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


                                   FORM 10-QSB

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


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934


                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997

                         COMMISSION FILE NUMBER 0-28008


                             SMARTSERV ONLINE, INC.
--------------------------------------------------------------------------------
        (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

          DELAWARE                                      13-3750708
(STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

          METRO CENTER, ONE STATION PLACE, STAMFORD, CONNECTICUT    06902
--------------------------------------------------------------------------------
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               (ZIP CODE)


                                 (203) 353-5950
--------------------------------------------------------------------------------
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE  PRECEDING 12 MONTHS (OR FOR SUCH SHORTER  PERIODS 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 [_]

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)
         YES [_]         NO [X]


THE NUMBER OF SHARES OF COMMON STOCK, $.01 PAR VALUE, OUTSTANDING AS OF FEBRUARY
20, 1998 WAS 3,958,339.



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

<PAGE>


                             SMARTSERV ONLINE, INC.

                                   FORM 10-QSB

                                      INDEX





PART 1.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Balance Sheets - June 30, 1997 and December 31, 1997 (unaudited)......2

         Statements of Operations - three months ended December 31, 1997 and
         1996 and six months ended December 31, 1997 and 1996 (unaudited)......3

         Statement of Changes in Stockholders' Equity - six months
         ended December 31, 1997 (unaudited)...................................4

         Statements of Cash Flows - three months ended December 31, 1997 and
         1996 and six months ended December 31, 1997 and 1996 (unaudited)......5

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

Item 2.  Management's Discussion and Analysis or Plan of Operation............10


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings....................................................16

Item 6.  Exhibits and Reports on Form 8-K.....................................16

         Signatures...........................................................17



<PAGE>

                             SMARTSERV ONLINE, INC.

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                          DECEMBER 31,       JUNE 30,
                                                              1997             1997
                                                          ------------    ------------
ASSETS                                                    (UNAUDITED)
<S>                                                       <C>             <C>         
Current assets
   Cash and cash equivalents                              $  1,320,859    $     93,345
   Accounts receivable, net of an allowance for losses
       of $6,000 at December 31, 1997 and June 30, 1997        127,162         149,782
   Prepaid expenses and other receivables                       41,643          90,725
                                                          ------------    ------------
Total current assets                                         1,489,664         333,852

Property and equipment - net                                   693,253         743,714

Other assets                                                    66,965         169,123
                                                          ------------    ------------

Total Assets                                              $  2,249,882    $  1,246,689
                                                          ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
   Accounts payable                                       $    922,222    $    829,355
   Accrued liabilities                                         215,225         211,813
   Accrued interest                                               --            16,323
   Payroll taxes payable                                         7,582          20,383
   Salaries payable                                             85,884          46,018
   Current portion of capital lease obligation                  71,163          86,072
   Deferred revenues                                            36,102          24,914
                                                          ------------    ------------
Total current liabilities                                    1,338,178       1,234,878
                                                          ------------    ------------

Long-term portion of capital lease obligation                  120,237         160,139

Notes payable                                                     --           550,000

STOCKHOLDERS' EQUITY
Common stock - $.01 par value
   Authorized - 15,000,000 shares
   Issued and outstanding - 3,695,000 shares
       at June 30, 1997 and December 31, 1997                   36,950          36,950
Additional paid-in capital                                  15,008,392       9,046,592
Unearned compensation                                       (1,538,625)           --
Accumulated deficit                                        (12,715,250)     (9,781,870)
                                                          ------------    ------------
Total stockholders' equity (deficiency)                        791,467        (698,328)
                                                          ------------    ------------

Total Liabilities and Stockholders' Equity (Deficiency)   $  2,249,882    $  1,246,689
                                                          ============    ============
</TABLE>

See accompanying notes.


                                       2
<PAGE>

                             SMARTSERV ONLINE, INC.

                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                THREE MONTHS                   SIX MONTHS
                                              ENDED DECEMBER 31             ENDED DECEMBER 31
                                         --------------------------    --------------------------
                                             1997           1996           1997           1996
                                         -----------    -----------    -----------    -----------
<S>                                      <C>            <C>            <C>            <C>        
Revenues                                 $   181,594    $   283,257    $   381,787    $   297,109
                                         -----------    -----------    -----------    -----------

Costs and expenses:
   Costs of revenues                         340,713        360,175        718,685        527,360
   Product development expenses              222,632        299,941        427,705        492,707
   Selling, general and administrative
      expenses                               630,764        953,835      1,160,227      1,440,899
                                         -----------    -----------    -----------    -----------
   Total costs and expenses                1,194,109      1,613,951      2,306,617      2,460,966
                                         -----------    -----------    -----------    -----------

Loss from operations                      (1,012,515)    (1,330,694)    (1,924,830)    (2,163,857)
                                         -----------    -----------    -----------    -----------

Other income (expense):
   Interest income                            21,544         24,846         22,631         65,185
   Interest expense and other
     financing costs                        (424,869)        (2,695)    (1,031,181)        (5,708)
                                         -----------    -----------    -----------    -----------
                                            (403,325)        22,151     (1,008,550)        59,477
                                         -----------    -----------    -----------    -----------

Net loss                                 $(1,415,840)   $(1,308,543)   $(2,933,380)   $(2,104,380)
                                         ===========    ===========    ===========    ===========

Basic and diluted earnings per common
   share (Note 2)                        $     (0.38)   $     (0.35)   $     (0.79)   $     (0.57)
                                         ===========    ===========    ===========    ===========

Weighted average shares outstanding
   (Note 2)                                3,695,000      3,695,000      3,695,000      3,695,000
                                         ===========    ===========    ===========    ===========
</TABLE>

See accompanying notes 



                                       3
<PAGE>


                             SMARTSERV ONLINE, INC.

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                       SIX MONTHS ENDED DECEMBER 31, 1997
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                             ADDITIONAL
                                      COMMON STOCK             PAID-IN        UNEARNED        ACCUMULATED
                                  SHARES       PAR VALUE       CAPITAL       COMPENSATION       DEFICIT          TOTAL
                               ------------   ------------   ------------    ------------    ------------    ------------
<S>                               <C>         <C>            <C>             <C>             <C>             <C>          
Balance at June 30, 1997          3,695,000   $     36,950   $  9,046,592    $       --      $ (9,781,870)   $   (698,328)

Issuance of 4,000 Prepaid
   Common Stock Purchase
   Warrants, net of direct
   costs of $545,000                   --             --        3,455,000            --              --         3,455,000

Issuance of Common Stock
   Purchase Warrants to a
   financial consultant in
   connection with the
   issuance of 4,000 Prepaid
   Common Stock Purchase
   Warrants                            --             --        1,619,600      (1,619,600)           --              --

Issuance of Common Stock
   Purchase Warrants in
   connection with the
   issuance of notes                   --             --          887,200            --              --           887,200

Amortization of unearned
  compensation over the term
  of the agreement                     --             --             --            80,975            --            80,975

Net loss for the period                --             --             --              --        (2,933,380)     (2,933,380)
                               ------------   ------------   ------------    ------------    ------------    ------------

Balance at December 31, 1997      3,695,000   $     36,950   $ 15,008,392    $ (1,538,625)   $(12,715,250)   $    791,467
                               ============   ============   ============    ============    ============    ============
</TABLE>

See accompanying notes.



                                       4
<PAGE>


                             SMARTSERV ONLINE, INC.

                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            THREE MONTHS                   SIX MONTHS
                                                          ENDED DECEMBER 31             ENDED DECEMBER 31
                                                     --------------------------    --------------------------
                                                        1997           1996           1997           1996
                                                     -----------    -----------    -----------    -----------
<S>                                                  <C>            <C>            <C>            <C>         
OPERATING ACTIVITIES
Net loss                                             $(1,415,840)   $(1,308,543)   $(2,933,380)   $(2,104,380)
Adjustments to reconcile net loss to net cash used
in operating activities:
    Depreciation and amortization of property
       and equipment                                      47,264         21,425         93,337         38,326
    Non-cash interest expense and other
       financing costs                                   422,100           --        1,037,664           --
    Changes in market value of employee options             --          224,555           --          188,293
    Amortization of unearned revenues                     (2,377)          --           (4,667)          --
    Amortization and write-off of deferred charges          --            9,000         63,000         18,000
    Amortization of unearned compensation                 80,975           --           80,975           --
    Other changes that provided (used) cash
       Accounts receivable                                53,764       (111,360)        22,620       (112,402)
       Inventories                                          --          (30,000)          --          (30,000)
       Prepaid expenses and other receivables              7,920        (28,545)        13,082        (87,126)
       Accounts payable and accrued liabilities         (388,198)       154,748        107,279         48,469
       Accrued interest                                     --             --          (16,323)          --
       Payroll taxes payable                            (107,524)         4,386        (23,801)         6,588
       Salaries payable                                   51,657         21,779         39,866          9,976
       Unearned revenues                                   3,377         20,000         15,855         20,000
       Security deposit reduction                           --             --           14,253           --
                                                     -----------    -----------    -----------    -----------
    Net cash used in operating activities             (1,246,882)    (1,022,555)    (1,490,240)    (2,004,256)
                                                     -----------    -----------    -----------    -----------

INVESTING ACTIVITIES
Purchase of equipment                                    (31,245)      (119,570)       (42,876)      (218,743)
                                                     -----------    -----------    -----------    -----------
    Net cash used in investing activities                (31,245)      (119,570)       (42,876)      (218,743)
                                                     -----------    -----------    -----------    -----------

FINANCING ACTIVITIES
Repayment of capital lease obligation                    (17,935)          --          (54,811)          --
Proceeds from the issuance of short-term notes              --             --          196,500           --
Proceeds from the issuance of warrants, net                 --             --        2,643,941           --
Costs of the issuance of warrants                           --             --          (25,000)          --
Proceeds from officers' loans                               --             --           37,500           --
Repayment of officers' loans                             (12,500)          --          (37,500)          --
                                                     -----------    -----------    -----------    -----------

    Net cash provided by (used in) financing
    activities                                           (30,435)          --        2,760,630           --
                                                     -----------    -----------    -----------    -----------

Increase (decrease) in cash and cash equivalents      (1,308,562)    (1,142,125)     1,227,514     (2,222,999)
Cash and cash equivalents - beginning of period        2,629,421      2,379,976         93,345      3,460,850
                                                     -----------    -----------    -----------    -----------

Cash and cash equivalents - end of period            $ 1,320,859    $ 1,237,851    $ 1,320,859    $ 1,237,851
                                                     ===========    ===========    ===========    ===========
</TABLE>

See accompanying notes.



                                       5
<PAGE>


                             SMARTSERV ONLINE, INC.

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



1. ORGANIZATION

SmartServ Online, Inc. (the "Company")  commenced operations on August 20, 1993.
The Company makes available  online  information and  transactional  services to
subscribers through  screen-based phones,  personal computers,  personal digital
assistants,  the Internet,  interactive  voice response  systems,  alpha-numeric
pagers and other  personal  communications  systems.  The Company  also offers a
range of  services  designed  to meet the varied  needs of clients of  potential
Strategic  Marketing   Partners,   as  well  as  potential  direct  subscribers,
including: business credit information,  investment newsletters,  stock research
reports,  stock quotes,  nationwide business and residential directory services,
business and financial news, sports information,  research and analysis reports,
trading  activity  reports by insiders of  corporations,  online  FedEx  package
tracking,  electronic  mail,  national  weather  reports and other  business and
entertainment information.  The Company's software architecture and capabilities
format  information  for a particular  device and present the  information  in a
user-friendly manner.

On March 21, 1996, the Company completed an Initial Public Offering of 1,695,000
shares of $.01 par value  common stock at $5.00 per share and  1,725,000  common
stock purchase  warrants at $.10 per warrant.  The Company  received  $7,058,648
from the Offering, net of the costs of issuing these securities of $1,588,852.

On September 30, 1997, the Company completed a private  placement  ("Placement")
of $4 million of Prepaid Common Stock Purchase Warrants ("Prepaid  Warrants") as
more fully  disclosed  in Note 6. An  integral  part of this  Placement  was the
conversion of notes payable and accrued interest thereon,  aggregating $836,059,
into such Prepaid  Warrants.  The net proceeds to the Company of $2,643,941 have
provided it with working capital to allow it to continue its marketing efforts.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information,
the instructions of Form 10-QSB and Rule 310 of Regulation SB and, therefore, do
not include all information and notes necessary for a presentation of results of
operations,  financial  position  and cash flows in  conformity  with  generally
accepted  accounting  principles.  The  balance  sheet at June 30, 1997 has been
derived from the audited financial statements at that date, but does not include
all of the information and footnotes required by generally  accepted  accounting
principles for complete financial statements. The financial statements should be
read in  conjunction  with the Company's  Annual Report on Form 10-KSB/A for the
year  ended  June 30,  1997.  In the  opinion of the  Company,  all  adjustments
(consisting of normal recurring accruals) necessary for a fair presentation have
been made.  Results of operations for the six months ended December 31, 1997 are
not necessarily indicative of those expected for the year ending June 30, 1998.

The  Company  has  completed   development  of  its  information   platform  and
communications  software and exited the developmental stage; however, it has yet
to generate significant  revenues.  The Company has incurred recurring operating
losses and its operations have not produced a positive cash flow.  




                                       6
<PAGE>



Additionally,  there is no  assurance  that the  Company  will  generate  future
revenues or cash flow from operations.

Reclassifications
-----------------
Certain  amounts in the 1996  financial  statements  have been  reclassified  to
conform to the 1997 presentation.

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

Recent Accounting Pronouncements
--------------------------------
In February 1997, the FASB issued  Statement No. 129,  Disclosure of Information
about Capital  Structure.  This Statement  established  standards for disclosing
information about an entity's capital structure. This statement is effective for
fiscal years ending on or after  December 15, 1997.  The Company  plans to adopt
and apply the  provisions of this  statement for the fiscal year ending June 30,
1998. The resulting  effect of the application of this statement is not expected
to have a material impact on the financial statements.


3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,   JUNE 30,
                                                                 1997         1997
                                                              ---------    ---------
<S>                                                           <C>          <C>      
Data processing equipment                                     $ 606,653    $ 564,098
Data processing equipment purchased under a capital lease       246,211      246,211
Office furniture and equipment                                   69,196       69,196
Display equipment                                                 9,635        9,635
Leasehold improvements                                           36,678       36,357
                                                              ---------    ---------

                                                                968,373      925,497

Accumulated  depreciation,  including $32,828 and $8,207 at
December 31, 1997 and June 30, 1997, respectively, for
equipment purchased under a capital lease                      (275,120)    (181,783)
                                                              =========    =========
                                                              $ 693,253    $ 743,714
                                                              =========    =========
</TABLE>

4. NOTES PAYABLE

On May 29,  1997,  the Company  entered  into a line of credit  facility  with a
financial institution for a maximum borrowing thereunder of $550,000. Borrowings
under this facility were to be repaid on August 27, 1997, along with interest at
the rate of 24% per annum. On July 21, 1997 and September 16, 1997, the facility
was amended to provide for additional borrowings of up to $222,222. On September


                                       7
<PAGE>



30, 1997, notes payable of $772,222 and accrued interest thereon of $63,837 were
converted into the Company's Prepaid Warrants as more fully described in Note 6.

In conjunction with the origination of the line of credit facility,  the Company
issued  250,000  Common Stock  Purchase  Warrants to the financial  institution.
Similarly, the Company issued 50,500 warrants for each of the July and September
amendments.  As a result of the  Company's  default on the note in  August,  the
Company was required to issue 300,500  "default"  warrants to such  institution.
These  651,500  warrants were issued at exercise  prices  ranging from $1.125 to
$2.825 and expire in September 2002.  Certain of the warrants  contain  variable
exercise provisions predicated on the price of the Company's Common Stock at the
time of  exercise.  Accordingly,  the  exercise  price of the  warrants has been
adjusted at December  31, 1997 to a maximum of $0.75,  the closing  price of the
Company's Common Stock at that date. Since compensation  expense varies with the
changes in the market value of the  underlying  common  stock the warrants  have
been revalued in  accordance  with the  Black-Scholes  pricing  methodology  and
recorded in the statement of operations as financing costs.


5. LOANS PAYABLE TO OFFICERS

Loans  payable to officers of the Company were  non-interest  bearing and due on
demand. The last of such loans was repaid on October 2, 1997.


6. EQUITY TRANSACTIONS

On September  30, 1997,  The Zanett  Securities  Company  ("Zanett"),  acting as
placement agent for the Company,  completed the private placement  ("Placement")
of $4 million of the Company's Prepaid Common Stock Purchase Warrants  ("Prepaid
Warrants").  The sale of these Prepaid Warrants was exempt from the registration
requirements  of the  Securities  Exchange Act pursuant to Regulation D thereof.
Each Prepaid  Warrant  entitles the holder to purchase  that number of shares of
Common Stock that is equal to $1,000 divided by the applicable  exercise  price.
Such exercise  price is determined  initially as 70% of the average  closing bid
price of the  Common  Stock for the 10 trading  days  ending on the day prior to
exercise of the Prepaid Warrants.  Additionally,  the exercise discount shall be
increased  by 1% for each  subsequent  60 day period that the  Prepaid  Warrants
remain unexercised.  The exercise price, however,  shall never exceed $1.40. The
Prepaid  Warrants  may be  exercised  on the  earlier  of the date upon  which a
registration  statement  is declared  effective by the SEC or December 29, 1997.
The sale of Common Stock issued upon  exercise of such Warrants is restricted to
one-third  for the  first  60, 90 and 120 days  subsequent  to the  registration
statement becoming effective. The Prepaid Warrants expire on September 30, 2002.

Terms of the Placement included the conversion by Zanett of notes payable in the
amount of  $772,222  and  accrued  interest  thereon  of  $63,837  into  Prepaid
Warrants.  The net proceeds of the  Placement of  $2,643,941  are being used for
general working capital requirements.

As  compensation  for its  services,  Zanett  received  a  placement  fee and an
unaccountable   expense   allowance  of  10%   ($400,000)   and  3%  ($120,000),
respectively, of the gross proceeds of the Placement.  Additionally, the Company
issued 600,000 Common Stock Purchase  Warrants to Zanett that are exercisable at
$1.125 per share of Common Stock. These warrants expire on September 30, 2002.

Also in conjunction  with the Placement,  the Company  entered into an agreement
with a financial  consultant who is an affiliate of Zanett  Lombardier,  Ltd, an
investor in the Prepaid  Warrants.  During the  five-year  term of the agreement
such  consultant  will provide the Company with  advisory  services  relating to
financial and strategic  ventures and alliances,  investment banking and general
financial 




                                       8
<PAGE>



advisory  services,   and  advice  and  assistance  with  the  Company's  market
development  activities.   As  compensation  for  these  services,  the  Company
authorized  the issuance of 3,555,555  Common  Stock  Purchase  Warrants to this
consultant  that are  exercisable  at $1.125 per share of Common Stock.  Of such
amount,  the issuance of 3,055,555 Common Stock Purchase  Warrants is contingent
upon the approval of the  Company's  shareholders.  At September  30, 1997,  the
Company  valued these warrants using the  Black-Scholes  pricing  methodology at
approximately $4,400,000.  However, since the issuance of 3,055,555 Common Stock
Purchase  Warrants  requires the  approval of the  Company's  shareholders,  the
measurement of  compensation  expense varies with changes in the market value of
the underlying stock.  Accordingly,  unearned  compensation has been adjusted to
$1,619,600 at December 31, 1997. Such amount has been recorded in  stockholders'
equity  as  unearned  compensation  and will be  amortized  to  income  over the
five-year term of the agreement. These warrants expire on September 30, 2002.


7. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                               THREE MONTHS ENDED DECEMBER 31  SIX MONTHS ENDED DECEMBER 31
                                 --------------------------    --------------------------
                                     1997           1996           1997           1996
                                 -----------    -----------    -----------    ----------- 
<S>                              <C>            <C>            <C>            <C>         
Numerator:
   Net loss                      $(1,415,840)   $(1,308,543)   $(2,933,380)   $(2,104,380)
                                 ===========    ===========    ===========    ===========


Denominator:
   Weighted-average shares         3,695,000      3,695,000      3,695,000      3,695,000
                                 ===========    ===========    ===========    ===========

Basic and diluted earnings per
   common share                  $     (0.38)   $     (0.35)   $     (0.79)   $     (0.57)
                                 ===========    ===========    ===========    ===========
</TABLE>

At December 31, 1997 there were, exclusive of the Common Stock Purchase Warrants
issued in connection with the issuance of notes payable (Note 4) and the Prepaid
Warrants (Note 6), 2,462,500 Common Stock Purchase  Warrants  outstanding.  Such
warrants have exercise  prices ranging from $2.00 to $12.00 per share and expire
from March 2001 through  September  2002.  None of these warrant  issuances have
been  included  in the  computation  of  diluted  loss per share  because  their
inclusion would be  antidilutive.  Additionally,  the Company has established an
employee  stock  option  plan  for  the  benefit  of  directors,  employees  and
consultants  to the Company.  These options are intended to qualify as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code, as
amended, or as nonqualified stock options. The options are generally exercisable
after one year from date of grant and no options may be granted  after April 15,
2006.  The Board of  Directors  has  authorized  the  issuance  of up to 650,000
options,  200,000 of which are subject to stockholder  approval. At December 31,
1997,  there are options  outstanding  for the purchase of 303,475 shares of the
Company's Common Stock.

SUBSEQUENT EVENTS

Subsequent  to December 31, 1997,  investors in the Company's  Prepaid  Warrants
converted  $175,000 of such  warrants  into  263,339  shares of Common  Stock at
exercise prices of $0.515 and $0.850 per share.


                                       9
<PAGE>



ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


PLAN OF OPERATION

The Company  provides online  information  and  transactional  services  through
screen-based telephones,  personal computers,  personal digital assistants,  the
Internet,  interactive voice response systems,  alpha-numeric paging devices and
other  personal   communications  systems  to  clients  of  potential  Strategic
Marketing Partners,  as well as to prospective direct  subscribers.  The Company
has exited  from the  development  stage  with the  completion  of its  software
architecture  and product offering and has commenced the  implementation  of its
marketing strategies.

The Company's business plan focuses on the strategy of marketing its services in
partnership with those companies that have an economic  incentive to provide the
Company's  information  platform  to their  customers.  Through  the use of this
model, the consumer is a customer of both SmartServ and its Strategic  Marketing
Partner.  The Company also  believes that the sale of its  information  platform
through the cooperative  efforts of partners with more recognizable  brand names
than its own is important to its success.

The Company's plan of operation  includes programs for marketing  simultaneously
at two distinct levels. At the first level, the Company is developing  strategic
marketing  relationships  with key partners that provide access to large numbers
of  potential  subscribers  for its monthly  services.  These  partners  include
regional  telephone  operating  companies,  long  distance  carriers,  telephone
equipment  manufacturers and others who distribute  screen telephone  equipment,
market local screen telephone  services or otherwise  benefit from the increased
acceptance of these devices.  Screen phones were developed to facilitate the use
of caller  ID,  call  waiting  and other  services  offered  at a premium by the
telephone companies.  To these partners, the Company's services are perceived as
a means of increasing  interest in and sales of screen telephones,  and there is
thus a strong  incentive  to promote the  Company's  services  as a  value-added
benefit.  In  September  1997,  the  Company  signed  a  3  year  contract  with
Sprint/United  Management  Company  ("Sprint") for the delivery of the Company's
information  services into additional markets beyond the initial trial city--Las
Vegas.  In December  1997,  Sprint  commenced  the  deployment  of the Company's
services in three Florida markets. The Company anticipates that this will result
in the  deployment  of the  Company's  information  services in New York,  North
Carolina,  Chicago,  Los  Angeles  and  other  designated  markets  as part of a
national campaign.  

The Company  has also signed an  agreement  with CIDCO  Incorporated,  a leading
marketer of screen-based phones and other Caller ID devices,  whereby CIDCO will
offer the Company's suite of online financial and  entertainment  information to
buyers of the CIDCO CST 2100 screen  phone.  These  services  are to marketed as
"CIDCO Personal Information  Services".  CIDCO clients include Southwestern Bell
and Bell Atlantic.

The Company is also working with businesses,  such as brokerage firms, that need
to disseminate proprietary information more effectively to their existing client
base. The Company's information platform and communications  architecture allows
the bundling of its partners'  proprietary  information with its own value-added
information,  and makes this package  available to subscribers 24 hours per day,
365 days per year.  The Company is currently  working  with  Schroder & Co. Inc.
("Schroder")  in an effort to provide  proprietary  account  information  to the
customers  of its  correspondent  relationships.  As a  direct  result  of  this
relationship,  the  Company is  providing  its stock  quote  product  and online
trading services to the customers of a correspondent relationship. Additionally,
the Company has an agreement with another  Schroder  correspondent  firm to make
the Company's "BrokerNet" program available to its 400 independent stockbrokers.

At the second level,  the Company has initiated a direct  marketing  program for
its SmartServ  "Pro" stock quote  services.  The response to  advertisements  in
Investors'  Business Daily and television  commercials run on cable station CNBC
have demonstrated that a strong and active market exists for this information.

Management  believes  that most of the  Company's  revenues  will  ultimately be
derived from end users who purchase the  Company's  services  through  Strategic
Marketing Partners with mass distribution 




                                       10
<PAGE>



capabilities.  The Company  anticipates that Strategic  Marketing  Partners will
brand the Company's "bundled" information services with their own private label,
promote the packaged  offering and then  distribute  the  Company's  information
package on  screen-based  phones,  PCs,  PDAs, the Internet,  interactive  voice
response systems,  alpha-numeric  pagers and other PCS devices to their clients.
The Company has the ability to customize the  information  package to be offered
to each Strategic Marketing Partner, and in turn to their end users.

The  market  for  online  information  and  transactional   services  is  highly
competitive and subject to rapid innovation and technological  change,  shifting
consumer  preferences  and  frequent  new  service  introductions.  The  Company
believes  that  potential  new  competitors,   including  large  multimedia  and
information  systems  companies,  are  increasing  their  focus  on  transaction
processing. Increased competition in the market for the Company's services could
materially  and  adversely  affect the Company's  results of operations  through
price reductions and loss of potential  market share.  The Company's  ability to
compete in the future depends on its ability to maintain the  technological  and
performance advantages of its current distribution platform and to introduce new
applications that achieve market acceptance.

Notwithstanding  the  execution  of a contract  with  Sprint  and the  continual
discussions  with  potential   Strategic   Marketing  Partners  about  potential
marketing  relationships,  there can be no assurance that the Company's products
and services  will  continue to be accepted in the  marketplace  by the ultimate
consumers.

Management   anticipates   that  staffing   requirements   associated  with  the
implementation of its plan of operation will result in the addition of a minimum
of 3 to 6 personnel  during the period ending June 30, 1998. Such personnel will
be added to assist with the  programming  requirements  of  Strategic  Marketing
Partners' product offerings and for customer support.


RESULTS OF OPERATIONS

During  the  fiscal  year  ended  June  30,  1997,  the  Company  commenced  the
implementation  of its marketing  strategies.  At December 31, 1997, the Company
has approximately 3,500 customers.

QUARTER ENDED DECEMBER 31, 1997 VS. QUARTER ENDED DECEMBER 31, 1996

During the quarter ended December 31, 1997, total revenues amounted to $181,594,
consisting  primarily  of  subscription  fees  for the  SmartServ  Online  "Pro"
real-time stock quote service  ($136,800) and sales generated from the Company's
relationships with Sprint ($24,500) and Schroder  ($17,500).  In September 1996,
the Company  commenced the  implementation of its marketing plan with a national
advertising campaign. Total revenues during the quarter ended December 1996 were
$283,257,  consisting  of  subscription  fees  from  the  sale of the  Company's
information  services of $40,834,  revenues  from the sale of related  telephone
equipment for the delivery of these  services to customers of $97,489,  and fees
for the enhancement,  implementation,  and marketing of services associated with
the Company's arrangement with Schroder of $144,934.

During the quarter  ended  December  31,  1997,  the Company  incurred  costs of
revenues  of  $340,713.  Such  costs  consisted  primarily  of  information  and
communication costs ($132,600), personnel costs ($92,300), and computer hardware
leases,  depreciation  and  maintenance  ($102,800).  During the  quarter  ended
December 31, 1996,  the costs of revenues were  $360,175.  Such costs  consisted
primarily of information  and  communication  costs  ($60,000),  personnel costs
($146,700),  computer hardware leases,  depreciation and maintenance  ($38,100),
and purchases of screen-based phones for resale ($87,600). 




                                       11
<PAGE>




Included  in  personnel  costs in 1996 is a non-cash  charge of $35,600  for the
change in the market value of employee stock options.

Product  development  expenses were $222,632 vs.  $299,941 for the quarter ended
December 31, 1996. Such costs consisted  primarily of personnel costs ($130,600)
and computer systems  consultants  ($78,800).  During the quarter ended December
31, 1996, such product  development  expenses  consisted  primarily of personnel
costs ($220,100) and systems consultants ($71,600).  Included in personnel costs
for the quarter ended December 31, 1996 is a non-cash  charge of $53,400 for the
change in the market value of employee stock options.

During the quarter  ended  December  31,  1997,  the Company  incurred  selling,
general and  administrative  expenses of $630,764  vs.  $953,835 for the quarter
ended December 31, 1996. Such costs were incurred  primarily for personnel costs
($266,200),  facilities  ($50,200),  marketing and advertising  costs ($41,700),
professional fees ($209,100),  and telecommunications costs ($40,000).  Included
in  professional  fees is an $80,975  non-cash  charge for the  amortization  of
unearned  compensation  associated  with the issuance of Common  Stock  Purchase
Warrants to a financial consultant.  During the quarter ended December 31, 1996,
the Company commenced an effort to build an infrastructure capable of supporting
its operations  and the marketing and  advertising  of its  information  product
offering.  Such costs were  incurred  primarily  for  advertising  and marketing
($312,700),  personnel  costs  ($377,500),   professional  fees  ($127,300)  and
telecommunications  costs  ($19,800).  Included in personnel  costs in 1996 is a
non-cash  charge of $135,000  for the change in market  value of employee  stock
options.

Interest  income for the quarter ended December 31, 1997 amounted to $21,544 vs.
$24,846  for the quarter  ended  December  31,  1996.  During the quarter  ended
December  31, 1997 such amounts were earned from the  Company's  investments  in
highly  rated bank  certificates  of deposit  while  during  the  quarter  ended
December  31,  1996  such  amounts  were  earned  primarily  from the  Company's
investments in highly liquid commercial paper. During the quarter ended December
31, 1997 interest and financing costs included a non-cash charge of $422,100 for
the  revaluation of certain Common Stock Purchase  Warrants issued in connection
with the Company's May 1997 line of credit facility.


SIX MONTHS ENDED DECEMBER 31, 1997 VS. SIX MONTHS ENDED DECEMBER 31, 1996

During the six months ended December 31, 1997, the Company recorded  revenues of
$381,787,  consisting  of  $261,700  from  the  sale  of  subscriptions  to  its
information services,  $55,000 from enhancement,  implementation,  and marketing
services  associated  with its arrangement  with Schroder,  and $53,700 from the
Company's  relationship with Sprint. The Company commenced the implementation of
its  marketing  plan during the six months  ended  December  1996,  and recorded
revenues of $152,100 from the sale of its  information  services and the related
screen-based telephones. Additionally, the Company recorded revenues of $145,000
related to the enhancement,  implementation and marketing of services associated
with its arrangement with Schroder.

During the six months ended  December 31, 1997,  the Company  incurred  costs of
revenues  of  $718,685.  Such  costs  consisted  primarily  of  information  and
communication  costs  ($323,100),   personnel  costs  ($183,800),  and  computer
hardware leases, depreciation and maintenance ($182,600).  During the six months
ended  December  31,  1996,  the costs of  revenues  were  $527,360.  Such costs
consisted primarily of information and communication costs ($97,200),  personnel
costs  ($228,600),  and computer  hardware leases,  depreciation and maintenance
($76,500),  and purchases of screen-based phones for resale ($95,500).  Included
in personnel costs in 1996 is a non-cash charge of $29,200 for the change in the
market value of employee stock options.

Product development  expenses were $427,705 during the six months ended December
31, 1997 vs.  $492,707  for the six months ended  December 31, 1996.  Such costs
consisted   primarily  of  personnel  costs   ($275,000)  and  computer  systems
consultants  ($132,700).  During the six months ended  December  31, 1996,  such
product  development  expenses consisted primarily of personnel costs ($342,300)
and systems  consultants  ($133,300).  Included in personnel  costs in 1996 is a
non-cash  charge of $43,800 for the change in the market value of employee stock
options.


                                       12
<PAGE>



During the six months ended  December 31, 1997,  the Company  incurred  selling,
general and administrative expenses of $1,160,227, primarily for personnel costs
($478,200), facilities ($98,800), marketing and advertising costs ($78,900), and
professional fees ($336,200). Included in professional fees is a non-cash charge
of $63,000 for the write-off of prepaid  consulting  fees incurred in connection
with the Company's Initial Public Offering of Securities and an $80,975 non-cash
charge  for the  amortization  of  unearned  compensation  associated  with  the
issuance of Common Stock Purchase Warrants to a financial  consultant.  Selling,
general and  administrative  expenses for the six months ended December 31, 1996
were $1,440,899.  Such costs consisted  primarily of personnel costs ($491,400),
facilities   ($75,000),   marketing  and  advertising  costs   ($418,100),   and
professional  fees  ($257,400).  Included  in  personnel  costs  for  1996 was a
non-cash  charge of  approximately  $115,000  related  to the change in value of
employee stock options.

Interest  income for the six months ended  December 31, 1997 amounted to $22,631
vs.  $65,185 for the six months ended  December 31, 1996.  During the six months
ended December 31, 1997, such amounts were earned from the Company's investments
in highly rated bank  certificates  of deposit while during the six months ended
December  31,  1996,  such  amounts  were earned  primarily  from the  Company's
investments in highly liquid commercial paper.  Interest and financing costs for
the six months  ended  December  31, 1997 were  $1,031,181.  Such  amounts  were
incurred  primarily in connection with the issuance of short-term  notes payable
and  associated  Common  Stock  Purchase  Warrants.  The Common  Stock  Purchase
Warrants have been recorded in the financial  statements in accordance  with the
Black-Scholes  pricing  methodology.  Interest  costs for the six  months  ended
December  31,  1996 were  incurred in  connection  with an  insurance  financing
agreement and amounted to $5,708.


CAPITAL RESOURCES AND LIQUIDITY

Since  inception of the Company on August 20, 1993 through  March 21, 1996,  the
date of the IPO, the Company had funded its operations  through a combination of
private  debt  and  equity   financings   totaling   $2,900,000   and  $300,000,
respectively.

The IPO of 1,695,000 common shares and 1,725,000 common stock purchase  warrants
on March 21, 1996 provided the Company with gross proceeds of $8,647,500. Direct
costs associated with the IPO were approximately $1,589,000.

During the first half of the year ended June 30, 1997, the Company's  operations
were funded  through the proceeds of the March 1996 IPO and  revenues  generated
from the  Company's  marketing and  advertising  programs.  Commencing  with the
second half of 1997,  the Company  experienced  both equity and working  capital
constraints  resulting  from the  information  delivery  system's  inability  to
support and retain the volume of users generated by the Company's  marketing and
advertising  programs.  In May  1997,  the  Company  arranged  a line of  credit
facility with a financial institution.  Such line of credit was originated for a
maximum  borrowing amount of $550,000.  In July and September 1997, the facility
was amended to allow for additional borrowings of up to $222,222. In conjunction
with the origination of the line of credit facility,  the Company issued 250,000
Common Stock  Purchase  Warrants to the financial  institution.  Similarly,  the
Company issued 50,500 warrants for each of the July and September amendments. As
a result  of the  Company's  default  on the note in  August,  the  Company  was
required to issue 300,500 "default" warrants to such institution.  These 651,500
warrants were issued at exercise prices ranging from $1.125 to $2.825 and expire
in September 2002. Certain of the warrants contain variable exercise  provisions
predicated on the price of the  Company's  common stock at the time of exercise.
Accordingly,  the exercise  price of the warrants has been  adjusted at December
31, 1997 to a maximum of $0.75,  the closing price of the Company's common stock
at that date. Since  compensation  expense varies with the changes in the market
value of the  underlying  common  stock  the  warrants  have  been  revalued  in
accordance  with the  Black-Scholes  pricing  methodology  and  recorded  in the
statement of operations as financing costs.



                                       13
<PAGE>


In May 1997, the Company entered into a 3 year  noncancelable  capital lease for
certain computer  equipment used to provide  information  services.  The cost of
this equipment  ($246,211) is being financed through the manufacturer's  finance
division.

On September  30, 1997,  The Zanett  Securities  Company  ("Zanett"),  acting as
placement agent for the Company,  completed a private placement ("Placement") of
$4 million of the Company's  Prepaid  Common Stock Purchase  Warrants  ("Prepaid
Warrants").  The sale of these Prepaid Warrants was exempt from the registration
requirements  of the Securities Act of 1933, as amended,  pursuant to Regulation
D. Each Prepaid Warrant entitles the holder to purchase that number of shares of
Common Stock that is equal to $1,000 divided by the applicable  exercise  price.
Such exercise  price is determined  initially as 70% of the average  closing bid
price of the  Common  Stock for the 10 trading  days  ending on the day prior to
exercise of the Prepaid Warrants.  Additionally,  the exercise discount shall by
increased  by 1% for each  subsequent  60 day period that the  Prepaid  Warrants
remain unexercised.  The exercise price, however,  shall never exceed $1.40. The
Prepaid  Warrants  may be  exercised  on the  earlier  of the date upon  which a
registration  statement  is declared  effective by the SEC or December 29, 1997.
The sale of Common  Stock  issued  upon  exercise  of the  Prepaid  Warrants  is
restricted  to  one-third  for the first 60, 90 and 120 days  subsequent  to the
registration  statement  becoming  effective.  The  Prepaid  Warrants  expire on
September 30, 2000.

As compensation for the successful completion of the Placement,  Zanett received
a  placement  fee  and  an  unaccountable  expense  allowance  of  10%  and  3%,
respectively, of the gross proceeds of the Placement.  Additionally, the Company
issued 600,000 Common Stock Purchase  Warrants to Zanett that are exercisable at
$1.125 per share of Common Stock.

Also in conjunction  with the Placement,  the Company  entered into an agreement
with a financial  consultant who is an affiliate of Zanett  Lombardier,  Ltd, an
investor in the Prepaid  Warrants.  During the  five-year  term of the agreement
this  consultant  will provide the Company with  advisory  services  relating to
financial and strategic  ventures and alliances,  investment banking and general
financial advisory services, and advice and assistance with the Company's market
development  activities.   As  compensation  for  these  services,  the  Company
authorized  the issuance of 3,555,555  Common  Stock  Purchase  Warrants to this
consultant  that are  exercisable  at $1.125 per share of Common Stock.  Of such
amount,  the issuance of 3,055,555 Common Stock Purchase  Warrants is contingent
upon the approval of the  Company's  shareholders.  At September  30, 1997,  the
Company  valued these warrants using the  Black-Scholes  pricing  methodology at
approximately $4,400,000.  However, since the issuance of 3,055,555 Common Stock
Purchase  Warrants  requires the  approval of the  Company's  shareholders,  the
measurement of  compensation  expense varies with changes in the market value of
the underlying stock.  Accordingly,  unearned  compensation has been adjusted to
$1,619,600 at December 31, 1997. Such amount has been recorded in  stockholders'
equity  as  unearned  compensation  and will be  amortized  to  income  over the
five-year term of the agreement. These warrants expire on September 30, 2002.

As part of the Placement,  Zanett  converted  notes payable of $772,222,  issued
pursuant to a Line of Credit  Agreement  dated May 29,  1997,  as  amended,  and
accrued interest thereon of $63,837 into Prepaid  Warrants.  The net proceeds of
the  Placement  of  $2,643,941  are  being  used  for  general  working  capital
requirements.

The Company  has entered  into a 3 year  contract  with Sprint and is  currently
negotiating  agreements with several major stock brokerage  firms. The Company's
management  believes that upon the  successful  implementation  of its marketing
plan,  sufficient  revenues  will be generated to meet  operating  requirements.
Management  also believes that the successful  execution of its proposed plan of
operations  will  generate  sufficient  cash flow from  operations to enable the
Company to offer its  services  on an  economically  sound  basis;  however,  no
assurance  can be given that such goals will be  obtained  or that any  expected
revenues or cash flows will be forthcoming.



                                       14
<PAGE>



Management  estimates  that,  without a  significant  increase in revenues,  net
proceeds  from  the  Placement  will be  sufficient  to  support  the  Company's
operations through April 1998. The Company intends to seek additional sources of
capital and liquidity through collaborative  agreements,  through the conversion
of the outstanding  Common Stock Purchase  Warrants or through public or private
financing;  however, there can be no assurance that additional financing will be
available on acceptable terms or at all.


CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
----------------------------------------------

From time to time,  information provided by the Company,  statements made by its
employees  or  information  included  in its  filings  with the  Securities  and
Exchange  Commission  (including this Form 10-QSB) may contain  statements which
are  not  historical  facts,  so-called  "forward  looking  statements".   These
forward-looking  statements  are made pursuant to the safe harbor  provisions of
the Private  Securities  Litigation  Reform Act of 1995.  The  Company's  actual
future results may differ significantly from those stated in any forward-looking
statements.   Forward-looking   statements   involve   a  number  of  risks  and
uncertainties,  including,  but not limited to, product demand,  pricing, market
acceptance,  litigation,  intellectual  property  rights,  risks in product  and
technology development,  product competition,  limited number of customers,  key
personnel,  and other risk  factors  detailed in this  Quarterly  Report on Form
10-QSB and in the Company's other Securities and Exchange Commission filings.





                                       15
<PAGE>





PART 2.  OTHER INFORMATION


                             SMARTSERV ONLINE, INC.



ITEM 1.    LEGAL PROCEEDINGS
On or about  December 15 1997,  Steven T.  Francesco,  then  President and Chief
Operating  Officer  of the  Company,  filed a  complaint  against  the  Company,
Sebastian E. Cassetta (its Chairman of the Board and Chief  Executive  Officer),
Bruno Guazzoni,  Claudio Guazzoni,  Zanett Securities,  Inc. and Zanett Capital,
Inc. in the Supreme  Court of the State of New York,  County of New York. In the
amended complaint, which was served on or about December 29, 1997, Mr. Francesco
alleged,  among  other  things,  that  the  Company  breached  the  terms of its
employment  agreement with him. The amended  complaint seeks damages against the
Company in an unspecified  amount and injunctive relief. On February 6, 1998 the
Board of Directors terminated Mr. Francesco's employment with the Company as its
President  and  Chief  Operating  Officer.  The  Company  has moved the Court to
dismiss certain of the claims against it. That motion is currently  pending.  No
disclosure  in this  action has yet been  noticed  or taken.  The  Company  will
vigorously defend this action.


ITEM 6.    EXHIBITS AND REPORTS ON FORM 8 - K

(a)    The following exhibits are included herein:

           Exhibit 27 - Financial Data Schedule

(b)    REPORTS OF FORM 8-K

           Since the end of the fiscal  quarter ended  September  30, 1997,  the
           Company filed an amended  Current Report on Form 8-K/A reporting Item
           5 and  containing a pro forma balance sheet as at August 31, 1997, as
           well as a Current Report on Form 8-K dated February 11, 1998.





                                       16
<PAGE>





                             SMARTSERV ONLINE, INC.


                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                             SmartServ Online, Inc.
                                             (Registrant)

                                             By:


Date:  FEBRUARY 23, 1998                     /S/  SEBASTIAN E. CASSETTA
       -----------------                     ----------------------------------
                                             Sebastian E. Cassetta
                                             Chairman of the Board, Chief
                                              Executive Officer




Date:  FEBRUARY 23, 1998                     /S/  THOMAS W. HALLER
       -----------------                     ----------------------------------
                                             Thomas W. Haller
                                             Chief Financial Officer, Treasurer





                                       17