UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

[X]  Annual report  pursuant to section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1999

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

                         Commission file number 0-28008

                             SmartServ Online, Inc.
                       ----------------------------------
        (Exact name of small business issuer as specified in its charter)

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

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

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

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

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

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

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of  issuer's  knowledge,  in  definitive  proxy or  information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB.___

Issuer's revenues for its most recent fiscal year.  $1,443,781

The  aggregate  market value of the voting stock (based on the closing  price of
such stock on OTC  Bulletin  Board) held by  non-affiliates  of the issuer as of
October 21, 1999 was approximately $1,643,000. 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 1,379,769 shares of Common Stock outstanding at October 21, 1999.


<PAGE>


                                TABLE OF CONTENTS

                                     Part I

Item                                                                       Page

1.    Description of Business                                                3
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 and Related Stockholder Matters               9
6.    Management's Discussion and Analysis or Plan of Operation             13
7.    Financial Statements                                                  19
8.    Changes in and Disagreements with Accountants on Accounting           41
      and Financial Disclosure

                                    Part III

9.    Directors, Executive Officers, Promoters and Control Persons;
      Compliance with Section 16(a) of the Exchange Act                     42
10.   Executive Compensation                                                45
11.   Security Ownership of Certain Beneficial Owners and Management        48
12.   Certain Relationships and Related Transactions                        50
13.   Exhibits and Reports on Form 8-K                                      52


                                      -2-
<PAGE>


                                     Part I

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

The Company

SmartServ Online, Inc.  ("SmartServ" or the "Company") was organized in 1993 and
delivers  Internet-based  content and trade order routing solutions,  as well as
"Web-to-Wireless"   applications  that  drive  transactions.   The  Company  has
developed online financial,  transactional and media applications using a unique
"device-independent" delivery solution. The Company has demonstrated proficiency
in developing  applications  utilizing the wireless  application  protocol (WAP)
towards  enabling  information  and  transactions  on PCS  handsets and personal
digital assistants.

Services

Recognizing   the  call  for  mobility,   SmartServ  has  developed  a  powerful
infrastructure  to integrate and deliver its  Internet-based  information and to
effectuate e-commerce  transactions on wireless networks and devices.  SmartServ
is  positioned  at  the  forefront  of  providing   Web-based   information  and
transaction  applications  and  solutions for  strategic  alliances  ("Strategic
Marketing  Partners"),  including  financial  institutions,  wireless  carriers,
device  manufacturers  and  value-added  service  providers and  retailers.  The
Company's  core  competency  focuses on providing  financial news and reports --
including real-time stock quotes -- with the goal of driving online and wireless
stock trading and other  transactions.  To complement  its financial  offerings,
SmartServ also provides a host of personalized  information  services from local
news,  sports and  weather to traffic  and  entertainment  services  that can be
accessed  on demand or as an alert.  The  Company  plans to build a database  of
client  interests and preferences  towards  future  e-commerce  offerings.  The
Company  is  not  dependent  on  one  or a few  information  providers  as  such
redistribution agreements are generally available on a non-exclusive basis.

The  Company has  invested  in the  development  of a  transaction  engine and a
proprietary  application software and communications  architecture in an attempt
to make its services easy to use and visually appealing and to take advantage of
the different  virtues and  capabilities  of  established  and emerging  devices
capable of interacting  with  Web-based and  Web-to-Wireless  applications.  The
Company believes that its application software and communications  architecture,
which  recognize  multiple  devices,  format the  information for the particular
device and present the information in a user-friendly manner, will be attractive
in the  marketplace.  Product  development  efforts  are  focused  on  providing
enhancements  to  the  current  information  and  transaction  services,  format
modifications  for  emerging  devices,  content and  features  improvements  and
customizations based on market requirements.  The Company intends to continue to
invest in this area and believes its transaction  engine,  application  software
and communications architecture represent an important competitive advantage.

Marketing Strategy

Management  believes the Company's primary source of revenues will ultimately be
derived from the sale of the Company's information and transactional application
services through Strategic Marketing Partners utilizing a "business-to-business"
strategy.  Strategic  Marketing  Partners  will  brand the  Company's  "bundled"
services,  acquired from the  Company's  "information  platform"  with their own
private label, promote the packaged offering,  and then distribute the Company's
information  and  e-commerce  services  to  their  clients.   Additionally,  the
Company's  e-commerce  platform will enable its Strategic  Marketing Partners to
offer transaction services via the Internet and wireless networks. The Company's
strategy of forming  alliances with  Strategic  Marketing  Partners  enables the
Company to maximize its market reach at minimal operating costs, improve product
and services performance, and grow distribution channels to end-users.

In May 1998, the Company  licensed to DTN the rights to market and service three
of its  Internet  products.  DTN,  which has over  150,000  subscribers  for its
satellite-based  information  services,  lacked an  Internet-based  product


                                      -3-
<PAGE>


and delivery  system.  SmartServ filled that need. In June 1999, the Company and
DTN entered into an agreement that expanded their relationship. In consideration
of the receipt of $5.175 million, the Company granted DTN an exclusive perpetual
worldwide  license to the Company's  Internet-based  (i)  real-time  stock quote
product,  (ii) an online trading vehicle for customers of small and medium sized
brokerage  companies,  (iii) an administrative  reporting package for brokers of
small and medium  sized  brokerage  companies,  and (iv) an order  entry/routing
system.  The Company  will  continue to operate  and support  these  products in
exchange for a percentage of the revenues  earned by DTN therefrom.  None of the
Company's  wireless products were included in this transaction.  During the year
ended June 30,  1998,  the Company  discontinued  its  efforts to sell  products
directly to the retail market via its own marketing programs.

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

The market for wireless services is exploding  alongside the market for Internet
access,  and Management  believes that these markets are about to converge.  The
majority of wireless  data  penetration  will  result from the  distribution  of
telephones and other PCS devices  equipped with wireless modems and Web browsers
for accessing the Internet.  The Company's data and  communication  architecture
adds user functionality and utility to both wired and wireless technology.  With
its  Web-server  platform,  application  development,  and strategic  alliances,
SmartServ has the competitive  advantage of providing complete end-to-end
solutions.

While the  Company  continues  to have  discussions  about  potential  marketing
opportunities with major equipment  manufacturers,  telecommunications and stock
brokerage companies,  there can be no assurance that the Company will enter into
agreements with any such companies.

Competition

The  market for  Web-based  information  and  transactional  services  is highly
competitive and subject to rapid innovation and technological  change,  shifting
consumer preferences and frequent new service introductions. While the Company's
application software and communications  architecture makes the services "device
independent",  the Company  faces  increasing  competition  from other  emerging
services  delivered  through personal  computers and wireless  devices,  such as
developing  transactional services offered by Checkfree  Corporation,  Microsoft
Corp., Data Broadcasting Corporation, PC Quote.com, Intuit Inc., Electronic Data
Systems Corp. and other Web-based software  companies.  Although in its infancy,
the  wireless  arena  too  has  its   competitors,   such  as  DataLink  Systems
Corporation, Intelligent Information, Inc., Aether Technologies, Saraide.com and
W-Trade.  The Company expects competition to increase from existing  competitors
and from new competitors,  possibly including telecommunications companies. Most
of the  Company's  competitors  and  potential  competitors  have  substantially
greater  financial,  marketing and  technical  resources  than the Company.  The
Company believes that potential new competitors,  including large multimedia and
information  system  companies,   are  increasing  their  focus  on  transaction
processing. Increased competition in the market for the Company's services could
materially  and  adversely  affect the Company's  results of operations  through
price reductions and loss of market share.

The information content provided through the Company's  application software and
communication   architecture  is  generally   purchased  through   non-exclusive
distribution  agreements.  While the Company is not dependent on


                                      -4-
<PAGE>


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 the Company.

The  principal  competitive  factors in both the online and wireless  industries
include  content,   product  features  and  quality,  ease  of  use,  access  to
distribution channels,  brand recognition,  reliability and price. The Company's
strategy of establishing  alliances with potential Strategic Marketing Partners,
and its ability to provide  what is believed to be unique  application  software
and   communications   architecture   should   enable  the  Company  to  compete
effectively.

Software

The  Company  has   developed  an   application   software  and   communications
architecture  that it  believes  makes  its  services  easy to use and  visually
appealing, and which maximize the capabilities of various devices.

SmartServ's user-friendly front-end application software provides instant access
to  information   and  flexiblity  to  the  varying  needs  of  multiple  users.
Subscribers  are  empowered to create their own  groupings of  information  they
routinely request and are able to navigate directly to the information they seek
with the  software's  easy to read menu  systems  and search  capabilities.  The
Company's  transaction  engine has been designed to facilitate  various forms of
e-commerce.  SmartServ's  application  software  employs  common user  interface
techniques, such as icons, pull-down menus, spreadsheet formats, tree structures
and the use of  "key"  words,  to  make  its  product  intuitive  to its  users.
SmartServ's software is notable for its visually appealing formats, which it has
standardized  across  different types of  information.  Subscribers are provided
with several display  options,  including text and graphics,  according to their
preferences.

During the fiscal years ended June 30, 1999, 1998 and 1997, the Company incurred
costs of  $193,188,  $923,082  and  $1,150,224,  respectively,  for research and
project development activities.  Additionally, during the fiscal year ended June
30,  1999,  the Company  capitalized  software  development  costs  amounting to
$765,000;  no such costs were  capitalized in either of the years ended June 30,
1998 or 1997.

Proprietary Rights

The Company has designed and developed its own "device independent"  information
and transaction platform, "SmartServ", based on Sun Microsystems, Inc. computers
and Oracle Corp.'s version 7.X relational database manager, to support a variety
of end  user  devices.  This  platform  formats  information  and the  services'
interface for a particular device and presents it in a user friendly manner. The
Company relies upon a combination of contract  provisions and copyrights,  trade
secret laws,  and a service mark to attempt to protect its  proprietary  rights.
The Company  licenses the use of its services to  Strategic  Marketing  Partners
under agreements that contain terms and conditions  prohibiting the unauthorized
reproduction  of the  Company's  software  and  services.  Although  the Company
intends to protect its rights vigorously,  there can be no assurance that any of
the foregoing measures will be successful.

As  previously  discussed,  the Company has granted DTN an  exclusive  perpetual
worldwide  license  ("License  Agreement") to the Company's  Internet-based  (i)
real-time  stock quote product,  (ii) an online trading vehicle for customers of
small and medium sized brokerage  companies,  (iii) an administrative  reporting
package for brokers of small and medium sized brokerage  companies,  and (iv) an
order entry/routing system. Pursuant to the terms of the License Agreement,  the
Company is required to maintain  certain systems'  performance  standards and to
satisfy other general business requirements. The Company's inability to maintain
compliance with the License Agreement could result in a default  thereunder,  in
which  event DTN may at its sole cost elect to provide  its own  maintenance  to
both the system software and related hardware.  Under these  circumstances,  DTN
will have no


                                      -5-
<PAGE>


further  obligation to pay the license fees and  SmartServ  will have no further
obligations under the License Agreement.

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

Government Regulation

The Company is not currently subject to direct regulation other than federal and
state regulation  generally  applicable to businesses.  However,  changes in the
regulatory  environment  relating to the  telecommunications  and media industry
could have an effect on the Company's  business,  including  regulatory  changes
which  directly or  indirectly  affect  telecommunication  costs or increase the
likelihood  or  scope  of  competition   from  regional   telephone   companies.
Additionally,  legislative  proposals  from  international,  federal  and  state
governmental  bodies in the areas of content regulation,  intellectual  property
and  privacy  rights,  as well as  federal  and state tax  issues  could  impose
additional  regulations and obligations upon all online service  providers.  The
Company cannot predict the likelihood  that any such  legislation  will pass, or
the financial impact, if any, the resulting regulation or taxation may have.

Moreover,  the  applicability  to online  service  providers  of  existing  laws
governing  issues such as intellectual  property  ownership,  libel and personal
privacy is  uncertain.  The use of the Internet for illegal  activities  and the
dissemination  of  pornography  have  increased  public  focus and could lead to
increased  pressure on  legislatures  to impose  regulations  on online  service
providers  such as the  Company.  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 the
Company, costs incurred as a result of such action could have a material adverse
effect on the Company's business.

Employees

The Company employs 21 people,  19 of whom are full-time  employees.  Management
anticipates that staffing requirements associated with the implementation of its
plan of operation  will result in the addition of a minimum of six to ten people
during the period ending June 2000.  Such personnel will be added to assist with
the programming requirements of Strategic Marketing Partners' product offerings,
for customer support,  and sales and marketing.  None of the Company's employees
are covered by a collective bargaining agreement,  and the Company believes that
its relationship with its employees is satisfactory.


                                      -6-
<PAGE>


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

The  Company  occupies  approximately  6,300  square  feet in a leased  facility
located in Stamford, Connecticut. The lease expires in October 2002.

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

By letter dated April 10, 1998,  Michael  Fishman,  then Vice President of Sales
for the Company,  resigned his position. On or about April 24, 1998, Mr. Fishman
filed a complaint  against the  Company,  Sebastian  E.  Cassetta and four other
defendants in the United States  District Court for the District of Connecticut.
The complaint  asserted  claims under  Sections  10(b) and 18 of the  Securities
Exchange Act of 1934, as well as several state law claims,  including  breach of
contract, fraud and misrepresentation.  Mr. Fishman alleged that the Company (1)
failed to pay him the benefits and compensation to which he was entitled and (2)
made material misrepresentations in its filings with the Securities and Exchange
Commission.  On December 11, 1998,  the Court  granted the  Company's  motion to
dismiss Mr. Fishman's action without prejudice to the plaintiff to seek leave to
file an amended  complaint within 30 days. On May 12, 1999, the Court denied the
plaintiff's  subsequent motion for leave to file a substituted  complaint on the
basis that the federal  securities law claim,  the only federal claim alleged by
the plaintiff,  was still deficient.  Accordingly,  the federal securities claim
was dismissed with prejudice. On or about June 4, 1999, Mr. Fishman commenced an
action  against  the same  defendants  and  added as a  seventh  defendant,  the
Company's former President,  Mr. Steven Francesco,  in the Connecticut  Superior
Court for the Judicial District of  Stamford/Norwalk at Stamford alleging breach
of  contract,  breach  of  duty of  good  faith  and  fair  dealing,  fraudulent
misrepresentation,  negligent misrepresentation,  intentional  misrepresentation
and failure to pay wages.  The defendants  have answered the complaint and filed
counterclaims  for  fraudulent  inducement  and breach of contract.  Plaintiff's
response to  counterclaims  was due October 14, 1999 and has yet to be received.
Although  the  Company is  vigorously  defending  this  action,  there can be no
assurance that it will be successful.

By memorandum dated April 10, 1998,  Jonathan  Paschkes,  then Vice President of
Marketing for the Company, resigned his position. On or about November 17, 1998,
Mr. Paschkes filed a complaint  against the Company and Sebastian E. Cassetta in
the United States District Court, District of Connecticut. In the complaint, Mr.
Paschkes  alleges (i)  fraudulent  inducement to him to accept his position with
the Company;  (ii) breach of various terms of the Company's  employment contract
with him;  and (iii)  failure by the  Company to pay him wages and  bonuses  and
issue  options to him pursuant to the terms of his  employment  contract.  On or
about February 18, 1999, Mr.  Paschkes filed an amended  complaint.  The Company
answered the amended complaint and asserted  counterclaims  against Mr. Paschkes
for fraudulent inducement,  breach of contract,  conversion and statutory theft.
On October 5, 1999,  an agreement in principle  was reached  between the Company
and Mr.  Paschkes in full  settlement of these claims.  The Company  anticipates
executing a settlement  agreement with Mr.  Paschkes and filing a Stipulation of
Dismissal  with  prejudice  before  October 31, 1999. The Company has recorded a
charge for the  settlement of such claims in the results of  operations  for the
year ended June 30, 1999.

On or about May 11, 1998, Ronald G. Weiner filed a complaint against the Company
and Mr. Francesco  in the Supreme Court of the State of New York,  County of New
York.  The complaint  alleges,  among other things,  that in May 1993, by letter
from Mr.  Francesco,  Mr.  Weiner was offered a 10% equity  stake in Smart Phone
Services,  Inc. ("SPS"), a Subchapter S company of which Mr. Francesco allegedly
was the President and sole shareholder,  in exchange for his active  involvement
in, among other things,  raising  capital and managing the financial  aspects of
SPS. The complaint  alleges that, in November 1993, Mr.  Francesco sent a letter
to Mr.  Weiner in which he (i)  represented  that SPS had  failed  to  attract a
single  investor  and (ii)  withdrew  his offer to Mr.  Weiner  of a 10%  equity
position in SPS. The complaint  further alleges that, in conversations  with Mr.
Weiner beginning in November 1993, Mr. Francesco represented that he was ceasing
all efforts to capitalize SPS. The complaint alleges,  among other things,  that
Mr. Francesco and SPS breached their agreement with Mr. Weiner by


                                      -7-
<PAGE>


withdrawing  their offer to him of a 10% equity stake in SPS,  and that,  at the
time Mr. Francesco represented that he was ceasing efforts to capitalize SPS, he
had actually formed the Company and was actively  seeking  investors for it. The
complaint  further  alleges  that the Company is a  successor  entity to SPS and
that,  therefore,  the  Company is liable for SPS' and Mr.  Francesco's  alleged
conduct in derogation of their alleged agreement with Mr. Weiner.  The complaint
seeks, among other things, (i) a declaratory judgment declaring Mr. Weiner a 10%
equity  shareholder of the Company,  (ii) a constructive  trust in Mr.  Weiner's
favor for 10% for the Company's equity shares and (iii) restitution  against Mr.
Francesco and the Company for unjust enrichment. On his unjust enrichment claim,
Mr. Weiner seeks unspecified damages that he alleges to be at least $250,000. In
its answer to the complaint,  the Company has denied the material allegations of
the  complaint,  asserted  affirmative  defenses and also asserted  cross-claims
against Mr. Francesco seeking indemnification from, or contribution towards, any
judgment that Mr. Weiner may obtain against the Company.  In accordance  with an
agreement dated November 11, 1998, the Company has filed a motion to discontinue
the cross-claims  that it asserted against Mr.  Francesco.  No discovery in this
action has yet been taken.  Although the Company is  vigorously  defending  this
action there can be no assurance that it will be successful.

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

None.


                                      -8-
<PAGE>


                                     Part II

Item 5.    Market for Common Equity and Related Stockholder Matters
-------

SmartServ's  $.01 par value common stock ("Common Stock")  commenced  trading on
March 21, 1996 on the National  Association  of  Securities  Dealers'  Automated
Quotation  System  ("NASDAQ").  The Company's  Redeemable  Common Stock Purchase
Warrants  ("Public  Warrants")  also commenced  trading on March 21, 1996 on the
NASDAQ.

On May 20, 1998, the Company received  notification from The Nasdaq Stock Market
that the Company no longer met the net tangible asset/market  capitalization/net
income  requirements  for continued  listing of the Company's  securities on The
Nasdaq Stock Market.  Accordingly, at the close of business on May 20, 1998, the
Company's  Common Stock and Public  Warrants were delisted from The Nasdaq Stock
Market.  Currently,  the Company's securities trade on the OTC Bulletin Board as
SSOL and SSOLW.

On October 15, 1998, the Company's  stockholders  approved a one-for-six reverse
stock split ("Reverse Stock Split") which became effective on October 26, 1998.

The following  table sets forth the high and low prices for the Common Stock and
Public Warrants during the periods  indicated as reported by the NASDAQ SmallCap
Market and the OTC Bulletin  Board,  as applicable.  Such amounts (and all other
share and price information contained in this Form 10-KSB) have been adjusted to
reflect the Reverse Stock Split.

                                     Common Stock             Warrants
                                     ------------             --------
                                   High         Low        High      Low
                                   ----         ---        ----      ---
Year Ended June 30, 1999

First Quarter                   $  4.313     $ 1.875    $ 2.250    $ .375
Second Quarter                     4.125       1.031       .531      .063
Third Quarter                      4.875       1.500       .625      .063
Fourth Quarter                     2.500       1.500       .250      .100


Year Ended June 30, 1998

First Quarter                   $ 18.750     $ 6.750    $ 4.500    $ .750
Second Quarter                    21.000       4.128      5.250      .750
Third Quarter                     19.125       3.750      6.563      .938
Fourth Quarter                    22.500       3.000      9.188     1.688


As of  October  5,  1999,  the  Company  had  1,379,769  shares of Common  Stock
outstanding  held by 70 record  holders.  The Company  estimates that its Common
Stock is held by approximately  1,800 beneficial  holders.  As of such date, the
Company had 1,049,981 Public Warrants outstanding held by 28 record holders.

The  Company  has never  paid a cash  dividend  on its Common  Stock.  It is the
present  policy of the  Company  to retain  earnings,  if any,  to  finance  the
development and growth of its business. Accordingly, the Company does


                                      -9-
<PAGE>


not anticipate that cash dividends will be paid until the earnings and financial
condition of the Company justify such  dividends,  and there can be no assurance
that the Company can achieve such earnings.

Recent Sales of Unregistered Securities

On May 29, 1997, the Company issued a $550,000  promissory  note and warrants to
purchase 45,302 shares of Common Stock to Zanett  Lombardier,  Ltd.  ("ZLL") for
$550,000. On each of July 21, 1997 and September 16, 1997, the Company issued an
additional $111,111 promissory note and warrants to purchase an additional 9,151
shares  of  Common  Stock to ZLL for  $111,111.  The  warrants  are  subject  to
antidilution  provisions and have exercise  prices of $4.97 and $6.07 per share.
Zanett  Securities  Corporation  ("Zanett")  received  fees of  $78,576  for its
services in connection  with such  transactions.  Additionally,  Zanett received
warrants to purchase 15,899 shares of Common Stock. Such warrants are subject to
antidilution  provisions  and have  exercise  prices  of $4.97  and  $6.07.  The
promissory  notes and warrants were issued in reliance  upon the exemption  from
registration provided by Section 4 (2) of the Securities Act.

On September 16, 1997, the Company issued  warrants to purchase 50,083 shares of
Common Stock to ZLL as a default penalty under the ZLL notes.  The warrants have
an exercise  price of 50% of the closing price of the Company's  Common Stock on
the  exercise  date.  No sales  commissions  were paid in  connection  with such
transactions.  The  warrants  were issued in reliance  upon the  exemption  from
registration provided by Section 4 (2) of the Securities Act.

On September 29, 1997,  the Company  issued 4,000 prepaid  common stock purchase
warrants ("Prepaid  Warrants") to 12 investors for $4,000,000.  Included in such
amount was $772,222 of the promissory notes issued to ZLL and $63,837 of accrued
interest thereon which were cancelled in connection with this  transaction.  The
Prepaid  Warrants are convertible into a number of shares of Common Stock of the
Company that is equal to $1,000 divided by the applicable  exercise  price.  The
exercise  price is 70% of the average  closing bid price of the Common Stock for
the 10  trading  days  ending on the day  prior to  exercise  of such  warrants,
reduced by 1% for each 60 day period the Prepaid  Warrants  remain  unexercised,
but in no event above $8.40 per share. Zanett received a commission of $400,000,
an unaccountable expense allowance of $120,000, and warrants to purchase 135,906
shares, subject to antidilution  provisions,  of Common Stock at $4.97 per share
in connection  with such  transaction.  The Prepaid  Warrants,  and the warrants
issued to Zanett,  were issued in reliance upon the exemption from  registration
provided by Section 4 (2) of the Securities Act.

On September 29, 1997,  the Company  issued  113,250  warrants to Bruno Guazzoni
and,  subject  to  stockholder  approval,  agreed  to issue to him  warrants  to
purchase an additional 692,120 shares of Common Stock. These additional warrants
were  approved by the  stockholders  and issued in April 1998.  The warrants are
subject  to  antidilution  provisions  and have an  exercise  price of $4.97 per
share. No sales commissions were paid in connection with such  transaction.  The
warrants were issued in reliance upon the exemption from  registration  provided
by Section 4 (2) of the Securities Act.

Between  January 13,  1998 and June 30,  1999,  an  aggregate  of 1,706  Prepaid
Warrants were  converted  into an aggregate of 398,955 shares of Common Stock of
the Company. No sales commissions were paid in connection with such conversions.
The shares were issued in reliance upon the exemption from registration provided
by Section 3 (a) (9) of the Securities Act.

On January 2, 1998 and March 3, 1998,  the Company  issued  warrants to purchase
16,666 and 20,833  shares of Common  Stock,  respectively,  in  connection  with
investment  advisory  contracts.  The warrants have exercise prices of $3.75 and
$15.75 to $19.50,  respectively.  No sales  commissions  were paid in connection
with such transactions.  The warrants were issued in reliance upon the exemption
from registration provided by Section 4 (2) of the Securities Act.


                                      -10-
<PAGE>


On August 31, 1998,  the Company issued 32,953 shares of Common Stock to ZLL and
17,047  shares of Common  Stock to Bruno  Guazzoni  in  consideration  for their
agreeing to certain restrictions on the exercise of the Prepaid Warrants and the
resale of the shares of Common  Stock  issuable  on exercise  thereof.  No sales
commissions  were paid in  connection  with such  transaction.  The shares  were
issued in reliance upon the exemption  from  registration  provided by Section 4
(2) of the Securities Act.

On September 8, 1998,  the Company  issued  warrants to purchase 3,000 shares of
common stock to DTN for prepayment of certain guaranteed  payments in accordance
with the Software License and Service  Agreement between the parties dated April
23, 1998.  Such  warrants are  exercisable  at $3.00 per share of Common  Stock.
These  warrants  were issued in reliance upon the  exemption  from  registration
provided by Section 4 (2) of the Securities Act. No sales  commissions were paid
in connection with such transaction.

On November  17, 1998,  the Company  issued  125,000  shares of Common Stock and
warrants to purchase  16,667  shares of Common Stock,  exercisable  at $5.00 per
share until November 11, 2001, to Mr. Steven Francesco,  a former officer of the
Company,  as partial  consideration for the settlement of his claims against the
Company and certain of its officers and directors.  The shares and warrants were
issued in reliance upon the exemption from registration provided by Section 4(2)
of the Securities  Act. No sales  commissions  were paid in connection with such
transaction.

Between  November 20, 1998 and December 3, 1998, the Company issued  convertible
promissory  notes in the amount of $500,000  and  warrants  to purchase  833,333
shares of Common Stock to investors for $500,000.  Such warrants are exercisable
at $.60 per share and expire on November 19,  2003.  Spencer  Trask  Securities,
Inc.  ("Spencer Trask"),  the placement agent,  received a commission of $50,000
and an  unaccountable  expense  allowance  of  $15,000 in  connection  with such
transaction.  Additionally,  the Company  issued  warrants  to purchase  166,667
shares of Common Stock to Spencer  Trask  exercisable  at $.72 per share through
November 29, 2003.  These  promissory notes and warrants were issued in reliance
upon the exemption from registration provided by Section 4 (2) of the Securities
Act.

On January 14, 1999, the Company issued 10,000 shares of Common Stock to Arnhold
& S. Bleichroeder,  Inc. ("ASB"), an investor in the Company's Prepaid Warrants,
in  consideration  of an agreement to waive certain events of default under such
Prepaid  Warrants.  No sales  commissions  were  paid in  connection  with  such
transaction.  These  shares  were  issued in reliance  upon the  exemption  from
registration provided by Section 4 (2) of the Securities Act.

On January 20, 1999,  the Company agreed to cancel  warrants to purchase  20,833
shares of Common Stock  exercisable at $15.75 and $19.50 per share to Mr. Steven
Rosner, a financial advisor to the Company,  and to grant Mr. Rosner warrants to
purchase  40,833  shares of Common  Stock at $.60 per share for his  efforts  in
arranging the Company's  relationship with Spencer Trask.  These warrants expire
on March 4, 2003 and  January  19,  2004 and were  issued in  reliance  upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

On January 28, 1999,  the Company  issued a convertible  promissory  note in the
amount of $50,000 and warrants to purchase  83,333 shares of Common Stock to Mr.
Bruno Guazzoni,  an investor in the Company's Prepaid Warrants for $50,000. Such
warrants  are  exercisable  at $.60 per share and expire on November  19,  2003.
Spencer  Trask,  the  placement  agent,  received a  commission  of  $5,000,  an
unaccountable expense allowance of $1,500 and warrants to purchase 16,667 shares
of Common Stock at $.72 per share through  January 26, 2004 in  connection  with
this  transaction.  The promissory note and the warrants were issued in reliance
upon the exemption from registration provided by Section 4 (2) of the Securities
Act.



                                      -11-
<PAGE>


On June 24, 1999,  the Company agreed to issue to DTN a warrant for the purchase
of 300,000  shares of the Company's  Common Stock at $8.60 per share in exchange
for $324,000.  The warrants will expire on the earlier of April 30, 2003, or the
date one year after the market price of a share of Common Stock  reaches  $8.60.
No sales  commissions  were  paid in  connection  with such  transaction.  These
warrants  will be  issued  in  reliance  upon the  exemption  from  registration
provided by Section 4 (2) of the Securities Act.

On July 6, 1999,  the Company  issued  180,000  shares of Common Stock to ASB to
settle the Company's obligation to ASB pursuant to the default provisions of the
Prepaid  Warrants.  No sales  commissions  were  paid in  connection  with  such
transaction.  These  shares  were  issued in reliance  upon the  exemption  from
registration provided by Section 4 (2) of the Securities Act.


                                      -12-
<PAGE>


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

Plan of Operation

The Company delivers  Internet-based  content and trade order routing solutions,
as  well  as  "Web-to-Wireless"  applications  that  drive  transactions  to its
strategic alliances  ("Strategic  Marketing Partners") and their customers.  The
Company has developed online  financial,  transactional  and media  applications
using a unique "device-independent" delivery solution.

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

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

Management  believes  that most of the  Company's  revenues  will  ultimately be
derived from  consumers who purchase the Company's  services  through  Strategic
Marketing  Partners.  The Company  anticipates that Strategic Marketing Partners
will brand the Company's "bundled"  information  services with their own private
label and  promote  and  distribute  the  Company's  packaged  offering to their
clients.  The Company has the ability to customize the information package to be
offered to each Strategic  Marketing Partner,  by device.  With the licensing of
four of the  Company's  Internet  products by DTN, the Company has  discontinued
efforts to develop a direct subscriber base.

Management   anticipates   that  staffing   requirements   associated  with  the
implementation of its plan of operation will result in the addition of a minimum
of six to ten people during the period ending June 2000.  Such personnel will be
added to  assist  with  the  programming  requirements  of  Strategic  Marketing
Partners' product offerings, for customer support and sales and marketing.

Results of Operations

Fiscal Year Ended June 30, 1999 versus Fiscal Year Ended June 30, 1998

During  the  year  ended  June  30,  1999,  the  Company  recorded  revenues  of
$1,443,781. Substantially all of such revenues were earned through the Company's
licensing  agreement with DTN.  During the year ended June 30, 1998, the Company
earned  revenues of $873,476.  Of such amount,  $210,000 was earned  through the
relationship  with DTN, while $454,000 was earned from the sale of the SmartServ
Pro stock quote services.


                                      -13-
<PAGE>


During the year ended June 30, 1999,  the Company  incurred costs of services of
$994,465.  Such costs consisted primarily of information and communication costs
($267,600), personnel costs ($290,100), computer hardware leases and maintenance
($339,400)  and systems  consultants  ($97,300).  During the year ended June 30,
1998, the Company incurred costs of revenues of $1,216,761. Such costs consisted
primarily of information and  communication  costs  ($551,700),  personnel costs
($310,600), and computer hardware leases and maintenance ($339,300). Information
and  communication  costs  decreased in 1999 compared to 1998 as a result of the
licensing  agreement  entered into between the Company and DTN.  Personnel costs
decreased  in 1999  compared to 1998 as a result of the  migration  of personnel
resources into product development areas in 1999. Product development costs were
$193,188  vs.  $923,082  for the year ended June 30,  1998.  The decrease in the
product   development   costs  results  from  the   capitalization  of  software
development  costs related to certain  product  enhancements  in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer  Software to be Sold,  Leased or Otherwise  Marketed  ("Statement 86").
During  the year  ended June 30,  1999,  the  Company  capitalized  $765,000  of
development   costs  in  accordance  with  Statement  86.  No  such  costs  were
capitalized  during the year ended June 30, 1998. During the year ended June 30,
1999,  product  development  costs  consisted  primarily of the  amortization of
capitalized  software  development  costs.  During the year ended June 30, 1998,
product  development costs consisted primarily of personnel costs ($541,400) and
computer system consultants ($335,000).

During the year ended June 30, 1999, the Company incurred  selling,  general and
administrative expenses of $4,006,599 vs. $3,221,940 for the year ended June 30,
1998.  During the year ended June 30, 1999,  such costs were incurred  primarily
for  personnel  costs  ($1,148,400),   facilities   ($240,500),   marketing  and
advertising   costs   ($263,100),    professional   fees    ($2,150,000),    and
telecommunications  costs  ($69,500).  During the year ended June 30, 1998, such
costs were  incurred  primarily  for personnel  costs  ($1,349,000),  facilities
($216,000),  marketing  and  advertising  costs  ($240,400),  professional  fees
($1,051,400) and  telecommunications  costs ($73,100).  Included in professional
fees are noncash charges of $1,349,020 in 1999 and $660,576 in 1998 representing
the  amortization  of deferred costs in connection with the issuance of warrants
to financial consultants.

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

Loss per share was $6.44 per share for year  ended June 30,  1999 vs.  $7.65 per
share for the year ended June 30, 1998. While the net loss increased  $2,084,117
the  Company's  weighted  average  shares of Common  Stock  outstanding  in 1999
increased by 446,569 shares, thereby affecting the per share loss.




                                      -14-
<PAGE>


Fiscal Year Ended June 30, 1998 versus Fiscal Year Ended June 30, 1997

During the year ended June 30, 1998, the Company  recorded  revenues of $873,476
from the sale of its  information  services vs.  $688,610  during the year ended
June 30, 1997. Included in revenues for the year ended June 30, 1998 is $210,000
resulting from the Company's  licensing agreement with DTN and $454,000 from the
sale of the SmartServ Pro stock quote  services.  During the year ended June 30,
1997,  the Company earned  revenues from the  enhancement,  implementation,  and
marketing of services to Schroder & Co. Inc. of $342,200.

During the year ended June 30, 1998,  the Company  incurred costs of services of
$1,216,761.  Such costs  consisted  primarily of information  and  communication
costs  ($551,700),  personnel costs ($310,600) and computer  hardware leases and
maintenance ($339,300).  During the year ended June 30, 1997, with the Company's
departure  from  the  development  stage,  it  incurred  costs  of  revenues  of
$1,133,884.  Such costs  consisted  primarily of information  and  communication
costs  ($390,000),  personnel  costs  ($417,500),  computer  hardware leases and
maintenance ($201,800) and screenphone purchases ($95,300).  Product development
costs were $923,082 vs.  $1,150,224 for the year ended June 30, 1997. During the
year ended June 30, 1998,  such costs  consisted  primarily  of personnel  costs
($541,400) and computer  system  consultants  ($335,000).  During the year ended
June 30, 1997 such costs consisted  primarily of personnel costs  ($686,100) and
computer system consultants ($454,000). Included in personnel costs in 1997 is a
non-cash  charge of  approximately  $73,000  for the  change in market  value of
employee stock options.

During the year ended June 30, 1998, the Company incurred  selling,  general and
administrative expenses of $3,221,940 vs. $2,861,845 for the year ended June 30,
1997.  During the year ended June 30, 1998,  such costs were incurred  primarily
for  personnel  costs  ($1,349,000),   facilities  ($216,000),  advertising  and
marketing    costs    ($240,400),    professional    fees    ($1,051,400)    and
telecommunications  costs  ($73,100).  During  the year  ended  June  30,  1998,
selling, general and administrative costs increased $360,095 from the prior year
as a result of  increases  in  professional  fees  ($593,000),  personnel  costs
($403,500)  and  facilities  costs  ($55,700).  Such  increases were offset by a
decrease in advertising and marketing  expenses of $600,900.  Professional  fees
includes a non-cash  charge of $527,576,  representing  amortization of deferred
compensation  in connection  with the issuance of 592,592  common stock purchase
warrants to a financial consultant.

Interest income for the year ended June 30, 1998 amounted to $40,788 vs. $74,507
for the year ended June 30, 1997.  Such amounts were earned  primarily  from the
Company's  investments in highly liquid commercial paper. Interest and financing
costs for the year ended June 30, 1998 were $592,490.  These costs were incurred
in connection with the origination of the Company's May 1997 line of credit.  Of
such amount,  $463,600  represents  the  non-cash  charges  associated  with the
revaluation  of  certain  common  stock  purchase  warrants  granted  to Zanett.
Interest and financing costs for the year ended June 30, 1997 were $54,646. Such
amounts were incurred in connection with the Company's May 1997 line of credit.

Loss per share was $7.65 per share for year  ended June 30,  1998 vs.  $7.20 per
share for the year ended June 30, 1997.  While the net loss  increased  $605,527
the Company's  weighted average shares of Common Stock outstanding  increased by
43,201 shares, thereby affecting the per share loss.

Capital Resources and Liquidity

Since  inception of the Company on August 20, 1993 through  March 21, 1996,  the
date of the initial  public  offering  of  securities  ("IPO"),  the Company had
funded  its  operations  through  a  combination  of  private  debt  and  equity
financings totaling $4,160,000 and $12,877,500, respectively.

In May 1997,  the Company  arranged a line of credit  facility  with a financial
institution.  Such line of credit was




                                      -15-
<PAGE>


originated  for a maximum  borrowing  amount of $550,000.  In July and September
1997,  the  facility  was amended to allow for  additional  borrowings  of up to
$222,222.  In conjunction  with the origination of the line of credit  facility,
the Company  issued  56,627  common  stock  purchase  warrants to the  financial
institution.  Similarly, the Company issued 11,438 warrants for each of the July
and September  amendments.  As a result of the Company's  default on the note in
August,  the Company was  required to issue  50,083  "default"  warrants to such
institution.  These  warrants are currently  exercisable  at prices ranging from
$.64 to $6.07 and expire in September 2002.

In May 1997, the Company entered into a three year  noncancelable  capital lease
for certain computer equipment used to provide information services. The cost of
this equipment  ($246,211) is being financed through the manufacturer's  finance
division.

On  September  30,  1997,  Zanett,  acting as  placement  agent for the Company,
completed  a private  placement  ("Placement")  of $4 million  of the  Company's
prepaid  common  stock  purchase  warrants  ("Prepaid  Warrants").  The  Prepaid
Warrants expire on September 30, 2000. As part of the Placement, ZLL converted a
note payable of $772,222,  issued  pursuant to a Line of Credit  Agreement dated
May 29, 1997, as amended,  and accrued  interest thereon of $63,837 into Prepaid
Warrants.  The net proceeds of the Placement of $2,643,941 were used for general
working capital requirements.

On April 23, 1998, the Company  entered into an agreement with DTN,  whereby the
Company  licensed to DTN the rights to market  three of the  Company's  Internet
products.  The Company  received  $850,000  upon  execution  of the contract and
received minimum monthly payments of $100,000 through April 1999.  Additionally,
DTN has agreed to absorb the costs associated with the expansion of the computer
and communications hardware necessary to support the expansion of the user base.

On June 24, 1999,  the Company and DTN entered into the License  Agreement  that
amended the Software  License and Service  Agreement  dated April 23,  1998.  In
consideration  of the  receipt of $5.175  million,  the  Company  granted DTN an
exclusive  perpetual  worldwide  license  to the  Company's  Internet-based  (i)
real-time  stock quote product,  (ii) an online trading vehicle for customers of
small and medium sized brokerage  companies,  (iii) an administrative  reporting
package for brokers of small and medium sized brokerage  companies,  and (iv) an
order  entry/routing  system.  Additionally,  the Company  received  $324,000 in
exchange for an agreement to issue  warrants to purchase  300,000  shares of the
Company's  Common Stock at an exercise price of $8.60 per share. The Company has
agreed to  continue  to operate  these  products  and  provide  maintenance  and
enhancement  services in exchange for a percentage of the revenues earned by DTN
therefrom.  The cost of the Company's commitment to provide such maintenance and
enhancement  services is limited to a maximum of 20% of the  revenues  earned by
the Company.  None of the  Company's  wireless  products  were  included in this
transaction.  Although the Company  believes that DTN has the experience and the
financial ability to distribute the Company's services to thousands of potential
customers,  there can be no assurance  that the  products  and services  will be
accepted by the ultimate consumer on a wide spread basis.

On August 11, 1998, the Company  entered into a letter of intent,  as amended on
November 24, 1998, with Spencer Trask Securities,  Inc.  ("Spencer Trask") which
provided for the retention of Spencer Trask to act as exclusive  placement agent
in connection with a private placement by the Company of a minimum of $5,000,000
and a maximum of $10,000,000 of securities of the Company.

In anticipation of completing the private  placement,  the Company  completed an
interim  financing of $550,000 of  securities  of the Company.  The Company sold
five and one-half (5.5) units, each consisting of a secured  convertible 8% note
in the principal amount of $100,000 and warrants to purchase Common Stock of the
Company.   The  notes  and  the  warrants  are  convertible   and   exercisable,
respectively, at $.60 per share of Common Stock.  Such notes were repaid in June
1999.


                                      -16-
<PAGE>


On July 1, 1999,  the Company  entered into an agreement  with ASB to settle the
Company's  obligation  to ASB pursuant to the default  provisions of the Prepaid
Warrants.  Accordingly,  the  Company  paid ASB  $325,000  to redeem the Prepaid
Warrants and issued  180,000  shares of Common Stock in full  settlement  of all
obligations to ASB. The Company has agreed to file a registration statement with
the Securities and Exchange Commission covering such shares.

The Company's  financial  statements  for the year ended June 30, 1999 have been
prepared on a going concern basis which  contemplates  the realization of assets
and the  settlement  of  liabilities  and  commitments  in the normal  course of
business.  The  Company  incurred  net  losses of  $7,124,126,  $5,040,009,  and
$4,434,482 for the years ended June 30, 1999, 1998 and 1997,  respectively,  and
as of June 30, 1999 had an accumulated  deficit of $21,946,005  and a deficiency
of net assets of  $4,707,300.  The Company is also a defendant in several  legal
proceedings that could have a material adverse effect on the Company's financial
position,  cash  flows,  and  results  of  operations.  These  conditions  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
The financial  statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and  classification  of  liabilities  that may result  from the outcome of these
uncertainties.

The Company's management believes that upon the successful implementation of its
marketing  plan,  sufficient  revenues  will  be  generated  to  meet  operating
requirements.  Management  also  believes that the  successful  execution of its
proposed plan of operations  will generate  sufficient cash flow from operations
to enable the Company to offer its services on an  economically  sound basis and
thereby  eliminate,  within a reasonable time period,  the concerns expressed in
the "going concern" paragraph appearing in the Report of Independent Auditors on
page 20 herein.  No  assurance  can be given that such goals will be obtained or
that any expected revenues or cash flows will be achieved.

Year 2000 Compliance

The Company's  information  services are  distributed via a combination of third
party computer hardware and software  applications,  as well as Company designed
application software and communication  networks.  The Company has formed a task
force to assure that its products and services are Year 2000 ("Y2K")  compliant.
As part of this process,  the Company has queried its software vendors and third
party  information  providers  and has  updated  certain  hardware,  third party
software and/or received letters of compliance from such third party information
providers.  In addition,  the Company has reviewed and modified its  proprietary
application software for compliance.

The Company is currently  testing its entire service  offerings and  anticipates
such testing will be completed by October 31, 1999. The Company anticipates that
the costs of ensuring such compliance will not exceed $150,000.

The Company is working  diligently  to ensure that all systems are Y2K compliant
and  believes  that its  greatest  risks would be the partial  inability  of its
systems  to  deliver  accurate  data  caused  by  certain  information  vendors'
inability to supply Y2K compliant  data. The inability of the Company's  systems
to process non-Y2K compliant data could result in a substantial  decline in both
new and  existing  customer  subscriptions  to its  products.  This would have a
material  adverse  effect  on the  Company's  financial  condition,  results  of
operations,  and ability to continue as a going  concern.  The Company  believes
that the probability of this occurrence is minimal as it is currently  receiving
and processing Y2K data from its critical information providers.


                                      -17-
<PAGE>


Certain Factors That May Affect Future Results

From time to time,  information provided by the Company,  statements made by its
employees  or  information  included  in its  filings  with the  Securities  and
Exchange  Commission  (including this Form 10-KSB) may contain  statements which
are  not  historical  facts,  so-called  "forward-looking   statements".   These
forward-looking  statements  are made pursuant to the safe harbor  provisions of
the Private  Securities  Litigation  Reform Act of 1995.  The  Company's  actual
future results may differ significantly from those stated in any forward-looking
statements.   Forward-looking   statements   involve   a  number  of  risks  and
uncertainties,  including,  but not limited to, product demand,  pricing, market
acceptance,  litigation,  intellectual  property  rights,  risks in product  and
technology development,  product competition,  limited number of customers,  key
personnel,  and other risk factors detailed in this Annual Report on Form 10-KSB
and in the Company's other Securities and Exchange Commission filings.


                                      -18-
<PAGE>


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

Report of Independent Auditors                                              20

Balance Sheets as of June 30, 1999 and 1998                                 21

Statements of Operations for the years                                      23
    ended June 30, 1999, 1998 and 1997

Statement of Stockholders' Equity (Deficiency)                              24
    for the years ended June 30, 1999, 1998 and 1997

Statements of Cash Flows for the years                                      28
    ended June 30, 1999, 1998 and 1997

Notes to Financial Statements                                               29


                                      -19-
<PAGE>


                         Report of Independent Auditors


Stockholders and Board of Directors
SmartServ Online, Inc.

We have audited the accompanying  balance sheets of SmartServ Online, Inc. as of
June 30, 1999 and 1998, and the related statements of operations,  stockholders'
equity  (deficiency),  and cash flows for each of the three  years in the period
ended June 30, 1999. These financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of SmartServ Online, Inc. at June
30, 1999 and 1998, and the results of its operations and its cash flows for each
of the three  years in the  period  ended  June 30,  1999,  in  conformity  with
generally accepted accounting principles.

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

/s/ Ernst & Young LLP

Stamford, Connecticut
October 13, 1999




                                      -20-
<PAGE>


                             SmartServ Online, Inc.

                                 Balance Sheets

                                                        June 30
                                              -----------------------------
                                                   1999           1998
                                              -------------   -------------
Assets
Current assets
   Cash and cash equivalents                  $ 2,165,551      $  354,225
   Accounts receivable                            348,278         111,051
   Prepaid expenses                                50,150         130,603
                                               ------------    ------------
Total current assets                            2,563,979         595,879
                                               ------------    ------------
Property and equipment, net                       498,448         610,537

Other assets
   Capitalized software development costs,
     net of accumulated amortization of $82,108   683,337              --
   Security deposit                                74,834          70,437
                                               ------------    ------------
                                                  758,171          70,437
                                               ------------    ------------
Total Assets                                   $3,820,598      $1,276,853
                                               ============    ============


See accompanying notes.


                                      -21-
<PAGE>

                             SmartServ Online, Inc.

                                 Balance Sheets

                                                              June 30
                                                   -----------------------------
                                                       1999             1998
                                                   -------------    ------------
Liabilities and Stockholders' Deficiency
Current liabilities
   Accounts payable                                $    780,543      $  800,545
   Accrued liabilities                                  474,189         736,137
   Accrued liabilities to warrant holders             1,311,365              --
   Salaries payable                                      93,443          57,308
   Capital lease obligation - current portion            70,147          76,127
   Deferred revenues - current portion                1,656,632         776,049
                                                   ---------------   ----------
Total current liabilities                             4,386,319       2,446,166
                                                   ---------------   ----------

Capital lease obligation - long-term portion                 --          77,548
Deferred revenues - long-term portion                 4,141,579              --

Commitments and Contingencies - Note 9

Stockholders' Deficiency
Preferred stock - $0.01 par value
   Authorized - 1,000,000 shares
   Issued and outstanding - None
Common Stock - $0.01 par value
   Authorized - 40,000,000 shares
   Issued and outstanding - 1,199,787 at
      June 30, 1999 and 836,227 shares
      at June 30, 1998                                   11,998           8,362
Common stock subscribed                               1,812,554              --
Notes receivable from officers                       (1,812,554)             --
Additional paid-in capital                           20,679,611      18,184,580
Unearned compensation                                (3,452,904)     (4,617,924)
Accumulated deficit                                 (21,946,005)    (14,821,879)
                                                   ------------     -----------
Total stockholders' deficiency                       (4,707,300)     (1,246,861)
                                                   ------------     -----------
Total Liabilities and Stockholders' Deficiency     $  3,820,598     $ 1,276,853
                                                   ============     ===========

See accompanying notes.


                                      -22-
<PAGE>


                                             SmartServ Online, Inc.

                                            Statements of Operations

<TABLE>
<CAPTION>
                                                                      Year Ended June 30
                                                  -------------------------------------------------
                                                        1999           1998               1997
                                                  -------------------------------------------------
<S>                                               <C>               <C>             <C>
Revenues                                          $  1,443,781     $    873,476     $    688,610
                                                  -------------    -------------    ---------------
Costs and expenses
   Cost of services                                   (994,465)      (1,216,761)      (1,133,884)
   Product development expenses                       (193,188)        (923,082)      (1,150,224)
   Selling, general and administrative
         expenses                                   (4,006,599)      (3,221,940)      (2,861,845)
                                                  -------------    -------------    ---------------
Total costs and expenses                            (5,194,252)      (5,361,783)      (5,145,953)
                                                  -------------    -------------    ---------------
Loss from operations                                (3,750,471)      (4,488,307)      (4,457,343)
                                                  -------------    -------------    ---------------
Other income (expense):
   Interest income                                       4,767           40,788           74,507
   Interest expense                                   (167,839)         (57,485)         (20,194)
   Debt origination and other financing costs       (3,210,583)        (535,005)         (31,452)
                                                  -------------    -------------    ---------------
                                                    (3,373,655)        (551,702)          22,861
                                                  -------------    -------------    ---------------
Net loss                                          $ (7,124,126)    $ (5,040,009)    $ (4,434,482)
                                                  =============    =============    ===============
Basic and diluted loss per share                  $      (6.44)    $      (7.65)    $      (7.20)
                                                  =============    =============    ===============
Weighted average shares outstanding                  1,105,603          659,034          615,833
                                                  =============    =============    ===============
</TABLE>

See accompanying notes.


                                      -23-
<PAGE>

<TABLE>
<CAPTION>
                                                       SmartServ Online, Inc.
                                           Statement of Stockholders' Equity (Deficiency)


                                 Common Stock                           Notes       Additional
                                            Par       Common Stock    Receivable      Paid-in       Unearned     Accumulated
                               Shares      Value       Subscribed    from Officers    Capital     Compensation     Deficit
                              ---------   --------    ------------   -------------  ----------    ------------   -----------
<S>                           <C>         <C>           <C>           <C>          <C>            <C>            <C>
Balances at June 30, 1996       615,832   $  6,158      $     --      $     --      $8,789,091    $     --     $(5,347,388)

Change in market value of
   employee stock options            --         --            --            --         188,293          --              --

Issuance of Common Stock
   Purchase Warrants in
   connection with
   investment advisory
   services                          --         --            --            --          75,000          --              --

Issuance of Common Stock
   Purchase Warrants in
   connection with
   short-term line of credit         --         --            --            --          25,000          --              --

Net loss for the year                --         --            --            --              --          --      (4,434,482)
                              ---------   --------      --------      ---------     ----------    ---------   ------------
Balances at June 30, 1997       615,832   $  6,158      $     --      $     --      $9,077,384    $     --    $ (9,781,870)
                              ---------   --------      --------      ---------     ----------    ---------   ------------
 </TABLE>


See accompanying notes.


                                      -24-
<PAGE>

<TABLE>
<CAPTION>

                                                       SmartServ Online, Inc.
                                           Statement of Stockholders' Equity (Deficiency)

                                                            (Continued)

                                Common Stock                           Notes       Additional
                                            Par       Common Stock    Receivable      Paid-in       Unearned     Accumulated
                               Shares      Value       Subscribed    from Officers    Capital     Compensation     Deficit
                              ---------   --------    ------------   -------------  ----------    ------------   -----------
<S>                           <C>         <C>           <C>          <C>          <C>             <C>            <C>
Balances at June 30, 1997       615,832   $  6,158      $    --      $     --    $  9,077,384      $     --      $(9,781,870)

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

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

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

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

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

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

Net loss for the year                --         --           --            --              --            --       (5,040,009)
                              ---------   ---------     -------   -----------    ------------   -----------      -----------
Balances at June 30, 1998       836,227   $  8,362      $    --    $       --    $ 18,184,580   $(4,617,924)    $(14,821,879)
                              ---------   --------      -------   -----------    ------------   -----------       -----------
</TABLE>

See accompanying notes.


                                      -25-
<PAGE>


<TABLE>
<CAPTION>                                                       SmartServ Online, Inc.
                                           Statement of Stockholders' Equity (Deficiency)

                                                            (Continued)


                                Common Stock                           Notes       Additional
                                            Par       Common Stock    Receivable      Paid-in       Unearned     Accumulated
                               Shares      Value       Subscribed    from Officers    Capital     Compensation     Deficit
                              ---------   --------    ------------   -------------  ----------    ------------   -----------
<S>                           <C>         <C>           <C>          <C>            <C>           <C>            <C>
Balances at June 30, 1998       836,227   $  8,362    $       --      $    --      $18,184,580   $(4,617,924)   $(14,821,879)

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

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

Issuance of Common Stock
   Purchase Warrants in
   connection with
   prepayments made by a
   marketing partner                 --         --            --           --            6,300            --              --

Issuance of Common Stock
   Purchase Warrants in
   connection with the
   issuance of 8%
   convertible notes                 --         --            --           --        1,573,000            --              --

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

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

Amortization of unearned
   compensation over the
   term of the consulting
   agreement                         --         --            --           --               --     1,165,020              --

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

Issuance of Common Stock
  Purchase Warrants to a
  financial consultant as
  compensation for services          --         --            --           --           59,000            --              --

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

See accompanying notes.
</TABLE>


                                      -26-
<PAGE>>

<TABLE>
<CAPTION>
                                                       SmartServ Online, Inc.
                                           Statement of Stockholders' Equity (Deficiency)

                                                            (Continued)


                                Common Stock                           Notes       Additional
                                            Par       Common Stock    Receivable      Paid-in       Unearned     Accumulated
                               Shares      Value       Subscribed    from Officers    Capital     Compensation     Deficit
                              ---------   --------    ------------   -------------  ----------    ------------   -----------
<S>                           <C>         <C>         <C>            <C>            <C>            <C>           <C>
 Authorization of the
  issuance of Common Stock
  Purchase Warrants in
  connection with a
  licensing agreement                 --         --             --           --        324,000           --               --

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

Net loss for the year                 --         --             --           --             --           --        (7,124,126)
                               ---------   ---------   -----------   ------------  -----------    -------------  --------------
Balance at June 30, 1999       1,199,787    $11,998     $1,812,554   $(1,812,554)  $20,679,611    $(3,452,904)   $(21,946,005)
                               =========   =========   ===========   ============  ===========    =============  ==============
</TABLE>

See accompanying notes.


                                      -27-
<PAGE>

                                                 SmartServ Online, Inc.

                                                Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                Year Ended June 30

                                                                -----------------------------------------------
                                                                       1999           1998             1997
                                                                -------------   -------------    --------------
<S>                                                              <C>            <C>              <C>
Operating Activities

Net loss                                                       $  (7,124,126)   $ (5,040,009)    $ (4,434,482)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
       Depreciation and amortization                                 278,646         193,601           149,182
       Provision for losses on and write-off of receivables               --          (1,300)           29,248
       Noncash interest costs                                         12,524          52,837                --
       Noncash debt origination and other financing costs          2,593,808         475,527            30,449
       Noncash compensation costs                                     18,304              --           188,293
       Noncash consulting services                                 1,349,020         660,576            75,000
       Amortization of unearned revenues                          (1,112,138)       (251,058)               --
       Settlement of litigation                                           --         145,750                --
       Changes in operating assets and liabilities
          Accounts receivable                                       (237,227)         40,031          (121,040)
          Prepaid expenses                                           (44,547)        (25,878)          (22,415)
          Accounts payable and accrued liabilities                   781,264         349,764           558,317
          Accrued interest                                                --          (5,323)           16,323
          Payroll taxes payable                                        1,696         (16,089)            5,482
          Salaries payable                                            34,439           6,996             1,364
          Unearned revenues                                        6,121,776       1,002,193            24,914
          Security deposit                                            (4,397)         10,781                --
                                                               --------------      ----------      ------------
 Net cash provided by (used for) operating activities              2,669,042      (2,401,601)       (3,499,365)
                                                               --------------     -----------      ------------

Investing Activities

Capitalization of software development costs                        (765,445)             --               --
Purchase of equipment                                                (84,449)        (60,424)         (351,786)
                                                               --------------     -----------      ------------
Net cash used for investing activities                              (849,894)        (60,424)         (351,786)
                                                               --------------     -----------      ------------

Financing Activities

Proceeds from the issuance of warrants                               324,000        2,643,941               --
Proceeds from the issuance of short-term notes                       478,500          196,500          493,646
Repayment of short-term notes                                       (691,794)              --               --
Repayment of capital lease obligation                                (83,528)         (92,536)              --
Proceeds of advances from DTN                                      2,058,300               --               --
Repayment of advances from DTN                                    (2,058,300)              --               --
Costs of issuing securities                                          (35,000)         (25,000)         (10,000)
                                                               --------------     -----------      ------------
Net cash provided by (used for) financing activities                  (7,822)       2,722,905          483,646
                                                               --------------     -----------      ------------

Increase (decrease) in cash and cash equivalents                   1,811,326          260,880       (3,367,505)
Cash and cash equivalents - beginning of year                        354,225           93,345        3,460,850
                                                               ==============     ===========      ============
Cash and cash equivalents - end of year                        $   2,165,551      $   354,225       $   93,345
                                                               ==============     ===========      ============
</TABLE>
See accompanying notes.


                                      -28-
<PAGE>


                             SmartServ Online, Inc.

                          Notes to Financial Statements

1.   Nature of Business and Liquidity

SmartServ Online, Inc. (the "Company")  commenced operations on August 20, 1993.
The Company  offers a range of services  designed to  facilitate  e-commerce  by
providing  transactional  and  information  services  to its  alliance  partners
("Strategic  Marketing  Partners").  The Company has developed online financial,
transactional  and  media  applications  using  a  unique  "device  independent"
delivery  solution and makes these services  available  through its  application
software and  communication  architecture  to wireless  telephones  and personal
digital assistants,  personal computers and the Internet. The Company's services
include stock  trading,  real-time  stock quotes,  business and financial  news,
sports  information,  private-labeled  electronic mail, national weather reports
and other business and entertainment information.

The Company's  financial  statements  for the year ended June 30, 1999 have been
prepared on a going concern basis which  contemplates  the realization of assets
and the  settlement  of  liabilities  and  commitments  in the normal  course of
business.  The  Company  incurred  net  losses of  $7,124,126,  $5,040,009,  and
$4,434,482 for the years ended June 30, 1999, 1998, and 1997, respectively,  and
as of June 30, 1999 had an accumulated  deficit of $21,946,005  and a deficiency
of net assets of  $4,707,300.  The Company is also a defendant in several  legal
proceedings  (see Note 9) which  could  have a  material  adverse  effect on the
Company's  financial  position,  cash flow,  and  results of  operations.  These
conditions raise  substantial doubt about the Company's ability to continue as a
going  concern.  The  financial  statements  do not include any  adjustments  to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.

The Company's business plan focuses on the strategy of marketing its services in
partnership with those companies that have an economic  incentive to provide the
Company's  information and transaction  services to their customers.  Management
believes  that the  Company's  primary  source of revenues  will be derived from
consumers who purchase the services  through its Strategic  Marketing  Partners.
Through the use of this  strategy,  the consumer is a customer of both SmartServ
and its Strategic Marketing Partner.  The Company also believes that the sale of
its  information  and transaction  services  through the cooperative  efforts of
partners  with more  recognizable  brand names than its own is  important to its
success.

On September 30, 1997, the Company completed a private  placement  ("Placement")
of $4 million of Prepaid Common Stock Purchase Warrants ("Prepaid  Warrants") as
more fully  disclosed  in Note 5. An  integral  part of this  Placement  was the
conversion of notes payable and accrued interest thereon,  aggregating $836,059,
into Prepaid Warrants.  The net proceeds of $2,643,941 provided the Company with
working capital to continue its marketing efforts.

Effective  May 1,  1998,  the  Company  entered  into  an  agreement  with  Data
Transmission  Network  Corporation  ("DTN")  whereby DTN purchased the exclusive
right to market three of the Company's Internet products:  SmartServ Pro, a real
time stock quote product;  TradeNet, an online trading vehicle for the customers
of small and medium sized brokerage companies,  and BrokerNet, an administrative
reporting package for brokers of small and medium sized brokerage companies. The
consummation  of this  agreement  has removed the Company from the retail market
and allows the Company to focus on business-to-business  marketing.  The Company
received  $850,000 upon execution of the agreement and received  minimum monthly
payments of $100,000  through April 1999. On June 24, 1999,  the Company and DTN
entered  into an  agreement  that  amended  the  Software  License  and  Service


                                      -29-
<PAGE>


Agreement  dated  April 23,  1998.  In  consideration  of the  receipt of $5.175
million, the Company granted DTN an exclusive perpetual worldwide license to the
Company's  Internet-based (i) SmartServ Pro, (ii) TradeNet, (iii) BrokerNet, and
(iv) an order entry/routing system. Additionally,  the Company received $324,000
in exchange for an agreement to issue warrants to purchase 300,000 shares of the
Company's  Common Stock at an exercise price of $8.60 per share. The Company has
agreed to  continue  to operate  these  products  and  provide  maintenance  and
enhancement  services in exchange for a percentage of the revenues earned by DTN
therefrom.  The cost of the Company's commitment to provide such maintenance and
enhancement  services is limited to a maximum of 20% of the  revenues  earned by
the Company.  None of the  Company's  wireless  products  were  included in this
transaction.

The  market  for  online  information  and  transactional   services  is  highly
competitive and subject to rapid innovation and technological  change,  shifting
consumer  preferences  and  frequent  new  service  introductions.  The  Company
believes  that  potential  new  competitors,   including  large  multimedia  and
information  systems  companies,  are  increasing  their  focus  on  transaction
processing. Increased competition in the market for the Company's services could
materially  and  adversely  affect the Company's  results of operations  through
price reductions and loss of potential  market share.  The Company's  ability to
compete in the future depends on its ability to maintain the  technological  and
performance advantages of its current distribution platform and to introduce new
applications that achieve market acceptance.

Notwithstanding   the  execution  of  the  DTN   agreements  and  the  continual
discussions   with   potential   Strategic   Marketing   Partners  about  future
relationships, the Company's ability to generate fee revenue and working capital
may not be sufficient to meet management's  objectives as presently  structured.
Management  recognizes  that the Company must  generate  additional  revenues or
consider  additional  modifications  to  its  sales  and  marketing  program  or
institute cost reductions to allow it to continue to operate with available cash
resources.  There is no assurance that the Company will generate future revenues
or cash flow from  operations or that the  Company's  products and services will
continue to be accepted in the marketplace by the ultimate consumers.

2.   Summary of Significant Accounting Policies

Basis of Presentation

The financial  statements  are prepared in conformity  with  generally  accepted
accounting principles.

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

Use of Estimates

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

Revenue Recognition

Revenues are recognized as services are provided.  Deferred revenues,  resulting
from customer  prepayments,  are recognized as services are provided  throughout
the term of the  agreement.  Deferred  revenues  resulting  from  the  Company's
agreements  with DTN are being  amortized  over the  anticipated  future revenue
stream, a period of 42 months.

Basic and Diluted Earnings Per Share

In 1997, the Financial  Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("Statement 128").  Statement
128 replaced the  previously  reported  primary and fully  diluted  earnings per
share with basic and diluted  earnings per share.  Unlike  primary  earnings per
share,  basic  earnings  per share  excludes  any  dilutive  effects of options,
warrants, and convertible securities. Diluted


                                      -30-
<PAGE>


earnings  per share is very similar to the  previously  reported  fully  diluted
earnings per share.  All  earnings  per share  amounts for all periods have been
presented,  and where  necessary,  restated  to  conform  to the  Statement  128
requirements. The weighted average shares outstanding are determined as the mean
average of the shares  outstanding  and  assumed  to be  outstanding  during the
period.

Capitalized Software Development Costs

In connection  with certain  contracts  entered into between the Company and its
Strategic Marketing Partners,  the Company has capitalized  software development
costs related to certain  product  enhancements  in accordance with Statement of
Financial  Accounting  Standards No. 86,  "Accounting  for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed", effective July 1, 1998.

Fair Value of Financial Instruments

The carrying  amounts of the Company's  financial  instruments  approximate fair
value.

Supplemental Cash Flow Data

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

Interest, debt origination and other financing costs paid during the years ended
June 30, 1999, 1998, and 1997 were $101,974, $32,536, and $9,194, respectively.

Concentration of Credit Risk

Financial  instruments that potentially subject the Company to concentrations of
credit  risk  consist  primarily  of  accounts  receivable.  There is no  single
geographic  concentration of sales or related accounts  receivable in the United
States. At June 30, 1999, accounts receivable consist principally of amounts due
from DTN ($268,000),  and a  telecommunications  company ($78,100).  The Company
performs  periodic  credit  evaluations  of its  customers  and, if  applicable,
provides for credit losses in the financial statements.

Property and Equipment

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

Advertising Costs

Advertising  costs are  expensed as  incurred  and were  approximately  $20,500,
$97,100, and $540,000 in 1999, 1998 and 1997, respectively.

Stock Based Compensation

The  Company  maintains  a stock  option  plan for  employees  and  non-employee
directors  that provides for the granting of stock options for a fixed number of
shares with an exercise  price equal to the fair value of the shares at the date
of grant.  The Company accounts for this stock  compensation  plan in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25").  Accordingly,  compensation  expense is recognized to
the extent that the fair value of the stock  exceeds the  exercise  price of the
option at the  measurement  date. In 1997,  the Company  adopted the  disclosure
provisions of Statement of Financial  Accounting  Standards No. 123  "Accounting
for Stock-based Compensation".


                                      -31-
<PAGE>


Recent Accounting Pronouncements

In March 1998, the American  Institute of Certified  Public  Accountants  issued
Statement of Position 98-1, as amended by SOP 98-4, "Accounting for the Costs of
Computer  Software  Developed or Obtained for Internal  Use" ("SOP  98-1").  The
adoption of SOP 98-1 is not expected to have a material  effect on the Company's
operations. SOP 98-1 is required to be adopted by the Company no later than July
1, 1999.

3.   Property and Equipment

Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                                                             June 30

                                                                            ------------------------------------------
                                                                                   1999                    1998
                                                                            -------------------      -----------------
<S>                                                                         <C>                      <C>
   Data processing equipment                                                $        700,210         $      616,587
   Data processing equipment purchased under a capital lease                         246,211                246,211
   Office furniture and equipment                                                     71,423                 70,597
   Display equipment                                                                   9,635                  9,635
   Leasehold improvements                                                             36,678                 36,678
                                                                            -------------------      -----------------

                                                                                   1,064,157                979,708
   Accumulated depreciation, including $106,691 and
       $57,449 for equipment purchased under a capital lease                        (565,709)              (369,171)
                                                                            ===================      =================
                                                                            $        498,448         $      610,537
                                                                            ===================      =================
</TABLE>

During the year ended June 30, 1997, the Company leased computer  equipment with
a  capitalized  cost of  $246,211.  The  recording of such costs and the related
capitalized  lease obligation are non-cash  transactions for the purposes of the
Statement of Cash Flows.

4.   Notes Payable

On May 29,  1997,  the Company  entered  into a line of credit  facility  with a
financial institution for a maximum borrowing thereunder of $550,000. Borrowings
under this  facility were to be repaid on August 27, 1997 along with interest at
the rate of 24% per annum. On July 21, 1997 and September 16, 1997, the facility
was amended to provide for additional borrowings of up to $222,222. On September
30, 1997, notes payable of $772,222 and accrued interest thereon of $63,837 were
converted into the Company's Prepaid Warrants as more fully described in Note 5.

In conjunction with the origination of the line of credit facility,  the Company
issued  56,627  common stock  purchase  warrants to the  financial  institution.
Similarly, the Company issued 11,438 warrants for each of the July and September
amendments.  As a result of the  Company's  default on the note in  August,  the
Company was required to issue 50,083 "default" warrants to such institution.  At
June 30, 1999,  these  warrants were  exercisable at prices ranging from $.75 to
$6.07. These warrants are subject to certain antidilution  provisions and expire
in September 2002.  Pursuant to Statement of Financial  Accounting  Standard No.
123,  "Accounting  for Stock  Based  Compensation",  the  Company  valued  these
warrants in accordance with the Black-Scholes pricing methodology at the time of
issuance and recorded  such  valuation in the  statement of  operations  as debt
origination and other financing costs. The Company recorded debt origination and
other  financing  costs  associated with these warrants of $463,567 for the year
ended June 30, 1998.

Commencing  November 20, 1998,  the Company sold five and one-half  (5.5) units,
each  consisting of a secured 8%  convertible  note in the  principal  amount of
$100,000 and warrants to purchase Common Stock of the


                                      -32-
<PAGE>


Company.  The warrants are  exercisable  at $.60 per share of Common Stock.  The
convertible  notes were repaid in June 1999.  The Company has agreed to register
the shares of Common Stock  issuable upon exercise of the warrants.  In addition
to  customary  fees and  expenses,  Spencer  Trask  Securities,  Inc.  ("Spencer
Trask"), the placement agent,  received for nominal  consideration,  warrants to
purchase ten percent (10%) of the shares of Common Stock of the Company issuable
on conversion  of the notes and exercise of the warrants at $.72 per share.  The
issuance to the  noteholders  of warrants to purchase  916,667  shares of Common
Stock,  as well as those  issued to Spencer  Trask for the  purchase  of 183,333
shares of Common  Stock have been valued in  accordance  with the  Black-Scholes
pricing  methodology and recorded as debt origination and other financing costs.
Also in connection  with the 8%  convertible  notes,  the Company has recorded a
non-cash  charge to debt  origination  and  other  financing  costs of  $550,000
representing  the perceived  cost of the  beneficial  conversion  feature of the
notes.  Emerging  Issues  Task Force  Issue 98-5,  "Accounting  for  Convertible
Securities  with  Beneficial  Conversion  Features  or  Contingently  Adjustable
Conversion  Ratios" ("Issue 98-5") defines the beneficial  conversion feature as
the  non-detachable  conversion  feature that is  "in-the-money"  at the date of
issuance.  Issue 98-5 requires the  recognition  of the  intrinsic  value of the
conversion  feature as the difference  between the conversion price and the fair
value of the common stock into which the notes are  convertible.  Such amount is
limited to the proceeds of the  financing  ($550,000)  and has been  recorded in
debt origination and other financing costs as of the date of issuance.

On December 30, 1998, the Company  executed an agreement with a service provider
whereby  certain  obligations  of  the  Company,  amounting  to  $141,794,  were
converted into a 12% note payable.  On June 28, 1999, the outstanding balance of
$66,794 was repaid.

5.   Equity Transactions

During the year ended June 30,  1997,  the Company  authorized  the  issuance of
warrants for the purchase of 33,333  shares of Common Stock in  connection  with
certain investment advisory agreements.  Such warrants are exercisable at prices
ranging from $12.00 to $24.00 per share through May 2002.

On September 30, 1997, The Zanett Securities Corporation  ("Zanett"),  acting as
placement agent for the Company,  completed the private placement  ("Placement")
of $4 million of the Company's Prepaid Common Stock Purchase Warrants  ("Prepaid
Warrants").  The sale of these Prepaid Warrants was exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
thereof.  Each Prepaid  Warrant  entitles the holder to purchase  that number of
shares  of  Common  Stock  that is equal to  $1,000  divided  by the  applicable
exercise  price.  Such  exercise  price is  determined  initially  as 70% of the
average  closing bid price of the Common Stock for the 10 trading days ending on
the day prior to exercise of the Prepaid  Warrants.  Additionally,  the exercise
discount  shall be  increased by 1% for each  subsequent  60 day period that the
Prepaid Warrants remain unexercised.  The exercise price,  however,  shall never
exceed $8.40. The Prepaid  Warrants became  exercisable on December 29, 1997 and
expire on September 30, 2000.

As  compensation  for its  services,  Zanett  received  a  placement  fee and an
unaccountable   expense   allowance  of  10%   ($400,000)   and  3%  ($120,000),
respectively, of the gross proceeds of the Placement.  Additionally, the Company
issued  135,906  Common  Stock  Purchase  Warrants to Zanett that are subject to
antidilution  provisions and are exercisable at $4.97 per share of Common Stock.
These warrants expire on September 30, 2002.

Also in conjunction  with the Placement,  the Company  entered into an agreement
with a financial  consultant who is an affiliate of Zanett  Lombardier,  Ltd, an
investor in the Prepaid  Warrants.  During the  five-year  term of the agreement
such  consultant  will provide the Company with  advisory  services  relating to
financial and strategic  ventures and alliances,  investment banking and general
financial advisory services, and advice and assistance with the Company's market
development  activities.   As  compensation  for  these  services,  the




                                      -33-
<PAGE>


Company  authorized  the  issuance of 805,370  Common  Stock  Purchase  Warrants
("Consulting  Warrants")  to this  consultant  that are subject to  antidilution
provisions and are  exercisable at $4.97 per share of Common Stock.  The Company
has valued these  Consulting  Warrants in accordance with Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation",  and the
Black-Scholes  pricing  methodology  at  $5,145,500  and recorded this amount in
stockholders' equity as unearned  compensation.  Unearned  compensation is being
amortized to income over the five-year  term of the  agreement.  These  warrants
expire on September  30, 2002.  The Company has recorded  consulting  expense of
$1,165,020   and   $527,576  for  the  years  ended  June  30,  1999  and  1998,
respectively.

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

On August 31, 1998,  the Company  issued 32,953 shares of Common Stock to Zanett
Lombardier,  Ltd.  and  17,047  shares  of  Common  Stock to Bruno  Guazzoni  in
consideration  of their  agreement  to certain  restrictions  on the exercise of
Prepaid  Warrants  and the  resale of the  shares of Common  Stock  issuable  on
exercise  thereof.  Such  shares  have been  recorded  at the fair  value of the
Company's Common Stock at that date as other financing costs.

On September 8, 1998,  the Company  issued  warrants to purchase 3,000 shares of
Common Stock to DTN for prepayment of certain guaranteed  payments in accordance
with the Software License and Service  Agreement between the parties dated April
23, 1998.  Such warrants are  exercisable at $3.00 per share of Common Stock and
have been recorded in accordance with the Black-Scholes  pricing  methodology as
other financing costs.

On November  17, 1998,  the Company  issued  125,000  shares of Common Stock and
warrants to purchase  16,667  shares of Common Stock,  exercisable  at $5.00 per
share until November 11, 2001, to Mr. Steven Francesco,  a former officer of the
Company,  as partial  consideration for the settlement of his claims against the
Company and certain of its officers and directors. The value of these shares has
been recorded in selling,  general and  administrative  expenses  based upon the
fair value of the  Company's  Common Stock at that date while the warrants  have
been recorded in accordance with the Black-Scholes pricing methodology.

On December 29, 1998,  the Board of Directors  approved the terms of  employment
contracts for Sebastian E. Cassetta,  Chairman and Chief Executive Officer,  and
Mario F. Rossi, Vice President of Technology.  Accordingly,  the Company and Mr.
Cassetta  have  entered into an  employment  agreement  ("Cassetta  Agreement"),
effective  January 1, 1999 and  expiring on December 31,  2001,  providing  for,
among  other  things,  the sale to him of  618,239  shares of  restricted  stock
representing 9% of the fully diluted shares of Common Stock of the Company.  The
purchase  price  ($2.20 per share) of the  restricted  stock is equal to 110% of
fair market value of the  Company's  Common Stock for the 30 days  preceding the
date of the stock  purchase  agreement  ("Cassetta  Stock  Purchase  Agreement")
contemplated by the Cassetta Agreement. The purchase price will be paid with a 5
year, non-recourse promissory note, secured by the stock, at an interest rate of
6.75%,  which is 1% below  the  prime  rate on the  date of the  Cassetta  Stock
Purchase  Agreement.  The Cassetta Stock Purchase Agreement provides the Company
with certain  repurchase  options and provides Mr. Cassetta with a put option in
the event of the termination of his  employment.  In accordance with APB No. 25,
the  Company  will  record  the  changes  in the fair  value of such  shares  in
recognition of the compensatory  nature of their issuance.  On October 13, 1999,
the Board of Directors  agreed to reprice the shares granted to Mr.  Cassetta to
$.75 per share, the fair value of the shares at that date.

The Company and Mr. Rossi have also entered into an employment agreement ("Rossi
Agreement"),  effective  January 1, 1999 and  expiring  on  December  31,  2001,
providing  for,  among  other  things,  the  sale to him of  206,080  shares  of
restricted stock  representing 3% of the fully diluted shares of Common Stock of
the Company.  The purchase  price ($2.20 per share) of the  restricted  stock is
equal to 110% of fair  market  value for the 30 days  preceding  the date of the
stock purchase agreement ("Rossi Stock Purchase Agreement")


                                      -34-
<PAGE>


contemplated  by the Rossi  Agreement.  The purchase price will be paid with a 5
year, non-recourse promissory note, secured by the stock, at an interest rate of
6.75%,  which is 1% below the prime rate on the date of the Rossi Stock Purchase
Agreement.  The Rossi Stock Purchase Agreement provides the Company with certain
repurchase  options and provides Mr. Rossi with a put option in the event of the
termination of his  employment.  In accordance with APB No. 25, the Company will
record  the  changes  in the fair  value of such  shares in  recognition  of the
compensatory  nature  of their  issuance.  On  October  13,  1999,  the Board of
Directors  agreed to reprice the shares  granted to Mr. Rossi to $.75 per share,
the fair value of the shares at that date.

On January 14, 1999, the Company issued 10,000 shares of Common Stock to Arnhold
& S. Bleichroeder,  Inc. ("ASB"), an investor in the Company's Prepaid Warrants,
in  consideration  of an agreement to waive certain events of default under such
Prepaid  Warrants.  These  shares  have been  recorded  at the fair value of the
Company's Common Stock at that date as other financing costs.

On January 20, 1999,  the Company agreed to cancel  warrants to purchase  20,833
shares of Common Stock  exercisable at $15.75 and $19.50 per share to Mr. Steven
Rosner, a financial advisor to the Company,  and to grant Mr. Rosner warrants to
purchase  40,833  shares of Common  Stock at $.60 per share for his  efforts  at
arranging  the Company's  relationship  with Spencer  Trask.  Such warrants will
expire on January 20, 2004. These warrants have been recorded in accordance with
the Black-Scholes  pricing  methodology as selling,  general and  administrative
expenses.

On June 24,  1999,  in  consideration  of the receipt of  $324,000,  the Company
agreed to issue DTN warrants for the purchase of 300,000 shares of the Company's
Common  Stock at $8.60 per share.  The  warrants  will  expire on the earlier of
April 30, 2003, or the date one year after the market price of a share of Common
Stock reaches $8.60.  These  warrants have been recorded in accordance  with the
Black-Scholes pricing methodology.

The  delisting  of the  Company's  Common Stock from the Nasdaq Small Cap Market
caused the  Company to default on certain  terms and  conditions  of the Prepaid
Warrants. Such default obligates the Company to pay financial penalties, as well
as to redeem the outstanding Prepaid Warrants at a 43% premium.  The Company has
been unable to obtain  appropriate  waivers from holders of  $1,994,000  of such
Prepaid  Warrants.  Accordingly,  the  Company  has  recorded  a charge  to debt
origination and other  financing  costs in the amount of $986,365,  representing
the potential penalties due such holders.

6.   Earnings Per Share

The  following  table sets forth the  computation  of basic and diluted loss per
share:
<TABLE>
<CAPTION>
                                                                  Year Ended June 30

                                            ----------------------------------------------------------------
                                                  1999                 1998                     1997
                                            ------------------   --------------------   --------------------
<S>                                         <C>                  <C>                    <C>
Numerator:
   Net loss                                 $   (7,124,126)      $   (5,040,009)        $    (4,434,482)
                                            ==================   ====================   ====================

Denominator:
   Weighted average shares                       1,105,603              659,034                 615,833
                                            ==================   ====================   ====================

Basic and diluted loss per common share     $       (6.44)       $       (7.65)         $         (7.20)
                                            ==================   ====================   ====================
</TABLE>


                                      -35-

<PAGE>

At June 30,  1999  there  were,  exclusive  of the  Prepaid  Warrants  (Note 5),
3,195,000  Common  Stock  Purchase  Warrants  outstanding.  Such  warrants  have
exercise prices ranging from $.60 to $72.00 per share and expire from March 2001
through  January  2004.  Based on the closing bid price ($1.50) of the Company's
Common Stock at June 30, 1999,  there were,  exclusive of the Prepaid  Warrants,
currently  exercisable  in-the-money  warrants  outstanding  for the purchase of
507,700  shares of Common Stock.  Additionally,  the Company has  established an
employee  stock  option  plan  for the  benefit  of  directors,  employees,  and
consultants  to the Company.  These options are intended to qualify as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code, as
amended, or as nonqualified stock options. The options are partially exercisable
after one year from date of grant and no options may be granted  after April 15,
2006.  At June 30,  1999,  there are  options  outstanding  for the  purchase of
285,901  shares of the Company's  Common Stock.  None of the warrants or options
have been  included in the  computation  of diluted loss per share because their
inclusion would be antidilutive.  (See Note 11 for a discussion of the Company's
stock option plans.)

7.   Income Taxes

At June 30, 1999 and 1998, the Company has deferred tax assets as follows:

                                                        1999           1998
                                                        ----           ----

         Capitalized Start-up Costs                $   741,600     $ 1,112,500
         Net Operating Loss Carryforwards            6,578,000       4,126,000
                                                   -----------     -----------

                                                   $ 7,319,600     $ 5,238,500
                                                   ===========     ===========

In  accordance  with  Statement  of  Financial  Accounting  Standards  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 allowance increased
to $7,319,600 at June 30, 1999 from  $5,238,500 at June 30, 1998 and  $3,540,000
at June 30, 1997.

At June 30, 1999, the Company has net operating loss  carryforwards  for Federal
income tax purposes of  approximately  $8,930,000 which expire in the years 2009
through  2013.  As a result of the public  issuance  of stock by the  Company on
March 21,  1996,  and the  resultant  change in  ownership  pursuant to Internal
Revenue Code Section 382, the  utilization of net operating  losses  incurred to
this date may be limited.

8.   Leases

The Company leases office space for its Stamford, Connecticut headquarters under
a noncancelable  lease. The lease includes  escalation clauses for items such as
real estate taxes, building operation and maintenance expenses,  and electricity
usage.

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

Rent expense amounted to approximately $290,600,  $278,000, and $207,000 for the
years ended June 30, 1999, 1998, and 1997, respectively.


                                      -36-
<PAGE>


Minimum future rental payments at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
                                                 Operating Leases
                                        ------------------------------------       Capital
Year Ending June 30                         Premises            Equipment           Lease
                                        -----------------    ---------------    ---------------
<S>                                       <C>                  <C>               <C>
         2000                             $   179,700          $   41,000        $     75,341
         2001                                 186,000               1,600                  --
         2002                                 192,300                  --                  --
         2003                                  67,000                  --                  --
                                        -----------------    ---------------    ---------------
                                          $   625,000          $   42,600              75,341
                                        =================    ===============

         Less amounts
         representing interest and
         executory costs                                                                5,194
                                                                                 --------------
                                                                                  $    70,147
                                                                                 ==============
</TABLE>


9.   Commitments and Contingencies

By letter dated April 10, 1998,  Michael  Fishman,  then Vice President of Sales
for the Company,  resigned his position. On or about April 24, 1998, Mr. Fishman
filed a complaint  against the  Company,  Sebastian  E.  Cassetta and four other
defendants in the United States  District Court for the District of Connecticut.
The complaint  asserted  claims under  Sections  10(b) and 18 of the  Securities
Exchange Act of 1934, as well as several state law claims,  including  breach of
contract, fraud and misrepresentation.  Mr. Fishman alleged that the Company (1)
failed to pay him the benefits and compensation to which he was entitled and (2)
made material misrepresentations in its filings with the Securities and Exchange
Commission.  On December 11, 1998,  the Court  granted the  Company's  motion to
dismiss Mr. Fishman's action without prejudice to the plaintiff to seek leave to
file an amended  complaint within 30 days. On May 12, 1999, the Court denied the
plaintiff's  subsequent motion for leave to file a substituted  complaint on the
basis that the federal  securities law claim,  the only federal claim alleged by
the plaintiff,  was still deficient.  Accordingly,  the federal securities claim
was dismissed with prejudice. On or about June 4, 1999, Mr. Fishman commenced an
action  against  the same  defendants  and  added as a  seventh  defendant,  the
Company's former President,  Mr. Steven Francesco,  in the Connecticut  Superior
Court for the Judicial District of  Stamford/Norwalk at Stamford alleging breach
of  contract,  breach  of  duty of  good  faith  and  fair  dealing,  fraudulent
misrepresentation,  negligent misrepresentation,  intentional  misrepresentation
and failure to pay wages.  The defendants  have answered the complaint and filed
counterclaims  for  fraudulent  inducement  and breach of contract.  Plaintiff's
response to  counterclaims  was due October 14, 1999 and has yet to be received.
Although  the  Company is  vigorously  defending  this  action,  there can be no
assurance that it will be successful.

By memorandum dated April 10, 1998,  Jonathan  Paschkes,  then Vice President of
Marketing for the Company, resigned his position. On or about November 17, 1998,
Mr. Paschkes filed a complaint  against the Company and Sebastian E. Cassetta in
the United States District Court, District of Connecticut. In the complaint, Mr.
Paschkes  alleges (i)  fraudulent  inducement to him to accept his position with
the Company;  (ii) breach of various terms of the Company's  employment contract
with him;  and (iii)  failure by the  Company to pay him wages and  bonuses  and
issue  options to him pursuant to the terms of his  employment  contract.  On or
about February 18, 1999, Mr.  Paschkes filed an amended  complaint.  The Company
answered the amended complaint and asserted  counterclaims  against Mr. Paschkes
for fraudulent inducement,  breach of contract,  conversion and statutory theft.
On October 5, 1999,  an agreement in principle  was reached  between the Company
and Mr.  Paschkes in full  settlement of these claims.  The Company  anticipates
executing a settlement  agreement with


                                      -37-
<PAGE>


Mr. Paschkes and filing a Stipulation of Dismissal with prejudice before October
31, 1999. The Company has recorded a charge for the settlement of such claims in
the results of operations for the year ended June 30, 1999.

On or about May 11, 1998, Ronald G. Weiner filed a complaint against the Company
and Mr.  Francesco in the Supreme Court of the State of New York,  County of New
York.  The complaint  alleges,  among other things,  that in May 1993, by letter
from Mr.  Francesco,  Mr.  Weiner was offered a 10% equity  stake in Smart Phone
Services,  Inc. ("SPS"), a Subchapter S company of which Mr. Francesco allegedly
was the President and sole shareholder,  in exchange for his active  involvement
in, among other things,  raising  capital and managing the financial  aspects of
SPS. The complaint  alleges that, in November 1993, Mr.  Francesco sent a letter
to Mr.  Weiner in which he (i)  represented  that SPS had  failed  to  attract a
single  investor  and (ii)  withdrew  his offer to Mr.  Weiner  of a 10%  equity
position in SPS. The complaint  further alleges that, in conversations  with Mr.
Weiner beginning in November 1993, Mr. Francesco represented that he was ceasing
all efforts to capitalize SPS. The complaint alleges,  among other things,  that
Mr.  Francesco and SPS breached  their  agreement with Mr. Weiner by withdrawing
their  offer to him of a 10%  equity  stake in SPS,  and  that,  at the time Mr.
Francesco  represented  that he was ceasing  efforts to  capitalize  SPS, he had
actually  formed the  Company and was  actively  seeking  investors  for it. The
complaint  further  alleges  that the Company is a  successor  entity to SPS and
that,  therefore,  the  Company is liable for SPS' and Mr.  Francesco's  alleged
conduct in derogation of their alleged agreement with Mr. Weiner.  The complaint
seeks, among other things, (i) a declaratory judgment declaring Mr. Weiner a 10%
equity  shareholder of the Company,  (ii) a constructive  trust in Mr.  Weiner's
favor for 10% for the Company's equity shares and (iii) restitution  against Mr.
Francesco and the Company for unjust enrichment. On his unjust enrichment claim,
Mr. Weiner seeks unspecified damages that he alleges to be at least $250,000. In
its answer to the complaint,  the Company has denied the material allegations of
the  complaint,  asserted  affirmative  defenses and also asserted  cross-claims
against Mr. Francesco seeking indemnification from, or contribution towards, any
judgment that Mr. Weiner may obtain against the Company.  In accordance  with an
agreement dated November 11, 1998, the Company has filed a motion to discontinue
the cross-claims  that it asserted against Mr.  Francesco.  No discovery in this
action has yet been taken.  Although the Company is  vigorously  defending  this
action there can be no assurance that it will be successful.

10.  Significant Relationships

During  the year  ended  June 30,  1999,  the  Company's  relationship  with DTN
accounted for 94.8% of its revenues.  During the year ended June 30, 1998, three
Strategic Marketing Partner relationships  accounted for 10.2%, 10.0% and 24.1%,
respectively,  of the  Company's  revenues  while during the year ended June 30,
1997, one Strategic Marketing Partner  relationship  accounted for approximately
46.4% of the Company's revenues.

11.  Employee Stock Option Plan

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

On September 24, 1997, the Compensation  Committee  granted new stock options to
employees and non-employee  directors  conditional  upon  cancellation of all of
their  existing  stock  options.  Such options were  exercisable  at $12.00.  On
October 8, 1998, the Board of Directors voted to cancel the outstanding employee
and non-employee  director options and reissue options covering a like number of
shares to employees  and  non-employee  directors at an exercise  price not less
than the fair value at that date.  The exercise  price of the options  issued to
employees  and  non-


                                      -38-
<PAGE>


employee  directors on October 8, 1998 was $1.29 per share.  Such options expire
on October 7, 2008. In accordance  with APB No. 25, the Company has recorded the
changes in the fair value of the shares  underlying  177,201 of such  options to
reflect the  compensatory  nature of their  issuance.  On November 20, 1998, the
Board of Directors granted employees options to purchase 58,700 shares of Common
Stock at $1.625 per share.  Such options expire on November 19, 2008.

On December  29,  1998,  the Board  approved a plan to  compensate  non-employee
directors  for their  service to the  Company.  Accordingly,  each  non-employee
director will receive options to purchase 10,000 shares of the Company's  Common
Stock at the commencement of each calendar year.  Effective January 1, 1999, the
Company issued options to such persons to purchase 50,000 shares of Common Stock
exercisable at $2.35 per share through December 31, 2003.

On October 13, 1999, the Board of Directors  authorized the establishment of the
Company's 1999 Employee Stock Option Plan ("1999 Plan").  The 1999 Plan provides
for the issuance of options to  employees  and  directors  for the purchase of a
maximum of 400,000 shares of Common Stock of the Company.  The Board  authorized
the  issuance of 300,000 of such  options to  employees 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.

Information concerning stock options for the Company is as follows:

                                                             Average
                                                             Exercise
                                          Options             Price
                                      ---------------     --------------
Balance at July 1, 1996                    51,925         $   38.82
     Granted                               70,829             31.38
     Exercised                                 --             --
     Cancelled                             66,362             37.32
                                      ---------------     --------------
Balance at June 30, 1997                   56,392             31.26
     Granted                              206,391             12.00
     Exercised                                 --             --
     Cancelled                             85,216             25.50
                                      ---------------     --------------
Balance at June 30, 1998                  177,567             12.00
     Granted                              463,858              1.92
     Exercised                                 --             --
     Cancelled                            355,524              7.26
                                      ===============     ==============
Balance at June 30, 1999                  285,901         $    1.54
                                      ===============     ==============


                                      -39-
<PAGE>


The following  table  summarizes  information  about the Company's stock options
outstanding as of June 30, 1999.

<TABLE>
<CAPTION>
                                         Options Outstanding                            Options Exercisable
                            -------------------------------------------------      -----------------------------
                                                                 Average
                                                 Average        Remaining                             Average
         Range of              Number of         Exercise      Contractual          Number of         Exercise
     Exercise Prices            Options           Price        Life (Years)          Options           Price
-----------------------     --------------    ------------   ---------------      ------------    --------------
<S>                         <C>                <C>            <C>                 <C>             <C>
   $1.29  -   $2.35              285,901       $    1.54           8.25               81,164      $    1.96
=======================     ==============    ============   ===============      ============    ==============
</TABLE>

Supplemental and Pro Forma Disclosure

In October 1995, the Financial  Accounting  Standards Board issued  Statement of
Financial   Accounting   Standard   No.   123,   "Accounting   for   Stock-Based
Compensation."  This  Statement  requires  companies to  recognize  compensation
expense based on the respective fair values of the options at the date of grant.
Companies  that  choose  not to adopt the new rules will  continue  to apply the
existing  accounting rules contained in APB No. 25, but are required to disclose
the pro forma effects on net income and earnings per share, as if the fair value
based method of accounting had been applied.

The pro forma  information  regarding  net loss and loss per share  required  by
Statement  123 has been  determined  as if the  Company  had  accounted  for its
employee  stock  option  plan under the fair  value  methods  described  in that
Statement.  The fair value of options granted under the Company's employee stock
option plan was  estimated at the date of grant using the  Black-Scholes  option
pricing model. The Black-Scholes option valuation model was developed for use in
estimating  the fair value of traded  options that have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including the expected dividend yield,
the expected life of the options,  the expected stock price volatility,  and the
risk-free interest rate.

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

                                                                1999        1998          1997
                                                             ---------   ----------    ----------
<S>                                                          <C>         <C>           <C>
        Weighted  average  dividend  yield for  options
             granted                                             0.0%        0.0%         0.0%

        Weighted average expected life in years                  5.0         5.0          5.0

        Weighted average volatility                            147.0%      143.9%        70.8%

        Risk-free interest rate                                 5.75%       6.0%          6.5%

        Weighted  average  grant  date  fair  value  of
             options                                           $1.92      $10.92        $19.80
</TABLE>

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


                                      -40-
<PAGE>

The Company's pro forma information is as follows:

<TABLE>
<CAPTION>
                                                            Year Ended June 30
                       ----------------------------------------------------------------------------------------------
                                   1999                              1998                            1997
                       ------------------------------ ---------------------------------- ---------------------------
<S>                    <C>             <C>            <C>               <C>              <C>
                          Reported       ProForma          Reported       ProForma         Reported      ProForma
                       --------------- -------------- ----------------- ---------------- ------------ --------------
Net Loss                 $7,124,126     $7,308,036       $5,040,009      $5,654,512       $4,434,482    $5,209,947
                       =============== ============== ================= ================ ============ ==============

Loss per Share                $6.44          $6.61            $7.65           $8.58            $7.20         $8.46
                       =============== ============== ================= ================ ============ ==============
</TABLE>

12.  Subsequent Events

On July 1, 1999,  the Company  entered into an  agreement  with ASB, a holder of
$325,000 of the Company's Prepaid Warrants,  to settle the Company's  obligation
to ASB pursuant to the default provisions of the Prepaid Warrants.  Accordingly,
the Company paid ASB $325,000 to redeem the Prepaid  Warrants and issued 180,000
shares of Common Stock in full settlement of all obligations to ASB. The Company
has agreed to file a  registration  statement  with the  Securities and Exchange
Commission covering such shares. Settlement costs of $268,695 have been recorded
as debt  origination  and other  financing  costs during the year ended June 30,
1999.

On October 13, 1999,  the Board of Directors  amended the  Company's  restricted
stock plan to include  Mr.  Robert  Pearl,  Director  of  Business  Development.
Accordingly,  Mr. Pearl has been granted 1% (approximately 86,000 shares) of the
fully  diluted  shares of  Common  Stock of the  Company  as of that date at the
purchase price of $.75 per share.

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

None.


                                      -41-
<PAGE>


                                    Part III

Item 9.    Directors,  Executive  Officers,  Promoters and Control
           Persons;  Compliance  with Section 16(a) of the Exchange Act

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

Name                          Age      Position
----                          ---      --------
Sebastian E. Cassetta          51      Chief Executive Officer, Chairman of the
                                       Board, Secretary and Class III Director
Thomas W. Haller, CPA          45      Vice President, Treasurer and Chief
                                       Financial Officer
Mario F. Rossi                 61      Vice President of Operations and Class II
                                       Director
Claudio Guazzoni               36      Class I Director
L. Scott Perry                 51      Class I Director
Robert Steele                  60      Class II Director
Catherine Cassel Talmadge      47      Class I Director
Charles R. Wood                58      Class III Director


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

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

Mario F.  Rossi has been Vice  President  of  Operations  of the  Company  since
December 1994 and was  appointed a director on February 23, 1998.  Mr. Rossi has
business   and    operational    management    experience   in   the   computer,
telecommunications  and  securities  fields.  He has an extensive  background in
product development,  operations and technical  marketing.  Prior to joining the
Company,  Mr. Rossi was Vice President of Operations for MVS Inc., a fiber optic
company specializing in wireless technology. He also worked 17 years for Philips
Medical  Systems,  in the  U.S.,  as  well  as the  Netherlands,  directing  the
development - from feasibility to production - of several computer-based medical
devices.  He was awarded a Bachelors  Degree in Engineering and earned a Masters
Degree from Polytechnic Institute of Brooklyn.

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

L. Scott Perry has been a director of the Company  since  November  1996.  Since
June  1998,  Mr.  Perry has been Vice  President,  Strategy &  Alliances  - AT&T
Solutions.  From December 1995 to June 1998, Mr.


                                      -42-
<PAGE>


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

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

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

Charles R. Wood was appointed a director of the Company in September  1998.  Mr.
Wood has been Senior Vice  President of Data  Transmission  Network  Corporation
("DTN") since 1989 and President of its Financial  Services Division since 1996.
As  described  in Item 6, the  Company and DTN entered  into an  agreement  that
amended the Software  License and Service  Agreement  dated April 23,  1998.  In
consideration  of the  receipt  of $5.5  million,  the  Company  granted  DTN an
exclusive perpetual worldwide license to four of the Company's Internet products
and agreed to issue warrants to purchase  300,000 shares of the Company's Common
Stock at $8.60 per share. The Company will continue to operate and support these
products in exchange for a percentage of the revenues earned by DTN therefrom.

The Board of Directors consists of seven directors divided into three classes of
directors:  Class I Directors,  Class II Directors, and Class III Directors. The
Company's  Class I Directors and Class III Directors will serve until the annual
meeting  of the  Company's  stockholders  to be  held in  1999  or  until  their
respective  successors  are duly elected and  qualified  or until their  earlier
resignation or removal.  Similarly,  the Class II Directors will serve until the
annual meeting of the Company's  stockholders  to be held in 2000.  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.  Officers  are  appointed  annually  and  serve at the
discretion of the Board for one year.  Mr.  Cassetta  serves as Chief  Executive
Officer,  Chairman of the Board,  and  Secretary  of the Company  pursuant to an
employment  agreement.  Mr. Rossi serves as Vice President and Chief  Technology
Officer pursuant to an employment agreement.

Mr.  Cassetta and Mr.  Rossi,  each an officer and director of the Company,  Mr.
Haller, an officer of the Company, and Ms. Talmadge and Mr. Perry,  directors of
the  Company,  failed to file an Annual  Statement  of  Beneficial  Ownership of
Securities  on Form 5 for the fiscal year ended June 30, 1999,  each  reflecting


                                      -43-

<PAGE>

the receipt of certain stock options. Messrs. Guazzoni,  Steele and Wood, each a
director  of the  Company,  failed to file an Initial  Statement  of  Beneficial
Ownership Securities on Form 3 when they became directors.  On October 25, 1999,
Messrs.  Cassetta,  Rossi, Haller, Steele and Ms. Talmadge filed the appropriate
Form 3 or Form 5. The Company  anticipates that each of such remaining directors
will take such action as may be necessary to promptly file  appropriate  Forms 3
and 5.


                                      -44-
<PAGE>


Item 10.   Executive Compensation

The  following  table sets forth  information  concerning  annual and  long-term
compensation,  paid or  accrued,  for the Chief  Executive  Officer and for each
other executive  officer (the "Named  Executive  Officers") of the Company whose
compensation  exceeded $100,000 in fiscal 1999 for services in all capacities to
the Company during the last three fiscal years.  No other  executive  officer of
the Company received compensation in excess of $100,000 in fiscal 1999.

<TABLE>
<CAPTION>
                                           Summary Compensation Table
                                           Annual Compensation                      Long-term Compensation
                           ---------------------------------------------------- ------------------------------
                                                                                 Restricted       Securities
Name and Principal         Fiscal                               Other Annual    Stock Awards      Underlying      All Other
Position                   Year        Salary        Bonus     Compensation (1)       (2)            Options     Compensation
-------------------------- -------- ------------- ----------  --------------- --------------- -------------- --------------
<S>                        <C>       <C>          <C>           <C>             <C>               <C>          <C>
Sebastian E. Cassetta        1999    $  155,000   $  5,414       $   9,750      $  185,471(3)     92,000 (5)   $ 24,416 (8)
Chief Executive              1998       125,000         --           9,750              --        37,500 (6)        --  (9)
Officer                      1997       125,000         --           9,750              --        16,666 (6)        --  (9)

Mario F. Rossi               1999       122,500      3,249           6,000          61,824(4)     67,500 (7)        --  (9)
Vice President               1998        92,400         --           6,000              --        20,834 (6)        --  (9)
of Operations                1997        75,000         --           6,000              --         4,416 (6)        --  (9)
</TABLE>


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

(2)  The Named Executive Officers did not receive any Restricted Stock Awards or
     LTIP Payouts in 1998 or 1997.

(3)  On December  29,  1998,  the Board of  Directors  approved  the sale to Mr.
     Cassetta of 618,239 shares of restricted stock representing 9% of the fully
     diluted  shares  of  Common  Stock of the  Company.  Compensation  has been
     determined  as the  number  of shares  awarded  to Mr.  Cassetta  times the
     closing  price of the  Company's  Common Stock on December 29, 1998 ($2.50)
     less the consideration to be paid by Mr. Cassetta.  At June 30, 1999, based
     upon the closing bid price ($1.50) of the Company's Common Stock, the value
     of Mr.  Cassetta's  shares  was $0.  On  October  13,  1999,  the  Board of
     Directors agreed to reprice the shares granted to Mr. Cassetta to $.75  per
     share, the fair value of the shares at that date.

(4)  On December 29, 1998, the Board of Directors approved the sale to Mr. Rossi
     of 206,080 shares of restricted stock  representing 3% of the fully diluted
     shares of Common Stock of the Company.  Compensation has been determined as
     the number of shares  awarded to Mr.  Rossi times the closing  price of the
     Company's Common Stock on December 29, 1998 ($2.50) less the  consideration
     to be paid by Mr. Rossi. At June 30, 1999, based upon the closing bid price
     ($1.50) of the Company's  Common Stock, the value of Mr. Rossi's shares was
     $0. On October  13,  1999,  the Board of  Directors  agreed to reprice  the
     shares granted to Mr. Rossi to $.75 per share, the fair value of the shares
     at that date.

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

(6)  Such  options  were  cancelled  when repriced  options were granted in lieu
     thereof in fiscal 1999.

(7)  Includes  options for the purchase of 27,250  shares  which were  cancelled
     when  repriced  options to purchase a like number of shares were granted in
     lieu thereof.

                                      -45-
<PAGE>


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

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

Stock Options

The following table sets forth information with respect to stock options granted
to the Named Executive Officers during fiscal year 1999:
<TABLE>
<CAPTION>
                                          Option Grants in Fiscal 1999
                                            (Individual Grants) (1)
                                          ----------------------------
                                 Number of            % of Total Options
                           Securities Underlying    Granted to Employees in     Exercise       Expiration
Name                          Options Granted             Fiscal 1999             Price           Date
------------------------   ---------------------    ------------------------   ----------      ----------
<S>                        <C>                      <C>                        <C>             <C>
Sebastian E. Cassetta               17,000                  3.66%              $ 1.625          11/19/08
                                    37,500                  8.08                 1.290          10/07/08
                                    37,500 (2)              8.08                 2.530           8/06/08

Mario F. Rossi                      17,000                  3.66                 1.625          11/19/08
                                    25,250                  5.44                 1.290          10/07/08
                                    25,250 (2)              5.44                 2.530           8/06/08
</TABLE>

(1)  No stock  appreciation  rights ("SARs") were granted to the Named Executive
     Officers during fiscal 1999.

(2) Cancelled on October 8, 1998.

The  following  table sets  forth  information  as to the number of  unexercised
shares of Common Stock  underlying  stock  options and the value of  unexercised
in-the-money stock options at fiscal year end:

<TABLE>
<CAPTION>

                              Aggregated Option Exercises in Last Fiscal Year and
                                        Fiscal Year End Option Value (1)
                              ---------------------------------------------------                    Value of
                                                                      Number of Unexercised         Unexercised
                                                                      Securities Underlying        In-The-Money
                                                                        Options at Fiscal           Options at
                                                                             Year End             Fiscal Year End
                                 Shares Acquired          Value            Exercisable/            Exercisable/
Name                               on Exercise          Realized          Unexercisable            Unexercisable
------------------------------   ----------------      ----------     ----------------------      ----------------
<S>                              <C>                   <C>            <C>                         <C>
Sebastian E. Cassetta                  --                  --             27,249/27,250            $3,937/$3,937

Mario F. Rossi                         --                  --             21,124/21,125            $2,651/$2,651
</TABLE>

(1)  No SARs were  granted to, or  exercised  by, the Named  Executive  Officers
     during fiscal 1999.


                                      -46-
<PAGE>


(2)  Value is based on the closing bid price of the  Company's  Common  Stock as
     reported  by the OTC  Bulletin  Board on June  30,  1999  ($1.50)  less the
     exercise price of the option.

Employment Agreements

The  Company  and  Mr.  Cassetta  have  entered  into  an  employment  agreement
("Cassetta  Agreement"),  effective January 1, 1999 and expiring on December 31,
2001, providing for (i) base compensation of $185,000 per annum, (ii) additional
compensation of up to 100% of base compensation,  (iii) continuation of existing
life and disability  insurance  policies,  (iv) all benefits  available to other
employees  and (v)  the  sale  to him of  618,239  shares  of  restricted  stock
representing 9% of the fully diluted shares of Common Stock of the Company.  Mr.
Cassetta's additional compensation will be equal to 10% of his base compensation
for each 10% increase in sales during the first year of the Cassetta  Agreement,
subject to a maximum of 100% of base  compensation.  In each  subsequent year of
the Cassetta Agreement,  Mr. Cassetta will receive additional compensation equal
to 5% of his base compensation for each 5% increase in sales, subject again to a
maximum of 100% of base  compensation.  The purchase  price ($2.20 per share) of
the  restricted  stock is equal to 110% of fair  market  value of the  Company's
Common Stock for the 30 days preceding the date of the stock purchase  agreement
("Cassetta Stock Purchase  Agreement")  contemplated by the Cassetta  Agreement.
The purchase  price will be paid with a 5 year,  non-recourse  promissory  note,
secured by the stock, at an interest rate of 6.75%,  which is 1% below the prime
rate on the date of the Cassetta  Stock Purchase  Agreement.  The Cassetta Stock
Purchase  Agreement  provides the Company with  certain  repurchase  options and
provides Mr.  Cassetta with a put option in the event of the  termination of his
employment.  In the event that Mr. Cassetta's  employment is terminated  without
cause, Mr. Cassetta will receive a lump sum severance  payment equal to his full
base salary for the remaining term of the Cassetta Agreement,  discounted to the
present value using an 8% discount rate and continuing  benefit coverage for the
lesser of 12 months or the remaining term of the Cassetta Agreement.  On October
13,  1999,  the Board of Directors  agreed to reprice the shares  granted to Mr.
Cassetta to $.75 per share, the fair value of the shares at that date.

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


                                      -47-
<PAGE>


Item 11.   Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of October 5, 1999, certain  information with
respect to the beneficial ownership of the Common Stock by (i) each person known
by the Company to beneficially own more than 5% of the outstanding  shares, (ii)
each director of the Company,  (iii) each Named  Executive  Officer and (iv) all
executive officers and directors of the Company as a group.  Except as otherwise
indicated,  each person listed below has sole voting and  investment  power with
respect to the shares of Common Stock set forth opposite such person's name.


<TABLE>
<CAPTION>
       Name and Address of              Amount and Nature of          Percent of
       Beneficial Owner (1)             Beneficial Ownership (2)  Outstanding Shares (3)
       --------------------             --------------------      ------------------
<S>                                     <C>                       <C>
Kevin Kimberlin                                450,000 (4)               24.59%
c/o Spencer Trask Securities, Inc.
535 Madison Avenue
New York, New York 10022

Data Transmission Network Corporation          303,000 (5)               18.01%
9110 West Dodge Road
Omaha, Nebraska 68114

Sebastian E. Cassetta                          277,132 (6)               17.47%
c/o SmartServ Online, Inc.
Metro Center, One Station Place
Stamford, CT 06902

Steven T. Francesco                            229,241 (7)               16.42%
23 Lakeview Avenue
New Canaan, Connecticut 06840

Spencer Trask Securities, Inc.                 233,333 (8)               14.46%
535 Madison Avenue
New York, New York 10022

Arnhold & S. Bleichroeder                      196,470                   14.24%
1345 Avenue of the Americas
New York, New York 10105

Steven Rosner                                  207,500 (9)               13.07%
1220 Mirabeau Lane
Gladwyn, Pennsylvania 19035

Steven Harrington                              104,167 (10)               7.02%
GSB Building
One Belmont Avenue, Suite 417
Bala Cynwyd, Pennsylvania 19004

Mario F. Rossi                                  84,934 (11)               5.80%
c/o SmartServ Online, Inc.
Metro Center, One Station Place
Stamford, CT 06902
</TABLE>


                                      -48-
<PAGE>


Claudio Guazzoni                                70,809 (12)               4.99%

L. Scott Perry                                  15,833 (13)               1.14%

Catherine Cassel Talmadge                       15,416 (13)               1.11%

Charles R. Wood                                 15,074 (14)               1.08%

Robert H. Steele                                14,166 (15)               1.02%

All executive officers and directors
as a group (8 persons)                         512,246 (16)              28.54%


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

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

(3)  Represents  the number of shares of Common Stock  beneficially  owned as of
     October 5, 1999,  by each named person or group,  expressed as a percentage
     of the sum of all of the shares of such class  outstanding  as of such date
     and the number of shares not outstanding,  but  beneficially  owned by such
     named person or group.

(4)  Represents 450,000 shares of Common Stock subject to currently  exercisable
     warrants.

(5)  Represents 303,000 shares of Common Stock subject to currently  exercisable
     warrants.

(6)  Includes  27,249  shares of Common Stock  subject to currently  exercisable
     warrants and 189,181 shares of Common Stock pursuant to a restricted  stock
     purchase  agreement  between the Company and Mr.  Cassetta.  Also  includes
     2,051 shares held in trust for the benefit of Mr. Cassetta's wife.

(7)  Includes  16,667  shares of Common Stock  subject to currently  exercisable
     warrants.

(8)  Represents 233,333 shares of Common Stock subject to currently  exercisable
     warrants.

(9)  Represents 207,500 shares of Common Stock subject to currently  exercisable
     warrants.

(10) Represents 104,167 shares of Common Stock subject to currently  exercisable
     warrants.

(11) Includes  21,124  shares of Common Stock  subject to currently  exercisable
     warrants and 63,060 shares of Common Stock  pursuant to a restricted  stock
     purchase agreement between the Company and Mr. Rossi.

(12) Includes  14,166  shares of Common Stock  subject to currently  exercisable
     options.  Also  includes  32,953 shares of Common Stock owned by Zanett and
     23,690  shares of Common Stock  subject to


                                      -49-
<PAGE>


     currently  exercisable  warrants owned by Zanett.  Mr.  Guazzoni  disclaims
     beneficial ownership of these shares to the extent they exceed his interest
     in Zanett. Mr. Guazzoni is a managing director and principal of Zanett.

(13) Includes  15,000  shares of Common Stock  subject to currently  exercisable
     options.

(14) Includes  14,500  shares of Common Stock  subject to currently  exercisable
     options.

(15) Includes  14,166  shares of Common Stock  subject to currently  exercisable
     options.

(16) Includes 32,953 shares of Common Stock owned by Zanett and 23,690 shares of
     Common Stock  subject to currently  exercisable  warrants  owned by Zanett,
     252,241  shares  of Common  Stock  subject  to  restricted  stock  purchase
     agreements,  2,051  shares held in trust for the benefit of Mr.  Cassetta's
     wife and 137,370  shares of Common Stock  subject to currently  exercisable
     options issued to the Named Officers and Directors.

Changes in Control

The Company and each of Messrs.  Cassetta  and  Francesco  have  entered into an
agreement  with ZCI dated  September 29, 1997, as  subsequently  amended,  which
provides,  among other  things,  that for a period of 5 years,  upon an event of
default  under the Prepaid  Warrants,  the Company  will, at the request of ZCI,
appoint  such number of  designees  of ZCI to its Board of Directors so that the
designees  of ZCI will  constitute  a  majority  of the  members of the Board of
Directors of the Company. Further, Messrs. Cassetta and Francesco have agreed to
vote their  shares of Common  Stock,  representing  approximately  19.81% of the
outstanding stock of the Company, and any shares they may acquire in the future,
in favor of the designees of ZCI at each Annual Meeting of  Stockholders  of the
Company at which Directors are elected.

Item 12.   Certain Relationships and Related Transactions

On July 30, 1998, the Company entered into an agreement with, among others,  ZCI
and Zanett, in contemplation of a specific financing transaction.  The agreement
provided  that  upon 61 days  written  notice  prior to the date of the  Private
Placement  Memorandum  relating  thereto,  Zanett could require that the Company
exchange some or all of the 111,700  warrants owned by it into a pro-rata number
of  shares  up to a  maximum  of  18,616.  Such  financing  never  occurred  and
presently,  there  is  disagreement  as to each  parties'  relative  rights  and
obligations under this agreement.  Claudio Guazzoni,  a director of the Company,
is a principal of ZCI and Zanett.

On January 26, 1999,  the Company and DTN signed a letter of intent  whereby the
Company would be merged with a subsidiary of DTN. The transaction was subject to
the execution of a definitive  merger  agreement.  On June 24, 1999, the Company
and DTN  entered  into an  agreement  that  terminated  the letter of intent and
amended the Software  License and Service  Agreement  dated April 23,  1998.  In
consideration  of the  receipt of $5.175  million,  the  Company  granted DTN an
exclusive  perpetual  worldwide  license  to the  Company's  Internet-based  (i)
real-time  stock quote product,  (ii) an online trading vehicle for customers of
small and medium sized brokerage  companies,  (iii) an administrative  reporting
package for brokers of small and medium sized brokerage  companies,  and (iv) an
order  entry/routing  system.  Additionally,  the Company  received  $324,000 in
exchange for an agreement to issue  warrants to purchase  300,000  shares of the
Company's  Common Stock at an exercise price of $8.60 per share. The Company has
agreed to  continue  to operate  these  products  and  provide  maintenance  and
enhancement  services in exchange for a percentage of the revenues earned by DTN
therefrom.  The cost of the Company's commitment to provide such maintenance and
enhancement  services is limited to a maximum of 20% of the  revenues  earned by
the


                                      -50-
<PAGE>


Company.  Charles R. Wood, a director of the Company, is a Senior Vice President
of Data Transmission Network Corporation and President of its Financial Services
Division.

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


                                      -51-
<PAGE>


Item 13.   Exhibits and Reports on Form 8-K

(a)      Index to Exhibits

Exhibit  Description

3.1      Amended and Restated Certificate of Incorporation of the Company**

3.2      Certificate  of Amendment to the Amended and  Restated  Certificate  of
         Incorporation filed on June 1, 1998 +

3.3      Certificate  of Amendment to the Amended and  Restated  Certificate  of
         Incorporation filed on October 16, 1998 +

3.4      By-laws of the Company, as amended**

4.1      Specimen Certificate of the Company's Common Stock**

10.1     Information  Distribution  License  Agreement dated as of July 18, 1994
         between the Company and S&P ComStock, Inc.**

10.2     New York Stock Exchange,  Inc.  Agreement for Receipt and Use of Market
         Data dated as of August 11,  1994  between the Company and the New York
         Stock Exchange, Inc.**

10.3     The Nasdaq Stock Market,  Inc. Vendor Agreement for Level 1 Service and
         Last Sale Service  dated as of  September  12, 1994 between the Company
         and The Nasdaq Stock Exchange, Inc. ("Nasdaq")**

10.4     Amendment to Vendor Agreement for Level 1 Service and Last Sale Service
         dated as of October 11, 1994 between the Company and Nasdaq**

10.5     Lease Agreement dated as of March 4, 1994,  between the Company and One
         Station  Place,  L.P.  regarding the Company's  Stamford,  Connecticut,
         offices**

10.6     Lease  Modification  and Extension  Agreement,  dated February 6, 1996,
         between the Company and One Station Place, L.P. regarding the Company's
         Stamford, Connecticut, offices***

10.7     Form of Registration  Rights Agreement  between the Company and certain
         investors**

10.8     Form of 1996 Stock Option Plan*****

10.9     Form of Registration  Rights  Agreement issued to purchasers of Prepaid
         Common Stock Purchase Warrants****

10.10    Consulting Agreement with Bruno Guazzoni****

10.11    Agreement  between  Sprint/United   Management  Company  and  SmartServ
         Online, Inc. dated September 26, 1997 *

10.12    Asset  Purchase and  Software  License and Service  Agreements  between
         SmartServ Online, Inc. and Data Transmission Network Corporation, dated
         April 23, 1998******

10.13    Amendment   to the  Software and License  Agreement  between  SmartServ
         Online, Inc. and Data  Transmission Network Corporation, dated June 24,
         1999.  Portions  of  this exhibit (indicated  by  asterisks)  have been
         omitted  pursuant to a request for confidential  treatment  pursuant to
         Rule 24b-2  and  the omitted  portions have been filed  separately with
         the Securities and Exchange Commission +

10.14    Letter  agreement dated August 26, 1999,  amending the Amendment to the
         Software and License Agreement between SmartServ Online,  Inc. and Data
         Transmission  Network  Corporation,  dated  June 24, 1999. Portions  of
         this exhibit (indicated  by  asterisks)  have been omitted  pursuant to
         a request for confidential  treatment  pursuant to Rule 24b-2   and the
         omitted  portions have been filed  separately  with  the Securities and
         Exchange Commission +

10.15    Amended and Restated  Employment  Agreement  between  SmartServ Online,
         Inc. and Sebastian E. Cassetta, dated January 1, 1999 +

10.16    Restricted Stock Purchase Agreement between SmartServ Online,  Inc. and
         Sebastian E. Cassetta, dated December 29, 1999 +

10.17    Employment Agreement between SmartServ Online, Inc. and Mario F. Rossi,
         dated January 1, 1999 +

10.18    Restricted Stock Purchase Agreement between SmartServ Online,  Inc. and
         Mario F. Rossi, dated December 29, 1999 +


                                      -52-
<PAGE>


25     Financial Data Schedule +

+      Filed herewith

*      Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
       fiscal year ended June 30, 1997

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

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

****   Filed as an exhibit to the Company's Current  Report on Form 8-K/A for an
       event dated September 30, 1997

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

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

(b)    Reports on Form 8-K

       None


                                      -53-
<PAGE>


Exhibit 25  Financial Data Schedule

THIS SCHEDULE  CONTAINS  SUMMARY  INFORMATION  EXTRACTED  FROM THE JUNE 30, 1999
FINANCIAL  STATEMENTS OF SMARTSERV ONLINE, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.


                                                            June 30, 1999
                                                            -------------

Cash and cash items                                         $  2,165,551
Marketable securities                                                  0
Notes and accounts receivable - trade:
       Billed                                                    348,278
       Unbilled                                                        0
Allowance for doubtful accounts                                        0
Inventory and prepaid items                                       50,150
Total current assets                                           2,563,979
Property, plant and equipment                                  1,064,157
Accumulated depreciation                                         565,709
Total assets                                                   3,820,598
Total current liabilities                                      4,386,319
Bonds, mortgages and similar debt                                      0
Preferred stock - mandatory redemption                                 0
Preferred stock - no mandatory redemption                              0
Common stock                                                      11,998
Other stockholders' equity (deficit)                         (4,719,298)
Total liabilities and stockholders' equity                     3,820,598
Net sales of information services                              1,443,781
Total revenues                                                 1,443,781
Costs of services                                                994,465
Total costs and expenses of sales                              1,187,653
Other costs and expenses                                       4,006,599
Provision for doubtful accounts and notes                              0
Interest and amortization of debt discount                     3,378,422
Income/(loss) before taxes                                   (7,124,126)
Income tax expense                                                     0
Income/(loss) from continuing operations                     (7,124,126)
Discontinued operations                                                0
Extraordinary items                                                    0
Cumulative effect - changes in accounting principles                   0
Net income/(loss)                                            (7,124,126)
Basic earnings/(loss) per share                                   (6.44)
Earnings/(loss) per share - fully diluted                         (6.44)


                                      -54-
<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/ Sebastian E. Cassetta
                                           ------------------------------------
                                               Sebastian E. Cassetta
                                               Chairman of the Board
                                               Chief Executive Officer

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

<TABLE>
<CAPTION>

         Signature                           Title                       Date
         ---------                           -----                       ----
<S>                                 <C>                             <C>
/s/ Sebastian E. Cassetta           Chairman of the Board,          October 27, 1999
---------------------------------   Chief Executive Officer,
    Sebastian E. Cassetta           Secretary and Director

/s/ Mario F. Rossi                  Vice President and              October 27, 1999
---------------------------------   Director
    Mario F. Rossi

/s/ Thomas W. Haller                Vice President, Treasurer       October 27, 1999
---------------------------------   and Chief Financial Officer
    Thomas W. Haller

                                    Director                        October __, 1999
---------------------------------
    Claudio Guazzoni

                                    Director                        October ___, 1999
---------------------------------
    Robert H. Steele

                                    Director                        October ___, 1999
---------------------------------
    L. Scott Perry

/s/ Catherine Cassel Talmadge       Director                        October 27, 1999
---------------------------------
    Catherine Cassel Talmadge

/s/ Charles R. Wood                 Director                        October 27, 1999
----------------------------------
    Charles R. Wood

</TABLE>

                                      -55-