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              UNITED STATES 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 March 31, 2005

                       Commission file number 0-28008

                            SmartServ Online, Inc.
--------------------------------------------------------------------------------
       (Exact Name of Small Business Issuer as Specified in Its Charter)

Delaware                                                           13-3750708
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(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

            2250 Butler Pike, Suite 150, Plymouth Meeting, PA 19462
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                   (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 May 1,
2005 was 5,520,605.

Transitional Small Business Disclosure Format (check one):


Yes |_|     No |X|

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<PAGE>

                           SmartServ Online, Inc.

                                Form 10-QSB

                                   Index


PART 1.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

      Consolidated Balance Sheets - March 31, 2005 (unaudited) and
      December 31, 2004........................................................2

      Consolidated Statements of Operations - three months ended
      March 31, 2005 and 2004 (unaudited)......................................4

      Consolidated Statement of Changes in Stockholders' Equity -
      three months
      ended March 31, 2005 (unaudited).........................................5

      Consolidated Statements of Cash Flows - three months ended
      March 31, 2005 and 2004 (unaudited)......................................6

      Notes to Consolidated Financial Statements (unaudited)...................7

Item 2.  Management's Discussion and Analysis or Plan of Operation............17

Item 3.  Controls and Procedures..............................................24

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings....................................................24

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds..........24

Item 3.  Defaults Upon Senior Securities......................................25

Item 6.  Exhibits ............................................................25

         Signatures...........................................................26



                                       1
<PAGE>

                             SmartServ Online, Inc.

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                 March 31,   December 31,
                                                                   2005          2004
                                                                ----------    ----------
                                                                (Unaudited)
<S>                                                             <C>           <C>
Assets
Current assets
   Cash                                                         $  892,657    $1,792,856
   Investments                                                     100,019        99,697
   Accounts receivable                                           4,469,565        92,496
   Prepaid expenses                                                 22,938       349,040
                                                                ----------    ----------
Total current assets                                             5,485,179     2,334,089
                                                                ----------    ----------

Property and equipment, net                                         65,119        73,500

Goodwill                                                         1,743,819            --
Intangibles, net of accumulated amortization of $160,161 and       874,728       911,688
      $123,201 as of March 31, 2005 and December 31, 2004,
       respectively
Security deposits                                                   18,787        18,237

                                                                ----------    ----------
Total Assets                                                    $8,187,632    $3,337,514
                                                                ==========    ==========
</TABLE>

See accompanying notes.


                                       2
<PAGE>

                             SmartServ Online, Inc.

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                        March 31,       December 31,
                                                                          2005              2004
                                                                     -------------     -------------
                                                                      (Unaudited)
<S>                                                                  <C>               <C>
Liabilities and Stockholders' Equity
Current liabilities
   Accounts payable                                                  $   4,923,256     $     446,528
   Accrued liabilities                                                   1,782,760         1,419,248
   Current portion of note payable                                          36,898            36,898
                                                                     -------------     -------------
Total current liabilities                                                6,742,914         1,902,674
                                                                     -------------     -------------

Note payable                                                                 4,798            13,415

Commitments and Contingencies (Note 7)

Stockholders' Equity
Convertible preferred stock - $0.01 par value

   Authorized - 1,000,000 shares
   Issued and outstanding - 851,448 and 862,282 shares,
      aggregate liquidation preference of $14,315,983 and
      $14,056,639 as of March 31, 2005 and December 31,2004,
      respectively                                                           8,514             8,623
Common stock - $.01 par value
   Authorized - 40,000,000 shares
   Issued - 5,586,785 shares and 3,978,445 shares ; outstanding -
      5,457,732shares and 3,849,392 shares at March 31, 2005
      and at December 31, 2004, respectively                                55,868            39,785
Additional paid-in capital                                             106,162,113       103,877,486
Unearned compensation                                                   (1,250,493)       (1,363,663)
Accumulated deficit                                                   (103,372,429)     (100,977,153)
                                                                     -------------     -------------
                                                                         1,603,573         1,585,078
                                                                     -------------     -------------
Treasury stock, 129,053 shares at cost                                    (163,653)         (163,653)
                                                                     -------------     -------------
Total stockholders' equity                                               1,439,920         1,421,425
                                                                     -------------     -------------

Total Liabilities and Stockholders' Equity                           $   8,187,632     $   3,337,514
                                                                     =============     =============
</TABLE>

See accompanying notes.


                                       3
<PAGE>

                             SmartServ Online, Inc.

                      Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                            Three Months Ended March 31,
                                                           -----------------------------
                                                               2005             2004
                                                           ------------     ------------
<S>                                                        <C>              <C>
Revenues                                                   $ 11,493,851     $     73,711
                                                           ------------     ------------

Costs and expenses
   Direct costs of revenues                                 (11,486,695)        (316,866)
   Sales and marketing expenses                                (260,691)         (43,706)
   General and administrative expenses                       (2,030,529)        (650,949)
   Stock-based compensation                                    (113,170)      (1,532,141)
                                                           ------------     ------------

Total costs and expenses                                    (13,891,085)      (2,543,662)
                                                           ------------     ------------

Loss from operations                                         (2,397,234)      (2,469,951)
                                                           ------------     ------------

Other income (expense)
   Interest income                                                2,567            3,221
   Interest expense and other financing costs                      (609)      (1,937,081)
   Legal settlement                                                  --         (196,800)

                                                           ------------     ------------
                                                                  1,958       (2,130,660)
                                                           ------------     ------------
Net loss                                                   $ (2,395,276)    $ (4,600,611)
                                                           ============     ============

Preferred stock dividend accrued                             (1,194,135)        (913,840)

                                                           ------------     ------------
Net loss applicable to common shareholders                 $ (3,589,411)    $ (5,514,451)
                                                           ============     ============

Basic and diluted loss per common share                    $      (0.72)    $      (2.25)
                                                           ============     ============

Weighted average shares outstanding - basic and diluted       4,961,319        2,447,453
                                                           ============     ============
</TABLE>

See accompanying notes.


                                       4
<PAGE>

                             SmartServ Online, Inc.
            Consolidated Statement of Changes in Stockholders' Equity
                        Three Months Ended March 31, 2005
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                          Series A Convertible
                                                              Common Stock                  Preferred Stock
                                                         Shares       Par Value         Shares        Par Value
                                                      -------------  -------------  -------------   -------------
<S>                                                   <C>            <C>            <C>             <C>
Balances at December 31, 2004                             3,978,445  $      39,785        862,282   $       8,623

Issuance of common stock to acquire KPCCD, Inc.           1,000,000         10,000             --              --

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

Issuance of warrants to vendor                                   --             --             --              --

Issuance of common stock pursuant to an antidilution
  provision of a May 2000 stock purchase agreement          500,000          5,000             --              --

Series A Preferred Stock and warrants                            --             --             --              --

Conversion of Series A Preferred Stock                      108,340          1,083        (10,834)           (109)

Accretion of Series A Preferred Stock                            --             --             --              --

Dividends accrued on Series A Preferred Stock                    --             --             --              --

Common  stock issuable per settlement with former
  officer                                                        --             --             --              --

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

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

                                                      -----------------------------------------------------------
Balances at March 31, 2005                                5,586,785  $      55,868        851,448   $       8,514
                                                      ===========================================================

<CAPTION>

                                                        Additional
                                                         Paid- in        Unearned        Treasury      Accumulated
                                                          Capital      Compensation        Stock         Deficit
                                                      -------------------------------------------------------------
<S>                                                   <C>             <C>             <C>             <C>
Balances at December 31, 2004                         $ 103,877,486   $  (1,363,663)  $    (163,653)  $(100,977,153)

Issuance of common stock to acquire KPCCD, Inc.           1,707,143              --              --              --

Issuance of warrants as compensation for services           725,165              --              --              --

Issuance of warrants to vendor                               12,637              --              --              --

Issuance of common stock pursuant to an antidilution
  provision of a May 2000 stock purchase agreement           (5,000)             --              --              --

Series A Preferred Stock and warrants                       934,791              --              --              --

Conversion of Series A Preferred Stock                         (974)             --              --              --

Accretion of Series A Preferred Stock                      (934,791)             --              --              --

Dividends accrued on Series A Preferred Stock              (259,344)             --              --              --

Common  stock issuable per settlement with former
  officer                                                   105,000              --              --              --

Amortization of unearned compensation                            --         113,170              --              --

Net loss for the period                                          --              --              --      (2,395,276)

                                                      -------------------------------------------------------------
Balances at March 31, 2005                            $ 106,162,113   $  (1,250,493)  $    (163,653)  $(103,372,429)
                                                      =============================================================
</TABLE>

See accompanying notes.


                                       5
<PAGE>

                             SmartServ Online, Inc.

                      Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                      Three Months Ended March 31,
                                                                      ---------------------------
                                                                          2005           2004
                                                                      -----------     -----------
<S>                                                                   <C>             <C>
Operating Activities
Net loss                                                              $(2,395,276)    $(4,600,611)
Adjustments to reconcile net loss to net cash
    used for operating activities
       Depreciation and amortization                                       47,725              --
       Noncash compensation costs                                         105,000         640,418
          Provision for doubtful accounts                                 225,000              --
       Noncash consulting services                                        725,165          91,641
       Noncash payments to vendors                                         12,637         219,369
       Amortization of deferred compensation                              113,170       1,532,141
       Amortization of deferred financing costs                                --       1,231,772
       Changes in operating assets and liabilities
          Accounts receivable                                          (4,602,069)          3,481
          Accrued interest receivable                                          --          43,783
          Prepaid expenses                                                326,102          65,765
          Prepaid compensation                                                 --          88,749
          Accounts payable and accrued liabilities                      4,580,896        (434,557)
          Deferred revenues                                                    --          (4,167)
          Security deposit                                                   (550)        (11,212)
                                                                      -----------     -----------
    Net cash used for operating activities                               (862,200)     (1,133,428)
                                                                      -----------     -----------

Investing Activities
Purchase of equipment                                                      (2,384)        (18,099)
Purchase of KPCCD, Inc.                                                   (26,676)        (87,500)
Purchase of investments                                                      (322)             --
                                                                      -----------     -----------
    Net cash used for investing activities                                (29,382)       (105,599)
                                                                      -----------     -----------

Financing Activities
Proceeds from the issuance of series A convertible preferred stock
    and warrants - net                                                         --       8,569,525
Repayment of notes payable and accrued interest                            (8,617)     (1,391,504)
                                                                      -----------     -----------
    Net cash (used for) provided by financing activities                   (8,617)      7,178,021
                                                                      -----------     -----------

(Decrease) increase in cash and cash equivalents                         (900,199)      5,938,994
Cash and cash equivalents- beginning of period                          1,792,856         139,178
                                                                      -----------     -----------

Cash and cash equivalents- end of period                              $   892,657     $ 6,078,172
                                                                      ===========     ===========
</TABLE>

See accompanying notes.


                                       6
<PAGE>

                             SmartServ Online, Inc.

              Notes to Unaudited Consolidated Financial Statements

                                 March 31, 2005

1.    Nature of Business and Operations

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  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.

The Company, headquartered in Plymouth Meeting, PA, is transitioning to become a
Mobile  Virtual  Network  Operator  (MVNO) that will be  launching  mobile phone
service in 2005 with low cost,  prepaid minute plans,  discounted  international
long distance and the latest in mobile  content such as ringtones,  mobile games
and images.

SmartServ  has an  agreement  with  Sprint to utilize  Sprint's  Nationwide  PCS
Network for its prepaid  mobile  phone  service.  Under this  agreement,  Sprint
wholesales  wireless minutes from their network directly to SmartServ for resale
to  its  UPHONIA(TM)  customers.  SmartServ  benefits  from  this  agreement  by
receiving  access  to  Sprint's   enhanced   nationwide   network  with  turnkey
reliability and performance.  As an MVNO,  SmartServ has the advantage of market
access  without  the need to  build  the  telecom  infrastructure  necessary  to
originate and terminate  domestic  wireless calls.  Sprint benefits by gaining a
distribution  and marketing  partner that is focused on market  development in a
niche that is secondary to Sprint (i.e.,  the immigrant,  urban ethnic and youth
markets to be targeted by the Company).

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 did a one-for-six  reverse stock split effective  November 25, 2003.
The par  value of the  Company's  common  stock  remained  at $0.01 per share in
accordance with Delaware  corporation law. The reverse stock split also affected
the conversion price and number of shares into which an outstanding  convertible
security is convertible or exercisable.  Unless otherwise noted, descriptions of
shareholdings and convertible  securities reflect such one-for-six reverse stock
split.

Our financial  statements  have been prepared on a going  concern  basis,  which
contemplates  the  realization of assets and the  settlement of liabilities  and
commitments in the normal course of business. We have since our inception earned
limited  revenues and have  incurred  substantial  recurring  operating  losses,
including  net losses of  $2,395,276  for the three month period ended March 31,
2005 and  $10,580,372  and $17,537,775 for the years ended December 31, 2004 and
2003, respectively. Additionally, we have an accumulated deficit of $103,372,429
at March 31, 2005.


                                       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 used the net
proceeds of  approximately  $8,600,000  from this offering to repay  outstanding
obligations,  including $1,391,500 that was used to repay Global Capital Funding
Group, LP, completion of a strategic acquisition and for general working capital
purposes.  In particular,  the Company used a significant portion of its working
capital to settle its accounts payable.

On March 30, 2005,  after  reviewing the Company's  cash flow  projections,  the
board of  directors  approved a plan  designed  to enable us to have  sufficient
working capital to support a reduced level of operations  through March 2006. As
of March 31, 2005, the Company had $992,676 in cash and investments. Elements of
the plan include: 1) maximizing KPCCD's international calling card profits since
the  acquisition  of KPCCD on January 7, 2005 2) reducing the level of operating
expenses by  relocating  our hosting  facility  from an off site  location to an
on-site location and 3) eliminating employee positions.

In April,  2005, the Company  commenced  implementing  such plan and reduced our
staff to a total of 16 people.  The Company also completed the relocation of its
hosting facility to its headquarters.

The  Company is pursuing  additional  financing,  through  some  combination  of
borrowings or the sale of equity or debt securities during 2005. The Company was
pursuing the Telco Group acquisition and obtaining sufficient financing to cover
the costs of such  acquisition  and provide a sufficient  surplus to address the
Company's liquidity requirements, however, those discussions have terminated.

As a result of the factors  identified above, the Company believes that existing
cash  resources  and cash  expected  to be  generated  from  operations  will be
sufficient  to support a reduced  level of  operations  through  the next twelve
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.

2.    Summary of Significant Accounting Policies

Basis of Presentation
The accompanying  unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim  financial  information,  the instructions of Form 10-QSB
and Rule 310 of Regulation S-B of the Securities  and Exchange  Commission  and,
therefore, do not include all information and notes necessary for a presentation
of results of operations,  financial  position and cash flows in conformity with
accounting  principles  generally accepted in the United States of America.  The
balance   sheet  at  December  31,  2004  has  been  derived  from  the  audited
consolidated  financial statements at that date, but does not include all of the
information and footnotes required by accounting  principles  generally accepted
in  the  United  States  of  America  for  complete  financial  statements.  The
consolidated  financial  statements  should  be read  in  conjunction  with  the
Company's  Annual Report on Form 10-KSB for the year ended December 31, 2004. In
the opinion of  management,  all  adjustments  (consisting  of normal  recurring
adjustments) necessary for a fair presentation of financial position and results
of operations  have been made.  Results of operations for the three months ended
March 31, 2005 are not  necessarily  indicative  of those  expected for the year
ending December 31, 2005.


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 of America 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 sale 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.

Prepaid International Calling Card Revenue

Prepaid  international  calling card revenue is derived from the sale of prepaid
international calling cards to distributors. Revenue is recognized upon shipment
or  delivery  of  prepaid  international  calling  cards  to  distributors  on a
non-recourse basis.


                                       8
<PAGE>

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.

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 a 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.


                                       9
<PAGE>

Deferred Financing Costs

Deferred  financing  costs represent those costs incurred in connection with the
issuance of the Company's  convertible  notes.  These costs were 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  based 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, warrants, or convertible
securities 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.  Financial  instruments  are held for  other  than
trading purposes.

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.  Therefore,
certificates of deposit have been recorded as investments.

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.

 In January  2004, in connection  with a settlement  with a vendor,  the Company
issued a warrant to purchase  22,000  shares of common  stock at $1.34 per share
and expiring in January 2007. The warrant was valued at $22,569. The issuance of
warrants to purchase  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.

On January 7, 2005, the Company acquired the business of KPCCD,  Inc., a prepaid
international  calling card distributor.  Cash paid for the business acquired is
comprised of:

      Fair value of assets acquired                    $ 1,743,819
      Liabilities assumed                                       --
                                                       -----------
      Purchase price, net of cash received               1,743,819
      Common stock issued for business acquired         (1,717,143)
                                                       -----------
      Net cash paid for business acquired              $    26,676
                                                       ===========


                                       10
<PAGE>

Concentration of Credit Risk

Financial  instruments that potentially  subject  SmartServ to concentrations of
credit risk consist of cash,  investments and accounts  receivable.  The Company
places its cash deposits, including investments in certificates of deposit, with
high credit quality institutions. From time to time, a substantial amount of the
Company's cash may exceed federal  depository  insurance  limits.  However,  the
Company has not experienced any losses in this area and management  believes its
cash deposits are not subject to significant  credit risk. At March 31, 2005 and
December 31, 2004,  accounts  receivable consist principally of amounts due from
prepaid   international   calling   card   distributors   and   from   a   major
telecommunications  carrier. The Company performs periodic credit evaluations of
its customers  and, if  applicable,  provides for credit losses in the financial
statements. As of March 31, 2005 a reserve for doubtful accounts was provided in
the amount of $225,000  related to a  distributor;  as of December 31, 2004, the
Company did not believe a reserve for doubtful accounts was necessary.

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.

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.

Stock Based Compensation

Employee Stock Option Plans

The Company  maintains  several  stock option plans for  employees and directors
that  generally  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.

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 SFAS No. 123 may 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 (loss) and (loss) per share are not indicative of future years.


                                       11
<PAGE>

SmartServ's pro forma information is as follows:

<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                                      March 31
                                                            -----------------------------
                                                                2005             2004
                                                            -----------------------------
<S>                                                         <C>               <C>
Net  loss as reported                                       $(2,395,276)      $(4,600,611)

Employee stock-based compensation included in net loss          113,170         1,532,141

Employee stock-based compensation pursuant to SFAS 123
                                                               (636,244)         (164,785)
                                                            -----------       -----------

Pro forma net loss                                          $(2,918,350)      $(3,233,255)
                                                            ===========       ===========

Basic and diluted loss per share                            $     (0.72)      $     (2.25)
                                                            -----------       -----------

Pro forma basic and diluted loss per share                  $     (0.59)      $     (1.32)
                                                            ===========       ===========
</TABLE>

The pro forma  information  regarding  net income  (loss) and income  (loss) per
share  required  by SFAS  No.  123,  has been  determined  as if  SmartServ  had
accounted  for its  employee  stock  option  plan under the fair  value  methods
described in SFAS No. 123. The fair value of options  granted by the Company was
estimated at the date of grant using the Black-Scholes option pricing model.

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.

3.    Acquisition

On January 7, 2005, SmartServ acquired all of the issued and outstanding capital
stock of KPCCD,  Inc.  ("KPCCD")  pursuant to a stock purchase  agreement  dated
December 19, 2004. The Company issued 1,000,000 shares of its common stock, $.01
par value per share,  valued at $1,717,143 to the sellers as  consideration  for
acquiring KPCCD. KPCCD is a wholly-owned  subsidiary of the Company.  Founded in
1998, KPCCD distributes international prepaid calling cards through a network of
hundreds  of retail  outlets  along the East  Coast.  The  acquisition  of KPCCD
expands the Company's  distribution  network for the Company's  planned  prepaid
wireless products and services.

The  acquisition  was accounted for using the purchase method of accounting and,
accordingly,  the purchase price has been allocated to the assets  purchased and
the liabilities assumed based upon their fair values at the date of acquisition.
The fair value of assets  acquired  was  $1,743,819  resulting in a net purchase
price of $1,743,819.


                                       12
<PAGE>

SmartServ and KPCCD pro forma combined information:

<TABLE>
<CAPTION>
                                                                Three Months Ended
                                                                     March 31
                                                          -------------------------------
                                                              2005               2004
                                                          ------------       ------------
<S>                                                       <C>                <C>
Pro forma revenues                                        $ 11,493,851       $  5,012,514
                                                          ------------       ------------

Pro forma net loss                                          (2,395,276)        (4,563,476)


Pro forma preferred stock dividend accrued                  (1,194,135)          (913,840)
                                                          ------------       ------------

Pro forma net loss applicable to common shareholders
                                                          $ (3,589,411)      $ (5,477,316)
                                                          ============       ============

Pro forma basic and diluted loss per share                $      (0.72)      $      (1.59)
                                                          ------------       ------------

Pro forma weighted average shares outstanding -
  basic and diluted                                          4,961,319          3,447,453
                                                          ============       ============
</TABLE>

4.    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 $15.00 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  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.

On January 7, 2005, the Company acquired KPCCD, Inc. by issuing 1,000,000 shares
of its common stock valued at $1,717,143 in exchange for all of the  outstanding
shares of KPCCD, Inc.


                                       13
<PAGE>

On  January  10,  2005,  the  Company  granted to the  Chairman  of the Board of
Directors,  Paul J. Keeler,  warrants to purchase  250,000  shares of the Common
Stock at an exercise price of $2.10 per share, which was the closing stock price
of the common stock on the date of grant.  The warrants were valued at $424,372.
The warrants have a 5 year term and are immediately  exercisable and were issued
to Mr. Keeler for serving as the Chairman of the Board. The warrants were issued
in reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act.

In connection with consulting services provided by Steven Rosner and Brockington
Securities, Inc., the Company entered into consulting agreements dated March 31,
2004 for  warrants to  purchase  300,000  and  100,000  shares of common  stock,
respectively,  at $1.50 per share and expiring on March 31,  2007.  The warrants
were valued at $902,367 and $300,787  respectively.  During the first quarter of
2005 $225,596 and $75,198 of the warrants vested, respectively.

On January 28, 2005,  SmartServ entered into an agreement with TecCapital,  Ltd.
("TEC") pursuant to which TEC agreed to waive and release certain rights TEC has
under a certain stock purchase  agreement dated May 12, 2000. TEC provided these
waivers and releases in consideration  for the grant to TEC of 500,000 shares of
the Company's  common  stock.  The Company  believes that TEC is the  beneficial
owner of more than ten percent of the Company's  common stock. In the event that
both the  acquisition  of  Telco  Group is not  consummated  and a  registration
statement covering all of TEC's shares of common stock is not declared effective
within  270  days  after  the  date of the  agreement,  TEC  may  (in  its  sole
discretion)  return  all of the shares to the  Company  within 330 days from the
date of the agreement,  and in such case the waivers and releases granted in the
agreement  would become void and TEC could pursue any claims against the Company
as if such waivers and releases had never been granted.

In connection with paying a vendor for public relation services  according to an
agreement the Company  granted an exercisable  warrant in March 2005 to purchase
12,857 shares of common stock at $1.40 per share.  The warrant  expires in March
2008. The warrant was valued at $12,637.

In March 2005,  the Company  recorded the  obligation  to issue 75,000 shares of
common stock valued at $1.40 per share related to a separation  agreement with a
former officer.

The Company's inability to timely file its Form 10-KSB for its fiscal year ended
December 31, 2002 and a failure to have its SB-2 Registration Statement declared
effective by the SEC has affected the following registration rights held by some
of its shareholders and warrant holders.

Obligations to Maintain Effective Registration Statements:

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 was unable to do so by May 14, 2003, so it accrued
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.
The total amount accrued as of March 31, 2005 was $202,125.

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
is no longer effective.


                                       14
<PAGE>

Obligation to File a Registration Statement:

Pursuant to the terms of the 2004 Private Placement, the Company was required to
file a  Registration  Statement  with the SEC and have it declared  effective no
later  than  120  days  after  April  30,  2004,  or by  August  29,  2004.  The
Registration  Statement  was  filed  on May 13,  2004  but it has  not yet  been
declared effective by the SEC and as a result,  the Company incurred  liquidated
damages in the form of a monthly cash  requirement  equal to 2% of the aggregate
purchase price of the offering, or approximately $266,000 per month.  Liquidated
damages  are due  monthly  until the event of  default  is  cured.  The  Company
proposed a settlement to limit the liquidated damages. In December 2004, in full
settlement of the default,  the Company established a pool of 1,000,000 warrants
with an  exercise  price of $2.50  per share  and a two year  term.  The pool of
warrants  was  allocated  among  each   participant   based  on  the  investor's
proportionate  participation in the 2004 Private Placement. The Company recorded
a financing expense of $1,782,125 as of December 31, 2004 related to the pool of
warrants.  As of March 31, 2005, 68% of the representative  warrant ownership of
the 1,000,000 warrants responded to the proposal and of that amount, 3% declined
the proposal. The remaining 29% have not responded to the offer.

In 2004,  pursuant to an agreement  with a vendor to whom the Company  issued in
settlement  60,000 shares of common  stock,  the Company was obligated to file a
Registration Statement and have it declared effective within the same time frame
as  required  by the  terms  of the 2004  Private  Placement.  The  Registration
Statement was timely filed but it has not been declared effective by the SEC. As
a result, the Company incurred late registration  penalties of $2,000 per month,
or $14,000 as of March 31, 2005. The late registration penalties are due monthly
until the event of default is cured.

5.    Stock-based Compensation

In  connection  with the grant of  certain  stock  options,  warrants  and other
compensation arrangements, the Company has recorded charges to earnings that are
noncash  in nature.  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 December 2004,  the Company  granted to Messrs.  Pons and Wenhold  options to
purchase 400,000 and 250,000 shares of common stock, respectively, which options
have an  exercise  price of $2.07 per share and a term of 10 years.  The options
vest monthly  over three years  commencing  December 31, 2004.  The options will
vest  immediately  upon  a  Change  of  Control  (as  defined  in  their  option
agreements).

In January 2005, the Company issued 8,000 incentive stock options to employees.


                                       15
<PAGE>

Stock-based  compensation  for the three  months  ended  March 31, 2005 and 2004
relate to the impact of options  granted at less than fair  market  value on the
measurement  date.  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:

                                                   Three Months Ended March 31,
                                                  -----------------------------
                                                      2005              2004
                                                  -----------       -----------

Direct costs of revenues                          $   (36,563)      $  (536,251)

General and administrative expenses                   (76,607)         (995,890)
                                                  -----------       -----------

                                                  $  (113,170)      $(1,532,141)
                                                  ===========       ===========
6.    Earnings Per Share

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

                                                   Three Months Ended March 31,
                                                  -----------------------------
                                                      2005              2004
                                                  -----------       -----------

Numerator:
   Net loss applicable to common shareholders     $(3,589,411)      $(5,514,451)
                                                  ===========       ===========

Denominator:
   Weighted average shares - basic and diluted      4,961,319         2,447,453
                                                  ===========       ===========

Basic and diluted loss per common share           $     (0.72)      $     (2.25)
                                                  ===========       ===========

Outstanding  employee  stock options and other warrants to purchase an aggregate
of 21,149,918 and 18,769,788  shares of common stock at March 31, 2005 and 2004,
respectively,  were not  included in the  computations  of diluted  earnings per
share and neither were convertible  preferred stock,  convertible into 8,514,480
and 8,764,910  shares of common stock at March 31, 2005 and 2004,  respectively,
because  the  Company  reported  losses  for the  periods  and  therefore  their
inclusion would be antidilutive.

7.    Commitments and Contingencies.

On or about February 29, 2000, Commonwealth  Associates,  L.P.  ("Commonwealth")
filed a complaint  against the Company in the Supreme  Court of the State of New
York,  County  of New  York.  The  complaint  alleged  that in  August  of 1999,
Commonwealth and SmartServ entered into an engagement letter that provided for a
nonrefundable  fee to Commonwealth of $15,000 payable in cash or common stock at
SmartServ's  option. The complaint alleged that SmartServ elected to pay the fee
in stock and, as a result,  Commonwealth  sought 2,222 shares of common stock or
at least  $1,770,000  together with interest and costs. In SmartServ's  defense,
SmartServ  denied that it elected to pay in stock.  On March 4, 2003,  SmartServ
received a favorable  decision in this matter  after a trial held in the Supreme
Court of the  State of New  York.  The  decision  holds  that,  consistent  with
SmartServ's defense, SmartServ is required to pay Commonwealth a retainer fee of
only $13,439, plus interest and certain costs. Commonwealth's time to appeal has
not yet expired.

On or about March 22, 2004,  Jenkens & Gilchrist Parker Chapin,  LLP, our former
legal counsel, filed a complaint against us in the Supreme Court of the State of
New York, County of New York. The complaint requested payment of unpaid invoices
for legal  services in the amount of $599,244.  In November  2004, the claim was
settled in full for $300,000.

On or about August 17, 2004, Vertical Ventures Investments LLC filed a complaint
against the Company in the Supreme Court of the State of New York, County of New
York. The complaint sought payment of late registration  penalties and attorneys
fees in the total amount of $350,000.  While the Company  intends to  vigorously
defend such lawsuit, an unfavorable outcome would have a material adverse effect
on the Company's financial condition, results of operation and cash flows.
During 2003 and 2004 former employees of SmartServ filed complaints  against the
Company for unpaid  wages  arising  from salary  reductions  implemented  by the
Company in 2002. These claims,  totaling $215,000,  are currently pending before
the  Connecticut  Department  of  Labor  and  the  Connecticut  Superior  Court.
Management  believes these claims have no merit and intends to defend the claims
vigorously.


                                       16
<PAGE>


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

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 risks faced by us described in "Certain Factors That
May Affect Future Results" and elsewhere in this report.

We are a Mobile Virtual Network  Operator (MVNO) which is a mobile operator that
does  not own or  operate  supporting  infrastructure  such as cell  towers  and
related  support  systems.  We intend to launch an innovative  prepaid  wireless
service in 2005 under the brand name UPHONIA(TM).  We intend to give consumers a
better choice in mobile phone service by bundling flexible prepaid minute plans,
free  mobile  content  and  discounted  international  long  distance.  With our
UPHONIA(TM)  mobile  phone  service,  prepaid  customers  will  get the  premium
features not usually available at the micro-retailers where they shop:

      o     Our UPHONIA(TM) brand will provide consumers flexible prepaid minute
            plans - UPHONIA(TM)  customers do not sign up for one preset monthly
            contract,  but instead are able to decide how many minutes they want
            each time they purchase additional minutes.

      o     UPHONIA(TM)   customers  can  personalize  their  cell  phones  with
            thousands of ringtones,  images, games and graphics. SmartServ makes
            it easy for  UPHONIA(TM)  customers to download  mobile  content for
            free  -  online  at  the  UPHONIA(TM).com  mobile  content  website,
            in-stores  from  UPHONIA(TM)  mobile content  kiosks,  or right from
            their UPHONIA(TM) phones.

      o     UPHONIA(TM)  customers  will  also  be  able  to  access  discounted
            international long distance through their UPHONIA(TM) phones.

We have an agreement with Sprint to utilize Sprint's  Nationwide PCS Network for
its prepaid  mobile  phone  service.  Under this  agreement,  Sprint  wholesales
wireless  minutes from their  network  directly to  SmartServ  for resale to its
UPHONIA(TM)  customers.  SmartServ  benefits  from this  agreement  by receiving
access to Sprint's  enhanced  nationwide  network with turnkey  reliability  and
performance.  As an MVNO,  SmartServ has the advantage of market access  without
the  need to  build  the  telecom  infrastructure  necessary  to  originate  and
terminate domestic wireless calls. Sprint benefits by gaining a distribution and
marketing  partner  that is  focused  on market  development  in a niche that is
secondary to Sprint (i.e., the immigrant,  urban ethnic and youth markets).  The
agreement  requires  $1,000,000  in the form of a letter of credit to secure our
obligations under the Sprint contract which we have yet to provide.

We also 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 which 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.


                                       17
<PAGE>

We  have  since  our  inception   earned  limited  revenues  and  have  incurred
substantial  recurring  operating  losses,  including net losses of  $2,395,276,
$10,580,372  and  $17,537,775 for the quarter ended March 31, 2005 and the years
ended  December  31,  2004  and  2003,  respectively.  Additionally,  we have an
accumulated deficit of $103,372,429 at March 31, 2005.

As of March 30, 2005, after reviewing the Company's cash flow  projections,  the
Company adopted a plan designed to enable us to have sufficient  working capital
to support a reduced  level of  operations  through  March 2006. As of March 31,
2005 we had cash and investments of $992,676.  Elements of the plan include:  1)
maximizing of KPCCD's  international  calling card profits since the acquisition
of KPCCD on January  7,  2005,  2) reduce  the level of  operating  expenses  by
relocating  our  hosting  facility  from  an off  site  location  to an  on-site
location, and 3) elimination of employee positions.

In April , 2005, the Company  commenced  implementing  such plan and reduced our
staff to a total of 16 people.  The Company also completed the relocation of its
hosting facility to its headquarters.

The Company was pursuing the Telco Group  acquisition  and obtaining  sufficient
financing  to cover  the costs of such  acquisition  and  provide  a  sufficient
surplus  to  address  the  Company's  liquidity  requirements,   however,  those
discussions have terminated.

In addition,  the Company is pursuing  action items to improve its  liquidity in
conjunction  with beginning to execute its business  strategy.  The action items
include  pursuing  sources of through some combination of borrowings or the sale
of equity or debt securities during 2005.

However,  no  assurance  can be given  that the  Company  will be able  meet its
revenue  and cash flow  projections,  reduce  its cost  structure  as  presently
configured or that  unforeseen  liabilities or expenses will not arise, or raise
additional capital on satisfactory  terms. Should the Company be unable to raise
additional  debt or equity  financing,  it will be  forced  to seek a  strategic
buyer, a merger or cease operations.

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.


                                       18
<PAGE>

To augment our capabilities, we acquired 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.  Management  believes  that due to
nReach's  performance  issues to date the Earnout  Trigger will not be paid.  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.

On January 7, 2005, we acquired KPCCD,  Inc., a New York City-based  distributor
of  international  prepaid  calling cards.  Founded in 1998,  KPCCD  distributes
international  prepaid  calling  cards  through a network of  hundreds of retail
outlets  along the East Coast.  We believe  that the  acquisition  of KPCCD will
expand our distribution  network for our planned prepaid  wireless  products and
services. The acquisition of KPCCD added approximately $11.4 million in revenues
during the first quarter ended March 31, 2005. In connection with the closing of
the  transaction  on  January  7, 2005,  KPCCD,  the  sellers of KPCCD and Prima
Communications,  Inc.  ("Prima"),  a company controlled by the sellers,  entered
into a Master Vendor Agreement ("Vendor Agreement"). Under the Vendor Agreement,
Prima will sell to KPCCD at cost all of KPCCD's  requirements  of  international
prepaid  calling cards for up to one year after January 7, 2005. The Company has
guaranteed  the  obligations  of KPCCD  under the Vendor  Agreement.  The Vendor
Agreement can be terminated prior to its one year term under certain conditions.

On November 17, 2004, we also signed a  non-binding  letter of intent to acquire
Telco  Group,  Inc.,  and  affiliates.  Telco  Group,  Inc. is a New  York-based
provider  of  pay-as-you-go  wireless   telecommunications   services,   prepaid
international long distance, nationwide dial around long distance and nationwide
dial up high speed internet  services.  The letter of intent has expired and the
acquisition discussions have terminated.

While  we  continued  to  support  our  lifestyle  offerings  of BREW  and  J2ME
applications  in 2004,  we augmented  this set of offerings  with the ability to
deliver  static content  (ringtones,  graphics,  and games).  In August 2004, we
launched    a    consumer    web   site   to   sell    this    static    content
(http://www.uphonia.com).  Our  ability to deliver  this type of static  content
allows us to sell directly to the consumer,  removing the necessity of having to
broker these transactions through the wirelesses carriers.  Additionally,  it is
our  expectation  that this  static  content  will  become a key  feature of our
branded  wireless service when we launch our planned MVNO service in 2005. While
we maintain our BREW and J2ME  infrastructure we have not undertaken the expense
to certify these applications for new phones since June, 2004.

As part of our cost  reduction  plan, we reduced the number of employees,  as of
April 30, 2005, to a total of 16 people, all of whom were employed in the United
States. Ten employees are at SmartServ  headquarters in Plymouth Meeting, PA and
6 are  employed  at  KPCCD  in  Jackson  Heights,  NY.  If we are  able to raise
additional  capital to launch our MVNO  business,  we  anticipate  that staffing
requirements  associated with the  implementation  of our plan of operation will
require  the  addition  of  approximately  3 people and the  replacement  of our
terminated headquarters employees.


                                       19
<PAGE>

Results of Operations

Quarter Ended March 31, 2005 versus Quarter Ended March 31, 2004

During the quarter  ended March 31, 2005, we recorded  revenues of  $11,493,851.
Sales of prepaid  international  calling cards  through our master  distributor,
KPCCD Inc. which we acquired on January 7, 2005, represented $11,410,586 of that
amount.  Revenues of $61,801 were earned  through our licensing  agreement  with
QUALCOMM and $21,464 came from other sources. During the quarter ended March 31,
2004,  we recorded  revenues  of $73,711  all of which were  earned  through our
licensing agreement with QUALCOMM.

During the quarter  ended March 31, 2005 we incurred  direct  costs of revenues,
including  prepaid   international   calling  cards  of  $11,162,684  since  the
acquisition of KPCCD,  Inc on January 7, 2005. Also included within direct costs
of revenues  during the quarter ended March 31, 2005,  were costs of services of
$324,011, a slight increase compared to the $316,866 for the quarter ended March
31,  2004.  Components  of the costs of services  for the period ended March 31,
2005 consisted primarily of costs associated with, information and communication
costs ($71,941), personnel costs ($150,983),  consulting expenses ($84,000), and
travel  costs  ($1,402).  Components  of the costs of service  category  for the
period ended March 31, 2004  consisted  primarily of costs  associated  with the
operations  of  the  nReach,  Inc.  acquisition   ($122,167),   information  and
communication costs ($35,000),  personnel costs ($100,525),  consulting expenses
($38,000), facilities ($4,799) and travel costs ($8,619).

During the  quarter  ended  March 31,  2005,  we  incurred  sales and  marketing
expenses of $260,691,  an increase of 496% over the $43,706  incurred during the
quarter ended March 31, 2004. Such costs increased primarily due to US personnel
additions, and public relations expenses.  Components of the sales and marketing
category for the quarter ended March 31, 2005  consisted  primarily of personnel
costs ($228,319) and public  relations costs ($21,956).  Components of the sales
and  marketing  category  for the  quarter  ended March 31,  2004  consisted  of
personnel  costs  ($25,433),  consulting  costs  ($9,763)  and trade  show costs
($8,510).  During the quarter  ended  March 31,  2005,  we incurred  general and
administrative  expenses of  $2,030,529,  an increase of 212% over the  $650,949
incurred  during the  quarter  ended March 31,  2004.  Such  expenses  increased
primarily due to noncash costs which consisted of the following: warrants issued
for services  ($725,165),  investment banking fees related to the proposed Telco
transaction  ($268,750),  amortization  of intangibles  ($36,960),  depreciation
($10,765), a provision for doubtful accounts related to a distributor ($225,000)
and settlement of an employment  dispute with a former officer by issuing shares
of common  stock  ($105,000).  Also,  the  increase  includes  the cost of a due
diligence technical/operational report related to the proposed Telco transaction
($100,000).  In addition,  components of the general and administrative category
for the  quarter  ended  March  31,  2005  included  primarily  personnel  costs
($150,913),  professional fees ($211,913),  director fees ($22,500),  facilities
($13,533) and insurance ($20,000).  Components of the general and administrative
category for the quarter ended March 31, 2004  consisted  primarily of personnel
costs  ($84,740),  consulting fees  ($247,325),  professional  fees  ($234,554),
facilities ($41,880) and insurance ($29,688).

During the quarter ended March 31, 2005, the net noncash charge for  stock-based
compensation  amounted  to  $113,170,  compared  to  a  net  noncash  charge  of
$1,532,141  during the quarter ended March 31, 2004.  Such noncash costs for the
quarter ended March 31, 2005 resulted from the vesting of employee stock options
issued 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").  Noncash  charges for consulting  services for the quarter ended
March 31, 2005 were $725,165  resulting  primarily from the issuance of warrants
to the Company's  Chairman of the Board for his services and the prior  issuance
and vesting of warrants to purchase common stock to financial consultants.


                                       20
<PAGE>

Interest  income for the  quarters  ended  March 31,  2005 and 2004  amounted to
$2,567 and $3,221,  respectively.  Such amounts were earned  primarily  from our
investments  in money fund  accounts.  During the quarter  ended March 31, 2004,
interest and other financing  costs were $1,937,081  incurred in connection with
the  completion,  in  February  2004,  of a  $10  million  private  offering  of
investment Units in the 2004 Private Placement. Basic and diluted loss per share
was $0.72 for the quarter  ended March 31, 2005  compared to $2.25 per share for
the quarter  ended March 31,  2004.  The loss per share for the  quarters  ended
March 31, 2005 and March 31, 2004 included an accrued  preferred  stock dividend
of  $1,194,135  and  $913,840,   respectively.   The  weighted   average  shares
outstanding increased to 4,961,319 at March 31, 2005 from 2,447,453 at March 31,
2004.

Capital Resources and Liquidity

Cash Flow

At March 31, 2005 and December  31,  2004,  the Company had cash of $892,657 and
$1,792,856,  respectively.  Net cash used in  operations  was  $862,200  for the
quarter  ended March 31, 2005  compared to  $1,133,428  during the quarter ended
March 31, 2004.  The primary  reason for this  decrease was due to the Company's
accounts payable settlement negotiations with vendors. Additionally the increase
in accounts  receivable  of $4,602,069  and the increase of accounts  payable of
$4,476,728 are primarily due to the acquisition of KPCCD, Inc. Net cash used for
investing  activities  amounted to $29,382 for the purchase of equipment and the
acquisition  of KPCCD,  Inc.  during the quarter ended March 31, 2005.  Net cash
used by  financing  activities  was $8,617 for the  repayment  of a note payable
during the  quarter  ended  March 31, 2005  compared  to  $7,178,021  during the
quarter ended March 31, 2004.  During the quarter ended March 31, 2004,  details
of financing  activities  included cash in the amount of $1,391,504 used for the
repayment  of notes  payable and  accrued  interest  while net cash  provided by
financing  activities  included $8,569,525 from the sale of Series A and related
warrants.

Capital Raising and Other Transactions

In February 2004, the  convertible  notes issued in the May, June, and September
and November 2003 bridge financings were automatically  converted into the Units
issued in connection  with the 2004 Private  Placement (as defined  below).  The
conversion  took  place at the rate of $15.00  per  Unit,  which is the price at
which the Units were sold in the 2004 Private  Placement.  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. A description of the 2004 Private
Placement is set forth below.


                                       21
<PAGE>

In February 2004, we completed the closing of a $10 million private  offering of
investment  Units at the price of $15.00 per Unit  ("2004  Private  Placement").
Each Unit  consists of (i) one share of Series A  convertible  preferred  stock,
$.01 par value  ("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.  Dividends accrued on the Series A preferred stock amounted to $1,162,681
as of March 31, 2005. While these dividends have not been paid, we intend to pay
these  dividends  with  registered  shares  of  common  stock  when  we  have  a
registration  statement declared effective by the SEC, which would equal 735,471
shares of common  stock as of March 31,  2005.  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 warrants are callable
on 30 days prior  written  notice in the event that the closing bid price of our
common stock is at least 250% of their  respective  exercise prices for a period
of 10  consecutive  trading days. 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.  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.

While the  warrants  to  purchase  common  stock  issued  during the years ended
December  31,  2003 and 2004  (excluding  warrants  issued  pursuant to the 2004
Private  Placement  described above) represent an additional  source of capital,
they expire  between  April 2006 and  February  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.  The warrants  issued in
the 2004 Private  Placement,  as described  above, are callable on 30 days prior
written notice in the event that the closing bid price of our common stock is at
least 250% of their  respective  exercise  prices for a period of 10 consecutive
trading days.

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.   Management  believes  that  based  on  performance  issues  that  the
additional shares will not come due.

On January 7, 2005, the Company acquired the prepaid  international calling card
business of KPCCD,  Inc. The Company issued 1,000,000 shares of its common stock
valued at $1,717,143 in exchange for all of the outstanding shares of KPCCD, Inc

Our  inability  to timely file or keep  registration  statements  effective  has
affected the registration rights held by certain of our stockholders and warrant
holders.  As of March 31, 2005 and 2004,  we recorded an  aggregate of $202,125,
and $177,375,  respectively for penalties in connection with the  aforementioned
registration requirements.  Such amounts are included in accrued expenses on our
balance  sheet as of March 31, 2005 and March 31, 2004.  While we intend to cure
these  deficiencies  during  2005,  penalties  may continue to accrue in certain
circumstances.


                                       22
<PAGE>

In December  2004,  in  connection  with a proposed  settlement  for  liquidated
damages related to a failure to have the Company's SB-2  Registration  Statement
declared  effective  by the SEC, we  established  a pool of warrants to purchase
1,000,000  shares of common  stock at $2.50 per share for  allocation  among our
shareholders  that  participated  in our bridge and the 2004  Private  Placement
financings.  The warrants expire in December 2006. These warrants were valued at
$1,782,125. As of March 31, 2005, 68% of the representative warrant ownership of
the 1,000,000  warrants have  accepted the proposal,  29% of the  representative
warrant  ownership of the 1,000,000  warrants have not responded to the proposal
and 3% of  such  representative  warrant  ownership  of the  1,000,000  warrants
declined the proposal.

Pursuant to an agreement  with a vendor to whom we issued in  settlement  60,000
shares of common stock,  we were obligated to file a Registration  Statement and
have it declared  effective within the same time frames as required by the terms
of the 2004 Private Placement.  The Registration  Statement was timely filed but
it has not been  declared  effective by the SEC. As a result,  we incurred  late
registration penalties of $2,000 per month, or $14,000 as of March 31, 2005. The
late registration penalties are due monthly until the event of default is cured.

Future Capital Needs

Our financial  statements  have been prepared on a going  concern  basis,  which
contemplates  the  realization of assets and the  settlement of liabilities  and
commitments in the normal course of business. We have since our inception earned
limited  revenues and have  incurred  substantial  recurring  operating  losses,
including  net losses of  $2,395,276  for the  quarter  ended March 31, 2005 and
$10,580,372  and  $17,537,775  for the years ended  December  31, 2004 and 2003,
respectively.  Additionally,  we have an accumulated  deficit of $103,372,429 at
March 31, 2005.

As of March 30, 2005, after reviewing the Company's cash flow  projections,  the
Company adopted a plan designed to enable us to have sufficient  working capital
to support a reduced  level of  operations  through  March 2006. As of March 31,
2005 we had $992,676 in cash and investments.  Elements of the plan include:  1)
maximizing of KPCCD's  international  calling card profits since the acquisition
of KPCCD on January  7,  2005,  2) reduce  the level of  operating  expenses  by
relocating  our  hosting  facility  from  an off  site  location  to an  on-site
location, and 3) elimination of employee positions.

The Company signed an agreement with Sprint during  November,  2004 allowing the
Company to purchase  cellular airtime on Sprint's  national wireless network for
resale to our wireless  customers.  The agreement has a term of five years. This
will allow the Company to enter the prepaid  wireless  marketplace  and to offer
plans that bundle prepaid  wireless airtime with discounted  international  long
distance and premium  mobile  content such as ringtones,  images and games.  The
Company is required  to provide  Sprint  with a  $1,000,000  letter of credit to
secure our  obligations  relating to this  agreement  prior to Sprint  giving us
access to its network.

The  Company is pursuing  additional  financing,  through  some  combination  of
borrowings or the sale of equity or debt securities during 2005.

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.


                                       23
<PAGE>

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;
any  new  capital  will  dilute  existing  shareholders.  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 four major
customers from 2003  continued to generate  revenues for us in 2004 and 2005; 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 for the
year  ended  December  31,  2004  (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 first fiscal quarter of 2005 in
our internal  control over financial  reporting,  to the extent that elements of
internal  control  over  financial  reporting  are  subsumed  within  disclosure
controls and procedures, that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

PART 2.  OTHER INFORMATION

Item 1.  Legal Proceedings

None

Item 2.  Unregistered Sales of Equity 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,  all  quarterly  and  periodic
reports filed subsequent to such Form 10-KSB and the Company's most recent proxy
materials.

On January 10, 2005,  the Board granted to the current  Chairman of the Board of
Directors,  Paul J. Keeler,  a warrant to purchase  250,000 shares of the common
stock at an exercise price of $2.10 per share, which was the closing stock price
of the common stock on the date of grant.  These  warrants,  which have a 5 year
term and are immediately  exercisable,  were issued to Mr. Keeler for serving as
the  Chairman  of the  Board.  This  warrant  was  issued in  reliance  upon the
exemption from registration provided by Section 4(2) of the Securities Act.


                                       24
<PAGE>

In connection with paying a vendor for public relation services  according to an
agreement  SmartServ  granted an  exercisable  warrant in March 2005 to purchase
12,857 shares of common stock at $1.40 per share.  The warrant  expires in March
2008.  This warrant was issued in reliance upon the exemption from  registration
provided by Section 4(2) of the Securities Act.

Item 3.  Defaults Upon Senior Securities

In February 2004, the Company completed the 2004 Private Placement. The Series A
preferred stock 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.
Dividends  accrued on the Series A preferred  stock amounted to $1,168,681 as of
March 31, 2005. At the Company's discretion, the dividends are to be paid in the
form of 735,471 shares of common stock when the Company's  pending  Registration
Statement is declared effective by the SEC.

Item 6.  Exhibits

(a)   Exhibits:


      10.1  Master  Vendor  Agreement  dated January 7, 2005 by and among KPCCD,
            Inc.,   Nimesh   Patel,   Ashok   Patel,   Kala   Patel   and  Prima
            Communications, Inc.+

      10.2  Warrant dated January 10, 2005 issued to Paul J. Keeler+

      10.3  Letter Agreement dated January 28, 2005 between TecCapital, Ltd. and
            SmartServ+

      10.4  Letter  Agreement  between  Robert M. Pons and  SmartServ,  amending
            Employment Agreement dated March 12, 2004+

      10.5  Letter Agreement between Timothy G. Wenhold and SmartServ,  amending
            Employment Agreement dated March 12, 2004+

      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+


                                       25
<PAGE>

                                   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: May 16, 2005                        /s/  Robert M. Pons
      ------------                        --------------------------------------
                                          Robert M. Pons
                                          Chief Executive Officer


Date: May 16, 2005                        /s/   Len von Vital
      ------------                        --------------------------------------
                                          Len von Vital
                                          Chief Financial Officer


                                       26