================================================================================


                    U. S. 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 March 31, 2004
                                                 --------------

                         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 April
15, 2004 was 2,878,840.

Transitional Small Business Disclosure Format (check one):
         Yes      No   X
            -----   -----

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<PAGE>

                             SmartServ Online, Inc.

                                   Form 10-QSB

                                      Index

PART 1. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

     Consolidated  Balance Sheets - March 31, 2004  (unaudited) and December 31,
     2003......................................................................2

     Consolidated  Statements  of Operations - three months ended March 31, 2004
     and 2003 (unaudited)......................................................4

     Consolidated  Statement of Changes in Stockholders'  Equity  (Deficiency) -
     three months ended March 31, 2004 (unaudited).............................5

     Consolidated  Statements  of Cash Flows - three months ended March 31, 2004
     and 2003 (unaudited)......................................................6

     Notes to Unaudited Consolidated Financial Statements......................7

Item 2.   Management's  Discussion  and  Analysis  of  Financial  Condition  and
          Results of Operations...............................................17

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



PART II.  OTHER INFORMATION

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

Item 2.   Changes in Securities and Use of Proceeds...........................26

Item 6.   Exhibits and Reports on Form 8-K....................................29

          Signatures..........................................................31

                                       1
<PAGE>

                             SmartServ Online, Inc.

                           Consolidated Balance Sheets




                                     March 31,   December 31,
                                      2004         2003
                                    ----------   ----------
                                    (Unaudited)
Assets
Current assets
   Cash                             $6,078,172   $  139,178
   Accounts receivable                 110,811      103,230
   Accrued interest receivable           3,221       47,004
   Prepaid compensation                 44,378      133,127
   Prepaid expenses                     23,976       86,798
   Deferred financing costs                 --      322,192
                                    ----------   ----------
Total current assets                 6,260,558      831,529
                                    ----------   ----------

Property and equipment, net             29,668           --
Other assets
   Goodwill and intangible assets    1,802,389           --
   Security deposits                    18,237        5,156

                                    ----------   ----------
Total Assets                        $8,110,852   $  836,685
                                    ==========   ==========


See accompanying notes.

                                       2
<PAGE>


                             SmartServ Online, Inc.

                           Consolidated Balance Sheets




<TABLE>
<CAPTION>
                                                                          March 31,        December 31,
                                                                             2004              2003
                                                                         -------------    -------------
                                                                         (Unaudited)
<S>                                                                      <C>              <C>
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities
   Accounts payable                                                      $   1,520,334    $   1,702,768
   Accrued liabilities                                                         956,001          928,393
   Accrued salaries                                                             31,129           78,133
   Accrued interest payable                                                         --          218,848
                                                                         -------------    -------------
Total current liabilities                                                    2,507,464        2,928,142
                                                                         -------------    -------------

Deferred revenues                                                               33,333           37,500

Notes payable                                                                       --        3,340,430

Commitments and Contingencies                                                       --               --

Stockholders' Equity (Deficiency)
Convertible Preferred stock - $0.01 par value
   Authorized - 1,000,000 shares
   Issued and outstanding - 876,491 shares as of March 31, 2004,               738,480               --
     aggregate liquidation preference of $10,175,360 and $0 as
     of March 31, 2004 and December 31, 2003, respectively
Common stock - $.01 par value
   Authorized - 40,000,000 shares
   Issued - 2,913,187; outstanding - 2,878,840 shares as                        29,132           22,613
      of March 31, 2004 and 2,261,300 shares as
      of December 31, 2003
Additional paid-in capital                                                 101,823,219       85,160,306
Notes receivable from former officers                                         (187,525)        (255,525)
Unearned compensation                                                       (1,767,859)              --
Treasury stock, 34,347 shares at cost                                          (68,000)              --
Accumulated deficit                                                        (94,997,392)     (90,396,781)
                                                                         -------------    -------------
Total stockholders' equity (deficiency)                                      5,570,055       (5,469,387)
                                                                         -------------    -------------

Total Liabilities and Stockholders' Equity (Deficiency)                  $   8,110,852    $     836,685
                                                                         =============    =============
</TABLE>

See accompanying notes.

                                       3
<PAGE>

                             SmartServ Online, Inc.

                      Consolidated Statements of Operations
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                Three Months
                                                               Ended March 31,
                                                          --------------------------
                                                             2004           2003
                                                          -----------    -----------

<S>                                                       <C>            <C>
Revenues                                                  $    73,711    $   230,987
                                                          -----------    -----------

Costs and expenses
   Costs of services                                         (316,866)    (1,216,831)
   Sales and marketing expenses                               (43,706)      (276,534)
   General and administrative expenses                       (650,949)      (999,180)
   Stock-based compensation                                (1,532,141)       (28,194)
                                                          -----------    -----------

Total costs and expenses                                   (2,543,662)    (2,520,739)
                                                          -----------    -----------

Loss from operations                                       (2,469,951)    (2,289,752)

Other income (expense)
   Interest income                                              3,221          4,532
   Interest expense and other financing costs              (1,937,081)      (375,886)
   Legal settlement                                          (196,800)            --
   Gain from extinguishment of debt                                --        305,822
   Foreign exchange gain                                           --             93
                                                          -----------    -----------

                                                           (2,130,660)       (65,439)
                                                          -----------    -----------

Net loss                                                  $ (4,600,611)  $(2,355,191)
                                                          ===========    ===========

Preferred stock dividend accrued                             (913,840)            --

Net loss applicable to common shareholders                $(5,514,451)   $(2,355,191)
                                                          ===========    ===========

Basic and diluted loss per common share                   $     (2.25)   $     (1.20)
                                                          ===========    ===========

Weighted average shares outstanding - basic and diluted     2,447,453      1,956,468
                                                          ===========    ===========
</TABLE>

See accompanying notes.

                                       4
<PAGE>

                             SmartServ Online, Inc.
     Consolidated Statement of Changes in Stockholders' Equity (Deficiency)
                        Three Months Ended March 31, 2004
                                   (Unaudited)

<TABLE>
<CAPTION>
                                   Common Stock                   Preferred Stock
                                                                             Series A   Notes Receivable    Additional
                                                                            Preferred     from Former        Paid-in
                             Shares          Par Value          Shares        Stock       Officers          Capital
                            -------------   -------------   -------------   ---------   -------------    -------------

<S>                           <C>            <C>             <C>          <C>           <C>              <C>
Balances at December 31,        2,261,300   $      22,613              --   $      --   $    (255,525)   $  85,160,306
2003

Issuance of common stock          500,002           5,000              --          --              --        1,635,007
  to acquire nReach, Inc.

Issuance of common stock           91,885             919              --          --              --          639,499
  related to financing

Issuance of common stock           60,000             600              --          --              --          196,200
   to vendor to satisfy
   debt

Issuance of warrants as                --              --              --          --              --           91,641
  compensation for
  services

Issuance of warrants                   --              --              --          --              --        1,777,569
  related to financing

Issuance of warrants to                --              --              --          --              --           22,569
  vendor to satisfy debt

Employee stock                         --              --              --          --              --        3,300,000
  compensation

Amortization of unearned               --              --              --          --              --               --
  compensation

Treasury  stock shares                 --              --              --          --          68,000               --
  returned in settlement
  of note receivable
  from former officer

Beneficial conversion                  --              --              --          --              --        9,914,268
  option on convertible
  Preferred Stock

Series A Preferred Stock               --              --         876,491     738,480              --               --

Accretion of dividends                 --              --              --          --              --         (738,480)
  on Series A Preferred
  Stock

Dividends accrued on                   --              --              --          --              --         (175,360)
  Preferred Stock

Net loss for the period                --              --              --          --              --               --

                            -------------   -------------   -------------   ---------   -------------    -------------
Balances at March 31,           2,913,187   $      29,132         876,491   $ 738,480   $    (187,525)   $ 101,823,219
2004
                            =============   =============   =============   =========   =============    =============
See accompanying notes.




<CAPTION>


                                    Treasury          Unearned        Accumulated
                                     Stock          Compensation         Deficit
                                  -------------    -------------    -------------

<S>                                <C>             <C>              <C>
Balances at December 31,          $          --    $          --    $ (90,396,781)
2003

Issuance of common stock                     --               --               --
  to acquire nReach, Inc.

Issuance of common stock                     --               --               --
  related to financing

Issuance of common stock                     --               --               --
   to vendor to satisfy
   debt

Issuance of warrants as                      --               --               --
  compensation for
  services

Issuance of warrants                         --               --               --
  related to financing

Issuance of warrants to                      --               --               --
  vendor to satisfy debt

Employee stock                               --       (1,885,717)              --
  compensation

Amortization of unearned                     --          117,858               --
  compensation

Treasury  stock shares                  (68,000)              --               --
  returned in settlement
  of note receivable
  from former officer

Beneficial conversion                        --               --               --
  option on convertible
  Preferred Stock

Series A Preferred Stock                     --               --               --

Accretion of dividends                       --               --               --
  on Series A Preferred
  Stock

Dividends accrued on                         --               --               --
  Preferred Stock

Net loss for the period                      --               --       (4,600,611)

                                  -------------    -------------    -------------
Balances at March 31,             $     (68,000)   $  (1,767,859)   $ (94,997,392)
2004
                                  =============    =============    =============

See accompanying notes.
</TABLE>

                                       5
<PAGE>

                             SmartServ Online, Inc.
                      Consolidated Statements of Cash Flows

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                             Three Months
                                                                           Ended March 31,
                                                                     --------------------------
                                                                        2004           2003
                                                                     -----------    -----------
<S>                                                                  <C>            <C>
Operating Activities
Net loss                                                             $(4,600,611)   $(2,355,191)
Adjustments to reconcile net loss to net cash
    used for operating activities
       Gain from extinguishment of debt                                       --       (305,822)
       Depreciation and amortization                                          --        464,587
       Noncash compensation costs                                        640,418         28,194
       Noncash consulting services                                        91,641             --
       Noncash payments to vendors                                       219,369             --
       Amortization of deferred compensation                           1,532,141             --
       Amortization of deferred financing costs                        1,231,772        338,964
       Amortization of deferred revenues                                      --       (168,694)
       Changes in operating assets and liabilities
          Accounts receivable                                              3,481        (84,554)
          Accrued interest receivable                                     43,783          9,707
          Prepaid expenses                                                65,765        100,756
          Prepaid compensation                                            88,749             --
          Accounts payable and accrued liabilities                      (434,557)       631,790
          Deferred revenues                                               (4,167)       138,000
          Security deposit                                               (11,212)        28,716
                                                                     -----------    -----------
    Net cash used for operating activities                            (1,133,428)    (1,173,547)
                                                                     -----------    -----------

Investing Activities
Purchase of equipment                                                    (18,099)            --
Purchase of nReach, Inc.                                                 (87,500)            --
                                                                     -----------    -----------
    Net cash used for investing activities                              (105,599)            --
                                                                     -----------    -----------

Financing Activities
Proceeds from the issuance of series A convertible preferred stock
    and warrants - net                                                 8,569,525             --
Proceeds from the issuance of notes and warrants - net                        --      1,000,000
Proceeds from the issuance of common stock                                    --        335,537
Repayment of notes payable and accrued interest                       (1,391,504)      (295,000)
                                                                     -----------    -----------
    Net cash provided by financing activities                          7,178,021      1,040,537
                                                                     -----------    -----------

Increase (decrease) in cash and cash equivalents                       5,938,994       (133,010)
Cash - beginning of period                                               139,178        154,759
                                                                     -----------    -----------

Cash - end of period                                                 $ 6,078,172    $    21,749
                                                                     ===========    ===========
</TABLE>

See accompanying notes.

                                       6
<PAGE>

                             SmartServ Online, Inc.

              Notes to Unaudited Consolidated Financial Statements

                                 March 31, 2004


1.   Nature of Business

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

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

The  Company  has since its  inception  earned  limited  revenues  and  incurred
substantial  recurring operating losses,  including net losses of $4,600,611 for
the three month period ended March 31, 2004 and  $17,537,775  and $8,037,173 for
the  years  ended  December  31,  2003  and  December  31,  2002,  respectively.
Additionally,  the  Company  had  an  accumulated  deficit  of  $94,997,392  and
$90,396,781 at March 31, 2004 and December 31, 2003, respectively.

The Company began in 2002 and continued during 2003 to reduce its cost structure
through the  termination of personnel and the relocation of its  headquarters to
Plymouth Meeting,  Pennsylvania.  Personnel headcount was reduced from 66 in May
2002 to the level of 20 as of March 15, 2004 (including nReach employees). These
efforts have reduced the  Company's  average  monthly  operating  expenses  from
approximately $1,090,000 in July 2002 to approximately $370,000 as of March 2004
(including operating expenses of nReach),  excluding noncash stock compensation,
depreciation  and  amortization.   The  Company  anticipates  that  its  monthly
operating  expenses  will  increase  during  2004  due  to the  working  capital
requirements  of the  business  of nReach,  as well as related to  expansion  of
marketing and business development efforts for all of the Company's products and
services and increased corporate overhead.

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 has used and
expects to use the net proceeds of  approximately  $8,600,000 from this offering
for repayment of outstanding  obligations,  completion of strategic acquisitions
and general working  capital.  In particular,  the Company  anticipates  using a
significant portion of its working capital

                                       7
<PAGE>

to settle its  accounts  payable,  which  accounts  payable  were  approximately
$1,520,000  and  $1,700,000  as  of  March  31,  2004  and  December  31,  2003,
respectively.

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

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 completed a one-for-six  reverse stock split effective  November 25,
2003.  Unless  otherwise noted,  descriptions of  shareholdings  and convertible
securities reflect such one-for-six reverse stock split.

2.   Summary of Significant Accounting Policies

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

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

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

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

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

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

Service Revenue
---------------
Service revenue is derived from  consulting or by providing  other  professional
services  to  customers.  Revenue  from  the  performance  of such  services  is
recognized when the services are performed.  Losses,  if

                                       8
<PAGE>

any, from professional services contracts are recognized at the time such losses
are identified.  Maintenance and support fees paid in advance are  nonrefundable
and are recognized ratably over the term of the agreement, generally 12 months.

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

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

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

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

Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of our financial instruments  approximate fair value due to
their terms and maturities.

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.

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.

During the quarter ended March 31, 2004,  the Company  issued  500,002 shares of
common  stock  amounting to  $1,640,007  for the  acquisition  of the issued and
outstanding common stock of nReach,  Inc. The issuance of shares of common stock
is considered a non-cash  transaction  for the purposes of the Statement of Cash
Flows.

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.

Interest,  debt  origination  and other financing costs paid during the quarters
ended March 31, 2004 and 2003 were $1,516,504 and $70,000, respectively.

Concentration of Credit Risk
----------------------------
Financial  instruments that potentially  subject  SmartServ to concentrations of
credit  risk  consist  solely of  accounts  receivable.  At March  31,  2004 and
December 31, 2003,  accounts  receivable consist principally

                                       9
<PAGE>

of amounts due from major  telecommunications  carriers,  as well as a financial
services  company.  The Company  performs  periodic  credit  evaluations  of its
customers  and,  if  applicable,  provides  for credit  losses in the  financial
statements.  As of March 31, 2004 and December 31, 2003 the Company did not have
a reserve for doubtful accounts.

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

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

Advertising Costs
-----------------
Advertising  costs are  expensed  as  incurred  and were $-0- and $3,561 for the
quarters ended March 31, 2004 and 2003, respectively.

Stock Based Compensation

Employee Stock Option Plans
---------------------------
The Company  maintains  several  stock option plans for  employees and directors
that  provide  for the  granting of stock  options for a fixed  number of common
shares with an exercise  price equal to the fair value of the shares at the date
of grant.  The Company  accounts for such grants in accordance  with  Accounting
Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to  Employees"
("APB No. 25").  Accordingly,  compensation  expense is recognized to the extent
that the fair value of the stock exceeds the exercise price of the option at the
measurement date. Certain options,  which have been repriced, are subject to the
variable plan  requirements  of APB No. 25, which requires the Company to record
compensation expense for changes in the fair value of its common stock.

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

The Company  adopted the disclosure  provisions of SFAS No. 148,  Accounting for
Stock-Based Compensation - Transition and Disclosure, which amends SFAS No. 123.
SFAS No. 148 provides  alternative  methods of transition for a voluntary change
to  the  fair  value  based  method  of  accounting  for  stock-based   employee
compensation,  which was  originally  provided  under SFAS No. 123. SFAS No. 148
also improves the timeliness of  disclosures by requiring the  information to be
included  in interim as well as annual  financial  statements.  The  adoption of
these disclosure provisions had no impact on the Company's 2003 or first quarter
of 2004 consolidated results of operations, financial position or cash flows.

SFAS No. 123 requires companies to recognize  compensation  expense based on the
respective  fair  values of the  options  at the date of grant.  Companies  that
choose not to adopt such rules will  continue to apply the  existing  accounting
rules  contained  in APB No.  25, but are  required  to  disclose  the pro forma
effects

                                       10
<PAGE>

on net income (loss) and earnings  (loss) per share,  as if the fair value based
method of accounting had been applied.

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

SmartServ's pro forma information is as follows:

                                                   Three Months Ended
                                                        March 31,
                                                --------------------------
                                                   2004           2003
                                                -----------    -----------

Net  loss as reported                           $(4,600,611)   $(2,355,191)

Employee stock-based compensation included in
  net loss                                        1,532,141          1,323


Employee stock-based compensation pursuant to
  SFAS 123/SFAS 148                                (164,785)      (917,494)
                                                -----------    -----------

Proforma net loss                               $(3,233,255)   $(3,271,362)
                                                ===========    ===========

Basic and diluted loss per share                $     (2.25)   $     (1.20)
                                                -----------    -----------

Proforma basic and diluted loss per share       $     (1.32)   $     (1.68)
                                                ===========    ===========

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

3.   Property and Equipment

Property and equipment consist of the following:

                                  March 31,      December 31,
                                     2004          2003
                                 -----------    -----------
Data processing equipment        $ 4,594,526    $ 4,594,526
Office furniture and equipment       427,142        397,474
Display equipment                     71,335         71,335
Leasehold improvements                69,852         69,852
                                 -----------    -----------
                                   5,162,855      5,133,187

Impairment of capital assets        (843,768)      (843,768)
Accumulated depreciation          (4,289,419)    (4,289,419)
                                 -----------    -----------
                                 $    29,668    $        --
                                 ===========    ===========

                                       11
<PAGE>

4.   Note Receivable From Officer

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

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

The Company's former Chief Technology Officer, Mario Rossi, was the obligor on a
promissory  note made in favor of the Company  with  respect to the  purchase of
34,347 shares of Company common stock,  which were pledged as collateral for the
note. In January 2004, as part of his separation agreement,  all shares of stock
were assigned and transferred to the Company and the outstanding debt of $68,000
was cancelled.

5.   Notes Payable

In May 2000,  the  Company  entered  into a  Business  Alliance  Agreement  with
Hewlett-Packard  Company ("HP")  whereby the companies  agreed to jointly market
their  respective  products  and  services,  and to  work  on the  build-out  of
SmartServ's domestic and international  infrastructure.  In furtherance of these
objectives,  HP provided the Company with a line of credit of up to  $20,000,000
for the acquisition of approved  hardware,  software and services.  On September
10, 2002, the Company and HP amended the terms of the promissory note to provide
for the (i) reduction of SmartServ's aggregate outstanding principal and accrued
interest  amount of  $7,045,000  to  $1,000,000,  (ii) return of certain  unused
hardware by SmartServ, (iii) issuance by SmartServ of a warrant for the purchase
of 8,333 shares of common  stock with an exercise  price of $6.996 per share and
(iv) repayment of $500,000 of the amended  obligation on September 10, 2002. The
remaining $500,000  obligation was evidenced by a note, bearing an interest rate
of 11%, secured by the Company's  assets  exclusive of its internally  developed
software  products,  and was satisfied  through a partial  repayment in February
2003.  The Company  recorded a gain of  $305,822  resulting  from the  Company's
partial repayment of the note in February 2003.

In  February  2003,  the Company  issued a  convertible  note to Global  Capital
Funding Group, LP ("Global") in consideration for the receipt of $1 million. The
note  bore  interest  at the  rate of 10% per  annum,  and  was  secured  by the
Company's assets,  exclusive of its internally developed software products.  The
note matured on February 14, 2004,  contained certain  antidilution  provisions,
and was convertible into shares of SmartServ common stock at $6.60 per share. As
additional  consideration,  the Company issued Global a warrant for the purchase
of 33,333  shares of its common  stock at an exercise  price of $9.66 per share.
The  warrants  have been valued in  accordance  with the  Black-Scholes  pricing
methodology and recorded in the financial  statements as deferred interest costs
and netted  against the  outstanding  obligation.  Deferred  interest  costs are
amortized into operations in accordance with the interest method. Alpine Capital
Partners, Inc. ("Alpine") received a finder's fee of $70,000; representing 7% of
the aggregate  purchase price of the convertible  note and a warrant to purchase
15,167  shares of common  stock  exercisable  at $9.66 per  share,  expiring  on
February 14, 2005, in connection with this transaction. These warrants have been
valued in accordance with the Black-Scholes  pricing methodology and recorded in
the financial  statements as deferred  compensation  costs. This amount is being
amortized

                                       12
<PAGE>

into  operations  on a  straight-line  basis  over  the  12  month  life  of the
obligation.  Also in connection with the 10% convertible  notes, the Company has
recorded a non-cash charge for other financing costs of $304,772  representing a
portion  of the  intrinsic  value of the  beneficial  conversion  feature of the
notes.  Emerging  Issues Task Force  ("EITF")  Issue No. 98-5,  "Accounting  for
Convertible  Securities  with  Beneficial  Conversion  Features or  Contingently
Adjustable Conversion Ratios" ("Issue No. 98-5") as more fully described in EITF
Issue  No.  00-27,  "Application  of  Issue  No.  98-5  to  Certain  Convertible
Instruments",  defines the beneficial  conversion  feature as the non-detachable
conversion  feature that is  "in-the-money"  at the date of issuance.  Issue No.
98-5 requires the recognition of the intrinsic  value of the conversion  feature
as the difference  between the conversion price and the fair value of the common
stock into which the notes are  convertible.  During the quarter ending June 30,
2003,  the  Company  recorded a non-cash  charge of  $101,600  representing  the
amortization of the remainder of such beneficial  conversion  feature.  In April
2003,  the Company  borrowed an additional  $250,000 from Global and amended the
convertible  note to include  such  amount.  As  additional  consideration,  the
Company  issued  Global a warrant for the purchase of 3,333 shares of its common
stock at an exercise  price of $7.20 per share.  Alpine is to receive a finder's
fee of $17,500 in connection  with the April  amendment.  The warrants issued to
Global and Alpine contain certain antidilution provisions and expire on February
14, 2006. During February 2004, SmartServ paid in full the principal and accrued
interest due Global, which was $1,391,504.

Between May and November 2003 the Company sold Units  consisting of  convertible
debentures  and  warrants to purchase  common  stock for $3 million in aggregate
proceeds. During February 2004, SmartServ completed a private placement of Units
of Series A  Convertible  Preferred  Stock,  $.01 par value  ("Series  A"),  and
warrants for $10 million in aggregate gross  proceeds.  Pursuant to their terms,
the principal and accrued interest on SmartServ's  convertible debentures issued
in  the  May  through  November  2003  transactions,   which  was  approximately
$3,122,302,  were automatically  converted into these Units. Each Unit consisted
of one share of Series A initially  convertible  into ten shares of common stock
and one warrant for the  purchase of ten shares of common  stock.  The  purchase
price per Unit was $15.00.  The Series A is described in more detail below under
note 6 to the financial statements.

As of March 31, 2004 the amount of the Company's debt  obligations  were paid in
full or converted to Series A as described above.

6.   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 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 the closing of an additional  $25,000  private  offering of these
Units to an accredited  investor in March 2004,  which Units have the same terms
as described  above other than the expiration date which will be March 2007. The
Company has used and expects to use the net proceeds of approximately $8,600,000
from  this  offering  for  repayment  of  outstanding   obligations   (including

                                       13
<PAGE>

$1,391,500 that was used to repay Global),  completion of strategic acquisitions
and general working capital.

Pursuant to their  terms,  the  principal  and accrued  interest on  SmartServ's
convertible  debentures  issued in the May through  November 2003  transactions,
which was approximately  $3,122,302,  were also automatically converted into the
Units issued in the 2004 Private Placement.

Spencer Trask Ventures,  Inc.  ("Spencer  Trask") received  warrants to purchase
1,336,666  shares of common  stock at $1.50 per share and  warrants  to purchase
1,336,666 shares of common stock at $2.82 per share as partial  compensation for
being the placement agent for the 2004 Private Placement.

SmartServ  acquired  all of the stock of nReach,  Inc. on  February  28, 2004 in
exchange for 500,002 shares of its common stock;  provided, if the value of such
500,002  shares  immediately  prior  to June 1,  2004  is  less  than  $900,000,
SmartServ  will issue up to 299,167  additional  shares of its common stock with
respect to such difference in value. The nReach shareholders may also earn up to
916,667  shares of our  common  stock in the  event  SmartServ  reaches  certain
revenue  targets  within  five  fiscal  quarters  following  the closing of this
transaction  at the rate of one  share of common  stock for every one  dollar of
SmartServ  revenue in excess of $2,700,000 (the "Earnout  Trigger")  during such
five fiscal quarters.

The Company's former Chief Technology Officer, Mario Rossi, was the obligor on a
promissory  note made in favor of the Company  with  respect to the  purchase of
34,347 shares of Company  stock,  which were pledged as collateral for the note.
In January 2004, as part of his separation  agreement,  all shares of stock were
assigned and transferred to the Company and the outstanding  debt of $68,000 was
cancelled.

Pursuant to a Restricted  Stock  Agreement  dated December 28, 1998, the Company
received a promissory note in the original  principal amount of $457,496.86 from
Sebastian E. Cassetta,  its former Chairman and Chief Executive Officer, for his
purchase of restricted shares of common stock. As of March 31, 2004, the balance
due of such loan is  $187,525,  after  recording  of a  valuation  allowance  in
connection with the potential uncollectibility of such loan from Mr. Cassetta

During the quarter  ended March 31, 2004,  the Company  issued  60,000 shares of
common  stock and a cash  payment of $45,000  to a vendor in  settlement  of the
Company's  obligation to that vendor.  Additionally,  the Company  issued 91,885
shares of common stock primarily as finders fees related to the Company's recent
financings.

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

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

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

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

                                       14
<PAGE>

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

Global  Capital  Funding  Group,  L.P.  holds warrants to purchase up to 257,333
shares of common stock,  and a convertible  note convertible into 189,394 shares
of common stock (which was paid off in February, 2004). The Company was required
to file a Registration  Statement covering all such shares on April 14, 2003 and
by agreement  with Global is required to include  such shares in a  Registration
Statement.  The Company  negotiated a cure of the penalty fee,  equal to $25,000
for each  month  that  this  deficiency  remained  uncured,  by  paying  off the
convertible  note in February 2004.  The Company filed a Form SB-2  Registration
Statement on May 13, 2004 that covered the common  stock  underlying  the Global
warrants,  but it has not yet been  declared  effective  by the  Securities  and
Exchange Commission (the "SEC").

7.   Stock-based Compensation

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

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).

Stock-based  compensation  for the three months ended March 31, 2004 was for the
impact of options granted at less than fair market value on the measurement date
and for the three months ended March 31, 2003 consisted  primarily of the impact
of changes in the market  value of the  Company's  common  stock on the value of
options to purchase  common stock issued to employees  and the  amortization  of
deferred costs associated with the prior issuance of warrants to purchase common
stock to various consultants.

The following table illustrates the amount of stock-based  compensation  charges
that would have been  recorded in the  categories of the statement of operations
had stock-based compensation not been separately stated therein:

                                       15
<PAGE>

                                              Three Months
                                             Ended March 31,
                                      --------------------------
                                         2004           2003
                                      -----------    -----------
Costs of services                     $  (536,251)   $       396

General and administrative expenses      (995,890)       (28,590)
                                      -----------    -----------

                                      $(1,532,141)   $   (28,194)
                                      ===========    ===========

8.   Earnings Per Share

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

                                                           Three Months
                                                          Ended March 31,
                                                 ---------------------------
                                                    2004            2003
                                                 ------------    -----------
Numerator:
   Net loss applicable to common shareholders    $ (5,514,451)   $(2,355,191)
                                                 ============    ===========

Denominator:
   Weighted average shares - basic and diluted      2,447,453      1,956,468
                                                 ============    ===========

Basic and diluted loss per common share          $      (2.25)   $     (1.20)
                                                 ============    ===========

Outstanding  employee  stock options and other warrants to purchase an aggregate
of 18,769,788  and 1,049,333  shares of common stock at March 31, 2004 and 2003,
respectively,  were not  included in the  computations  of diluted  earnings per
share and neither was convertible  preferred  stock,  convertible into 8,764,910
shares of common stock at March 31, 2004,  because the Company  reported  losses
for the periods and therefore their inclusion would be antidilutive.

9.   Commitments and Contingencies.

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

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

On or about March 22, 2004, Jenkens & Gilchrist Parker Chapin, LLP,  SmartServ's
former legal counsel,  filed a complaint  against SmartServ in the Supreme Court
of the State of New York,  County of New York.  The  complaint  seeks payment of
unpaid invoices for legal services in the amount of $599,244.

                                       16
<PAGE>

While the Company  intends to  vigorously  defend such lawsuit,  an  unfavorable
outcome  could  have  a  material  adverse  effect  on the  Company's  financial
condition, results of operation and cash flows.

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
------  of Operations

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

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

We have since our inception  earned  limited  revenues and incurred  substantial
recurring  operating  losses,  including net losses of $4,600,611  for the three
month period  ended March 31, 2004,  $17,537,775  and  $8,037,173  for the years
ended  December  31,  2003  and  2002,  respectively.  Additionally,  we  had an
accumulated  deficit  of  $94,997,392  and  $90,396,781  at March  31,  2004 and
December 31, 2003, respectively.

In February 2004, we completed the closing of a $10 million private  offering of
investment  Units  consisting of shares of Series A Convertible  Preferred Stock
and  warrants to purchase  common  stock  ("2004  Private  Placement").  We also
completed the closing of an additional  $25,000 private  offering of these Units
to an accredited  investor in March 2004. We have used and expect to use the net
proceeds  of  approximately  $8,600,000  from this  offering  for  repayment  of
outstanding  obligations  (including  $1,391,500  that was used to repay  Global
Capital Funding Group,  LP),  completion of strategic  acquisitions  and general
working  capital.  We believe we have  sufficient  working  capital for the next
twelve  months.  It is likely we may require  additional  funds in the long term
depending upon the growth of our revenues,  our business strategy,  the costs of
any acquisitions and other factors.

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

To augment our capabilities, we acquired the issued and outstanding common stock
of the Colorado based nReach,  Inc. on February 28, 2004 in exchange for 500,002
shares  of our  common  stock,  provided,  if the value of such  500,002  shares
immediately  prior to June 1, 2004 is less than  $900,000,  we will  issue up to
299,167 additional shares of our common stock with respect to such difference in
value. We also agreed

                                       17
<PAGE>

to an earnout  schedule to pay up to an additional  916,667 shares of our common
stock in the event we reach certain  revenue targets within five fiscal quarters
following the closing of this transaction at the rate of one share of our common
stock for every  dollar of our  revenue in excess of  $2,700,000  (the  "Earnout
Trigger") during such five fiscal  quarters.  In addition to the liabilities set
forth in the  financial  statements  of nReach,  we assumed (i) ordinary  course
liabilities  since  November  30,  2003,  (ii) taxes  accrued on earnings  since
December  31, 2002 which were not yet due and  payable as of the  closing  date,
(iii) expenses  incurred to accountants  and attorneys in the transaction not to
exceed  $25,000,  and (iv) short term  borrowings up to $75,000 due to an nReach
shareholder.  nReach,  Inc.,  is a wireless  content  distribution  company that
offers a broad portfolio of popular  mass-market  cell phone content,  including
ringtones,  games and on-device images.  This company may provide us with access
to a large number of consumers through its existing marketing  arrangements with
large retailers.

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

     o    Premium  content,  such as ring  tones,  images  and  games,  that are
          periodically delivered and reside on the mobile device; and

     o    Dynamic mobile applications,  where the information or data content is
          frequently changing and therefore  frequently  delivered to the mobile
          device.

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

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

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

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

                                       18
<PAGE>

Results of Operations

Quarter Ended March 31, 2004 versus Quarter Ended March 31, 2003

During the  quarter  ended  March 31,  2004,  we  recorded  revenues  of $73,711
substantially  all of which were earned  through our  licensing  agreement  with
QUALCOMM.  During the quarter  ended  March 31,  2003,  we recorded  revenues of
$230,987. Of such revenues, $208,100 were earned through our licensing agreement
with  Salomon  Smith  Barney.  During  the  quarter  ended  March 31,  2003,  we
recognized  $168,700 from the amortization of deferred revenues  associated with
this  agreement.  We do not  anticipate  receiving  revenues  from Salomon Smith
Barney in 2004.

During the  quarter  ended  March 31,  2004,  we  incurred  costs of services of
$316,866,  a decrease of 74% over the quarter  ended March 31, 2003.  Such costs
decreased primarily due to reductions in US personnel, the reduction of computer
depreciation  and maintenance and the reduction of consulting  costs incurred in
connection  with the  development of our systems'  architecture  and application
platform. Components of the costs of service category consist primarily of costs
associated  with the  operations  of the nReach,  Inc.  acquisition  ($122,167),
information and  communication  costs  ($35,000),  personnel  costs  ($100,525),
consulting  expenses  ($38,000),  facilities ($4,799) and travel costs ($8,619).
During the  quarter  ended  March 31,  2003,  we  incurred  costs of services of
$1,216,831,  which consist  primarily of  information  and  communication  costs
($148,900),  personnel costs ($576,500),  computer hardware leases, depreciation
and maintenance costs ($323,100), facilities ($62,000) and amortization expenses
relating to capitalized software.

During the  quarter  ended  March 31,  2004,  we  incurred  sales and  marketing
expenses of $43,706,  a decrease of 84% over the quarter  ended March 31,  2003.
Such costs  decreased  primarily due to US personnel  reductions,  reductions in
travel, reductions in advertising and trade shows and reductions in professional
fees.  Components  of the sales and  marketing  category  consist  primarily  of
personnel  costs  ($25,433),  consulting  costs  ($9,763)  and trade  show costs
($8,510).  During the  quarter  ended  March 31,  2003,  we  incurred  sales and
marketing  expenses of $276,534,  which  consist  primarily  of personnel  costs
($205,100), professional fees ($17,800), and travel and lodging ($32,700).

During the quarter ended March 31, 2004, we incurred general and  administrative
expenses of $650,949,  a decrease of 35% over the quarter  ended March 31, 2003.
Such expenses  decreased  primarily due to personnel  reductions,  reductions in
professional  fees and reductions in facilities  costs related to the relocation
of  our   headquarters   from  Stamford,   Connecticut   to  Plymouth   Meeting,
Pennsylvania.  Components  of the general and  administrative  category  consist
primarily of personnel costs ($84,740), consulting fees ($247,325), professional
fees  ($234,554),  facilities  ($41,880)  and  insurance  ($29,688).  During the
quarter ended March 31, 2003, we incurred general and administrative expenses of
$999,180,  which consist primarily of personnel costs  ($319,200),  professional
fees  ($331,100),   facilities  ($121,400),  insurance  ($96,000)  and  computer
hardware leases, depreciation and maintenance costs ($40,300).

During the quarter ended March 31, 2004, the net noncash charge for  stock-based
compensation amounted to $1,532,141, compared to a net noncash charge of $28,194
during the quarter ended March 31, 2003. Such noncash costs increased 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
noncash   amounts  are  primarily   related  to  the  valuation  of  stock-based
compensation  in accordance  with  Accounting  Principles  Board Opinion No. 25,
"Accounting  for Stock Issued to  Employees"  ("APB No. 25").  Certain  employee
stock  options are subject to the variable plan  requirements  of APB No. 25, as
they were  repriced,  and  therefore,  compensation  expense is  recognized  for
changes in the fair value of our common stock.  Noncash  charges for  consulting
services  for the  quarters  ended March 31, 2004 and 2003 were  $91,641 and $0,
respectively, resulting primarily 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.

                                       19
<PAGE>

Interest  income for the  quarters  ended  March 31,  2004 and 2003  amounted to
$3,221 and $4,532,  respectively.  Such amounts were earned  primarily  from our
investments in money fund accounts. During the quarters ended March 31, 2004 and
2003,   interest  and  other  financing  costs  were  $1,937,081  and  $375,886,
respectively.  During the quarters  ended March 31, 2004 and 2003,  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 and, in February 2003, the $20 million line of credit facility
with HP and the  convertible  note issued to Global Capital  Funding  Group,  LP
("Global").

During  the  quarter  ended  March 31,  2003,  we  recorded  a gain of  $305,822
resulting  from  the  partial  repayment,  in  full  settlement  of the  amended
promissory note issued to Hewlett-Packard Company.

Basic and diluted loss per share was $2.25 for the quarter  ended March 31, 2004
compared to $1.20 per share for the quarter  ended March 31, 2003.  The loss per
share for the quarter ended March 31, 2004 includes an accrued  preferred  stock
dividend of  $913,840.  The weighted  average  shares  outstanding  increased to
2,447,453 at March 31, 2004 from 1,956,468 at March 31, 2003.

Capital Resources and Liquidity

At March 31, 2004 and December 31, 2003,  the Company had cash of $6,078,172 and
$139,178,  respectively.  Net cash used in  operations  was  $1,133,428  for the
quarter  ended March 31, 2004  compared to  $1,173,547  during the quarter ended
March 31, 2003.

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

In February 2004, we completed the closing of a $10 million private  offering of
investment  Units  consisting of shares of Series A Convertible  Preferred Stock
and warrants to purchase  common stock ("2004 Private  Placement").  The private
offering  consisted of investment  Units at the price of $15 per Unit. Each Unit
consists  of (i) one share of Series A  convertible  preferred  stock,  $.01 par
value,  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 warrants have
an  exercise  price of $2.82 per share and  expire  in  February  2007.  We also
completed the closing of an additional  $25,000 private  offering of these Units
to an  accredited  investor  in March  2004,  which Units have the same terms as
described  above other than the  expiration  date which will be March 2007.  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.  Spencer
Trask Ventures,  Inc.  ("Spencer Trask") received  compensation as the placement
agent for the 2004  Private  Placement  as  described  below  under the  heading
"Changes in Securities  and Use of Proceeds." We have used and expect to use the
net proceeds of  approximately  $8,600,000  from this  offering for repayment of
outstanding  obligations  (including  $1,391,500  that was used to repay  Global
Capital),  completion of strategic  acquisitions and general working capital. We
also  anticipated  using a significant  portion of our working capital to settle
our accounts payable,  which accounts payable were approximately  $1,520,000 and
$1,700,000 as of March 31, 2004 and December 31, 2003, respectively.

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

                                       20
<PAGE>

During the period  January 1, 2003 through  December 31, 2003,  we issued 73,731
shares of common  stock to  investors  upon the exercise of warrants to purchase
such shares. Proceeds from the exercise of these warrants were $376,000.

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

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

On September 16, 2003, we issued 7.4 Units in a financing transaction consisting
of an offering of up to 12 Units comprised of a $50,000  convertible  note and a
warrant to purchase 16,667 shares of our common stock. On September 19, 2003, we
issued the remaining 4.6 Units of the financing  transaction  (collectively  the
"September  Transaction").  The Units were sold to  accredited  investors for an
aggregate of  $600,000.  Holders of the notes had the right to convert the notes
into  shares of common  stock at a price equal to $1.896 per share for the notes
issued on  September  16,  2003 and  $1.920  per  share for the notes  issued on
September 19, 2003. The convertible notes bore interest at 8% per annum, and the
maturity  date  of the  notes  was  the  earlier  of  November  19,  2003 or the
completion  of an equity  placement  of at least $3  million,  at which time the
notes would  automatically  convert  into the equity  placement.  Holders of the
warrants  have the right to exercise the warrants into shares of common stock at
a price equal to $1.50 per share.  Finders'  compensation  to Spencer  Trask and
Richard  Berland for the  September  Transaction  consisted of (i) a cash fee of
$60,000,  or 10% of the  aggregate  purchase  price  of all of the  Units;  (ii)
warrants to purchase  102,988  shares of common  stock,  or 20% of the shares of
common stock underlying the securities in the Units sold, and (iii) 2,778 shares
of unregistered common stock per Unit sold. In addition,  Spencer Trask received
a non-accountable  expense allowance of $18,000, or 3% of the aggregate proceeds
of all  Units  sold  in the  September  Transaction.  All of the  notes  and the
warrants have full ratchet  anti-dilution  protection.  In November  2003, as an
inducement  to extend the maturity  date of the notes to February  19, 2004,  we
offered the noteholders a warrant to purchase  additional shares of common stock
in an amount equal to 25% of the number of shares into which the notes purchased
in the Unit are convertible.

The September  Transaction  required the consent of Global,  the holder of $1.25
million of our convertible notes issued in February and April 2003 (as described
below), and of 51% or more of the holders of our $1.5 million  convertible notes
issued  in  connection  with the  bridge  financings  in May and  June  2003 (as
described  below).  As an  inducement  to obtain  their  consent,  such  holders
received (a) a change in the

                                       21
<PAGE>

conversion price of their convertible notes equal to the lowest conversion price
of the notes issued in the  September  financings  ($1.896 per share) and (b) an
increase in the number of shares purchasable  pursuant to the warrant to reflect
a full ratchet  dilution  formula  with a decrease in the exercise  price of the
warrants to the exercise price of the warrants issued in the September financing
($1.50).  Such  amendment,  as it pertains to the holders of  convertible  notes
issued in the May and June 2003 bridge financings, was effective on November 25,
2003,  coincident with the effective date of a one-for-six  reverse stock split.
We recorded a charge in the amount of $4,828,000 as "Other  Financing Costs" for
the fair  value of the  consideration  granted to these  note  holders  for such
consent.

During the quarter  ended June 30,  2003,  we recorded a valuation  allowance of
$129,000 in connection with the potential uncollectibility of a loan made to Mr.
Mario Rossi, our then Executive Vice President and Chief Technology Officer, for
the purchase of our  restricted  stock.  During the quarter ended  September 30,
2003, we recorded a partial  recovery  amounting to $44,500 in  connection  with
such obligation.  Mr. Rossi's ability to repay this loan and interest thereon is
highly  contingent on the market value of his  investment in us. While this loan
had an original  maturity date of December 2003, in his separation  agreement in
October 2003,  the maturity  date was extended  until April 15, 2004. In January
2004, Mr. Rossi assigned and transferred all of the 34,347  restricted shares of
stock to us and we cancelled the non-recourse debt.

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

During the year ended  December 31, 2002,  we recorded a valuation  allowance of
$664,640 in connection with the potential  uncollectibility of outstanding loans
made to Mr. Sebastian  Cassetta,  our then Chairman and Chief Executive Officer,
which included a loan used by him to purchase our restricted  stock and loans in
the aggregate  original principal amount of $500,000.  Additionally,  during the
quarter  ended June 30, 2003,  we recorded a valuation  allowance of $270,000 in
connection with the potential  uncollectibility of the loan made to Mr. Cassetta
for the purchase of our restricted stock. Mr. Cassetta's  ability to repay these
loans and  interest  thereon is highly  contingent  on the  market  value of his
investment in our common stock. In his separation  agreement in October 2003, we
extended the maturity date of the loan for the restricted  stock until September
2004 and forgave  over a  three-year  term the loans in the  aggregate  original
principal amount of $500,000, plus the accrued interest thereon.

                                       22
<PAGE>

At December 31, 2002,  287,500 public warrants  (SSOLW) and 50,000 warrants with
terms  identical to the public  warrants were  outstanding.  These warrants were
convertible  into our  common  stock at the  ratio of 15  warrants  per share of
common  stock at an  exercise  price of $63.00 per share.  These  warrants  were
redeemable by us on not less than 30 days written notice at the redemption price
of $0.60 per warrant,  provided the average  closing bid quotation of the common
stock as reported  on the Nasdaq  Stock  Market has been at least  187.5% of the
current  exercise price of the warrants for a period of 20  consecutive  trading
days  ending  on the  third  day  prior to the date on which we give  notice  of
redemption. These warrants expired on March 20, 2003.

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

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

In January  2003,  the Company  borrowed  $70,000 from Steven B. Rosner that was
used for working capital. The debt was evidenced by an unsecured note bearing an
interest rate of 12% per annum and was repaid in February 2003.

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

In June  2002,  First  Albany  Corporation,  acting as  placement  agent for us,
completed a private  placement of Units at a price of $8.40 per unit  consisting
of 130,952 shares of common stock and warrants to purchase common stock. The net
proceeds  of  $823,500  from the  issuance  of these Units were used for general
working capital  requirements.  The investors received warrants,  callable under
certain conditions, for the purchase of an aggregate of 238,095 shares of common
stock at an exercise  price of $8.40 per share  through the  expiration  date on
June 5, 2007, as well as non-callable  warrants for the purchase of an aggregate
of 32,738 shares of common stock, subject to antidilution adjustments,  upon the
occurrence of

                                       23
<PAGE>

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

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

Our  failure  to  timely  file or keep  registration  statements  effective  has
affected the registration rights held by certain of our stockholders and warrant
holders.  At March 31, 2004,  we recorded an aggregate of $177,375 for penalties
in connection with the aforementioned  registration  requirements.  Such amounts
are  included in accrued  expenses on our  balance  sheet.  We filed a Form SB-2
Registration  Statement  on May  13,  2004,  but it has not  yet  been  declared
effective by the Securities and Exchange Commission ("SEC").

The  economic  downturn  in  general,  and its impact on the  telecommunications
industry in particular,  caused  telecommunications  service providers to reduce
capital spending, personnel and debt, as well as new service introductions. This
had resulted in delays in the build-out of high-speed  carrier data networks and
availability  of  data-enabled  wireless  devices,  causing  the  market for our
financial  data,  lifestyle  and  transaction  services  to  be  lackluster.  In
addition,  many financial  services firms  curtailed new product  development to
focus on data security and recovery.  Consequently, the potential demand for our
products  and services has been  significantly  delayed.  Such delays have had a
very detrimental  effect on our operations and have resulted in our inability to
implement our business plan and related marketing strategies.  Consequently,  in
2002 we commenced an effort to realign our  infrastructure  and related overhead
to correlate with reductions in projected  revenue.  As part of this effort,  we
closed our UK and Hong Kong sales offices and downsized our domestic  operations
through  staff  reductions  to a  level  sufficient  to  support  our  projected
operations.  In both March and May 2003, we reduced our cost  structure  through
the termination of additional  personnel.  Personnel  headcount has been reduced
from 66 in May 2002 to the current  level of 20 as of March 15, 2004  (including
the nReach acquisition  completed in March 2004). These efforts have reduced our
average monthly operating expenses from approximately $1,090,000 in July 2002 to
approximately  $370,000  as of  March  2004  (including  operating  expenses  of
nReach),  excluding non-cash stock compensation,  depreciation and amortization.
The Company anticipates that its monthly operating expenses will increase during
2004 due to the working capital  requirements of the business of nReach, as well
as related to expansion of marketing and business development efforts for all of
the Company's products and services and increased corporate overhead.

                                       24
<PAGE>

We believe we have sufficient  working capital for the next twelve months. It is
likely  we may  require  additional  funds in the long term  depending  upon the
growth of our revenues, our business strategy, the costs of any acquisitions and
other factors.  Should the Company be unable to raise  additional debt or equity
financing, it may be forced to seek a merger or cease operations.

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 long term; We have never been profitable and
if we do not achieve  profitability we may not be able to continue our business;
We have significant accounts payable obligations; 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 will  continue to generate  revenues for us in 2004;  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/A for the year ended December 31,
2003  (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.

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 first  fiscal  quarter in our
internal  control  over  financial  reporting,  to the extent  that  elements of
internal control over financial reporting is subsumed within disclosure controls
and  procedures,  that have  materially  affected,  or are reasonably  likely to
materially affect, our internal control over financial reporting.

PART 2.  OTHER INFORMATION

Item 1.  Legal Proceedings

In August of 2003, we entered into a Stipulation  of  Arbitration  with Brauning
Inc., Mike Silva and Todd Peterson, former consultants to us (collectively,  the
"Claimants"),  pursuant to which we and the  Claimants  agreed to resolve,  in a
binding arbitration proceeding, the Claimants' demand for damages resulting from
an alleged breach of contract and a failure by us to timely  register the shares
of common

                                       25
<PAGE>

stock  underlying  certain  consulting  warrants  issued by us to the Claimants.
Although  we  believe  that the  shares  underlying  the  warrants  were  timely
registered,  and that the  Claimants  demand is  without  merit,  we  reached an
agreement  to  settle  this  matter  in  order  to avoid  the  uncertainties  of
litigation.  Under the terms of the  settlement  agreement,  dated  February 27,
2004, we issued 60,000 shares of our common stock in  satisfaction of the claim,
and we have paid  Claimants  $45,000 for certain  wireless  industry  consulting
reports.  We also granted  registration  rights to the recipients of such 60,000
shares.

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

Item 2.  Changes in Securities and Use of Proceeds

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

In connection with settling a debt owed to our former landlord One Station Place
Limited Partnership,  in January 2004 we granted them an immediately exercisable
warrant  to  purchase  22,000  shares of common  stock at $1.34 per  share.  The
warrant  expires in January  2007.  This warrant was issued in reliance upon the
exemption  from  registration  provided by Section 4(2) of the Securities Act of
1933, as amended ("Securities Act").

In  connection  with  leaving  our  employ  and  his  execution  of an  Employee
Separation  Agreement  with us,  dated  February 2, 2003,  we granted to Richard
Kerschner  in February  2004 a warrant to purchase  50,000  shares of our common
stock. The warrant has a term of five years, is immediately exercisable, and has
an exercise  price of $1.65 per share.  This warrant was issued in reliance upon
the exemption from registration provided by Section 4(2) of the Securities Act.

In connection  with settling a lawsuit  brought by Brauning Inc., Mike Silva and
Todd Peterson,  former  consultants to us (collectively,  the  "Claimants"),  we
entered into a settlement  agreement,  dated  February 27, 2004,  under which we
issued 60,000 shares of our common stock as partial  consideration  for settling
the  claim.  These  shares  were  issued in  reliance  upon the  exemption  from
registration provided by Section 4(2) of the Securities Act.

In February 2004, we completed the closing of a $10 million private  offering of
investment Units to approximately  190 accredited  investors at the price of $15
per Unit  ("2004  Private  Placement").  Each Unit  consists of (i) one share of
Series A convertible preferred stock, $.01 par value, 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, are immediately  exercisable and expire in February 2007. We
also completed the closing of an additional  $25,000  private  offering of these
Units to an accredited  investor in March 2004,  which Units have the same terms
as  described  above  other than the  expiration  date which will be March 2007.
These Units,  shares of preferred stock and warrants were all issued in reliance
upon the exemption from  registration  provided under the SEC's Rule 506 adopted
under the Securities Act.

The rights of the holders of common  stock have been limited or qualified by the
issuance of the Series A convertible  preferred stock. In general,  the Series A
preferred  stock  ranks  senior to our  common  stock and

                                       26
<PAGE>

senior to any class or series of our capital stock  hereafter  created,  in each
case as to payment of dividends,  distributions of assets upon liquidation,  and
our dissolution or winding up, whether  voluntary or involuntary.  For instance,
each  outstanding  share of Series A  preferred  stock  receives  a  liquidation
preference equal to the aggregate purchase price at which the shares, along with
accompanying  warrants,  were first  issued  and sold by us in the 2004  Private
Placement,  plus all  accrued  and  unpaid  dividends.  Each  holder of Series A
preferred stock is further entitled to share pro rata in the distribution of any
remaining assets with the common stockholders,  such distribution to be based on
the  number of shares of our  common  stock  that  would be held if the Series A
preferred  stock were converted into shares of common stock.  Each holder of the
Series A preferred  stock is also  entitled to receive  preferential  cumulative
dividends at the rate of 8% per year on the initial purchase price of the Series
A  preferred  stock,  payable  quarterly.  The holders of our Series A preferred
stock are also entitled to notice of any stockholders'  meeting and to vote with
the common  stockholders on all matters submitted to a vote of our stockholders.
The Series A preferred stockholders are entitled to the number of votes equal to
the number of shares of common stock into which the Series A preferred stock are
then  convertible.  This  resulted in an immediate  dilution in voting rights of
common stockholders.  Additionally,  the Series A preferred stock is entitled to
vote separately on certain matters affecting the Series A preferred stock and as
required by law. The Series A preferred  stockholders  have preemptive rights in
general, subject to certain limited exceptions.

Spencer  Trask,  the placement  agent for the 2004 Private  Placement,  received
compensation consisting of (i) a cash fee of $1,002,500, or 10% of the aggregate
purchase  price of all of the Units  acquired for cash,  (ii) a  non-accountable
expense allowance of $300,750, or 3% of the aggregate proceeds of all Units sold
for cash in the  transaction,  and (iii) warrants to purchase a number of shares
of  common  stock  equal to 20% of the  shares of common  stock  underlying  the
securities in the Units sold for cash, constituting in the aggregate warrants to
purchase  1,336,666  shares of common  stock at $1.50 per share and  warrants to
purchase  1,336,666  shares of common stock at $2.82 per share.  These  warrants
were issued in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act.

In addition,  the  convertible  notes  issued in the May,  June,  September  and
November 2003 bridge  financings  were  automatically  converted  into the Units
issued in connection with the 2004 Private Placement.  The conversion took place
at the rate of $15 per Unit,  which is the price at which the Units were sold in
the 2004 Private  Placement.  This  resulted in the  conversion of the aggregate
outstanding  amount of debt owing from these  convertible  notes  ($3,122,302  -
representing  principal and accrued  interest)  into 208,147 Units from the 2004
Private Placement, which in the aggregate consists of 208,147 shares of Series A
convertible  preferred stock and warrants to purchase 2,081,470 shares of common
stock at an exercise price of $2.82 per share.  These  warrants are  immediately
exercisable and expire in February 2007. These Units,  shares of preferred stock
and warrants to the investors  were issued in reliance  upon the exemption  from
registration provided under the SEC's Rule 506 adopted under the Securities Act.

In  March  2004,  we  entered  into  a  consulting  agreement  with  Brockington
Securities,  Inc., whereby  Brockington agreed to render consulting  services to
us. As partial  compensation for such services,  we issued a warrant to purchase
100,000 shares of common stock to  Brockington,  which warrant is convertible at
the price of $1.50 per  share.  This  warrant  was issued in  reliance  upon the
exemption from registration provided by Section 4(2) of the Securities Act.

As partial  consideration for our acquisition of nReach in March 2004, we issued
500,002  shares of our common stock to the 10  shareholders  of nReach,  each of
whom was either  sophisticated  or an  accredited  investor,  and may issue more
shares if certain  contingencies  are met.  Spenser Trask is owed a fee for this
transaction based on the aggregate consideration paid, but these shares have not
yet been issued.  These shares of common stock were issued in reliance  upon the
exemption from registration provided by Section 4(2) of the Securities Act.

                                       27
<PAGE>

In March 2004,  we amended and restated the December 2002  consulting  agreement
between  Steven B. Rosner and us by  extending  the term by one year until March
2005. In consideration  for this new agreement,  we granted Mr. Rosner a warrant
to purchase  300,000  shares of common  stock at an exercise  price of $1.50 per
share and Mr.  Rosner waived  $60,000 in consulting  fees that we owed him under
the December 2002 consulting agreement. This warrant was issued in reliance upon
the exemption from registration provided by Section 4(2) of the Securities Act.

The following  chart  describes our  repurchases  of our common stock during the
first quarter ended March 31, 2004.

<TABLE>
<CAPTION>
              SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
------------------------- --------------------- --------------------- ----------------------- ------------------------
                                                                                            (d) Maximum Number (or
                                                                      (c) Total Number of        Approximate Dollar
                                                                       Shares Purchased as     Value) of Shares that
                                                                         Part of Publicly      May Yet Be Purchased
                          (a) Total Number of    (b) Average Price      Announced Plans or      Under the Plans or
         Period             Shares Purchased       Paid per Share            Programs                Programs
------------------------- --------------------- --------------------- ----------------------- ------------------------
<S>                       <C>                   <C>                       <C>                      <C>
1/1/04 - 1/31/04                34,347 /1/            $1.98 /1/                 0                        0
------------------------- --------------------- --------------------- ----------------------- ------------------------
2/1/04 - 2/29/04                   0                     0                      0                        0
------------------------- --------------------- --------------------- ----------------------- ------------------------
3/1/04 - 3/31/04                   0                     0                      0                        0
------------------------- --------------------- --------------------- ----------------------- ------------------------
Total                            34,347                  --                     0                        0
------------------------- --------------------- --------------------- ----------------------- ------------------------
</TABLE>

--------
1 These  shares  were  acquired  from Mario  Rossi,  our former  Executive  Vice
President,  Chief  Technology  Officer  and  Director,  in  connection  with his
retirement and a Separation  Agreement  between Mr. Rossi and us effective as of
October 21, 2003.  The shares were issued to Mr. Rossi  pursuant to a Restricted
Stock Agreement and in exchange for a note in the original  principal  amount of
$152,500 (the "Rossi Note").  The  outstanding  amount of principal on the Rossi
Note  ($68,000)  was  cancelled  upon  delivery by Mr. Rossi to SmartServ of the
34,347 shares of restricted stock that secured the Rossi Note.

                                       28
<PAGE>

Item 6.     Exhibits and Reports on Form 8-K

(a)  Exhibits:

     2.1  Reorganization  and Stock Purchase  Agreement  dated as of January 29,
          2004 by and among  nReach,  Inc.,  SmartServ and the  shareholders  of
          nReach set forth on Schedule A thereto /1/

     3.1  Amended and Restated Certificate of Incorporation, as amended /2/

     4.1  Form of Warrant for the Investors in the 2004 Private Placement /2/

     4.2  Form of  Registration  Rights  Agreement,  dated  February  13,  2004,
          between SmartServ and the Investors in the 2004 Private Placement /2/

     4.3  Specimen  Certificate  of SmartServ's  Series A Convertible  Preferred
          Stock /2/

     4.4  Form of Warrant for Spencer Trask issued  pursuant to the 2004 Private
          Placement /2/

     10.1 Employee  Separation  Agreement,   dated  February  2,  2004,  between
          SmartServ and Richard Kerschner /3/

     10.2 Placement Agency Agreement,  dated January 29, 2004, between SmartServ
          and Spencer Trask in connection with the 2004 Private Placement /2/

     10.3 Employment  Agreement dated as of March 12, 2004 between SmartServ and
          Robert Pons /3/

     10.4 Employment  Agreement dated as of March 12, 2004 between SmartServ and
          Timothy G. Wenhold /3/

     10.5 Option  Agreement  dated as of March 12, 2004  between  SmartServ  and
          Robert Pons /3/

     10.6 Option  Agreement  dated as of March 12, 2004  between  SmartServ  and
          Timothy G. Wenhold /3/

     10.7 Settlement  Agreement  dated  as of  February  27,  2004 by and  among
          SmartServ and Michael Silva, Todd Peterson and Brauning Inc. /3/

     10.8 Amended and Restated  Consulting  Agreement dated as of March 31, 2004
          between SmartServ and Steven B. Rosner, as amended /3/

     10.9 Consulting  Agreement dated as of March 31, 2004 between SmartServ and
          Brockington Securities, Inc., as amended /3/

     10.10 Employment Agreement dated as of February 28, 2004 between  SmartServ
           and Michael Stemple /3/

     10.11 Warrant for Richard Kerschner dated as of February 2, 2004 /3/

     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 +


                                       29
<PAGE>

     +    Filed herewith.

     1    Filed as an Exhibit to our Form 8-K, dated March 4, 2004.

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

     3    Filed  as an  Exhibit  to our  Registration  Statement  on  Form  SB-2
          (Registration No. 333-115462) on May 13, 2004.


(b) Reports on Form 8-K

     On January  30,  2004,  the  Company  filed a Form 8-K under Item 5 of such
     Form.  The  information  related to the Company's  press release  issued on
     January  30,  2004  regarding  the  private  placement  of  certain  of its
     securities.

     On January  30,  2004,  the  Company  filed a Form 8-K under Item 5 of such
     Form. The information  related to the Company's (i) press release issued on
     January 30, 2004 announcing  certain changes in management,  and (ii) press
     release  issued  January 30, 2004  announcing the signing of stock purchase
     agreements with nReach,  Inc. and Mobile  Airwaves,  Inc. The Form 8-K also
     provided a copy of updated risk factors  applicable to  investments  in the
     Company's securities.

     On March 1, 2004,  the Company  filed a Form 8-K under Item 5 of such Form.
     The information related to the Company's press releases issued February 17,
     2004 and March 1, 2004  regarding  the private  placement of certain of its
     securities.

     On March 4, 2004,  the Company  filed a Form 8-K under Item 2 of such Form.
     The information related to the Company's acquisition of all of the stock of
     nReach,  Inc.  and the  assumption  of certain  obligations  in  connection
     therewith.


                                       30
<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: May 19, 2004                      /s/  Robert M. Pons
      ------------                      ----------------------------------------
                                        Robert M. Pons
                                        Chief Executive Officer


Date: May 19, 2004                      /s/   Len von Vital
      ------------                      ----------------------------------------
                                        Len von Vital
                                        Chief Financial Officer



                                       31