UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

[ X ]     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended June 30, 2005
                                                 -------------

                         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)


             2250 Butler Pike, Suite 150, Plymouth Meeting, PA  19462
--------------------------------------------------------------------------------
                    (Address of Principal Executive Offices)


                                 (610) 397-0689
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes  X    No
                                                              ---      ---

The number of shares of common stock, $.01 par value, outstanding as of August
15, 2005 was 6,302,889.

Transitional Small Business Disclosure Format (check one):

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

<PAGE>
                             SmartServ Online, Inc.

                                   Form 10-QSB

                                      Index

<TABLE>
<CAPTION>

PART 1.       FINANCIAL INFORMATION
<S>          <C>

Item 1.       Consolidated Financial Statements

           Consolidated Balance Sheets - June 30, 2005 (unaudited) and December 31, 2004..........................2

           Consolidated Statements of Operations - three months ended June 30,
           2005 and 2004 and six months ended June 30, 2005 and 2004 (unaudited)..................................4

           Consolidated Statement of Changes in Stockholders' Equity - six months
           ended June 30, 2005 (unaudited)........................................................................5

           Consolidated Statements of Cash Flows - six months ended June 30, 2005
           and 2004 (unaudited) 6

           Notes to Consolidated Financial Statements (unaudited).................................................7

Item 2.       Management's Discussion and Analysis or Plan of Operation..........................................18

Item 3.       Controls and Procedures............................................................................25


PART II.      OTHER INFORMATION

Item 1.       Legal Proceedings..................................................................................25

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds........................................25

Item 3.       Defaults Upon Senior Securities....................................................................25

Item 6.       Exhibits ..........................................................................................25

              Signatures.........................................................................................26
</TABLE>

                                       1
<PAGE>

                             SmartServ Online, Inc.

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                          June 30,           December 31,
                                                                            2005                 2004
                                                                   -----------------    ------------------
                                                                      (Unaudited)
<S>                                                                  <C>                  <C>
Assets
Current assets
   Cash and cash equivalents                                         $      334,817       $     1,792,856
   Investments                                                              100,349                99,697
   Accounts receivable, net                                               3,464,339                92,496
   Prepaid expenses                                                          24,891               349,040
                                                                   -----------------    ------------------
Total current assets                                                      3,924,396             2,334,089
                                                                   -----------------    ------------------

Property and equipment, net                                                  58,264                73,500

Goodwill                                                                  1,743,819                    --

Intangibles, net of accumulated amortization of $197,121 and                837,768               911,688
      $123,201 as of June 30, 2005 and December 31, 2004,
       respectively
Security deposits                                                            18,787                18,237
                                                                   -----------------    ------------------
Total Assets                                                         $    6,583,034       $     3,337,514
                                                                   =================    ==================


See accompanying notes.

</TABLE>

                                       2
<PAGE>



                             SmartServ Online, Inc.

                           Consolidated Balance Sheets


<TABLE>
<CAPTION>

                                                                               June 30,               December 31,
                                                                                 2005                     2004
                                                                          --------------------     -------------------
                                                                              (Unaudited)
<S>                                                                          <C>                     <C>
Liabilities and Stockholders' Equity
Current liabilities
   Accounts payable                                                          $    4,052,620          $       446,528
   Accrued liabilities                                                            2,051,003                1,419,248
   Current portion of note payable                                                   32,956                   36,898
                                                                          --------------------     -------------------
Total current liabilities                                                         6,136,579                1,902,674
                                                                          --------------------     -------------------

Note payable                                                                             --                   13,415

Commitments and Contingencies  (Note 7)

Stockholders' Equity
Convertible preferred stock - $0.01 par value
   Authorized - 1,000,000 shares
   Issued and outstanding - 789,932 and 862,282 shares, aggregate liquidation
preference of $14,578,209 and $14,056,639 as of June 30, 2005 and December 31,
2004, respectively                                                                    7,899                    8,623
Common stock - $.01 par value
   Authorized - 40,000,000 shares
   Issued - 6,276,942 shares and 3,978,445 shares ; outstanding - 6,147,889
      shares and 3,849,392 shares as of June 30, 2005 and
      December 31, 2004, respectively                                                62,770                  39,785
Additional paid-in capital                                                      105,993,864             103,877,486
Unearned compensation                                                            (1,137,323)             (1,363,663)
Accumulated deficit                                                            (104,317,102)           (100,977,153)
                                                                          --------------------     -------------------
                                                                                    610,108               1,585,078
                                                                          --------------------     -------------------
Treasury stock, 129,053 shares at cost                                             (163,653)               (163,653)
                                                                          --------------------     -------------------
Total stockholders' equity                                                          446,455               1,421,425
                                                                          --------------------     -------------------

Total Liabilities and Stockholders' Equity                                  $     6,583,034         $     3,337,514
                                                                          ====================     ===================

</TABLE>

See accompanying notes.

                                       3
<PAGE>



                             SmartServ Online, Inc.

                      Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                 Three Months                               Six Months
                                                                 Ended June 30                             Ended June 30
                                                    --------------------------------------   ---------------------------------------
                                                           2005                  2004               2005                 2004
                                                    ------------------   -----------------   -----------------   -------------------
<S>                                                 <C>                 <C>                <C>                  <C>
Revenues                                             $  12,665,795        $      114,004     $  24,159,646       $      187,715
                                                    ------------------   -----------------   -----------------   -------------------
Costs and expenses:
   Direct  costs of revenues                             (12,892,081)            (674,729)       (24,378,776)           (981,595)
   Sales and marketing expenses                             (258,447)             (98,514)          (519,138)           (142,220)
   General and administrative expenses                      (347,615)            (704,185)        (2,378,144)         (1,365,134)
   Stock-based compensation                                 (113,170)             893,034           (226,340)           (639,107)
                                                     ------------------   ----------------   -----------------   -------------------

   Total costs and expenses                              (13,611,313)            (584,394)       (27,502,398)         (3,128,056)
                                                     ------------------   ----------------   -----------------   -------------------

Loss from operations                                        (945,518)            (470,390)        (3,342,752)         (2,940,341)
                                                     ------------------   ----------------   -----------------   -------------------

Other income (expense):
   Interest income                                             1,328                9,546              3,895              12,767
   Interest expense and other financing costs                   (483)            (154,948)            (1,092)         (2,092,029)
   Legal settlement                                               --                   --                 --            (196,800)
                                                     ------------------   ----------------   -----------------   -------------------
                                                                 845             (145,402)             2,803          (2,276,062)

Net loss                                             $      (944,673)     $    (615,792)     $    (3,339,949)    $    (5,216,403)
                                                     ==================   ================   =================   ===================

Preferred stock dividend accrued                          (1,207,403)         (1,102,254)         (2,401,538)         (2,016,094)
                                                     ------------------   ----------------   -----------------   -------------------
Net loss applicable to common shareholders           $    (2,152,076)     $   (1,718,046)    $    (5,741,487)    $    (7,232,497)
                                                     ==================   ================   =================   ===================

Basic and diluted loss per share                     $         (0.38)     $        (0.60)    $         (1.07)    $         (2.72)
                                                     ==================   ================   =================   ===================

Weighted average shares outstanding - basic and
   diluted                                                 5,734,936          2,870,230            5,348,734           2,658,889
                                                     ==================   ================   =================   ===================
</TABLE>

See accompanying notes.

                                       4
<PAGE>

                             SmartServ Online, Inc.
            Consolidated Statement of Changes in Stockholders' Equity
                         Six Months Ended June 30, 2005
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                      Common Stock         Series A Convertible
                                                                             Preferred Stock
                                                                                                     Additional
                                                   Shares      Par Value    Shares    Par Value   Paid-in Capital
                                                  ----------------------------------------------------------------
<S>                                              <C>         <C>           <C>      <C>          <C>
Balances at December 31, 2004                     3,978,445   $   39,785    862,282  $    8,623   $  103,877,486
Issuance of common stock to acquire KPCCD, Inc.   1,000,000       10,000         --          --       1,707,143
Issuance of warrants as compensation for                 --           --         --          --         825,429
  services
Issuance of warrants to vendor                           --           --         --          --          12,637
Issuance of common stock pursuant to an
antidilution  provision of a May 2000 stock
  purchase agreement                                500,000        5,000         --          --          (5,000)
Series A Preferred Stock and warrants                    --           --         --          --       1,879,968
Conversion of Series A Preferred Stock              723,497        7,235    (72,350)       (724)        ( 6,511)
Accretion of Series A Preferred Stock                    --           --         --          --      (1,879,968)
Dividends accrued on Series A Preferred Stock            --           --         --          --        (521,570)
Common  stock issued per settlement with
former officer                                       75,000          750         --          --         104,250
Amortization of unearned compensation                    --           --         --          --              --
Net loss for the period                                  --           --         --          --              --
                                                 ----------------------------------------------------------------
Balances at June 30, 2005                         6,276,942    $  62,770    789,932   $   7,899  $  105,993,864
                                                 ================================================================
</TABLE>

<TABLE>
<CAPTION>


                                                     Unearned
                                                   Compensation  Treasury Stock  Accumulated Deficit
                                                  --------------------------------------------------
<S>                                               <C>            <C>             <C>
Balances at December 31, 2004                     $  (1,363,663) $   (163,653)   $(100,977,153)
Issuance of common stock to acquire KPCCD, Inc.              --            --               --
Issuance of warrants as compensation for                     --            --               --
  services
Issuance of warrants to vendor                               --            --               --
Issuance of common stock pursuant to an
antidilution                                                 --            --               --
  provision of a May 2000 stock purchase
agreement
Series A Preferred Stock and warrants                        --            --               --
Conversion of Series A Preferred Stock                       --            --               --
Accretion of Series A Preferred Stock                        --            --               --
Dividends accrued on Series A Preferred Stock                --            --               --
Common  stock issued per settlement with
former officer                                               --            --               --
Amortization of unearned compensation                   226,340            --               --
Net loss for the period                                      --            --       (3,339,949)
                                                  --------------------------------------------------
Balances at June 30, 2005                         $  (1,137,323) $   (163,653)   $(104,317,102)
                                                  ==================================================
</TABLE>



See accompanying notes.

                                       5
<PAGE>


                             SmartServ Online, Inc.

                      Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    Six Months
                                                                  Ended June 30
                                                       -------------------------------------
                                                             2005                2004
                                                       ------------------   ----------------
Operating Activities
<S>                                                    <C>                  <C>
Net loss                                               $  (3,339,949)       $   (5,216,403)
Adjustments to reconcile net loss to net cash used
for operating activities:
    Depreciation and amortization                              95,878                   --
    Noncash compensation costs                                105,000              761,280
    Provision for doubtful accounts                            40,000                   --
    Noncash consulting services                               825,429              447,859
    Noncash payments to vendors                                12,637              223,099
     Amortization of deferred compensation                    226,340              639,107
    Amortization of deferred financing costs                       --            1,231,772
    Changes in operating assets and liabilities
       Accounts receivable                                 (3,411,843)              14,213
       Accrued interest receivable                                 --               47,004
       Prepaid expenses                                       324,149                4,512
           Prepaid compensation                                    --              133,127
       Accounts payable and accrued liabilities             3,716,277             (924,749)
       Deferred revenues                                           --              (37,500)
       Security deposit                                          (550)             (11,212)
                                                       ------------------   ----------------
    Net cash used for operating activities                 (1,406,632)          (2,687,891)
                                                       ------------------   ----------------

Investing Activities
Purchase of equipment                                          (6,722)             (91,193)
Purchase of KPCCD, Inc.                                       (26,676)                  --
Purchase of nReach, Inc.                                           --             (100,000)
Purchase of investments                                          (652)                  --
                                                       ------------------   ----------------
    Net cash used for investing activities                    (34,050)            (191,193)
                                                       ------------------   ----------------

Financing Activities
Proceeds from the issuance of series A convertible
  preferred stock and warrants - net                               --            8,591,275
Repayment of notes payable and accrued interest                    --           (1,391,504)

Notes payable                                                 (17,357)              66,925
                                                       ------------------   ----------------
    Net cash (used for) provided by financing
    activities                                                (17,357)           7,266,696
                                                       ------------------   ----------------

(Decrease) increase in cash and cash equivalents           (1,458,039)           4,387,612
Cash and cash equivalents- beginning of period              1,792,856              139,178
                                                       ------------------   ----------------

Cash and cash equivalents - end of period              $      334,817       $    4,526,790
                                                       ==================   ================

</TABLE>
                                       6
See accompanying notes.


<PAGE>

                             SmartServ Online, Inc.

              Notes to Unaudited Consolidated Financial Statements

                                  June 30, 2005


1.   Nature of Business and Operations

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

The Company, headquartered in Plymouth Meeting, PA, is transitioning to become a
Mobile Virtual Network Operator (MVNO) that plans to launch mobile phone service
in the first quarter of 2006 with low cost, prepaid minute plans, discounted
international long distance and the latest in mobile content such as ringtones,
mobile games and images.

SmartServ has an agreement with Sprint to utilize Sprint's Nationwide PCS
Network for its prepaid mobile phone service. Under this agreement, Sprint
wholesales wireless minutes from their network directly to SmartServ for resale
to its UPHONIA(TM) customers. SmartServ benefits from this agreement by
receiving access to Sprint's enhanced nationwide network with turnkey
reliability and performance. As an MVNO, SmartServ has the advantage of market
access without the need to build the telecom infrastructure necessary to
originate and terminate domestic wireless calls. Sprint benefits by gaining a
distribution and marketing partner that is focused on market development in a
niche that is secondary to Sprint (i.e., the immigrant, urban ethnic and youth
markets to be targeted by the Company).

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

Our financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. However, substantial doubt about
the Company's ability to continue as a going concern have been raised because we
have since our inception earned limited revenues and have incurred substantial
recurring operating losses, including net losses of $3,339,949 for the six month
period ended June 30, 2005 and $10,580,372 and $17,537,775 for the years ended
December 31, 2004 and 2003, respectively. Additionally, we have an accumulated
deficit of $104,317,102 at June 30, 2005.

                                       7
<PAGE>

In February 2004, the Company received $10 million in gross proceeds from its
private placement of Units consisting of shares of Series A Convertible
Preferred Stock and warrants to purchase common stock. The Company used the net
proceeds of approximately $8,600,000 from this offering to repay outstanding
obligations, including $1,391,500 that was used to repay Global Capital Funding
Group, LP, completion of a strategic acquisition and for general working capital
purposes. In particular, the Company used a significant portion of its working
capital to settle its accounts payable.

On March 30, 2005, after reviewing the Company's cash flow projections, the
board of directors approved a plan designed to enable us to have sufficient
working capital to support a reduced level of operations through March 2006. As
of June 30, 2005 and March 31, 2005, the Company had $435,166 and $992,676 in
cash and investments, respectively. Elements of the plan include: 1) maximizing
KPCCD's international calling card profits since the acquisition of KPCCD on
January 7, 2005 2) reducing the level of operating expenses by relocating our
hosting facility from an off site location to an on-site location and 3)
eliminating employee positions.

In April, 2005, the Company commenced implementing such plan and reduced our
staff to a total of 10 people as of July 2005. The Company also completed the
relocation of its hosting facility to its headquarters.

The Company has been pursuing additional financing, through some combination of
borrowings or the sale of equity or debt securities during 2005.

The Company is negotiating a binding agreement to obtain up to $3,000,000 of
financing from a combination of $500,000 of Senior Secured Convertible Notes and
up to $2,500,000 in Revolving Senior Secured Convertible Notes (the "Notes")
which availability will be based upon the Company's eligible accounts
receivable. The term is anticipated to be for 30 months from closing date.
Interest is anticipated to be payable monthly in arrears at prime plus 4%, in
cash or, at the option of the Company, subject to the conditions thereto being
met, in registered common stock valued at 85% of the volume weighted average
trading price for the common stock for the 10 days prior to the payment date. In
addition to anticipated receipt of funding based on the assets of the Company,
the anticipated structure allows for portions of the outstanding balance to be
converted into equity, thus creating additional availability under the facility
and increasing the funding amounts available to the Company. The Company would
have the right to prepay in cash all or a portion of the Notes at 115% of the
principal amount plus accrued interest to the date of repayment. The Company
would be required to prepay in cash, half of the outstanding Notes at 115% of
the principal amount plus accrued interest to the date of repayment on the
closing of a qualified offering as anticipated to be defined in the agreement
or, in the event that no qualified offering occurs during the term, at maturity.
Upon anticipated closing, the investor would be issued five year warrants to
purchase an aggregate number of shares equal to 50% of the investment amount on
an as converted basis. Such warrants would be exercisable on a cashless basis
and would be subject to full ratchet antidilution protection. The Company
expects to draw down approximately $2.4 million and fees from this facility and
is expected to use approximately $1.1 million (including fees) to post a letter
of credit in favor of Sprint as required by the Sprint contract. The balance of
the funds would be used for working capital. On August 19, 2005 the Company and
a lender entered into an escrow agreement whereby the lender transferred $2.4
million into an escrow account in anticipation of closing the transaction
described above. Funds are to be released from escrow pending finalization of
the terms related to the letter of credit.

The Company believes that its cash resources are sufficient to fund operating
losses and working capital requirements only through the third quarter of 2005.
As a result, the Company will need to raise additional financing, through some
combination of borrowings or the sale of equity or debt securities during 2005.
The Company is pursuing financing alternatives to fund the Company's cash
deficiency. The Company may not be able to raise sufficient additional debt,
equity or other capital on acceptable terms, if at all. Failure to generate
sufficient revenues, contain certain discretionary spending, achieve certain
other business objectives or raise additional funds could have a material
adverse affect on results of operations, cash flows and financial position,
including the Company's ability to continue as a going

                                       8
<PAGE>

concern, and may require it to significantly reduce, reorganize, discontinue or
shut down operations. The Company's consolidated financial statements do not
include any adjustments that might result from this uncertainty.

2.   Summary of Significant Accounting Policies

Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information, the instructions of Form 10-QSB
and Rule 310 of Regulation S-B of the Securities and Exchange Commission and,
therefore, do not include all information and notes necessary for a presentation
of results of operations, financial position and cash flows in conformity with
accounting principles generally accepted in the United States of America. The
balance sheet at December 31, 2004 has been derived from the audited
consolidated financial statements at that date, but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. The
consolidated financial statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2004. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of financial position and results
of operations have been made. Results of operations for the three and six months
ended June 30, 2005 are not necessarily indicative of those expected for the
year ending December 31, 2005.


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

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

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

Prepaid International Calling Card Revenue
------------------------------------------
Prepaid international calling card revenue is derived from the sale of prepaid
international calling cards to distributors. Revenue is recognized upon shipment
or delivery of prepaid international calling cards to distributors on a
non-recourse basis.

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

                                       9
<PAGE>

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

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

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

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

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

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

Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of our financial instruments approximate fair value due to
their terms and maturities. Financial instruments are held for other than
trading purposes.

Supplemental Cash Flow Information
----------------------------------
The Company considers all highly liquid investments with a maturity date of
three months or less when purchased to be cash equivalents. Therefore,
certificates of deposit have been recorded as investments.

During the quarter ended March 31, 2004, the Company issued 60,000 shares of
common stock amounting to $196,800 and a cash payment of $45,000 to a vendor in
settlement of the Company's obligation to that vendor. The issuance of shares of
common stock is considered a non-cash transaction for the purposes of the
Statement of Cash Flows.

In January 2004, in connection with a settlement with a vendor, the Company
issued a warrant to purchase 22,000 shares of common stock at $1.34 per share
and expiring in January 2007. The warrant was valued at $22,569. The issuance of
warrants to purchase common stock is considered a non-cash transaction for the
purposes of the Statement of Cash Flows.

                                       10
<PAGE>

During the quarter ended March 31, 2004, the Company converted notes payable and
accrued interest amounting to $3,122,302 into Series A convertible preferred
stock and warrants. This conversion is considered a non-cash transaction for the
purposes of the Statement of Cash Flows.


On January 7, 2005, the Company acquired the business of KPCCD, Inc., a prepaid
international calling card distributor. Cash paid for the business acquired is
comprised of:

   Fair value of assets acquired                   $     1,743,819
   Liabilities assumed                                          --
                                                   ----------------
   Purchase price, net of cash received                  1,743,819
   Common stock issued for business acquired            (1,717,143)
                                                   ----------------
   Net cash paid for business acquired             $        26,676
                                                   ================


Concentration of Credit Risk
----------------------------
Financial instruments that potentially subject SmartServ to concentrations of
credit risk consist of cash, investments and accounts receivable. The Company
places its cash deposits, including investments in certificates of deposit, with
high credit quality institutions. From time to time, a substantial amount of the
Company's cash may exceed federal depository insurance limits. However, the
Company has not experienced any losses in this area and management believes its
cash deposits are not subject to significant credit risk. At June 30, 2005 and
December 31, 2004, accounts receivable consist principally of amounts due from
prepaid international calling card distributors and from a major
telecommunications carrier. The Company performs periodic credit evaluations of
its customers and, if applicable, provides for credit losses in the financial
statements. As of June 30, 2005 a reserve for doubtful accounts was provided in
the amount of $40,000 related to a few distributors; as of December 31, 2004,
the Company did not believe a reserve for doubtful accounts was necessary.

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

On an ongoing basis, SmartServ reviews the future recoverability of its property
and equipment for impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable. When such events or
changes in circumstances do occur, an impairment loss is recognized if the
undiscounted future cash flows expected to be generated by the asset are less
than its carrying value.

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

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

The Company maintains several stock option plans for employees and directors
that generally provide for the granting of stock options for a fixed number of
common shares with an exercise price equal to the fair value of the shares at
the date of grant. The Company accounts for such grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). Accordingly, compensation expense is recognized to
the extent that the fair value of the stock exceeds the exercise price of the
option at the measurement date.

                                       11
<PAGE>

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

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

SmartServ's pro forma information is as follows:

<TABLE>
<CAPTION>
                                                      Three Months                                  Six Months
                                                      Ended June 30                               Ended June 30
                                         ----------------------------------------    -----------------------------------------
                                                2005                  2004                  2005                    2004
                                         ------------------    ------------------    ------------------     ------------------

<S>                                        <C>                   <C>                   <C>                    <C>
Net loss as reported                       $    (944,673)        $   (615,792)         $   (3,339,949)        $   (5,216,403)

Employee stock-based
compcompensation included in net loss            113,170             (893,034)                226,340                639,107

Employee stock-based compcompensation
pursuant to SFAS 123                            (565,216)            (445,531)             (1,201,460)              (610,316)
                                         ------------------    ------------------    ------------------     ------------------

Pro forma net loss                         $  (1,396,719)        $ (1,954,357)         $   (4,315,069)        $   (5,187,612)
                                         ==================    ==================    ==================     ==================

Basic and diluted loss per share           $       (0.38)        $      (0.60)         $        (1.07)        $        (2.72)
                                         ==================    ==================    ==================     ==================

Pro forma basic and diluted loss
per s per share                            $       (0.24)        $      (0.68)         $        (0.81)        $        (1.95)
                                         ==================    ==================    ==================     ==================
</TABLE>

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

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

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

                                       12
<PAGE>


3.   Acquisition

On January 7, 2005 SmartServ Online, Inc. (the "Company") acquired all of the
issued and outstanding capital stock of KPCCD, Inc. ("KPCCD") pursuant to a
Stock Purchase Agreement by and among Nimesh Patel, Ashok Patel and Kala Patel
(collectively, the "Sellers") and the Company, dated December 19, 2004
("Agreement"). Following the closing of this acquisition, KPCCD is a
wholly-owned subsidiary of the Company.

The Company issued 1,000,000 shares of its common stock, $.01 par value per
share, valued at $1,717,143 to the sellers as consideration for acquiring KPCCD.
Founded in 1998, KPCCD distributes international prepaid calling cards through a
network of hundreds of retail outlets along the East Coast. The acquisition of
KPCCD expands the Company's distribution network for the Company's planned
prepaid wireless products and services.

In connection with the closing of the transactions contemplated by the
Agreement, on January 7, 2005 KPCCD, the Sellers and Prima Communications, Inc.
("Prima"), a company controlled by the Sellers, entered into a Master Vendor
Agreement ("Vendor Agreement"). Under the Vendor Agreement, Prima sells to KPCCD
at cost all of KPCCD's requirements of international prepaid calling cards for
up to one year after January 7, 2005.

While the Vendor Agreement has a one year term, it is subject to early
termination upon the happening of certain enumerated events, including the
following:

      o     Automatic termination 30 days after the Company raises over $10
            million in an equity financing (a "Significant Event").

      o     If a Significant Event does not occur within nine months from the
            date of the Vendor Agreement, upon 30 days written notice by Prima
            if Prima is not satisfied with the Company's then current business
            plan.

      o     Immediately if the employment of the sellers is terminated by KPCCD
            (other than voluntary termination by the employee).

      o     Upon 5 days notice provided by KPCCD.

Upon any such termination, amounts outstanding at the time of the termination
shall be paid to Prima and, under certain circumstances, KPCCD will be required
to purchase from Prima all inventory that Prima is holding and has ordered for
future sale by KPCCD. Per Prima management inventory held and ordered by Prima
for future purchase by SmartServ consisted of international prepaid calling
cards amounting to approximately $1.2 million at June 30, 2005. Such inventory,
in its entirety, has been purchased by SmartServ and sold to SmartServ's
customers through the date of this filing and that the balance at June 30 is
representative of the approximate maximum amount that may be held by Prima for
future purchase..

The acquisition was accounted for using the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets purchased and
the liabilities assumed based upon their fair values at the date of acquisition.
The fair value of assets acquired was $1,743,819 resulting in a net purchase
price of $1,743,819.


SmartServ's pro forma information as if the KPCCD acquisition took place at the
beginning of the periods presented is as follows:


                                       13
<PAGE>

<TABLE>
<CAPTION>

                                                Three Months                                     Six Months
                                                Ended June 30                                  Ended June 30
                                   ----------------------------------------       -----------------------------------------
                                          2005                 2004                      2005                   2004
                                   ------------------    ------------------       ------------------     ------------------
<S>                                 <C>                   <C>                      <C>                     <C>
Pro forma revenues                  $   12,665,792        $   5,052,807            $   24,159,646          $   10,065,321

Pro forma net loss                        (944,673)            (578,657)               (3,339,949)             (5,142,133)


Pro forma preferred stock
dividend accrued                        (1,207,403)          (1,102,254)               (2,401,538)             (2,016,094)
                                   ------------------    ------------------       ------------------     ------------------

Pro forma net loss applicable
to common shareholders              $   (2,152,076)       $  (1,680,911)           $   (5,741,487)         $   (7,158,227)
                                   ==================    ==================       ==================     ==================

Pro forma basic and diluted loss
per share                           $        (0.38)       $       (0.43)           $        (1.07)         $        (1.96)
                                   ==================    ==================       ==================     ==================

Pro forma weighted average shares
Outstanding - basic and diluted          5,734,936            3,870,230                 5,348,734               3,658,889
                                   ==================    ==================       ==================     ==================
</TABLE>


4.   Equity Transactions

In February 2004, the Company completed the closing of a $10 million private
offering of investment Units consisting of shares of Series A and warrants to
purchase common stock ("2004 Private Placement"). The private offering consisted
of investment Units at the price of $15.00 per Unit. Each Unit consists of (i)
one share of Series A, each of which is initially convertible into 10 shares of
common stock, and (ii) one warrant for the purchase of 10 shares of common
stock. The Series A receives dividends at the rate of 8% per year payable
quarterly in cash or, in our sole discretion, in registered shares of our common
stock. The Series A is entitled to a liquidation preference equal to the
purchase price per Unit plus accrued and unpaid dividends. The Series A is not
redeemable. The warrants have an exercise price of $2.82 per share and expire in
February 2007. The Company is obligated to register the common stock upon
conversion of the Series A and exercise of the warrants. Holders of the Series A
have an optional right to convert to fully paid and non-assessable shares of
common stock on a one-for-ten basis (subject to adjustment) at any time prior to
the third anniversary date of the final closing date of February 27, 2004 (the
"Mandatory Conversion Date"). The Series A will be automatically converted into
common stock on a one-for-ten basis (subject to adjustment) upon the earliest of
(i) the Mandatory Conversion Date; or (ii) if, after two years from the date of
the final closing date of February 27, 2004, the common stock has a closing sale
price of $4.00 or more for twenty (20) consecutive trading days. The Company
also completed an additional $25,000 private offering of these Units to an
accredited investor in March 2004, which Units have the same terms as described
above other than the expiration date which will be March 2007. The Company used
the net proceeds of approximately $8,600,000 from this offering for repayment of
outstanding obligations and general working capital.

On January 7, 2005, the Company acquired KPCCD, Inc. by issuing 1,000,000 shares
of its common stock valued at $1,717,143 in exchange for all of the outstanding
shares of KPCCD, Inc.

                                       14
<PAGE>

On January 10, 2005, the Company granted to the Chairman of the Board of
Directors, Paul J. Keeler, warrants to purchase 250,000 shares of the Common
Stock at an exercise price of $2.10 per share, which was the closing stock price
of the common stock on the date of grant. The warrants were valued at $424,372.
The warrants have a 5 year term and are immediately exercisable and were issued
to Mr. Keeler for serving as the Chairman of the Board. The warrants were issued
in reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act.

In connection with consulting services provided by Steven Rosner and Brockington
Securities, Inc., the Company entered into consulting agreements dated March 31,
2004 for warrants to purchase 300,000 and 100,000 shares of common stock,
respectively, at $1.50 per share and expiring on March 31, 2007. The warrants
were valued at $902,367 and $300,787 respectively. During the second quarter of
2005 $75,198 and $25,066 of the warrants vested, respectively.

On January 28, 2005, SmartServ entered into an agreement with TecCapital, Ltd.
("TEC") pursuant to which TEC agreed to waive and release certain rights TEC has
under a certain stock purchase agreement dated May 12, 2000. TEC provided these
waivers and releases in consideration for the grant to TEC of 500,000 shares of
the Company's common stock. The Company believes that TEC is the beneficial
owner of more than ten percent of the Company's common stock. In the event that
both the acquisition of Telco Group is not consummated and a registration
statement covering all of TEC's shares of common stock is not declared effective
within 270 days after the date of the agreement, TEC may (in its sole
discretion) return all of the shares to the Company within 330 days from the
date of the agreement, and in such case the waivers and releases granted in the
agreement would become void and TEC could pursue any claims against the Company
as if such waivers and releases had never been granted.

The Company's inability to timely file its Form 10-KSB for its fiscal year ended
December 31, 2002 and a failure to have its SB-2 Registration Statement declared
effective by the SEC has affected the following registration rights held by some
of its shareholders and warrant holders.

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

Vertical Ventures Investments, LLC holds a warrant to purchase up to 22,476
shares of common stock that is subject to registration rights. The Registration
Statement covering the shares underlying this warrant is no longer effective.
The Company had until May 14, 2003 to cause the Registration Statement to again
become effective. The Company was unable to do so by May 14, 2003, so it accrued
a fee of $8,250 for the first month of the deficiency and a fee of $16,500 for
each month thereafter until the shares underlying the warrant are registered.
The total amount accrued as of June 30, 2005 was $202,125.

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

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

Pursuant to the terms of the 2004 Private Placement, the Company was required to
file a Registration Statement with the SEC and have it declared effective no
later than 120 days after April 30, 2004, or by August 29, 2004. The
Registration Statement was filed on May 13, 2004 but it has not yet been
declared effective by the SEC and as a result, the Company incurred liquidated
damages in the form of a monthly cash requirement equal to 2% of the aggregate
purchase price of the offering, or approximately $266,000 per month. Liquidated
damages were due monthly until the event of default is cured. The Company
proposed a settlement to limit the liquidated damages. In December 2004, in full
settlement of the default, the Company established a pool of 1,000,000 warrants
with an exercise price of $2.50 per share and a two year term. The pool of
warrants was allocated among each participant based on the investor's

                                       15
<PAGE>

proportionate participation in the 2004 Private Placement. The Company recorded
a financing expense of $1,782,125 as of December 31, 2004 related to the pool of
warrants. As of June 30, 2005, 68% of the representative warrant ownership of
the 1,000,000 warrants responded to the proposal and of that amount, 3% declined
the proposal. The remaining 29% have not responded to the offer.

In 2004, pursuant to an agreement with a vendor to whom the Company issued in
settlement 60,000 shares of common stock, the Company was obligated to file a
Registration Statement and have it declared effective within the same time frame
as required by the terms of the 2004 Private Placement. The Registration
Statement was timely filed but it has not been declared effective by the SEC. As
a result, the Company incurred late registration penalties of $2,000 per month,
or $14,000 as of June 30, 2005. The late registration penalties are due monthly
until the event of default is cured.

5.   Stock-based Compensation

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

In connection with entering into an Employment Agreement with the Company on
March 12, 2004, the Company granted to Robert Pons, the Company's President and
Chief Executive Officer, an option to purchase 1,300,000 shares of common stock,
which option has an exercise price of $1.50 per share and a term of 10 years.
The option provides for 557,141 shares to vest immediately and the remaining
742,859 shares to vest in equal amounts as of the last day of each calendar
quarter commencing March 31, 2004. The option will vest immediately upon a
Change of Control (as defined in his option agreement) or in the event Mr. Pons
is terminated Other Than for Cause or he terminates employment for Good Reason
(as each is defined under the Employment Agreement).

In connection with entering into an Employment Agreement with the Company on
March 12, 2004, the Company granted to Tim Wenhold, the Company's Executive Vice
President and Chief Operating Officer, an option to purchase 700,000 shares of
common stock, which option has an exercise price of $1.50 per share and a term
of 10 years. The option provides for 300,000 shares to vest immediately and the
remaining 400,000 shares to vest in equal amounts as of the last day of each
calendar quarter commencing March 31, 2004. The option will vest immediately
upon a Change of Control (as defined in his option agreement) or in the event
Mr. Wenhold is terminated Other Than for Cause or he terminates employment for
Good Reason (as each is defined under the Employment Agreement).

In December 2004, the Company granted to Messrs. Pons and Wenhold options to
purchase 400,000 and 250,000 shares of common stock, respectively, which options
have an exercise price of $2.07 per share and a term of 10 years. The options
vest monthly over three years commencing December 31, 2004. The options will
vest immediately upon a Change of Control (as defined in their option
agreements).

In January 2005, the Company issued 8,000 incentive stock options to employees.


Stock-based compensation for the three months ended June 30, 2005 and 2004 and
the six months ended June 30, 2005 and 2004 relate to the impact of options
granted at less than fair market value on the measurement date. The following
table illustrates the amount of stock-based compensation charges that would have
been recorded in the categories of the statement of operations had stock-based
compensation not been separately stated therein:

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                                      Three Months                          Six Months
                                                                       Ended June 30                      Ended June 30
                                                     --------------------------------------   -------------------------------------
                                                            2005                 2004               2005                2004
                                                     -------------------   ----------------   -----------------   -----------------
<S>                                                  <C>                    <C>               <C>                 <C>
Direct costs of revenues                             $      (36,563)        $     305,250     $       (73,126)    $     (231,001)

General and administrative expenses                         (76,607)              587,784            (153,214)          (408,106)
                                                     -------------------   ----------------   -----------------   -----------------
                                                     $     (113,170)        $     893,034     $      (226,340)    $     (639,107)
                                                     ===================   ================   =================   =================
</TABLE>

6.   Earnings Per Share

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

<TABLE>
<CAPTION>
                                                               Three Months                              Six Months
                                                              Ended June 30                             Ended June 30
                                                      -------------------------------------   -------------------------------------
                                                             2005                2004                2005                2004
                                                      ------------------   ----------------   -----------------   -----------------
Numerator:
<S>                                                   <C>                   <C>               <C>                  <C>
   Net loss applicable to common shareholders         $    (2,152,076)      $   (1,718,046)   $    (5,741,487)     $  (7,232,497)
                                                      ==================   ================   =================   =================
Denominator:
   Weighted average shares - basic and diluted              5,734,936            2,870,230          5,348,734          2,658,889
                                                      ==================   ================   =================   =================
Basic and diluted loss per common share
                                                      $        (0.38)       $        (0.60)   $         (1.07)     $       (2.72)
                                                      ==================   ================   =================   =================
</TABLE>


Outstanding employee stock options and other warrants to purchase an aggregate
of 21,118,043 and 19,071,531 shares of common stock at June 30, 2005 and 2004,
respectively, were not included in the computations of diluted earnings per
share and neither were convertible preferred stock, convertible into 7,899,320
and 8,764,910 shares of common stock at June 30, 2005 and 2004, respectively,
because the Company reported losses for the periods and therefore their
inclusion would be antidilutive.



7.   Commitments and Contingencies.

On or about August 17, 2004, Vertical Ventures Investments LLC filed a complaint
against the Company in the Supreme Court of the State of New York, County of New
York. The complaint sought payment of late registration penalties and attorneys
fees in the total amount of $350,000. While the Company intends to vigorously
defend such lawsuit, an unfavorable outcome would have a material adverse effect
on the Company's financial condition, results of operation and cash flows.
During 2003 former employees of SmartServ filed complaints against the Company
for unpaid wages arising from salary reductions implemented by the Company in
2002. Claims, totaling $65,000, are pending before the Connecticut Department of
Labor and the Connecticut Superior Court. Management believes these claims have
no merit and intends to defend the claims vigorously.

                                       17
<PAGE>

Item 2.    Management's Discussion and Analysis or Plan of Operation
-------

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

We are a Mobile Virtual Network Operator (MVNO) which is a mobile operator that
does not own or operate supporting infrastructure such as cell towers and
related support systems. We intend to launch an innovative prepaid wireless
service in 2005 under the brand name UPHONIA(TM). We intend to give consumers a
better choice in mobile phone service by bundling flexible prepaid minute plans,
free mobile content and discounted international long distance. With our
UPHONIA(TM) mobile phone service, prepaid customers will get the premium
features not usually available at the micro-retailers where they shop:

      o     Our UPHONIA(TM) brand will provide consumers flexible prepaid minute
            plans - UPHONIA(TM) customers do not sign up for one preset monthly
            contract, but instead are able to decide how many minutes they want
            each time they purchase additional minutes.

      o     UPHONIA(TM) customers can personalize their cell phones with
            thousands of ringtones, images, games and graphics. SmartServ makes
            it easy for UPHONIA(TM) customers to download mobile content for
            free - online at the UPHONIA(TM).com mobile content website,
            in-stores from UPHONIA(TM) mobile content kiosks, or right from
            their UPHONIA(TM) phones.

      o     UPHONIA(TM) customers will also be able to access discounted
            international long distance through their UPHONIA(TM) phones.

We have an agreement with Sprint to utilize Sprint's Nationwide PCS Network for
its prepaid mobile phone service. Under this agreement, Sprint wholesales
wireless minutes from their network directly to SmartServ for resale to its
UPHONIA(TM) customers. SmartServ benefits from this agreement by receiving
access to Sprint's enhanced nationwide network with turnkey reliability and
performance. As an MVNO, SmartServ has the advantage of market access without
the need to build the telecom infrastructure necessary to originate and
terminate domestic wireless calls. Sprint benefits by gaining a distribution and
marketing partner that is focused on market development in a niche that is
secondary to Sprint (i.e., the immigrant, urban ethnic and youth markets). The
agreement requires $1,000,000 in the form of a letter of credit to secure our
obligations under the Sprint contract which we have yet to provide.

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

Our financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. However, substantial doubt about
the Company's ability to continue as a going concern have been raised because we
have since our inception earned limited revenues and have incurred substantial
recurring operating losses, including net losses of $3,339,949 for the six month
period ended June 30, 2005 and $10,580,372

                                       18

<PAGE>

and $17,537,775 for the years ended December 31, 2004 and 2003, respectively.
Additionally, we have an accumulated deficit of $104,317,102 at June 30, 2005.

As of March 30, 2005, after reviewing the Company's cash flow projections, the
Company adopted a plan designed to enable us to have sufficient working capital
to support a reduced level of operations through March 2006. As of June 30, 2005
and March 31, 2005, the Company had $435,166 and $992,676 in cash and
investments, respectively. Elements of the plan include: 1) maximizing of
KPCCD's international calling card profits since the acquisition of KPCCD on
January 7, 2005, 2) reduce the level of operating expenses by relocating our
hosting facility from an off site location to an on-site location, and 3)
elimination of employee positions.

In April, 2005, the Company commenced implementing such plan and reduced our
staff to a total of 10 people as of July 2005. The Company also completed the
relocation of its hosting facility to its headquarters.

In addition, the Company is pursuing action items to improve its liquidity in
conjunction with beginning to execute its business strategy. The action items
include pursuing sources of financing through some combination of borrowings or
the sale of equity or debt securities during 2005.

The Company is negotiating a binding agreement to obtain up to $3,000,000 of
financing from a combination of $500,000 of Senior Secured Convertible Notes and
up to $2,500,000 in Revolving Senior Secured Convertible Notes (the "Notes")
which availability will be based upon the Company's eligible accounts
receivable. The term is anticipated to be for 30 months from closing date.
Interest is anticipated to be payable monthly in arrears at prime plus 4%, in
cash or, at the option of the Company, subject to the conditions thereto being
met, in registered common stock valued at 85% of the volume weighted average
trading price for the common stock for the 10 days prior to the payment date. In
addition to anticipated receipt of funding based on the assets of the Company,
the anticipated structure allows for portions of the outstanding balance to be
converted into equity, thus creating additional availability under the facility
and increasing the funding amounts available to the Company. The Company would
have the right to prepay in cash all or a portion of the Notes at 115% of the
principal amount plus accrued interest to the date of repayment. The Company
would be required to prepay in cash, half of the outstanding Notes at 115% of
the principal amount plus accrued interest to the date of repayment on the
closing of a qualified offering as anticipated to be defined in the agreement
or, in the event that no qualified offering occurs during the term, at maturity.
Upon anticipated closing, the investor would be issued five year warrants to
purchase an aggregate number of shares equal to 50% of the investment amount on
an as converted basis. Such warrants would be exercisable on a cashless basis
and would be subject to full ratchet antidilution protection. The Company
expects to draw down approximately $2.4million from this facility and is
expected to use approximately $1.1 million (including fees) to post a letter of
credit in favor of Sprint as required by the Sprint contract. The balance of the
funds would be used for working capital. On August 19, 2005 the Company and a
lender entered into an escrow agreement whereby the lender transferred $2.4
million into an escrow account in anticipation of closing the transaction
described above. Funds are to be released from escrow pending finalization of
the terms related to the letter of credit.

The Company believes that its cash resources are sufficient to fund operating
losses and working capital requirements only through the third quarter of 2005.
As a result, the Company will need to raise additional financing, through some
combination of borrowings or the sale of equity or debt securities during 2005.
The Company is pursuing financing alternatives to fund the Company's cash
deficiency. The Company may not be able to raise sufficient additional debt,
equity or other capital on acceptable terms, if at all. Failure to generate
sufficient revenues , contain certain discretionary spending, achieve certain
other business objectives or raise additional funds could have a material
adverse affect on results of operations, cash flows and financial position,
including the Company's ability to continue as a going concern, and may require
it to significantly reduce, reorganize, discontinue or shut down operations. The
Company's consolidated financial statements do not include any adjustments that
might result from this uncertainty.

                                       19

<PAGE>

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

On January 7, 2005, we acquired KPCCD, Inc., a New York City-based distributor
of international prepaid calling cards. Founded in 1998, KPCCD distributes
international prepaid calling cards through a network of hundreds of retail
outlets along the East Coast. We believe that the acquisition of KPCCD will
expand our distribution network for our planned prepaid wireless products and
services. The acquisition of KPCCD added approximately $24.0 million in revenues
during the six months ended June 30, 2005. In connection with the closing of the
transaction on January 7, 2005, KPCCD, the sellers of KPCCD and Prima
Communications, Inc. ("Prima"), a company controlled by the sellers, entered
into a Master Vendor Agreement ("Vendor Agreement"). Under the Vendor Agreement,
Prima sells to KPCCD at cost all of KPCCD's requirements of international
prepaid calling cards for up to one year after January 7, 2005. Upon termination
of the Vendor Agreement, under certain circumstances, KPCCD will be required to
purchase inventory which Prima is holding for resale to KPCCD and which Prima
has specifically ordered for resale to KPCCD. The Vendor Agreement can be
terminated prior to its one year term under certain conditions.

While we continued to support our lifestyle offerings of BREW and J2ME
applications in 2004, we augmented this set of offerings with the ability to
deliver static content (ringtones, graphics, and games). In August 2004, we
launched a consumer web site to sell this static content
(http://www.uphonia.com). Our ability to deliver this type of static content
allows us to sell directly to the consumer, removing the necessity of having to
broker these transactions through the wirelesses carriers. Additionally, it is
our expectation that this static content will become a key feature of our
branded wireless service when we launch our planned MVNO service in 2005. While
we maintain our BREW and J2ME infrastructure we have not undertaken the expense
to certify these applications for new phones since June, 2004.

As part of our cost reduction plan, we reduced the number of employees, as of
July 31, 2005, to a total of 10 people, all of whom were employed in the United
States. Five employees are at SmartServ headquarters in Plymouth Meeting, PA and
5 are employed at KPCCD in Jackson Heights, NY. If we are able to raise
additional capital to launch our MVNO business, we anticipate that staffing
requirements associated with the implementation of our plan of operation will
require the addition of approximately 3 people and the replacement of our
terminated headquarters employees.


Results of Operations

Quarter ended June 30, 2005 versus Quarter ended June 30, 2004

During the quarter ended June 30, 2005, we recorded revenues of $12,665,795.
Sales of prepaid international calling cards through our master distributor,
KPCCD Inc. which we acquired on January 7, 2005, represented $12,629,073 of that
amount. Revenues of $36,722 were earned through our licensing agreement with
QUALCOMM. During the quarter ended June 30, 2004, we recorded revenues of

                                       20

<PAGE>

$114,004, substantially all of which were earned through our licensing agreement
with QUALCOMM. During the quarter ended June 30, 2004 we recognized $33,333 from
the amortization of deferred revenues.

During the quarter ended June 30, 2005 we incurred direct costs of revenues
totaling $12,892,081, including prepaid international calling cards of
$12,732,072 since the acquisition of KPCCD, Inc on January 7, 2005. Also
included within direct costs of revenues during the quarter ended June 30, 2005,
were costs of services of $160,009, a decrease compared to the $674,729 for the
quarter ended June 30, 2004. Such costs decreased primarily due to reductions in
US personnel, communication costs and consulting expenses. Components of the
direct costs of service category consist primarily of prepaid international
calling cards ($12,732,072) and personnel costs ($155,611). For the quarter
ended June 30, 2004, components of the costs of service category consist
primarily of information and communication costs ($157,969), personnel costs
($334,570), consulting expenses ($131,936), facilities ($4,268) and travel costs
($14,474). Costs associated with the operations of nReach, that are included in
the categories listed above, were $339,090 for the quarter ended June 30, 2004.

During the quarter ended June 30, 2005, we incurred sales and marketing expenses
of $258,447, an increase of 162% over the quarter ended June 30, 2004. Such
costs increased primarily due to the acquisition of KPCCD, Inc. on January 7,
2005. Components of the sales and marketing category consist primarily of
personnel costs ($170,124), facilities ($29,571), advertising ($17,500) and
public relations costs ($9,824). During the quarter ended June 30, 2004, we
incurred sales and marketing expenses of $98,514. Components of the sales and
marketing category consisted primarily of personnel costs ($44,528), consulting
costs ($5,793) trade show costs ($14,033) and public relations costs ($34,160).

During the quarter ended June 30, 2005, we incurred general and administrative
expenses of $347,615, a decrease of 51% over the quarter ended June 30, 2004.
Such expenses decreased primarily due to, reductions in consulting costs,
professional fees and reductions in facilities' costs. Components of the general
and administrative category consist primarily of personnel costs ($197,391),
consulting costs ($110,193), professional fees ($173,070), facilities ($16,765),
depreciation and amortization ($48,153), travel costs ($4,004) and insurance
($28,396). These costs were partially offset by discounts negotiated with
vendors to settle outstanding accounts payable amounting to $119,496 and a
reduction in the provision for uncollectible accounts amounting to $185,000.
During the quarter ended June 30, 2004, we incurred general and administrative
expenses of $704,185. Components of the general and administrative category
consisted primarily of personnel costs ($182,316), consulting costs ($388,674),
professional fees ($268,987), facilities ($19,197) and insurance ($23,983).
These costs were partially offset by discounts negotiated with vendors to settle
outstanding accounts payable amounting to $285,682.

During the quarter ended June 30 2005, the net noncash charge for stock-based
compensation amounted to $113,170, compared to a net noncash credit of $893,034
during the quarter ended June 30, 2004. Such noncash costs increased due to the
vesting of employee stock options to management at a price that was less than
the fair market value of our common stock on the grant date. Such noncash
amounts are primarily related to the valuation of stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). Noncash charges for consulting
services for the quarters ended June 30, 2005 and 2004 were $100,264 and
$356,218, respectively, resulting primarily from the issuance of warrants to
purchase common stock to financial, marketing and investor relations
consultants.. The value of substantially all of such common stock purchase
warrants has been recorded in accordance with the Black-Scholes pricing
methodology.

Interest income for the quarters ended June 30, 2005 and 2004 amounted to $1,328
and $9,546 respectively. Such amounts were earned primarily from our investments
in money fund accounts. During the quarters ended June 30, 2005 and 2004,
interest and other financing costs were $483 and $154,948 respectively. During
the quarter ended June 30, 2004, interest and other financing costs were
incurred in connection with the completion, in February 2004, of a $10 million
private offering of investment Units in the 2004 Private Placement.

                                       21
<PAGE>

Basic and diluted loss per share was $0.38 for the quarter ended June 30, 2005
compared to $0.60 loss per share for the quarter ended June 30, 2004. The loss
per share for the quarter ended June 30, 2005 includes an accrued preferred
stock dividend of $1,207,403. The loss per share for the quarter ended June 30,
2004 includes an accrued preferred stock dividend of $1,102,254. The weighted
average shares outstanding increased to 5,734,936 at June 30, 2005 from
2,870,230 at June 30, 2004.


Six Months ended June 30, 2005 versus Six Months ended June 30, 2004

During the six months ended June 30, 2005 and 2004, we recorded revenues of
$24,159,646. Sales of prepaid international calling cards through our master
distributor, KPCCD Inc. which we acquired on January 7, 2005, represented
$24,039,659 of that amount. Revenues of $98,523 were earned through our
licensing agreement with QUALCOMM and $21,464 came from other sources. During
the six months ended June 30, 2004, we recorded revenues of $187,715,
substantially all of which were earned through our licensing agreement with
QUALCOMM. During the six months ended June 30, 2004, we recognized $33,333 from
the amortization of deferred revenues.

During the six months ended June 30, 2005 we incurred direct costs of revenues
totaling $24,378,776, including prepaid international calling cards of
$23,894,755 since the acquisition of KPCCD, Inc on January 7, 2005. Also
included within direct costs of revenues during the six months ended June 30,
2005, were costs of services of $484,021, a decrease compared to the $981,595
for the quarter ended June 30, 2004. Such costs decreased in 2005 primarily due
to reductions in US personnel, reductions in information and communication costs
and the reduction of consulting costs. In 2005, components of the costs of
service category consist primarily of costs associated with prepaid
international calling cards ($23,894,755), information and communication costs
($56,986), personnel costs ($306,594), consulting expenses ($84,000) and travel
costs ($10,124). In 2004, components of the costs of service category consist
primarily of costs associated with information and communication costs
($249,820), personnel costs ($482,392), consulting expenses ($184,998) and
facilities ($10,603). Costs associated with the operations of nReach, that are
included in the categories listed above, were $461,257 for the four months since
the acquisition within the six months ended June 30, 2004.

During the six months ended June 30, 2005, we incurred sales and marketing
expenses of $519,138, an increase of 265% over the six months ended June 30,
2004. Such costs increased primarily due to the acquisition of KPCCD, Inc. on
January 7, 2005. Components of the sales and marketing category consist
primarily of personnel costs ($398,443), travel costs ($10,227), facilities
(29,571) and public relations costs ($31,416). During the six months ended June
30, 2004, we incurred sales and marketing expenses of $142,220. Components of
the sales and marketing category consist primarily of personnel costs ($69,960),
consulting costs ($15,556) and public relations costs ($34,160).

During the six months ended June 30, 2005, we incurred general and
administrative expenses of $2,378,144, an increase of 74% over the six months
ended June 30, 2004. Such expenses increased primarily due to increases in
professional fees and consulting fees and warrants issued for services.
Components of the general and administrative category consist primarily of
personnel costs ($348,304), consulting fees and warrants issued for services
($1,429,694), professional fees ($384,984), facilities ($30,299), depreciation
and amortization ($95,878) and insurance ($48,395). During the six months ended
June 30, 2004, we incurred general and administrative expenses of $1,365,134.
Components of the general and administrative category consist primarily of
personnel costs ($267,057), consulting fees ($753,903), professional fees
($418,186), facilities ($38,508) and insurance ($53,671).

During the six months ended June 30, 2005, the net noncash charge for
stock-based compensation amounted to $226,340 compared to a net noncash charge
of $639,107 during the six months ended June 30, 2004. Such noncash costs
decreased and are due to the issuance and vesting of employee stock options to
management at a price that was less than the fair market value of our common
stock on the grant date. Such

                                       22
<PAGE>

noncash amounts are primarily related to the valuation of stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"). Noncash charges for
consulting services for the six months ended June 30, 2005 and 2004 were
$825,429 and $447,859, respectively, resulting primarily from the issuance of
warrants to purchase common stock to financial, marketing and investor relations
consultants, from the issuance of warrants to the Company's former legal counsel
as part of his separation agreement and from the amortization of deferred costs
associated with the prior issuance of warrants to purchase common stock to
financial, legal, marketing and technical consultants. The value of
substantially all of such common stock purchase warrants has been recorded in
accordance with the Black-Scholes pricing methodology.

Interest income for the six months ended June 30, 2005 and 2004 amounted to
$3,895 and $12,767, respectively. Such amounts were earned primarily from our
investments in money fund accounts. During the six months ended June 30, 2005
and 2004, interest and other financing costs were $1,092 and $2,092,029,
respectively. During the six months ended June 30, 2004 interest and other
financing costs were incurred in connection with the completion, in February
2004, of a $10 million private offering of investment Units in the 2004 Private
Placement.

Basic and diluted loss per share was $1.07 for the six months ended June 30,
2005 compared to $2.72 loss per share for the six months ended June 30, 2004.
The weighted average shares outstanding increased to 5,348,734 at June 30, 2005
from 2,658,889 at June 30, 2004.


Capital Resources and Liquidity

Cash Flow
---------

At June 30, 2005 and December 31, 2004, the Company had cash of $334,817 and
$1,792,856, respectively. Net cash used in operations was $1,406,632 for the six
months ended June 30, 2005 compared to $2,687,891 during the six months ended
June 30, 2004. The primary reason for this decrease was due to the Company's
reduction in net loss from $5,216,403 during the six months ended June 30, 2004
to $3,339,949 for the six months ended June 30, 2005. This was primarily related
to $2,092,029 of interest and financing costs related to Private Placement (as
defined below) in February 2004. Additionally the increase in accounts
receivable of $3,411,843 and the increase of accounts payable of $3,716,277 are
primarily due to the acquisition of KPCCD, Inc. Net cash used for investing
activities amounted to $34,050 for the purchase of equipment and the acquisition
of KPCCD, Inc. during the six months ended June 30, 2005 compared to $191,193
during the six months ended June 30, 2004 for the puchase of equipment and the
purchase of nReach.. Net cash used for financing activities was $17,357 for the
repayment of a note payable during the six months ended June 30 2005. During the
six months ended June 30, 2004, details of financing activities included cash in
the amount of $1,391,504 used for the repayment of notes payable and accrued
interest while net cash provided by financing activities included $8,569,525
from the sale of Series A and related warrants.

Capital Raising and Other Transactions
--------------------------------------

The Company is negotiating a binding agreement to obtain up to $3,000,000 of
financing from a combination of $500,000 of Senior Secured Convertible Notes and
up to $2,500,000 in Revolving Senior Secured Convertible Notes (the "Notes")
which availability will be based upon the Company's eligible accounts
receivable. The term is anticipated to be for 30 months from closing date.
Interest is anticipated to be payable monthly in arrears at prime plus 4%, in
cash or, at the option of the Company, subject to the conditions thereto being
met, in registered common stock valued at 85% of the volume weighted average
trading price for the common stock for the 10 days prior to the payment date. In
addition to anticipated receipt of funding based on the assets of the Company,
the anticipated structure allows for portions of the outstanding balance to be
converted into equity, thus creating additional availability under the facility
and increasing the funding amounts available to the Company. The Company would
have the right to prepay

                                       23


<PAGE>

in cash all or a portion of the Notes at 115% of the principal amount plus
accrued interest to the date of repayment. The Company would be required to
prepay in cash, half of the outstanding Notes at 115% of the principal amount
plus accrued interest to the date of repayment on the closing of a qualified
offering as anticipated to be defined in the agreement or, in the event that no
qualified offering occurs during the term, at maturity. Upon anticipated
closing, the investor would be issued five year warrants to purchase an
aggregate number of shares equal to 50% of the investment amount on an as
converted basis. Such warrants would be exercisable on a cashless basis and
would be subject to full ratchet antidilution protection. The Company expects to
draw down approximately $2.4million from this facility and is expected to use
approximately $1.1 million (including fees) to post a letter of credit in favor
of Sprint as required by the Sprint contract. The balance of the funds would be
used for working capital. On August 19, 2005 the Company and a lender entered
into an escrow agreement whereby the lender transferred $2.4 million into an
escrow account in anticipation of closing the transaction described above. Funds
are to be released from escrow pending finalization of the terms related to the
letter of credit.

The Company believes that its cash resources are sufficient to fund operating
losses and working capital requirements only through the third quarter of 2005.
As a result, the Company will need to raise additional financing, through some
combination of borrowings or the sale of equity or debt securities during 2005.
The Company is pursuing financing alternatives to fund the Company's cash
deficiency. The Company may not be able to raise sufficient additional debt,
equity or other capital on acceptable terms, if at all. Failure to generate
sufficient revenues , contain certain discretionary spending, achieve certain
other business objectives or raise additional funds could have a material
adverse affect on results of operations, cash flows and financial position,
including the Company's ability to continue as a going concern, and may require
it to significantly reduce, reorganize, discontinue or shut down operations. The
Company's consolidated financial statements do not include any adjustments that
might result from this uncertainty.

Certain Factors That May Affect Future Results
----------------------------------------------

Forward-looking statements in this document and those made from time-to-time by
our employees are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve certain known and unknown risks, uncertainties and other factors which
may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by these forward-looking statements. Certain factors that could cause or
contribute to such differences include, and are not limited to: We may not have
sufficient working capital in the short term. We have never been profitable and
if we do not achieve profitability we may not be able to continue our business;
any new capital will dilute existing shareholders. We may not be able to
complete or successfully integrate acquisitions that we seek to pursue, or
achieve the desired results of such acquisitions; Only one of our four major
customers from 2003 continued to generate revenues for us in 2004 and 2005; we
plan to pursue new streams of revenue from the resale of prepaid wireless
airtime bundled with wireless data content, and revenues from such business may
not materialize; We have a new CEO and executive management team; The market for
our business is in the development stage and may not achieve the growth we
expect; Spencer Trask may be able to affect and exercise some manner of control
over us; The market price of our common stock may decrease because we have
issued, and will likely continue to issue, a substantial number of securities
convertible or exercisable into our common stock; and other risks described in
this Quarterly Report on Form 10-QSB, our Annual Report on Form 10-KSB for the
year ended December 31, 2004 (including the risks described under "Risk
Factors") and our other filings with the Securities and Exchange Commission. You
can identify forward-looking statements by the fact that they do not relate
strictly to historical or current facts. The words "believe," "expect,"
"anticipate," "intend" and "plan" and similar expressions are often used to
identify forward-looking statements. We caution you not to place undue reliance
on these forward-looking statements. We undertake no obligation to update or
revise any forward-looking statements or to publicly announce the result of any
revisions to any of the forward-looking statements in this document to reflect
future events or developments.

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<PAGE>

Item 3.  Controls and Procedures
-------

We maintain a system of disclosure controls and procedures that is designed to
provide reasonable assurance that information that is required to be disclosed
by us in the reports that we file or submit under the Securities and Exchange
Act of 1934, as amended, is accumulated and communicated to management in a
timely manner. Our Chief Executive Officer and Chief Financial Officer have
evaluated this system of disclosure controls and procedures as of the end of the
period covered by this quarterly report, and each believes that the system is
operating effectively to ensure appropriate disclosure at a reasonable level of
assurance. There have been no changes during the six months of 2005 in our
internal control over financial reporting, to the extent that elements of
internal control over financial reporting are subsumed within disclosure
controls and procedures that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

PART 2.  OTHER INFORMATION

Item 1.  Legal Proceedings

None

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.  Defaults Upon Senior Securities

In February 2004, the Company completed the 2004 Private Placement. The Series A
preferred stock receives dividends at the rate of 8% per year payable quarterly
in cash or, in our sole discretion, in registered shares of our common stock.
Dividends accrued on the Series A preferred stock amounted to $1,430,907 as of
June 30, 2005. At the Company's discretion, the dividends are to be paid in the
form of 1,275,030 shares of common stock when the Company's pending Registration
Statement is declared effective by the SEC.

Item 6.     Exhibits

(a) Exhibits:


    31.1     Certification  of Chief Executive  Officer pursuant to Section 302
             of the  Sarbanes-Oxley  Act of 2002+

    31.2     Certification  of Chief Financial  Officer pursuant to Section 302
             of the  Sarbanes-Oxley  Act of 2002+

    32.1     Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
             2002+




                                       25

<PAGE>

                                   SIGNATURES



Pursuant to the requirements 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:


Date: August 22, 2005                     /s/  Robert M. Pons
      ---------------                     --------------------------------------
                                          Robert M. Pons
                                          Chief Executive Officer


Date: August 22, 2005                     /s/   Len von Vital
      ---------------                     --------------------------------------
                                          Len von Vital
                                          Chief Financial Officer















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