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


                    U. S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934


                  For the quarterly period ended June 30, 2001

                         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)

                                 (203) 353-5950
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.   Yes  X     No
                                                                ----     ----
The number of shares of common stock, $.01 par value, outstanding as of July 27,
2001 was 6,058,573.

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


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

<PAGE>

                             SmartServ Online, Inc.

                                   Form 10-QSB

                                      Index


PART 1.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

         Consolidated  Balance  Sheets -
         December  31,  2000 and June 30,  2001 (unaudited) ...................2

         Consolidated  Statements  of  Operations
         - three months ended June 30, 2001  and
         2000  and  six  months   ended   June  30,
         2001  and  2000 (unaudited) ..........................................4

         Consolidated Statement of Changes in Stockholders'
         Equity - six months ended June 30, 2001 (unaudited)...................5

         Consolidated Statements of Cash Flows
         - three months ended June 30, 2001 and 2000
         and six months ended June 30, 2001 and 2000 (unaudited) ..............6

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

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations .................................12

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings ...................................................17

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

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

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


                                       1
<PAGE>

                             SmartServ Online, Inc.

                           Consolidated Balance Sheets


                                                     June 30,       December 31,
                                                       2001             2000
                                                   --------------   ------------
                                                    (Unaudited)

Assets
Current assets
  Cash and cash equivalents                          $12,323,759     $19,172,118
  Accounts receivable                                    100,997         149,016
  Due from officer                                       500,000              --
  Prepaid expenses                                       269,145         294,809
                                                     -----------     -----------
Total current assets                                  13,193,901      19,615,943
                                                     -----------     -----------

Property and equipment, net                            3,393,558       2,658,808

Other assets
  Capitalized software development costs, net of
    accumulated amortization of $1,265,182 at
    June 30, 2001 and $804,345 at December 31, 2000    1,238,962       1,416,751
  Security deposits                                      475,067         200,374
  Deferred financing costs                                50,000         150,000
                                                     -----------     -----------
                                                       1,764,029       1,767,125
                                                     -----------     -----------

Total Assets                                         $18,351,488     $24,041,876
                                                     ===========     ===========


                                       2
<PAGE>

                             SmartServ Online, Inc.

                           Consolidated Balance Sheets


                                                     June 30,       December 31,
                                                       2001             2000
                                                   --------------   ------------
                                                    (Unaudited)
Liabilities and Stockholders' Equity
Current liabilities
  Accounts payable                               $  1,663,167      $  1,880,399
  Accrued liabilities                               1,180,674         1,357,270
                                                 ------------      ------------
Total current liabilities                           2,843,841         3,237,669
                                                 ------------      ------------

Deferred revenues                                     644,243         2,576,981

Note payable                                        4,736,082         1,446,256

Commitments and Contingencies - Note 8

Stockholders' Equity
Preferred stock - $0.01 par value
  Authorized - 1,000,000 shares
  Issued and outstanding - None
Common stock - $.01 par value
  Authorized - 40,000,000 shares
  Issued and outstanding - 6,032,573 shares
    at June 30, 2001 and 5,973,140 shares at
    December 31, 2000                                  60,325            59,731
Additional paid-in capital                         69,471,884        69,116,627
Notes receivable from officers                       (666,841)         (666,841)
Unearned compensation                              (1,123,464)       (1,726,574)
Accumulated deficit                               (57,614,582)      (50,001,973)
                                                 ------------      ------------
Total stockholders' equity                         10,127,322        16,780,970
                                                 ------------      ------------

Total Liabilities and Stockholders' Equity       $ 18,351,488      $ 24,041,876
                                                 ============      ============

See accompanying notes.


                                       3
<PAGE>

                             SmartServ Online, Inc.

                      Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                              Three Months                     Six Months
                                             Ended June 30                   Ended June 30
                                   ------------------------------------------------------------------
                                        2001              2000             2001              2000
                                   ------------      ------------      ------------      ------------
<S>                                <C>               <C>               <C>               <C>
Revenues                           $  1,222,866      $    985,277      $  2,447,837      $  1,975,220
                                   ------------      ------------      ------------      ------------
Costs and expenses:
  Costs of services                  (1,716,770)         (493,203)       (3,774,489)         (757,456)
  Advertising and marketing            (808,678)         (549,011)       (2,156,415)         (721,065)
  expenses
  General and administrative         (1,699,268)       (1,399,192)       (3,305,919)       (1,974,366)
  expenses
  Stock-based compensation             (778,074)        5,365,002          (937,852)       (8,636,005)
                                   ------------      ------------      ------------      ------------

  Total costs and expenses           (5,002,790)        2,923,596       (10,174,675)      (12,088,892)
                                   ------------      ------------      ------------      ------------

Income (loss) from operations        (3,779,924)        3,908,873        (7,726,838)      (10,113,672)
                                   ------------      ------------      ------------      ------------

Other income (expense):
  Interest income                       164,361           182,832           357,724           228,369
  Interest expense                      (78,594)           (2,025)         (122,687)           (2,025)
  Debt origination and other
   financing costs                      (50,000)               --          (100,000)          (10,000)
  Foreign exchange losses                (4,798)               --           (20,808)               --
                                   ------------      ------------      ------------      ------------
                                         30,969           180,807           114,229           216,344
                                   ------------      ------------      ------------      ------------

Net income (loss)                  $ (3,748,955)     $  4,089,680      $ (7,612,609)     $ (9,897,328)
                                   ============      ============      ============      ============


Basic income (loss) per share      $      (0.65)     $       0.94      $      (1.32)     $      (2.80)
                                   ============      ============      ============      ============

Diluted income (loss) per          $      (0.65)     $       0.44      $      (1.32)     $      (2.80)
  share                            ============      ============      ============      ============

Weighted average shares
  outstanding - basic                 5,794,118         4,340,672         5,750,118         3,534,930
                                   ============      ============      ============      ============
Weighted average shares
  outstanding - diluted               5,794,118         9,318,710         5,750,118         3,534,930
                                   ============      ============      ============      ============
</TABLE>

See accompanying notes.


                                       4
<PAGE>

                             SmartServ Online, Inc.

            Consolidated Statement of Changes in Stockholders' Equity

                         Six Months Ended June 30, 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                      Notes
                                            Common Stock            Receivable     Additional
                                                         Par           from         Paid-in          Unearned        Accumulated
                                         Shares         Value        Officers       Capital        Compensation        Deficit
                                     -----------------------------------------------------------------------------------------------
<S>                                    <C>            <C>          <C>            <C>              <C>             <C>
Balances at December 31, 2000          5,973,140      $  59,731    $ (666,841)    $ 69,116,627     $ (1,726,574)   $ (50,001,973)

Issuance of common stock upon
  exercise of employee stock
  options                                 19,433            194            --           20,915               --               --

Conversion of 56 prepaid common
  stock purchase warrants into
  common stock                            40,000            400            --             (400)              --               --

Amortization of unearned
  compensation over the terms of
  consulting agreement                        --             --            --               --          603,110               --

Change in market value of
  employee stock options                      --             --            --          334,742               --               --

Net loss for the period                       --             --            --               --               --       (7,612,609)

                                     -----------------------------------------------------------------------------------------------
Balances at June 30, 2001              6,032,573      $  60,325    $ (666,841)    $ 69,471,884     $ (1,123,464)   $ (57,614,582)
                                     ===============================================================================================
See accompanying notes.

</TABLE>


                                       5
<PAGE>

                            SmartServ Online, Inc.

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

                                                                Three Months                        Six Months
                                                               Ended June 30                      Ended June 30
                                                       ---------------------------------------------------------------
                                                            2001             2000            2001              2000
                                                       ------------     ------------     ------------     ------------
<S>                                                    <C>              <C>              <C>              <C>
Operating Activities
Net income (loss)                                      $ (3,748,955)    $  4,089,680     $ (7,612,609)    $ (9,897,328)
Adjustments to reconcile net income (loss) to net
cash used for operating activities:
   Depreciation and amortization                            607,045          192,235        1,204,674          339,126
   Noncash debt origination and other financing
     costs                                                   50,000         (717,670)         100,000         (717,670)
   Noncash compensation costs                               481,519       (5,676,257)         334,742        7,948,595
   Noncash consulting services                              296,555          311,255          603,110          687,410
   Amortization of deferred revenues                       (966,369)        (414,160)      (1,932,738)        (828,320)
   Changes in operating assets and liabilities
     Accounts receivable                                    (11,697)          28,967           48,019          149,509
     Prepaid expenses                                      (146,755)          (9,895)          25,664         (162,179)
     Accounts payable and accrued liabilities               616,215        2,020,019        1,362,301        2,155,729
     Security deposit                                      (274,693)              --         (274,693)              --
                                                       ------------     ------------     ------------     ------------
   Net cash used for operating activities                (3,097,135)        (175,826)      (6,141,530)        (325,128)
                                                       ------------     ------------     ------------     ------------
Investing Activities
Purchase of equipment                                        (9,500)        (228,064)        (136,882)        (355,965)
Capitalization of software development costs               (129,897)        (275,189)        (283,048)        (568,708)
Loan to officer                                                  --               --         (500,000)              --
                                                       ------------     ------------     ------------     ------------
   Net cash used for investing activities                  (139,397)        (503,253)        (919,930)        (924,673)
                                                       ------------     ------------     ------------     ------------
Financing Activities
Repayment of loans to officers                                   --            9,012               --            9,012
Proceeds from the issuance of notes                              --               --          191,992               --
Proceeds from the issuance of common stock                    6,270       20,559,992           21,109       25,958,652
Repayment of capital lease obligation                            --               --               --          (23,942)
Costs of issuing securities                                      --       (1,073,903)              --       (1,073,903)
Proceeds from the issuance of warrants                           --           24,746               --           24,746
                                                       ------------     ------------     ------------     ------------
   Net cash provided by financing activities                  6,270       19,519,847          213,101       24,894,565
                                                       ------------     ------------     ------------     ------------

Increase (decrease) in cash and cash equivalents         (3,230,262)      18,840,768       (6,848,359)      23,644,764
Cash and cash equivalents - beginning of period          15,554,021        5,175,577       19,172,118          371,581
                                                       ------------     ------------     ------------     ------------

Cash and cash equivalents - end of period              $ 12,323,759     $ 24,016,345     $ 12,323,759     $ 24,016,345
                                                       ============     ============     ============     ============
</TABLE>

See accompanying notes.


                                       6
<PAGE>

                             SmartServ Online, Inc.

              Notes to Unaudited Consolidated Financial Statements

                                  June 30, 2001

1. Nature of Business

SmartServ  Online,  Inc.  commenced  operations  on August 20, 1993.  We deliver
Internet-based and wireless content, as well as "Web-to-Wireless"  applications,
such as  securities  trade order  routing,  that enable  m-commerce by providing
transactional  and  information  services  to our  alliance  partners.  We  have
developed online financial and transactional applications using a unique "device
agnostic"  delivery  solution  and make these  services  available  to  wireless
handsets and personal digital  assistants,  personal  computers and the Internet
through our application software and communications  architecture.  Our services
facilitate  stock  trading  and other  m-commerce  transactions,  as well as the
dissemination  of real-time stock quotes,  business and financial  news,  sports
information, private-labeled electronic mail, national weather reports and other
business and entertainment information in a user-friendly manner.

Our plan of operation, both on the domestic and international fronts, focuses on
the business-to-business  strategy of marketing our services in partnership with
those  companies that have an economic  incentive to provide our information and
transaction  services to their customers.  Management  believes that SmartServ's
primary  source of revenues  will be derived  from  consumers  who  purchase the
services  through these strategic  marketing  partners.  Through the use of this
strategy,  the  consumer  is a  customer  of both  SmartServ  and its  strategic
marketing  partner.  We  also  believe  that  the  sale of our  information  and
transaction  services  through the  cooperative  efforts of strategic  marketing
partners  with more  recognizable  brand names than our own is  important to our
success.

In October  2000,  we  announced  the change of our year end from a fiscal  year
ending on June 30 to a calendar  year  ending on December 31 in order to conform
to standard industry practice. The new fiscal year commenced on January 1, 2001.


2. Summary of Significant Accounting Policies

Basis of Presentation
---------------------
The accompanying  unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information,  the instructions of Form 10-QSB and Rule 310
of  Regulation  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 accounting  principles  generally  accepted in the
United States.  The balance sheet at December 31, 2000 has been derived from the
audited  financial  statements  at that date,  but does not  include  all of the
information and footnotes required by accounting  principles  generally accepted
in the United States for complete financial statements. The financial statements
should be read in  conjunction  with the Company's  Annual Report on Form 10-KSB
for the period  ended  December 31,  2000.  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 June
30, 2001 are not  necessarily  indicative of those  expected for the year ending
December 31, 2001.


                                       7
<PAGE>

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

Revenue Recognition
-------------------
Revenues are recognized as services are provided.  Deferred revenues,  resulting
from customer  prepayments,  are recognized as services are provided  throughout
the term of the agreement.  Deferred revenues  resulting from our agreement with
Data  Transmission   Network   Corporation   ("DTN")  were  amortized  over  the
anticipated  future revenue  stream,  a period of 42 months,  commencing June 1,
1999. We have amended our agreement with DTN such that,  effective  September 1,
2000, SmartServ performed  maintenance and enhancement services through December
2000 and will  continue to provide  operational  support  through  August  2001.
Therefore,  commencing  September 1, 2000, deferred revenues are being amortized
to income on a straight-line basis over the period through August 2001.

Earnings Per Share
------------------
Basic  earnings per share is computed on the weighted  average  number of common
shares  outstanding.  Diluted  earnings  per share  reflects the increase in the
weighted  average common shares  outstanding  that would result from the assumed
exercise of outstanding stock options and warrants calculated using the treasury
stock method.

Capitalized Software Development Costs
--------------------------------------
In  connection  with certain  contracts  entered into between  SmartServ and its
strategic  marketing  partners,  as well as other projects,  we have capitalized
costs related to certain product  enhancements  and  application  development in
accordance with Statement of Financial  Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed".

On an  ongoing  basis,  SmartServ  reviews  the  future  recoverability  of  its
long-lived  assets for impairment or whenever events or changes in circumstances
indicate  that the carrying  amounts may not be  recoverable.  To date,  no such
events  or   circumstances   have  occurred.   If  such  events  or  changes  in
circumstances do occur, we will recognize an impairment loss if the undiscounted
future  cash  flows  expected  to be  generated  by the  asset are less than its
carrying value. The impairment loss would reduce the asset to its fair value.

Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of our financial instruments approximate fair value.

Supplemental Cash Flow Data
---------------------------
We consider all highly liquid  investments  with a maturity date of three months
or less when purchased to be cash equivalents.

Interest, debt origination and other financing costs paid during the three month
periods ended June 30, 2001 and 2000 were $41,700 and $1,500, respectively,  and
for the six month  periods ended June 30, 2001 and 2000 were $43,500 and $2,000,
respectively.

Concentration of Credit Risk
----------------------------
Financial  instruments that potentially  subject  SmartServ to concentrations of
credit risk consist  primarily of its accounts  receivable  and  investments  in
commercial paper and money market funds. It is management's  policy to invest in
only those companies with a AAA credit rating;  therefore,  our commercial paper
and money fund investments are short-term and highly liquid. We perform periodic
credit  evaluations  of our  customers  and, if  applicable,  provide for credit
losses in the financial statements.


                                       8
<PAGE>

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

Advertising Costs
-----------------
Advertising  costs are expensed as incurred and were  approximately  $11,300 and
$38,700   during  the  three  month  periods  ended  June  30,  2001  and  2000,
respectively and $28,600 and $38,700 during the six month periods ended June 30,
2001 and 2000, respectively.

Stock Based Compensation
------------------------
We maintain several stock option plans for employees and non-employee  directors
that provide for the granting of stock options for a fixed number of shares with
an exercise price equal to the fair value of the shares at the date of grant. We
account  for  these  stock  compensation  plans in  accordance  with  Accounting
Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to  Employees"
("APB No. 25").  Accordingly,  compensation  expense is recognized to the extent
that the fair value of the stock exceeds the exercise price of the option at the
measurement date. Certain options,  which have been repriced, are subject to the
variable  plan   requirements  of  APB  No.  25,  that  requires  us  to  record
compensation expense for changes in the fair value of our common stock.


3. Due From Officer

Our Board of Directors  authorized the issuance of a line of credit to Sebastian
Cassetta for an amount not to exceed  $500,000.  Such amount  bears  interest at
market and is payable upon demand.


4. Property and Equipment

Property and equipment consist of the following:

                                                      June 30,      December 31,
                                                        2001           2000
                                                    -----------     -----------
Data processing equipment                           $ 4,699,312     $ 3,221,833
Data processing equipment purchased under a             246,211         246,211
capital lease
Office furniture and equipment                          172,452         172,452
Display equipment                                        71,335          71,335
Leasehold improvements                                   55,569          54,462
                                                    -----------     -----------

                                                      5,244,879       3,766,293
Accumulated depreciation, including $205,172
 at June 30, 2001 and $180,555 at December 31,
 2000 for equipment purchased under a capital
 lease                                               (1,851,321)     (1,107,485)
                                                    -----------     -----------
                                                    $ 3,393,558     $ 2,658,808
                                                    ===========     ===========


5. Note Payable

In May 2000, we entered into a Business Alliance Agreement with  Hewlett-Packard
Company whereby the companies agreed to jointly market their respective products
and  services,  and to  work  on  the  build-


                                       9
<PAGE>

out of SmartServ's domestic and international infrastructure.  In furtherance of
these objectives  Hewlett-Packard has provided us with a line of credit of up to
$20,000,000 for the acquisition of approved hardware,  software and services. At
June 30, 2001,  Hewlett-Packard  Company had advanced us  $4,736,082  under this
facility and will make  available  additional  funds as SmartServ  complies with
certain  financial  milestones.  The debt is  evidenced  by a note,  bearing  an
interest  rate  of  11%,  secured  by the  Company's  assets,  exclusive  of its
internally  developed software  products,  with a three year maturity and may be
converted into our common stock at $33.56 per share.


6. Stock-based Compensation

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

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

                                Three Months                 Six Months
                               Ended June 30                Ended June 30
                        ---------------------------  ---------------------------
                            2001          2000           2001          2000
                        ------------  ------------   ------------  -------------

Costs of services        $ (160,372)    $  886,794    $ (132,612)   $(2,152,296)
                         ----------     ----------    ----------    -----------
Selling, general and
administrative expenses    (617,702)     4,478,208      (805,240)    (6,483,709)
                         ----------     ----------    ----------    -----------
                         $ (778,074)    $5,365,002    $ (937,852)   $(8,636,005)
                         ==========     ==========    ==========    ===========

Stock-based compensation for the three and six month periods ended June 30, 2001
and 2000  consists of the impact of changes in the market value of the Company's
common  stock on the  value of  options  to  purchase  common  stock  issued  to
employees,  as well as the  amortization  of deferred costs  associated with the
prior issuance of warrants to purchase common stock.


7. Earnings Per Share

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

<TABLE>
<CAPTION>

                          Three Months Ended June 30    Six Months Ended June 30
                          --------------------------   ---------------------------
                              2001          2000           2001           2000
                          ------------   -----------   ------------   ------------
<S>                      <C>             <C>           <C>            <C>
Numerator:
  Net income (loss)      $ (3,748,955)   $ 4,089,680   $ (7,612,609)  $ (9,897,328)
                         ============    ===========   ============   ============

Denominator:
 Denominator for basic
 earnings per share -
 weighted average
 shares                     5,794,118      4,340,672      5,750,118      3,534,930


                                       10
<PAGE>

 Dilutive effect of
 warrants to purchase              --      3,427,867             --             --
 common stock

 Dilutive effect of
 employee stock options
 and restricted shares             --      1,550,171             --             --
                          -----------    -----------   ------------   ------------

 Denominator for
 diluted earnings per
 share                      5,794,118      9,318,710      5,750,118      3,534,930
                          ===========    ===========   ============   ============
Basic earnings (loss)
 per common share        $      (0.65)   $      0.94   $      (1.32)  $      (2.80)
                         ============    ===========   ============   ============

Diluted earnings (loss)
 per common share        $      (0.65)   $      0.44   $      (1.32)  $      (2.80)
                         ============    ===========   ============   ============

</TABLE>

Outstanding  employee  stock options and other warrants to purchase an aggregate
of  4,397,062  shares of common  stock at June 30, 2001 were not included in the
computation  of diluted  earnings per share because the Company  reported a loss
for the period and, therefore their inclusion would be antidilutive.


8. Commitments and Contingencies

On or about June 4, 1999,  Michael  Fishman,  our Vice  President  of Sales from
December  1997 to April  1998,  commenced  an action  against us,  Sebastian  E.
Cassetta  (our  Chairman  of the  Board  and Chief  Executive  Officer),  Steven
Francesco  (our former  President) and four others in the  Connecticut  Superior
Court for the Judicial District of  Stamford/Norwalk at Stamford alleging breach
of his  employment  contract,  breach of duty of good  faith  and fair  dealing,
fraudulent,  negligent  and  intentional  misrepresentation  and  failure to pay
wages.  The defendants have answered the complaint and filed  counterclaims  for
fraudulent  inducement  and breach of contract.  Plaintiff  has responded to the
counterclaim and discovery is proceeding. Pursuant to a second amended complaint
filed by the plaintiff,  only the failure to pay wages claims remain against the
individual  defendants  and  all  of  the  misrepresentation  claims  have  been
withdrawn.  Although we are vigorously  defending  this action,  there can be no
assurance that we will be successful.

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

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


                                       11
<PAGE>

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

SmartServ  is a Web  and  wireless  applications  developer  providing  wireless
applications,  transaction  platforms and middleware to financial  institutions,
network service providers and other commercial enterprises that drive real time,
transaction-intensive  wireless data services to their workforces and customers.
SmartServ's  breadth of products and services  ensures that businesses and their
customers  can  fully  exploit  the  merits of  wireless  data  exchange,  using
virtually  any wired or mobile  device to make  informed  decisions  and execute
transactions based on real-time information. SmartServ's solutions, which may be
hosted or installed, speed time-to-market, anticipate ever-changing technologies
and lower costs.

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

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

Management  believes  that most of  SmartServ's  revenues  will  continue  to be
derived from  consumers who purchase its services  through  strategic  marketing
partners. SmartServ anticipates that strategic marketing partners will brand its
information  and  transaction  services with their own private label and promote
and distribute SmartServ's packaged offering to their clients. SmartServ has the
ability to customize  the  information  package to be offered to each  strategic
marketing partner by device.

Management   anticipates   that  staffing   requirements   associated  with  the
implementation  of its plan of  operation  will  result in the  addition  of ten
people during the year ending December 31, 2001. Such personnel will be added to
assist  primarily  with the  programming  requirements  of  strategic  marketing
partners' product offerings, for customer support and sales and marketing.


Results of Operations

Quarter Ended June 30, 2001 versus Quarter Ended June 30, 2000

During the  quarters  ended June 30,  2001 and 2000,  we  recorded  revenues  of
$1,222,866 and $985,277,  respectively.  Substantially all of such revenues were
earned  through  our  licensing   agreement  with  Data   Transmission   Network
Corporation.  During the quarters  ended June 30, 2001 and 2000,  we  recognized


                                       12
<PAGE>

$966,369 and $414,160,  respectively, from the amortization of deferred revenues
associated with this agreement.

During the  quarter  ended June 30,  2001,  we  incurred  costs of  services  of
$1,716,770.  Such costs  consisted  primarily of information  and  communication
costs ($207,400),  personnel costs ($600,900),  systems consultants  ($236,600),
computer  hardware  leases,  depreciation  and maintenance  costs ($424,200) and
amortization   expenses  relating  to  capitalized  software  development  costs
($230,400).  During  the  quarter  ended June 30,  2000,  we  incurred  costs of
services  of  $493,203.  Such  costs  consisted  primarily  of  information  and
communication costs ($54,500),  personnel costs ($129,700),  systems consultants
($60,800),   computer  hardware  leases,   depreciation  and  maintenance  costs
($113,600) and amortization expense relating to capitalized software development
costs  ($121,000).  During  the  quarters  ended  June  30,  2001 and  2000,  we
capitalized  $129,900  and  $275,200,  respectively,  of  development  costs  in
accordance with Statement of Financial  Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed".

During the quarter ended June 30, 2001, we incurred  general and  administrative
expenses of $1,699,268.  Such costs were incurred  primarily for personnel costs
($975,200),  professional  fees  ($275,600),  facilities  ($178,400),  insurance
($126,800) and communications costs ($43,400). During the quarter ended June 30,
2000, we incurred general and administrative expenses of $1,399,192.  Such costs
were incurred primarily for personnel costs ($795,800),  facilities  ($122,000),
insurance  ($40,500) and professional fees ($396,900).  During the quarter ended
June 30, 2001, we incurred advertising and marketing expenses of $808,678.  Such
costs  were  incurred  primarily  for  personnel  costs  ($420,000),   marketing
consultants ($162,500) and travel ($199,000).  During the quarter ended June 30,
2000, we incurred  advertising  and marketing  expenses of $549,011.  Such costs
were  incurred  primarily  for  marketing  consultants   ($185,900),   personnel
($174,200) and travel ($81,900).

During the quarter  ended June 30,  2001,  net noncash  charges for  stock-based
compensation  amounted to $778,074  compared to income of $5,365,002  during the
quarter ended June 30, 2000. Such noncash  amounts are primarily  related to the
valuation of stock-based  compensation in accordance with Accounting  Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
Certain options are subject to the variable plan  requirements of APB No. 25, as
they were repriced, and therefore, compensation expense/income is recognized for
changes in the fair value of our common stock.  Noncash charges for professional
fees for the quarters ended June 30, 2001 and 2000,  were $296,600 and $311,300,
respectively,  resulting  primarily  from the  amortization  of  deferred  costs
associated  with the prior  issuance of warrants  to  purchase  common  stock to
various financial, marketing and technical consultants.

Interest  income for the  quarters  ended  June 30,  2001 and 2000  amounted  to
$164,361 and $182,832, respectively. Such amounts were earned primarily from our
investments in highly liquid  commercial  paper and money fund accounts.  During
the quarters ended June 30, 2001 and 2000,  interest and other  financing  costs
were  ($128,594) and ($2,025),  respectively.  During the quarter ended June 30,
2001,  interest and other  financing  costs were incurred in connection with the
$20 million line of credit facility with Hewlett-Packard Company.

Basic loss per share was $0.65 for the quarter  ended June 30, 2001  compared to
earnings per share of $0.94 for the quarter  ended June 30,  2000.  The weighted
average shares outstanding increased to 5,794,118 for the quarter ended June 30,
2001 from 4,340,672  weighted  average shares  outstanding for the quarter ended
June 30, 2000.


                                       13
<PAGE>

At June 30,  2001,  the  diluted  loss per share was $0.65  compared  to diluted
earnings of $0.44.  The weighted  average shares  outstanding on a diluted basis
was  5,794,118 for the quarter ended June 30, 2001 compared to 9,318,710 for the
quarter ended June 30, 2000.


Six Months Ended June 30, 2001 versus Six Months Ended June 30, 2000

During the six months  ended June 30,  2001 and 2000,  we  recorded  revenues of
$2,447,837 and $1,975,220, respectively. Substantially all of such revenues were
earned  through  our  licensing   agreement  with  Data   Transmission   Network
Corporation.  During the six months ended June 30, 2001 and 2000,  we recognized
$1,932,738  and  $828,320,  respectively,  from  the  amortization  of  deferred
revenues associated with this agreement.

During the six months  ended June 30,  2001,  we  incurred  costs of services of
$3,774,489.  Such costs  consisted  primarily of information  and  communication
costs ($418,200), personnel costs ($1,162,400),  systems consultants ($820,500),
computer  hardware  leases,  depreciation  and maintenance  costs ($835,600) and
amortization   expenses  relating  to  capitalized  software  development  costs
($460,800).  During the six months  ended June 30,  2000,  we incurred  costs of
services  of  $757,456.  Such  costs  consisted  primarily  of  information  and
communication costs ($94,700),  personnel costs ($176,800),  systems consultants
($63,200),   computer  hardware  leases,   depreciation  and  maintenance  costs
($194,700) and amortization expense relating to capitalized software development
costs  ($209,400).  During  the six  months  ended  June 30,  2001 and 2000,  we
capitalized  $283,048  and  $568,708,  respectively,  of  development  costs  in
accordance with Statement of Financial  Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed".

During  the  six  months   ended  June  30,  2001,   we  incurred   general  and
administrative  expenses of $3,305,919.  Such costs were incurred  primarily for
personnel  costs   ($1,707,600),   professional   fees  ($662,900),   facilities
($340,500),  insurance ($229,700) and communications costs ($85,700). During the
six months ended June 30, 2000, we incurred general and administrative  expenses
of  $1,974,366.   Such  costs  were  incurred   primarily  for  personnel  costs
($1,018,500),  facilities ($170,700),  insurance ($55,500) and professional fees
($604,300).  During the six months ended June 30, 2001, we incurred  advertising
and marketing  expenses of  $2,156,415.  Such costs were incurred  primarily for
personnel  costs  ($737,700),   marketing  consultants   ($736,700)  and  travel
($365,500).  During the six months ended June 30, 2000, we incurred  advertising
and  marketing  expenses of $721,065.  Such costs were  incurred  primarily  for
marketing consultants ($238,200), personnel ($211,700) and travel ($124,000).

During the six months ended June 30, 2001, net noncash  charges for  stock-based
compensation  amounted to $937,852  compared to $8,636,005 during the six months
ended June 30, 2000. Such noncash amounts are primarily related to the valuation
of stock-based  compensation  in accordance with APB No. 25. Certain options are
subject to the variable plan  requirements of APB No. 25, as they were repriced,
and therefore,  compensation expense is recognized for changes in the fair value
of our common stock.  Noncash charges for  professional  fees for the six months
ended  June  30,  2001 and  2000,  were  $603,100  and  $687,400,  respectively,
resulting  primarily from the amortization of deferred costs associated with the
prior  issuance  of  warrants to  purchase  common  stock to various  financial,
marketing and technical consultants.


                                       14
<PAGE>

Interest  income for the six months  ended June 30,  2001 and 2000  amounted  to
$357,724 and $228,369, respectively. Such amounts were earned primarily from our
investments in highly liquid  commercial  paper and money fund accounts.  During
the six months ended June 30, 2001 and 2000,  interest and other financing costs
were  $222,687 and $12,025,  respectively.  During the six months ended June 30,
2001,  interest and other  financing  costs were incurred in connection with the
$20 million line of credit facility with Hewlett-Packard Company. During the six
months ended June 30, 2000,  interest and other  financing  costs were primarily
related to the partial redemption of our Prepaid Warrants.

Basic and  diluted  loss per share was $1.32 for the six  months  ended June 30,
2001  compared to $2.80 per share for the six months  ended June 30,  2000.  The
weighted  average shares  outstanding  increased to 5,750,118 for the six months
ended June 30, 2001 from 3,534,930  weighted average shares  outstanding for the
six months ended June 30, 2000.


Capital Resources and Liquidity


In January 2000,  America First Associates Corp.,  acting as placement agent for
SmartServ,  completed a private  placement of 233,000  shares of common stock at
$15.00 per share. We also completed a private placement of an additional 100,000
shares of common  stock at $15.00 per share  without the services of a placement
agent.  The net  proceeds of the two  placements  were used for general  working
capital requirements.

In May 2000,  Chase  Securities  Inc.,  acting as placement agent for SmartServ,
completed  a private  placement  of 353,535  shares of common  stock at $49.50 a
share.  The net proceeds of the placement of  $16,750,000  were used for general
working capital requirements.

In May 2000, we entered into a Business Alliance Agreement with  Hewlett-Packard
Company whereby the companies agreed to jointly market their respective products
and  services  and  to  work  on  the  build-out  of  SmartServ's  domestic  and
international infrastructure. In furtherance of these objectives Hewlett-Packard
has provided us with a line of credit of up to $20,000,000  for the  acquisition
of  approved   hardware,   software   and   services.   As  of  June  30,  2001,
Hewlett-Packard  Company had advanced us $4,736,082 under this facility and will
make available  additional  funds as SmartServ  complies with certain  financial
milestones. The debt is evidenced by a secured note, bearing an interest rate of
11%,  with a three year  maturity and may be converted  into our common stock at
$33.56 per share.

During the period  January 1, 2000 through June 30,  2001,  we issued  2,212,888
shares of common  stock to  investors  upon the exercise of warrants to purchase
such shares. Proceeds from the exercise of these warrants were $5,656,900.

As of June 30,  2001,  we had  1,725,000  public  warrants  (SSOLW)  and 300,000
warrants with terms identical to the public warrants outstanding. These warrants
are currently  convertible into our common stock at the ratio of one warrant per
0.5174  share of common  stock at an  exercise  price of $7.73 per share.  These
warrants are  redeemable by SmartServ on not less than 30 days written notice at
the  redemption  price of $0.10 per warrant,  provided  the average  closing bid
quotation of the common stock as reported on the Nasdaq Stock Market has been at
least  187.5% of the current  exercise  price of the warrants for a period of 20
consecutive  trading  days ending on the third day prior to the date on which we
give notice of  redemption.  Proceeds  from the  exercise of the warrants by the
holders thereof would provide us with approximately $8,000,000.

While we reported  net loss of  ($7,612,609)  for the six months  ended June 30,
2001,  our net  loss  exclusive  of net  stock-based  compensation  charges  was
($6,674,757).  Cash used in operations was


                                       15
<PAGE>

$6,141,500. Cash used for investing activities was $919,900, while cash provided
by financing activities was $213,100.

We are currently involved in two lawsuits.  Although we are vigorously defending
these  actions,  there  can be no  assurance  that we will  be  successful.  The
unfavorable  outcome of either of these  actions  could have a material  adverse
effect on our financial  condition,  results of operations  and cash flows.  See
Note 8 of the Notes to Unaudited  Consolidated  Financial  Statements for a more
detailed discussion of these actions.

Since inception,  we have met our cash flow needs through the issuance of common
stock and warrants to investors and the  establishment of credit facilities with
investors and Hewlett-Packard Company. Based upon our current cash resources and
our  anticipated  revenue  stream and  expenses,  we  believe  that we will have
sufficient  liquidity to meet our  obligations  during the current year.  Longer
term,  we must  execute  our  business  plan  and  seek  additional  sources  of
liquidity,  such as the redemption and exercise of our  outstanding  warrants or
the sale of common stock.


Certain Factors That May Affect Future Results
----------------------------------------------

Forward-looking  statements in this document and those made from time-to-time by
our  employees  are  made  under  the  safe  harbor  provisions  of the  Private
Securities Litigation Reform Act of 1995.  Forward-looking statements concerning
future plans or results are necessarily  only estimates and actual results could
differ  materially  from  expectations.  Certain  factors  that  could  cause or
contribute  to such  differences  include,  and are not  limited  to,  potential
fluctuations in quarterly results, the size and timing of awards and performance
on contracts,  dependence on large  contracts and a limited number of customers,
dependence on wireless and/or  internet  networks of  third-parties  for certain
products and services, lengthy sales and implementation cycles, availability and
cost of key  components,  market  acceptance  of new or  enhanced  products  and
services,   proprietary   technology   and  changing   technology,   competitive
conditions, system performance,  management of growth, the risk that our current
and future  products and services may contain errors or be affected by technical
problems that would be difficult and costly to detect and correct, dependence on
key personnel and general  economic and political  conditions  and other factors
affecting  spending by customers,  and other risks  described in this  Quarterly
Report on Form 10-QSB and our other  filings  with the  Securities  and Exchange
Commission.


                                       16
<PAGE>

PART 2.  OTHER INFORMATION


Item 1.  Legal Proceedings

On or about June 4, 1999,  Michael  Fishman,  our Vice  President  of Sales from
December  1997 to April  1998,  commenced  an action  against us,  Sebastian  E.
Cassetta  (our  Chairman  of the  Board  and Chief  Executive  Officer),  Steven
Francesco  (our former  President) and four others in the  Connecticut  Superior
Court for the Judicial District of  Stamford/Norwalk at Stamford alleging breach
of his  employment  contract,  breach of duty of good  faith  and fair  dealing,
fraudulent,  negligent  and  intentional  misrepresentation  and  failure to pay
wages.  The defendants have answered the complaint and filed  counterclaims  for
fraudulent  inducement  and breach of contract.  Plaintiff  has responded to the
counterclaim and discovery is proceeding. Pursuant to a second amended complaint
filed by the plaintiff,  only the failure to pay wages claims remain against the
individual  defendants  and  all  of  the  misrepresentation  claims  have  been
withdrawn.  Although we are vigorously  defending  this action,  there can be no
assurance that we will be successful.

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

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


Item 2.  Changes in Securities and Use of Proceeds

During the period  January  2001  through July 2001,  91 Prepaid  Warrants  were
converted  into an  aggregate  of 65,000  shares of our common  stock.  No sales
commissions were paid in connection with such conversion. The shares were issued
in reliance upon the exemption from  registration  provided by Section 3 (a) (9)
of the Securities Act.

In April 2001,  we issued a warrant to purchase an  aggregate of 2,000 shares of
common  stock to Randy  Granovetter  as  partial  consideration  for  consulting
services to be provided to  SmartServ  as a member of its  Advisory  Board.  The
warrant is  exercisable  after one year at an exercise  price of $9.36 per share
and expires on April 15, 2005. No sales commissions were paid in connection with
such  transaction.  This warrant was issued in reliance upon the exemption  from
registration provided by Section 4 (2) of the Securities Act.


                                       17
<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits:

         None

(b) Reports on Form 8-K

         The  Company  did not file any  reports  on Form 8-K  during  the three
         months ended June 30, 2001.


                                       18
<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: August 13, 2001                   /s/ SEBASTIAN E. CASSETTA
      ---------------                   ----------------------------------------
                                        Sebastian E. Cassetta
                                        Chairman of the Board, Chief Executive
                                        Officer


Date: August 13, 2001                   /s/  THOMAS W. HALLER
      ---------------                   ----------------------------------------
                                        Thomas W. Haller
                                        Sr. Vice President, Chief Financial
                                        Officer, Treasurer