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

                                   FORM 10-QSB

                    U. S. SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934


                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
                                                 --------------

                         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)

          METRO CENTER, ONE STATION PLACE, STAMFORD, CONNECTICUT 06902
--------------------------------------------------------------------------------
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)


                                 (203) 353-5950
--------------------------------------------------------------------------------
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.      YES  X     NO

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)
         YES    ______       NO  X

THE NUMBER OF SHARES OF COMMON STOCK, $.01 PAR VALUE,  OUTSTANDING AS OF MAY 15,
2000 WAS 4,099,614.

================================================================================
<PAGE>

                             SMARTSERV ONLINE, INC.

                                   FORM 10-QSB

                                      INDEX

PART I.       FINANCIAL INFORMATION
<TABLE>
<CAPTION>

Item 1.       Financial Statements

<S>                                                                                                              <C>
              Balance Sheets - June 30, 1999 and March 31, 2000 (unaudited).......................................2

              Statements of Operations - three months ended March 31, 2000 and
              1999 and nine months ended March 31, 2000 and 1999 (unaudited)......................................4

              Statement of Changes in Stockholders' Deficiency - nine months
              ended March 31, 2000 (unaudited)....................................................................5

              Statements of Cash Flows - three months ended March 31, 2000 and
              1999 and nine months ended March 31, 2000 and 1999 (unaudited)......................................6

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

Item 2.       Management's Discussion and Analysis or Plan of Operation..........................................13


PART II.      OTHER INFORMATION

Item 1.       Legal Proceedings..................................................................................18

Item 2.       Changes in Securities and Use of Proceeds..........................................................20

Item 6.       Exhibits and Reports on Form 8-K...................................................................22

              Signatures.........................................................................................23
</TABLE>
                                       1

<PAGE>


                             SMARTSERV ONLINE, INC.

                                 BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                               MARCH 31,                JUNE 30,
                                                                                 2000                     1999
                                                                          --------------------      ------------------
                                                                              (UNAUDITED)
ASSETS
<S>                                                                         <C>                     <C>
Current assets
   Cash and cash equivalents                                                $    5,175,577          $     2,165,551
   Accounts receivable                                                             265,465                  348,278
   Prepaid expenses                                                                204,061                   50,150
                                                                          --------------------      ------------------
Total current assets                                                             5,645,103                2,563,979
                                                                          --------------------      ------------------

Property and equipment - net                                                       530,594                  498,448

Other assets
   Capitalized software development costs - net of accumulated
       amortization of $291,219 at March 31, 2000 and $82,108 at
       June 30, 1999                                                             1,321,040                  683,337
   Security deposits                                                                73,374                   74,834
                                                                          --------------------      ------------------
                                                                                 1,394,414                  758,171
                                                                          --------------------      ------------------

Total Assets                                                                $    7,570,111            $   3,820,598
                                                                          ====================      ==================
</TABLE>

See accompanying notes.


                                       2
<PAGE>


                             SMARTSERV ONLINE, INC.

                                 BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                               MARCH 31,                JUNE 30,
                                                                                 2000                     1999
                                                                          --------------------      ------------------
                                                                              (UNAUDITED)

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
<S>                                                                       <C>                         <C>
   Accounts payable                                                       $        919,580            $     780,543
   Accrued liabilities                                                             249,181                  474,189
   Accrued liabilities to warrant holders                                               --                1,311,365
   Salaries payable                                                                108,198                   93,443
   Capital lease obligation                                                             --                   70,147
                                                                          --------------------      ------------------
Total current liabilities                                                        1,276,959                2,729,687
                                                                          --------------------      ------------------

Deferred revenues                                                                4,555,739                5,798,211

STOCKHOLDERS' EQUITY (DEFICIENCY)

Preferred Stock - $.01 par value
   Authorized - 1,000,000 shares
   Issued and outstanding - none
Common Stock - $.01 par value
   Authorized - 40,000,000 shares
   Issued and outstanding -  4,098,388 shares at March 31, 2000 and
         and 1,199,787 shares at June 30, 1999                                      40,983                   11,998
Common stock subscribed                                                             57,614                1,812,554
Additional paid-in capital                                                      61,956,440               20,679,611
Unearned compensation                                                           (2,621,539)              (3,452,904)
Notes receivable from officers                                                    (666,841)              (1,812,554)
Accumulated deficit                                                            (57,029,244)             (21,946,005)
                                                                          --------------------      ------------------
Total stockholders' equity (deficiency)                                          1,737,413               (4,707,300)
                                                                          --------------------      ------------------

Total Liabilities and Stockholders' Equity (Deficiency)                   $      7,570,111          $     3,820,598
                                                                          ====================      ==================
</TABLE>

See accompanying notes.


                                       3
<PAGE>


                             SMARTSERV ONLINE, INC.

                            STATEMENTS OF OPERATIONS

                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                          THREE MONTHS                             NINE MONTHS
                                                         ENDED MARCH 31                          ENDED MARCH 31
                                             ---------------------------------------  --------------------------------------
                                                   2000                 1999                2000                 1999
                                             ------------------    -----------------  -----------------     ----------------
<S>                                                 <C>                   <C>                <C>                   <C>
Revenues                                           $989,943              $334,624         $2,710,856            $1,028,353
                                             ------------------    -----------------  -----------------     ----------------
Costs and expenses:
   Costs of revenues                                157,942               204,277            603,355               593,798
   Product development expenses                     106,312                81,389            240,532               132,605
   Selling, general and administrative
     expenses                                       747,227               609,094          2,050,202             1,799,139
   Stock-based compensation                      14,001,007               399,092         35,636,026             1,041,602
                                             ------------------    -----------------  -----------------     ----------------
   Total costs and expenses                      15,012,488             1,293,852         38,530,115             3,567,144
                                             ------------------    -----------------  -----------------     ----------------

Loss from operations                            (14,022,545)             (959,228)       (35,819,259)           (2,538,791)
                                             ------------------    -----------------  -----------------     ----------------

Other income (expense):
   Interest income                                   45,537                   864             58,570                 3,772
   Interest expense and other
     financing costs                                (10,000)           (1,420,546)           (40,250)           (2,231,343)
   Prepaid warrant costs                                 --                    --            717,700                    --
                                             ------------------    -----------------  -----------------     ----------------
                                                     35,537            (1,419,682)           736,020            (2,227,571)
                                             ------------------    -----------------  -----------------     ----------------

Net loss                                     $  (13,987,008)       $   (2,378,910)    $(35,083,239)         $   (4,766,362)
                                             ==================    =================  =================     ================

Basic and diluted earnings per
     common share                            $       (4.33)        $       (1.98)     $      (17.55)        $        (4.45)
                                             ==================    =================  =================     ================

Weighted average shares outstanding               3,232,687             1,198,563          1,998,790             1,072,264
                                             ==================    =================  =================     ================
</TABLE>

See accompanying notes.


                                       4
<PAGE>


                             SMARTSERV ONLINE, INC.

            STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

                        NINE MONTHS ENDED MARCH 31, 2000
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                     NOTES
                                   COMMON STOCK         COMMON     RECEIVABLE    ADDITIONAL
                                            PAR         STOCK         FROM         PAID-IN       UNEARNED     ACCUMULATED
                                 SHARES    VALUE      SUBSCRIBED    OFFICERS       CAPITAL      COMPENSATION    DEFICIT
                               --------------------- ------------ ------------- -------------- ------------- --------------
<S>                            <C>        <C>        <C>          <C>              <C>         <C>           <C>
Balance at June 30, 1999       1,199,787  $ 11,998   $1,812,554   $(1,812,554)     $20,679,611 $(3,452,904)  $(21,946,005)

Issuance of Common Stock in
   connection with the
   settlement of obligations
   to a Prepaid Warrant         180,000      1,800           --            --        266,895             --            --
   holder

Issuance of Common Stock
   upon exercise of employee
   stock options                 47,808        478           --            --         80,290             --            --

Issuance of warrants to
   purchase 284,000 shares
   of Common Stock for
   various consulting
   services                          --        --            --            --        137,300        (77,400)           --

Conversion of 1,357 Prepaid
   Common Stock Purchase
   Warrants into Common Stock   810,785      8,107           --            --        (8,107)             --            --

Issuance of 1,103,157 shares
   of Common Stock in
   connection with
   Officer's  Restricted
   Stock Purchase and
   Employment Agreements       1,026,319    10,263   (1,754,940)    1,145,713      3,940,976            --             --

Issuance of Common Stock
   upon exercise of warrants
   to purchase Common Stock    500,689       5,007           --            --       707,938              --            --

Amortization of unearned
   compensation over the
   terms of consulting
   agreements                        --         --           --            --             --        908,765            --

Issuance of 333,000 shares
   of Common Stock and
   warrants to purchase
   18,640 shares of Common
   Stock in connection with
   private placement, net of
   direct costs of $326,200     333,000     3,330            --            --      4,665,675            --             --

Change in market value of
  employee stock options and
  stock subscriptions                --         --           --           --      31,485,862            --             --

Net loss for the period              --         --           --           --             --             --    (35,083,239)
                                -----------------------------------------------------------------------------------------
Balance at March 31, 2000       4,098,388  $40,983      $57,614    $(666,841)    $61,956,440   $ (2,621,539) $(57,029,244)
                                =========================================================================================
</TABLE>
See accompanying notes.


                                       5
<PAGE>


                             SMARTSERV ONLINE, INC.

                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                THREE MONTHS                             NINE MONTHS
                                                               ENDED MARCH 31                          ENDED MARCH 31
                                                     ------------------------------------   --------------------------------------
                                                           2000               1999                2000                1999
                                                     -----------------   ----------------   ------------------   -----------------
OPERATING ACTIVITIES

<S>                                                  <C>                                      <C>                  <C>
Net loss                                             $  (13,987,008)       $ (2,378,910)      $(35,083,239)        $ (4,766,362)
Adjustments to reconcile net loss to net cash used
for operating activities:
    Depreciation and amortization                           146,891              97,739            368,237              237,555
    Noncash interest expense and other
       financing costs                                           --             665,360                 --            1,459,605
    Noncash compensation costs                           13,624,852              38,837         34,667,361               38,837
    Noncash consulting costs                                376,155             360,255            968,665            1,002,765
    Amortization of unearned revenues                      (414,160)           (115,534)        (1,242,472)            (146,602)
    Changes in operating assets and liabilities
       Accounts receivable                                  120,542              16,770             82,813               51,581
       Prepaid expenses                                    (152,284)             36,580           (153,911)             (36,047)
       Accounts payable and accrued liabilities              75,705             305,480           (977,142)             844,530
       Accrued interest payable                                  --              13,807                 --               17,583
       Salaries payable                                      60,005              29,864             14,755               (5,046)
       Unearned revenues                                         --              13,152                 --              226,203
       Security deposit                                          --                  --              1,460                   --
                                                     -----------------   ----------------   ------------------   -----------------
    Net cash used for operating activities                 (149,302)           (916,600)        (1,353,473)          (1,075,398)
                                                     -----------------   ----------------   ------------------   -----------------

INVESTING ACTIVITIES

Purchase of equipment                                      (127,901)           (146,104)          (191,271)            (168,799)
Capitalization of software development costs               (293,519)           (176,970)          (846,814)            (672,785)
                                                     -----------------   ----------------   ------------------   -----------------
    Net cash used for investing activities                 (421,420)           (323,074)        (1,038,085)            (841,584)
                                                     -----------------   ----------------   ------------------   -----------------

FINANCING ACTIVITIES

Repayment of capital lease obligation                       (23,942)            (21,222)           (70,147)             (61,575)
Proceeds from the issuance of notes                              --              43,500                 --              478,500
Repayment of notes                                               --             (75,000)                --              (75,000)
Proceeds from the issuance of common stock, net of
direct costs of $326,200                                  5,398,660                  --          5,471,731                   --
Deferred financing costs                                         --                  --                 --              (35,000)
Proceeds of advances from DTN Corporation                        --           1,408,287                 --            1,408,287
                                                     -----------------   ----------------   ------------------   -----------------
    Net cash provided by financing activities             5,374,718           1,355,565          5,401,584            1,715,212
                                                     -----------------   ----------------   ------------------   -----------------

Increase (decrease) in cash and cash equivalents          4,803,996             115,891          3,010,026             (201,770)
Cash and cash equivalents - beginning of period             371,581              36,564          2,165,551              354,225
                                                     -----------------   ----------------   ------------------   -----------------

Cash and cash equivalents - end of period              $  5,175,577        $    152,455       $  5,175,577         $    152,455
                                                     =================   ================   ==================   =================
</TABLE>

See accompanying notes.


                                       6
<PAGE>


                             SMARTSERV ONLINE, INC.

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                 MARCH 31, 2000

1.   ORGANIZATION

SmartServ Online, Inc. (the "Company")  commenced operations on August 20, 1993.
The  Company  delivers   Internet-based   and  wireless  content,   as  well  as
"Web-to-Wireless"  applications,  such as securities  trade order routing,  that
enable  e-commerce by providing  transactional  and information  services to its
alliance partners. The Company has developed online financial, transactional and
media  applications  using a unique "device  independent"  delivery solution and
makes these  services  available to wireless  telephones  and  personal  digital
assistants, personal computers and the Internet through its application software
and communications architecture. The Company's services facilitate stock trading
and  disseminate  real-time stock quotes,  business and financial  news,  sports
information, private-labeled electronic mail, national weather reports and other
business and entertainment information in a user-friendly manner.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
---------------------
The accompanying unaudited financial statements have been prepared in accordance
with accounting  principles  generally accepted in the United States for interim
financial  information,  the  instructions  of  Form  10-QSB  and  Rule  310  of
Regulation  S-B  and,  therefore,  do not  include  all  information  and  notes
necessary for a presentation  of results of operations,  financial  position and
cash flows in conformity  with generally  accepted  accounting  principles.  The
balance  sheet at June 30,  1999 has been  derived  from the  audited  financial
statements  at that  date,  but  does not  include  all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements.  The financial  statements  should be read in conjunction
with the  Company's  Annual  Report on Form  10-KSB  for the year ended June 30,
1999.  In the opinion of the  Company,  all  adjustments  (consisting  of normal
recurring accruals) necessary for a fair presentation have been made. Results of
operations  for the  nine  months  ended  March  31,  2000  are not  necessarily
indicative of those expected for the year ending June 30, 2000.

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
-------------------
Revenues are recognized as services are provided.  Deferred revenues,  resulting
from customer  prepayments,  are recognized as services are provided  throughout
the term of the  agreement.  Deferred  revenues  resulting  from  the  Company's
agreements  with  Data  Transmission   Network  Corporation  ("DTN")  are  being
amortized over the term of the anticipated future revenue stream, a period of 42
months, commencing on June 1, 1999.

                                       7
<PAGE>

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

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

STOCK BASED COMPENSATION
------------------------
The  Company  maintains  stock  option  plans  for  employees  and  non-employee
directors  that provide for the granting of stock  options for a fixed number of
shares with an exercise  price equal to the fair value of the shares at the date
of grant. The Company accounts for these stock  compensation plans in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees"  ("APB No.  25").  Certain  options,  which have been  repriced,  are
subject to the  variable  plan  requirements  of APB No. 25, that  requires  the
Company  to record  compensation  expense  for  changes in the fair value of the
Company's Common Stock.

RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------

In December  1999, the SEC staff  released  Staff  Accounting  Bulletin No. 101,
"Revenue  Recognition  in Financial  Statements"  ("SAB 101").  SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in the financial statements. SAB 101 must be applied to the financial statements
no later than the quarter  ending  September  30,  2000.  The  Company  does not
believe  that  the  adoption  of SAB 101  will  have a  material  affect  on the
Company's financial results.

3.   PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>

Property and equipment consist of the following:

                                                                                 MARCH 31,               JUNE 30,
                                                                                   2000                    1999
                                                                            -------------------      -----------------
<S>                                                                         <C>                      <C>
   Data processing equipment                                                $       891,481          $      700,210
   Data processing equipment under a capital lease                                  246,211                 246,211
   Office furniture and equipment                                                    71,423                  71,423
   Display equipment                                                                  9,635                   9,635
   Leasehold improvements                                                            36,678                  36,678
                                                                            -------------------      -----------------

                                                                                  1,255,428               1,064,157
   Accumulated  depreciation,  including $143,623 and $106,691 at
   March 31, 2000 and June 30, 1999, respectively, for equipment
   under a capital lease                                                           (724,834)               (565,709)
                                                                            -------------------      -----------------
                                                                            $       530,594          $      498,448
                                                                            ===================      =================
</TABLE>
4.   EQUITY TRANSACTIONS

On July 1, 1999, the Company entered into an agreement with a holder of $325,000
of the Company's Prepaid Common Stock Purchase Warrants (Prepaid Warrants"),  to
settle  the  Company's  obligation  to  such  holder  pursuant  to  the  default
provisions of the Prepaid  Warrants.  Accordingly,  the Company paid $325,000 to
redeem the Prepaid  Warrants and issued  180,000  shares of Common Stock in full
settlement of all obligations to the holder.  Settlement  costs of $268,695 were
recorded during the year ended June 30, 1999.

During the period,  holders of  $1,357,000  of the  Company's  Prepaid  Warrants
converted such warrants into 810,785  shares of Common Stock at exercise  prices
ranging from $1.40 to $8.40 per share.

                                       8
<PAGE>

In  October  1999,  the  Board of  Directors  authorized  the  repricing  of the
restricted  shares granted to Messrs.  Cassetta and Rossi to $.75 per share, the
fair value of the shares at that date. Through December 31, 1999, the restricted
stock awards were variable plan awards  pursuant to APB No. 25 and  accordingly,
the Company was  required to recognize  compensation  expense for the changes in
the market value of its Common Stock. In conjunction therewith,  the Company has
recorded a charge to  compensation  expense of  $15,636,300  for the  nine-month
period ended March 31, 2000, as well as a  corresponding  increase to additional
paid-in capital.

In October 1999,  the Board of Directors  authorized the Company to enter into a
restricted  stock  agreement  with Robert  Pearl,  Vice  President  Strategy and
Alliances, pursuant to which Mr. Pearl was awarded 76,818 shares of Common Stock
at the purchase price of $.75 per share.

In  October  1999,  the  Company  entered  into a  consulting  agreement  with a
financial  advisor to the  Company.  As  consideration  for such  services,  the
Company granted such advisor warrants to purchase 100,000 shares of Common Stock
at an exercise price of $2.625 per share and warrants to purchase 100,000 shares
of  Common  Stock at $3.65 per  share.  In  consideration  of  $125,000  and the
issuance of warrants to  purchase  8,000  shares of Common  Stock at $18.375 per
share,  the Company  extended this agreement for the two-year period  commencing
October 24, 2000. The warrants expire on October 24, 2004. The Company  recorded
a noncash  charge  of  $62,400  to  unearned  compensation  for the value of the
warrants which is being amortized to income over the term of the agreement.

In November  1999,  the Company  issued  25,042 shares of Common Stock to Zanett
Lombardier,  Ltd.  pursuant to the cashless  exercise  provisions of warrants to
purchase 50,084 shares of Common Stock.

During  the  period,  the  Board of  Directors  authorized  the  issuance  of an
aggregate  of 202,000  shares of Common  Stock to Messrs.  Cassetta and Rossi in
satisfaction of its bonus obligations to Messrs. Cassetta and Rossi, pursuant to
their  employment  contracts.  The Company has recorded a charge to compensation
expense of $3,181,500 for the change in fair value of the Company's Common Stock
between the due date of the  obligation  and the grant date of the Common Stock.
The Company also issued 824,319  shares of Common Stock to Messrs.  Cassetta and
Rossi in  connection  with  restricted  stock  purchase  agreements  between the
Company and Messrs.  Cassetta and Rossi. The Company received cash in the amount
of $8,243 and notes in the amount of $609,996. The notes bear interest at 6.75 %
and are secured by the Common Stock.

During the period,  the Company  granted  warrants to purchase  16,000 shares of
Common Stock at an exercise price of $4 to a computer software  consultant.  The
Company recorded a noncash charge of $15,000 to unearned  compensation  which is
being amortized to income over the term of the agreement.

During the period, the Company issued 333,334 shares of Common Stock to certain
participants  of the  Company's  November  1998  financing  upon the exercise of
warrants to purchase such shares.  Proceeds from the exercise of these  warrants
were $200,000.

During the period,  the Company  issued  warrants to purchase  10,000  shares of
Common Stock at an exercise  price of $2.50 per share to a marketing  consultant
in connection with services rendered to the Company. Such warrants were recorded
in accordance with the Black Scholes pricing methodology. The Company recorded a
charge to earnings of $19,900 in connection with such issuance.
                                       9
<PAGE>

In January  2000,  the Company  completed  an offering  ("Offering")  of 333,000
shares of its Common Stock to  accredited  investors.  Gross  proceeds  from the
Offering  amounted  to  $4,995,000  or  $15.00  per share of  Common  Stock.  In
connection with this transaction, the Company issued warrants to purchase 18,640
shares of Common Stock at $15.00 per share through  January 18, 2005 to American
First  Associates  Corp. in connection  with services as placement agent for the
Offering.

During the period,  the Company  issued  warrants to purchase  50,000  shares of
Common Stock at an exercise  price of $3.00 per share to a marketing  consultant
in  connection  with the  completion  of services  rendered to the Company.  The
Company  recorded  a charge to  earnings  of  $40,000  in  connection  with such
issuance.

During the period,  the Company issued 142,308 shares of Common Stock to certain
investors  at prices  ranging  from  $0.60 to $9.28 per share upon  exercise  of
warrants to purchase such shares.  Proceeds from the exercise of these  warrants
were $512,900.

5.   EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
                                              THREE MONTHS MARCH 31                  NINE MONTHS ENDED MARCH 31
                                      ---------------------------------------   --------------------------------------
                                            2000                 1999                 2000               1999
                                      ------------------    -----------------   ------------------  ------------------
<S>                                   <C>                   <C>                 <C>                 <C>
Numerator:
   Net loss                           $    (13,987,008)     $     (2,378,910)   $   (35,083,239)    $    (4,766,362)
                                      ==================    =================   ==================  ==================

Denominator:
   Weighted average shares                   3,232,687             1,198,563          1,998,790           1,072,264
                                      ==================    =================   ==================  ==================

Basic and diluted earnings per
   common share                       $          (4.33)     $          (1.98)   $        (17.55)    $         (4.45)
                                      ==================    =================   ==================  ==================
</TABLE>

At March 31, 2000  $612,000  of the  Company's  prepaid  common  stock  purchase
warrants  ("Prepaid  Warrants")  were  outstanding.  At that date,  the  Prepaid
Warrants were  convertible  into 437,000  shares of Common  Stock.  Additionally
there were 3,597,200 common stock purchase warrants  outstanding.  Such warrants
have  exercise  prices  ranging  from $0.60 to $72.00 per share and expire  from
March 2001  through  October  2004.  Additionally,  the Company has  established
employee stock option plans and authorized restricted stock awards to employees,
directors, and consultants to the Company. These options are intended to qualify
as  incentive  stock  options  within the meaning of Section 422 of the Internal
Revenue Code, as amended,  or as  nonqualified  stock  options.  The options are
partially  exercisable  after one year from date of grant and no options  may be
granted after April 15, 2006. At March 31, 2000,  options and  restricted  stock
awards have been  authorized for the purchase of 733,000 shares of the Company's
Common  Stock.  None of the  warrants  or  options  have  been  included  in the
computation  of  diluted  loss  per  share  because  their  inclusion  would  be
antidilutive.

6.   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. These 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 the Company's Common Stock.



                                       10
<PAGE>
The following table shows the amount of stock-based compensation that would have
been recorded in the categories of the statement of operations  had  stock-based
compensation not been separately stated therein:
<TABLE>
<CAPTION>
                                                   THREE MONTHS                              NINE MONTHS
                                                  ENDED MARCH 31                           ENDED MARCH 31
                                      ---------------------------------------   --------------------------------------
                                            2000                  1999                2000                1999
                                      ------------------    -----------------   ------------------  ------------------
<S>                                   <C>                   <C>                <C>                 <C>
Costs of revenues                     $     3,039,090       $        8,720      $     3,636,791     $        8,720
Selling, general and administrative
expenses                                   10,961,917              390,372           31,999,235          1,032,882
                                      ------------------    -----------------   ------------------  ------------------
                                      $    14,001,007       $      399,092      $    35,636,026     $    1,041,602
                                      ==================    =================   ==================  ==================
</TABLE>


7.   COMMITMENTS AND CONTINGENCIES

By letter dated April 10, 1998,  Michael  Fishman,  then Vice President of Sales
for the Company,  resigned his position. On or about April 24, 1998, Mr. Fishman
filed a complaint  against the  Company,  Sebastian  E.  Cassetta and four other
defendants in the United States  District Court for the District of Connecticut.
The complaint  asserted  claims under  Sections  10(b) and 18 of the  Securities
Exchange Act of 1934, as well as several state law claims,  including  breach of
contract, fraud and misrepresentation.  Mr. Fishman alleged that the Company (1)
failed to pay him the benefits and compensation to which he was entitled and (2)
made material misrepresentations in its filings with the Securities and Exchange
Commission.  On December 11, 1998,  the Court  granted the  Company's  motion to
dismiss Mr. Fishman's action without prejudice to the plaintiff to seek leave to
file an amended  complaint within 30 days. On May 12, 1999, the Court denied the
plaintiff's  subsequent motion for leave to file a substituted  complaint on the
basis that the federal  securities law claim,  the only federal claim alleged by
the plaintiff,  was still deficient.  Accordingly,  the federal securities claim
was dismissed with prejudice. On or about June 4, 1999, Mr. Fishman commenced an
action  against  the same  defendants  and  added as a  seventh  defendant,  the
Company's former President,  Steven Francesco, in the Connecticut Superior Court
for the Judicial  District of  Stamford/Norwalk  at Stamford  alleging breach of
contract,   breach  of  duty  of  good  faith  and  fair   dealing,   fraudulent
misrepresentation,  negligent misrepresentation,  intentional  misrepresentation
and failure to pay wages.  The defendants  have answered the complaint and filed
counterclaims  for fraudulent  inducement and breach of contract.  Plaintiff has
responded to the counter-claim,  and discovery is proceeding.  By pleading dated
February 29, 2000, Mr. Fishman filed an application with the Court seeking entry
of a prejudgment  remedy in the amount of  $19,250,000.  To date, Mr.  Fishman's
application has not been acted on by the Court and no hearing date has been set.
Although  the  Company is  vigorously  defending  this  action,  there can be no
assurance that it will be successful.

On or about May 11,  1998,  Ronald  G.  Weiner  filed a  complaint  against  Mr.
Francesco and the Company in the Supreme Court of the State of New York,  County
of New York.  The complaint  alleges,  among other things,  that in May 1993, by
letter from Mr.  Francesco,  Mr.  Weiner was offered a 10% equity stake in Smart
Phone  Services,  Inc.  ("SPS"),  a Subchapter S company of which Mr.  Francesco
allegedly  was the President  and sole  shareholder,  in exchange for his active
involvement  in, among other things,  raising capital and managing the financial
aspects of SPS. The complaint alleges that, in November 1993, Mr. Francesco sent
a letter  to Mr.  Weiner  in which he (1)  represented  that SPS had  failed  to
attract a single  investor  and (2)  withdrew  his offer to Mr.  Weiner of a 10%
equity  position in SPS. The complaint  further  alleges that, in  conversations
with Mr. Weiner  beginning in November 1993, Mr.  Francesco  represented that he
was ceasing all efforts to capitalize  SPS. The complaint  alleges,  among other
things,  that Mr.  Francesco and SPS breached their agreement with Mr. Weiner by
withdrawing
                                       11
<PAGE>

their  offer to him of a 10%  equity  stake in SPS,  and  that,  at the time Mr.
Francesco  represented  that he was ceasing  efforts to  capitalize  SPS, he had
actually  formed  SmartServ  and was  actively  seeking  investors  for it.  The
complaint  further  alleges  that the Company is a  successor  entity to SPS and
that,  therefore,  the  Company is liable for SPS' and Mr.  Francesco's  alleged
conduct in derogation of their alleged agreement with Mr. Weiner.  The complaint
seeks, among other things, (1) a declaratory judgment declaring Mr. Weiner a 10%
equity  shareholder  of the Company,  (2) a constructive  trust in Mr.  Weiner's
favor for 10% of the Company `s equity  shares and (3)  restitution  against Mr.
Francesco and the Company for unjust enrichment. On his unjust enrichment claim,
Mr. Weiner seeks unspecified damages that he alleges to be at least $250,000. In
the  Company's  answer  to  the  complaint,  the  Company  denied  the  material
allegations of the complaint and asserted affirmative  defenses. No discovery in
this action has yet been taken.  Although  the Company is  vigorously  defending
this action there can be no assurance that it will be successful.

On or about February 29, 2000, Commonwealth  Associates,  L.P. filed a complaint
against the Company in the Supreme Court of the State of New York, County of New
York. The complaint  alleges that on or about August 19, 1999,  Commonwealth and
the Company entered into an engagement letter pursuant to which Commonwealth was
to provide financial  advisory and investment banking services to the

Company in connection with a possible  combination  between the Company and Data
Link Systems Corporation. The engagement letter provided for a nonrefundable fee
of  $15,000  payable  in cash or  common  stock  at the  Company's  option.  The
complaint  alleges that  notwithstanding  the terms of the engagement letter the
fee was to be paid in stock and seeks 13,333  shares of common stock or at least
$1,770,000  together  with interest and costs.  In the  Company's  answer to the
complaint,  the  Company  denied  the  material  allegations  of the  complaint.
Discovery in this action has recently commenced and is proceeding.  Although the
Company is vigorously  defending  this action there can be no assurance  that it
will be successful.

While the Company  intends to vigorously  defend these actions,  the unfavorable
outcome of any such action could have a material adverse effect on the Company's
financial condition, results of operations, and cash flows.

8.   SUBSEQUENT EVENTS

On May 15,  2000,  the Company  completed  an offering of 353,535  shares of its
Common Stock to accredited investors. Proceeds from this transaction amounted to
$16,715,000, net of commissions and expenses of $785,000.


                                       12
<PAGE>



ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------

PLAN OF OPERATION

The  Company   delivers   Internet-based   and  wireless   content  as  well  as
"Web-to-Wireless"  applications,  such as securities  trade order routing,  that
enable  e-commerce by providing  transactional  and information  services to its
alliance partners. The Company has developed online financial, transactional and
media applications using a unique "device-independent" delivery solution.

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

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

Management  believes  that most of the  Company's  revenues  will continue to be
derived from  consumers who purchase its services  through  Strategic  Marketing
Partners.  The Company  anticipates that Strategic Marketing Partners will brand
its bundled  information  services  with their own private label and promote and
distribute the Company's packaged offering to their clients. The Company has the
ability to customize  the  information  package to be offered to each  Strategic
Marketing  Partner,  by  device.  With  the  licensing  of four of its  Internet
products  by DTN in 1998,  the  Company  has  discontinued  efforts to develop a
direct subscriber base.

Management   anticipates   that  staffing   requirements   associated  with  the
implementation of its plan of operation will result in the addition of a minimum
of six people during the period  ending June 30, 2000.  Such  personnel  will be
added to  assist  with  the  programming  requirements  of  Strategic  Marketing
Partners' product offerings, for customer support and sales and marketing.


                                       13
<PAGE>

RESULTS OF OPERATIONS

QUARTER ENDED MARCH 31, 2000 VS. QUARTER ENDED MARCH 31, 1999

During the quarters ended March 31, 2000 and 1999, the Company recorded revenues
of $989,943 and $334,624, respectively.  Substantially all of such revenues were
earned through the Company's  licensing of its products to DTN. Of such amounts,
the Company  recorded  $414,160 and $115,534,  respectively,  as amortization of
deferred revenues emanating from its licensing agreement with DTN.

During the quarter ended March 31, 2000, the Company  incurred costs of revenues
of $157,942.  These costs consisted  primarily of information and  communication
costs  ($32,700),  personnel  costs  ($29,200),  and computer  hardware  leases,
depreciation and maintenance costs ($81,100). During the quarter ended March 31,
1999, the Company  incurred costs of revenues of $204,277.  Such costs consisted
primarily of information  and  communication  costs  ($44,400),  personnel costs
($45,500),  and computer  hardware leases,  depreciation  and maintenance  costs
($94,700).  In accordance with the terms of the Company's agreement with it, DTN
has assumed responsibility for such costs related to the delivery of information
and the growth of the  infrastructure  relative to the customers of DTN. Product
development  costs were  $106,312 and $81,389 for the  quarters  ended March 31,
2000 and 1999,  respectively.  Such costs consisted primarily of personnel costs
of $17,900 and $5,600 in 2000 and 1999, respectively,  and amortization expenses
relating to  capitalized  software  development  costs of $88,400 and $74,800 in
2000 and 1999, respectively.  During the quarters ended March 31, 2000 and 1999,
the Company  capitalized  $293,519 and $176,970,  respectively,  of  development
costs in accordance  with  Statement of Financial  Accounting  Standards No. 86,
"Accounting for the Costs of Computer  Software to be Sold,  Leased or Otherwise
Marketed" ("Statement 86").

During the quarter ended March 31, 2000, the Company incurred  selling,  general
and administrative  expenses of $747,227. Such costs were incurred primarily for
personnel  costs  ($275,200),  facilities  ($48,700),  marketing and advertising
costs  ($134,600) and  professional  fees  ($207,400).  During the quarter ended
March 31,  1999,  the  Company  incurred  selling,  general  and  administrative
expenses of $609,094.  Such costs were incurred  primarily  for personnel  costs
($204,000),  marketing  and  advertising  costs  ($53,700),   professional  fees
($195,800), facilities ($51,000) and communications costs ($18,000).

During the  quarter  ended  March 31,  2000,  noncash  charges  for  stock-based
compensation  amounted to  $14,001,007  compared to $399,092  during the quarter
ended March 31, 1999.  Such noncash  charges in 2000 were  primarily  related to
personnel  costs  ($13,624,900)  resulting  from the  valuation  of  stock-based
compensation  in accordance  with  Accounting  Principles  Board Opinion No. 25,
"Accounting for Stock Issued to Employees"  ("APB No. 25").  Certain options are
subject to the variable  plan  requirements  of APB No. 25,  which  requires the
Company  to record  compensation  expense  for  changes in the fair value of the
Company's Common Stock.  Noncash charges for professional  fees for the quarters
ended  March 31,  2000 and  1999,  were  $366,200  and  $360,300,  respectively,
resulting  from the  issuance  of common  stock  purchase  warrants  to  various
financial,  marketing and technical consultants.  The value of such common stock
purchase  warrants was recorded in  accordance  with the  Black-Scholes  pricing
methodology.

Interest  income for the  quarters  ended  March 31,  2000 and 1999  amounted to
$45,537 and $864,  respectively.  During the quarter ended March 31, 2000,  such
amounts were earned from the Company's  investments  in highly rated  commercial
paper.  During the  quarter  ended  March 31,  1999,  such  amounts  were earned
primarily from the Company's cash balances.  During the quarters ended March 31,
2000 and 1999,  interest  and  financing  costs  were  $10,000  and  $1,420,546,
respectively. During the quarter ended March 31, 2000 such costs were related to
the partial  redemption of the Company's  Prepaid  Warrants.  During the quarter
ended  March 31,  1999,  such costs  consisted  primarily  of  interest  and the
amortization of deferred financing costs ($454,700) associated with the issuance
of $550,000 of

                                       14
<PAGE>

convertible  notes in  December  1998 and  January  1999,  and costs  ($958,900)
associated  with the  settlement  of  obligations  to holders  of the  Company's
Prepaid Warrants.

NINE MONTHS ENDED MARCH 31, 2000 VS. NINE MONTHS ENDED MARCH 31, 1999

During the nine  months  ended March 31,  2000 and 1999,  the  Company  recorded
revenues of $2,710,856 and $1,028,353,  respectively.  Substantially all of such
revenues were earned through the Company's  licensing of its products to DTN. Of
such amounts,  the Company recorded  $1,242,472 and $146,602,  respectively,  as
amortization of deferred  revenues  emanating from its licensing  agreement with
DTN.

During the nine months  ended March 31,  2000,  the  Company  incurred  costs of
revenues of  $603,355.  These  costs  consisted  primarily  of  information  and
communication  costs ($98,600),  personnel costs  ($152,700),  computer hardware
leases,  depreciation  and  maintenance  costs  ($242,400) and  consulting  fees
($43,600).  During the nine months  ended March 31, 1999,  the Company  incurred
costs of revenues of $593,798. Such costs consisted primarily of information and
communication  costs  ($209,200),   personnel  costs  ($108,500),  and  computer
hardware  leases,   depreciation  and  maintenance  costs  ($255,400).   Product
development costs were $240,532 and $132,605 for the nine months ended March 31,
2000 and 1999,  respectively.  Such costs consisted primarily of personnel costs
of $31,400 and $8,900 in 2000 and 1999, respectively,  and amortization expenses
relating to capitalized  software  development  costs of $209,100 and $94,200 in
2000 and 1999,  respectively.  During the nine  months  ended March 31, 2000 and
1999,  the  Company  capitalized   $846,814  and  $672,875,   respectively,   of
development costs in accordance with Statement 86.

During the nine months  ended March 31,  2000,  the  Company  incurred  selling,
general and  administrative  expenses of  $2,050,202.  Such costs were  incurred
primarily for personnel costs ($888,700),  facilities ($145,800),  marketing and
advertising costs ($294,000) and professional  fees ($555,200).  During the nine
months  ended  March  31,  1999,  the  Company  incurred  selling,  general  and
administrative  expenses of $1,799,139.  Such costs were incurred  primarily for
personnel  costs   ($599,200),   marketing  and  advertising  costs  ($210,300),
professional fees ($616,000), facilities ($166,600) and telecommunications costs
($51,700).

During the nine months ended March 31,  2000,  noncash  charges for  stock-based
compensation  amounted to  $35,636,026  compared to  $1,041,602  during the nine
months ended March 31, 1999. Such noncash charges in 2000 were primarily related
to personnel  costs  ($34,677,300)  resulting  from the valuation of stock-based
compensation  in accordance  with  Accounting  Principles  Board Opinion No. 25,
"Accounting  for Stock  Issued to  Employees"  ("APB No. 25").  Noncash  charges
pertaining to  professional  fees amounted to $958,700 and  $1,002,800,  for the
nine  months  ended  March  31,  2000  and  1999,  respectively.  These  noncash
professional  fees resulted from the issuance of common stock purchase  warrants
to various various financial,  marketing and technical consultants. The value of
such  common  stock  purchase  warrants  was  recorded  in  accordance  with the
Black-Scholes pricing methodology.

Interest  income for the nine months  ended March 31, 2000 and 1999  amounted to
$58,570 and $3,772,  respectively.  During the nine months ended March 31, 2000,
such  amounts  were  earned  from the  Company's  investments  in  highly  rated
commercial paper. During the nine months ended March 31, 1999, such amounts were
earned primarily from the Company's cash balances.  During the nine months ended
March  31,  2000 and  1999,  interest  and  financing  costs  were  $40,250  and
$2,231,343, respectively. During the nine months ended March 31, 2000 such costs
were related to a partial  redemption of the Company's Prepaid Warrants.  During
the nine months ended March 31, 1999, such costs consisted primarily of interest
and the amortization of deferred financing costs ($454,700)  associated with the
issuance of $550,000 of convertible notes in December 1998 and January 1999, and
costs ($958,900) associated with the settlement of obligations to holders of the
Company's Prepaid Warrants.  The Company has received a waiver of certain events
of  default  pursuant  to  its  Prepaid  Warrants,  and  accordingly,   reversed

                                       15

<PAGE>

previously recorded charges of $717,700. The common stock purchase warrants have
been recorded in the financial  statements in accordance with the  Black-Scholes
pricing methodology.

CAPITAL RESOURCES AND LIQUIDITY

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

On July 1,  1999,  the  Company  entered  into an  agreement  with  Arnhold & S.
Bleichroeder, Inc. ("ASB") to settle the Company's obligation to ASB pursuant to
the default  provisions of the Prepaid Warrants.  Accordingly,  the Company paid
ASB $325,000 to redeem the Prepaid  Warrants and issued 180,000 shares of Common
Stock in full settlement of all obligations to ASB.

During the quarter ended March 31, 2000,  the Company  issued  474,022 shares of
Common Stock to  investors  upon  exercise of warrants to purchase  such shares.
Proceeds from the exercise of these warrants were $696,944.

On January 18, 2000, the Company  completed an offering  ("Offering") of 333,000
shares of its Common Stock to  accredited  investors.  Gross  proceeds  from the
Offering  amounted to $4,995,000  or $15.00 per share of Common Stock.  American
First  Associates  Corp.,  the  placement  agent for 233,000  shares sold in the
Offering,  received a commission of $279,600, an unaccountable expense allowance
of $25,000 and warrants to purchase  18,640 shares of Common Stock at $15.00 per
share through January 18, 2005 in connection with this transaction.

On May 15,  2000,  the Company  completed  an offering of 353,535  shares of its
Common Stock to accredited investors. Proceeds from this transaction amounted to
$16,715,000,  net of commissions  and other  expenses of $785,000.  The proceeds
from this  transaction will enable the Company to expand its sales and marketing
capabilities and expand its processing  capacity to meet the continuing  demands
of its Strategic Marketing Partners.

Management  believes that upon the  successful  implementation  of its marketing
plan,  sufficient  revenues  will be generated to meet  operating  requirements.
Management  also believes that the successful  execution of its proposed plan of
operations  will  generate  sufficient  cash flow from  operations to enable the
Company to offer its services on an  economically  sound basis. No assurance can
be given that such goals will be obtained or that any expected  revenues or cash
flows will be achieved.

RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------

In December  1999, the SEC staff  released  Staff  Accounting  Bulletin No. 101,
"Revenue  Recognition  in Financial  Statements"  ("SAB 101").  SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in the financial statements. SAB 101 must be applied to the financial statements
no later than the quarter  ending  September  30,  2000.  The  Company  does not
believe  that  the  adoption  of SAB 101  will  have a  material  affect  on the
Company's financial results.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
----------------------------------------------

From time to time,  information provided by the Company,  statements made by its
employees  or  information  included  in its  filings  with the  Securities  and
Exchange  Commission  (including this Form

                                       16
<PAGE>

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



                                       17
<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

By letter  dated  April 10,  1998,  Michael  Fishman,  then the  Company's  Vice
President of Sales,  resigned  his  position.  On or about April 24,  1998,  Mr.
Fishman  filed a complaint  against the Company,  Sebastian E. Cassetta and four
other  defendants  in the  United  States  District  Court for the  District  of
Connecticut.  The complaint  asserted  claims under Sections 10(b) and 18 of the
Securities Exchange Act of 1934, as well as several state law claims,  including
breach of contract,  fraud and  misrepresentation.  Mr. Fishman alleged that the
Company  (1) failed to pay him the  benefits  and  compensation  to which he was
entitled  and (2)  made  material  misrepresentations  in its  filings  with the
Securities and Exchange Commission.  On December 11, 1998, the Court granted the
Company's  motion to dismiss  Mr.  Fishman's  action  without  prejudice  to the
plaintiff to seek leave to file an amended  complaint within 30 days. On May 12,
1999,  the Court denied the  plaintiff's  subsequent  motion for leave to file a
substituted  complaint on the basis that the federal  securities law claim,  the
only federal claim alleged by the plaintiff,  was still deficient.  Accordingly,
the federal  securities claim was dismissed with prejudice.  On or about June 4,
1999, Mr. Fishman commenced an action against the same defendants and added as a
seventh  defendant,  the Company's former President,  Steven  Francesco,  in the
Connecticut  Superior  Court for the Judicial  District of  Stamford/Norwalk  at
Stamford  alleging  breach of  contract,  breach of duty of good  faith and fair
dealing, fraudulent misrepresentation, negligent misrepresentation,  intentional
misrepresentation  and failure to pay wages.  The  defendants  have answered the
complaint  and filed  counterclaims  for  fraudulent  inducement  and  breach of
contract.  Plaintiff  has  responded  to the  counter-claim,  and  discovery  is
proceeding.   By  pleading  dated  February  29,  2000,  Mr.  Fishman  filed  an
application  with the Court seeking entry of a prejudgment  remedy in the amount
of $19,250,000.  To date, Mr. Fishman's application has not been acted on by the
Court and no hearing  date has been set.  Although  the  Company  is  vigorously
defending this action, there can be no assurance that it will be successful.

On or about May 11,  1998,  Ronald  G.  Weiner  filed a  complaint  against  Mr.
Francesco and the Company in the Supreme Court of the State of New York,  County
of New York.  The complaint  alleges,  among other things,  that in May 1993, by
letter from Mr.  Francesco,  Mr.  Weiner was offered a 10% equity stake in Smart
Phone  Services,  Inc.  ("SPS"),  a Subchapter S company of which Mr.  Francesco
allegedly  was the President  and sole  shareholder,  in exchange for his active
involvement  in, among other things,  raising capital and managing the financial
aspects of SPS. The complaint alleges that, in November 1993, Mr. Francesco sent
a letter  to Mr.  Weiner  in which he (1)  represented  that SPS had  failed  to
attract a single  investor  and (2)  withdrew  his offer to Mr.  Weiner of a 10%
equity  position in SPS. The complaint  further  alleges that, in  conversations
with Mr. Weiner  beginning in November 1993, Mr.  Francesco  represented that he
was ceasing all efforts to capitalize  SPS. The complaint  alleges,  among other
things,  that Mr.  Francesco and SPS breached their agreement with Mr. Weiner by
withdrawing  their offer to him of a 10% equity stake in SPS,  and that,  at the
time Mr. Francesco represented that he was ceasing efforts to capitalize SPS, he
had actually  formed  SmartServ and was actively  seeking  investors for it. The
complaint  further  alleges  that the Company is a  successor  entity to SPS and
that,  therefore,  the  Company is liable for SPS' and Mr.  Francesco's  alleged
conduct in derogation of their alleged agreement with Mr. Weiner.  The complaint
seeks, among other things, (1) a declaratory judgment declaring Mr. Weiner a 10%
equity  shareholder  of the Company,  (2) a constructive  trust in Mr.  Weiner's
favor for 10% of the  Company's  equity shares and (3)  restitution  against Mr.
Francesco and the Company for unjust enrichment. On his unjust enrichment claim,
Mr. Weiner seeks unspecified damages that he alleges to be at least $250,000. In
the  Company's  answer  to  the  complaint,  the  Company  denied  the  material
allegations of the complaint and asserted affirmative  defenses. No discovery in
this action has yet been taken.  Although  the Company is  vigorously  defending
this action there can be no assurance that it will be successful.

                                       18
<PAGE>

On or about February 29, 2000, Commonwealth  Associates,  L.P. filed a complaint
against the Company in the Supreme Court of the State of New York, County of New
York. The complaint  alleges that on or about August 19, 1999, Commonwealth  and
the Company entered into an engagement letter pursuant to which Commonwealth was
to provide financial  advisory and investment banking services to the Company in
connection with a possible combination between the Company and Data Link Systems
Corporation.  The engagement  letter provided for a nonrefundable fee of $15,000
payable in cash or common stock at the Company's  option.  The complaint alleges
that  notwithstanding  the terms of the engagement letter the fee was to be paid
in stock and seeks 13,333 shares of common stock or at least $1,770,000 together
with interest and costs. In the Company's  answer to the complaint,  the Company
denied the material  allegations of the complaint.  Discovery in this action has
recently  commenced  and is  proceeding.  Although  the  Company  is  vigorously
defending  this  action  there  can be no  assurance  that the  Company  will be
successful.

While the Company  intends to vigorously  defend these actions,  the unfavorable
outcome of any such action could have a material adverse effect on our financial
condition, results of operations and cash flows.

                                       19
<PAGE>

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On July 1,  1999,  the  Company  entered  into an  agreement  with  Arnhold & S.
Bleichroeder,  Inc.  ("ASB"),  a holder of  $325,000  of the  Company's  Prepaid
Warrants,  to settle the  Company's  obligation  to ASB  pursuant to the default
provisions of the Prepaid  Warrants.  Accordingly,  the Company paid $325,000 to
redeem the Prepaid  Warrants and issued  180,000  shares of Common Stock in full
settlement of all  obligations  to ASB. No  commissions  were paid in connection
with such  transaction.  These shares were issued in reliance upon the exemption
from  registration  provided by Section 4(2) of the  Securities  Act of 1933, as
amended (the "Securities Act").

During the period  ended  March 31, 2000, $1,357,000  of Prepaid  Warrants  were
converted into an aggregate of 810,785 shares of Common Stock of the Company. No
sales  commissions  were paid in connection with such  transactions.  The shares
were issued in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act.

In November 1999, Zanett Lombardier,  Ltd. converted certain warrants held by it
into an aggregate of 25,042 shares of Common Stock.  No sales  commissions  were
paid in  connection  with such  transaction.  The shares were issued in reliance
upon the exemption from registration  provided by Section 4(2) of the Securities
Act.

In  December  1999,  the  Company  issued  16,666  shares  of  Common  Stock  to
Ehrenkrantz  King Nussbaum,  Inc.  financial  advisors to the Company,  upon the
exercise of warrants to purchase such Common  Stock.  Proceeds from the exercise
of these  warrants were $62,497.  No sales  commissions  were paid in connection
with such  transaction.  The shares were issued in reliance  upon the  exemption
from registration provided by Section 4(2) of the Securities Act.

In December  1999,  the Company  issued  warrants to purchase  10,000  shares of
Common Stock at an exercise price of $2.50 per share to the Andrew Seybold Group
LLC in connection  with  marketing  services  rendered to the Company.  No sales
commissions  were paid in  connection  with such  transaction.  The shares  were
issued in reliance upon the exemption from registration provided by Section 4(2)
of the Securities Act.

In January 2000, the Company issued warrants to purchase 50,000 shares of Common
Stock at an  exercise  price of $3.00  per  share  to  Brauning  Consultants  in
connection with marketing services rendered to the Company. No sales commissions
were paid in  connection

                                       20
<PAGE>

with such  transaction.  The shares were issued in reliance  upon the  exemption
from registration provided by Section 4(2) of the Securities Act.

During the period  ended  March 31, 2000 the Company  issued  333,334  shares to
certain  investors in the  Company's  November 1998 interim  financing  upon the
exercise of warrants to purchase  such  shares.  Proceeds  from the  exercise of
these warrants were $200,000.  No sales commissions were paid in connection with
such  transactions.  The shares were issued in reliance upon the exemption  from
registration provided by Section 4(2) of the Securities Act.

During the period ended March 31, 2000,  the Company  issued  142,308  shares of
Common  Stock to certain  warrant  holders  upon the  exercise  of  warrants  to
purchase such shares.  No sales  commissions  were paid in connection  with such
transactions.  The  shares  were  issued in  reliance  upon the  exemption  from
registration provided by Section 4(2) of the Securities Act.

In January 2000,  the Company issued 618,239 shares of Common Stock to Sebastian
Cassetta in connection with a restricted  stock purchase  agreement  between the
Company and Mr. Cassetta.  The Company received cash in the amount of $6,182 and
a note in the  amount  of  $457,497.  The note  bears  interest  at 6.75% and is
secured by the Common Stock. No sales  commissions  were paid in connection with
such  transaction.  The shares were issued in reliance upon the  exemption  from
registration provided by Section 4(2) of the Securities Act.

In January  2000,  the Company  issued  206,080  shares of Common Stock to Mario
Rossi in  connection  with a restricted  stock  purchase  agreement  between the
Company and Mr. Rossi.  The Company  received cash in the amount of $2,061 and a
note in the amount of $152,499.  The note bears interest at 6.75% and is secured
by the Common Stock.  No sales  commissions  were paid in  connection  with such
transaction.  The  shares  were  issued  in  reliance  upon the  exemption  from
registration provided by Section 4(2) of the Securities Act.

On January 18,  2000,  the Company  completed  an offering of 333,000  shares of
Common Stock to  accredited  investors.  Gross  proceeds  from this  transaction
amounted to $4,995,000. American First Associates Corp., the placement agent for
233,000  shares sold in the  Offering,  received a commission  of  $279,600,  an
unaccountable  expense  allowance  of $25,000 and  warrants  to purchase  18,640
shares  of  Common  Stock at  $15.00  per  share  through  January  18,  2005 in
connection  with this  transaction.  The sale of these  shares and  warrants was
exempt from the  registration  requirements  of the  Securities  Act pursuant to
Section 4(2) thereof.

On March 15,  2000,  the  Company  issued  148,000  shares  of  Common  Stock to
Sebastian  Cassetta in  satisfaction  of its bonus  obligation  to Mr.  Cassetta
pursuant  to  his  employment  contract.  No  sales  commissions  were  paid  in
connection  with such  transaction.  The shares were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act.

On March 15, 2000,  the Company  issued  54,000  shares of Common Stock to Mario
Rossi in  satisfaction  of its bonus  obligation  to Mr.  Rossi  pursuant to his
employment  contract.  No sales  commissions  were paid in connection  with such
transaction.  The  shares  were  issued  in  reliance  upon the  exemption  from
registration provided by Section 4(2) of the Securities Act.

On May 15,  2000,  the Company  completed  an offering of 353,535  shares of its
Common Stock to  accredited  investors.  Gross  proceeds  from this  transaction
amounted to $17,500,000. Chase Securities, Inc., the Placement Agent, received a
commission  of $700,000  and an  unaccountable  expense  allowance of $50,000 in
connection with this  transaction.  The sale of these shares was exempt from the
registration  requirements  of the  Securities  Act  pursuant  to  Section  4(2)
thereof.

                                       21
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8 - K

(a)    The following exhibit is included herein:

           Exhibit 27 - Financial Data Schedule

(b)    REPORTS OF FORM 8-K

         The  Company  did not file any  reports  on Form 8-K  during  the three
         months ended March 31, 2000.

         On May 16, 2000,  the Company filed a report on Form 8-K announcing the
         closing of the  financing  transaction  between the Company and certain
         accredited investors on May 15, 2000.


                                       22
<PAGE>


                             SMARTSERV ONLINE, INC.

                                   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 22, 2000                /S/  SEBASTIAN E. CASSETTA
      ------------                ----------------------------------------------
                                  Sebastian E. Cassetta
                                  Chairman of the Board, Chief Executive Officer

Date: May 22, 2000                /S/  THOMAS W. HALLER
      ------------                ----------------------------------------------
                                  Thomas W. Haller
                                  Chief Financial Officer, Treasurer

                                       23
<PAGE>

                                 EXHIBIT INDEX
                                 -------------



EXHIBIT           DESCRIPTON

Exhibit  27       Financial Data Schedule