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



                    U. S. SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                   FORM 10-QSB

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

                         COMMISSION FILE NUMBER 0-28008

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

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

        2250 BUTLER PIKE, SUITE 150, PLYMOUTH MEETING, PENNSYLVANIA 19462
--------------------------------------------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (610) 397-0689
--------------------------------------------------------------------------------
                (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

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 DECEMBER
1, 2003 WAS 2,344,635.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
          YES       NO  X
              ---      ---

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

<PAGE>

                             SMARTSERV ONLINE, INC.

                                   FORM 10-QSB

                                      INDEX
<TABLE>
<S>           <C>                                                                                               <C>
PART I.       FINANCIAL INFORMATION

Item 1.       Consolidated Financial Statements

              Consolidated Balance Sheets - September 30, 2003 (unaudited) and December 31, 2002..................2

              Consolidated Statements of Operations - three months ended September 30, 2003
              and 2002 and nine months ended September 30, 2003 and 2002 (unaudited)..............................4

              Consolidated Statement of Changes in Stockholders' Equity (Deficiency) - nine months
              ended September 30, 2003 (unaudited)................................................................6

              Consolidated Statements of Cash Flows - three months ended September 30, 2003
              and 2002 and nine months ended September 30, 2003 and 2002 (unaudited)..............................7

              Notes to Unaudited Consolidated Financial Statements................................................8

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

              and Results of Operations..........................................................................24

Item 3.       Controls and Procedures............................................................................35


PART II.      OTHER INFORMATION

Item 1.       Legal Proceedings..................................................................................36

Item 2.       Changes in Securities and Use of Proceeds..........................................................36

Item 6.       Exhibits and Reports on Form 8-K...................................................................40

              Signatures.........................................................................................41
</TABLE>


                                       1
<PAGE>

                             SMARTSERV ONLINE, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               SEPTEMBER 30,    DECEMBER 31,
                                                                   2003           2002
                                                                ----------      ----------
                                                                               (UNAUDITED)
<S>                                                            <C>             <C>
ASSETS
Current assets
   Cash                                                         $  276,363      $  154,759
   Accounts receivable                                              95,658          55,907
   Accrued interest receivable                                      47,004          50,658
   Prepaid compensation                                            382,876         117,500
   Prepaid expenses                                                131,855         164,258
   Deferred financing costs                                        662,868              --
                                                                ----------      ----------
Total current assets                                             1,596,624         543,082
                                                                ----------      ----------

Property and equipment, net                                             --       1,573,978

Other assets

   Capitalized software development costs, net of
      accumulated amortization of $1,097,148 at
      September 30, 2003 and $208,681 at December 31, 2002              --         888,467
   Deposits                                                        125,357         238,690
   Notes receivable from a former officer, net of an
     allowance for uncollectibility of $664,640                         --              --
   Prepaid compensation                                             19,583         107,708
                                                                ----------      ----------
                                                                   144,940       1,234,865
                                                                ----------      ----------
Total Assets                                                    $1,741,564      $3,351,925
                                                                ==========      ==========
</TABLE>


                                       2
<PAGE>

                             SMARTSERV ONLINE, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                             SEPTEMBER 30,     DECEMBER 31,
                                                                                 2003              2002
                                                                            ------------       ------------
                                                                              (UNAUDITED)
<S>                                                                         <C>               <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities

   Accounts payable                                                         $  1,849,254       $  1,307,342
   Accrued liabilities                                                         1,245,084            476,346
   Accrued salaries                                                              334,501            295,437
   Notes payable                                                               2,208,252            500,000
                                                                            ------------       ------------
Total current liabilities                                                      5,637,091          2,579,125
                                                                            ------------       ------------

Deferred revenues                                                                 49,466            193,294
Deferred lease costs                                                                  --            242,300
Accounts payable - noncurrent                                                         --            163,907

COMMITMENTS AND CONTINGENCIES - NOTE 9

STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock - $0.01 par value
   Authorized - 1,000,000 shares

   Issued and outstanding - None                                                      --                 --
Common stock - $.01 par value
   Authorized - 40,000,000 shares

   Issued and outstanding - 2,261,300 shares at September 30, 2003 and
      1,906,040 shares at December 31, 2002                                       22,613             19,060
Additional paid-in capital                                                    83,512,852         73,623,241
Notes receivable from former officers, net of an allowance for
   uncollectibility of $354,471 at September 30, 2003 and $-0- at
   December 31, 2002                                                            (255,525)          (609,996)
Accumulated deficit                                                          (87,224,933)       (72,859,006)
                                                                            ------------       ------------
Total stockholders' equity (deficiency)                                       (3,944,993)           173,299
                                                                            ------------       ------------

Total Liabilities and Stockholders' Equity (Deficiency)                     $  1,741,564       $  3,351,925
                                                                            ============       ============
</TABLE>

See accompanying notes.


                                       3
<PAGE>

                             SMARTSERV ONLINE, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                             THREE MONTHS                          NINE MONTHS
                                                          ENDED SEPTEMBER 30                    ENDED SEPTEMBER 30
                                                   -------------------------------       -------------------------------
                                                       2003               2002               2003                2002
                                                   ------------       ------------       ------------       ------------
<S>                                                <C>                <C>                <C>                <C>
Revenues                                           $    145,130       $     81,847       $    614,145       $    146,483
                                                   ------------       ------------       ------------       ------------

Costs and expenses:
   Costs of services                                   (289,055)        (1,386,390)        (4,080,429)        (4,338,016)
   Sales and marketing expenses                         (23,543)          (454,364)          (403,573)        (2,698,013)
   General and administrative expenses                 (715,353)        (1,087,962)        (3,075,446)        (3,328,102)
   Stock-based compensation                            (229,124)           (30,290)          (331,068)           122,831
                                                   ------------       ------------       ------------       ------------

   Total costs and expenses                          (1,257,075)        (2,959,006)        (7,890,516)       (10,241,300)
                                                   ------------       ------------       ------------       ------------

Loss from operations                                 (1,111,945)        (2,877,159)        (7,276,371)       (10,094,817)
                                                   ------------       ------------       ------------       ------------

Other income (expense):
   Interest income                                        2,709             74,785             11,601            106,284
   Interest expense and other financing costs        (6,531,633)          (138,439)        (7,781,029)          (508,184)
   Gain from extinguishment of debt                          --          5,679,261            305,822          5,679,261
   Insurance recovery                                        --                 --            374,000                 --
   Foreign exchange gains (losses)                           --               (521)                50            (15,977)
                                                   ------------       ------------       ------------       ------------

                                                     (6,528,924)         5,615,086         (7,089,556)         5,261,384
                                                   ------------       ------------       ------------       ------------

Net earnings (loss)                                $ (7,640,869)      $  2,737,927       $(14,365,927)      $ (4,833,433)
                                                   ============       ============       ============       ============

Basic earnings (loss) per share                    $      (3.69)      $       2.04       $      (7.15)      $      (4.18)
                                                   ============       ============       ============       ============

Diluted earnings (loss) per share                  $      (3.69)      $       1.83       $      (7.15)      $      (4.18)
                                                   ============       ============       ============       ============

Weighted average shares outstanding - basic           2,072,440          1,339,053          2,010,142          1,157,260
                                                   ============       ============       ============       ============

Weighted average shares outstanding - diluted         2,072,440          1,494,302          2,010,142          1,157,260
                                                   ============       ============       ============       ============
</TABLE>


The following table illustrates the amount of stock-based  compensation  charges
that would have been


                                       4
<PAGE>

recorded in the  categories  of the  statement  of  operations  had  stock-based
compensation not been separately stated therein:

<TABLE>
<CAPTION>
                                                THREE MONTHS                   NINE MONTHS
                                             ENDED SEPTEMBER 30              ENDED SEPTEMBER 30
                                         -------------------------       -------------------------
                                            2003            2002            2003            2002
                                         ---------       ---------       ---------       ---------
<S>                                      <C>             <C>             <C>             <C>
Costs of services                        $ (74,750)      $  (7,895)      $ (74,353)      $ 187,413

Sales and marketing expenses                    --          (3,863)             --         (33,525)

General and administrative expenses       (154,374)        (18,532)       (256,715)        (31,057)
                                         ---------       ---------       ---------       ---------

                                         $(229,124)      $ (30,290)      $(331,068)      $ 122,831
                                         =========       =========       =========       =========
</TABLE>


See accompanying notes.


                                       5
<PAGE>

                             SMARTSERV ONLINE, INC.

     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

                      NINE MONTHS ENDED SEPTEMBER 30, 2003

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           NOTES
                                       COMMON STOCK                      RECEIVABLE        ADDITIONAL
                                                         PAR             FROM FORMER         PAID-IN          ACCUMULATED
                                       SHARES           VALUE             OFFICERS           CAPITAL           DEFICIT
                                    ------------      ------------      ------------       ------------       ------------
<S>                                    <C>            <C>               <C>                <C>                <C>
Balances at December 31, 2002          1,906,040      $     19,060      $   (609,996)      $ 73,623,241       $(72,859,006)

Issuance of common stock upon
  exercise of employee stock
  options                                    958                10                --              9,649                 --

Issuance of common stock upon
  exercise of warrants                    73,731               737                --            375,290                 --

Issuance of common stock to
   vendors to satisfy debt                20,590               206                --            163,701                 --

Change in market value of
  employee stock options                      --                --                --             (1,323)                --

Issuance of common stock as
  compensation for services              166,666             1,667                --            862,330                 --

Issuance of common stock
  related to debt financing               93,315               933                --            436,866                 --

Issuance of warrants as
  compensation for services                   --                --                --            154,500                 --

Allowance for uncollectibility
  of loans to officers                        --                --           354,471                 --                 --

Issuance of warrants related
  to debt financing                           --                --                --          6,406,572                 --

Beneficial conversion features
  of  notes                                   --                --                --          1,482,026                 --

Net loss for the period                       --                --                --                 --        (14,365,927)
                                    ------------      ------------      ------------       ------------       ------------

Balances at September 30, 2003         2,261,300      $     22,613      $   (255,525)      $ 83,512,852       $(87,224,933)
                                    ============      ============      ============       ============       ============
</TABLE>

See accompanying notes.


                                       6
<PAGE>

                             SMARTSERV ONLINE, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                              THREE MONTHS                            NINE MONTHS
                                                           ENDED SEPTEMBER 30                      ENDED SEPTEMBER 30
                                                     -------------------------------       -------------------------------
                                                         2003               2002               2003                 2002
                                                     ------------       ------------       ------------       ------------
<S>                                                  <C>                <C>                <C>                <C>
OPERATING ACTIVITIES
Net income (loss)                                    $ (7,640,869)      $  2,737,927       $(14,365,927)      $ (4,833,433)
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
    Gain from extinguishment of debt                           --         (5,679,261)          (305,822)        (5,679,261)
    Depreciation and amortization                              --            507,765          2,462,445          1,474,654
    Noncash compensation costs                            229,124             30,290            331,068           (122,831)
    Amortization of deferred financing costs            6,297,577                 --          7,391,278                 --
    Deferred interest on officer's loan                        --            (52,467)                --            (52,467)
    Amortization of deferred revenues                     (57,567)           (15,883)          (391,828)           (21,177)
    Provision for (recovery of) losses on loans
     to former officers                                   (44,551)                --            354,471                 --
    Changes in operating assets and liabilities
       Accounts receivable                                (29,984)            24,920            (39,751)          (101,137)
       Accrued interest receivable                         (2,453)            (6,706)             3,654             (6,706)
       Prepaid expenses                                    54,982             85,207             32,403            302,531
       Accounts payable and accrued liabilities           431,757            403,898          1,138,236            481,555
       Deferred revenues                                   30,000              5,949            248,000            180,000
       Security deposit                                    75,374            247,880            113,333            231,585
                                                     ------------       ------------       ------------       ------------
    Net cash used for operating activities               (656,610)        (1,710,481)        (3,028,440)        (8,146,687)
                                                     ------------       ------------       ------------       ------------

INVESTING ACTIVITIES
Purchase of equipment                                          --             (1,170)                --           (169,660)
Capitalization of software development costs                   --            (45,660)                --           (185,895)
                                                     ------------       ------------       ------------       ------------
    Net cash used for investing activities                     --            (46,830)                --           (355,555)
                                                     ------------       ------------       ------------       ------------

FINANCING ACTIVITIES
Net proceeds from the issuance of notes                   522,000                 --          3,059,500                 --
Proceeds from the issuance of common stock                     --          3,688,787            385,544          4,802,990
Repayment of notes receivable from officers                    --             56,845                 --             56,845
Repayment of note payable                                      --           (500,000)          (295,000)          (500,000)
Costs of issuing common stock                                  --           (319,348)                --           (579,348)
                                                     ------------       ------------       ------------       ------------
    Net cash provided by financing activities             522,000          2,926,284          3,150,044          3,780,487
                                                     ------------       ------------       ------------       ------------

Increase (decrease) in cash                              (134,610)         1,168,973            121,604         (4,721,755)
Cash - beginning of period                                410,973            641,595            154,759          6,532,323
                                                     ------------       ------------       ------------       ------------

Cash - end of period                                 $    276,363       $  1,810,568       $    276,363       $  1,810,568
                                                     ============       ============       ============       ============
</TABLE>

See accompanying notes.

                                       7
<PAGE>

                             SMARTSERV ONLINE, INC.

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2003

1.       NATURE OF BUSINESS

SmartServ Online, Inc.  ("SmartServ" or the "Company")  commenced  operations on
August 20,  1993 and had its initial  public  offering  on March 21,  1996.  The
Company offers application  development and hosting services that allow wireless
carriers,  content  providers and commercial  enterprises to deliver  content to
their work forces and customers via wireless  devices,  with special emphasis on
cellular phones.  SmartServ's products can deliver proprietary  information,  as
well as delayed and  real-time  financial  market data,  business and  financial
news,  national  and local  weather  reports  and  other  premium  business  and
entertainment information in a user-friendly manner.

The Company's mobile data solutions are designed to generate additional revenue,
increase operating efficiency, and extend brand awareness for wireless carriers,
enterprises and content  providers and are delivered via J2ME, BREW, WAP and SMS
enabled cellular phones, as well as RIM Blackberry and Pocket PC devices.

SmartServ has previously  established  customer and  distribution  relationships
with strategic partners and wireless carriers,  including Verizon Wireless, AT&T
Wireless, Nextel, ALLTEL Wireless, U.S. Cellular, QUALCOMM and Motorola, as well
as content providers,  including  BusinessWeek Online, S&P Comstock and The Wall
Street Journal Online (Dow Jones).

The  economic  downturn  in  general,  and its impact on the  telecommunications
industry in  particular,  have caused  telecommunications  service  providers to
reduce   capital   spending,   personnel  and  debt,  as  well  as  new  service
introductions.  This has  resulted  in delays  in the  build-out  of high  speed
carrier data networks and availability of data-enabled wireless devices, causing
the  market  for  SmartServ's  financial  data and  transaction  services  to be
lackluster.  In addition, many commercial enterprises have curtailed new product
development to focus on data security and recovery.  Consequently, the potential
demand for the Company's products and services has been  significantly  delayed.
Such delays have had a very detrimental  effect on the Company's  operations and
have  resulted in the  Company's  inability to implement  its business  plan and
related marketing strategies.  Consequently,  in May 2002, the Company commenced
an effort to realign its  infrastructure  and related overhead to correlate with
reductions in projected revenue.  As part of this effort,  management closed the
Company's UK and Hong Kong sales offices and  downsized its domestic  operations
through  staff  reductions  to a  level  sufficient  to  support  the  Company's
projected operations.  During 2003, the Company has continued to reduce its cost
structure through the termination of additional  personnel and the relocation of
its headquarters to Plymouth Meeting, Pennsylvania. Personnel headcount has been
reduced  from 66 in May 2002 to the  current  level  of 9.  These  efforts  have
reduced the Company's  average  monthly  operating  expenses from  approximately
$1,090,000 in July 2002 to  approximately  $230,000  commencing  September 2003,
excluding  noncash stock  compensation and depreciation  and  amortization.  The
Company  anticipates  that it will  require  working  capital  for its  proposed
acquisitions  as  discussed  below,  as  well as to meet  certain  debt  service
requirements.  As a result of the factors  identified  above,  the Company is in
need of  additional  capital to enable it to  continue as a going  concern.  The
following table provides an analysis of the Company's  capital  requirements for
the 12 month period ending September 30, 2004 based on projected


                                       8
<PAGE>

revenues of $550,000:

                             % OF
                         REVENUE GOAL         CAPITAL
                                              REQUIRED
                         ------------- -----------------------

                             100           $    5,400,000

                               0           $    5,900,000

No  assurance  can be  given  that the  Company  will be able  meet its  revenue
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 will be forced to seek a merger or cease
operations.

The Company's 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.  The Company has,  since its
inception,  earned limited revenues and incurred substantial recurring operating
losses,  including  net losses of  $14,365,927  for the nine month  period ended
September 30, 2003, net losses of $8,037,173 and $14,819,860 for the years ended
December  31, 2002 and 2001,  respectively,  and net losses of  $30,993,559  and
$7,124,126   for  the  years  ended  June  30,  2000  and  1999,   respectively.
Additionally, it had an accumulated deficit of $87,224,933 at September 30, 2003
and has debt service  requirements of $1,375,000  ($4,465,000 should the Company
be unable  to  complete  an  equity  offering  of at least $3  million  prior to
February 19, 2004) during the twelve  month period  ending  September  30, 2004.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.  The financial  statements do not include any adjustments to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.

Management  believes  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 is moving from differentiation based
on  network  coverage  or minute  rates to one based on  enhanced  features  and
services.  Management  believes 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 SmartServ to exploit its current and planned  content assets
and delivery capabilities, developed over the past nine years.

The Company's plan of operation to monetize its content assets and eliminate the
uncertainty surrounding its ability to continue as a going concern focuses on:

         (1)      growing the licensing of its applications and related services
                  to wireless carriers and enterprise firms, and

         (2)      the  bundling  of its  existing  and  planned  future  premium
                  content  with the  reselling  of voice  services  to  specific
                  targeted affinity groups.

The  Company's   strategy  provides  access  to  a  large  number  of  potential
subscribers  and  allows  SmartServ  to  leverage  its  market  reach at minimal
operating costs.

                                       9
<PAGE>

Management  believes that SmartServ has a unique  combination of content assets,
including  those currently owned or licensed and those that it plans to acquire,
that may  allow it to take a  leadership  position  in the  market  for  bundled
pre-paid voice and premium  content and,  later,  a substantial  position in the
much larger market for the reselling of post-paid cell phone  service.  Thus, by
providing a set of products that bundle cell phone airtime with affinity-related
content delivered  through its current  technology  infrastructure,  the Company
plans to enter the emerging market for reselling wireless airtime. The Company's
existing  technology and content assets not only  facilitate its entry into this
new market, but may also present a barrier to entry to other  organizations that
wish to compete with similar offerings in the marketplace.

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

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

         o        Static content,  such as ring tones,  graphics and games, that
                  are  periodically  delivered and reside on the mobile  device,
                  and

         o        Mobile e-mail access applications and services.

To augment its capabilities,  SmartServ recently signed Letters of Intent and is
negotiating definitive purchase agreements for the acquisition of two companies,
nReach,  Inc. and Mobile Airwaves,  Inc.,  whose content and  content-enablement
software,  respectively,  will form, if acquired,  key components of its bundled
product offering.  nReach, Inc. is a wireless content  distribution company that
sells a broad  portfolio of popular  mass-market  cell phone content,  including
ringtones,  games,  and  on-device  graphics both direct to consumer and through
wireless  carriers.  nReach  provides  direct  access to a large  consumer  base
through existing marketing  relationships  with large retailers,  including Best
Buy and Radio Shack.

Mobile  Airwaves,  Inc.,  operating  under the brand  name  "Aqivo,"  provides a
server-based software platform that enables the delivery of e-mail over wireless
networks to practically any data-enabled cell phone. The principal target market
for Aqivo has been and will continue to be enterprises;  however, it is believed
that  Aqivo's  e-mail  enabling  software  will also have broad  appeal,  as one
component of the Company's "bundled"  products,  for individual cell phone users
who want to access their existing e-mail accounts from their wireless devices.

For wireless carriers,  SmartServ  continues to deliver data and branded content
that can increase wireless data revenue and customer  retention.  For enterprise
customers,  SmartServ  offers  solutions  that  can  increase  productivity  and
customer  retention  through the mobile delivery of proprietary data, as well as
market data and other  premium  content.  SmartServ has the ability to customize
the information package to be offered to each customer by device.

As an example,  SmartServ has launched  several products on the Verizon Wireless
network.  Our financial  content  products have been launched on Verizon's  BREW
(Binary Runtime  Environment for Wireless) network under the Wall Street Journal
Online brand name, while our SMS (Short Message Service) financial alert product
has been  launched on  Verizon's  V-text  portal.  Additionally,  SmartServ  has
launched its Lottery,  AreaWeather and AstroCom Horoscope  lifestyle products on
Verizon's BREW network. Salomon Smith Barney, in conjunction with SmartServ, has
launched a wireless version of its GEO (Global  Equities  Online)  product.  GEO
combines   Salomon's   proprietary  data,  such  as  morning  call  notes,  with
SmartServ's financial data products to form an integrated financial tool.

                                       10
<PAGE>

In December of this year,  the Company  plans to begin a retail store trial sale
of the SmartServ  Toro Card Pack designed for Hispanic  persons who have prepaid
cell phone  service.  This product  bundles a prepaid  airtime card for use with
most carriers and a Toro Card that entitles the  purchaser,  at no extra charge,
to receive  three new  Spanish-music  ring  tones,  and  horoscope  and  lottery
information in Spanish.  Following this trial and anticipated  broad  commercial
launch of our Toro product,  we expect to expand the concept into a wide variety
of similarly  highly targeted  affinity  markets - each bundling airtime with an
offering of premium content specifically chosen for that market segment.

While  management  believes  that its new marketing  strategies,  as well as its
carrier and enterprise  relationships are important to SmartServ's  success,  no
assurance  can be  given  that it will be able to  implement  its new  marketing
strategies or that its carrier and enterprise  relationships  will be successful
in their  marketing  efforts or that  SmartServ's  products and services will be
well received in the marketplace.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
---------------------
The accompanying  unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information,  the instructions of Form 10-QSB and Rule 310
of  Regulation  S-B and,  therefore,  do not include all  information  and notes
necessary for a presentation  of results of operations,  financial  position and
cash flows in conformity with accounting  principles  generally  accepted in the
United States.  The balance sheet at December 31, 2002 has been derived from the
audited  financial  statements  at that date,  but does not  include  all of the
information and footnotes required by accounting  principles  generally accepted
in the United States for complete financial statements. The financial statements
should be read in  conjunction  with the Company's  Annual Report on Form 10-KSB
for the period  ended  December 31,  2002.  In the opinion of the  Company,  all
adjustments  (consisting  of normal  recurring  accruals)  necessary  for a fair
presentation have been made. Results of operations for the three and nine months
ended  September 30, 2003 are not  necessarily  indicative of those expected for
the year ending December 31, 2003.

The  Company's  stockholders  approved a  one-for-six  reverse  stock split at a
Special Meeting on November 5, 2003.  Such reverse stock split became  effective
on November 25, 2003. All  applicable  financial  statement  amounts and related
disclosures have been restated to give effect to this transaction.

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

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

REVENUE RECOGNITION
-------------------
The Company  recognizes  revenue  from the use of its  products  and services in
accordance with American  Institute of Certified Public  Accountants'  ("AICPA")
Statement of Position ("SOP") 97-2,  "Software Revenue  Recognition",  SOP 98-9,
"Modification  of SOP  97-2,  Software  Recognition,  With  Respect  to


                                       11
<PAGE>

Certain  Transactions",  and the SEC Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements".  Specifically,  there must be (1) evidence
of an  arrangement,  (2) delivery of our products  and  services,  (3) fixed and
determinable fees and (4) probable  collectibility  of such fees.  Revenues from
multi-element  revenue  agreements  are  recognized  based  on  vendor  specific
objective  evidence  of  individual  components  or,  if  the  elements  in  the
arrangement cannot be separated,  as has been the situation to date,  recognized
as one element ratably over the term of the agreement.

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

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

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

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

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

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

EARNINGS PER SHARE
------------------
Basic  earnings per share is computed on the weighted  average  number of common
shares  outstanding;  however,  it does not  include  the  unvested  portion  of
restricted shares in accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share".  Diluted earnings per share reflects the
increase in the weighted  average  common shares  outstanding  that would result
from the assumed  exercise of  outstanding  stock options  calculated  using the
treasury stock method when dilutive.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS
--------------------------------------
In  connection  with certain  contracts  entered into between  SmartServ and its
customers,  as well as other development  projects,  the Company has capitalized
costs related to certain product  enhancements  and  application  development in
accordance with SFAS No. 86,  "Accounting for the Costs of Computer  Software to
be Sold,  Leased or  Otherwise  Marketed"  ("SFAS No.  86").  Specifically,  all
software   development   costs  are  charged  to  expense  as   incurred   until
technological  feasibility  has been  established

                                       12
<PAGE>

for the product.  Thereafter,  additional  costs  incurred for  development  are
capitalized.  The Company ceased  capitalizing such costs in connection with its
current  product  offering  during the  quarter  ended  September  2002 when the
products  became  available for general  release to customers.  Amortization  of
capitalized  software  development  costs  commences with the products'  general
release to  customers  and is  provided on a  product-by-product  basis over the
economic life, not to exceed three years, using the greater of the straight-line
or a flow of revenue method.

On an ongoing  basis,  the  Company  reviews  the future  recoverability  of its
capitalized software development costs for impairment whenever events or changes
in circumstances indicate that the carrying amounts may not be recoverable. When
such  events or  changes  in  circumstances  do  occur,  an  impairment  loss is
recognized if the undiscounted future cash flows expected to be generated by the
asset are less than its  carrying  value.  As a result of less than  anticipated
demand for the  Company's  products and  services,  as well as its  inability to
leverage  certain  relationships  during the quarter  ended June 30,  2003,  the
Company  recorded in accordance with SFAS No. 86, an impairment loss of $704,705
in such  quarter to reduce the recorded  value of the assets to their  estimated
net realizable value.

FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amounts of our financial instruments  approximate fair value due to
their terms and maturities.

SUPPLEMENTAL CASH FLOW DATA
---------------------------
The Company  considers  all highly  liquid  investments  with a maturity date of
three months or less when purchased to be cash equivalents.

During the nine months ended  September  30,  2003,  the Company  issued  20,590
shares of common stock to 5 vendors in settlement of the Company's  obligations,
aggregating  $164,000,  to  such  vendors.  These  transactions  are  considered
non-cash transactions for the purposes of the Statement of Cash Flows.

Interest, debt origination and other financing costs paid during the three month
periods ended September 30, 2003 and 2002 were $-0- and $138,439,  respectively,
and for the nine month periods  ended  September 30, 2003 and 2002 were $-0- and
$508,184, respectively.

CONCENTRATION OF CREDIT RISK
----------------------------
Financial  instruments that potentially  subject  SmartServ to concentrations of
credit risk consist  solely of accounts  receivable.  At September  30, 2003 and
December 31, 2002, accounts receivable consisted principally of amounts due from
major telecommunications  carriers, as well as a financial services company. The
Company  performs   periodic  credit   evaluations  of  its  customers  and,  if
applicable, provides for credit losses in the financial statements.

PROPERTY AND EQUIPMENT
----------------------
Property and  equipment  are stated at cost,  net of  accumulated  depreciation.
Depreciation is computed using the  straight-line  method over estimated  useful
lives of three to ten years.

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

                                       13
<PAGE>

ADVERTISING COSTS
-----------------
Advertising  costs are  expensed as incurred and were  approximately  $6,000 and
$264,900  during the nine  month  periods  ended  September  30,  2003 and 2002,
respectively.

STOCK BASED COMPENSATION
------------------------
Employee Stock Option Plans
---------------------------
The Company  maintains  several  stock option plans for  employees and directors
that  provide  for the  granting of stock  options for a fixed  number of common
shares with an exercise  price equal to the fair value of the shares at the date
of grant.  The Company  accounts for such grants in accordance  with  Accounting
Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to  Employees"
("APB No. 25").  Accordingly,  compensation  expense is recognized to the extent
that the fair value of the stock exceeds the exercise price of the option at the
measurement date. Certain options,  which have been repriced, are subject to the
variable plan  requirements  of APB No. 25, which requires the Company to record
compensation expense for changes in the fair value of its common stock.

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

The Company adopted the disclosure  provisions of SFAS No. 148,  "Accounting for
Stock-Based  Compensation  - Transition and  Disclosure",  which amends SFAS No.
123. SFAS No. 148 provides  alternative  methods of  transition  for a voluntary
change to the fair value based method of  accounting  for  stock-based  employee
compensation,  which was  originally  provided  under SFAS No. 123. SFAS No. 148
also improves the timeliness of  disclosures by requiring the  information to be
included in interim, as well as annual, financial statements.

SFAS No. 123 requires companies to recognize  compensation  expense based on the
respective  fair  values of the  options  at the date of grant.  Companies  that
choose not to adopt such rules will  continue to apply the  existing  accounting
rules  contained  in APB,  No. 25, but are  required to  disclose  the pro forma
effects on net loss and 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.


                                       14
<PAGE>

SmartServ's pro forma information is as follows:

<TABLE>
<CAPTION>
                                                          THREE MONTHS                             NINE MONTHS
                                                        ENDED SEPTEMBER 30                       ENDED SEPTEMBER 30
                                              -------------------------------------      -----------------------------------
                                                    2003                  2002                 2003                 2002
                                              ---------------       ---------------      ---------------       -------------
<S>                                           <C>                   <C>                  <C>                   <C>
Net income (loss) as reported                 $     (7,640,869)      $     2,737,927      $    (14,365,927)      $  (4,833,433)

Employee stock-based compensation
  (charges) credits included in net loss                    --               (22,519)                1,323             701,420

Employee stock-based compensation
  charges pursuant to SFAS 123                        (173,324)           (1,136,000)           (1,761,477)         (3,142,212)
                                              ----------------       ---------------      ----------------       -------------

Pro forma net earnings (loss)                 $     (7,814,193)      $     1,579,408      $    (16,126,081)    $    (7,274,225)
                                              ================       ===============      ================       =============

Basic earnings (loss) per share               $          (3.69)      $          2.04      $          (7.15)      $       (4.18)
                                              ================       ===============      ================       =============

Diluted earnings (loss) per share             $          (3.69)      $          1.83      $          (7.15)      $       (4.18)
                                              ================       ===============      ================       =============

Proforma basic earnings (loss) per share      $          (3.77)      $          1.18      $          (8.02)      $       (6.29)
                                              ================       ===============      ================       =============

Pro forma diluted earnings (loss) per share   $          (3.77)                 1.06      $          (8.02)      $       (6.29)
                                              ================       ===============      ================       =============
</TABLE>

FOREIGN CURRENCY TRANSLATION
----------------------------
The financial  statements of the Company's foreign subsidiaries whose functional
currencies  are  other  than the U.S.  dollar,  have been  translated  into U.S.
dollars  in  accordance  with SFAS No. 52,  Foreign  Currency  Translation.  All
balance sheet accounts have been  translated  using the exchange rates in effect
at the balance sheet date.  Income statement  amounts have been translated using
the average rate for the year.

RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145,  "Rescission  of  FASB  Statements  No.  4, 44 and  64,  Amendment  of FASB
Statement No. 13, and Technical  Corrections".  The Company adopted SFAS No. 145
in 2002.  Accordingly,  the Company's  gain on  extinguishment  of debt has been
recorded in "Other income" in the consolidated financial statements.

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with an Exit or Disposal Activity". SFAS No. 146 revised the accounting for exit
and  disposal  activities  under  Emerging  Issues  Task Force  Issue No.  94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity  (Including Certain Costs Incurred in a Restructuring)",  by
potentially  spreading  out the reporting of expenses  related to  restructuring
activities.  SFAS  No.  146 is  effective  prospectively  for  exit or  disposal
activities  initiated  after December 31, 2002. The Company adopted SFAS No. 146
on January 1, 2003, as required,  and does not believe that the adoption of this
new  standard  will  have a  material  effect  on its  consolidated  results  of
operations, financial position or cash flows.

                                       15
<PAGE>

In 2002,  the FASB issued  Interpretation  No. 45,  "Guarantor's  Accounting and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness  of  Others"  ("Interpretation  No.  45").  Interpretation  No.  45
elaborates  on the  disclosures  to be made by a  guarantor  in its  interim and
annual financial  statements about its obligations under certain guarantees that
it has issued.  It also clarifies that a guarantor is required to recognize,  at
the inception of a guarantee,  a liability for the fair value of the  obligation
undertaken in issuing the guarantee.  Interpretation No. 45 does not prescribe a
specific  approach  for  subsequently   measuring  the  guarantor's   recognized
liability  over the term of the related  guarantee.  Interpretation  No. 45 also
incorporates,  without  change,  the  guidance  in FASB  Interpretation  No. 34,
"Disclosure of Indirect  Guarantees of Indebtedness  of Others",  which is being
superseded. Interpretation No. 45 has no effect on the Company.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable Interest  Entities,  an Interpretation of Accounting  Research Bulletin
(ARB) No. 51,  Consolidated  Financial  Statements"  ("Interpretation  No. 46").
Interpretation  No.  46  significantly  alters  the  consolidation  requirements
governing an entity's inclusion in the consolidated  financial statements of its
sponsors,  transferors,  or  investors.  Interpretation  No. 46 introduces a new
consolidation model--the variable interests model--which determines control (and
consolidation) based on potential  variability in gains and losses of the entity
being evaluated for  consolidation.  Interpretation No. 46 provides guidance for
determining whether an entity lacks sufficient equity or its equity holders lack
adequate  decision-making  ability. These variable interest entities are covered
by the Interpretation No. 46 and are to be evaluated for consolidation  based on
their variable interests. Interpretation No. 46 has no effect on the Company.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity".  SFAS No. 150
establishes  standards  for  classifying  and measuring as  liabilities  certain
financial   instruments   that  embody   obligations  of  the  issuer  and  have
characteristics  of both  liabilities  and  equity.  SFAS No. 150  represents  a
significant  change in  practice  in the  accounting  for a number of  financial
instruments,  including  mandatorily  redeemable equity  instruments and certain
equity  derivatives that frequently are used in connection with share repurchase
programs. At this time SFAS No. 150 has no effect on the Company.

3.   PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

                                    SEPTEMBER 30,     DECEMBER 31,
                                        2003              2002
                                    -----------       -----------
Data processing equipment           $ 4,840,737       $ 4,842,941
Office furniture and equipment          151,263           151,263
Display equipment                        71,335            71,335
Leasehold improvements                       --            69,852
                                    -----------       -----------

                                      5,063,335         5,135,391
Accumulated depreciation             (5,063,335)       (3,561,413)
                                    -----------       -----------
                                    $        --       $ 1,573,978
                                    ===========       ===========

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

                                       16
<PAGE>

an impairment  loss of $843,768 in such quarter to reduce the recorded  value of
its assets to their estimated net realizable value.

4.       NOTES RECEIVABLE FROM OFFICERS

In December 2000, the Company's Board of Directors  authorized the issuance of a
line of credit to Sebastian Cassetta,  SmartServ's then Chief Executive Officer,
for an amount not to exceed  $500,000.  Such amount bears  interest at the prime
rate and matures on March 20, 2004.  Pursuant to the terms of the note, interest
for the period  January 2, 2001 to June 30, 2002 has been accrued and is payable
at  maturity.  Commencing  July 1, 2002  until  maturity,  interest  is  payable
semi-annually  in arrears on January 1st and July 1st. The financial  statements
at September  30, 2003  contain a valuation  allowance  for a potential  loss of
$552,467, relating to the collectibility of Mr. Cassetta's note and the interest
accrued thereon through June 30, 2002.

In January 2000, the Company issued to Mr. Cassetta 103,040 shares of restricted
common stock in exchange for Mr. Cassetta's note in the amount of $457,500. Such
note is secured  by the common  stock  issued to Mr.  Cassetta.  During the year
ended December 31, 2002, the Company  recorded a charge of $112,173  relating to
the potential  uncollectibilty of interest earned by the Company pursuant to the
note  between the Company and Mr.  Cassetta.  During the quarter  ended June 30,
2003,  the  Company  recorded a charge to  earnings  in the amount of  $270,000,
representing  the  potential  uncollectibility  of the note as a  result  of the
diminution of the value of the Company's collateral.

Mr.  Cassetta  left the  employ of the  Company  in August  2003.  See Note 10 -
Subsequent  Events for a description of the terms of Mr.  Cassetta's  Separation
Agreement.

In January 2000, the Company issued to Mario Rossi,  SmartServ's  then Executive
Vice President and Chief Technology Officer,  34,347 shares of restricted common
stock in exchange for Mr.  Rossi's note in the amount of $152,500.  Such note is
secured by the common stock issued to Mr.  Rossi.  During the quarter ended June
30, 2003,  the Company  recorded a charge to earnings in the amount of $129,000,
representing  the potential  uncollectibility  of the note and interest  accrued
thereon as a result of the diminution of the value of the Company's  collateral.
During the quarter  ended  September  30, 2003,  the Company  recorded a partial
recovery aggregating $44,500 in connection with Mr. Rossi's note. Mr. Rossi left
the employ of the Company in August 2003. See Note 10 - Subsequent  Events for a
description of the terms of Mr. Rossi's Separation Agreement.

5.       NOTES PAYABLE

In May 2000,  the  Company  entered  into a  Business  Alliance  Agreement  with
Hewlett-Packard  Company ("HP")  whereby the companies  agreed to jointly market
their  respective  products  and  services,  and to  work  on the  build-out  of
SmartServ's domestic and international  infrastructure.  In furtherance of these
objectives,  HP provided the Company with a line of credit of up to  $20,000,000
for the acquisition of approved  hardware,  software and services.  On September
10, 2002, the Company and HP amended the terms of the promissory note to provide
for the (i) reduction of SmartServ's aggregate outstanding principal and accrued
interest  amount of  $7,045,000  to  $1,000,000,  (ii) return of certain  unused
hardware by SmartServ, (iii) issuance by SmartServ of a warrant for the purchase
of 8,333  shares of common  stock and (iv)  repayment of $500,000 of the amended
obligation  on  September  10,  2002.  The  remaining  $500,000  obligation  was
evidenced by a note,  bearing an interest rate of 11%,  secured by the Company's
assets  exclusive  of  its  internally  developed  software  products,  and  was
satisfied  through a partial  repayment in February 2003. The Company recorded a
gain of $305,822  resulting from the Company's  partial repayment of the note in
February 2003.

                                       17
<PAGE>

In  February  2003,  the Company  issued a  convertible  note to Global  Capital
Funding Group, LP ("Global") in consideration for the receipt of $1 million. The
note  bears  interest  at the  rate  of 10% per  annum,  and is  secured  by the
Company's assets,  exclusive of its internally developed software products.  The
note matures on February 14, 2004, contains certain antidilution provisions, and
may be converted  into shares of SmartServ  common stock at $6.60 per share.  As
additional  consideration,  the Company issued Global a warrant for the purchase
of 33,333  shares of its common  stock at an exercise  price of $9.66 per share.
The note and the  warrant  have been  recorded  in  accordance  with APB No. 14,
"Accounting for Convertible Debt and Debt Issued with Stock Purchase  Warrants".
The  warrant  has been  valued  in  accordance  with the  Black-Scholes  pricing
methodology  and is netted against the  outstanding  obligation in the financial
statements.  Such amount is being amortized into operations as interest  expense
and  other  financing  costs  over the life of the  obligation.  Alpine  Capital
Partners, Inc. ("Alpine") received a finder's fee of $70,000, representing 7% of
the aggregate  purchase price of the convertible  note and a warrant to purchase
15,167  shares of common  stock  exercisable  at $9.66 per  share,  expiring  on
February 14, 2005, in connection  with this  transaction.  This warrant has been
valued in accordance with SFAS No. 123 and the Black-Scholes pricing methodology
and recorded in the  financial  statements  as deferred  financing  costs.  This
amount is being amortized into  operations on a straight-line  basis as interest
expense  and other  financing  costs  over the life of the  obligation.  Also in
connection with the 10% convertible  notes,  the Company has recorded a non-cash
charge for other  financing  costs of  $406,400,  representing  a portion of the
intrinsic  value of the  beneficial  conversion  feature of the notes.  Emerging
Issues  Task  Force  ("EITF")  Issue  No.  98-5,   "Accounting  for  Convertible
Securities  with  Beneficial  Conversion  Features  or  Contingently  Adjustable
Conversion  Ratios" ("Issue No. 98-5") as more fully described in EITF Issue No.
00-27  "Application  of Issue  No.  98-5 to  Certain  Convertible  Instruments",
defines  the  beneficial  conversion  feature as the  non-detachable  conversion
feature that is "in-the-money" at the date of issuance.  Issue No. 98-5 requires
the  recognition  of the  intrinsic  value  of  the  conversion  feature  as the
difference  between the conversion  price and the fair value of the common stock
into which the notes are  convertible.  In April 2003,  the Company  borrowed an
additional $250,000 from Global and amended the convertible note to include such
amount. As additional consideration, the Company issued Global a warrant for the
purchase of 3,333 shares of its common  stock at an exercise  price of $7.20 per
share.  Alpine is to receive a finder's  fee of $17,500 in  connection  with the
April  amendment.  The  warrants  issued to Global  and Alpine  contain  certain
antidilution provisions and expire on February 14, 2006.

In May 2003,  the  Company,  in  consideration  of  $358,000,  issued 3.58 units
consisting  of  convertible  notes and  warrants to purchase  common stock ("May
Units") to 8 investors.  Each May Unit consists of a $100,000  convertible  note
and a warrant to purchase  33,333  shares of the  Company's  common  stock.  The
convertible  notes bear  interest  at 8% per  annum,  are  convertible  into the
Company's  common  stock at $4.464 (the average of the closing bid prices of the
Company's  common stock for the 5 days prior to the closing of the  transaction)
per share and were to mature on the earlier of November  19, 2003 or the closing
of an equity placement of not less than $3 million. The warrants are exercisable
at $4.464 per share and expire on May 19,  2006.  In June 2003,  the  Company in
consideration of $1,142,000  issued 11.42 units ("June Units") [each May or June
Unit referred to individually as a "Unit"] to 20 accredited investors. Each June
Unit also  consists  of a $100,000  convertible  note and a warrant to  purchase
33,333 shares of the Company's common stock. The convertible notes bear interest
at 8% per annum,  are convertible into the Company's common stock at $4.764 (the
average of the closing bid prices of the  Company's  common stock for the 5 days
prior to the  closing  of the  transaction)  per share and were to mature on the
earlier of November  19, 2003 or the closing of an equity  placement of not less
than $3 million.  The warrants are exercisable at $4.764 per share and expire on
June 13, 2006.  The Units have been recorded in accordance  with APB No. 14. The
warrants  have  been  valued  in  accordance  with  the  Black-Scholes   pricing
methodology and are netted against the  outstanding  obligation in the financial
statements.  Such amount is being amortized into operations as interest  expense
and other financing  costs over the life of the  obligation.  Also in connection
with the 8% convertible notes, the

                                       18
<PAGE>

Company has  recorded a non-cash  charge for other  financing  costs of $81,400,
representing  a portion  of the  intrinsic  value of the  beneficial  conversion
feature of the notes. EITF Issue No. 98-5, as more fully described in EITF Issue
No.  00-27,  defines the  beneficial  conversion  feature as the  non-detachable
conversion  feature that is  "in-the-money"  at the date of issuance.  Issue No.
98-5 requires the recognition of the intrinsic  value of the conversion  feature
as the difference  between the conversion price and the fair value of the common
stock into which the notes are convertible. In November 2003, the Company, as an
inducement  to extend  the  maturity  date of the notes to  February  19,  2004,
offered the note holders a warrant to purchase additional shares of common stock
in an amount equal to 25% of the number of shares into which the notes purchased
in the Unit are  convertible.  We have received  written  consents to extend the
maturity  date from holders of $1,390,000 of the notes and expect to receive the
consents from the holders of the remaining  $110,000 notes. If we do not receive
the additional consents, we may be in default of our obligation under the notes.

Spencer Trask Ventures,  Inc.  ("Spencer  Trask"),  Steven B. Rosner and Richard
Berland,  acted  as  finders  for  the  May  and  June  2003  transactions.   As
consideration therefor, the finders received their proportionate share of a cash
fee of $150,000,  or 10% of the aggregate  purchase  price of the Units sold and
(i) Unit  Purchase  Warrants  to  purchase an  aggregate  of three Units  ("Unit
Purchase Warrant") and (ii) 33,333 shares of unregistered  common stock per Unit
sold. Each Unit Purchase  Warrant  entitles the holder to purchase one Unit, for
the price of $100,000 per Unit through June 13, 2008. In addition, Spencer Trask
received a non-accountable  expense allowance of $45,000, or 3% of the aggregate
proceeds of all Units sold in the May and June 2003  transactions.  The warrants
have been  valued  in  accordance  SFAS No.  123 and the  Black-Scholes  pricing
methodology  and  recorded in the  financial  statements  as deferred  financing
costs.  Such costs are being amortized into operations on a straight-line  basis
as interest expense and other financing costs over the life of the obligation.

On September  16, 2003,  SmartServ  issued 7.4 Units in a financing  transaction
consisting of an offering of up to 12 Units  comprised of a $50,000  convertible
note and a warrant to purchase  16,667 shares of  SmartServ's  common stock.  On
September  19, 2003,  SmartServ  issued the remaining 4.6 Units of the financing
transaction (collectively the "September  Transaction").  The Units were sold to
18 investors  for an aggregate of $600,000.  Holders of the notes have the right
to convert the notes into shares of common  stock at a price equal to $1.896 per
share for the notes  issued on  September  16, 2003 and $1.920 per share for the
notes issued on September 19, 2003. The maturity date of the notes was to be the
earlier of November  19, 2003 or the  completion  of an equity  placement  of at
least $3 million,  at which time the notes will  automatically  convert into the
equity  placement.  Holders  of the  warrants  have the  right to  exercise  the
warrants  into  shares of common  stock at a price  equal to $1.500  per  share.
Spencer   Trask  and  Richard   Berland  acted  as  finders  for  the  September
transaction. As consideration therefor, the finders received their proportionate
share of (i) a cash fee of $60,000,  or 10% of the aggregate  purchase  price of
all of the Units;  (ii)  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 and (iii) 2,778 shares of unregistered common stock per Unit sold. In
addition, Spencer Trask received a non-accountable expense allowance of $18,000,
or 3% of the aggregate proceeds of all Units sold in the September  Transaction.
All of the notes and the warrants have full ratchet anti-dilution protection. In
November 2003, the Company,  as an inducement to extend the maturity date of the
notes to  February  19,  2004,  offered  the note  holders a warrant to purchase
additional  shares of common  stock in an  amount  equal to 25% of the  warrants
purchased in the Unit. We have received  written consents to extend the maturity
date from  holders of $475,000  of the notes and expect to receive the  consents
from the  holders of the  remaining  $125,000  notes.  If we do not  receive the
additional consents, we may be in default of our obligation under the notes.

The September  Transaction  required the consent of Global,  the holder of $1.25
million of SmartServ's  convertible notes issued in February and April 2003, and
of the holders of 51% or more of  SmartServ's  $1.5  million  convertible  notes
issued in connection with the bridge financings in

                                       19
<PAGE>

May and June 2003.  As an  inducement  to obtain  their  consent,  such  holders
received (a) a change in the conversion price of their  convertible  notes equal
to the lowest  conversion price of the notes issued in the September  financings
($1.896  per share)  and (b) an  increase  in the  number of shares  purchasable
pursuant  to the  warrant  to reflect a full  ratchet  dilution  formula  with a
decrease in the  exercise  price of the  warrants to the  exercise  price of the
warrants  issued in the September  financing  ($1.500).  Such  amendment,  as it
pertains to the  holders of  convertible  notes  issued in the May and June 2003
bridge  financings,  was  effective on November 25,  2003,  coincident  with the
effective date of a one-for-six reverse stock split. SmartServ recorded a charge
in the amount of $4,828,000 as "Other Financing Costs" for the fair value of the
consideration granted to these note holders for such consent.

At September 30, 2003,  the face amount of the  Company's  debt  obligations  is
$3,350,000 and the unamortized discount amounted to $1,141,748.

6.       EQUITY TRANSACTIONS

During the nine months ended  September  30,  2003,  the Company  issued  73,731
shares of common  stock to  investors  upon the exercise of warrants to purchase
such shares. Proceeds from the exercise of these warrants were $376,000.

In February  2003,  the Company  issued an aggregate of 20,590  shares of common
stock to 5 vendors in satisfaction  of obligations for services  rendered to the
Company aggregating $164,000.

In May 2003, the Company entered into a Corporate Finance  Consulting  Agreement
("Consulting  Agreement")  with Spencer Trask,  whereby  Spencer Trask agreed to
render services to the Company as its corporate  finance  consultant,  financial
advisor and investment  banker.  As compensation for such services,  the Company
has issued  Spencer Trask 83,333  shares of its common stock.  The value of such
compensation   has  been  recorded  in  the  financial   statements  as  prepaid
compensation  and is being  amortized  over the one year term of the  Consulting
Agreement.

The Company's failure to timely file its Form 10-KSB for the year ended December
31, 2002 has  affected  the  following  registration  rights held by some of its
stockholders  and  warrant  holders.  The  Company  is  working  to  cure  these
deficiencies:

Obligations to Maintain Effective Registration Statements:
----------------------------------------------------------
Vertical  Ventures  Investments,  LLC holds a warrant to  purchase  up to 75,017
shares of common stock that have registration rights. The Registration Statement
covering the shares underlying this warrant is no longer effective.  The Company
is required to pay a fee of $8,250 for the first month of the  deficiency  and a
fee of $16,500 for each month thereafter until the shares underlying the warrant
are registered.

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 with  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.

Obligation to File a Registration Statement:
--------------------------------------------
Global holds  warrants to purchase up to 247,333  shares of common stock,  and a
convertible  note  convertible  into 833,333 shares of common stock. The Company
was required to file a Registration  Statement covering all such shares on April
14,  2003.  The Company  has not yet filed the  Registration  Statement,  and is
subject to a penalty  fee equal to $25,000  for each month that this  deficiency
remains uncured.

                                       20
<PAGE>

At  September  30,  2003,  the Company has recorded an aggregate of $213,000 for
penalties in connection with the aforementioned registration requirements.  Such
amounts are included in accrued expenses on the Company's balance sheet.

7.   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.

Stock-based  compensation for the three and nine months ended September 30, 2003
and 2002 consisted of the impact of changes in the market value of the Company's
common  stock on the  value of  options  to  purchase  common  stock  issued  to
employees and the amortization of deferred costs associated with the issuance of
warrants to purchase common stock to various consultants.

8.       EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                      THREE MONTHS                          NINE MONTHS
                                                    ENDED SEPTEMBER 30                   ENDED SEPTEMBER 30
                                              ------------------------------       -------------------------------
                                                 2003                2002                 2003                2002
                                              -------------      -----------       --------------      -----------
<S>                                           <C>                <C>               <C>                 <C>
Numerator:

   Net earnings (loss)                        $  (7,640,869)     $ 2,737,927       $  (14,365,927)     $(4,833,433)
                                              =============      ===========       ==============      ===========

Denominator
   Denominator for basic earnings (loss)
   per share - weighted average shares            2,072,440        1,339,053            2,010,142        1,157,260


   Dilutive effect of warrants to
   purchase common stock                                 --          148,502                   --               --

   Dilutive effect of employee stock
   options and restricted shares                         --            6,747                   --               --
                                              -------------      -----------       --------------      -----------

   Denominator for diluted earnings
   (loss) per share                               2,072,440        1,494,302            2,010,142        1,157,260
                                              =============      ===========       ==============      ===========

Basic earnings (loss) per common share
                                              $       (3.69)     $      2.04       $        (7.15)     $     (4.18)
                                              =============      ===========       ==============      ===========

Diluted earnings (loss) per common share
                                              $       (3.69)     $      1.83                (7.15)     $     (4.18)
                                              =============      ===========       ==============      ===========
</TABLE>

Outstanding  employee  stock options and other warrants to purchase an aggregate
of 5,419,586  and  1,016,167  shares of common  stock at September  30, 2003 and
2002,  respectively,  were not included in


                                       21
<PAGE>

the  computations  of  diluted  loss per share for the nine  months  then  ended
because  the  Company  reported  losses for the  periods,  and  therefore  their
inclusion would be antidilutive.  Similarly, an aggregate of 5,419,586 shares of
common  stock at  September  30, 2003 were not  included in the  computation  of
diluted  loss per share for the three  months  then ended  because  the  Company
reported  a loss  for  the  period,  and  therefore  their  inclusion  would  be
antidilutive.

9.       COMMITMENTS AND CONTINGENCIES

On or about February 29, 2000, Commonwealth  Associates,  L.P.  ("Commonwealth")
filed a  complaint  against  us in the  Supreme  Court of the State of New York,
County of New York. The complaint  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 13,333 shares of common stock or
at least $1,770,000  together with interest and costs. In our defense, we denied
that we  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
because a notice to enter the judgment has not yet been filed. While the Company
intends to vigorously defend any appeal of the decision, the unfavorable outcome
of  such an  appeal  could  have a  material  adverse  effect  on the  Company's
financial condition, results of operations and cash flows.

In August  2003,  SmartServ  entered  into a  Stipulation  of  Arbitration  with
Brauning  Inc.,  Mike Silva and Todd Peterson,  former  consultants to SmartServ
(collectively,  the  "Claimants")  pursuant to which SmartServ and the Claimants
agreed to resolve,  in a binding arbitration  proceeding,  the Claimants' demand
for  damages  resulting  from an  alleged  breach of  contract  and a failure by
SmartServ  to timely  register  the shares of common  stock  underlying  certain
consulting  warrants  issued by SmartServ to the Claimants.  Although  SmartServ
believes that the shares  underlying  the warrants were timely  registered,  and
that the Claimants' demand is without merit,  SmartServ has reached an agreement
in  principle  to settle  this  matter in order to avoid  the  uncertainties  of
litigation. Under the terms of the contemplated settlement agreement,  SmartServ
will  issue to  Claimants  60,000  shares of common  stock and by no later  than
February  29,  2004,  pay  Claimants   $45,000  for  certain  wireless  industry
consulting  reports.  SmartServ's  failure to comply with these settlement terms
would  entitle  Claimants to reassert  their claims.  In such case,  although we
would vigorously  defend the action,  there can be no assurance that we would be
successful.

SmartServ  is  currently  in  default  of  its  premises  lease  on  its  former
headquarters in Stamford, Connecticut. The Company has an agreement in principle
pursuant to which  SmartServ will agree to pay a settlement  amount of $175,000,
as well as issue the former  landlord a warrant to purchase 22,000 shares of the
Company's common stock.  There can be no assurance that the Company will be able
to finalize  this  agreement  or that it will be able to satisfy its  obligation
thereunder.  In such case,  the Company could be subject to litigation  with the
former  landlord  that  could have a material  adverse  impact on the  Company's
financial position and results from operations.

10.      SUBSEQUENT EVENTS

SmartServ  entered into a Separation  Agreement with Sebastian E. Cassetta,  its
former  Chairman and Chief Executive  Officer,  effective as of October 21, 2003
(the  "Cassetta  Separation  Agreement").   The  Cassetta  Separation  Agreement
terminated  Mr.  Cassetta's  rights under his  employment  agreement,  including
without  limitation,  any rights to compensation and severance,  in exchange for
the consideration

                                       22
<PAGE>

set forth therein,  including the following:  (i) a cash payment for unpaid base
salary and accrued vacation of $18,990, (ii) forgiveness of certain loans in the
original principal amount of $500,000 plus accrued interest,  (iii) extension of
the put right  contained in Mr.  Cassetta's  Restricted  Stock  Agreement  dated
December  28, 1998,  allowing  Mr.  Cassetta 1 year instead of 60 days to either
repay a  promissory  note in the  original  principal  amount of  $457,497  plus
accrued  interest,  or return 94,707 restricted shares of SmartServ Common Stock
in full satisfaction of such promissory note.

In connection with his retirement, SmartServ entered into a Separation Agreement
with Mario Rossi, its former Executive Vice President, Chief Technology Officer,
and  Director,   effective  as  of  October  21,  2003  (the  "Rossi  Separation
Agreement").  The Rossi Separation Agreement terminated Mr. Rossi's rights under
his  employment   agreement,   including  without  limitation,   any  rights  to
compensation and severance, in exchange for the consideration set forth therein,
including the following:  (i) a cash payment for unpaid base salary and vacation
of $16,667,  (ii) a cash payment for unpaid contractual base salary of $112,500,
of which $81,371 will be offset against Mr.  Rossi's  obligation to SmartServ of
$47,004 in accrued interest on a restricted stock note in the original principal
amount of $152,500 (the "Rossi Note"), and the remaining $31,129 will be paid in
two equal  installments on April 21, 2004 and October 21, 2004,  (iii) a warrant
to purchase  41,667 shares of SmartServ  common stock at not less than $2.40 per
share,  and  (iv)  pursuant  to Mr.  Rossi's  rights  under a  Restricted  Stock
Agreement,  cancellation of the principal amount of the Rossi Note upon delivery
by Mr. Rossi to SmartServ of the 34,347 shares of restricted  stock securing the
Rossi Note.

On November 11, 2003, SmartServ issued 18 Units in a financing transaction, each
Unit comprised of a $50,000  convertible  note  ("November  Note") and a warrant
("November  Warrant") to purchase 16,667 shares of SmartServ's common stock. The
Units were sold to 20 investors  for an  aggregate  of $900,000.  Holders of the
notes have the right to convert the November Note into shares of Common Stock at
a price equal to $2.10 per share for the November Note. The maturity date of the
November  Notes is the earlier of  December  19,  2003 or the  completion  of an
equity  placement of at least $3 million,  at which time the November Notes will
automatically  convert  into  the  equity  placement.  Holders  of the  November
Warrants have the right to exercise the November  Warrants into shares of Common
Stock at a price  equal to $1.500 per share.  Finders'  compensation  to Spencer
Trask and Richard Berland, for the financing transaction consisted of (i) a cash
fee of $90,000, or 10% of the aggregate purchase price of all of the Units; (ii)
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 and (iii)
2,778 shares of  unregistered  common stock per Unit sold. In addition,  Spencer
Trask  earned a  non-accountable  expense  allowance  of  $27,000,  or 3% of the
aggregate  proceeds of all Units sold in the  November  transaction.  All of the
November  Notes  and the  November  Warrants  have  full  ratchet  anti-dilution
protection.

                                       23
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS


SmartServ  Online,  Inc.  commenced  operations  on August 20,  1993 and had its
initial  public  offering  on March 21,  1996.  The Company  offers  application
development and hosting services that allow wireless carriers, content providers
and commercial enterprises to deliver content to their work forces and customers
via wireless  devices,  with special  emphasis on cellular  phones.  SmartServ's
products can deliver proprietary  information,  as well as delayed and real-time
financial market data,  business and financial news,  national and local weather
reports  and  other  premium  business  and   entertainment   information  in  a
user-friendly manner.

The Company's mobile data solutions are designed to generate additional revenue,
increase operating efficiency, and extend brand awareness for wireless carriers,
enterprises and content  providers and are delivered via J2ME, BREW, WAP and SMS
enabled cellular phones, as well as RIM Blackberry and Pocket PC devices.

SmartServ has established customer and distribution relationships with strategic
partners and wireless  carriers,  including  Verizon  Wireless,  AT&T  Wireless,
Nextel,  ALLTEL  Wireless,  U.S.  Cellular,  QUALCOMM and  Motorola,  as well as
content  providers,  including  BusinessWeek  Online,  S&P Comstock and The Wall
Street Journal Online (Dow Jones).

Due to the substantial  expenses and negative cash flows from operations that we
have incurred,  Ernst & Young LLP, in their report contained in our December 31,
2002 financial statements,  have indicated that there is substantial doubt about
our  ability  to  continue  as a going  concern.  The  Company  has,  since  its
inception,  earned  limited  revenues  and has  incurred  substantial  recurring
operating losses,  including net losses of $14,365,927 for the nine month period
ended September 30, 2003, net losses of $8,037,173 and $14,819,860 for the years
ended  December 31, 2002 and 2001,  respectively,  and net losses of $30,993,559
and  $7,124,126  for the  years  ended  June 30,  2000 and  1999,  respectively.
Additionally, the Company had an accumulated deficit of $87,224,933 at September
30, 2003 and has debt service requirements of $1,375,000  ($4,465,300 should the
Company be unable to complete an equity  financing of at least $3 million  prior
to February  19, 2004) during the 12 month  period  ending  September  30, 2004.
Although  the  Company's  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,  unless we are
able to increase  revenue and raise additional  capital from investors,  we will
not be able to support our operations.

Management  believes  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 is moving from differentiation based
on  network  coverage  or minute  rates to one based on  enhanced  features  and
services.  Management  believes 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 SmartServ to exploit its current and planned  content assets
and delivery capabilities, developed over the past nine years.

The Company's plan of operation to monetize its content assets and eliminate the
uncertainty surrounding its ability to continue as a going concern focuses on:

                                       24
<PAGE>

         (1)      growing the licensing of its applications and related services
                  to wireless carriers and enterprise firms, and

         (2)      the  bundling  of its  existing  and  planned  future  premium
                  content  with the  reselling  of voice  services  to  specific
                  targeted affinity groups.

The  Company's   strategy  provides  access  to  a  large  number  of  potential
subscribers  and  allows  SmartServ  to  leverage  its  market  reach at minimal
operating costs.

Management  believes that SmartServ has a unique  combination of content assets,
including  those currently owned or licensed and those that it plans to acquire,
that may  allow it to take a  leadership  position  in the  market  for  bundled
pre-paid voice and premium  content and,  later,  a substantial  position in the
much larger market for the reselling of post-paid cell phone  service.  Thus, by
providing a set of products that bundle cell phone airtime with affinity-related
content delivered  through its current  technology  infrastructure,  the Company
plans to enter the emerging market for reselling wireless airtime. The Company's
existing  technology and content assets not only  facilitate its entry into this
new market, but also present a barrier to entry to other organizations that wish
to compete with similar offerings in the marketplace.

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

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

         o        Static content,  such as ring tones,  graphics and games, that
                  are  periodically  delivered and reside on the mobile  device,
                  and

         o        Mobile e-mail access applications and services.

To augment its capabilities,  SmartServ recently signed Letters of Intent and is
negotiating definitive purchase agreements for the acquisition of two companies,
nReach,  Inc. and Mobile Airwaves,  Inc.,  whose content and  content-enablement
software,  respectively,  will form, if acquired,  key components of its bundled
product offering.  nReach, Inc. is a wireless content  distribution company that
sells a broad  portfolio of popular  mass-market  cell phone content,  including
ringtones,  games,  and  on-device  graphics both direct to consumer and through
wireless  carriers.  nReach  provides  direct  access to a large  consumer  base
through existing marketing  relationships  with large retailers,  including Best
Buy and Radio Shack.

Mobile  Airwaves,  Inc.,  operating  under the brand  name  "Aqivo,"  provides a
server-based software platform that enables the delivery of e-mail over wireless
networks to practically any data-enabled cell phone. The principal target market
for Aqivo has been and will continue to be enterprises;  however, it is believed
that  Aqivo's  e-mail  enabling  software  will also have broad  appeal,  as one
component of the Company's "bundled"  products,  for individual cell phone users
who want to access their existing e-mail accounts from their wireless devices.

For wireless carriers,  SmartServ  continues to deliver data and branded content
that can increase wireless data revenue and customer  retention.  For enterprise
customers,  SmartServ  offers  solutions  that  can  increase  productivity  and
customer  retention  through the mobile delivery of proprietary data, as well as
market data and other  premium  content.  SmartServ has the ability to customize
the information package to be offered to each customer by device.

                                       25
<PAGE>

As an example,  SmartServ has launched  several products on the Verizon Wireless
network.  Our financial  content  products have been launched on Verizon's  BREW
(Binary Runtime  Environment for Wireless) network under the Wall Street Journal
Online brand name, while our SMS (Short Message Service) financial alert product
has been  launched on  Verizon's  V-text  portal.  Additionally,  SmartServ  has
launched its Lottery,  AreaWeather and AstroCom Horoscope  lifestyle products on
Verizon's BREW network. Salomon Smith Barney, in conjunction with SmartServ, has
launched a wireless version of its GEO (Global  Equities  Online)  product.  GEO
combines   Salomon's   proprietary  data,  such  as  morning  call  notes,  with
SmartServ's financial data products to form an integrated financial tool.

In December of this year,  the Company  plans to begin a retail store trial sale
of the SmartServ  Toro Card Pack designed for Hispanic  persons who have prepaid
cell phone  service.  This product  bundles a prepaid  airtime card for use with
most carriers and a Toro Card that entitles the  purchaser,  at no extra charge,
to receive  three new  Spanish-music  ring  tones,  and  horoscope  and  lottery
information in Spanish.  Following this trial and anticipated  broad  commercial
launch of our Toro product,  we expect to expand the concept into a wide variety
of similarly  highly targeted  affinity  markets - each bundling airtime with an
offering of premium content specifically chosen for that market segment.

While  management  believes  that its new marketing  strategies,  as well as its
carrier and enterprise  relationships are important to SmartServ's  success,  no
assurance  can be  given  that it will be able to  implement  its new  marketing
strategies or that its carrier and enterprise  relationships  will be successful
in their  marketing  efforts or that  SmartServ's  products and services will be
well received in the marketplace.

As of September 30, 2003, SmartServ employed 9 people, all of whom were employed
in the United States.  SmartServ does not anticipate that staffing  requirements
associated  with the  implementation  of its plan of operation  will require the
addition of any people during the year ending December 31, 2003.

RESULTS OF OPERATIONS

QUARTER ENDED SEPTEMBER 30, 2003 VERSUS QUARTER ENDED SEPTEMBER 30, 2002

During the quarter ended  September 30, 2003, we recorded  revenues of $145,130.
Of such  revenues,  $61,100 were earned  through our licensing  agreements  with
wireless  telecommunications  carriers  and  $84,000  were  earned  through  our
licensing  agreement with Salomon Smith Barney  ("Salomon").  During the quarter
ended September 30, 2002, we recorded revenues of $81,847.  Substantially all of
such revenues were earned through our licensing  agreement with Salomon.  During
the  quarters  ended  September  30, 2003 and 2002,  we  recognized  $53,400 and
$15,800,  respectively,  from the amortization of deferred  revenues  associated
with this  agreement.  Although  the  licensing  agreement  with Salomon for GEO
expired  on  November  30,  2003,  the  Company  continues  to  support  the GEO
initiative. The Company is working with Salomon to augment the GEO offering with
new  service  introductions  and extend the  operating  agreement;  however,  no
assurance  can be given that the Company will be successful  in  negotiating  an
extension of the Salomon licensing agreement.

                                       26
<PAGE>

During the quarter ended  September  30, 2003, we incurred  costs of services of
$289,055,  a decrease of 79% from the quarter  ended  September  30, 2002.  Such
costs  decreased  primarily  due to  personnel  reductions  ($403,600)  and  the
reduction  of computer  hardware  leases,  depreciation  and  maintenance  costs
($443,900).  Components of the costs of service  category  consist  primarily of
information and  communication  costs ($123,200) and personnel costs ($202,700),
offset by the partial recovery ($44,500) of a loan extended to a former officer.
During the quarter ended  September  30, 2002, we incurred  costs of services of
$1,386,390.  Such costs  consisted  primarily of information  and  communication
costs  ($225,900),   personnel  costs  ($606,300),   computer  hardware  leases,
depreciation  and  maintenance  costs  ($443,900),   and  amortization  expenses
relating  to  capitalized  software  development  costs  ($87,600).  During  the
quarters ended September 30, 2003 and 2002, we capitalized $-0- and $45,700,  of
development costs in accordance with Statement of Financial Accounting Standards
No. 86,  "Accounting  for the Costs of Computer  Software to be Sold,  Leased or
Otherwise Marketed" ("Statement No. 86").

During the quarter ended  September  30, 2003,  we incurred  sales and marketing
expenses of $23,543,  a decrease of 95% from the  quarter  ended  September  30,
2002.  Such costs  decreased  primarily due to travel and  personnel  reductions
associated with the closing of the Company's Hong Kong and London sales offices,
U.S.  personnel  reductions,  reductions  in  advertising  and  trade  shows and
reductions in professional fees.  Components of the sales and marketing category
consist  primarily  of  personnel  costs  ($19,400).  During the  quarter  ended
September 30, 2002, we incurred sales and marketing expenses of $454,364.  Sales
and marketing  expenses were incurred  primarily for personnel costs ($292,500),
facilities ($32,000), consulting fees ($29,800),  communication costs ($17,400),
advertising and trade shows ($43,000), and travel and lodging ($32,100).

During  the  quarter  ended   September  30,  2003,  we  incurred   general  and
administrative  expenses of $715,353,  a decrease of 34% from the quarter  ended
September 30, 2002. Such costs decreased  primarily due to personnel  reductions
($359,700) and  reductions in  professional  fees  ($170,400),  insurance  costs
($44,800) and computer  hardware  leases,  depreciation  and  maintenance  costs
($48,900),  offset by an increase in facilities costs ($175,100).  Components of
the general and  administrative  category  consist  primarily of personnel costs
($26,200),   professional  fees  ($126,700),  facilities  ($302,500),  insurance
($61,700) and consulting costs ($31,000). During the quarter ended September 30,
2002, we incurred general and administrative expenses of $1,087,962. General and
administrative  costs were incurred  primarily for personnel  costs  ($385,900),
travel  and  lodging   ($24,200),   professional  fees  ($297,100),   facilities
($127,400), insurance ($106,500), and computer hardware leases, depreciation and
maintenance costs ($54,000).

During  the  quarter  ended  September  30,  2003,  a  net  noncash  charge  for
stock-based  compensation  amounted to $229,124 compared to a net noncash charge
of $30,290 during the quarter ended September 30, 2002. Of such amounts, noncash
charges for consulting  services for the quarters  ended  September 30, 2003 and
2002 were  $118,000  and  $3,900,  respectively,  resulting  primarily  from the
amortization of deferred costs associated with the prior issuance of warrants to
purchase common stock to various financial, marketing and technical consultants.
Stock-based  compensation  is valued in accordance  with  Accounting  Principles
Board Opinion No. 25,  "Accounting for Stock Issued to Employees" ("APB No. 25")
and SFAS No. 123,  "Accounting  for  Stock-Based  Compensation"  ("Statement No.
123").  Certain  employee  stock  options  are  subject  to  the  variable  plan
requirements of APB No. 25, as they were repriced,  and therefore,  compensation
expense is  recognized  for changes in the fair value of our common  stock.  The
value of  substantially  all of such common  stock  purchase  warrants  has been
recorded in accordance with the Black-Scholes pricing methodology.

Interest  income for the quarters ended  September 30, 2003 and 2002 amounted to
$2,709 and $74,785,  respectively.  The decrease of $72,076 or 97% was caused by
the use of working capital to fund the Company's  operations.  Such amounts were
earned  primarily  from  our  investments  in  money  fund  accounts  and a note
receivable  from an officer.  During the quarters  ended  September 30, 2003 and
2002,

                                       27
<PAGE>

interest and other financing  costs were $6,531,633 and $138,439,  respectively.
During the quarter ended September 30, 2003,  interest and other financing costs
were incurred in connection with the convertible notes issued in February,  May,
June and September 2003.  Such 2002 costs were incurred  primarily in connection
with the $20  million  line of  credit  facility  with  Hewlett-Packard  Company
("HP").

In September  2002, the Company and HP amended the terms of the promissory  note
from the Company to HP to provide for the (i) reduction of SmartServ's aggregate
outstanding  principal and accrued  interest amount of $7,045,000 to $1,000,000,
(ii) return of certain unused hardware by SmartServ, (iii) issuance by SmartServ
of a warrant for the purchase of 8,333 shares of common stock and (iv) repayment
of $500,000 of the amended  obligation on September 10, 2002. The  restructuring
of the obligation resulted in a net gain to the Company of $5,679,261, inclusive
of a charge to earnings of $38,000 representing the fair value of the warrant as
determined in accordance with the Black-Scholes pricing model.

Basic loss per share was $3.69 per share for the three  months  ended  September
30, 2003 versus earnings of $2.04 per share for the three months ended September
30, 2002.  Diluted loss per share for the three months ended  September 30, 2003
was $3.69  per share  versus  earnings  of $1.83 per share for the three  months
ended September 30, 2002. Basic weighted average shares outstanding increased to
2,072,440 at September 30, 2003 from  1,339,053 at September  30, 2002.  Diluted
weighted average shares outstanding increased to 2,072,440 at September 30, 2003
from 1,494,302 at September 30, 2002.

NINE MONTHS ENDED SEPTEMBER 30, 2003 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 2002

During  the nine  months  ended  September  30,  2003 we  recorded  revenues  of
$614,145,  an increase of 320% over the nine months ended September 30, 2002. Of
such 2003 revenues,  $126,500 were earned through our licensing  agreements with
wireless telecommunications carriers, $372,500 were earned through our licensing
agreement with Salomon and $108,000 were earned under a one-time  purchase order
from  Wireless  Retail,  Inc.  Revenues  generated in 2002 amounted to $146,483,
substantially  all of which were earned  through our  licensing  agreement  with
Salomon  .  During  the nine  months  ended  September  30,  2003 and  2002,  we
recognized $240,400 and $21,200, respectively, from the amortization of deferred
revenues  associated with this agreement.  Although the licensing agreement with
Salomon for GEO expired on November 30, 2003,  the Company  continues to support
the GEO  initiative.  The  Company is working  with  Salomon to augment  the GEO
offering  with new service  introductions  and extend the  operating  agreement;
however,  no  assurance  can be given that the  Company  will be  successful  in
negotiating an extension of the Salomon licensing agreement.

                                       28
<PAGE>

During the nine months ended  September 30, 2003, we incurred  costs of services
of  $4,080,429 a decrease of 6% over the nine months ended  September  30, 2002.
Such costs decreased  primarily due to personnel  reductions  ($840,000) and the
reduction  of computer  hardware  leases,  depreciation  and  maintenance  costs
($810,200),  offset  by a charge  ($84,500)  in  connection  with the  potential
uncollectibility  of  a  loan  to  a  former  officer  and  an  impairment  loss
($1,440,600)  recorded  to  adjust  the  value  of the  Company's  property  and
equipment and capitalized software costs to net realizable value.  Components of
the costs of service category consist primarily of information and communication
costs  ($330,800),  personnel  costs  ($1,225,000),  computer  hardware  leases,
depreciation   and  maintenance   costs   ($593,000),   facilities   ($186,100),
amortization   expenses  relating  to  capitalized  software  development  costs
($183,800),  a charge for the potential  uncollectibility  of a loan to a former
officer  ($84,500) and an impairment  loss  ($1,440,600)  recorded to adjust the
value of the Company's property and equipment and capitalized  software costs to
net  realizable  value.  During the nine months ended  September  30,  2001,  we
incurred  costs of services of  $4,338,016.  Such costs  consisted  primarily of
information and communication  costs ($621,000),  personnel costs  ($2,065,000),
computer hardware leases,  depreciation and maintenance costs ($1,403,200),  and
amortization   expenses  relating  to  capitalized  software  development  costs
($179,800).  During  the nine  months  ended  September  30,  2003 and 2002,  we
capitalized $-0- and $185,900,  respectively, of development costs in accordance
with Statement No. 86.

During the nine months ended September 30, 2003, we incurred sales and marketing
expenses of $403,573, a decrease of 85% from the nine months ended September 30,
2002.  Such costs  decreased  primarily due to travel and  personnel  reductions
associated with the closing of the Company's Hong Kong and London sales offices,
U.S.  personnel  reductions,  reductions  in  advertising  and  trade  shows and
reductions  in  professional  fees.  Components  of the  costs of the  sales and
marketing category consist primarily of personnel costs ($321,000),  advertising
and trade shows  ($10,900),  consulting  fees  ($17,800)  and travel and lodging
($33,900).  During the nine months ended  September 30, 2002, we incurred  sales
and marketing expenses of $2,698,013. Sales and marketing expenses were incurred
primarily  for  personnel  costs  ($1,471,600),   advertising  and  trade  shows
($606,100),  facilities ($112,900),  consulting fees ($187,600),  and travel and
lodging ($214,600).

During the nine  months  ended  September  30,  2003,  we  incurred  general and
administrative  expenses  of  $3,075,446  a decrease  of 7% from the nine months
ended  September  30,  2002.  Such costs  decreased  primarily  due to personnel
reductions and a reduction of insurance  costs offset by a charge  ($270,000) in
connection  with the potential  uncollectibility  of a loan to an officer and an
impairment  loss  ($108,000)  recorded  to  adjust  the  value of the  Company's
property and equipment to net realizable  value.  Components of the costs of the
general  and  administrative  category  consist  primarily  of  personnel  costs
($698,400),  professional  fees  ($740,000),  facilities  ($546,700),  insurance
($190,700),   computer  hardware  leases,  depreciation  and  maintenance  costs
($81,300),  communications costs ($46,500), consulting costs ($31,000), a charge
for the potential  uncollectibility  of a loan to a former officer (270,000) and
an  impairment  loss  ($108,000)  recorded to adjust the value of the  Company's
property and  equipment to net  realizable  value.  During the nine months ended
September  30,  2002,  we  incurred  general  and  administrative   expenses  of
$3,328,102.  General  and  administrative  costs  were  incurred  primarily  for
personnel  costs   ($1,120,600),   professional   fees  ($899,800),   facilities
($399,000),   insurance  ($432,700),  travel  and  lodging  ($66,100),  computer
hardware   leases,   depreciation   and  maintenance   costs   ($137,900),   and
communication costs ($53,300).

During the nine months  ended  September  30,  2003,  a net  noncash  charge for
stock-based compensation amounted to $331,068 compared to net noncash credits of
$122,831  during the nine months  ended  September  30, 2002.  Of such  amounts,
noncash  charges for  professional  fees for the nine months ended September 30,
2003 and 2002 were approximately $221,200 and $573,879, respectively,  resulting
primarily from the  amortization of deferred costs  associated with the issuance
of  warrants  to  purchase  common  stock to various  financial,  marketing  and
technical consultants. Stock-based compensation is valued in accordance with APB
No. 25 and Statement No. 123.  Certain employee stock options are

                                       29
<PAGE>

subject to the variable plan  requirements of APB No. 25, as they were repriced,
and therefore,  compensation expense is recognized for changes in the fair value
of our common stock.  The value of such common stock purchase  warrants has been
recorded in accordance with the Black-Scholes pricing methodology.

Interest  income for the nine months ended  September 30, 2003 and 2002 amounted
to $11,601 and $106,284,  respectively.  Such amounts were earned primarily from
our  investments in money fund accounts and a note  receivable  from an officer.
During the nine months  ended  September  30, 2003 and 2002,  interest and other
financing  costs were  $7,781,029  and $508,184,  respectively.  During the nine
months  ended  September  30,  2003,  interest  and other  financing  costs were
incurred in connection with the convertible notes issued in February,  May, June
and September 2003.  Such 2002 costs were incurred  primarily in connection with
the $20 million line of credit facility with HP.

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

Basic and diluted loss per share was $7.15 for the nine months  ended  September
30, 2003,  compared to $4.18 per share for the nine months ended  September  30,
2002.  The  weighted  average  shares  outstanding  increased  to  2,010,142  at
September 30, 2003 from 1,157,260 at September 30, 2002.

CAPITAL RESOURCES AND LIQUIDITY

At September  30, 2003 and  December 31, 2002,  the Company had cash of $276,363
and $154,759,  respectively.  Net cash used in operations was $3,028,440 for the
nine months ended  September  30, 2003  compared to  $8,146,687  during the nine
months ended September 30, 2002. The primary reasons for this reduction were the
Company's  initiative to close the Hong Kong and United  Kingdom sales  offices,
reduce its U.S. personnel and trim its operations. Other uses of cash during the
nine months ended September 30, 2003 were primarily for the partial repayment of
our  obligation  to HP in the amount of $225,000 and the  repayment of a $70,000
note issued in January 2003.

During the nine months ended September 30, 2003, the Company issued  convertible
notes in the amount of $3,350,000 and a note in the amount of $70,000 to provide
liquidity.    Additionally,   warrant   holders   provided   funds   aggregating
approximately $376,000 through the exercise of warrants.

In May 2000, we entered into a Business  Alliance  Agreement with HP whereby the
companies agreed to jointly market their respective products and services and to
work on the build-out of SmartServ's domestic and international  infrastructure.
In furtherance of these objectives HP provided us with a line of credit of up to
$20,000,000 for the acquisition of approved hardware,  software and services. As
of September 28, 2001, the expiration  date of the facility,  HP had advanced us
$6,723,156  thereunder.  In September 2002, the Company and HP amended the terms
of the promissory note to provide for the (i) reduction of SmartServ's aggregate
outstanding  principal and accrued  interest amount of $7,045,000 to $1,000,000,
(ii) return of certain unused hardware by SmartServ, (iii) issuance by SmartServ
of a warrant for the purchase of 8,333 shares of common stock and (iv) repayment
of $500,000 of the amended  obligation  on  September  10, 2002.  The  remaining
obligation  was  evidenced  by a note,  bearing an  interest  rate of 11%, to be
repaid as follows:  $200,000 on December 31, 2002,  $200,000 on January 28, 2003
and $100,000 on February 27, 2003. The warrant  expires on September 9, 2005 and
has an exercise  price of $6.996 per share.  As a result of the  September  2002
transaction,  the Company  recorded a charge to  earnings of $38,000  during the
quarter ended September 30, 2002,  representing the fair value of the

                                       30
<PAGE>

warrant as determined in accordance with the Black-Scholes model.  Additionally,
the  Company   recognized  a  net  gain  of   $5,679,261   resulting   from  the
extinguishment of this obligation.  In February 2003, the Company and HP amended
the terms of their  amended  promissory  note to provide for the  settlement  of
SmartServ's outstanding obligation of $530,800, inclusive of accrued interest of
$30,800, in consideration of the payment by SmartServ of $225,000.  As a result,
during the quarter  ended March 31, 2003,  the Company  recognized an additional
gain of $305,822, resulting from the extinguishment of this obligation.

In June 2002, First Albany Corporation, acting as placement agent for SmartServ,
completed a private  placement of units  consisting of 130,952  shares of common
stock and warrants to purchase common stock in  consideration  of $8.40 per unit
to two accredited  investors.  The net proceeds of $823,500 from the issuance of
these units were used for general  working capital  requirements.  The investors
received  warrants,  callable under certain  conditions,  for the purchase of an
aggregate of 238,095  shares of common  stock at an exercise  price of $8.40 per
share  through  the  expiration  date on June 5, 2007,  as well as  non-callable
warrants  for the purchase of an  aggregate  of 32,738  shares of common  stock,
subject to antidilution  adjustments,  upon the occurrence of certain events, at
an  exercise  price of $8.82 per share  through  June 5, 2007.  In August  2002,
pursuant  to the  terms of the  callable  warrants,  the  Company  provided  the
investors with a notice calling the callable  warrants.  In September  2002, the
callable  warrants expired  unexercised.  Subsequent to June 2002,  non-callable
warrants  for the  purchase  of 34,142  shares of common  stock were  exercised.
Proceeds from such exercises were $176,500.

In September 2002,  SmartServ  issued units  consisting of 647,368 shares of its
common  stock  and  warrants  to  purchase   323,685  shares  of  common  stock,
exercisable  at $5.10 per share  through  September  8, 2007,  to 22  accredited
investors  at a purchase  price of $5.475  per unit.  Gross  proceeds  from this
transaction  amounted to $3,544,346.  SmartServ agreed to pay fees consisting of
$249,050,  an expense  allowance  of  $25,000,  and issued  warrants to purchase
73,008 shares of common stock at an exercise price of $5.10 per share,  expiring
on September 8, 2007, as compensation  to certain  individuals and entities that
acted as finders.  Additionally,  the Company  incurred  costs and other fees of
$28,000 in connection  with this  transaction.  Subsequent to December 31, 2002,
warrants  for the  purchase  of 73,731  shares of common  stock were  exercised.
Proceeds from such exercises were $376,000.

During the period January 1, 2000 through  December 31, 2002, the Company issued
344,167  shares of common  stock to  investors  upon the exercise of warrants to
purchase  such  shares.  Proceeds  from  the  exercise  of these  warrants  were
$6,014,600.  Substantially  all of these warrants were  exercised  during the 12
months ended  December 31, 2000 when the market  value of the  Company's  common
stock was significantly greater than it is currently.

During the  quarter  ended  December  2002,  the  Company  recorded a  valuation
allowance of $664,640 in connection with the potential uncollectibility of loans
made to Mr. Sebastian Cassetta,  the Company's then Chairman and Chief Executive
Officer.  Additionally,  during the  quarter  ended June 30,  2003,  the Company
recorded a valuation  allowance  of $270,000 in  connection  with the  potential
uncollectibility  of a loan made to Mr.  Cassetta  for the purchase of SmartServ
restricted  stock.  While  these  loans do not mature  until  December  2003 and
January 2004, Mr.  Cassetta's  ability to repay these loans and interest thereon
is highly contingent on the market value of his investment in the Company.

During the  quarter  ended  June 30,  2003,  the  Company  recorded a  valuation
allowance of $129,000 in  connection  with the potential  uncollectibility  of a
loan made to Mr. Mario Rossi,  the Company's  then  Executive Vice President and
Chief Technology Officer, for the purchase of SmartServ restricted stock. During
the quarter ended  September 30, 2003, the Company  recorded a partial  recovery
amounting to $44,500 in connection  with such  obligation.  While this loan does
not mature  until  December  2003,  Mr.  Rossi's  ability to repay this loan and
interest  thereon is highly  contingent on the market value of his investment in
the Company.

                                       31
<PAGE>

At December  31,  2002,  the Company had  outstanding  287,500  public  warrants
(SSOLW) and 50,000 warrants with terms identical to the public  warrants.  These
warrants were  convertible into our common stock at the ratio of 15 warrants per
share of common stock at an exercise price of $63 per share. These warrants were
redeemable by SmartServ upon satisfaction of certain conditions.  These warrants
expired on March 20, 2003.

In January 2003, the Company borrowed  $70,000 from Steven B. Rosner,  which was
used for working capital. The debt was evidenced by an unsecured note bearing an
interest rate of 12% per annum and was repaid in February 2003.

In  February  2003,  the Company  issued a  convertible  note to Global  Capital
Funding Group, LP ("Global") in consideration for the receipt of $1 million. The
note  bears  interest  at the  rate  of 10% per  annum,  and is  secured  by the
Company's assets,  exclusive of its internally developed software products.  The
note matures on February 14, 2004, contains certain antidilution provisions, and
may be converted  into shares of SmartServ  common stock at $6.60 per share.  As
additional  consideration,  the Company issued Global a warrant for the purchase
of 33,333  shares of its common  stock at an exercise  price of $9.68 per share.
Alpine Capital  Partners,  Inc.  ("Alpine")  received a finder's fee of $70,000,
representing 7% of the aggregate  purchase price of the  convertible  note and a
warrant to  purchase  15,167  shares of common  stock  exercisable  at $9.66 per
share,  expiring on February 14, 2005, in connection with this  transaction.  In
April 2003, the Company borrowed an additional  $250,000 from Global and amended
the convertible note to include such amount.  As additional  consideration,  the
Company  issued  Global a warrant for the purchase of 3,333 shares of its common
stock at an exercise  price of $7.20 per share.  Alpine is to receive a finder's
fee of $17,500 in connection  with the April  amendment.  The warrants issued to
Global  and  Alpine  contains  certain  antidilution  provisions  and  expire on
February  14,  2006.  Proceeds  from the  notes  were used for  working  capital
purposes.

In February  2003, the Company issued 20,590 shares of common stock to 5 vendors
in  settlement  of the  Company's  obligations,  aggregating  $164,000,  to such
vendors.

In May 2003,  the  Company  in  consideration  of  $358,000  issued  3.58  units
consisting  of  convertible  notes and  warrants to purchase  common stock ("May
Units") to 8 investors.  Each May Unit consists of a $100,000  convertible  note
and a warrant to purchase  33,333  shares of the  Company's  common  stock.  The
convertible  notes bear  interest  at 8% per  annum,  are  convertible  into the
Company's  common  stock at $4.464 (the average of the closing bid prices of the
Company's  common stock for the 5 days prior to the closing of the  transaction)
per share and were to mature on the earlier of November  19, 2003 or the closing
of an equity placement of not less than $3 million. The warrants are exercisable
at $4.464 per share and expire on May 19,  2006.  In June 2003,  the  Company in
consideration  of $1,142,000  issued 11.42 units ("June Units") to 20 accredited
investors.  Each June Unit also  consists of a $100,000  convertible  note and a
warrant to purchase 33,333 shares of the Company's common stock. The convertible
notes bear interest at 8% per annum,  are convertible  into the Company's common
stock at $4.764 (the average of the closing bid prices of the  Company's  common
stock for the 5 days prior to the closing of the transaction) per share and were
to mature on the  earlier  of  November  19,  2003 or the  closing  of an equity
placement of not less than $3 million.  The warrants are  exercisable  at $4.764
per share and expire on June 13, 2006.  Spencer Trask Ventures,  Inc.  ("Spencer
Trask"),  Steven B. Rosner and Richard  Berland acted as finders for the May and
June 2003 transactions.  As consideration  therefor,  the finders received their
proportionate share of a cash fee of $150,000,  or 10% of the aggregate purchase
price of the Units sold and (i) Unit Purchase  Warrants to purchase an aggregate
of three Units ("Unit Purchase  Warrant") and (ii) 33,333 shares of unregistered
common stock per Unit sold.  Each Unit Purchase  Warrant  entitles the holder to
purchase one Unit,  for the price of $100,000 per Unit through June 13, 2008. In
addition, Spencer Trask received a non-accountable expense allowance of $45,000,
or 3% of the aggregate proceeds of all Units sold in the May


                                       32
<PAGE>

and June 2003  transactions.  Proceeds  from the sale of the Units were used for
working  capital  purposes.  In November 2003, the Company,  as an inducement to
extend the maturity  date of the notes to February  19,  2004,  offered the note
holders a warrant to  purchase  additional  shares of common  stock in an amount
equal to 25% of the number of shares into which the notes  purchased in the Unit
are  convertible.  We have received written consents to extend the maturity date
from holders of  $1,390,000  of the notes and expect to receive the consent from
the holders of the remaining $110,000 notes. If we do not receive the additional
consents, we may be in default of our obligation under the notes.

On September  16, 2003,  SmartServ  issued 7.4 Units in a financing  transaction
consisting of an offering of up to 12 Units  comprised of a $50,000  convertible
note and a warrant to purchase  16,667 shares of  SmartServ's  common stock.  On
September  19, 2003,  SmartServ  issued the remaining 4.6 Units of the financing
transaction (collectively the "September  Transaction").  The Units were sold to
accredited investors for an aggregate of $600,000. Holders of the notes have the
right to  convert  the notes  into  shares of common  stock at a price  equal to
$1.896 per share for the notes issued on September 16, 2003 and $1.920 per share
for the notes issued on September  19, 2003.  The maturity  date of the notes is
the earlier of November 19, 2003 or the completion of an equity  placement of at
least $3 million,  at which time the notes will  automatically  convert into the
equity  placement.  Holders  of the  warrants  have the  right to  exercise  the
warrants  into  shares of common  stock at a price  equal to $1.500  per  share.
Finders'  compensation to two accredited investors for the September Transaction
consisted of (i) a cash fee of $60,000,  or 10% of the aggregate  purchase price
of all of the  Units;  (ii)  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 and (iii)  2,778  shares of  unregistered  common  stock per Unit
sold. In addition, Spencer Trask received a non-accountable expense allowance of
$18,000,  or 3% of the  aggregate  proceeds  of all Units sold in the  September
Transaction.  All of the notes and the warrants have full ratchet  anti-dilution
protection.  In November  2003,  the  Company,  as an  inducement  to extend the
maturity  date of the notes to February  19,  2004,  offered the  noteholders  a
warrant to purchase  additional shares of common stock in an amount equal to 25%
of the  number  of  shares  into  which  the  notes  purchased  in the  Unit are
convertible.  We have received written consents to extend the maturity date from
holders of  $475,000  of the notes and expect to receive  the  consent  from the
holders of the remaining  $125,000  notes.  If we do not receive the  additional
consents, we may be in default of our obligation under the notes.

The September  Transaction  required the consent of Global,  the holder of $1.25
million of SmartServ's  convertible notes issued in February and April 2003, and
of 51% or more of the holders of  SmartServ's  $1.5  million  convertible  notes
issued in  connection  with the bridge  financings  in May and June 2003.  As an
inducement to obtain their  consent,  such holders  received (a) a change in the
conversion price of their convertible notes equal to the lowest conversion price
of the notes issued in the  September  financings  ($1.896 per share) and (b) an
increase in the number of shares purchasable  pursuant to the warrant to reflect
a full ratchet  dilution  formula  with a decrease in the exercise  price of the
warrants to the exercise price of the warrants issued in the September financing
($1.500).  Such  amendment,  as it pertains to the holders of convertible  notes
issued in the May and June 2003 bridge financings, was effective on November 25,
2003,  coincident with the effective date of a one-for-six  reverse stock split.
SmartServ  recorded a charge in the  amount of  $4,828,000  as "Other  Financing
Costs" for the fair value of the consideration granted to these note holders for
such consent.

On November  11,  2003,  SmartServ  issued 18 Units in a  financing  transaction
comprised  of a  $50,000  convertible  note  ("November  Note")  and  a  warrant
("November  Warrant") to purchase 16,667 shares of SmartServ's common stock. The
Units were sold to 20 investors  for an  aggregate  of $900,000.  Holders of the
November  Notes  have the right to convert  the  November  Notes into  shares of
common  stock at a price  equal to $2.10 per  share.  The  maturity  date of the
November  Notes is the earlier of  December  19,  2003 or the  completion  of an
equity  placement of at least $3 million,  at which time the November Notes will
automatically  convert  into  the  equity  placement.  Holders  of the  November
Warrants have the right to exercise the November  Warrants into shares of common
stock at a price equal

                                       33
<PAGE>

to $1.500 per share.  Finders' compensation to Spencer Trask and Richard Berland
consisted of (i) a cash fee of $90,000,  or 10% of the aggregate  purchase price
of all of the  Units;  (ii)  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 and (iii)  2,778  shares of  unregistered  common  stock per Unit
sold. In addition, Spencer Trask received a non-accountable expense allowance of
$27,000,  or 3% of the  aggregate  proceeds  of all Units sold in the  September
Transaction.  All of the  November  Notes and the  November  Warrants  have full
ratchet anti-dilution protection.

While the  warrants to purchase  common stock  issued  during the twelve  months
ended September 2003 and thereafter  represent an additional  source of capital,
they  expire  between  May 2006 and  November  2008 and are not  callable by the
Company.  Therefore,  they  cannot be relied  upon by the  Company as a definite
source of capital.  The warrant holders may choose to exercise their warrants if
the market price of the Company's common stock exceeds the exercise price of the
warrant.

The Company's 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.  The Company has,  since its
inception,  earned limited revenues and incurred substantial recurring operating
losses,  including net losses of $14,365,927 for the nine months ended September
30, 2003, net losses of $8,037,173 and  $14,819,860 for the years ended December
31, 2002 and 2001,  respectively,  and net losses of $30,993,559  and $7,124,126
for the years ended June 30, 2000 and 1999, respectively.  Additionally,  it had
an accumulated deficit of $87,224,933 at September 30, 2003 and has debt service
requirements of $1,375,000  ($4,465,300 should the Company be unable to complete
an equity funding of not less than $3 million prior to February 19, 2004) during
the twelve month  period  ending  September  30, 2004.  These  conditions  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Such concern was expressed by Ernst & Young LLP in their audit report  regarding
the financial statements included in our Form 10-KSB for the year ended December
31, 2002. The financial statements do not include any adjustments to reflect the
possible future effects on the  recoverability  and  classification of assets or
the amounts and  classification  of liabilities that may result from the outcome
of these uncertainties.

The  economic  downturn  in  general,  and its impact on the  telecommunications
industry in  particular,  have caused  telecommunications  service  providers to
reduce   capital   spending,   personnel  and  debt,  as  well  as  new  service
introductions.  This has  resulted  in delays  in the  build-out  of high  speed
carrier data networks and availability of data-enabled wireless devices, causing
the  market  for  SmartServ's  financial  data and  transaction  services  to be
lackluster.  In addition,  many  financial  services  firms have  curtailed  new
product  development to focus on data security and recovery.  Consequently,  the
potential demand for the Company's  products and services has been significantly
delayed.  Such  delays  have  had a very  detrimental  effect  on the  Company's
operations  and have  resulted  in the  Company's  inability  to  implement  its
business plan and related marketing strategies.  Consequently,  in May 2002, the
Company commenced an effort to realign its  infrastructure  and related overhead
to  correlate  with  reductions  in projected  revenue.  As part of this effort,
management closed the Company's UK and Hong Kong sales offices and downsized its
domestic  operations  through staff  reductions to a level sufficient to support
the  Company's  projected  operations.  In both March and May 2003,  the Company
again  reduced  its  cost  structure   through  the  termination  of  additional
personnel.  Personnel  headcount  has  been  reduced  from 66 in May 2002 to the
current  level of 9. These efforts have reduced the  Company's  average  monthly
operating expenses from  approximately  $1,090,000 in July 2002 to approximately
$230,000  commencing  September 2003,  excluding noncash stock  compensation and
depreciation  and  amortization.  The Company  anticipates  that it will require
working capital for its previously discussed proposed  acquisitions,  as well as
to meet certain debt service requirements. As a result of the factors identified
above,  the Company is in need of additional  capital to enable it continue as a
going concern. The following chart provides an analysis of the Company's capital
requirements for the 12 month period ending September 30, 2004

                                       34
<PAGE>

based on projected revenues of $550,000:

                             % OF
                            REVENUE           CAPITAL
                             GOAL             REQUIRED
                         -------------------------------------
                             100           $    5,400,000

                               0           $    5,900,000

No  assurance  can be  given  that the  Company  will be able  meet its  revenue
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 will be forced to seek a merger or cease
operations.

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

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

ITEM 3.  CONTROLS AND PROCEDURES

The Company  maintains a system of disclosure  controls and  procedures  that is
designed to provide reasonable assurance that information that is required to be
disclosed  by the  Company in the  reports  that it files or  submits  under the
Securities  Exchange Act of 1934, as amended, is accumulated and communicated to
management in a timely manner. The Company's Interim 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
believe  that  the  system  is  operating   effectively  to  ensure  appropriate
disclosure.  There have been no changes in the Company's  internal  control over
financial  reporting  during the most recent  fiscal  year that have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

                                       35
<PAGE>

PART 2.  OTHER INFORMATION

                             SMARTSERV ONLINE, INC.

ITEM 1.  LEGAL PROCEEDINGS

On or about February 29, 2000, Commonwealth  Associates,  L.P.  ("Commonwealth")
filed a  complaint  against  us in the  Supreme  Court of the State of New York,
County of New York. The complaint  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 13,333 shares of common stock or
at least $1,770,000  together with interest and costs. In our defense, we denied
that we  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
because a notice to enter the judgment  has not yet been filed.  While we intend
to vigorously defend any appeal of the decision in the Commonwealth  matter, the
unfavorable  outcome of such an appeal could have a material  adverse  effect on
our financial condition, results of operations and cash flows.

In August of 2003,  SmartServ  entered into a Stipulation  of  Arbitration  with
Brauning  Inc.,  Mike Silva and Todd Peterson,  former  consultants to SmartServ
(collectively,  the  "Claimants")  pursuant to which SmartServ and the Claimants
agreed to resolve,  in a binding arbitration  proceeding,  the Claimants' demand
for  damages  resulting  from an  alleged  breach of  contract  and a failure by
SmartServ  to timely  register  the shares of common  stock  underlying  certain
consulting  warrants  issued by SmartServ to the Claimants.  Although  SmartServ
believes that the shares  underlying  the warrants were timely  registered,  and
that the Claimants' demand is without merit,  SmartServ has reached an agreement
in  principle  to settle  this  matter in order to avoid  the  uncertainties  of
litigation. Under the terms of the contemplated settlement agreement,  SmartServ
will  issue to  Claimants  60,000  shares of common  stock and by no later  than
February  29,  2004,  pay  Claimants   $45,000  for  certain  wireless  industry
consulting  reports.  SmartServ's  failure to comply with these settlement terms
would  entitle  Claimants to reassert  their claims.  In such case,  although we
would vigorously  defend the action,  there can be no assurance that we would be
successful. The unfavorable outcome of such action could have a material adverse
effect on our consolidated  results of operations,  financial condition and cash
flows.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

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

In January  2003,  the Company  issued  36,530  shares of common stock to Robert
Gorman,  an  accredited  investor  in the  September  2002  financing,  upon the
exercise of warrants to purchase  such  shares.  Proceeds  from the  exercise of
these warrants were $186,301.  In February 2003, the Company issued 5,883 shares
of common stock to Frazier

                                       36
<PAGE>

Investments,  an accredited  investor in the September 2002 financing,  upon the
exercise of warrants to purchase  such  shares.  Proceeds  from the  exercise of
these warrants were $30,000.  In March 2003, the Company issued 21,515 shares of
common stock to Frazier  Investments,  an  accredited  investor in the September
2002 financing,  upon the exercise of warrants to purchase such shares. Proceeds
from the exercise of these  warrants were  $109,726.  In April 2003, the Company
issued 9,804 shares of common stock to Joel Rotter,  an  accredited  investor in
the  September  2002  financing,  upon the exercise of warrants to purchase such
shares.  Proceeds from the exercise of these  warrants  were  $50,000.  No sales
commissions  were paid in connection with the above  transactions.  These shares
and  warrants  were  issued in reliance  upon the  exemption  from  registration
provided by Section 4 (2) of the Securities Act of 1933 ("Securities Act").

In  February  2003,  the Company  issued a  convertible  note to Global  Capital
Funding Group, LP ("Global"),  an accredited investor,  in consideration for the
receipt of $1 million.  The note bears interest at the rate of 10% per annum and
is  secured by the  Company's  assets,  exclusive  of its  internally  developed
software  products.  The note  matures on February 14,  2004,  contains  certain
antidilution  provisions,  and may be converted into shares of SmartServ  common
stock at $6.60 per share. As additional consideration, the Company issued Global
a warrant for the  purchase of 33,333  shares of its common stock at an exercise
price of $9.66 per share. The warrant contains certain  antidilution  provisions
and expires on February 14, 2006. Alpine Capital Partners,  Inc. ("Alpine"),  an
accredited investor, received a finder's fee of $70,000,  representing 7% of the
aggregate purchase price of the convertible note and warrants to purchase 15,167
shares of common  stock at $9.66 per share  expiring  on  February  14,  2006 in
connection  with this  transaction.  In April  2003,  the  Company  borrowed  an
additional $250,000 from Global and amended the convertible note to include such
amount. As additional consideration, the Company issued Global a warrant for the
purchase of 3,333 shares of its common  stock at an exercise  price of $7.20 per
share.  Alpine is to receive a finder's  fee of $17,500 in  connection  with the
April amendment. In August 2003, the Company issued Global a warrant to purchase
16,667  shares  of  common  stock at an  exercise  price of $2.40  per  share as
consideration  for its consent allowing the Company to complete the May and June
2003 bridge financings. The warrants contain certain antidilution provisions and
expire on February 14, 2006. The note, amended note and the warrants were issued
in reliance upon the exemption  from  registration  provided by Section 4 (2) of
the Securities Act.

In February  2003,  the Company  issued  4,275  shares of common  stock to G. S.
Schwartz & Company, a sophisticated  investor, in full satisfaction of a $33,854
obligation to G. S. Schwartz & Company for services rendered to the Company.  No
sales commissions were paid in connection with such transaction. The shares were
issued in reliance upon the exemption  from  registration  provided by Section 4
(2) of the Securities Act.

In February 2003, the Company issued 10,417 shares of common stock to Vox, Inc.,
an accredited  investor,  in full satisfaction of an $82,500  obligation to Vox,
Inc. for services  rendered to the Company.  No sales  commissions  were paid in
connection  with such  transaction.  The shares were issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

In February  2003,  the Company  issued 2,096 shares of common stock to Creative
Management Services dba MC2, an accredited  investor,  in full satisfaction of a
$16,600  obligation  to MC2 for  services  rendered  to the  Company.  No  sales
commissions  were paid in  connection  with such  transaction.  The shares  were
issued in reliance upon the exemption  from  registration  provided by Section 4
(2) of the Securities Act.

In February  2003,  the Company  issued  2,017  shares of common stock to NexVue
Information  Systems,  a  sophisticated  investor,  in satisfaction of a $15,953
obligation to NexVue  Information  Systems for services rendered to the Company.
No sales commissions were paid in connection with such  transaction.  The shares
were issued in reliance upon the exemption from registration provided by Section
4 (2) of the Securities Act.

In May 2003, the Company entered into a consulting  agreement with Spencer Trask
Ventures,  Inc.

                                       37
<PAGE>

("Spencer  Trask")  whereby Spencer Trask will render services to the Company as
its corporate finance  consultant,  financial advisor and investment  banker. As
compensation for such services, the Company issued 83,333 shares of common stock
to Spencer  Trask.  These shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

In May 2003,  the  Company  in  consideration  of  $358,000  issued  3.58  units
consisting  of  convertible  notes and  warrants to purchase  common stock ("May
Units")  to 8  accredited  investors.  Each  May  Unit  consists  of a  $100,000
convertible note and a warrant to purchase 33,333 shares of the Company's common
stock. The convertible notes bear interest at 8% per annum, are convertible into
the  Company's  common stock at $4.464 (the average of the closing bid prices of
the  Company's  common  stock  for  the 5  days  prior  to  the  closing  of the
transaction) per share and were to mature on the earlier of November 19, 2003 or
the closing of an equity placement of not less than $3 million. The warrants are
exercisable  at $4.464 per share and expire on May 19, 2006.  In June 2003,  the
Company in consideration  of $1,142,000  issued 11.42 units ("June Units") [each
May or June Unit referred  individually as a "Unit"] to 20 accredited investors.
Each June Unit also  consists  of a $100,000  convertible  note and a warrant to
purchase 33,333 shares of the Company's common stock. The convertible notes bear
interest at 8% per annum,  are  convertible  into the Company's  common stock at
$4.764 (the average of the closing bid prices of the Company's  common stock for
the 5 days prior to the closing of the transaction) per share and were to mature
on the earlier of November 19, 2003 or the closing of an equity placement of not
less than $3  million.  The  warrants  are  exercisable  at $4.764 per share and
expire on June 13, 2006.  Spencer Trask,  Steven B. Rosner and Richard  Berland,
each  an  accredited  investor,  acted  as  finders  for  this  transaction.  As
consideration therefor, the finders received their proportionate share of a cash
fee of $150,000,  or 10% of the aggregate  purchase  price of the Units sold and
(i) Unit  Purchase  Warrants  to  purchase an  aggregate  of three Units  ("Unit
Purchase  Warrant") and (ii) 5,556 shares of unregistered  common stock per Unit
sold. Each Unit Purchase  Warrant  entitles the holder to purchase one Unit, for
the price of $100,000 per Unit through June 13, 2008. In addition, Spencer Trask
received a non-accountable  expense allowance of $45,000, or 3% of the aggregate
proceeds of all Units sold in the offerings. These convertible notes, shares and
warrants were issued in reliance upon the exemption from  registration  provided
by Section 4 (2) of the Securities Act.

On September  16, 2003,  SmartServ  issued 7.4 Units in a financing  transaction
consisting of an offering of up to 12 Units  comprised of a $50,000  convertible
note and a warrant to purchase  16,667 shares of  SmartServ's  common stock.  On
September  19, 2003,  SmartServ  issued the remaining 4.6 Units of the financing
transaction (collectively the "September  Transaction").  The Units were sold to
accredited investors for an aggregate of $600,000. Holders of the notes have the
right to  convert  the notes  into  shares of common  stock at a price  equal to
$1.896 per share for the notes issued on September 16, 2003 and $1.920 per share
for the notes issued on September  19, 2003.  The maturity date of the notes was
to be the earlier of November 19, 2003 or the completion of an equity  placement
of at least $3 million, at which time the notes will automatically  convert into
the equity  placement.  Holders of the  warrants  have the right to exercise the
warrants  into  shares of common  stock at a price  equal to $1.500  per  share.
Finders'  compensation to Spencer Trask and Richard Berland,  each an accredited
investor,  for the September Transaction consisted of (i) a cash fee of $60,000,
or 10% of the  aggregate  purchase  price of all of the Units;  (ii) 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 and (iii) 2,778  shares of
unregistered  common stock per Unit sold. In addition,  Spencer Trask received a
non-accountable expense allowance of $18,000, or 3% of the aggregate proceeds of
all Units sold in the September  Transaction.  All of the notes and the warrants
have full ratchet anti-dilution protection.

The September  Transaction  required the consent of Global,  the holder of $1.25
million of SmartServ's  convertible notes issued in February and April 2003, and
of 51% or more of the holders of  SmartServ's  $1.5  million  convertible  notes
issued in  connection  with the bridge  financings  in May and June 2003.  As an
inducement to obtain their  consent,  such holders  received (a) a change in the
conversion price of their

                                       38
<PAGE>

convertible  notes equal to the lowest  conversion  price of the notes issued in
the September financings ($1.896 per share) and (b) an increase in the number of
shares  purchasable  pursuant to the warrant to reflect a full ratchet  dilution
formula  with a decrease in the  exercise  price of the warrants to the exercise
price  of the  warrants  issued  in the  September  Transaction  ($1.500).  Such
amendment,  as it pertains to the holders of convertible notes issued in the May
and June 2003 bridge  financings,  became  effective on November  25, 2003,  the
effective date of a one-for-six reverse stock split.

Additionally,  in November  2003,  the Company,  as an  inducement to extend the
maturity date of the notes issued in May, June and September  2003 from November
19, 2003 to February 19,  2004,  offered the  noteholders  a warrant to purchase
additional  shares of common  stock in an amount  equal to 25% of the  number of
shares  into  which the notes  purchased  in the Unit are  convertible.  We have
received written consents to extend the maturity date from holders of $1,865,000
of the notes and expect to receive the consent from the holders of the remaining
$235,000  notes.  If we do not receive  the  additional  consents,  we may be in
default of our obligation under the notes.


                                       39
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

         4.1      Form  of  Warrant  for the  Investors  in the  September  2003
                  Placement (the "September Investors")

         4.2      Form of Registration  Rights Agreement  between  SmartServ and
                  the September Investors

         4.3      Form  of  Warrant  for  the  Investors  in the  November  2003
                  Placement (the "November Investors")

         4.4      Form of Registration  Rights Agreement  between  SmartServ and
                  the November Investors

         10.1     Form of Securities  Purchase  Agreement  between SmartServ and
                  the September Investors

         10.2     Form of Convertible Debenture for the September Investors

         10.3     Form of Securities  Purchase  Agreement  between SmartServ and
                  the November Investors

         10.4     Form of Convertible Debenture for the November Investors

         10.5     Separation   Agreement  between  SmartServ  and  Sebastian  E.
                  Cassetta

         10.6     Separation Agreement between SmartServ and Mario Rossi

         31.1     Certification  required by Section  15d-14(a) of the Rules and
                  Regulations under the Securities Exchange Act of 1934

         31.2     Certification  required by Section  15d-14(a) of the Rules and
                  Regulations under the Securities Exchange Act of 1934

         32.1     Certification required by 18 U.S.C. Section 1350


(b)      REPORTS ON FORM 8-K

         On August 29, 2003,  the Company filed a report on Form 8-K under Items
         5 and 7 thereof  referencing  a press  release  dated  August 28, 2003,
         announcing  the  appointment of L. Scott Perry as Chairman of the Board
         of Directors and Robert Pons as Interim Chief  Executive  Officer and a
         director.

         On November  14,  2003,  the  Company  filed a report on Form 8-K under
         Items 4 and 7 thereof,  indicating  that Ernst & Young LLP  resigned as
         SmartServ's independent auditor.

         On December 2, 2003,  the Company filed a report on Form 8-K under Item
         4 thereof,  indicating  that Grant  Thornton LLP had been  appointed as
         SmartServ's independent auditor.

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<PAGE>

                             SMARTSERV ONLINE, INC.

                                   SIGNATURES

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

                                  SmartServ Online, Inc.
                                  (Registrant)

                                  By:

Date: December 11, 2003           /S/  ROBERT M. PONS
      -----------------           ----------------------------------------------
                                 Robert M. Pons
                                 Interim Chief Executive Officer

Date: December 11, 2003          /S/  THOMAS W. HALLER
      -----------------          -----------------------------------------------
                                 Thomas W. Haller
                                 Sr. Vice  President,  Chief Financial Officer,
                                 Treasurer


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