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


                                   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 December 31, 1999

                         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 February
11, 2000 was 3,493,108.


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

<PAGE>



                             SMARTSERV ONLINE, INC.

                                   FORM 10-QSB

                                      INDEX



<TABLE>
<CAPTION>


PART I.       FINANCIAL INFORMATION

Item 1.       Financial Statements

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

              Statements of Operations - three months ended December 31, 1999 and
              1998 and six months ended December 31, 1999 and 1998 (unaudited)....................................4

              Statement of Changes in Stockholders' Deficiency - six months
              ended December 31, 1999 (unaudited).................................................................5

              Statements of Cash Flows - three months ended December 31, 1999 and
              1998 and six months ended December 31, 1999 and 1998 (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..........................................................19

Item 6.       Exhibits and Reports on Form 8-K...................................................................20

              Signatures.........................................................................................21

</TABLE>


                                       1

<PAGE>


<TABLE>
<CAPTION>

                                                  SMARTSERV ONLINE, INC.

                                                      BALANCE SHEETS




                                                                             DECEMBER 31,               JUNE 30,
                                                                                 1999                     1999
                                                                          --------------------     -------------------
                                                                              (UNAUDITED)
ASSETS
Current assets
<S>                                                                         <C>                    <C>
   Cash and cash equivalents                                                $      371,581         $       2,165,551
   Accounts receivable                                                             386,007                   348,278
   Prepaid expenses                                                                 51,777                    50,150
                                                                          --------------------     -------------------
Total current assets                                                               809,365                 2,563,979
                                                                          --------------------     -------------------

Property and equipment, net                                                        461,198                   498,448

Other assets
   Capitalized software development costs,
      net of accumulated amortization of $202,834 at
      December 31, 1999 and $82,108 at June 30, 1999                             1,115,906                   683,337
   Security deposits                                                                73,374                    74,834
                                                                          --------------------     -------------------
                                                                                 1,189,280                   758,171
                                                                          --------------------     -------------------

Total Assets                                                                $    2,459,843         $       3,820,598
                                                                          ====================     ===================


</TABLE>


                                       2

<PAGE>

<TABLE>
<CAPTION>

                                                  SMARTSERV ONLINE, INC.

                                                      BALANCE SHEETS




                                                                             DECEMBER 31,               JUNE 30,
                                                                                 1999                     1999
                                                                          --------------------     -------------------
                                                                              (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
<S>                                                                          <C>                     <C>
   Accounts payable                                                          $      886,196          $       780,543
   Accrued liabilities                                                              358,359                  474,189
   Accrued liabilities to warrant holders                                                --                1,311,365
   Salaries payable                                                                  48,193                   93,443
   Capital lease obligation                                                          23,942                   70,147
   Deferred revenues - current portion                                            1,656,632                1,656,632
                                                                          --------------------     -------------------
Total current liabilities                                                         2,973,322                4,386,319
                                                                          --------------------     -------------------

Deferred revenues - long-term portion                                             3,313,267                4,141,579

COMMITMENTS AND CONTINGENCIES - NOTE 7

STOCKHOLDERS' DEFICIENCY
Preferred stock - $0.01 par value
   Authorized - 1,000,000 shares
   Issued and outstanding - None
Common stock - $.01 par value
   Authorized - 40,000,000 shares
   Issued and outstanding - 1,199,787 shares at June 30, 1999
       and 1,460,215 shares at December 31, 1999                                     14,601                   11,998
Common stock subscribed                                                             675,853                1,812,554
Notes receivable from officers                                                     (675,853)              (1,812,554)
Additional paid-in capital                                                       42,121,283               20,679,611
Unearned compensation                                                            (2,920,394)              (3,452,904)
Accumulated deficit                                                             (43,042,236)             (21,946,005)
                                                                          --------------------     -------------------
Total stockholders' deficiency                                                   (3,826,746)              (4,707,300)
                                                                          --------------------     -------------------

Total Liabilities and Stockholders' Deficiency                              $     2,459,843          $     3,820,598
                                                                          ====================     ===================
</TABLE>

See accompanying notes.


                                       3
<PAGE>

<TABLE>
<CAPTION>

                                                  SMARTSERV ONLINE, INC.

                                                 STATEMENTS OF OPERATIONS
                                                        (UNAUDITED)




                                                          THREE MONTHS                             SIX MONTHS
                                                       ENDED DECEMBER 31                       ENDED DECEMBER 31
                                             ---------------------------------------  -------------------------------------
                                                    1999                1998                1999               1998
                                             -------------------  -----------------  -----------------   -----------------

Revenues                                     $       912,621       $      344,024     $     1,720,913     $      693,729
                                             -------------------   -----------------  -----------------   -----------------

Costs and expenses:
<S>                                                  <C>                  <C>                 <C>                <C>
   Costs of revenues                                 207,779              182,437             445,412            389,521
   Product development expenses                       87,377               24,170             134,222             51,216
   Selling, general and administrative
      expenses                                       725,427              666,693           1,302,974          1,167,130
   Stock-based compensation                       21,362,068              335,004          21,635,019            665,425
                                             -------------------   -----------------  -----------------   -----------------
   Total costs and expenses                       22,382,651            1,208,304          23,517,627          2,273,292
                                             -------------------   -----------------  -----------------   -----------------
Loss from operations                             (21,470,030)            (864,280)        (21,796,714)        (1,579,563)
                                             -------------------   -----------------  -----------------   -----------------

Other income (expense):
   Interest income                                     2,016                  706              13,033              2,908
   Interest expense and other
     financing costs                                 (30,250)            (669,701)            (30,250)          (810,797)
   Prepaid warrant costs                             717,700                   --             717,700                 --
                                             -------------------   -----------------  -----------------   -----------------
                                                     689,466             (668,995)            700,483           (807,889)
                                             -------------------   -----------------  -----------------   -----------------

Net loss                                     $   (20,780,564)      $   (1,533,275)    $   (21,096,231)    $   (2,387,452)
                                             ===================   =================  =================   =================


Basic and diluted earnings per common share  $      (14.75)        $        (1.41)     $      (15.19)      $       (2.36)
                                             ===================   =================  =================   =================
Weighted average shares outstanding               1,409,046             1,089,881          1,388,546           1,010,487
                                             ===================   =================  =================   =================
</TABLE>

See accompanying notes.

                                       4
<PAGE>

<TABLE>
<CAPTION>
                                                  SMARTSERV ONLINE, INC.

                                     STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY

                                            SIX MONTHS ENDED DECEMBER 31, 1999
                                                        (UNAUDITED)



                                                                        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>
Balances 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 holder     180,000     1,800             --           --        266,895           --               --

Issuance of Common Stock upon
  exercise of employee stock
  options                           8,195        81             --           --         10,494           --               --

Issuance of warrants to
  purchase 200,000 shares
  of Common Stock in
  connection with investment
  advisory services                   --         --             --           --         60,000      (60,000)              --

Conversion of 87.8 Prepaid
  Common Stock Purchase
  Warrants into Common Stock       30,525       305             --           --           (305)          --               --

Revaluation of subscriptions
  for 824,319 shares of
  Common Stock and notes
  receivable in connection
  with officers' employment
  contracts                           --         --     (1,194,315)   1,194,315             --           --               --

Subscription for 76,818 shares
  of Common Stock and note
  receivable in connection
  with restricted stock
  purchase agreement                  --         --         57,614      (57,614)            --           --               --

Issuance of Common Stock upon
  exercise of warrants to
  purchase Common Stock            41,708        417            --           --         62,079           --               --

Amortization of unearned
   compensation over the term
   of consulting agreements           --         --             --           --             --      592,510               --

Change in market value of
  employee stock options              --         --             --           --      2,224,709           --               --

Authorization of the issuance
  202,000 shares of Common
  Stock in connection with
  officers'employment
  contracts                           --         --             --           --      3,181,500           --               --

Change in market value of
  Common Stock subscriptions          --         --             --           --     15,636,300           --               --

Net loss for the period               --         --             --           --             --           --      (21,096,231)
                                ---------- ----------- ------------- ------------- ------------- -------------- --------------
Balances at December 31, 1999   1,460,215   $14,601     $  675,853   $(675,853)    $42,121,283   $(2,920,394)   $(43,042,236)
                                ========== =========== ============= ============= ============= ============== ==============
</TABLE>

See accompanying notes.


                                      5

<PAGE>

<TABLE>
<CAPTION>

                                                  SMARTSERV ONLINE, INC.

                                                 STATEMENTS OF CASH FLOWS
                                                        (UNAUDITED)



                                                                THREE MONTHS                            SIX MONTHS
                                                              ENDED DECEMBER 31                      ENDED DECEMBER 31
                                                     ------------------------------------  --------------------------------------
                                                           1999               1998               1999                1998
                                                     -----------------   ----------------  ------------------   -----------------
OPERATING ACTIVITIES
<S>                                                   <C>                  <C>              <C>                   <C>
Net loss                                              $ (20,780,564)       $ (1,533,275)    $ (21,096,231)        $ (2,387,452)
Adjustments to reconcile net loss to net cash used
for operating activities:
    Depreciation and amortization                           125,080              69,198           221,346              116,901
    Noncash interest expense and other
       financing costs                                           --             666,070                --              794,245
    Noncash compensation costs                           21,060,813                  --        21,042,509                   --
    Noncash consulting costs                                301,255             335,004           592,510              665,425
    Amortization of unearned revenues                      (414,156)            (15,534)         (828,312)             (31,068)
    Changes in operating assets and liabilities
       Accounts receivable                                 (117,156)                816           (37,729)              34,811
       Prepaid expenses                                     (11,112)             11,009            (1,627)             (72,627)
       Accounts payable and accrued liabilities            (576,689)            377,988        (1,052,847)             539,050
       Accrued interest payable                                  --               3,776                --                3,776
       Salaries payable                                     (20,854)            (34,915)          (45,250)             (34,910)
       Unearned revenues                                         --              13,051                --              213,051
       Security deposit                                          --                  --             1,460                   --
                                                     -----------------   ----------------  ------------------   -----------------
    Net cash used for operating activities                 (433,383)           (106,812)       (1,204,171)            (158,798)
                                                     -----------------   ----------------  ------------------   -----------------

INVESTING ACTIVITIES
Purchase of equipment                                       (38,985)            (11,057)          (63,370)             (22,695)
Capitalization of software development costs               (309,070)           (262,810)         (553,295)            (495,815)
                                                     -----------------   ----------------  ------------------   -----------------
    Net cash used for investing activities                 (348,055)           (273,867)         (616,665)            (518,510)
                                                     -----------------   ----------------  ------------------   -----------------

FINANCING ACTIVITIES
Repayment of capital lease obligation                       (23,495)            (20,516)          (46,205)             (40,353)
Proceeds from the issuance of notes                              --             435,000                --              435,000
Proceeds from the issuance of common stock                   73,071                  --            73,071                   --
Deferred financing costs                                         --             (35,000)               --              (35,000)
                                                     -----------------   ----------------  ------------------   -----------------
    Net cash provided by financing activities                49,576             379,484            26,866              359,647
                                                     -----------------   ----------------  ------------------   -----------------

Decrease in cash                                           (731,862)             (1,195)       (1,793,970)            (317,661)
Cash - beginning of period                                1,103,443              37,759         2,165,551              354,225
                                                     -----------------   ----------------  ------------------   -----------------

Cash - end of period                                  $     371,581        $     36,564     $     371,581         $     36,564
                                                     =================   ================  ==================   =================
</TABLE>

See accompanying notes.


                                       6

<PAGE>


                             SMARTSERV ONLINE, INC.

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                DECEMBER 31, 1999



1.   ORGANIZATION

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


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
---------------------

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information,
the instructions of Form 10-QSB and Rule 310 of Regulation SB 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 six  months  ended  December  31,  1999 are not
necessarily indicative of those expected for the year ending June 30, 2000.

The Company has  completed  development  of its core  applications  software and
communications  architecture;  however,  it has yet to  generate  revenues in an
amount sufficient to support its operations.  The Company has incurred recurring
operating  losses and its  operations  have not  produced a positive  cash flow.
Additionally,  there is no  assurance  that the  Company  will  generate  future
revenues or cash flow from operations.  The Company's  financial  statements for
the period ended  December 31, 1999 have been  prepared on a going concern basis
which  contemplates  the realization of assets and the settlement of liabilities
and  commitments  in the normal  course of  business.  The Company  incurred net
losses of  $7,124,126,  $5,040,009  and  $4,434,482 for the years ended June 30,
1999,  1998  and  1997,  respectively,  and  as of  December  31,  1999  had  an
accumulated deficit of $43,042,236 and a deficiency of net assets of $3,826,746.
The Company is also a defendant in several legal  proceedings (see Note 7) which
could have a material adverse effect on the Company's financial  position,  cash
flow, and results of operations.  These conditions raise substantial doubt about
the Company's ability to continue as a going concern.  The financial  statements
do not include any  adjustments  to reflect the possible  future  effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of these uncertainties.



                                       7

<PAGE>


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

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

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

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 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.

SUPPLEMENTAL CASH FLOW DATA
---------------------------
Interest,  debt origination and other financing costs paid during the six months
ended December 31, 1999 and 1998 were $-0- and $20,762, respectively.



                                       8

<PAGE>


3.   PROPERTY AND EQUIPMENT

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

                                                                                DECEMBER 31,              JUNE 30,
                                                                                   1999                     1999
                                                                            --------------------      -----------------
<S>                                                                         <C>                       <C>
   Data processing equipment                                                $        763,580          $        700,210
   Data processing equipment purchased 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
                                                                            --------------------      -----------------

                                                                                   1,127,527                 1,064,157
   Accumulated  depreciation,  including  $131,312  and $106,691
   at December 31, 1999 and June 30, 1999, respectively, for
   equipment purchased under a capital lease                                        (666,329)                 (565,709)
                                                                            ====================      =================
                                                                            $        461,198          $        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 July 1, 1999 through December 31, 1999,  holders of $87,803 of
the Company's  Prepaid  Warrants  converted  such warrants into 30,525 shares of
Common Stock at an exercise price of $2.88 per share.

On October 13, 1999, the Board of Directors  authorized the establishment of the
Company's 1999 Employee Stock Option Plan ("1999 Plan").  The 1999 Plan provides
for the issuance of options to  employees  and  directors  for the purchase of a
maximum of 400,000  shares of Common  Stock of the  Company at not less than the
fair value of the Common Stock on the date of grant. Additionally,  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.
The restricted  stock awards are variable plan awards pursuant to APB No. 25 and
accordingly,  the Company is required to recognize  compensation expense for the
changes in the market value of the its Common Stock.  In conjunction  therewith,
the Company has recorded a charge to compensation expense of $15,636,300 for the
three and six month periods ended December 31, 1999, as well as a  corresponding
increase to additional paid-in capital.

Also on October 13, 1999, the Board of Directors authorized the Company to enter
into a  restricted  stock  agreement  with  Robert  Pearl,  Director of Business
Development, pursuant to which Mr. Pearl will be awarded 1% of the fully diluted
shares of Common Stock of the Company as of that date 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. The warrants expire on October 24, 2004. The
Company recorded a noncash charge of $60,000 to unearned  compensation  which is
being amortized to income over the one year term of the agreement.





                                       9
<PAGE>

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.

In December  1999,  the Board of  Directors  authorized  the issuance of 148,000
shares of Common Stock to Mr.  Sebastian  Cassetta in  satisfaction of its bonus
obligation to Mr. Cassetta pursuant to his employment contract.  The Company has
recorded a charge to  compensation  expense of $2,331,000  for the change in the
fair value of the Company's  Common Stock between the due date of the obligation
and the grant date of the Common Stock.

In December  1999,  the Board of  Directors  authorized  the  issuance of 54,000
shares  of  Common  Stock  to Mr.  Mario  Rossi  in  satisfaction  of its  bonus
obligation to Mr. Rossi  pursuant to his  employment  contract.  The Company has
recorded a charge to compensation expense of $850,500 for the change in the fair
value of the Company's  Common Stock between the due date of the  obligation and
the grant date of the Common Stock.

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.  The exercise  price of the
warrants was $3.75 per share.

During the fiscal year ended June 30,  1999,  the  Company  recorded a charge of
$717,700 as the potential cost of its default  pursuant the terms of the Prepaid
Warrants.  At December 31, 1999, the Company  received waivers from such default
and reversed such previously recorded costs.


5.   EARNINGS PER SHARE

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

<TABLE>
<CAPTION>

                                          THREE MONTHS ENDED DECEMBER 31            SIX MONTHS ENDED DECEMBER 31
                                      ---------------------------------------   --------------------------------------
                                            1999                 1998                 1999               1998
                                      -----------------    ------------------   ------------------  ------------------

Numerator:
<S>                                   <C>                   <C>                 <C>                 <C>
   Net loss                           $(20,780,564)         $     (1,533,275)   $   (21,096,231)    $    (2,387,452)
                                      ==================    =================   ==================  ==================

Denominator:
   Weighted average shares                   1,409,046             1,089,881          1,388,546           1,010,487
                                      ==================    =================   ==================  ==================

Basic and diluted earnings per
   common share                       $         (14.75)     $          (1.41)   $        (15.19)    $         (2.36)
                                      ==================    =================   ==================  ==================

</TABLE>

At December 31, 1999,  $1,881,197 of the Company's prepaid common stock purchase
warrants  ("Prepaid  Warrants")  were  outstanding.  At that date,  the  Prepaid
Warrants were convertible  into 1,217,403 shares of Common Stock.  Additionally,
there were 3,911,000 common stock purchase warrants  outstanding.  Such warrants
have exercise prices ranging from $.60 to $72.00 per share and expire from March
2001 through January 2004.  Based on the closing price ($19.72) of the Company's
Common  Stock at  December  31,  1999,  there  were,  exclusive  of the  Prepaid
Warrants,  currently  exercisable  in-the-money  warrants  outstanding  for  the
purchase of  3,898,000  shares of Common  Stock.  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 December 31, 1999,  options and
restricted  stock  awards have been  authorized  for the  purchase of  1,593,000
shares  of the



                                       10


<PAGE>

Company's  Common  Stock.  None  of  the  warrants,  options  or
restricted  stock awards 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 requires the Company to record compensation  expense for changes
in the fair value of the Company's Common Stock.

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                             SIX MONTHS
                                                       ENDED DECEMBER 31                       ENDED DECEMBER 31
                                             ---------------------------------------  -------------------------------------

                                                    1999                1998                1999               1998
                                             -------------------   -----------------  -----------------   -----------------

<S>                                           <C>                    <C>               <C>                  <C>
Costs of revenues                             $      602,468         $         --      $      597,701       $         --
Product development expenses                              --                   --                  --                 --
Selling, general and administrative
      expenses                                    20,759,600              335,004          21,037,318            665,425
                                             ===================   =================  =================   =================
                                              $   21,362,068         $    335,004      $   21,635,019       $    665,425
                                             ===================   =================  =================   =================
</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 counterclaims and discovery is proceeding. 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 the Company
and Mr.  Francesco in the Supreme Court of the State of New York,  County of New
York.  The complaint  alleges,  among other things,  that in May 1993, by letter
from Mr.  Francesco,  Mr.  Weiner was offered a 10% equity  stake in Smart Phone
Services,  Inc. ("SPS"), a Subchapter S company of which Mr. Francesco allegedly
was the President and sole


                                       11

<PAGE>

shareholder,  in exchange for his active  involvement  in,  among other  things,
raising capital and managing the financial aspects of SPS. The complaint alleges
that, in November  1993,  Mr.  Francesco sent a letter to Mr. Weiner in which he
(i)  represented  that SPS had  failed  to  attract a single  investor  and (ii)
withdrew his offer to Mr. Weiner of a 10% equity  position in SPS. The complaint
further  alleges that, in  conversations  with Mr. Weiner  beginning in November
1993, Mr.  Francesco  represented  that he was ceasing all efforts to capitalize
SPS. The  complaint  alleges,  among other  things,  that Mr.  Francesco and SPS
breached their agreement with Mr. Weiner by withdrawing  their offer to him of a
10% equity stake in SPS, and that, at the time Mr. Francesco represented that he
was ceasing  efforts to capitalize  SPS, he had actually  formed the Company and
was actively  seeking  investors for it. The complaint  further alleges that the
Company is a successor entity to SPS and that, therefore,  the Company is liable
for SPS' and Mr.  Francesco's  alleged  conduct in  derogation  of their alleged
agreement  with Mr.  Weiner.  The complaint  seeks,  among other  things,  (i) a
declaratory  judgment  declaring  Mr.  Weiner a 10%  equity  shareholder  of the
Company,  (ii)  a  constructive  trust  in Mr.  Weiner's  favor  for  10% of the
Company's  equity  shares and (iii)  restitution  against Mr.  Francesco and the
Company for unjust enrichment.  On his unjust enrichment claim, Mr. Weiner seeks
unspecified  damages that he alleges to be at least  $250,000.  In its answer to
the complaint,  the Company has denied the material allegations of the complaint
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.


8.       SUBSEQUENT EVENTS

On January 18, 2000, the Company  completed an offering  ("Offering") of 333,000
shares of Common Stock to accredited investors. Gross proceeds from the Offering
amounted  to  $4,995,000  or $15.00 per share of Common  Stock.  The Company has
agreed  to file a  registration  statement  with  the  Securities  and  Exchange
Commission  ("SEC")  within  90 days to  register  the  shares  and use its best
efforts to have such registration declared effective. Should the Company fail to
file a  registration  statement with the SEC within 90 days, the holders will be
entitled to receive an  additional  number of shares  equal to 10% of the shares
purchased in the Offering. The sale of these shares and warrants was exempt from
the  registration  requirements  of the  Securities  Act of  1933,  as  amended,
pursuant to Section 4(2) thereof.

In January 2000,  the Company issued 618,239 shares of Common stock to Sebastain
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.  These 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.  These  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  306,667 shares to certain  participants  of
the Company's  November 1998 interim  financing upon the exercise of warrants to
purchase such shares. Proceeds from the exercise of such warrants were $184,000.
These  shares were  issued in  reliance  upon the  exemption  from  registration
provided by Section 4(2) of the Securities Act.

In January and February 2000,  $739,000 of Prepaid  Warrants were converted into
an  aggregate  of  527,855  shares  of  Common  Stock of the  Company.  No sales
commissions  were paid in  connection  with such  conversions.  The shares  were
issued in reliance  upon the  exemption  from  registration  provided by Section
3(a)(9) of the Securities Act.


                                       12

<PAGE>


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

PLAN OF OPERATION

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

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

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

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

Management   anticipates   that  staffing   requirements   associated  with  the
implementation of its plan of operation will result in the addition of a minimum
of eight to twelve 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.


RESULTS OF OPERATIONS

QUARTER ENDED DECEMBER 31, 1999 VS. QUARTER ENDED DECEMBER 31, 1998

During the  quarters  ended  December  31, 1999 and 1998,  the Company  recorded
revenues of  $912,621  and  $344,024,  respectively.  Substantially  all of such
revenues were earned through the Company's licensing agreement with DTN.




                                       13

<PAGE>

During the quarter  ended  December  31,  1999,  the Company  incurred  costs of
revenues  of  $207,779.  Such  costs  consisted  primarily  of  information  and
communication costs ($38,900),  personnel costs ($63,000), and computer hardware
leases,  depreciation and maintenance costs ($76,600).  During the quarter ended
December 31, 1998,  the Company  incurred  costs of revenues of $182,437.  These
costs consisted  primarily of information  and  communication  costs  ($69,200),
personnel  costs  ($32,800),  and computer  hardware  leases,  depreciation  and
maintenance  costs  ($80,000).  In  accordance  with the terms of the  Company's
agreement  with it,  DTN has  assumed  responsibility  for costs  related to the
delivery of information and the growth of the infrastructure relative to support
the customers of DTN. Product development  expenses were $87,377 and $24,170 for
the  quarters  ended  December  31,  1999 and  1998,  respectively.  Such  costs
consisted  primarily of personnel  costs of $13,500 and $3,800 in 1999 and 1998,
respectively,   and  amortization   expense  relating  to  capitalized  software
development costs of $73,800 and $19,400 in 1999 and 1998, respectively.  During
the quarters ended December 31, 1999 and 1998, the Company capitalized  $309,070
and $262,810, 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  December  31,  1999,  the Company  incurred  selling,
general  and  administrative  expenses  of  $725,427.  Such costs were  incurred
primarily for personnel costs ($379,000),  facilities  ($47,100),  marketing and
advertising costs ($80,000) and professional fees ($170,200). During the quarter
ended   December  31,  1998,   the  Company   incurred   selling,   general  and
administrative expenses of $666,693. Such costs consisted primarily of personnel
costs ($210,300),  marketing and advertising costs ($94,800),  professional fees
($239,300), facilities ($65,500) and telecommunications costs ($19,000).

Interest  income for the quarters  ended  December 31, 1999 and 1998 amounted to
$2,016 and $706,  respectively.  Such  amounts  were earned  primarily  from the
Company's cash balances and from the Company's  investments in highly rated bank
certificates of deposit.  Interest and financing costs were $30,250 and $669,701
during the quarters ended December 31, 1999 and 1998, respectively.  At December
31, 1999, the Company received a waiver of certain events of default pursuant to
its Prepaid Warrants,  and accordingly,  reversed  previously recorded penalties
amounting to $717,700.  During the quarter ended  December 31, 1998,  such costs
were  incurred in  connection  with the $500,000  interim  financing in December
1998, and the issuance of 50,000 shares of Common Stock to holders of $1,669,000
of Prepaid  Warrants,  in consideration of such holders agreeing to restrictions
on the  exercise of the Prepaid  Warrants and the resale of the shares of Common
Stock issuable upon such exercise.

SIX MONTHS ENDED DECEMBER 31, 1999 VS. SIX MONTHS ENDED DECEMBER 31, 1998

During the six months  ended  December 31, 1999 and 1998,  the Company  recorded
revenues of  $1,720,913  and $693,729.  Substantially  all of such revenues were
earned through the Company's licensing agreement with DTN.

During the six months ended  December 31, 1999,  the Company  incurred  costs of
revenues  of  $445,412.  Such  costs  consisted  primarily  of  information  and
communication costs ($87,300), personnel costs ($123,500), and computer hardware
leases,  depreciation and maintenance  costs  ($161,300).  During the six months
ended  December 31,  1998,  the Company  incurred  cost of revenues of $389,521.
These costs consist primarily of information and communication costs ($164,800),
personnel  costs  ($62,000),  and computer  hardware  leases,  depreciation  and
maintenance costs  ($160,800).  Product  development  expenses were $134,222 and
$51,216 for the six months ended  December 31, 1999 and 1998,  respectively.  In
1999  such  costs  consisted   primarily  of  personnel  costs  of  $13,500  and
amortization  expense  relating to  capitalized  software  development  costs of
$120,700.  In 1998 such costs  consisted  primarily of personnel costs ($4,500),
amortization   expense  relating  to  capitalized   software  development  costs
($19,400) and computer system consultants ($18,800). During the six months ended
December  31, 1999 and 1998,  the Company  capitalized  $553,295  and  $495,815,
respectively, of development costs in accordance with Statement 86.

                                       14

<PAGE>

During the six months ended  December 31, 1999,  the Company  incurred  selling,
general and administrative expenses of $1,302,974, primarily for personnel costs
($613,500), facilities ($97,100), marketing and advertising costs ($159,400) and
professional fees ($347,800). During the six months ended December 31, 1998, the
Company incurred  selling,  general and  administrative  expenses of $1,167,130.
Such expenses were incurred primarily for personnel costs ($395,300),  marketing
and advertising  costs  ($156,600),  professional  fees  ($397,300),  facilities
($115,600) and telecommunication costs ($33,700).

Interest  income for the six months ended December 31, 1999 and 1998 amounted to
$13,033 and $2,908, respectively.  During the six months ended December 31, 1999
and 1998, interest income was earned primarily from the Company's cash balances.
Interest and financing costs for the six months ended December 31, 1999 and 1998
were $30,250 and  $810,797,  respectively.  At December  31,  1999,  the Company
received a waiver of certain events of default pursuant to its Prepaid Warrants,
and accordingly,  reversed  previously recorded penalties amounting to $717,700.
During the six months  ended  December  31,  1998,  such costs were  incurred in
connection  with the  $500,000  interim  financing  in  December  1998,  and the
issuance of 50,000  shares of Common Stock to holders of  $1,669,000  of Prepaid
Warrants,  in  consideration  of such holders  agreeing to  restrictions  on the
exercise of the Prepaid  Warrants  and the resale of the shares of Common  Stock
issuable upon such exercise.




                                       15
<PAGE>


CAPITAL RESOURCES AND LIQUIDITY

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

In May  1997,  the  Company  arranged  a line of  credit  facility  with  Zanett
Lombardier,  Ltd  ("ZLL").  Such line of  credit  was  originated  for a maximum
borrowing  amount of  $550,000.  In July and  September  1997,  the facility was
amended to allow for  additional  borrowings of up to $222,222.  In  conjunction
with the origination of the line of credit  facility,  the Company issued 56,627
common stock  purchase  warrants to ZLL.  Similarly,  the Company  issued 11,438
warrants  for each of the July and  September  amendments.  These  warrants  are
currently  exercisable  at prices  ranging  from  $4.97 to $6.07  and  expire in
September 2002.

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

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

On April 23,  1998,  the  Company  entered  into a Software  License and Service
Agreement  with DTN,  whereby the  Company  licensed to DTN the rights to market
three of the Company's  Internet  products.  The Company received  $850,000 upon
execution  of the contract and  received  minimum  monthly  payments of $100,000
through April 1999.

On June 24,  1999,  the Company and DTN entered  into a License  Agreement  that
amended the Software  License and Service  Agreement  dated April 23,  1998.  In
consideration  of the  receipt of $5.175  million,  the  Company  granted DTN an
exclusive  perpetual  worldwide  license  to the  Company's  Internet-based  (i)
real-time  stock quote  product,  (ii) 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 the
financial ability to distribute the Company's services to thousands of potential
customers,  there can be no assurance  that the  products  and services  will be
accepted by the ultimate consumer on a widespread basis.

In November 1998, the Company completed a financing of $550,000 of securities of
the Company.  The Company sold five and one-half (5.5) units, each consisting of
a secured  convertible 8% note in the principal  amount of $100,000 and warrants
to  purchase  Common  Stock of the  Company.  The  notes  and the  warrants  are
convertible and  exercisable,  respectively,  at $.60 per share of Common Stock.
Such notes were repaid in June 1999.

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


                                       16

<PAGE>

Common Stock in full settlement of all obligations to ASB.

In January 2000,  the Company  issued  306,667 shares of Common Stock to certain
investors in the November 1998 interim  financing  upon the exercise of warrants
to purchase  such  shares.  Proceeds  from the exercise of these  warrants  were
$184,000.

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. The Company
has agreed to file a  registration  statement  with the  Securities and Exchange
Commission  ("SEC")  within  90 days to  register  the  shares  and use its best
efforts to have such registration declared effective. Should the Company fail to
file a  registration  statement with the SEC within 90 days, the holders will be
entitled to receive an  additional  number of shares  equal to 10% of the shares
purchased in the Offering.

The Company's  financial  statements for the period ended December 31, 1999 have
been prepared on a going concern basis which  contemplates  the  realization  of
assets and the settlement of liabilities and commitments in the normal course of
business.  The  Company  incurred  net  losses of  $7,124,126,  $5,040,009,  and
$4,434,482 for the years ended June 30, 1999, 1998 and 1997,  respectively,  and
as of  December  31,  1999  had an  accumulated  deficit  of  $43,042,236  and a
deficiency of net assets of $3,826,746.  However,  giving  consideration  to the
just completed  Offering,  the Company has stockholders'  equity at December 31,
1999, on a pro-forma  basis, of  approximately  $863,700.  The Company is also a
defendant in several legal proceedings that could have a material adverse effect
on the Company's financial position, cash flows, and results of operations.  The
Company's  operating  history and environment  raise substantial doubt about its
ability to continue as a going concern.  The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification  of assets or the amounts and  classification of liabilities that
may result from the outcome of these uncertainties.

The Company has retained Chase Securities,  Inc. as its investment  banking firm
to assist the Company with raising additional capital for continued  development
of its technology and  expansion.  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.


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

From time to time,  information provided by the Company,  statements made by its
employees  or  information  included  in its  filings  with the  Securities  and
Exchange  Commission  (including this Form 10-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  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 2.  OTHER INFORMATION


ITEM 1.    LEGAL PROCEEDINGS

By letter dated April 10, 1998,  Michael  Fishman,  then Vice President of Sales
for the Company,  resigned his position. On or about April 24, 1998, Mr. Fishman
filed a complaint  against the  Company,  Sebastian  E.  Cassetta and four other
defendants in the United States  District Court for the District of Connecticut.
The complaint  asserted  claims under  Sections  10(b) and 18 of the  Securities
Exchange Act of 1934, as well as several state law claims,  including  breach of
contract, fraud and misrepresentation.  Mr. Fishman alleged that the Company (1)
failed to pay him the benefits and compensation to which he was entitled and (2)
made material misrepresentations in its filings with the Securities and Exchange
Commission.  On December 11, 1998,  the Court  granted the  Company's  motion to
dismiss Mr. Fishman's action without prejudice to the plaintiff to seek leave to
file an amended  complaint within 30 days. On May 12, 1999, the Court denied the
plaintiff's  subsequent motion for leave to file a substituted  complaint on the
basis that the federal  securities law claim,  the only federal claim alleged by
the plaintiff,  was still deficient.  Accordingly,  the federal securities claim
was dismissed with prejudice. On or about June 4, 1999, Mr. Fishman commenced an
action  against  the same  defendants  and  added as a  seventh  defendant,  the
Company's former President,  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 counterclaims and discovery is proceeding. 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 the Company
and Mr.  Francesco in the Supreme Court of the State of New York,  County of New
York.  The complaint  alleges,  among other things,  that in May 1993, by letter
from Mr.  Francesco,  Mr.  Weiner was offered a 10% equity  stake in Smart Phone
Services,  Inc. ("SPS"), a Subchapter S company of which Mr. Francesco allegedly
was the President and sole shareholder,  in exchange for his active  involvement
in, among other things,  raising  capital and managing the financial  aspects of
SPS. The complaint  alleges that, in November 1993, Mr.  Francesco sent a letter
to Mr.  Weiner in which he (i)  represented  that SPS had  failed  to  attract a
single  investor  and (ii)  withdrew  his offer to Mr.  Weiner  of a 10%  equity
position in SPS. The complaint  further alleges that, in conversations  with Mr.
Weiner beginning in November 1993, Mr. Francesco represented that he was ceasing
all efforts to capitalize SPS. The complaint alleges,  among other things,  that
Mr.  Francesco and SPS breached  their  agreement with Mr. Weiner by withdrawing
their  offer to him of a 10%  equity  stake in SPS,  and  that,  at the time Mr.
Francesco  represented  that he was ceasing  efforts to  capitalize  SPS, he had
actually  formed the  Company and was  actively  seeking  investors  for it. The
complaint  further  alleges  that the Company is a  successor  entity to SPS and
that,  therefore,  the  Company is liable for SPS' and Mr.  Francesco's  alleged
conduct in derogation of their alleged agreement with Mr. Weiner.  The complaint
seeks, among other things, (i) a declaratory judgment declaring Mr. Weiner a 10%
equity  shareholder of the Company,  (ii) a constructive  trust in Mr.  Weiner's
favor for 10% of the Company's equity shares and (iii)  restitution  against Mr.
Francesco and the Company for unjust enrichment. On his unjust enrichment claim,
Mr. Weiner seeks unspecified damages that he alleges to be at least $250,000. In
its answer to the complaint,  the Company has denied the material allegations of
the complaint 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>


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").

In November 1999,  $87,803 of Prepaid  Warrants were converted into an aggregate
of 30,525 shares of Common Stock of 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 3(a)(9) 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.  These 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 January 2000 the Company issued  306,667  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
$184,000.  No sales  commissions were paid in connection with such  transaction.
These  shares were  issued in  reliance  upon the  exemption  from  registration
provided by Section 4(2) of the Securities Act.

In January 2000,  the Company issued 618,239 shares of Common stock to Sebastain
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.  These 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.  These  shares  were  issued in reliance  upon the  exemption  from
registration provided by Section 4(2) of the Securities Act.

In January and February 2000,  $739,000 of Prepaid  Warrants were converted into
an  aggregate  of  527,855  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
3(a)(9) of the Securities Act.

On January 18, 2000, the Company  completed an offering  ("Offering") of 333,000
shares of Common Stock to accredited investors. Gross proceeds from the Offering
amounted  to  $4,995,000  or $15.00 per share of Common  Stock.  The Company has
agreed to file a registration  statement with the SEC within 90 days to register
the  shares  and  use  its  best  efforts  to have  such  registration  declared
effective. Should the Company fail to file a registration statement with the SEC
within 90 days, the holders will be entitled to receive an additional  number of
shares  equal to 10% of the shares  purchased  in the  Offering.  America  First
Associates Corp. ("Associates"),  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.


                                       19

<PAGE>


ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)    The following exhibit is included herein:

           Exhibit 27 - Financial Data Schedule

(b)    REPORTS ON FORM 8-K

           The  Company  did not file any  reports  on Form 8-K during the three
months ended December 31, 1999.



                                       20

<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:  February 22, 2000                   /s/  SEBASTIAN E. CASSETTA
       -------------------                   ----------------------------------
                                             Sebastian E. Cassetta
                                             Chairman of the Board, Chief
                                             Executive Officer




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



                                       21
<PAGE>


EXHIBIT 27 -   FINANCIAL DATA SCHEDULE
               ITEM 601(C) OF REGULATION S-B


THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 FINANCIAL  STATEMENTS OF SMARTSERV ONLINE, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

<TABLE>
<CAPTION>
                                                                                                  December 31, 1999

<S>                                                                                                 <C>
Cash and cash items                                                                                 $       371,581
Marketable securities                                                                                            --
Notes and accounts receivable -trade:
     Billed                                                                                                 386,007
     Unbilled                                                                                                    --
Allowances for doubtful accounts                                                                                 --
Prepaid expenses                                                                                             51,777
Total current assets                                                                                        809,365
Property and equipment                                                                                    1,127,527
Accumulated depreciation                                                                                    666,329
Total assets                                                                                              2,459,843
Total current liabilities                                                                                 2,973,322
Bonds, mortgages and similar debt                                                                                --
Common Stock                                                                                                 14,601
Preferred Stock - mandatory redemption                                                                           --
Preferred Stock - no mandatory redemption                                                                        --
Other stockholders' equity (deficit)                                                                    (3,841,347)
Total liabilities and stockholders' equity (deficiency)                                                 (3,826,746)
Net sales of information services                                                                         1,720,913
Total revenues                                                                                            1,720,913
Cost of services                                                                                            579,634
Total costs and expenses of sales                                                                           579,634
Other costs and expenses                                                                                 22,937,993
Provision for doubtful accounts and notes                                                                        --
Interest, amortization of debt discount and other financing costs                                         (687,450)
Income/(loss) before taxes                                                                              (21,096,231)
Income tax expense                                                                                               --
Income/(loss) from continuing operations                                                                (21,096,231)
Discontinued operations                                                                                          --
Extraordinary items                                                                                              --
Cumulative effect of changes in accounting principles                                                            --
Net income or (loss)                                                                                $   (21,096,231)
Earnings/(loss) per share - basic                                                                   $        (15.19)
Earnings/(loss) per share - diluted                                                                 $        (15.19)



                                       22

</TABLE>