accounting  for the  Impairment  or
Disposal  of  Long-Lived  Assets"  ("Statement  144"),  which  provides a single
accounting model for measuring  impairment of long-lived assets and the disposal
of such assets.  Provisions  outlined in Statement 144  supersede  SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and certain  provisions of Accounting  Principles  Board Opinion
No. 30,  "Reporting  the  Results of  Operations  --  Reporting  the  Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and  Transactions".  The Company does not believe that adoption
of this  Statement  will have a material  effect on its  results of  operations,
financial position or cash flows.

3.   PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>

                                                                        DECEMBER 31
                                                                --------------------------      JUNE 30
                                                                    2001         2000             2000
                                                                ------------   -----------    -----------
<S>                                                             <C>            <C>            <C>
Data processing equipment                                       $ 5,033,498    $ 3,221,833    $ 1,109,828
Data processing equipment purchased under a capital
 lease                                                              246,211        246,211        246,211
Office furniture and equipment                                      151,263        172,452         81,140
Display equipment                                                    71,335         71,335          9,635
Leasehold improvements                                               55,570         54,462         36,678
                                                                -----------    -----------    -----------

                                                                  5,557,877      3,766,293      1,483,492
Accumulated depreciation, including $229,797,
 $180,555, and $155,933 for equipment purchased
 under a capital lease                                           (2,149,101)    (1,107,485)      (796,053)
                                                                -----------    -----------    -----------
                                                                $ 3,408,776    $ 2,658,808    $   687,439
                                                                ===========    ===========    ===========

</TABLE>


                                      -34-
<PAGE>

4.   NOTE RECEIVABLE FROM OFFICER

The Company's Board of Directors  authorized the issuance of a line of credit to
Sebastian  Cassetta,  SmartServ's Chief Executive Officer,  for an amount not to
exceed  $500,000.  Such amount  bears  interest at the prime rate and matures on
March 20, 2004.  Interest for the period  January 2, 2001 to June 30, 2002 shall
accrue and be  payable  at  maturity.  Commencing  July 1, 2002 until  maturity,
interest shall be payable semi-annually in arrears on January 1st and July 1st.

5.   NOTE PAYABLE

In May 2000, we entered into a Business  Alliance  Agreement with HP whereby the
companies agreed to jointly market their respective  products and services,  and
to  work  on  the   build-out  of   SmartServ's   domestic   and   international
infrastructure. In furtherance of these objectives HP provided us with a line of
credit of up to $20,000,000 for the acquisition of approved  hardware,  software
and services.  As of September 28, 2001,  the  expiration  date of the facility,
SmartServ had borrowed  $6,723,156.  The debt is evidenced by a note, bearing an
interest  rate  of  11%,  secured  by the  Company's  assets,  exclusive  of its
internally  developed software  products,  with a three year maturity and may be
converted into our common stock at $33.56 per share.

6.   EQUITY TRANSACTIONS

In  October  1999,  our  Board of  Directors  authorized  the  repricing  of the
restricted shares granted to Sebastian E. Cassetta, Chairman and Chief Executive
Officer,  and Mario F. Rossi,  Executive Vice President of Technology,  to $0.75
per share, the fair value of the shares at that date. Through December 31, 1999,
the  restricted  stock awards were variable  plan awards  pursuant to APB No. 25
and, accordingly,  SmartServ was required to recognize  compensation expense for
the changes in the market value of its common stock.  In conjunction  therewith,
we have recorded a charge to compensation  expense of $15,636,300,  as well as a
corresponding  increase  to  additional  paid-in  capital.  We have  amended our
restricted stock purchase agreements with Messrs.  Cassetta and Rossi to provide
for  certain  recourse  against  them in the  event  of their  default  on their
obligations  to us.  Accordingly,  the  restricted  stock  awards  are no longer
variable plan awards pursuant to APB No. 25.

The  delisting  of our common stock from the Nasdaq Small Cap Market in May 1998
caused us to default on certain terms and conditions of the Company's previously
issued Prepaid Common Stock Purchase Warrants ("Prepaid Warrants"). Such default
obligated  SmartServ  to pay  financial  penalties,  as  well as to  redeem  the
outstanding  Prepaid  Warrants  at a 43%  premium.  We had been unable to obtain
appropriate  waivers  from  holders  of  $1,994,000  of such  Prepaid  Warrants.
Accordingly,  we recorded a charge in the results from  operations  for the year
ended June 30, 1999 for debt origination and other financing costs in the amount
of $986,365,  representing the potential penalties due such holders.  During the
year ended June 30, 2000, we reversed $717,000 of such unpaid penalties upon the
conversion by the holders of the Prepaid Warrants into SmartServ common stock.

In October 1999, SmartServ entered into a restricted stock agreement with Robert
Pearl, Senior Vice President Business Development, providing for the sale to Mr.
Pearl of 76,818  shares of common stock at a purchase  price of $0.75 per share.
SmartServ  received cash in the amount of $768 and a 5 year,  promissory note in
the  amount of  $56,845.  The note is  secured  by the  common  stock,  bears an
interest rate of 7.50% and contains  certain  recourse  provisions in connection
with the  payment  of such  interest.  The  stock  purchase  agreement  provides
SmartServ  with  certain  repurchase  options and  provides Mr. Pearl with a put
option in the event of the termination of his employment without cause.

In October  1999,  we entered  into an agreement  for  consulting  services.  As
consideration, we granted this consultant warrants to purchase 100,000 shares of
common  stock at an exercise  price of $2.625 per share and warrants to purchase
100,000  shares of  common  stock at $3.625  per  share.  In  January  2000,  in
consideration


                                      -35-
<PAGE>

of $125,000  and the  issuance of  warrants to purchase  8,000  shares of common
stock at $18.375 per share,  we extended this agreement for the two-year  period
commencing  October 24, 2000.  The warrants  expire on October 24, 2004. We have
recorded a noncash  charge of  $62,400  in the year ended June 30,  2000 for the
value of the warrants to unearned compensation that is being amortized to income
over the term of the  agreement.  In July 2000, we issued  200,000 shares of our
common  stock to this  consultant  upon  exercise of  warrants to purchase  such
shares. Proceeds from the exercise were $625,000.

In December 1999, we issued  202,000 shares of common stock to Messrs.  Cassetta
and  Rossi  in  satisfaction  of our  bonus  obligations  to  them  under  their
employment  contracts.  We have  recorded  a charge to  compensation  expense of
$3,181,500 for the change in fair value of our common stock between the due date
of the obligation and the grant date of the common stock.

During the year ended June 30,  2000,  we issued  warrants to  purchase  126,000
shares of our common stock to various  marketing  and technical  consultants  as
partial compensation for services rendered and to be rendered to SmartServ.  The
warrants  have exercise  prices of between  $2.50 and $49.50 and expire  through
April 30,  2003.  We recorded  $74,000 as unearned  compensation  which is being
amortized over the terms of the consulting agreements.

In January 2000, we completed an offering of 333,000  shares of our common stock
to accredited investors. Gross proceeds from the offering amounted to $4,995,000
or $15.00 per share of common stock.  America First Associates Corp.  received a
commission  of  $279,600,  an  unaccountable  expense  allowance  of $25,000 and
warrants to purchase  18,640  shares of common stock at $15.00 per share through
January  18,  2005 as  compensation  for  services  as  placement  agent for the
offering.

During the year ended June 30, 2000, we issued  1,288,342 shares of common stock
to certain other  investors at prices ranging from $.60 to $24.00 per share upon
exercise of warrants to purchase  such  shares.  Proceeds  from the  exercise of
these warrants were $1,630,764.

During the year ended June 30,  2000,  holders of 1,357 of our Prepaid  Warrants
converted such warrants into 810,785  shares of common stock at exercise  prices
ranging from $1.40 to $8.40 per share.

In May 2000,  we completed an offering of 353,535  shares of our common stock to
accredited  investors.  Gross proceeds from the offering amounted to $17,500,000
or $49.50 per share of common stock. Chase Securities, Inc., acting as placement
agent for the offering,  received a commission of $700,000 and reimbursement for
$17,700 of expenses.

In August 2000, we issued warrants to purchase 50,000 shares of our common stock
to a financial  consultant as partial  consideration for services to be rendered
to SmartServ.  The warrants have an exercise price of $49.50 and expire on April
30, 2003. During the six months ended December 31, 2000, we recorded a charge to
earnings of $60,000 in connection with these warrants.

During the six month period ended December 31, 2000, we issued 337,946 shares of
common stock to certain other  investors at prices  ranging from $2.63 to $14.64
per share upon exercise of warrants to purchase  such shares.  Net proceeds from
the exercise of these warrants were $1,987,800.

In December 2000,  holders of 30 of our Prepaid Warrants converted such warrants
into 21,429 shares of common stock at an exercise price of $1.40 per share.

During the six month period ended  December 31, 2000, we issued 36,871 shares of
common stock to employees  pursuant to the exercise of employee  stock  options.
The options  were  exercised  at prices  ranging  from $0.94 to $1.29 per share.
Proceeds from the exercise of these options were $38,427.


                                      -36-
<PAGE>

During the year ended  December 31, 2001,  151 Prepaid  Warrants were  converted
into an aggregate of 107,858  shares of our common stock.  At December 31, 2001,
there  were  $431,000  of  Prepaid  Warrants   outstanding  that  are  currently
convertible into 307,857 shares of common stock.

In April 2001,  we issued a warrant to purchase an  aggregate of 2,000 shares of
common  stock  to  a  member  of  the  Company's   Advisory   Board  as  partial
consideration  for  services  to be provided  to  SmartServ  as a member of such
Board.  The warrant is exercisable  after one year at an exercise price of $9.36
per share,  expires on April 15, 2005,  and has been  recorded in the  financial
statements based on the Black-Scholes pricing methodology.

During the year ended  December 31,  2001,  we issued  117,643  shares of common
stock to various  financial and marketing  consultants upon exercise of warrants
to purchase  such  shares.  Proceeds  from the exercise of these  warrants  were
$425,000.

During the year ended December 31, 2001, we issued 65,142 shares of common stock
to employees  pursuant to the exercise of employee  stock  options.  The options
were  exercised at prices  ranging from $0.94 to $1.29 per share.  Proceeds from
the exercise of these options were $67,434.

 At December 31, 2001, we have  1,725,000  public  warrants  (SSOLW) and 300,000
 warrants with terms identical to the public warrants  outstanding.  In February
 2002, the Company's Board of Directors modified the terms of, and extended such
 warrants  which were due to expire on March 20, 2002.  These warrants which had
 an exercise  formula  requiring the surrender of 1.933 warrants and the payment
 of $7.731  for each  share of common  stock were  modified  to provide  for the
 surrender  of 2.5  warrants  and the payment of $10.50 for each share of common
 stock.  The modified  warrants will expire on March 20, 2003 and are redeemable
 by SmartServ on not less than 30 days written notice at the redemption price of
 $0.10 per  warrant,  provided the average  closing bid  quotation of the common
 stock as reported on the Nasdaq Stock Market has been at least 187.5%  ($19.69)
 of the current  exercise  price of the warrants for a period of 20  consecutive
 trading  days ending on the third day prior to the date on which we give notice
 of redemption.

At December 31, 2001, there were 4,400,000 shares reserved for issuance upon the
exercise of options and  warrants to purchase  common  stock and 200,300  shares
reserved for issuance upon the conversion of convertible notes.

7.   STOCK-BASED COMPENSATION

In  connection  with the grant of  certain  stock  options,  warrants  and other
compensation arrangements, we have recorded charges to earnings that are noncash
in nature. Certain of these stock option grants are subject to the variable plan
requirements  of APB No. 25 that require us to record  compensation  expense for
changes in the fair value of our common stock.

The   following   table   shows   the   amount   of   stock-based   compensation
(charges)/credits  that  would  have  been  recorded  in the  categories  of the
statement of operations had stock-based  compensation not been separately stated
therein:

<TABLE>
<CAPTION>

                                                                SIX MONTHS
                                                 YEAR ENDED        ENDED
                                                 DECEMBER 31    DECEMBER 31         YEAR ENDED JUNE 30
                                                ------------    ------------    ----------------------------
                                                   2001             2000           2000             1999
                                                ------------    ------------    ------------    ------------
<S>                                             <C>             <C>             <C>             <C>
Costs of services                               $    (79,272)   $  2,301,539    $ (2,749,997)   $     (1,724)
Selling, general and administrative expenses      (1,180,853)      5,863,240     (27,521,027)     (1,310,600)
                                                ------------    ------------    ------------    ------------
                                                $ (1,260,125)   $  8,164,779    $(30,271,024)   $ (1,312,324)
                                                ============    ============    ============    ============

</TABLE>


                                      -37-
<PAGE>

As more fully  described  in Note 13 to the  financial  statements,  stock-based
compensation  for the year ended  December 31, 2001 and for the six months ended
December  31, 2000,  consisted  primarily of the impact of changes in the market
value of the Company's  common stock on the value of options to purchase  common
stock issued to employees and the amortization of deferred costs associated with
the prior issuance of warrants to purchase common stock to various  consultants.
During the fiscal year ended June 30, 2000,  stock-based  compensation consisted
primarily  of the  above,  as well as the  compensation  issues  related  to the
issuance  of  restricted  stock to Messrs.  Cassetta  and  Rossi,  as more fully
described in Note 6 to the  financial  statements.  During the fiscal year ended
June 30, 1999, stock-based  compensation consisted primarily of the amortization
of deferred  costs  associated  with the prior  issuance of warrants to purchase
common stock to various consultants.

8.   EARNINGS (LOSS) PER SHARE

The following  table sets forth the  computation  of basic and diluted  earnings
(loss) per share:

<TABLE>
<CAPTION>

                                                                SIX MONTHS
                                                 YEAR ENDED        ENDED
                                                 DECEMBER 31    DECEMBER 31         YEAR ENDED JUNE 30
                                                ------------    ------------    ----------------------------
                                                    2001            2000            2000             1999
                                                ------------    ------------    ------------    ------------
<S>                                             <C>             <C>             <C>             <C>
Numerator
  Net earnings (loss)                           $ (14,819,860)  $ 2,937,591     $ (30,993,559)  $ (7,124,126)
                                                =============   ===========     =============   ============

Denominator
  Denominator for basic earnings (loss)
  per share - weighted average
  shares                                            5,891,244     5,433,577         2,712,931      1,105,603

  Dilutive effect of warrants to
  purchase common stock                                    --     2,214,176                --             --

  Dilutive effect of employee stock
  options and restricted shares                            --     1,050,164                --             --
                                                ------------------------------------------------------------
  Denominator for diluted earnings (loss)
  per share                                         5,891,244     8,697,917         2,712,931      1,105,603
                                                ============================================================

Basic earnings (loss) per common
  share                                         $       (2.52)  $      0.54     $      (11.42)    $    (6.44)
                                                ------------------------------------------------------------

Diluted earnings (loss) per common
  share                                         $       (2.52)  $      0.34     $      (11.42)    $    (6.44)
                                                =============   ===========     =============     ==========

</TABLE>

Outstanding  employee  stock options and other warrants to purchase an aggregate
of  4,400,000,  518,000,  4,568,000  and  6,563,000  shares of  common  stock at
December  31,  2001,  2000 and June 30,  2000 and 1999,  respectively,  were not
included in the  computation  of diluted  earnings per share because  either the
Company  reported a loss for the period or their  exercise  prices were  greater
than the  average  market  price of the  common  stock and,  therefore  would be
antidilutive.


                                      -38-
<PAGE>

9.   INCOME TAXES

At December  31, 2001 and 2000 and June 30,  2000,  SmartServ  has  deferred tax
assets as follows:

                                              DECEMBER 31             JUNE 30
                                       -------------------------   ------------
                                           2001         2000           2000
                                       ----------   ------------   ------------
  Capitalized Start-up Costs         $         --   $    198,000   $    371,000
  Net Operating Loss Carryforwards     31,250,000     25,694,000     19,182,000
                                       ----------   ------------   ------------

                                     $ 31,250,000   $ 25,892,000   $ 19,553,000
                                       ==========   ============   ============

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  109,
"Accounting  for Income  Taxes," we have  established  a valuation  allowance to
fully reserve the future income tax benefit of these  deferred tax assets due to
uncertainty  about their  future  realization.  The  valuation  allowances  were
$31,250,000,  $25,892,000 and $19,553,000 at December 31, 2001 and 2000 and June
30, 2000, respectively.

At December 31,  2001,  we have net  operating  loss  carryforwards  for Federal
income tax purposes of approximately  $78,500,000 which expire in the years 2009
through 2021. As a result of the public  issuance of stock by SmartServ on March
21, 1996,  and the resultant  change in ownership  pursuant to Internal  Revenue
Code Section 382, the utilization of net operating  losses incurred to this date
may be limited.

10.   LEASES

SmartServ leases office space for its Stamford, Connecticut headquarters under a
noncancelable  lease.  The lease includes  escalation  clauses for items such as
real estate taxes, building operation and maintenance expenses,  and electricity
usage.  We also lease office  space in London,  Hong Kong and New York City on a
month-to-month basis.

Rent expense amounted to approximately $644,700, $266,490, $267,800 and $290,600
for the year ended  December 31, 2001,  the six month period ended  December 31,
2000, and the years ended June 30, 2000 and 1999, respectively.

Minimum future rental payments at December 31, 2001 are as follows:

YEAR ENDING DECEMBER 31
-----------------------

     2002                            $    392,800
     2003                                 475,500
     2004                                 485,900
     2005                                 496,300
     2006                                 506,800
     Thereafter                         2,043,900
                                     -------------

                                     $  4,401,200
                                     =============


                                      -39-
<PAGE>

11.  COMMITMENTS AND CONTINGENCIES

On or about June 4, 1999,  Michael Fishman,  our former Vice President of Sales,
commenced an action against us, Sebastian E. Cassetta (our Chairman of the Board
and Chief Executive  Officer),  Steven Francesco (our former President) and four
others  in  the  Connecticut   Superior  Court  for  the  Judicial  District  of
Stamford/Norwalk at Stamford alleging breach of his employment contract,  breach
of duty of good faith and fair dealing, fraudulent misrepresentation,  negligent
misrepresentation,  intentional  misrepresentation and failure to pay wages. The
defendants  have answered the complaint and filed  counterclaims  for fraudulent
inducement and breach of contract.  The fraud and misrepresentation  claims have
been  dismissed.  Plaintiff has responded to the  counterclaim  and discovery is
proceeding.  Although we are vigorously  defending this action,  there can be no
assurance that we will be successful.

On or about February 29, 2000, Commonwealth  Associates,  L.P.  ("Commonwealth")
filed a  complaint  against  us in the  Supreme  Court of the State of New York,
County of New York.  The  complaint  alleges  that on or about  August 19, 1999,
Commonwealth and SmartServ  entered into an engagement  letter pursuant to which
Commonwealth was to provide financial  advisory and investment  banking services
to SmartServ in connection  with a possible  combination  between  SmartServ and
Data  Link  Systems   Corporation.   The  engagement   letter   provided  for  a
nonrefundable  fee of  $15,000  payable in cash or common  stock at  SmartServ's
option. The complaint alleges that SmartServ elected to pay the fee in stock and
seeks  13,333  shares  of  common  stock or at least  $1,770,000  together  with
interest and costs. In our answer to the complaint,  we have denied the material
allegations of the complaint, including the allegation that we elected to pay in
stock.  Discovery  has  commenced.  Although we are  vigorously  defending  this
action, there can be no assurance that we will be successful.

While we intend to vigorously defend these actions,  the unfavorable  outcome of
either  such  action  could  have a  material  adverse  effect on our  financial
condition, results of operations and cash flows.

12.  SIGNIFICANT RELATIONSHIPS

In April 1998,  we entered  into an  agreement  with Data  Transmission  Network
Corporation  whereby  Data  Transmission   Network  Corporation   purchased  the
exclusive right to market three of our Internet products:  SmartServ Pro, a real
time stock quote product;  TradeNet, an online trading vehicle for the customers
of small and medium sized brokerage companies,  and BrokerNet, an administrative
reporting package for brokers of small and medium sized brokerage companies.  In
June 1999,  SmartServ  and Data  Transmission  Network  Corporation  amended the
agreement  such that in  consideration  of the  receipt  of $5.175  million,  we
granted Data Transmission  Network  Corporation an exclusive perpetual worldwide
license to our Internet-based (i) SmartServ Pro, (ii) TradeNet, (iii) BrokerNet,
and (iv) an order entry/routing  system.  Additionally,  we received $324,000 in
exchange for an agreement to issue  warrants to purchase  300,000  shares of our
common  stock at an  exercise  price of $8.60 per share.  In November  2000,  we
amended the License Agreement to provide that in consideration for a copy of the
application source code, Data Transmission Network Corporation returned both the
domestic and  international  marketing  rights of the software  applications  to
SmartServ.  Pursuant to this  amendment,  SmartServ  performed  maintenance  and
enhancement  services  through December 2000, and provided  operational  support
through August 2001.  Revenues received by SmartServ  pursuant to this amendment
were $83,000 per month through August 2001.

During the year ended December 31, 2001, the six month period ended December 31,
2000 and for the years ended June 30, 2000 and 1999, our relationship  with Data
Transmission Network Corporation accounted for substantially all of our revenue.


                                      -40-
<PAGE>

13.  EMPLOYEE STOCK OPTION PLAN

In April 1996, our Board of Directors  approved the establishment of an Employee
Stock  Option  Plan  ("1996  Plan")  authorizing  stock  option  grants  to  our
directors, key employees and consultants. The options are intended to qualify as
incentive  stock  options  within the  meaning of  Section  422 of the  Internal
Revenue Code of 1986, as amended,  or as  nonqualified  stock options.  The 1996
Plan provides for the issuance of up to 250,000 of such options at not less than
the fair  value of the stock on the date of grant.  The  options  are  partially
exercisable  after  one  year  from  date  of  grant  and  expire  on the  tenth
anniversary of the date of grant.

In January  1999,  the  Company  issued  non-qualified  options to  purchase  an
aggregate  of  50,000  shares  of common  stock  exercisable  at $2.35 per share
through  December  31,  2003  to  the  members  of its  Board  of  Directors  as
compensation for services.

In October 1999, our Board of Directors authorized the establishment of our 1999
Employee  Stock  Option  Plan  ("1999  Plan").  The 1999 Plan  provided  for the
issuance of options to employees  and directors for the purchase of a maximum of
400,000  shares of our  common  stock.  The Board of  Directors  authorized  the
issuance of 400,000 of such options to both employees and non-employee directors
at the fair value of the common stock on that date.  The 1999 Plan  provides for
the issuance of such options at not less than the fair value of the common stock
on the date of grant.

In May 2000,  our Board of Directors  authorized the  establishment  of our 2000
Employee  Stock  Option  Plan ("2000  Plan").  In  November  2000,  our Board of
Directors  increased the number of shares  available for issuance under the 2000
Employee  Stock Option Plan by 600,000 to a maximum of 1,350,000.  The 2000 Plan
provides for the issuance of such options at not less than the fair value of the
common  stock on the  date of  grant.  The  Board of  Directors  authorized  the
issuance of 1,061,250 of such options to employees and non-employee directors at
exercise prices equal to the fair value on the dates of grant.

In September  2001, the Board of Directors  voted to cancel certain  outstanding
employee  options and reissue options to employees at an exercise price not less
than the fair value at the date of grant.  Officers of the Company were required
to surrender 20% of such options to receive the new options.  The exercise price
of the options reissued to employees was $8.40 per share. In accordance with APB
No. 25, the  Company is  required to record the changes in the fair value of the
141,500 shares  underlying  such options to reflect the  compensatory  nature of
their issuance.

In  November  2000,  the Board of  Directors  granted  non-qualified  options to
purchase  150,000  shares of common stock to  Sebastian E.  Cassetta and granted
non-qualified  options to  purchase  56,250  shares of common  stock to Mario F.
Rossi, subject to stockholder approval, which was received at the Annual Meeting
of Stockholders  held on December 8, 2000. The options are exercisable at $19.00
per share and expire on November 3, 2010.

At December 31, 2001,  there were options  available for the issuance of 296,000
shares of common stock to employees  under the Company's  employee  stock option
plans.


                                      -41-
<PAGE>

Information concerning stock options for the Company is as follows:

<TABLE>
<CAPTION>

                                                                                  AVERAGE
                                                                                  EXERCISE
                                                         OPTIONS                   PRICE
                                                 ---------------------------------------------------
<S>                                                    <C>                        <C>
Balance at June 30, 1998                                 177,567                  $  12.00

    Granted                                              463,858                      1.92
    Exercised                                                 --                        --
    Cancelled                                           (355,524)                     7.26
                                                 ---------------------------------------------------
Balance at June 30, 1999                                 285,901                      1.54

    Granted                                            1,091,000                     31.10
    Exercised                                            (47,810)                     1.69
    Cancelled                                             (6,310)                     1.40
                                                 ---------------------------------------------------
Balance at June 30, 2000                               1,322,781                     25.92

    Granted                                              862,250                     19.48
    Exercised                                            (36,871)                     1.01
    Cancelled                                           (282,326)                    43.19
                                                 ---------------------------------------------------
Balance at December 31, 2000                           1,865,834                     20.82

    Granted                                              513,000                      8.82
    Exercised                                            (65,142)                     1.02
    Cancelled                                           (483,008)                    43.56
                                                 ---------------------------------------------------
Balance at December 31, 2001                           1,830,684                  $  12.16
                                                 ===================================================

</TABLE>

The  following  table  summarizes   information  about  employee  stock  options
outstanding as of December 31, 2001.

<TABLE>
<CAPTION>

                                    OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                      -----------------------------------------------      -------------------------
                                                          AVERAGE
                                          AVERAGE        REMAINING                       AVERAGE
     RANGE OF           NUMBER OF        EXERCISE       CONTRACTUAL        NUMBER OF     EXERCISE
  EXERCISE PRICES        OPTIONS           PRICE        LIFE (YEARS)        OPTIONS       PRICE
---------------------------------------------------------------------      -------------------------
<S>                    <C>               <C>               <C>              <C>          <C>
   $0.94 to $2.34        543,184         $  1.16           7.4               475,104     $  1.21
   $7.19 to $8.40        477,500            8.16           9.2                42,450        8.40
  $15.00 to $19.00       715,000           18.66           8.8               308,000       18.87
       $49.50             95,000           49.50           8.4                79,100       49.50
                       ---------                                           ---------

                       1,830,684                                            904,654
                       =========                                           =========

</TABLE>


                                      -42-
<PAGE>

SUPPLEMENTAL AND PRO FORMA DISCLOSURE

Statement of Financial  Accounting Standard No. 123, "Accounting for Stock-Based
Compensation"  ("Statement  123") requires  companies to recognize  compensation
expense based on the respective fair values of the options at the date of grant.
Companies  that  choose  not to adopt  such  rules  will  continue  to apply the
existing  accounting rules contained in APB No. 25, but are required to disclose
the pro forma effects on net income and earnings per share, as if the fair value
based method of accounting had been applied.

The pro forma  information  regarding  net loss and loss per share  required  by
Statement 123 has been determined as if SmartServ had accounted for its employee
stock option plan under the fair value methods  described in Statement  123. The
fair  value of  options  granted  under  our  employee  stock  option  plans was
estimated at the date of grant using the Black-Scholes option pricing model.

Pertinent  assumptions  with  regard to the  determination  of fair value of the
options and their impact on earnings per share are as follows:

<TABLE>
<CAPTION>

                                                                       SIX MONTHS
                                                        YEAR ENDED        ENDED
                                                        DECEMBER 31    DECEMBER 31    YEAR ENDED JUNE 30
                                                        -----------    -----------   ---------------------
                                                            2001          2000         2000        1999
                                                        -----------    -----------   ---------  ----------
<S>                                                       <C>             <C>        <C>          <C>
  Weighted average dividend yield for
     options granted                                      0.0%              0.0%        0.0%        0.0%

  Weighted average expected life in years                 3.0               3.0         5.0         5.0

  Weighted average volatility                           101.5%            160.5%      159.1%      147.0%

  Risk-free interest rate                                5.56%             6.18%       5.41%       5.75%

  Weighted average grant date fair value of
     options                                           $14.99            $18.61      $25.07       $1.92

</TABLE>

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options' vesting period. As such, the pro forma
net earnings  (loss) and earnings  (loss) per share are not indicative of future
years.


                                      -43-
<PAGE>

SmartServ's pro forma information is as follows:

<TABLE>
<CAPTION>

                                            YEAR ENDED                        SIX MONTHS ENDED
                                         DECEMBER 31, 2001                    DECEMBER 31, 2000
                                 --------------------------------    -----------------------------------
                                    REPORTED          PROFORMA           REPORTED        PROFORMA
                                 --------------------------------    -----------------------------------
<S>                                                                      <C>             <C>
Net income (loss)                   $(14,819,860)   $(19,324,447)        $2,937,591    $(10,166,120)
                                 ================================    ===================================

Basic earnings
  (loss) per share                        $(2.52)    $(3.28)                  $0.54          $(1.87)
                                 ================================    ===================================

Diluted earnings
  (loss) per share                        $(2.52)    $(3.28)                  $0.34          $(1.87)
                                 ================================    ===================================

</TABLE>

<TABLE>
<CAPTION>

                                                                 YEAR ENDED JUNE 30
                     ----------------------------------------------------------------------------------------------
                                       2000                                                  1999
                     --------------------------------------------      --------------------------------------------
                        REPORTED               PROFORMA                         REPORTED             PROFORMA
                     --------------------------------------------      --------------------------------------------

<S>                   <C>                    <C>                             <C>                  <C>
Net loss              $(30,993,559)          $(25,249,703)                   $(7,124,126)         $(7,308,036)
                     ============================================      ============================================

Basic loss per
  share                 $(11.42)               $(9.31)                          $(6.44)             $(6.61)
                     ============================================      ============================================

Diluted loss per
  share                 $(11.42)               $(9.31)                          $(6.44)             $(6.61)
                     ============================================      ============================================

</TABLE>


                                      -44-
<PAGE>

14.  COMPARATIVE FINANCIAL INFORMATION (unaudited)

The  comparative  consolidated  statements  of  operations  for the years  ended
December  31, 2001 and 2000 and for the six months  ended  December 31, 2000 and
1999 are as follows:

<TABLE>
<CAPTION>

                                                   YEAR ENDED DECEMBER 31      SIX MONTHS ENDED DECEMBER 31
                                                ----------------------------   -----------------------------
                                                   2001            2000            2000            1999
                                                ------------    ------------   -------------    ------------
<S>                                             <C>             <C>             <C>             <C>
Revenues                                        $  3,297,806    $  4,207,696    $  2,232,476    $  1,720,913
                                                ------------    ------------    ------------    ------------

Costs and expenses
  Cost of services                                (6,976,540)     (4,066,124)     (3,013,797)       (579,634)
  Sales and marketing expenses                    (3,747,551)     (2,546,621)     (1,825,585)       (219,878)
  General and administrative
   expenses                                       (6,013,458)     (4,868,362)     (3,188,838)     (1,083,096)
   Stock-based compensation                       (1,260,125)       (471,226)      8,164,779     (21,635,019)
                                                ------------    ------------    ------------    ------------

Total costs and expenses                         (17,997,674)    (11,952,333)        136,559     (23,517,627)
                                                ------------    ------------    ------------    ------------

Income (loss) from operations                    (14,699,868)     (7,744,637)      2,369,035     (21,796,714)
                                                ------------    ------------    ------------    ------------

Other income (expense):
  Interest income                                    512,138         849,785         621,416          13,033
  Interest expense and other
    financing costs                                 (632,130)        (64,885)        (52,860)        687,450
                                                ------------    ------------    ------------    ------------

                                                    (119,992)        784,900         568,556         700,483
                                                ------------    ------------    ------------    ------------

Net income (loss)                               $(14,819,860)   $ (6,959,737)   $  2,937,591    $(21,096,231)
                                                ============    ============    ============    ============

Basic earnings (loss) per share                 $      (2.52)   $      (1.56)   $       0.54    $     (15.19)
                                                ============    ============    ============    ============

Diluted earnings (loss) per share               $      (2.52)   $      (1.56)   $       0.34    $     (15.19)
                                                ============    ============    ============    ============

Weighted average shares
  outstanding - basic                              5,891,244       4,466,836       5,433,577       1,388,546
                                                ============    ============    ============    ============

Weighted average shares
  outstanding - diluted                            5,891,244       4,466,836       8,697,917       1,388,546
                                                ============    ============    ============    ============

</TABLE>


                                      -45-
<PAGE>


ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

The  information  called  for by  this  Item  is set  forth  under  the  caption
"Directors and Executive Officers of the Company" in the Proxy Statement for the
2002 Annual Meeting of Stockholders, and is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

The  information  called  for by  this  Item  is set  forth  under  the  caption
"Executive  Compensation"  in the Proxy Statement for the 2002 Annual Meeting of
Stockholders, and is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by this Item is set forth under the caption "Security
Ownership of Certain  Beneficial  Owners and  Management" in the Proxy Statement
for the 2002  Annual  Meeting of  Stockholders,  and is  incorporated  herein by
reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information  called for by this Item is set forth under the caption "Certain
Relationships  and Related  Transactions"  in the Proxy  Statement  for the 2002
Annual Meeting of Stockholders, and is incorporated herein by reference.


                                      -46-
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)  INDEX TO EXHIBITS

EXHIBIT   DESCRIPTION
-------   -----------

3.1       Amended  and  Restated   Certificate  of   Incorporation  of  the
          Company***
3.2       Certificate of Amendment to the Amended and Restated  Certificate
          of Incorporation filed on June 1, 1998 **
3.3       Certificate of Amendment to the Amended and Restated  Certificate
          of Incorporation filed on October 16, 1998 **
3.4       By-laws of the Company, as amended ***
4.1       Specimen Certificate of the Company's Common Stock ***
4.2       Stock Purchase Agreement, dated May 12, 2000, between the Company
          and TecCapital, Ltd., The Abernathy Group and Conseco
          Equity Fund *******
4.3       Note Purchase  Agreement,  dated September 28, 2000,  between the
          Company and Hewlett-Packard Company *
4.4       Registration Rights Agreement,  dated September 28, 2000, between
          the Company and Hewlett-Packard Company *
4.5       Convertible  Secured  U.S.  $20,000,000  Promissory  Note,  dated
          September  28,  2000,  between the  Company  and  Hewlett-Packard
          Company *
10.1      Information  Distribution  License Agreement dated as of July 18,
          1994 between the Company and S&P ComStock, Inc. ***
10.2      New York Stock  Exchange,  Inc.  Agreement for Receipt and Use of
          Market Data dated as of August 11,  1994  between the Company and
          the New York Stock Exchange, Inc. ***
10.3      The  Nasdaq  Stock  Market,  Inc.  Vendor  Agreement  for Level 1
          Service  and Last Sale  Service  dated as of  September  12, 1994
          between  the  Company  and  The  Nasdaq  Stock   Exchange,   Inc.
          ("Nasdaq") ***
10.4      Amendment to Vendor  Agreement  for Level 1 Service and Last Sale
          Service  dated as of October  11,  1994  between  the Company and
          Nasdaq ***
10.5      Lease  Agreement  dated as of March 4, 1994,  between the Company
          and One Station  Place,  L.P.  regarding the Company's  Stamford,
          Connecticut, offices ***
10.6      Lease  Modification  and Extension  Agreement,  dated February 6,
          1996,  between the Company and One Station Place, L.P.  regarding
          the Company's Stamford, Connecticut, offices ****
10.7      Second Lease Modification and Extension Agreement, dated June 29,
          2000,  between the Company and One Station Place, L.P.  regarding
          the Company's Stamford, Connecticut, offices *
10.8      Form of 1996 Stock Option Plan *****#
10.9      Form of 1999 Stock Option Plan *******#
10.10     Form of 2000 Stock Option Plan *#
10.11     Asset  Purchase  and  Software  License  and  Service  Agreements
          between  SmartServ  Online,  Inc. and Data  Transmission  Network
          Corporation, dated April 23, 1998******
10.12     Amendment to the Software and License Agreement between SmartServ
          Online,  Inc. and Data Transmission  Network  Corporation,  dated
          June 24, 1999.  Portions of this exhibit (indicated by asterisks)
          have been  omitted  pursuant  to an order by the  Securities  and
          Exchange   Commission,   dated   December   2,   1999,   granting
          confidential  treatment under the Securities Exchange Act of 1934
          and the  omitted  portions  have been filed  separately  with the
          Securities and Exchange Commission **
10.13     Letter agreement dated August 26, 1999, amending the Amendment to
          the Software and License Agreement between SmartServ Online, Inc.
          and Data Transmission Network  Corporation,  dated June 24, 1999.
          Portions  of this  exhibit  (indicated  by  asterisks)  have been
          omitted  pursuant  to an order  by the  Securities  and  Exchange
          Commission,   dated  December  2,


                                   -47-
<PAGE>

          1999,  granting  confidential   treatment  under  the  Securities
          Exchange  Act of 1934 and the  omitted  portions  have been filed
          separately with the Securities and Exchange Commission **
10.14     Amended  and  Restated  Employment  Agreement  between  SmartServ
          Online, Inc. and Sebastian E. Cassetta, dated January 1, 1999 **#
10.15     Restricted Stock Purchase  Agreement  between  SmartServ  Online,
          Inc. and Sebastian E. Cassetta, dated December 29, 1999 **#
10.16     Employment  Agreement between SmartServ Online, Inc. and Mario F.
          Rossi, dated January 1, 1999 **#
10.17     Restricted Stock Purchase  Agreement  between  SmartServ  Online,
          Inc. and Mario F. Rossi, dated December 29, 1999 **#
10.18     Amended  Restricted Stock Purchase  Agreement  between  SmartServ
          Online,  Inc. and Sebastian E. Cassetta,  dated December
          31, 1999 *******#
10.19     Amended  Promissory  Note  between  SmartServ  Online,  Inc.  and
          Sebastian E. Cassetta, dated January 4, 2000 *******#
10.20     Amended Security  Agreement between  SmartServ  Online,  Inc. and
          Sebastian E. Cassetta, dated January 4, 2000 *******#
10.21     Promissory Note, dated January 2, 2001, between SmartServ Online,
          Inc. and Sebastian E. Cassetta +
10.22     Promissory Note, dated March 20, 2001,  between SmartServ Online,
          Inc. and Sebastian E. Cassetta +
10.23     Amended  Restricted Stock Purchase  Agreement  between  SmartServ
          Online, Inc. and Mario F. Rossi, dated December 31, 1999 *******#
10.24     Amended Promissory Note between SmartServ Online,  Inc. and Mario
          F. Rossi, dated January 4, 2000 *******#
10.25     Amended Security  Agreement between  SmartServ  Online,  Inc. and
          Mario F. Rossi, dated January 4, 2000 *******#
10.26     Restricted Stock Purchase  Agreement  between  SmartServ  Online,
          Inc. and Robert W. Pearl, dated October 13, 1999 *#
10.27     Promissory  Note  between  SmartServ  Online,  Inc. and Robert W.
          Pearl, dated January 31, 2000 *#
10.28     Security  Agreement between SmartServ Online,  Inc. and Robert W.
          Pearl, dated January 31, 2000 *#
21        List of Subsidiaries +
23        Consent of Ernst & Young LLP +

+         Filed herewith

*         Filed as an exhibit to the Company's  Annual Report on Form 10-KSB for
          the fiscal year ended June 30, 2000

**        Filed as an exhibit to the Company's  Annual Report on Form 10-KSB for
          the fiscal year ended June 30, 1999

***       Filed as an exhibit to the  Company's  registration  statement on Form
          SB-2 (Registration No. 333-114)

****      Filed as an exhibit to the Company's  Annual Report on Form 10-KSB for
          the fiscal year ended June 30, 1996

*****     Filed as an exhibit to the Company's Proxy Statement dated October 10,
          1996

******    Filed as an exhibit to the Company's  Quarterly  Report on Form 10-QSB
          for the period ended March 31, 1998


                                      -48-
<PAGE>

*******   Filed as an exhibit to the  Company's  Registration  Statement on Form
          SB-2 (Registration No. 333-43258) on August 7, 2000

#         Management Contract or Compensation Plan or arrangement required to be
          noted as provided in Item 13(a) of the Form 10-K Rules

(b)       REPORTS ON FORM 8-K

               None


                                      -49-
<PAGE>

                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Date:  April 15, 2002                   SMARTSERV ONLINE, INC.
                                        ----------------------
                                              Registrant


                                        By: /s/ SEBASTIAN E. CASSETTA
                                           -------------------------------------
                                                Sebastian E. Cassetta
                                                Chairman of the Board and
                                                Chief Executive Officer


In accordance  with the  Securities  Exchange Act of 1934,  this report has been
signed below by the  following  persons on behalf of the  Registrant  and in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>

            Signature                              Title                           Date
            ---------                              -----                           ----
<S>                                       <C>                                 <C>
/S/  SEBASTIAN E. CASSETTA                Chairman of the Board and           April 15, 2002
--------------------------------------    Chief Executive Officer
     Sebastian E. Cassetta


/S/  MARIO F. ROSSI                       Executive Vice President and        April 15, 2002
--------------------------------------    Director
     Mario F. Rossi


/S/  THOMAS W. HALLER                     Senior Vice President and           April 15, 2002
--------------------------------------    Chief Financial Officer
     Thomas W. Haller


/S/ CHARLES KLOTZ                         Director                            April 15, 2002
-------------------------------------
    Charles Klotz


                                          Director
-------------------------------------
    Stephen Lawler


/S/ L. SCOTT PERRY                        Director                            April 15, 2002
-------------------------------------
    L. Scott Perry


/S/ ROBERT H. STEELE                      Director                            April 15, 2002
-------------------------------------
    Robert H. Steele

/S/ CATHERINE CASSEL TALMADGE             Director                            April 15, 2002
--------------------------------------
    Catherine Cassel Talmadge

/S/ CHARLES R. WOOD                       Director                            April 15, 2002
--------------------------------------
    Charles R. Wood

</TABLE>


                                      -50-
<PAGE>

                                  EXHIBIT INDEX
                                  -------------


EXHIBIT   DESCRIPTION
-------   -----------

3.1       Amended  and  Restated   Certificate  of   Incorporation  of  the
          Company***
3.2       Certificate of Amendment to the Amended and Restated  Certificate
          of Incorporation filed on June 1, 1998 **
3.3       Certificate of Amendment to the Amended and Restated  Certificate
          of Incorporation filed on October 16, 1998 **
3.4       By-laws of the Company, as amended ***
4.1       Specimen Certificate of the Company's Common Stock ***
4.2       Stock Purchase Agreement, dated May 12, 2000, between the Company
          and TecCapital, Ltd., The Abernathy Group and Conseco
          Equity Fund *******
4.3       Note Purchase  Agreement,  dated September 28, 2000,  between the
          Company and Hewlett-Packard Company *
4.4       Registration Rights Agreement,  dated September 28, 2000, between
          the Company and Hewlett-Packard Company *
4.5       Convertible  Secured  U.S.  $20,000,000  Promissory  Note,  dated
          September  28,  2000,  between the  Company  and  Hewlett-Packard
          Company *
10.1      Information  Distribution  License Agreement dated as of July 18,
          1994 between the Company and S&P ComStock, Inc. ***
10.2      New York Stock  Exchange,  Inc.  Agreement for Receipt and Use of
          Market Data dated as of August 11,  1994  between the Company and
          the New York Stock Exchange, Inc. ***
10.3      The  Nasdaq  Stock  Market,  Inc.  Vendor  Agreement  for Level 1
          Service  and Last Sale  Service  dated as of  September  12, 1994
          between  the  Company  and  The  Nasdaq  Stock   Exchange,   Inc.
          ("Nasdaq") ***
10.4      Amendment to Vendor  Agreement  for Level 1 Service and Last Sale
          Service  dated as of October  11,  1994  between  the Company and
          Nasdaq ***
10.5      Lease  Agreement  dated as of March 4, 1994,  between the Company
          and One Station  Place,  L.P.  regarding the Company's  Stamford,
          Connecticut, offices ***
10.6      Lease  Modification  and Extension  Agreement,  dated February 6,
          1996,  between the Company and One Station Place, L.P.  regarding
          the Company's Stamford, Connecticut, offices ****
10.7      Second Lease Modification and Extension Agreement, dated June 29,
          2000,  between the Company and One Station Place, L.P.  regarding
          the Company's Stamford, Connecticut, offices *
10.8      Form of 1996 Stock Option Plan *****#
10.9      Form of 1999 Stock Option Plan *******#
10.10     Form of 2000 Stock Option Plan *#
10.11     Asset  Purchase  and  Software  License  and  Service  Agreements
          between  SmartServ  Online,  Inc. and Data  Transmission  Network
          Corporation, dated April 23, 1998******
10.12     Amendment to the Software and License Agreement between SmartServ
          Online,  Inc. and Data Transmission  Network  Corporation,  dated
          June 24, 1999.  Portions of this exhibit (indicated by asterisks)
          have been  omitted  pursuant  to an order by the  Securities  and
          Exchange   Commission,   dated   December   2,   1999,   granting
          confidential  treatment under the Securities Exchange Act of 1934
          and the  omitted  portions  have been filed  separately  with the
          Securities and Exchange Commission **
10.13     Letter agreement dated August 26, 1999, amending the Amendment to
          the Software and License Agreement between SmartServ Online, Inc.
          and Data Transmission Network  Corporation,  dated June 24, 1999.
          Portions  of this  exhibit  (indicated  by  asterisks)  have been
          omitted  pursuant  to an order  by the  Securities  and  Exchange
          Commission,   dated  December  2,


                                   -51-
<PAGE>

          1999,  granting  confidential   treatment  under  the  Securities
          Exchange  Act of 1934 and the  omitted  portions  have been filed
          separately with the Securities and Exchange Commission **
10.14     Amended  and  Restated  Employment  Agreement  between  SmartServ
          Online, Inc. and Sebastian E. Cassetta, dated January 1, 1999 **#
10.15     Restricted Stock Purchase  Agreement  between  SmartServ  Online,
          Inc. and Sebastian E. Cassetta, dated December 29, 1999 **#
10.16     Employment  Agreement between SmartServ Online, Inc. and Mario F.
          Rossi, dated January 1, 1999 **#
10.17     Restricted Stock Purchase  Agreement  between  SmartServ  Online,
          Inc. and Mario F. Rossi, dated December 29, 1999 **#
10.18     Amended  Restricted Stock Purchase  Agreement  between  SmartServ
          Online,  Inc. and Sebastian E. Cassetta,  dated December
          31, 1999 *******#
10.19     Amended  Promissory  Note  between  SmartServ  Online,  Inc.  and
          Sebastian E. Cassetta, dated January 4, 2000 *******#
10.20     Amended Security  Agreement between  SmartServ  Online,  Inc. and
          Sebastian E. Cassetta, dated January 4, 2000 *******#
10.21     Promissory Note, dated January 2, 2001, between SmartServ Online,
          Inc. and Sebastian E. Cassetta +
10.22     Promissory Note, dated March 20, 2001,  between SmartServ Online,
          Inc. and Sebastian E. Cassetta +
10.23     Amended  Restricted Stock Purchase  Agreement  between  SmartServ
          Online, Inc. and Mario F. Rossi, dated December 31, 1999 *******#
10.24     Amended Promissory Note between SmartServ Online,  Inc. and Mario
          F. Rossi, dated January 4, 2000 *******#
10.25     Amended Security  Agreement between  SmartServ  Online,  Inc. and
          Mario F. Rossi, dated January 4, 2000 *******#
10.26     Restricted Stock Purchase  Agreement  between  SmartServ  Online,
          Inc. and Robert W. Pearl, dated October 13, 1999 *#
10.27     Promissory  Note  between  SmartServ  Online,  Inc. and Robert W.
          Pearl, dated January 31, 2000 *#
10.28     Security  Agreement between SmartServ Online,  Inc. and Robert W.
          Pearl, dated January 31, 2000 *#
21        List of Subsidiaries +
23        Consent of Ernst & Young LLP +

+         Filed herewith

*         Filed as an exhibit to the Company's  Annual Report on Form 10-KSB for
          the fiscal year ended June 30, 2000

**        Filed as an exhibit to the Company's  Annual Report on Form 10-KSB for
          the fiscal year ended June 30, 1999

***       Filed as an exhibit to the  Company's  registration  statement on Form
          SB-2 (Registration No. 333-114)

****      Filed as an exhibit to the Company's  Annual Report on Form 10-KSB for
          the fiscal year ended June 30, 1996

*****     Filed as an exhibit to the Company's Proxy Statement dated October 10,
          1996

******    Filed as an exhibit to the Company's  Quarterly  Report on Form 10-QSB
          for the period ended March 31, 1998


                                      -52-
<PAGE>

*******   Filed as an exhibit to the  Company's  Registration  Statement on Form
          SB-2 (Registration No. 333-43258) on August 7, 2000

#         Management Contract or Compensation Plan or arrangement required to be
          noted as provided in Item 13(a) of the Form 10-K Rules


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