UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-KSB/A

                                 AMENDMENT No. 1


[X]  Annual report  pursuant to section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 FOR THE FISCAL YEAR ENDED December 31, 2003

[ ]  Transition  report  pursuant  to  section  13 or  15(d)  of the  Securities
     Exchange Act of 1934 for the transition period from to

                         Commission file number 0-28008
                                                -------

                             SmartServ Online, Inc.
                             ----------------------
                 (Name of Small Business Issuer in its Charter)

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

2250 Butler Pike, Suite 150, Plymouth Meeting, Pennsylvania             19462
-----------------------------------------------------------           ----------
         (Address of principal executive offices)                     (Zip Code)
  Metro Center, One Station Place, Stamford, Connecticut                06902
     (Former Address of principal executive offices)


Issuer's telephone number, including area code (610) 397-0689
                                               --------------

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

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

                               Title of each class
                               -------------------


                          Common Stock, $0.01 Par Value


                         Common Stock Purchase Warrants

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

                                    Yes  X    No
                                       -----    -----

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

Issuer's revenues for the fiscal year ended December 31, 2003.    $709,388

<PAGE>

The aggregate market value of the voting and non-voting  common equity (based on
the  closing   price  of  such  stock  on  the  OTC  Bulletin   Board)  held  by
non-affiliates of the issuer as of March 15, 2004 was approximately  $9,127,000.
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 2,842,630 shares of Common Stock outstanding at March 15, 2004.

                       Documents Incorporated by Reference

                                      None

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT        YES        NO    X
                                                        ------      ------
<PAGE>

                                TABLE OF CONTENTS

Item                                                                        Page
----                                                                        ----

Part I


1.       Description of Business                                             1
2.       Description of Property                                             7
3.       Legal Proceedings                                                   7
4.       Submission of Matters to a Vote of Security Holders                 8


Part II


5.       Market for Common Equity, Related Stockholder Matters               8
         and Small Business Issuer Purchases of Equity Securities
6.       Management's Discussion and Analysis or Plan of Operations         12
7.       Financial Statements                                               30
8.       Changes in and Disagreements With Accountants on Accounting
         and Financial Disclosure                                           58
8A.      Controls and Procedures                                            58


Part III


9.       Directors, Executive Officers, Promoters and Control Persons;      59
         Compliance with Section 16(a) of the Exchange Act
10.      Executive Compensation                                             62
11.      Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters                                    65
12.      Certain Relationships and Related Transactions                     68
13.      Exhibits and Reports on Form 8-K                                   71
14.      Principal Accountant Fees and Services                             74




<PAGE>

                                     Part I


                                EXPLANATORY NOTE

On April 13, 2004,  we filed an annual report on Form 10-KSB for the fiscal year
ended December 31, 2003 (the "Original Report") with the Securities and Exchange
Commission. We are filing this amendment to the Original Report to amend certain
information in Items 1, 5, 6, 7, 9, 10, 11, 12 and 13 and information  contained
under the caption "Risk Factors" of the Original Report. These changes include a
clarification that the par value of our common stock remained at $0.01 per share
after  the  one-for-six  reverse  stock  split  completed  in  November  2003 in
accordance with Delaware corporation law.


Item 1.  Description of Business
-------

Company Overview
----------------

We design, develop and distribute software and services that enable the delivery
to wireless  devices of various  content,  with special emphasis on cell phones.
The content which we provide includes premium content such as ringtones,  images
and games, and dynamic changing content such as horoscopes,  lottery results and
weather reports.  Historically, we have licensed our applications,  content, and
related services to wireless  carriers and enterprises.  We have revenue sharing
license  agreements  with  wireless  carriers  such as  Verizon  Wireless,  AT&T
Wireless,  Nextel and ALLTEL Wireless, that allow us to deliver our services and
branded content to a wide base of consumer cell phone users. For enterprises, we
have  in  the  past  offered  solutions  that  deliver  financial  market  data,
proprietary  internal  documents and other useful information to mobile workers,
although this no longer comprises a core part of our business or strategy.


During  February  2004,  we acquired  the  business  of an early stage  company,
nReach,  Inc., to increase our focused offerings of products and services to the
cell phone  industry.  nReach is a wireless  content  distribution  company that
offers a broad  portfolio of popular  mass-market  cell phone content  including
ringtones,  games, and on-device images. This company may provide us with access
to a large number of consumers through its existing marketing  arrangements with
large retailers. nReach has an arrangement with Merit Industries, a manufacturer
of touch-screen  entertainment  devices, to introduce  self-serve mobile content
vending machines  capable of delivering  nReach's  ringtones,  images and games.
Prior to our acquisition, nReach had minimal revenues and incurred a significant
loss in 2003.


We have since our inception  earned  limited  revenues and incurred  substantial
recurring  operating losses,  including net losses of $17,537,775 for the twelve
month period ended December 31, 2003,  net losses of $8,037,173 and  $14,819,860
for the years ended December 31, 2002 and 2001, respectively,  and net losses of
$30,993,559  and  $7,124,126  for the  years  ended  June  30,  2000  and  1999,
respectively.  Additionally,  we had an  accumulated  deficit of  $90,396,781 at
December 31, 2003.

In May 2002,  we commenced an effort to realign our  infrastructure  and related
overhead to correlate  with  reductions  in projected  revenue.  As part of this
effort,  we closed our UK and Hong Kong sales offices and downsized our domestic
operations  through  staff  reductions  to a level  sufficient  to  support  our
projected  operations.  During 2003,  we continued to reduce our cost  structure
through the  termination  of  additional  personnel  and the  relocation  of our
headquarters to Plymouth Meeting, Pennsylvania.  Personnel headcount was reduced
from 66 in May 2002 to the level of 20 as of March 15,  2004  (including  nReach
employees).  These efforts have reduced our average monthly  operating  expenses
from approximately $1,090,000 in July 2002 to approximately $370,000 as of March
2004  (including   operating  expenses  of  nReach),   excluding  noncash  stock
compensation,  depreciation  and  amortization.  We anticipate  that our monthly
operating  expenses  will  increase  during  2004  due  to the  working  capital
requirements  of the  business  of nReach,  as well as related to  expansion  of
marketing and business  development efforts for all of our products and services
and increased corporate overhead. We also anticipate using a significant portion
of our working capital to settle our accounts  payable,  which accounts  payable
were approximately $1,700,000 as of December 31, 2003.


We are incorporated in the State of Delaware.  We commenced operations in August
1993, and had our initial public offering in March, 1996. In this report, unless
the context otherwise  requires,  the terms "we", "us", "our", "the Company" and
"SmartServ" refer to SmartServ Online, Inc. and its subsidiaries.  References to


                                       1
<PAGE>

nReach refer to nReach,  Inc., a Colorado corporation (a wholly owned subsidiary
of SmartServ  Online,  Inc.).  We completed a  one-for-six  reverse  stock split
effective   November  25,  2003.   Unless  otherwise   noted,   descriptions  of
shareholdings and convertible  securities reflect such one-for-six reverse stock
split.


Industry Overview
-----------------

We believe  that the  wireless  application  market is  evolving.  The  changing
business needs of wireless carriers and enterprises and consumers  combined with
advances  in  wireless  technology  have  created  a  market  for the  types  of
applications  offered by us and other  companies.  Furthermore,  consumers  have
shown a willingness to pay for well-targeted  wireless applications that provide
premium content and dynamic changing information.

Wireless  carriers are working to increase  average  revenue per unit (ARPU) and
enhance their return on  investment  for the billions of dollars they have spent
and continue to spend on network upgrades and spectrum licenses.  These carriers
have  identified  wireless  applications as a way to improve both their top-line
revenue and  profitability.  Wireless  applications  can improve ARPU,  increase
customer   loyalty  through  the  use  of  branded  products  and  services  and
financially justify the large investments in data networks.

Carriers  have  adopted  wireless  data  platforms  that allow users to download
applications  to  their  mobile  phones   facilitating  a  better  overall  user
experience than WAP (Wireless  Application Protocol) browsers can provide. As an
example,  Verizon  Wireless  has adopted BREW (Binary  Runtime  Environment  for
Wireless) while AT&T Wireless and Sprint PCS have adopted the J2ME (Java 2 Micro
Edition)  platform.  Both  platforms  allow  the  carriers  and the  application
developers  to generate  subscription,  download and usage revenue from wireless
subscribers.  We develop  our  client-side  applications  for both BREW and J2ME
environments.


We believe  that the  evolution  of the  cellular  industry  is at an  important
turning   point,   where  both  consumers  and  businesses  are  expecting  more
functionality  and  features  from both  their cell  phones  and their  cellular
carriers.  This  expectation  is being  driven  by a number of  industry  trends
including highly  competitive  pricing packages,  newer and more functional cell
phones and mobile devices,  and the customers'  ability to take their cell phone
number  with  them to a new  carrier  that  offers  them  more  value  than  the
incumbent.  Competition in this environment is moving from differentiation based
on  network  coverage  or minute  rates to one based on  enhanced  features  and
services. We believe that as carriers' network coverage,  quality of service and
pricing plans become  more-or-less  equal,  cell phone  customers  will choose a
carrier based  principally on the suite of premium content and applications that
are included with its service.  This environment will provide an opportunity for
us to exploit our current and planned content assets and delivery  capabilities,
developed over the past nine years.


Strategy
--------

We are building,  through acquisition and through internal  development,  a wide
array  of  content  that  will  continue  to  be  offered  through   traditional
carrier-based  distribution  channels as well as through bundled  offerings with
pre-paid  voice  minutes.  The  content  offered  or to be offered  through  the
SmartServ platforms consists of:

     o    Premium  content,  such as ring  tones,  images  and  games,  that are
          periodically delivered and reside on the mobile device; and
     o    Dynamic mobile applications,  where the information or data content is
          frequently changing and therefore  frequently  delivered to the mobile
          device.


While we  expect  to  retain  and grow our  revenues  derived  through  existing
channels, we believe that there is a substantial  opportunity to grow additional
revenue  through the bundling of our existing and planned future premium content
with voice  services  in ways  targeted to  specific  segments  of the  consumer
market.  Providing a set of products that bundle cell phone airtime with premium
content,  such as  ringtones,  images and games,  delivered  through our current
technology infrastructure is how we plan to enter the emerging

                                       2
<PAGE>

market for reselling wireless airtime.  We also believe there is the opportunity
to grow revenues  through the  introduction  and  deployment  of the  self-serve
mobile content vending  machines.  We intend to locate such vending  machines at
wireless   retailers,   electronics   stores,   airports,   train  stations  and
restaurants.  The growth of  revenues  through  these  alternative  channels  in
addition to the existing  channels  will be important as we expect that only one
of our four largest  customers during fiscal year 2003 will continue to generate
revenues  for us in  2004.  See  "Risk  Factors  - Only  one of our  four  major
customers will continue to generate revenues for us in 2004" for more details.


Our immediate focus will be on finding  channels to market to specific  segments
of consumers within the pre-paid  wireless  marketplace.  The rapidly  expanding
pre-paid  market  parallels  the  track  taken a decade  ago for  pre-paid  long
distance, but has an expanded reach since pre-paid wireless users can completely
avoid the monthly costs for a traditional home landline telephone.

We plan to establish new brands  delivering voice services together with simple,
easy to use bundled  content  and  applications  that will  provide a unique and
sought after product for our targeted market  segments.  By providing unique and
differentiated  value,  our goal is to attain a profitable  leadership  position
supported by long-term customer loyalty. We plan to offer basic voice service by
reselling  airtime  at  retail  rates  by means of  wholesale  airtime  purchase
agreements with one or more major carriers.  Content and applications  will be a
combination of our proprietary  content,  developed by us, and licensed  content
provided by third party content developers. All content and applications will be
delivered  by our  wireless  applications  delivery  technology  and data center
infrastructure.  Consistent and effective  brand  communications  are planned in
order to build  awareness  of "the  wireless  service  built for you" within our
targeted markets.  We may provide our premium content to other resellers of cell
phone airtime who want to bundle our premium  content on an OEM basis with their
product  or  service.  This  will  depend  on  whether  it  is  financially  and
commercially  feasible for us to work with other  resellers  and whether it will
expedite  the  offering of our premium  content to  consumers on terms which are
financially advantageous to us.

We have already begun the process of deploying these bundled products to market.
In December  2003 we conducted a retail store trial sale of the  SmartServ  Toro
Card Pack  designed  for Hispanic  users who have  prepaid  cell phone  service.
Included in this product was a prepaid  airtime card for use with most  carriers
and a Toro Card that entitled the purchaser, at no extra charge, to receive from
us three  Spanish-music  ring tones,  and horoscopes and lottery  information in
Spanish.  Following  this trial of the Toro  product,  we expect to  continue to
implement this concept.

We plan to conduct market  analyses to identify  consumer and business  segments
that can be better  served  by  customized  content  and  application  packages.
Consumer segments that have sufficient size, growth potential,  and for which we
can attain a leading position through our market penetration  strategy,  will be
targeted for  near-term  development.  Our goal is to enter this area  initially
through  the  internet,  and then expand  into other  channels.  There can be no
assurance that such market  segments will favorably  respond to our products and
services,  or  that we will  have  sufficient  resources  to pay the  costs  and
expenses to launch our products and services into such market segments.

Ringtones, Images, and Games
----------------------------

We  believe  that the  ability  to  provide  certain  types of  premium  content
including ringtones, images, and games offers a substantial revenue opportunity.
Moreover,  this type of content  will play a prominent  role in the  bundling of
premium  content with voice  services  that,  as previously  discussed,  forms a
substantial  part of our future  plan.  nReach  provides us with a portfolio  of
premium  content  that is intended to be a  foundation  to acquire  licenses for
similar content with consumer appeal.  nReach currently has licensed content for
ringtones  from brands  including  American Idol,  The Matrix,  Eminem,  Britney
Spears,  50 Cent, The Beatles,  Elvis Presley,  2Pac, Snoop Dogg, Frank Sinatra,
NSYNC,  Star Trek,  and Faith Hill.  nReach's  products also broaden our premium
content offerings with downloadable  games including Tom Clancy's Splinter Cell,
Black Jack,  Video Poker,  Rayman Golf  Bowling,  and  Solitaire.  Additionally,
nReach has  licensed a large  catalog of popular  cell-phone  background  images
ranging from  landscapes,  cartoons,  and sports graphics to images from popular
consumer magazines such as Maxim.

                                       3
<PAGE>

Dynamic Mobile Applications
---------------------------

We are marketing a portfolio of dynamic mobile applications. These include:

     o    Horoscopes
     o    Lottery results
     o    Weather reports
     o    Lifestyle news and information
     o    Stock quotes
     o    Stock watch lists
     o    Financial portfolio information

Most of our dynamic content products are branded and are summarized below:

     AstroCom Zodiac.  AstroCom Zodiac delivers daily romance,  career,  family,
     life, health and inspirational readings.  Horoscopes are written by leading
     astrologers.

     Lottery  USA.  Lottery USA  provides the latest  lottery  results,  jackpot
     updates and drawing dates.  The user can set his personal  preferences  and
     see the results of favorite games  automatically or he may search by state,
     game and date.

     Area Weather.  Area Weather has animated  forecast icons and is easy to use
     and  customize.  Users can save  their  preferences  to  instantly  produce
     weather  reports  for  their  favorite  places.   Content  is  provided  by
     Meteorlogix,  formed by the consolidation of three weather-service leaders:
     b2b provider DTN Weather Services,  broadcast media weather graphics expert
     Kavouras,  and long-range forecaster and climate predictor Weather Services
     Corporation.

     BusinessWeek   Online.   BusinessWeek   Online  is  a  wireless   financial
     application  that  provides  news  stories  and  proprietary  content  from
     BusinessWeek Online, while also providing stock quotes, company news, watch
     lists and stock day charts.


Technology Platform
-------------------

Our content and  application  delivery  technology is comprised of an integrated
array of hardware, real-time network connections, and a suite of custom software
code that provide a fast,  reliable,  and reusable  solution for the delivery of
data to mobile devices such as cell phones.


Today, mobile application  technology is rapidly evolving along several discrete
and competing  paths.  Some  carriers have begun to deploy  devices that use the
J2ME mobile Java framework from Sun Microsystems,  Inc. for their  applications.
Other  carriers are placing heavy  investments  behind  Qualcomm's  BREW (Binary
Runtime Environment for Wireless) development framework.  Yet other carriers are
relying on WAP (Web Access  Protocol)  or MMS  messaging  extensions  to deliver
application content. This complex array of end-user application technologies has
historically  meant that application  developers needed to pick and choose among
them. A single application could not work on all carriers and mobile devices. We
have   greatly   reduced  the   complexity   of  this   problem  by  building  a
device-independent   middleware   platform.   Our  middleware   translates  user
interactions  with complex  back-end  logic and data feeds into a set of formats
that can be delivered  to virtually  all mobile  devices.  Using this  approach,
although  "thin" client  applications  are still built in BREW, J2ME or WAP, our
platform  allows the majority of each  application's  complexity  to be built in
common back-end code shared across all of these platforms.


Wireless  carriers and service providers require that the back-end services that
deliver content and applications be reliably  available on a 24/7 basis. We host
our  applications in a data center that features  carrier-grade  fault tolerance
and  redundancy.  Every critical  hardware and software  system in the SmartServ
platform is designed to be redundant. From a hardware perspective,  our platform
is  able to  maintain  its  uptime  because  of our  substantial  investment  in
redundant  power  sources,  middleware and  application  servers that mirror one

                                       4
<PAGE>

another, and fault-tolerant storage arrays. No single point of failure exists in
our  hardware  platform.  From a software  perspective,  our  platform  provides
internal  staff and  interested  application  partners  with a set of monitoring
tools  that  provide  real-time  information  about  our data  center's  status.
Additionally,  we have built an application  deployment  process that allows new
applications  and  application  upgrades  to be  distributed  with  little or no
downtime.

Competition and Competitive Risk
--------------------------------


The market for wireless  information  services and  application  development  is
highly competitive and subject to rapid technological change,  shifting consumer
preferences and frequent new service  introductions.  We face competition from a
number of businesses that deliver similar services  through  personal  computers
and mobile  devices  in three  major  categories:  (1)  wireless  infrastructure
solution  providers  targeting  wireless  carriers,   (2)  wireless  application
developers  targeting wireless carriers,  and (3) wireless  application  service
providers targeting enterprise businesses.  Wireless application developers such
as InfoSpace, HillCast Technologies, and Digital Orchid offer competing finance,
news and content  applications  using WAP,  Java and/or BREW to  subscribers  of
wireless  carriers for access on their mobile phones.  Infrastructure  providers
such as Cellmania,  ActiveSky and Mforma provide platform  solutions to wireless
carriers  enabling the  carriers to more easily  provide  content  applications,
games and ringtones to their subscribers. Wireless application service providers
such as Aether Systems, Inc., 724 Solutions,  Inc. and Semotus Solutions compete
with  us  in  developing  and  hosting  wireless   applications  for  enterprise
businesses.


We  expect  competition  to  increase  from  existing  competitors  and from new
competitors,  possibly including wireless telecommunications  companies. Many of
our competitors and potential  competitors have substantially greater financial,
marketing and technical resources.  Increased  competition in the market for our
services could limit our ability to expand and have a material adverse effect on
our business.

The content provided through our  applications and  infrastructure  is generally
purchased  through  non-exclusive  distribution  agreements.  While  we are  not
dependent upon 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.  Additionally,  there  are a
relatively small number of information providers that control pricing and access
to information.

The  principal  competitive  factors  in both  the Web and  wireless  industries
include  content,   product  features  and  quality,  ease  of  use,  access  to
distribution channels, brand recognition, reliability and price. Our strategy of
establishing  alliances  with  strategic  marketing  partners and our ability to
provide what we believe to be unique  applications and infrastructure may enable
us to compete effectively.

Our entry into the prepaid wireless reseller business also presents  competitive
challenges.  The  facilities-less  wireless  reseller  business  in  the  US  is
relatively new.  Recent  developments in the industry have changed the economics
of the reseller market, including pre-paid services.

Until recently,  the major wireless carriers had been  concentrating on managing
the capital expense issues involved in deploying their networks to provide broad
nationwide coverage. Their main focus was on getting the coverage they needed to
make the service reliable and scaleable for the mass market. As a result, anyone
interested in becoming a reseller had to pay very high wholesale prices to those
carriers.  Now,  because of improved  network  technologies and better coverage,
many  carriers  have excess  capacity and  wholesale  airtime  rates are getting
lower. This natural industry  progression is similar to the evolutionary changes
that have occurred in Europe where resellers in Europe have a significant market
share.

The  pre-paid  market is also fairly new.  Only  recently  have Verizon and AT&T
launched their own pre-paid services called Free-Up and Go-Phone,  respectively.
The  promotional  campaigns for these services,  however,  tend to emphasize the
main brand  rather than the pre-paid  service  brand.  Sprint has also  recently
launched a pre-paid service, and Sprint has a financial stake in Virgin Mobile.

                                       5
<PAGE>

Virgin Mobile and TracFone have been the most visible of the wireless  resellers
in the U.S. pre-paid business.  Virgin has been attacking the youth segment with
a simple  pricing plan and a promotion of its strong  content  affiliation  with
MTV.

TracFone  Wireless,  Inc., a subsidiary of Mexico's  dominant  wireless  carrier
America  Movil,  has been in business  in the U.S.  for  several  years.  It has
primarily targeted under-banked and credit risk customers with a simple pre-paid
model.  Its edge at this  point is in  distribution,  and  TracFone  phones  and
prepaid airtime cards are being sold by many major retailers, including Wal-Mart
and Best Buy.

We also face  competition  from the wireless  carriers  themselves,  all of whom
offer prepaid wireless services,  and separately,  mobile applications.  So far,
however, the carriers have not made any significant efforts in marketing bundled
pre-paid voice and content services.

Proprietary Rights
------------------

Although  we do  not  currently  hold  any  patents,  we  have  filed  a  patent
application  seeking a patent  for our own  "device  agnostic"  information  and
transaction  platform,  made up of our W2W  MiddlewareTM  and  our  content  and
processing engines. This platform is comprised of the W2W MiddlewareTM, based on
the  Windows  NT  operating  system  and  the  authorization,  quote,  news  and
transaction  engines,  based on Hewlett-Packard  Company's Unix operating system
and Oracle Corp.'s version 9i parallel server database. This platform supports a
wide array of browsers  operating on wireless and wired  networks and seamlessly
integrates  real-time  data and  transaction  capabilities,  such as stock trade
order routing and m-commerce services, into a user-friendly services interface.


We rely upon a combination  of contract  provisions  and trade  secret,  patent,
trademark and copyright laws to protect our proprietary  rights.  We license the
use  of  our  services  under  agreements  that  contain  terms  and  conditions
prohibiting the  unauthorized  use or 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.

We believe that none of our products, services,  trademarks or other proprietary
rights infringe on the proprietary rights of third parties.  However,  there can
be no assurance that third parties will not assert  infringement  claims against
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, the current and future
regulatory  environment  relating to the  telecommunications  and media industry
could  have  an  effect  on  our  business,   including  transborder  data  flow
regulations,   regulatory   changes   which   directly  or   indirectly   affect
telecommunication  costs or increase the likelihood or scope of competition from
regional  telephone   companies.   Additionally,   legislative   proposals  from
international,  federal  and state  governmental  bodies in the areas of content
regulation,  intellectual  property and privacy  rights,  as well as federal and
state tax issues could impose  additional  regulations and obligations  upon all
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 on us.

Moreover,  the  relevance to  application  service  providers  of existing  laws
governing  issues such as intellectual  property  ownership,  libel and personal
privacy  is  uncertain.  The use of the  Internet  for  illegal  activities  has
increased  public focus and could lead to increased  pressure on legislatures to
impose regulations on application service providers such as us. 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.

                                       6
<PAGE>

Employees
---------


As of March 15, 2004,  we employed 20 people  (including  8 nReach  employees in
Lakewood,  Colorado),  all of  whom  were  employed  in the  United  States.  We
anticipate that staffing requirements  associated with the implementation of our
plan of operation will require the addition of approximately 3 people during the
year ending December 31, 2004. None of our employees are covered by a collective
bargaining agreement, and we believe that our relationship with our employees is
satisfactory.


Item 2.    Description of Property
-------

We occupy  approximately  4,400  square  feet in a leased  facility  located  in
Plymouth Meeting,  Pennsylvania.  This is our headquarters and the lease expires
in September 2007. nReach occupies  approximately  4,077 square feet in a leased
facility located in Lakewood, Colorado. The lease expires on July 31, 2007.

Item 3.    Legal Proceedings
-------

On or about February 29, 2000, Commonwealth  Associates,  L.P.  ("Commonwealth")
filed a  complaint  against  us in the  Supreme  Court of the State of New York,
County of New York. The complaint  alleged that in August of 1999,  Commonwealth
entered into an engagement  letter with us that provided for a nonrefundable fee
to Commonwealth  of $15,000  payable in cash or common stock at our option.  The
complaint  alleged  that we elected  to pay the fee in stock  and,  as a result,
Commonwealth  sought  13,333  shares  of  common  stock or at  least  $1,770,000
together with interest and costs.  In our defense,  we denied that we elected to
pay in stock. On March 4, 2003, we received a favorable  decision in this matter
after a trial held in the Supreme  Court of the State of New York.  The decision
holds that,  consistent with our defense,  we are required to pay Commonwealth a
retainer fee of only $13,439,  plus interest and certain  costs.  Commonwealth's
time to appeal has not yet expired  because a notice to enter the  judgment  has
not yet been filed by either  party.  While we intend to  vigorously  defend any
appeal of the decision in the Commonwealth  matter,  the unfavorable  outcome of
such an appeal could have a material adverse effect on our financial  condition,
results of operations and cash flows.

In August of 2003, we entered into a Stipulation  of  Arbitration  with Brauning
Inc., Mike Silva and Todd Peterson, former consultants to us (collectively,  the
"Claimants"),  pursuant to which we and the  Claimants  agreed to resolve,  in a
binding arbitration proceeding, the Claimants' demand for damages resulting from
an alleged breach of contract and a failure by us to timely  register the shares
of common  stock  underlying  certain  consulting  warrants  issued by us to the
Claimants.  Although we believe that the shares  underlying  the  warrants  were
timely  registered,  and that the  Claimants  demand is without  merit,  we have
reached an agreement  to settle this matter in order to avoid the  uncertainties
of litigation.  Under the terms of the settlement agreement,  dated February 27,
2004, we are issuing  60,000 shares of our common stock in  satisfaction  of the
claim,  and we  have  paid  Claimants  $45,000  for  certain  wireless  industry
consulting  reports.  We also granted  registration  rights to the recipients of
such 60,000 shares.

On or about March 22, 2004, Jenkens & Gilchrist Parker Chapin, LLP, our former
legal counsel, filed a complaint against us in the Supreme Court of the State of
New York, County of New York. The complaint seeks payment of unpaid invoices for
legal services in the amount of $599,244. While we intend to vigorously defend
such lawsuit, an unfavorable outcome could have a material adverse effect on our
financial condition, results of operation and cash flows.

                                       7
<PAGE>

Item 4.    Submission of Matters to a Vote of Security Holders
-------

We held a Special  Meeting of  Stockholders  on November 5, 2003 to consider the
approval  of  an  amendment  to  our  Amended  and   Restated   Certificate   of
Incorporation  to effect a one-for-six  reverse stock split of our common stock.
The amendment  was approved by the  following  vote of the holders of our common
stock (based on pre-split shares):

    FOR           AGAINST         ABSTAINED         BROKER NON-VOTES
    ---           -------         ---------         ----------------

9,635,834        143,925           10,502                -0-

                                     Part II

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
------- Issuer Purchases of Equity Securities


On June 27, 2003, our common stock, $.01 par value per share,  commenced trading
on the OTC Bulletin Board. Quotations from the OTC Bulletin Board (SSRV) reflect
inter-dealer prices, without retail mark-up,  mark-down, or commission,  and may
not represent actual transactions.


From  August 20,  2002 to June 26,  2003 our common  stock  traded on the Nasdaq
SmallCap  Market as SSOL.  Prior  thereto,  our  common  stock was traded on the
Nasdaq National Market as SSOL. In each instance, our common stock was de-listed
from the  applicable  Nasdaq  stock  market for  failure  to meet the  continued
listing requirements.

The  following  table sets  forth the high and low  prices for the common  stock
during the periods  indicated  as reported by the Nasdaq  National  Market,  the
Nasdaq Smallcap  Market and the OTC Bulletin  Board, as applicable.  All amounts
reflect the one-for-six reverse stock split effective November 25, 2003.

                                                        Common Stock
                                                        ------------
                                                      High             Low
                                                      ----             ---


          Year Ended December 31, 2003
          ----------------------------
          First Quarter                              $10.44            $4.86
          Second Quarter                               7.50             2.52
          Third Quarter                                3.06             1.02
          Fourth Quarter                               3.00             1.15

          Year Ended December 31, 2002
          ----------------------------
          First Quarter                              $42.60           $28.98
          Second Quarter                              37.50             4.02
          Third Quarter                               13.56             3.60
          Fourth Quarter                              12.36             6.36


As of March 15, 2004, we had 2,842,630  shares of common stock  outstanding held
by approximately 140 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 on
our common  stock  until our  earnings  and  financial  condition  justify  such
dividends,  and there can be no assurance that we can achieve such earnings. The
terms of our Series A convertible  preferred stock provide that no dividends can
be paid on our common stock  unless an equal or greater  dividend is paid on the
preferred stock and all accrued and unpaid dividends on the preferred stock have
been paid. The Series A convertible  preferred  stock receives  dividends at the
rate of 8% per year  payable  quarterly in cash or, in our sole  discretion,  in
registered shares of our common stock.


                                       8
<PAGE>

Recent Sales of Unregistered Securities

At the time of issuance,  each investor or recipient of unregistered  securities
was either an accredited investor or a sophisticated investor. Each investor had
access to our most recent Form 10-KSB,  all quarterly and periodic reports filed
subsequent to such Form 10-KSB and our most recent proxy materials.


In April 2002,  we issued a warrant to purchase  an  aggregate  of 833 shares of
common  stock  to  Pertti  Johansson,  a  sophisticated   investor,  as  partial
consideration  for  consulting  services  to be  provided  to us. The warrant is
exercisable at an exercise price of $32.28 per share, vests equally on the first
and second  anniversaries  of issuance,  and expires on April 29,  2005.  In May
2002, we issued a warrant to purchase an aggregate of 333 shares of common stock
to Mr. Johansson as partial consideration for consulting services to be provided
to us as a member of our  Advisory  Board.  The  warrant  is  exercisable  at an
exercise  price of $30.06 per share and expires on April 29,  2005.  In February
2003,  we  issued  1,786  shares  of  common  stock  to Mr.  Johansson  in  full
satisfaction  of a $15,903  obligation  for  services  rendered  to us. No sales
commissions were paid in connection with such  transactions.  The shares and the
warrant were issued in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended ("Securities Act").

In September  2002, we issued Units  consisting of 647,368  shares of our common
stock and warrants to purchase 323,685 shares of our common stock exercisable at
$5.10 per  share  through  September  8, 2007 to 22  accredited  investors  at a
purchase price of $5.475 per Unit. Gross proceeds from this transaction amounted
to  $3,544,346.  In January  2003,  we issued  36,530  shares of common stock to
Robert Gorman, an accredited investor in the September 2002 financing,  upon the
exercise of warrants to purchase  such  shares.  Proceeds  from the  exercise of
these warrants were $186,301.  No sales commissions were paid in connection with
such  transaction.  In February  2003, we issued 5,883 shares of common stock to
Frazier  Investments,  an accredited  investor in the September 2002  financing,
upon the  exercise  of  warrants  to purchase  such  shares.  Proceeds  from the
exercise of these  warrants  were  $30,000.  No sales  commissions  were paid in
connection  with such  transaction.  In March 2003,  we issued  21,515 shares of
common stock to Frazier  Investments,  an  accredited  investor in the September
2002 financing,  upon the exercise of warrants to purchase such shares. Proceeds
from the exercise of these warrants were  $109,726.  No sales  commissions  were
paid in connection with such transaction.  In April 2003, we issued 9,804 shares
of common stock to Joel Rotter,  an accredited  investor in the  September  2002
financing,  upon the exercise of warrants to purchase such shares. Proceeds from
the exercise of these warrants were $50,000.  No sales  commissions were paid in
connection  with such  transaction.  These  shares and  warrants  were issued in
reliance upon the exemption  from  registration  provided by Section 4(2) of the
Securities Act.

In February 2003, we issued a convertible  note to Global Capital Funding Group,
LP ("Global"),  an accredited  investor,  in consideration for the receipt of $1
million.  The note bore interest at the rate of 10% per annum and was secured by
our assets,  exclusive of our internally  developed software products.  The note
was to mature on February 14, 2004, contained certain  antidilution  provisions,
and could be converted  into shares of our common  stock at $6.60 per share.  As
additional consideration,  we issued Global a warrant for the purchase of 33,333
shares of our common stock at an exercise price of $9.66 per share.  The warrant
contains  certain  antidilution  provisions  and expires on February  14,  2006.
Alpine Capital Partners,  Inc. received a finder's fee of $70,000,  representing
7% of the  aggregate  purchase  price of the  convertible  note and  warrants to
purchase  15,167 shares of common stock at $9.66 per share  expiring on February
14, 2006 in  connection  with this  transaction.  In April 2003,  we borrowed an
additional $250,000 from Global and amended the convertible note to include such
amount. As additional consideration, we issued Global a warrant for the purchase
of 3,333  shares of our common  stock at an  exercise  price of $7.20 per share.
Alpine is to receive a finder's  fee of  $17,500  in  connection  with the April
amendment.  In August 2003, we issued Global a warrant to purchase 16,677 shares
of common  stock at an exercise  price of $2.40 per share as  consideration  for
allowing us to complete  the May and June 2003  bridge  financings.  The warrant
contains  certain  antidilution  provisions and expires on February 14, 2006. In
February 2004, we repaid the convertible note and accrued interest. The note and
the  warrants  were  issued in reliance  upon the  exemption  from  registration
provided by Section 4 (2) of the Securities Act.


                                       9
<PAGE>


In February  2003,  we issued 4,275  shares of common stock to G. S.  Schwartz &
Company, a sophisticated  investor, in full satisfaction of a $33,854 obligation
to G. S.  Schwartz & Company for services  rendered to us. 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 February  2003,  we issued  10,417  shares of common stock to Vox,  Inc.,  an
accredited investor,  in full satisfaction of an $82,500 obligation to Vox, Inc.
for services  rendered to us. 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 February 2003, we issued 2,096 shares of common stock to Creative  Management
Services dba MC2, an  accredited  investor,  in full  satisfaction  of a $16,600
obligation to MC2 for services rendered to us. 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 February  2003, we issued 2,017 shares of common stock to NexVue  Information
Systems in satisfaction of a $15,953 obligation to NexVue Information Systems, a
sophisticated  investor,  for services rendered to us. 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 May 2003,  we  entered  into a  consulting  arrangement  with  Spencer  Trask
Ventures,  Inc.  ("Spencer Trask") whereby Spencer Trask will render services to
us as a corporate  finance  consultant,  financial  advisor  and our  investment
banker.  As partial  compensation for such services,  we issued 83,333 shares of
common stock to Spencer  Trask.  These  shares were issued in reliance  upon the
exemption from registration provided by Section 4(2) of the Securities Act.

In May 2003, in  consideration  of $358,000,  we issued 3.58 Units consisting of
convertible  notes and  warrants to  purchase  common  stock ("May  Units") to 8
accredited investors. Each May Unit consisted of a $100,000 convertible note and
a warrant to purchase 33,333 shares our common stock. The convertible notes bore
interest at 8% per annum,  were convertible into our common stock at $4.464 (the
average of the  closing  bid prices of our common  stock for the 5 days prior to
the closing of the  transaction)  per share and were to mature on the earlier of
November  19,  2003 or the  closing of an equity  placement  of not less than $3
million.  The warrants are exercisable at $4.464 per share and expire on May 19,
2006. In June 2003, in consideration of $1,142,000, we issued 11.42 Units ("June
Units") to 20 accredited investors.  Each June Unit also consisted of a $100,000
convertible  note and a warrant to purchase  33,333  shares of our common stock.
The convertible  notes bore interest at 8% per annum,  were convertible into our
common  stock at $4.764 (the average of the closing bid prices of the our common
stock for the 5 days prior to the closing of the transaction) per share and were
to mature on the  earlier  of  November  19,  2003 or the  closing  of an equity
placement of not less than $3 million.  The warrants are  exercisable  at $4.764
per share and  expire on June 13,  2006.  Spencer  Trask,  Steven B.  Rosner and
Richard Berland,  each an accredited investor,  acted as finders for the May and
June 2003 transactions.  As consideration  therefor,  the finders received their
proportionate  share  of (i) a cash  fee of  $150,000,  or 10% of the  aggregate
purchase  price of the Units sold;  (ii) warrants to purchase  510,158 shares of
our common stock at an exercise price of $1.50 per share; and (iii) 5,555 shares
of unregistered  common stock per Unit sold. These warrants provide for cashless
exercise and expire 5 years from the date of grant.  In addition,  Spencer Trask
received a non-accountable  expense allowance of $45,000, or 3% of the aggregate
proceeds  of all  Units  sold in the  May  and  June  2003  transactions.  These
convertible  notes,  shares  and  warrants  were  issued  in  reliance  upon the
exemption from registration provided by Section 4(2) of the Securities Act.

In August  2003,  we entered into a consulting  agreement  with Robert Pons,  an
accredited  investor,  whereby Mr. Pons rendered  consulting services related to
our business activities,  strategic planning,  and market research and strategic
due  diligence on proposed  business  opportunities.  This was prior to Mr. Pons
becoming our Chief  Executive  Officer in January 2004. As partial  compensation
for such  consulting  services,  we issued warrants to purchase 50,000 shares of
common  stock  to Mr.  Pons,  which  warrants  expire  in  August  2008  and are
convertible at the price of $2.04 per share. The warrants became  exercisable in
December  2003.


                                       10
<PAGE>

These  warrants  were issued in reliance upon the  exemption  from  registration
provided  by  Section  4(2) of the  Securities  Act of  1933,  as  amended  (the
"Securities Act").

In August 2003, we entered into a consulting  agreement with Timothy Wenhold, an
accredited  investor,  whereby Mr. Wenhold  rendered  consulting  services to us
related to our business activities,  including  technology and operations.  This
was prior to Mr. Wenhold becoming our Chief Operating  Officer in March 2004. As
partial  compensation  for such services,  we issued  warrants to purchase 8,333
shares of common stock to Mr. Wenhold,  which warrants expire in August 2008 and
are  convertible  at the price of $2.04 per  share.  The  warrants  will  become
exercisable  in August 2004.  These  warrants  were issued in reliance  upon the
exemption from registration provided by Section 4(2) of the Securities Act.

On September 16, 2003, we issued 7.4 Units in a financing transaction consisting
of an offering of up to 12 Units comprised of a $50,000  convertible  note and a
warrant to purchase 16,667 shares of our common stock. On September 19, 2003, we
issued the remaining 4.6 Units of the financing  transaction  (collectively  the
"September  Transaction").  The Units were sold to  accredited  investors for an
aggregate of  $600,000.  Holders of the notes had the right to convert the notes
into  shares of common  stock at a price equal to $1.896 per share for the notes
issued on  September  16,  2003 and  $1.920  per  share for the notes  issued on
September 19, 2003. The convertible notes bore interest at 8% per annum, and the
maturity  date  of the  notes  was  the  earlier  of  November  19,  2003 or the
completion  of an equity  placement  of at least $3  million,  at which time the
notes would  automatically  convert  into the equity  placement.  Holders of the
warrants  have the right to exercise the warrants into shares of common stock at
a price equal to $1.50 per share for a three year period  following  the date of
grant.  Finders'  compensation  to Spencer  Trask and Richard  Berland,  each an
accredited investor,  for the September  Transaction consisted of (i) a cash fee
of $60,000,  or 10% of the aggregate  purchase  price of all of the Units;  (ii)
warrants to purchase  102,988  shares of common  stock,  or 20% of the shares of
common stock  underlying  the  securities in the Units sold, at exercise  prices
ranging  from  $1.50 to $1.90 per share and  expiring  5 years  from the date of
grant;  and (iii) 2,778 shares of  unregistered  common stock per Unit sold.  In
addition, Spencer Trask received a non-accountable expense allowance of $18,000,
or 3% of the aggregate proceeds of all Units sold in the September  Transaction.
All of the notes and the warrants  have full ratchet  anti-dilution  protection.
These  convertible  notes,  shares and warrants were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act.

On November 11, 2003, we issued 18 Units in a financing transaction comprised of
a $50,000 convertible note ("November Notes") and a warrant ("November Warrant")
to  purchase  16,667  shares of our  common  stock.  The  Units  were sold to 20
accredited investors for an aggregate of $900,000. Holders of the November Notes
had the right to convert the  November  Notes into  shares of common  stock at a
price equal to $2.10 per share.  The maturity date of the November Notes was the
earlier of December  19, 2003 or the  completion  of an equity  placement  of at
least $3 million, at which time the November Notes would  automatically  convert
into,  and on the same terms as, the equity  placement.  Holders of the November
Warrants have the right to exercise the November  Warrants into shares of common
stock at a price equal to $1.50 per share for a three year period  following the
date of grant.  Finders'  compensation  to  Spencer  Trask and  Richard  Berland
consisted of (i) a cash fee of $90,000,  or 10% of the aggregate  purchase price
of all of the Units;  (ii) warrants to purchase 136,000 shares of common stock ,
or 20% of the shares of common  stock  underlying  the  securities  in the Units
sold,  at exercise  prices  ranging from $1.50 to $1.90 per share and expiring 5
years from the date of grant;  and (iii)  2,778  shares of  unregistered  common
stock per Unit sold.  In  addition,  Spencer  Trask  received a  non-accountable
expense allowance of $27,000,  or 3% of the aggregate proceeds of all Units sold
in the November transaction. All of the November Notes and the November Warrants
have full ratchet anti-dilution  protection.  In December 2003, as an inducement
to extend the maturity  date of the notes to February  19, 2004,  we offered the
noteholders  a warrant to purchase  additional  shares of our common stock in an
amount  equal to 25% of the number of shares into which the notes  purchased  in
the Unit are  convertible.  This  resulted  in the grant of warrants to purchase
107,155 additional shares of common stock in the aggregate.  The November Notes,
the November Warrants, the additional warrants issued in December 2003 to extend
the term, and the warrants and common stock issued to the finders were issued in
reliance upon the exemption  from  registration  provided by Section 4(2) of the
Securities  Act.  Following  the  first  closing  of  the  private  offering  of
investment Units in February 2004 ("2004 Private  Placement") which exceeded the
$3,000,000  threshold,  the November Notes (principal and

                                       11
<PAGE>

accrued  interest)  were  automatically  converted  into  the  Units  issued  in
connection with the 2004 Private  Placement.  See  "Management's  Discussion and
Analysis of  Financial  Condition  and  Results of  Operations  - Liquidity  and
Capital Resources" for details regarding the 2004 Private Placement.


In November  2003,  as an  inducement to extend the maturity date of the various
convertible  notes issued in May, June and September 2003 from November 19, 2003
to  February  19,  2004,  we offered  these  noteholders  a warrant to  purchase
additional  shares of common  stock in an  amount  equal to 25% of the  warrants
purchased in the Unit initially acquired. This resulted in the grant of warrants
to purchase  276,520  additional  shares of common stock in the  aggregate.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations  -  Liquidity  and  Capital  Resources"  for  a  description  of  the
convertible notes issued in the May, June and September 2003 bridge  financings.
These  additional  warrants  were issued in  reliance  upon the  exemption  from
registration provided by Section 4(2) of the Securities Act.


In connection with the sale of Units in the September 2003 bridge financing,  we
required the consent of Global  Capital  Funding  Group,  L.P.  ("Global"),  the
holder of $1.25  million of our  convertible  notes issued in February and April
2003,  and of 51% or more of the holders of our $1.5 million  convertible  notes
issued in  connection  with the bridge  financings  in May and June 2003.  As an
inducement to obtain their  consent,  such holders  received (a) a change in the
conversion  price of their  notes  equal to the lowest  conversion  price of the
notes issued in the September  financings ($1.896 per share) and (b) an increase
in the number of shares  purchasable  pursuant  to the warrant to reflect a full
ratchet  dilution  formula with a decrease in the exercise price of the warrants
to the exercise price of the warrants issued in the September financing ($1.50).
Such amendment, as it pertains to the holders of convertible notes issued in the
May and June 2003  bridge  financings,  was  effective  on  November  25,  2003,
coincident with the effective date of a one-for-six  reverse stock split.  These
amendments  to the existing  warrants  were made in reliance  upon the exemption
from registration provided by Section 4(2) of the Securities Act.

In November  2003,  in  connection  with the sale of Units in the November  2003
bridge  financing  and the  sale of  Units in the  2004  Private  Placement,  we
required  the consent of Global.  As an  inducement  to obtain its  consent,  we
issued a warrant to purchase  16,667 shares of common stock at an exercise price
of $2.40 per share.  This warrant was issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act.


Item 6.    Management's Discussion and Analysis or Plan of Operations
-------


This  discussion  and  analysis  of  our  financial  condition  and  results  of
operations  contain certain  "forward-looking  statements" within the meaning of
the Private  Securities  Litigation  Reform Act of 1995.  Actual  results  could
differ materially from those anticipated in these forward-looking statements for
many reasons,  including  the risks faced by us described in "Risk  Factors" and
elsewhere in this report.


We design, develop and distribute software and services that enable the delivery
to wireless  devices of various  content,  with special emphasis on cell phones.
The content which we provide includes premium content such as ringtones,  images
and games, and dynamic changing content such as horoscopes,  lottery results and
weather reports.  Historically, we have licensed our applications,  content, and
related services to wireless  carriers and enterprises.  We have revenue sharing
license  agreements  with  wireless  carriers  such as  Verizon  Wireless,  AT&T
Wireless, Nextel, and ALLTEL Wireless, that allow us to deliver our services and
branded content to a wide base of consumer cell phone users. For enterprises, we
have  in  the  past  offered  solutions  that  deliver  financial  market  data,
proprietary  internal  documents and other useful information to mobile workers,
although this no longer comprises a core part of our business or strategy.

We  have  since  our  inception   earned  limited  revenues  and  have  incurred
substantial  recurring  operating  losses,  including net losses of $17,537,775,
$8,037,173 and $14,819,860 for the years ended December 31, 2003, 2002 and 2001,
respectively,  and net losses of $30,993,559  and $7,124,126 for the years ended
June 30,  2000 and  1999,  respectively.  Additionally,  we have an  accumulated
deficit of $90,396,781 at December 31, 2003.

                                       12
<PAGE>


Due to the substantial  expenses and negative cash flows from operations that we
have incurred,  Ernst & Young LLP, in their report contained in our December 31,
2002 financial  statements,  indicated that there was a substantial  doubt about
our  ability to  continue  as a going  concern as of the date of their  opinion.
However,  in February  2004, we completed  the closing of a $10 million  private
offering  of  investment  Units  consisting  of shares  of Series A  Convertible
Preferred   Stock  and  warrants  to  purchase   common  stock  ("2004   Private
Placement").  We have used and expect to use the net  proceeds of  approximately
$8,600,000   from  this  offering  for  repayment  of  outstanding   obligations
(including  $1,391,500 that was used to repay Global Capital Funding Group, LP),
completion of strategic  acquisitions and general working capital. We believe we
have sufficient  working capital for the short term. It is likely we may require
additional funds in the long term depending upon the growth of our revenues, our
business strategy, the costs of any acquisitions and other factors.


We believe  that the  evolution  of the  cellular  industry  is at an  important
turning   point,   where  both  consumers  and  businesses  are  expecting  more
functionality  and  features  from both  their cell  phones  and their  cellular
carriers.  This  expectation  is being  driven  by a number of  industry  trends
including highly  competitive  pricing packages,  newer and more functional cell
phones and mobile devices,  and the customers'  ability to take their cell phone
number  with  them to a new  carrier  that  offers  them  more  value  than  the
incumbent.   Competition  in  this   environment   appears  to  be  moving  from
differentiation  based on  network  coverage  or  minute  rates to one  based on
enhanced  features and services.  We believe that as carriers' network coverage,
quality of service,  and pricing  plans become  more-or-less  equal,  cell phone
customers  will  choose a carrier  based  principally  on the  suite of  premium
content and  applications  that are included with its service.  This environment
will provide an  opportunity  for us to exploit our current and planned  content
assets and delivery capabilities, developed over the past nine years.


To augment our capabilities, we acquired Colorado based nReach, Inc. on February
28, 2004 in exchange for 500,002  shares of our common stock,  provided,  if the
value of such  500,002  shares  immediately  prior to June 1,  2004 is less than
$900,000, we will issue up to 299,167 additional shares of our common stock with
respect to such  difference in value.  We also agreed to an earnout  schedule to
pay up to an additional 916,667 shares of our common stock in the event we reach
certain  revenue  targets within five fiscal  quarters  following the closing of
this  transaction  at the rate of one share of our common stock for every dollar
of our revenue in excess of $2,700,000 (the "Earnout  Trigger") during such five
fiscal  quarters.  In addition  to the  liabilities  set forth in the  financial
statements of nReach, we assumed (i) ordinary course  liabilities since November
30, 2003,  (ii) taxes accrued on earnings since December 31, 2002 which were not
yet  due  and  payable  as of the  closing  date,  (iii)  expenses  incurred  to
accountants and attorneys in the  transaction  not to exceed  $25,000,  and (iv)
short term  borrowings up to $75,000 due to an nReach  shareholder.  nReach is a
wireless content  distribution  company that offers a broad portfolio of popular
mass-market cell phone content, including ringtones, games, and on-device images
both direct to the  consumer  and through  wireless  carriers.  This company may
provide us with  access to a large  number of  consumers  through  its  existing
marketing arrangements with large retailers.


We are building,  through acquisition and through internal  development,  a wide
array  of  content  that  will  continue  to  be  offered  through   traditional
carrier-based  distribution  channels as well as through bundled  offerings with
pre-paid  voice  minutes.  The  content  offered  or to be offered  through  the
SmartServ platforms consists of:

     o    Premium  content,  such as ring  tones,  images  and  games,  that are
          periodically delivered and reside on the mobile device; and
     o    Dynamic mobile applications,  where the information or data content is
          frequently changing and therefore  frequently  delivered to the mobile
          device.

While we  expect  to  retain  and grow our  revenues  derived  through  existing
channels, we believe that there is a substantial  opportunity to grow additional
revenue  through the bundling of our existing and planned future premium content
with voice  services  in ways  targeted to  specific  segments  of the  consumer
market.  Providing a set of products that bundle cell phone airtime with premium
content,  such as  ringtones,  images

                                       13
<PAGE>

and games,  delivered  through our current  technology  infrastructure is how we
plan to enter the emerging market for reselling wireless airtime.

Our immediate focus will be on finding  channels to market to specific  segments
of consumers within the pre-paid  wireless  marketplace.  The rapidly  expanding
pre-paid  market  parallels  the  track  taken a decade  ago for  pre-paid  long
distance, but has an expanded reach since pre-paid wireless users can completely
avoid the monthly costs for a traditional home landline telephone.


While we believe that our new marketing  strategies,  as well as our carrier and
enterprise relationships are important to our success, no assurance can be given
that we will be able to  implement  our new  marketing  strategies  or that  our
carrier and enterprise relationships will be successful in our marketing efforts
or that our products and services will be well received in the  marketplace.  We
also expect to perform certain  development  projects during 2004 to enhance our
product  offerings,  including  development  of mobile  lifestyle  BREW and J2ME
applications.

As of March 15, 2004, we employed 20 people (including 8 nReach employees),  all
of whom  were  employed  in the  United  States.  We  anticipate  that  staffing
requirements  associated with the  implementation  of our plan of operation will
require the addition of  approximately  3 people during the year ending December
31, 2004.

On November  24,  2003,  we  announced  that our new  trading  symbol on the OTC
Bulletin  Board will be SSRV  effective at market  opening on November 25, 2003.
This new trading symbol was assigned by NASD in conjunction with our one-for-six
reverse  stock split,  which also took effect on November  25,  2003.  Under the
reverse stock split, our outstanding shares of common stock prior to the reverse
split were  exchanged for new shares of common stock at a ratio of one new share
for every six  pre-split  shares.  All of our  convertible  securities,  such as
convertible  debentures,  stock options and  warrants,  were also subject to the
reverse split. Our convertible securities are convertible or exercisable, as the
case may be, at six times the price  for  one-sixth  the  number of shares  into
which such security was previously convertible or exercisable. All share amounts
of common  stock and  convertible  securities  reported  in this Form 10-KSB are
adjusted for the split.


                                       14
<PAGE>

Selected Financial Data


                                                    Year Ended December 31
                                                 ----------------------------
                                                     2002          2003
                                                 ------------    ------------
   Statement of Operating Data:
   ----------------------------
   Revenues                                      $    709,388    $    195,817
                                                 ------------    ------------
   Costs and expenses
      Operating Costs                              (6,882,722)    (13,713,110)
      Stock based compensation                       (374,569)         80,295
     Impairment of capital assets and
     capitalized software                          (1,548,473)             --
                                                 ------------    ------------
   Total costs and expenses                        (8,805,764)    (13,632,815)
                                                 ------------    ------------
   Loss from operations                            (8,096,376)    (13,436,998)
                                                 ------------    ------------
   Net interest expense and other financing
      costs                                       (10,121,221)       (279,436)
   Gain from extinguishment of debt                   305,822       5,679,261
   Insurance recovery                                 374,000              --
                                                 ------------    ------------
   Net loss                                      $(17,537,775)   $ (8,037,173)
                                                 ============    ============

   Basic loss per share                          $      (8.46)   $      (6.01)
                                                 ============    ============

   Diluted loss per share/1/                     $      (8.46)   $      (6.01)
                                                 ============    ============

   Weighted average shares outstanding - basic      2,073,448       1,336,673
                                                 ============    ============

   Weighted average shares outstanding -            2,073,448       1,336,673
      diluted/1/                                 ============    ============


   Balance Sheet Data:
   -------------------
   Total assets                                  $    836,685    $  3,351,925
   Note payable                                     3,340,430         500,000
   Accumulated deficit                            (90,396,781)    (72,859,006)
   Stockholders' equity (deficiency)               (5,469,387)        173,299



----------
1    Outstanding  employee  stock  options  and other  warrants  to  purchase an
     aggregate of 4,447,416 and 1,163,833 shares of common stock at December 31,
     2003 and 2002,  respectively,  were not included in the  computation of the
     diluted loss per share because  either we reported a loss for the period or
     their  exercise  prices were greater  than the average  market price of the
     common stock and therefore would be antidilutive.

Year Ended December 31, 2003 versus Year Ended December 31, 2002

During the year ended  December 31, 2003,  we recorded  revenues of $709,388,  a
262%  increase  over  revenues for the year ended  December  31,  2002.  Of such
revenues,  $263,000,  $188,500,  $136,300 and $108,000  were earned  through our
licensing agreements with Salomon Smith Barney,  Qualcomm,  CitiGroup Global and
Wireless Retail Pins, respectively. We expect that during 2004, only one of such
customers,  Qualcomm, will continue to generate revenues for us. During the year
ended  December 31, 2002, we recorded  revenues of $195,817.  Of such  revenues,
$181,800 were earned through our licensing agreement with Salomon Smith Barney.

During the year ended  December  31,  2003,  we  incurred  costs of  services of
$2,732,571,  a decrease of 51.4% over the year ended  December  31,  2002.  Such
costs  decreased  primarily due to reductions  in consulting  costs  incurred in
connection  with the  development of our systems'  architecture  and application
platform.

                                       15
<PAGE>

Components of the costs of service category consist primarily of information and
communication costs ($640,200), personnel costs ($1,142,600),  computer hardware
leases,  depreciation and maintenance costs, and amortization  expenses relating
to capitalized  software  development  costs  ($800,586).  During the year ended
December 31, 2002, we incurred  costs of services of  $5,620,994.  Components of
these  costs  consisted   primarily  of  information  and  communication   costs
($509,700), personnel costs ($2,652,100), computer hardware leases, depreciation
and  maintenance  costs  ($1,773,500),  facilities  ($315,700) and  amortization
expenses relating to capitalized software  development costs ($271,700).  During
the year ended  December 31, 2003 and 2002,  we  capitalized  $-0- and $185,895,
respectively,  of  development  costs in accordance  with Statement of Financial
Accounting  Standards  ("SFAS")  No. 86,  "Accounting  for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("Statement No. 86").

During the year  ended  December  31,  2003,  we  incurred  sales and  marketing
expenses of $460,836,  a decrease of 84.7% over $3,003,834 incurred for the year
ended  December  31,  2002.  Such costs  decreased  primarily  due to travel and
personnel  reductions  associated  with the  closing of our Hong Kong and London
sales   offices,   U.S.   personnel   reductions  and  reductions  in  marketing
consultants'  costs.  Components  of the sales and  marketing  category  consist
primarily  of  personnel  costs  ($333,700),  marketing  consultants  ($51,700),
advertising  ($18,100) and travel ($39,900).  During the year ended December 31,
2002,  components  of the sales and  marketing  category  consist  primarily  of
personnel costs  ($1,698,200),  marketing  consultants  ($209,600),  advertising
($613,500) and travel ($247,700).

During the year ended December 31, 2003, we incurred general and  administrative
expenses of  $3,335,109,  a decrease of 24.6% over the year ended  December  31,
2002. Such costs  decreased  primarily due to a reduction in personnel costs and
the  termination  of  litigation.  Components of the general and  administrative
category  consist  primarily of personnel costs  ($665,100),  professional  fees
($1,234,500),  facilities  ($440,400),  insurance ($220,100),  computer hardware
leases,  depreciation  and maintenance  costs  ($103,400),  travel ($56,700) and
communications  costs  ($55,900).  During the year ended  December 31, 2002,  we
incurred general and administrative expenses of $4,423,642.  Components of these
costs   consisted   primarily  of  personnel  costs   ($1,463,100),   facilities
($527,600),  insurance  ($530,500),  computer hardware leases,  depreciation and
maintenance  costs  ($183,100),   travel  ($99,100)  and  communications   costs
($62,800).

During the quarter  ended June 30,  2003,  we recorded a valuation  allowance of
$269,978 in connection  with the potential  uncollectibility  of recourse  notes
from Mr. Sebastian Cassetta, our former Chairman and Chief Executive Officer.

In addition, during the quarter ended December 31, 2002, we recorded a valuation
allowance of $664,640 in connection with the potential uncollectibility of loans
made to Mr.  Cassetta.  While these loans did not mature until December 2003 and
January 2004, Mr. Cassetta's  ability to repay these loans was highly contingent
on the market value of his  investment  in our common stock.  In his  separation
agreement in August 2003, we extended the maturity date of the Restricted  Stock
Note until September 2004.

During the year ended December 31, 2003, the net noncash charge for  stock-based
compensation  amounted to $374,569  compared to a net noncash  credit of $80,295
during the year ended  December 31, 2002.  Such  noncash  amounts are  primarily
related  to  the  valuation  of  stock-based  compensation  in  accordance  with
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees"  ("APB No. 25").  Certain  employee  stock options are subject to the
variable plan requirements of APB No. 25, as they were repriced,  and therefore,
compensation  expense is recognized  for changes in the fair value of our common
stock.  Noncash charges for consulting  services for the year ended December 31,
2003 and 2002 were $600,400 and $597,396, respectively, resulting primarily from
the  amortization  of  deferred  costs  associated  with the prior  issuance  of
warrants to purchase common stock to various financial,  marketing and technical
consultants.

Interest  income for the year  ended  December  31,  2003 and 2002  amounted  to
$11,601 and $266,118,  respectively. Such amounts were earned primarily from our
investments  in highly liquid  commercial  paper,  money fund accounts and notes
receivable  from  officers.  During the year ended  December  31, 2003 and 2002,
interest and other financing costs were $10,132,872 and $525,165,  respectively.
During the year ended

                                       16
<PAGE>

December  31,  2003,  interest  and  other  financing  costs  were  incurred  in
connection  with the  convertible  bridge notes issued in February,  May,  June,
September and November 2003 in  anticipation of closing our funding raise of $10
million in February 2004. Such 2002 costs were incurred  primarily in connection
with the $20 million line of credit  facility with  Hewlett-Packard  ("HP").  In
September 2002, we amended the terms of our promissory note to HP to provide for
the (i) reduction of our aggregate  outstanding  principal and accrued  interest
amount of $7,045,000 to $1,000,000,  (ii) return of certain  unused  hardware by
us, (iii) issuance by us of a warrant for the purchase of 8,333 shares of common
stock, and (iv) repayment of $500,000 of the amended obligation on September 10,
2002.  In  connection  therewith,  we  recorded a charge to  earnings of $38,000
representing  the fair value of the warrant as determined in accordance with the
Black-Scholes   model  and  recognized  a  net  gain  of  $5,679,261   from  the
extinguishment of this obligation.

Basic and diluted loss per share was $8.46 for the year ended  December 31, 2003
compared  to a basic and  diluted  loss per  share of $6.01  for the year  ended
December  31,  2002.  The  weighted  average  shares  outstanding  increased  to
2,073,448 for the year ended December 31, 2003 from 1,336,673  weighted  average
shares outstanding for the year ended December 31, 2002.

Capital Resources and Liquidity


At December 31, 2003 and 2002,  the Company had cash of $139,178  and  $154,800,
respectively.  Net cash used in  operations  was  $3,929,136  for the year ended
December  31, 2003  compared to  $9,839,000  during the year ended  December 31,
2002. The primary  reasons for this reduction were our  initiatives to close the
Hong Kong and United  Kingdom sales  offices,  reduce our personnel and trim our
operations.  Other uses of cash during the twelve months ended December 31, 2003
were primarily for the partial  repayment of our obligations to HP in the amount
of $225,000.  During the year ended  December 31,  2003,  we issued  convertible
notes in the amount of $3,340,400.  Additionally, warrant holders provided funds
aggregating approximately $376,000 through the exercise of warrants.


Uses of cash  during the year ended  December  31, 2002 were  primarily  for the
partial  repayment  of our  obligation  to HP in the  amount  of  $500,000,  the
purchase of computer  equipment  and related  software in the amount of $166,700
and the capitalization of software development costs in the amount of $186,000.

In May 2000, we entered into a Business  Alliance  Agreement with HP whereby the
companies agreed to jointly market their respective products and services and to
work on the  build-out  of our  domestic and  international  infrastructure.  In
furtherance  of these  objectives  HP provided us with a line of credit of up to
$20,000,000 for the acquisition of approved hardware,  software and services. As
of September 28, 2001, the expiration  date of the facility,  HP had advanced us
$6,723,156 thereunder.  In September 2002, we reached agreement with HP to amend
the  terms  of the  promissory  note to  provide  for the (i)  reduction  of our
aggregate  outstanding  principal and accrued  interest  amount of $7,045,000 to
$1,000,000,  (ii) return of certain unused  hardware by us, (iii) issuance by us
of a warrant for the purchase of 8,333 shares of common stock and (iv) repayment
of $500,000 of the amended  obligation  on  September  10, 2002.  The  remaining
obligation  was  evidenced  by a note,  bearing an  interest  rate of 11%, to be
repaid as follows:  $200,000 on December 31, 2002,  $200,000 on January 28, 2003
and $100,000 on February 27, 2003. The warrant  expires on September 9, 2005 and
has an exercise price of $10.494 per share. In connection therewith, we recorded
a charge to  earnings of $38,000  representing  the fair value of the warrant as
determined  in  accordance  with  the  Black-Scholes  model.  Additionally,   we
recognized a net gain of $5,679,261 in 2002 resulting from the extinguishment of
this  obligation.  In February  2003, we reached  agreement with HP to amend the
terms of the  amended  promissory  note to  provide  for the  settlement  of our
outstanding obligation of $530,800, inclusive of accrued interest of $30,800, in
consideration of the payment by us of $225,000.  As a result, during the quarter
ended March 31, 2003, we recognized  an additional  gain of $305,822,  resulting
from the extinguishment of this obligation.

In June  2002,  First  Albany  Corporation,  acting as  placement  agent for us,
completed a private  placement of units at a price of $8.40 per unit  consisting
of 130,952 shares of common stock and warrants to purchase common stock. The net
proceeds  of  $823,500  from the  issuance  of these units were used for general
working capital  requirements.  The investors received warrants,  callable under
certain conditions, for the purchase of

                                       17
<PAGE>

an aggregate of 238,095 shares of common stock at an exercise price of $8.40 per
share  through  the  expiration  date on June 5, 2007,  as well as  non-callable
warrants  for the purchase of an  aggregate  of 32,738  shares of common  stock,
subject to antidilution  adjustments,  upon the occurrence of certain events, at
an  exercise  price of $8.82 per share  through  June 5, 2007.  In August  2002,
pursuant to the terms of the callable warrants, we provided the investors with a
notice  calling  such  warrants;  however,  the  investors  rejected our call as
permitted  by the warrant.  In September  2002,  the callable  warrants  expired
unexercised. Between July 2002 and December, 2002, non-callable warrants for the
purchase of 34,142  shares of common stock were  exercised.  Proceeds  from such
exercises were $176,500.


In September  2002, we issued Units  consisting of 647,368  shares of our common
stock and warrants to purchase  323,685  shares of common stock,  exercisable at
$5.10 through September 8, 2007, to 22 accredited  investors at a purchase price
of  $5.4750  per  Unit.  Gross  proceeds  from  this  transaction   amounted  to
$3,544,346.  We agreed to pay fees consisting of $249,050,  an expense allowance
of  $25,000,  and  warrants  to  purchase  73,008  shares of common  stock at an
exercise  price  of  $5.10  per  share,   expiring  on  September  8,  2007,  as
compensation  to  certain  individuals  and  entities  that  acted  as  finders.
Additionally,  we incurred  costs and other fees of $28,000 in  connection  with
this transaction.  The warrants expire in September 2007 and are not callable by
us. Therefore, they cannot be relied upon by the Company as a definite source of
capital. The warrant holders may choose to exercise their warrants if the market
price of the Company's  common stock exceeds the exercise  price of the warrant.
Between January 1, 2003 through April, 2003, warrants issued in September,  2002
for the purchase of 73,731 shares of common stock were exercised.  Proceeds from
such exercises were $376,000.


During the year ended  December 31, 2002,  we recorded a valuation  allowance of
$664,640 in connection with the potential  uncollectibility of loans made to Mr.
Sebastian Cassetta, our then Chairman and Chief Executive Officer. Additionally,
during the quarter  ended June 30,  2003,  we recorded a valuation  allowance of
$270,000 in connection with the potential uncollectibility of a loan made to Mr.
Cassetta for the purchase of our restricted  stock.  Mr.  Cassetta's  ability to
repay these loans and interest thereon is highly  contingent on the market value
of his investment in our common stock.  While these loans had original  maturity
dates of December 2003 and January 2004, in his  separation  agreement in August
2003, we extended the maturity date until September 2004.


During the quarter  ended June 30,  2003,  we recorded a valuation  allowance of
$129,000 in connection with the potential uncollectibility of a loan made to Mr.
Mario Rossi, our then Executive Vice President and Chief Technology Officer, for
the purchase of our  restricted  stock.  During the quarter ended  September 30,
2003, we recorded a partial  recovery  amounting to $44,500 in  connection  with
such obligation.  Mr. Rossi's ability to repay this loan and interest thereon is
highly  contingent on the market value of his  investment in us. While this loan
had an original  maturity date of December 2003, in his separation  agreement in
August 2003, the maturity date was extended until April 15, 2004. If the loan is
not repaid on or before that date,  Mr.  Rossi shall  assign and transfer all of
the restricted shares of stock to us and we shall cancel the non-recourse  debt.
In January 2004, Mr. Rossi assigned and transferred all 34,397 restricted shares
of common stock to us in full satisfaction of the outstanding  non-recourse debt
of $68,000.


At December 31, 2002,  287,500 public warrants  (SSOLW) and 50,000 warrants with
terms  identical to the public  warrants were  outstanding.  These warrants were
convertible  into our  common  stock at the  ratio of 15  warrants  per share of
common  stock at an  exercise  price of $63.00 per share.  These  warrants  were
redeemable by us on not less than 30 days written notice at the redemption price
of $0.60 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. These warrants expired on March 20, 2003.

In  January  2003,  we  issued a note to Steven B.  Rosner in  consideration  of
$70,000.  Proceeds  from the note were used for  working  capital.  The debt was
evidenced by an unsecured note bearing an interest rate of 12% per annum and was
repaid in February 2003.

                                       18
<PAGE>


In February 2003, we issued a convertible  note to Global Capital Funding Group,
LP  ("Global")  in  consideration  for the receipt of $1 million.  The note bore
interest at the rate of 10% per annum,  was secured by our assets,  exclusive of
our internally  developed software  products.  As additional  consideration,  we
issued Global a warrant for the purchase of 33,333 shares of our common stock at
an exercise price of $9.68 per share.  Alpine Capital Partners,  Inc. ("Alpine")
received a finder's fee of $70,000,  representing  7% of the aggregate  purchase
price of the convertible note, and a warrant to purchase 15,167 shares of common
stock  exercisable  at $9.66 per  share,  expiring  on  February  14,  2005,  in
connection  with this  transaction.  In April 2003,  we  borrowed an  additional
$250,000 from Global and amended the convertible note to include such amount. As
additional  consideration,  we issued Global a warrant for the purchase of 3,333
shares of our common stock at an exercise price of $7.20 per share. Alpine is to
receive a finder's fee of $17,500 in connection  with the April  amendment.  The
warrants issued to Global and Alpine contain certain antidilution provisions and
expire on  February  14,  2006.  Proceeds  from the notes were used for  working
capital purposes.  In November 2003, in connection with the sale of Units in the
November  2003  bridge  financing  and the sale of  Units  in the  2004  Private
Placement,  we required the consent of Global.  As an  inducement  to obtain its
consent, we issued Global a warrant to purchase 16,667 shares of common stock at
an  exercise  price of $2.40 per  share.  During  February  2004,  the note,  as
amended, matured and was paid off in full including accrued interest.


In  February  2003,  we issued  20,590  shares of common  stock to 5 vendors  in
settlement of our obligations, aggregating $164,000, to such vendors.


In May 2003, in  consideration  of $358,000,  we issued 3.58 Units consisting of
convertible  notes and  warrants to  purchase  common  stock ("May  Units") to 8
investors.  Each May Unit consisted of a $100,000 convertible note and a warrant
to purchase 33,333 shares our common stock. The convertible  notes bore interest
at 8% per annum,  were  convertible into our common stock at $4.464 (the average
of the  closing  bid  prices of our  common  stock  for the 5 days  prior to the
closing  of the  transaction)  per share and were to  mature on the  earlier  of
November  19,  2003 or the  closing of an equity  placement  of not less than $3
million.  The warrants are exercisable at $4.464 per share and expire on May 19,
2006. In June 2003, in consideration of $1,142,000, we issued 11.42 Units ("June
Units") to 20 accredited investors.  Each June Unit also consisted of a $100,000
convertible  note and a warrant to purchase  33,333  shares of our common stock.
The convertible  notes bore interest at 8% per annum,  were convertible into our
common  stock at $4.764 (the average of the closing bid prices of the our common
stock for the 5 days prior to the closing of the transaction) per share and were
to mature on the  earlier  of  November  19,  2003 or the  closing  of an equity
placement of not less than $3 million.  The warrants are  exercisable  at $4.764
per share and expire on June 13, 2006.  Spencer Trask Ventures,  Inc.  ("Spencer
Trask"),  Steven B. Rosner and Richard  Berland acted as finders for the May and
June 2003 transactions.  As consideration  therefor,  the finders received their
proportionate  share  of (i) a cash  fee of  $150,000,  or 10% of the  aggregate
purchase  price of the Units sold;  (ii) warrants to purchase  510,158 shares of
our common stock at an exercise price of $1.50 per share; and (iii) 5,555 shares
of unregistered  common stock per Unit sold. These warrants provide for cashless
exercise and expire 5 years from the date of grant.  In addition,  Spencer Trask
received a non-accountable  expense allowance of $45,000, or 3% of the aggregate
proceeds of all Units sold in the May and June 2003 transactions.  Proceeds from
the sale of the Units were used for working capital purposes.  In November 2003,
we, as an  inducement  to extend the maturity  date of the notes to February 19,
2004, offered the noteholders a warrant to purchase  additional shares of common
stock in an amount  equal to 25% of the  number of shares  into  which the notes
purchased in the Unit are convertible.

On September 16, 2003, we issued 7.4 Units in a financing transaction consisting
of an offering of up to 12 Units comprised of a $50,000  convertible  note and a
warrant to purchase 16,667 shares of our common stock. On September 19, 2003, we
issued the remaining 4.6 Units of the financing  transaction  (collectively  the
"September  Transaction").  The Units were sold to  accredited  investors for an
aggregate of  $600,000.  Holders of the notes had the right to convert the notes
into  shares of common  stock at a price equal to $1.896 per share for the notes
issued on  September  16,  2003 and  $1.920  per  share for the notes  issued on
September 19, 2003. The convertible notes bore interest at 8% per annum, and the
maturity  date  of the  notes  was  the  earlier  of  November  19,  2003 or the
completion  of an equity  placement  of at least $3  million,  at which time the
notes would  automatically  convert  into the equity  placement.  Holders of the
warrants  have the right to


                                       19
<PAGE>

exercise the warrants  into shares of common stock at a price equal to $1.50 per
share,  and the  warrants  expire  3 years  after  the date of  grant.  Finders'
compensation to Spencer Trask and Richard Berland for the September  Transaction
consisted of (i) a cash fee of $60,000,  or 10% of the aggregate  purchase price
of all of the Units;  (ii) warrants to purchase  102,988 shares of common stock,
or 20% of the shares of common  stock  underlying  the  securities  in the Units
sold,  at exercise  prices  ranging from $1.50 to $1.90 per share and expiring 5
years from the date of grant;  and (iii)  2,778  shares of  unregistered  common
stock per Unit sold.  In  addition,  Spencer  Trask  received a  non-accountable
expense allowance of $18,000,  or 3% of the aggregate proceeds of all Units sold
in the  September  Transaction.  All of the  notes  and the  warrants  have full
ratchet anti-dilution  protection.  In November 2003, as an inducement to extend
the maturity date of the notes to February 19, 2004, we offered the  noteholders
a warrant to purchase  additional  shares of common  stock in an amount equal to
25% of the  number of shares  into  which  the notes  purchased  in the Unit are
convertible.

The September  Transaction  required the consent of Global,  the holder of $1.25
million of our  convertible  notes issued in February and April 2003, and of 51%
or  more  of the  holders  of our  $1.5  million  convertible  notes  issued  in
connection with the bridge  financings in May and June 2003. As an inducement to
obtain their consent, such holders received (i) a change in the conversion price
of their  convertible  notes equal to the lowest  conversion  price of the notes
issued in the  September  financings  ($1.896 per share) and (ii) an increase in
the  number of shares  purchasable  pursuant  to the  warrant  to reflect a full
ratchet  dilution  formula with a decrease in the exercise price of the warrants
to the exercise price of the warrants issued in the September financing ($1.50).
Such amendment, as it pertains to the holders of convertible notes issued in the
May and June 2003  bridge  financings,  was  effective  on  November  25,  2003,
coincident  with the  effective  date of a one-for-six  reverse stock split.  We
recorded a charge in the amount of $4,828,000 as "Other Financing Costs" for the
fair value of the consideration granted to these note holders for such consent.

On November 11, 2003, we issued 18 Units in a financing transaction comprised of
a $50,000 convertible note ("November Notes") and a warrant ("November Warrant")
to  purchase  16,667  shares of our  common  stock.  The  Units  were sold to 20
investors  for an aggregate of $900,000.  Holders of the November  Notes had the
right to convert the November Notes into shares of common stock at a price equal
to $2.10 per share.  The November  Notes bore interest at 8% per annum,  and the
maturity  date was the earlier of  December  19,  2003 or the  completion  of an
equity placement of at least $3 million,  at which time the November Notes would
automatically  convert  into  the  equity  placement.  Holders  of the  November
Warrants have the right to exercise the November  Warrants into shares of common
stock at a price equal to $1.50 per share, and the warrants expire 3 years after
the date of grant.  Finders'  compensation  to Spencer Trask and Richard Berland
consisted of (i) a cash fee of $90,000,  or 10% of the aggregate  purchase price
of all of the Units;  (ii) warrants to purchase  136,000 shares of common stock,
or 20% of the shares of common  stock  underlying  the  securities  in the Units
sold,  at exercise  prices  ranging from $1.50 to $1.90 per share and expiring 5
years from the date of grant;  and (iii)  2,778  shares of  unregistered  common
stock per Unit sold.  In  addition,  Spencer  Trask  received a  non-accountable
expense allowance of $27,000,  or 3% of the aggregate proceeds of all Units sold
in the November transaction. All of the November Notes and the November Warrants
have full ratchet anti-dilution  protection.  In December 2003, as an inducement
to extend the  maturity  date of the November  Notes to February  19,  2004,  we
offered the noteholders a warrant to purchase  additional shares of common stock
in an amount equal to 25% of the number of shares into which the notes purchased
in the Unit are convertible.


In February 2004, the convertible  notes issued in the May, June,  September and
November 2003 bridge  financings  were  automatically  converted  into the Units
issued in connection with the 2004 Private Placement.  The conversion took place
at the rate of $15 per Unit,  which is the price at which the Units were sold in
the 2004 Private  Placement.  This  resulted in the  conversion of the aggregate
outstanding  amount of debt owing from these  convertible  notes  ($3,122,302  -
representing  principal and accrued  interest)  into 208,147 Units from the 2004
Private Placement, which in the aggregate consists of 208,147 shares of Series A
Convertible  Preferred Stock and warrants to purchase 2,081,470 shares of common
stock at an exercise price $2.82 per share.  These  warrants  expire in February
2007. A description of the 2004 Private Placement is set forth below.


In February 2004, we completed the closing of a $10 million private  offering of
investment  Units at the price of $15 per Unit.  Each Unit  consists  of (i) one
share of Series A convertible  preferred stock, $.01 par value,


                                       20
<PAGE>

each of which is initially  convertible into 10 shares of common stock, and (ii)
one warrant for the purchase of 10 shares of common stock. The Series A receives
dividends at the rate of 8% per year  payable  quarterly in cash or, in our sole
discretion,  in registered  shares of our common stock. The Series A is entitled
to a liquidation  preference  equal to the purchase  price per Unit plus accrued
and unpaid  dividends.  The Series A is not  redeemable.  The  warrants  have an
exercise price of $2.82 per share and expire in February 2007. We also completed
the  closing of an  additional  $25,000  private  offering  of these Units to an
accredited  investor in March 2004, which Units have the same terms as described
above other than the expiration  date which will be March 2007. We have used and
expect to use the net proceeds of approximately $8,600,000 from this offering of
Units  for  repayment  of  outstanding  obligations,   completion  of  strategic
acquisitions and general working capital.


While the  warrants  to  purchase  common  stock  issued  during  the year ended
December 31, 2003 and thereafter represent an additional source of capital, they
expire between May 2006 and November 2008 and are not callable by us. Therefore,
they  cannot be relied upon by us as a definite  source of capital.  The warrant
holders may choose to exercise  their warrants if the market price of our common
stock exceeds the exercise price of the warrant.

Our  failure  to  timely  file or keep  registration  statements  effective  has
affected the registration rights held by certain of our stockholders and warrant
holders.  At  December  31,  2003,  we  recorded an  aggregate  of $128,000  for
penalties in connection with the aforementioned registration requirements.  Such
amounts are  included in accrued  expenses  on our balance  sheet.  While we are
intending  to cure  these  deficiencies  during  the first  six  months of 2004,
penalties may continue to accrue in certain circumstances.

Our financial  statements  have been prepared on a going  concern  basis,  which
contemplates  the  realization of assets and the  settlement of liabilities  and
commitments  in the normal  course of business.  We have,  since our  inception,
earned limited revenues and incurred  substantial  recurring  operating  losses,
including net losses of  $17,537,775,  $8,037,173 and  $14,819,860 for the years
ended  December  31,  2003,  2002 and  2001,  respectively,  and net  losses  of
$30,993,559  and  $7,124,126  for the  years  ended  June  30,  2000  and  1999,
respectively.  Additionally,  we had an  accumulated  deficit of  $72,859,006 at
December 31,  2002.  These  conditions  had raised  substantial  doubt about our
ability to continue as a going  concern.  Such concern was  expressed by Ernst &
Young LLP in their audit report regarding the financial  statements  included in
our Form 10-KSB for the year ended December 31, 2002.  The financial  statements
did not include any  adjustments  to reflect the possible  future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of these uncertainties.


However, in February 2004, we received net proceeds of approximately  $8,600,000
from the 2004 Private Placement. We have used and expect to use the net proceeds
for repayment of outstanding  obligations (including $1,391,500 that was used to
repay Global  Capital  Funding  Group,  LP). We  anticipate  using a significant
portion of our working  capital to settle our accounts  payable,  which accounts
payable were approximately $1,700,000 as of December 31, 2003.

The  economic  downturn  in  general,  and its impact on the  telecommunications
industry in particular,  caused  telecommunications  service providers to reduce
capital spending, personnel and debt, as well as new service introductions. This
had resulted in delays in the build-out of high-speed  carrier data networks and
availability  of  data-enabled  wireless  devices,  causing  the  market for our
financial  data,  lifestyle  and  transaction  services  to  be  lackluster.  In
addition,  many financial  services firms  curtailed new product  development to
focus on data security and recovery.  Consequently, the potential demand for our
products  and services has been  significantly  delayed.  Such delays have had a
very detrimental  effect on our operations and have resulted in our inability to
implement our business plan and related marketing strategies.  Consequently,  in
May 2002,  we  commenced  an effort to realign  our  infrastructure  and related
overhead to correlate  with  reductions  in projected  revenue.  As part of this
effort,  we closed our UK and Hong Kong sales offices and downsized our domestic
operations  through  staff  reductions  to a level  sufficient  to  support  our
projected operations.  In both March and May 2003, we reduced our cost structure
through the termination of additional  personnel.  Personnel  headcount has been
reduced  from 66 in May 2002 to the  current  level of 20 as of March  15,  2004
(including the nReach  acquisition  completed in March 2004). These efforts have
reduced our average monthly

                                       21
<PAGE>

operating expenses from  approximately  $1,090,000 in July 2002 to approximately
$370,000 as of March 2004 (including  operating  expenses of nReach),  excluding
non-cash stock compensation,  depreciation and amortization.  We anticipate that
our monthly  operating  expenses  will  increase  during 2004 due to the working
capital  requirements of the business of nReach, as well as related to expansion
of  marketing  and  business  development  efforts for all of our  products  and
services and increased corporate overhead.

In March 2004, we completed the acquisition of all of the  outstanding  stock of
nReach Inc., based in Lakewood,  Colorado, in exchange for 500,002 shares of our
common stock,  the assumption and payment of $100,000 of certain  obligations of
nReach's  stockholders  and an earn out schedule that may require our payment of
up to an  additional  916,667  shares of common  stock based on certain  revenue
targets.


We believe we have  sufficient  working capital for the short term. It is likely
we may require  additional  funds in the long term  depending upon the growth of
our revenues,  our business  strategy,  the costs of any  acquisitions and other
factors.

Application of Critical Accounting Policies

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

Revenue Recognition
-------------------


We recognize  revenue  from the use of our  products and services in  accordance
with the American Institute of Certified Public Accountants  ("AICPA") Statement
of  Position   ("SOP")  97-2,   "Software   Revenue   Recognition",   SOP  98-9,
"Modification  of SOP  97-2,  "Software  Recognition  with  Respect  to  Certain
Transactions",   and  the  SEC  Staff  Accounting  Bulletin  No.  104,  "Revenue
Recognition".  Specifically,  there must be (1) evidence of an arrangement,  (2)
delivery of our products and services,  (3) fixed and determinable fees, and (4)
probable  collectibility  of such fees.  Multi-element  revenue  agreements  are
recognized  based on  vendor-specific  objective  evidence  of the fair value of
individual components or if the elements in the arrangement cannot be separated,
all revenues  from the  arrangement  are  deferred  until the earlier of (1) the
existence  of  vendor-specific  objective  evidence  or (2) all  elements of the
arrangement have been delivered.


The contract  elements vary by both product and industry.  The wireless  carrier
market is dominated by the "data portal" concept,  whereby a SmartServ developed
application  is made  available  to a  mobile  customer  through  the  carrier's
wireless data portal.  Our wireless carrier model provides for the delivery of a
software  license and  related  data,  such as stock  quotes,  lottery  results,
horoscopes  and weather  reports to the  customers of the carrier.  Our products
offer the carrier a new revenue  stream and the ability to augment the carrier's
efforts to increase  customer  retention.  However,  the mere  placement  of our
applications  in the carrier's  data portal does not result in revenue to us. We
earn revenue based upon a percentage of the carrier's  monthly  subscription fee
only  after the  subscriber  downloads  our  application  onto his or her mobile
phone.  We  continue  to  earn a  monthly  subscription  fee  only as long as it
provides  subscription  services to the subscriber and the  subscription has not
been cancelled.

Our wireless products provide the financial  services industry with applications
that can increase productivity and customer retention through mobile delivery of
an institution's proprietary data in combination with our market data.

                                       22
<PAGE>

Our agreements with customers in the financial  services industry will generally
contain multiple revenue elements. Such elements may include:


     o    Subscription  service fees consisting of fixed or variable charges for
          usage of our  products.  Such  fees are  based on the  number of users
          having access to our products,
     o    Development and  integration  fees for the development and integration
          of  software  applications  that  integrate  our  applications  with a
          customer's proprietary data and legacy systems,
     o    Professional  service  revenues that emanate from consulting  services
          provided to customers, and
     o    Hosting  services  whereby we provide the services  necessary to cache
          and deliver a customer's proprietary data.


Paragraph no. 10 of SOP 97-2 states that "if an  arrangement  includes  multiple
elements,  the  fee  should  be  allocated  to the  various  elements  based  on
vendor-specific  objective  evidence of fair value,  regardless  of any separate
prices  stated  in the  contract  for each  element.  Vendor-specific  objective
evidence of fair value is limited to the following:

     o    The price charged when the same element is sold separately,
     o    For an element not yet being sold separately, the price established by
          management having the relevant authority; it must be probable that the
          price,  once   established,   will  not  change  before  the  separate
          introduction of the element into the marketplace".

Paragraph 12 of SOP 97-2 requires deferral of all revenues from multiple element
arrangements that are not accounted for using long-term  contract  accounting if
sufficient  vendor-specific objective evidence does not exist for the allocation
of revenue to the  various  elements of the  arrangement.  In  situations  where
vendor-specific   objective  evidence  exists  for  those  elements  yet  to  be
delivered,  but vendor-specific  objective evidence of fair value does not exist
for one or more of the delivered elements in the arrangement, the fees should be
recognized using the residual method.

Impairment of Property and Equipment
------------------------------------

We report our property and equipment at cost less accumulated  depreciation.  On
an ongoing  basis,  we review  the future  recoverability  of our  property  and
equipment for impairment  whenever events or changes in  circumstances  indicate
that the carrying amounts may not be recoverable. When such events or changes in
circumstances  do occur,  an impairment  loss is recognized if the  undiscounted
future  cash  flows  expected  to be  generated  by the  asset are less than its
carrying value. The impairment loss reduces the asset to its fair value.

Capitalized Software Development Costs
--------------------------------------

In connection with certain  contracts entered into between us and our customers,
as well as other development  projects,  we capitalized costs related to certain
product  enhancements and application  development.  Specifically,  all software
development  costs are  charged  to  expense  as  incurred  until  technological
feasibility has been established for the product.  Thereafter,  additional costs
incurred for development are capitalized. Capitalization ceases when the product
is  available  for  general  release  to  customers.  Amortization  of  software
development  costs is provided on a  product-by-product  basis over the economic
life, not to exceed three years, of the product using the straight-line  method.
Amortization  of  capitalized  software  development  costs  commences  with the
products'  general release to customers.  The  determination of estimated useful
economic lives and whether or not these assets are impaired involves significant
judgments.  Changes in strategy  and/or market  conditions  could  significantly
impact these judgments and require adjustments to recorded asset balances.

                                       23
<PAGE>

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 those described below under the heading
"Risk  Factors" and other risks  described in this Annual  Report on Form 10-KSB
and our other filings with the Securities and Exchange Commission.

Risk Factors
------------

We are  subject  to a number of  significant  risks,  and you  should  carefully
consider these risks.  The risks  described  below are not the only ones that we
face.  Additional risks that generally apply to publicly traded companies,  that
are not yet identified or that we currently think are immaterial,  may also have
a material adverse effect on our company.  If any of the events,  contingencies,
circumstances or conditions described in the following risks actually occur, our
business,  financial  condition or results of operations  could be seriously and
irreparably  harmed.  The  trading  price of our common  stock  could,  in turn,
decline and you could lose all or part of your investment in our company.

We may not have sufficient working capital in the long term


We will be using our  working  capital  to fund the  business  of nReach  (which
historically  has  incurred  losses),  test and launch the  bundling  of prepaid
wireless  airtime  cards with  premium  content and fund our  existing  business
(which  currently  operates at a loss). We used $1,391,500 of the  approximately
$8,600,000 net proceeds from the 2004 Private  Placement to repay Global Capital
Funding Group, LP. We also anticipate using a significant portion of our working
capital  to  settle  our  accounts   payable,   which   accounts   payable  were
approximately  $1,700,000  as of December 31, 2003.  It is likely we may require
additional funds in the long term depending upon the growth of our revenues, our
business strategy,  the costs of any acquisitions and other factors. We can give
no assurance  that we will be able to obtain  sufficient  debt or equity capital
now or in the future to  support  our  operations.  Should we be unable to raise
sufficient debt or equity capital, we will be forced to cease operations or seek
a merger if possible.


We have a history  of losses and we have  never  been  profitable.  If we do not
achieve profitability we may not be able to continue our business.

We have, since our inception,  earned limited revenues and incurred  substantial
recurring  operating  losses,  including net losses of $17,537,775  for the year
ended December 31, 2003, and net losses of $8,037,173  and  $14,819,860  for the
years ended December 31, 2002 and 2001, respectively.  Additionally, at December
31, 2003, we had an  accumulated  deficit of  $90,396,781.  Losses have resulted
principally  from  expenses  incurred in  connection  with  activities  aimed at
developing our software,  information and transactional  services and from costs
associated with our marketing and  administrative  activities.  We have incurred
substantial  expenses and  commitments  and expect to continue to have  negative
cash flows from operations. No assurance can be provided that we will be able to
develop revenues sufficient to generate positive cash flow from our operations.

We have significant accounts payable obligations.


We have significant accounts payable  obligations,  many of which are past their
stated terms of payment.  We have many  creditors who are demanding  payment and
either  commencing or  threatening  to commence legal actions to collect what we
may owe  them.  We expect  to incur  substantial  expenses  in  defending  those
collection  actions. We are using a substantial amount of our working capital to
compromise with and pay various creditors. In general, any company that does not
pay  its  creditors  in a  timely  manner  is at risk of  being  forced  into an
involuntary bankruptcy proceeding instituted by its creditors, which may provide
for the liquidation of assets or the  reorganization of assets and debts.  There
can be no assurance  that our creditors  will not pursue  similar  actions,  and
that, in the aggregate,  such collection actions by creditors and payments

                                       24
<PAGE>

by us to compromise and pay such claims would not have a material adverse impact
on our business,  financial condition and results of operations, or that we will
not be forced into bankruptcy.


We plan to pursue potential acquisitions,  and we may not be able to complete or
successfully integrate such acquisitions, or achieve the desired results.

Our business plan includes growth through potential strategic  acquisitions such
as the nReach  transaction.  We have no history of  completing  acquisitions  or
successfully  integrating  such  acquisitions  into our company.  We will expend
significant management time and financial resources in finding,  evaluating, and
if  appropriate,  acquiring  companies  that can add value to our  shareholders.
Acquisitions are accompanied by a number of risks, including:

     o    the difficulty and expense of integrating the operations and personnel
          of the acquired companies;

     o    the potential  disruption of the ongoing businesses and distraction of
          our management and the management of the acquired companies;

     o    increase in expenses and the potential  failure to achieve  additional
          sales and enhance our customer base as a result of the acquisitions;

     o    potential unknown liabilities associated with the acquired businesses;
          and


     o    if we identify suitable acquisition targets, there can be no assurance
          that we will be able to complete the acquisitions. Even if we complete
          such  acquisitions,  we may not  succeed in  managing  the  associated
          acquisition  risks,  including but not limited to, the risks described
          above. Our failure to successfully  integrate our  acquisitions  could
          have a material  adverse effect on our business,  financial  condition
          and results of operations.


Furthermore,  we may issue equity securities or incur additional debt to pay for
any future acquisitions.  The issuance of equity securities would be dilutive to
our existing  stockholders  and additional  debt could have an adverse effect on
our balance sheet.

Only one of our four major  customers will continue to generate  revenues for us
in 2004.


Substantially   all  of  our  revenues  were  generated  through  our  licensing
arrangements  with four customers for the year ended December 31, 2003. Only one
of these four customers  will continue to generate  revenues for us in 2004. Our
revenues will be adversely  affected from the loss of these three customers.  We
anticipate  that our  results  from  operations  for the  immediate  future  may
continue to depend to a significant  extent upon revenues from a small number of
customers  until  we  can  develop  revenues  from  more  customers,   including
consumers. In order to increase our revenues, we will need to attract and retain
additional customers. There can be no assurance that we will be able to obtain a
sufficient number of additional customers to support our operations.



We plan to pursue new  streams of  revenue  from the resale of prepaid  wireless
airtime bundled with wireless data content,  and revenues from such business may
not materialize.

We believe that we have a unique combination of content assets,  including those
currently owned or licensed and those that we plan to acquire, that may allow us
to take a  leadership  position  in the market  for  bundled  prepaid  voice and
premium content and, later, a substantial position in the much larger market for
the  reselling  of post-paid  cell phone  service.  Thus,  by providing a set of
products that bundle cell phone airtime with affinity-related  content delivered
through our current  technology  infrastructure,  we plan to enter the  emerging
market for reselling wireless airtime. We have no prior experience in this area,
and significant  financial  resources will be devoted to this new business.  Our
failure  to  generate  significant  revenues  from  these  efforts  could have a
material  adverse  affect on our  business,  financial  condition and results of
operations.

                                       25
<PAGE>

We have a new CEO and executive management team.

We  believe  that due to the rapid pace of our  industry,  as well as the unique
challenges of growing our Company, the quality of our executive officers will be
key to our  success.  Our  prior  CEO,  CFO and  the  balance  of our  executive
management  team left the company  during 2003 and in the first quarter of 2004.
There is a  substantial  risk  that our new  management  team may not be able to
successfully  manage and grow the business.  This would have a material  adverse
effect on our business, financial condition, and results of operations.

The market for our business is in the development  stage and may not achieve the
growth we expect.

The market for mobile data  services  and  premium  content  such as  ringtones,
images and games is highly dependent upon the evolution of wireless and Internet
technologies,  and is still in the  development  stage.  Our  future  growth and
profitability  will depend,  in part,  upon  consumer  acceptance of mobile data
services  and premium  content in general  and a  significant  expansion  in the
consumer  market for the delivery of such services and content to mobile phones.
Even if these markets experience  substantial growth,  there can be no assurance
that our products and services will be  commercially  successful or will benefit
from  such  growth.  Further,  even  if  initially  successful,   any  continued
development  and  expansion of the market for our  products  and  services  will
depend in part upon our ability to create and develop  additional  products  and
adjust existing products in accordance with changing consumer  preferences,  all
at competitive prices. Our failure to develop new products and generate revenues
could have a material  adverse effect on our business,  financial  condition and
results of operations.


We  depend  upon   revenue-sharing   agreements  with  carriers  and  enterprise
customers.


We sell our  products  and services  primarily  by entering  into  non-exclusive
agreements  with carriers and  enterprise  customers who offer such products and
services to their  subscribers,  employees and clients.  Our success will depend
upon:

     o    our ability to continue to enter into revenue sharing  agreements with
          additional carriers and enterprise customers; and

     o    their ability to successfully  market, sell and generate revenues from
          our products and services.

There can be no  assurance  that we will  successfully  maintain  these  revenue
sharing  arrangements,  enter into new ones, or that our customers  will develop
and sustain a market for our products and services.

We compete against larger, well-known companies with greater resources.

The market for mobile data  services is highly  competitive  and involves  rapid
innovation and technological change,  shifting consumer preferences and frequent
new product and service  introductions.  Many of our  competitors  and potential
competitors  have  substantially  greater  financial,  marketing  and  technical
resources than we have.

The  principal  competitive  factors  in both the  Internet-based  and  wireless
services industries include content,  product features and quality, ease of use,
access to distribution  channels,  brand recognition,  reliability and price. We
believe  that  potential  new   competitors,   including  large  multimedia  and
information  system  companies,  are  increasing  their focus on  wireless  data
delivery.  We face  competition  from numerous  services  delivered  through the
Internet to personal  computers.  Companies  offering competing services include
Semotus Solutions,  Inc., Aether Systems, Inc., 724 Solutions,  Inc., Everypath,
and Infospace.  We expect competition to increase from existing  competitors and
from new competitors.

The content provided in our products is generally licensed through non-exclusive
content  distribution  agreements.  While  we are not  dependent  on any  single
content provider,  existing and potential  competitors

                                       26
<PAGE>

may enter into agreements with these and other providers and thereby acquire the
ability to deliver content that is substantially similar to the content provided
by us.


Our planned  entry into the prepaid  wireless  reseller  business  also presents
competitive challenges.  Although the facilities-less wireless reseller business
in the US is relatively new,  Virgin Mobile,  which has a strong market presence
in the UK, already has a growing presence in the US. TracFone Wireless,  Inc., a
subsidiary of Mexico's  dominant  wireless  carrier  America Movil,  has been in
business in the US for several years.  TracFone sells phones and prepaid airtime
cards through many major retailers in the US. We also face  competition from the
wireless carriers  themselves,  all of whom already offer prepaid wireless voice
services.


Our  inability to  successfully  manage and adjust to these  competitive  forces
could have a material  adverse effect on our business,  financial  condition and
results of operations.

Our relationship with Spencer Trask.


Spencer  Trask and its  affiliates  owns  approximately  10% of the  outstanding
shares of our common stock as of March 1, 2004,  and in the event its  preferred
stock is converted and warrants are exercised,  Spencer Trask and its affiliates
could potentially own approximately 70% of the shares of common stock.  Based on
such ownership, Spencer Trask will be able to affect and exercise some manner of
control over us and our operations.

During 2003 and the first quarter of 2004,  we paid to Spencer Trask  $1,719,880
in cash (including consulting fees, finders fees and non-accountable  expenses),
issued  226,111  shares of our common  stock,  and issued  warrants  to purchase
4,328,516  shares of our common stock at exercise  prices  ranging from $1.50 to
$2.82 per share.  As of March 31, 2004, we are also  contractually  obligated to
issue  9,445  shares of common  stock to Spencer  Trask as finders  fees for the
November  bridge  financing.  We also  owe a  finders  fee to  Spencer  Trask in
connection  with the nReach  acquisition  and Spencer Trask has agreed to accept
shares of our  common  stock in lieu of a cash  payment.  While we  believe  our
financial arrangements with Spencer Trask have been appropriate, there can be no
assurance that future  financial  arrangements may not be unduly affected by the
extent of Spencer Trask's ownership of us.


We are involved in pending material litigation.

During February 2000,  Commonwealth  Associates,  L.P.  ("Commonwealth") filed a
complaint  against us in the Supreme  Court of the State of New York,  County of
New York.  The  complaint  alleged that in August of 1999,  Commonwealth  and us
entered  into an  engagement  letter that  provided for a  nonrefundable  fee to
Commonwealth  of $15,000  payable  in cash or common  stock at our  option.  The
complaint  alleged  that we elected  to pay the fee in stock  and,  as a result,
Commonwealth  sought  13,333  shares  of  common  stock or at  least  $1,770,000
together with interest and costs.  In our defense,  we denied that we elected to
pay in stock. During March 2003, we received a favorable decision in this matter
after a trial held in the Supreme  Court of the State of New York.  The decision
holds that,  consistent with our defense,  we are required to pay Commonwealth a
retainer fee of only $13,439,  plus interest and certain  costs.  Commonwealth's
time to appeal has not yet expired  because a notice to enter the  judgment  has
not yet been  filed by either  side.  While we intend to  vigorously  defend any
appeal of the decision,  the unfavorable  outcome of such an appeal could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

On or about March 22, 2004,  Jenkens & Gilchrist Parker Chapin,  LLP, our former
legal counsel, filed a complaint against us in the Supreme Court of the State of
New York, County of New York. The complaint seeks payment of unpaid invoices for
legal services in the amount of $599,244.  While we intend to vigorously  defend
such lawsuit, an unfavorable outcome could have a material adverse effect on our
financial condition, results of operation and cash flows.

Additional risks associated with a pending lawsuit against Citigroup.


A claim was  filed  during  2003 in US  District  Court,  Northern  District  of
Illinois by over one hundred  investors  in our common stock  against  Citigroup
Global Markets, Inc., Citigroup, Inc., and an individual

                                       27
<PAGE>

institutional  broker  at  Citigroup,  alleging  fraud in  connection  with such
investors' investment in SmartServ. Neither us, nor any of any of our employees,
consultants, officers, directors or agents have been named as defendants in this
lawsuit.  However, we can provide no assurances that we or any of our current or
former employees, consultants, officers, directors or agents will not be brought
into the lawsuit by the plaintiffs or the defendants.  We believe any such claim
would be without  merit.  In such case, we would  vigorously  defend the action,
however,  there can be no assurance that we would be successful.  Further, if we
are  named  in this  lawsuit,  we  would  have to  devote  financial  and  other
resources,   diverting   management's   attention  from  our  business,  and  an
unfavorable  outcome  could  have a  material  adverse  effect on our  business,
financial condition and results of operations.  Even if no claim is made against
us, any negative publicity  regarding this lawsuit could have a material adverse
effect on our business, financial condition and results of operations.


We may not be able to adequately protect our proprietary rights.


We have designed and developed our own "device agnostic"  information  platform,
made up of our  patent-pending  W2W  MiddlewareTM and our content and processing
engines.  This  platform  is  comprised  of the W2W  MiddlewareTM,  based on the
Windows NT operating system, and the authorization,  quote, news and transaction
engines,  based on  Hewlett-Packard  Company's Unix operating  system and Oracle
Corp.'s version 9i parallel server database. This platform supports a wide array
of  browsers  and client  side  environments  operating  on  wireless  and wired
networks.


We rely upon a  combination  of contract  provisions,  as well as trade  secret,
patent,  trademark and copyright  laws, to protect our  proprietary  rights.  We
license our products and related  services under  agreements  that contain terms
and  conditions  prohibiting  the  unauthorized  use or  reproduction  of  those
products and services.  Although we intend to vigorously  protect our rights, if
necessary,  the cost could be burdensome  and there can be no assurance  that we
would be successful.

We believe that none of our products, services,  trademarks or other proprietary
rights infringes 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
costly  litigation,  either of which could have a material adverse effect on our
business, financial condition and results of operations.

We are highly  dependent on  attracting  and  retaining  highly  skilled  sales,
marketing and technology development personnel.

We believe that our ability to increase  revenues and to develop  successful new
products  and product  enhancements  depends in part upon our ability to attract
and retain highly skilled sales, marketing and technology development personnel.
Our products  involve a number of evolving  technologies.  Competition  for such
personnel  is intense.  Our ability to hire and retain such key  personnel  will
depend upon our ability to raise capital and achieve increased revenue levels to
fund the costs associated with such key personnel. Failure to attract and retain
such key personnel  could  adversely  affect our ability to develop new products
and  product  enhancements  and to  generate  revenue  from  the  sale of  those
products,  thereby having a material  adverse effect on our business,  financial
condition and results of operations.

The market price of our common stock may  decrease  because we have issued,  and
will likely continue to issue, a substantial number of securities convertible or
exercisable into our Common Stock.


We will have issued  convertible  preferred  stock and warrants to investors and
consultants and granted options to employees for the purchase of an aggregate of
26,898,070 shares of our common stock as of March 15, 2004, and in the future we
will issue additional shares of common stock, options, warrants, preferred stock
or other  securities  exercisable  for or  convertible  into our  common  stock.
Substantially all of such shares underlying the convertible  preferred stock and
warrants  have  registration  rights.  Additional  shares are available for sale
under Rule 144 of the  Securities  Act.  Sales of these  shares or the  market's
perception that sales could occur may cause the market price of our Common Stock
to fall and may make it more  difficult for

                                       28
<PAGE>

us to sell  equity  securities  in the  future at a time and price  that we deem
appropriate   or  to  use  equity   securities  as   consideration   for  future
acquisitions.

Our common stock trades on the Over The Counter  Bulletin Board,  which subjects
it to less liquidity and more volatility than our prior Nasdaq SmallCap listing.

Since June 27,  2003,  our common stock has been trading on the Over The Counter
("OTC")  Bulletin Board.  This may influence the number of investors  willing to
trade in our common  stock,  and  therefore  could  decrease the  liquidity  and
trading  volume of our  common  stock.  Additionally,  our  position  on the OTC
Bulletin  Board may reduce the number of market  makers  willing to trade in our
stock,  making it likely  that wider  fluctuations  in the  quoted  price of our
common stock would occur. As a result,  there is a risk that  stockholders  will
not be able to obtain  price  quotes that reflect the actual value of our common
stock.  Increases in the  volatility  of our common  stock due to the  decreased
number of  individuals  willing to trade in it could also make it more difficult
to pledge the  common  stock as  collateral,  if  stockholders  sought to do so,
because a lender might be unable to accurately value the common stock.

In addition,  we are subject to the Securities and Exchange  Commission's  penny
stock  rules.  Penny stocks are  securities  with a price of less than $5.00 per
share, other than securities that are registered on certain national  securities
exchanges, that are quoted on Nasdaq or that meet certain conditions.  The penny
stock rules require delivery,  by a broker-dealer  prior to any transaction in a
penny stock,  of a disclosure  schedule  about  commissions  payable to both the
broker-dealer and the registered  representative  and current quotations for the
securities.  The rules also require that  broker-dealers send monthly statements
disclosing recent price information for each penny stock held in the account and
information on the limited market in penny stocks.  Because of the burden placed
on  broker-dealers  to comply with the penny stock rules,  stockholders may have
difficulty selling our common stock in the open market.


Provisions  in our  charter  may make it  difficult  for a company  or person to
acquire us.

Our charter  restricts the ability of our  stockholders  to call a stockholders'
meeting  and  provides  that our  stockholders  may not act by written  consent.
Additionally,  our Board of Directors  is divided  into three  classes with each
class  being  elected  by our  stockholders  in  different  years.  Our  charter
restricts the ability of our  stockholders to change the number of directors and
classes  of our Board of  Directors.  These  provisions  may have the  effect of
deterring  or delaying  certain  transactions  involving  an actual or potential
change  in  control  of  our  company,   including  transactions  in  which  our
stockholders  might  otherwise  receive a premium  for  their  shares  over then
current market prices,  and may limit the ability of our stockholders to approve
transactions that they may deem to be in their best interests.

                                       29
<PAGE>

Item 7. Financial Statements
-------

                                                                            Page
                                                                            ----

Report of Grant Thornton, LLP                                                31

Report of Ernst & Young, LLP                                                 32

Consolidated Balance Sheets as of December 31, 2003 and 2002                 33

Consolidated Statements of Operations for the years ended December
        31, 2003 and 2002                                                    35

Consolidated Statement of Stockholders' Equity (Deficiency) for the
        years ended December 31, 2003 and 2002                               36

Consolidated Statements of Cash Flows for the years ended December
        31, 2003 and 2002                                                    38

Notes to Consolidated Financial Statements                                   39

                                       30
<PAGE>

               Report of Independent Certified Public Accountants



To the Shareholders and Board of Directors
SmartServ Online, Inc. and Subsidiaries


We have audited the accompanying consolidated balance sheet of SmartServ Online,
Inc. and  subsidiaries  as of December 31,  2003,  and the related  consolidated
statement of operations,  stockholders  equity, and cash flows for the year then
ended.  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 audit.

We conducted our audit 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  consolidated   financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence supporting the amounts and disclosures in the consolidated
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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of SmartServ Online,
Inc.  and  subsidiaries  as of  December  31,  2003,  and the  results  of their
operations  and their cash flows for the year then  ended,  in  conformity  with
accounting principles generally accepted in the United States.



/s/ Grant Thornton LLP


Philadelphia, Pennsylvania
March 24, 2004

                                       31
<PAGE>

                         Report of Independent Auditors



Stockholders and Board of Directors
SmartServ Online, Inc.


We have audited the accompanying consolidated balance sheet of SmartServ Online,
Inc.  as of  December  31,  2002,  and the related  consolidated  statements  of
operations,  stockholders' equity (deficiency), and cash flows for the year then
ended.  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 audit.

We conducted our audit 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 audit  provides a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
SmartServ Online, Inc. at December 31, 2002, and the consolidated results of its
operations  and its cash  flows  for the year  then  ended  in  conformity  with
accounting principles generally accepted in the United States.

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

/s/ ERNST & YOUNG LLP

New York, New York
April 23, 2003, except for the second paragraph of
Note 1 as to which the date is March 24, 2004

                                       32
<PAGE>

                             SmartServ Online, Inc.

                           Consolidated Balance Sheets



<TABLE>
<CAPTION>
                                                                                      December 31
                                                                                -----------------------
                                                                                   2003         2002
                                                                                ----------   ----------
<S>                                                                             <C>          <C>
Assets
Current assets
    Cash and cash equivalents                                                   $  139,178   $  154,759
    Accounts receivable                                                            103,230       55,907
    Accrued interest receivable                                                     47,004       50,658
    Prepaid compensation                                                           133,127      117,500
    Prepaid expenses                                                                86,798      164,258
    Deferred financing costs                                                       322,192           --
                                                                                ----------   ----------
Total current assets                                                               831,529      543,082

Property and equipment, net                                                             --    1,573,978

Other assets
   Capitalized software development costs, net of accumulated amortization of           --      888,467
      $1,097,148, and $208,681 at December 31, 2003 and 2002
    Security deposits                                                                5,156      238,690
    Note receivable from officer, net of an allowance for uncollectibility of           --           --
      $664,640 at December 31, 2003 and 2002
   Prepaid compensation                                                                 --      107,708
                                                                                ----------   ----------
                                                                                     5,156    1,234,865
                                                                                ----------   ----------

Total Assets                                                                    $  836,685   $3,351,925
                                                                                ==========   ==========
</TABLE>

See accompanying notes.

                                       33
<PAGE>

                             SmartServ Online, Inc.

                           Consolidated Balance Sheets



<TABLE>
<CAPTION>
                                                                      December 31
                                                           ----------------------------
                                                               2003           2002
                                                           ------------    ------------
<S>                                                        <C>             <C>
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
   Accounts payable                                        $  1,702,768    $  1,307,342
   Accrued liabilities                                          928,393         476,346
   Accrued salaries                                              78,133         295,437
   Note payable                                                      --         500,000
   Accrued interest payable                                     218,848              --
                                                           ------------    ------------
Total current liabilities                                     2,928,142       2,579,125

Deferred revenues                                                37,500         193,294
Deferred lease costs                                                 --         242,300
Accounts payable - noncurrent                                        --         163,907

Note payable                                                  3,340,430              --

Commitments and Contingencies                                        --              --

Stockholders' Equity (Deficit)
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 - 2,261,300 shares at 2003 and         22,613          19,060
     1,906,040 shares at 2002
Additional paid-in capital                                   85,160,306      73,623,241
Notes receivable from officers                                 (255,525)       (609,996)
Accumulated deficit                                         (90,396,781)    (72,859,006)
                                                           ------------    ------------
Total stockholders' equity (deficit)                         (5,469,387)        173,299
                                                           ------------    ------------

Total Liabilities and Stockholders' Equity (Deficit)       $    836,685    $  3,351,925
                                                           ============    ============

See accompanying notes.
</TABLE>

                                       34
<PAGE>

                             SmartServ Online, Inc.

                      Consolidated Statements of Operations


<TABLE>
<CAPTION>
                                                               Year Ended December 31
                                                           ----------------------------
                                                              2003             2002
                                                           ------------    ------------
<S>                                                          <C>             <C>
Revenues                                                   $    709,388    $    195,817
                                                           ------------    ------------

Costs and expenses
   Cost of services                                          (2,732,571)     (5,620,994)
   Sales and marketing expenses                                (460,836)     (3,003,834)
   General and administrative expenses                       (3,335,109)     (4,423,642)
   Provision for losses on loans to officer                    (354,206)       (664,640)
   Stock-based compensation                                    (374,569)         80,295
   Impairment of capital assets and capitalized software     (1,548,473)             --
                                                           ------------    ------------

Total costs and expenses                                     (8,805,764)    (13,632,815)
                                                           ------------    ------------

Loss from operations                                         (8,096,376)    (13,436,998)
                                                           ------------    ------------

Other income (expense):
     Interest income                                             11,601         266,118
     Interest expense                                          (235,921)       (525,165)
     Gain from extinguishment of debt                           305,822       5,679,261
     Insurance recovery                                         374,000              --
     Debt origination and other financing costs              (9,896,951)             --
     Foreign exchange gain (loss)                                    50         (20,389)
                                                           ------------    ------------

                                                             (9,441,399)      5,399,825
                                                           ------------    ------------

Net loss                                                   $(17,537,775)   $ (8,037,173)
                                                           ============    ============

Basic and diluted loss per share                           $      (8.46)   $      (6.01)
                                                           ============    ============

Weighted average shares outstanding - basic and diluted       2,073,448       1,336,673
                                                           ============    ============
</TABLE>

See accompanying notes.

                                       35
<PAGE>

                             SmartServ Online, Inc.

           Consolidated Statement of Stockholders' Equity (Deficiency)

<TABLE>
<CAPTION>
                                           Common Stock
                                   --------------------------        Notes        Additional
                                                       Par         Receivable       Paid-in        Unearned      Accumulated
                                       Shares         Value      from Officers      Capital       Compensation      Deficit
                                    ------------   ------------   ------------    ------------    ------------    ------------
<S>                                 <C>         <C>            <C>             <C>             <C>             <C>
Balances at December 31, 2001          1,043,964   $     10,440   $   (666,841)   $ 69,732,257    $   (540,354)   $(64,821,833)

Issuance of common stock upon              2,833             28             --          15,794              --              --
  exercise of employee stock
  options

Conversion of 6.5 prepaid common           4,643             47             --             (47)             --              --
  stock purchase warrants into
  common stock

Issuance of common stock through         778,321          7,783             --       4,057,281              --              --
  private placements of
  securities

Issuance of common stock upon             34,142            341             --         175,818              --              --
   exercise of warrants

Amortization of unearned                      --             --             --              --         540,354              --
   compensation over the terms
   of consulting agreements

Warrants issued to consultants                --             --             --         282,250              --              --
  as compensation for services

Issuance of common stock                  42,137            421             --            (421)             --              --
  pursuant to the antidilution
  provisions of the May 2000
  stock purchase agreement

Warrants issued as compensation               --             --             --           1,500              --              --
  to a former employee

Warrants to purchase common                   --             --             --          38,000              --              --
  stock issued as a condition of
  debt extinguishment

Change in market value of                     --             --             --        (679,191)             --              --
  employee stock options

Repayment of note receivable from             --             --         56,845              --              --              --
  officer

Net loss for the year                         --             --             --              --              --      (8,037,173)
                                    ------------   ------------   ------------    ------------    ------------    ------------

Balances at December 31, 2002          1,906,040   $     19,060   $   (609,996)   $ 73,623,241    $         --    $(72,859,006)
                                    ------------   ------------   ------------    ------------    ------------    ------------

                                       36
<PAGE>

                             SmartServ Online, Inc.

           Consolidated Statement of Stockholders' Equity (Deficiency)
                                   (Continued)

<CAPTION>
                                          Common Stock
                                  --------------------------       Notes      Additional
                                                     Par         Receivable     Paid-in      Unearned    Accumulated
                                     Shares         Value      from Officers    Capital     Compensation   Deficit
                                  ------------   ------------   ------------  ------------  ------------ ------------
<S>                               <C>            <C>            <C>            <C>            <C>           <C>
Balances at December 31, 2002       1,906,040   $     19,060   $   (609,996) $ 73,623,241    $     --    $(72,859,006)


Issuance of common stock upon             958             10             --         9,650          --              --
  exercise of employee stock
  options

Issuance of common stock upon          73,731            737             --       375,290          --              --
  exercise of warrants


Issuance of common stock to            20,590            206             --       163,701          --              --
  vendors to satisfy debt

Change in market value of                  --             --             --        (1,323)         --              --
   employee stock options

Issuance of common stock as           166,666          1,667             --     1,221,931          --              --
   compensation for services

Issuance of common stock related       93,315            933             --       436,867          --              --
  to debt financing

Warrants issues as compensation            --             --             --       154,500          --              --
  for services

Allowance for uncollectibility             --             --        354,471            --          --              --
  of loans to officers

Issuance of warrants related to            --             --             --     7,273,960          --              --
  debt financing

Beneficial conversion features             --             --             --     1,902,489          --              --
  of notes

Net loss for the year                      --             --             --            --          --     (17,537,775)
                                 ------------   ------------   ------------  ------------  ----------    ------------

Balances at December 31, 2003       2,261,300   $     22,613   $   (255,525) $ 85,160,306  $       --    $(90,396,781)
                                 ============   ============   ============  ============  ==========    ============
</TABLE>

                                       37
<PAGE>

                             SmartServ Online, Inc.

                      Consolidated Statements of Cash Flows




<TABLE>
<CAPTION>
                                                                   Year Ended December 31
                                                                     2003          2002
                                                                ------------    ------------
<S>                                                             <C>             <C>
Operating Activities
Net loss                                                        $(17,537,775)   $ (8,037,173)
Adjustments  to  reconcile  net  loss to net  cash  used  for
  operating activities:
    Gain from extinguishment of debt                                (305,822)     (5,679,261)
    Provision for losses on loans to officer                         354,471         664,640
    Amortization of deferred financing costs                       9,748,076
    Depreciation and amortization                                    913,972       1,944,515
    Impairment of capital assets and capitalized software          1,548,473              --
    Provision for losses on receivables                                   --           2,228
    Noncash compensation costs                                            --        (677,690)
    Noncash consulting services                                      600,400         597,396
    Amortization of unearned revenues                               (403,794)        (16,706)
    Changes in operating assets and liabilities:
       Accounts receivable                                           (47,323)        (17,337)
       Accrued interest receivable                                     3,654        (215,298)
       Prepaid expenses                                               77,460         366,770
       Accounts payable and accrued liabilities                      637,538         783,169
       Deferred revenues                                             248,000         210,000
       Security deposits                                             233,534         235,855
                                                                ------------    ------------

Net cash used for operating activities                            (3,929,136)     (9,838,892)
                                                                ------------    ------------

Investing Activities
Capitalization of software development costs                              --        (185,895)
Purchase of equipment                                                     --        (166,666)
                                                                ------------    ------------
Net cash used for investing activities                                    --        (352,561)
                                                                ------------    ------------

Financing Activities
Proceeds from the issuance of common stock                           385,545       4,836,392
Proceeds from the issuance of notes                                3,823,010              --
Repayment of note payable                                           (295,000)       (500,000)
Repayment of note receivable from officer                                 --          56,845
Costs of issuing securities                                               --        (579,348)
                                                                ------------    ------------
Net cash provided by financing activities                          3,913,555       3,813,889
                                                                ------------    ------------

Decrease in cash and cash equivalents                                (15,581)     (6,377,564)
Cash and cash equivalents - beginning of period                      154,759       6,532,323
                                                                ------------    ------------
Cash and cash equivalents - end of period                       $    139,178    $    154,759
                                                                ============    ============
</TABLE>

See accompanying notes.

                                       38
<PAGE>

                             SmartServ Online, Inc.

                   Notes to Consolidated Financial Statements

1.   Nature of Business and Operations

SmartServ  Online,  Inc. (the "Company" or  "SmartServ")  designs,  develops and
distributes  software and services that enable the delivery to wireless  devices
of various content,  with special emphasis on cell phones. The content which the
Company provides  includes premium content such as ringtones,  images and games,
and dynamic  changing  content such as horoscopes,  lottery  results and weather
reports. Historically,  the Company has licensed its applications,  content, and
related services to wireless  carriers and enterprises.  The Company has revenue
sharing license agreements with wireless carriers such as Verizon Wireless, AT&T
Wireless, Nextel, and ALLTEL Wireless, that allow it to deliver its services and
branded  content to a wide base of consumer cell phone users.  For  enterprises,
the Company has in the past  offered  solutions  that deliver  financial  market
data,  proprietary  internal  documents and other useful  information  to mobile
workers, although this no longer comprises a core part of the Company's business
or strategy.

The Company is  incorporated  in the State of  Delaware.  The Company  commenced
operations in August 1993, and had its initial public  offering in March,  1996.
The Company did a one-for-six  reverse stock split effective  November 25, 2003.
The par  value of the  Company's  common  stock  remained  at $0.01 per share in
accordance with Delaware  corporation law. The reverse stock split also effected
the conversion price and number of shares into which an outstanding  convertible
security is convertible or exercisable.  Unless otherwise noted, descriptions of
shareholdings and convertible  securities reflect such one-for-six reverse stock
split in all years presented.

The financial  statements  have been prepared on a going  concern  basis,  which
contemplates  the  realization of assets and the  settlement of liabilities  and
commitments  in the  normal  course  of  business.  The  Company  has  since its
inception earned limited revenues and incurred  substantial  recurring operating
losses,  including net losses of $17,537,775  and $8,037,173 for the years ended
December 31, 2003 and 2002, respectively.  Additionally,  we have an accumulated
deficit of $90,396,781 at December 31, 2003. In May 2002, the Company  commenced
an effort to realign its  infrastructure  and related overhead to correlate with
reductions in projected revenue.  As part of this effort, the Company closed its
UK and Hong Kong sales  offices and downsized  its domestic  operations  through
staff  reductions  to a level  sufficient  to support  the  Company's  projected
operations.  During 2003,  the Company  continued  to reduce its cost  structure
through the  termination  of  additional  personnel  and the  relocation  of the
Company's  headquarters to Plymouth Meeting,  Pennsylvania.  Personnel headcount
was  reduced  from 66 in May 2002 to the  level  of 9 in  December  2003.  These
efforts have reduced the  Company's  average  monthly  operating  expenses  from
approximately  $1,090,000 in July 2002 to approximately  $370,000 from September
through December 2003, excluding noncash stock compensation and depreciation and
amortization and working capital used to settle accounts  payable.  As discussed
in Note 14, the Company  received  $10 million in gross  proceeds  from the 2004
Private Placement.

As a result  of the  factors  identified  above,  the  Company  believes  it has
sufficient capital for approximately the next 12 months.  However,  no assurance
can be given  that the  Company  will be able  meet its  revenue  and cash  flow
projections,  maintain  its cost  structure as  presently  configured,  or raise
additional capital on satisfactory  terms. Should the Company be unable to raise
additional debt or equity financing,  it may be forced to seek a merger or cease
operations.

2.   Summary of Significant Accounting Policies

Basis of Presentation
---------------------

The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity with accounting principles generally accepted in the United States.

                                       39
<PAGE>

Principles of Consolidation
---------------------------

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

Use of Estimates
----------------

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

Revenue Recognition
-------------------

The Company  recognizes  revenue  from the use of its  products  and services in
accordance with American  Institute of Certified Public  Accountants'  ("AICPA")
Statement of Position ("SOP") 97-2,  "Software Revenue  Recognition",  SOP 98-9,
"Modification  of SOP  97-2,  Software  Recognition,  With  Respect  to  Certain
Transactions",   and  the  SEC  Staff  Accounting   Bulletin  No.104,   "Revenue
Recognition".  Specifically,  there must be (1) evidence of an arrangement,  (2)
delivery of the Company's products and services, (3) fixed and determinable fees
and (4)  probable  collectibility  of such  fees.  Revenues  from  multi-element
revenue agreements are recognized based on vendor specific objective evidence of
individual  components  or,  if  the  elements  in  the  arrangement  cannot  be
separated,  as has been the situation to date, recognized as one element ratably
over the term of the agreement.

Subscription Revenue
--------------------

Subscription revenue consists of fixed and variable charges for the usage of the
Company's products and services provided through its relationships with wireless
telecommunications  carriers and a financial  services company.  Such revenue is
recognized as the services are provided on a monthly basis.

Development and Integration Revenue
-----------------------------------

Development   and   integration   fees  are  charged  for  the   development  of
private-labeled  applications for customers that incorporate  their  proprietary
data into SmartServ's  products and services.  Such fees are recognized  ratably
over the term of the agreement.

Service Revenue
---------------

Service revenue is derived from  consulting or by providing  other  professional
services  to  customers.  Revenue  from  the  performance  of such  services  is
recognized when the services are performed.  Losses,  if any, from  professional
services  contracts  are  recognized  at the time such  losses  are  identified.
Maintenance  and  support  fees  paid  in  advance  are  nonrefundable  and  are
recognized ratably over the term of the agreement, generally 12 months.

Hosting Services
----------------

Hosting service arrangements are based on a flat monthly fee or on the number of
users and may include a one-time setup fee. The one-time setup fee is recognized
over the term of the hosting  arrangement,  and the hosting  services revenue is
recognized monthly as earned on a fixed fee or variable rate basis.

Deferred Revenues
-----------------

Deferred  revenues,  resulting  from  customer  prepayments,  are  recognized as
services are provided  throughout  the term of the agreement with the respective
customer.

                                       40
<PAGE>

Deferred Financing Costs
------------------------

Deferred  financing  costs represent those costs incurred in connection with the
issuance of the  Company's  convertible  notes.  These costs are recorded at the
fair value of the consideration (cash or securities) paid to the finders in such
transactions  and are amortized to operations as other  financing costs over the
terms of the respective notes.

Earnings Per Share
------------------

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

Capitalized Software Development Costs
--------------------------------------

In  connection  with certain  contracts  entered into between  SmartServ and its
customers,  as well as other development  projects,  the Company has capitalized
costs related to certain product  enhancements  and  application  development in
accordance with SFAS No. 86,  "Accounting for the Costs of Computer  Software to
be Sold, Leased or Otherwise Marketed."  Specifically,  all software development
costs are charged to expense as incurred  until  technological  feasibility  has
been  established  for the product.  Thereafter,  additional  costs incurred for
development  are  capitalized.  The Company  ceased  capitalizing  such costs in
connection with its current product  offering during the quarter ended September
30, 2002 when the products  became  available for general  release to customers.
Amortization  of  capitalized  software  development  costs  commences  with the
products'  general release to customers and is provided on a  product-by-product
basis over the economic  life,  not to exceed three years,  using the greater of
the straight-line or a flow of revenue method.

On an  ongoing  basis,  SmartServ  reviews  the  future  recoverability  of  its
capitalized software development costs for impairment whenever events or changes
in circumstances indicate that the carrying amounts may not be recoverable. When
such  events or  changes  in  circumstances  do  occur,  an  impairment  loss is
recognized if the undiscounted future cash flows expected to be generated by the
asset are less than its  carrying  value.  As a result of less than  anticipated
demand for the  Company's  products and  services,  as well as its  inability to
leverage  certain  relationships  during the quarter  ended June 30,  2003,  the
Company  recorded in accordance with SFAS No. 86, an impairment loss of $704,705
in such  quarter to reduce the recorded  value of the assets to their  estimated
net realizable value.

Fair Value of Financial Instruments
-----------------------------------

The carrying amounts of our financial instruments  approximate fair value due to
their terms and maturities.

Supplemental Cash Flow Data
---------------------------

The Company  considers  all highly  liquid  investments  with a maturity date of
three months or less when purchased to be cash equivalents.

During the year ended  December 31, 2003,  the Company  issued  20,590 shares of
common  stock  to  5  vendors  in  settlement  of  the  Company's   obligations,
aggregating  $164,000,  to  such  vendors.  These  transactions  are  considered
non-cash transactions for the purposes of the Statement of Cash Flows.

Interest, debt origination and other financing costs paid during the years ended
December 31, 2003 and 2002 were $322,000 and $373,339, respectively.

                                       41
<PAGE>

Concentration of Credit Risk
----------------------------

Financial  instruments that potentially  subject  SmartServ to concentrations of
credit risk  consist  solely of accounts  receivable.  At December  31, 2003 and
2002,  accounts  receivable  consist  principally  of  amounts  due  from  major
telecommunications  carriers,  as  well as a  financial  services  company.  The
Company  performs   periodic  credit   evaluations  of  its  customers  and,  if
applicable,  provides  for  credit  losses in the  financial  statements.  As of
December  31,  2003 and 2002 the  Company  did not have a reserve  for  doubtful
accounts.

Property and Equipment
----------------------

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

On an ongoing basis, SmartServ reviews the future recoverability of its property
and  equipment  for  impairment  whenever  events or  changes  in  circumstances
indicate that the carrying  amounts may not be recoverable.  When such events or
changes in  circumstances  do occur,  an  impairment  loss is  recognized if the
undiscounted  future cash flows  expected to be  generated by the asset are less
than its carrying  value.  As a result of less than  anticipated  demand for the
Company's  products and services,  as well as its inability to leverage  certain
relationships  during the quarter ended June 30, 2003,  the Company  recorded an
impairment  loss of $843,768 in such quarter to reduce the recorded value of its
assets to their estimated net realizable value.

Advertising Costs
-----------------

Advertising  costs are  expensed as incurred and were  approximately  $6,600 and
$280,000 for the years ended December 31, 2003 and 2002, respectively.

Stock Based Compensation
------------------------

Employee Stock Option Plans
---------------------------

The Company  maintains  several  stock option plans for  employees and directors
that  provide  for the  granting of stock  options for a fixed  number of common
shares with an exercise  price equal to the fair value of the shares at the date
of grant.  The Company  accounts for such grants 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, which requires the Company to record
compensation expense for changes in the fair value of its common stock.

Non-Employee Compensation
-------------------------

The  Company  has issued  warrants  to  purchase  common  stock to  non-employee
consultants  as  compensation  for  services  rendered  or to be rendered to the
Company. The warrants are recorded in accordance with the provisions of SFAS No.
123, Accounting for Stock-Based Compensation,  and are valued in accordance with
the Black-Scholes pricing methodology.

The Company  adopted the disclosure  provisions of SFAS No. 148,  Accounting for
Stock-Based Compensation - Transition and Disclosure, which amends SFAS No. 123.
SFAS No. 148 provides  alternative  methods of transition for a voluntary change
to  the  fair  value  based  method  of  accounting  for  stock-based   employee
compensation,  which was  originally  provided  under SFAS No. 123. SFAS No. 148
also improves the timeliness of  disclosures by requiring the  information to be
included  in interim as well as annual  financial  statements.  The  adoption of
these  disclosure  provisions had no impact on the Company's  2003  consolidated
results of operations, financial position or cash flows.

                                       42
<PAGE>

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

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

SmartServ's pro forma information is as follows:

                                                       Year Ended
                                                       December 31
                                             ----------------------------
                                                2003            2002
                                             ------------    ------------

Net  loss as reported                        $(17,537,775)   $ (8,037,173)

Employee stock-based compensation included
  in net loss                                     374,569        (677,690)

Employee stock-based compensation pursuant
  to SFAS 123                                    (677,416)     (4,278,214)
                                             ------------    ------------

Proforma net loss                            $(17,840,622)   $(12,993,077)
                                             ============    ============

Basic and diluted loss per share             $      (8.46)   $      (6.01)
                                             ------------    ------------

Proforma basic and diluted loss per share    $      (8.60)   $      (9.72)
                                             ============    ============

Foreign Currency Translation
----------------------------

The financial  statements of the Company's foreign subsidiaries whose functional
currencies  are  other  than the U.S.  dollar,  have been  translated  into U.S.
dollars  in  accordance  with SFAS No. 52,  Foreign  Currency  Translation.  All
balance sheet accounts have been  translated  using the exchange rates in effect
at the balance sheet date.  Income statement  amounts have been translated using
the average rate for the year.  Gains and losses  resulting  from the changes in
exchange  rates  from year to year  have  been  reported  in  accumulated  other
comprehensive income.

Recent Accounting Pronouncements
--------------------------------

Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which provides a single accounting
model for measuring  impairment  of  long-lived  assets and the disposal of such
assets. The adoption of SFAS No. 144 had no impact on the Company's consolidated
results of operations, financial position or cash flows.

In April 2002,  the Financial  Accounting  Standards  Board issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13,  and  Technical  Corrections".   Under  SFAS  145,  the  Company's  gain  on
extinguishment  of debt has been recorded in "Other income" in the  consolidated
financial statements.

In July 2002,  the  Financial  Accounting  Standards  Board issued SFAS No. 146,
"Accounting for Costs  Associated with an Exit or Disposal  Activity".  SFAS No.
146 revises the  accounting  for exit and  disposal  activities  under  Emerging
Issues Task Force ("EITF") Issue No. 94-3,  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (Including
Certain Costs Incurred in a  Restructuring)",  by potentially  spreading out the
reporting of expenses related to restructuring  activities.

                                       43
<PAGE>

SFAS No. 146 became  effective  prospectively  for exit or  disposal  activities
initiated  after December 31, 2002. The Company  adopted SFAS No. 146 on January
1, 2003,  as  required,  and the  adoption of this new  standard  did not have a
material effect on its consolidated results of operations, financial position or
cash flows.

On January 1, 2003,  the  company  adopted  SFAS No. 143,  Accounting  for Asset
Retirement  Obligations,  which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The adoption of SFAS No. 143 did not have any
impact on the company's financial position or results of operations.

On January 1, 2003, the company  adopted  Financial  Accounting  Standards Board
(FASB) Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements
for Guarantors,  Including Indirect Guarantees of Indebtedness of Others,  which
requires  that upon  issuance of a guarantee,  the  guarantor  must  recognize a
liability  for the fair  value  of the  obligation  that it  assumes  under  the
guarantee. Guarantors are also required to meet expanded disclosure obligations.
The  adoption  of  Interpretation  No. 45 did not have a material  impact on the
company's financial position or results of operations.

In  January  2003,  the FASB  issued  Interpretation  No. 46,  Consolidation  of
Variable Interest  Entities.  Interpretation  No. 46 addresses  consolidation by
business  enterprises  of variable  interest  entities,  which are entities that
either (a) do not have equity  investors  with vesting rights or (b) have equity
investors that do not provide sufficient  financial  resources for the entity to
support its activities. The interpretation is effective immediately for variable
interest  entities  created after  February 1, 2003. In December  2003, the FASB
published FASB  Interpretation No. 46 (revised December 2003),  Consolidation of
Variable Interest Entities (FIN 46(R)).  FIN 46(R),  among other things,  defers
the  effective  date  of  implementation  for  certain  entities.   The  revised
interpretation  is effective  for the first interim or annual  reporting  period
ending after March 15, 2004,  with the exception of structures that are commonly
referred to as  special-purpose  entities,  for which the statement is effective
for periods ending after December 15, 2003. The adoption of  Interpretation  No.
46 is not  expected  to have a  material  impact  on the  company's  results  of
operations or financial position.

In April 2003,  the FASB issued SFAS No. 149,  Amendment of Statement No. 133 on
Derivative  Instruments  and  Hedging  Activities.  This  statement  amends  and
clarifies  financial  accounting  and  reporting  for  derivative   instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging activities under SFAS No. 133. SFAS No. 149 requires that contracts with
comparable   characteristics  be  accounted  for  similarly.  The  statement  is
effective  for  contracts  entered into or modified  after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The provisions of SFAS No.
149 generally are to be applied prospectively only. The adoption of SFAS No. 149
did not have a  material  impact  on the  company's  results  of  operations  or
financial position.

In May 2003,  the FASB  issued SFAS No. 150,  Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity.  SFAS No. 150
establishes standards for classification and measurement by an issuer of certain
financial  instruments with  characteristics of both liabilities and equity. The
statement requires that an issuer classify a financial instrument that is within
the scope as a liability  (or asset in some  circumstances).  This  statement is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning after June 15, 2003, except as it relates to consolidated limited-life
subsidiaries.  The  FASB  indefinitely  deferred  the  effective  date  of  this
statement  as it  relates  to  certain  mandatorily  redeemable  non-controlling
interests in consolidated limited-life  subsidiaries.  The company does not have
any interest in  limited-life  entities as of December 31, 2003. The adoption of
the effective provisions of SFAS No. 150 did not have an impact on the company's
results of operations or financial position.

In  December  2003,  the FASB  issued SFAS No. 132  (revised  2003),  Employer's
Disclosures  about Pensions and Other  Postretirement  Benefits.  This statement
revises  employers'  disclosures  about pension  plans and other  postretirement
benefit  plans;  however it does not change the  measurement  or  recognition of
those plans required by SFAS No. 87,  Employers'  Accounting for Pensions,  SFAS
No. 88,  Employers'  Accounting  for  Settlements  and  Curtailments  of Defined
Benefit Pension Plans and for Termination Benefits, and SFAS No. 106, Employers'
Accounting  for  Postretirement   Benefits  Other  Than  Pensions.  The  revised
statement

                                       44
<PAGE>

retains the disclosure  requirements  contained in the original SFAS No. 132 and
requires  additional  disclosures to those in the original  statement  about the
assets,  obligations,  cash  flows,  and net  periodic  benefit  cost of defined
benefit  pension  plans and other  defined  benefit  postretirement  plans.  The
revised  statement is effective for fiscal years ending after December 15, 2003.
The  adoption  of SFAS 132R is not  expected  to have a  material  impact on the
company's results of operations or financial position.

3.   Property and Equipment

Property and equipment consist of the following:

                                        December 31
                                 --------------------------
                                    2003            2002
                                 -----------    -----------
Data processing equipment        $ 4,594,526    $ 4,842,941
Office furniture and equipment       397,474        151,263
Display equipment                     71,335         71,335
Leasehold improvements                69,852         69,852
                                 -----------    -----------

                                   5,133,187      5,135,391
Impairment of capital assets        (843,768)            --
Accumulated depreciation          (4,289,419)    (3,561,413)
                                 -----------    -----------
                                 $        --    $ 1,573,978
                                 ===========    ===========

4.   Note Receivable From Officer

In December 2000, the Company's Board of Directors  authorized the issuance of a
line of credit to Sebastian Cassetta,  SmartServ's Chief Executive Officer,  for
an amount not to exceed  $500,000.  Such amount bears interest at the prime rate
and matures on March 20, 2004.  Pursuant to the terms of the note,  interest for
the period  January 2, 2001 to June 30, 2002 has been  accrued and is payable at
maturity.  Commencing  July 1, 2002 until  maturity,  interest  shall be payable
semi-annually  in arrears on January 1st and July 1st. In October 2003 we agreed
to  forgive  this loan  over a  three-year  period  pursuant  to Mr.  Cassetta's
Separation  Agreement with us as described in the section  entitled  "Agreements
with Named Executive Officers".

The financial  statements at December 31, 2002 contain a valuation allowance for
a potential loss of $552,467,  relating to the  collectibility of Mr. Cassetta's
note and the interest accrued thereon through June 30, 2002.

Additionally,  during the quarter  ended June 30, 2003,  the Company  recorded a
valuation   allowance   of   $270,000   in   connection   with   the   potential
uncollectibility  of a loan made to Mr.  Cassetta  for the purchase of SmartServ
restricted  stock.  Such reserve is classified  as a reduction of  stockholders'
equity.  While  this loan had  original  maturity  date of  December  2003,  Mr.
Cassetta's  ability to repay this loan and interest thereon is highly contingent
on  the  market  value  of his  investment  in the  Company.  In his  separation
agreement  in  August  2003,  the  Company  extended  the  maturity  date of the
restricted stock note until September 2004.

5.   Note Payable

In May 2000,  the  Company  entered  into a  Business  Alliance  Agreement  with
Hewlett-Packard  Company ("HP")  whereby the companies  agreed to jointly market
their  respective  products  and  services,  and to  work  on the  build-out  of
SmartServ's domestic and international  infrastructure.  In furtherance of these
objectives,  HP provided the Company with a line of credit of up to  $20,000,000
for the acquisition of approved  hardware,  software and services.  On September
10, 2002, the Company and HP amended the terms of the promissory note to provide
for the (i) reduction of SmartServ's aggregate outstanding principal and accrued
interest  amount of  $7,045,000  to  $1,000,000,  (ii) return of certain  unused
hardware by SmartServ, (iii) issuance by SmartServ of a warrant for the purchase
of 8,333  shares of common  stock and (iv)  repayment of $500,000 of the amended
obligation  on  September  10,  2002.  The  remaining  $500,000  obligation  was
evidenced by a note,  bearing an interest rate of 11%,  secured by the Company's
assets  exclusive  of  its  internally  developed  software  products,  and  was
satisfied  through a partial  repayment in February 2003. The warrant expires on

                                       45
<PAGE>

September 9, 2005 and has an exercise price of $6.996, determined as 110% of the
average closing bid price of the common stock for the five trading days prior to
September 10, 2002. In connection  therewith,  the Company  recorded a charge to
earnings of $38,000  representing the fair value of the warrant as determined in
accordance  with the  Black-Scholes  pricing  model.  The  restructuring  of the
obligation  resulted in a net gain in 2002 of $5,679,261 which has been recorded
as "Other income" in the consolidated financial statements.

In  February  2003,  the Company  issued a  convertible  note to Global  Capital
Funding Group, LP ("Global") in consideration for the receipt of $1 million. The
note  bears  interest  at the  rate  of 10% per  annum,  and is  secured  by the
Company's assets,  exclusive of its internally developed software products.  The
note matures on February 14, 2004, contains certain antidilution provisions, and
may be converted  into shares of SmartServ  common stock at $6.60 per share.  As
additional  consideration,  the Company issued Global a warrant for the purchase
of 33,333  shares of its common  stock at an exercise  price of $9.66 per share.
The note and the  warrant  have been  recorded  in  accordance  with APB No. 14,
"Accounting for Convertible Debt and Debt Issued with Stock Purchase  Warrants".
The  warrant  has been  valued  in  accordance  with the  Black-Scholes  pricing
methodology  and is netted against the  outstanding  obligation in the financial
statements.  Such amount is being amortized into operations as interest  expense
and  other  financing  costs  over the life of the  obligation.  Alpine  Capital
Partners, Inc. ("Alpine") received a finder's fee of $70,000, representing 7% of
the aggregate  purchase price of the convertible  note and a warrant to purchase
15,167  shares of common  stock  exercisable  at $9.66 per  share,  expiring  on
February 14, 2005, in connection  with this  transaction.  This warrant has been
valued in accordance with SFAS No. 123 and the Black-Scholes pricing methodology
and recorded in the  financial  statements  as deferred  financing  costs.  This
amount is being amortized into  operations on a straight-line  basis as interest
expense  and other  financing  costs  over the life of the  obligation.  Also in
connection with the 10% convertible  notes,  the Company has recorded a non-cash
charge for other  financing  costs of  $406,400,  representing  a portion of the
intrinsic  value of the  beneficial  conversion  feature of the notes.  Emerging
Issues  Task  Force  ("EITF")  Issue  No.  98-5,   "Accounting  for  Convertible
Securities  with  Beneficial  Conversion  Features  or  Contingently  Adjustable
Conversion  Ratios" ("Issue No. 98-5") as more fully described in EITF Issue No.
00-27  "Application  of Issue  No.  98-5 to  Certain  Convertible  Instruments",
defines  the  beneficial  conversion  feature as the  non-detachable  conversion
feature that is "in-the-money" at the date of issuance.  Issue No. 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.  In April 2003,  the Company  borrowed an
additional $250,000 from Global and amended the convertible note to include such
amount. As additional consideration, the Company issued Global a warrant for the
purchase of 3,333 shares of its common  stock at an exercise  price of $7.20 per
share.  Alpine is to receive a finder's  fee of $17,500 in  connection  with the
April  amendment.  The  warrants  issued to Global  and Alpine  contain  certain
antidilution provisions and expire on February 14, 2006. In November 2003, as an
inducement to obtain Global's  consent to the sale of Units in the November 2003
transaction and the 2004 private placement,  the Company issued Global a warrant
to purchase  16,667  shares of common  stock at an  exercise  price of $2.40 per
share.  On February 13, 2004, we paid off the  convertible  note in full for the
principal and accrued interest due under the Global note.

In May 2003,  the  Company,  in  consideration  of  $358,000,  issued 3.58 Units
consisting  of  convertible  notes and  warrants to purchase  common stock ("May
Units") to 8 investors.  Each May Unit consists of a $100,000  convertible  note
and a warrant to purchase  33,333  shares of the  Company's  common  stock.  The
convertible  notes bear  interest  at 8% per  annum,  are  convertible  into the
Company's  common  stock at $4.464 (the average of the closing bid prices of the
Company's  common stock for the 5 days prior to the closing of the  transaction)
per share and were to mature on the earlier of November  19, 2003 or the closing
of an equity placement of not less than $3 million. The warrants are exercisable
at $4.464 per share and expire on May 19,  2006.  In June 2003,  the  Company in
consideration of $1,142,000  issued 11.42 Units ("June Units") (each May or June
Unit referred to individually as a "Unit") to 20 accredited investors. Each June
Unit also  consists  of a $100,000  convertible  note and a warrant to  purchase
33,333 shares of the Company's common stock. The convertible notes bear interest
at 8% per annum,  are convertible into the Company's common stock at $4.764 (the
average of the closing bid prices of the  Company's  common stock for the 5 days
prior to the  closing  of the  transaction)  per share and were to mature on the
earlier of November  19, 2003 or the closing of an equity  placement of not less
than $3 million.  The warrants are exercisable at $4.764 per share and expire on
June 13, 2006.  The Units have been recorded in accordance  with APB No. 14. The
warrants  have  been  valued  in

                                       46
<PAGE>

accordance with the Black-Scholes pricing methodology and are netted against the
outstanding  obligation  in the  financial  statements.  Such  amount  is  being
amortized into operations as interest expense and other financing costs over the
life of the obligation.  Also in connection with the 8% convertible  notes,  the
Company has  recorded a non-cash  charge for other  financing  costs of $81,400,
representing  a portion  of the  intrinsic  value of the  beneficial  conversion
feature of the notes. EITF Issue No. 98-5, as more fully described in EITF Issue
No.  00-27,  defines the  beneficial  conversion  feature as the  non-detachable
conversion  feature that is  "in-the-money"  at the date of issuance.  Issue No.
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. In November 2003, the Company, as an
inducement  to extend  the  maturity  date of the notes to  February  19,  2004,
offered the note holders a warrant to purchase additional shares of common stock
in an amount equal to 25% of the number of shares into which the notes purchased
in the Unit are convertible.

Spencer Trask Ventures,  Inc.  ("Spencer  Trask"),  Steven B. Rosner and Richard
Berland  acted  as  finders  for  the  May  and  June  2003   transactions.   As
consideration  therefor, the finders received their proportionate share of (i) a
cash fee of $150,000,  or 10% of the aggregate purchase price of the Units sold;
(ii) warrants to purchase  510,158  shares of the  Company's  common stock at an
exercise price of $1.50 per share; and (iii) 5,555 shares of unregistered common
stock per Unit sold. These warrants  provide for cashless  exercise and expire 5
years  from  the  date  of  grant.   In  addition,   Spencer  Trask  received  a
non-accountable expense allowance of $45,000, or 3% of the aggregate proceeds of
all Units sold in the May and June 2003  transactions.  The  warrants  have been
valued in accordance SFAS No. 123 and the Black-Scholes  pricing methodology and
recorded in the financial statements as deferred financing costs. Such costs are
being amortized into operations on a straight-line basis as interest expense and
other financing costs over the life of the obligation.

On September  16, 2003,  SmartServ  issued 7.4 Units in a financing  transaction
consisting of an offering of up to 12 Units  comprised of a $50,000  convertible
note and a warrant to purchase  16,667 shares of  SmartServ's  common stock.  On
September  19, 2003,  SmartServ  issued the remaining 4.6 Units of the financing
transaction (collectively the "September  Transaction").  The Units were sold to
18 investors  for an aggregate of $600,000.  Holders of the notes have the right
to convert the notes into shares of common  stock at a price equal to $1.896 per
share for the notes  issued on  September  16, 2003 and $1.920 per share for the
notes issued on September 19, 2003. The maturity date of the notes was to be the
earlier of November  19, 2003 or the  completion  of an equity  placement  of at
least $3 million,  at which time the notes will  automatically  convert into the
equity  placement.  Holders  of the  warrants  have the  right to  exercise  the
warrants  into  shares of common  stock at a price  equal to $1.500  per  share.
Spencer   Trask  and  Richard   Berland  acted  as  finders  for  the  September
transaction. As consideration therefor, the finders received their proportionate
share of (i) a cash fee of $60,000,  or 10% of the aggregate  purchase  price of
all of the Units;  (ii) warrants to purchase  102,988 shares of common stock, or
20% of the shares of common stock  underlying  the securities in the Units sold,
at exercise  prices  ranging  from $1.50 to $1.90 per share and expiring 5 years
from the date of grant; and (iii) 2,778 shares of unregistered  common stock per
Unit  sold.  In  addition,  Spencer  Trask  received a  non-accountable  expense
allowance of $18,000,  or 3% of the aggregate  proceeds of all Units sold in the
September  Transaction.  All of the notes  and the  warrants  have full  ratchet
anti-dilution  protection.  In November 2003,  the Company,  as an inducement to
extend  the  maturity  date of the  notes to  February  19,  2004,  offered  the
noteholders a warrant to purchase additional shares of common stock in an amount
equal to 25% of the number of shares into which the notes  purchased in the Unit
are convertible.

The September  Transaction  required the consent of Global,  the holder of $1.25
million of SmartServ's  convertible notes issued in February and April 2003, and
of the holders 51% or more of SmartServ's $1.5 million  convertible notes issued
in connection with the bridge  financings in May and June 2003. As an inducement
to obtain their  consent,  such holders  received (a) a change in the conversion
price of their  convertible  notes equal to the lowest  conversion  price of the
notes issued in the September  financings ($1.896 per share) and (b) an increase
in the number of shares  purchasable  pursuant  to the warrant to reflect a full
ratchet  dilution  formula with a decrease in the exercise price of the warrants
to the  exercise  price  of the  warrants  issued  in  the  September  financing
($1.500).  Such  amendment,  as it pertains to the holders of convertible  notes
issued in the May and June 2003 bridge financings, was effective on November 25,
2003,

                                       47
<PAGE>

coincident  with  the  effective  date of a  one-for-six  reverse  stock  split.
SmartServ  recorded a charge in the  amount of  $4,828,000  as "Other  Financing
Costs" for the fair value of the consideration granted to these note holders for
such consent.

On November  11,  2003,  SmartServ  issued 18 Units in a  financing  transaction
comprised  of a  $50,000  convertible  note  ("November  Notes")  and a  warrant
("November  Warrant") to purchase 16,667 shares of SmartServ's common stock. The
Units were sold to 20 investors  for an  aggregate  of $900,000.  Holders of the
November  Notes  have the right to convert  the  November  Notes into  shares of
common  stock at a price  equal to $2.10 per  share.  The  maturity  date of the
November  Notes is the earlier of  December  19,  2003 or the  completion  of an
equity  placement of at least $3 million,  at which time the November Notes will
automatically  convert  into  the  equity  placement.  Holders  of the  November
Warrants have the right to exercise the November  Warrants into shares of common
stock at a price  equal to $1.500 per share.  Finders'  compensation  to Spencer
Trask and Richard Berland consisted of (i) a cash fee of $90,000,  or 10% of the
aggregate  purchase price of all of the Units; (ii) warrants to purchase 136,000
shares of common  stock,  or 20% of the shares of common  stock  underlying  the
securities in the Units sold, at exercise prices ranging from $1.50 to $1.90 per
share and  expiring 5 years from the date of grant;  and (iii)  2,778  shares of
unregistered  common stock per Unit sold. In addition,  Spencer Trask received a
non-accountable expense allowance of $27,000, or 3% of the aggregate proceeds of
all Units sold in the November  transaction.  All of the November  Notes and the
November Warrants have full ratchet anti-dilution  protection. In December 2003,
as an inducement  to extend the maturity date of the November  Notes to February
19, 2004, the Company offered the  noteholders a warrant to purchase  additional
shares of common  stock in an amount  equal to 25% of the number of shares  into
which the notes purchased in the Unit are convertible.

While the  warrants  to  purchase  common  stock  issued  during  the year ended
December 31, 2003 and thereafter represent an additional source of capital, they
expire  between May 2006 and November  2008 and are not callable by the Company.
Therefore,  they cannot be relied  upon by the  Company as a definite  source of
capital. The warrant holders may choose to exercise their warrants if the market
price of the Company's common stock exceeds the exercise price of the warrant.

As of December 31, 2003,  the face amount of the Company's  debt  obligations is
$4,250,010 and the unamoritzed discount amounted to $909,580.

6.   Equity Transactions

In  December  1998,  the  Company's  Board of  Directors  approved  the terms of
restricted  stock purchase  agreements  for Sebastian E. Cassetta,  Chairman and
Chief  Executive  Officer,  and Mario F.  Rossi,  Executive  Vice  President  of
Technology.  In connection  with Mr.  Cassetta's  purchase of 103,040  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.  In connection with Mr.
Rossi's purchase of 34,347 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 notes are secured by the stock and bear interest at the rate of
7.50% per annum. The stock purchase  agreements  provide  SmartServ with certain
repurchase  options and provide Messrs.  Cassetta and Rossi with a put option in
the event of the termination of their employment. Through December 31, 1999, the
restricted  stock purchase  agreements 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.  As a result  thereof,
the Company recorded a charge to compensation expense of $15,636,300, as well as
a  corresponding  increase to additional  paid-in  capital during the year ended
June 30, 2000. The restricted  stock purchase  agreements with Messrs.  Cassetta
and Rossi were amended to provide for certain recourse against them in the event
of their default on their obligations the Company.  Commencing  January 1, 2000,
the restricted  stock awards are no longer  variable plan awards pursuant to APB
No. 25.

In October 1999, SmartServ entered into a restricted stock agreement with Robert
Pearl, the former Senior Vice President Business Development,  providing for the
sale to Mr. Pearl of 12,803 shares of common stock at a purchase  price of $4.50
per  share.  SmartServ  received  cash  in the  amount  of  $768  and a 5  year,
promissory  note in the amount of  $56,845.  The note was  secured by the common
stock, bore an interest rate

                                       48
<PAGE>

of 7.50% and  contained  certain  recourse  provisions  in  connection  with the
payment of such interest.  The stock purchase  agreement provided SmartServ with
certain repurchase options and provided Mr. Pearl with a put option in the event
of the  termination of his employment  without cause.  In August 2002, this loan
was repaid.

In October 1999, SmartServ entered into an agreement for consulting services. As
consideration for such services, the Company granted this consultant warrants to
purchase  16,667 shares of common stock at an exercise price of $15.75 per share
and warrants to purchase  16,667 shares of common stock at $21.75 per share.  In
January  2000,  in  consideration  of $125,000  and the  issuance of warrants to
purchase 1,333 shares of common stock at $110.25 per share, the Company extended
this agreement for the two-year period commencing October 24, 2000. The warrants
expire on October 24, 2004. A noncash charge of $62,400 was recorded in the year
ended June 30, 2000 for the fair value of the warrants to unearned  compensation
that was  amortized to income over the term of the  agreement.  In July 2000, we
issued  33,333  shares of our common stock to this  consultant  upon exercise of
warrants to purchase such shares. Proceeds from the exercise were $625,000.

During the year ended June 30,  2000,  the Company  issued  warrants to purchase
21,000 shares of its 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  $15.00 and  $297.00 and expire
through April 30, 2003. The Company  recorded  $74,000 as unearned  compensation
which has been amortized to income over the terms of the consulting agreements.

In January  2000,  the Company  completed  an  offering of 55,500  shares of its
common stock to accredited investors.  Gross proceeds from the offering amounted
to  $4,995,000 or $90.00 per share of common  stock.  America  First  Associates
Corp. received a commission of $279,600,  an unaccountable  expense allowance of
$25,000  and  warrants to purchase  3,107  shares of common  stock at $90.00 per
share through January 18, 2005 as  compensation  for services as placement agent
for the offering.

In August  2000,  the Company  issued  warrants to purchase  8,333 shares of its
common stock to a financial consultant as partial  consideration for services to
be rendered to SmartServ.  The warrants have an exercise  price of $297.00.  and
expired on April 30, 2003.  During the six months ended  December 31, 2000,  the
Company  recorded  a charge to  earnings  of $60,000  in  connection  with these
warrants.

In April 2001,  the Company  issued a warrant to  purchase an  aggregate  of 333
shares of common stock to a member of the  Company's  Advisory  Board as partial
consideration  for  services  to be provided  to  SmartServ  as a member of such
Board. The warrant is exercisable  after one year at an exercise price of $56.16
per share,  expires on April 15, 2005,  and has been  recorded in the  financial
statements  based  on the  Black-Scholes  pricing  methodology.

In June 2002,  SmartServ issued units consisting of 130,952 shares of its common
stock and warrants,  callable under certain  conditions,  for the purchase of an
aggregate of 238,095  shares of common  stock at an exercise  price of $8.40 per
share  through  the  expiration  date on June 5, 2007,  as well as  non-callable
warrants  for the purchase of an  aggregate  of 32,738  shares of common  stock,
subject to antidilution adjustments upon the occurrence of certain events, at an
exercise  price  of $8.82  per  share  through  June 5,  2007 to two  accredited
investors at a purchase price of $8.40 per share. The callable warrants provided
that upon exercise the investors  would  receive  non-callable  warrants for the
purchase of an aggregate of 59,524  shares of common stock at an exercise  price
of $8.82  per  share.  In August  2002,  pursuant  to the terms of the  callable
warrants,  the  Company  provided  the  investors  with a notice,  calling  such
warrants.  In September 2002, the callable warrants expired  unexercised.  Gross
proceeds from this transaction  amounted to $1,100,000.  First Albany Securities
Corporation, the placement agent, received a commission of $66,000 in connection
with this transaction.  Additionally,  the Company incurred costs and other fees
of $80,500 in connection with this transaction. Each of the investors received a
fee of $65,000 in connection  with the  performance of due diligence  related to
their  investment in the Company.  In September  2002,  SmartServ  issued 28,309
shares of common  stock upon the  exercise,  by Bonanza  Master Fund,  Ltd.,  an
investor in the June 2002  financing,  of warrants to purchase such shares at an
exercise price, after  antidilution  adjustments,  of $5.10 per share.  Proceeds
from the issuance were  $144,375.  In December  2002,  the Company  issued 5,833
shares of common

                                       49
<PAGE>

stock to  Vertical  Ventures  Investments,  LLC,  an  investor  in the June 2002
financing,  upon the exercise of warrants to purchase such shares. Proceeds from
the exercise of these warrants were $31,850.

In September 2002,  SmartServ  issued units  consisting of 647,368 shares of its
common stock and warrants to purchase 323,685 shares of common stock exercisable
at $5.10 per share  through  September 8, 2007 to 22  accredited  investors at a
purchase price of $5.475 per unit. Gross proceeds from this transaction amounted
to $3,544,346.  SmartServ paid fees consisting of $249,050, an expense allowance
of $25,000,  and issued warrants to purchase 73,008 shares of common stock at an
exercise  price  of  $5.10  per  share,   expiring  on  September  8,  2007,  as
compensation  to  certain  individuals  and  entities  that  acted  as  finders.
Additionally, the Company incurred costs and other fees of $28,800 in connection
with this transaction.

In December 2002, the Company entered into a consulting agreement with Steven B.
Rosner.  As  consideration  for such services,  the Company granted Mr. Rosner a
warrant to purchase  41,667 shares of common stock at an exercise price of $7.68
per share.  The warrants have been valued in accordance  with the  Black-Scholes
pricing   methodology,   recorded  in  the  financial   statements  as  deferred
compensation  and are being amortized as consulting costs over the two-year term
of the agreement.

During the year ended December 31, 2002, the Company issued warrants to purchase
44,500 shares of our common stock to certain financial and marketing consultants
as partial  compensation for services  rendered and to be rendered to SmartServ.
The warrants have exercise prices ranging from $7.68 to $32.64,  expire in April
and  December  2005,  and  have  been  recorded  in the  consolidated  financial
statements  at  fair  market  value  as   determined  in  accordance   with  the
Black-Scholes pricing model.

At December 31, 2002, the Company had 287,500 public warrants (SSOLW) and 50,000
warrants with terms  identical to the public warrants  outstanding.  In February
2002, the Company's Board of Directors  modified the terms of, and extended such
warrants which were due to expire on March 20, 2002.  These warrants,  which had
an exercise  formula  requiring the surrender of 11.598 warrants and the payment
of $46.686  for each share of common  stock,  were  modified  to provide for the
surrender  of .42  warrants  and the  payment of $63.00 for each share of common
stock. The modified warrants expired on March 20, 2003.

At December 31, 2002,  there were 317,667 shares  reserved for issuance upon the
exercise of options  granted to employees  and 846,667  shares  reserved for the
exercise of  warrants to purchase  common  stock  granted to  investors  in, and
consultants to the Company.

During the year ended  December 31, 2003,  the Company  issued  73,731 shares of
common stock to investors upon the exercise of warrants to purchase such shares.
Proceeds from the exercise of these warrants were $376,000.

In February  2003,  the Company  issued an aggregate of 20,590  shares of common
stock to 5 vendors in satisfaction  of obligations for services  rendered to the
Company aggregating $164,000.

In May 2003, the Company entered into a Corporate Finance  Consulting  Agreement
("Consulting  Agreement")  with Spencer  Trask  whereby  Spencer Trask agreed to
render services to the Company as its corporate  finance  consultant,  financial
advisor and investment  banker.  As compensation for such services,  the Company
has issued  Spencer Trask 83,333  shares of its common stock.  The value of such
compensation   has  been  recorded  in  the  financial   statements  as  prepaid
compensation  and is being  amortized  over the one year term of the  Consulting
Agreement.

Also,  during the year ended December 31, 2003, the Company issued 72,222 shares
of common stock to Spencer Trask as fees related to the May, June, September and
November 2003 bridge financing (excluding 80,002 shares earned but that have not
yet been issued) and 14,441  shares of common stock to two  individuals  as fees
for assisting with such bridge financings.

Also during the year ended  December 31, 2003,  the Company issued 93,315 shares
related to an anti-dilution adjustment with respect to a certain May 2000 equity
financing.

                                       50
<PAGE>

At December 31, 2003,  there were 186,297 shares  reserved for the issuance upon
the exercise of options  granted to employees and 4,261,119  shares reserved for
the exercise of warrants to purchase  common stock  granted to investors in, and
consultants  to the  Company.  The range of exercise  prices of the  warrants to
purchase common stock are as follows:

                 Exercise Price Range        Underlying Shares
              ---------------------------- ----------------------
                     $1.34 to $15.00                4,254,429

                    $15.00 to $30.00                       -0-

                        Above $30.00                    6,690
                                                -----------------
                                                    4,261,119
                                                =================

The Company's  failure to timely file its Form 10-KSB for its fiscal year ending
December 31, 2002 has affected the following registration rights held by some of
its shareholders and warrant  holders.  The Company is working  expeditiously to
cure these deficiencies.

Obligations to Maintain Effective Registration Statements:
----------------------------------------------------------

Vertical  Ventures  Investments,  LLC holds a warrant to  purchase  up to 22,476
shares of common stock that is subject to registration  rights. The Registration
Statement  covering the shares  underlying this warrant is no longer  effective.
The Company had until May 14, 2003 to cause the Registration  Statement to again
become effective. The Company failed to do so by May 14, 2003, so it is required
to pay a fee of  $8,250  for the  first  month  of the  deficiency  and a fee of
$16,500 for each month  thereafter  until the shares  underlying the warrant are
registered.

Accredited investors in the Company's September 2002 Equity Placement hold up to
an aggregate of 616,991  shares of common stock,  and warrants to purchase up to
an  aggregate of 249,954  shares of common  stock,  all subject to  registration
rights requiring the Company to use its commercially  reasonable best efforts to
maintain the effectiveness of the Registration  Statement covering the shares of
common stock and the shares underlying the warrants.  The Registration Statement
is no longer effective.

Obligation to File a Registration Statement:
--------------------------------------------

Global  Capital  Funding  Group,  L.P.  holds warrants to purchase up to 257,333
shares of common stock,  and a convertible  note convertible into 189,394 shares
of common stock (which was paid off in February, 2004). The Company was required
to file a Registration  Statement covering all such shares on April 14, 2003 and
by agreement  with Global is required to include  such shares in a  Registration
Statement.  The  Company  has not yet  filed  the  Registration  Statement,  but
negotiated a cure of the penalty fee,  equal to $25,000 for each month that this
deficiency  remained  uncured,  by paying off the  convertible  note in February
2004.

7.   Stock-based Compensation

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

As more fully  described  in Note 13 to the  financial  statements,  stock-based
compensation for the years ended December 31, 2003 and 2002, consisted primarily
of the impact of changes in the market  value of the  Company's  common stock on
the value of  options to  purchase  common  stock  issued to  employees  and the

                                       51
<PAGE>

amortization of deferred costs associated with the prior issuance of warrants to
purchase common stock to various consultants.

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

                                           Year Ended December 31
                                           ----------------------
                                             2003          2002
                                           ---------    ---------
              Costs of services            $ (81,604)   $ 184,726

              Sales and marketing                 --      (50,542)

              General and administrative    (292,965)     (53,889)
                                           ---------    ---------
                                           $(374,569)   $  80,295
                                           =========    =========

8.   Earnings Per Share

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

                                                    Year Ended December 31
                                                 ----------------------------
                                                    2003             2002
                                                 ------------    ------------
 Numerator
    Net loss                                     $(17,537,775)   $ (8,037,173)
                                                 ============    ============

 Denominator
    Denominator for basic and diluted loss per
    share - weighted average shares                 2,073,448       1,336,673
                                                 ------------    ------------


 Basic and diluted loss per common share               $(8.46)         $(6.01)
                                                 ============    ============

Outstanding  employee  stock options and other warrants to purchase an aggregate
of 4,447,416 and 1,163,833 shares of common stock at December 31, 2003 and 2002,
respectively, were not included in the computation of diluted earnings per share
because  either the  Company  reported  a loss for the period or their  exercise
prices  were  greater  than the  average  market  price of the common  stock and
therefore would be antidilutive.

9.   Income Taxes

At December 31, 2003 and 2002, SmartServ has deferred tax assets as follows:

                                                    December 31
                                             -------------------------
                                                2003           2002
                                             -----------   -----------

          Net operating loss carryforwards   $35,800,000   $33,100,000
                                             ===========   ===========

In accordance with SFAS No. 109,  "Accounting for Income Taxes," the Company has
established a valuation allowance to fully reserve the future income tax benefit
of these deferred tax assets due to uncertainty about their future  realization.
The valuation  allowances were  $35,800,000 and $33,100,000 at December 31, 2003
and 2002, respectively.

                                       52
<PAGE>

At December 31,  2003,  the Company has net  operating  loss  carryforwards  for
Federal  income tax purposes of  approximately  $90,700,000  which expire in the
years 2009 through 2023. As a result of ownership changes,  pursuant to Internal
Revenue  Code  Section  382,  the  utilization  of net  operating  losses may be
limited.

10.  Leases

SmartServ leased office space for its Stamford, Connecticut headquarters under a
noncancelable  lease.  The lease included  escalation  clauses for items such as
real estate taxes, building operation and maintenance expenses,  and electricity
usage.  In January 2004 the Company  negotiated  a settlement  of that lease the
terms of which  include a cash  payment of $175,000  (evidenced  by a promissory
note)  payable  over time  through  December  31, 2004 and a warrant to purchase
22,000 shares of SmartServ  common stock at an exercise price equal to $1.34 per
share. The warrant vests upon grant and expires on the three year anniversary of
the grant date.

In September  2003,  the Company  relocated its  headquarters  and leases office
space in Plymouth Meeting,  Pennsylvania.  The lease includes escalation clauses
for  items  such  as real  estate  taxes,  building  operation  and  maintenance
expenses.

Rent expense amounted to approximately $384,800 and $642,000 for the years ended
December 31, 2003, and 2002, respectively.

Minimum future rental payments at December 31, 2003 are as follows:

Year Ending December 31
-----------------------

         2004                           $58,100
         2005                            60,400
         2006                            62,600
         2007                            48,200
         2008                                --
         Thereafter                          --
                                  -------------

                                       $229,300
                                  =============

11.  Commitments and Contingencies

On or about June 4, 1999, Michael Fishman,  SmartServ's former Vice President of
Sales,  commenced  an action  against  the Company  and  certain  directors  and
officers,  in the  Connecticut  Superior  Court  for the  Judicial  District  of
Stamford/Norwalk  at Stamford  (Michael  Fishman v. SmartServ  Online,  Inc., et
al.). On February 11, 2003, the Company  received a favorable  trial decision in
this matter.  This  decision,  entered  after a trial in the  Superior  Court of
Connecticut, found no liability by SmartServ or the individual defendants on any
of Mr. Fishman's claims. Mr. Fishman's time to appeal has expired.

On or about February 29, 2000, Commonwealth  Associates,  L.P.  ("Commonwealth")
filed a  complaint  against  us in the  Supreme  Court of the State of New York,
County of New York. The complaint  alleged that in August of 1999,  Commonwealth
and  SmartServ   entered  into  an   engagement   letter  that  provided  for  a
nonrefundable  fee to Commonwealth of $15,000 payable in cash or common stock at
SmartServ's  option. The complaint alleged that SmartServ elected to pay the fee
in stock and, as a result,  Commonwealth  sought 2,222 shares of common stock or
at least  $1,770,000  together with interest and costs. In SmartServ's  defense,
SmartServ  denied that it elected to pay in stock.  On March 4, 2003,  SmartServ
received a favorable  decision in this matter  after a trial held in the Supreme
Court of the  State of New  York.  The  decision  holds  that,  consistent  with
SmartServ's defense, SmartServ is required to pay Commonwealth a retainer fee of
only $13,439, plus interest and certain costs. Commonwealth's time to appeal has
not yet expired.

                                       53
<PAGE>

On or about March 22, 2004, Jenkens & Gilchrist Parker Chapin, LLP,  SmartServ's
former legal counsel,  filed a complaint  against SmartServ in the Supreme Court
of the State of New York,  County of New York.  The  complaint  seeks payment of
unpaid invoices for legal services in the amount of $599,244.  While the Company
intends to vigorously defend such lawsuit,  an unfavorable  outcome could have a
material  adverse  effect  on the  Company's  financial  condition,  results  of
operation and cash flows.

12.  Significant Relationships

During the year ended  December 31,  2002,  substantially  all of the  Company's
revenues were earned through its licensing  agreement with Salomon Smith Barney.
During the year ended  December 31,  2003,  substantially  all of the  Company's
revenues were earned through four customers.

The Company entered into a consulting arrangement with Spencer Trask in May 2003
providing  that  Spencer  Trask would  render  corporate  financial  consulting,
financial   advisory,   and  investment   banking  services  ("Trask  Consulting
Agreement").  Under the Trask  Consulting  Agreement,  the Company agreed to pay
consulting  fees of $7,500 per month  commencing  July 1, 2003 thru May 31, 2004
and the Company  issued  Spencer Trask 83,333  shares of common  stock.  Spencer
Trask is a beneficial owner of more than 5% of the Company's common stock.

As part of the  consulting  arrangement,  Spencer  Trask  acted as a finder  and
assisted the Company with sales of Units  consisting of  convertible  debentures
and warrants  from May 2003 through  November  2003 in the  aggregate  amount of
$2,685,000.  The Company paid Spencer Trask a finders fee consisting of $349,050
in cash (including finders fees and non-accountable expenses), 152,223 shares of
common  stock  (includes  80,002  shares  which have yet to be issued to Spencer
Trask) and a warrant to  purchase  749,146  shares of common  stock at  exercise
prices  ranging  from  $1.50 to $1.90 per share.  The  Company  also  reimbursed
Spencer  Trask  for  $20,000  of legal  expenses  and  $5,000  of  out-of-pocket
expenses.  As a result  of the  anti-dilution  provisions  in the  warrant,  the
Company  subsequently  issued  Spencer Trask an  additional  warrant to purchase
445,393 shares of common stock at an exercise price of $1.50.

Under the terms of the Trask Consulting Agreement, SmartServ is obligated to pay
Spencer Trask a fee upon closing of the  acquisition  of nReach,  based on 5% of
the  first   two-million   dollars  of  the  aggregate   consideration  of  such
acquisition,  4% of the next two million dollars or portion  thereof,  3% of the
third  $2,000,000  or  portion   thereof,   and  2.5%  of  the  balance  of  the
consideration.  For purposes of  determining  the aggregate  consideration,  the
total value of  liabilities  assumed are  included,  and fees on any  contingent
payment  shall be paid to Spencer  Trask when such  contingent  payment is made.
Spencer Trask has agreed to accept shares of the Company's  common stock in lieu
of cash with respect to such fees.

Under the  terms of the  Trask  Consulting  Agreement,  in the event  that on or
before  May  31,  2004  or 18  months  thereafter  (under  certain  conditions),
SmartServ sells, outside the ordinary course of business,  its company or any of
its assets,  securities or business by means of a merger,  consolidation,  joint
venture or exchange offer, or any transaction resulting in any change in control
of  SmartServ or its assets or business,  or  SmartServ  purchases,  outside the
ordinary course of business, another company or any of its assets, securities or
business by means of a merger,  consolidation,  joint venture or exchange offer,
or SmartServ  receives an investment  (other than an  investment  pursuant to an
agented offering,  which will be subject to compensation  pursuant to a separate
arrangement with Spencer Trask), SmartServ will owe Spencer Trask a cash fee and
in some instances, warrants.

13.  Employee Stock Option Plans

In April 1996, the Company's Board of Directors approved the establishment of an
Employee  Stock Option Plan ("1996  Plan")  authorizing  stock option  grants to
directors, key employees and consultants. The options are intended to qualify as
incentive  stock  options  within the  meaning of  Section  422 of the  Internal
Revenue Code of 1986, as amended,  or as  nonqualified  stock options.  The 1996
Plan  provided for the issuance of up to 41,667 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 the date of grant  and  expire  on the  tenth
anniversary of the date of grant. As of

                                       54
<PAGE>

December 31, 2003,  there were options to purchase 28,880 shares of common stock
issued and outstanding and -0- available for grant pursuant to the 1996 Plan.

In October 1999, the Board of Directors authorized the establishment of the 1999
Employee  Stock  Option  Plan  ("1999  Plan").  The 1999 Plan  provided  for the
issuance of options to employees  and directors for the purchase of a maximum of
66,667 shares of the Company's common stock.  The Board of Directors  authorized
the issuance of 66,667 of such options to both  employees  and  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.  As of  December  31,  2003,  there were  options to purchase
40,367 shares of common stock issued and outstanding and -0- available for grant
pursuant to the 1999 Plan.

In May 2000,  the Board of Directors  authorized the  establishment  of the 2000
Employee  Stock  Option  Plan ("2000  Plan").  In  November  2000,  the Board of
Directors  increased the number of shares  available for issuance under the 2000
Plan by 100,000 to a maximum of 225,000. The 2000 Plan provides for the issuance
of such  options at not less than the fair value of the common stock on the date
of grant.  The Board of  Directors  has  authorized  the  issuance of options to
purchase  113,717  shares of common stock to employees and directors at exercise
prices equal to the fair value on the dates of grant. The stockholders  approved
the  repricing  of  options  to  purchase  132,875  shares of common  stock with
exercise  prices  ranging  between  $35.82 and $297.00 to $8.52 per share at the
Annual Meeting of  Stockholders  on December 13, 2002. In connection  therewith,
the Company recorded a charge to earnings of  approximately  $42,600 in the year
ended  December 31, 2003 for the  increase in the market value of the  Company's
common stock between the date the repricing was  authorized by the Board and the
date it was approved by the  stockholders.  As of December 31, 2003,  there were
options to purchase  113,717 shares of common stock issued and  outstanding  and
-0- shares of common stock available for grant pursuant to the 2000 Plan.

In connection with the stockholders' approval of the Company's 2002 Stock Option
Plan at the Annual  Meeting of  Stockholders  on December 13, 2002, the Board of
Directors  amended all  previously  existing  stock option plans by reducing the
size of such plans to the number of options issued and outstanding at that date.
Additionally, the Board of Directors amended such plans so that options that are
terminated or forfeited may not be re-granted.

In  November  2000,  the Board of  Directors  granted  non-qualified  options to
purchase  25,000  shares of common stock to  Sebastian  E.  Cassetta and granted
non-qualified  options  to  purchase  9,375  shares of common  stock to Mario F.
Rossi, subject to stockholder approval, which was received at the Annual Meeting
of  Stockholders  held on December  8, 2000.  The options  were  exercisable  at
$114.00 per share and expire on November 3, 2010. The stockholders  approved the
repricing  of  such  options  to  $8.52  per  share  at the  Annual  Meeting  of
Stockholders on December 13, 2002.

In September  2001, the Board of Directors  voted to cancel certain  outstanding
employee  options and reissue options to employees at an exercise price not less
than the fair value at the date of grant.  Officers of the Company were required
to surrender 20% of such options to receive the new options.  The exercise price
of the options  reissued to  employees  was $50.40 per share.  The  stockholders
approved the repricing of such options to $8.52 per share at the Annual  Meeting
of Shareholders on December 13, 2002.

At the Annual Meeting of  Stockholders  on December 13, 2002,  the  stockholders
approved the  establishment  of the Company's  2002  Employee  Stock Option Plan
("2002  Plan").  The 2002 Plan provides for the issuance of options to employees
and directors for the purchase of a maximum of 250,000 shares of common stock at
an exercise  price not less than the fair value of the common  stock on the date
of grant. No options have been granted pursuant to the 2002 Plan.

                                       55
<PAGE>

Information  concerning  stock options for the Company is presented  below.  The
Company has shown the repricings of options  previously granted to employees and
directors of the Company as both a cancellation and a grant of options.

                                                        Average Exercise
                                               Options      Price
                                              --------    ---------
               Balance at December 31, 2001    305,114    $   72.96
                    Granted                    238,250         9.06
                    Exercised                   (2,833)        5.82
                    Cancelled                 (223,367)       99.72
                                              --------    ---------
               Balance at December 31, 2002    317,164    $    9.54
                    Granted                         --           --
                    Exercised                     (958)        5.90
                    Cancelled                 (129,909)        9.60
                                              --------    ---------
               Balance at December 31, 2003    186,297    $    9.55
                                              ========    =========

The  following  table  summarizes   information  about  employee  stock  options
outstanding as of December 31, 2003.

<TABLE>
<CAPTION>
                                             Options Outstanding                                 Options Exercisable
                            -------------------------------------------------------    ----------------------------------------

                                                                Average Remaining
         Range of                                  Average       Contractual Life                            Average Exercise
     Exercise Prices        Number of Options  Exercise Price        (Years)            Number of Options          Price
--------------------------- ------------------ ---------------- -------------------    --------------------- ------------------
<S>                          <C>                     <C>            <C>                         <C>               <C>
    $5.63 to $9.75               182,964                 $7.86          6.6                         147,564           $7.70

        $102.00                    3,333                102.00          6.0                           3,333          102.00
                            ------------                                                      -------------

                                 186,297                                                            150,897
                            ============                                                      =============
</TABLE>

The pro forma  information  regarding  net income  (loss) and income  (loss) per
share  required  by SFAS No. 123,  as more fully  disclosed  in Note 2, has been
determined  as if SmartServ  had  accounted  for its employee  stock option plan
under the fair  value  methods  described  in SFAS No.  123.  The fair  value of
options granted under the Company's employee stock option plans was estimated at
the date of grant using the  Black-Scholes  option pricing model.

There were no options granted in 2003.

Pertinent  assumptions  with  regard to the  determination  of fair value of the
options  granted  during  the  years  ended  December  31,  2003 and 2002 are as
follows:

                                       56
<PAGE>

                                                   Year Ended December 31
                                                ---------------------------
                                                   2003             2002
                                                -----------     -----------

Weighted  average  dividend  yield for  options       --             --
     granted

Weighted average expected life in years               --            3.0

Weighted average volatility                           --           84.0%

Risk-free interest rate                               --            3.0%

Weighted average fair value of options granted        --          $0.66


14.  Subsequent Events (Unaudited)

During February 2004, SmartServ completed a private placement of Units of Series
A  Convertible  Preferred  Stock  ("Series  A") and  warrants for $10 million in
aggregate  gross  proceeds.  Pursuant to their terms,  the principal and accrued
interest  on  SmartServ's  convertible  debentures  issued  in  the  May,  June,
September and November, 2003 transactions,  which was approximately  $3,122,000,
were  automatically  converted  into Units.  Each Unit consisted of one share of
Series A Preferred Stock initially  convertible  into ten shares of common stock
and one warrant for the  purchase of ten shares of common  stock.  The  purchase
price per Unit was $15.00. The Series A receives dividends at the rate of 8% per
year payable quarterly in cash or, in SmartServ's sole discretion, in registered
shares of its common stock. The Series A is entitled to a liquidation preference
equal to the  purchase  price per unit plus  accrued and unpaid  dividends.  The
Series A is not  redeemable.  The warrants  have an exercise  price of $2.82 per
share and expire three years after their  issuance.  The company is obligated to
register  the common stock upon  conversion  of the Series A and exercise of the
warrants.

During February 2004,  SmartServ paid in full the principal and accrued interest
due Global Capital Funding Group, L.P., which was $1,391,504.

SmartServ  acquired  all of the stock of nReach,  Inc. on  February  28, 2004 in
exchange for 500,002 shares of its common stock;  provided, if the value of such
500,002  shares  immediately  prior  to June 1,  2004  is  less  than  $900,000,
SmartServ  will issue up to 299,167  additional  shares of its common stock with
respect to such difference in value. The nReach shareholders may also earn up to
916,667  shares of our  common  stock in the  event  SmartServ  reaches  certain
revenue  targets  within  five  fiscal  quarters  following  the closing of this
transaction  at the rate of one  share of common  stock for every one  dollar of
SmartServ  revenue in excess of $2,700,000 (the "Earnout  Trigger")  during such
five fiscal  quarters.  In addition to  liabilities  set forth on the  financial
statements of nReach,  SmartServ  assumed (i) ordinary course  liabilities since
November 30, 2003,  (ii) taxes accrued on earnings since December 31, 2002 which
were not due and  payable as of the closing  date,  (iii)  expenses  incurred to
accountants and attorneys in the  transaction  not to exceed  $25,000,  and (iv)
short term borrowings up to $75,000 due to an nReach shareholder.

On or about March 22, 2004, Jenkens & Gilchrist Parker Chapin, LLP,  SmartServ's
former legal counsel,  filed a complaint  against SmartServ in the Supreme Court
of the State of New York, County of New York, seeking payment of unpaid invoices
for legal  services in the amount of $599,254.  SmartServ  intends to vigorously
defend such lawsuit.

                                       57
<PAGE>

Item 8.  Changes  in  and  Disagreements  With  Accountants  on  Accounting  and
-------  Financial Disclosure

On  November  6, 2003,  we  received a letter  from Ernst & Young LLP ("E&Y") in
which E&Y advised us that E&Y was resigning as our independent  auditors.  Prior
to receipt of such letter,  the Audit  Committee (the "Audit  Committee") of the
Board  of  Directors  had  authorized  management  to  seek  to  retain  another
accounting firm.

The report of E&Y on our  consolidated  financial  statements  as of and for the
fiscal  years  ended  December  31,  2001 and 2002  contained  a "going  concern
opinion,"  questioning  our ability to continue as a going concern,  but did not
contain any other adverse  opinion or disclaimer of opinion,  nor was the report
modified as to audit scope or  accounting  principles.  In  connection  with its
audit for the fiscal year ended  December  31, 2002,  and during the  subsequent
interim period, there were no disagreements with E&Y on any matter of accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure,  which  disagreements,  if they had occurred and not been resolved to
the  satisfaction  of E&Y,  would  have  caused  E&Y to make  reference  to such
disagreements in its reports on the consolidated  financial  statements for such
years.

We provided E&Y with copy of the foregoing disclosures.  E&Y furnished us with a
letter  addressed to the Securities and Exchange  Commission  ("SEC"),  which is
Exhibit 16 hereto.

On November 24, 2003, we engaged Grant Thornton,  LLP ("Grant  Thornton") as our
independent  auditors for the fiscal year ending December 31, 2003. The decision
to engage Grant  Thornton was approved by our Audit  Committee  and the Board of
Directors.

During the two most recent fiscal years and  subsequent  interim  period through
November 24,  2003,  we did not consult with Grant  Thornton  regarding  (1) the
application  of  accounting  principles  to  a  specified  transaction,   either
completed or proposed,  (2) the type of audit  opinion that might be rendered on
our  financial  statements,  or (3) any other  matter  that was the subject of a
disagreement  or a  reportable  event  as set  forth  in Item  304(a)(i)(iv)  of
Regulation S-B of the SEC.

Grant Thornton  reviewed the disclosures  contained in a Form 8-K filed by us on
December 2, 2003  regarding its  appointment.  We advised Grant Thornton that it
had the opportunity to furnish us with a letter  addressed to the SEC concerning
any new information, clarifying our disclosures in such Form 8-K, or stating any
reason why Grant Thornton does not agree with any statements  made by us in such
Form 8-K. Grant Thornton advised us that nothing had come to its attention which
would cause it to believe that any such letter was necessary.

Item 8A. Controls and Procedures
--------

We maintain a system of disclosure  controls and procedures  that is designed to
provide  reasonable  assurance that information that is required to be disclosed
by us in the reports  that we file or submit under the  Securities  and Exchange
Act of 1934, as amended,  is  accumulated  and  communicated  to management in a
timely manner.  Our Chief  Executive  Officer and Chief  Financial  Officer have
evaluated this system of disclosure controls and procedures as of the end of the
period  covered by this  annual  report,  and each  believes  that the system is
operating effectively to ensure appropriate  disclosure at a reasonable level of
assurance.  There have been no changes  during the fourth fiscal  quarter in our
internal  control  over  financial  reporting,  to the extent  that  elements of
internal control over financial reporting is subsumed within disclosure controls
and  procedures,  that have  materially  affected,  or are reasonably  likely to
materially affect, our internal control over financial reporting.

                                       58
<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 our  executive
officers and directors.


Name                           Age       Position
----                           ---       --------

Robert Pons                     47       Chief  Executive Officer, President and
                                         Class III Director
Timothy G. Wenhold              43       Chief Operating Officer, Executive Vice
                                         President and Secretary
Len von Vital                   53       Chief Financial Officer
L. Scott Perry (1)(2)           55       Chairman  of  the  Board  and  Class  I
                                         Director
Catherine Cassel Talmadge (1)   52       Class I Director
Charles R. Wood (2)             63       Class III Director


----------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee


Robert Pons has been our Chief Executive Officer and President since January 24,
2004 and a director since August 28, 2003. He served as Interim Chief  Executive
Officer from August 28, 2003 to January 24, 2004. Mr. Pons had been a consultant
to us from August 4, 2003 to January 24, 2004.  From April 16, 1999 to April 15,
2002, Mr. Pons was founder and President of  FreedomPay,  a stored value payment
processing  company enabling cashless  payments on wireless devices.  From March
1999 through  December 1999, Mr. Pons was Chief  Operating  Officer of Real Time
Data, a company in the data transmission  (telemetry)  business.  Prior thereto,
from  March 1,  1995 to April  15,  1999,  Mr.  Pons  was  President  and CEO of
LifeSafety  Solutions,  an  enhancement  to the 9-1-1  public  safety  emergency
system.  Mr. Pons also held executive  positions  with both MCI and Sprint.  Mr.
Pons is a member of the Board of  Directors  of  Network-1  Security  Solutions,
Inc., a software licensing company.


Timothy G.  Wenhold  has been our  Executive  Vice  President,  Chief  Operating
Officer and Secretary since March 10, 2004. Mr. Wenhold had been a consultant to
us from August 4, 2003 to March 10,  2004.  From May 1, 2002 to August 31, 2003,
Mr.  Wenhold was  founder and  President  of Factory X, Inc. a  manufacturer  of
licensed high end movie,  comic and gaming  collectibles.  Prior  thereto,  from
January 1, 1985 to May 1,  2002,  Mr.  Wenhold  was  founder  and  President  of
Sintaks,  Inc., a system integration and technology consulting firm. Sintaks was
acquired by Canon in 1998.


Len von Vital has been our Chief Financial  Officer since April 9, 2004. Mr. von
Vital was  engaged by us as a  consultant  to provide  financial  services  from
January 27, 2004 to April 9, 2004.  From  February 11, 2002 to October 31, 2003,
Mr.  von Vital was Chief  Financial  Officer of 4GL School  Solutions,  Inc.,  a
developer and vendor of special education software and services. From April 2001
to November 2001, Mr. von Vital was Chief Financial Officer of eCal Corporation,
a  developer  and  vendor of  enterprise  Internet  calendaring  and  scheduling
software and services and was a consultant  in December  2001 and January  2002.
From July 2000 to March  2001,  Mr.  von Vital was Chief  Financial  Officer  of
National  Dental  Corporation,  an  e-commerce  start-up  and  software  company
providing procurement savings to the dental industry and from March 2000 to June
2000, was Chief Financial Officer of  Financialweb.com,  an e-financial services
company.  From  October  1998 to  February  2000,  Mr.  von  Vital was the Chief
Financial  Officer of ESPS, Inc., a provider of enterprise  business-to-business
document management and publishing  software and services.  ESPS had its initial
public  offering in June 1999. Mr. von Vital also served as interim CEO of ESPS,
Inc. from June 1999 until October 1999. Prior thereto,  he held the positions of
senior vice  president of product  management  and Chief  Financial  Officer for
Astea  International,  Inc.,  a  developer  and  vendor of  enterprise  customer
relationship  management  software  and  services,  that had its initial  public
offering  in July  1995.  He also  held  senior  financial  positions  during  a
twelve-year  career  with  Decision  Data Inc.,  an  international  provider  of
plug-compatible IBM

                                       59
<PAGE>

computer peripheral equipment and services,  including Vice President of Mergers
and Acquisitions, Corporate Controller and Principal Accounting Officer. Mr. von
Vital is a certified public accountant.


L. Scott Perry has been Chairman of the Board of Directors since August 2003 and
a director  since  November  1996.  Mr. Perry was appointed Vice Chairman of the
Board of Directors from September 2002 until August 2003. Mr. Perry has been the
managing  partner of Cobblers Hill Group, a strategy  consulting firm, since May
2002. From June 1998 to December 2001, Mr. Perry was Vice President,  Strategy &
Business  Development,  AT&T and Vice  President  Strategy and  Alliances - AT&T
Solutions.  From  December  1995 to June  1998,  Mr.  Perry was Vice  President,
Advanced  Platform  Services of AT&T.  From January 1989 to December  1995,  Mr.
Perry held various  executive  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.  Prior to AT&T,  Mr. Perry was General  Manager,  Academic
Computing  Information Systems and served in other sales,  marketing and general
management  positions at IBM. Mr. Perry is a member of the Board of Directors of
the Information  Technology  Association of America, INEA, Inc., a web analytics
software firm, Viacore,  Inc., a supply chain services firm and Zanett,  Inc., a
professional  services  firm,  as well as being a member of  several  technology
advisory boards. He is also a special advisor to Global Asset Capital, a venture
capital company.

Catherine  Cassel  Talmadge has been a director since March 1996.  Since October
2002, Ms. Talmadge has been Vice President of Strategic  Relationships for Lemur
Networks,  a leading  provider of next generation  business  support systems for
on-demand,  real-time IP services delivery.  From July 2001 to October 2002, Ms.
Talmadge consulted to a number of companies in the areas of product development,
business process improvement,  strategic planning and business development.  Ms.
Talmadge was Vice President of Business Development for Maher & Maher, a leading
business integration and consulting firm for the broadband industry from January
through  July 2001 and Senior Vice  President of Business  Development  for High
Speed Access  Corporation  from May 1999 to January 2001. 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 has been a director since  September  1998. Mr. Wood is Chairman
and Chief Executive  Officer of Terra Investors,  Inc., a private,  closely held
investment  company.  Mr.  Wood also  serves on the Board of Advisors of Contact
Point,  a privately  held  company  specializing  in customer  service and sales
training  and as  founder  and  Managing  Advisor of Woodmar  LLC,  an  Internet
marketing  company.  Mr. Wood was Senior  Vice  President  of Data  Transmission
Network  Corporation and President of DTN Financial Services from 1989 and 1986,
respectively, until February 28, 2000.

Our officers are elected  annually and serve at the  discretion  of the Board of
Directors  for a one year term and until their  respective  successors  are duly
elected and qualified or until their earlier resignation or removal,  subject to
any rights  provided by employment  agreements  that are  described  below under
"Executive Compensation - Agreements with Named Executive Officers".


Other Significant Employees

Matthew Stecker, 35, has been our Chief Technology Officer since April 15, 2004.
From  September  2000 to February 2003, Mr. Stecker was a Director of Technology
for  Vindigo,  Inc., a developer  of mobile  applications.  He was a Director of
Technology of Electronic Inc., a graphic and user interface design studio,  from
June 1999 to May 2000. Prior thereto,  from March 1988 to June 1999, Mr. Stecker
was the CEO and  co-founder  of The  Applied  Information  Group,  a  consulting
company that delivered custom software and strategy to  pharmaceutical  research
organizations, specializing in gene expression technologies. Prior thereto, from
May 1993 to March 1998,  Mr.  Stecker was the  President  of Marble  Associates,
Inc., a consulting company specializing in object-oriented software development.

Daniel  Wainfan,  41, has been our Vice  President of Marketing  since March 22,
2004.  From November 2000 to March 2004, Mr. Wainfan was President of Nutrabrand
Innovations,  L.L.C., a nutritional  products

                                       60
<PAGE>

development  and  marketing  company.  From  1994 to  2000,  Mr.  Wainfan  was a
Marketing  Manager,  Business  Director and then a Category  Director of various
business  groups for the Campbell's  Soup Company.  Prior thereto,  from 1987 to
1993, Mr.  Wainfan served in a variety of marketing and sales  capacities at the
Nabisco Biscuit Company, including Brand Manager of Ritz Crackers.


Board of Directors

Our Board of Directors is divided into three classes:  Class I Directors,  Class
II Directors and Class III Directors.  Directors of each Class are elected for a
full term of three years (or any lesser period  representing  the balance of the
previous  term of such Class) and until  their  respective  successors  are duly
elected and qualified or until their earlier resignation or removal. The Class I
Directors will serve until the Annual Meeting of SmartServ's  stockholders to be
held in 2005,  the Class II  Directors  will serve  until the Annual  Meeting of
SmartServ's  stockholders  to be held in 2006 and the Class III  Directors  will
serve until the Annual Meeting of SmartServ's  stockholders  to be held in 2004.
Under a Stock Purchase  Agreement dated May 15, 2000,  TecCapital,  Ltd. has the
right to designate one member of our Board of Directors.  However, TecCapital is
not currently  exercising its right to have a designee on the Board. Our current
Board consists of four directors.

Board Committees

The Compensation  Committee,  currently composed of Messrs.  Perry and Wood, has
authority over officer and consultant  compensation and administers our employee
stock option plans.

The Audit Committee, currently composed of Mr. Perry and Ms. Talmadge, serves as
the Board's liaison with our auditors.

Our Board of Directors has determined  that the Audit Committee does not, at the
present  time,  have an "audit  committee  financial  expert" as defined in Item
401(e) of Regulation  S-B. We believe that the members of our Board of Directors
are  collectively  capable of analyzing and evaluating our financial  statements
and understanding  internal controls and procedures for financial reporting.  In
addition, we have been seeking and continue to seek an appropriate individual to
serve on the  Board of  Directors  and the  Audit  Committee  who will  meet the
requirements necessary to be an independent financial expert.

We have not yet adopted a code of ethics  applicable to our principal  executive
officer,   principal   financial  officer,   principal   accounting  officer  or
controller.  Given the recent funding pursuant to the 2004 Private Placement and
the  acquisition  of Reach,  we expect to expand our business and, in connection
therewith,  we are  examining our corporate  governance  and other  policies and
procedures that will relate to a larger enterprise.  Following such examination,
we expect to adopt a code of ethics  applicable to all  directors,  officers and
employees.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities  Exchange Act of 1934 requires our Directors and
executive  officers,  and  persons  who own more than ten  percent of the Common
Stock,  to file with the SEC initial reports of ownership and reports of changes
in  ownership  of Common  Stock  and other  equity  securities  of the  Company.
Officers,  Directors  and greater than ten percent  stockholders  (collectively,
"Reporting Persons") are additionally  required to furnish us with copies of all
Section 16(a) forms they file.


To our knowledge, based solely on review of the copies of such reports furnished
to us and written representations of the Reporting Persons that no other reports
were  required  with  respect to fiscal  year 2003,  all  Section  16(a)  filing
requirements  applicable to the Reporting Persons were complied with on a timely
basis in fiscal  year  2003,  except  that (i) the Form 4 for  Catherine  Cassel
Talmadge to report the sale of 100 shares of Common Stock on January 30, 2002 by
her daughter under a Uniform Gift to Minor Account for which Ms. Talmadge is the
custodian  was filed on March 16,  2004,  and (ii) the Form 3 for Robert Pons to
report his ownership of our  securities  as of August 28, 2003,  the date he was
elected as a director was filed on March 16, 2004.


                                       61
<PAGE>


Item 10. Executive Compensation
--------

Executive Compensation

The  following  table sets forth,  for each of the last three full fiscal years,
information  concerning annual and long-term  compensation,  paid or accrued for
services in all  capacities  during the fiscal year ended December 31, 2003, for
our Chief  Executive  Officers  during 2003 and for the two  executive  officers
(collectively,  the "Named  Executive  Officers")  with base  salary and bonuses
exceeding $100,000 during 2003:

<TABLE>

<CAPTION>
                                                 Summary Compensation Table
                                                 --------------------------
                                      Annual Compensation                  Long-term Compensation
                             --------------------------------------- --------------------------------------

                                                          Other
                                                          Annual     Restricted   Securities
Name and Principal           Fiscal                    Compensation    Stock      Underlying    All Other
Position                      Year    Salary    Bonus     (1)(2)     Awards (3)   Options (4)  Compensation
-----------------------------------------------------------------------------------------------------------
<S>                         <C>      <C>       <C>         <C>       <C>            <C>
Robert Pons (5)             2003     $44,000   $   --     $   --      $   --        50,000       $16,000
Chief Executive Officer     2002         -0-       --         --          --            --            --
                            2001         -0-       --         --          --            --            --

Sebastian E. Cassetta (6)   2003      90,449       --         --          --            --        12,941(8)
Former Chief Executive      2002     215,521       --      7,500          --        34,667        42,022(8)
Officer                     2001     255,000   50,000      9,750          --            --        37,218(8)

Thomas W. Haller (7)        2003     102,400        --     4,000          --            --         9,932(9)
Former Senior Vice          2002     134,479        --     6,000          --        13,250         9,932(9)
President and Chief         2001     164,558    37,500     6,000          --         3,750         9,932(9)
Financial Officer

Richard Kerschner (10)      2003     100,000       --         --          --            --            --
Former Senior Vice          2002     131,667       --         --          --            --            --
President and General       2001     160,000   48,000         --          --        13,333            --
Counsel
</TABLE>


(1)  Amounts shown consist of a non-accountable expense allowance.
(2)  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.

(3)  The Named Executive  Officers did not receive any long-term  incentive plan
     payouts during fiscal 2003, 2002 or 2001.

(4)  All options granted to the Named Executive Officers in 2002 were the result
     of the  reduction  of the  exercise  prices of options  to  purchase a like
     number of shares granted in previous years.  The exercise price  reductions
     were approved by our  stockholders at the Annual Meeting of Stockholders on
     December 13, 2002. The previously granted options are shown in the table if
     such options were granted  during the reported  period.  Mr. Pons' warrants
     were granted in 2003  pursuant to his  Consulting  Agreement  with us dated
     August 4, 2003.

(5)  Salary reflects amounts paid under Mr. Pons'  Consulting  Agreement with us
     dated August 4, 2003.  Mr. Pons served as Interim Chief  Executive  Officer
     from  August 28,  2003 to January  24,  2004  pursuant  to this  Consulting
     Agreement. He is now our Chief Executive Officer.

(6)  Mr. Cassetta left our employ in August 2003.
(7)  Mr. Haller left our employ in January 2004.
(8)  Amount  represents  premiums paid by for life and disability  insurance for
     the benefit of Mr.  Cassetta and  membership  dues approved by the Board of
     Directors.
(9)  Amounts represent premiums paid by us for life insurance for the benefit of
     the employee.
(10) Mr. Kerschner left our employ in February 2004.

                                       62
<PAGE>

Stock Options

     The following  table sets forth  information  with respect to stock options
granted to the Named Executive Officers in fiscal year 2003:

                        Option Grants in Last Fiscal Year
                        ---------------------------------

<TABLE>
<CAPTION>
                                    Number of         % of Total Options Granted
                              Securities Underlying   to Employees in the fiscal    Exercise           Expiration
Name                            Options Granted(1)              year(2)               Price               Date
----------------------------- ----------------------- --------------------------- ----------------- ---------------------
<S>                                  <C>                       <C>                     <C>                    <C>
Robert Pons                          41,667(1)                 83.3%                   $2.04           August 4, 2008

                                      8,133(1)                 16.7%                   $2.04           August 4, 2008
</TABLE>

     (1)  Represents  warrants to purchase  shares of our common stock issued to
          Mr.  Pons  pursuant  to  his  consulting   arrangement  with  us.  See
          "Agreements with Named Executive Officers" for details.
     (2)  We did not grant any  options  in fiscal  year 2003.  However,  during
          fiscal  year  2003  we did  grant  these  warrants  to Mr.  Pons,  who
          subsequently  became our  Interim  Chief  Executive  Officer in August
          2003.

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 December 31, 2003:

               Aggregated Option Exercises in Last Fiscal Year and
                       Fiscal Year End Option Value (1)(2)
                       -----------------------------------


<TABLE>
<CAPTION>

                                                   Number of Unexercised       Value of Unexercised
                                                  Securities Underlying        In-The-Money Options
                          Shares                  Options at Fiscal Year        at Fiscal Year End
                        Acquired on      Value      End Exercisable/              Exercisable/
Name                     Exercise      Realized      Unexercisable                Unexercisable
---------------------------------------------------------------------------------------------------
<S>                     <C>             <C>           <C>                       <C>
Robert Pons                   --          --          50,000/0                      $0/$0

Sebastian E. Cassetta         --          --          21,250/0                      $0/$0

Thomas W. Haller              --          --        29,083/1,500                    $0/$0

Richard Kerschner             --          --          21,667/0                      $0/$0
</TABLE>


     (1)  Value is based on the closing price of our common stock as reported by
          the OTC Bulletin  Board on December 31, 2003 ($1.40) less the exercise
          price of the option.
     (2)  No stock options were exercised by the Named Executive Officers during
          the fiscal year ended December 31, 2003.

Agreements with Named Executive Officers

We entered into a consulting  agreement  with Robert Pons,  dated August 4, 2003
("Pons Consulting Agreement"),  whereby Mr. Pons rendered consulting services to
us related to our business activities,  strategic planning,  and market research
and strategic due diligence on proposed  business  opportunities.  The agreement
had an initial term of four months and was  continued  until he became our Chief
Executive  Officer on January 24, 2004. As  compensation  for such services,  we
agreed to pay him a cash fee of $15,000 per month  ($4,000 of which was deferred
until we  closed a  financing  on no less than  $2.5  million),  issued to him a
warrant to  purchase  41,667  shares of our common  stock,  which was changed to
50,000 shares of our common stock, and agreed to pay him a transaction fee equal
to 1% of (i) any cash or securities  received by us from any equity  transaction
during the term of the agreement and (ii) sales revenue  received and recognized
by us resulting

                                       63
<PAGE>

from his  assistance.  The warrant expires in August 2008, is convertible at the
price of $2.04 per share,  and became  exercisable  in December  2003.  The Pons
Consulting  Agreement  was entered  into prior to Mr. Pons  becoming our Interim
Chief Executive Officer on August 28, 2003.

We entered into an Employment  Agreement with Robert Pons, dated March 12, 2004.
The  agreement  provides for a 4 year term with a base annual salary of $210,000
in the first year of the term,  subject to increases as  determined by the Board
of  Directors.  Mr. Pons shall also be eligible for bonuses in the event we meet
certain performance goals related to raising additional capital, revenue targets
or other goals mutually set by Mr. Pons and us. Mr. Pons also received an option
to  purchase  1,300,000  shares of our  common  stock  under a  non-plan  option
agreement,  which option has an exercise  price of $1.50 per share and a term of
10 years.  The option  provides for 557,141 shares to vest  immediately  and the
remaining  742,859  shares to vest in equal  amounts  as of the last day of each
calendar  quarter  commencing  March 31, 2004. The options will vest immediately
upon a Change of Control  (as defined in his option  agreement)  or in the event
Mr. Pons is terminated Other Than for Cause or he terminates employment for Good
Reason (as each is defined under the Employment  Agreement).  Mr. Pons will also
receive 12 months of base salary upon termination  Other Than for Cause or if he
terminates employment for Good Reason

We entered into a Separation  Agreement with  Sebastian E. Cassetta,  our former
Chairman  and Chief  Executive  Officer,  effective  as of October 21, 2003 (the
"Cassetta Separation  Agreement").  The Cassetta Separation Agreement terminated
Mr.  Cassetta's  rights  under  his  employment  agreement,   including  without
limitation,  any rights to  compensation  and  severance,  in  exchange  for the
consideration set forth therein, including the following: (i) a cash payment for
unpaid  base salary and accrued  vacation  of  $18,990.30,  payable on or before
October 31, 2003, (ii)  forgiveness over a 3 year period of certain loans in the
original principal amount of $500,000 plus accrued interest,  (iii) extension of
the Put Right  contained in Mr.  Cassetta's  Restricted  Stock  Agreement  dated
December  28, 1998,  allowing  Mr.  Cassetta 1 year instead of 60 days to either
repay a promissory  note in the original  principal  amount of $457,496.86  plus
accrued interest, or return 94,707 restricted shares of our common stock in full
satisfaction of such promissory note and accrued interest thereon.


In connection with his retirement,  we entered into a Separation  Agreement with
Mario Rossi, our former Executive Vice President,  Chief Technology Officer, and
Director,  effective as of October 21, 2003 (the "Rossi Separation  Agreement").
The  Rossi  Separation   Agreement  terminated  Mr.  Rossi's  rights  under  his
employment agreement,  including without limitation,  any rights to compensation
and severance,  in exchange for the consideration  set forth therein,  including
the  following:  (i) a cash  payment  for unpaid  base  salary and  vacation  of
$16,667.00  payable in two equal  installments  on October 31, 2003 and November
20, 2003, (ii) a cash payment for unpaid contractual base salary of $112,500.00,
of which  $81,370.69  will be offset  against Mr.  Rossi's  obligation  to us of
$47,004.00  in accrued  interest  on a  restricted  stock  note in the  original
principal amount of $152,500 (the "Rossi Note"), and the remaining $31,129.31 to
be paid in two equal  installments on April 21, 2004 and October 21, 2004, (iii)
a warrant to purchase  41,667  shares of our common  stock at no less than $2.40
per share,  and (iv)  pursuant to Mr.  Rossi's  rights under a Restricted  Stock
Agreement,  cancellation of the principal amount of the Rossi Note upon delivery
by Mr. Rossi to us of the 34,347 shares of restricted  stock  securing the Rossi
Note. In January 2004, Mr. Rossi assigned and transferred all 34,397  restricted
shares  of  common  stock  to  us  in  full   satisfaction  of  the  outstanding
non-recourse debt of $68,000.


We entered  into a  retention  agreement  with  Thomas W.  Haller,  Senior  Vice
President  and  Chief  Financial  Officer,  effective  as of June 20,  2003 (the
"Haller  Agreement"),  pursuant to which Mr.  Haller would receive the following
severance benefits if he is terminated by us other than for Cause (as defined in
the Haller  Agreement):  (i) 12 months of Mr.  Haller's then current annual base
salary (but in no event less than  $165,000  per annum),  plus any  deferred and
unpaid salary and bonus,  payable in equal quarterly  installments,  in advance,
(ii)  continuation  of health,  disability,  and life  insurance  coverage for a
period  equal to the  earlier  of 12  months  or Mr.  Haller's  eligibility  for
replacement  coverage  from a new  employer,  and (iii)  vesting of any unvested
stock options and  extension of the exercise  period of all stock options to one
year from the Termination Date, as defined in the Haller  Agreement.  Mr. Haller
left our  employ  in  January  2004,  which we  believe  does not  trigger  such
severance benefits.

                                       64
<PAGE>

We entered into a retention  agreement  with Richard D.  Kerschner,  Senior Vice
President,  General  Counsel and  Secretary,  effective as of June 20, 2003 (the
"Kerschner  Agreement"),  pursuant  to which Mr.  Kerschner  would  receive  the
following severance benefits if he was terminated by us other than for Cause (as
defined  in the  Kerschner  Agreement):  (i) 9 months  of Mr.  Kerschner's  then
current annual base salary (but in no event less than $160,000 per annum),  plus
any  deferred  and  unpaid  salary  and  bonus,   payable  in  equal   quarterly
installments,  in advance,  (ii) continuation of health and disability insurance
coverage  for a period  equal to the  earlier  of 9  months  or Mr.  Kerschner's
eligibility for replacement  coverage from a new employer,  and (iii) vesting of
any unvested  stock  options and  extension of the exercise  period of all stock
options to one year from the  Termination  Date,  as  defined  in the  Kerschner
Agreement.  In  connection  with him leaving our employ in  February  2004,  Mr.
Kerschner entered into an Employee Separation  Agreement with us, dated February
2,  2003,  providing  for his  severance  compensation  of  continuation  of his
current, reduced salary of $100,000 through June 30, 2004, a one-time payment of
$15,000 and issuance of a warrant to purchase 50,000 shares of our common stock.
The  Employee  Separation   Agreement  replaced  and  superceded  the  Kerschner
Agreement. The warrant has a term of five years, is immediately exercisable, has
an exercise price of $1.65 per share, and contains  registration  rights for the
shares underlying the warrants.  In consideration of his severance payments,  he
agreed to join our Advisory  Board to provide  strategic  advice and  transition
services until June 30, 2004.

Directors' Compensation

Each director who is not an officer or employee of SmartServ is  reimbursed  for
his or her  out-of-pocket  expenses  incurred in connection  with  attendance at
meetings or other SmartServ  business.  As of January 1, 2004, 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 committee meeting attended.


The Compensation  Committee has the discretionary  authority to grant options to
directors.  The  exercise  price of each share of common  stock under any option
granted to a  director  is equal to the fair  market  value of a share of common
stock on the date the option was granted.  On September 13, 2002,  each director
was  granted  an option to  purchase  1,667  shares  of our  common  stock at an
exercise  price of $8.52 per share,  which was the average of high and low stock
prices  for the  preceding  day.  As the  then  Vice  Chairman  of the  Board of
Directors,  L. Scott Perry was granted an option to purchase an additional 5,000
shares at an  exercise  price of $8.52 per  share.  No options  were  granted to
directors in the year ended 2003.  Commencing  January 1, 2003, the Compensation
Committee set L. Scott Perry's compensation as Vice Chair at $5,000 per quarter,
which arrangement has continued in his current position as Chairman of the Board
of Directors.


Item 11. Security Ownership of Certain Beneficial Owners and Management and
-------- Related Stockholder Matters


The following table sets forth, as of March 1, 2004,  certain  information  with
respect to the beneficial ownership of our common stock by (i) each person known
by us to beneficially own more than 5% of our outstanding shares of common stock
or  preferred  stock,  (ii)  each or our  directors,  (iii)  each  of the  Named
Executive  Officers and (iv) all of our  executive  officers and  directors as a
group.


                                       65
<PAGE>

<TABLE>
<CAPTION>
                                                Common Stock                  Series A Preferred Stock
                                                ------------                  ------------------------
                                     Amount and Nature     Percent of     Amount and Nature    Percent of
          Name and Address of          of Beneficial       Outstanding      of Beneficial      Outstanding
          Beneficial Owner (1)         Ownership (2)       Shares (3)       Ownership (2)      Shares (3)      Total(4)
          --------------------         -------------       ----------       -------------      ----------      --------
<S>                                    <C>                     <C>            <C>                 <C>         <C>    <C>
    Kevin Kimberlin                    4,477,402 (5)           67.16%         46,065(17)          5.27%       32.03% (5), (17)
    c/o Spencer Trask
    535 Madison Avenue
    New York, New York 10021

    Global Capital Funding Group,        257,333 (6)            9.89%             0                 *          2.27% (6)
    L.P.
    106 Colony Park Drive, Suite 900
    Cumming, Georgia 30040


    Steven B. Rosner                     165,012 (7)            6.79%             0                 *          1.48% (7)
    1220 Mirabeau Lane
    Gladwyn, Pennsylvania 19035

    TecCapital, Ltd.                     185,958 (8)            7.93%             0                 *          1.68% (8)
    Cedar House
    41 Cedar Avenue
    Hamilton, HM 12, Bermuda

    Sebastian E. Cassetta                118,598 (9)            5.01%             0                 *          1.07% (9)
    415 Mine Hill Road
    Fairfield, Connecticut 06824

    Robert M. Pons                        50,000 (10)           2.09%             0                 *              * (10)

    Richard D. Kerschner                  71,667 (11)           2.97%             0                 *              * (11)

    Thomas W. Haller                      29,194 (12)           1.23%             0                 *              * (12)

    L. Scott Perry                         9,306 (13)             *               0                 *              * (13)

    Catherine Cassel Talmadge              5,119 (14)             *               0                 *              * (14)

    Charles R. Wood                        5,666 (15)             *               0                 *              * (15)


    All executive officers and
    directors as a group (4 persons)      70,091 (16)           2.91%             0                 *              * (16)
</TABLE>


-----------------
*    Less than 1%


(1)  Under  the  rules  of  the  Securities  and  Exchange  Commission  ("SEC"),
     addresses  are only  given  for  holders  of 5% or more of our  outstanding
     common  stock who are not  currently  officers  or  directors.  This  table
     contains  information  furnished to us by the  respective  stockholders  or
     contained in filings made with the SEC.
(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 March 1, 2004.  For purposes of  beneficial  ownership of
     our common stock, excludes shares of common stock that may be acquired upon
     the conversion of Series A preferred  stock held by such person.  Except as
     otherwise indicated, the named entities or individuals have sole voting and
     investment  power with respect to the shares of common stock and  preferred
     stock beneficially owned.
(3)  Represents  the  number of shares of common  stock or  preferred  stock (as
     applicable)  beneficially owned as of March 1, 2004 by each named person or
     group,  expressed  as a  percentage  of the sum of all of (i) the shares of
     such class  outstanding  as of such date,  and (ii) the number of shares of
     such class not outstanding,  but beneficially owned by such named person or
     group as of such date.  There  were  2,344,630  shares of common  stock and
     874,824  shares of Series A preferred  stock  outstanding on March 1, 2004.
     Excludes  500,002  shares of common  stock yet to be issued (as of March 1,
     2004)  in  connection  with the  acquisition  of the  outstanding  stock of
     nReach, Inc., which shares were issued on March 2, 2004.

                                       66
<PAGE>

(4)  The  percentage  in this column is based upon the total number of shares of
     common stock beneficially  owned,  calculated by assuming conversion of all
     of the outstanding Series A preferred shares.

(5)  Includes  holdings  of  (i)  Spencer  Trask  Ventures,   Inc.,  a  Delaware
     corporation and wholly-owned  subsidiary of Spencer Trask & Co., a Delaware
     corporation, of which Kevin Kimberlin is the controlling shareholder,  (ii)
     Spencer  Trask  Investment  Partners  LLC,  a  Delaware  limited  liability
     company,  of which Kevin  Kimberlin is the  non-member  manager,  and (iii)
     Spencer Trask Private  Equity Fund I, LP, Spencer Trask Private Equity Fund
     II LP, Spencer Trask Private Equity  Accredited  Fund III, LLC, and Spencer
     Trask  Illumination  Fund  (collectively,  the  "Funds"),  of  which  Kevin
     Kimberlin  is an  approximately  80% owner of the  manager  of such  Funds.
     Includes  4,321,848  shares of common stock  subject to warrants.  Excludes
     80,002  shares of common stock to be issued as a finder's fee in connection
     with the September and November 2003 bridge financings. If such shares were
     included,  Kevin Kimberlin would  beneficially  own 4,557,404 shares of our
     common  stock,  representing  68.36% of the  outstanding  common shares and
     32.55% of the total outstanding capital stock (see footnote 4 above).
(6)  Consists of 257,333 shares of common stock subject to warrants.
(7)  Includes 85,012 shares of common stock subject to warrants. Excludes 25,000
     shares of common stock  subject to warrants  issued to Mr.  Rosner on March
     31, 2004,  which warrants are currently  exercisable or exercisable  within
     sixty (60) days.

(8)  Excludes  63,274  shares of common stock  subject to issuance in connection
     with the November  2003 bridge  financing and 94,322 shares of common stock
     subject to issuance in connection with the 2004 Private Placement.

(9)  Includes  21,250 shares of common stock  subject to options.  Also includes
     342 shares held in trust for the benefit of Mr.  Cassetta's  wife and 2,300
     shares of common stock held by his children.
(10) Consists of 50,000  shares of common stock  subject to  warrants.  Excludes
     603,570  shares of common stock  subject to options  granted to Mr. Pons on
     March 12, 2004,  which options are  currently  exercisable  or  exercisable
     within sixty (60) days.
(11) Consists of 50,000  shares of common  stock  subject to warrants and 21,667
     shares of common stock subject to options.
(12) Includes 29,083 shares of common stock subject to options.
(13) Includes 9,167 shares of common stock subject to options.
(14) Includes  5,000 shares of common stock  subject to options and 33 shares of
     common stock held for her daughter under the Uniform Gift to Minors Act.
(15) Includes 3,333 shares of common stock subject to options.
(16) Includes 33 shares of common stock held for Ms.  Talmadge's  daughter under
     the Uniform Gift to Minors Act and 67,500 shares of common stock subject to
     options  and  warrants  issued to all  executive  officers  and  directors.
     Excludes  shares of common stock  beneficially  owned by Messrs.  Cassetta,
     Haller and  Kerschner as they were not officers of SmartServ as of March 1,
     2004. Also excludes  325,000 shares of common stock subject to options that
     were granted on March 12, 2004 to Timothy G. Wenhold,  our Chief  Operating
     Officer since March 12, 2004,  which options are currently  exercisable  or
     exercisable within sixty (60) days.
(17) Excludes  2,612  shares of Series A  preferred  stock and 26,120  shares of
     common  stock  subject to  warrants  issued to Adam  Stern,  an employee of
     Spencer Trask, in connection with the 2004 Private Placement.


Equity Compensation Plan Information

The table  below  sets forth  certain  information  as of our fiscal  year ended
December 31, 2003  regarding the shares of our common stock  available for grant
or granted  under stock option  plans that (i) were adopted by our  stockholders
and (ii) were not adopted by our stockholders.

<TABLE>
<CAPTION>
                                                                                      Number of securities remaining
                                                                                       available for future issuance
                               Number of securities to be        Weighted-average        under equity compensation
                                 issued upon exercise of        exercise price of     plans (excluding securities in
                                   outstanding options         outstanding options    the first column of this table)
                                   -------------------         -------------------    -------------------------------
<S>                                       <C>                         <C>                         <C>
Equity compensation
plans approved by
security holders                          28,880                      $8.40                       250,000

Equity compensation plans
not approved by security
holders                                  157,417                      $9.76                            --
                                         -------                      -----                       -------

Total                                    186,297                      $9.55                       250,000
                                         =======                      =====                       =======
</TABLE>

                                       67
<PAGE>

Description of Plans Not Adopted by Stockholders

The  aggregate  number of shares of our common  stock for which  options  may be
granted under the 1999 Stock Option Plan ("1999  Plan") is 66,667.  Such options
may be issued to key employees,  officers who are our key  employees,  directors
and  consultants.  The 1999 Plan is administered by the Board of Directors.  The
Board of Directors may grant only non-qualified  stock options (options which do
not comply with  section 422 of the Internal  Revenue Code of 1986,  as amended)
under the 1999 Plan.  The 1999 Plan permits the  administrators  of the plan, in
their sole discretion, to allow the cashless exercise of options. As of December
31, 2003,  there were options to purchase  40,367  shares of common stock issued
and outstanding and -0- available for grant pursuant to the 1999 Plan.

On December 28, 1999,  the Board of Directors  granted  Stephen  Lawler,  then a
director,  an option to  purchase  3,333  shares of common  stock at an exercise
price of $102.042  per share.  Such  option  vested  immediately  and expires on
December 27, 2004. As of December 31, 2003, such option remained outstanding.

The  aggregate  number of shares of our common  stock for which  options  may be
granted under the 2000 Stock Option Plan ("2000 Plan") is 225,000.  Such options
may be issued to key employees,  officers who are our key  employees,  directors
and  consultants.  The 2000 Plan is administered by the Board of Directors.  The
Board of Directors may grant only non-qualified  stock options (options which do
not comply with  section 422 of the Internal  Revenue Code of 1986,  as amended)
under the 2000 Plan.  The 2000 Plan permits the  administrators  of the plan, in
their sole discretion, to allow the cashless exercise of options. As of December
31, 2003,  there were options to purchase  113,717 shares of common stock issued
and  outstanding  and -0- shares of common stock available for grant pursuant to
the 2000 Plan.

Footnote 13 to our financial statements,  included in this Annual Report on Form
10-KSB  for the  fiscal  year  ended  December  31,  2003,  contains  additional
information regarding each of the stock option plans described above.

Item 12. Certain Relationships and Related Transactions
--------


Steven  B.  Rosner,  a  beneficial  owner of more than 5% of our  common  stock,
entered into an agreement  with us, dated  October 25, 1999,  whereby Mr. Rosner
was to provide consulting services to us. Pursuant to an amendment dated January
4, 2000,  the  agreement was extended  until October 24, 2002 (the  agreement as
amended, the "Rosner Agreement").  Pursuant to the Rosner Agreement,  Mr. Rosner
received  $125,000 and warrants to purchase (i) 16,667 shares of common stock at
$15.75 per share,  (ii)  16,667  shares of common  stock at $21.75 per share and
(iii)  1,334  shares of common  stock at  $110.25  per  share.  Mr.  Rosner  has
exercised  warrants to purchase  33,333  shares of common  stock.  The remaining
warrants  expire on October 25, 2004.  In December  2002,  we entered into a two
year consulting  agreement with Mr. Rosner to replace the Rosner  Agreement.  As
consideration  for such  services,  we granted Mr.  Rosner a warrant to purchase
41,667  shares of common  stock at an  exercise  price of $7.68 per  share.  The
warrants  expire on December 4, 2005. In March 2004, we amended and restated the
December 2002 consulting agreement by extending the term by one year until March
2005. In consideration  for this new agreement,  we granted Mr. Rosner a warrant
to purchase  300,000  shares of common  stock at an exercise  price of $1.50 per
share and Mr.  Rosner waived  $60,000 in consulting  fees that we owed him under
the December  2002  consulting  agreement.  This amended and restated  agreement
superceded the December 2002 consulting agreement.

Mr. Rosner also acted as a finder in the September 2002 private placement of our
Units.  For his services as a finder,  Mr. Rosner received  warrants to purchase
31,062 shares of common stock at $5.10 per share and a cash fee of $157,500 from
us. The warrants  expire on September 8, 2007. In May and June 2003,  Mr. Rosner
acted as a finder in connection with our private  placement of Units  consisting
of  convertible  notes and warrants to purchase  common stock issued by us to 20
accredited investors, Mr. Rosner received a finder's fee of $10,500, warrants to
purchase  12,283  shares of common stock at $4.464 per share and 5,556 shares of
unregistered  common  stock.  As  a  result  of  anti-dilution   provisions  and
subsequent  financings,  the exercise price of the warrants was reduced to $1.50
per share in September 2003.


                                       68
<PAGE>

In January  2003, we issued a note to Mr.  Rosner in  consideration  of $70,000.
Proceeds from the note were used for working capital.  The debt was evidenced by
an unsecured  note  bearing an interest  rate of 12% per annum and was repaid in
February 2003.


In December  2000,  our Board of Directors  authorized the issuance of a line of
credit of up to $500,000 to  Sebastian  E.  Cassetta,  our then Chief  Executive
Officer  and  Chairman  of the Board.  Mr.  Cassetta  issued  promissory  notes,
effective on January 2, 2001 and March 20, 2001,  aggregating  $500,000 to us in
exchange for amounts borrowed under the line of credit. Each note bears interest
at the prime rate and  matures  three  years from the date the note was  issued.
Interest for the period January 2, 2001 to June 30, 2002 has been accrued and is
payable at maturity.  Commencing July 1, 2002 interest is payable  semi-annually
in arrears.  While these loans were to mature in December 2003 and January 2004,
in October 2003 we agreed to forgive these loans over a three-year period and we
extended the term of certain other loans pursuant to Mr.  Cassetta's  Separation
Agreement with us as described in the section  entitled  "Agreements  with Named
Executive Officers".

In January 2000, we issued Mr. Mario Rossi,  our then  Executive  Vice President
and Chief  Technology  Officer,  34,347  shares of  restricted  common  stock in
exchange for Mr. Rossi's note in the amount of $152,500. Such note is secured by
the common stock issued to Mr. Rossi.  In October 2003,  pursuant to Mr. Rossi's
rights  under  his  Restricted  Stock  Agreement  and  in  connection  with  his
retirement,  the  principal  amount  of this  note  will be  cancelled  upon his
delivery to us of the 34,347 shares of restricted  stock  securing this note. In
January 2004, Mr. Rossi assigned and transferred all 34,397 restricted shares of
common stock to us in full satisfaction of the outstanding  non-recourse debt of
$68,000.  Please see the description of the Separation  Agreement with Mr. Rossi
in  the  section  entitled   "Agreements  with  Named  Executive  Officers"  for
additional information.

We  entered  into a  consulting  arrangement  with  Spencer  Trask  in May  2003
providing  that  Spencer  Trask would  render  corporate  financial  consulting,
financial  advisory,  and investment  banking services to us ("Trask  Consulting
Agreement").  Under the Trask Consulting Agreement,  we agreed to pay consulting
fees of $7,500 per month commencing July 1, 2003 thru May 31, 2004 and we issued
Spencer Trask 83,333  shares of our common stock.  Spencer Trask is a beneficial
owner of more than 5% of our common stock.

As part of the  consulting  arrangement,  Spencer  Trask  acted as a finder  and
assisted  us with  sales of  Units  consisting  of  convertible  debentures  and
warrants  from  May  2003  through  November  2003 in the  aggregate  amount  of
$2,685,000.  We paid Spencer Trask a finders fee  consisting of $349,050 in cash
(including  finders fees and  non-accountable  expenses),  152,223 shares of our
common stock (includes 9,445 shares which have yet to be issued to Spencer Trask
as of March 31,  2004) and a warrant to  purchase  749,146  shares of our common
stock  at  exercise  prices  ranging  from  $1.50 to $1.90  per  share.  We also
reimbursed   Spencer  Trask  for  $20,000  of  legal   expenses  and  $5,000  of
out-of-pocket  expenses.  As a result  of the  anti-dilution  provisions  in the
warrant,  we subsequently issued Spencer Trask an additional warrant to purchase
445,393 shares of our common stock at an exercise price of $1.50.


Under the terms of the  Trask  Consulting  Agreement,  we are  obligated  to pay
Spencer Trask a fee upon closing of our  acquisition  of nReach,  based on 5% of
the  first   two-million   dollars  of  the  aggregate   consideration  of  such
acquisition,  4% of the next two million dollars or portion  thereof,  3% of the
third  $2,000,000  or  portion   thereof,   and  2.5%  of  the  balance  of  the
consideration.  For purposes of  determining  the aggregate  consideration,  the
total value of  liabilities  assumed are  included,  and fees on any  contingent
payment  shall be paid to Spencer  Trask when such  contingent  payment is made.
Spencer  Trask has agreed to accept  shares of our common  stock in lieu of cash
with respect to such fees.

Under the  terms of the  Trask  Consulting  Agreement,  in the event  that on or
before May 31, 2004 or 18 months thereafter (under certain conditions), we sell,
outside  the  ordinary  course of  business,  our  company or any of our assets,
securities  or business by means of a merger,  consolidation,  joint  venture or
exchange offer,  or any transaction  resulting in any change in control of us or
our assets or business, or we purchase, outside the ordinary course of business,
another  company or any of its  assets,  securities  or  business  by means of a
merger,  consolidation,  joint  venture  or  exchange  offer,  or we  receive an
investment  in us (other than an

                                       69
<PAGE>

investment   pursuant  to  an  agented  offering,   which  will  be  subject  to
compensation pursuant to a separate arrangement with Spencer Trask), we will owe
Spencer Trask a cash fee and in some instances, warrants.


Spencer Trask served as the placement agent for the 2004 Private  Placement.  In
accordance with the terms of the Placement Agency  Agreement,  dated January 29,
2004,  Spencer  Trask  received  compensation  consisting  of (i) a cash  fee of
$1,002,500,  or 10% of the aggregate purchase price of all of the Units acquired
for cash, (ii) a  non-accountable  expense  allowance of $300,750,  or 3% of the
aggregate  proceeds  of all Units  sold for cash in the  transaction,  and (iii)
warrants  to  purchase  a number of shares of common  stock  equal to 20% of the
shares of common stock  underlying  the  securities  in the Units sold for cash,
constituting in the aggregate  warrants to purchase  1,336,666  shares of common
stock at $1.50 per share and  warrants  to purchase  1,336,666  shares of common
stock at $2.82 per share.

In February 2003, we issued a convertible  note to Global Capital Funding Group,
LP  ("Global")  in  consideration  for the receipt of $1 million.  Global is the
beneficial  owner of more than 5% of our common stock. The note bore interest at
the rate of 10% per annum,  and was  secured  by our  assets,  exclusive  of our
internally  developed software products.  The note matured on February 14, 2004,
contained certain anti-dilution  provisions,  and could have been converted into
shares of our common stock at $6.60 per share. As additional  consideration,  we
issued Global a warrant for the purchase of 33,333 shares of our common stock at
an exercise  price of $9.68 per share.  In April 2003, we borrowed an additional
$250,000 from Global and amended the convertible note to include such amount. As
additional  consideration,  we issued Global a warrant for the purchase of 3,333
shares of our common stock at an exercise price of $7.20 per share. The warrants
issued to Global contain certain antidilution  provisions and expire on February
14, 2006. Proceeds from the notes were used for working capital purposes.

In connection  with a September  2003 sale of Units  (comprised  of  convertible
debentures and warrants to purchase  common  stock),  we required the consent of
Global,  the holder of $1.25  million of our  convertible  debentures  issued in
February  and April 2003,  and of 51% or more of the holders of our $1.5 million
convertible  debentures  issued in connection with the bridge  financings in May
and June 2003. As an inducement to obtain their consent,  such holders  received
(a) a change in the conversion  price of their  convertible  debentures equal to
the lowest conversion price of the debentures issued in September 2003 financing
($1.896  per share)  and (b) an  increase  in the  number of shares  purchasable
pursuant  to the  warrant  to reflect a full  ratchet  dilution  formula  with a
decrease in the  exercise  price of the  warrants to the  exercise  price of the
warrants issued in such September  financing ($1.50).  In November,  2003, as an
inducement  to  obtain  Global's  consent  to the  sale of Units  (comprised  of
convertible  debentures  and warrants to purchase  common stock) in the November
2003  transaction  and  the  sale  of  Units  in  the  2004  Private   Placement
transaction,  we issued  Global a warrant to  purchase  16,667  shares of common
stock at an exercise price of $2.40 per share.


On February 13, 2004, we paid  $1,391,504 to Global in full  satisfaction of our
convertible debentures issued in February and April 2003 in the principal amount
of approximately $1.25 million plus accrued interest of $141,504.


Pursuant to Robert Pons' Consulting Agreement and Employment  Agreement,  he was
entitled to a transaction fee equal to 1% of any cash or securities  received by
us from any equity  transaction.  Based on this, he received $100,000 from us in
2004 in  connection  with the 2004 Private  Placement  transaction.  Mr. Pons is
currently our Chief Executive  Officer,  but he was neither a director nor Chief
Executive Officer at the time the Consulting Agreement was executed.


We  believe  that the terms of the  transactions  described  above  were no less
favorable to us 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 our policy, such transactions were approved by a majority of our
independent disinterested directors.

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<PAGE>

Item 13. Exhibits and Reports on Form 8-K
--------

(a)  Index to Exhibits

Exhibit Description

2.1     Reorganization and Stock Purchase Agreement dated as of January 29, 2004
        by and among nReach,  SmartServ and the shareholders of nReach set forth
        on Schedule A thereto /12/

3.1     Amended and Restated  Certificate  of  Incorporation  of  SmartServ,  as
        amended /16/

3.2     By-laws of SmartServ, as amended /8/
4.1     Specimen Certificate of SmartServ's Common Stock /8/
4.2     Stock  Purchase  Agreement,  dated May 12, 2000,  between  SmartServ and
        TecCapital, Ltd., The Abernathy Group and Conseco Equity Fund /11/
4.3     Convertible Note, dated February 14, 2003,  between SmartServ and Global
        Capital Funding Group, LP /2/
4.4     Security Agreement dated February 14, 2003, between SmartServ and Global
        Capital Funding Group, LP /2/
4.5     Amendment  No. 1 to the  Convertible  Note between  SmartServ and Global
        Capital Funding Group, LP /15/
4.6     Amendment No. 1 to the Security  Agreement  between SmartServ and Global
        Capital Funding Group, LP /15/
4.7     Amendment  No. 2 to the  Convertible  Note between  SmartServ and Global
        Capital Funding Group, LP /15/
4.8     Amendment No. 2 to the Security  Agreement  between SmartServ and Global
        Capital Funding Group, LP /15/
4.9     Form of Warrant for the Investors in the September  2003  Placement (the
        "September Investors") /13/
4.10    Form  of  Registration   Rights  Agreement  between  SmartServ  and  the
        September Investors /13/
4.11    Form of Warrant for the  Investors in the November 2003  Placement  (the
        "November Investors") /13/
4.12    Form of Registration Rights Agreement between SmartServ and the November
        Investors /13/
4.13    Form of Warrant for the  Investors in the May 2003  Placement  (the "May
        Investors") /14/
4.14    Form of  Registration  Rights  Agreement,  dated May 19,  2003,  between
        SmartServ and the May Investors /14/
4.15    Form of Warrant for the Investors in the June 2003  Placement (the "June
        Investors") /14/
4.16    Form of  Registration  Rights  Agreement,  dated June 13, 2003,  between
        SmartServ and the June Investors /14/

4.17    Form of Letter  Agreement  Extending  the Maturity  Date of  Convertible
        Debentures  from  November  19,  2003  to  February  19,  2004,  between
        SmartServ and each of the May, June and September Investors /16/
4.18    Form of Letter  Agreement  Extending  the Maturity  Date of  Convertible
        Debentures  from  December  19,  2003  to  February  19,  2004,  between
        SmartServ and the November Investors /16/
4.19    Form of Warrant for the  Investors  in the 2004 Private  Placement  (the
        "2004 Private Placement Investors") /16/
4.20    Form of Registration Rights Agreement,  dated February 13, 2004, between
        SmartServ and the Investors in the 2004 Private Placement /16/
4.21    Specimen Certificate of SmartServ's Series A Convertible Preferred Stock
        /16/
4.22    Form of Warrant for Spencer  Trask  issued  pursuant to the 2004 Private
        Placement /16/

10.1    Information  Distribution  License  Agreement  dated as of July 18, 1994
        between SmartServ and S&P ComStock, Inc. /8/
10.2    New York Stock  Exchange,  Inc.  Agreement for Receipt and Use of Market
        Data  dated as of August 11,  1994  between  SmartServ  and the New York
        Stock Exchange, Inc. /8/
10.3    The Nasdaq Stock Market,  Inc. Vendor  Agreement for Level 1 Service and
        Last Sale Service dated as of September  12, 1994 between  SmartServ and
        The Nasdaq Stock Exchange, Inc. ("Nasdaq") /8/
10.4    Amendment to Vendor  Agreement for Level 1 Service and Last Sale Service
        dated as of October 11, 1994 between SmartServ and Nasdaq. /8/

                                       71
<PAGE>

10.5    Lease  Agreement  dated as of March 4, 1994,  between  SmartServ and One
        Station  Place,  L.P.  regarding  SmartServ's   Stamford,   Connecticut,
        offices /8/
10.6    Lease  Modification  and Extension  Agreement,  dated  February 6, 1996,
        between  SmartServ and One Station  Place,  L.P.  regarding  SmartServ's
        Stamford, Connecticut, offices /9/
10.7    Second Lease Modification and Extension Agreement,  dated June 29, 2000,
        between  SmartServ and One Station  Place,  L.P.  regarding  SmartServ's
        Stamford, Connecticut, offices /6/
10.8    License   Agreement   between   SmartServ   and  Salomon   Smith  Barney
        (Confidential  treatment  has been  requested  with  respect  to certain
        portions of this agreement) /4/
10.9    1996 Stock Option Plan /10/ *
10.10   1999 Stock Option Plan /11/ *
10.11   2000 Stock Option Plan /6/ *
10.12   2002 Stock Option Plan /3/ *
10.13   Separation Agreement between SmartServ and Sebastian Cassetta, effective
        as of October 21, 2003 /13/ *
10.14   Restricted Stock Purchase  Agreement  between SmartServ and Sebastian E.
        Cassetta, dated December 29, 1999 /7/*
10.15   Separation Agreement between SmartServ and Mario F. Rossi,  effective as
        of October 21, 2003 /13/ *
10.16   Restricted  Stock  Purchase  Agreement  between  SmartServ  and Mario F.
        Rossi, dated December 29, 1999 /7/ *
10.17   Amended  Restricted  Stock  Purchase  Agreement  between  SmartServ  and
        Sebastian E. Cassetta, dated December 31, 1999 /11/ *
10.18   Amended  Promissory  Note between  SmartServ and Sebastian E.  Cassetta,
        dated January 4, 2000 /11/ *
10.19   Amended Security  Agreement between SmartServ and Sebastian E. Cassetta,
        dated January 4, 2000 /11/ *
10.20   Promissory Note, dated January 2, 2001,  between SmartServ and Sebastian
        E. Cassetta /5/ *
10.21   Promissory Note, dated March 20, 2001,  between  SmartServ and Sebastian
        E. Cassetta /5/ *
10.22   Amended  Restricted Stock Purchase Agreement between SmartServ and Mario
        F. Rossi, dated December 31, 1999 /11/ *
10.23   Amended  Promissory  Note between  SmartServ  and Mario F. Rossi,  dated
        January 4, 2000 /11/ *
10.24   Amended Security  Agreement between SmartServ and Mario F. Rossi,  dated
        January 4, 2000 /11/ *
10.25   Form  of  Securities   Purchase  Agreement  between  SmartServ  and  the
        September Investors /13/
10.26   Form of Convertible Debenture for the September Investors /13/
10.27   Form of Securities Purchase Agreement between SmartServ and the November
        Investors /13/
10.28   Form of Convertible Debenture for the November Investors /13/
10.29   Form of  Securities  Purchase  Agreement,  dated May 19,  2003,  between
        SmartServ and the May Investors /14/
10.30   Form of Convertible Debenture for the May Investors /14/
10.31   Form of  Securities  Purchase  Agreement,  dated June 13, 2003,  between
        SmartServ and the June Investors /14/
10.32   Form of Convertible Debenture for the June Investors /14/
10.33   Consulting Agreement,  dated May 15, 2003, between SmartServ and Spencer
        Trask Ventures, Inc. /14/
10.34   Severance Agreement,  dated June 20, 2003, between SmartServ and Richard
        Kerschner /14/ *
10.35   Severance  Agreement,  dated June 20, 2003, between SmartServ and Thomas
        Haller /14/ *
10.36   Form of Amendment  Agreement,  dated June 13, 2003,  to the May 19, 2003
        Securities  Purchase  Agreement  between SmartServ and the May Investors
        /14/

10.37   Consulting  Agreement between SmartServ and Robert Pons, dated August 4,
        2003, as amended /16/ *
10.38   Consulting  Agreement  between  SmartServ and Timothy G. Wenhold,  dated
        August 1, 2003 /16/ *
10.39   Placement Agency  Agreement,  dated January 29, 2004,  between SmartServ
        and Spencer Trask in connection with the 2004 Private Placement /16/

16      Letter from Ernst & Young, LLP to the Securities and Exchange Commission
        dated November 13, 2003 on April 13, 2004 /1/

21      List of Subsidiaries /16/

23.1    Consent of Grant Thornton, LLP +
23.2    Consent of Ernst & Young LLP +

                                       72
<PAGE>

31.1    Certification   of  Robert   Pons   pursuant   to  Section  302  of  the
        Sarbanes-Oxley Act of 2002 +
31.2    Certification   of  Len  von  Vital  pursuant  to  Section  302  of  the
        Sarbanes-Oxley Act of 2002 +
32.1    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+

+  Filed herewith

1    Filed as an exhibit to our Form 8-K, dated November 13, 2003

2    Filed as an exhibit to our Form 8-K, dated March 3, 2003

3    Filed as an exhibit to our Proxy  Statement for the 2002 Annual  Meeting of
     Stockholders


4    Filed as an exhibit to  Amendment  No. 3 to our  registration  statement on
     Form S-3 (Registration No. 333-100193) on February 11, 2003


5    Filed as an exhibit to our Annual  Report on Form 10-KSB for the year ended
     December 31, 2001

6    Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year
     ended June 30, 2000

7    Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year
     ended June 30, 1999

8    Filed  as  an  exhibit  to  our   registration   statement   on  Form  SB-2
     (Registration No. 333-114)

9    Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year
     ended June 30, 1996

10   Filed as an exhibit to our Proxy Statement dated October 10, 1996

11   Filed  as  an  exhibit  to  our   Registration   Statement   on  Form  SB-2
     (Registration No. 333-43258) on August 7, 2000

12   Filed as an exhibit to our Form 8-K, dated February 28, 2004

13   Filed as an exhibit to our Quarterly  Report on Form 10-QSB for the quarter
     ended September 30, 2003

14   Filed as an exhibit to our Quarterly  Report on Form 10-QSB for the quarter
     ended June 30, 2003

15   Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year
     ended December 31, 2002


16   Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year
     ended December 31, 2003 on April 13, 2004


*    Management  contract or  compensation  plan or  arrangement  required to be
     noted as provided in Item 13(a) of the Form 10-KSB rules.

                                       73
<PAGE>

(b)  Reports on Form 8-K

     On  November  14,  2003,  we filed a report  on Form  8-K  which  included,
     pursuant to Items 4 and 7 thereof,  an  announcement  of the resignation of
     Ernst & Young LLP as our independent  auditors,  and the Audit  Committee's
     prior  authorization to our management to seek to retain another accounting
     firm.

     On December 2, 2003, we filed a report on Form 8-K which included, pursuant
     to Item 4, an announcement of the engagement of Grant Thornton,  LLP as our
     new independent accountant to audit our financial statements for the fiscal
     year ended December 31, 2003.

Item 14.  Principal Accountant Fees and Services
--------

Audit and Other Fees Paid to Independent Auditors

The  following  table  presents  fees  billed  by E&Y  and  Grant  Thornton  for
professional services rendered to us in fiscal years ended December 31, 2002 and
December 31, 2003.


                  Services Rendered*           Fiscal 2003       Fiscal 2002
                  -----------------            -----------       -----------

                  Audit Fees                   $   101,910       $   188,000
                  Audit-Related Fees           $         0       $         0
                  Tax Fees                     $         0       $     7,000
                  All Other Fees               $         0       $         0




----------
* E&Y  served as our  independent  auditors  during  fiscal  year 2002 and until
November 6, 2003. Grant Thornton was engaged as our new independent  auditors on
November  24, 2003 and  performed  the audit for fiscal year 2003.  See Item 8 -
"Changes in and  Disagreements  with  Accountants  on  Accounting  and Financial
Disclosure" for more details.

Audit Fees

The audit fees are billed for  professional  services  rendered for the audit of
our  annual  financial  statements,  the  reviews  of the  financial  statements
included  in our  Quarterly  Reports  on Form 10-Q,  and  services  provided  in
connection with SEC registration statements.  Of the fiscal 2003 amount, $11,910
was billed by Grant Thornton  relating to its review of our Quarterly  Report on
Form 10-Q for the quarter  ended  September  30, 2003 and meeting with our Audit
Committee,  and the remaining  $60,000 billed by Grant  Thornton  relates to its
audit of our financial  statements  for the fiscal year ended December 31, 2003.
All other amounts were billed by E&Y.

Audit-Related Fees

We did not incur any audit-related fees from our independent auditors for fiscal
years 2002 and 2003.

Tax Fees

Tax fees for  fiscal  year 2002  consisted  principally  of  preparing  our U.S.
federal,  state and local  income  tax  returns  for the tax year ended June 30,
2001.

All Other Fees

We did not incur any fees from our  independent  auditors for all other services
(other than audit services,  audit-related  services and tax services) in fiscal
years 2002 and 2003.

                                       74
<PAGE>

Pre-Approval Policy for Services by Independent Auditors

Our Audit Committee has implemented pre-approval policies and procedures for our
engagement of the independent auditors for both audit and permissible  non-audit
services.  Under these  policies and  procedures,  all services  provided by the
independent  auditors  must be  approved  by the  Audit  Committee  prior to the
commencement of the services,  subject to certain de minimis  non-audit  service
(as described in Rule  2-01(c)(7)(C)  of Regulation  S-X) that do not have to be
pre-approved as long as management promptly notifies the Audit Committee of such
service  and  the  Audit  Committee  approves  it  prior  to the  service  being
completed.  Since May 6, 2003, the effective  date of the SEC's rules  requiring
Audit Committee  pre-approval of all audit and non-audit  services  performed by
our  independent  auditors,  all of the  services  provided  by our  independent
auditors  have been approved in accordance  with our  pre-approval  policies and
procedures.

                                       75
<PAGE>

                                   Signatures


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

                                        SMARTSERV ONLINE, INC.
                                                Registrant

                                        By:  /s/Robert M. Pons
                                             -----------------
                                               Robert M. Pons
                                               Chief Executive Officer

                                        Date:  May 12, 2004


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

         Signature                         Title                      Date
         ---------                         -----                      ----


/s/   Robert M. Pons              Chief Executive Officer,        May 12, 2004
--------------------------------  (Principal Executive Officer)
      Robert M. Pons


/s/   Len von Vital               Chief Financial Officer         May 12, 2004
--------------------------------  (Principal Financial and
      Len von Vital               Accounting Officer)


/s/ L. Scott Perry                Chairman of the Board           May 12, 2004
--------------------------------  of Directors
    L. Scott Perry

                                  Director                        May __, 2004
--------------------------------
    Catherine Cassel Talmadge

/s/ Charles R. Wood               Director                        May 12, 2004
--------------------------------
    Charles R. Wood


                                       76