U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
COMMISSION FILE NUMBER 028008
SMARTSERV ONLINE, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 133750708
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
METRO CENTER, ONE STATION PLACE, STAMFORD, CONNECTICUT 06902
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(203) 3535950
- --------------------------------------------------------------------------------
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ____
THE NUMBER OF SHARES OF COMMON STOCK, $.01 PAR VALUE, OUTSTANDING AS OF JULY 31,
2002 WAS 7,092,554.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
----------- -----------
SMARTSERV ONLINE, INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 2002 (unaudited) and
December 31, 2001....................................................2
Consolidated Statements of Operations - three months ended June
30, 2002 and 2001 and six months ended June 30, 2002 and
2001(unaudited).....................................................4
Consolidated Statement of Changes in Stockholders' Equity
(Deficiency) - six months ended June 30, 2002 (unaudited)............5
Consolidated Statements of Cash Flows - three months ended June
30, 2002 and 2001 and six months ended June 30, 2002 and
2001(unaudited)......................................................6
Notes to Unaudited Consolidated Financial Statements.................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................20
Item 2. Changes in Securities and Use of Proceeds...........................20
Item 6. Exhibits and Reports on Form 8-K....................................21
Signatures..........................................................22
1
SMARTSERV ONLINE, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2002 2001
--------------------- -----------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 641,595 $ 6,532,323
Accounts receivable 166,855 40,798
Prepaid expenses 313,704 531,028
----------- -----------
Total current assets 1,122,154 7,104,149
----------- -----------
Property and equipment, net 2,701,917 3,408,776
Other assets
Capitalized software development costs, net of
accumulated amortization of $360,160 at
June 30, 2002 and $268,619 at December 31, 2001 1,022,288 973,594
Security deposits 490,840 474,545
Notes receivable from officer 500,000 500,000
----------- -----------
2,013,128 1,948,139
----------- -----------
Total Assets $ 5,837,199 $12,461,064
=========== ===========
2
SMARTSERV ONLINE, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2002 2001
-------------------- -----------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accounts payable $ 1,412,478 $ 1,329,105
Accrued liabilities 689,418 695,134
------------ ------------
Total current liabilities 2,101,896 2,024,239
------------ ------------
Deferred revenues 168,757 --
Note payable 6,723,156 6,723,156
COMMITMENTS AND CONTINGENCIES - NOTE 9
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock - $0.01 par value
Authorized - 1,000,000 shares
Issued and outstanding - None -- --
Common stock - $.01 par value
Authorized - 40,000,000 shares
Issued and outstanding - 7,092,554 shares at June 30, 2002
and 6,263,783 shares at December 31, 2001 70,925 62,638
Additional paid-in capital 69,844,087 69,680,059
Notes receivable from officers (666,841) (666,841)
Unearned compensation (11,588) (540,354)
Accumulated deficit (72,393,193) (64,821,833)
------------ ------------
Total stockholders' equity (deficiency) (3,156,610) 3,713,669
------------ ------------
Total Liabilities and Stockholders' Equity (Deficiency) $ 5,837,199 $ 12,461,064
============ ============
See accompanying notes
3
SMARTSERV ONLINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------------------------- --------------------------------
2002 2001 2002 2001
------------- ------------- ------------- ---------------
Revenues $ 35,815 $ 1,222,866 $ 64,636 $ 2,447,837
------------ ------------ ------------ ------------
Costs and expenses:
Costs of services (1,419,946) (1,716,770) (2,951,626) (3,774,489)
General and administrative expenses (1,176,235) (1,271,559) (2,240,140) (2,613,115)
Sales and marketing expenses (1,042,804) (1,236,387) (2,243,649) (2,849,219)
Stock-based compensation 325,136 (778,074) 153,121 (937,852)
------------ ------------ ------------ ------------
Total costs and expenses (3,313,849) (5,002,790) (7,282,294) (10,174,675)
------------ ------------ ------------ ------------
Loss from operations (3,278,034) (3,779,924) (7,217,658) (7,726,838)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 8,815 164,361 31,499 357,724
Interest expense and other financing costs (187,504) (128,594) (369,745) (222,687)
Foreign exchange losses (5,290) (4,798) (15,456) (20,808)
------------ ------------ ------------ ------------
(183,979) 30,969 (353,702) 114,229
------------ ------------ ------------ ------------
Net loss $ (3,462,013) $ (3,748,955) $ (7,571,360) $ (7,612,609)
============ ============ ============ ============
Basic and diluted loss per share $ (0.53) $ (0.65) $ (1.19) $ (1.32)
============ ============ ============ ============
Weighted average shares outstanding - basic and diluted 6,520,857 5,794,118 6,389,140 5,750,118
============ ============ ============ ============
See accompanying notes
4
SMARTSERV ONLINE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
COMMON STOCK NOTES
-------------------------------- RECEIVABLE ADDITIONAL
PAR FROM PAID-IN UNEARNED ACCUMULATED
SHARES VALUE OFFICERS CAPITAL COMPENSATION DEFICIT
--------------------------------- --------------- --------------- ---------------- -------------
Balances at December 31, 2001 6,263,783 $ 62,638 $ (666,841) $ 69,680,059 $ (540,354) $(64,821,833)
Issuance of common stock upon
exercise of employee stock
options 15,200 152 -- 14,051 -- --
Conversion of 39 prepaid common
stock purchase warrants into
common stock 27,857 278 -- (278) -- --
Issuance of common stock through
private placement 785,714 7,857 -- 832,143 -- --
Amortization of unearned
compensation over the terms of
consulting agreement -- -- -- -- 544,216 --
Warrants issued to consultants as
compensation -- -- -- 41,250 (15,450) --
Change in market value of employee
stock options -- -- -- (723,138) -- --
Net loss for the period -- -- -- -- -- (7,571,360)
-----------------------------------------------------------------------------------------------
Balances at June 30, 2002 7,092,554 $ 70,925 $ (666,841) $ 69,844,087 $ (11,588) $(72,393,193)
===============================================================================================
See accompanying notes
5
SMARTSERV ONLINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
---------------------------------- ----------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net loss $ (3,462,013) $ (3,748,955) $ (7,571,360) $ (7,612,609)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 465,140 607,045 966,890 1,204,674
Noncash compensation costs (603,898) 481,519 (723,138) 334,742
Noncash consulting services 278,761 296,555 570,016 603,110
Amortization of deferred revenues (5,294) (966,369) (5,294) (1,932,738)
Amortization of deferred financing costs -- 50,000 -- 100,000
Changes in operating assets and liabilities
Accounts receivable (63,334) (11,697) (126,057) 48,019
Prepaid expenses 67,722 (146,755) 217,324 25,664
Accounts payable and accrued liabilities 61,286 616,215 77,657 1,362,301
Deferred revenues 92,051 -- 174,051 --
Security deposit 698 (274,693) (16,295) (274,693)
------------ ------------ ------------ ------------
Net cash used for operating activities (3,168,881) (3,097,135) (6,436,206) (6,141,530)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of equipment -- (9,500) (168,490) (136,882)
Capitalization of software development costs (68,437) (129,897) (140,235) (283,048)
Loan to officer -- -- -- (500,000)
------------ ------------ ------------ ------------
Net cash used for investing activities (68,437) (139,397) (308,725) (919,930)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from the issuance of notes -- -- -- 191,992
Proceeds from the issuance of common stock 1,102,258 6,270 1,114,203 21,109
Costs of issuing common stock (260,000) -- (260,000) --
------------ ------------ ------------ ------------
Net cash provided by financing activities 842,258 6,270 854,203 213,101
------------ ------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (2,395,060) (3,230,262) (5,890,728) (6,848,359)
Cash and cash equivalents - beginning of period 3,036,655 15,554,021 6,532,323 19,172,118
------------ ------------ ------------ ------------
Cash and cash equivalents - end of period $ 641,595 $ 12,323,759 $ 641,595 $ 12,323,759
============ ============ ============ ============
See accompanying notes.
6
SMARTSERV ONLINE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
1. NATURE OF BUSINESS
SmartServ Online, Inc. (the "Company") commenced operations on August 20, 1993.
We offer Web and wireless applications content services and infrastructure that
allow financial institutions, network service providers and other businesses to
deliver financial and other content, alerts and notifications, as well as
transaction services to their work forces and customers - via wired or
data-enabled wireless devices. SmartServ's products include content, transaction
processing and alert engines, proprietary W2W MiddlewareTM that optimizes
content delivery to a full array of devices, and a suite of applications
designed to enable businesses and their customers to exploit the benefits of
wireless data exchange and transactional capability. Our products facilitate the
delivery of customer proprietary data, as well as delayed and real-time market
data, business and financial news, sports information, national weather reports
and other business and entertainment information in a user-friendly manner.
Our plan of operation focuses on the business-to-business strategy of licensing
our applications and related services to those companies that have an economic
incentive to provide access to our content and transaction services to their
customers. We continue to focus on two primary areas: telecommunications and
financial services. For the telecommunications sector, SmartServ provides a
suite of solutions to help the wireless carriers, handset manufacturers and
Internet service providers rapidly expand the delivery of products and services
to their customers. For the financial services sector, SmartServ seeks to expand
its customer base among both institutional and retail financial services
enterprises by leveraging its experience with the delivery of a customer's
internal and proprietary data, as well as its transaction routing engine and W2W
MiddlewareTM with a suite of applications designed to meet the rigorous demands
of the financial community. Management believes that SmartServ's primary source
of revenues will be derived from revenue-share licensing contracts with its
telecommunications and financial services customers.
The economic downturn and its impact on the telecommunications industry has
resulted in delays in the build-out of high speed carrier networks and
availability of data-enabled wireless devices causing the market for SmartServ's
data and transaction services to be lackluster until now. Such delays have
resulted in the Company's inability to implement its business plan and related
marketing strategies. Consequently, the Company is in need of additional capital
to compensate for such delays and their impact on the Company's inability to
generate revenues. The Company has engaged investment bankers to assist it with
the sale of equity to private investors that understand the wireless industry
and the current state of the technology.
The Company's financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. The Company incurred a net
loss of $7,571,360 for the six month period ended June 30, 2002, a net loss of
$14,819,860 for the year ended December 31, 2001, and net losses of $30,993,559
and $7,124,126 for the years ended June 30, 2000 and 1999, respectively.
Additionally, it had an accumulated deficit of $72,393,193 at June 30, 2002.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.
7
As carriers, such as Verizon Wireless, AT&T Wireless and Cingular, complete the
build-out of high speed data friendly networks (a process that is currently
underway), management believes that the demand for the Company's products and
services will increase from enterprise customers, as well as the carriers
themselves. Notwithstanding the execution of several contracts during the
preceding nine months and the continual discussions with potential strategic
partners about future relationships, the Company's ability to generate revenues
and working capital may not be sufficient to meet management's objectives as
presently structured. Additionally, increasing competition in the market for the
Company's products and services could materially and adversely affect the
Company's results from operations through price reductions and loss of potential
market share. Management recognizes that the Company must generate additional
revenues, raise additional capital, consider modifications to its sales and
marketing program and institute cost reductions to allow it to continue to
operate with available cash resources. There is no assurance that the Company
will generate future revenues or cash flow from operations, raise additional
capital, or that the Company's products and services will be accepted in the
marketplace.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
- ---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information, the instructions of Form 10-QSB and Rule 310
of Regulation SB and, therefore, do not include all information and notes
necessary for a presentation of results of operations, financial position and
cash flows in conformity with accounting principles generally accepted in the
United States. The balance sheet at December 31, 2001 has been derived from the
audited financial statements at that date, but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. The financial statements
should be read in conjunction with the Company's Annual Report on Form 10-KSB
for the period ended December 31, 2001. In the opinion of the Company, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation have been made. Results of operations for the three month and six
month periods ended June 30, 2002 are not necessarily indicative of those
expected for the year ending December 31, 2002.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. Significant intercompany
accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
- -------------------
Revenues are recognized as services are provided. Deferred revenues, resulting
from customer prepayments, are recognized as services are provided throughout
the term of the agreement with the respective customer. Deferred revenues
resulting from our agreement with Data Transmission Network Corporation ("DTN")
were amortized over the anticipated future revenue stream, a period of 42
months, commencing June 1, 1999. We amended our agreement with DTN such that,
effective September 1, 2000, SmartServ performed maintenance and enhancement
services through December 2000 and operational support through August 2001.
Therefore, commencing September 1, 2000, deferred revenues were amortized to
income on a straight-line basis over the period through August 2001.
8
EARNINGS PER SHARE
- ------------------
Basic earnings per share is computed on the weighted average number of common
shares outstanding; however, it does not include the unvested portion of
restricted shares in accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share". Diluted earnings per share reflects the
increase in the weighted average common shares outstanding that would result
from the assumed exercise of outstanding stock options calculated using the
treasury stock method when dilutive.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
- --------------------------------------
In connection with certain contracts entered into between SmartServ and its
customers, as well as other development projects, we have capitalized costs
related to certain product enhancements and application development in
accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed."
On an ongoing basis, SmartServ reviews the future recoverability of its
capitalized software development costs for impairment or whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable. When such events or changes in circumstances do occur, we recognize
an impairment loss if the undiscounted future cash flows expected to be
generated by the asset are less than its carrying value. The impairment loss
reduces the asset to its fair value.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
The carrying amounts of our financial instruments approximate fair value due to
their terms and maturities.
SUPPLEMENTAL CASH FLOW DATA
- ---------------------------
We consider all highly liquid investments with a maturity date of three months
or less when purchased to be cash equivalents.
Interest, debt origination and other financing costs paid during the three month
periods ended June 30, 2002 and 2001 were $185,000 and $41,700, respectively,
and for the six month periods ended June 30, 2002 and 2001 were $372,000 and
$43,500, respectively.
CONCENTRATION OF CREDIT RISK
- ----------------------------
Financial instruments that potentially subject SmartServ to concentrations of
credit risk consist primarily of its commercial paper investments and accounts
receivable. It is management's policy to invest in only those companies with a
AAA credit rating; therefore, our commercial paper investments are short-term
and highly liquid. At June 30, 2002, accounts receivable consist principally of
amounts due from a major financial services company. We perform periodic credit
evaluations of our customers and, if applicable, provide for credit losses in
the financial statements.
PROPERTY AND EQUIPMENT
- ----------------------
Property and equipment are stated at cost. Equipment purchased under a capital
lease is recorded at the present value of the future minimum lease payments at
the date of acquisition. Depreciation is computed using the straight-line method
over estimated useful lives of three to ten years.
ADVERTISING COSTS
- -----------------
Advertising costs are expensed as incurred and were approximately $129,900 and
$5,200 during the three month periods ended June 30, 2002 and 2001,
respectively, and $236,900 and $28,600 during the six month periods ended June
30, 2002 and 2001, respectively.
9
STOCK BASED COMPENSATION
- ------------------------
We maintain several stock option plans for employees and non-employee directors
that provide for the granting of stock options for a fixed number of shares with
an exercise price equal to the fair value of the shares at the date of grant. We
account for these stock compensation plans in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"). Accordingly, compensation expense is recognized to the extent
that the fair value of the stock exceeds the exercise price of the option at the
measurement date. Certain options, which have been repriced, are subject to the
variable plan requirements of APB No. 25, that requires us to record
compensation expense for changes in the fair value of our common stock.
FOREIGN CURRENCY TRANSLATION
- ----------------------------
The financial statements of foreign subsidiaries have been translated into U.S.
dollars in accordance with FASB Statement No. 52, "Foreign Currency
Translation." All balance sheet accounts have been translated using the exchange
rates in effect at the balance sheet date. Income statement amounts have been
translated using the average rate for the year. Gains and losses resulting from
the changes in exchange rates from year to year are reported in other
comprehensive income.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets."
SFAS No. 141 requires the use of the purchase method of accounting for business
combinations initiated after June 30, 2001, while SFAS No. 142 requires that the
amortization of goodwill and certain other intangible assets cease and the
related asset values be reviewed annually for impairment. The Company does not
anticipate any material impact on its consolidated results from operations or
financial position related to the implementation of SFAS No. 141 and No. 142.
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which provides a single accounting
model for measuring impairment of long-lived assets and the disposal of such
assets. The adoption of SFAS No. 144 had no impact on the Company's consolidated
results of operations, financial position or cash flows.
RECLASSIFICATIONS
- -----------------
Certain amounts reported in the consolidated financial statements for the three
and six month periods ended June 30, 2001 have been reclassified to conform to
the 2002 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
JUNE 30, DECEMBER 31,
2002 2001
----------------- ---------------
Data processing equipment $ 5,187,705 $ 5,033,498
Data processing equipment purchased under a capital lease 246,211 246,211
Office furniture and equipment 151,263 151,263
Display equipment 71,335 71,335
Leasehold improvements 69,852 55,570
----------- -----------
5,726,366 5,557,877
Accumulated depreciation, including $246,211 at June 30, 2002
and $229,797 at December 31, 2001 for equipment purchased
under a capital lease (3,024,449) (2,149,101)
----------- -----------
$ 2,701,917 $ 3,408,776
=========== ===========
10
4. NOTE RECEIVABLE FROM OFFICER
The Company's Board of Directors authorized the issuance of a line of credit to
Sebastian Cassetta, SmartServ's Chief Executive Officer, for an amount not to
exceed $500,000. Such amount bears interest at the prime rate and matures on
March 20, 2004. Interest for the period January 2, 2001 to June 30, 2002, which
has not been recognized as income in the consolidated statements of operations,
shall accrue and be payable at maturity. Commencing July 1, 2002 until maturity,
interest shall be payable semi-annually in arrears on January 1st and July 1st.
5. NOTE PAYABLE
In May 2000, we entered into a Business Alliance Agreement with Hewlett-Packard
Company ("HP") whereby the companies agreed to jointly market their respective
products and services, and to work on the build-out of SmartServ's domestic and
international infrastructure. In furtherance of these objectives, HP provided us
with a line of credit of up to $20,000,000 for the acquisition of approved
hardware, software and services. As of September 28, 2001, the expiration date
of the facility, SmartServ had borrowed $6,723,156. The debt is evidenced by a
note, bearing an interest rate of 11%, secured by the Company's assets,
exclusive of its internally developed software products, may be converted into
our common stock at $33.56 per share and matures on September 28, 2003.
6. STOCKHOLDERS' EQUITY
During the six month period ended June 30, 2002, the Company issued warrants to
purchase 17,000 shares of our common stock to certain marketing consultants as
partial compensation for services rendered and to be rendered to SmartServ. The
warrants have exercise prices of $5.01 and $5.38, expire on April 29, 2005, and
have been recorded in the consolidated financial statements at fair market value
using the Black-Scholes pricing model.
In June 2002, SmartServ issued 785,714 shares of its common stock to two
accredited investors ("Investors") at a purchase price of $1.40 per share. Gross
proceeds from this transaction amounted to $1,100,000. First Albany Securities
Corporation, the placement agent, received a commission of $66,000 and
reimbursement of direct expenses of $2,000 in connection with this transaction.
Additionally, the Company issued the Investors warrants, callable under certain
conditions, for the purchase of an aggregate of 1,428,571 shares of common stock
at an exercise price of $1.40 per share through the expiration date on June 5,
2007, as well as non-callable warrants for the purchase of an aggregate of
196,429 shares of common stock at an exercise price of $1.47 per share through
June 5, 2007. In the event the Investors exercise the callable warrants, they
will receive non-callable warrants for the purchase of an aggregate of 357,142
shares of common stock at an exercise price of $1.47 per share. Such
non-callable warrants expire three years from the date of issuance.
7. STOCK-BASED COMPENSATION
In connection with the grant of certain stock options, warrants and other
compensation arrangements, we have recorded charges to earnings that are noncash
in nature. Certain of these stock option grants are subject to the variable plan
requirements of APB No. 25 that require us to record compensation expense for
changes in the fair value of our common stock.
11
The following table shows the amount of stock-based compensation
(charges)/credits that would have been recorded in the categories of the
statement of operations had stock-based compensation not been separately stated
therein:
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
----------------------------------------- ------------------------------------------
2002 2001 2002 2001
-------------------- ---------------- ------------------- -------------------
Costs of services $ 168,573 $(160,372) $ 195,308 $(132,612)
Selling, general and administrative
expenses 156,563 (617,702) (42,187) (805,240)
--------- --------- --------- ---------
$ 325,136 $(778,074) $ 153,121 $(937,852)
========= ========= ========= =========
Stock-based compensation for the three and six month periods ended June 30, 2002
and 2001 consist of the impact of changes in the market value of the Company's
common stock on the value of options to purchase common stock issued to
employees, as well as the amortization of deferred costs associated with the
issuance of warrants to purchase common stock.
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted loss per
share:
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
------------------------------------------- ---------------------------------------
2002 2001 2002 2001
------------------- ------------------- ----------------- --------------
Numerator:
Net loss $ (3,462,013) $ (3,748,955) $ (7,571,360) $(7,612,609)
=================== =================== ================= ===========
Denominator:
Weighted average shares - basic and
diluted 6,520,857 5,794,118 6,389,140 5,750,118
=================== =================== ================= ===========
Basic and diluted loss per common share
$ (0.53) $ (0.65) $ (1.19) $ (1.32)
=================== =================== ================= ===========
Outstanding employee stock options and other warrants to purchase an aggregate
of 6,097,000 shares of common stock at June 30, 2002 were not included in the
computation of diluted earnings per share because the Company reported a loss
for the period and, therefore their inclusion would be antidilutive.
9. COMMITMENTS AND CONTINGENCIES
On or about June 4, 1999, Michael Fishman, our former Vice President of Sales,
commenced an action against us, Sebastian E. Cassetta (our Chairman of the Board
and Chief Executive Officer), Steven Francesco (our former President) and four
others in the Connecticut Superior Court for the Judicial District of
Stamford/Norwalk at Stamford alleging breach of his employment contract, breach
of duty of good faith
12
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. The fraud and misrepresentation claims have been dismissed.
Plaintiff has responded to the counterclaim and discovery is proceeding.
Although we are vigorously defending this action, there can be no assurance that
we will be successful.
On or about February 29, 2000, Commonwealth Associates, L.P. ("Commonwealth")
filed a complaint against us in the Supreme Court of the State of New York,
County of New York. The complaint alleges that on or about August 19, 1999,
Commonwealth and SmartServ entered into an engagement letter pursuant to which
Commonwealth was to provide financial advisory and investment banking services
to SmartServ in connection with a possible combination between SmartServ and
Data Link Systems Corporation. The engagement letter provided for a
nonrefundable fee of $15,000 payable in cash or common stock at SmartServ's
option. The complaint alleges that SmartServ elected to pay the fee in stock and
seeks 13,333 shares of common stock or at least $1,770,000 together with
interest and costs. In our answer to the complaint, we have denied the material
allegations of the complaint, including the allegation that we elected to pay in
stock. Discovery has commenced. 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
either such action could have a material adverse effect on our financial
condition, results of operations and cash flows.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
SmartServ Online, Inc. (the "Company") commenced operations on August 20, 1993.
We offer Web and wireless applications, content services and infrastructure that
allow financial institutions, network service providers and other businesses to
deliver financial and other content, alerts and notifications, as well as
transaction services to their work forces and customers - via wired or
data-enabled wireless devices. SmartServ's products include content, transaction
processing and alert engines, proprietary W2W MiddlewareTM that optimizes
content delivery to a full array of devices, and a suite of applications
designed to enable businesses and their customers to exploit the benefits of
wireless data exchange and transactional capability. Our products facilitate the
delivery of customer proprietary data, as well as delayed and real-time market
data, business and financial news, sports information, national weather reports
and other business and entertainment information in a user-friendly manner.
Our plan of operation focuses on the business-to-business strategy of licensing
our applications and related services to those companies that have an economic
incentive to provide access to our content and transaction services to their
customers. We continue to focus on two primary areas: telecommunications and
financial services. For the telecommunications sector, SmartServ provides a
suite of solutions to help the wireless carriers, handset manufacturers and
Internet service providers rapidly expand the delivery of products and services
to their customers. For the financial services sector, SmartServ seeks to expand
its customer base among both institutional and retail financial services
enterprises by leveraging its experience with the delivery of a customer's
internal and proprietary data, as well as its transaction routing engine and W2W
MiddlewareTM with a suite of applications designed to meet the rigorous demands
of the financial community. Management believes that SmartServ's primary source
of revenues will be derived from revenue-share licensing contracts with its
telecommunications and financial services customers.
As an example, the Company has launched two products on the Verizon network.
Mobile Markets, our flagship financial product has been launched on Verizon's
BREW (Binary Runtime Environment for Wireless) network under the Forbes.com
brand name, while our SMS (Short Message Service) financial alert product has
been launched on Verizon's Vtext portal. Additionally, Salomon Smith Barney, in
conjunction with SmartServ, has launched a wireless version of its GEO (Global
Equities Online) product. GEO combines Salomon's proprietary data, such as
morning call notes, with SmartServ's financial data products to form a fully
integrated financial tool. While management believes that these relationships
are important to the Company's success, no assurance can be given that these
customers will be successful in their marketing efforts or that the Company's
products and services will be well received in the marketplace.
The economic downturn in general, and its impact on the telecommunications
industry in particular, has caused telecommunications service providers to
reduce capital spending, personnel and debt, as well as new service
introductions. The financial services industry, in the wake of the tragedy of
September 11th, has curtailed new product development to focus on data security
and recovery. Consequently, the potential demand for the Company's products and
services has been significantly delayed. Such delay has had a very detrimental
effect on the Company's operations.
In May 2002, the Company commenced an effort to realign its infrastructure and
related overhead to correlate with reductions in projected revenue. As part of
this effort, management has closed the Company's UK sales office and downsized
both Hong Kong and domestic operations through staff reductions to a level
sufficient to support the Company's projected operations through the remainder
of 2002. Personnel headcount has been reduced from 66 in May to 42 in August.
These efforts have reduced the Company's average monthly operating expenses from
approximately $1,141,000 to $575,000 per month. Management recognizes that the
Company must generate additional revenues, raise additional capital, consider
modifications to its sales and marketing program and institute cost reductions
to allow it to continue to operate with available cash resources. There is no
assurance that the Company will generate future revenues or cash flow from
operations, raise additional capital, or that the Company's products and
services will be accepted in the marketplace.
14
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2002 VERSUS QUARTER ENDED JUNE 30, 2001
During the quarters ended June 30, 2002 and 2001, we recorded revenues of
$35,815 and $1,222,866, respectively. Revenues generated in 2002 were derived
from the licensing of our wireless data products to a financial services
institution while substantially all revenues in 2001 were earned through our
licensing agreement with Data Transmission Network Corporation. During the
quarters ended June 30, 2002 and 2001, we recognized $0 and $966,369,
respectively, from the amortization of deferred revenues associated with the DTN
agreement.
During the quarter ended June 30, 2002, we incurred costs of services of
$1,419,946. Such costs consisted primarily of information and communication
costs ($201,900), personnel costs ($752,000), computer hardware leases,
depreciation and maintenance costs ($449,500) and amortization expenses relating
to capitalized software development costs ($29,900), partially offset by systems
consultant credits ($35,000). During the quarter ended June 30, 2001, we
incurred costs of services of $1,716,770. Such costs consisted primarily of
information and communication costs ($209,900), personnel costs ($605,900),
systems consultants ($237,200), computer hardware leases, depreciation and
maintenance costs ($420,300), and amortization expenses relating to capitalized
software development costs ($230,400). During the quarters ended June 30, 2002
and 2001, we capitalized $68,400 and $129,900, respectively, of development
costs in accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed".
During the quarter ended June 30, 2002, we incurred general and administrative
expenses of $1,176,235. Such costs were incurred primarily for personnel costs
($407,000), professional fees ($294,200), facilities ($140,900), insurance
($180,900), computer hardware leases, depreciation and maintenance costs
($54,700), and communication costs ($25,100). During the quarter ended June 30,
2001, we incurred general and administrative expenses of $1,271,559. Such costs
were incurred primarily for personnel costs ($411,000), professional fees
($415,300), facilities ($135,400), insurance ($137,900), computer hardware
leases, depreciation and maintenance costs ($54,100), and communication costs
($21,000).
During the quarter ended June 30, 2002, we incurred sales and marketing expenses
of $1,042,804. Such costs were incurred primarily for personnel costs
($583,000), advertising and trade shows ($196,200), facilities ($41,000),
consulting fees ($117,800) and travel and lodging ($60,900). During the quarter
ended June 30, 2001, we incurred sales and marketing expenses of $1,236,387.
Such costs were incurred primarily for personnel costs ($898,800), consulting
fees ($60,700), travel and lodging ($164,000) and facilities ($43,000).
During the quarter ended June 30, 2002, net noncash credit for stock-based
compensation amounted to $325,136 compared to a net noncash charge of $778,074
during the quarter ended June 30, 2001. Such noncash amounts are primarily
related to the valuation of stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). Certain options are subject to the variable plan
requirements of APB No. 25, as they were repriced, and therefore, compensation
expense is recognized for changes in the fair value of our common stock. Noncash
charges for professional fees for the quarters ended June 30, 2002 and 2001,
were $278,761 and $296,555, respectively, resulting primarily from the
amortization of deferred costs associated with the issuance of warrants to
purchase common stock to various financial, marketing and technical consultants.
The value of substantially all of such common stock purchase warrants has been
recorded in accordance with the Black-Scholes pricing model.
15
Interest income for the quarters ended June 30, 2002 and 2001 amounted to $8,815
and $164,361, respectively. Such amounts were earned primarily from our
investments in highly liquid commercial paper and money fund accounts. During
the quarters ended June 30, 2002 and 2001, interest and other financing costs
were $187,504 and $128,594, respectively. Such costs were incurred primarily in
connection with the $20 million line of credit facility with Hewlett-Packard
Company.
Basic and diluted loss per share was $0.53 for the quarter ended June 30, 2002
compared to $0.65 per share for the quarter ended June 30, 2001. The weighted
average shares outstanding increased to 6,520,857 at June 30, 2002 from
5,794,118 at June 30, 2001.
SIX MONTHS ENDED JUNE 30, 2002 VERSUS SIX MONTHS ENDED JUNE 30, 2001
During the six months ended June 30, 2002 and 2001, we recorded revenues of
$64,636 and $2,447,837, respectively. Revenues generated in 2002 were derived
from the licensing of our wireless data products to a financial services
institution while substantially all revenues in 2001 were earned through our
licensing agreement with Data Transmission Network Corporation. During the six
months ended June 30, 2002 and 2001, we recognized $0 and $1,932,738,
respectively, from the amortization of deferred revenues associated with the DTN
agreement.
During the six months ended June 30, 2002, we incurred costs of services of
$2,951,626. Such costs consisted primarily of information and communication
costs ($395,100), personnel costs ($1,458,700), computer hardware leases,
depreciation and maintenance costs ($959,600), and amortization expenses
relating to capitalized software development costs ($92,200). During the six
months ended June 30, 2001, we incurred costs of services of $3,774,489. Such
costs consisted primarily of information and communication costs ($423,000),
personnel costs ($1,173,600), systems consultants ($823,100), computer hardware
leases, depreciation and maintenance costs ($827,000), and amortization expenses
relating to capitalized software development costs ($460,800). During the six
months ended June 30, 2002 and 2001, we capitalized $140,200 and $283,000,
respectively, of development costs in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed".
During the six months ended June 30, 2002, we incurred general and
administrative expenses of $2,240,140. Such costs were incurred primarily for
personnel costs ($734,700), professional fees ($602,700), facilities ($271,600),
insurance ($326,200), computer hardware leases, depreciation and maintenance
costs ($108,900), and communications costs ($25,400). During the six months
ended June 30, 2001, we incurred general and administrative expenses of
$2,613,115. Such costs were incurred primarily for personnel costs ($864,200),
professional fees ($877,600), facilities ($274,100), insurance ($250,600),
travel ($77,700), computer hardware leases, depreciation and maintenance costs
($102,400), and communications costs ($44,400).
During the six months ended June 30, 2002, we incurred sales and marketing
expenses of $2,243,649. Such costs were incurred primarily for personnel costs
($1,179,100), advertising and trade shows ($563,000), facilities ($80,900),
consulting fees ($157,900) and travel and lodging ($182,500). During the six
months ended June 30, 2001, we incurred sales and marketing expenses of
$2,849,219. Such costs were incurred primarily for personnel costs ($1,468,100),
consulting fees ($619,300), travel and lodging ($287,800), advertising and trade
shows ($312,200) and facilities ($66,400).
During the six months ended June 30, 2002, net noncash credit for stock-based
compensation amounted to $153,121 compared to net noncash charges of $937,852
during the six months ended June 30, 2001. Such noncash amounts are primarily
related to the valuation of stock-based compensation in accordance with
16
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). Certain options are subject to the variable plan
requirements of APB No. 25, as they were repriced, and therefore, compensation
expense is recognized for changes in the fair value of our common stock. Noncash
charges for professional fees for the six months ended June 30, 2002 and 2001,
were $570,016 and $603,110, respectively, resulting primarily from the
amortization of deferred costs associated with the issuance of warrants to
purchase common stock to various financial, marketing and technical consultants.
The value of substantially all of such common stock purchase warrants has been
recorded in accordance with the Black-Scholes pricing methodology.
Interest income for the six months ended June 30, 2002 and 2001 amounted to
$31,499 and $357,724, respectively. Such amounts were earned primarily from our
investments in highly liquid commercial paper and money fund accounts. During
the six months ended June 30, 2002 and 2001, interest and other financing costs
were $369,745 and $222,687, respectively. Such costs were incurred primarily in
connection with the $20 million line of credit facility with Hewlett-Packard
Company.
Basic and diluted loss per share was $1.19 for the six months ended June 30,
2002 compared to $1.32 per share for the six months ended June 30, 2001. The
weighted average shares outstanding increased to 6,389,140 at June 30, 2002 from
5,750,118 at June 30, 2001.
CAPITAL RESOURCES AND LIQUIDITY
In May 2000, Chase Securities Inc., acting as placement agent for SmartServ,
completed a private placement of 353,535 shares of common stock at $49.50 a
share. The net proceeds of the placement of $16,750,000 were used for general
working capital requirements.
In May 2000, we entered into a Business Alliance Agreement with Hewlett-Packard
Company whereby the companies agreed to jointly market their respective products
and services and to work on the build-out of SmartServ's domestic and
international infrastructure. In furtherance of these objectives Hewlett-Packard
provided us with a line of credit of up to $20,000,000 for the acquisition of
approved hardware, software and services. As of September 28, 2001, the
expiration date of the facility, Hewlett-Packard Company had advanced us
$6,723,156 thereunder. The debt is evidenced by a secured note, bearing an
interest rate of 11%, may be converted into our common stock at $33.56 per share
and matures on September 28, 2003.
During the period January 1, 2000 through June 30, 2002, we issued 1,687,580
shares of common stock to investors upon the exercise of warrants to purchase
such shares. Proceeds from the exercise of these warrants were $3,257,700.
In June 2002, First Albany Corporation, acting as placement agent for SmartServ,
completed a private placement of 785,714 shares of common stock at $1.40 a
share. The net proceeds of the placement of $840,000 were used for general
working capital requirements. Additionally, the Company issued to the investors
warrants, callable under certain conditions, for the purchase of an aggregate of
1,428,571 shares of common stock at an exercise price of $1.40 per share through
the expiration date on June 5, 2007, as well as non-callable warrants for the
purchase of an aggregate of 196,429 shares of common stock at an exercise price
of $1.47 per share through June 5, 2007. In the event the Investors exercise the
callable warrants, they will receive non-callable warrants for the purchase of
an aggregate of 357,142 shares of common stock at an exercise price of $1.47 per
share. Such non-callable warrants expire three years from the date of issuance.
The economic downturn and its impact on the telecommunications industry has
resulted in delays in the build-out of high speed data friendly carrier networks
and availability of data-enabled wireless devices causing the market for
SmartServ's financial data and transaction services to be lackluster until now.
Such delays have resulted in the Company's inability to implement its business
plan and related marketing
17
strategies. Consequently, the Company is in need of additional capital to
compensate for such delays and their impact on the Company's inability to
generate revenues. The Company has engaged investment bankers to assist it with
the sale of equity to private investors that understand the wireless industry
and the current state of the technology; however, no assurance can be given that
the Company will be able to raise additional capital on satisfactory terms.
Should the Company be unable to raise additional equity, it will be forced to
seek a merger or cease operations.
The Company's financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. The Company incurred a net
loss of $7,571,360 for the six months ended June 30, 2002, a net loss of
$14,819,860 for the year ended December 31, 2001, and net losses of $30,993,559
and $7,124,126 for the years ended June 30, 2000 and 1999, respectively.
Additionally, it had an accumulated deficit of $72,393,193 at June 30, 2002.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.
As carriers, such as Verizon Wireless, AT&T Wireless and Cingular, complete the
build-out of high speed data friendly networks (a process that is currently
underway), management believes that the demand for the Company's products will
increase from the enterprise customer, as well as the carriers themselves.
Management also believes that the combination of additional capital and the
successful execution of its business plan will generate sufficient revenues and
cash flow from operations to enable the Company to meet its operating
requirements. No assurance can be given that such goals will be obtained or that
any expected revenues or cash flows will be achieved.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
The preparation of the consolidated financial statements, in conformity with
accounting principles generally accepted in the United States, requires that
management make critical decisions regarding accounting policies and judgments
concerning their application. Materially different amounts could be reported
under different circumstances and conditions.
Capitalized Software Development Costs
- --------------------------------------
In connection with certain contracts entered into between SmartServ and its
customers, as well as other development projects, the Company capitalizes costs
related to certain product enhancements and application development. The
determination of related estimated useful lives and whether or not these assets
are impaired involves significant judgments. Changes in strategy and/or market
conditions could significantly impact these judgments and require adjustments to
recorded asset balances.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
- ----------------------------------------------
Forward-looking statements in this document and those made from time-to-time by
our employees are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements concerning
future plans or results are necessarily only estimates and actual results could
differ materially from expectations. Certain factors that could cause or
contribute to such differences include, and are not limited to, potential
fluctuations in quarterly results, the size and timing of awards and performance
on contracts, dependence on large contracts and a limited number of customers,
dependence on wireless and/or internet networks of third-parties for certain
products and services, lengthy sales and implementation cycles, availability and
cost of key components, market acceptance of new or enhanced
18
products and services, proprietary technology and changing technology,
competitive conditions, system performance, management of growth, the risk that
our current and future products and services may contain errors or be affected
by technical problems that would be difficult and costly to detect and correct,
dependence on key personnel and general economic and political conditions and
other factors affecting spending by customers, and other risks described in this
Quarterly Report on Form 10-QSB and our other filings with the Securities and
Exchange Commission.
19
PART 2. OTHER INFORMATION
SMARTSERV ONLINE, INC.
ITEM 1. LEGAL PROCEEDINGS
On or about June 4, 1999, Michael Fishman, our former Vice President of Sales,
commenced an action against us, Sebastian E. Cassetta (our Chairman of the Board
and Chief Executive Officer), Steven Francesco (our former President) and four
others in the Connecticut Superior Court for the Judicial District of
Stamford/Norwalk at Stamford alleging breach of his employment 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. The fraud and misrepresentation claims have
been dismissed. Plaintiff has responded to the counterclaim and discovery is
proceeding. Although we are vigorously defending this action, there can be no
assurance that we will be successful.
On or about February 29, 2000, Commonwealth Associates, L.P. ("Commonwealth")
filed a complaint against us in the Supreme Court of the State of New York,
County of New York. The complaint alleges that on or about August 19, 1999,
Commonwealth and SmartServ entered into an engagement letter pursuant to which
Commonwealth was to provide financial advisory and investment banking services
to SmartServ in connection with a possible combination between SmartServ and
Data Link Systems Corporation. The engagement letter provided for a
nonrefundable fee of $15,000 payable in cash or common stock at SmartServ's
option. The complaint alleges that SmartServ elected to pay the fee in stock and
seeks 13,333 shares of common stock or at least $1,770,000 together with
interest and costs. In our answer to the complaint, we have denied the material
allegations of the complaint, including the allegation that we elected to pay in
stock. Discovery has commenced. 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
either such action could have a material adverse effect on our financial
condition, results of operations and cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 2002, 39 Prepaid Warrants were converted into an aggregate of 27,857
shares of common stock. No sales commissions were paid in connection with such
conversion. The shares were issued in reliance upon the exemption from
registration provided by Section 3 (a) (9) of the Securities Act.
In April 2002, SmartServ issued a warrant to purchase an aggregate of 5,000
shares of common stock to Pertti Johansson as partial consideration for
consulting services to be provided to SmartServ. The warrant is exercisable at
an exercise price of $5.38 per share, vests equally on the first and second
anniversaries, and expires on April 29, 2005. No sales commissions were paid in
connection with such transaction. This warrant was issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.
In April 2002, SmartServ issued a warrant to purchase an aggregate of 10,000
shares of common stock to Jeffrey Braile as partial consideration for consulting
services to be provided to SmartServ. The warrant is exercisable at an exercise
price of $5.01 per share and expires on April 29, 2005. No sales commissions
20
were paid in connection with such transaction. This warrant was issued in
reliance upon the exemption from registration provided by Section 4 (2) of the
Securities Act.
In May 2002, SmartServ issued a warrant to purchase an aggregate of 2,000 shares
of common stock to Pertti Johansson as partial consideration for consulting
services to be provided to SmartServ as a member of its Advisory Board. The
warrant is exercisable at an exercise price of $5.01 per share and expires on
April 29, 2005. No sales commissions were paid in connection with such
transaction. This warrant was issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.
In June 2002, SmartServ issued 785,714 shares of common stock to two accredited
investors ("Investors") at a purchase price of $1.40 per share. Gross proceeds
from this transaction amounted to $1,100,000. First Albany Securities
Corporation, the placement agent, received a commission of $66,000 and
reimbursement of direct expenses of $2,000 in connection with this transaction.
Additionally, the Company issued the Investors warrants, callable under certain
conditions, for the purchase of an aggregate of 1,428,571 shares of common stock
at an exercise price of $1.40 per share through the expiration date on June 5,
2007, as well as non-callable warrants for the purchase of an aggregate of
196,429 shares of common stock at an exercise price of $1.47 per share through
June 5, 2007. The shares and the warrants were issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three months
ended June 30, 2002.
21
SMARTSERV ONLINE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SmartServ Online, Inc.
(Registrant)
By:
Date: August 14, 2002 /S/ SEBASTIAN E. CASSETTA
------------------------------------
Sebastian E. Cassetta
Chairman of the Board & Chief
Executive Officer
Date: August 14, 2002 /S/ THOMAS W. HALLER
------------------------------------
Thomas W. Haller
Sr. Vice President, Chief Financial
Officer & Treasurer
22
EXHIBIT INDEX
Exhibit Description
- ------- -----------
99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002