SMARTSERV ONLINE INC, 424B3, 2000-01-11

SMARTSERV ONLINE INC
424B3, 2000-01-11
COMPUTER PROCESSING & DATA PREPARATION

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Filed pursuant to Rule 424(b)(3)
Registration No. 333-92599

The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.

Prospectus

SmartServ Online, Inc.

2,558,082 shares of common stock

. The selling stockholders are offering to sell 2,558,082
shares of common stock.

. We will not receive any proceeds from the offering of common
stock. We will receive approximately $6,414,000 if all of
the warrants are exercised. These proceeds will be used for
our general corporate purposes.

. Our common stock is traded and quoted on the
Over-the-Counter (OTC) Bulletin Board under the symbol
"SSOL". On December 31, 1999, the last reported bid price of
our common stock was $19.6875 and the last reported asked
price was $19.75.

The securities offered in this prospectus involve a high degree of risk. You
should carefully consider the factors described under the heading "Risk Factors"
beginning on page 3.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

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

The date of this prospectus is January 7, 2000

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TABLE OF CONTENTS

PROSPECTUS SUMMARY...........................................................3

ABOUT OUR COMPANY............................................................3

SUMMARYFINANCIAL DATA........................................................3

RISK FACTORS.................................................................4

SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS.....................8

USE OF PROCEEDS..............................................................8

MARKET PRICE OF OUR COMMON STOCK AND PUBLIC WARRANTS.........................9

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...................10

BUSINESS....................................................................16

MANAGEMENT..................................................................21

PRINCIPAL STOCKHOLDERS......................................................27

SELLING STOCKHOLDERS........................................................29

PLAN OF DISTRIBUTION........................................................31

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................32

DESCRIPTION OF CAPITAL STOCK................................................32

DELAWARE BUSINESS COMBINATION PROVISIONS....................................34

INDEMNIFICATION OF DIRECTORS AND OFFICERS...................................34

WHERE YOU CAN FIND MORE INFORMATION.........................................35

TRANSFER AGENT..............................................................36

LEGAL MATTERS...............................................................36

EXPERTS.....................................................................36

INDEX TO FINANCIAL STATEMENTS..............................................F-1

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PROSPECTUS SUMMARY

This summary highlights information included elsewhere in this
document. You should carefully review the more detailed information and
financial statements included in this document. The summary is not complete and
may not contain all of the information you may need to consider before investing
in our common stock. We urge you to carefully read this document, including the
"Risk Factors" section beginning on page 4 and the Financial Statements and
notes to those statements beginning on page F-1 of this document.

ABOUT OUR COMPANY

Please note that throughout this prospectus, the words "we", "our" or
"us" refer to SmartServ Online, Inc. and not to the selling stockholders.

SmartServ Online, Inc. was organized in 1993. We offer a range of
services designed to facilitate e-commerce by providing transactional and
information services to our alliance partners. We have developed online
financial, transactional and media applications using a unique "device
independent" delivery solution and make these services available to wireless
telephones and personal digital assistants, personal computers and the Internet
through our application software and communications architecture. Our services
facilitate stock trading and disseminate real-time stock quotes, business and
financial news, sports information, private-labeled electronic mail, national
weather reports and other business and entertainment information.

Our executive offices are located at One Station Place, Stamford,
Connecticut 06902 and our telephone number is (203) 353-5950.

SUMMARY FINANCIAL DATA

This summary financial data is derived from our financial statements
for the fiscal years ended June 30, 1999, June 30, 1998, and June 30, 1997, and
for the fiscal quarters ended September 30, 1999 and September 30, 1998 certain
of which are included elsewhere herein. You should read the following summary
financial data in conjunction with the financial statements and notes to those
statements.

Quarters Ended
September 30 Years Ended June 30
---------------------------------------- -------------------------------------------------
Statement of Operations 1999 1998 1999 1998 1997
--------------------------------------- -------------------------------------------------

<S> <C> <C> <C> <C> <C>
Revenues $ 808,292 $ 349,705 $ 1,443,781 $ 873,476 $ 688,610
Loss from Operations (326,684) (715,283) (3,750,471) (4,488,307) (4,457,343)
Net Loss (315,667) (854,177) (7,124,126) (5,040,009) (4,434,482)
Basic and Diluted Loss per (.23) (.92) (6.44) (7.65) (7.20)
Share

Balance Sheet At September 30 At June 30
---------------------------------------- -------------------------------------------------

1999 1999 1998 1997
---------------------------------------- -------------------------------------------------

Cash and Cash Equivalents $ 1,103,443 $ 2,165,551 $ 354,225 $ 93,345
Working Capital Deficiency (2,181,401) (1,822,340) (1,850,287) (901,026)
Total Assets 2,840,462 3,820,598 1,276,853 1,246,689
Total Liabilities and Deferred
Revenues 7,321,783 8,527,898 2,523,714 1,945,017
Shareholders' Deficiency (4,481,321) (4,707,300) (1,246,861) (698,328)

</TABLE>

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RISK FACTORS

An investment in our common stock is highly speculative and involves a
high degree of risk. Therefore, you should consider all of the risk factors
discussed below, as well as the other information contained in this document.
You should not invest in our common stock unless you can afford to lose your
entire investment and you are not dependent on the funds you are investing.

WE HAVE A HISTORY OF LOSSES AND IF WE DO NOT ACHIEVE PROFITABILITY WE
MAY NOT BE ABLE TO CONTINUE OUR BUSINESS

We have incurred net losses of $7,124,126 for the year ended June 30,
1999, $5,040,009 for the year ended June 30, 1998, $4,434,482 for the year ended
June 30, 1997 and $2,966,287 for the year ended June 30, 1996. Additionally, we
have incurred a net loss of $315,667 for the three month period ended September
30, 1999. At September 30, 1999, we had an accumulated deficit of $22,261,672
and a deficiency of net assets of $4,481,321. These conditions raise substantial
doubt about our ability to continue as a going concern. Losses have resulted
principally from costs incurred in connection with activities aimed at
developing our software, information and transactional services and from costs
associated with our marketing and administrative activities. We have incurred
substantial expenses and commitments and continue to operate at a deficit on a
monthly basis. No assurance can be provided that we will be able to develop
revenues sufficient to support our operations.

WE DEPEND ON ONE CUSTOMER, AND THE LOSS OF THIS CUSTOMER COULD ADVERSELY
AFFECT OUR OPERATING RESULTS

Currently, substantially all of our revenues are generated through our
licensing arrangement with Data Transmission Network Corporation, or DTN. Our
results of operations will depend upon numerous factors including sustained
revenues from our arrangement with DTN, the regulatory environment, introduction
and market acceptance of new services, establishing alliances with strategic
marketing partners and competition. If we default under the license agreement,
DTN may at its sole cost elect to provide its own maintenance to both the system
software and related hardware. Under these circumstances, DTN will have the
right to own the system software, including the source codes, and related
hardware, and DTN will have no further obligation to pay us licensing fees which
we currently rely on for a significant part of our revenues.We anticipate that
our results of operations in any given period will continue to depend to a
significant extent upon revenues from DTN and a small number of customers. In
order to increase our revenues, we will need to attract and retain additional
customers. Our failure to obtain a sufficient number of additional customers
could adversely affect our results of operations.

OUR CAPITAL REQUIREMENTS MAY REQUIRE ADDITIONAL FINANCING WHICH MAY NOT
BE AVAILABLE TO US

We estimate that we have sufficient cash resources to fund operations
through April, 2000. If our cash resources prove to be insufficient at that time
we may be required to seek additional debt or equity financing to fund the costs
of continuing operations until we achieve positive cash flow. We have no current
commitments or arrangements for additional financing and there can be no
assurance that any additional debt or equity financing will be available to us
on acceptable terms, or at all.

OUR INDEPENDENT AUDITORS HAVE ISSUED A REPORT WHICH MAY HURT OUR
ABILITY TO RAISE ADDITIONAL FINANCING AND THE PRICE OF OUR COMMON STOCK

The report of our independent auditors on our financial statements for
the years ended June 30, 1999 and 1998 contains an explanatory paragraph which
indicates that we have had recurring operating losses and

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a working capital deficiency which raises substantial doubt about our ability to
continue as a going concern. This report may make it more difficult for us to
raise additional debt or equity financing needed to run our business and is not
viewed favorably by analysts of, or investors in, our common stock. We urge
potential investors to review this report before making a decision to invest in
our company.

OUR SECURITIES WERE DELISTED FROM QUOTATION AND TRADING ON THE NASDAQ
SMALLCAP MARKET WHICH MAY HURT OUR ABILITY TO RAISE CAPITAL, THE PRICE OF OUR
COMMON STOCK, AND AN INVESTOR'S ABILITY TO SELL OUR COMMON STOCK

At the close of business on May 20, 1998, our common stock and public
warrants were delisted from quotation and trading on the Nasdaq SmallCap Market.
At present, trading of our securities is conducted on the NASD's
Over-the-Counter (OTC) Bulletin Board. As a result, an investor will likely find
it more difficult to dispose of our shares in the open market. Also, since we do
not have the liquidity and marketability associated with a Nasdaq listing, it
may be more difficult to raise capital from accredited and institutional
investors and our common stock price may be volatile.

OUR BUSINESS DEPENDS UPON STRATEGIC MARKETING ALLIANCES WHICH MAY NOT
MATERIALIZE

We intend to sell our services primarily by entering into non-exclusive
agreements with strategic marketing partners who would brand our "bundled"
information and transaction services with their own private label, promote the
packaged offering and then distribute our information and e-commence services to
their clients. Our success will depend on:

. our ability to enter into agreements with strategic marketing
partners;

. the ultimate success of these strategic marketing partners; and

. the ability of the strategic marketing partners to successfully
market our services.

Our failure to complete our strategic alliance strategy or the failure
of the strategic marketing partners to develop and sustain a market for our
services would have a material adverse affect on our overall performance.

Although we view strategic marketing alliances as a major factor in the
successful commercialization of our services, there can be no assurance that the
strategic marketing partners would view an alliance with us as significant to
their businesses and any potential benefits from these arrangements may not
materialize.

THE MARKET FOR OUR BUSINESS IS DEVELOPING AND MAY NOT ACHIEVE THE GROWTH
WE EXPECT

Online information and transactional services are developing markets.
Our future growth and profitability will depend, in part, upon consumer
acceptance of online information and transactional services in general and a
significant expansion in the consumer market for the delivery of such services
via wireless telephones and personal digital assistants, and personal computers.
Even if these markets experience substantial growth, there can be no assurance
that our services will be commercially successful or will benefit from such
growth. Further, even if initially successful, any continued development and
expansion of a market for our services will depend in part upon our ability to
create and develop additional services and adjust existing services in
accordance with changing consumer preferences, all at competitive prices. Our
failure to develop new services and generate revenues could have a material
adverse effect on our financial condition and operating results.

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WE COMPETE AGAINST LARGER, WELL KNOWN COMPANIES WITH GREATER RESOURCES
THAN WE HAVE

The market for Web-based information and transactional services is
highly competitive and involves rapid innovation and technological change,
shifting consumer preferences and frequent new service introductions. Most of
our competitors and potential competitors have substantially greater financial,
marketing and technical resources than we have. Increased competition in the
market for our services could materially and adversely affect our results of
operations through price reductions and loss of market share.

The principal competitive factors in both the online and wireless
services industry include content, product features and quality, ease of use,
access to distribution channels, brand recognition, reliability and price. We
believe that potential new competitors, including large multimedia and
information system companies, are increasing their focus on transaction
processing. We face increasing competition from other emerging services
delivered through personal computers and wireless devices such as developing
transactional services offered by Checkfree Corporation, Microsoft Corporation,
PC Quote.com, Hyperfeed Technologies, Inc., Intuit Inc., Data Broadcasting
Corporation, Electronic Data Systems Corp. and other Web-based software and
online companies. Established online information services including those
offered by America Online, Inc., CompuServe and Prodigy offer competing services
delivered through personal computers. Although in its infancy, the wireless
arena too has its competitors, such as Datalink Systems Corporation, Intelligent
Information, Inc., Aether Systems, Inc. (a/k/a Aether Technologies), Saraide.com
Inc. and W-Trade Technologies, Inc. We expect competition to increase from
existing competitors and from new competitors, including telecommunications
companies.

The information content provided through our software and communication
architecture is generally purchased through non-exclusive distribution
agreements. While we are not dependent on any single content provider, existing
and potential competitors may enter into agreements with these and other such
providers and thereby acquire the ability to deliver online information and
transactional services substantially similar to those provided by us.

WE ARE HIGHLY DEPENDENT ON OUR EXECUTIVE OFFICERS AND SEVERAL TECHNICAL
EMPLOYEES, THE LOSS OF ANY OF WHOM COULD HAVE AN ADVERSE IMPACT ON OUR FUTURE
OPERATIONS

We believe that due to the rapid pace of innovation within our
industry, factors such as the technological and creative skills of our personnel
are more important in establishing and maintaining a leadership position within
the industry than legal protections of our technology. We are dependent on our
ability to recruit, retain and motivate high quality personnel. However,
competition for such personnel is intense and the inability to attract and
retain additional qualified employees or the loss of current key employees could
materially and adversely affect our business, operating results and financial
condition. We maintain and are the sole beneficiary of a key-person life
insurance policy on the life of (1) Mr. Sebastian E. Cassetta, our Chief
Executive Officer, in the amount of $1,000,000 and (2) Mr. Mario F. Rossi, our
Vice President of Technology in the amount of $500,000. The loss of the services
of either Mr. Cassetta or Mr. Rossi would have a material adverse effect upon
our business, financial condition and results of operations.

PROVISIONS IN OUR CHARTER MAY MAKE IT MORE DIFFICULT FOR A PERSON TO
ACQUIRE US AT A PREMIUM TO OUR CURRENT MARKET VALUE

Our charter restricts the ability of our stockholders to call a
stockholders meeting and provides that our stockholders may not act by written
consent or change the number of directors and classes of our board of directors.
These provisions may have the effect of deterring or delaying certain
transactions involving an actual or potential change in control of SmartServ,
including transactions in which our stockholders might

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otherwise receive a premium for their shares over then current market prices,
and may limit the ability of our stockholders to approve transactions that they
may deem to be in their best interests.

YOUR OWNERSHIP INTEREST, VOTING POWER AND THE MARKET PRICE OF OUR
COMMON STOCK MAY DECREASE BECAUSE WE HAVE ISSUED, AND MAY CONTINUE TO ISSUE, A
SUBSTANTIAL NUMBER OF SECURITIES CONVERTIBLE OR EXERCISABLE INTO OUR COMMON
STOCK

We have issued common stock, options and warrants to purchase our
common stock, and in the future we may issue additional shares of common stock,
options, warrants, preferred stock or other securities exercisable for or
convertible into our common stock. A substantial number of shares of common
stock are already available for sale in the public market under Rule 144 of the
Securities Act and additional shares may become available for sale in the near
future. In particular, 2,558,082 shares of our common stock issued or issuable
upon the exercise of warrants will be registered under this document and,
subject to legal or contractual restrictions with respect to 883,333 of such
shares, will be freely saleable by the selling stockholders. This represents
approximately 55.26% of the common stock that will be outstanding after the
exercise of such warrants. Sales of these shares or the market's perception that
these sales could occur may cause the market price of our common stock to fall
and may make it more difficult for us to sell equity securities in the future at
a time and price that we deem appropriate or to use equity securities as
consideration for future acquisitions. In addition, we have outstanding prepaid
warrants convertible into common stock at a discount to the market price of our
common stock. Depending upon market conditions at the time of conversion of our
prepaid warrants, the number of shares of common stock issuable upon such
conversion could increase significantly in the event of a decrease in the
trading price of the common stock. Holders of common stock could therefore
experience significant dilution upon conversion of these prepaid warrants.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS

We have designed and developed our own information platform,
"SmartServ", based on Sun Microsystems, Inc. computers and Oracle Corp.'s
version 7.X relational database manager, to support a variety of end user
devices. Although we intend to protect our rights vigorously, there can be no
assurance that any of the measures to protect our proprietary rights explained
below will be successful. In an effort to protect our proprietary rights, we
rely upon a combination of contract provisions and copyrights, trade secret laws
and a service mark. We license the use of our services to our strategic
marketing partners under agreements that contain terms and conditions
prohibiting the unauthorized reproduction of our software and services. We seek
to protect the source code of our application software and communications
architecture as a trade secret and as an unpublished copyrighted work.

We believe that our service mark "SmartServ Online" has significant
value and is important to the marketing of our services. There can be no
absolute assurance, however, that our mark does not or will not violate the
proprietary rights of others, that our mark would be upheld if challenged or
that we would not be prevented from using our mark, any of which could have an
adverse effect on us. In addition, there can be no assurance that we will have
the financial resources necessary to enforce or defend our mark. We believe that
our software, services, service mark and other proprietary rights do not
infringe on the proprietary rights of third parties. However, there can be no
assurance that third parties will not assert infringement claims against us with
respect to current features, content or services or that any such assertion may
not require us to enter into royalty arrangements or result in litigation.

OUR LICENSE ARRANGEMENT WITH DTN CONTAINS PROVISIONS WHICH ALLOW DTN TO
TERMINATE OUR RELATIONSHIP AND TAKE OWNERSHIP OF CERTAIN OF OUR PROPRIETARY
TECHNOLOGY UNDER CERTAIN CIRCUMSTANCES

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We granted DTN an exclusive perpetual worldwide license to our
Internet-based (1) real-time stock quote product, (2) online trading vehicle for
customers of small and medium sized brokerage companies, (3) administrative
reporting package for brokers of small and medium sized brokerage companies, and
(4) order entry/routing system. Under the license agreement, we are required to
maintain certain systems' performance standards and to satisfy other general
business requirements. Our inability to maintain compliance with the license
agreement could result in a default thereunder. In addition, a change of control
of SmartServ is an event of default under the license agreement. A change of
control includes a change in the majority of the members on our board of
directors. Under a letter agreement with Zanett Capital, Inc., Zanett Capital
may elect a majority of the board under certain circumstances, including the
failure of our common stock to be listed on Nasdaq. Moreover, Zanett Securities
Corporation and Zanett Lombardier, Ltd. and its affiliates own shares of common
stock and warrants to purchase common stock, which, if exercised, would equal
approximately 52.0% of the common stock that would be outstanding after the
exercise of such warrants, giving them the potential to effect a change of
control of SmartServ.

If an event of default occurs under the license agreement, DTN may at
its sole cost elect to provide its own maintenance to both the system software
and related hardware. Under these circumstances, DTN will have the right to own
the system software, including the source codes, and related hardware, and DTN
will have no further obligation to pay us licensing fees which we currently rely
on for a significant part of our revenues.

WE ARE INVOLVED IN SEVERAL PENDING LEGAL PROCEEDINGS WHICH, IF RESOLVED
AGAINST US, COULD CAUSE DILUTION TO OUR STOCKHOLDERS AND HAVE A MATERIAL
NEGATIVE IMPACT ON OUR OPERATIONS

From time to time we have been, and expect to continue to be, a party
to legal proceedings and claims in the ordinary course of our business. Our
ongoing legal proceedings with Mr. Michael Fishman and Mr. Ronald G. Weiner have
been set forth in the Business section of this document under the heading "Legal
Proceedings". In addition to unspecified damages of at least $250,000, Mr.
Weiner seeks 10% of our outstanding equity securities. While we expect to
contest these matters vigorously, litigation is inherently uncertain and an
adverse judgment on any of these claims could cause dilution to our stockholders
as well as harm our business. Even if not meritorious, any of these current and
future matters could require the expenditure of significant financial and
managerial resources.

SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS

Some of the statements in this prospectus or in the documents we
incorporate by reference are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve certain known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. These factors include,
among others, the factors set forth above under "Risk Factors." The words
"believe," "expect," "anticipate," "intend" and "plan" and similar expressions
identify forward-looking statements. We caution you not to place undue reliance
on these forward-looking statements. We undertake no obligation to update or
revise any forward-looking statements or to publicly announce the result of any
revisions to any of the forward-looking statements in this document to reflect
future events or developments.

USE OF PROCEEDS

We will not receive any proceeds from the sale by the selling
stockholders of the common stock offered by this prospectus. The shares of
common stock will be sold from time to time by the selling stockholders at
prevailing market prices. We will receive approximately $6,414,000 if all of the
Warrants for

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the underlying shares of common stock being registered are exercised. We expect
to use these proceeds, if any, for general corporate purposes.

MARKET PRICE OF OUR COMMON STOCK AND PUBLIC WARRANTS

SmartServ's $.01 par value common stock commenced trading on March 21,
1996 on the National Association of Securities Dealers' Automated Quotation
System. Our Redeemable Common Stock Purchase Warrants, or public warrants, also
commenced trading on March 21, 1996 on the Nasdaq.

On May 20, 1998, we received notification from The Nasdaq Stock Market
that we no longer met the net tangible asset/market capitalization/net income
requirements for continued listing of our securities on The Nasdaq SmallCap
Market. Accordingly, at the close of business on May 20, 1998, our common stock
and public warrants were delisted from The Nasdaq SmallCap Market. Currently,
our securities trade on the OTC Bulletin Board as SSOL and SSOLW.

On October 15, 1998, our stockholders approved a one-for-six reverse
stock split which became effective on October 26, 1998.

The following table sets forth the high and low prices for the common
stock and public warrants during the periods indicated as reported by the Nasdaq
SmallCap Market and the OTC Bulletin Board, as applicable. Such amounts (and all
other share and price information contained in this document) have been adjusted
to reflect the reverse stock split.
<TABLE>
<CAPTION>

COMMON STOCK WARRANTS
------------ --------
HIGH LOW HIGH LOW
---- --- ---- ---
YEAR ENDING JUNE 30, 2000
- -------------------------

First Quarter $ 1.531 $ .719 $ .156 $ .063
Second Quarter 24.625 .719 6.500 .070

YEAR ENDED JUNE 30, 1999
- ------------------------

First Quarter $ 4.313 $ 1.875 $ 2.250 $ .375
Second Quarter 4.125 1.031 .531 .063
Third Quarter 4.875 1.500 .625 .063
Fourth Quarter 2.500 1.500 .250 .100

YEAR ENDED JUNE 30, 1998
- ------------------------

First Quarter $ 18.750 $ 6.750 $ 4.500 $ .750
Second Quarter 21.000 4.128 5.250 .750
Third Quarter 19.125 3.750 6.563 .938
Fourth Quarter 22.500 3.000 9.188 1.688
</TABLE>

As of January 4, 2000, we had 2,267,852 shares of common stock
outstanding held by 79 shareholders of record. We estimate that our common stock
is held by approximately 1,800 beneficial holders. As of such date, we had
1,725,000 public warrants outstanding held by 26 warrant holders of record.

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DIVIDENDS

We have never paid a cash dividend on our common stock. It is our
present policy to retain earnings, if any, to finance the development and growth
of our business. Accordingly, we do not anticipate that cash dividends will be
paid until our earnings and financial condition justify such dividends, and
there can be no assurance that we can achieve such earnings.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

PLAN OF OPERATION

SmartServ delivers Internet-based content and trade order routing
solutions, as well as "Web-to-Wireless" applications that enable the processing
of transactions for its strategic alliances, or Strategic Marketing Partners,
and their customers. SmartServ has developed online financial, transactional and
media applications using a unique "device-independent" delivery solution.

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

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

Management believes that most of SmartServ's revenues will continue to
be derived from consumers who purchase its services through Strategic Marketing
Partners. SmartServ anticipates that Strategic Marketing Partners will brand its
"bundled" information services with their own private label and promote and
distribute SmartServ's packaged offering to their clients. SmartServ has the
ability to customize the information package to be offered to each Strategic
Marketing Partner, by device. With the licensing of four of its Internet
products by DTN, SmartServ has discontinued efforts to develop a direct
subscriber base.

Management anticipates that staffing requirements associated with the
implementation of its plan of operation will result in the addition of a minimum
of six to ten people during the period ending June 30, 2000. Such personnel will
be added to assist with the programming requirements of Strategic Marketing
Partners' product offerings, for customer support and sales and marketing.

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RESULTS OF OPERATIONS

FISCAL QUARTER ENDED SEPTEMBER 30, 1999 VERSUS FISCAL QUARTER ENDED
SEPTEMBER 30, 1998

During the quarters ended September 30, 1999 and 1998, SmartServ's
revenues were $808,292 and $349,705, respectively. Substantially all of such
revenues were obtained from SmartServ's licensing agreement with DTN. At
September 30, 1999 and 1998, SmartServ recorded deferred revenues of $5,384,055
and $960,515, respectively. Such amounts resulted from SmartServ's relationship
with DTN and will be amortized to revenues over the term of the anticipated
revenue stream.

During the quarter ended September 30, 1999, SmartServ incurred costs
of services of $232,866. Such costs consisted primarily of information and
communication costs ($48,400), personnel costs ($55,800) and computer hardware
lease, depreciation and maintenance costs ($84,600). During the quarter ended
September 30, 1998, SmartServ incurred costs of services of $207,084. Such costs
consisted primarily of information and communication costs ($95,700), personnel
costs ($29,100), and computer hardware lease, depreciation and maintenance costs
($80,800). Product development costs were $46,845 and $27,046 for the quarters
ended September 30, 1999 and 1998, respectively. Such costs consisted primarily
of the amortization of capitalized software development costs related to certain
product enhancements 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 86"). During the quarters ended
September 30, 1999 and 1998, SmartServ capitalized $244,225 and $233,005,
respectively, of development costs in accordance with Statement 86.

During the quarter ended September 30, 1999, SmartServ incurred
selling, general and administrative expenses of $855,265 vs. $830,858 for the
quarter ended September 30, 1998. Such costs were incurred primarily for
personnel costs ($221,000), marketing and advertising costs ($76,400),
professional fees ($468,800), facilities ($50,000) and telecommunications costs
($17,000). Included in professional fees are noncash charges of $291,300
resulting from the amortization of costs ascribed to common stock purchase
warrants previously issued to financial consultants. Such common stock purchase
warrants were recorded in accordance with the Black-Scholes pricing methodology.
Selling, general and administrative expenses for the quarter ended September 30,
1998 were incurred primarily for personnel costs ($185,000), marketing and
advertising costs ($61,800), professional fees ($488,400), facilities ($49,000)
and telecommunications costs ($14,700). Included in professional fees are
noncash charges of $330,400 resulting from the amortization of costs ascribed to
common stock purchase warrants previously issued to financial consultants.

In accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" SmartServ must recognize the
compensatory nature of 173,239 options issued to employees pursuant to
SmartServ's employee stock option plan, as well as 892,319 shares issued or to
be issued to Messrs. Cassetta, Rossi and Pearl. Accordingly, SmartServ will be
required to record a noncash charge to earnings based on the difference between
the market price of its common stock at December 31,1999 and the exercise price
of the option or purchase price of the restricted stock. As a result of the
volatility of SmartServ's common stock, the magnitude of such a noncash charge
is unknown. However, based on a closing price ($18.00) of SmartServ's common
stock at December 3, 1999, it would be required to record a noncash charge to
earnings of approximately $16,500,000. Such charge will have no impact on
SmartServ's statement of financial condition at December 31, 1999 or cash flows
for the period then ended.

Interest income for the quarter ended September 30, 1999 and 1998
amounted to $11,017 and $2,202, respectively. Such amounts were earned primarily
from SmartServ's investments in short-term commercial paper and cash balances.
Interest and financing costs for the quarters ended September 30, 1999

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and 1998 were $0 and $141,096, respectively. During the quarter ended September
30, 1998, such costs were primarily attributable to the issuance of 50,000
shares of common stock to Zanett Lombardier, Ltd and Bruno Guazzoni, holders of
$1,669,000 of prepaid warrants, in consideration of such holders agreeing to
restrictions on the exercise of the prepaid warrants and the resale of the
shares of common stock issuable upon such exercise. The issuance of such shares
was recorded in the financial statements at fair market value.

FISCAL YEAR ENDED JUNE 30, 1999 VERSUS FISCAL YEAR ENDED JUNE 30, 1998

During the year ended June 30, 1999, SmartServ recorded revenues of
$1,443,781. Substantially all of such revenues were earned through its licensing
agreement with DTN. During the year ended June 30, 1998, SmartServ earned
revenues of $873,476. Of such amount, $210,000 was earned through the
relationship with DTN, while $454,000 was earned from the sale of the SmartServ
Pro stock quote services.

During the year ended June 30, 1999, SmartServ incurred costs of
services of $994,465. Such costs consisted primarily of information and
communication costs ($267,600), personnel costs ($290,100), computer hardware
leases and maintenance ($339,400) and systems consultants ($97,300). During the
year ended June 30, 1998, SmartServ incurred costs of revenues of $1,216,761.
Such costs consisted primarily of information and communication costs
($551,700), personnel costs ($310,600), and computer hardware leases and
maintenance ($339,300). Information and communication costs decreased in 1999
compared to 1998 as a result of the licensing agreement entered into between
SmartServ and DTN. Personnel costs decreased in 1999 compared to 1998 as a
result of the migration of personnel resources into product development areas in
1999. Product development costs were $193,188 vs. $923,082 for the year ended
June 30, 1998. The decrease in the product development costs results from the
capitalization of software development costs related to certain product
enhancements in accordance with Statement of Financial Accounting Standards No.
86. During the year ended June 30, 1999, SmartServ capitalized $765,000 of
development costs in accordance with Statement 86. No such costs were
capitalized during the year ended June 30, 1998. During the year ended June 30,
1999, product development costs consisted primarily of the amortization of
capitalized software development costs. During the year ended June 30, 1998,
product development costs consisted primarily of personnel costs ($541,400) and
computer system consultants ($335,000).

During the year ended June 30, 1999, SmartServ incurred selling,
general and administrative expenses of $4,006,599 vs. $3,221,940 for the year
ended June 30, 1998. During the year ended June 30, 1999, such costs were
incurred primarily for personnel costs ($1,148,400), facilities ($240,500),
marketing and advertising costs ($263,100), professional fees ($2,150,000), and
telecommunications costs ($69,500). During the year ended June 30, 1998, such
costs were incurred primarily for personnel costs ($1,349,000), facilities
($216,000), marketing and advertising costs ($240,400), professional fees
($1,051,400) and telecommunications costs ($73,100). Included in professional
fees are noncash charges of $1,349,020 in 1999 and $660,576 in 1998 representing
the amortization of deferred costs in connection with the issuance of warrants
to financial consultants.

Interest income for the year ended June 30, 1999 amounted to $4,767 vs.
$40,788 for the year ended June 30, 1998. Such amounts were earned primarily
from SmartServ's investments in highly liquid commercial paper. Interest and
financing costs for the year ended June 30, 1999 were $3,378,422. Such costs
were incurred primarily in connection with the issuance of the 8% convertible
notes ($2,254,700) and SmartServ's default pursuant to the prepaid warrants
($1,095,700). Of such amounts, $2,593,800 were noncash charges for the issuance
of common stock or warrants to purchase common stock as settlement of such
obligations. Interest and financing costs for the year ended June 30, 1998 were
$592,490. These costs were incurred in connection with the origination of
SmartServ's May 1997 line of credit. Of such amount,

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$463,600 represents the noncash charges associated with the issuance of certain
common stock purchase warrants.

Loss per share was $6.44 per share for year ended June 30, 1999 vs.
$7.65 per share for the year ended June 30, 1998. While the net loss increased
$2,084,117 SmartServ's weighted average shares of common stock outstanding in
1999 increased by 446,569 shares, thereby affecting the per share loss.

FISCAL YEAR ENDED JUNE 30, 1998 VERSUS FISCAL YEAR ENDED JUNE 30, 1997

During the year ended June 30, 1998, SmartServ recorded revenues of
$873,476 from the sale of its information services vs. $688,610 during the year
ended June 30, 1997. Included in revenues for the year ended June 30, 1998 is
$210,000 resulting from SmartServ's licensing agreement with DTN and $454,000
from the sale of the SmartServ Pro stock quote services. During the year ended
June 30, 1997, SmartServ earned revenues from the enhancement, implementation
and marketing of services to Schroder & Co. Inc. of $342,200.

During the year ended June 30, 1998, SmartServ incurred costs of
services of $1,216,761. Such costs consisted primarily of information and
communication costs ($551,700), personnel costs ($310,600) and computer hardware
leases and maintenance ($339,300). During the year ended June 30, 1997, with
SmartServ's departure from the development stage, it incurred costs of revenues
of $1,133,884. Such costs consisted primarily of information and communication
costs ($390,000), personnel costs ($417,500), computer hardware leases and
maintenance ($201,800) and screenphone purchases ($95,300). Product development
costs were $923,082 vs. $1,150,224 for the year ended June 30, 1997. During the
year ended June 30, 1998, such costs consisted primarily of personnel costs
($541,400) and computer system consultants ($335,000). During the year ended
June 30, 1997 such costs consisted primarily of personnel costs ($686,100) and
computer system consultants ($454,000). Included in personnel costs in 1997 is a
noncash charge of approximately $73,000 for the change in market value of
employee stock options.

During the year ended June 30, 1998, SmartServ incurred selling,
general and administrative expenses of $3,221,940 vs. $2,861,845 for the year
ended June 30, 1997. During the year ended June 30, 1998, such costs were
incurred primarily for personnel costs ($1,349,000), facilities ($216,000),
advertising and marketing costs ($240,400), professional fees ($1,051,400) and
telecommunications costs ($73,100). During the year ended June 30, 1998,
selling, general and administrative costs increased $360,095 from the prior year
as a result of increases in professional fees ($593,000), personnel costs
($403,500) and facilities costs ($55,700). Such increases were offset by a
decrease in advertising and marketing expenses of $600,900. Professional fees
includes a noncash charge of $527,576, representing amortization of deferred
compensation in connection with the issuance of 592,592 common stock purchase
warrants to a financial consultant.

Interest income for the year ended June 30, 1998 amounted to $40,788
vs. $74,507 for the year ended June 30, 1997. Such amounts were earned primarily
from SmartServ's investments in highly liquid commercial paper. Interest and
financing costs for the year ended June 30, 1998 were $592,490. These costs were
incurred in connection with the origination of SmartServ's May 1997 line of
credit. Of such amount, $463,600 represents the noncash charges associated with
the revaluation of certain common stock purchase warrants granted to Zanett
Securities Corporation. Interest and financing costs for the year ended June 30,
1997 were $54,646. Such amounts were incurred in connection with SmartServ's May
1997 line of credit.

Loss per share was $7.65 per share for year ended June 30, 1998 vs.
$7.20 per share for the year ended June 30, 1997. While the net loss increased
$605,527 SmartServ's weighted average shares of common stock outstanding
increased by 43,201 shares, thereby affecting the per share loss.

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CAPITAL RESOURCES AND LIQUIDITY

Since SmartServ's inception on August 20, 1993 through March 21, 1996,
the date of the initial public offering of securities ("IPO"), SmartServ funded
its operations through a combination of private debt and equity financings
totaling $4,160,000 and $12,877,500, respectively.

In May 1997, SmartServ arranged a line of credit facility with Zanett
Lombardier, Ltd. Such line of credit was originated for a maximum borrowing
amount of $550,000. In July and September 1997, the facility was amended to
allow for additional borrowings of up to $222,222. In conjunction with the
origination of the line of credit facility, SmartServ issued 56,627 common stock
purchase warrants to Zanett Lombardier, Ltd. Similarly, SmartServ issued 11,438
warrants for each of the July and September amendments. As a result of
SmartServ's default on the note in August 1997, SmartServ was required to issue
50,083 "default" warrants to Zanett Lombardier, Ltd.

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

On September 30, 1997, Zanett Securities Corporation, acting as
placement agent for SmartServ, completed a private placement of $4 million of
its prepaid common stock purchase warrants. As part of the placement, Zanett
Lombardier, Ltd. converted a note payable of $772,222, issued pursuant to the
line of credit facility dated May 29, 1997, as amended, and accrued interest
thereon of $63,837 into prepaid warrants. The net proceeds of the placement of
$2,643,941 were used for general working capital requirements.

On April 23, 1998, SmartServ entered into a Software License and
Service Agreement with DTN, whereby SmartServ licensed to DTN the rights to
market three of SmartServ's Internet products. SmartServ received $850,000 upon
execution of the agreement and received minimum monthly payments of $100,000
through April 1999.

On June 24, 1999, SmartServ and DTN entered into a License Agreement
that amended the Software License and Service Agreement dated April 23, 1998. In
consideration of the receipt of $5.175 million, SmartServ granted DTN an
exclusive perpetual worldwide license to its Internet-based (1) real-time stock
quote product, (2) online trading vehicle for customers of small and medium
sized brokerage companies, (3) administrative reporting package for brokers of
small and medium sized brokerage companies, and (4) order entry/routing system.
Additionally, SmartServ received $324,000 in exchange for an agreement to issue
warrants to purchase 300,000 shares of its common stock at an exercise price of
$8.60 per share. SmartServ has agreed to continue to operate these products and
provide maintenance and enhancement services in exchange for a percentage of the
revenues earned by DTN therefrom. The cost of the SmartServ's commitment to
provide such maintenance and enhancement services is limited to a maximum of 20%
of the revenues earned by SmartServ. If SmartServe defaults under the license
agreement, DTN may at its sole cost elect to provide its own maintenance to both
the system software and related hardware. Under these circumstances, DTN will
have the right to own the system software, including the source codes, and
related hardware, and DTN will have no further obligation to pay SmartServ
licensing fees which SmartServ currently relies on for a significant part of its
revenues. None of SmartServ's wireless products were included in this
transaction. Although SmartServ believes that DTN has the experience and the
financial ability to distribute its services to thousands of potential
customers, there can be no assurance that the products and services will be
accepted by the ultimate consumer on a widespread basis.

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On August 11, 1998, SmartServ entered into a letter of intent, as
amended on November 24, 1998, with Spencer Trask Securities, Inc. which provided
for the retention of Spencer Trask to act as exclusive placement agent in
connection with a private placement by SmartServ of a minimum of $5,000,000 and
a maximum of $10,000,000 of securities of SmartServ.

In anticipation of completing the private placement, SmartServ
completed an interim financing of $550,000 of its securities. SmartServ sold
five and one-half (5.5) units, each consisting of a secured convertible 8% note
in the principal amount of $100,000 and warrants to purchase common stock. The
notes and the warrants are convertible and exercisable, respectively, at $.60
per share of common stock. Such notes were repaid in June 1999.

On July 1, 1999, SmartServ entered into an agreement with Arnhold & S.
Bleichroeder, Inc. to settle SmartServ's obligation to Arnhold & S. Bleichroeder
under the default provisions of the prepaid warrants. In accordance with that
agreement, SmartServ paid Arnhold & S. Bleichroeder $325,000 to redeem the
prepaid warrants and issued 180,000 shares of common stock in full settlement of
all obligations. SmartServ has agreed to file a registration statement with the
Securities and Exchange Commission covering such shares.

SmartServ'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. SmartServ incurred
net losses of $7,124,126, $5,040,009, and $4,434,482 for the years ended June
30, 1999, 1998 and 1997, respectively. Additionally, we have incurred a net loss
of $315,667 for the three month period ended September 30, 1999. At September
30, 1999, we had an accumulated deficit of $22,261,672 and a deficiency of net
assets of $4,481,321. SmartServ is also a defendant in several legal proceedings
that could have a material adverse effect on its financial position, cash flows
and results of operations. These conditions raise substantial doubt about
SmartServ'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.

SmartServ's management believes that upon the successful implementation
of its marketing plan, sufficient revenues will be generated to meet operating
requirements. Management also believes that the successful execution of its
proposed plan of operations will generate sufficient cash flow from operations
to enable SmartServ to offer its services on an economically sound basis. No
assurance can be given that such goals will be obtained or that any expected
revenues or cash flows will be achieved.

YEAR 2000 COMPLIANCE

SmartServ's information services are distributed via a combination of
third party computer hardware and software applications, as well as its designed
application software and communication networks. SmartServ has formed a task
force to assure that its products and services are Year 2000 ("Y2K") compliant.
As part of this process, SmartServ has queried its software vendors and third
party information providers and has updated certain hardware, third party
software and/or received letters of compliance from such third party information
providers. In addition, SmartServ has reviewed and modified its proprietary
application software for compliance.

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SmartServ is working diligently to ensure that all systems are Y2K
compliant and believes that its greatest risks would be the partial inability of
its systems to deliver accurate data caused by certain information vendors'
inability to supply Y2K compliant data. The inability of SmartServ's systems to
process non-Y2K compliant data could result in a substantial decline in both new
and existing customer subscriptions to its products. This would have a material
adverse effect on SmartServ's financial condition, results of operations, and
ability to continue as a going concern. SmartServ believes that the probability
of this occurrence is minimal as SmartServ is currently receiving and processing
Y2K data from its critical information providers.

BUSINESS

THE COMPANY

SmartServ Online, Inc. was organized in 1993. We deliver Internet-based
content and trade order routing solutions, as well as "Web-to-Wireless"
applications designed to facilitate transactions. We have developed online
financial, transactional and media applications using a unique
"device-independent" delivery solution. We have demonstrated ability in
developing applications utilizing the wireless application protocol (WAP)
towards enabling information and transactions on wireless telephones and
personal digital assistants.

SERVICES

Recognizing the call for mobility, we have developed an infrastructure
to integrate and deliver our Internet-based information and to effectuate
e-commerce transactions on wireless networks and devices. We are well positioned
to provide Web-based information and transaction applications and solutions for
Strategic Marketing Partners such as financial institutions, wireless carriers,
device manufacturers and value-added service providers and retailers. Our core
competency focuses on providing financial news and reports -- including
real-time stock quotes -- with the goal of facilitating online and wireless
stock trading and other transactions. To complement our financial offerings, we
also provide a host of personalized information services from local news, sports
and weather to traffic and entertainment services that can be accessed on demand
or as an alert. We plan to build a database of client interests and preferences
towards future e-commerce offerings. We are not dependent on one or a few
information providers as such redistribution agreements are generally available
on a non-exclusive basis.

We have invested in the development of a transaction engine and a
proprietary application software and communications architecture in an attempt
to make our services easy to use and visually appealing and to take advantage of
the different virtues and capabilities of established and emerging devices
capable of interacting with Web-based and Web-to-Wireless applications. We
believe that our application software and communications architecture, which
recognize multiple devices, format the information for the particular device and
present the information in a user-friendly manner, will be attractive in the
marketplace. Product development efforts are focused on providing enhancements
to the current information and transaction services, format modifications for
emerging devices, content and features improvements and customizations based on
market requirements. We intend to continue to invest in this area and believe
our transaction engine, application software and communications architecture
represent an important competitive advantage.

MARKETING STRATEGY

We believe our primary source of revenues will ultimately be derived
from the sale of our information and transactional application services through
Strategic Marketing Partners utilizing a "business-to-business" strategy.
Strategic Marketing Partners will brand our "bundled" services, acquired from
our "information platform" with their own private label, promote the packaged
offering, and then distribute our

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information and e-commerce services to their clients. Additionally, our
e-commerce platform will enable our Strategic Marketing Partners to offer
transaction services via the Internet and wireless networks. Our strategy of
forming alliances with Strategic Marketing Partners enables us to maximize our
market reach at minimal operating costs, improve product and services
performance and grow distribution channels to end-users.

In May 1998, we licensed to DTN the rights to market and service three
of our Internet products. DTN, which has over 150,000 subscribers for its
satellite-based information services, lacked an Internet-based product and
delivery system. We filled that need. In June 1999, we entered into an agreement
with DTN that expanded our relationship. In consideration of the receipt of
$5.175 million, we granted DTN an exclusive perpetual worldwide license to our
Internet-based (1) real-time stock quote product, (2) online trading vehicle for
customers of small and medium sized brokerage companies, (3) administrative
reporting package for brokers of small and medium sized brokerage companies, and
(4) order entry/routing system. We will continue to operate and support these
products in exchange for a percentage of the revenues earned by DTN therefrom.
None of our wireless products were included in this transaction. During the year
ended June 30, 1998, we discontinued our efforts to sell products directly to
the retail market via our own marketing programs.

As an early entrant in the dynamic market of distribution of financial
information and transaction services via wireless telephones and personal
digital assistants, we are developing strategic marketing relationships with the
wireless equipment manufacturers, carriers, other value-added service providers
and potential corporate partners. We continuously seek to increase product
performance and widen our distribution by building and maintaining this network
of Strategic Marketing Partners. Combining our application development and data
platform with the core competencies of our Strategic Marketing Partners we are
offering a packaged turnkey solution for extending content and transactions to
the wireless environment. Management believes the wireless area has tremendous
potential for distribution of our information products and as a source of
revenues from "fee based" transactions such as routing stock order entries and
other e-commerce offerings.

The market for wireless services is exploding alongside the market for
Internet access, and Management believes that these markets are about to
converge. The majority of wireless data penetration will result from the
distribution of telephones and other PCS devices equipped with wireless modems
and Web browsers for accessing the Internet. Our data and communication
architecture adds user functionality and utility to both wired and wireless
technology. With our Web-server platform, application development and strategic
alliances, we have the competitive advantage of providing complete end-to-end
solutions.

While we continue to have discussions about potential marketing
opportunities with major equipment manufacturers, telecommunications and stock
brokerage companies, there can be no assurance that we will enter into
agreements with any such companies.

COMPETITION

The market for Web-based information and transactional services is
highly competitive and subject to rapid innovation and technological change,
shifting consumer preferences and frequent new service introductions. While our
application software and communications architecture makes the services "device
independent", we face increasing competition from other emerging services
delivered through personal computers and wireless devices, such as developing
transactional services offered by Checkfree Corporation, Microsoft Corporation,
Data Broadcasting Corporation, PC Quote.com, Hyperfeed Technologies, Inc.,
Intuit Inc., Electronic Data Systems Corp. and other Web-based software
companies. Established online information services including those offered by
America Online, Inc., CompuServe and Prodigy offer competing services delivered
through personal computers. Although in its infancy, the wireless arena too has

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its competitors, such as DataLink Systems Corporation, Intelligent Information,
Inc., Aether Systems, Inc. (a/k/a Aether Technologies), Saraide.com Inc. and
W-Trade Technologies, Inc. We expect competition to increase from existing
competitors and from new competitors, possibly including telecommunications
companies. Most of our competitors and potential competitors have substantially
greater financial, marketing and technical resources than we have. We believe
that potential new competitors, including large multimedia and information
system companies, are increasing their focus on transaction processing.
Increased competition in the market for our services could materially and
adversely affect our results of operations through price reductions and loss of
market share.

The information content provided through our application software and
communication architecture is generally purchased through non-exclusive
distribution agreements. While we are not dependent on any one content provider,
existing and potential competitors may enter into agreements with these and
other such providers and thereby acquire the ability to deliver online
information and transactional services substantially similar to those provided
us.

The principal competitive factors in both the online and wireless
industries include content, product features and quality, ease of use, access to
distribution channels, brand recognition, reliability and price. Our strategy of
establishing alliances with potential Strategic Marketing Partners and our
ability to provide what we believe to be unique application software and
communications should enable us to compete effectively.

SOFTWARE

We have developed an application software and communications
architecture that we believe makes our services easy to use and visually
appealing, and which maximize the capabilities of various devices.

Our user-friendly front-end application software provides instant
access to information and flexibility to the varying needs of multiple users.
Subscribers are empowered to create their own groupings of information they
routinely request and are able to navigate directly to the information they seek
with the software's easy to read menu systems and search capabilities. Our
transaction engine has been designed to facilitate various forms of e-commerce.
Our application software employs common user interface techniques, such as
icons, pull-down menus, spreadsheet formats, tree structures and the use of
"key" words, to make our product intuitive to our users. Our software is notable
for its visually appealing formats, which it has standardized across different
types of information. Subscribers are provided with several display options,
including text and graphics, according to their preferences.

During the fiscal years ended June 30, 1999, 1998 and 1997, we incurred
costs of $193,188, $923,082 and $1,150,224, respectively, for research and
project development activities. Additionally, during the fiscal year ended June
30, 1999, we capitalized software development costs amounting to $765,000; no
such costs were capitalized in either of the years ended June 30, 1998 or 1997.

PROPRIETARY RIGHTS

We have designed and developed our own "device independent" information
and transaction platform, "SmartServ", based on Sun Microsystems, Inc. computers
and Oracle Corp.'s version 7.X relational database manager, to support a variety
of end user devices. This platform formats information and the services'
interface for a particular device and presents it in a user friendly manner. We
rely upon a combination of contract provisions and copyrights, trade secret laws
and a service mark to attempt to protect our proprietary rights. We license the
use of our services to Strategic Marketing Partners under agreements that
contain terms and conditions prohibiting the unauthorized reproduction of our
software and services. Although we intend to protect our rights vigorously,
there can be no assurance that any of the foregoing measures will be successful.

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If we default under the license agreement, DTN may at its sole cost
elect to provide its own maintenance to both the system software and related
hardware. Under these circumstances, DTN will have the right to own the system
software, including the source codes, and related hardware, and DTN will have no
further obligation to pay us licensing fees which we currently rely on for a
significant part of our revenues.

We believe that our software, services, service mark and other
proprietary rights do not infringe on the proprietary rights of third parties.
However, there can be no assurance that third parties will not assert
infringement claims against us with respect to current features, content or
services or that any such assertion may not require us to enter into royalty
arrangements or result in litigation.

GOVERNMENT REGULATION

We are not currently subject to direct regulation other than federal
and state regulation generally applicable to businesses. However, changes in the
regulatory environment relating to the telecommunications and media industry
could have an effect on our business, including regulatory changes which
directly or indirectly affect telecommunication costs or increase the likelihood
or scope of competition from regional telephone companies. Additionally,
legislative proposals from international, federal and state governmental bodies
in the areas of content regulation, intellectual property and privacy rights, as
well as federal and state tax issues could impose additional regulations and
obligations upon all online service providers. We cannot predict the likelihood
that any such legislation will pass, or the financial impact, if any, the
resulting regulation or taxation may have.

Moreover, the applicability to online service providers of existing
laws governing issues such as intellectual property ownership, libel and
personal privacy is uncertain. The use of the Internet for illegal activities
and the dissemination of pornography have increased public focus and could lead
to increased pressure on legislatures to impose regulations on online service
providers such as ourselves. The law relating to the liability of online service
companies for information carried on or disseminated through their systems is
currently unsettled. If an action were to be initiated against us, the costs
incurred as a result of such action could have a material adverse effect on our
business.

EMPLOYEES

We employ 21 people, 19 of whom are full-time employees. We anticipate
that staffing requirements associated with the implementation of our plan of
operation will result in the addition of a minimum of six to ten people during
the period ending June 30, 2000. Such personnel will be added to assist with the
programming requirements of Strategic Marketing Partners' product offerings, for
customer support

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and sales and marketing. None of our employees are covered by a collective
bargaining agreement, and we believe that our relationship with our employees is
satisfactory.

DESCRIPTION OF PROPERTY

We occupy approximately 6,300 square feet in a leased facility located
in Stamford, Connecticut. The lease expires in October 2002.

LEGAL PROCEEDINGS

By letter dated April 10, 1998, Michael Fishman, then our Vice
President of Sales resigned his position. On or about April 24, 1998, Mr.
Fishman filed a complaint against us, Sebastian E. Cassetta and four other
defendants in the United States District Court for the District of Connecticut.
The complaint asserted claims under Sections 10(b) and 18 of the Securities
Exchange Act of 1934, as well as several state law claims, including breach of
contract, fraud and misrepresentation. Mr. Fishman alleged that we (1) failed to
pay him the benefits and compensation to which he was entitled and (2) made
material misrepresentations in our filings with the Securities and Exchange
Commission. On December 11, 1998, the Court granted our motion to dismiss Mr.
Fishman's action without prejudice to the plaintiff to seek leave to file an
amended complaint within 30 days. On May 12, 1999, the Court denied the
plaintiff's subsequent motion for leave to file a substituted complaint on the
basis that the federal securities law claim, the only federal claim alleged by
the plaintiff, was still deficient. Accordingly, the federal securities claim
was dismissed with prejudice. On or about June 4, 1999, Mr. Fishman commenced an
action against the same defendants and added as a seventh defendant, our former
President, Steven Francesco, in the Connecticut Superior Court for the Judicial
District of Stamford/Norwalk at Stamford alleging breach of contract, breach of
duty of good faith and fair dealing, fraudulent misrepresentation, negligent
misrepresentation, intentional misrepresentation and failure to pay wages. The
defendants have answered the complaint and filed counterclaims for fraudulent
inducement and breach of contract. Plaintiff has responded to the counter-claim,
and discovery is proceeding. Although we are vigorously defending this action,
there can be no assurance that it will be successful.

By memorandum dated April 10, 1998, Jonathan Paschkes, then our Vice
President of Marketing resigned his position. On or about November 17, 1998, Mr.
Paschkes filed a complaint against us and Sebastian E. Cassetta in the United
States District Court, District of Connecticut. In the complaint, Mr. Paschkes
alleges (1) fraudulent inducement to him to accept his position with us; (2)
breach of various terms of our employment contract with him; and (3) failure by
us to pay him wages and bonuses and issue options to him pursuant to the terms
of his employment contract. On or about February 18, 1999, Mr. Paschkes filed an
amended complaint. We answered the amended complaint and asserted counterclaims
against Mr. Paschkes for fraudulent inducement, breach of contract, conversion
and statutory theft. On October 5, 1999, an agreement in principle was reached
between Mr. Paschkes and us in full settlement of these claims. We have executed
a settlement agreement with Mr. Paschkes and have filed a Stipulation of
Dismissal with prejudice.

On or about May 11, 1998, Ronald G. Weiner filed a complaint against
Mr. Francesco and us in the Supreme Court of the State of New York, County of
New York. The complaint alleges, among other things, that in May 1993, by letter
from Mr. Francesco, Mr. Weiner was offered a 10% equity stake in Smart Phone
Services, Inc. ("SPS"), a Subchapter S company of which Mr. Francesco allegedly
was the President and sole shareholder, in exchange for his active involvement
in, among other things, raising capital and managing the financial aspects of
SPS. The complaint alleges that, in November 1993, Mr. Francesco sent a letter
to Mr. Weiner in which he (1) represented that SPS had failed to attract a
single investor and (2) withdrew his offer to Mr. Weiner of a 10% equity
position in SPS. The complaint further alleges that, in conversations with Mr.
Weiner beginning in November 1993, Mr. Francesco represented that he was ceasing
all efforts to capitalize

-20-

<PAGE>
SPS. The complaint alleges, among other things, that Mr. Francesco and SPS
breached their agreement with Mr. Weiner by withdrawing their offer to him of a
10% equity stake in SPS, and that, at the time Mr. Francesco represented that he
was ceasing efforts to capitalize SPS, he had actually formed SmartServ and was
actively seeking investors for it. The complaint further alleges that we are a
successor entity to SPS and that, therefore, we are liable for SPS' and Mr.
Francesco's alleged conduct in derogation of their alleged agreement with Mr.
Weiner. The complaint seeks, among other things, (1) a declaratory judgment
declaring Mr. Weiner a 10% equity shareholder of the Company, (2) a constructive
trust in Mr. Weiner's favor for 10% of our equity shares and (3) restitution
against Mr. Francesco and us for unjust enrichment. On his unjust enrichment
claim, Mr. Weiner seeks unspecified damages that he alleges to be at least
$250,000. In our answer to the complaint, we denied the material allegations of
the complaint and asserted affirmative defenses. No discovery in this action has
yet been taken. Although we are vigorously defending this action there can be no
assurance that we will be successful.

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

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information with respect to the
executive officers and directors of SmartServ Online, Inc.

NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Sebastian E. Cassetta 51 Chief Executive Officer, Chairman of the Board, Secretary and Class
III Director
Mario F. Rossi 61 Vice President of Operations and Class II Director
Thomas W. Haller, CPA 45 Vice President, Treasurer and Chief Financial Officer
Claudio Guazzoni (3) 36 Class I Director
L. Scott Perry (2) 51 Class I Director
Robert Steele (1) (3) 60 Class II Director
Catherine Cassel Talmadge (2) (3) 47 Class I Director
Charles R. Wood (1) 58 Class III Director
</TABLE>

- ---------------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee

(3) Member of the Finance Committee

SEBASTIAN E. CASSETTA has been Chief Executive Officer, Chairman of the
Board, Secretary and a director of SmartServ since its inception. Mr. Cassetta
was also SmartServ's Treasurer from its inception until March 1996. From June
1987 to August 1992, Mr. Cassetta was the President of Burns and Roe Securacom
Inc., an engineering and large-scale systems integration firm. He is also a
former Director, Managing Director and Vice President of Brinks Inc. At Brinks,
he expanded international operations in over 15 countries and became the
youngest person to be appointed Vice President in Brinks' 140 year history.
Appointed by President Reagan and Department of Commerce Secretary Malcolm
Baldridge, he served on both the U.S. Export Council and The Industry Sector
Advisory Committee (ISAC) regarding GATT negotiations. He is a former member of
the Board of Directors of The Young President's Organization and the former
Chairman of the New York Chapter.

-21-

<PAGE>
MARIO F. ROSSI has been Vice President of Operations of SmartServ since
December 1994 and was appointed a director on February 23, 1998. Mr. Rossi has
business and operational management experience in the computer,
telecommunications and securities fields. He has an extensive background in
product development, operations and technical marketing. Prior to joining
SmartServ, Mr. Rossi was Vice President of Operations for MVS Inc., a fiber
optic company specializing in wireless technology. He also worked 17 years for
Philips Medical Systems, in both the U.S. and the Netherlands, directing the
development - from feasibility to production - of several computer-based medical
devices. He received a Bachelors Degree in Engineering and earned a Masters
Degree from Polytechnic Institute of Brooklyn.

THOMAS W. HALLER, CPA joined SmartServ as Vice President, Treasurer and
Chief Financial Officer in March 1996. From December 1992 to March 1996, Mr.
Haller was a Senior Manager at Kaufman Greenhut Forman, LLP, a public accounting
firm in New York City, where he was responsible for technical advisory services
and the firm's quality assurance program. Prior thereto, he was a Senior Manager
with Ernst & Young LLP, an international public accounting and consulting firm,
where he had responsibility for client services and new business development in
the firm's financial services practice.

CLAUDIO GUAZZONI became a director of SmartServ on January 11, 1998.
Since 1993, Mr. Guazzoni has been President of The Zanett Securities Corporation
and Zanett Capital, Inc. providing financial and strategic consulting services
to growth companies. Prior to joining the Zanett organization, Mr. Guazzoni was
a Money Manager with Delphi Capital Management, Inc. (1992) and an associate
with Salomon Brothers, Inc. from 1985 to 1991.

L. SCOTT PERRY has been a director of SmartServ since November 1996.
Since June 1998, Mr. Perry has been Vice President, Strategy & Alliances - AT&T
Solutions. From December 1995 to June 1998, Mr. Perry had been Vice President,
Advanced Platform Services of AT&T Corp. From January 1989 to December 1995, Mr.
Perry held various positions with AT&T including Vice President -- Business
Multimedia Services, Vice President (East) -- Business Communications Services
and Vice President -- Marketing, Strategy and Technical Support for AT&T Data
Systems Group. Mr. Perry serves on the Board of Directors of Junior Achievement
of New York, is a member of the Cornell University Engineering College Advisory
Council and serves on the Board of INEA, a private financial planning software
company based in Toronto, Canada.

ROBERT STEELE was appointed a director of SmartServ on February 23,
1998. Since February 1998, Mr. Steele has been Vice Chairman of the John Ryan
Company, an international bank support and marketing company. From 1992 to
February 1998, Mr. Steele was a Senior Vice President of the John Ryan Company.
Mr. Steele is the former President of Dollar Dry Dock Bank and a member of the
Board of Directors of Moore Medical Corp., Scan Optics, Inc. Accent Color
Sciences, Inc., NLC Insurance Companies, Inc., and the New York Mercantile
Exchange.

CATHERINE CASSEL TALMADGE has been a director of SmartServ since March
1996. Since May 1999, Ms. Talmadge has been Senior Vice President of Business
Development for High Speed Access Corporation. From September 1984 to May 1999,
she held various positions with Time Warner Cable, a division of Time Warner
Entertainment Company, L.P., including Vice President, Cable Programming;
Director, Programming Development; Director, Operations; Director, Financial
Analyses; and Manager, Budget Department.

CHARLES R. WOOD was appointed a director of SmartServ in September 1998.
Mr. Wood has been Senior Vice President of DTN since 1989 and President of its
Financial Services Division since 1996.

-22-

<PAGE>

BOARD OF DIRECTORS

The Board of Directors consists of seven directors divided into three
classes: Class I Directors, Class II Directors and Class III Directors. The
Class I and Class III Directors will serve until the 1999 annual meeting and the
Class II Directors will serve until the 2000 annual meeting or, in each case,
until their respective successors are duly elected and qualified or until their
earlier resignation or removal. Upon such annual meetings of stockholders, the
Class III Directors will serve until the annual meeting of SmartServ's
stockholders to be held in 2001, the Class I Directors will serve until the
annual meeting of SmartServ's stockholders to be held in 2002 and the Class II
Directors will serve until the annual meeting of SmartServ's stockholders to be
held in 2003. Directors of each Class are elected for a full term of three years
(or any lesser period representing the balance of the previous term of such
Class) and until their respective successors are duly elected and qualified or
until their earlier resignation or removal. Officers are appointed annually and
serve at the discretion of the Board for one year. As a result of the delisting
of SmartServ's common stock, Zanett Capital has the right to elect a majority of
the Board of Directors. Mr. Cassetta serves as Chief Executive Officer, Chairman
of the Board, and Secretary of SmartServ pursuant to an employment agreement.
Mr. Rossi serves as Vice President pursuant to an employment agreement.

BOARD COMMITTEES

The Compensation Committee, currently composed of Messrs. Wood and
Steele, has authority over officer compensation and administers our Amended and
Restated Stock Option Plan.

The Audit Committee, currently composed of Mr. Perry and Ms. Talmadge,
serves as the Board's liaison with our auditors.

The Finance Committee, currently composed of Mr. Guazzoni, Mr. Steele
and Ms. Talmadge, reviews expenditures of SmartServ.

COMPENSATION OF DIRECTORS

Each director who is not an officer or employee of SmartServ is
reimbursed for his or her out-of-pocket expenses incurred in connection with
attendance at meetings or other company business. Commencing December 29, 1998,
each non-employee director receives a $1,000 fee for each meeting he or she
attends during the year.

Between November 4, 1996 and April 24, 1998, each person who was not a
salaried employee of SmartServ was granted, on the date he or she became a
director, an option to purchase 5,000 shares of common stock and immediately
following each annual meeting of stockholders at which directors were elected,
each such person elected to serve as a director at that annual meeting or who
remained a director following that annual meeting was granted an option to
purchase 5,000 shares of common stock. Subsequent to April 24, 1998, the
Compensation Committee has had the discretionary authority to grant options to
non-employee directors. Pursuant to such authority, on December 28, 1998 and
October 13, 1999 it granted options to purchase 10,000 shares of common stock at
a price of $2.35 and $.9375, respectively, to each non-employee director. The
exercise price of each share of common stock under any option granted to a
director was equal to the fair market value of a share of common stock on the
date the option was granted.

-23-

<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth information concerning annual and
long-term compensation, paid or accrued, for the Chief Executive Officer and for
each other executive officer (the "Named Executive Officers") of SmartServ whose
compensation exceeded $100,000 in fiscal 1999 for services in all capacities to
SmartServ during the last three fiscal years.

SUMMARY COMPENSATION TABLE
--------------------------

ANNUAL COMPENSATION LONG-TERM COMPENSATION
-----------------------------------------------------------------------------------
RESTRICTED SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK AWARDS UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION (1) (2) OPTIONS COMPENSATION
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sebastian E. Cassetta 1999 $ 155,000 $ 5,414 $ 9,750 $ 185,471(3) 92,000 (5) $24,416(8)
Chief Executive 1998 125,000 -- 9,750 -- 37,500 (6) -- (9)
Officer 1997 125,000 -- 9,750 -- 16,666 (6) -- (9)

Mario F. Rossi 1999 122,500 3,249 6,000 61,824(4) 67,500 (7) -- (9)
Vice President 1998 92,400 -- 6,000 -- 20,834 (6) -- (9)
of Operations 1997 75,000 -- 6,000 -- 4,416 (6) -- (9)
</TABLE>

(1) Amounts shown consist of a non-accountable expense allowance.

(2) The Named Executive Officers did not receive any LTIP Payouts in 1999,
1998 or 1997.

(3) On December 29, 1998, the Board of Directors approved the sale to Mr.
Cassetta of 618,239 shares of restricted stock representing 9% of the
fully diluted shares of common stock of SmartServ. Compensation has been
determined as the number of shares awarded to Mr. Cassetta times the
closing price of SmartServ's common stock on December 29, 1998 ($2.50)
less the consideration to be paid by Mr. Cassetta. At June 30, 1999,
based upon the closing bid price ($1.50) of SmartServ's common stock,
the value of Mr. Cassetta's shares was $0. On October 13, 1999, the
Board of Directors agreed to reprice the shares granted to Mr. Cassetta
to $.75 per share, the fair value of the shares at that date.

(4) On December 29, 1998, the Board of Directors approved the sale to Mr.
Rossi of 206,080 shares of restricted stock representing 3% of the fully
diluted shares of common stock of SmartServ. Compensation has been
determined as the number of shares awarded to Mr. Rossi times the
closing price of SmartServ's common stock on December 29, 1998 ($2.50)
less the consideration to be paid by Mr. Rossi. At June 30, 1999, based
upon the closing bid price ($1.50) of SmartServ's common stock, the
value of Mr. Rossi's shares was $0. On October 13, 1999, the Board of
Directors agreed to reprice the shares granted to Mr. Rossi to $.75 per
share, the fair value of the shares at that date.

(5) Includes options for the purchase of 37,500 shares which were cancelled
when repriced options to purchase a like number of shares were granted
in lieu thereof.

(6) Such options were cancelled when repriced options were granted in lieu
thereof in fiscal 1999.

(7) Includes options for the purchase of 25,250 shares which were cancelled
when repriced options to purchase a like number of shares were granted
in lieu thereof.

(8) Amounts represent premiums paid by SmartServ for life and disability
insurance for the benefit of Mr. Cassetta.

-24-

<PAGE>

(9) The aggregate amount of personal benefits not included in the Summary
Compensation Table does not exceed the lesser of either $50,000 or 10%
of the total annual salary and bonus paid to the Named Executive
Officers.

STOCK OPTIONS

The following table sets forth information with respect to stock
options granted to the Named Executive Officers during fiscal year 1999:

OPTION GRANTS IN FISCAL 1999
(INDIVIDUAL GRANTS) (1)
--------------------------

NUMBER OF % OF TOTAL OPTIONS
SECURITIES UNDERLYING GRANTED TO EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS GRANTED FISCAL 1999 PRICE DATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sebastian E. Cassetta 17,000 3.66% $ 1.625 11/19/08
37,500 8.08 1.290 10/07/08
37,500 (2) 8.08 2.530 8/06/08

Mario F. Rossi 17,000 3.66 1.625 11/19/08
25,250 5.44 1.290 10/07/08
25,250 (2) 5.44 2.530 8/06/08

</TABLE>

(1) No stock appreciation rights ("SARs") were granted to the Named
Executive Officers during fiscal 1999.

(2) Cancelled on October 8, 1998.

The following table sets forth information as to the number of unexercised
shares of common stock underlying stock options and the value of unexercised
in-the-money stock options at fiscal year end:

Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year End Option Value (1)(2)
---------------------------------------------------

Value of
Number of Unexercised In-
Unexercised The-Money
Securities Options at
Underlying Options Fiscal Year
at Fiscal Year End End
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Sebastian E. Cassetta -- -- 0/54,499 $0/$7,874

Mario F. Rossi -- -- 0/42,249 $0/$5,302

</TABLE>

(1) No SARs were granted to, or exercised by, the Named Executive Officers
during fiscal 1999.

(2) Value is based on the closing bid price of SmartServ's common stock as
reported by the OTC Bulletin Board on June 30, 1999 ($1.50) less the
exercise price of the option.

-25-
<PAGE>

EMPLOYMENT AGREEMENTS

SmartServ and Mr. Cassetta have entered into an employment agreement
("Cassetta Agreement"), effective January 1, 1999 and expiring on December 31,
2001, providing for (1) base compensation of $185,000 per annum, (2) additional
compensation of up to 100% of base compensation, (3) continuation of existing
life and disability insurance policies, (4) all benefits available to other
employees and (5) the sale to him of 618,239 shares of restricted stock
representing 9% of the fully diluted shares of common stock of SmartServ. Mr.
Cassetta's additional compensation will be equal to 10% of his base compensation
for each 10% increase in sales during the first year of the Cassetta Agreement,
subject to a maximum of 100% of base compensation. In each subsequent year of
the Cassetta Agreement, Mr. Cassetta will receive additional compensation equal
to 5% of his base compensation for each 5% increase in sales, subject again to a
maximum of 100% of base compensation. The purchase price ($2.20 per share) of
the restricted stock is equal to 110% of the fair market value of SmartServ's
common stock for the 30 days preceding the date of the stock purchase agreement
("Cassetta Stock Purchase Agreement") contemplated by the Cassetta Agreement. On
October 13, 1999, the Board of Directors agreed to reprice the shares granted to
Mr. Cassetta to $.75 per share, the fair market value of the shares at that
date. $6,182.39 of the purchase price has been paid in cash and the balance by a
5 year, non-recourse promissory note, secured by the stock, at an interest rate
of 6.75%, which is 1% below the prime rate on the date of the Cassetta Stock
Purchase Agreement. The Cassetta Stock Purchase Agreement provides SmartServ
with certain repurchase options and provides Mr. Cassetta with a put option in
the event of the termination of his employment. In the event that Mr. Cassetta's
employment is terminated without cause, Mr. Cassetta will receive a lump sum
severance payment equal to his full base salary for the remaining term of the
Cassetta Agreement, discounted to the present value using an 8% discount rate
and continuing benefit coverage for the lesser of 12 months or the remaining
term of the Cassetta Agreement.

SmartServ and Mr. Rossi have entered into an employment agreement
("Rossi Agreement"), effective January 1, 1999 and expiring on December 31,
2001, providing for (1) base compensation of $135,000 per annum, (2) additional
compensation of up to 50% of base compensation, (3) continuation of existing
life and disability insurance policies, (4) all benefits available to other
employees and (5) the sale to him of 206,080 shares of restricted stock
representing 3% of the fully diluted shares of common stock of SmartServ. Mr.
Rossi's additional compensation will be equal to 5% of his base compensation for
each 10% increase in sales during the first year of the Rossi Agreement, subject
to a maximum of 50% of base compensation. In each subsequent year of the Rossi
Agreement, Mr. Rossi will receive additional compensation equal to 2.5% of base
compensation for each 5% increase in sales, subject again to a maximum of 50% of
base compensation. The purchase price ($2.20 per share) of the restricted stock
is equal to 110% of the fair market value for the 30 days preceding the date of
the stock purchase agreement ("Rossi Stock Purchase Agreement") contemplated by
the Rossi Agreement. On October 13, 1999, the Board of Directors agreed to
reprice the shares granted to Mr. Rossi to $.75 per share, the fair market value
of the shares at that date. $2,060.80 of the purchase price has been paid in
cash and the balance by a 5 year, non-recourse promissory note, secured by the
stock, at an interest rate of 6.75%, which is 1% below the prime rate on the
date of the Rossi Stock Purchase Agreement. The Rossi Stock Purchase Agreement
provides SmartServ with certain repurchase options and provides Mr. Rossi with a
put option in the event of the termination of his employment. In the event that
Mr. Rossi's employment is terminated without cause, Mr. Rossi will receive a
lump sum severance payment equal to his full base salary for the remaining term
of the Rossi Agreement, discounted to the present value using an 8% discount
rate and continuing benefit coverage for the lesser of 12 months or the
remaining term of the Rossi Agreement.

-26-
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of January 4, 2000, certain
information with respect to the beneficial ownership of the common stock by (1)
each person known by SmartServ to beneficially own more than 5% of the
outstanding shares, (2) each director of SmartServ, (3) each Named Executive
Officer and (4) all executive officers and directors of SmartServ as a group.
Except as otherwise indicated, each person listed below has sole voting and
investment power with respect to the shares of common stock set forth opposite
such person's name.

NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) OUTSTANDING SHARES (3)
-------------------- ------------------------ ----------------------

Sebastian E. Cassetta 708,241 (4) 30.83%
c/o SmartServ Online, Inc.
Metro Center, One Station Place
Stamford, CT 06902

William P. Dioguardi 468,333 (5) 17.12%
c/o Spencer Trask Securities, Inc.
535 Madison Avenue
New York, New York 10022

Data Transmission Network Corporation 303,000 (6) 11.79%
9110 West Dodge Road
Omaha, Nebraska 68114

Mario F. Rossi 227,954 (7) 9.96%
c/o SmartServ Online, Inc.
Metro Center, One Station Place
Stamford, CT 06902

Arnhold & S. Bleichroeder, Inc. 196,470 8.66%
1345 Avenue of the Americas
New York, New York 10105

Steven Rosner 207,500 (8) 8.38%
1220 Mirabeau Lane
Gladwyn, Pennsylvania 19035

Claudio Guazzoni 117,499 (9) 4.99%

Charles R. Wood 28,874 (10) 1.26%

L. Scott Perry 25,833 (11) 1.13%

Catherine Cassel Talmadge 25,416 (11) 1.11%

Robert H. Steele 24,166 (12) 1.05%

All executive officers and directors
as a group (8 persons) 1,175,648 (13) 46.68%

</TABLE>

-27-

<PAGE>

(1) Under the rules of the Securities and Exchange Commission (SEC), addresses
are only given for holders of 5% or more of the outstanding common stock of
SmartServ.

(2) Under the rules of the SEC, a person is deemed to be the beneficial owner
of a security if such person has or shares the power to vote or direct the
voting of such security or the power to dispose or direct the disposition
of such security. A person is also deemed to be a beneficial owner of any
securities if that person has the right to acquire beneficial ownership
within 60 days of the date hereof. Unless otherwise indicated by footnote,
the named entities or individuals have sole voting and investment power
with respect to the shares of common stock beneficially owned.

(3) Represents the number of shares of common stock beneficially owned as of
January 4, 2000 by each named person or group, expressed as a percentage
of the sum of all of the shares of such class outstanding as of such date
and the number of shares not outstanding, but beneficially owned by such
named person or group.

(4) Includes 27,249 shares of common stock subject to currently exercisable
options. Also includes 2,051 shares held in trust for the benefit of Mr.
Cassetta's wife.

(5) Represents 468,333 shares of common stock subject to currently exercisable
warrants.

(6) Represents 303,000 shares of common stock subject to currently exercisable
warrants.

(7) Includes 21,124 shares of common stock subject to currently exercisable
options.

(8) Represents 207,500 shares of common stock subject to currently exercisable
warrants.

(9) Includes 24,166 shares of common stock subject to currently exercisable
options. Also includes 32,953 shares of common stock owned by Zanett and
60,380 shares of common stock subject to currently exercisable warrants
owned by Zanett. Mr. Guazzoni disclaims beneficial ownership of these
shares to the extent they exceed his interest in Zanett. Mr. Guazzoni is a
managing director and principal of Zanett.

(10) Includes 24,500 shares of common stock subject to currently exercisable
options. Does not include 303,000 shares beneficially owned by DTN of which
Mr. Wood is an officer. Mr. Wood disclaims beneficial ownership of these
shares.

(11) Includes 25,000 shares of common stock subject to currently exercisable
options.

(12) Represents 24,166 shares of common stock subject to currently exercisable
options.

(13) Includes 32,953 shares of common stock owned by Zanett and 60,380 shares of
common stock subject to currently exercisable warrants owned by Zanett,
2,051 shares held in trust for the benefit of Mr. Cassetta's wife and
188,204 shares of common stock subject to currently exercisable options
issued to all officers and directors.

-28-

<PAGE>
CHANGES IN CONTROL

SmartServ and each of Messrs. Cassetta and Francesco have entered into
an agreement with Zanett Capital, Inc. dated September 29, 1997, as subsequently
amended, which provides, among other things, that for a period of 5 years, upon
an event of default under the prepaid warrants, SmartServ will, at the request
of Zanett Capital, Inc., appoint such number of designees of Zanett Capital,
Inc. to its Board of Directors so that the designees of Zanett Capital, Inc.,
will constitute a majority of the members of the Board of Directors of
SmartServ. Further, Messrs. Cassetta and Francesco have agreed to vote their
shares of common stock, representing approximately 33.25% of the outstanding
stock of SmartServ at January 4, 2000 in favor of the designees of Zanett
Capital, Inc., at each Annual Meeting of Stockholders of SmartServ at which
directors are elected. Although an event of default has occurred under the
prepaid warrants, Zanett Capital, Inc. has not at this time requested SmartServ
to appoint additional designees of Zanett Capital, Inc. to the Board of
Directors of SmartServ.

SELLING STOCKHOLDERS

The shares being offered for resale by the selling stockholders consist
of the shares of common stock held by Arnhold and S. Bleichroeder, Inc., and
shares of common stock underlying warrants to purchase common stock held by
Spencer Trask Securities Incorporated, Bruno Guazzoni, The Zanett Securities
Corporation, Zanett Lombardier, Ltd., Steven Rosner, Stephen P. Harrington,
Robert Rosner IRA, and Harvey and Donna Sternberg and William Dioguardi. Spencer
Trask Securities Incorporated has advised SmartServe that the beneficial owners
of the warrants held by it are the following: Adam Stern, Jackie Fabry, A.
Emerson Martin, William Dioguardi, Donna Baselice, Thomas Hutzel, Ronald Luken
and Spencer Trask Holdings Inc. Other than consulting arrangements with Bruno
Guazzoni and Steven Rosner, investment advisory relationships with The Zanett
Securities Corporation and Spencer Trask Securities Incorporated and that
Claudio Guazzoni is a director of SmartServ and principal of The Zanett
Securities Corporation, a selling stockholder, none of the selling stockholders
have and, within the past three years have not had, any position, office or
other material relationship with us or any of our predecessors or affiliates.

The following table sets forth the name of the selling stockholders,
the number of shares of common stock beneficially owned by the selling
stockholders as of January 4, 2000 and the number of shares of common stock
being offered by the selling stockholders. The shares being offered hereby are
being registered to permit public secondary trading, and the selling
stockholders may offer all or part of the shares for resale from time to time.
However, the selling stockholders are under no obligation to sell all or any
portion of such shares nor are the selling stockholders obligated to sell any
shares immediately under this prospectus. All information with respect to share
ownership has been furnished by the selling stockholders. Because the selling
stockholders may sell all or part of their shares, no estimates can be given as
to the number of shares of common stock that will be held by the selling
stockholders upon termination of any offering made hereby.

Shares of Common Shares of Beneficial Ownership
Stock Beneficially Common Stock After Offering If All
Selling Stockholders Owned Sold Shares Are Sold
------------------- ------------------- -------------- -------------------

Arnhold and S. Bleichroeder, Inc. 196,470 196,470 0

Adam Stern 89,750 89,750 0

Jackie Fabry 1,000 1,000 0

</TABLE>
-29-

<PAGE>

A. Emerson Martin 8,250 8,250 0

William Dioguardi 468,333 468,333 0

Donna Baselice 1,833 1,833 0

Thomas Hutzel 1,167 1,167 0

Ronald Luken 1,000 1,000 0

Spencer Trask Holdings, Inc. 112,000 112,000 0

Bruno Guazzoni 888,703 888,703 0

Steven Rosner 407,500 407,500 0

Stephen P. Harrington 104,167 104,167 0

Robert Rosner IRA 41,667 41,667 0

Harvey and Donna Sternberg 20,833 20,833 0

The Zanett Securities Corporation 151,805 151,805 0

Zanett Lombardier, Ltd. 63,604 63,604 0
------------------ -------------- ---------

Total 2,558,082 2,558,082 0
- -----------------

</TABLE>

We agreed with Arnhold and S. Bleichroeder, Inc., a selling
stockholder, to file the registration statement, of which this prospectus is a
part, as soon as possible after July 1, 1999, use our best efforts to cause such
registration statement to be declared effective by the Securities and Exchange
Commission as soon as practical thereafter, and to keep the registration
statement effective for a period of one year following the date it is declared
effective. In the event that we fail to obtain the effectiveness of the
registration statement on or before September 29, 1999, or any stop order or
other suspension of the effectiveness of the registration statement occurs as a
result of our failure to have current filings under the Securities Exchange Act
of 1934, we have agreed to pay ASB $10,000 per month until we obtain
effectiveness of the registration statement. In a securities purchase agreement
among us and certain of the other selling stockholders, we have also agreed to
register the 1,016,667 shares of common stock underlying warrants issued to
them. Spencer Trask Securities Incorporated and Kevin Kimberlin Partners, LP
have agreed that they will not sell any of the 683,333 shares of common stock
issuable upon exercise of the warrants owned by them until May 15, 2000 and they
have further agreed that they will not sell more than 25% of such shares in each
succeeding quarter. These agreements are binding on their successors. Pursuant
to a consulting agreement with Steven Rosner, we have agreed to register 240,833
shares of common stock underlying warrants issued to him. Mr. Rosner has agreed
not to exercise 200,000 of such warrants for the 180 day period ending on April
21, 2000. We agreed with The Zanett Securities Corporation, Zanett Lombardier,
Ltd. and Bruno Guazzoni to register the shares of common stock underlying
warrants issued to them. They agreed that they

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will not exercise their warrants to the extent that they would beneficially own
more than 4.99% of our common stock. They can waive this restriction on 61 days
notice.

PLAN OF DISTRIBUTION

The shares may be sold or distributed from time to time by the selling
stockholders or by pledgees, donees or transferees of, or successors in interest
to, the selling stockholders, directly to one or more purchasers (including
pledgees) or through brokers, dealers or underwriters who may act solely as
agents or may acquire shares as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices, which may be changed. The distribution of the shares
may be effected in one or more of the following methods:

. ordinary brokers transactions, which may include long or short sales,

. transactions involving cross or block trades or otherwise on the OTC
Bulletin Board,

. purchases by brokers, dealers or underwriters as principal and resale by
such purchasers for their own accounts pursuant to this prospectus,

. "at the market" to or through market makers or into an existing market for
the common stock,

. in other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents,

. through transactions in options, swaps or other derivatives (whether
exchange listed or otherwise), or

. any combination of the foregoing, or by any other legally available means.

In addition, the selling stockholders may enter into hedging
transactions with broker-dealers who may engage in short sales of shares in the
course of hedging the positions they assume with the selling stockholders. The
selling stockholders may also enter into option or other transactions with
broker-dealers that require the delivery by such broker-dealers of the shares,
which shares may be resold thereafter pursuant to this prospectus.

Brokers, dealers, underwriters or agents participating in the
distribution of the shares may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
of shares for whom such broker-dealers may act as agent or to whom they may sell
as principal, or both (which compensation as to a particular broker-dealer may
be in excess of customary commissions). The selling stockholders and any
broker-dealers acting in connection with the sale of the shares hereunder may be
deemed to be underwriters within the meaning of Section 2(11) of the Securities
Act of 1933, and any commissions received by them and any profit realized by
them on the resale of shares as principals may be deemed underwriting
compensation under the Securities Act of 1933. Neither SmartServ nor the selling
stockholders can presently estimate the amount of such compensation. SmartServ
knows of no existing arrangements between the selling stockholders and any other
stockholder, broker, dealer, underwriter or agent relating to the sale or
distribution of the shares.

SmartServ will not receive any proceeds from the sale of the shares
pursuant to this prospectus. SmartServ has agreed to bear the expenses of the
registration of the shares, including legal and accounting fees, and such
expenses are estimated to be approximately $40,000.

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SmartServ has informed the selling stockholders that certain
anti-manipulative rules contained in Regulation M under the Securities Exchange
Act of 1934 may apply to their sales in the market and has furnished the selling
stockholders with a copy of such rules and has informed them of the need for
delivery of copies of this prospectus.

The selling stockholders may also use Rule 144 under the Securities Act
of 1933 to sell the shares if they meet the criteria and conform to the
requirements of such Rule.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On July 30, 1998, SmartServ entered into an agreement with, among
others, Zanett Capital Inc. and The Zanett Securities Corporation, in
contemplation of a specific financing transaction. The agreement provided that
upon 61 days written notice prior to the date of the Private Placement
Memorandum relating thereto, Zanett Securities Corporation could require that
SmartServ exchange some or all of the 111,700 warrants owned by it into a
pro-rata number of shares up to a maximum of 18,616. Such financing never
occurred and presently, there is disagreement as to each parties' relative
rights and obligations under this agreement. Claudio Guazzoni, a director of
SmartServ, is a principal of Zanett Capital Inc. and The Zanett Securities
Corporation.

On January 26, 1999, SmartServ and DTN signed a letter of intent
whereby SmartServ would be merged with a subsidiary of DTN. The transaction was
subject to the execution of a definitive merger agreement. On June 24, 1999,
SmartServ and DTN entered into an agreement that terminated the letter of intent
and amended the Software License and Service Agreement dated April 23, 1998. In
consideration of the receipt of $5.175 million, SmartServ granted DTN an
exclusive perpetual worldwide license to SmartServ's Internet-based (1)
real-time stock quote product, (2) online trading vehicle for customers of small
and medium sized brokerage companies, (3) administrative reporting package for
brokers of small and medium sized brokerage companies, and (4) order
entry/routing system. Additionally, SmartServ received $324,000 in exchange for
an agreement to issue warrants to purchase 300,000 shares of SmartServ's common
stock at an exercise price of $8.60 per share. SmartServ has agreed to continue
to operate these products and provide maintenance and enhancement services in
exchange for a percentage of the revenues earned by DTN therefrom. The cost of
SmartServ's commitment to provide such maintenance and enhancement services is
limited to a maximum of 20% of the revenues earned by SmartServ. Charles R.
Wood, a director of SmartServ, is a Senior Vice President of DTN and President
of its Financial Services Division.

SmartServ believes that the terms of the transactions described above
were no less favorable to SmartServ than would have been obtained from a
non-affiliated third party for similar transactions at the time of entering into
such transactions. In accordance with SmartServ's policy, such transactions were
approved by a majority of the independent disinterested directors of SmartServ.

DESCRIPTION OF CAPITAL STOCK

The following is a summary description of our capital stock and certain
provisions of our Amended and Restated Certificate of Incorporation and By-Laws,
copies of which have been incorporated by reference as exhibits to the
registration statement of which this prospectus forms a part. The following
discussion is qualified in its entirety by reference to such exhibits. We have
also included a summary description of only those warrants held by the selling
stockholders and does not describe all of our outstanding warrants.

GENERAL

Our authorized capital stock consists of 40,000,000 shares of common
stock, par value $.01 per share, and 1,000,000 shares of preferred stock, par
value $.01 per share. As of January 4, 2000, we had

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2,267,852 shares of common stock issued and outstanding. No shares of preferred
stock are issued and outstanding. We have reserved 3,700,000 shares of common
stock for issuance pursuant to outstanding options and warrants.

COMMON STOCK

The holders of the common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Our Amended
and Restated Certificate of Incorporation and By-Laws do not provide for
cumulative voting rights in the election of directors. Accordingly, holders of a
majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
common stock are entitled to receive ratably such dividends as may be declared
by the Board out of funds legally available therefor. In the event of our
liquidation, dissolution or winding up, holders of common stock are entitled to
share ratably in the assets remaining after payment of liabilities. Holders of
common stock have no preemptive, conversion or redemption rights. All of the
outstanding shares of common stock are fully-paid and nonassessable.

PREFERRED STOCK

Our Board of Directors may, without stockholder approval, establish and
issue shares of one or more classes or series of preferred stock having the
designations, number of shares, dividend rates, liquidation preferences,
redemption provisions, sinking fund provisions, conversion rights, voting rights
and other rights, preferences and limitations that our Board may determine. The
Board may authorize the issuance of preferred stock with voting, conversion and
economic rights senior to the common stock so that the issuance of preferred
stock could adversely affect the market value of the common stock. The creation
of one or more series of preferred stock may adversely affect the voting power
or other rights of the holders of common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things and under some circumstances, have
the effect of delaying, deferring or preventing a change in control without any
action by stockholders.

WARRANTS

In connection with borrowings from Zanett Lombardier, Ltd. in May, July
and September 1997, we issued warrants to purchase 63,604 shares of our common
stock to Zanett Lombardier, Ltd. Warrants to purchase 45,302 shares exercisable
at $4.9667 per share expire on May 29, 2002, warrants to purchase 9,151 shares
exercisable at $4.9667 per share expire on July 21, 2002 and warrants to
purchase 9,151 shares exercisable at $6.0704 per share expire on September 16,
2002. In connection with such borrowings, we issued to The Zanett Securities
Corporation warrants to purchase 15,899 shares of our common stock. Warrants to
purchase 11,325 shares exercisable at $4.9667 per share expire on May 29, 2002,
warrants to purchase 2,287 shares exercisable at $4.9667 per share expire on
July 21, 2002 and warrants to purchase 2,287 shares exercisable at $6.0704 per
share expire on September 16, 2002. The exercise price and number of shares into
which such warrants are exercisable are subject to adjustment under certain
circumstances including the issuance or sale of our common stock or other equity
securities convertible or exchangeable into our common stock for less than the
current market price of our common stock, a stock split of, or stock dividend
on, or a reclassification of the common stock.

In September 1997 we commenced a private placement of prepaid common
stock purchase warrants. In connection with such private placement we issued to
The Zanett Securities Corporation warrants to purchase 135,906 shares of our
common stock at an exercise price of $4.9667 per share. These warrants expire on
September 29, 2002. The exercise price and number of shares into which such
warrants are exercisable are subject to adjustment under certain circumstances
including the issuance or sale of our common stock or other equity securities
convertible or exchangeable into our common stock for less than the

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current market price of our common stock, a stock split of, or stock dividend
on, or a reclassification of the common stock.

In September 1997 we entered into a consulting agreement with Bruno
Guazzoni and agreed to issue to him warrants to purchase 805,370 shares of our
common stock at an exercise price of $4.9667 per share. Warrants to purchase
113,255 shares expire on September 29, 2002 and warrants to purchase 692,115
shares expire on April 24, 2003. The exercise price and number of shares into
which such warrants are exercisable are subject to adjustment under certain
circumstances including the issuance or sale of our common stock or other equity
securities convertible or exchangeable into our common stock for less than the
current market price of our common stock, a stock split of, or stock dividend
on, or a reclassification of the common stock.

On November 19, 1998, we commenced a private placement consisting of
$550,000 of 8% Convertible Notes due November 15, 1999. In connection with this
private placement, we entered into a securities purchase agreement with Spencer
Trask Securities Incorporated under which, in addition to the Convertible Notes,
we issued warrants to purchase 916,667 shares of our common stock to Spencer
Trask and certain other investors in the private placement at an exercise price
of $0.60 per share. These warrants expire on November 17, 2003. The exercise
price and number of shares into which such warrants are exercisable are subject
to adjustment under certain circumstances including the issuance or sale of our
common stock or other equity securities convertible or exchangeable into our
common stock, for less than the current exercise price or market price of our
common stock, a stock split of, or stock dividend on, or a reclassification of,
the common stock. In June 1999, we repaid the outstanding Convertible Notes in
full.

In connection with the private placement, we issued warrants to
purchase 183,333 shares of our common stock to Spencer Trask, as placement
agent, at an exercise price of $0.72 per share. These warrants expire on
November 17, 2005. The exercise price and number of shares into which such
warrants are exercisable are subject to adjustment under certain circumstances
including the issuance or sale of our common stock or other equity securities
convertible or exchangeable into our common stock, for less than the current
exercise price or market price of our common stock, a stock split of, or stock
dividend on, or a reclassification of, the common stock.

In addition to the above warrants, we issued warrants to purchase
240,833 shares of our common stock to Steven Rosner for consulting services and
for arranging our relationship with Spencer Trask at exercise prices ranging
from $.60 per share to $3.65 per share and expiring at various dates beginning
on March 3, 2003 through October 24, 2004. These warrants are subject to
adjustment of both price and amount in the event of subdivision, combination,
sale, merger or certain distributions.

With respect to each of the foregoing warrants, we have reserved an
equivalent number of shares of common stock for issuance on their exercise. The
warrants may be exercised in whole or in part, subject to the limitations
provided in the warrants.

Any warrant holders who do not exercise their warrants prior to the
conclusion of the exercise period will forfeit the right to purchase the shares
of common stock underlying the warrants and any outstanding warrants will become
void and be of no further force or effect.

Holders of the warrants have no voting, preemptive, liquidation or
other rights of a stockholder, and no dividends will be declared on the
warrants.

We have agreed to pay all registration expenses incurred in connection
with the registration of the common stock issuable upon exercise of the
warrants.
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DELAWARE BUSINESS COMBINATION PROVISIONS

We are governed by the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"). In general, this statute prohibits a publicly
held Delaware corporation from engaging, under certain circumstances, in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder unless:

. prior to the date at which the stockholder became an interested
stockholder, the Board of Directors approved either the business
combination or the transaction in which the person became an interested
stockholder;

. the stockholder acquired more than 85% of the outstanding voting stock of
the corporation (excluding shares held by directors who are officers and
shares held in certain employee stock plans) upon consummation of the
transaction in which the stockholder became an interested stockholder; or

. the business combination is approved by the Board of Directors and by at
least 66-2/3% of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder) at a meeting of stockholders
(and not by written consent) held on or after the date such stockholder
became an interested stockholder.

An "interested stockholder" is a person who, together with affiliates
and associates, owns (or at any time within the prior three years did own) 15%
or more of the corporation's voting stock. Section 203 defines a "business
combination" to include, without limitation, mergers, consolidations, stock
sales and asset-based transactions and other transactions resulting in a
financial benefit to the interested stockholder.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 102(b)(7) of the DGCL enables a corporation in its original
certificate of incorporation or an amendment thereto to eliminate or limit the
personal liability of a director to a corporation or its stockholders for
violations of the director's fiduciary duty, except:

. for any breach of a director's duty of loyalty to the corporation or its
stockholders,

. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,

. pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases
or redemptions), or

. for any transaction from which a director derived an improper personal
benefit.

The Amended and Restated Certificate of Incorporation of SmartServ provides in
effect for the elimination of the liability of directors to the extent permitted
by the DGCL.

Section 145 of the DGCL provides, in summary, that directors and
officers of Delaware corporations are entitled, under certain circumstances, to
be indemnified against all expenses and liabilities (including attorney's fees)
incurred by them as a result of suits brought against them in their capacity as
a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be

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liable to the corporation, unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
they are fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper. Any such indemnification may be made by the corporation
only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. SmartServ's By-Laws
entitle officers and directors of SmartServ to indemnification to the fullest
extent permitted by the DGCL.

SmartServ has agreed to indemnify each of its directors and certain
officers against certain liabilities, including liabilities under the Securities
Act of 1933. In addition, SmartServ maintains an insurance policy with respect
to potential liabilities of its directors and officers, including potential
liabilities under the Securities Act of 1933.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
SmartServ pursuant to the provisions described above, or otherwise, SmartServ
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by SmartServ of
expenses incurred or paid by a director, officer or controlling person of
SmartServ in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, SmartServ will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

WHERE YOU CAN FIND MORE INFORMATION

We file reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy any report, proxy
statement or other information we file with the Commission at the Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices at 75 Park Place, Room 1400, New York, New York
10007 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. In addition, we file
electronic versions of these documents on the Commission's Electronic Data
Gathering Analysis and Retrieval, or EDGAR, System. The Commission maintains a
website at http.//www.sec.gov that contains reports, proxy statements and other
information filed with the Commission.

We have filed a registration statement on Form SB-2 with the Commission
to register the shares of our common stock to be sold by the selling
stockholders. This prospectus is part of that registration statement and, as
permitted by the Commission's rules, does not contain all of the information set
forth in the registration statement. For further information with respect to us
or our common stock, you may refer to the registration statement and to the
exhibits and schedules filed as part of the registration statement. You can
review a copy of the registration statement and its exhibits and schedules at
the public reference room maintained by the Commission, and on the Commission's
web site, as described above. You should note that statements contained in this
prospectus that refer to the contents of any contract or other document are not
necessarily complete. Such statements are qualified by reference to the copy of
such contract or other document filed as an exhibit to the registration
statement.

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TRANSFER AGENT

The Transfer Agent and Registrar for the common stock is Continental
Stock Transfer & Trust Company, Two Broadway, New York, New York 10004. Its
telephone number is (212) 509-4000.

LEGAL MATTERS

The validity of the shares of common stock offered in this prospectus
has been passed upon for us by Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue
of the Americas, New York, New York 10036-8735. Its telephone number is (212)
704-6000.

EXPERTS

The financial statements of SmartServ Online, Inc. at June 30, 1999 and
1998, and for each of the three years in the period ended June 30, 1999,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
(which contain an explanatory paragraph describing conditions that raise
substantial doubt about the Company's ability to continue as a going concern as
described in Note 1 to the financial statements) appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.

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[LOGO]

SMARTSERV ONLINE, INC.

2,558,082
Shares
of
Common Stock

PROSPECTUS

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE
HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON
STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITED.

January 7, 2000

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