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


                    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, 2004
                                                 -------------

                         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)

             2250 Butler Pike, Suite 150, Plymouth Meeting, PA 19462
--------------------------------------------------------------------------------
                    (Address of Principal Executive Offices)


                                 (610) 397-0689
--------------------------------------------------------------------------------
                (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 June 30,
2004 was 2,870,230.

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

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

                             SmartServ Online, Inc.

                                   Form 10-QSB

                                      Index


PART I.   FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

          Consolidated  Balance Sheets - June 30, 2004 (unaudited) and
          December 31, 2003 ...................................................2


          Consolidated  Statements  of Operations - three months ended
          June 30,  2004 and 2003 and six months  ended June 30,  2004
          and 2003 (unaudited) ................................................4

          Consolidated  Statement of Changes in  Stockholders'  Equity
          (Deficiency) - six months ended June 30, 2004 (unaudited) ...........5

          Consolidated  Statements  of Cash Flows - three months ended
          June 30,  2004 and 2003 and six months  ended June 30,  2004
          and 2003 (unaudited).................................................6


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

Item 2.   Management's  Discussion and Analysis of Financial Condition
          and Results of Operations...........................................18

Item 3    Controls and Procedures.............................................25


PART II.  OTHER INFORMATION

Item 2.   Changes in Securities and Use of Proceeds...........................26

Item 6.   Exhibits and Reports on Form 8-K....................................27

          Signatures.......................................................28-31

                                  1
<PAGE>

                             SmartServ Online, Inc.

                           Consolidated Balance Sheets



                                      June 30,   December 31,
                                       2004          2003
                                     ----------   ----------
                                    (Unaudited)
Assets
Current assets

   Cash                              $4,526,790   $  139,178
   Accounts receivable                  100,079      103,230
   Accrued interest receivable               --       47,004
   Prepaid compensation                      --      133,127
   Prepaid expenses                      85,229       86,798
   Deferred financing costs                  --      322,192
                                     ----------   ----------
Total current assets                  4,712,098      831,529
                                     ----------   ----------

Property and equipment, net             102,762           --

Other assets
   Goodwill and intangible assets     1,814,889           --
   Security deposits                     18,237        5,156

                                     ----------   ----------
Total Assets                         $6,647,986   $  836,685
                                     ==========   ==========


See accompanying notes

                                  2
<PAGE>

                        SmartServ Online, Inc.

                      Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                  June 30,      December 31,
                                                                   2004           2003
                                                                ------------    ------------
                                                                (Unaudited)
<S>                                                             <C>             <C>
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities
   Current portion of notes payable                             $     32,973    $         --
   Accounts payable                                                1,296,274       1,702,768
   Accrued liabilities                                               967,659         928,393
   Accrued salaries                                                   15,565          78,133
   Accrued interest payable                                               --         218,848
                                                                ------------    ------------
Total current liabilities                                          2,312,471       2,928,142
                                                                ------------    ------------

Deferred revenues                                                         --          37,500

Notes payable                                                         33,952       3,340,430

Commitments and Contingencies

Stockholders' Equity (Deficiency)
Convertible Preferred stock - $0.01 par value
   Authorized - 1,000,000 shares
   Issued and outstanding - 876,491 shares as of June 30,
     2004, aggregate liquidation preference of
     $13,584,888 and $0 as of December 31, 2003, respectively      1,591,008              --
Common stock - $.01 par value
   Authorized - 40,000,000 shares
   Issued - 2,904,577; outstanding - 2,870,230 shares at
      June 30, 2004 and 2,261,300 shares at December 31, 2003         29,046          22,613
Additional paid-in capital                                        99,201,111      85,160,306
Notes receivable from former officers                               (187,525)       (255,525)
Unearned compensation                                               (650,893)             --
Accumulated deficit                                              (95,613,184)    (90,396,781)
                                                                ------------    ------------
                                                                   4,369,563      (5,469,387)
Treasury stock, 34,347 shares at cost                                (68,000)             --
                                                                ------------    ------------
Total stockholders' equity (deficiency)                            4,301,563      (5,469,387)
                                                                ------------    ------------

Total Liabilities and Stockholders' Equity (Deficiency)         $  6,647,986    $    836,685
                                                                ============    ============
</TABLE>

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
                                                  --------------------------    --------------------------
                                                     2004           2003           2004           2003
                                                  -----------    -----------    -----------    -----------
<S>                                               <C>            <C>            <C>            <C>
Revenues                                          $   114,004    $   238,028    $   187,715    $   469,015
                                                  -----------    -----------    -----------    -----------

Costs and expenses:
   Costs of services                                 (674,729)    (2,574,543)      (981,595)    (3,791,374)
   Sales and marketing expenses                       (98,514)      (103,496)      (142,220)      (380,030)
   General and administrative expenses               (704,185)    (1,360,913)    (1,365,134     (2,360,093)
   Stock-based compensation                           893,034        (73,750)      (639,107)      (101,944)
                                                  -----------    -----------    -----------    -----------

   Total costs and expenses                          (584,394)    (4,112,702)    (3,128,056)    (6,633,441)
                                                  -----------    -----------    -----------    -----------

Loss from operations                                 (470,390)    (3,874,674)    (2,940,341)    (6,164,426)
                                                  -----------    -----------    -----------    -----------

Other income (expense):
   Interest income                                      9,546          4,360         12,767          8,892
   Interest expense and other financing costs        (154,948)      (873,510)    (2,092,029)    (1,249,396)
   Legal settlement                                        --             --       (196,800)            --
   Gain from extinguishment of debt                        --             --             --        305,822
   Insurance recovery                                      --        374,000             --        374,000
   Foreign exchange gains (losses)                         --            (43)            --             50
                                                  -----------    -----------    -----------    -----------
                                                     (145,402)      (495,193)    (2,276,062)      (560,632)

                                                  -----------    -----------    -----------    -----------

Net loss                                          $  (615,792)   $(4,369,867)   $(5,216,403)   $(6,725,058)
                                                  ===========    ===========    ===========    ===========

Preferred stock dividend accrued                   (1,102,254)            --     (2,016,094)            --

                                                  -----------    -----------    -----------    -----------
Net loss applicable to common shareholders        $(1,718,046)   $(4,369,867)   $(7,232,497)   $(6,725,058)
                                                  ===========    ===========    ===========    ===========

Basic and diluted loss per share                  $     (0.60)   $     (2.18)   $     (2.72)   $     (3.40)
                                                  ===========    ===========    ===========    ===========

Weighted average shares outstanding - basic and
   diluted                                          2,870,230      2,000,243      2,658,889      1,978,476
                                                  ===========    ===========    ===========    ===========
</TABLE>

See accompanying notes

                                  4
<PAGE>

                             SmartServ Online, Inc.
     Consolidated Statement of Changes in Stockholders' Equity (Deficiency)
                         Six Months Ended June 30, 2004
                                   (Unaudited)


<TABLE>
<CAPTION>
                                              Common Stock            Preferred Stock
                                                                                 Series A      Notes Receivable
                                                                                 Preferred      from Former            Additional
                                         Shares       Par Value     Shares         Stock          Officers          Paid-in Capital
                                         ------       ---------     ------         -----          --------          ---------------
<S>                                    <C>            <C>           <C>        <C>            <C>             <C>
Balances at December 31, 2003          2,261,300      $22,613          --     $       --      $(255,525)          $85,160,306

Issuance of common stock to acquire      500,002        5,000          --             --             --             1,635,007
  nReach, Inc.

Issuance of common stock related to       83,275          833          --             --             --               688,319
  financing

Issuance of common stock to vendor        60,000          600          --             --             --               196,200
   to satisfy debt

Issuance of warrants as compensation          --           --          --             --             --               447,859
  for services

Issuance of warrants related to               --           --          --             --             --             1,849,697
  financing

Issuance of warrants to vendor to             --           --          --             --             --                26,299
  satisfy debt

Employee stock                                --           --          --             --             --             1,290,000
  compensation

Amortization of unearned                      --           --          --             --             --                    --
  compensation

Treasury  stock shares returned in            --           --          --             --         68,000                    --
  settlement of note receivable from
  former officer

Beneficial conversion option on               --           --          --             --             --             9,914,268
  convertible Preferred Stock

Series A Preferred Stock                      --           --     876,491      1,591,008             --                 9,250

Accretion of dividends on Series A            --           --          --             --             --            (1,578,508)
  Preferred Stock

Dividends accrued on Preferred Stock          --           --          --             --             --              (437,586)

Net loss for the period                       --           --          --             --             --                    --

                                       ---------      -------     -------     ----------      ---------           -----------
Balances at June 30, 2004              2,904,577      $29,046     876,491     $1,591,008      $(187,525)          $99,201,111
                                       =========      =======     =======     ==========      =========           ===========

<CAPTION>
                                                               Unearned        Accumulated
                                           Treasury Stock     Compensation        Deficit
                                           --------------     ------------        -------
<S>                                       <C>               <C>                <C>
Balances at December 31, 2003             $     --           $      --        $(90,396,781)

Issuance of common stock to acquire             --                  --                  --
  nReach, Inc.

Issuance of common stock related to             --                  --                  --
  financing

Issuance of common stock to vendor              --                  --                  --
   to satisfy debt

Issuance of warrants as compensation            --                  --                  --
  for services

Issuance of warrants related to                 --                  --                  --
  financing

Issuance of warrants to vendor to               --                  --                  --
  satisfy debt

Employee stock                                  --            (775,715)                 --
  compensation

Amortization of unearned                        --             124,822                  --
  compensation

Treasury  stock shares returned in         (68,000)                 --                  --
  settlement of note receivable from
  former officer

Beneficial conversion option on                 --                  --                  --
  convertible Preferred Stock

Series A Preferred Stock                        --                  --                  --

Accretion of dividends on Series A              --                  --                  --
  Preferred Stock

Dividends accrued on Preferred Stock            --                  --                  --

Net loss for the period                         --                  --          (5,216,403)

                                          --------           ---------        ------------
Balances at June 30, 2004                 $(68,000)          $(650,893)       $(95,613,184)
                                          ========           =========        ============
</TABLE>


See accompanying notes.

                                  5
<PAGE>

                             SmartServ Online, Inc.

                      Consolidated Statements of Cash Flows
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                               Three Months                    Six Months
                                                              Ended June 30                   Ended June 30
                                                        --------------------------    --------------------------
                                                            2004          2003           2004            2003
                                                        -----------    -----------    -----------    -----------
<S>                                                     <C>            <C>            <C>            <C>
Operating Activities
Net loss                                                $  (615,792)   $(4,369,867)   $(5,216,403)   $(6,725,058)
Adjustments to reconcile net loss to net cash
 used for operating activities:
    Gain from extinguishment of debt                             --             --             --       (305,822)
    Depreciation and amortization                                --      1,997,858             --      2,462,445
    Noncash compensation costs                              120,862         73,750        761,280        101,944
    Noncash consulting services                             356,218             --        447,859             --
    Noncash payments to vendors                               3,730             --        223,099             --
    Amortization of deferred compensation                  (893,034)            --        639,107             --
    Amortization of deferred revenues                            --       (165,567)            --       (334,261)
    Amortization of deferred financing costs                     --        745,987      1,231,772      1,093,701
    Provision for losses on loans to former officers             --        399,022             --        399,022
    Changes in operating assets and liabilities
       Accounts receivable                                   10,732         74,787         14,213         (9,767)
       Accrued interest receivable                            3,221         (3,600)        47,004          6,107
       Prepaid expenses                                     (61,253)      (114,585)         4,512        (22,579)
       Prepaid compensation                                  44,378             --        133,127             --
       Accounts payable and accrued liabilities            (490,192)        74,689       (924,749)       706,479
       Deferred revenues                                    (33,333)        80,000        (37,500)       218,000
       Security deposit                                          --          9,243        (11,212)        37,959
                                                        -----------    -----------    -----------    -----------
    Net cash used for operating activities               (1,554,463)    (1,198,283)    (2,687,891)    (2,371,830)
                                                        -----------    -----------    -----------    -----------

Investing Activities
Purchase of equipment                                       (73,094)            --        (91,193)            --
Purchase of nReach, Inc.                                    (12,500)            --       (100,000)            --
                                                        -----------    -----------    -----------    -----------
    Net cash used for investing activities                  (85,594)            --       (191,193)            --
                                                        -----------    -----------    -----------    -----------
Financing Activities
Proceeds from the issuance of series A convertible
  preferred stock and warrants - net                         21,750             --      8,591,275             --
Proceeds from the issuance of notes and warrants                 --      1,537,500             --      2,537,500
Proceeds from the issuance of common stock                       --         50,007             --        385,544
Repayment of notes payable and accrued interest                  --             --     (1,391,504)      (295,000)
Notes payable                                                66,925             --         66,925             --
                                                        -----------    -----------    -----------    -----------
    Net cash provided by financing activities                88,675      1,587,507      7,266,696      2,628,044
                                                        -----------    -----------    -----------    -----------
(Decrease) increase in cash                              (1,551,382)       389,224      4,387,612        256,214
Cash - beginning of period                                6,078,172         21,749        139,178        154,759
                                                        -----------    -----------    -----------    -----------

Cash - end of period                                    $ 4,526,790    $   410,973    $ 4,526,790    $   410,973
                                                        ===========    ===========    ===========    ===========
</TABLE>

See accompanying notes.

                                  6
<PAGE>

                             SmartServ Online, Inc.

              Notes to Unaudited Consolidated Financial Statements

                                  June 30, 2004


1.   Nature of Business

SmartServ  Online,  Inc. (the "Company" or  "SmartServ")  designs,  develops and
distributes  software and services that enable the delivery to wireless  devices
of various content,  with special emphasis on cell phones. The content which the
Company provides  includes premium content such as ringtones,  images and games,
and dynamic  changing  content such as horoscopes,  lottery  results and weather
reports.  Historically,  the Company has licensed its applications,  content and
related services to wireless  carriers and enterprises.  The Company has revenue
sharing license agreements with wireless carriers such as Verizon Wireless, AT&T
Wireless,  Nextel and ALLTEL Wireless, that allow it to deliver its services and
branded  content to a wide base of consumer cell phone users.  For  enterprises,
the Company has in the past  offered  solutions  that deliver  financial  market
data,  proprietary  internal  documents and other useful  information  to mobile
workers, although this no longer comprises a core part of the Company's business
or strategy.


To augment our capabilities, we acquired Colorado based nReach, Inc. on February
28, 2004 in exchange for 500,002  shares of our common stock,  provided,  if the
value of such 500,002  shares  immediately  prior to June 1, 2004 were less than
$900,000,  we would issue up to 299,167  additional  shares of our common  stock
with respect to such difference in value.  That was not the case at June 1, 2004
and no additional  shares were issued.  We also agreed to an earnout schedule to
pay up to an additional 916,667 shares of our common stock in the event we reach
certain  revenue  targets within five fiscal  quarters  following the closing of
this  transaction  at the rate of one share of our common stock for every dollar
of our revenue in excess of $2,700,000 (the "Earnout  Trigger") during such five
fiscal  quarters.  In addition  to the  liabilities  set forth in the  financial
statements of nReach, we assumed (i) ordinary course  liabilities since November
30, 2003,  (ii) taxes accrued on earnings since December 31, 2002 which were not
yet  due  and  payable  as of the  closing  date,  (iii)  expenses  incurred  to
accountants and attorneys in the  transaction  not to exceed  $25,000,  and (iv)
short term  borrowings up to $75,000 due to an nReach  shareholder.  nReach is a
wireless content  distribution  company that offers a broad portfolio of popular
mass-market cell phone content, including ringtones, games, and on-device images
both direct to the  consumer  and through  wireless  carriers.  This company may
provide us with  access to a large  number of  consumers  through  its  existing
marketing arrangements with large retailers.


The  Company  has since its  inception  earned  limited  revenues  and  incurred
substantial  recurring operating losses,  including net losses of $5,216,403 for
the six month period ended June 30, 2004 and  $17,537,775 and $8,037,173 for the
years ended December 31, 2003 and December 31, 2002, respectively. Additionally,
the Company had an accumulated  deficit of $95,613,184  and  $90,396,781 at June
30, 2004 and December 31, 2003, respectively.

The Company began in 2002 and continued during 2003 to reduce its cost structure
through the  termination of personnel and the relocation of its  headquarters to
Plymouth Meeting,  Pennsylvania.  Personnel headcount was reduced from 66 in May
2002 to the level of 17 as of June 30, 2004 (including nReach employees).  These
efforts have reduced the  Company's  average  monthly  operating  expenses  from
approximately  $1,090,000 in July 2002 to approximately $370,000 as of June 2004
(including operating expenses of nReach),  excluding noncash stock compensation,
depreciation  and  amortization.   The  Company  anticipates  that  its  monthly
operating  expenses  will  increase  during  2004  due  to the  working  capital
requirements  of the  business  of nReach,  as well as related to  expansion  of
marketing and business development efforts for all of the Company's products and
services and increased corporate overhead.

                                       7
<PAGE>

In February  2004,  the Company  received $10 million in gross proceeds from its
private  placement  of Units  consisting  of  shares  of  Series  A  Convertible
Preferred Stock and warrants to purchase common stock.  The Company has used and
expects to use the net proceeds of  approximately  $8,600,000 from this offering
for repayment of outstanding  obligations,  completion of strategic acquisitions
and general working  capital.  In particular,  the Company  anticipates  using a
significant portion of its working capital to settle its accounts payable, which
accounts  payable were  approximately  $1,300,000  and $1,700,000 as of June 30,
2004 and December 31, 2003, respectively.

As a result  of the  factors  identified  above,  the  Company  believes  it has
sufficient capital for approximately the next 12 months.  However,  no assurance
can be given  that the  Company  will be able  meet its  revenue  and cash  flow
projections,  maintain  its cost  structure as  presently  configured,  or raise
additional capital on satisfactory  terms. Should the Company be unable to raise
additional debt or equity financing,  it may be forced to seek a merger or cease
operations.

The Company is  incorporated  in the State of  Delaware.  The Company  commenced
operations in August 1993,  and had its initial  public  offering in March 1996.
The Company completed a one-for-six  reverse stock split effective  November 25,
2003.  Unless  otherwise noted,  descriptions of  shareholdings  and convertible
securities reflect such one-for-six reverse stock split.

2.   Summary of Significant Accounting Policies

Basis of Presentation
---------------------
The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity with accounting principles generally accepted in the United States.

Principles of Consolidation
---------------------------
The consolidated  financial  statements  include the accounts of the Company and
its  subsidiaries,  all of which  are  wholly  owned.  Significant  intercompany
accounts and transactions have been eliminated in consolidation.

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
-------------------
The Company  recognizes  revenue  from the use of its  products  and services in
accordance with American  Institute of Certified Public  Accountants'  ("AICPA")
Statement of Position ("SOP") 97-2,  "Software Revenue  Recognition",  SOP 98-9,
"Modification  of SOP  97-2,  Software  Recognition,  With  Respect  to  Certain
Transactions",   and  the  SEC  Staff  Accounting   Bulletin  No.104,   "Revenue
Recognition".  Specifically,  there must be (1) evidence of an arrangement,  (2)
delivery of the Company's products and services, (3) fixed and determinable fees
and (4)  probable  collectibility  of such  fees.  Revenues  from  multi-element
revenue agreements are recognized based on vendor specific objective evidence of
individual  components  or,  if  the  elements  in  the  arrangement  cannot  be
separated,  as has been the situation to date, recognized as one element ratably
over the term of the agreement.


Subscription Revenue
--------------------

Subscription revenue consists of fixed and variable charges for the usage of the
Company's products and services provided through its relationships with wireless
telecommunications  carriers and a financial  services company.  Such revenue is
recognized as the services are provided on a monthly basis.

                                       8
<PAGE>

Development and Integration Revenue
-----------------------------------

Development   and   integration   fees  are  charged  for  the   development  of
private-labeled  applications for customers that incorporate  their  proprietary
data into SmartServ's  products and services.  Such fees are recognized  ratably
over the term of the agreement.


Service Revenue
---------------

Service revenue is derived from  consulting or by providing  other  professional
services  to  customers.  Revenue  from  the  performance  of such  services  is
recognized when the services are performed.  Losses,  if any, from  professional
services  contracts  are  recognized  at the time such  losses  are  identified.
Maintenance  and  support  fees  paid  in  advance  are  nonrefundable  and  are
recognized ratably over the term of the agreement, generally 12 months.

Hosting Services
----------------

Hosting service arrangements are based on a flat monthly fee or on the number of
users and may include a one-time setup fee. The one-time setup fee is recognized
over the term of the hosting  arrangement,  and the hosting  services revenue is
recognized monthly as earned on a fixed fee or variable rate basis.

Deferred Revenues
-----------------
Deferred  revenues,  resulting  from  customer  prepayments,  are  recognized as
services are provided  throughout  the term of the agreement with the respective
customer.

Deferred Financing Costs
------------------------
Deferred  financing  costs represent those costs incurred in connection with the
issuance of the  Company's  convertible  notes.  These costs are recorded at the
fair value of the consideration (cash or securities) paid to the finders in such
transactions  and are amortized to operations as other  financing costs over the
terms of the respective notes.

Earnings Per Share
------------------
Basic  earnings per share is computed on the weighted  average  number of common
shares  outstanding;  however,  it does not  include  the  unvested  portion  of
restricted shares in accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share".  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  calculated  using the
treasury stock method when dilutive.

Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of our financial instruments  approximate fair value due to
their terms and maturities.


Supplemental Cash Flow Information
----------------------------------
The Company  considers  all highly  liquid  investments  with a maturity date of
three months or less when purchased to be cash equivalents.

In connection with engaging a vendor to provide investor relation  services,  in
May 2004 we entered  into an  agreement  to grant a warrant to  purchase  50,000
shares of common stock at $2.15 per share.  The warrant  expires in May of 2006.
This warrant is valued at $107,657 and is considered a non-cash  transaction for
the purposes of the Statement of Cash Flows.

                                       9
<PAGE>

In connection with Alpine  Capital's claim for a finder's fee in connection with
the April 2003 amendment related to bridge financing,  Alpine received a warrant
in July to purchase  40,000  shares of common stock at $1.50 per share  expiring
July 8, 2009.  This  warrant is valued at $72,128 and is  considered  a non-cash
transaction for the purposes of the Statement of Cash Flows.

In connection  with payment to a vendor to provide  recruiting  services in June
2004 we entered into an agreement to grant a warrant to purchase 5,000 shares of
common  stock at $3.10 per  share.  The  warrant  expires  in May of 2006.  This
warrant is valued at $7,377 and is  considered  a non-cash  transaction  for the
purposes of the Statement of Cash Flows.

In connection  consulting services to be provided by Shai Stern, M. Ezzat Jalled
and E. Alan Scheik III, we entered into  consulting  agreements  dated June 2004
for warrants to purchase  25,000,  100,000 and 10,000  shares of common stock at
$1.50,  $1.50 and $2.50 per share,  respectively and expiring in May 2006. These
warrants  are valued at $45,080,  $180,321  and  $15,782,  respectively  and are
considered  non-cash  transactions  for the  purposes of the  Statement  of Cash
Flows.

In  connection  with settling a debt with a law firm, in April 2004 we granted a
warrant to purchase 1,820 shares of common stock at $3.15 per share. The warrant
expires in April of 2006.  This warrant is valued at $3,730 and is  considered a
non-cash transaction for the purposes of the Statement of Cash Flows.

During the quarter  ended June 30, 2004,  the Company  issued  83,275  shares of
common  stock  amounting  to  $275,006 to Spencer  Trask and Richard  Berland as
finders fees for the recent  financings.  The issuance of shares of common stock
is considered a non-cash  transaction  for the purposes of the Statement of Cash
Flows.

During the quarter  ended March 31, 2004,  the Company  issued  60,000 shares of
common stock  amounting to $196,800 and a cash payment of $45,000 to a vendor in
settlement of the Company's obligation to that vendor. The issuance of shares of
common  stock is  considered  a non-cash  transaction  for the  purposes  of the
Statement of Cash Flows.

During the quarter ended March 31, 2004,  the Company  issued  500,002 shares of
common  stock  amounting to  $1,640,007  for the  acquisition  of the issued and
outstanding common stock of nReach,  Inc. The issuance of shares of common stock
is considered a non-cash  transaction  for the purposes of the Statement of Cash
Flows.

During the quarter ended March 31, 2004, the Company converted notes payable and
accrued  interest  amounting to $3,122,302  into Series A convertible  preferred
stock and warrants. This conversion is considered a non-cash transaction for the
purposes of the Statement of Cash Flows.

Interest, debt origination and other financing costs paid during the three month
periods ended June 30, 2004 and 2003 were $1,536 and $100 and for the six months
periods ended June 30, 2004 and 2003 were $1,536 and $70,100, respectively.

Concentration of Credit Risk
----------------------------
Financial  instruments that potentially  subject  SmartServ to concentrations of
credit risk consist solely of accounts receivable. At June 30, 2004 and December
31, 2003,  accounts  receivable  consist  principally  of amounts due from major
telecommunications  carriers,  as  well as a  financial  services  company.  The
Company  performs   periodic  credit   evaluations  of  its  customers  and,  if
applicable,  provides for credit losses in the financial statements.  As of June
30, 2004 and  December  31, 2003 the Company did not have a reserve for doubtful
accounts.

Property and Equipment
----------------------
Property and  equipment  are stated at cost,  net of  accumulated  depreciation.
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.

                                       10
<PAGE>

On an ongoing basis, SmartServ reviews the future recoverability of its property
and  equipment  for  impairment  whenever  events or  changes  in  circumstances
indicate that the carrying  amounts may not be recoverable.  When such events or
changes in  circumstances  do occur,  an  impairment  loss is  recognized if the
undiscounted  future cash flows  expected to be  generated by the asset are less
than its carrying  value.  As a result of less than  anticipated  demand for the
Company's  products and services,  as well as its inability to leverage  certain
relationships  during the quarter ended June 30, 2003,  the Company  recorded an
impairment  loss of $843,768 in such quarter to reduce the recorded value of its
assets to their estimated net realizable value.

Advertising Costs
-----------------
Advertising  costs are  expensed as  incurred  and were  approximately  $-0- and
$6,000 during the six month periods ended June 30, 2004 and 2003, respectively.



Stock Based Compensation

Employee Stock Option Plans
---------------------------
The Company  maintains  several  stock option plans for  employees and directors
that  provide  for the  granting of stock  options for a fixed  number of common
shares with an exercise  price equal to the fair value of the shares at the date
of grant.  The Company  accounts for such grants 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, which requires the Company to record
compensation expense for changes in the fair value of its common stock.

Non-Employee Compensation
-------------------------

The  Company  has issued  warrants  to  purchase  common  stock to  non-employee
consultants  as  compensation  for  services  rendered  or to be rendered to the
Company. The warrants are recorded in accordance with the provisions of SFAS No.
123, Accounting for Stock-Based Compensation,  and are valued in accordance with
the Black-Scholes pricing methodology.

The Company  adopted the disclosure  provisions of SFAS No. 148,  Accounting for
Stock-Based Compensation - Transition and Disclosure, which amends SFAS No. 123.
SFAS No. 148 provides  alternative  methods of transition for a voluntary change
to  the  fair  value  based  method  of  accounting  for  stock-based   employee
compensation,  which was  originally  provided  under SFAS No. 123. SFAS No. 148
also improves the timeliness of  disclosures by requiring the  information to be
included  in interim as well as annual  financial  statements.  The  adoption of
these  disclosure  provisions  had no impact on the Company's  2003 or first and
second quarter of 2004 consolidated results of operations, financial position or
cash flows.

SFAS No. 123 requires companies to recognize  compensation  expense based on the
respective  fair  values of the  options  at the date of grant.  Companies  that
choose not to adopt such rules will  continue to apply the  existing  accounting
rules  contained  in APB No.  25, but are  required  to  disclose  the pro forma
effects on net income (loss) and earnings (loss) per share, as if the fair value
based method of accounting had been applied.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options' vesting period. As such, the pro forma
net earnings  (loss) and earnings  (loss) per share are not indicative of future
years.

                                       11
<PAGE>

SmartServ's pro forma information is as follows:


<TABLE>
<CAPTION>
                                          Three Months                   Six Months
                                          Ended June 30                 Ended June 30
                                   --------------------------    --------------------------
                                      2004            2003           2004           2003
                                   -----------    -----------    -----------    -----------
<S>                                <C>            <C>            <C>            <C>
Net loss as reported               $  (615,792)   $(4,369,867)   $(5,216,403)   $(6,725,058)

Employee stock-based
  compcompensation included in
  net loss                            (893,034)            --        639,107          1,323

Employee stock-based
  compcompensation pursuant to
  SFAS 123/SFAS 148                   (445,531)      (670,659)      (610,316)    (1,588,153)
                                   -----------    -----------    -----------    -----------


Pro forma net loss                 $(1,954,357)   $(5,040,526)   $(5,187,612)   $(8,311,888)

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

Basic and diluted loss per share   $     (0.60)   $     (2.18)   $     (2.72)   $     (3.40)
                                   ===========    ===========    ===========    ===========
Pro forma basic and diluted
  loss per share                   $     (0.68)   $     (2.52)   $     (1.95)   $     (4.20)
                                   ===========    ===========    ===========    ===========

</TABLE>

Foreign Currency Translation
----------------------------

The financial statements of the Company's foreign subsidiaries, whose functional
currencies  are  other  than the U.S.  dollar,  have been  translated  into U.S.
dollars  in  accordance  with SFAS No. 52,  Foreign  Currency  Translation.  All
balance sheet accounts have been  translated  using the exchange rates in effect
at the balance sheet date.  Income statement  amounts have been translated using
the average rate for the year.  Gains and losses  resulting  from the changes in
exchange  rates  from year to year  have  been  reported  in  accumulated  other
comprehensive income.


                                       12
<PAGE>

3.   Property and Equipment

Property and equipment consist of the following:

                                          June 30,     December 31,
                                            2004          2003
                                        -----------    -----------
       Data processing equipment        $ 4,594,526    $ 4,594,526
       Office furniture and equipment       427,142        397,474
       Display equipment                    144,429         71,335
       Leasehold improvements                69,852         69,852
                                        -----------    -----------
                                          5,235,949      5,133,187
       Impairment of capital assets        (843,768)      (843,768)
       Accumulated depreciation          (4,289,419)    (4,289,419)
                                        -----------    -----------
                                        $   102,762    $        --
                                        ===========    ===========

4.   Note Receivable From Former Officers

In December 2000, the Company's Board of Directors  authorized the issuance of a
line of  credit  to  Sebastian  Cassetta,  SmartServ's  former  Chief  Executive
Officer, for an amount not to exceed $500,000. Such amount bears interest at the
prime rate and  matured on March 20,  2004.  Pursuant  to the terms of the note,
interest for the period January 2, 2001 to June 30, 2002 has been accrued and is
payable at maturity.  Commencing July 1, 2002 until maturity,  interest shall be
payable  semi-annually  in arrears on January 1st and July 1st. In October  2003
the Company agreed to forgive this loan over a three-year period pursuant to Mr.
Cassetta's Separation Agreement.

Additionally,  during the quarter  ended June 30, 2003,  the Company  recorded a
valuation   allowance   of   $270,000   in   connection   with   the   potential
uncollectibility  of a loan made to Mr.  Cassetta  for the purchase of SmartServ
restricted  stock.  Such reserve is classified  as a reduction of  stockholders'
equity.  While  this loan had  original  maturity  date of  December  2003,  Mr.
Cassetta's  ability to repay this loan and interest thereon is highly contingent
on  the  market  value  of his  investment  in the  Company.  In his  separation
agreement  in October  2003,  the  Company  extended  the  maturity  date of the
restricted stock note until September 2004.

The Company's former Chief Technology Officer, Mario Rossi, was the obligor on a
promissory  note made in favor of the Company  with  respect to the  purchase of
34,347 shares of Company common stock,  which were pledged as collateral for the
note. In January 2004, as part of his separation agreement,  all shares of stock
were assigned and transferred to the Company and the outstanding debt of $68,000
was cancelled.

5.   Notes Payable

In  February  2003,  the Company  issued a  convertible  note to Global  Capital
Funding Group, LP ("Global") in consideration for the receipt of $1 million. The
note  bore  interest  at the  rate of 10% per  annum,  and  was  secured  by the
Company's assets,  exclusive of its internally developed software products.  The
note matured on February 14, 2004,  contained certain  antidilution  provisions,
and was convertible into shares of SmartServ common stock at $6.60 per share. As
additional  consideration,  the Company issued Global a warrant for the purchase
of 33,333  shares of its common  stock at an exercise  price of $9.66 per share.
The  warrant  issued to Global  contains  certain  antidilution  provisions  and
expires on February  14, 2006.  The note and the warrant  have been  recorded in
accordance with APB No. 14,  "Accounting  for  Convertible  Debt and Debt Issued
with Stock Purchase  Warrants".  The warrant has been valued in accordance  with
the  Black-Scholes  pricing

                                       13
<PAGE>

methodology  and is netted against the  outstanding  obligation in the financial
statements.  Such amount is being amortized into operations as interest  expense
and  other  financing  costs  over the life of the  obligation.  Alpine  Capital
Partners, Inc. ("Alpine") received a finder's fee of $70,000, representing 7% of
the aggregate  purchase price of the convertible  note and a warrant to purchase
15,167 shares of common stock  exercisable at $9.66 per share in connection with
this  transaction.  These warrants have been valued in accordance  with SFAS No.
123 and the  Black-Scholes  pricing  methodology  and recorded in the  financial
statements as deferred  compensation  costs. This amount is being amortized into
operations on a  straight-line  basis over the life of the  obligation.  Also in
connection with the 10% convertible  notes,  the Company has recorded a non-cash
charge  for other  financing  costs of  $304,772  representing  a portion of the
intrinsic  value of the  beneficial  conversion  feature of the notes.  Emerging
Issues  Task  Force  ("EITF")  Issue  No.  98-5,   "Accounting  for  Convertible
Securities  with  Beneficial  Conversion  Features  or  Contingently  Adjustable
Conversion  Ratios" ("Issue No. 98-5") as more fully described in EITF Issue No.
00-27,  "Application  of Issue No.  98-5 to  Certain  Convertible  Instruments",
defines  the  beneficial  conversion  feature as the  non-detachable  conversion
feature that is "in-the-money" at the date of issuance.  Issue No. 98-5 requires
the  recognition  of the  intrinsic  value  of  the  conversion  feature  as the
difference  between the conversion  price and the fair value of the common stock
into which the notes are  convertible.  During the quarter ending June 30, 2003,
the Company recorded a non-cash charge of $101,600 representing the amortization
of the  remainder of such  beneficial  conversion  feature.  In April 2003,  the
Company borrowed an additional  $250,000 from Global and amended the convertible
note to include such amount.  As additional  consideration,  the Company  issued
Global a warrant  for the  purchase  of 3,333  shares of its common  stock at an
exercise  price of $7.20  per  share.  In  settlement  of  Alpine's  claim for a
finder's  fee in  connection  with the April 2003  amendment,  during  July 2004
Alpine received a warrant to purchase 40,000 shares of common stock at $1.50 per
share  expiring  July 8, 2009.  In November  2003,  as an  inducement  to obtain
Global's  consent to the sale of Units in the November 2003  transaction and the
2004 private  placement,  the Company issued Global a warrant to purchase 16,667
shares of common stock at an exercise price of $2.40 per share.  On February 13,
2004,  SmartServ  paid in full the principal and accrued  interest due under the
Global note, which was $1,391,504.

Between May and November 2003 the Company sold Units  consisting of  convertible
debentures  and  warrants to purchase  common  stock for $3 million in aggregate
proceeds.  During  February  2004,  SmartServ  completed a private  placement of
Units,  which Units consisted of Series A Convertible  Preferred Stock, $.01 par
value  ("Series  A") and  warrants to purchase  common  stock for $10 million in
aggregate  gross  proceeds.  Pursuant to their terms,  the principal and accrued
interest  on  SmartServ's  convertible  debentures  issued  in the  May  through
November  2003   transactions,   which  was   approximately   $3,122,302,   were
automatically  converted  into these Units.  Each Unit consisted of one share of
Series A initially  convertible  into ten shares of common stock and one warrant
for the purchase of ten shares of common stock.  The purchase price per Unit was
$15.00.  The Series A is  described  in more  detail  below  under note 6 to the
financial statements.

As of  December  31,  2003 the amount of the  Company's  debt  obligations  were
$4,250,010 and the unamortized discount amounted to $909,580.

As of March 31, 2004 the amount of the Company's debt  obligations  were paid in
full or converted to Series A as described above.

During the quarter ended June 30, 2004, the Company  entered into a note payable
to finance kiosk equipment in the amount of $70,000.  The note bears interest at
a rate of five percent per annum and has a two year term.

                                       14
<PAGE>

6.   Equity Transactions

In February  2004,  the Company  completed the closing of a $10 million  private
offering of  investment  Units  consisting of shares of Series A and warrants to
purchase common stock ("2004 Private Placement"). The private offering consisted
of investment  Units at the price of $15 per Unit. Each Unit consists of (i) one
share of  Series  A, each of which is  initially  convertible  into 10 shares of
common  stock,  and (ii) one  warrant  for the  purchase  of 10 shares of common
stock.  The  Series A  receives  dividends  at the  rate of 8% per year  payable
quarterly in cash or, in our sole discretion, in registered shares of our common
stock.  The  Series  A is  entitled  to a  liquidation  preference  equal to the
purchase price per Unit plus accrued and unpaid  dividends.  The Series A is not
redeemable. The warrants have an exercise price of $2.82 per share and expire in
February  2007.  The  Company is  obligated  to register  the common  stock upon
conversion of the Series A and exercise of the warrants. Holders of the Series A
have an  optional  right to convert to fully paid and  non-assessable  shares of
common stock on a one-for-ten basis (subject to adjustment) at any time prior to
the third  anniversary  date of the final closing date of February 27, 2004 (the
"Mandatory Conversion Date"). The Series A will be automatically  converted into
common stock on a one-for-ten basis (subject to adjustment) upon the earliest of
(i) the Mandatory  Conversion Date; or (ii) if, after two years from the date of
the final closing date of February 27, 2004, the common stock has a closing sale
price of $4.00 or more for twenty (20)  consecutive  trading  days.  The Company
also completed the closing of an additional  $25,000  private  offering of these
Units to an accredited  investor in March 2004,  which Units have the same terms
as described  above other than the expiration date which will be March 2007. The
Company has used and expects to use the net proceeds of approximately $8,600,000
from  this  offering  for  repayment  of  outstanding   obligations   (including
$1,391,500 that was used to repay Global),  completion of strategic acquisitions
and general working capital.

Pursuant to their  terms,  the  principal  and accrued  interest on  SmartServ's
convertible  debentures  issued in the May through  November 2003  transactions,
which was approximately  $3,122,302,  were also automatically converted into the
Units issued in the 2004 Private Placement.

Spencer Trask Ventures,  Inc.  ("Spencer  Trask") received  warrants to purchase
1,336,666  shares of common  stock at $1.50 per share and  warrants  to purchase
1,336,666 shares of common stock at $2.82 per share as partial  compensation for
being the placement agent for the 2004 Private Placement.

SmartServ  acquired  all of the stock of nReach,  Inc. on  February  28, 2004 in
exchange for 500,002 shares of its common stock;  provided, if the value of such
500,002  shares  immediately  prior  to June 1,  2004  is  less  than  $900,000,
SmartServ  will issue up to 299,167  additional  shares of its common stock with
respect to such  difference  in value.  The value of such 500,002  shares was in
excess of $900,000  immediately prior to June 1, 2004 and, therefore,  SmartServ
will  not  issue  any  additional   shares  of  its  common  stock.  The  nReach
shareholders may also earn up to 916,667 shares of our common stock in the event
SmartServ reaches certain revenue targets within five fiscal quarters  following
the  closing of this  transaction  at the rate of one share of common  stock for
every one dollar of  SmartServ  revenue in excess of  $2,700,000  (the  "Earnout
Trigger") during such five fiscal quarters.

Pursuant to a Restricted  Stock  Agreement  dated December 28, 1998, the Company
received a promissory  note in the original  principal  amount of $457,497  from
Sebastian E. Cassetta,  its former Chairman and Chief Executive Officer, for his
purchase of restricted  shares of common stock. As of June 30, 2004, the balance
due of such loan is  $187,525,  after  recording  of a  valuation  allowance  in
connection with the potential uncollectibility of such loan from Mr. Cassetta

During the quarter  ended March 31, 2004,  the Company  issued  60,000 shares of
common  stock and a cash  payment of $45,000  to a vendor in  settlement  of the
Company's obligation to that vendor

During the quarter  ended June 30, 2004,  the Company  issued  83,275  shares of
common  stock  amounting  to  $275,006 to Spencer  Trask and Richard  Berland as
finders fees for the recent financings.

Obligations to Maintain Effective Registration Statements:
----------------------------------------------------------

                                       15
<PAGE>

Vertical  Ventures  Investments,  LLC holds a warrant to  purchase  up to 22,476
shares of common stock that is subject to registration  rights. The Registration
Statement  covering the shares  underlying this warrant is no longer  effective.
The Company had until May 14, 2003 to cause the Registration  Statement to again
become effective. The Company failed to do so by May 14, 2003, so it is required
to pay a fee of  $8,250  for the  first  month  of the  deficiency  and a fee of
$16,500 for each month  thereafter  until the shares  underlying the warrant are
registered.

Accredited investors in the Company's September 2002 Equity Placement hold up to
an aggregate of 616,991  shares of common stock,  and warrants to purchase up to
an  aggregate of 249,954  shares of common  stock,  all subject to  registration
rights requiring the Company to use its commercially  reasonable best efforts to
maintain the effectiveness of the Registration  Statement covering the shares of
common stock and the shares underlying the warrants.  The Registration Statement
covering these securities is no longer effective.

Obligation to File a Registration Statement:
--------------------------------------------

Global  Capital  Funding  Group,  L.P.  holds warrants to purchase up to 257,333
shares of common stock,  and a convertible  note convertible into 189,394 shares
of common stock (which was paid off in February, 2004). The Company was required
to file a Registration  Statement covering all such shares on April 14, 2003 and
by agreement  with Global is required to include  such shares in a  Registration
Statement.  The Company  negotiated a cure of the penalty fee,  equal to $25,000
for each  month  that  this  deficiency  remained  uncured,  by  paying  off the
convertible  note in February 2004.  The Company filed a Form SB-2  Registration
Statement on May 13, 2004 that covered the common  stock  underlying  the Global
warrants which Registration Statement was not yet been declared effective by the
SEC.

7.   Stock-based Compensation

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

In connection  with entering  into an Employment  Agreement  with the Company on
March 12, 2004, the Company granted to Robert Pons, the Company's  President and
Chief Executive Officer, an option to purchase 1,300,000 shares of common stock,
which  option has an  exercise  price of $1.50 per share and a term of 10 years.
The option  provides for 557,141  shares to vest  immediately  and the remaining
742,859  shares  to vest in equal  amounts  as of the last day of each  calendar
quarter  commencing  March 31,  2004.  The option will vest  immediately  upon a
Change of Control (as defined in his option  agreement) or in the event Mr. Pons
is terminated  Other Than for Cause or he terminates  employment for Good Reason
(as each is defined under the Employment Agreement).

In connection  with entering  into an Employment  Agreement  with the Company on
March 12, 2004, the Company granted to Tim Wenhold, the Company's Executive Vice
President and Chief Operating  Officer,  an option to purchase 700,000 shares of
common stock,  which option has an exercise  price of $1.50 per share and a term
of 10 years.  The option provides for 300,000 shares to vest immediately and the
remaining  400,000  shares to vest in equal  amounts  as of the last day of each
calendar  quarter  commencing  March 31, 2004. The option will vest  immediately
upon a Change of Control  (as defined in his option  agreement)  or in the event
Mr. Wenhold is terminated  Other Than for Cause or he terminates  employment for
Good Reason (as each is defined under the Employment Agreement)

In April 2004, the Company granted to Len von Vital,  Matthew Stecker and Daniel
Wainfan,  the Company's Chief Financial  Officer,  Chief Technology  Officer and
Vice President of Marketing,  respectively,  each an option to purchase 300,000,
150,000 and 100,000 shares of common stock, respectively,  which options have an
exercise prices of $3.75, $1.50 and $3.25 respectively,  per share and a term of
10 years.  The options vest in equal amounts as of the last day of each calendar
quarter  commencing  June 30,  2004.  The options will vest  immediately  upon a
Change of Control (as defined in their option agreements).

                                       16
<PAGE>

Stock-based compensation for the three months and six months ended June 30, 2004
was for the impact of  options  granted  at less than fair  market  value on the
measurement  date and for the three  months and six months  ended June 30,  2003
consisted  primarily  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 and the  amortization  of deferred costs  associated with the prior
issuance of warrants to purchase common stock to various consultants.

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

<TABLE>
<CAPTION>
                                           Three Months              Six Months
                                           Ended June 30             Ended June 30
                                      ----------------------    ----------------------
                                         2004          2003        2004        2003
                                      ---------    ---------    ---------    ---------
<S>                                   <C>          <C>          <C>          <C>
Costs of services                     $ 305,250    $      --    $(231,001)   $     396

General and administrative expenses     587,784      (73,750)    (408,106)    (102,340)
                                      ---------    ---------    ---------    ---------
                                      $ 893,034    $ (73,750)   $(639,107)   $(101,944)
                                      =========    =========    =========    =========
</TABLE>

8.   Earnings Per Share

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

<TABLE>
<CAPTION>
                                                           Three Months                       Six Months
                                                           Ended June 30                      Ended June 30
                                                 --------------------------------    ------------------------------
                                                       2004             2003            2004               2003
                                                 ---------------    -------------    ---------------    -----------
<S>                                              <C>                <C>              <C>                <C>
Numerator:
   Net loss                                      $    (1,718,046)   $  (4,369,867)   $    (7,232,497)   $(6,725,058)
                                                 ===============    =============    ===============    ===========

Denominator:
   Weighted average shares - basic and diluted         2,870,230        2,000,243          2,658,889      1,978,476
                                                 ===============    =============    ===============    ===========

Basic and diluted loss per common share          $         (0.60)   $       (2.18)   $         (2.72)   $     (3.40)
                                                 ===============    =============    ===============    ===========
</TABLE>

Outstanding  stock  options and warrants to purchase an aggregate of  19,071,531
and  2,194,933  shares of common stock at June 30, 2004 and 2003,  respectively,
were not included in the  computations of diluted earnings per share because the
Company reported losses for the periods and,  therefore their inclusion would be
antidilutive.

9.   Commitments and Contingencies

On or about March 22, 2004, Jenkens & Gilchrist Parker Chapin, LLP,  SmartServ's
former legal counsel,  filed a complaint  against SmantServ in the Supreme Court
of the State of New York,  County of New York.  The  complaint  seeks payment of
unpaid invoices for legal services in the amount of $599,244.  While the Company
intends to vigorously defend such lawsuit,  an unfavorable  outcome could have a
material  adverse  effect  on the  Company's  financial  condition,  results  of
operation and cash flows.

                                       17
<PAGE>

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

Results of Operations


This  discussion  and  analysis  of  our  financial  condition  and  results  of
operations  contain certain  "forward-looking  statements" within the meaning of
the Private  Securities  Litigation  Reform Act of 1995.  Actual  results  could
differ materially from those anticipated in these forward-looking statements for
many  reasons,  including  the factors  described  in "Certain  Factors That May
Affect Future Results" and elsewhere in this report.

We design, develop and distribute software and services that enable the delivery
to wireless  devices of various  content,  with special emphasis on cell phones.
The content that we provide includes  premium content such as ringtones,  images
and games, and dynamic changing content such as horoscopes,  lottery results and
weather reports.  Historically,  we have licensed our applications,  content and
related services to wireless  carriers and enterprises.  We have revenue sharing
license  agreements  with  wireless  carriers  such as  Verizon  Wireless,  AT&T
Wireless,  Nextel and ALLTEL Wireless, that allow us to deliver our services and
branded content to a wide base of consumer cell phone users. For enterprises, we
have  in  the  past  offered  solutions  that  deliver  financial  market  data,
proprietary  internal  documents and other useful information to mobile workers,
although this no longer comprises a core part of our business or strategy.

We have since our inception  earned  limited  revenues and incurred  substantial
recurring operating losses, including net losses of $5,216,403 for the six month
period ended June 30, 2004, and  $17,537,775  and $8,037,173 for the years ended
December 31, 2003 and 2002,  respectively.  Additionally,  we had an accumulated
deficit of $95,613,184  and  $90,396,781 at June 30, 2004 and December 31, 2003,
respectively.

In February 2004, we completed the closing of a $10 million private  offering of
investment  Units  consisting of shares of Series A Convertible  Preferred Stock
and  warrants to purchase  common  stock  ("2004  Private  Placement").  We also
completed the closing of an additional  $25,000 private  offering of these Units
to an accredited  investor in March 2004. We have used and expect to use the net
proceeds  of  approximately  $8,600,000  from this  offering  for  repayment  of
outstanding  obligations  (including  $1,391,500  that was used to repay  Global
Capital Funding Group,  LP),  completion of strategic  acquisitions  and general
working  capital.  We believe we have  sufficient  working  capital for the next
twelve  months.  It is likely we may require  additional  funds in the long term
depending upon the growth of our revenues,  our business strategy,  the costs of
any acquisitions and other factors.

We believe  that the  evolution  of the  cellular  industry  is at an  important
turning   point,   where  both  consumers  and  businesses  are  expecting  more
functionality  and  features  from both  their cell  phones  and their  cellular
carriers.  This  expectation  is being  driven  by a number of  industry  trends
including highly  competitive  pricing packages,  newer and more functional cell
phones and mobile devices,  and the customers'  ability to take their cell phone
number  with  them to a new  carrier  that  offers  them  more  value  than  the
incumbent.   Competition  in  this   environment   appears  to  be  moving  from
differentiation  based on  network  coverage  or  minute  rates to one  based on
enhanced  features and services.  We believe that as carriers' network coverage,
quality of service,  and pricing  plans become  more-or-less  equal,  cell phone
customers  will  choose a carrier  based  principally  on the  suite of  premium
content and  applications  that are included with its service.  This environment
will provide an  opportunity  for us to exploit our current and planned  content
assets and delivery capabilities, developed over the past nine years.

To augment our capabilities, we acquired the issued and outstanding common stock
of the Colorado based nReach,  Inc. on February 28, 2004 in exchange for 500,002
shares of our common stock.  We also agreed to an earnout  schedule to pay up to
an additional  916,667  shares of our common stock in the event we reach certain
revenue  targets  within  five  fiscal  quarters  following  the closing of this
transaction at the rate of one share of our common stock for every dollar of our
revenue in excess of $2,700,000 (the "Earnout  Trigger") during such five fiscal
quarters. nReach, Inc., is a wireless content distribution company that offers a
broad portfolio of popular mass-market cell phone content,  including ringtones,
games and on-device  images.  This company may provide us with access to a large
number of  consumers  through its  existing  marketing  arrangements  with large
retailers.

                                       18
<PAGE>

We are building,  through acquisition and through internal  development,  a wide
array  of  content  that  will  continue  to  be  offered  through   traditional
carrier-based  distribution  channels as well as through bundled  offerings with
pre-paid  voice  minutes.  The  content  offered  or to be offered  through  the
SmartServ platforms consists of:

     o    Premium  content,  such as ring  tones,  images  and  games,  that are
          periodically delivered and reside on the mobile device; and

     o    Dynamic mobile applications,  where the information or data content is
          frequently changing and therefore  frequently  delivered to the mobile
          device.

While we  expect  to  retain  and grow our  revenues  derived  through  existing
channels, we believe that there is a substantial  opportunity to grow additional
revenue  through the bundling of our existing and planned future premium content
with voice  services  in ways  targeted to  specific  segments  of the  consumer
market.  Providing a set of products that bundle cell phone airtime with premium
content,  such as  ringtones,  images and games,  delivered  through our current
technology  infrastructure  is how we plan to  enter  the  emerging  market  for
reselling wireless airtime.

Our immediate focus will be on finding  channels to market to specific  segments
of consumers within the pre-paid  wireless  marketplace.  The rapidly  expanding
pre-paid  market  parallels  the  track  taken a decade  ago for  pre-paid  long
distance, but has an expanded reach since pre-paid wireless users can completely
avoid the monthly costs for a traditional home landline telephone.

While we believe that our new marketing  strategies,  as well as our carrier and
enterprise relationships are important to our success, no assurance can be given
that we will be able to  implement  our new  marketing  strategies  or that  our
carrier and  enterprise  relationships  will be  successful  in their  marketing
efforts  or  that  our  products  and  services  will be  well  received  in the
marketplace.  We also expect to perform certain development projects during 2004
to enhance our product offerings, including development of mobile lifestyle BREW
and J2ME applications.

On November  24,  2003,  we  announced  that our new  trading  symbol on the OTC
Bulletin  Board would be SSRV  effective at market opening on November 25, 2003.
NASD  assigned  this new  trading  symbol in  conjunction  with our  one-for-six
reverse  stock split,  which also took effect on November  25,  2003.  Under the
reverse stock split, our outstanding shares of common stock prior to the reverse
split were  exchanged for new shares of common stock at a ratio of one new share
for every six  pre-split  shares.  All of our  convertible  securities,  such as
convertible  debentures,  stock options and  warrants,  were also subject to the
reverse split. Our convertible securities are convertible or exercisable, as the
case may be, at six times the price  for  one-sixth  the  number of shares  into
which such security was previously convertible or exercisable. All share amounts
of common  stock and  convertible  securities  reported  in this Form 10-QSB are
adjusted for the split.

As of June 30, 2004,  SmartServ employed 17 people, all of whom were employed in
the United States. All were full-time employees.

                                       19
<PAGE>

Results of Operations

Quarter ended June 30, 2004 versus Quarter ended June 30, 2003
During the  quarter  ended June 30,  2004,  we recorded  revenues  of  $114,004,
substantially  all of which were earned  through our  licensing  agreement  with
QUALCOMM.  During the  quarter  ended June 30,  2003,  we  recorded  revenues of
$238,028.  Of such 2003  revenues,  $46,000  were earned  through our  licensing
agreement with wireless telecommunications carriers, $79,800 were earned through
our licensing agreement with Salomon Smith Barney and $108,000 were earned under
a one-time  purchase order from Wireless Retail,  Inc. During the quarters ended
June 30, 2004 and 2003, we recognized  $33,333 and $53,400,  respectively,  from
the amortization of deferred revenues.

During the  quarter  ended June 30,  2004,  we  incurred  costs of  services  of
$674,729,  a decrease  of 74% over the  $2,574,543  incurred  during the quarter
ended June 30, 2003.  Such costs  decreased  primarily  due to  reductions in US
personnel,  the  reduction  of computer  depreciation  and  maintenance  and the
reduction of consulting costs incurred in connection with the development of our
systems'  architecture  and  application  platform.  Components  of the costs of
service  category  consist  primarily of  information  and  communication  costs
($157,969),   personnel  costs  ($334,570),   consulting  expenses   ($131,936),
facilities  ($4,268)  and travel  costs  ($14,474).  Costs  associated  with the
operations of nReach,  that are included in the  categories  listed above,  were
$339,090 for the quarter ended June 30, 2004.  During the quarter ended June 30,
2003, we incurred  costs of services of  $2,574,543.  Components of the costs of
service  category  consist  primarily of  information  and  communication  costs
($119,900),  personnel costs ($445,800),  computer hardware leases, depreciation
and maintenance costs ($270,200), facilities ($62,800) and amortization expenses
relating to capitalized software development costs ($91,900).

During the quarter ended June 30, 2004, we incurred sales and marketing expenses
of $98,514,  a decrease of 5% over the quarter  ended June 30, 2003.  Such costs
decreased primarily due to US personnel reductions.  Components of the sales and
marketing  category consist  primarily of personnel costs ($44,528),  consulting
costs ($5,793) trade show costs ($14,033) and public  relations costs ($34,160).
During the quarter ended June 30, 2003, we incurred sales and marketing expenses
of $103,496. Components of the sales and marketing category consist primarily of
personnel costs ($96,400).

During the quarter ended June 30, 2004, we incurred  general and  administrative
expenses of  $704,185,  a decrease of 48% over the quarter  ended June 30, 2003.
Such expenses  decreased  primarily due to personnel  reductions,  reductions in
professional  fees and reductions in facilities  costs related to the relocation
of  our   headquarters   from  Stamford,   Connecticut   to  Plymouth   Meeting,
Pennsylvania.  Components  of the general and  administrative  category  consist
primarily  of  personnel  costs   ($182,316),   consulting   costs   ($388,674),
professional  fees  ($268,987),  facilities  ($19,197) and insurance  ($23,983).
These costs were partially offset by discounts negotiated with vendors to settle
outstanding  accounts  payable  amounting to $285,682.  During the quarter ended
June 30, 2003, we incurred  general and  administrative  expenses of $1,360,913.
Components  of the general and  administrative  category  consist  primarily  of
personnel costs ($353,000),  professional fees ($302,200), facilities (122,800),
insurance  ($33,000) and computer hardware leases,  depreciation and maintenance
costs ($35,900).

During the quarter ended June 30 2004,  the net noncash  credit for  stock-based
compensation  amounted to $893,034,  compared to a net noncash charge of $73,750
during the quarter ended June 30, 2003.  Such noncash costs decreased due to the
vesting of employee  stock  options to  management at a price that was less than
the fair  market  value of our  common  stock on the grant  date.  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  employee stock 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 consulting  services for the quarters
ended June 30, 2004 and 2003 were  $356,218  and $-0-,  respectively,  resulting
primarily  from the issuance of warrants to purchase  common stock to financial,
marketing and investor relations consultants.  During the quarter ended June 30,
2003, noncash charges for consulting services were $73,350,  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

                                       20
<PAGE>

consultants.  The  value of  substantially  all of such  common  stock  purchase
warrants  has  been  recorded  in  accordance  with  the  Black-Scholes  pricing
methodology.

Interest income for the quarters ended June 30, 2004 and 2003 amounted to $9,546
and $4,360 respectively. Such amounts were earned primarily from our investments
in money fund  accounts.  During  the  quarters  ended  June 30,  2004 and 2003,
interest and other  financing  costs were  $154,948  and $873,510  respectively.
During the quarters ended June 30, 2004 and 2003,  interest and other  financing
costs were incurred in connection  with the  completion,  in February 2004, of a
$10 million private offering of investment  Units in the 2004 Private  Placement
and other financing costs were incurred in connection with the convertible notes
issued in May and June 2003.

During the  quarter  ended June 30,  2003,  the Company  recorded  an  insurance
recovery of $374,000  for legal costs  incurred in  connection  with a favorable
trial decision in the matter of Michael Fishman v. SmartServ Online, Inc. et al.

Basic and diluted  loss per share was $0.60 for the quarter  ended June 30, 2004
compared to $2.18 loss per share for the quarter  ended June 30, 2003.  The loss
per share for the  quarter  ended June 30, 2004  includes  an accrued  preferred
stock dividend of $1,102,254.  The weighted average shares outstanding increased
to 2,870,230 at June 30, 2004 from 2,000,243 at June 30, 2003.



Six Months ended June 30, 2004 versus Six Months ended June 30, 2003

During the six months  ended June 30,  2004 and 2003,  we  recorded  revenues of
$187,715 and $469,015  respectively.  Of such 2004 revenues,  substantially  all
were earned through our licensing agreement with QUALCOMM Of such 2003 revenues,
$65,300   were   earned   through  our   licensing   agreement   with   wireless
telecommunications   carriers,   $288,500  were  earned  through  our  licensing
agreement  with  Salomon  Smith  Barney and  $108,000  were  earned  through our
licensing  agreement with Wireless  Retail,  Inc. During the quarters ended June
30, 2004 and 2003, we recognized  $33,333 and $222,100,  respectively,  from the
amortization of deferred revenues.

During the six months  ended June 30,  2004,  we  incurred  costs of services of
$981,595,  a decrease of 74% over the six months ended June 30, 2003. Such costs
decreased primarily due to reductions in US personnel, the reduction of computer
depreciation  and maintenance and the reduction of consulting  costs incurred in
connection  with the  development of our systems'  architecture  and application
platform. Components of the costs of service category consist primarily of costs
associated with information and communication costs ($249,820),  personnel costs
($482,392),  consulting  expenses  ($184,998)  and facilities  ($10,603).  Costs
associated  with the  operations of nReach,  that are included in the categories
listed above, were $461,257 for the four months since the acquisition within the
six months  ended June 30, 2004.  During the six months ended June 30, 2003,  we
incurred costs of services of $3,791,374. Such costs include a charge ($129,000)
in connection with the potential  uncollectibility of a loan to a former officer
and an  impairment  loss  ($1,440,600)  recorded  to  adjust  the  value  of the
Company's  property  and  equipment  and  capitalized   software  costs  to  net
realizable value,  offset by personnel  reductions and the reduction of computer
hardware  leases,  depreciation and maintenance  costs.  Other components of the
costs of service  category  during the six months  ended June 30,  2003  consist
primarily of information and  communication  costs  ($268,900),  personnel costs
($1,022,300),  computer  hardware  leases,  depreciation  and maintenance  costs
($593,300),   facilities   ($124,800)  and  amortization  expenses  relating  to
capitalized software development costs ($183,800).

During the six months  ended June 30,  2004,  we  incurred  sales and  marketing
expenses of $142,220, a decrease of 63% over the six months ended June 30, 2003.
Such costs  decreased  primarily due to US personnel  reductions,  reductions in
travel and  reductions in advertising  and trade shows.  Components of the sales
and  marketing   category  consist   primarily  of  personnel  costs  ($69,960),
consulting costs ($15,556) and public relations costs ($34,160).  During the six
months  ended  June 30,  2003,  we  incurred  sales and  marketing  expenses  of
$380,030.  Components of the costs of the sales and marketing  category  consist
primarily for personnel costs ($301,600),  advertising and trade shows ($9,200),
consulting fees ($17,800) and travel and lodging ($33,300).

                                       21
<PAGE>

During  the  six  months   ended  June  30,  2004,   we  incurred   general  and
administrative  expenses  of  $1,365,134,  a decrease of 42% over the six months
ended  June  30,  2003.  Such  expenses  decreased  primarily  due to  personnel
reductions,  reductions in professional  fees and reductions in facilities costs
related to the  relocation of our  headquarters  from  Stamford,  Connecticut to
Plymouth  Meeting,  Pennsylvania.  Components of the general and  administrative
category  consist  primarily  of personnel  costs  ($267,057),  consulting  fees
($753,903),  professional  fees ($418,186),  facilities  ($38,508) and insurance
($53,671).  During the six months ended June 30, 2003,  we incurred  general and
administrative expenses of $2,360,093. Such costs include a charge ($270,000) in
connection with the potential uncollectibility of a loan to a former officer and
an  impairment  loss  ($108,000)  recorded to adjust the value of the  Company's
property and equipment to net realizable value,  offset by personnel  reductions
and the  reduction  of insurance  costs.  Other  components  of the costs of the
general and  administrative  category  during the six months ended June 30, 2003
consist primarily for personnel costs ($672,200),  professional fees ($613,300),
facilities   ($244,200),   insurance   ($129,000),   computer  hardware  leases,
depreciation  and  maintenance  costs  ($76,200),   and   communications   costs
($25,900).

During  the six  months  ended  June  30,  2004,  the  net  noncash  charge  for
stock-based  compensation  amounted to $639,107 compared to a net noncash charge
of  $101,944  during the six months  ended June 30,  2003.  Such  noncash  costs
increased  due  to the  issuance  and  vesting  of  employee  stock  options  to
management  at a price  that was less than the fair  market  value of our common
stock on the grant  date.  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 employee stock 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  consulting  services  for the six months  ended June 30, 2004 and 2003 were
$447,859 and $103,000,  respectively,  resulting  primarily from the issuance of
warrants to purchase common stock to financial, marketing and investor relations
consultants, from the issuance of warrants to the Company's former legal counsel
as part of his separation  agreement and from the amortization of deferred costs
associated  with the prior  issuance of warrants  to  purchase  common  stock to
financial,   legal,   marketing   and  technical   consultants.   The  value  of
substantially  all of such common stock  purchase  warrants has been recorded in
accordance with the Black-Scholes pricing methodology.

Interest  income for the six months  ended June 30,  2004 and 2003  amounted  to
$12,767 and $8,892,  respectively.  Such amounts were earned  primarily from our
investments  in money fund  accounts.  During the six months ended June 30, 2004
and 2003,  interest and other  financing  costs were  $2,092,029 and $1,249,396,
respectively.  During the six months ended June 30, 2004 and 2003,  interest and
other  financing  costs were  incurred in  connection  with the  completion,  in
February 2004, of a $10 million private offering of investment Units in the 2004
Private  Placement  and in  connection  with the  convertible  notes  issued  in
February,  May and June 2003 and the $20 million  line of credit  facility  with
Hewlett Packard.

During  the six months  ended  June 30,  2003,  the  Company  recorded a gain of
$305,822  resulting  from the  partial  repayment,  in full  settlement,  of the
amended promissory note issued to Hewlett-Packard  Company.  Also during the six
months  ended June 30,  2003,  the  Company  recorded an  insurance  recovery of
$374,000 for legal costs incurred in connection  with a favorable trial decision
in the matter of Michael Fishman v. SmartServ Online, Inc., et al.

Basic and  diluted  loss per share was $2.72 for the six  months  ended June 30,
2004  compared to $3.40 loss per share for the six months  ended June 30,  2003.
The weighted average shares outstanding  increased to 2,658,889 at June 30, 2004
from 1,978,476 at June 30, 2003.

                                       22
<PAGE>

Capital Resources and Liquidity

At June 30, 2004 and December 31, 2003,  the Company had cash of $4,526,790  and
$139,178,  respectively.  Net cash used in operations was $2,687,891 for the six
months ended June 30, 2004  compared to  $2,371,830  during the six months ended
June 30, 2003. The primary reason for this increase was the Company's  reduction
of its accounts payables through negotiated settlements with vendors.

In March 2004, we completed the acquisition of all of the  outstanding  stock of
nReach, Inc., based in Lakewood, Colorado, in exchange for 500,002 shares of our
common stock,  the assumption and payment of $100,000 of certain  obligations of
nReach's  stockholders  and an earn out schedule that may require our payment of
up to an  additional  916,667  shares of common  stock based on certain  revenue
targets.

In February 2004, we completed the closing of a $10 million private  offering of
investment  Units  consisting of shares of Series A Convertible  Preferred Stock
and warrants to purchase  common stock ("2004 Private  Placement").  The private
offering  consisted of investment  Units at the price of $15 per Unit. Each Unit
consists  of (i) one share of Series A  convertible  preferred  stock,  $.01 par
value,  each of which is initially  convertible  into 10 shares of common stock,
and (ii) one warrant for the purchase of 10 shares of common stock. The Series A
receives  dividends at the rate of 8% per year payable  quarterly in cash or, in
our sole discretion, in registered shares of our common stock. The warrants have
an  exercise  price of $2.82 per share and  expire  in  February  2007.  We also
completed the closing of an additional  $25,000 private  offering of these Units
to an  accredited  investor  in March  2004,  which Units have the same terms as
described  above other than the  expiration  date which will be March 2007.  The
Series A is entitled to a liquidation preference equal to the purchase price per
Unit plus accrued and unpaid dividends. The Series A is not redeemable.  Spencer
Trask, the placement agent for the 2004 Private Placement, received compensation
consisting of (i) a cash fee of  $1,002,500,  or 10% of the  aggregate  purchase
price of all of the Units  acquired  for cash,  (ii) a  non-accountable  expense
allowance of  $300,750,  or 3% of the  aggregate  proceeds of all Units sold for
cash in the  transaction,  and (iii)  warrants to purchase a number of shares of
common  stock  equal  to  20% of the  shares  of  common  stock  underlying  the
securities in the Units sold for cash, constituting in the aggregate warrants to
purchase  1,336,666  shares of common  stock at $1.50 per share and  warrants to
purchase  1,336,666  shares of common stock at $2.82 per share.  These  warrants
were issued in reliance upon the exemption from registration provided by Section
4(2) of the  Securities  Act. We have used and expect to use the net proceeds of
approximately  $8,600,000  from  this  offering  for  repayment  of  outstanding
obligations  (including $1,391,500 that was used to repay Global Capital Funding
Group, LP), completion of strategic acquisitions and general working capital. We
also  anticipated  using a significant  portion of our working capital to settle
our accounts payable,  which accounts payable were approximately  $1,300,000 and
$1,700,000 as of June 30, 2004 and December 31, 2003, respectively.

In February 2004, the convertible  notes issued in our May, June,  September and
November 2003 bridge  financings  were  automatically  converted  into the Units
issued in connection with the 2004 Private Placement.  The conversion took place
at the rate of $15 per Unit.  This  resulted in the  conversion of the aggregate
outstanding  amount of debt owing from these  convertible  notes  ($3,122,302  -
representing  principal and accrued  interest)  into 208,147 Units from the 2004
Private Placement, which in the aggregate consists of 208,147 shares of Series A
Convertible  Preferred Stock and warrants to purchase 2,081,470 shares of common
stock at an exercise price $2.82 per share.  These  warrants  expire in February
2007.

While the  warrants  to  purchase  common  stock  issued  during  the year ended
December  31, 2003 and six months ended June 30, 2004  represent  an  additional
source of  capital,  they  expire  between  May 2006 and March  2009 and are not
callable by us. Therefore, they cannot be relied upon by us as a definite source
of capital.  The warrant  holders may choose to exercise  their  warrants if the
market price of our common stock exceeds the exercise price of the warrant.

During the year ended  December 31, 2002,  we recorded a valuation  allowance of
$664,640 in connection with the potential  uncollectibility of outstanding loans
made to Mr. Sebastian  Cassetta,  our then Chairman and Chief

                                       23
<PAGE>

Executive Officer,  which included a loan used by him to purchase our restricted
stock  and  loans  in the  aggregate  original  principal  amount  of  $500,000.
Additionally,  during the quarter  ended June 30, 2003,  we recorded a valuation
allowance of $270,000 in connection with the potential  uncollectibility  of the
loan  made to Mr.  Cassetta  for  the  purchase  of our  restricted  stock.  Mr.
Cassetta's  ability  to  repay  these  loans  and  interest  thereon  is  highly
contingent on the market value of his  investment  in our common  stock.  In his
separation  agreement in October 2003, we extended the maturity date of the loan
for the restricted stock until September 2004 and forgave over a three-year term
the loans in the  aggregate  original  principal  amount of  $500,000,  plus the
accrued interest thereon.

Our  failure  to  timely  file or keep  registration  statements  effective  has
affected the registration rights held by certain of our stockholders and warrant
holders. As of June 30, 2004, we recorded an aggregate of $202,125 for penalties
in connection with the aforementioned  registration  requirements.  Such amounts
are  included in accrued  expenses on our  balance  sheet.  We filed a Form SB-2
Registration  Statement on May 13, 2004. It has not yet been declared  effective
by the Securities and Exchange Commission ("SEC").

The  economic  downturn  in  general,  and its impact on the  telecommunications
industry in particular,  caused  telecommunications  service providers to reduce
capital spending, personnel and debt, as well as new service introductions. This
had resulted in delays in the build-out of high-speed  carrier data networks and
availability  of  data-enabled  wireless  devices,  causing  the  market for our
financial  data,  lifestyle  and  transaction  services  to  be  lackluster.  In
addition,  many financial  services firms  curtailed new product  development to
focus on data security and recovery.  Consequently, the potential demand for our
products  and services has been  significantly  delayed.  Such delays have had a
very detrimental  effect on our operations and have resulted in our inability to
implement our business plan and related marketing strategies.  Consequently,  in
2002 we commenced an effort to realign our  infrastructure  and related overhead
to correlate with reductions in projected  revenue.  As part of this effort,  we
closed our UK and Hong Kong sales offices and downsized our domestic  operations
through  staff  reductions  to a  level  sufficient  to  support  our  projected
operations.  In both March and May 2003, we reduced our cost  structure  through
the termination of additional  personnel.  Personnel  headcount has been reduced
from 66 in May 2002 to the current  level of 17 as of June 30,  2004  (including
the nReach acquisition  completed in March 2004). These efforts have reduced our
average monthly operating expenses from approximately $1,090,000 in July 2002 to
approximately $370,000 as of June 2004 (including operating expenses of nReach),
excluding  non-cash  stock  compensation,  depreciation  and  amortization.  The
Company  anticipates  that its monthly  operating  expenses will increase during
2004 due to the working capital  requirements of the business of nReach, as well
as related to expansion of marketing and business development efforts for all of
the Company's products and services and increased corporate overhead.

We believe we have sufficient  working capital for the next twelve months. It is
likely  we may  require  additional  funds in the long term  depending  upon the
growth of our revenues, our business strategy, the costs of any acquisitions and
other factors.  Should the Company be unable to raise  additional debt or equity
financing, it may be forced to seek a merger or cease operations.


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.  These  forward-looking  statements
involve certain known and unknown risks,  uncertainties  and other factors which
may cause our actual  results,  performance  or  achievements  to be  materially
different  from any future  results,  performance or  achievements  expressed or
implied by these forward-looking statements. Certain factors that could cause or
contribute to such differences  include, and are not limited to: We may not have
sufficient  working  capital in the long term; We have never been profitable and
if we do not achieve  profitability we may not be able to continue our business;
We have significant accounts payable obligations; We may not be able to complete
or successfully  integrate  acquisitions  that we seek to pursue, or achieve the
desired results of such acquisitions;  Only one of our

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<PAGE>

four major  customers  from 2003 will  continue to generate  revenues  for us in
2004;  We plan to pursue  new  streams  of  revenue  from the  resale of prepaid
wireless  airtime  bundled with wireless  data  content,  and revenues from such
business may not materialize;  We have a new CEO and executive  management team;
The market for our business is in the development  stage and may not achieve the
growth we expect;  Spencer  Trask may be able to affect and exercise some manner
of control over us; The market price of our common stock may decrease because we
have  issued,  and will  likely  continue  to  issue,  a  substantial  number of
securities  convertible  or exercisable  into our common stock;  and other risks
described in this  Quarterly  Report on Form 10-QSB,  our Annual  Report on Form
10-KSB/A for the year ended  December 31, 2003  (including  the risks  described
under "Risk  Factors")  and our other filings with the  Securities  and Exchange
Commission. You can identify forward-looking statements by the fact that they do
not relate  strictly  to  historical  or  current  facts.  The words  "believe,"
"expect,"  "anticipate,"  "intend" and "plan" and similar  expressions are often
used to identify forward-looking  statements.  We caution you not to place undue
reliance on these  forward-looking  statements.  We undertake no  obligation  to
update or revise any  forward-looking  statements  or to publicly  announce  the
result  of  any  revisions  to any of the  forward-looking  statements  in  this
document to reflect future events or developments.


Item 3.     Controls and Procedures

We maintain a system of disclosure  controls and procedures  that is designed to
provide  reasonable  assurance that information that is required to be disclosed
by us in the reports  that we file or submit under the  Securities  and Exchange
Act of 1934, as amended,  is  accumulated  and  communicated  to management in a
timely manner.  Our Chief  Executive  Officer and Chief  Financial  Officer have
evaluated this system of disclosure controls and procedures as of the end of the
period  covered by this quarterly  report,  and each believes that the system is
operating effectively to ensure appropriate  disclosure at a reasonable level of
assurance.  There have been no changes  during the second fiscal  quarter in our
internal  control  over  financial  reporting,  to the extent  that  elements of
internal control over financial reporting is subsumed within disclosure controls
and  procedures,  that have  materially  affected,  or are reasonably  likely to
materially affect, our internal control over financial reporting.

                                       25
<PAGE>

PART II.  OTHER INFORMATION


                             SmartServ Online, Inc.


Item 2.    Changes in Securities and Use of Proceeds

At the time of issuance,  each investor or recipient of unregistered  securities
was either an accredited investor or a sophisticated investor. Each investor had
access to  SmartServ's  most recent Form  10-KSB/A,  all  quarterly and periodic
reports filed  subsequent  to such Form  10-KSB/A and the Company's  most recent
proxy materials.

In  connection  with settling a debt with a law firm, in April 2004 we granted a
warrant to purchase 1,820 shares of common stock at $3.15 per share. The warrant
expires in April of 2006. This warrant was issued in reliance upon the exemption
from  registration  provided by Section 4(2) of the  Securities  Act of 1933, as
amended.

In connection with engaging a vendor to provide investor relation  services,  in
May 2004 we entered  into an  agreement  to grant a warrant to  purchase  50,000
shares of common stock at $2.15 per share.  The warrant  expires in May of 2006.
This  warrant  was  issued in  reliance  upon the  exemption  from  registration
provided by Section 4(2) of the Securities Act of 1933, as amended.

In connection with Alpine  Capital's claim for a finder's fee in connection with
the April 2003 amendment related to bridge financing,  Alpine received a warrant
in July to purchase  40,000  shares of common stock at $1.50 per share  expiring
July 8, 2009.  This  warrant  was issued in  reliance  upon the  exemption  from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.

In connection  with payment to a vendor to provide  recruiting  services in June
2004 we entered into an agreement to grant a warrant to purchase 5,000 shares of
common  stock at $3.10 per  share.  The  warrant  expires  in May of 2006.  This
warrant was issued in reliance upon the exemption from registration  provided by
Section 4(2) of the Securities Act of 1933, as amended.

In connection  consulting services to be provided by Shai Stern, M. Ezzat Jalled
and E. Alan Scheik III we entered into consulting agreements dated June 2004 for
warrants to purchase 25,000, 100,000 and 10,000 shares of common stock at $1.50,
$1.50 and $2.50 per share , respectively  and expiring in May 2006. This warrant
was issued in reliance upon the exemption from registration  provided by Section
4(2) of the Securities Act of 1933, as amended.

                                       26
<PAGE>

Item 6.     Exhibits and Reports on Form 8-K

(a)  Exhibits:

10.1   Option Agreement dated as of April 9, 2004 between  SmartServ and Len von
       Vital+
10.2   Option Agreement dated as of April 15, 2004 between SmartServ and Matthew
       Stecker+
10.3   Option Agreement dated as of April 26, 2004 between  SmartServ and Daniel
       Wainfan+
10.4   Non-Employee Director Compensation Plan+
10.5   Consulting  Agreement  dated as of June 1, 2004 between  SmartServ and M.
       Ezzat Jalled/1/
31.1   Certification  of Chief Executive  Officer pursuant to Section 302 of the
       Sarbanes-Oxley Act of 2002+
31.2   Certification  of Chief Financial  Officer pursuant to Section 302 of the
       Sarbanes-Oxley Act of 2002+
32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+

+      Filed herewith.

1      Filed as an Exhibit to Amendment No. 1 to our  Registration  Statement on
       Form SB-2 (Registration Statement No. 333-115462) on July 27, 2004

(b)  Reports on Form 8-K

On April 16,  2004,  the  Company  filed a Form 8-K under Items 5 and 12 of such
Form. The information related to the Company's press release issued on April 14,
2004 regarding the financial results for the quarter and year ended December 31,
2003 and the  expiration of the stock purchase  agreement with Mobile  Airwaves,
Inc.

On May 4, 2004, the Company filed a Form 8-K/A,  Amendment No. 1 under Item 2 of
such Form. The information related to the acquisition on February 28 2004 of all
of the stock of nReach,  Inc. which was previously  reported on a Form 8-K filed
by the  Company  on March 4, 2004,  and the  assumption  of certain of  nReach's
obligations by the Company and the obligation of the Company to issue additional
shares of the Company's common stock under certain circumstances.

On May 20,  2004,  the  Company  filed a Form  8-K  under 12 of such  Form.  The
information  related  to the  Company's  press  release  issued on May 20,  2004
regarding its unaudited  financial results for the first quarter ended March 31,
2004.

                                       27
<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 16, 2004                   /s/ Robert M. Pons
      ---------------                   ----------------------------------------
                                        Robert M. Pons
                                        Chief Executive Officer


Date: August 16, 2004                   /s/ Len von Vital
      ---------------                   ----------------------------------------
                                        Len von Vital
                                        Chief Financial Officer


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