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


                                   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 September 30, 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 1.  FINANCIAL INFORMATION

Item 1.  Financial Statements

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

         Statements of Operations - three months ended September 30, 1998
         and 1997 (unaudited)..................................................3

         Statement of Changes in Stockholders' Deficiency - three months
         ended September 30, 1998 (unaudited)..................................4

         Statements of Cash Flows - three months ended September 30, 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....................................................17

Item 2.  Changes in Securities and Use of Proceeds ...........................17

Item 4.  Submission of Matters to a Vote of Security Holders..................17

Item 6.  Exhibits and Reports on Form 8-K.....................................18

         Signatures...........................................................19




<PAGE>


                             SmartServ Online, Inc.

                                 Balance Sheets
<TABLE>
<CAPTION>


                                                                             September 30,              June 30,
                                                                                 1998                     1998
                                                                          --------------------     -------------------
                                                                              (Unaudited)
Assets
<S>                                                                       <C>                 <C>   
Current assets
   Cash and cash equivalents                                                $       37,759         $         354,225
   Accounts receivable, net of an allowance for losses
       of $0 at September 30, 1998 and June 30, 1998                                77,056                   111,051
   Prepaid expenses                                                                175,073                   130,603
                                                                          --------------------     -------------------
Total current assets                                                               289,888                   595,879
                                                                          --------------------     -------------------

Property and equipment, net                                                        574,472                   610,537

Other assets                                                                                        
   Capitalized software development costs                                          233,005                       --
   Security deposits                                                                70,437                    70,437
                                                                          --------------------     -------------------
                                                                                   303,442                    70,437
                                                                          --------------------     -------------------

Total Assets                                                                $    1,167,802           $     1,276,853
                                                                          ====================     ===================

Liabilities and Stockholders' Deficiency
Current liabilities
   Accounts payable                                                          $    1,058,080          $       800,545
   Accrued liabilities                                                              639,664                  736,137
   Payroll taxes payable                                                             17,116                    4,294
   Salaries payable                                                                  40,197                   53,014
   Current portion of capital lease obligation                                       78,745                   76,127
   Deferred revenues                                                                960,515                  776,049
                                                                          --------------------     -------------------
Total current liabilities                                                         2,794,317                2,446,166
                                                                          --------------------     -------------------

Long-term portion of capital lease obligation                                        55,093                   77,548

Commitments and Contingencies

Stockholders' Deficiency
Common stock - $.01 par value
   Authorized - 40,000,000 shares
   Issued and outstanding - 836,227 shares at June 30, 1998
       and 992,002 shares at September 30, 1998                                       9,920                    8,362
Additional paid-in capital                                                       18,311,197               18,184,580
Unearned compensation                                                            (4,326,669)              (4,617,924)
Accumulated deficit                                                             (15,676,056)             (14,821,879)
                                                                          --------------------     -------------------
Total stockholders' deficiency                                                   (1,681,608)              (1,246,861)
                                                                          --------------------     -------------------

Total Liabilities and Stockholders' Deficiency                               $    1,167,802          $     1,276,853
                                                                          ====================     ===================
</TABLE>

See accompanying notes.

                                       2
<PAGE>


                             SmartServ Online, Inc.

                            Statements of Operations
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                                          Three Months
                                                                                       Ended September 30
                                                                            ------------------------------------------
                                                                                   1998                  1997
                                                                            -------------------    -------------------

<S>                                                                         <C>                    <C>           
Revenues                                                                      $      349,705         $      200,193
                                                                            -------------------    -------------------

Costs and expenses:
   Costs of revenues                                                                 207,084                377,972
   Product development expenses                                                       27,046                205,073
   Selling, general and administrative
         expenses                                                                    830,858                529,463
                                                                            -------------------    -------------------
   Total costs and expenses                                                        1,064,988              1,112,508
                                                                            -------------------    -------------------

Loss from operations                                                                (715,283)              (912,315)
                                                                            -------------------    -------------------

Other income (expense):
   Interest income                                                                     2,202                  1,087
   Interest expense and other financing costs                                       (141,096)              (606,312)
                                                                            -------------------    -------------------
                                                                                    (138,894)              (605,225)
                                                                            -------------------    -------------------

Net loss                                                                      $     (854,177)        $   (1,517,540)
                                                                            ===================    ===================

Comprehensive loss                                                            $     (854,177)        $   (1,517,540)
                                                                            ===================    ===================

Basic and diluted earnings per share                                          $        (0.92)        $        (2.46)  
                                                                            ===================    ===================

Weighted average shares outstanding                                                  931,093                615,833
                                                                            ===================    ===================
</TABLE>

See accompanying notes.
                                       3

<PAGE>
<TABLE>
<CAPTION>


                             SmartServ Online, Inc.

                  Statement of Changes in Stockholders' Deficiency

                      Three Months Ended September 30, 1998
                                   (Unaudited)






                                                                                   Additional
                                                          Common Stock          Paid-in Capital       Unearned         Accumulated
                                                      Shares       Par Value                         Compensation        Deficit
                                                  ----------------------------- ----------------- ----------------- ----------------

<S>                                              <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 216.67 Prepaid Common Stock
   Purchase Warrants into Common Stock
                                                      105,775          1,058           (1,058)               --                  --

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                --                  --

Amortization of unearned compensation over the
term of the agreement                                      --             --              --            291,255                  --

Net loss for the period                                    --             --              --                 --            (854,177)
                                                  ------------- --------------- ----------------- ----------------- ----------------

Balance at September 30, 1998                         992,002   $      9,920      $18,311,197      $ (4,326,669)      $ (15,676,056)
                                                  ============= =============== ================= ================= ================

</TABLE>

See accompanying notes.
                                       4
<PAGE>


                             SmartServ Online, Inc.

                            Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                                          Three Months
                                                                                       Ended September 30
                                                                            -----------------------------------------
                                                                                   1998                  1997
                                                                            -------------------    ------------------

<S>                                                                        <C>                    <C>           
Operating Activities
Net loss                                                                      $    (854,177)         $  (1,517,540)
Adjustments to reconcile net loss to net cash used
    for operating activities:
       Depreciation and amortization of property and equipment                       47,703                 46,073
       Non-cash interest expense and other financing costs                          128,175                615,564
       Amortization of consulting costs                                             330,421                     --
       Amortization of unearned revenues                                            (15,534)                (2,290)
       Amortization and write-off of deferred charges                                    --                 63,000
       Other changes that provided (used) cash
          Accounts receivable                                                        33,995                (31,144)
          Prepaid expenses                                                          (83,636)                 5,162
          Accounts payable and accrued liabilities                                  161,062                495,477
          Accrued interest                                                               --                (16,323)
          Payroll taxes payable                                                      12,822                 83,723
          Salaries payable                                                          (12,817)               (11,791)
          Unearned revenues                                                         200,000                 12,478
          Security deposit reduction                                                     --                 14,253
                                                                            -------------------    ------------------
    Net cash used for operating activities                                          (51,986)              (243,358)
                                                                            -------------------    ------------------

Investing Activities
Purchase of equipment                                                               (11,638)               (11,631)
Capitalization of software development costs                                       (233,005)                    --
                                                                            -------------------    ------------------         
    Net cash used for investing activities                                         (244,643)               (11,631)
                                                                            -------------------    ------------------

Financing Activities
Repayment of capital lease obligation                                               (19,837)               (36,876)
Proceeds from the issuance of short-term notes                                           --                196,500
Proceeds from the issuance of warrants, net                                              --              2,643,941
Costs of the issuance of warrants                                                        --                (25,000)
Proceeds from officers' loans                                                            --                 37,500
Repayment of officers' loans                                                             --                (25,000)       
                                                                            -------------------    ------------------
    Net cash (used for) provided by financing activities                            (19,837)             2,791,065
                                                                            -------------------    ------------------

Increase (decrease) in cash and cash equivalents                                   (316,466)             2,536,076
Cash and cash equivalents - beginning of period                                     354,225                 93,345
                                                                            -------------------    ------------------

Cash and cash equivalents - end of period                                     $      37,759          $   2,629,421
                                                                            ===================    ==================

</TABLE>

See accompanying notes.
                                       5

<PAGE>


                             SmartServ Online, Inc.

                     Notes to Unaudited Financial Statements

                               September 30, 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 three  months ended  September  30, 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 quarter ended September 30, 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  September  30,  1998  had an
accumulated  deficit of  $15,676,056.  In  addition,  the  Company has a working
capital  deficiency of $2,504,429  and a deficiency of net assets of $1,681,608.
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

                                       6
<PAGE>

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.

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
three month periods ended September 30, 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:

                                                                            September 30,                 June 30,
                                                                                   1998                     1998
                                                                            --------------------      -----------------
<S>                                                                         <C>                       <C>            
   Data processing equipment                                                $        627,399          $       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
                                                                            --------------------      -----------------

                                                                                     991,346                  979,708

   Accumulated depreciation, including $69,760 and $57,449 at September 30, 1998
   and June 30, 1998, respectively, for equipment purchased
   under a capital lease                                                            (416,874)                (369,171)
                                                                            ====================      =================
                                                                            $        574,472          $       610,537
                                                                            ====================      =================

</TABLE>

4.   Equity Transactions

During the period July 1, 1998 through September 30, 1998,  holders of 216.67 of
the Company's  Prepaid  Warrants  converted such warrants into 105,775 shares of
Common Stock at exercise prices ranging from $1.65 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  for their  agreeing 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.


5.   Earnings per Share

The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>

                                                                   Three Months Ended September 30
                                                               --------------------------------------
                                                                     1998                 1997
                                                               -----------------    -----------------

Numerator:
<S>                                                          <C>                  <C>             
   Net loss                                                    $     (854,177)      $    (1,517,540)
                                                               =================    =================

Denominator:
   Weighted average shares                                            931,093               615,833
                                                               =================    =================

Basic and diluted earnings per common share                    $       (0.92)       $         (2.46)
                                                               =================    =================
</TABLE>

                                       8
<PAGE>

At  September  30,  1998 there  were,  exclusive  of the common  stock  purchase
warrants  issued  in  connection  with the May 1997  interim  financing  and the
issuance  of the  Prepaid  Warrants,  417,583  common  stock  purchase  warrants
outstanding. Such warrants have exercise prices ranging from $3.00 to $72.00 per
share and expire from March 2001 through March 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  September  30,  1998,  there  are  options
outstanding  for the purchase of 173,413  shares of the Company's  Common Stock.
None of the warrants or options have been included in the computation of diluted
loss per share because their inclusion would be antidilutive.


6.   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.  However,  the Court also ruled
that Mr.  Fishman could move for leave to serve a second  amended  complaint and
that the Company could serve papers in opposition to any such motion.  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.


7.       Subsequent Events

On December 3, 1998, 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 and will mature on
November 15,  1999.  The  convertible  notes may be prepaid  without  premium or
penalty.  The notes bear  interest  at eight

                                       9
<PAGE>


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,  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 $.72 per share.

On November 24, 1998, a holder of 50 of the Company's Prepaid Warrants converted
such warrants  into 66,313 shares of Common Stock at an exercise  price of $.754
per  share.  On  December  14,  1998,  a holder of 10 of the  Company's  Prepaid
Warrants  converted  such  warrants  into  6,470  shares of  Common  Stock at an
exercise price of $1.545 per share.

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 shall be 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 of the restricted  stock shall be
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

                                       10
<PAGE>

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.

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
grant them warrants to purchase  10,000 shares of the Company's  Common Stock at
the commencement of each calendar year.

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 those shares of DTN Common
Stock received upon consummation of the merger.

On February  22,  1999,  the  Company,  DTN and Spencer  Trask  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 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 the acquisition is otherwise  abandoned,  the Letter  Agreement shall be
reinstated.

On January 28, 1999,  the Company  completed an interim  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.

                                       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",   Sprint/United   Management  Corp.  as  "Sprint   Information
Services",  CIDCO Inc. as "CIDCO Information Services" and 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.

                                       12
<PAGE>


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 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 and it continues
to seek  relationships with other 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 September 30, 1998 vs. Quarter Ended September 30, 1997

During the quarter ended  September  30, 1998,  the Company  earned  revenues of
$349,705,  primarily  from the sale of its products to customers of DTN.  During
the  quarter  ended  September  30,  1997,  sales of the  Company's  information
services were  $162,693,  primarily  from the SmartServ  Online "Pro"  real-time
stock quote  service.  Additionally,  the Company  recorded  revenues of $37,500
related to  enhancement,  implementation,  and marketing of services  associated
with its  arrangement  with Schroder & Co., Inc. At September 30, 1998 and 1997,
the Company recorded  deferred  revenues of $960,515 and $35,102,  respectively.
Such amounts result from customer prepayments and are recognized as services are
provided throughout the term of the contract.

During the quarter  ended  September  30, 1998,  the Company  incurred  costs of
services  of  $207,084.  Such  costs  consisted  primarily  of  information  and
communication costs ($95,700),  personnel costs ($29,100), and computer hardware
leases,  depreciation and maintenance costs ($80,800).  During the quarter ended
September 30, 1997,  the Company  incurred  costs of services of $377,972.  Such
costs consisted  primarily of information and  communication  costs  ($190,500),
personnel  costs  ($91,500),  and computer  hardware  leases,  depreciation  and
maintenance costs ($79,700).  Information and  communication  costs decreased in
the quarter ended September 30, 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 of the customers of DTN.  Personnel  costs  decreased in the
quarter ended  September  30, 1998  compared to the quarter ended  September 30,
1997  as  a  result  of  the  migration  of  personnel  resources  into  product
development areas in 1998.  Product  development costs were $27,046 and $205,073
for the quarters  ended  September 30, 1998 and 1997,  respectively.  Such costs
consisted primarily of personnel costs ($3,000 in 1998 and $144,400 in 1997) and
computer system consultants  ($16,500 in 1998 and $54,900 in 1997). The decrease
in the  product  development  costs for the  quarter  ended  September  30, 1998
compared to the quarter ended September 30, 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  September  30, 1998,  the Company
capitalized  $233,005 of development  costs in accordance  with Statement 86. No
such costs were capitalized during the quarter ended September 30, 1997.

                                       13
<PAGE>


During the quarter  ended  September  30, 1998,  the Company  incurred  selling,
general and  administrative  expenses of $830,858  vs.  $529,463 for the quarter
ended September 30, 1997. Such costs were incurred primarily for personnel costs
($185,000),  marketing  and  advertising  costs  ($61,800),   professional  fees
($488,400),   facilities  ($49,007),  and  telecommunications  costs  ($14,725).
Included in professional  fees are non-cash  charges of $330,421  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.  Selling, general and administrative expenses
for the quarter ended  September 30, 1997 were incurred  primarily for personnel
costs  ($212,000),   facilities  ($48,700),   marketing  and  advertising  costs
($37,200), professional fees ($113,300), and telecommunications costs ($22,000).
Included in  professional  fees during the quarter ended September 30, 1997 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 ("IPO") of securities.

Interest  income for the quarter  ended  September 30, 1998 and 1997 amounted to
$2,202 and $1,087,  respectively.  Such amounts were earned  primarily  from the
Company's  cash  balances.  Interest and financing  costs for the quarters ended
September 30, 1998 and 1997 were $141,096 and $606,312.  During the period ended
September 30, 1998,  such costs were primarily  attributable  to 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.  The issuance of such
shares was recorded in the financial statements at fair market value. During the
period ended  September  30,  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 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 

                                       14
<PAGE>


the expansion of the computer and  communications  hardware necessary to support
the expansion of the user base.

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 one-for-six  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;  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  discussed  above,  the Company
completed  an interim  financing  of  $500,000 of  securities  of the Company on
November 24, 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 and will mature on November 15,
1999. The convertible notes 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  issued on conversion of the notes and
exercise of the warrants at $.72 per share.

On January 26, 1999,  the Company and the holders of a majority of the Company's
Common  Stock  signed  a  Letter  of  Intent  with  Data  Transmission   Network
Corporation ("DTN"), whereby SmartServ 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.  Once effective, this registration statement will permit
the  Company's  

                                       15
<PAGE>


stockholders  to sell in the public  market the DTN Common Stock  received  upon
consummation of the merger.

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 November  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.


                                       16
<PAGE>


PART 2.  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.  However,  the Court also ruled
that Mr.  Fishman could move for leave to serve a second  amended  complaint and
that the Company could serve papers in opposition to any such motion.  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

                                       17
<PAGE>

Agreement   between  the  parties  dated  April  23,  1998.  Such  warrants  are
exercisable  at $3.00 per share of Common Stock.  These Shares and warrants will
be 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 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  convertable  at $.60 per share and mature an 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 $5,000 and an
unaccountable  expense  allowance of $1,500 in connection with this transaction.
These  warrants  were issued in reliance upon the  exemption  from  registration
provided by Section 4 (2) of the Securities Act.

Item 4.    Submission of Matters to a Vote of Security Holders

(a)    Date of Special Meeting - October 15, 1998

(b)    The Company's shareholders approved an amendment to the Company's Amended
       and Restated Certificate of Incorporation to effect a one-for-six reverse
       stock spilt of the issued and outstanding  shares of the Company's Common
       Stock, par value $.01 per share.

       Shareholder Votes
       -----------------
       For:              3,016,950
       Against:            741,815
       Abstentions:          4,900
       Broker Non-votes:         0

Item 6.    Exhibits and Reports on Form 8 - K

(a)    The following exhibit is included herein:

           Exhibit 27 - Financial Data Schedule

(b)    Reports of Form 8-K

           The  Company  did not file any  reports  on Form 8-K during the three
months ended September 30, 1998.


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<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



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