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                                   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, 1998

                         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    No X

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


The number of shares of common stock, $.01 par value, outstanding as of February
24, 1999 was 1,199,787.

<PAGE>
           
                             SmartServ Online, Inc.

                                   Form 10-QSB

                                      Index





PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

          Balance Sheets - June 30, 1998 and December 31, 1998 (unaudited).....2

          Statements of Operations - three months ended December 31, 1998 and
          1997 and six months ended December 31, 1998 and 1997 (unaudited).....3

          Statement of Changes in Stockholders' Deficiency - six months
          ended December 31, 1998 (unaudited)..................................4

          Statements of Cash Flows - three months ended December 31, 1998 and
          1997 and six months ended December 31, 1998 and 1997 (unaudited).....5

          Notes to Unaudited Financial Statements..............................6

Item 2.   Management's Discussion and Analysis or Plan of Operation...........12


PART II.  OTHER INFORMATION

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

Item 2.   Changes in Securities and Use of Proceeds...........................18

Item 6.   Exhibits and Reports on Form 8-K....................................19

          Signatures..........................................................20



<PAGE>

<TABLE>
<CAPTION>

                             SmartServ Online, Inc.

                                 Balance Sheets



                                                                             December 31,                June 30,
                                                                                 1998                      1998
                                                                          --------------------      -------------------
                                                                              (Unaudited)
<S>                                                                         <C>                     <C>              
Assets                                                                        
Current assets
   Cash                                                                      $       36,564         $         354,225
   Accounts receivable, net of an allowance for losses
       of $-0- at December 31, 1998 and June 30, 1998                                76,240                   111,051
   Prepaid expenses                                                                 120,315                   130,603
                                                                          --------------------      -------------------
Total current assets                                                                233,119                   595,879
                                                                          --------------------      -------------------

Property and equipment - net                                                        535,750                   610,537

Other assets
   Capitalized software development costs - net                                     476,396                        --
   Deferred financing costs                                                          92,780                        --
   Security deposits                                                                 70,437                    70,437
                                                                          --------------------      -------------------
                                                                                    639,613                    70,437
                                                                          --------------------      -------------------

Total Assets                                                                 $    1,408,482           $     1,276,853
                                                                          ====================      ===================

Liabilities and Stockholders' Deficiency
Current liabilities
   Notes payable                                                             $      641,794                        --
   Accounts payable                                                               1,286,395           $       800,545
   Accrued liabilities                                                              501,793                   736,137
   Accrued interest payable                                                           3,776                        --
   Payroll taxes payable                                                              2,182                     4,294
   Salaries payable                                                                  20,216                    53,014
   Current portion of capital lease obligation                                       81,459                    76,127
   Deferred revenues                                                                958,032                   776,049
                                                                          --------------------      -------------------
Total current liabilities                                                         3,495,647                 2,446,166
                                                                          --------------------      -------------------

Long-term portion of capital lease obligation                                        31,863                    77,548

Stockholders' Deficiency
Common stock - $.01 par value
   Authorized - 40,000,000  shares 
   Issued and outstanding - 836,227 shares at June 30, 1998
       and 1,189,787 shares at December 31, 1998                                     11,898                     8,362
Common stock subscribed                                                           1,812,554                        --
Notes receivable from officers                                                   (1,812,554)                       --
Additional paid-in capital                                                       20,384,969                18,184,580
Deferred financing costs                                                         (1,271,150)                       --
Unearned compensation                                                            (4,035,414)               (4,617,924)
Accumulated deficit                                                             (17,209,331)              (14,821,879)
                                                                          --------------------      -------------------
Total stockholders' deficiency                                                   (2,119,028)               (1,246,861)
                                                                          --------------------      -------------------

Total Liabilities and Stockholders' Deficiency                               $    1,408,482           $     1,276,853
                                                                          ====================      ===================
</TABLE>


See accompanying notes.

                                       2
<PAGE>
<TABLE>
<CAPTION>


                             SmartServ Online, Inc.

                            Statements of Operations
                                   (Unaudited)




                                                          Three Months                             Six Months
                                                       Ended December 31                       Ended December 31
                                             ---------------------------------------  -------------------------------------
                                                   1998                 1997               1998                1997
                                             ------------------    -----------------  ----------------    -----------------

<S>                                            <C>            <C>                <C>                 <C>          
Revenues                                     $      344,024        $     181,594      $      693,729      $     381,787
                                             ------------------    -----------------  ----------------    -----------------

Costs and expenses:
   Costs of revenues                                182,437              340,713             389,521            718,685
   Product development expenses                      24,170              222,632              51,216            427,705
   Selling, general and administrative
      expenses                                    1,001,697              630,764           1,832,555          1,160,227
                                             ------------------    -----------------  ----------------    -----------------
   Total costs and expenses                       1,208,304            1,194,109           2,273,292          2,306,617
                                             ------------------    -----------------  ----------------    -----------------

Loss from operations                               (864,280)          (1,012,515)         (1,579,563)        (1,924,830)
                                             ------------------    -----------------  ----------------    -----------------

Other income (expense):
   Interest income                                      706               21,544               2,908             22,631
   Interest expense and other
     financing costs                               (669,701)             (68,769)           (810,797)          (675,081)
                                             ------------------    -----------------  ----------------    -----------------
                                                   (668,995)             (47,225)           (807,889)          (652,450)
                                             ------------------    -----------------  ----------------    -----------------

Net loss                                     $   (1,533,275)       $  (1,059,740)     $   (2,387,452)     $  (2,577,280)
                                             ==================    =================  ================    =================

Comprehensive loss                           $   (1,533,275)       $  (1,059,740)     $   (2,387,452)     $  (2,577,280)
                                             ==================    =================  ================    =================

Basic common share
and diluted earnings per common share
                                             $        (1.41)       $       (1.72)     $        (2.36)     $       (4.19)
                                             ==================    =================  ================    =================        

Weighted average shares outstanding               1,089,881              615,833           1,010,487            615,833
                                             ==================    =================  ================    =================
</TABLE>

See accompanying notes.


                                       3
<PAGE>
<TABLE>
<CAPTION>


                             SmartServ Online, Inc.

                Statement of Changes in Stockholders' Deficiency

                       Six Months Ended December 31, 1998
                                   (Unaudited)



                                                                 Notes
                                 Common Stock       Common    Receivable    Additional     Deferred
                                            Par      Stock       from        Paid-in      Financing      Unearned       Accumulated
                                Shares    Value   Subscribed   Officers      Capital        Costs       Compensation      Deficit
                              ------------------- ----------- ------------ ------------- ------------- -------------- --------------

<S>                         <C>       <C>          <C>         <C>         <C>             <C>      <C>                <C>
Balance at June 30, 1998       836,227   $8,362          --           --      $18,184,580          --  $(4,617,924)    $(14,821,879)

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

Issuance of Common Stock to
   Prepaid Warrant holders
   as consideration for
   amending certain terms       
   and conditions               50,000     500           --           --       121,375             --            --              --

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

Issuance of 1,000,000
   Common Stock Purchase
   Warrants in connection
   with the issuance of 8%
   convertible note                 --      --           --           --     1,430,000    $(1,430,000)            --              --

Beneficial conversion
   feature of 8%                    
   convertible notes                --      --           --           --       500,000             --            --              --

Issuance of Common Stock in
   partial settlement of       
   litigation                 125,000    1,250           --           --       131,500             --            --              --

Issuance of Common Stock
   Purchase Warrants in
   partial settlement of            
   litigation                      --       --           --           --        13,000             --            --              --

Amortization of unearned
   compensation over the
   term of the agreement           --       --           --           --            --             --      $582,510              --

Amortization of deferred
   financing costs in
   connection with the
   issuance of convertible
   notes                           --      --           --           --            --        158,850            --              --

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

Net loss for the period            --      --           --           --            --             --            --      (2,387,452)
                              ---------- -------- ----------- ------------ ------------- ------------- -------------- --------------

Balance at December 31, 1998  1,189,787  $11,898  $1,812,554  $(1,812,554) $20,384,969   $(1,271,150)   $(4,035,414)   $(17,209,331)
                              ========== ======== =========== ============ ============= ============= ============== ==============
</TABLE>

See accompanying notes.

                                       4
<PAGE>
<TABLE>
<CAPTION>



                             SmartServ Online, Inc.

                            Statements of Cash Flows
                                   (Unaudited)

                                                                Three Months                             Six Months
                                                              Ended December 31                      Ended December 31
                                                     ------------------------------------   -------------------------------------
                                                           1998               1997                1998               1997
                                                     -----------------   ----------------   -----------------   -----------------

<S>                                                  <C>                <C>                 <C>               <C>          
Operating Activities
Net loss                                               $ (1,533,275)       $ (1,059,740)      $ (2,387,452)       $ (2,577,280)
Adjustments to reconcile net loss to net cash used
for operating activities:
    Depreciation and amortization of property
       and equipment                                         49,779              47,264             97,482              93,337
    Non-cash interest expense and other
       financing costs                                      666,070              66,000            794,245             681,564
    Amortization of consulting costs                        335,004              80,975            665,425              80,975
    Amortization of unearned revenues                       (15,534)             (2,377)           (31,068)             (4,667)
    Amortization and write-off of deferred charges               --                  --                 --              63,000
    Amortization of capitalized software costs               19,419                  --             19,419                  --
    Other changes that provided (used) cash
       Accounts receivable                                      816              53,764             34,811              22,620
       Prepaid expenses                                      11,009               7,920            (72,627)             13,082
       Accounts payable and accrued liabilities             377,988            (388,198)           539,050             107,279
       Accrued interest payable                               3,776                  --              3,776             (16,323)
       Payroll taxes payable                                (14,934)           (107,524)            (2,112)            (23,801)
       Salaries payable                                     (19,981)             51,657            (32,798)             39,866
       Unearned revenues                                     13,051               3,377            213,051              15,855
       Security deposit reduction                                --                  --                 --              14,253
                                                     -----------------   ----------------   -----------------   -----------------
    Net cash used for operating activities                 (106,812)         (1,246,882)          (158,798)         (1,490,240)
                                                     -----------------   ----------------   -----------------   -----------------

Investing Activities
Purchase of equipment                                       (11,057)            (31,245)           (22,695)            (42,876)
Capitalization of software development costs               (262,810)                 --           (495,815)                 --
                                                     -----------------   ----------------   -----------------   -----------------
    Net cash used for investing activities                 (273,867)            (31,245)          (518,510)            (42,876)
                                                     -----------------   ----------------   -----------------   -----------------

Financing Activities
Repayment of capital lease obligation                       (20,516)            (17,935)           (40,353)            (54,811)
Proceeds from the issuance of notes                         435,000                  --            435,000             196,500
Proceeds from the issuance of warrants, net                      --                  --                 --           2,643,941
Deferred financing costs                                    (35,000)                 --            (35,000)            (25,000)
Proceeds from officers' loans                                    --                  --                 --              37,500
Repayment of officers' loans                                     --             (12,500)                --             (37,500)
                                                     -----------------   ----------------   -----------------   -----------------
    Net cash provided by (used for) financing                             
    activities                                              379,484             (30,435)           359,647           2,760,630
                                                     -----------------   ----------------   -----------------   -----------------

Increase (decrease) in cash                                  (1,195)         (1,308,562)          (317,661)          1,227,514
Cash - beginning of period                                   37,759           2,629,421            354,225              93,345
                                                     -----------------   ----------------   -----------------   -----------------

Cash - end of period                                   $     36,564        $  1,320,859       $     36,564        $  1,320,859
                                                     =================   ================   =================   =================
</TABLE>


See accompanying notes.

                                       5

<PAGE>


                             SmartServ Online, Inc.

                     Notes to Unaudited Financial Statements

                                December 31, 1998



1. Organization

SmartServ Online, Inc. (the "Company")  commenced operations on August 20, 1993.
The Company makes available  online  information and  transactional  services to
subscribers   through   proprietary   application   software  and  communication
architecture to wireless PCS devices, PCs, PDAs, the Internet, interactive voice
response systems, alpha-numeric pagers and screen-based phones. The Company also
offers a range of  services  designed  to meet the  varied  needs of  clients of
potential strategic marketing partners, such as real-time stock quotes, business
and  financial  news,  sports   information,   research  and  analysis  reports,
private-labeled  electronic mail, national weather reports, local news and other
business and entertainment information.  The Company's software architecture and
capabilities  format  information  for  a  particular  device  and  present  the
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 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, 1998 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, 1998. 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,  1998 are not
necessarily indicative of those expected for the year ending June 30, 1999.

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 six months  ended  December 31, 1998 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  $5,040,009,  $4,434,482,  and  $2,966,287  for the years
ended June 30, 1998,  1997, and 1996  respectively,  and as of December 31, 1998
had an  accumulated  deficit of  $17,209,331.  In  addition,  the  Company has a
working  capital  deficiency  of  $3,262,528  and a deficiency  of net assets of
$2,119,028. These conditions raise substantial doubt about the Company's ability
to continue as a going  concern.  The  financial  statements  do not include any
adjustments  to reflect the possible  future effects on the  recoverability  and
classification  of assets or the amounts and  classification of liabilities that
may result from the outcome of these uncertainties.

The  Company's  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


                                       6
<PAGE>

amounts  and  related  disclosures  have been  restated  to give  effect to this
transaction.

Basic and Diluted Earnings per Share
------------------------------------
In 1997, the Financial  Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("Statement 128").  Statement
128 replaced the  previously  reported  primary and fully  diluted  earnings per
share with basic and diluted  earnings per share.  Unlike  primary  earnings per
share,  basic  earnings  per share  excludes  any  dilutive  effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously  reported fully diluted  earnings per share.  All earnings per
share amounts for all periods have been presented, and where necessary, restated
to conform to the  Statement  128  requirements.  The  weighted  average  shares
outstanding  are  determined as the mean average of the shares  outstanding  and
assumed to be outstanding during the period.

Comprehensive Income
--------------------
In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("Statement 130")
which requires  companies to report a new,  additional  measure of income on the
income  statement  in  a  full  set  of  general-purpose  financial  statements.
Comprehensive  Income includes foreign currency translation gains and losses and
unrealized  gains  and  losses on equity  securities  that have been  previously
excluded from income and reflected  instead in equity.  There were no components
of comprehensive income excluded from income and reflected in equity for the six
month periods ended December 31, 1998 and 1997.

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.

Recent Accounting Pronouncements
--------------------------------
In March 1998, the American  Institute of Certified  Public  Accountants  issued
Statement of Position 98-1, as amended by SOP 98-4, "Accounting for the Costs of
Computer  Software  Developed or Obtained for Internal  Use" ("SOP  98-1").  The
Company is reviewing  the  requirements  of the SOP and has not  determined  the
impact, if any, that SOP 98-1 will have on the Company. If applicable,  SOP 98-1
is required to be adopted by the Company no later than July 1, 1999.


                                       7

<PAGE>
<TABLE>
<CAPTION>


3. Property and Equipment

Property and equipment consist of the following:

                                                                            December 31,                 June 30,
                                                                                   1998                    1998
                                                                            -------------------      -----------------
<S>                                                                       <C>                      <C>            
   Data processing equipment                                                $        638,456         $       616,587
   Data processing equipment purchased under a capital lease                         246,211                 246,211
   Office furniture and equipment                                                     71,423                  70,597
   Display equipment                                                                   9,635                   9,635
   Leasehold improvements                                                             36,678                  36,678
                                                                            -------------------      -----------------

                                                                                   1,002,403                 979,708

   Accumulated depreciation,  including $82,070 and $57,449 at December 31, 1998
   and June 30, 1998, respectively, for equipment purchased
   under a capital lease                                                            (466,653)               (369,171)
                                                                                                     -----------------
                                                                            ===================
                                                                            $        535,750         $       610,537
                                                                            ===================      =================

</TABLE>

4.   Notes Payable

In December 1998, the Company sold five (5) units,  each consisting of a secured
convertible  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.  The convertible
notes are secured by all of the Company's  assets,  mature on November 15, 1999,
and are classified as a current liability in the accompanying balance sheet. The
notes bear interest at eight percent (8%) per annum, payable  semi-annually,  in
kind or in cash at the Company's  option and may be prepaid  without  premium or
penalty.  The Company has agreed to register the shares of Common Stock issuable
upon  exercise  of the  warrants  and  conversion  of the notes.  In addition to
customary fees and expenses,  Spencer Trask Securities,  Inc. ("Spencer Trask"),
the placement agent,  received for nominal  consideration,  warrants to purchase
ten  percent  (10%) of the shares of Common  Stock of the  Company  issuable  on
conversion  of the notes and  exercise of the  warrants at $0.72 per share.  The
issuance to the  noteholders  of warrants to purchase  833,333  shares of Common
Stock,  as well as those  issued to Spencer  Trask for the  purchase  of 166,667
shares of Common  Stock have been valued in  accordance  with the  Black-Scholes
pricing  methodology and recorded in stockholders'  equity as deferred financing
costs. All costs associated with the issuance of the convertible notes are being
amortized  to interest  expense  and other  financing  costs using the  interest
method.  Also in  connection  with the 8%  convertible  notes,  the  Company has
recorded  a  non-cash  charge to  interest  expense  and other  financing  costs
representing  the perceived  cost of the  beneficial  conversion  feature of the
notes.  Emerging  Issues  Task Force  Issue 98-5,  "Accounting  for  Convertible
Securities  with  Beneficial  Conversion  Features  or  Contingently  Adjustable
Conversion  Ratios" ("Issue 98-5") defines the beneficial  conversion feature as
the  non-detachable  conversion  feature that is  "in-the-money"  at the date of
issuance.  Issue 98-5 requires the  recognition  of the  intrinsic  value of the
conversion  feature as the difference  between the conversion price and the fair
value of the common stock into which the notes are  convertible.  Such amount is
limited to the proceeds of the  financing  ($500,000)  and has been  recorded in
interest expense and other financing costs as of the date of issuance.

On December 30, 1998, the Company  executed an agreement with a service provider
whereby  certain  obligations  of  the  Company,  amounting  to  $141,794,  were
converted  into a note payable.  The note bears interest at twelve percent (12%)
per annum, is payable on demand and has been  classified as a current  liability
in the accompanying balance sheet.

Interest paid during the six months ended December 31, 1998 and 1997 was $20,762
and $18,943, respectively.

                                       8
<PAGE>

5.   Equity Transactions

During the period July 1, 1998 through  December 31, 1998,  holders of 276.67 of
the Company's  Prepaid  Warrants  converted such warrants into 178,560 shares of
Common Stock at exercise prices ranging from $.75 to $2.38.

On August 31, 1998,  the Company  issued 32,953 shares of Common Stock to Zanett
Lombardier,  Ltd.  and  17,047  shares  of  Common  Stock to Bruno  Guazzoni  in
consideration  of their  agreement  to certain  restrictions  on the exercise of
Prepaid  Warrants  and the  resale of the  shares of Common  Stock  issuable  on
exercise thereof.

On September 8, 1998,  the Company  issued  warrants to purchase 3,000 shares of
Common Stock to Data Transmission  Network Corporation ("DTN") for prepayment of
certain guaranteed  payments in accordance with the Software License and Service
Agreement   between  the  parties  dated  April  23,  1998.  Such  warrants  are
exercisable at $3.00 per share of Common Stock.

On December  29,  1998,  the Board  approved a plan to  compensate  non-employee
directors for their service to the Company. The Company will pay them $1,000 per
meeting  attended,  as well as reimbursement for all travel related expenses and
will grant to each  non-employee  director warrants to purchase 10,000 shares of
the Company's Common Stock at the commencement of each calendar year.

On December 29, 1998,  the Board of Directors  approved the terms of  employment
contracts  for  Messrs.  Cassetta  and Rossi.  Accordingly,  the Company and Mr.
Cassetta  have  entered into an  employment  agreement  ("Cassetta  Agreement"),
effective  January 1, 1999 and expiring on December 31, 2001,  providing for (i)
base compensation of $185,000 per annum,  (ii) additional  compensation of up to
100% of base  compensation,  (iii)  continuation of existing life and disability
insurance  policies,  (iv) all benefits available to other employees and (v) the
sale to him of 618,239 shares of restricted  stock  representing 9% of the fully
diluted  shares  of  Common  Stock of the  Company.  Mr.  Cassetta's  additional
compensation will be equal to 10% of his base compensation for each 10% increase
in sales during the first year of the Cassetta  Agreement,  subject to a maximum
of 100% of base compensation. In each subsequent year of the Cassetta Agreement,
Mr.  Cassetta  will  receive  additional  compensation  equal  to 5% of his base
compensation  for each 5% increase in sales,  subject again to a maximum of 100%
of base  compensation.  The purchase price of the  restricted  stock is equal to
110%  of  fair  market  value  of the  Company's  Common  Stock  for the 30 days
preceding the purchase ($2.20 per share). The purchase price will be paid with a
5 year,  non-recourse promissory note, secured by the stock, at an interest rate
of 1%  below  the  prime  rate  on the  date  of the  stock  purchase  agreement
("Cassetta Stock Purchase  Agreement")  contemplated by the Cassetta  Agreement.
The Cassetta Stock Purchase  Agreement  contains certain  repurchase options for
the Company's  behalf,  as well as a put option for Mr. Cassetta's behalf in the
event of the  termination of his  employment.  In the event that Mr.  Cassetta's
employment is terminated  without  cause,  Mr.  Cassetta will receive a lump sum
severance  payment equal to his full base salary for the  remaining  term of the
Cassetta  Agreement,  discounted  to the present value using an 8% discount rate
and  continuing  benefit  coverage for the lesser of 12 months or the  remaining
term of the Cassetta Agreement.

The Company and Mr. Rossi have also entered into an employment agreement ("Rossi
Agreement"),  effective  January 1, 1999 and  expiring  on  December  31,  2001,
providing  for (i) base  compensation  of $135,000  per annum,  (ii)  additional
compensation of up to 50% of base  compensation,  (iii) continuation of existing
life and disability  insurance  policies,  (iv) all benefits  available to other
employees  and (v)  the  sale  to him of  206,080  shares  of  restricted  stock
representing 3% of the fully diluted shares of Common Stock of the Company.  Mr.
Rossi's additional compensation will be equal to 5% of his base compensation for
each 10%  increase in sales  during year the first year of the Rossi  Agreement,
subject to a maximum of 50% of base compensation. In each subsequent year of the
Rossi Agreement, Mr. Rossi will receive additional compensation equal to 2.5% of
base  compensation for each 5% increase in sales,  subject again to a maximum of
50% of base compensation. The purchase price

                                       9
<PAGE>

of the  restricted  stock is equal to 110% of fair market  value for the 30 days
preceding the purchase ($2.20 per share). The purchase price will be paid with a
5 year,  non-recourse promissory note, secured by the stock, at an interest rate
of 1% below the prime rate on the date of the stock purchase  agreement  ("Rossi
Stock Purchase Agreement")  contemplated by the Rossi Agreement. The Rossi Stock
Purchase Agreement contains certain repurchase options for the Company's behalf,
as well as a put option for Mr. Rossi's  behalf in the event of the  termination
of his  employment.  In the event  that Mr.  Rossi's  employment  is  terminated
without cause, Mr. Rossi will receive a lump sum severance  payment equal to his
full base salary for the remaining  term of the Rossi  Agreement,  discounted to
the present value using an 8% discount rate and continuing  benefit coverage for
the lesser of 12 months or the remaining term of the Rossi Agreement.


6.   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
                                      ---------------------------------------   --------------------------------------
                                            1998                 1997                 1998               1997
                                      ------------------    -----------------   ------------------  ------------------



<S>                                 <C>                   <C>                 <C>                 <C>             
Numerator:
   Net loss                           $     (1,533,275)     $   (1,059,740)   $      (2,387,452)    $    (2,577,280)
                                      ==================    =================   ==================  ==================

Denominator:
   Weighted-average shares                   1,089,881             615,833            1,010,487             615,833
                                      ==================    =================   ==================  ==================

Basic and diluted earnings per
   common share                       $          (1.41)     $       (1.72)      $        (2.36)    $         (4.19)
                                      ==================    =================   ==================  ==================
</TABLE>

At December 31,  1998,  there were  3,003,750  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  December  2003.  Additionally,  the
Company  has  established  an  employee  stock  option  plan for the  benefit of
directors, employees, and consultants to the Company. These options are intended
to qualify as incentive  stock options  within the meaning of Section 422 of the
Internal Revenue Code, as amended, or as nonqualified stock options. The options
are partially  exercisable  after one year from date of grant and no options may
be granted  after  April 15,  2006.  At  December  31,  1998,  there are options
outstanding  for the purchase of 236,267  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.


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 others in the
United States District Court for the District of Connecticut. On or about August
20, 1998, Mr. Fishman  served a first amended  complaint.  On December 11, 1998,
the Court  dismissed  the first  amended  complaint.  By motion dated January 7,
1999,  Mr.  Fishman  moved for  leave to serve a second  amended  complaint.  On
February  16, 1999,  the Company  filed papers in  opposition  to Mr.  Fishman's
motion for leave to serve a second amended  complaint.  That motion is currently
pending.

                                       10
<PAGE>


In his proposed  second  amended  complaint,  Mr. Fishman  alleges,  among other
things,  that (i) he relied on false statements that the Company allegedly made,
in filings  with the  Securities  and  Exchange  Commission  and  otherwise,  in
accepting  a  position  with the  Company  and (ii) the  Company  constructively
discharged him by breaching the terms of its employment  agreement with him. The
proposed second amended complaint seeks to assert claims against the Company for
(i) fraud under the federal securities laws, (ii) breach of various terms of the
Company's  employment  agreement with Mr.  Fishman,  (iii) breach of the implied
duty of good faith and fair  dealing,  (iv)  fraudulent  misrepresentation,  (v)
negligent  misrepresentation,   (vi)  intentional  misrepresentation  and  (vii)
failure to pay wages.

In his proposed second amended complaint, Mr. Fishman seeks judgment for damages
in  amounts  to be  determined  at  trial  on each of his  claims  and he  seeks
unspecified punitive damages on his claims for fraudulent  misrepresentation and
failure  to pay  wages.  He also seeks  reimbursement  for the costs,  including
attorneys' fees, that he incurs in prosecuting the action.

No discovery in this action has yet been noticed or taken.  Although the Company
is vigorously  defending this action,  there can be no assurance that it will be
successful.


8.   Subsequent Events

On January 26, 1999,  the Company and the holders of a majority of the Company's
Common  Stock (on a fully  diluted  basis)  signed a Letter of Intent  with DTN,
whereby the Company would be merged with a subsidiary of DTN. The transaction is
subject to the  execution of a  definitive  merger  agreement  which the parties
anticipate will be executed no later than March 31, 1999. Under the terms of the
proposed  transaction,  the holders of the  Company's  Common Stock will receive
shares of DTN Common Stock having an aggregate  market value equal to the lesser
of  $14,850,000 or the amount  determined by multiplying  $3.20 by the number of
shares of the Company's  Common Stock  outstanding on an as if and fully diluted
basis.  The market  value of a share of DTN  Common  Stock for  purposes  of the
proposed  transaction  would be based upon the average of its closing  prices on
the Nasdaq  Stock  Market for each of the 10  trading  days  ending on the third
trading  day  prior  to the date of the  closing  of the  proposed  transaction;
however,  the value would not be lower than $28.35 or higher  than  $34.65.  The
Letter of Intent  provides that DTN will file a registration  statement with the
Securities  and  Exchange  Commission  prior to the  closing of the  transaction
covering  all  of  the  DTN  Common   Shares  to  be  issued  to  the  Company's
stockholders.  While  effective,  this  registration  statement  will permit the
Company's  stockholders  to sell in the  public  market  the  DTN  Common  Stock
received upon consummation of the merger.

On February  22, 1999,  the  Company,  DTN and Spencer  Trask  Securities,  Inc.
entered  into  an  agreement  providing  for  the  settlement  of the  Company's
obligation under a Letter Agreement, dated August 11, 1998, to pay Spencer Trask
5% of the  consideration  received  in a merger.  At the  closing  of the merger
transaction  with DTN, in lieu of any other  rights it may have under the Letter
Agreement, Spencer Trask will receive (i) $250,000, (ii) 5,000 registered shares
of DTN Common Stock, and (iii) registered  shares of DTN Common Stock sufficient
to affect the cashless  exercise of certain common stock purchase  warrants held
by Spencer  Trask.  If the  closing of the  merger  transaction  shall not occur
before  June 30,  1999,  or if the  merger is  otherwise  abandoned,  the Letter
Agreement shall be reinstated.

On January 28, 1999, the Company completed an additional financing of $50,000 of
securities  of the Company  with Bruno  Guazzoni,  an investor in the  Company's
Prepaid Warrants. Such securities, consisting of convertible notes and warrants,
contain terms  identical to those offered to investors in the interim  financing
described in Note 4 above.

                                       11

<PAGE>


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


Plan of Operation

The Company  provides online  information  and  transactional  services  through
wireless PCS devices,  PCs,  PDAs,  the  Internet,  interactive  voice  response
systems,  alpha-numeric paging devices and screen-based telephones to clients of
potential strategic marketing partners.  Effective June 1996, the Company exited
from the development stage with the completion of its core application  software
and  communications  architecture  and has commenced the  implementation  of its
marketing strategies.

The Company's plan of operation  includes  programs for marketing and developing
strategic marketing relationships with key partners that provide access to large
numbers  of  potential  subscribers  for its  monthly  services.  The  Company's
strategy  of forming  alliances  with  strategic  marketing  partners  that have
established  relationships  with its potential  customers enables 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.  The use of this model has resulted in
the distribution of SmartServ information products by DTN as "DTNIQ", "TradeNet"
and  "BrokerNet",  by  Sprint/United  Management  Corp.  as "Sprint  Information
Services",  by  CIDCO  Inc.  as  "CIDCO  Information  Services"  and  by  ALLTEL
Communications Company as "ALLTEL Information Services".

As an  early  entrant  in the  dynamic  market  for  distribution  of  financial
information and trading services via wireless devices, the Company is developing
strategic marketing relationships with wireless equipment manufactures, carriers
and  potential  corporate  partners.  Management  believes the wireless area has
tremendous potential for distribution of the Company's  information products and
as source of revenues from "fee based" transactions such as stock trading.

The Company has partnered with and continues to seek relationships with regional
telephone operating companies,  such as ALLTEL, long distance carriers,  such as
Sprint,  telephone  equipment  manufacturers,  such as  Nortel,  and  others who
distribute screen telephone equipment, market local screen telephone services or
otherwise  benefit  from  the  increased  acceptance  of  these  devices  in the
marketplace.  To these partners, the Company's services are perceived as a means
of increasing interest in and sales of screen telephones and CLASS services, and
there is thus a strong incentive to promote the Company's services.

The Company is also working with businesses that desire to provide new services,
such as those  provided  by the  Company,  to an existing  base of  clients.  By
providing  this  branding  flexibility,  the Company has been able to expand the
number of businesses  interested in forming  relationships  with it, and has the
ability to market its services under far more recognizable  brand names than its
own.

Management  believes  that most of the  Company's  revenues  will  ultimately be
derived from end users that purchase the Company's  services  through  strategic
marketing partners with mass distribution capabilities.  The Company anticipates
that strategic marketing partners will brand the Company's "bundled" information
services with their own private  label,  promote the packaged  offering and then
distribute the Company's information package on wireless PCS devices, PCs, PDAs,
the Internet,  interactive  voice  response  systems,  alpha-numeric  pagers and
screen-based  phones to their clients.  The Company has the ability to customize
the information package to be offered to each strategic  marketing partner,  and
in turn to their  end  users.  With  the  licensing  of  three of the  Company's
Internet  products to 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 3 to 6 personnel  during the period ending June 30, 1999. Such

                                       12

<PAGE>

personnel will be added to assist with the programming requirements of strategic
marketing  partners' product  offerings and for customer support.  Additionally,
management  anticipates  that 2 to 3 people  will join the  Company in sales and
marketing positions during the period ending June 30, 1999.


Results of Operations

As discussed  above, the Company has discontinued its efforts to market products
to the retail  market  via its own direct  marketing  programs.  Currently,  the
Company is working with businesses that desire to provide new services,  such as
those provided by the Company, to an existing base of clients. Additionally, the
Company continues to seek  relationships  with brokerage firms and disseminators
of  financial  information,  whose  clients  can  benefit  from the  efficiency,
convenience and timeliness of the information  services provided by the Company.
The high quality of the Company's services and systems'  architecture  continues
to draw interest from potential partners and while the Company continues to have
discussions    about    potential    marketing    opportunities    with    major
telecommunications and stock brokerage companies, there can be no assurance that
the Company will enter into agreements with any such companies.

Quarter Ended December 31, 1998 vs. Quarter Ended December 31, 1997

During the quarter  ended  December 31,  1998,  the Company  earned  revenues of
$344,024,  primarily  from the sale of its products to customers of DTN.  During
the quarter  ended  December  31,  1997,  total  revenues  amounted to $181,594,
consisting  primarily  of  subscription  fees  for the  SmartServ  Online  "Pro"
real-time stock quote service  ($136,800) and sales generated from the Company's
relationships with Sprint ($24,500) and Schroder ($17,500). At December 31, 1998
and 1997, the Company recorded deferred  revenues of approximately  $958,000 and
$36,100,  respectively.  Such amounts  arise from customer  prepayments  and are
recognized  into  income as services  are  provided  throughout  the term of the
contract.

During the  quarter  ended  December  31,  1998,  the Company  incurred  cost of
revenues  of  $182,437.   These  costs  consist  primarily  of  information  and
communication costs ($69,162),  personnel costs ($32,826), and computer hardware
leases,  depreciation and maintenance costs ($79,970).  During the quarter ended
December  31, 1997,  the Company  incurred  costs of revenues of $340,713.  Such
costs consisted  primarily of information and  communication  costs  ($132,600),
personnel  costs  ($92,300),  and computer  hardware  leases,  depreciation  and
maintenance costs ($102,800).  Information and communication  costs decreased in
the quarter ended  December 31, 1998,  compared to the prior year as a result of
the licensing  agreement entered into between the Company and DTN. In accordance
with the terms of the agreement,  DTN has assumed  responsibility for such costs
related to the  delivery  of  information  and the growth of the  infrastructure
relative to support the  customers  of DTN.  Personnel  costs  decreased  in the
quarter  ended  December 31, 1998  compared to the prior year as a result of the
migration of personnel resources into product development areas in 1998. Product
development  costs were $24,170 and $222,632 for the quarters ended December 31,
1998 and 1997,  respectively.  Such costs consisted primarily of personnel costs
($1,494 in 1998 and $130,600 in 1997) and computer system consultants ($2,309 in
1998 and $78,800 in 1997). The decrease in the product development costs for the
quarter ended  December 31, 1998 compared to the quarter ended December 31, 1997
results from the capitalization of software development costs related to certain
product  enhancements  in  accordance  with  Statement of  Financial  Accounting
Standards  No. 86,  "Accounting  for the Costs of Computer  Software to be Sold,
Leased or  Otherwise  Marketed"  ("Statement  86").  During  the  quarter  ended
December 31, 1998, the Company capitalized approximately $262,810 of development
costs in accordance with Statement 86. No such costs were capitalized during the
quarter ended December 31, 1997.  Amortization  expense  relating to capitalized
software development costs for the quarter ended December 31, 1998 was $19,419.

During the quarter  ended  December  31,  1998,  the Company  incurred  selling,
general and administrative  expenses of $1,001,697  compared to $630,764 for the
quarter ended December 31, 1997. In 1998,  selling,  general and  administrative
expenses  consisted  primarily  of personnel  costs  ($210,302),  marketing  and

                                       13
<PAGE>

advertising costs ($94,834),  professional fees ($574,274), facilities ($65,417)
and  telecommunications  costs  ($18,973).  Included  in  professional  fees are
non-cash  charges  of  $335,004  resulting  from the  issuance  of common  stock
purchase warrants to financial consultants.  Such common stock purchase warrants
were recorded in accordance  with the  Black-Scholes  pricing  methodology.  For
1997, selling,  general and administrative  expenses were incurred primarily for
personnel  costs  ($266,200),  facilities  ($50,200),  marketing and advertising
costs ($41,700) and professional fees ($210,302).  Included in professional fees
is an $80,975  non-cash  charge for the  amortization  of unearned  compensation
associated  with the issuance of Common Stock  Purchase  Warrants to a financial
consultant.

Interest  income for the quarters  ended  December 31, 1998 and 1997 amounted to
$706 and $21,544, respectively. During the quarter ended December 31, 1998, such
amounts were earned  primarily  from the  Company's  cash  balances.  During the
quarter  ended  December 31, 1997,  such amounts were earned from the  Company's
investments in highly rated bank  certificates  of deposit.  During the quarters
ended December 31, 1998 and 1997, interest and financing costs were $669,701 and
$68,769. 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 Zanett  Lombardier,  Ltd and Bruno
Guazzoni,  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.  Interest and
financing  costs  for  1997  included  a  non-cash  charge  of  $66,000  for the
revaluation of certain Common Stock Purchase  Warrants issued in connection with
the Company's May 1997 line of credit facility.

Six Months Ended December 31, 1998 vs. Six Months Ended December 31, 1997

During the six months ended December 31, 1998,  the Company  earned  revenues of
$693,729,  primarily  from the sale of its products to customers of DTN.  During
the six months  ended  December  31,  1997,  the  Company  recorded  revenues of
$381,787,  consisting  of  $261,700  from  the  sale  of  subscriptions  to  its
information services,  $55,000 from enhancement,  implementation,  and marketing
services  associated  with its arrangement  with Schroder,  and $53,700 from the
Company's relationship with Sprint.

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 ($164,847), personnel costs ($61,913), and computer hardware
leases,  depreciation and maintenance  costs  ($160,754).  During the six months
ended  December 31, 1997,  the Company  incurred  costs of revenues of $718,685.
Such  costs  consisted   primarily  of  information  and   communication   costs
($323,100),   personnel  costs   ($183,800),   and  computer   hardware  leases,
depreciation and maintenance  costs  ($182,600).  Information and  communication
costs decreased in the six months ended December 31, 1998, compared to the prior
year as a result of the licensing agreement entered into between the Company and
DTN.  Personnel  costs  decreased  in the six months  ended  December  31,  1998
compared to the prior year as a result of the  migration of personnel  resources
into product  development areas in 1998. Product  development costs were $51,216
and $427,705 for the six months ended December 31, 1998 and 1997,  respectively.
Such costs  consisted  primarily of personnel costs ($4,482 in 1998 and $275,000
in 1997) and computer system consultants ($18,785 in 1998 and $132,700 in 1997).
The decrease in the product  development costs for the six months ended December
31, 1998  compared to the six months  ended  December  31, 1997 results from the
capitalization  of  software   development  costs  related  to  certain  product
enhancements  in  accordance  with  Statement  86.  During the six months  ended
December 31, 1998, the Company capitalized approximately $495,815 of development
costs in accordance with Statement 86. No such costs were capitalized during the
six months ended December 31, 1997. Amortization expense relating to capitalized
software  development  costs for the six  months  ended  December  31,  1998 was
$19,419.

During the six months ended  December 31, 1998,  the Company  incurred  selling,
general and administrative  expenses of $1,832,555.  Such expenses were incurred
primarily for  personnel  costs  ($395,282),  marketing  and  



                                       14
<PAGE>

advertising  costs  ($156,622),   professional  fees  ($1,062,675),   facilities
($115,576) and telecommunication costs ($33,697).  Included in professional fees
are  non-cash  charges of $665,425  resulting  from the issuance of common stock
purchase warrants to financial consultants.  Such common stock purchase warrants
were recorded in accordance with the Black-Scholes  pricing methodology.  During
the six months ended December 31, 1997, the Company  incurred  selling,  general
and  administrative  expenses  of  $1,160,227,  primarily  for  personnel  costs
($478,200), facilities ($98,800), marketing and advertising costs ($78,900), and
professional fees ($336,200). Included in professional fees is a non-cash charge
of $63,000 for the write-off of prepaid  consulting  fees incurred in connection
with the Company's Initial Public Offering of securities and an $80,975 non-cash
charge  for the  amortization  of  unearned  compensation  associated  with  the
issuance of Common Stock Purchase Warrants to a financial consultant.

Interest  income for the six months ended December 31, 1998 and 1997 amounted to
$2,908 and $22,631, respectively. During the six months ended December 31, 1998,
interest  income was earned  primarily from the Company's cash balances.  During
the six months  ended  December  31,  1997,  such  amounts  were earned from the
Company's investments in highly rated bank certificates of deposit. Interest and
financing  costs  for the six  months  ended  December  31,  1998 and 1997  were
$810,797 and $675,081,  respectively.  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 Zanett
Lombardier,  Ltd and Bruno Guazzoni,  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.  During the six months  ended  December  31,  1997,  such amounts were
incurred  primarily in connection with the issuance of short-term  notes payable
and  associated  Common  Stock  Purchase  Warrants.  The Common  Stock  Purchase
Warrants have been recorded in the financial  statements in accordance  with the
Black-Scholes pricing methodology.


Capital Resources and Liquidity

Since  inception of the Company on August 20, 1993 through  March 21, 1996,  the
date of the  Initial  Public  Offering  ("IPO"),  the  Company  had  funded  its
operations through a combination of private debt and equity financings  totaling
$3,610,000 and $12,877,500 respectively.

On September 30, 1997,  Zanett  Securities  Corporation  ("Zannett"),  acting as
placement  agent  for  the  Company,  completed  a   private  placement  (" 1997
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 1997  Placement,  Zanett  Lombardier,  Ltd 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 1997  Placement  of  $2,643,941  were used for general
working capital requirements.

In  September  1997,  the  Company  entered  into a three  year  agreement  with
Sprint/United  Management  Corp.  with respect to the  expansion of its services
provided  pursuant to a March 1997  agreement.  Such agreement  provided for the
potential deployment of the Company's services on a nationwide basis.

In April 1998,  the Company  entered  into an  agreement  with DTN,  whereby the
Company  licensed to DTN the rights to market  three of the  Company's  Internet
products.  The Company received $850,000 upon execution of the contract and will
receive minimum  monthly  payments of $100,000  through April 1999.  Thereafter,
cash flow from  license  fees will be  determined  as a  percentage  of revenues
earned by DTN through sales to its  customers.  Additionally,  DTN has agreed to
absorb  the  costs   associated   with  the   expansion   of  the  computer  and
communications hardware necessary to support the expansion of the user base.


                                       15
<PAGE>


In  September  1998,  DTN  advanced  the Company  the last 2 payments  under its
licensing  agreement to enhance the  Company's  cash flow.  In addition to a 12%
discount for the cost of money,  DTN received  warrants to purchase 3,000 shares
of Common Stock exercisable at $3.00 per share.

Although the Company  believes that both Sprint and DTN have 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.

On August 11, 1998, the Company  entered into a letter of intent,  as amended on
November 24, 1998, with Spencer Trask  Securities,  Inc.  ("Spencer Trask") (the
"Letter of Intent")  which provided for the retention of Spencer Trask to act as
exclusive  placement agent in connection with a private placement  ("Placement")
by the  Company  of a minimum of  $5,000,000  and a maximum  of  $10,000,000  of
securities of the Company.  The Placement was conditioned upon the occurrence of
a 1 for 6 reverse  stock split which was  effective  on October  26,  1998.  The
Letter of Intent provided that the Company would offer a minimum of 50 units and
a  maximum  of 100  units at a gross  purchase  price  of  $100,000,  each  unit
consisting of shares of convertible  preferred stock (the  "Preferred  Shares").
The number of Preferred  Shares was to be  determined by dividing the unit price
of  $100,000 by $1.019  which was 75% of the  average  closing bid price for the
Company's  Common  Stock for the 15 days  following  the  effective  date of the
Reverse Stock Split.  Thus the proposed private placement would have resulted in
the issuance of  approximately  4,907,000  shares of Common Stock at the minimum
offering and approximately 9,813,500 shares at the maximum offering.

In  anticipation of completing the Placement,  the Company  completed an interim
financing of $500,000 of  securities  of the Company.  The Company sold five (5)
units, each consisting of a secured  convertible 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. The convertible  notes are secured by all of the Company's assets,
mature on November 15, 1999, and may be prepaid without premium or penalty.  The
notes bear interest at eight percent (8%) per annum, payable  semi-annually,  in
kind or in cash at the Company's option.  The Company has agreed to register the
shares of Common Stock  issuable upon exercise of the warrants and conversion of
the notes.  In addition to customary fees and expenses,  the placement agent has
received for nominal  consideration,  warrants to purchase ten percent  (10%) of
the shares of Common Stock of the Company  issuable on  conversion  of the notes
and exercise of the warrants at $.72 per share.

On December 30, 1998, the Company  executed an agreement with a service provider
whereby  certain  obligations  of  the  Company,  amounting  to  $141,794,  were
converted  into a note payable.  The note bears interest at twelve percent (12%)
per annum and is payable on demand.

On January 26, 1999,  the Company and the holders of a majority of the Company's
Common  Stock (on a fully  diluted  basis)  signed a Letter of Intent with DTN ,
whereby the Company would be merged with a subsidiary of DTN. The transaction is
subject to the  execution of a  definitive  merger  agreement  which the parties
anticipate will be executed no later than March 31, 1999. Under the terms of the
proposed  transaction,  the holders of the  Company's  Common Stock will receive
shares of DTN Common Stock having an aggregate  market value equal to the lesser
of  $14,850,000 or the amount  determined by multiplying  $3.20 by the number of
shares of the Company's  Common Stock  outstanding on an as if and fully diluted
basis.  The market  value of a share of DTN  Common  Stock for  purposes  of the
proposed  transaction  would be based upon the average of its closing  prices on
the Nasdaq  Stock  Market for each of the 10  trading  days  ending on the third
trading  day  prior  to the date of the  closing  of the  proposed  transaction;
however,  the value would not be lower than $28.35 or higher  than  $34.65.  The
Letter of Intent  provides that DTN will file a registration  statement with the
Securities  and  Exchange  Commission  prior to the  closing of the  transaction
covering  all  of  the  DTN  Common   Shares  to  be  issued  to  the  Company's
stockholders.  While  effective,  this  registration  statement  will permit the
Company's  stockholders  to sell in the  public  market  the  DTN  Common  Stock
received upon consummation of the merger.


                                       16
<PAGE>

On January 28, 1999, the Company completed an additional financing of $50,000 of
securities  of the Company  with Bruno  Guazzoni,  an investor in the  Company's
Prepaid Warrants. Such securities, consisting of convertible notes and warrants,
contain terms  identical to those offered to investors in the interim  financing
described above.

DTN has agreed to provide the Company with  liquidity  sufficient to support its
operations.  Such funds are being advanced  against future revenues to be earned
pursuant to the Software Licensing Agreement between the Company and DTN.

The Company's management believes that upon the successful implementation of its
marketing  plan,  sufficient  revenues  will  be  generated  to  meet  operating
requirements.  Management  also  believes that the  successful  execution of its
proposed plan of operations  will generate  sufficient cash flow from operations
to enable the Company to offer its services on an  economically  sound basis. No
assurance  can be given that such goals will be  obtained  or that any  expected
revenues or cash flows will be achieved. Additionally, no assurance can be given
that the Company will consummate either the financing  arrangement or the merger
with DTN.


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,  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


                             SmartServ Online, Inc.



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 others in the
United States District Court for the District of Connecticut. On or about August
20, 1998, Mr. Fishman  served a first amended  complaint.  On December 11, 1998,
the Court  dismissed  the first  amended  complaint.  By motion dated January 7,
1999,  Mr.  Fishman  moved for  leave to serve a second  amended  complaint.  On
February  16, 1999,  the Company  filed papers in  opposition  to Mr.  Fishman's
motion for leave to serve a second amended  complaint.  That motion is currently
pending.

In his proposed  second  amended  complaint,  Mr. Fishman  alleges,  among other
things,  that (i) he relied on false statements that the Company allegedly made,
in filings  with the  Securities  and  Exchange  Commission  and  otherwise,  in
accepting  a  position  with the  Company  and (ii) the  Company  constructively
discharged him by breaching the terms of its employment  agreement with him. The
proposed second amended complaint seeks to assert claims against the Company for
(i) fraud under the federal securities laws, (ii) breach of various terms of the
Company's  employment  agreement with Mr.  Fishman,  (iii) breach of the implied
duty of good faith and fair  dealing,  (iv)  fraudulent  misrepresentation,  (v)
negligent  misrepresentation,   (vi)  intentional  misrepresentation  and  (vii)
failure to pay wages.

In his proposed second amended complaint, Mr. Fishman seeks judgment for damages
in  amounts  to be  determined  at  trial  on each of his  claims  and he  seeks
unspecified punitive damages on his claims for fraudulent  misrepresentation and
failure  to pay  wages.  He also seeks  reimbursement  for the costs,  including
attorneys' fees, that he incurs in prosecuting the action.

No discovery in this action has yet been noticed or taken.  Although the Company
is vigorously  defending this action,  there can be no assurance that it will be
successful.


Item 2.    Changes in Securities and Use of Proceeds

Between  July 1, 1998 and  December  31,  1998,  276.67  Prepaid  Warrants  were
converted into an aggregate of 178,560 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 of 1933, as amended (the "Securities Act").

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

On September 8, 1998,  the Company  issued 3,000 common stock  purchase
warrants to DTN for prepayment of certain guaranteed payments in accordance with
the Software License and Service  Agreement 


                                       18
<PAGE>

between the parties dated April 23, 1998. Such warrants are exercisable at $3.00
per share of Common  Stock.  These  warrants were issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

On November  17, 1998,  the Company  issued  125,000  shares of Common Stock and
warrants to purchase  16,667  shares of Common Stock,  exercisable  at $5.00 per
share until November 11, 2001, to Mr. Steven Francesco,  a former officer of the
Company,  as partial  consideration for the settlement of his claims against the
Company and certain of its  officers  and  directors.  These shares and warrants
were issued in reliance upon the exemption from registration provided by Section
4 (2) of the Securities Act.

Between  November 20, 1998 and December 3, 1998, the Company issued  warrants to
purchase  833,333  shares of Common Stock to investors  in  connection  with the
issuance of $500,000 of convertible notes. The notes are convertible into Common
stock at $.60 per share and  mature on  November  15,  1999.  The  warrants  are
exercisable at $.60 per share and expire on the fifth anniversary of the date of
issuance.  Spencer Trask  received a commission of $50,000 and an  unaccountable
expense allowance of $15,000 in connection with this transaction.  Additionally,
the  Company  issued  warrants  to purchase  166,667  shares of Common  Stock to
Spencer  Trask  exercisable  at $.72 per share.  These notes and  warrants  were
issued in reliance upon the exemption  from  registration  provided by Section 4
(2) of the Securities Act.

On January 14, 1999, the Company issued 10,000 shares of Common Stock to Arnhold
& S.  Bleichroeder,  Inc., an investor in the  Company's  Prepaid  Warrants,  in
consideration  of an agreement  to waive  certain  events of default  under such
Prepaid Warrants.  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.

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

On January 28, 1999,  the Company issued  warrants to purchase  83,333 shares of
Common  Stock to Mr.  Bruno  Guazzoni,  an  investor  in the  Company's  Prepaid
Warrants,  in connection with the issuance of $50,000 of convertible  notes. The
notes are convertible into Common stock at $.60 per share and mature on November
15, 1999. The warrants are exercisable at $.60 per share and expire on the fifth
anniversary  of the  date of  issuance.  Spencer  Trask,  the  placement  agent,
received a commission of $5,000 and an unaccountable expense allowance of $1,500
in  connection  with this  transaction.  These notes and warrants were issued in
reliance upon the exemption from  registration  provided by Section 4 (2) of the
Securities Act


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 six
months ended December 31, 1998.



                                       19

<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:  March  1, 1999                             /S/  SEBASTIAN E. CASSETTA 
       -----------------                             ---------------------------
                                                     Sebastian E. Cassetta
                                                     Chairman of the Board, 
                                                     Chief Executive Officer




Date: March  1, 1999                              /S/  THOMAS W. HALLER      
      -----------------                              ---------------------------
                                                     Thomas W. Haller
                                                     Chief Financial Officer, 
                                                     Treasurer


                                       20