EXHIBIT 10.42


December 3, 2004

Dear Investor,

The purpose of this letter is to update you on SmartServ's  recent  activity and
to request  your  support for  SmartServ's  acquisition  of KPCCD,  the New York
City-based  distributor  of  international  prepaid  calling  cards.  The  KPCCD
acquisition is an important step for SmartServ and one that affects you directly
as described in detail below.

In our  September  investor  conference  call I updated  you on our  significant
progress towards launching  SmartServ's  UPHONIA(TM) brand mobile phone service.
UPHONIA(TM) will tap into the $6 Billion prepaid wireless market by bundling the
best in low  cost  prepaid  minute  plans  with  discounted  international  long
distance  and the latest in mobile  content.  We are making  excellent  progress
towards this Q1 mobile phone service launch:

o     We have signed an agreement with Sprint for our  UPHONIA(TM)  mobile phone
      service.  We will offer  prepaid  mobile phone service and handsets to the
      U.S.  market  under  the  UPHONIA(TM)  brand  using  the  enhanced  Sprint
      Nationwide PCS Network.

o     Our UPHONIA(TM)  mobile content  superstore  website is now live. The site
      leverages   SmartServ's   technology   infrastructure   and   our   nReach
      acquisition,  allowing  us to deliver  mobile  content to our  UPHONIA(TM)
      customers  and to attract  customers of other  carriers to our brand.  The
      site will be  expanded to sell and  support  our mobile  phone  service at
      launch.

o     We signed a letter of intent to acquire KPCCD, Inc.

o     We retained Jefferies & Co. as our new investment bankers.

o     We signed a letter of intent to acquire the Telco Group. The completion of
      this transaction is expected to add over $300 million in annual revenue.

The KPCCD  acquisition  is an important part of realizing  SmartServ's  business
model.  KPCCD will add as much as $2 million in monthly revenue based on KPCCD's
financial  information.  In addition,  KPCCD's network of hundreds of east coast
retail outlets will expand our UPHONIA(TM)  distribution  base.  KPCCD's prepaid
international  calling  card  business  will also help us realize a  competitive
advantage  by  bundling   international  calling  under  the  UPHONIA(TM)  brand
umbrella.

As I  communicated  in my September  conference  call, the  acquisition  process
requires that we complete an audit of KPCCD.  This affects you directly  because
this audit must be included in the registration  statement before your stock can
be registered.  We filed a registration  statement with the SEC in May, 2004 and
have exerted much time and effort to have this registration  statement  declared
effective by the SEC. Since it will take some time to obtain  audited  financial
statements  of KPCCD  your  stock  was not  registered  within  the time  period
required by your Registration  Rights  Agreement.  As a result we began to incur
penalties  that are payable to you and  accordingly we request that you accept a
one time settlement for these late filing penalties.  To put this situation into
perspective,  your  acceptance  of this  one  time  settlement  will  prevent  a
continued  accumulation of the subject penalty that would become  detrimental to
the financial well being of SmartServ.  This one time  settlement is critical to
the  KPCCD  acquisition.  Without  it  SmartServ  would  have  to  consider  the
abandonment of this acquisition  followed by an immediate  penalty payoff.  This
type of action would risk this quite favorable transaction and would also impair
SmartServ's credibility in the M&A marketplace for future growth transactions.

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Negotiations  towards the KPCCD  acquisition  continue and while there can be no
assurance that we will complete the transaction,  the settlement  outlined below
provides this one time settlement for late filing  penalties (both currently and
subsequently incurred) and provides the time needed to complete the KPCCD audit.

THE SETTLEMENT

The Company will provide you with warrants that have an exercise  price of $2.50
and a two year term.  The warrant  that will be  allocated  to you based on your
proportionate  participation in the Offering of February 2004 will be _________.
We will move forward and use our best efforts to register  your stock as soon as
circumstances permit, as well as the shares of stock underlying these additional
warrants.

Please  sign this  letter  below and return it to me in the self  addressed  and
postage paid envelope provided. The extra copy of this letter is for your files.

PLEASE  CHECK THE BOX BELOW  THAT SAYS YOU AGREE  WITH THE  SETTLEMENT  AND YOUR
WARRANTS WILL BE SENT TO YOU WITHIN APPROXIMATELY TWO WEEKS.

If you have any questions  about this  settlement  please contact either Len von
Vital (SmartServ's CFO) at 610-397-0689 ext 203 or me at 610-397-0689 ext 202.

This settlement will be effective on December 15, 2004.

I would like to thank you again for your patience and support and I look forward
to  communicating  with you in the near future as we  continue to drive  towards
successful implementation of our business model.

Sincerely,

/s/ Robert Pons
--------------------------
    Robert Pons
    President & CEO
    SmartServ Online, Inc.


|_| I hereby agree to the settlement:
|_| do not agree to the settlement:

_______________________________ (Signature)

_______________________________ Investor Name (Printed)

_______________________________ Date


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