UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB/A

       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE
       ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2000

[ ]    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.
                             ----------------------
        (Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
<S>                                                                                             <C>
                                 Delaware                                                       13-3750708
---------------------------------------------------------------------------    ----------------------------------------------
      (State or other jurisdiction of incorporation or organization)               (I.R.S. employer identification no.)

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

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

Indicate by check mark whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days.

Yes  X     No ___
   ------

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of  issuer'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 its most recent fiscal year.     $3,696,133
                                                       ----------

The  aggregate  market value of the voting stock (based on the closing  price of
such stock on NASDAQ  National  Market  System)  held by  non-affiliates  of the
issuer as of September 25, 2000 was approximately $159,569,000. 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 5,814,841 shares of Common Stock outstanding at September 25, 2000.


                                      -1-
<PAGE>


                                TABLE OF CONTENTS

                                     PART I

Item                                                                Page
----                                                                ----

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


                                     PART II

5.  Market for Common Equity and Related Stockholder Matters          9
6.  Management's Discussion and Analysis of Financial Condition
     and Results of Operations                                       14
7.  Financial Statements                                             19
8.  Changes in and Disagreements with Accountants on Accounting
     and Financial Disclosure                                        40


                                    PART III

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


                                      -2-
<PAGE>
                                     PART I

ITEM 1.    DESCRIPTION OF BUSINESS
-------

THE COMPANY

SmartServ Online is a business-to-business Web and wireless application services
provider    specializing    in   building   and   hosting    content-rich    and
transaction-intensive  applications  for both mobile wireless and fixed wireline
users.  We deliver  Internet-based  content and  securities  trade order routing
solutions,  as well as  "Web-to-Wireless"  or  "W2W"  applications  designed  to
facilitate mobile commerce, or "m-commerce". We have developed online financial,
transactional  and  media  applications  using  a  unique   "device-independent"
delivery  solution  and have  designed  applications  that enable the receipt of
information and the execution of transactions  on wireless  handsets,  computers
and personal digital assistants.

INDUSTRY OVERVIEW

     GROWTH OF WIRELESS TELECOMMUNICATIONS
     The wireless industry remains one of the fastest growing sectors within the
     telecommunication  services  industry.  In its May  2000  Industry  Report:
     Communications  Software and Services,  Donaldson Lufkin & Jenrette ("DLJ")
     estimates  that  there  are  currently  400  million  world  wide  cellular
     subscribers,  a number that is  expected  to reach 1 billion by 2002.  This
     represents a compound annual growth rate ("CAGR") of 63.2%. As described by
     DLJ,  the World  Telecommunications  Development  Report,  published by the
     International  Telecommunications  Union,  estimates  that global  wireless
     revenues   will   increase  to  $400  million  by  2003,   or  40%  of  the
     telecommunications  market,  from $185 billion in 1999, or 20% of the total
     telecommunications   services  market.  Wireless   telecommunications  will
     continue to grow  rapidly due to the  availability  of new  m-commerce  and
     lifestyle services, the attractively priced service plans made available by
     wireless carriers and the proliferation of affordable wireless devices.

     GROWTH OF WIRELESS DATA APPLICATIONS AND COMMUNICATIONS
     The wireless data services  market is one of the fastest  growing  segments
     within the wireless  telecommunications  market.  We believe an  increasing
     number  of people  will  carry  wireless  devices  for both  voice and data
     communications  rather than for voice communications alone. As described by
     DLJ, ARC Group estimates that the number of global wireless data users will
     increase  from 31 million  in 1999 to  approximately  1.3  billion in 2005,
     representing  an 85% CAGR.  Also, as described by DLJ,  International  Data
     Corporation ("IDC") expects the number of global wireless Internet users to
     surge  from  196  million  in 1999 to 503  million  in 2003.  To date,  the
     adoption of mobile data services has been slow due to the limited bandwidth
     of first generation wireless networks, but is expected to expand rapidly as
     a result of the  introduction  of  enhanced  wireless  networks  capable of
     high-speed  data  transmission.  With  the  anticipated  deployment  of  3G
     networks there will be increased  opportunities for widespread  adoption of
     wireless data and transaction services.

     WIRELESS COMMUNICATIONS AND THE INTERNET

     The market for wireless  services is growing  rapidly  alongside the market
     for Internet  access,  and we believe that these  markets will  continue to
     converge.  The majority of wireless data  penetration  will result from the
     distribution  of handsets  and other PCS  devices  equipped  with  wireless
     modems and Web browsers for accessing the Internet. The market for wireless
     data applications will be driven by the increased reliance on the Internet,
     intranets and  extranets,  as well as the emergence of a mobile  workforce.
     IDC forecasts  that in the United States alone,  there will be more than 40
     million wireless business subscribers by 2003. Additionally,  IDC forecasts
     that by 2003,  total  U.S.  wireless  data  subscribers  will  exceed  $115
     million. We believe that workers and consumers have become dependent on the
     information and applications available on their personal computers and will
     demand access to similar information when away from their home or office.

                                      -3-
<PAGE>

     SERVICES
     Recognizing the trend toward mobility,  we have developed an infrastructure
     that  integrates  and  delivers  our  Internet-based  information  and that
     effectuates  m-commerce  transactions via wireless networks and devices. By
     developing fully integrated solutions, we offer traditional and new-economy
     companies  the  ability to leverage  the  Internet  and provide  m-commerce
     capabilities for both wireline and emerging wireless networks.  SmartServ's
     solutions  offer  enterprises  a platform that enables  anytime,  anywhere,
     any-device access to Web content,  industrial-strength  transaction routing
     systems and a suite of applications for financial and commerce transactions
     - all in a secure and reliable hosted environment.  Our development efforts
     allow our Customers to gain W2W capabilities with significantly lower costs
     for development and maintenance than if developed  internally.  We maintain
     the systems  while making sure the  technology  available to our  Customers
     remains state-of-the-art.

     We  have  invested  in  the  development  of a  transaction  engine  and an
     application  software and  communications  architecture to provide a highly
     scalable and reliable  carrier-grade  e-commerce  solution.  We believe our
     application  software  and  communications  architecture  that  formats the
     information in a manner that is most appropriate for the device on which it
     will  be  displayed  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  our  current   information   and  transaction   services.
     Additionally,  we are  developing  new format  modifications  for  emerging
     devices,  content  and feature  improvements  and  customizations  based on
     market  requirements.  We  intend  to  continue  to invest in this area and
     believe our transaction  engine,  application  software and  communications
     architecture represent an important competitive advantage.

     MARKETING STRATEGY

     SmartServ was an early  entrant in the dynamic  market of  distribution  of
     financial  information and transaction services via wireless telephones and
     personal digital assistants.  We have worked to develop strategic marketing
     relationships  with  wireless  equipment  manufacturers,   carriers,  other
     value-added  service  providers  and  potential   corporate  partners.   We
     continuously   seek  to  increase   product   performance   and  widen  our
     distribution  by  building  and  maintaining   this  network  of  Strategic
     Marketing Partners. Recently, we entered into a Business Alliance Agreement
     with  Hewlett-Packard  Company,  whereby  the  companies  agreed to jointly
     market  their  products  and  services  and to  work  on the  build-out  of
     SmartServ's global  infrastructure.  We expect Hewlett-Packard to introduce
     SmartServ's  wireless m-commerce  solutions to their interested  enterprise
     customers.  Our  strategy of forming  alliances  with  Strategic  Marketing
     Partners  enables  us to  maximize  our market  reach at minimal  operating
     costs,  improve  product  and  service  performance  and grow  distribution
     channels to end-users.

     By  combining  our  application  development  and  platform  with  the core
     competencies of our Strategic Marketing Partners we are offering a packaged
     turnkey  solution for extending  content and  transactions  to the wireless
     environment.   Our   data  and   communication   architecture   adds   user
     functionality  and utility to both wired and wireless  technology while our
     application   development  and  strategic   alliances  provide  us  with  a
     competitive advantage for providing complete end-to-end solutions.

     We  expect  that  our  sources  of  revenue  will  include  the sale of our
     solutions to our  financial  services,  telecommunications  and  enterprise
     Customers,  as well as the recurring  content delivery and transaction fees
     resulting from  distribution of our services to their end-users.  We expect
     that our  Customers  will private  label our  information  and  transaction
     services and promote them to their end-users.  Our m-commerce platform will
     enable our Customers to provide m-commerce  solutions via both the Internet
     and wireless networks.

     Our goal is to be a leading  provider of software  applications and hosting
     services that facilitate W2W transactions;  to this end we will concentrate
     our efforts in the following areas:

                                      -4-
<PAGE>

     EXPANSION OF CUSTOMER BASE
     The expansion of our Customer base is focused primarily on:

     o    FINANCIAL SERVICES SOLUTIONS
          SmartServ seeks to expand its Customer base among  financial  services
          enterprises  both   institutional   and  retail,   by  leveraging  its
          Transaction  Routing  Engine  and  W2W  Middleware  with  a  suite  of
          applications  designed to meet the rigorous  demands of the  financial
          community. SmartServ's ability to provide these transaction management
          systems  via the  Internet  makes  us  well-suited  to  provide  these
          services in a  m-commerce  environment.  Our  experience  in providing
          these systems  better  qualifies us to understand  the unique needs of
          our  Customers,  whether they are  broker/dealers,  banks or custodial
          clearinghouses.  Customers  have the ability to choose an entire suite
          of transaction and information  services or select only those services
          that are relevant to their particular business needs.

     o    TELECOMMUNICATIONS SOLUTIONS
          We provide 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.  Our platform
          supports an array of features  and  transaction-enabling  applications
          designed to drive service usage and network  revenues.  These features
          and   applications   include:   authentication,   security,   customer
          administration  and  management,   mobile  brokerage,   multi-language
          support, currency converter and mobile lottery.

     o    ENTERPRISE SOLUTIONS
          We have  designed  our  enterprise  commerce  solution  based upon our
          belief that the timely and  accurate  delivery of  information  drives
          transactions.  Alerts  notify the  consumer of  expiring  inventories,
          price changes or specials in order to prompt transactions. SmartServ's
          Transaction  Routing Engine and Middleware  provide the ideal platform
          for a host of commerce applications.

     GEOGRAPHIC EXPANSION
     We have established a sales and marketing  presence in Zurich,  Switzerland
     in an effort to expand our services into Europe.  The extensive and growing
     European  reliance  on wireless  services  makes it a prime  candidate  for
     SmartServ's  information  and  e-commerce  capabilities.  Additionally,  we
     believe that new products and services  developed  for the European  market
     will also be introduced into the US market.

     APPLICATION DEVELOPMENT AND PLATFORM STABILITY
     We plan to continue to expand the  development of our core technologies  to
     include voice recognition,  localized financial and lifestyle  information,
     and  payment  features  while  continuing  to  provide a  personalized  and
     esthetically  appealing  user  interface.  We will work to ensure  that our
     platform is stable and scalable and its information reporting  capabilities
     meet the demands of our Customers.

     EXPANSION OF HOSTING CAPABILITIES
     The complexity  surrounding the provision of wireless  services with regard
     to  such  things  as  security,  redundancy,  scalability  and  reliability
     provides  us  with  the  opportunity  to  assume  the  role  of a  Wireless
     Application Services Provider,  or "WASP". As a WASP, we can facilitate the
     rapid implementation and deployment of a Customer's wireless business plan.
     We will offer  carrier-grade  operation  centers  and secure  communication
     lines worldwide.

COMPETITION

The  market for  Web-based  information  and  transactional  services  is highly
competitive and subject to rapid innovation and technological  change,  shifting
consumer  preferences  and  frequent  new  service

                                      -5-

<PAGE>

introductions.  While our application  software and communications  architecture
makes the services  "device  independent",  we face  competition  from  numerous
services  delivered  through personal  computers.  Although in its infancy,  the
wireless arena too has its competitors, such as DataLink Systems Corporation, I3
Mobile, Inc., Aether Systems, Inc., Tantau Software,  Inc., 724 Solutions,  Inc.
and w-Trade  Technologies,  Inc. We expect competition to increase from existing
competitors  and from new  competitors,  possibly  including  telecommunications
companies.  Most of our competitors and potential competitors have substantially
greater  financial,  marketing and technical  resources than we have. We believe
that potential new  competitors,  including  large  multimedia  and  information
system  companies,   are  increasing  their  focus  on  transaction  processing.
Increased  competition in the market for our services could limit our ability to
expand and materially and adversely affect our results of operations.

The  information   content  provided   through  our  application   software  and
communication   architecture  is  generally   purchased  through   non-exclusive
distribution agreements. While we are 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 us.

The  principal  competitive  factors in both the online and wireless  industries
include  content,   product  features  and  quality,  ease  of  use,  access  to
distribution channels, brand recognition, reliability and price. Our strategy of
establishing  alliances  with  Strategic  Marketing  Partners and our ability to
provide what we believe to be unique software  applications  and  communications
architecture should enable us to compete effectively.

SOFTWARE
We have developed an application  software and communications  architecture that
we believe provides a highly scalable carrier-grade m-commerce solution,  offers
easy to use and visually appealing  services,  and maximizes the capabilities of
various devices.  Our  user-friendly  front-end  application  software  provides
instant access to information  and  flexibility to the varying needs of multiple
users.  Subscribers  are empowered to create their own groupings of  information
they routinely request and are able to navigate directly to the information they
seek with the software's easy to read menu systems and search capabilities.  Our
transaction  engine has been designed to facilitate  various forms of m-commerce
and our application software employs common user interface  techniques,  such as
icons,  pull-down  menus,  spreadsheet  formats,  tree structures and the use of
"key" words, to make our products intuitive to our users. Our software employs a
unique,  object-oriented architecture that intelligently identifies a wide range
of  wireless  and wired  devices and  dynamically  formats  the  information  to
device-specific attributes.

During the fiscal years ended June 30, 2000, 1999 and 1998, we incurred costs of
$383,042,   $193,188  and  $923,082,   respectively,   for  project  development
activities.  Additionally,  during the fiscal year ended June 30, 2000 and 1999,
we capitalized  software development costs amounting to $1,122,000 and $765,000,
respectively. No such costs were capitalized in the year ended June 30, 1998.

PROPRIETARY RIGHTS
We have  designed and  developed our own "device  independent"  information  and
transaction platform, "SmartServ", based on Sun Microsystems, Inc. computers and
Oracle Corp.'s version 8i relational  database manager,  to support a wide array
of wireless browsers and operating systems.  The platform seamlessly  integrates
real-time data and transaction  capabilities,  such as stock trade order routing
and m-commerce services, into a user-friendly services interface. We rely upon a
combination of contract  provisions,  trade secret laws,  patent,  trademark and
copyright laws to attempt to protect our proprietary  rights. We license the use
of our services under  agreements that contain terms and conditions  prohibiting
the unauthorized  reproduction of our software and services.  Although we intend
to protect  our rights  vigorously,  there can be no  assurance  that any of the
foregoing measures will be successful.

                                      -6-

<PAGE>

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. Under the license
agreement,  we are required to maintain certain systems'  performance  standards
and to satisfy other general  business  requirements.  Our inability to maintain
compliance with the license  agreement could result in default.  In addition,  a
change  of  control  of  SmartServ  is an event of  default  under  the  license
agreement.  A change of control includes a change in the majority of the members
on our board of directors.  Under a letter agreement with Zanett Capital,  Inc.,
Zanett  Capital may elect a majority of the board under  certain  circumstances,
including the failure of our common stock to be listed on Nasdaq.

If we default under the license agreement,  Data Transmission Network may at its
sole cost elect to provide its own  maintenance to both the system  software and
related hardware. Under these circumstances, Data Transmission Network will have
the right to own the system  software,  including the source codes,  and related
hardware,  and Data Transmission  Network will have no further obligation to pay
us  licensing  fees which we  currently  rely on for a  significant  part of our
revenues.

We are  currently  negotiating  with  Data  Transmission  Network  to amend  the
Licensing Agreement.  Under such amendment, we expect that, in consideration for
a copy of the  application  source code, Data  Transmission  Network will return
both  the  domestic  and   international   marketing   rights  of  the  software
applications  to  SmartServ  and will cancel all of the  aforementioned  default
provisions.

We  believe  that our  software,  services,  trademark,  service  mark and other
proprietary  rights do not infringe on the proprietary  rights of third parties.
However,  there  can  be  no  assurance  that  third  parties  will  not  assert
infringement  claims  against us with  respect to current  features,  content or
services or that any such  assertion  may not  require us to enter into  royalty
arrangements or result in litigation.

GOVERNMENT REGULATION
We are not currently  subject to direct  regulation other than federal and state
regulation  generally  applicable  to  businesses.   However,   changes  in  the
regulatory  environment  relating to the  telecommunications  and media industry
could  have an  effect  on our  business,  including  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.  We cannot predict the likelihood
that any such  legislation  will pass,  or the  financial  impact,  if any,  the
resulting regulation or taxation may have.

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  and the
dissemination  of  pornography  have  increased  public  focus and could lead to
increased pressure on legislatures to impose regulations on application  service
providers such as ourselves. 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 us, the costs
incurred as a result of such action could have a material  adverse effect on our
business.

EMPLOYEES
The  Company  employs  forty-four  people,   forty-two  of  whom  are  full-time
employees.   We  anticipate  that  staffing  requirements  associated  with  the
implementation of our plan of operation will result in the addition of a minimum
of twenty-five people during the period ending June 2001. Such personnel will be
added to assist with the  programming  requirements  of our  Customers'  product
offerings, for customer support, and sales and marketing.  None of our employees
are  covered by a  collective  bargaining  agreement,  and we  believe  that our
relationship with our employees is satisfactory.

                                      -7-

<PAGE>


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.

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 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.  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. 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.

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

None.


                                      -8-
<PAGE>


                                     PART II

ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-------

On May 16, 2000,  SmartServ's  $.01 par value common stock commenced  trading on
the Nasdaq  National  Market as SSOL. On this 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.

On October 15, 1998, our stockholders approved a one-for-six reverse stock split
which became effective on October 26, 1998.

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.  Such amounts (and all other
share and price  information  contained in this  document) have been adjusted to
reflect the reverse stock split.
<TABLE>
<CAPTION>

                                                    COMMON STOCK                        WARRANTS
                                                    ------------                        --------
                                                HIGH             LOW               HIGH            LOW
                                                ----             ---               ----            ---

Year Ended June 30, 2000
------------------------
<S>                                          <C>               <C>               <C>             <C>
First Quarter                                $   1.531         $  .719           $  .156         $   .063
Second Quarter                                  24.625            .719             6.500             .070
Third Quarter                                  186.000          17.625            64.000            5.000
Fourth Quarter                                 129.000          25.000            47.031           10.500

Year Ended June 30, 1999
------------------------
First Quarter                                $   4.313         $ 1.875           $ 2.250         $   .375
Second Quarter                                   4.125           1.031              .531             .063
Third Quarter                                    4.875           1.500              .625             .063
Fourth Quarter                                   2.500           1.500              .250             .100
</TABLE>


As of September 25, 2000, we had  5,814,841  shares of common stock  outstanding
held by 100  record  holders.  We  estimate  that  our  common  stock is held by
approximately 2,000 beneficial holders. As of such date, we had 1,725,000 public
warrants outstanding held by 16 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.

RECENT SALES OF UNREGISTERED SECURITIES

In May 1997,  we issued a $550,000  promissory  note and  warrants  to  purchase
51,875 shares of common stock to Zanett Lombardier,  Ltd. for $550,000.  In each
of July and September 1997, we issued an additional $111,111 promissory note and
warrants to  purchase  an  additional  10,478  shares of common  stock to Zanett
Lombardier for $111,111. The warrants are subject to antidilution provisions and
have exercise prices of $4.34 and $5.30 per share. Zanett Securities Corporation
received fees of $78,576 for its services in connection with such  transactions.
Additionally, Zanett Securities Corporation received warrants to purchase 18,206
shares of Common Stock. Such warrants are subject to antidilution

                                      -9-
<PAGE>

provisions and have exercise prices of $4.34 and $5.30. The promissory notes and
warrants were issued in reliance upon the exemption from  registration  provided
by Section 4 (2) of the Securities Act.

In September  1997, we issued warrants to purchase 50,083 shares of Common Stock
to  Zanett  Lombardier  as a  default  penalty  under  notes  issued  to  Zanett
Lombardier.  The warrants have an exercise  price of 50% of the closing price of
the  Company's  Common  Stock on the exercise  date.  In November  1999,  Zanett
Lombardier  exercised on a cashless  basis all of such  warrants in exchange for
25,042 shares of common stock. No sales commissions were paid in connection with
such  transactions.  The  warrants  and shares were issued in reliance  upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

In September  1997,  we issued 4,000  prepaid  common  stock  purchase  warrants
("Prepaid Warrants") to 12 investors for $4,000,000. Included in such amount was
$772,222 of the promissory notes issued to Zanett Lombardier Ltd. and $63,837 of
accrued   interest   thereon  which  were  cancelled  in  connection  with  this
transaction. The Prepaid Warrants are convertible into a number of shares of our
common stock that is equal to $1,000 divided by the applicable  exercise  price.
The exercise  price is 70% of the average  closing bid price of the common stock
for the 10 trading  days ending on the day prior to  exercise of such  warrants,
reduced by 1% for each 60 day period the Prepaid  Warrants  remain  unexercised,
but in no event above $8.40 per share.  Pursuant to an amendment of the terms of
the Prepaid Warrants because of the Company's default  thereunder,  the exercise
price of the remaining  $612,000 of Prepaid  Warrants shall not exceed $1.40 per
share.  Zanett  Securities  Corporation  received a commission  of $400,000,  an
unaccountable  expense  allowance of $120,000,  and warrants to purchase 155,627
shares, subject to antidilution  provisions,  of common stock at $4.34 per share
in  connection  with such  transaction.  The Prepaid  Warrants  and the warrants
issued  to Zanett  Securities  Corporation  were  issued  in  reliance  upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

In September 1997, we issued warrants to purchase 130,035 shares of common stock
to Bruno Guazzoni and, subject to stockholder  approval,  agreed to issue to him
warrants  to  purchase  an  additional  792,201  shares of common  stock.  These
additional  warrants were approved by the stockholders and issued in April 1998.
The warrants are subject to  antidilution  provisions and have an exercise price
of $4.34 per  share.  No sales  commissions  were paid in  connection  with such
transaction.  The  warrants  were issued in  reliance  upon the  exemption  from
registration provided by Section 4 (2) of the Securities Act.

Between  January 1998 and June 30, 2000, an aggregate of 3,063 Prepaid  Warrants
were  converted  into an aggregate of 1,209,740  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 1998, we issued warrants to purchase 16,666 shares of common stock to
Ehrenkrantz  King and Nussbaum,  Inc. in connection with an investment  advisory
contract. The warrants had an exercise price of $3.75. No sales commissions were
paid in connection with such transactions.  The warrants were 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 upon exercise of
the warrants. Proceeds from the exercise of the warrants were $62,497.

In March 1998, we issued  warrants to purchase  20,833 shares of common stock to
Steve Rosner, a financial  advisor to the Company,  at exercise prices of $15.75
to $19.50.  In January 1999, we agreed to cancel these warrants and to grant Mr.
Rosner  warrants to purchase 40,833 shares of common stock at $.60 per share for
his efforts in arranging our relationship  with Spencer Trask  Securities,  Inc.
These  warrants  expire on March 4, 2003 and January 19, 2004 and were issued in
reliance upon the exemption from  registration  provided by Section 4 (2) of the
Securities  Act. In March 2000,  we issued  40,833  shares of common  stock upon
exercise  of the  warrants.  Proceeds  from the  exercise of the  warrants  were
$24,500.

                                      -10-
<PAGE>

In August 1998,  we issued  32,953  shares of common stock to Zanett  Lombardier
Ltd. and 17,047 shares of common stock to Bruno  Guazzoni in  consideration  for
their agreeing to certain  restrictions on the exercise of the Prepaid  Warrants
and the resale of the shares of common stock  issuable on exercise  thereof.  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  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. 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 2000, we
issued 3,000 shares of common stock upon exercise of the warrants. Proceeds from
the exercise of the warrants were $9,000.

In November  1998,  we issued  125,000  shares of Common  Stock and  warrants to
purchase  16,667  shares of Common Stock,  exercisable  at $5.00 per share until
November 11, 2001, to Steven Francesco,  a former SmartServ officer,  as partial
consideration  for the  settlement  of his claims  against us and certain of our
officers and directors. The shares and 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 February
2000 we issued  16,667  shares of common  stock upon  exercise of the  warrants.
Proceeds from the exercise of the warrants were $83,335.

In November and December  1998, we issued  convertible  promissory  notes in the
amount of $500,000  and warrants to purchase  833,333  shares of common stock to
investors  for  $500,000.  Such  warrants  were  exercisable  at $.60 per share.
Spencer Trask  Securities,  Inc., the placement agent,  received a commission of
$50,000 and an  unaccountable  expense  allowance of $15,000 in connection  with
such transaction. Additionally, we issued warrants to purchase 166,667 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 998,509 shares of common stock upon exercise of these  warrants.
Proceeds from the exercise of these warrants were $560,000.

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  January  1999,  we issued a  convertible  promissory  note in the  amount of
$50,000  and  warrants  to  purchase  83,333  shares  of  common  stock to Bruno
Guazzoni,  an investor in our Prepaid  Warrants for $50,000.  Such  warrants are
exercisable  at $.60 per share and expire on November 19, 2003.  Spencer  Trask,
the placement agent,  received a commission of $5,000, an unaccountable  expense
allowance  of $1,500 and warrants to purchase  16,667  shares of common stock at
$.72 per share in connection with this transaction.  The promissory note and the
warrants were issued in reliance upon the exemption from  registration  provided
by Section 4 (2) of the Securities  Act. In May 2000, we issued 16,667 shares of
common stock to Spencer Trask upon  exercise of the warrants.  Proceeds from the
exercise of the warrants were $12,000.

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,  a
financial advisor to SmartServ.  As consideration for such services,  we granted
Mr. Rosner  warrants to purchase  100,000

                                      -11-
<PAGE>

shares of common stock at an exercise  price of $2.625 per share and warrants to
purchase  100,000 shares of common stock at $3.65 per share. In consideration 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 July 2, 2003 and October 24,
2004. 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 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 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,  our Board of Directors  approved the payment to Sebastian E.
Cassetta and Mario F. Rossi in stock of the bonus 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.  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  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 January 2000, we issued 618,239 shares of common stock to Sebastian  Cassetta
in connection with a restricted stock purchase  agreement  between SmartServ and
Mr. Cassetta.  SmartServ received cash in the 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.

                                      -12-
<PAGE>

In January  2000,  we issued  206,080  shares of common  stock to Mario 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. Proceeds from the issuance of these shares were
$3,495,000. These shares and warrants were issued in reliance upon the exemption
from registration provided by Section 4 (2) of the Securities Act.

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 January 2000, we issued to Data  Transmission  Network  Corporation a warrant
for the  purchase  of 300,000  shares of our common  stock at $8.60 per share in
exchange for  $324,000.  The warrant will expire on November 17, 2000.  No sales
commissions  were paid in  connection  with such  transaction.  In June 2000, we
issued  200,000  shares of common  stock upon  partial  exercise of the warrant.
Proceeds from the exercise of the warrant were  $1,720,000.  The warrant and the
shares were issued in reliance upon the exemption from registration  provided by
Section 4 (2) of the Securities Act.

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 and June  2000,  we issued an  aggregate  of 95,000  shares of our common
stock to Wireless Acquisition  Partners,  LLC, at prices ranging from $12 to $24
per share upon the cashless  exercise of warrants to purchase  such shares.  The
shares were issued in reliance upon the exemption from registration  provided by
Section 4(2) of the Securities Act.

In May 2000, we completed an offering of 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 sale of these  shares was exempt  from the  registration
requirements of the Securities Act pursuant to Section 4(2) thereof.

                                      -13-
<PAGE>


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

SmartServ  is a  business-to-business  Web  and  wireless  application  services
provider    specializing    in   building   and   hosting    content-rich    and
transaction-intensive  applications  for both mobile wireless and fixed wireline
users. We deliver Internet-based  content and trade order routing solutions,  as
well as "Web-to-Wireless"  applications  designed to facilitate  e-commerce.  We
have developed online financial,  transactional and media  applications  using a
unique  "device-independent"  delivery  solution and have designed  applications
that enable the receipt of  information  and the  execution of  transactions  on
wireless handsets, computers and personal digital assistants.

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,   carriers  and  other
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 clients. 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-five  people during the period ending June 30, 2001.  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.

RESULTS OF OPERATIONS

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 $954,048.
Such  costs  consisted   primarily  of  information  and   communication   costs
($182,000), personnel costs ($260,900), computer

                                      -14-
<PAGE>

hardware leases and maintenance  ($356,000) and systems consultants  ($104,400).
During the year ended June 30, 1999, we incurred  costs of services of $992,741.
Such  costs  consisted   primarily  of  information  and   communication   costs
($267,600), personnel costs ($288,400), computer hardware leases and maintenance
($339,400),  and systems consultants  ($97,300).  Product development costs were
$383,042  versus  $193,188  for the year ended June 30,  1999.  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 of Financial
Accounting  Standards No. 86,  "Accounting for the Costs of Computer Software to
be Sold,  Leased or Otherwise  Marketed  ("Statement 86").  Product  development
costs  consisted   primarily  of  the   amortization  of  capitalized   software
development costs.

During  the  year  ended  June  30,  2000,  we  incurred  selling,  general  and
administrative expenses of $3,998,405 versus. $2,695,999 for the year ended June
30, 1999. During the year ended June 30, 2000 such costs were incurred primarily
for  personnel  costs  ($1,899,200),   facilities   ($267,800),   marketing  and
advertising    costs    ($668,800),    professional    fees   ($952,100),    and
telecommunications  costs  ($87,700).  Personnel  costs  increased  by  $767,800
primarily from our efforts to built our marketing and sales infrastructure while
marketing and advertising costs increased $405,700 as a result of our efforts to
increase  marketplace  awareness of our company and its product line. During the
year ended June 30, 1999, such costs were incurred primarily for personnel costs
($1,131,400), facilities ($240,500), marketing and advertising costs ($263,100),
professional fees ($856,000) and telecommunications costs ($69,500).

During  the  year  ended  June  30,  2000,   noncash   charges  for  stock-based
compensation  amounted to  $30,271,024  compared to  $1,312,324  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  Accounting  Principles  Board Opinion No. 25,
"Accounting for Stock Issued to Employees"  ("APB No. 25").  Certain 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 such common stock  purchase  warrants was 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  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 such amount 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.

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.


                                      -15-
<PAGE>


FISCAL YEAR ENDED JUNE 30, 1999 VERSUS FISCAL YEAR ENDED JUNE 30, 1998

During  the year  ended June 30,  1999,  we  recorded  revenues  of  $1,443,781.
Substantially  all of such revenues were earned through our licensing  agreement
with Data Transmission  Network.  During the year ended June 30, 1998, we earned
revenues  of  $873,476.  Of  such  amount,   $210,000  was  earned  through  the
relationship  with Data  Transmission  Network,  while  $454,000 was earned from
sales of the SmartServ Pro stock quote services.

During the year ended June 30, 1999, we incurred  costs of services of $992,741.
Such  costs  consisted   primarily  of  information  and   communication   costs
($267,600), personnel costs ($288,400), computer hardware leases and maintenance
($339,400)  and systems  consultants  ($97,300).  During the year ended June 30,
1998,  we  incurred  costs of  revenues  of  $1,216,761.  Such  costs  consisted
primarily of information and  communication  costs  ($551,700),  personnel costs
($310,600), and computer hardware leases and maintenance ($339,300). Information
and  communication  costs  decreased in 1999 compared to 1998 as a result of the
licensing  agreement  entered  into  between  SmartServ  and  Data  Transmission
Network.  Personnel  costs decreased in 1999 compared to 1998 as a result of the
migration of personnel resources into product development areas in 1999. Product
development  costs were  $193,188  versus  $923,082  for the year ended June 30,
1998.  The  decrease  in  the  product   development   costs  results  from  the
capitalization  of  software   development  costs  related  to  certain  product
enhancements  in  accordance  with  Statement 86. During the year ended June 30,
1999, we capitalized  $765,000 of development costs in accordance with Statement
86. No such costs were capitalized  during the year ended June 30, 1998.  During
the year ended June 30, 1999, product  development costs consisted  primarily of
the  amortization of capitalized  software  development  costs.  During the year
ended June 30, 1998, product  development costs consisted primarily of personnel
costs ($541,400) and computer system consultants ($335,000).

During  the  year  ended  June  30,  1999,  we  incurred  selling,  general  and
administrative  expenses of $2,695,999 versus $2,561,364 for the year ended June
30,  1998.  During  the year  ended June 30,  1999,  such  costs  were  incurred
primarily for personnel costs ($1,131,400), facilities ($240,500), marketing and
advertising    costs    ($263,100),    professional    fees   ($856,000),    and
telecommunications  costs  ($69,500).  During the year ended June 30, 1998, such
costs were  incurred  primarily  for personnel  costs  ($1,349,000),  facilities
($216,000),  marketing  and  advertising  costs  ($240,400),  professional  fees
($390,800) and telecommunications costs ($73,100).

During  the  year  ended  June  30,  1999,   noncash   charges  for  stock-based
compensation  amounted to $1,312,324  compared to $660,576 during the year ended
June 30, 1998. Such noncash  charges  resulted from the issuance of common stock
purchase warrants to various financial and marketing  consultants.  The value of
such  common  stock  purchase  warrants  was  recorded  in  accordance  with the
Black-Scholes pricing methodology.

Interest  income for the year  ended June 30,  1999  amounted  to $4,767  versus
$40,788 for the year ended June 30, 1998.  Such  amounts  were earned  primarily
from our investments in highly liquid commercial  paper.  Interest and financing
costs for the year ended June 30, 1999 were $3,378,422. Such costs were incurred
primarily  in  connection  with  the  issuance  of  the  8%  convertible   notes
($2,254,700) and our default pursuant to the Prepaid Warrants  ($1,095,700).  Of
such amounts,  $2,593,800  were noncash charges for the issuance of common stock
or warrants to purchase common stock as settlement of such obligations. Interest
and financing costs for the year ended June 30, 1998 were $592,490.  These costs
were incurred in connection with the origination of the May 1997 line of credit.
Of such amount,  $463,600  represents the noncash  charges  associated  with the
issuance of certain common stock purchase warrants.

Loss per share was $6.44 per share for year ended June 30, 1999 versus $7.65 per
share for the year ended June 30, 1998. While the net loss increased $2,084,117,
our weighted  average  shares of common stock  outstanding  in 1999 increased by
446,569 shares, thereby affecting the per share loss.


                                      -16-
<PAGE>


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 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.  We have  agreed to  continue  to operate  these  products  and
provide maintenance and enhancement services in exchange for a percentage of the
revenues  earned by Data  Transmission  Network  therefrom.  The  companies  are
currently  negotiating  a further  amendment to the Licensing  Agreement,  under
which,  in  consideration  for a  copy  of the  application  source  code,  Data
Transmission  Network will return 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 will market these applications in both wireline and wireless platforms
in conjunction with Strategic Marketing Partners worldwide.  Under this proposed
amendment it is anticipated that SmartServ will continue to provide  maintenance
and enhancement  services through December 2000, and operational support through
September 2001.  SmartServ's  monthly  revenues will be based on a percentage of
Data Transmission  Network's  revenues through September 2001, such revenues not
to exceed $83,000 per month.

In  November  1998,  we  completed a financing  for  $550,000.  We sold five and
one-half (5.5) units,  each  consisting of a secured  convertible 8% note in the
principal  amount of $100,000 and warrants to purchase  common stock.  The notes
and the warrants were initially  convertible and exercisable,  respectively,  at
$.60 per share of common stock. Such notes were repaid in June 1999.

In July 1999, we entered into an agreement with Arnhold & S. Bleichroeder,  Inc.
to settle our  obligation to Arnhold & S.  Bleichroeder  pursuant to the default
provisions of the Prepaid Warrants.  In accordance with that agreement,  we paid
Arnhold & S.  Bleichroeder,  Inc.  $325,000 to redeem the Prepaid  Warrants  and
issued 180,000 shares of common stock in full settlement of all obligations.

In January 2000, we issued 306,667  shares of common stock to certain  investors
in the November 1998 interim financing upon the exercise of warrants to purchase
such shares. Proceeds from the exercise of these warrants were $184,000.

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 a share.  The net proceeds of the placement of  $3,215,400  were used for
general  working  capital  requirements.  In  addition  we  completed  a private
placement  of an  additional  100,000  shares of common stock at $15.00 a share.
There was no placement agent for these shares. The net proceeds of the placement
of $1,500,000 were used for general working capital requirements.

During the year ended June 30, 2000, we issued  1,548,842 shares of common stock
to  investors  upon the exercise of warrants to purchase  such shares.  Proceeds
from the exercise of these warrants were $3,466,200.

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  products  and
services, and to work on the build-out of SmartServ's domestic and international
infrastructure.  In furtherance of these objectives Hewlett-Packard will provide
us with up to $20,000,000 in secured  financing for the  acquisition of approved


                                      -17-
<PAGE>

hardware,  software and services,  subject to SmartServ's  continuing compliance
with  certain  financial  covenants.  The debt is evidenced by a 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.

At June 30, 2000, we have 1,725,000 public warrants (SSOLW) and 300,000 warrants
with terms  identical to the public  warrants  outstanding.  These  warrants are
currently  convertible  into our common  stock at the ratio of one  warrant  per
 .5174  share of common  stock at an  exercise  price of $7.73 per  share.  These
warrants are  redeemable by SmartServ on not less than 30 days written notice at
the  redemption  price of $.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% 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 $8,000,000.

While we  reported  a loss from  operations  of  $31,910,000,  our net loss from
operations exclusive of stock-based compensation costs was $1,639,000. Cash used
in  operations  was  $1,529,000,  while cash used for investing  activities  was
$1,541,000.  Of the amount used for investing activities,  $1,100,000 represents
funds used in the development of our software applications.

We are currently involved in two lawsuits.  Although we are vigorously defending
these  actions,  there  can be no  assurance  that we will  be  successful.  The
unfavorable  outcome of either of these  actions  could have a material  adverse
effect on our financial  condition and cash flows.  See Note 10 to the financial
statements for a more detailed discussion of these actions.

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 Company does not believe that the adoption of
SAB 101 will have a material affect on the Company's financial results.

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,  changes in
management's  estimates  incident to accounting for contracts,  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.

                                      -18-
<PAGE>


ITEM 7.    FINANCIAL STATEMENTS
------
<TABLE>
<CAPTION>
                                                                                                        PAGE
                                                                                                        ----
<S>                                                                                                        <C>
Report of Independent Auditors                                                                             20

Balance Sheets as of June 30, 2000 and 1999                                                                21

Statements of Operations for the years
     ended June 30, 2000, 1999 and 1998                                                                    23

Statement of Stockholders' Equity (Deficiency)
     for the years ended June 30, 2000, 1999 and 1998                                                      24

Statements of Cash Flows for the years
     ended June 30, 2000, 1999 and 1998                                                                    27

Notes to Financial Statements                                                                              28
</TABLE>

                                      -19-
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
SmartServ Online, Inc.

We have audited the accompanying  balance sheets of SmartServ Online, Inc. as of
June 30, 2000 and 1999, and the related statements of operations,  stockholders'
equity  (deficiency),  and cash flows for each of the three  years in the period
ended June 30, 2000. 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 financial  statements  referred to above present fairly, in
all material respects,  the financial position of SmartServ Online, Inc. at June
30, 2000 and 1999, and the results of its operations and its cash flows for each
of the three  years in the  period  ended  June 30,  2000,  in  conformity  with
accounting principles generally accepted in the United States.

/S/ ERNST & YOUNG LLP

Stamford, Connecticut
August 15, 2000, except
for footnote 13 as to
which the date is
September 28, 2000


                                      -20-
<PAGE>

                             SMARTSERV ONLINE, INC.

                                 BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                             JUNE 30

                                                                             -----------------------------------------
                                                                                    2000                  1999
                                                                             ------------------- -- ------------------
ASSETS
Current assets
<S>                                                                           <C>                   <C>
   Cash and cash equivalents                                                  $    24,016,345       $     2,165,551
   Accounts receivable                                                                236,498               348,278
   Prepaid expenses                                                                   213,956                50,150
                                                                             -------------------    ------------------
Total current assets                                                               24,466,799             2,563,979
                                                                             -------------------    ------------------

Property and equipment, net                                                           687,439               498,448

Other assets
   Capitalized software development costs,
       net of accumulated amortization of $412,236 at
       June 30, 2000 and $82,108 at June 30, 1999                                   1,475,212               683,337
   Security deposit                                                                    73,374                74,834
                                                                             -------------------    ------------------
                                                                                    1,548,586               758,171
                                                                             -------------------    ------------------

Total Assets                                                                  $    26,702,824       $     3,820,598
                                                                             ===================    ==================
</TABLE>

See accompanying notes.

                                      -21-
<PAGE>

                             SMARTSERV ONLINE, INC.

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                             JUNE 30
                                                                             -----------------------------------------
                                                                                    2000                   1999
                                                                             -------------------    ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
<S>                                                                           <C>                   <C>
   Accounts payable                                                           $     1,482,019       $       780,543
   Accrued liabilities                                                              1,097,289               637,779
   Accrued liabilities to warrant holders                                                  --             1,311,365
                                                                             -------------------    ------------------
Total current liabilities                                                           2,579,308             2,729,687
                                                                             -------------------    ------------------

Deferred revenues                                                                   4,141,579             5,798,211

COMMITMENTS AND CONTINGENCIES - NOTE 10

STOCKHOLDERS' EQUITY (DEFICIENCY)
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 - 5,576,894 at June 30, 2000
      and 1,199,787 shares at June 30, 1999                                            55,768                11,998
Common stock subscribed                                                                    --             1,812,554
Additional paid-in capital                                                         75,842,858            20,679,611
Notes receivable from officers                                                       (666,841)           (1,812,554)
Unearned compensation                                                              (2,310,284)           (3,452,904)
Accumulated deficit                                                               (52,939,564)          (21,946,005)
                                                                             -------------------    ------------------
Total stockholders' equity (deficiency)                                            19,981,937            (4,707,300)
                                                                             -------------------    ------------------

Total Liabilities and Stockholders' Equity (Deficiency)                       $    26,702,824       $     3,820,598
                                                                             ===================    ==================
</TABLE>

See accompanying notes.


                                      -22-
<PAGE>

                             SMARTSERV ONLINE, INC.

                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                            YEAR ENDED JUNE 30
                                                     -----------------------------------------------------------------
                                                            2000                  1999                   1998
                                                     -------------------   -------------------   ---------------------
<S>                                                  <C>                   <C>                     <C>
Revenues                                                 $ 3,696,133           $ 1,443,781             $   873,476
                                                     -------------------   -------------------   ---------------------

Costs and expenses
   Cost of services                                         (954,048)             (992,741)             (1,216,761)
   Product development expenses                             (383,042)             (193,188)               (923,082)
   Selling, general and administrative
       expenses                                           (3,998,405)           (2,695,999)             (2,561,364)
   Stock-based compensation                              (30,271,024)           (1,312,324)               (660,576)
                                                     -------------------   -------------------   ---------------------

Total costs and expenses                                 (35,606,519)           (5,194,252)             (5,361,783)
                                                     -------------------   -------------------   ---------------------

Loss from operations                                     (31,910,386)           (3,750,471)             (4,488,307)
                                                     -------------------   -------------------   ---------------------

Other income (expense):
   Interest income                                           241,402                 4,767                  40,788
   Interest expense                                           (2,275)             (167,839)                (57,485)
   Debt origination and other financing costs                677,700            (3,210,583)               (535,005)
                                                     -------------------   -------------------   ---------------------

                                                             916,827            (3,373,655)               (551,702)
                                                     -------------------   -------------------   ---------------------

Net loss                                             $   (30,993,559)       $   (7,124,126)        $    (5,040,009)
                                                     ===================   ===================   =====================

Basic and diluted loss per share                     $        (11.42)      $         (6.44)        $         (7.65)
                                                     ===================   ===================   =====================

Weighted average shares outstanding                        2,712,931             1,105,603                 659,034
                                                     ===================   ===================   =====================
</TABLE>

See accompanying notes.


                                      -23-
<PAGE>


                             SMARTSERV ONLINE, INC.

                 STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
                                                                        NOTES
                                   COMMON STOCK          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 June 30, 1997       615,832   $  6,158      $     --      $     --    $  9,077,384  $       --    $ (9,781,870)

Issuance of 4,000 Prepaid
   Common Stock Purchase
   Warrants; net of direct
   costs of $545,000                 --         --            --            --       3,455,000          --              --

Conversion of 1,429.33
  Prepaid Common Stock
  Purchase Warrants into
  Common Stock                  220,395      2,204            --            --          (2,204)         --              --

Issuance of Common Stock
   Purchase Warrants to a
   financial consultant in
   connection with the
   issuance of 4,000 Prepaid
   Common Stock Purchase
   Warrants                          --         --            --            --       5,145,500  (5,145,500)             --

Issuance of Common Stock
   Purchase Warrants in
   connection with the                                                                                                  --
   issuance of notes                 --         --            --            --         388,900          --

Issuance of Common Stock
  Purchase Warrants in
  connection with investment
  advisory contracts                 --         --            --            --         120,000          --              --

Amortization of unearned
  compensation                       --         --            --            --              --     527,576              --

Net loss for the year                --         --            --            --              --          --      (5,040,009)
                              ----------------------------------------------------------------------------------------------

Balances at June 30, 1998       836,227   $  8,362    $       --    $       --    $ 18,184,580  $ (4,617,924) $ (14,821,879)
                              ----------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.


                                      -24-
<PAGE>

                             SMARTSERV ONLINE, INC.

                 STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)

                                   (Continued)
<TABLE>
<CAPTION>
                                                                        NOTES
                                   COMMON STOCK          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 June 30, 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 Common Stock
   Purchase Warrants in
   connection with
   prepayments made by a
   marketing partner                 --          --            --           --           6,300           --             --

Issuance of Common Stock
   Purchase Warrants 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 Common Stock
  Purchase Warrants as
  compensation for services           --         --             --           --         59,000           --              --

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

Issuance of Common Stock
  Purchase Warrants in
  connection with a
  licensing agreement                 --         --             --           --        324,000            --             --
</TABLE>

See accompanying notes.


                                      -25-
<PAGE>

                             SMARTSERV ONLINE, INC.

                 STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)

                                   (Continued)
<TABLE>
<CAPTION>

                                                                        NOTES
                                    COMMON STOCK          COMMON      RECEIVABLE    ADDITIONAL
                                               PAR         STOCK         FROM        PAID-IN       UNEARNED      ACCUMULATED
                               SHARES         VALUE     SUBSCRIBED     OFFICERS      CAPITAL     COMPENSATION      DEFICIT
                               ----------------------- ------------- ------------- ------------- -------------- --------------
<S>                            <C>           <C>         <C>                        <C>           <C>            <C>
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)

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.


                                      -26-
<PAGE>


                             SMARTSERV ONLINE, INC.

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                YEAR ENDED JUNE 30
                                                              -------------------------------------------------------
                                                                    2000                1999              1998
                                                              ------------------   ---------------   ----------------
OPERATING ACTIVITIES
<S>                                                             <C>                <C>               <C>
Net loss                                                        $ (30,993,559)     $ (7,124,126)      $ (5,040,009)
Adjustments  to  reconcile  net loss to net cash  provided by
(used for) operating activities:
       Depreciation and amortization                                  560,472           278,646            193,601
       Provision for losses on and write-off of receivables                --                --             (1,300)
       Noncash interest costs                                              --            12,524             52,837
       Noncash debt origination and other financing costs            (717,670)        2,593,808            475,527
       Noncash compensation costs                                  28,991,104            18,304                 --
       Noncash consulting services                                  1,279,920         1,349,020            660,576
       Amortization of unearned revenues                           (1,656,632)       (1,112,138)          (251,058)
       Settlement of litigation                                            --                --            145,750
       Changes in operating assets and liabilities
          Accounts receivable                                         111,780          (237,227)            40,031
          Prepaid expenses                                           (163,806)          (44,547)           (25,878)
          Accounts payable and accrued liabilities                  1,151,075           781,264            344,441
          Salaries payable                                            (93,443)           36,135             (9,093)
          Unearned revenues                                                --         6,121,776          1,002,193
          Security deposit                                              1,460            (4,397)            10,781
                                                              ------------------   ---------------   ----------------
Net cash provided by (used for) operating activities               (1,529,299)        2,669,042         (2,401,601)
                                                              ------------------   ---------------   ----------------

INVESTING ACTIVITIES

Capitalization of software development costs                       (1,122,003)         (765,445)                --
Purchase of equipment                                                (419,335)          (84,449)           (60,424)
                                                              ------------------   ---------------   ----------------
Net cash used for investing activities                             (1,541,338)         (849,894)           (60,424)
                                                              ------------------   ---------------   ----------------

FINANCING ACTIVITIES

Proceeds from the issuance of warrants                                 24,746           324,000          2,643,941
Proceeds from the issuance of common stock                         26,031,723                --                 --
Repayment of officers' loans                                            9,012                --                 --
Proceeds from the issuance of short-term notes                             --           478,500            196,500
Repayment of short-term notes                                              --          (691,794)                --
Repayment of capital lease obligation                                 (70,147)          (83,528)           (92,536)
Proceeds of advances from DTN                                              --         2,058,300                 --
Repayment of advances from DTN                                             --        (2,058,300)                --
Costs of issuing securities                                        (1,073,903)          (35,000)           (25,000)
                                                              ------------------   ---------------   ----------------
Net cash provided by (used for) financing activities               24,921,431            (7,822)         2,722,905
                                                              ------------------   ---------------   ----------------

Increase in cash and cash equivalents                              21,850,794         1,811,326            260,880
Cash and cash equivalents - beginning of year                       2,165,551           354,225             93,345
                                                              -----------------    ---------------   ----------------
Cash and cash equivalents - end of year                         $ 24,016,345       $  2,165,551      $     354,225
                                                              =================    ===============   ================
</TABLE>
See accompanying notes.


                                      -27-
<PAGE>


                             SMARTSERV ONLINE, INC.

                          NOTES TO FINANCIAL STATEMENTS

1.   NATURE OF BUSINESS

SmartServ  Online,  Inc.  commenced  operations  on August 20, 1993.  We deliver
Internet-based and wireless content, as well as "Web-to-Wireless"  applications,
such as  securities  trade order  routing,  that enable  e-commerce by providing
transactional  and  information  services to our alliance  partners or Strategic
Marketing Partners. We have developed online financial,  transactional and media
applications  using a unique  "device  independent"  delivery  solution and make
these services  available to wireless handsets and personal digital  assistants,
personal  computers  and the  Internet  through  our  application  software  and
communications  architecture.  Our services  facilitate  stock trading and other
e-commerce transactions, as well as the dissemination of real-time stock quotes,
business and financial  news,  sports  information,  private-labeled  electronic
mail, 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.
Management  believes that SmartServ's primary source of revenues will be derived
from  consumers  who purchase the services  through  these  Strategic  Marketing
Partners.  Through the use of this strategy,  the consumer is a customer of both
SmartServ and its Strategic  Marketing Partner. We also believe that the sale of
our  information  and transaction  services  through the cooperative  efforts of
Strategic  Marketing Partners with more recognizable brand names than our own is
important to our success.

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.

Our stockholders approved a one-for-six reverse stock split at a Special Meeting
on October 15, 1998.  Such reverse  stock split became  effective on October 26,
1998. All applicable  financial  statement amounts and related  disclosures have
been restated to give effect to this transaction.

USE OF ESTIMATES
----------------
The preparation of financial  statements in conformity  with generally  accepted
accounting principles 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.  Deferred revenues  resulting from our agreement with
Data Transmission  Network  Corporation are being amortized over the anticipated
future revenue stream, a period of 42 months, commencing June 1, 1999.

BASIC AND DILUTED EARNINGS PER SHARE
------------------------------------
The weighted  average shares  outstanding  are determined as the mean average of
the shares outstanding and assumed to be outstanding during the period.


                                      -28-
<PAGE>


CAPITALIZED SOFTWARE DEVELOPMENT COSTS
--------------------------------------
In  connection  with certain  contracts  entered into between  SmartServ and its
Strategic  Marketing  Partners,  as well as other projects,  we have capitalized
costs related to certain product  enhancements  and  application  development in
accordance with Statement of Financial  Accounting Standards No. 86, "Accounting
for the Costs of Computer  Software to be Sold,  Leased or Otherwise  Marketed",
effective July 1, 1998.

FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amounts of our financial instruments approximate fair value.

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.

Interest, debt origination and other financing costs paid during the years ended
June 30, 2000, 1999 and 1998 were $2,275, $101,974 and $32,536, 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.  While our commercial  paper  investments  are short-term and highly
liquid, it is management's  policy to invest in only those companies with a AAA
credit rating.  There is no single geographic  concentration of sales or related
accounts  receivable in the United States. At June 30, 2000, accounts receivable
consist  principally of amounts due from Data Transmission  Network  ($168,300),
and  a  telecommunications   company  ($24,100).   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  has been  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  $91,700,
$20,500 and $97,100 in 2000, 1999 and 1998, 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  this  stock   compensation  plan  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
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.

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. We do not believe that the adoption of SAB 101 will
have a material affect on our financial results.

RECLASSIFICATIONS
-----------------
Certain  amounts in the 1999 and 1998  presentations  have been  reclassified to
conform to the 2000 presentation.

                                      -29-
<PAGE>


3.   PROPERTY AND EQUIPMENT

Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                                                             JUNE 30
                                                                            ------------------------------------------
                                                                                   2000                    1999
                                                                            -------------------      -----------------
<S>                                                                         <C>                      <C>
   Data processing equipment                                                $     1,109,828          $      700,210
   Data processing equipment purchased under a capital lease                        246,211                 246,211
   Office furniture and equipment                                                    81,140                  71,423
   Display equipment                                                                  9,635                   9,635
   Leasehold improvements                                                            36,678                  36,678
                                                                            -------------------      -----------------
                                                                                  1,483,492               1,064,157
   Accumulated depreciation, including $155,933 and
       $106,691 for equipment purchased under a capital lease                      (796,053)               (565,709)
                                                                            -------------------      -----------------
                                                                            $       687,439          $        498,448
                                                                            ===================      =================
</TABLE>

4.   NOTES PAYABLE

Commencing November 1998, we sold five and one-half (5.5) units, each consisting
of a  secured  8%  convertible  note in the  principal  amount of  $100,000  and
warrants to purchase our common stock. The convertible notes were repaid in June
1999. In addition to customary fees and expenses, Spencer Trask Securities, Inc.
("Spencer  Trask"),  the placement  agent,  received for nominal  consideration,
warrants to purchase ten percent  (10%) of the shares of SmartServ  common stock
issuable on  conversion  of the notes and  exercise of the  warrants at $.72 per
share. The issuance to the noteholders of warrants to purchase 916,667 shares of
common  stock,  as well as those  issued to Spencer  Trask for the  purchase  of
183,333  shares  of  common  stock  have  been  valued  in  accordance  with the
Black-Scholes  pricing  methodology  and recorded as debt  origination and other
financing  costs.  Also in connection  with the 8%  convertible  notes,  we have
recorded a non-cash  charge for debt  origination  and other  financing costs of
$550,000 representing the perceived cost of the beneficial conversion feature of
the notes.  Emerging  Issues Task Force Issue 98-5,  "Accounting for Convertible
Securities  with  Beneficial  Conversion  Features  or  Contingently  Adjustable
Conversion  Ratios" ("Issue 98-5") defines the beneficial  conversion feature as
the  non-detachable  conversion  feature that is  "in-the-money"  at the date of
issuance.  Issue 98-5 requires the  recognition  of the  intrinsic  value of the
conversion  feature as the difference  between the conversion price and the fair
value of the common stock into which the notes are  convertible.  Such amount is
limited to the proceeds of the  financing  ($550,000)  and has been  recorded in
debt origination and other financing costs as of the date of issuance.

In December  1998,  we executed an  agreement  with a service  provider  whereby
certain of our  obligations,  amounting to $141,794,  were  converted into a 12%
note payable. In June 1999, the outstanding balance of $66,794 was repaid.

5.   EQUITY TRANSACTIONS

In September 1997, The Zanett Securities Corporation  ("Zanett"),  acting as our
placement agent, completed the private placement  ("Placement") of $4 million of
our Prepaid Common Stock Purchase  Warrants  ("Prepaid  Warrants").  The sale of
these  Prepaid  Warrants was exempt from the  registration  requirements  of the
Securities  Act of 1933, as amended,  pursuant to Section 4(2) thereof.  At June
30, 2000,  Prepaid

                                      -30-
<PAGE>

Warrants  with a face  value of  $612,000  were  outstanding  and are  currently
convertible  into 437,142 shares of our common stock.  As  compensation  for its
services, Zanett received a placement fee and an unaccountable expense allowance
of 10% ($400,000) and 3% ($120,000),  respectively, of the gross proceeds of the
Placement. Additionally, we issued warrants to purchase 155,627 shares of common
stock to Zanett that are subject to antidilution  provisions and are exercisable
at $4.34 per share of common stock. These warrants expire on September 30, 2002.

Also in  conjunction  with the  Placement,  we entered into an agreement  with a
financial consultant who is an affiliate of Zanett Lombardier,  Ltd, an investor
in the  Prepaid  Warrants.  During  the  five-year  term of the  agreement  such
consultant  will provide us with  advisory  services  relating to financial  and
strategic  ventures  and  alliances,  investment  banking and general  financial
advisory  services,  and  advice  and  assistance  with our  market  development
activities.  As compensation for these services,  we issued warrants to purchase
922,236  shares  of  common  stock  to  this  consultant  that  are  subject  to
antidilution  provisions and are exercisable at $4.34 per share of common stock.
We have  valued  these  warrants  in  accordance  with  Statement  of  Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation",  and the
Black-Scholes  pricing  methodology  at  $5,145,500  and recorded this amount in
stockholders' equity as unearned  compensation.  Unearned  compensation is being
amortized to income over the five-year  term of the  agreement.  These  warrants
expire on September 30, 2002. We have recorded consulting expense of $1,165,000,
$1,165,000  and  $527,600  for the years  ended  June 30,  2000,  1999 and 1998,
respectively.

During the year ended June 30, 1998, holders of 1,429.33 of our Prepaid Warrants
converted such warrants into 220,395  shares of common stock at exercise  prices
ranging from $3.54 to $8.40 per share.

In August 1998, we issued  32,953  shares of common stock to Zanett  Lombardier,
Ltd. and 17,047  shares of common stock to Bruno  Guazzoni in  consideration  of
their agreement to certain  restrictions on the exercise of Prepaid Warrants and
the resale of the shares of common  stock  issuable  on exercise  thereof.  Such
shares have been  recorded at the fair value of our common stock at that date as
other financing costs.

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  and  have  been  recorded  in   accordance   with  the
Black-Scholes  pricing  methodology as other  financing  costs. In June 1999, in
consideration of the receipt of $324,000,  we agreed to issue Data  Transmission
Network warrants for the purchase of 300,000 shares of our common stock at $8.60
per share. The warrants have been recorded in accordance with the  Black-Scholes
pricing  methodology  and will expire on November  17,  2000.  In June 2000,  we
issued 203,000 shares of common stock upon the partial exercise of the warrants.
Proceeds from the exercise of the warrants were $1,729,000.

In November  1998,  we issued  125,000  shares of common  stock and  warrants to
purchase  16,667  shares of common stock,  exercisable  at $5.00 per share until
November 11, 2001, to Mr.  Steven  Francesco,  a former  SmartServ  officer,  as
partial consideration for the settlement of his claims against us and certain of
our  officers  and  directors.  The value of these  shares has been  recorded in
selling,  general and  administrative  expenses based upon the fair value of our
common stock at that date while the warrants  have been  recorded in  accordance
with the Black-Scholes  pricing methodology.  In February 2000, we issued 16,667
shares of our common stock to Mr.  Francesco upon exercise of the warrants.  The
proceeds from such exercise amounted to $83,335.

In  December  1998,  our Board of  Directors  approved  the terms of  employment
contracts for Sebastian E. Cassetta,  Chairman and Chief Executive Officer,  and
Mario F. Rossi, Senior Vice President of Technology.  Accordingly, SmartServ and
Mr.  Cassetta have entered into an employment  agreement,  effective  January 1,
1999 and expiring on December 31, 2001,  providing for, among other things,  the
sale to him of 618,239 shares of restricted  stock.  SmartServ  received cash in
the amount of $6,182 and a 5 year, non-recourse promissory note in the amount of
$457,497.  The note is secured by the stock and bears an interest rate of 6.75%.
The stock purchase  agreement provides SmartServ with certain repurchase options
and provides Mr.

                                      -31-
<PAGE>

Cassetta with a put option in the event of the termination of his employment.

SmartServ  and  Mr.  Rossi  have  also  entered  into an  employment  agreement,
effective  January 1, 1999 and  expiring on December 31,  2001,  providing  for,
among  other  things,  the sale to him of 206,080  shares of  restricted  stock.
SmartServ  received  cash in the  amount  of $2,061  and a 5 year,  non-recourse
promissory note in the amount of $152,499.  The note is secured by the stock and
bears an interest rate of 6.75%. The stock purchase agreement provides SmartServ
with certain  repurchase options and provides Mr. Rossi with a put option in the
event of the termination of his employment.

In  October  1999,  our  Board of  Directors  authorized  the  repricing  of the
restricted  shares granted to Messrs.  Cassetta and Rossi to $.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.

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.  In
July 1999, we paid $325,000 to redeem the Prepaid  Warrants held by Arnhold & S.
Bleichroeder and issued 180,000 shares of common stock in full settlement of all
obligations to Arnhold & S. Bleichroeder. These shares have been recorded at the
fair  value  of  SmartServ's  common  stock  on the  date of  issuance  as other
financing costs.

In January  1999,  we agreed to cancel  warrants  to purchase  20,833  shares of
common stock  exercisable at $15.75 and $19.50 per share to a financial  advisor
to SmartServ,  and to grant such advisor  warrants to purchase  40,833 shares of
common  stock at $.60 per share for his efforts at  arranging  our  relationship
with Spencer Trask  Securities.  These warrants have been recorded in accordance
with  the   Black-Scholes   pricing   methodology   as   selling,   general  and
administrative  expenses. In March 2000, we issued 40,833 shares of common stock
upon exercise of the  warrants.  Proceeds from the exercise of the warrants were
$24,500.

During the year ended June 30, 1999,  holders of 276.67 of our Prepaid  Warrants
converted such warrants into 178,560  shares of common stock at exercise  prices
ranging from $.75 to $2.38 per share.

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 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 to 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 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, Vice President International  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.

In October  1999,  we  entered  into a  consulting  agreement  with a  financial
advisor. As consideration for such services, we granted this advisor 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 $3.65 per share.  In

                                      -32-
<PAGE>


consideration  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 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
advisor 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,  pursuant to 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.  During the year we recorded  charges to earnings of $74,000 in
connection with these warrants.

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.  In connection  with this  transaction,  we
paid $25,000 and issued  warrants to purchase  18,640  shares of common stock at
$15.00 per share through January 18, 2005 to American First  Associates Corp. 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.

At June 30, 2000, we have 1,725,000 public warrants (SSOLW) and 300,000 warrants
with terms  identical to the public  warrants  outstanding.  These  warrants are
currently  convertible  into our common  stock at the ratio of one  warrant  per
 .5174  share of common  stock at an  exercise  price of $7.73 per  share.  These
warrants are  redeemable by SmartServ on not less than 30 days written notice at
the  redemption  price of $.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% 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.

6.   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 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 that would have
been recorded in the

                                      -33-
<PAGE>

categories of the statement of operations had stock-based  compensation not been
separately stated therein:
<TABLE>
<CAPTION>
                                                                            YEAR ENDED JUNE 30
                                                      --------------------   ----------------------------------------
                                                            2000                    1999                 1998
                                                      --------------------   -------------------   ------------------
<S>                                                         <C>              <C>                   <C>
Costs of revenues                                           $2,749,997       $         1,724       $           --

Selling, general and administrative expenses                27,521,024             1,310,600              660,576
                                                      --------------------   -------------------   ------------------

                                                      $     30,271,021       $     1,312,324       $      660,576
                                                      ====================   ===================   ==================
</TABLE>

7.   EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                                  YEAR ENDED JUNE 30
                                            ----------------------------------------------------------------
                                                  2000                 1999                    1998
                                            ------------------   --------------------   --------------------
Numerator:
<S>                                         <C>                  <C>                    <C>
   Net loss                                 $  (30,993,559)      $   (7,124,126)        $   (5,040,009)
                                            ==================   ====================   ====================

Denominator:
   Weighted average shares                       2,712,931            1,105,603                659,034
                                            ==================   ====================   ====================

Basic and diluted loss per common share
                                            $      (11.42)       $       (6.44)         $       (7.65)
                                            ==================   ====================   ====================
</TABLE>

At June 30, 2000,  $612,000 of our Prepaid  Warrants were  outstanding.  At that
date, the Prepaid Warrants were convertible into 437,142 shares of common stock.
Additionally,  there were  warrants to purchase  2,808,000  shares of our common
stock  outstanding.  Such warrants have  exercise  prices  ranging from $0.60 to
$72.00 per share and expire from March 2001 through  January 2005.  Based on the
closing sale price  ($70.56) of our common  stock at June 30, 2000,  there were,
exclusive of the Prepaid Warrants,  currently exercisable  in-the-money warrants
outstanding for the purchase of 2,807,000 shares of common stock.  Additionally,
we have  established  several  employee  stock option plans and granted  options
thereunder  to our  employees,  directors,  and  consultants.  These options are
intended to qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code, as amended, or as nonqualified stock options.  The
options  are  partially  exercisable  after  one year  from date of grant and no
options may be granted after May 29, 2010.  At June 30, 2000,  there are options
outstanding  for the purchase of 1,322,781  shares of our common stock.  Neither
the warrants nor the options have been  included in the  computation  of diluted
loss per share because their inclusion would be antidilutive.

                                      -34-
<PAGE>

8.   INCOME TAXES

At June 30, 2000 and 1999, SmartServ has deferred tax assets as follows:
<TABLE>
<CAPTION>

                                                                       2000                   1999
                                                                       ----                   ----
<S>                                                              <C>                    <C>
         Capitalized Start-up Costs                              $    371,000        $     741,600
         Net Operating Loss Carryforwards                          19,182,000            6,578,000
                                                                 ------------        -------------

                                                                 $ 19,553,000        $   7,319,600
                                                                  ==============      ============
</TABLE>

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 allowance increased to
$19,553,000 at June 30, 2000 from  $7,319,600 at June 30, 1999 and $5,238,500 at
June 30, 1998.

At June 30, 2000, we have net operating  loss  carryforwards  for Federal income
tax purposes of approximately $40,600,000 which expire in the years 2009 through
2015.  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.

9.   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.

On May 1, 1997, we entered into a 3 year noncancelable capital lease for certain
computer equipment used to provide information  services.  We also lease certain
other computer equipment under operating leases which expire through July 2000.

Rent expense amounted to approximately $267,800,  $290,600, and $278,000 for the
years ended June 30, 2000, 1999, and 1998, respectively.

Minimum future rental payments at June 30, 2000 are as follows:
<TABLE>
<CAPTION>
                                                                OPERATING LEASES
                                                     ----------------------------------------
YEAR ENDING JUNE 30                                       PREMISES             EQUIPMENT
                                                     -------------------    -----------------
<S>                                                   <C>                     <C>
         2001                                         $    345,100            $    1,600
         2002                                              374,300                    --
         2003                                              437,900                    --
         2004                                              480,700
         2005                                              491,100
         Thereafter                                      2,800,000
                                                     -------------------    -----------------

                                                      $  4,929,100            $    1,600
                                                     ===================    =================
</TABLE>
                                      -35-
<PAGE>
10.  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 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.  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. 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.

11.  SIGNIFICANT RELATIONSHIPS

In April 1998,  we entered  into an  agreement  with Data  Transmission  Network
Corporation  whereby Data Transmission  Network 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  amended the  agreement  such that in
consideration  of the receipt of $5.175  million,  we granted Data  Transmission
Network 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.  We have  agreed to  continue  to operate  these  products  and
provide maintenance and enhancement services in exchange for a percentage of the
revenues  earned  by  Data  Transmission  Network  therefrom.  The  cost  of our
commitment to provide such maintenance and enhancement  services is limited to a
maximum  of 20% of the  revenues  earned  by  SmartServ.  None  of our  wireless
products were included in this transaction.

During  the years  ended  June 30,  2000 and 1999,  our  relationship  with Data
Transmission  Network  accounted  for  96.9%  and  94.8%,  respectively,  of our
revenues while during the year ended June 30, 1998,  three  Strategic  Marketing
Partner relationships accounted for 10.2%, 10.0% and 24.1%, respectively, of the
our revenues.

12.  EMPLOYEE STOCK OPTION PLAN

In April 1996, our Board of Directors  approved the establishment of an Employee
Stock  Option  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 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 September 1997, our Board of Directors granted new stock options to employees
and  non-employee  directors  conditional  upon  cancellation  of all  of  their
existing stock  options.  Such options were  exercisable  at $12.00.  In October
1998,  our Board of  Directors  voted to cancel  the  outstanding  employee  and
non-employee  director  options  and reissue  options  covering a like number of
shares to employees  and  non-employee  directors at an exercise  price not less
than the fair value at that date.  The exercise  price of the options  issued to
employees and non-employee directors was $1.29 per share. Such options expire on
October 7, 2008. In accordance  with APB No. 25, we have recorded the changes in
the fair value of the shares  underlying  177,201 of such options to reflect the
compensatory nature of their issuance.  In November 1998, our Board of Directors
granted  employees  options to purchase  58,700 shares of common stock at $1.625
per share. Such options expire on November 19, 2008.
                                      -36-
<PAGE>

In  December  1998,  our  Board  of  Directors  approved  a plan  to  compensate
non-employee  directors  for  their  service  to  SmartServ.  Accordingly,  each
non-employee  director  will receive  options to purchase  10,000  shares of our
common stock at the commencement of each fiscal year. Effective January 1, 1999,
we issued  options to such  persons to purchase  50,000  shares of common  stock
exercisable at $2.35 per share through December 31, 2003.

In October 1999, our Board of Directors authorized the establishment of our 1999
Employee  Stock  Option  Plan  ("1999  Plan").  The 1999 Plan  provides  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").  The 2000 Plan  provides  for the
issuance of options to employees  and directors for the purchase of a maximum of
925,000  shares of our common stock.  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 657,000 of such options
to employees and  non-employee  directors at an exercise  price in excess of the
fair value on the date of grant.

Information concerning stock options for the Company is as follows:
<TABLE>
<CAPTION>
                                                                                    AVERAGE
                                                                                    EXERCISE
                                                              OPTIONS                PRICE
                                                        -------------------- -----------------------
<S>             <C>                                               <C>               <C>
Balance at July 1, 1997                                           56,392            $   31.26

     Granted                                                     206,391                12.00
     Exercised                                                        --                --
     Cancelled                                                   (85,216)               25.50
                                                        -------------------- -----------------------
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
                                                        ==================== =======================
</TABLE>


                                      -37-
<PAGE>

The  following  table  summarizes   information  about  employee  stock  options
outstanding as of June 30, 2000.
<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>              <C>
    $ .94 to  $ 2.34             631,781        $    1.15             8.7               148,541          $    1.47
        17.00                     20,000            17.00             4.5                20,000              17.00
        49.50                    671,000            49.50             9.9                70,000              49.50
                            -----------------                                      ----------------

                               1,322,781                                                238,541
                            =================                                      ================
</TABLE>
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 the new 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. The
Black-Scholes  option  valuation  model was developed for use in estimating  the
fair value of traded  options  that have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions including the expected dividend yield, the expected life
of the options, the expected stock price volatility,  and the risk-free interest
rate.

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>
                                                                2000                 1999                1998
                                                         -------------------    ---------------    ------------------
<S>                                                              <C>                   <C>                <C>
        Weighted  average  dividend  yield for  options
             granted                                             0.0%                  0.0%               0.0%

        Weighted average expected life in years                  5.0                   5.0                5.0

        Weighted average volatility                            159.1%                147.0%             143.9%

        Risk-free interest rate                                  5.41%                 5.75%              6.0%

        Weighted  average  grant  date  fair  value  of
             options                                           $25.07                 $1.92             $10.92
</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 loss and loss per share are not indicative of future years.

                                      -38-
<PAGE>

SmartServ's pro forma information is as follows:
<TABLE>
<CAPTION>
                                                             YEAR ENDED JUNE 30
                     ---------------------------------------------------------------------------------------------------
                                  2000                               1999                              1998
                     -------------------------------- -- ------------------------------ -- -----------------------------
                        REPORTED         PROFORMA           REPORTED       PROFORMA          REPORTED       PROFORMA
                     ---------------- ---------------    --------------- --------------    -------------- --------------
<S>                  <C>                         <C>                       <C>              <C>             <C>
Net Loss             $30,993,559       $32,115,231        $7,124,126       $7,308,036       $5,040,009      $5,654,512
                     ================ ===============    =============== ==============    ============== ==============
Loss per Share            $11.42            $11.84             $6.44            $6.61            $7.65           $8.58
                     ================ ===============    =============== ==============    ============== ==============
</TABLE>

13. SUBSEQUENT EVENTS

Subsequent to June 30, 2000, we issued 242,615 shares of common stock to certain
investors  at prices  ranging  from $2.63 to $14.64 per share upon  exercise  of
warrants to purchase such shares.  Proceeds from the exercise of these  warrants
were $1,137,264.

On September  28, 2000, we entered into a  $20,000,000  line of credit  facility
with  Hewlett-Packard  Company.  The agreement provides for the financing of the
acquisition  of  approved  hardware,  software  and  services,  subject  to  our
continuing  compliance  with  certain  financial  covenants.   The  facility  is
evidenced  by a note that  bears  interest  at 11% per annum and is  secured  by
SmartServ's  tangible assets.  The note matures in three years from issuance and
may be converted into common stock at $33.56 per share.


                                      -39-
<PAGE>


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


None.


                                      -40
<PAGE>

                                    PART III

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

The  following  table  sets forth  information  with  respect  to the  executive
officers and directors of SmartServ Online, Inc.

<TABLE>
<CAPTION>
Name                         Age       Position
----                         ---       --------
<S>                          <C>
Sebastian E. Cassetta        51        Chief Executive Officer, Chairman of
                                       the Board and Class III Director
Alan G. Bozian               46        Executive Vice President and Chief Financial
                                       Officer
Mario F. Rossi               61        Executive Vice President of Operations and Class
                                       II Director
Thomas W. Haller, CPA        46        Senior Vice President, Treasurer and Chief
                                       Accounting Officer
Richard D. Kerschner         33        Senior Vice President, General Counsel and Secretary
John Montgomery              38        Senior Vice President of Financial Services
Robert Pearl                 32        Senior Vice President International Development
Claudio Guazzoni             36        Class I Director
Charles R. Klotz             58        Class II Director
Stephen Lawler               36        Class III Director
L. Scott Perry               51        Class I Director
Robert Steele                60        Class II Director
Catherine Cassel Talmadge    47        Class I Director
Charles R. Wood              58        Class III Director
</TABLE>

SEBASTIAN E. CASSETTA has been Chief  Executive  Officer,  Chairman of the Board
and a director of the Company  since its  inception.  Mr.  Cassetta was also the
Company's  Treasurer  and  Secretary  from its  inception  until  March 1996 and
September  2000,  respectively.  From June 1987 to August 1992, Mr. Cassetta was
the President of Burns and Roe Securacom  Inc., an engineering  and  large-scale
systems  integration  firm. He is also a former Director,  Managing Director and
Vice President of Brinks Inc. At Brinks, he expanded international operations in
over 15 countries and became the youngest  person to be appointed Vice President
in Brinks' 140 year  history.  Appointed by President  Reagan and  Department of
Commerce Secretary Malcolm Baldridge,  he served on both the U.S. Export Council
and The Industry Sector Advisory  Committee (ISAC) regarding GATT  negotiations.
He is a  former  member  of the  Board of  Directors  of The  Young  Presidents'
Organization and the former Chairman of the New York Chapter.

ALAN G. BOZIAN  joined the Company as Senior  Vice  President & Chief  Financial
Officer in May 2000. In October 2000,  Mr. Bozian was promoted to Executive Vice
President.  Prior to joining  the  Company,  he spent 24 years at UBS AG and its
predecessor,  Union Bank of Switzerland, a global integrated investment services
firm. At UBS, Mr. Bozian rose through a series of senior trading  management and
treasury  management  positions  including   responsibility  for  its  worldwide
treasury activities as Global Treasurer.

MARIO F. ROSSI was Vice  President of  Operations  of the Company from  December
1994 to February 1998,  Senior Vice President,  Operations and Chief  Technology
Officer until October 2000 when he was promoted to Executive Vice President.  In
February 1998, Mr. Rossi was appointed a director of the Company.  Mr. Rossi has
business   and    operational    management    experience   in   the   computer,
telecommunications  and  security  fields.  He has an  extensive  background  in
product development,  operations and technical marketing. From 1989 to 1994, Mr.
Rossi was Vice  President  of  Operations  for MVS Inc.,  a fiber optic  company
specializing in wireless technology,  and a General Manager at Pirelli

                                      -41-
<PAGE>

from 1986 to 1988.  From 1971 to 1986, he was Director of Development of Philips
Medical Systems, in the U.S. as well as the Netherlands.

THOMAS W. HALLER, CPA joined the Company as Vice President,  Treasurer and Chief
Financial  Officer in March 1996.  He served as the  Company's  Chief  Financial
Officer until June 2000, when he became the Company's Chief Accounting  Officer.
In October 2000, Mr. Haller was promoted to Senior Vice President. From December
1992 to March 1996, Mr. Haller was a Senior Manager at Kaufman  Greenhut Forman,
LLP, a public  accounting  firm in New York City,  where he was  responsible for
technical  advisory  services and the firm's quality  assurance  program.  Prior
thereto, he was a Senior Manager with Ernst & Young LLP, an international public
accounting and consulting firm, where he had  responsibility for client services
and new business development in the firm's financial services practice.

RICHARD D. KERSCHNER joined the Company as Vice President and General Counsel in
April 2000.  In  September  2000,  Mr.  Kerschner  was elected  Secretary of the
Company and in October  2000 he was  promoted to Senior  Vice  President.  Prior
thereto Mr.  Kerschner  was  Managing  Counsel at  Omnipoint  Communications,  a
leading wireless service provider,  where he supervised a staff of attorneys and
paralegals in Omnipoint's legal and regulatory affairs department. Mr. Kerschner
joined  Omnipoint in 1997 and worked on all aspects of its legal and  regulatory
issues,  and had  primary  in-house  responsibility  for  Omnipoint's  corporate
finance,  mergers and acquisitions,  joint ventures and strategic alliances, tax
and general  commercial  litigation.  Mr. Kerschner was in private practice with
the law firm of McCann & McCann from 1994 to 1997.

JOHN MONTGOMERY  joined the Company in April 2000 as Vice President of Financial
Services  with over 15 years of global and domestic  securities  experience.  In
October 2000, Mr. Montgomery was promoted to Senior Vice President. From January
1999 to January  2000 Mr.  Montgomery  was a Director of, and from April 1997 to
January 1999 a Vice  President of, SG Cowen  Securities.  Managing over 22 sales
professionals,  he provided account coverage to broker-dealers,  money managers,
mutual funds,  insurance  companies and commercial  banks. Mr.  Montgomery holds
several NASD  registrations,  including General Securities Sales Supervisor.  He
has  experience   with  equities,   fixed-income,   options  and  interest  rate
derivatives.  Mr.  Montgomery  spent  5  years  in  institutional  sales  at UBS
Securities,  over 3 years in portfolio  strategies for  PaineWebber  and 3 years
with Merrill Lynch Capital Markets.

ROBERT PEARL joined the Company in September  1998 with over 7 years of wireless
industry  experience.  He is responsible  for developing the Company's  wireless
strategy  and  consummating  relationships  with  key  business  and  technology
strategic alliances. In March 2000, Mr. Pearl was promoted to Vice President and
in October 2000 to Senior Vice  President.  Mr. Pearl is a co-founder and former
co-chairman  of the WAP Forum's  Developer  Expert  Group.  Prior to joining the
Company,  Mr.  Pearl was Project  Manager for Wireless  Information  Services at
Omnipoint  from 1996 to 1998 and Marketing  Liaison at AT&T  Wireless  (formerly
McCaw Cellular Communications) from 1993 to 1996.

CLAUDIO  GUAZZONI  became a director of the Company on January 11,  1998.  Since
1993, Mr. Guazzoni has been President of The Zanett Securities  Corporation (now
known  as the  Planet  Zanett  Internet  Incubator)  and  Zanett  Capital,  Inc.
providing financial and strategic consulting services to growth companies. Prior
to joining the Zanett organization, Mr. Guazzoni was a Money Manager with Delphi
Capital  Management,  Inc. (1992) and an associate with Salomon  Brothers,  Inc.
from 1985 to 1991.

CHARLES R. KLOTZ became a director of the Company on May 15,  2000.  Since 1985,
Mr.  Klotz has been a  director  of a number of  private  and  public  companies
associated with David R. Barclay and Frederick H. Barclay.  He was President and
Chief Executive Officer of Gulf Resources & Chemical  Corporation from 1985-1988
and he was  Chairman  and Chief  Executive  Officer  of Gotaas  Larsen  Shipping
Corporation from 1988-1997.  Prior thereto,  he was with Bank of Boston where he
held a number of positions

                                      -42-
<PAGE>

including  Head of  Corporate  Banking in London and Deputy Head of  Specialized
Corporate Finance which covered acquisition finance and venture capital.

STEPHEN  LAWLER was elected a director of the Company on December 28,  1999.  He
has been the Group  Product  Manager for the Mobile  Internet  Business  Unit at
Microsoft  Corporation  since April 1999. Mr. Lawler's  experience  includes all
aspects of  engineering  including  software  development,  program  management,
quality  assurance  and  documentation.  Additionally,  he has directed  product
marketing teams,  program  management teams and engineering  teams. From 1992 to
April  1999,  he worked  for  MapInfo  Corporation  where he was a member of the
Executive  Team,  the  Managing   Director  of  Product  Marketing  and  Product
Management  and the  Managing  Director  of  Software  Development  and  Product
Development.

L. SCOTT PERRY has been a director of the Company  since  November  1996.  Since
June  1998,  Mr.  Perry has been Vice  President,  Strategy &  Alliances  - AT&T
Solutions.  From December 1995 to June 1998, Mr. Perry had been Vice  President,
Advanced Platform Services of AT&T Corp. From January 1989 to December 1995, Mr.
Perry held various  positions  with AT&T  including  Vice  President -- Business
Multimedia Services,  Vice President (East) -- Business  Communications Services
and Vice  President -- Marketing,  Strategy and Technical  Support for AT&T Data
Systems Group. Mr. Perry serves on the Board of Directors of Junior  Achievement
of New York, is a member of the Cornell University  Engineering College Advisory
Council and serves on the Board of INEA, a private  financial  planning software
company based in Toronto, Canada.

ROBERT  STEELE was  appointed a director of the  Company on February  23,  1998.
Since February 1998, Mr. Steele has been Vice Chairman of the John Ryan Company,
an international bank support and marketing company. From 1992 to February 1998,
Mr. Steele was a Senior Vice  President of the John Ryan Company.  Mr. Steele is
the  former  President  of  Dollar  Dry Dock  Bank and a member  of the Board of
Directors of Moore Medical Corp., Scan Optics, Inc. Accent Color Sciences, Inc.,
NLC Insurance Companies, Inc. and the New York Mercantile Exchange.

CATHERINE  CASSEL  TALMADGE has been a director of the Company since March 1996.
Since  May 1999,  Ms.  Talmadge  has been  Senior  Vice  President  of  Business
Development for High Speed Access Corporation.  From September 1984 to May 1999,
she held various  positions  with Time Warner  Cable,  a division of Time Warner
Entertainment  Company,  L.P.,  including  Vice  President,  Cable  Programming;
Director,  Programming Development;  Director,  Operations;  Director, Financial
Analyses; and Manager, Budget Department.

CHARLES R. WOOD was appointed a director of the Company in September  1998.  Mr.
Wood was Senior Vice  President of DTN and President of its  Financial  Services
Division, from 1989 and 1986, respectively, until February 28, 2000.

The Company's  officers are elected  annually and serve at the discretion of the
Board of Directors for one year subject to any rights provided by the employment
agreements   described  below  under   "Executive   Compensation  --  Employment
Agreements".

ITEM 10.      EXECUTIVE COMPENSATION
--------

The  following  table sets forth  information  concerning  annual and  long-term
compensation,  paid or  accrued,  for the Chief  Executive  Officer and for each
other  executive  officer (the "Named  Executive  Officer") of the Company whose
compensation  exceeded $100,000 in fiscal 2000 for services in all
capacities to the Company during the last three fiscal years.

                                      -43-
<PAGE>

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE
                           --------------------------
                                 ANNUAL COMPENSATION               LONG-TERM COMPENSATION
                                 -------------------               ----------------------
                                                                                RESTRICTED    SECURITIES
NAME AND                     FISCAL                           OTHER ANNUAL         STOCK      UNDERLYING    ALL OTHER
PRINCIPAL POSITION            YEAR       SALARY       BONUS   COMPENSATION (1)   AWARDS (2)    OPTIONS     COMPENSATION
------------------            ----       ------       -----   ----------------   ----------    -------     ------------
<S>                          <C>       <C>         <C>            <C>           <C>           <C>           <C>      <C> <C>
Sebastian E. Cassetta        2000      $ 216,200   $241,300       $  9,750      $      --     23,000        $ 27,100(10)
Chief Executive              1999        155,000    116,414(3)       9,750        185,471(4)  92,000(6)       24,416(10)
Officer                      1998        125,000       --            9,750             --     37,500(7)           --(11)

Mario F. Rossi               2000        162,000    104,100          6,000             --     22,000              --(11)
Senior Vice                  1999        122,500     43,749(3)       6,000         61,824     67,500(8)           --(11)
President of Operations      1998         92,400       --            6,000             --     20,834(7)           --(11)

Thomas W. Haller             2000        112,250     21,300          6,000             --     79,000              --(11)
Treasurer                    1999         89,400      2,600          6,000             --     32,000(9)           --(11)
                             1998         77,700       --            6,000             --     15,000(7)           --(11)
</TABLE>


(1) Amounts shown consist of a non-accountable expense allowance.

(2) The Named Executive  Officers did not receive any LTIP Payouts in 2000, 1999
    or 1998.

(3) Based on the  closing  price of $.75 on June 30,  1999 the date on which the
    bonus was  earned.  If such amount were  calculated  at $16.50,  the closing
    price on December 28, 1999, the day immediately preceding the date of grant,
    the value of the common stock issued in satisfaction of the bonus obligation
    was $2,442,000 and $891,000 for Messrs. Cassetta and Rossi, respectively.

(4) On  December  29,  1998,  the Board of  Directors  approved  the sale to Mr.
    Cassetta of 618,239 shares of restricted stock  representing 9% of the fully
    diluted shares of common stock of the Company at that date. Compensation has
    been  determined as the number of shares  awarded to Mr.  Cassetta times the
    closing  price of the  Company's  common  stock on December 29, 1998 ($2.50)
    less the  consideration to be paid by Mr. Cassetta.  At June 30, 2000, based
    upon the closing bid price  ($70.5625)  of the Company's  common stock,  the
    value of Mr.  Cassetta's  shares was  $43,624,500.  On October 13, 1999, the
    Board of Directors  agreed to reprice the shares granted to Mr.  Cassetta to
    $.75 per share, the fair value of the shares at that date.  Through December
    31, 1999, the purchase of this  restricted  stock was recorded as a variable
    award pursuant to Accounting  Principles  Board Opinion No. 25,  "Accounting
    for Stock Issued to  Employees".  In  accordance  therewith,  the  Company's
    results of operations  for the six months ended December 31, 1999 includes a
    noncash  compensation charge of $11,727,000 for the change in the fair value
    of its common stock at December 31, 1999.

(5) On December 29, 1998, the Board of Directors  approved the sale to Mr. Rossi
    of 206,080 shares of restricted  stock  representing 3% of the fully diluted
    shares of common  stock of the Company at that date.  Compensation  has been
    determined  as the number of shares  awarded to Mr.  Rossi times the closing
    price of the  Company's  common  stock on December 29, 1998 ($2.50) less the
    consideration  to be paid by Mr.  Rossi.  At June 30,  2000,  based upon the
    closing bid price ($70.5625) of the Company's common stock, the value of Mr.
    Rossi's shares was $14,541,500.  On October 13, 1999, the Board of Directors
    agreed to reprice  the shares  granted to Mr.  Rossi to $.75 per share,  the
    fair  value of the shares at that  date.  Through  December  31,  1999,  the
    purchase of this restricted  stock was recorded as a variable award pursuant
    to Accounting  Principles Board Opinion No. 25, "Accounting for Stock Issued
    to Employees".  In accordance therewith, the Company's results of operations
    for the six months ended  December 31, 1999 includes a noncash  compensation
    charge of $3,909,000 for the change in the fair value of its common stock at
    December 31, 1999.

(6) Includes  options for the purchase of 37,500 shares which were canceled when
    repriced  options to purchase a like  number of shares were  granted in lieu
    thereof.

(7) Such  options  were  canceled  when  repriced  options  were granted in lieu
    thereof in fiscal 1999.

(8) Includes  options for the purchase of 25,250 shares which were canceled when
    repriced  options to purchase a like  number of shares were  granted in lieu
    thereof.
                                      -44-
<PAGE>

(9) Includes  options for the purchase of 15,000 shares which were canceled when
    repriced  options to purchase a like  number of shares were  granted in lieu
    thereof.

(10)Amounts  represent  premiums  paid by the  Company  for life and  disability
    insurance for the benefit of Mr. Cassetta.

(11)The  aggregate  amount of  personal  benefits  not  included  in the Summary
    Compensation  Table does not  exceed the lesser of either  $50,000 or 10% of
    the total annual salary and bonus paid to the Named Executive Officers.

STOCK OPTIONS

The following table sets forth information with respect to stock options granted
to the Named Executive Officers during fiscal year 2000:
<TABLE>
<CAPTION>
                          OPTION GRANTS IN FISCAL 2000
                            (INDIVIDUAL GRANTS) (1)
                            -----------------------

                               Number of           % of Total Options
                         Securities Underlying   Granted to Employees        Exercise      Expiration
Name                        Options Granted%        in Fiscal 2000            Price            Date
----                        ----------------        --------------            -----            ----
<S>                            <C>                                         <C>               <C>   <C>
Sebastian E. Cassetta          15,000                                      $     .9375       10/12/09
                                8,000                     2.11%                49.50          5/29/10

Mario F. Rossi                 15,000                                      $     .9375       10/12/09
                                7,000                     2.02%                49.50          5/29/10

Thomas W. Haller               72,000                                      $     .9375       10/12/09
                                7,000                     7.24%                49.50          5/29/10
</TABLE>

(1) No stock  appreciation  rights  ("SARs") were granted to the Named Executive
    Officers during fiscal 2000.

The  following  table sets  forth  information  as to the number of  unexercised
shares of common stock  underlying  stock  options and the value of  unexercised
in-the-money stock options at fiscal year end:
<TABLE>
<CAPTION>

              AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                      FISCAL YEAR END OPTION VALUE (1)(2)
                      -----------------------------------
                                                                    Number of
                                                               Unexercised Securities         Value of Unexercised
                                                                Underlying Options           In-The-Money Options
                                                                at Fiscal Year End           at Fiscal Year End
                           Shares Acquired    Value                 Exercisable/                 Exercisable/
Name                        on Exercise     Realized               Unexercisable                Unexercisable
----                        -----------     --------               -------------                -------------
<S>                                                               <C>    <C>                <C>        <C>
Sebastian E. Cassetta              --          --                 27,250/50,250             $1,884,800/$3,097,700

Mario F. Rossi                     --          --                 21,125/43,125             $1,460,500/$2,652,300

Thomas W. Haller                   --          --                 16,000/95,000             $1,105,500/$6,266,000
</TABLE>


(1) No SARs were  granted  to, or  exercised  by, the Named  Executive  Officers
    during fiscal 2000.

(2) Value is  based on the last  sale  price of the  Company's  common  stock as
    reported by the NASDAQ  National Market on June 30, 2000 ($70.5625) less the
    exercise price of the option.

                                      -45-

<PAGE>
DIRECTORS' COMPENSATION

         Each  Director  who is not an officer  or  employee  of the  Company is
reimbursed for his or her  out-of-pocket  expenses  incurred in connection  with
attendance  at meetings or other Company  business.  Prior to December 31, 1999,
each  non-employee  director  received a $1,000  fee for each  meeting he or she
attended.  Commencing  January 1, 2000, each  non-employee  director  receives a
$1,500 fee for each  meeting he or she  attends.  Additionally,  each  committee
member receives up to $1,000 per meeting attended.

      The  Compensation  Committee  has the  discretionary  authority  to  grant
options to non-employee  directors.  Pursuant to such authority,  on October 13,
1999 it granted  options to purchase 10,000 shares of common stock at a price of
$.9375 to each non-employee director. The exercise price of each share of common
stock under any option  granted to a director was equal to the fair market value
of a share of common stock on the date the option was granted.

EMPLOYMENT AGREEMENTS

The  Company  and  Mr.  Cassetta  have  entered  into  an  employment  agreement
("Cassetta  Agreement"),  effective January 1, 1999 and expiring on December 31,
2001,  providing for (1) base compensation of $185,000 per annum, (2) additional
compensation  of up to  100%  of base  compensation  and (3) the  sale to him of
618,239 shares of restricted  stock  representing 9% of the fully diluted shares
of common stock of the Company. Mr. Cassetta's  additional  compensation will be
equal to 10% of his base  compensation for each 10% increase in sales during the
first  year of the  Cassetta  Agreement,  subject  to a maximum  of 100% of base
compensation.  In each subsequent year of the Cassetta  Agreement,  Mr. Cassetta
will receive  additional  compensation  equal to 5% of his base compensation for
each  5%  increase  in  sales,  subject  again  to a  maximum  of  100%  of base
compensation.  The purchase price ($2.20 per share) of the restricted  stock was
equal to 110% of the fair market value of the Company's  common stock for the 30
days  preceding  the  date of the  stock  purchase  agreement  ("Cassetta  Stock
Purchase  Agreement")  contemplated  by the Cassetta  Agreement.  On October 13,
1999,  the Board of  Directors  agreed to  reprice  the  shares  granted  to Mr.
Cassetta to $.75 per share,  the fair  market  value of the shares at that date.
$6,182.39  of the  purchase  price has been paid in cash and the  balance by a 5
year, non-recourse promissory note, secured by the stock, at an interest rate of
6.75%,  which is 1% below  the  prime  rate on the  date of the  Cassetta  Stock
Purchase  Agreement.  The Cassetta Stock Purchase Agreement provides the Company
with certain  repurchase  options and provides Mr. Cassetta with a put option in
the event of the termination of his employment. In the event that Mr. Cassetta's
employment is terminated  without  cause,  Mr.  Cassetta will receive a lump sum
severance  payment equal to his full base salary for the  remaining  term of the
Cassetta  Agreement,  discounted  to the present value using an 8% discount rate
and  continuing  benefit  coverage for the lesser of 12 months or the  remaining
term of the Cassetta Agreement.  On December 28, 1999, the Board of Directors of
the Company  approved the payment to Mr.  Cassetta in stock of the bonus payable
to him for 1999 under his employment agreement.  Pursuant thereto, in March 2000
the Company issued 148,000 shares of common stock to Mr. Cassetta.

The Company and Mr.  Rossi have  entered into an  employment  agreement  ("Rossi
Agreement"),  effective  January 1, 1999 and  expiring  on  December  31,  2001,
providing  for (1) base  compensation  of  $135,000  per annum,  (2)  additional
compensation  of up to 50% of  base  compensation  and  (3)  the  sale to him of
206,080 shares of restricted  stock  representing 3% of the fully diluted shares
of common stock of the Company.  Mr.  Rossi's  additional  compensation  will be
equal to 5% of his base  compensation  for each 10% increase in sales during the
first  year  of the  Rossi  Agreement,  subject  to a  maximum  of  50% of  base
compensation.  In each  subsequent year of the Rossi  Agreement,  Mr. Rossi will
receive  additional  compensation equal to 2.5% of base compensation for each 5%
increase in sales,  subject again to a maximum of 50% of base compensation.  The
purchase  price ($2.20 per share) of the  restricted  stock was equal to 110% of
the fair market value for the 30 days  preceding the date of the stock  purchase
agreement  ("Rossi  Stock  Purchase   Agreement")   contemplated  by  the  Rossi
Agreement.  On October 13, 1999,  the Board of  Directors  agreed to reprice the
shares  granted to Mr.  Rossi to $.75 per share,  the fair  market  value of the
shares at that date.  $2,060.80 of the purchase  price has been paid in cash and
the balance by a 5 year,  non-recourse promissory note, secured by the stock, at
an interest  rate of 6.75%,  which is 1% below the prime rate on the date of the
Rossi Stock Purchase Agreement.  The Rossi Stock Purchase Agreement provides the
Company with certain repurchase options and provides Mr. Rossi with a put option
in the event of the termination of his employment. In the event that Mr. Rossi's
employment  is  terminated  without  cause,  Mr.  Rossi will  receive a lump sum
severance  payment equal to his full base salary for the  remaining  term of the
Rossi  Agreement,  discounted to the present value using an 8% discount rate and
continuing benefit coverage for the lesser of 12 months or the remaining term of
the Rossi Agreement. On December 28, 1999, the Board of Directors of the Company
approved the payment to Mr. Rossi in stock of the bonus  payable to him for 1999
under his  employment  agreement.  Pursuant  thereto,  in March 2000 the Company
issued 54,000 shares of common stock to Mr. Rossi.

                                      -46-
<PAGE>

ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------

The following table sets forth, as of October 5, 2000, certain  information with
respect to the beneficial ownership of the Common Stock by (i) each person known
by the Company to beneficially own more than 5% of the outstanding  shares, (ii)
each director of the Company,  (iii) each Named  Executive  Officer and (iv) all
executive officers and directors of the Company as a group.  Except as otherwise
indicated,  each person listed below has sole voting and  investment  power with
respect to the shares of Common Stock set forth opposite such person's name.
<TABLE>
<CAPTION>
Name and Address of                        Amount and Nature of       Percent of
Beneficial Owner(1)                       Beneficial Ownership(2)    Outstanding Shares (3)
-------------------                       -----------------------    ----------------------
<S>                                              <C>                         <C>
Sebastian E. Cassetta
c/o SmartServ Online, Inc.
Metro Center, One Station Place
Stamford, CT 06902                               890,991(4)                  15.16%

Steven Rosner
1220 Mirabeau Lane
Gladwyn, Pennsylvania 19035                      405,533                      6.97%

Mario F. Rossi
c/o SmartServ Online, Inc.
Metro Center, One Station Place
Stamford, CT 06902                               310,579(5)                   5.30%

TecCapital, Ltd.
c/o Berwick Management, Inc.
150 Federal Street, 19th Floor
Boston, MA 02110                                 303,030                      5.21%

Data Transmission Network Corporation
9110 West Dodge Road
Omaha, Nebraska 68114                            179,900(6)                   3.04%

Claudio Guazzoni                                 103,699(7)                   1.75%

L. Scott Perry                                    35,833(8)                    *

Catherine Cassel Talmadge                         35,816(8)                    *

Stephen Lawler                                    30,000(9)                    *

Robert H. Steele                                  24,166(10)                   *

Charles R. Wood                                   24,000(11)                   *

Charles R. Klotz                                  10,000(12)                   *

All executive officers and directors
as a group (18 persons)                        1,704,475(13)                 26.91%
</TABLE>
 --------------------
*          Less than 1%

(1) Under the rules of the  Securities  and  Exchange  Commission  (the  "SEC"),
    addresses are only given for holders of 5% or more of the outstanding Common
    Stock of the Company.

(2) Under the rules of the SEC, a person is deemed to be the beneficial owner of
    a  security  if such  person  has or shares  the power to vote or direct the
    voting of such security or the power to dispose or direct the disposition of
    such  security.  A person  is also  deemed to be a  beneficial  owner of any
    securities  if that  person  has the right to acquire  beneficial  ownership
    within 60 days of the date hereof.  Except as otherwise  indicated the named
    entities or individuals  have sole voting and investment  power with respect
    to the shares of Common Stock beneficially owned.

(3) Represents  the number of shares of common  stock  beneficially  owned as of
    October 5, 2000 by each named person or group,  expressed as a percentage of
    the sum of all of the shares of such class  outstanding  as of such date and
    the number of shares not outstanding,  but beneficially  owned by such named
    person or group.

(4) Includes  61,999  shares of common stock  subject to  currently  exercisable
    options.  Also  includes  2,051  shares held in trust for the benefit of Mr.
    Cassetta's wife.

                                      -47-
<PAGE>
(5) Includes  49,749  shares of common stock  subject to  currently  exercisable
    options.

(6) Includes  100,000  shares of common stock  subject to currently  exercisable
    warrants.

(7) Includes  34,166  shares of common stock  subject to  currently  exercisable
    options.  Also  includes  69,533 shares of common stock subject to currently
    exercisable warrants.

(8) Includes  35,000  shares of common stock  subject to  currently  exercisable
    options.

(9) Represents  30,000 shares of common stock  subject to currently  exercisable
    options.

(10)Includes  20,000  shares of common stock  subject to  currently  exercisable
    options.

(11)Includes  10,000  shares of common stock  subject to  currently  exercisable
    options.

(12)Represents  10,000 shares of common stock  subject to currently  exercisable
    options.  Does not include 303,031 shares  beneficially owned by TecCapital,
    Ltd.  of which Mr.  Klotz is a  director.  Mr.  Klotz  disclaims  beneficial
    ownership of these shares.

(13)Includes 2,051 shares held in trust for the benefit of Mr.  Cassetta's wife,
    and 507,154 shares of common stock subject to currently  exercisable options
    and warrants issued to all executive officers and directors.

CHANGES IN CONTROL

The Company and each of Sebastian  J.  Cassetta  and Stephen  Francesco  (former
President of the Company)  have entered into an agreement  with Zanett  Capital,
Inc.  ("Zanett")  dated  September  29, 1997,  as  subsequently  amended,  which
provides,  among other  things,  that for a period of five years,  upon  default
under the prepaid warrants,  the Company will, at the request of Zanett, appoint
such  number  of  designees  of Zanett  to its  Board of  Directors  so that the
designees  of Zanett will  constitute  a majority of the members of the Board of
Directors of the Company. Further, Messrs. Cassetta and Francesco have agreed to
vote their  shares of common  stock,  representing  approximately  15.17% of the
outstanding  stock of the Company,  in favor of the designees of Zanett Capital,
Inc., at each Annual Meeting of  Stockholders  of the Company at which directors
are elected.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Pursuant  to  Section 16 of the  Securities  Exchange  Act of 1934,  as
amended (the "Exchange Act"),  officers,  directors and holders of more than 10%
of the outstanding  shares of the Company's Common Stock  ("Reporting  Persons")
are required to file periodic  reports of their  ownership of, and  transactions
involving,  the Company's  Common Stock with the SEC. Based solely upon a review
of copies of such reports received by the Company, the Company believes that its
Reporting  Persons  have  complied  with  all  Section  16  filing  requirements
applicable  to them with  respect to the  Company's  fiscal  year ended June 30,
2000, except for the following:

         Stephen  Lawler and Charles R. Klotz,  each a director of the  Company,
and Alan G.  Bozian,  an  officer  of the  Company,  each  filed a late  Initial
Statement of Beneficial  Ownership of  Securities on Form 3 when Messrs.  Lawler
and Klotz became  directors of the Company and Mr.  Bozian  became an officer of
the Company.  Mr.  Bozian's  Form 3 also  reflected the receipt of certain stock
options.  Charles  R. Wood  filed a late  Statement  of  Changes  of  Beneficial
Ownership on Form 4,  reflecting  the receipt of certain  stock  options and the
acquisition  and  contemporaneous  and  disposition  (by  gift)  of stock in the
Company.  Sebastian E. Cassetta and Mario F. Rossi, each an officer and director
of the Company,  Thomas W. Haller,  Richard D.  Kerschner,  John  Montgomery and
Robert Pearl, each an officer of the Company,  and Claudio Guazzoni,  Charles R.
Klotz and Stephen Perry, each a director of the Company,  each failed to file an
Annual Statement of Beneficial  Ownership of Securities on Form 5, which were to
reflect the receipt of certain stock options. Additionally, the Forms of Messrs.
Cassetta,  Rossi, Montgomery and Pearl each were to reflect a single acquisition
of common stock.

ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On June 24, 1999, the Company and Data Transmission network ("DTN") entered into
an agreement that amended the Software License and Service Agreement dated April
23, 1998. In consideration of the receipt of $5.175 million, the Company granted
DTN an exclusive perpetual worldwide license to the Company's 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

                                      -48-
<PAGE>

and  medium  sized  brokerage  companies  and (4)  order  entry/routing  system.
Additionally,  the Company  received  $324,000 in exchange  for an  agreement to
issue warrants to purchase  300,000  shares of the Company's  common stock at an
exercise price of $8.60 per share. the Company has agreed to continue to operate
these products and provide maintenance and enhancement  services in exchange for
a percentage of the revenues earned by DTN therefrom.  The cost of the Company's
commitment to provide such maintenance and enhancement  services is limited to a
maximum  of 20% of the  revenues  earned by the  Company.  Charles  R.  Wood,  a
director of the Company,  was until February 28, 2000,  Senior Vice President of
DTN and President of its Financial Services Division.

The Company believes that the terms of the transactions  described above were no
less   favorable  to  the  Company  than  would  have  been   obtained   from  a
non-affiliated third party for similar transactions at the time of entering into
such  transactions.  In accordance with the Company's policy,  such transactions
were approved by a majority of the  independent  disinterested  directors of the
Company.


                                      -49-
<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,  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 *


                                      -50-
<PAGE>


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          Amended  Restricted Stock Purchase  Agreement  between  SmartServ
               Online, Inc. and Mario F. Rossi, dated December 31, 1999 *******
10.22          Amended Promissory Note between SmartServ Online,  Inc. and Mario
               F. Rossi, dated January 4, 2000 *******
10.23          Amended Security  Agreement between  SmartServ  Online,  Inc. and
               Mario F. Rossi, dated January 4, 2000 *******
10.24          Employment  Agreement between SmartServ Online,  Inc. and Alan G.
               Bozian, dated May 29, 2000 *******
10.25          Restricted Stock Purchase  Agreement  between  SmartServ  Online,
               Inc. and Robert W. Pearl, dated October 13, 1999 +
10.26          Promissory  Note  between  SmartServ  Online,  Inc. and Robert W.
               Pearl, dated January 31, 2000 +
10.27          Security  Agreement between SmartServ Online,  Inc. and Robert W.
               Pearl, dated January 31, 2000 +
23.2           Consent of Ernst & Young LLP+
27             Financial Data Schedule +



+              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 Current Report on Form 8-K/A
               for an event dated September 30, 1997

*****          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

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


                                      -51-
<PAGE>

(B)      REPORTS ON FORM 8-K

         The  Company  filed a report on Form 8-K on May 16,  2000  under Item 5
regarding its completion of a $17,500,000  equity  financing to three investors.
No financial statements were filed with such report.



                                      -52-
<PAGE>

                                   SIGNATURES

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

                                                    SMARTSERV ONLINE, INC.
                                                        Registrant


October 30, 2000                                   By: /s/ Sebastian E. Cassetta
                                                       -------------------------
                                                        Sebastian E. Cassetta
                                                        Chairman of the Board
                                                        Chief Executive Officer


                                      -53-