As filed with the Securities and Exchange Commission on May 13, 2004.

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

SMARTSERV ONLINE, INC.
(Name of Small Business Issuer in its Charter)

Delaware 7375 13-3750708
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

2250 Butler Pike, Suite 150
Plymouth Meeting, Pennsylvania 19462
(610) 397-0689
(Address and telephone number of registrant's principal executive offices)

Robert M. Pons, President & CEO
SmartServ Online, Inc.
2250 Butler Pike, Suite 150
Plymouth Meeting, Pennsylvania 19462
(610) 397-0689
(Name, address and telephone number of agent for service)

Copies of communications to:
Dean M. Schwartz, Esquire Eric D. Schoenborn, Esquire
Stradley Ronon Stevens & Young, LLP Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square Woodland Falls Corporate Park
Philadelphia, PA 19103-7098 210 Lake Drive East, Suite 102
(215) 564-8078 Cherry Hill, NJ 08002
Fax: (215) 564-8120 (856) 321-2413
Fax: (856) 321-2415

Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|

CALCULATION OF REGISTRATION FEE
=================================== ===================== ==================== ===================== =====================
Proposed Maximum Proposed Maximum
Title of Each Class Amount Offering Price Aggregate Offering Amount of
of Securities to be Registered to be Registered (1) per Share Price Registration Fee(2)
- ----------------------------------- --------------------- -------------------- --------------------- ---------------------

Common Stock, $.01 par value per
share 24,622,202 $2.60 $64,017,726 $8,112
- ----------------------------------- --------------------- -------------------- --------------------- ---------------------

(1) To be offered by selling stockholders. Includes 733,818 shares currently
held by selling stockholders, 15,123,474 shares issuable upon exercise of
warrants, and 8,764,910 shares issuable upon conversion of Series A
Preferred Stock. Pursuant to Rule 416, the number of shares registered
hereby includes such additional number of shares of common stock resulting
from anti-dilution adjustments
(2) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 solely
for the purpose of computing the amount of the registration fee. The fee
for the common stock was based on the average of the closing bid and asked
price of the common stock reported on the OTC Bulletin Board on May 10,
2004.

_______________

The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

SUBJECT TO COMPLETION, DATED MAY ___, 2004

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 becomes 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.

24,622,202 shares of common stock

o Certain selling stockholders are offering to sell an aggregate of
24,622,202 shares of common stock, of which 15,123,474 shares are
issuable upon exercise of warrants and 8,764,910 are issuable upon
conversion of preferred stock.

o We will not receive any proceeds from the offering of common stock.

o Our common stock is traded and quoted on the Over The Counter Bulletin
Board under the symbol "SSRV." On May 10, 2004, the last reported bid
price of our common stock was $2.50 and the last reported asked price
was $2.70.

Our executive offices are located at 2250 Butler Pike, Plymouth Meeting,
Pennsylvania 19462 and our telephone number is (610) 397-0689.

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 5.

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 ___________, 2004

TABLE OF CONTENTS

PROSPECTUS SUMMARY......................................................1

RISK FACTORS............................................................5

SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS...............11

MARKET PRICE OF OUR COMMON STOCK.......................................12

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.......................................13

BUSINESS...............................................................24

MANAGEMENT.............................................................31

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........38

SELLING STOCKHOLDERS...................................................40

PLAN OF DISTRIBUTION...................................................48

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................49

DESCRIPTION OF CAPITAL STOCK...........................................51

TRANSFER AGENT.........................................................55

LEGAL MATTERS..........................................................55

EXPERTS................................................................55

WHERE YOU CAN FIND MORE INFORMATION....................................56

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

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

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information contained in this prospectus. Because this is only a summary, it
does not contain all of the information that you should consider before buying
shares of our common stock. You should read the entire prospectus carefully
before purchasing our common stock.

About Our Company

We design, develop and distribute software and services that enable the delivery
to wireless devices of various content, with special emphasis on cell phones.
The content that we provide includes premium content such as ringtones, images
and games, and dynamic changing content such as horoscopes, lottery results and
weather reports. Historically, we have licensed our applications, content and
related services to wireless carriers and enterprises. We have revenue sharing
license agreements with wireless carriers such as Verizon Wireless, AT&T
Wireless, Nextel and ALLTEL Wireless, that allow us to deliver our services and
branded content to a wide base of consumer cell phone users. For enterprises, we
have in the past offered solutions that deliver financial market data,
proprietary internal documents and other useful information to mobile workers,
although this no longer comprises a core part of our business or strategy.

To augment our capabilities, we acquired Colorado based nReach, Inc. on
February 28, 2004. nReach is a wireless content distribution company that offers
a broad portfolio of popular mass-market cell phone content, including
ringtones, games, and on-device images. nReach may provide us with access to a
large number of consumers through its existing marketing arrangements with large
retailers.

We have since our inception earned limited revenues and have incurred
substantial recurring operating losses, including net losses of $17,537,775,
$8,037,173 and $14,819,860 for the years ended December 31, 2003, 2002 and 2001,
respectively, and net losses of $30,993,559 and $7,124,126 for the years ended
June 30, 2000 and 1999, respectively. Additionally, we have an accumulated
deficit of $90,396,781 at December 31, 2003.

In February 2004, we completed the closing of a $10 million private offering of
investment Units consisting of shares of Series A Convertible Preferred Stock
and warrants to purchase common stock ("2004 Private Placement"). We have used
and expect to use the net proceeds of approximately $8,600,000 from this
offering for repayment of outstanding obligations (including $1,391,500 that was
used to repay Global Capital Funding Group, LP), completion of strategic
acquisitions and general working capital. We believe we now have sufficient
working capital for the short term. It is likely, however, that we may require
additional funds in the long term depending upon the growth of our revenues, our
business strategy, the costs of any acquisitions and other factors.

Our Business Strategy

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

o Premium content, such as ringtones, images and games, that are periodically
delivered and reside on the mobile device; and

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

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

Our Corporate Profile

We are incorporated in the State of Delaware. We commenced operations in August
1993, and had our initial public offering in March 1996. Our principal executive
offices are located at 2250 Butler Pike, Suite 150, Plymouth Meeting,
Pennsylvania 19462. Our telephone number is (610) 397-0689. In this prospectus,
unless the context otherwise requires, the terms "we", "us", "our", "the
Company" and "SmartServ" refer to SmartServ Online, Inc. and its subsidiaries.
References to nReach refer to nReach, Inc., a Colorado corporation (a wholly
owned subsidiary of SmartServ Online, Inc.). Our website address is
www.smartserv.com. We do not intend for the information contained on our website
to be incorporated by reference into, or to form any part of, this prospectus.

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

THE OFFERING

Common stock offered by selling
stockholders................. 24,622,202 shares

Common stock outstanding before
this offering................ 2,878,840 shares

Use of proceeds...................... We will not receive any proceeds from
the sale of shares offered by the
selling stockholders. However, we will
receive approximately $39 million if all
of the warrants for the underlying
shares of common stock being registered
are exercised. We will use this amount
for general corporate purposes,
including working capital.

Plan of distribution................ The offering is made by the selling
stockholders named in this prospectus,
to the extent they sell shares. Sales
may be made in the open market or in
private negotiated transactions, at
fixed or negotiated prices.

Over The Counter Bulletin Board
symbol....................... SSRV

The number of shares outstanding before this offering is based on 2,878,840
shares outstanding as of April 15, 2004. The above table excludes, as of April
15, 2004:

o 2,620,472 shares of common stock reserved for issuance under our
various compensation plans offered to our employees and non-employee
directors and individual stock option agreements with certain of our
employees, of which 2,602,972 shares are subject to outstanding
options, with a weighted average exercise price of $2.42 per share;
o 16,149,316 shares of common stock reserved for issuance under
outstanding warrants;
o 8,764,910 shares of common stock reserved for issuance upon the
conversion of the 876,491 shares of Series A convertible preferred
stock outstanding; and
o 167,042 shares of common stock to be issued to certain finders related
to transactions in 2003 and 2004, of which 157,597 shares will be
issued to TecCapital, Ltd. and 9,445 shares will be issued to Spencer
Trask Ventures, Inc.

We completed a one-for-six reverse stock split effective November 25, 2003.
Unless otherwise noted, descriptions of stockholdings and convertible securities
reflect this one-for-six reverse stock split.

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

SUMMARY CONSOLIDATED FINANCIAL DATA

This summary consolidated financial data is derived from our audited
consolidated financial statements for the years ended December 31, 2003 and
2002, which are included elsewhere herein. You should read the following summary
financial data in conjunction with the financial statements and notes to those
financial statements.

Year Ended December 31
----------------------------
2003 2002
------------ ------------
Statement of Operating Data:
- ----------------------------
Revenues $ 709,388 $ 195,817
------------ ------------
Costs and expenses
Operating Costs (6,882,722) (13,713,110)
Stock based compensation (374,569) 80,295
Impairment of capital
assets and capitalized
software (1,548,473) --
------------ ------------

Total costs and expenses (8,805,764) (13,632,815)
------------ ------------

Loss from operations (8,096,376) (13,436,998)
------------ ------------

Net interest expense and other
financing costs (10,121,221) (279,436)
Gain from extinguishment of
debt 305,822 5,679,261
Insurance recovery 374,000 --
------------ ------------
Net loss $(17,537,775) $ (8,037,173)
============ ============
Basic loss per share $ (8.46) $ (6.01)
============ ============

Diluted loss per share/1/ $ (8.46) $ (6.01)
============ ============

Weighted average shares
outstanding - basic 2,073,448 1,336,673
============ ============

Weighted average shares
outstanding - diluted/1/ 2,073,448 1,336,673
============ ============

Balance Sheet Data:
- -------------------
Total assets $ 836,685 $ 3,351,925
Note payable 3,340,430 500,000
Accumulated deficit (90,396,781) (72,859,006)
Stockholders' equity
(deficiency) (5,469,387) 173,299

- ----------
1 Outstanding employee stock options and other warrants to purchase an
aggregate of 4,447,416 and 1,163,833 shares of common stock at December 31, 2003
and 2002, respectively, were not included in the computation of the diluted loss
per share because either we reported a loss for the period or their exercise
prices were greater than the average market price of the common stock and
therefore would be antidilutive.
- --------------------------------------------------------------------------------

RISK FACTORS

An investment in SmartServ involves a high degree of risk. You should carefully
consider the following risk factors and other information in this prospectus
before deciding to buy our common stock. The risks described below are not the
only ones that we face. Additional risks that generally apply to publicly traded
companies, that are not yet identified or that we currently think are
immaterial, may also have a material adverse effect on our company. If any of
the events, contingencies, circumstances or conditions described in the
following risks actually occur, our business, financial condition or results of
operations could be seriously and irreparably harmed. The trading price of our
common stock could, in turn, decline and you could lose all or part of your
investment in our company.

We may not have sufficient working capital in the long term

We will be using our working capital to fund the business of nReach (which
historically has incurred losses), test and launch the bundling of prepaid
wireless airtime cards with premium content and fund our existing business
(which currently operates at a loss). We used $1,391,500 of the approximately
$8,600,000 net proceeds from the 2004 Private Placement to repay Global Capital
Funding Group, LP. We also anticipate using a significant portion of our working
capital to settle our accounts payable, which accounts payable were
approximately $1,700,000 as of December 31, 2003. It is likely we may require
additional funds in the long term depending upon the growth of our revenues, our
business strategy, the costs of any acquisitions and other factors. We can give
no assurance that we will be able to obtain sufficient debt or equity capital
now or in the future to support our operations. Should we be unable to raise
sufficient debt or equity capital, we will be forced to cease operations or seek
a merger if possible.

We have a history of losses and we have never been profitable. If we do not
achieve profitability we may not be able to continue our business.

We have, since our inception, earned limited revenues and incurred substantial
recurring operating losses, including net losses of $17,537,775 for the year
ended December 31, 2003, and net losses of $8,037,173 and $14,819,860 for the
years ended December 31, 2002 and 2001, respectively. Additionally, at December
31, 2003, we had an accumulated deficit of $90,396,781. Losses have resulted
principally from expenses 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 expect to continue to have negative
cash flows from operations. No assurance can be provided that we will be able to
develop revenues sufficient to generate positive cash flow from our operations.

We have significant accounts payable obligations.

We have significant accounts payable obligations, many of which are past their
stated terms of payment. We have many creditors who are demanding payment and
either commencing or threatening to commence legal actions to collect what we
may owe them. We expect to incur substantial expenses in defending those
collection actions. We are using a substantial amount of our working capital to
compromise with and pay various creditors. In general, any company that does not
pay its creditors in a timely manner is at risk of being forced into an
involuntary bankruptcy proceeding instituted by its creditors, which may provide
for the liquidation of assets or the reorganization of assets and debts. There
can be no assurance that our creditors will not pursue similar actions, and
that, in the aggregate, such collection actions by creditors and payments by us
to compromise and pay such claims would not have a material adverse impact on
our business, financial condition and results of operations, or that we will not
be forced into bankruptcy.

We plan to pursue potential acquisitions, and we may not be able to complete or
successfully integrate such acquisitions, or achieve the desired results.

Our business plan includes growth through potential strategic acquisitions such
as the nReach transaction. We have no history of completing acquisitions or
successfully integrating such acquisitions into our company. We will expend
significant management time and financial resources in finding, evaluating, and
if appropriate, acquiring companies that can add value to our shareholders.
Acquisitions are accompanied by a number of risks, including:

o the difficulty and expense of integrating the operations and personnel
of the acquired companies;

o the potential disruption of the ongoing businesses and distraction of
our management and the management of the acquired companies;

o increase in expenses and the potential failure to achieve additional
sales and enhance our customer base as a result of the acquisitions;

o potential unknown liabilities associated with the acquired businesses;
and

o if we identify suitable acquisition targets, there can be no assurance
that we will be able to complete the acquisitions. Even if we complete
such acquisitions, we may not succeed in managing the associated
acquisition risks, including but not limited to, the risks described
above. Our failure to successfully integrate our acquisitions could
have a material adverse effect on our business, financial condition
and results of operations.

Furthermore, we may issue equity securities or incur additional debt to pay for
any future acquisitions. The issuance of equity securities would be dilutive to
our existing stockholders and additional debt could have an adverse effect on
our balance sheet.

Only one of our four major customers will continue to generate revenues for us
in 2004.

Substantially all of our revenues were generated through our licensing
arrangements with four customers for the year ended December 31, 2003. Only one
of these four customers will continue to generate revenues for us in 2004. Our
revenues will be adversely affected from the loss of these three customers. We
anticipate that our results from operations for the immediate future may
continue to depend to a significant extent upon revenues from a small number of
customers until we can develop revenues from more customers, including
consumers. In order to increase our revenues, we will need to attract and retain
additional customers. There can be no assurance that we will be able to obtain a
sufficient number of additional customers to support our operations.

We plan to pursue new streams of revenue from the resale of prepaid wireless
airtime bundled with wireless data content, and revenues from such business may
not materialize.

We believe that we have a unique combination of content assets, including those
currently owned or licensed and those that we plan to acquire, that may allow us
to take a leadership position in the market for bundled prepaid voice and
premium content and, later, a substantial position in the much larger market for
the reselling of post-paid cell phone service. Thus, by providing a set of
products that bundle cell phone airtime with affinity-related content delivered
through our current technology infrastructure, we plan to enter the emerging
market for reselling wireless airtime. We have no prior experience in this area,
and significant financial resources will be devoted to this new business. Our
failure to generate significant revenues from these efforts could have a
material adverse affect on our business, financial condition and results of
operations.

We have a new CEO and executive management team.

We believe that due to the rapid pace of our industry, as well as the unique
challenges of growing our company, the quality of our executive officers will be
key to our success. Our prior CEO, CFO and the balance of our executive
management team left the company during 2003 and in the first quarter of 2004.
There is a substantial risk that our new management team may not be able to
successfully manage and grow the business. This would have a material adverse
effect on our business, financial condition and results of operations.

The market for our business is in the development stage and may not achieve the
growth we expect.

The market for mobile data services and premium content such as ringtones,
images and games is highly dependent upon the evolution of wireless and Internet
technologies, and is still in the development stage. Our future growth and
profitability will depend, in part, upon consumer acceptance of mobile data
services and premium content in general and a

significant expansion in the consumer market for the delivery of such services
and content to mobile phones. Even if these markets experience substantial
growth, there can be no assurance that our products and services will be
commercially successful or will benefit from such growth. Further, even if
initially successful, any continued development and expansion of the market for
our products and services will depend in part upon our ability to create and
develop additional products and adjust existing products in accordance with
changing consumer preferences, all at competitive prices. Our failure to develop
new products and generate revenues could have a material adverse effect on our
business, financial condition and results of operations.

We depend upon revenue-sharing agreements with carriers and enterprise
customers.

We sell our products and services primarily by entering into non-exclusive
agreements with carriers and enterprise customers who offer such products and
services to their subscribers, employees and clients. Our success will depend
upon:

o our ability to continue to enter into revenue sharing agreements with
additional carriers and enterprise customers; and

o their ability to successfully market, sell and generate revenues from
our products and services.

There can be no assurance that we will successfully maintain these revenue
sharing arrangements, enter into new ones, or that our customers will develop
and sustain a market for our products and services.

We compete against larger, well-known companies with greater resources.

The market for mobile data services is highly competitive and involves rapid
innovation and technological change, shifting consumer preferences and frequent
new product and service introductions. Many of our competitors and potential
competitors have substantially greater financial, marketing and technical
resources than we have.

The principal competitive factors in both the Internet-based and wireless
services industries 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 wireless data
delivery. We face competition from numerous services delivered through the
Internet to personal computers. Companies offering competing services include
Semotus Solutions, Inc., Aether Systems, Inc., 724 Solutions, Inc., Everypath
and Infospace. We expect competition to increase from existing competitors and
from new competitors.

The content provided in our products is generally licensed through non-exclusive
content distribution agreements. While we are not dependent on any single
content provider, existing and potential competitors may enter into agreements
with these and other providers and thereby acquire the ability to deliver
content that is substantially similar to the content provided by us.

Our planned entry into the prepaid wireless reseller business also presents
competitive challenges. Although the facilities-less wireless reseller business
in the US is relatively new, Virgin Mobile, which has a strong market presence
in the UK, already has a growing presence in the US. TracFone Wireless, Inc., a
subsidiary of Mexico's dominant wireless carrier America Movil, has been in
business in the US for several years. TracFone sells phones and prepaid airtime
cards through many major retailers in the US. We also face competition from the
wireless carriers themselves, all of whom already offer prepaid wireless voice
services.

Our inability to successfully manage and adjust to these competitive forces
could have a material adverse effect on our business, financial condition and
results of operations.

Our relationship with Spencer Trask.

Spencer Trask and its affiliates own approximately 8% of the outstanding shares
of our common stock as of April 15, 2004, and in the event its preferred stock
is converted and warrants are exercised, Spencer Trask and its affiliates could

potentially own approximately 65% of the shares of common stock. Based on such
ownership, Spencer Trask will be able to affect and exercise some manner of
control over us and our operations.

During 2003 and the first quarter of 2004, we paid to Spencer Trask $1,719,880
in cash (including consulting fees, finders fees and non-accountable expenses),
issued 226,111 shares of our common stock, and issued warrants to purchase
4,328,516 shares our common stock at exercise prices ranging from $1.50 to $2.82
per share. We are also contractually obligated to pay Spencer Trask $15,000 in
cash for consulting fees for the months of April and May 2004 and to issue 9,445
shares of common stock to Spencer Trask as finders fees for the November bridge
financing. We also owe a finders fee to Spencer Trask in connection with the
nReach acquisition and Spencer Trask has agreed to accept shares of our common
stock in lieu of a cash payment. While we believe our financial arrangements
with Spencer Trask have been appropriate, there can be no assurance that future
financial arrangements may not be unduly affected by the extent of Spencer
Trask's ownership of us.

We are involved in pending material litigation.

During February 2000, Commonwealth Associates, L.P. ("Commonwealth") filed a
complaint against us in the Supreme Court of the State of New York, County of
New York. The complaint alleged that in August of 1999, Commonwealth and us
entered into an engagement letter that provided for a nonrefundable fee to
Commonwealth of $15,000 payable in cash or common stock at our option. The
complaint alleged that we elected to pay the fee in stock and, as a result,
Commonwealth sought 13,333 shares of common stock or at least $1,770,000
together with interest and costs. In our defense, we denied that we elected to
pay in stock. During March 2003, we received a favorable decision in this matter
after a trial held in the Supreme Court of the State of New York. The decision
holds that, consistent with our defense, we are required to pay Commonwealth a
retainer fee of only $13,439, plus interest and certain costs. Commonwealth's
time to appeal has not yet expired because a notice to enter the judgment has
not yet been filed by either side. While we intend to vigorously defend any
appeal of the decision, the unfavorable outcome of such an appeal could have a
material adverse effect on our business, financial condition and results of
operations.

On or about March 22, 2004, Jenkens & Gilchrist Parker Chapin, LLP, our former
legal counsel, filed a complaint against us in the Supreme Court of the State of
New York, County of New York. The complaint seeks payment of unpaid invoices for
legal services in the amount of $599,244. While we intend to vigorously defend
such lawsuit, an unfavorable outcome could have a material adverse effect on our
financial condition, results of operation and cash flows.

Additional risks associated with a pending lawsuit against Citigroup.

A claim was filed during 2003 in US District Court, Northern District of
Illinois by over one hundred investors in our common stock against Citigroup
Global Markets, Inc., Citigroup, Inc., and an individual institutional broker at
Citigroup, alleging fraud in connection with such investors' investment in
SmartServ. Neither us, nor any of any of our employees, consultants, officers,
directors or agents have been named as defendants in this lawsuit. However, we
can provide no assurances that we or any of our current or former employees,
consultants, officers, directors or agents will not be brought into the lawsuit
by the plaintiffs or the defendants. We believe any such claim would be without
merit. In such case, we would vigorously defend the action, however, there can
be no assurance that we would be successful. Further, if we are named in this
lawsuit, we would have to devote financial and other resources, diverting
management's attention from our business, and an unfavorable outcome could have
a material adverse effect on our business, financial condition and results of
operations. Even if no claim is made against us, any negative publicity
regarding this lawsuit could have a material adverse effect on our business,
financial condition and results of operations.

We may not be able to adequately protect our proprietary rights.

We have designed and developed our own "device agnostic" information platform,
made up of our patent-pending W2W MiddlewareTM and our content and processing
engines. This platform is comprised of the W2W MiddlewareTM, based on the
Windows NT operating system, and the authorization, quote, news and transaction
engines, based on Hewlett-Packard Company's Unix operating system and Oracle
Corp.'s version 9i parallel server database. This platform supports a wide array
of browsers and client side environments operating on wireless and wired
networks.

We rely upon a combination of contract provisions, as well as trade secret,
patent, trademark and copyright laws, to protect our proprietary rights. We
license our products and related services under agreements that contain terms
and conditions prohibiting the unauthorized use or reproduction of those
products and services. Although we intend to vigorously protect our rights, if
necessary, the cost could be burdensome and there can be no assurance that we
would be successful.

We believe that none of our products, services, trademarks or other proprietary
rights infringes 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
costly litigation, either of which could have a material adverse effect on our
business, financial condition and results of operations.

We are highly dependent on attracting and retaining highly skilled sales,
marketing and technology development personnel.

We believe that our ability to increase revenues and to develop successful new
products and product enhancements depends in part upon our ability to attract
and retain highly skilled sales, marketing and technology development personnel.
Our products involve a number of evolving technologies. Competition for such
personnel is intense. Our ability to hire and retain such key personnel will
depend upon our ability to raise capital and achieve increased revenue levels to
fund the costs associated with such key personnel. Failure to attract and retain
such key personnel could adversely affect our ability to develop new products
and product enhancements and to generate revenue from the sale of those
products, thereby having a material adverse effect on our business, financial
condition and results of operations.

The market price of our common stock may decrease because we have issued, and
will likely continue to issue, a substantial number of securities convertible or
exercisable into our Common Stock.

We will have issued convertible preferred stock and warrants to investors and
consultants and granted options to employees for the purchase of an aggregate of
27,534,698 shares of our common stock as of April 15, 2004, and in the future we
will issue additional shares of common stock, options, warrants, preferred stock
or other securities exercisable for or convertible into our common stock.
Substantially all of such shares underlying the convertible preferred stock and
warrants have registration rights, and many are being registered for sale by
this prospectus. Additional shares are available for sale under Rule 144 of the
Securities Act. Sales of these shares or the market's perception that 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.

Our common stock trades on the Over The Counter Bulletin Board, which subjects
it to less liquidity and more volatility than our prior Nasdaq SmallCap listing.

Since June 27, 2003, our common stock has been trading on the Over The Counter
("OTC") Bulletin Board. This may influence the number of investors willing to
trade in our common stock, and therefore could decrease the liquidity and
trading volume of our common stock. Additionally, our position on the OTC
Bulletin Board may reduce the number of market makers willing to trade in our
stock, making it likely that wider fluctuations in the quoted price of our
common stock would occur. As a result, there is a risk that stockholders will
not be able to obtain price quotes that reflect the actual value of our common
stock. Increases in the volatility of our common stock due to the decreased
number of individuals willing to trade in it could also make it more difficult
to pledge the common stock as collateral, if stockholders sought to do so,
because a lender might be unable to accurately value the common stock.

In addition, we are subject to the Securities and Exchange Commission's penny
stock rules. Penny stocks are securities with a price of less than $5.00 per
share, other than securities that are registered on certain national securities
exchanges, that are quoted on Nasdaq or that meet certain conditions. The penny
stock rules require delivery, by a broker-dealer prior to any transaction in a
penny stock, of a disclosure schedule about commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. The rules also require that broker-dealers send monthly statements
disclosing recent price information for each penny stock held in the account and
information on the limited market in penny stocks. Because of the burden placed
on broker-dealers to comply with the penny stock rules, stockholders may have
difficulty selling our common stock in the open market.

Provisions in our charter may make it difficult for a company or person to
acquire us.

Our charter restricts the ability of our stockholders to call a stockholders'
meeting and provides that our stockholders may not act by written consent.
Additionally, our Board of Directors is divided into three classes with each
class being elected by our stockholders in different years. Our charter
restricts the ability of our stockholders to 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 our company, including transactions in which our
stockholders might 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.

SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS

Some of the statements in this prospectus 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"
and below under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and those set forth in our other filings with the
Securities and Exchange Commission. You can identify these statements by the
fact that they do not relate strictly to historical or current facts. The words
"believe," "expect," "anticipate," "intend" and "plan" and similar expressions
are often used to identify forward-looking statements. We caution you not to
place undue reliance on these forward-looking statements. We undertake no
obligation to update or revise any forward-looking statements or to publicly
announce the result of any revisions to any of the forward-looking statements in
this document to reflect future events or developments.

USE OF PROCEEDS

The selling stockholders are selling all of the shares covered by this
prospectus for their own account. Accordingly, we will not receive any proceeds
from the resale of shares. We will, however, receive approximately $39 million
if all of the warrants for 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

On June 27, 2003, our common stock, $.01 par value per share, commenced trading
on the OTC Bulletin Board. Quotations from the OTC Bulletin Board (SSRV) reflect
inter-dealer prices, without retail mark-up, mark-down, or commission, and may
not represent actual transactions.

From August 20, 2002 to June 26, 2003 our common stock traded on the Nasdaq
SmallCap Market as SSOL. Prior thereto, our common stock was traded on the
Nasdaq National Market as SSOL. In each instance, our common stock was de-listed
from the applicable Nasdaq stock market for failure to meet the continued
listing requirements.

The following table sets forth the high and low prices for the common stock
during the periods indicated as reported by the Nasdaq National Market, the
Nasdaq Smallcap Market and the OTC Bulletin Board, as applicable. All amounts
reflect the one-for-six reverse stock split effective November 25, 2003.

Common Stock
------------
High Low
---- ---
Year Ended December 31, 2003
----------------------------
First Quarter $10.44 $4.86
Second Quarter 7.50 2.52
Third Quarter 3.06 1.02
Fourth Quarter 3.00 1.15

Year Ended December 31, 2002
----------------------------
First Quarter $42.60 $28.98
Second Quarter 37.50 4.02
Third Quarter 13.56 3.60
Fourth Quarter 12.36 6.36

As of April 15, 2004, we had 2,808,283 shares of common stock outstanding held
by approximately 140 record holders.

Dividend Policy

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 on
our common stock until our earnings and financial condition justify such
dividends, and there can be no assurance that we can achieve such earnings. The
terms of our Series A convertible preferred stock provide that no dividends can
be paid on our common stock unless an equal or greater dividend is paid on the
preferred stock and all accrued and unpaid dividends on the preferred stock have
been paid. The Series A convertible preferred stock receives dividends at the
rate of 8% per year payable quarterly in cash or, in our sole discretion, in
registered shares of our common stock.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

This discussion and analysis of our financial condition and results of
operations contain certain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Actual results could
differ materially from those anticipated in these forward-looking statements for
many reasons, including the risks faced by us described in "Risk Factors" and
elsewhere in this prospectus.

We design, develop and distribute software and services that enable the delivery
to wireless devices of various content, with special emphasis on cell phones.
The content which we provide includes premium content such as ringtones, images
and games, and dynamic changing content such as horoscopes, lottery results and
weather reports. Historically, we have licensed our applications, content and
related services to wireless carriers and enterprises. We have revenue sharing
license agreements with wireless carriers such as Verizon Wireless, AT&T
Wireless, Nextel and ALLTEL Wireless, that allow us to deliver our services and
branded content to a wide base of consumer cell phone users. For enterprises, we
have in the past offered solutions that deliver financial market data,
proprietary internal documents and other useful information to mobile workers,
although this no longer comprises a core part of our business or strategy.

Due to the substantial expenses and negative cash flows from operations that we
have incurred, Ernst & Young LLP, in their report contained in our December 31,
2002 financial statements, indicated that there was a substantial doubt about
our ability to continue as a going concern as of the date of their opinion.
However, in February 2004, we completed the closing of a $10 million private
offering of investment Units consisting of shares of Series A Convertible
Preferred Stock and warrants to purchase common stock ("2004 Private
Placement"). We have used and expect to use the net proceeds of approximately
$8,600,000 from this offering for repayment of outstanding obligations
(including $1,391,500 that was used to repay Global Capital Funding Group, LP),
completion of strategic acquisitions and general working capital. We believe we
have sufficient working capital for the short term. It is likely we may require
additional funds in the long term depending upon the growth of our revenues, our
business strategy, the costs of any acquisitions and other factors.

We believe that the evolution of the cellular industry is at an important
turning point, where both consumers and businesses are expecting more
functionality and features from both their cell phones and their cellular
carriers. This expectation is being driven by a number of industry trends
including highly competitive pricing packages, newer and more functional cell
phones and mobile devices, and the customers' ability to take their cell phone
number with them to a new carrier that offers them more value than the
incumbent. Competition in this environment appears to be moving from
differentiation based on network coverage or minute rates to one based on
enhanced features and services. We believe that as carriers' network coverage,
quality of service and pricing plans become more-or-less equal, cell phone
customers will choose a carrier based principally on the suite of premium
content and applications that are included with its service. This environment
will provide an opportunity for us to exploit our current and planned content
assets and delivery capabilities, developed over the past nine years.

To augment our capabilities, we acquired Colorado based nReach, Inc. on February
28, 2004 in exchange for 500,002 shares of our common stock, provided, if the
value of such 500,002 shares immediately prior to June 1, 2004 is less than
$900,000, we will issue up to 299,167 additional shares of our common stock with
respect to such difference in value. We also agreed to an earnout schedule to
pay up to an additional 916,667 shares of our common stock in the event we reach
certain revenue targets within five fiscal quarters following the closing of
this transaction at the rate of one share of our common stock for every dollar
of our revenue in excess of $2,700,000 (the "Earnout Trigger") during such five
fiscal quarters. In addition to the liabilities set forth in the financial
statements of nReach, we assumed (i) ordinary course liabilities since November
30, 2003, (ii) taxes accrued on earnings since December 31, 2002 which were not
yet due and payable as of the closing date, (iii) expenses incurred to
accountants and attorneys in the transaction not to exceed $25,000, and (iv)
short term borrowings up to $75,000 due to an nReach shareholder. nReach is a
wireless content distribution company that offers a broad portfolio of popular
mass-market cell phone content, including ringtones, games,

and on-device images both direct to the consumer and through wireless carriers.
This company may provide us with access to a large number of consumers through
its existing marketing arrangements with large retailers.

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

o Premium content, such as ring tones, images and games, that are
periodically delivered and reside on the mobile device; and
o Dynamic mobile applications, where the information or data content is
frequently changing and therefore frequently delivered to the mobile
device.

Our immediate focus will be on finding channels to market to specific segments
of consumers within the pre-paid wireless marketplace. The rapidly expanding
pre-paid market parallels the track taken a decade ago for pre-paid long
distance, but has an expanded reach since pre-paid wireless users can completely
avoid the monthly costs for a traditional home landline telephone.

While we believe that our new marketing strategies, as well as our carrier and
enterprise relationships are important to our success, no assurance can be given
that we will be able to implement our new marketing strategies or that our
carrier and enterprise relationships will be successful in our marketing efforts
or that our products and services will be well received in the marketplace. We
also expect to perform certain development projects during 2004 to enhance our
product offerings, including development of mobile lifestyle BREW and J2ME
applications.

As of March 15, 2004, we employed 20 people (including 8 nReach employees), all
of whom were employed in the United States. We anticipate that staffing
requirements associated with the implementation of our plan of operation will
require the addition of approximately 3 people during the year ending December
31, 2004.

On November 24, 2003, we announced that our new trading symbol on the OTC
Bulletin Board will be SSRV effective at market opening on November 25, 2003.
This new trading symbol was assigned by NASD in conjunction with our one-for-six
reverse stock split, which also took effect on November 25, 2003. Under the
reverse stock split, our outstanding shares of common stock prior to the reverse
split were exchanged for new shares of common stock at a ratio of one new share
for every six pre-split shares. All of our convertible securities, such as
convertible debentures, stock options and warrants, were also subject to the
reverse split. Our convertible securities are convertible or exercisable, as the
case may be, at six times the price for one-sixth the number of shares into
which such security was previously convertible or exercisable. All share amounts
of common stock and convertible securities reported in this prospectus are
adjusted for the split.

Selected Financial Data

Year Ended December 31
----------------------------
2003 2002
------------ ------------

Statement of Operating Data:
----------------------------
Revenues $ 709,388 $ 195,817
------------ ------------
Costs and expenses
Operating Costs (6,882,722) (13,713,110)
Stock based compensation (374,569) 80,295
Impairment of capital assets and capitalized
software (1,548,473) --
------------ ------------
Total costs and expenses (8,805,764) (13,632,815)
------------ ------------
Loss from operations (8,096,376) (13,436,998)
------------ ------------
Net interest expense and other financing costs (10,121,221) (279,436)
Gain from extinguishment of debt 305,822 5,679,261
Insurance recovery 374,000 --
------------ ------------
Net loss $(17,537,775) $ (8,037,173)
============ ============
Basic loss per share $ (8.46) $ (6.01)
============ ============
Diluted loss per share/1/ $ (8.46) $ (6.01)
============ ============
Weighted average shares outstanding - basic 2,073,448 1,336,673
============ ============
Weighted average shares outstanding - diluted/1/ 2,073,448 1,336,673
============ ============
Balance Sheet Data:
Total assets $ 836,685 $ 3,351,925
Note payable 3,340,430 500,000
Accumulated deficit (90,396,781) (72,859,006)
Stockholders' equity (deficiency) (5,469,387) 173,299

- ----------
1 Outstanding employee stock options and other warrants to purchase an
aggregate of 4,447,416 and 1,163,833 shares of common stock at December 31,
2003 and 2002, respectively, were not included in the computation of the
diluted loss per share because either we reported a loss for the period or
their exercise prices were greater than the average market price of the
common stock and therefore would be antidilutive.

Year Ended December 31, 2003 versus Year Ended December 31, 2002

During the year ended December 31, 2003, we recorded revenues of $709,388, a
262% increase over revenues for the year ended December 31, 2002. Of such
revenues, $263,000, $188,500, $136,300 and $108,000 were earned through our
licensing agreements with Salomon Smith Barney, Qualcomm, CitiGroup Global and
Wireless Retail Pins, respectively. We expect that during 2004, only one of such
customers, Qualcomm, will continue to generate revenues for us. During the year
ended December 31, 2002, we recorded revenues of $195,817. Of such revenues,
$181,800 were earned through our licensing agreement with Salomon Smith Barney.

During the year ended December 31, 2003, we incurred costs of services of
$2,732,571, a decrease of 51.4% over the year ended December 31, 2002. Such
costs decreased primarily due to reductions in consulting costs incurred in
connection with the development of our systems' architecture and application
platform. Components of the costs of service category consist primarily of
information and communication costs ($640,200), personnel costs ($1,142,600),
computer hardware leases, depreciation and maintenance costs, and amortization
expenses relating to capitalized software development costs ($800,586). During
the year ended December 31, 2002, we incurred costs of services of $5,620,994.
Components of these costs consisted primarily of information and communication
costs ($509,700), personnel costs ($2,652,100), computer hardware leases,
depreciation and maintenance costs ($1,773,500), facilities ($315,700) and
amortization expenses relating to capitalized software development costs
($271,700). During the year ended December 31, 2003 and 2002, we capitalized
$-0- and $185,895, respectively, of development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("Statement
No. 86").

During the year ended December 31, 2003, we incurred sales and marketing
expenses of $460,836, a decrease of 84.7% over $3,003,834 incurred for the year
ended December 31, 2002. Such costs decreased primarily due to travel and
personnel reductions associated with the closing of our Hong Kong and London
sales offices, U.S. personnel reductions and reductions in marketing
consultants' costs. Components of the sales and marketing category consist
primarily of personnel costs ($333,700), marketing consultants ($51,700),
advertising ($18,100) and travel ($39,900). During the year ended December 31,
2002, components of the sales and marketing category consist primarily of
personnel costs ($1,698,200), marketing consultants ($209,600), advertising
($613,500) and travel ($247,700).

During the year ended December 31, 2003, we incurred general and administrative
expenses of $3,335,109, a decrease of 24.6% over the year ended December 31,
2002. Such costs decreased primarily due to a reduction in personnel costs and
the termination of litigation. Components of the general and administrative
category consist primarily of personnel costs ($665,100), professional fees
($1,234,500), facilities ($440,400), insurance ($220,100), computer hardware
leases, depreciation and maintenance costs ($103,400), travel ($56,700) and
communications costs ($55,900). During the year ended December 31, 2002, we
incurred general and administrative expenses of $4,423,642. Components of these
costs consisted primarily of personnel costs ($1,463,100), facilities
($527,600), insurance ($530,500), computer hardware leases, depreciation and
maintenance costs ($183,100), travel ($99,100) and communications costs
($62,800).

During the quarter ended June 30, 2003, we recorded a valuation allowance of
$270,000 in connection with the potential uncollectibility of a recourse note
from Mr. Cassetta, our former Chairman and Chief Executive Officer, which note
relates to his purchase of our restricted stock in January 2000.

In addition, during the quarter ended December 31, 2002, we recorded a valuation
allowance of $664,640 in connection with the potential uncollectibility of loans
made to Mr. Cassetta, which loans included the restricted stock note and loans
in the original principal amount of $500,000. Mr. Cassetta's ability to repay
these loans was highly contingent on the market value of his investment in our
common stock. In his separation agreement in October 2003, we extended the
maturity date of the loan for the restricted stock until September 2004 and
forgave over a 3 year period the loans in the aggregate original principal
amount of $500,000 plus the accrued interest thereon.

During the year ended December 31, 2003, the net noncash charge for stock-based
compensation amounted to $374,569 compared to a net noncash credit of $80,295
during the year ended December 31, 2002. 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 employee stock options are subject to the

variable plan requirements of APB No. 25, as they were repriced, and therefore,
compensation expense is recognized for changes in the fair value of our common
stock. Noncash charges for consulting services for the year ended December 31,
2003 and 2002 were $600,400 and $597,396, respectively, resulting primarily from
the amortization of deferred costs associated with the prior issuance of
warrants to purchase common stock to various financial, marketing and technical
consultants.

Interest income for the year ended December 31, 2003 and 2002 amounted to
$11,601 and $266,118, respectively. Such amounts were earned primarily from our
investments in highly liquid commercial paper, money fund accounts and notes
receivable from officers. During the year ended December 31, 2003 and 2002,
interest and other financing costs were $10,132,872 and $525,165, respectively.
During the year ended December 31, 2003, interest and other financing costs were
incurred in connection with the convertible bridge notes issued in February,
May, June, September and November 2003 in anticipation of closing our funding
raise of $10 million in February 2004. Such 2002 costs were incurred primarily
in connection with the $20 million line of credit facility with Hewlett-Packard
("HP"). In September 2002, we amended the terms of our promissory note to HP to
provide for the (i) reduction of our aggregate outstanding principal and accrued
interest amount of $7,045,000 to $1,000,000, (ii) return of certain unused
hardware by us, (iii) issuance by us of a warrant for the purchase of 8,333
shares of common stock, and (iv) repayment of $500,000 of the amended obligation
on September 10, 2002. In connection therewith, we recorded a charge to earnings
of $38,000 representing the fair value of the warrant as determined in
accordance with the Black-Scholes model and recognized a net gain of $5,679,261
from the extinguishment of this obligation.

Basic and diluted loss per share was $8.46 for the year ended December 31, 2003
compared to a basic and diluted loss per share of $6.01 for the year ended
December 31, 2002. The weighted average shares outstanding increased to
2,073,448 for the year ended December 31, 2003 from 1,336,673 weighted average
shares outstanding for the year ended December 31, 2002.

Capital Resources and Liquidity

At December 31, 2003 and 2002, the Company had cash of $139,178 and $154,800,
respectively. Net cash used in operations was $3,929,136 for the year ended
December 31, 2003 compared to $9,839,000 during the year ended December 31,
2002. The primary reasons for this reduction were our initiatives to close the
Hong Kong and United Kingdom sales offices, reduce our personnel and trim our
operations. Other uses of cash during the twelve months ended December 31, 2003
were primarily for the partial repayment of our obligations to HP in the amount
of $225,000. During the year ended December 31, 2003, we issued convertible
notes in the amount of $3,340,400. Additionally, warrant holders provided funds
aggregating approximately $376,000 through the exercise of warrants.

Uses of cash during the year ended December 31, 2002 were primarily for the
partial repayment of our obligation to HP in the amount of $500,000, the
purchase of computer equipment and related software in the amount of $166,700
and the capitalization of software development costs in the amount of $186,000.

In May 2000, we entered into a Business Alliance Agreement with HP whereby the
companies agreed to jointly market their respective products and services and to
work on the build-out of our domestic and international infrastructure. In
furtherance of these objectives HP provided us with a line of credit of up to
$20,000,000 for the acquisition of approved hardware, software and services. As
of September 28, 2001, the expiration date of the facility, HP had advanced us
$6,723,156 thereunder. In September 2002, we reached agreement with HP to amend
the terms of the promissory note to provide for the (i) reduction of our
aggregate outstanding principal and accrued interest amount of $7,045,000 to
$1,000,000, (ii) return of certain unused hardware by us, (iii) issuance by us
of a warrant for the purchase of 8,333 shares of common stock and (iv) repayment
of $500,000 of the amended obligation on September 10, 2002. The remaining
obligation was evidenced by a note, bearing an interest rate of 11%, to be
repaid as follows: $200,000 on December 31, 2002, $200,000 on January 28, 2003
and $100,000 on February 27, 2003. The warrant expires on September 9, 2005 and
has an exercise price of $10.494 per share. In connection therewith, we recorded
a charge to earnings of $38,000 representing the fair value of the warrant as
determined in accordance with the Black-Scholes model. Additionally, we
recognized a net gain of $5,679,261 in 2002 resulting from the extinguishment of
this obligation. In February 2003, we reached agreement with HP to amend the
terms of the amended promissory note to provide for the settlement of our
outstanding obligation of $530,800, inclusive of accrued interest of $30,800, in
consideration of the payment by us of

$225,000. As a result, during the quarter ended March 31, 2003, we recognized an
additional gain of $305,822, resulting from the extinguishment of this
obligation.

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

In September 2002, we issued Units consisting of 647,368 shares of our common
stock and warrants to purchase 323,685 shares of common stock, exercisable at
$5.10 through September 8, 2007, to 22 accredited investors at a purchase price
of $5.4750 per Unit. Gross proceeds from this transaction amounted to
$3,544,346. We agreed to pay fees consisting of $249,050, an expense allowance
of $25,000, and warrants to purchase 73,008 shares of common stock at an
exercise price of $5.10 per share, expiring on September 8, 2007, as
compensation to certain individuals and entities that acted as finders.
Additionally, we incurred costs and other fees of $28,000 in connection with
this transaction. The warrants expire in September 2007 and are not callable by
us. Therefore, they cannot be relied upon by the Company as a definite source of
capital. The warrant holders may choose to exercise their warrants if the market
price of the Company's common stock exceeds the exercise price of the warrant.
Between January 1, 2003 through April, 2003, warrants issued in September, 2002
for the purchase of 73,731 shares of common stock were exercised. Proceeds from
such exercises were $376,000.

During the year ended December 31, 2002, we recorded a valuation allowance of
$664,640 in connection with the potential uncollectibility of outstanding loans
made to Mr. Sebastian Cassetta, our then Chairman and Chief Executive Officer,
which included a loan used by him to purchase our restricted stock in January
2000 and loans in the original principal amount of $500,000. Additionally,
during the quarter ended June 30, 2003, we recorded a valuation allowance of
$270,000 in connection with the potential uncollectibility of the restricted
stock loan. Mr. Cassetta's ability to repay these loans and interest thereon is
highly contingent on the market value of his investment in our common stock. In
his separation agreement in October 2003, we extended the maturity date of the
loan for the restricted stock until September 2004 and forgave over a 3 year
period the loans in the aggregate original principal amount of $500,000 plus the
accrued interest thereon. See description under "Agreements with Named Executive
Officers."

During the quarter ended June 30, 2003, we recorded a valuation allowance of
$129,000 in connection with the potential uncollectibility of a loan made to Mr.
Mario Rossi, our then Executive Vice President and Chief Technology Officer, for
the purchase of our restricted stock. During the quarter ended September 30,
2003, we recorded a partial recovery amounting to $44,500 in connection with
such obligation. Mr. Rossi's ability to repay this loan and interest thereon is
highly contingent on the market value of his investment in us. While this loan
had an original maturity date of December 2003, in his separation agreement in
October 2003, the maturity date was extended until April 15, 2004. If the loan
is not repaid on or before that date, Mr. Rossi shall assign and transfer all of
the restricted shares of stock to us and we shall cancel the non-recourse debt.
In January 2004, Mr. Rossi assigned and transferred all 34,397 restricted shares
of common stock to us in full satisfaction of the outstanding non-recourse debt
of $68,000.

At December 31, 2002, 287,500 public warrants (SSOLW) and 50,000 warrants with
terms identical to the public warrants were outstanding. These warrants were
convertible into our common stock at the ratio of 15 warrants per share of
common stock at an exercise price of $63.00 per share. These warrants were
redeemable by us on not less than 30 days written notice at the redemption price
of $0.60 per warrant, provided the average closing bid quotation of the common
stock as reported on the Nasdaq Stock Market has been at least 187.5% of the
current exercise price of the warrants for a period of 20 consecutive trading
days ending on the third day prior to the date on which we give notice of
redemption. These warrants expired on March 20, 2003.

In January 2003, we issued a note to Steven B. Rosner in consideration of
$70,000. Proceeds from the note were used for working capital. The debt was
evidenced by an unsecured note bearing an interest rate of 12% per annum and was
repaid in February 2003.

In February 2003, we issued a convertible note to Global Capital Funding Group,
LP ("Global") in consideration for the receipt of $1 million. The note bore
interest at the rate of 10% per annum, was secured by our assets, exclusive of
our internally developed software products. As additional consideration, we
issued Global a warrant for the purchase of 33,333 shares of our common stock at
an exercise price of $9.68 per share. Alpine Capital Partners, Inc. ("Alpine")
received a finder's fee of $70,000, representing 7% of the aggregate purchase
price of the convertible note, and a warrant to purchase 15,167 shares of common
stock exercisable at $9.66 per share, expiring on February 14, 2005, in
connection with this transaction. In April 2003, we borrowed an additional
$250,000 from Global and amended the convertible note to include such amount. As
additional consideration, we issued Global a warrant for the purchase of 3,333
shares of our common stock at an exercise price of $7.20 per share. Alpine is to
receive a finder's fee of $17,500 in connection with the April amendment. The
warrants issued to Global and Alpine contain certain antidilution provisions and
expire on February 14, 2006. Proceeds from the notes were used for working
capital purposes. In November 2003, in connection with the sale of Units in the
November 2003 bridge financing and the sale of Units in the 2004 Private
Placement, we required the consent of Global. As an inducement to obtain its
consent, we issued Global a warrant to purchase 16,667 shares of common stock at
an exercise price of $2.40 per share. During February 2004, the note, as
amended, matured and was paid off in full including accrued interest.

In February 2003, we issued 20,590 shares of common stock to 5 vendors in
settlement of our obligations, aggregating $164,000, to such vendors.

In May 2003, in consideration of $358,000, we issued 3.58 Units consisting of
convertible notes and warrants to purchase common stock ("May Units") to 8
investors. Each May Unit consisted of a $100,000 convertible note and a warrant
to purchase 33,333 shares our common stock. The convertible notes bore interest
at 8% per annum, were convertible into our common stock at $4.464 (the average
of the closing bid prices of our common stock for the 5 days prior to the
closing of the transaction) per share and were to mature on the earlier of
November 19, 2003 or the closing of an equity placement of not less than $3
million. The warrants are exercisable at $4.464 per share and expire on May 19,
2006. In June 2003, in consideration of $1,142,000, we issued 11.42 Units ("June
Units") to 20 accredited investors. Each June Unit also consisted of a $100,000
convertible note and a warrant to purchase 33,333 shares of our common stock.
The convertible notes bore interest at 8% per annum, were convertible into our
common stock at $4.764 (the average of the closing bid prices of the our common
stock for the 5 days prior to the closing of the transaction) per share and were
to mature on the earlier of November 19, 2003 or the closing of an equity
placement of not less than $3 million. The warrants are exercisable at $4.764
per share and expire on June 13, 2006. Spencer Trask Ventures, Inc. ("Spencer
Trask"), Steven B. Rosner and Richard Berland acted as finders for the May and
June 2003 transactions. As consideration therefor, the finders received their
proportionate share of (i) a cash fee of $150,000, or 10% of the aggregate
purchase price of the Units sold; (ii) warrants to purchase 510,158 shares of
our common stock at an exercise price of $1.50 per share; and (iii) 5,555 shares
of unregistered common stock per Unit sold. These warrants provide for cashless
exercise and expire 5 years from the date of grant. In addition, Spencer Trask
received a non-accountable expense allowance of $45,000, or 3% of the aggregate
proceeds of all Units sold in the May and June 2003 transactions. Proceeds from
the sale of the Units were used for working capital purposes. In November 2003,
we, as an inducement to extend the maturity date of the notes to February 19,
2004, offered the noteholders a warrant to purchase additional shares of common
stock in an amount equal to 25% of the number of shares into which the notes
purchased in the Unit are convertible.

years after the date of grant. Finders' compensation to Spencer Trask and
Richard Berland for the September Transaction consisted of (i) a cash fee of
$60,000, or 10% of the aggregate purchase price of all of the Units; (ii)
warrants to purchase 102,988 shares of common stock, or 20% of the shares of
common stock underlying the securities in the Units sold, at exercise prices
ranging from $1.50 to $1.90 per share and expiring 5 years from the date of
grant; and (iii) 2,778 shares of unregistered common stock per Unit sold. In
addition, Spencer Trask received a non-accountable expense allowance of $18,000,
or 3% of the aggregate proceeds of all Units sold in the September Transaction.
All of the notes and the warrants have full ratchet anti-dilution protection. In
November 2003, as an inducement to extend the maturity date of the notes to
February 19, 2004, we offered the noteholders a warrant to purchase additional
shares of common stock in an amount equal to 25% of the number of shares into
which the notes purchased in the Unit are convertible.

The September Transaction required the consent of Global, the holder of $1.25
million of our convertible notes issued in February and April 2003, and of 51%
or more of the holders of our $1.5 million convertible notes issued in
connection with the bridge financings in May and June 2003. As an inducement to
obtain their consent, such holders received (i) a change in the conversion price
of their convertible notes equal to the lowest conversion price of the notes
issued in the September financings ($1.896 per share) and (ii) an increase in
the number of shares purchasable pursuant to the warrant to reflect a full
ratchet dilution formula with a decrease in the exercise price of the warrants
to the exercise price of the warrants issued in the September financing ($1.50).
Such amendment, as it pertains to the holders of convertible notes issued in the
May and June 2003 bridge financings, was effective on November 25, 2003,
coincident with the effective date of a one-for-six reverse stock split. We
recorded a charge in the amount of $4,828,000 as "Other Financing Costs" for the
fair value of the consideration granted to these note holders for such consent.

On November 11, 2003, we issued 18 Units in a financing transaction comprised of
a $50,000 convertible note ("November Notes") and a warrant ("November Warrant")
to purchase 16,667 shares of our common stock. The Units were sold to 20
investors for an aggregate of $900,000. Holders of the November Notes had the
right to convert the November Notes into shares of common stock at a price equal
to $2.10 per share. The November Notes bore interest at 8% per annum, and the
maturity date was the earlier of December 19, 2003 or the completion of an
equity placement of at least $3 million, at which time the November Notes would
automatically convert into the equity placement. Holders of the November
Warrants have the right to exercise the November Warrants into shares of common
stock at a price equal to $1.50 per share, and the warrants expire 3 years after
the date of grant. Finders' compensation to Spencer Trask and Richard Berland
consisted of (i) a cash fee of $90,000, or 10% of the aggregate purchase price
of all of the Units; (ii) warrants to purchase 136,000 shares of common stock,
or 20% of the shares of common stock underlying the securities in the Units
sold, at exercise prices ranging from $1.50 to $1.90 per share and expiring 5
years from the date of grant; and (iii) 2,778 shares of unregistered common
stock per Unit sold. In addition, Spencer Trask received a non-accountable
expense allowance of $27,000, or 3% of the aggregate proceeds of all Units sold
in the November transaction. All of the November Notes and the November Warrants
have full ratchet anti-dilution protection. In December 2003, as an inducement
to extend the maturity date of the November Notes to February 19, 2004, we
offered the noteholders a warrant to purchase additional shares of common stock
in an amount equal to 25% of the number of shares into which the notes purchased
in the Unit are convertible.

In February 2004, the convertible notes issued in the May, June, September and
November 2003 bridge financings were automatically converted into the Units
issued in connection with the 2004 Private Placement. The conversion took place
at the rate of $15 per Unit, which is the price at which the Units were sold in
the 2004 Private Placement. This resulted in the conversion of the aggregate
outstanding amount of debt owing from these convertible notes ($3,122,302 -
representing principal and accrued interest) into 208,147 Units from the 2004
Private Placement, which in the aggregate consists of 208,147 shares of Series A
Convertible Preferred Stock and warrants to purchase 2,081,470 shares of common
stock at an exercise price $2.82 per share. These warrants expire in February
2007. A description of the 2004 Private Placement is set forth below.

In February 2004, we completed the closing of a $10 million private offering of
investment Units at the price of $15 per Unit. Each Unit consists of (i) one
share of Series A convertible preferred stock, $.01 par value, each of which is
initially convertible into 10 shares of common stock, and (ii) one warrant for
the purchase of 10 shares of common stock. The Series A receives dividends at
the rate of 8% per year payable quarterly in cash or, in our sole discretion, in
registered shares of our common stock. The Series A is entitled to a liquidation
preference equal to the purchase price per Unit plus accrued and unpaid
dividends. The Series A is not redeemable. The warrants have an exercise price
of $2.82 per share and
20

expire in February 2007. We also completed the closing of an additional $25,000
private offering of these Units to an accredited investor in March 2004, which
Units have the same terms as described above other than the expiration date
which will be March 2007. We have used and expect to use the net proceeds of
approximately $8,600,000 from this offering of Units for repayment of
outstanding obligations, completion of strategic acquisitions and general
working capital.

While the warrants to purchase common stock issued during the year ended
December 31, 2003 and thereafter represent an additional source of capital, they
expire between May 2006 and November 2008 and are not callable by us. Therefore,
they cannot be relied upon by us as a definite source of capital. The warrant
holders may choose to exercise their warrants if the market price of our common
stock exceeds the exercise price of the warrant.

Our failure to timely file or keep registration statements effective has
affected the registration rights held by certain of our stockholders and warrant
holders. At December 31, 2003, we recorded an aggregate of $128,000 for
penalties in connection with the aforementioned registration requirements. Such
amounts are included in accrued expenses on our balance sheet. While we are
intending to cure these deficiencies during the first six months of 2004,
penalties may continue to accrue in certain circumstances.

Our financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. We have, since our inception,
earned limited revenues and incurred substantial recurring operating losses,
including net losses of $17,537,775, $8,037,173 and $14,819,860 for the years
ended December 31, 2003, 2002 and 2001, respectively, and net losses of
$30,993,559 and $7,124,126 for the years ended June 30, 2000 and 1999,
respectively. Additionally, we had an accumulated deficit of $72,859,006 at
December 31, 2002. These conditions had raised substantial doubt about our
ability to continue as a going concern. Such concern was expressed by Ernst &
Young LLP in their audit report regarding the financial statements included in
our Form 10-KSB for the year ended December 31, 2002. The financial statements
did 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.

However, in February 2004, we received net proceeds of approximately $8,600,000
from the 2004 Private Placement. We have used and expect to use the net proceeds
for repayment of outstanding obligations (including $1,391,500 that was used to
repay Global Capital Funding Group, LP). We anticipate using a significant
portion of our working capital to settle our accounts payable, which accounts
payable were approximately $1,700,000 as of December 31, 2003.

The economic downturn in general, and its impact on the telecommunications
industry in particular, caused telecommunications service providers to reduce
capital spending, personnel and debt, as well as new service introductions. This
had resulted in delays in the build-out of high-speed carrier data networks and
availability of data-enabled wireless devices, causing the market for our
financial data, lifestyle and transaction services to be lackluster. In
addition, many financial services firms curtailed new product development to
focus on data security and recovery. Consequently, the potential demand for our
products and services has been significantly delayed. Such delays have had a
very detrimental effect on our operations and have resulted in our inability to
implement our business plan and related marketing strategies. Consequently, in
May 2002, we commenced an effort to realign our infrastructure and related
overhead to correlate with reductions in projected revenue. As part of this
effort, we closed our UK and Hong Kong sales offices and downsized our domestic
operations through staff reductions to a level sufficient to support our
projected operations. In both March and May 2003, we reduced our cost structure
through the termination of additional personnel. Personnel headcount has been
reduced from 66 in May 2002 to the current level of 20 as of March 15, 2004
(including the nReach acquisition completed in March 2004). These efforts have
reduced our average monthly operating expenses from approximately $1,090,000 in
July 2002 to approximately $370,000 as of March 2004 (including operating
expenses of nReach), excluding non-cash stock compensation, depreciation and
amortization. We anticipate that our monthly operating expenses will increase
during 2004 due to the working capital requirements of the business of nReach,
as well as related to expansion of marketing and business development efforts
for all of our products and services and increased corporate overhead.

In March 2004, we completed the acquisition of all of the outstanding stock of
nReach Inc., based in Lakewood, Colorado, in exchange for 500,002 shares of our
common stock, the assumption and payment of $100,000 of certain

obligations of nReach's stockholders and an earn out schedule that may require
our payment of up to an additional 916,667 shares of common stock based on
certain revenue targets.

We believe we have sufficient working capital for the short term. It is likely
we may require additional funds in the long term depending upon the growth of
our revenues, our business strategy, the costs of any acquisitions and other
factors.

Application 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.

Revenue Recognition
- -------------------

We recognize revenue from the use of our products and services in accordance
with the American Institute of Certified Public Accountants ("AICPA") Statement
of Position ("SOP") 97-2, "Software Revenue Recognition", SOP 98-9,
"Modification of SOP 97-2, "Software Recognition with Respect to Certain
Transactions", and the SEC Staff Accounting Bulletin No. 104, "Revenue
Recognition". Specifically, there must be (1) evidence of an arrangement, (2)
delivery of our products and services, (3) fixed and determinable fees, and (4)
probable collectibility of such fees. Multi-element revenue agreements are
recognized based on vendor-specific objective evidence of the fair value of
individual components or if the elements in the arrangement cannot be separated,
all revenues from the arrangement are deferred until the earlier of (1) the
existence of vendor-specific objective evidence or (2) all elements of the
arrangement have been delivered.

The contract elements vary by both product and industry. The wireless carrier
market is dominated by the "data portal" concept, whereby a SmartServ developed
application is made available to a mobile customer through the carrier's
wireless data portal. Our wireless carrier model provides for the delivery of a
software license and related data, such as stock quotes, lottery results,
horoscopes and weather reports to the customers of the carrier. Our products
offer the carrier a new revenue stream and the ability to augment the carrier's
efforts to increase customer retention. However, the mere placement of our
applications in the carrier's data portal does not result in revenue to us. We
earn revenue based upon a percentage of the carrier's monthly subscription fee
only after the subscriber downloads our application onto his or her mobile
phone. We continue to earn a monthly subscription fee only as long as it
provides subscription services to the subscriber and the subscription has not
been cancelled.

Our wireless products provide the financial services industry with applications
that can increase productivity and customer retention through mobile delivery of
an institution's proprietary data in combination with our market data.

Our agreements with customers in the financial services industry will generally
contain multiple revenue elements. Such elements may include:

o Subscription service fees consisting of fixed or variable charges for
usage of our products. Such fees are based on the number of users
having access to our products,
o Development and integration fees for the development and integration
of software applications that integrate our applications with a
customer's proprietary data and legacy systems,
o Professional service revenues that emanate from consulting services
provided to customers, and
o Hosting services whereby we provide the services necessary to cache
and deliver a customer's proprietary data.

Paragraph no. 10 of SOP 97-2 states that "if an arrangement includes multiple
elements, the fee should be allocated to the various elements based on
vendor-specific objective evidence of fair value, regardless of any separate
prices stated in the contract for each element. Vendor-specific objective
evidence of fair value is limited to the following:

o The price charged when the same element is sold separately,

o For an element not yet being sold separately, the price established by
management having the relevant authority; it must be probable that the
price, once established, will not change before the separate
introduction of the element into the marketplace".

Paragraph 12 of SOP 97-2 requires deferral of all revenues from multiple element
arrangements that are not accounted for using long-term contract accounting if
sufficient vendor-specific objective evidence does not exist for the allocation
of revenue to the various elements of the arrangement. In situations where
vendor-specific objective evidence exists for those elements yet to be
delivered, but vendor-specific objective evidence of fair value does not exist
for one or more of the delivered elements in the arrangement, the fees should be
recognized using the residual method.

Impairment of Property and Equipment
- ------------------------------------

We report our property and equipment at cost less accumulated depreciation. On
an ongoing basis, we review the future recoverability of our property and
equipment for impairment whenever events or changes in circumstances indicate
that the carrying amounts may not be recoverable. When such events or changes in
circumstances do occur, an impairment loss is recognized if the undiscounted
future cash flows expected to be generated by the asset are less than its
carrying value. The impairment loss reduces the asset to its fair value.

Capitalized Software Development Costs
- --------------------------------------

In connection with certain contracts entered into between us and our customers,
as well as other development projects, we capitalized costs related to certain
product enhancements and application development. Specifically, all software
development costs are charged to expense as incurred until technological
feasibility has been established for the product. Thereafter, additional costs
incurred for development are capitalized. Capitalization ceases when the product
is available for general release to customers. Amortization of software
development costs is provided on a product-by-product basis over the economic
life, not to exceed three years, of the product using the straight-line method.
Amortization of capitalized software development costs commences with the
products' general release to customers. The determination of estimated useful
economic 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.

BUSINESS

Company Overview

During February 2004, we acquired the business of an early stage company,
nReach, Inc., to increase our focused offerings of products and services to the
cell phone industry. nReach is a wireless content distribution company that
offers a broad portfolio of popular mass-market cell phone content including
ringtones, games and on-device images. This company may provide us with access
to a large number of consumers through its existing marketing arrangements with
large retailers. nReach has an arrangement with Merit Industries, a manufacturer
of touch-screen entertainment devices, to introduce self-serve mobile content
vending machines capable of delivering nReach's ringtones, images and games.
Prior to our acquisition, nReach had minimal revenues and incurred a significant
loss in 2003.

We have since our inception earned limited revenues and incurred substantial
recurring operating losses, including net losses of $17,537,775 for the twelve
month period ended December 31, 2003, net losses of $8,037,173 and $14,819,860
for the years ended December 31, 2002 and 2001, respectively, and net losses of
$30,993,559 and $7,124,126 for the years ended June 30, 2000 and 1999,
respectively. Additionally, we had an accumulated deficit of $90,396,781 at
December 31, 2003.

In May 2002, we commenced an effort to realign our infrastructure and related
overhead to correlate with reductions in projected revenue. As part of this
effort, we closed our UK and Hong Kong sales offices and downsized our domestic
operations through staff reductions to a level sufficient to support our
projected operations. During 2003, we continued to reduce our cost structure
through the termination of additional personnel and the relocation of our
headquarters to Plymouth Meeting, Pennsylvania. Personnel headcount was reduced
from 66 in May 2002 to the level of 20 as of March 15, 2004 (including nReach
employees). These efforts have reduced our average monthly operating expenses
from approximately $1,090,000 in July 2002 to approximately $370,000 as of March
2004 (including operating expenses of nReach), excluding noncash stock
compensation, depreciation and amortization. We anticipate that our monthly
operating expenses will increase during 2004 due to the working capital
requirements of the business of nReach, as well as related to expansion of
marketing and business development efforts for all of our products and services
and increased corporate overhead. We also anticipate using a significant portion
of our working capital to settle our accounts payable, which accounts payable
were approximately $1,700,000 as of December 31, 2003.

We are incorporated in the State of Delaware. We commenced operations in August
1993, and had our initial public offering in March, 1996.

Industry Overview

We believe that the wireless application market is evolving. The changing
business needs of wireless carriers and enterprises and consumers combined with
advances in wireless technology have created a market for the types of
applications offered by us and other companies. Furthermore, consumers have
shown a willingness to pay for well-targeted wireless applications that provide
premium content and dynamic changing information.

Wireless carriers are working to increase average revenue per unit (ARPU) and
enhance their return on investment for the billions of dollars they have spent
and continue to spend on network upgrades and spectrum licenses. These carriers
have

identified wireless applications as a way to improve both their top-line revenue
and profitability. Wireless applications can improve ARPU, increase customer
loyalty through the use of branded products and services and financially justify
the large investments in data networks.

Carriers have adopted wireless data platforms that allow users to download
applications to their mobile phones facilitating a better overall user
experience than WAP (Wireless Application Protocol) browsers can provide. As an
example, Verizon Wireless has adopted BREW (Binary Runtime Environment for
Wireless) while AT&T Wireless and Sprint PCS have adopted the J2ME (Java 2 Micro
Edition) platform. Both platforms allow the carriers and the application
developers to generate subscription, download and usage revenue from wireless
subscribers. We develop our client-side applications for both BREW and J2ME
environments.

We believe that the evolution of the cellular industry is at an important
turning point, where both consumers and businesses are expecting more
functionality and features from both their cell phones and their cellular
carriers. This expectation is being driven by a number of industry trends
including highly competitive pricing packages, newer and more functional cell
phones and mobile devices, and the customers' ability to take their cell phone
number with them to a new carrier that offers them more value than the
incumbent. Competition in this environment is moving from differentiation based
on network coverage or minute rates to one based on enhanced features and
services. We believe that as carriers' network coverage, quality of service and
pricing plans become more-or-less equal, cell phone customers will choose a
carrier based principally on the suite of premium content and applications that
are included with its service. This environment will provide an opportunity for
us to exploit our current and planned content assets and delivery capabilities,
developed over the past nine years.

Strategy

While we expect to retain and grow our revenues derived through existing
channels, we believe that there is a substantial opportunity to grow additional
revenue through the bundling of our existing and planned future premium content
with voice services in ways targeted to specific segments of the consumer
market. Providing a set of products that bundle cell phone airtime with premium
content, such as ringtones, images and games, delivered through our current
technology infrastructure is how we plan to enter the emerging market for
reselling wireless airtime. We also believe there is the opportunity to grow
revenues through the introduction and deployment of the self-serve mobile
content vending machines. We intend to locate such vending machines at wireless
retailers, electronics stores, airports, train stations and restaurants. The
growth of revenues through these alternative channels in addition to the
existing channels will be important as we expect that only one of four largest
customers during fiscal year 2003 will continue to generate revenues for us in
2004. See "Risk Factors - Only one of our four major customers will continue to
generate revenues for us in 2004" for more details.

We plan to establish new brands delivering voice services together with simple,
easy to use bundled content and applications that will provide a unique and
sought after product for our targeted market segments. By providing unique and
differentiated value, our goal is to attain a profitable leadership position
supported by long-term customer loyalty. We plan to offer basic voice service by
reselling airtime at retail rates by means of wholesale airtime purchase
agreements

with one or more major carriers. Content and applications will be a combination
of our proprietary content, developed by us, and licensed content provided by
third party content developers. All content and applications will be delivered
by our wireless applications delivery technology and data center infrastructure.
Consistent and effective brand communications are planned in order to build
awareness of "the wireless service built for you" within our targeted markets.
We may provide our premium content to other resellers of cell phone airtime who
want to bundle our premium content on an OEM basis with their product or
service. This will depend on whether it is financially and commercially feasible
for us to work with other resellers and whether it will expedite the offering of
our premium content to consumers on terms which are financially advantageous to
us.

We have already begun the process of deploying these bundled products to market.
In December 2003 we conducted a retail store trial sale of the SmartServ Toro
Card Pack designed for Hispanic users who have prepaid cell phone service.
Included in this product was a prepaid airtime card for use with most carriers
and a Toro Card that entitled the purchaser, at no extra charge, to receive from
us three Spanish-music ring tones, and horoscopes and lottery information in
Spanish. Following this trial of the Toro product, we expect to continue to
implement this concept.

We plan to conduct market analyses to identify consumer and business segments
that can be better served by customized content and application packages.
Consumer segments that have sufficient size, growth potential, and for which we
can attain a leading position through our market penetration strategy, will be
targeted for near-term development. Our goal is to enter this area initially
through the internet, and then expand into other channels. There can be no
assurance that such market segments will favorably respond to our products and
services, or that we will have sufficient resources to pay the costs and
expenses to launch our products and services into such market segments.

Ringtones, Images, and Games

We believe that the ability to provide certain types of premium content
including ringtones, images and games offers a substantial revenue opportunity.
Moreover, this type of content will play a prominent role in the bundling of
premium content with voice services that, as previously discussed, forms a
substantial part of our future plan. nReach provides us with a portfolio of
premium content that is intended to be a foundation to acquire licenses for
similar content with consumer appeal. nReach currently has licensed content for
ringtones from brands including American Idol, The Matrix, Eminem, Britney
Spears, 50 Cent, The Beatles, Elvis Presley, 2Pac, Snoop Dogg, Frank Sinatra,
NSYNC, Star Trek, and Faith Hill. nReach's products also broaden our premium
content offerings with downloadable games including Tom Clancy's Splinter Cell,
Black Jack, Video Poker, Rayman Golf Bowling, and Solitaire. Additionally,
nReach has licensed a large catalog of popular cell-phone background images
ranging from landscapes, cartoons, and sports graphics to images from popular
consumer magazines such as Maxim.

Dynamic Mobile Applications

We are marketing a portfolio of dynamic mobile applications. These include:

o Horoscopes
o Lottery results
o Weather reports
o Lifestyle news and information
o Stock quotes
o Stock watch lists
o Financial portfolio information

Most of our dynamic content products are branded and are summarized below:

AstroCom Zodiac. AstroCom Zodiac delivers daily romance, career, family,
life, health and inspirational readings. Horoscopes are written by leading
astrologers.

Lottery USA. Lottery USA provides the latest lottery results, jackpot
updates and drawing dates. The user can set his personal preferences and
see the results of favorite games automatically or he may search by state,
game and date.

Area Weather. Area Weather has animated forecast icons and is easy to use
and customize. Users can save their preferences to instantly produce
weather reports for their favorite places. Content is provided by
Meteorlogix, formed by the consolidation of three weather-service leaders:
b2b provider DTN Weather Services, broadcast media weather graphics expert
Kavouras, and long-range forecaster and climate predictor Weather Services
Corporation.

BusinessWeek Online. BusinessWeek Online is a wireless financial
application that provides news stories and proprietary content from
BusinessWeek Online, while also providing stock quotes, company news, watch
lists and stock day charts.

Technology Platform

Our content and application delivery technology is comprised of an integrated
array of hardware, real-time network connections, and a suite of custom software
code that provide a fast, reliable, and reusable solution for the delivery of
data to mobile devices such as cell phones.

Today, mobile application technology is rapidly evolving along several discrete
and competing paths. Some carriers have begun to deploy devices that use the
J2ME mobile Java framework from Sun Microsystems, Inc. for their applications.
Other carriers are placing heavy investments behind Qualcomm's BREW (Binary
Runtime Environment for Wireless) development framework. Yet other carriers are
relying on WAP (Web Access Protocol) or MMS messaging extensions to deliver
application content. This complex array of end-user application technologies has
historically meant that application developers needed to pick and choose among
them. A single application could not work on all carriers and mobile devices. We
have greatly reduced the complexity of this problem by building a
device-independent middleware platform. Our middleware translates user
interactions with complex back-end logic and data feeds into a set of formats
that can be delivered to virtually all mobile devices. Using this approach,
although "thin" client applications are still built in BREW, J2ME or WAP, our
platform allows the majority of each application's complexity to be built in
common back-end code shared across all of these platforms.

Wireless carriers and service providers require that the back-end services that
deliver content and applications be reliably available on a 24/7 basis. We host
our applications in a data center that features carrier-grade fault tolerance
and redundancy. Every critical hardware and software system in the SmartServ
platform is designed to be redundant. From a hardware perspective, our platform
is able to maintain its uptime because of our substantial investment in
redundant power sources, middleware and application servers that mirror one
another, and fault-tolerant storage arrays. No single point of failure exists in
our hardware platform. From a software perspective, our platform provides
internal staff and interested application partners with a set of monitoring
tools that provide real-time information about our data center's status.
Additionally, we have built an application deployment process that allows new
applications and application upgrades to be distributed with little or no
downtime.

Competition and Competitive Risk

The market for wireless information services and application development is
highly competitive and subject to rapid technological change, shifting consumer
preferences and frequent new service introductions. We face competition from a
number of businesses that deliver similar services through personal computers
and mobile devices in three major categories: (1) wireless infrastructure
solution providers targeting wireless carriers, (2) wireless application
developers targeting wireless carriers, and (3) wireless application service
providers targeting enterprise businesses. Wireless application developers such
as InfoSpace, HillCast Technologies and Digital Orchid offer competing finance,
news and content applications using WAP, Java and/or BREW to subscribers of
wireless carriers for access on their mobile phones. Infrastructure providers
such as Cellmania, ActiveSky and Mforma provide platform solutions to wireless
carriers enabling the carriers to more easily provide content applications,
games and ringtones to their subscribers. Wireless application service providers
such as Aether Systems, Inc., 724 Solutions, Inc. and Semotus Solutions compete
with us in developing and hosting wireless applications for enterprise
businesses.

We expect competition to increase from existing competitors and from new
competitors, possibly including wireless telecommunications companies. Many of
our competitors and potential competitors have substantially greater financial,

marketing and technical resources. Increased competition in the market for our
services could limit our ability to expand and have a material adverse effect on
our business.

The content provided through our applications and infrastructure is generally
purchased through non-exclusive distribution agreements. While we are not
dependent upon 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 by us. Additionally, there are a
relatively small number of information providers that control pricing and access
to information.

The principal competitive factors in both the Web 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 strategic marketing partners and our ability to
provide what we believe to be unique applications and infrastructure may enable
us to compete effectively.

Our entry into the prepaid wireless reseller business also presents competitive
challenges. The facilities-less wireless reseller business in the US is
relatively new. Recent developments in the industry have changed the economics
of the reseller market, including pre-paid services.

Until recently, the major wireless carriers had been concentrating on managing
the capital expense issues involved in deploying their networks to provide broad
nationwide coverage. Their main focus was on getting the coverage they needed to
make the service reliable and scaleable for the mass market. As a result, anyone
interested in becoming a reseller had to pay very high wholesale prices to those
carriers. Now, because of improved network technologies and better coverage,
many carriers have excess capacity and wholesale airtime rates are getting
lower. This natural industry progression is similar to the evolutionary changes
that have occurred in Europe where resellers in Europe have a significant market
share.

The pre-paid market is also fairly new. Only recently have Verizon and AT&T
launched their own pre-paid services called Free-Up and Go-Phone, respectively.
The promotional campaigns for these services, however, tend to emphasize the
main brand rather than the pre-paid service brand. Sprint has also recently
launched a pre-paid service, and Sprint has a financial stake in Virgin Mobile.

Virgin Mobile and TracFone have been the most visible of the wireless resellers
in the U.S. pre-paid business. Virgin has been attacking the youth segment with
a simple pricing plan and a promotion of its strong content affiliation with
MTV.

TracFone Wireless, Inc., a subsidiary of Mexico's dominant wireless carrier
America Movil, has been in business in the U.S. for several years. It has
primarily targeted under-banked and credit risk customers with a simple pre-paid
model. Its edge at this point is in distribution, and TracFone phones and
prepaid airtime cards are being sold by many major retailers, including Wal-Mart
and Best Buy.

We also face competition from the wireless carriers themselves, all of whom
offer prepaid wireless services, and separately, mobile applications. So far,
however, the carriers have not made any significant efforts in marketing bundled
pre-paid voice and content services.

Proprietary Rights

Although we do not currently hold any patents, we have filed a patent
application seeking a patent for our own "device agnostic" information and
transaction platform, made up of our W2W MiddlewareTM and our content and
processing engines. This platform is comprised of the W2W MiddlewareTM, based on
the Windows NT operating system and the authorization, quote, news and
transaction engines, based on Hewlett-Packard Company's Unix operating system
and Oracle Corp.'s version 9i parallel server database. This platform supports a
wide array of browsers operating on wireless and wired networks and seamlessly
integrates real-time data and transaction capabilities, such as stock trade
order routing and m-commerce services, into a user-friendly services interface.

We rely upon a combination of contract provisions and trade secret, patent,
trademark and copyright laws to protect our proprietary rights. We license the
use of our services under agreements that contain terms and conditions
prohibiting the unauthorized use or 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.

We believe that none of our products, services, trademarks or other proprietary
rights 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, the current and future
regulatory environment relating to the telecommunications and media industry
could have an effect on our business, including transborder data flow
regulations, 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
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 on us.

Moreover, the relevance to application 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 has
increased public focus and could lead to increased pressure on legislatures to
impose regulations on application service providers such as us. 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

As of March 15, 2004, we employed 20 people (including 8 nReach employees in
Lakewood, Colorado), all of whom were employed in the United States. We
anticipate that staffing requirements associated with the implementation of our
plan of operation will require the addition of approximately 3 people during the
year ending December 31, 2004. 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 4,400 square feet in a leased facility located in
Plymouth Meeting, Pennsylvania. This is our headquarters and the lease expires
in September 2007. nReach occupies approximately 4,077 square feet in a leased
facility located in Lakewood, Colorado. The lease expires on July 31, 2007.

Legal Proceedings

On or about February 29, 2000, Commonwealth Associates, L.P. ("Commonwealth")
filed a complaint against us in the Supreme Court of the State of New York,
County of New York. The complaint alleged that in August of 1999, Commonwealth
entered into an engagement letter with us that provided for a nonrefundable fee
to Commonwealth of $15,000 payable in cash or common stock at our option. The
complaint alleged that we elected to pay the fee in stock and, as a result,
Commonwealth sought 13,333 shares of common stock or at least $1,770,000
together with interest and costs. In our defense, we denied that we elected to
pay in stock. On March 4, 2003, we received a favorable decision in this matter
after a trial held in the Supreme Court of the State of New York. The decision
holds that, consistent with our defense, we are required to pay Commonwealth a
retainer fee of only $13,439, plus interest and certain costs. Commonwealth's
time to appeal has not yet expired because a notice to enter the judgment has
not yet been filed by either party. While we intend to vigorously defend any
appeal of the decision in the Commonwealth matter, the unfavorable

outcome of such an appeal could have a material adverse effect on our financial
condition, results of operations and cash flows.

In August of 2003, we entered into a Stipulation of Arbitration with Brauning
Inc., Mike Silva and Todd Peterson, former consultants to us (collectively, the
"Claimants"), pursuant to which we and the Claimants agreed to resolve, in a
binding arbitration proceeding, the Claimants' demand for damages resulting from
an alleged breach of contract and a failure by us to timely register the shares
of common stock underlying certain consulting warrants issued by us to the
Claimants. Although we believe that the shares underlying the warrants were
timely registered, and that the Claimants demand is without merit, we have
reached an agreement to settle this matter in order to avoid the uncertainties
of litigation. Under the terms of the settlement agreement, dated February 27,
2004, we issued 60,000 shares of our common stock in satisfaction of the claim,
and we paid Claimants $45,000 for certain wireless industry consulting reports.
We also granted registration rights to the recipients of such 60,000 shares.

MANAGEMENT

Directors and Executive Officers

The following table sets forth information with respect to our executive
officers and directors.

Name Age Position
- ---- --- --------

Robert Pons 47 Chief Executive Officer, President and Class III
Director
Timothy G. Wenhold 43 Chief Operating Officer, Executive Vice President
and Secretary
Len von Vital 53 Chief Financial Officer
L. Scott Perry (1) (2) 55 Chairman of the Board and Class I Director
Catherine Cassel
Talmadge (1) 52 Class I Director
Charles R. Wood (2) 63 Class III Director

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

Robert Pons has been our Chief Executive Officer and President since January 24,
2004 and a director since August 28, 2003. He served as Interim Chief Executive
Officer from August 28, 2003 to January 24, 2004. Mr. Pons had been a consultant
to us from August 4, 2003 to January 24, 2004. From April 16, 1999 to April 15,
2002, Mr. Pons was founder and President of FreedomPay, a stored value payment
processing company enabling cashless payments on wireless devices. From March
1999 through December 1999, Mr. Pons was Chief Operating Officer of Real Time
Data, a company in the data transmission (telemetry) business. Prior thereto,
from March 1, 1995 to April 15, 1999, Mr. Pons was President and CEO of
LifeSafety Solutions, an enhancement to the 9-1-1 public safety emergency
system. Mr. Pons also held executive positions with both MCI and Sprint. Mr.
Pons is a member of the Board of Directors of Network-1 Security Solutions,
Inc., a software licensing company.

Timothy G. Wenhold has been our Executive Vice President, Chief Operating
Officer and Secretary since March 10, 2004. Mr. Wenhold had been a consultant to
us from August 4, 2003 to March 10, 2004. From May 1, 2002 to August 31, 2003,
Mr. Wenhold was founder and President of Factory X, Inc. a manufacturer of
licensed high end movie, comic and gaming collectibles. Prior thereto, from
January 1, 1985 to May 1, 2002, Mr. Wenhold was founder and President of
Sintaks, Inc., a system integration and technology consulting firm. Sintaks was
acquired by Canon in 1998.

Len von Vital has been our Chief Financial Officer since April 9, 2004. Mr. von
Vital was engaged by us as a consultant to provide financial services from
January 27, 2004 to April 9, 2004. From February 11, 2002 to October 31, 2003,
Mr. von Vital was Chief Financial Officer of 4GL School Solutions, Inc., a
developer and vendor of special education software and services. From April 2001
to November 2001, Mr. von Vital was Chief Financial Officer of eCal Corporation,
a developer and vendor of enterprise Internet calendaring and scheduling
software and services and was a consultant in December 2001 and January 2002.
From July 2000 to March 2001, Mr. von Vital was Chief Financial Officer of
National Dental Corporation, an e-commerce start-up and software company
providing procurement savings to the dental industry and from March 2000 to June
2000, was Chief Financial Officer of Financialweb.com, an e-financial services
company. From October 1998 to February 2000, Mr. von Vital was the Chief
Financial Officer of ESPS, Inc., a provider of enterprise business-to-business
document management and publishing software and services. ESPS had its initial
public offering in June 1999. Mr. von Vital also served as interim CEO of ESPS,
Inc. from June 1999 until October 1999. Prior thereto, he held the positions of
senior vice president of product management and Chief Financial Officer for
Astea International, Inc., a developer and vendor of enterprise customer
relationship management software and services, that had its initial public
offering in July 1995. He also held senior financial positions during a
twelve-year career with Decision Data Inc., an international provider of
plug-compatible IBM computer peripheral equipment and services, including Vice
President of Mergers and Acquisitions, Corporate Controller and Principal
Accounting Officer. Mr. von Vital is a certified public accountant.

L. Scott Perry has been Chairman of the Board of Directors since August 2003 and
a director since November 1996. Mr. Perry was appointed Vice Chairman of the
Board of Directors from September 2002 until August 2003. Mr. Perry has been the
managing partner of Cobblers Hill Group, a strategy consulting firm, since May
2002. From June 1998 to December 2001, Mr. Perry was Vice President, Strategy &
Business Development, AT&T and Vice President Strategy and Alliances - AT&T
Solutions. From December 1995 to June 1998, Mr. Perry was Vice President,
Advanced Platform Services of AT&T. From January 1989 to December 1995, Mr.
Perry held various executive 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. Prior to AT&T, Mr. Perry was General Manager, Academic
Computing Information Systems and served in other sales, marketing and general
management positions at IBM. Mr. Perry is a member of the Board of Directors of
the Information Technology Association of America, INEA, Inc., a web analytics
software firm, Viacore, Inc., a supply chain services firm and Zanett, Inc., a
professional services firm, as well as being a member of several technology
advisory boards. He is also a special advisor to Global Asset Capital, a venture
capital company.

Catherine Cassel Talmadge has been a director since March 1996. Since October
2002, Ms. Talmadge has been Vice President of Strategic Relationships for Lemur
Networks, a leading provider of next generation business support systems for
on-demand, real-time IP services delivery. From July 2001 to October 2002, Ms.
Talmadge consulted to a number of companies in the areas of product development,
business process improvement, strategic planning and business development. Ms.
Talmadge was Vice President of Business Development for Maher & Maher, a leading
business integration and consulting firm for the broadband industry from January
through July 2001 and Senior Vice President of Business Development for High
Speed Access Corporation from May 1999 to January 2001. 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 has been a director since September 1998. Mr. Wood is Chairman
and Chief Executive Officer of Terra Investors, Inc., a private, closely held
investment company. Mr. Wood also serves on the Board of Advisors of Contact
Point, a privately held company specializing in customer service and sales
training and as founder and Managing Advisor of Woodmar LLC, an Internet
marketing company. Mr. Wood was Senior Vice President of Data Transmission
Network Corporation and President of DTN Financial Services from 1989 and 1986,
respectively, until February 28, 2000.

Our officers are elected annually and serve at the discretion of the Board of
Directors for a one year term and until their respective successors are duly
elected and qualified or until their earlier resignation or removal, subject to
any rights provided by employment agreements that are described below under
"Executive Compensation - Agreements with Named Executive Officers".

Other Significant Employees

Matthew Stecker, 35, has been our Chief Technology Officer since April 15, 2004.
From September 2000 to February 2003, Mr. Stecker was a Director of Technology
for Vindigo, Inc., a developer of mobile applications. He was a Director of
Technology of Electronic Inc., a graphic and user interface design studio, from
June 1999 to May 2000. Prior thereto, from March 1988 to June 1999, Mr. Stecker
was the CEO and co-founder of The Applied Information Group, a consulting
company that delivered custom software and strategy to pharmaceutical research
organizations, specializing in gene expression technologies. Prior thereto, from
May 1993 to March 1998, Mr. Stecker was the President of Marble Associates,
Inc., a consulting company specializing in object-oriented software development.

Daniel Wainfan, 41, has been our Vice President of Marketing since March 22,
2004. From November 2000 to March 2004, Mr. Wainfan was President of Nutrabrand
Innovations, L.L.C., a nutritional products development and marketing company.
From 1994 to 2000, Mr. Wainfan was a Marketing Manager, Business Director and
then a Category Director of various business groups for the Campbell's Soup
Company. Prior thereto, from 1987 to 1993, Mr. Wainfan served in a variety of
marketing and sales capacities at the Nabisco Biscuit Company, including Brand
Manager of Ritz Crackers.

Board of Directors

Our Board of Directors is divided into three classes: Class I Directors, Class
II Directors and Class III Directors. 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. The Class I
Directors will serve until the Annual Meeting of SmartServ's stockholders to be
held in 2005, the Class II Directors will serve until the Annual Meeting of
SmartServ's stockholders to be held in 2006 and the Class III Directors will
serve until the Annual Meeting of SmartServ's stockholders to be held in 2004.
Under a Stock Purchase Agreement dated May 15, 2000, TecCapital, Ltd. has the
right to designate one member of our Board of Directors. However, TecCapital is
not currently exercising its right to have a designee on the Board. Our current
Board consists of four directors.

Executive Compensation

The following table sets forth, for each of the last three full fiscal years,
information concerning annual and long-term compensation, paid or accrued for
services in all capacities during the fiscal year ended December 31, 2003, for
our Chief Executive Officers during 2003 and for the two executive officers
(collectively, the "Named Executive Officers") with base salary and bonuses
exceeding $100,000 during 2003:

Summary Compensation Table
--------------------------
Annual Compensation Long-term Compensation
--------------------------------------- --------------------------------------

Other
Annual Restricted Securities
Name and Principal Fiscal Compensation Stock Underlying All Other
Position Year Salary Bonus (1)(2) Awards (3) Options (4) Compensation
- -----------------------------------------------------------------------------------------------------------

Robert Pons (5) 2003 $44,000 $ -- $ -- $ -- 50,000 $16,000
Chief Executive Officer 2002 -0- -- -- -- -- --
2001 -0- -- -- -- -- --

Sebastian E. Cassetta (6) 2003 90,449 -- -- -- -- 12,941(8)
Former Chief Executive 2002 215,521 -- 7,500 -- 34,667 42,022(8)
Officer 2001 255,000 50,000 9,750 -- -- 37,218(8)

Thomas W. Haller (7) 2003 102,400 -- 4,000 -- -- 9,932(9)
Former Senior Vice 2002 134,479 -- 6,000 -- 13,250 9,932(9)
President and Chief 2001 164,558 37,500 6,000 -- 3,750 9,932(9)
Financial Officer

Richard Kerschner (10) 2003 100,000 -- -- -- -- --
Former Senior Vice 2002 131,667 -- -- -- -- --
President and General 2001 160,000 48,000 -- -- 13,333 --
Counsel

(1) Amounts shown consist of a non-accountable expense allowance.
(2) 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.
(3) The Named Executive Officers did not receive any long-term incentive plan
payouts during fiscal 2003, 2002 or 2001.
(4) All options granted to the Named Executive Officers in 2002 were the result
of the reduction of the exercise prices of options to purchase a like
number of shares granted in previous years. The exercise price reductions
were approved by our stockholders at the Annual Meeting of Stockholders on
December 13, 2002. The previously granted options are shown in the table if
such options were granted during the reported period. Mr. Pons' warrants
were granted in 2003 pursuant to his Consulting Agreement with us dated
August 4, 2003.
(5) Salary reflects amounts paid under Mr. Pons' Consulting Agreement with us
dated August 4, 2003. Mr. Pons served as Interim Chief Executive Officer
from August 28, 2003 to January 23, 2004 pursuant to this Consulting
Agreement. He is now our Chief Executive Officer.
(6) Mr. Cassetta left our employ in August 2003.
(7) Mr. Haller left our employ in January 2004.
(8) Amount represents premiums paid by for life and disability insurance for
the benefit of Mr. Cassetta and membership dues approved by the Board of
Directors.
(9) Amounts represent premiums paid by us for life insurance for the benefit of
the employee.
(10) Mr. Kerschner left our employ in February 2004.

Stock Options

The following table sets forth information with respect to stock options granted
to the Named Executive Officers in fiscal year 2003:

Option Grants in Last Fiscal Year
---------------------------------

Number of Securities % of Total Options Granted
Underlying Options to Employees in the fiscal Exercise
Name Granted(1) year(2) Price Expiration Date
- ----------------------------- ----------------------- --------------------------- ----------------- ---------------------

Robert Pons 41,667(1) 83.3% $2.04 August 4, 2008

8,133(1) 16.7% $2.04 August 4, 2008

(1) Represents warrants to purchase shares of our common stock issued to
Mr. Pons pursuant to his consulting arrangement with us. See
"Agreements with Named Executive Officers" for details.
(2) We did not grant any options in fiscal year 2003. However, during
fiscal year 2003 we did grant these warrants to Mr. Pons, who
subsequently became our Interim Chief Executive Officer in August
2003.

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 December 31, 2003:

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

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

Robert Pons -- -- 50,000/0 $0/$0

Sebastian E. Cassetta -- -- 21,250/0 $0/$0

Thomas W. Haller -- -- 29,083/1,500 $0/$0

Richard Kerschner -- -- 21,667/0 $0/$0

(1) Value is based on the closing price of our common stock as reported by
the OTC Bulletin Board on December 31, 2003 ($1.40) less the exercise
price of the option.
(2) No stock options were exercised by the Named Executive Officers during
the fiscal year ended December 31, 2003.

Agreements with Named Executive Officers

We entered into a consulting agreement with Robert Pons, dated August 4, 2003
("Pons Consulting Agreement"), whereby Mr. Pons rendered consulting services to
us related to our business activities, strategic planning, and market research
and strategic due diligence on proposed business opportunities. The agreement
had an initial term of four months and was continued until he became our Chief
Executive Officer on January 24, 2004. As compensation for such services, we
agreed to pay him a cash fee of $15,000 per month ($4,000 of which was deferred
until we closed a financing on no

less than $2.5 million), issued to him a warrant to purchase 41,667 shares of
our common stock, which was changed to 50,000 shares of our common stock, and
agreed to pay him a transaction fee equal to 1% of (i) any cash or securities
received by us from any equity transaction during the term of the agreement and
(ii) sales revenue received and recognized by us resulting from his assistance.
The warrant expires in August 2008, is convertible at the price of $2.04 per
share, and became exercisable in December 2003. The Pons Consulting Agreement
was entered into prior to Mr. Pons becoming our Interim Chief Executive Officer
on August 28, 2003.

We entered into an Employment Agreement with Robert Pons, dated March 12, 2004.
The agreement provides for a 4 year term with a base annual salary of $210,000
in the first year of the term, subject to increases as determined by the Board
of Directors. Mr. Pons shall also be eligible for bonuses in the event we meet
certain performance goals related to raising additional capital, revenue targets
or other goals mutually set by Mr. Pons and us. Mr. Pons also received an option
to purchase 1,300,000 shares of our common stock under a non-plan option
agreement, which option has an exercise price of $1.50 per share and a term of
10 years. The option provides for 557,141 shares to vest immediately and the
remaining 742,859 shares to vest in equal amounts as of the last day of each
calendar quarter commencing March 31, 2004. The options will vest immediately
upon a Change of Control (as defined in his option agreement) or in the event
Mr. Pons is terminated Other Than for Cause or he terminates employment for Good
Reason (as each is defined under the Employment Agreement). Mr. Pons will also
receive 12 months of base salary upon termination Other Than for Cause or if he
terminates employment for Good Reason

We entered into a Separation Agreement with Sebastian E. Cassetta, our former
Chairman and Chief Executive Officer, effective as of October 21, 2003 (the
"Cassetta Separation Agreement"). The Cassetta Separation Agreement terminated
Mr. Cassetta's rights under his employment agreement, including without
limitation, any rights to compensation and severance, in exchange for the
consideration set forth therein, including the following: (i) a cash payment for
unpaid base salary and accrued vacation of $18,990.30, payable on or before
October 31, 2003, (ii) forgiveness over a 3 year period of certain loans in the
original principal amount of $500,000 plus accrued interest, (iii) extension of
the Put Right contained in Mr. Cassetta's Restricted Stock Agreement dated
December 28, 1998, allowing Mr. Cassetta 1 year instead of 60 days to either
repay a promissory note in the original principal amount of $457,496.86 plus
accrued interest, or return 94,707 restricted shares of our common stock in full
satisfaction of such promissory note and accrued interest thereon.

In connection with his retirement, we entered into a Separation Agreement with
Mario Rossi, our former Executive Vice President, Chief Technology Officer, and
Director, effective as of October 21, 2003 (the "Rossi Separation Agreement").
The Rossi Separation Agreement terminated Mr. Rossi's rights under his
employment agreement, including without limitation, any rights to compensation
and severance, in exchange for the consideration set forth therein, including
the following: (i) a cash payment for unpaid base salary and vacation of
$16,667.00 payable in two equal installments on October 31, 2003 and November
20, 2003, (ii) a cash payment for unpaid contractual base salary of $112,500.00,
of which $81,370.69 will be offset against Mr. Rossi's obligation to us of
$47,004.00 in accrued interest on a restricted stock note in the original
principal amount of $152,500 (the "Rossi Note"), and the remaining $31,129.31 to
be paid in two equal installments on April 21, 2004 and October 21, 2004, (iii)
a warrant to purchase 41,667 shares of our common stock at no less than $2.40
per share, and (iv) pursuant to Mr. Rossi's rights under a Restricted Stock
Agreement, cancellation of the principal amount of the Rossi Note upon delivery
by Mr. Rossi to us of the 34,347 shares of restricted stock securing the Rossi
Note. In January 2004, Mr. Rossi assigned and transferred all 34,397 restricted
shares of common stock to us in full satisfaction of the outstanding
non-recourse debt of $68,000.

We entered into a retention agreement with Thomas W. Haller, Senior Vice
President and Chief Financial Officer, effective as of June 20, 2003 (the
"Haller Agreement"), pursuant to which Mr. Haller would receive the following
severance benefits if he is terminated by us other than for Cause (as defined in
the Haller Agreement): (i) 12 months of Mr. Haller's then current annual base
salary (but in no event less than $165,000 per annum), plus any deferred and
unpaid salary and bonus, payable in equal quarterly installments, in advance,
(ii) continuation of health, disability, and life insurance coverage for a
period equal to the earlier of 12 months or Mr. Haller's eligibility for
replacement coverage from a new employer, and (iii) vesting of any unvested
stock options and extension of the exercise period of all stock options to one
year from the Termination Date, as defined in the Haller Agreement. Mr. Haller
left our employ in January 2004, which we believe does not trigger such
severance benefits.

We entered into a retention agreement with Richard D. Kerschner, Senior Vice
President, General Counsel and Secretary, effective as of June 20, 2003 (the
"Kerschner Agreement"), pursuant to which Mr. Kerschner would receive the
following severance benefits if he was terminated by us other than for Cause (as
defined in the Kerschner Agreement): (i) 9 months of Mr. Kerschner's then
current annual base salary (but in no event less than $160,000 per annum), plus
any deferred and unpaid salary and bonus, payable in equal quarterly
installments, in advance, (ii) continuation of health and disability insurance
coverage for a period equal to the earlier of 9 months or Mr. Kerschner's
eligibility for replacement coverage from a new employer, and (iii) vesting of
any unvested stock options and extension of the exercise period of all stock
options to one year from the Termination Date, as defined in the Kerschner
Agreement. In connection with him leaving our employ in February 2004, Mr.
Kerschner entered into an Employee Separation Agreement with us, dated February
2, 2003, providing for his severance compensation of continuation of his
current, reduced salary of $100,000 through June 30, 2004, a one-time payment of
$15,000 and issuance of a warrant to purchase 50,000 shares of our common stock.
The Employee Separation Agreement replaced and superceded the Kerschner
Agreement. The warrant has a term of five years, is immediately exercisable, has
an exercise price of $1.65 per share, and contains registration rights for the
shares underlying the warrants. In consideration of his severance payments, he
agreed to join our Advisory Board to provide strategic advice and transition
services until June 30, 2004.

Directors' Compensation

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 SmartServ business. As of January 1, 2004, each non-employee
director receives a $1,500 fee for each meeting he or she attends. Additionally,
each committee member receives up to $1,000 per committee meeting attended.

The Compensation Committee has the discretionary authority to grant options to
directors. The exercise price of each share of common stock under any option
granted to a director is equal to the fair market value of a share of common
stock on the date the option was granted. On September 13, 2002, each director
was granted an option to purchase 1,667 shares of our common stock at an
exercise price of $8.52 per share, which was the average of high and low stock
prices for the preceding day. As the then Vice Chairman of the Board of
Directors, L. Scott Perry was granted an option to purchase an additional 5,000
shares at an exercise price of $8.52 per share. No options were granted to
directors in the year ended 2003. Commencing January 1, 2003, the Compensation
Committee set L. Scott Perry's compensation as Vice Chair at $5,000 per quarter,
which arrangement has continued in his current position as Chairman of the Board
of Directors.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of April 15, 2004, certain information with
respect to the beneficial ownership of our common stock by (i) each person known
by us to beneficially own more than 5% of our outstanding shares of common stock
or preferred stock, (ii) each or our directors, (iii) each of the Named
Executive Officers and (iv) all of our executive officers and directors as a
group.

Common Stock Series A Preferred Stock
------------ ------------------------
Amount and Nature Percent of Amount and Nature Percent of
Name and Address of of Beneficial Outstanding of Beneficial Outstanding
Beneficial Owner (1) Ownership (2) Shares (3) Ownership (2) Shares (3) Total (4)
-------------------- ------------- ---------- ------------- ---------- ---------

Kevin Kimberlin 4,554,625 (5) 63.19% 46,065(18) 5.26% 31.40% (5) (18)
c/o Spencer Trask
535 Madison Avenue
New York, New York 10021

Global Capital Funding Group, 257,333 (6) 8.21% 0 * 2.16% (6)
L.P.
106 Colony Park Drive
Suite 900
Cumming, Georgia 30040

Mike Stemple 211,397 7.34% 0 * 1.82%
1919 Denver West Drive #1221
Golden, CO 80401

Steven B. Rosner 186,229 (7) 6.18% 0 * 1.59% (7)
1220 Mirabeau Lane
Gladwyn, Pennsylvania 19035

TecCapital, Ltd. 185,958 (8) 6.46% 0 * 1.60% (8)
Cedar House
41 Cedar Avenue
Hamilton, HM 12, Bermuda

Sebastian E. Cassetta 118,598 (9) 4.12% 0 * 1.02% (9)
415 Mine Hill Road
Fairfield, Connecticut 06824

Robert M. Pons 653,570 (10) 18.50% 0 * 5.31% (10)

Timothy G. Wenhold 325,000 (11) 10.14% 0 * 2.72% (11)

Richard D. Kerschner 71,667 (12) 2.43% 0 * * (12)

Thomas W. Haller 29,194 (13) 1.00% 0 * * (13)

L. Scott Perry 9,306 (14) * 0 * * (14)

Catherine Cassel Talmadge 5,119 (15) * 0 * * (15)

Charles R. Wood 5,666 (16) * 0 * * (16)

All executive officers and
directors as a group (6 persons) 998,661 (17) 25.77% 0 * 7.90% (17)

- ----------
* Less than 1%

(1) Under the rules of the Securities and Exchange Commission ("SEC"),
addresses are only given for holders of 5% or more of our outstanding
common stock who are not currently officers or directors. This table
contains information furnished to us by the respective stockholders or
contained in filings made with the SEC.

(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 April 15, 2004. For purposes of beneficial ownership of
our common stock, excludes shares of common stock that may be acquired upon
the conversion of Series A preferred stock held by such person. Except as
otherwise indicated, the named entities or individuals have sole voting and
investment power with respect to the shares of common stock and preferred
stock beneficially owned.
(3) Represents the number of shares of common stock or preferred stock (as
applicable) beneficially owned as of April 15, 2004 by each named person or
group, expressed as a percentage of the sum of all of (i) the shares of
such class outstanding as of such date, and (ii) the number of shares of
such class not outstanding, but beneficially owned by such named person or
group as of such date. There were 2,878,840 shares of common stock and
876,491 shares of Series A preferred stock outstanding on April 15, 2004.
(4) The percentage in this column is based upon the total number of shares of
common stock beneficially owned, calculated by assuming conversion of all
of the outstanding Series A preferred shares.
(5) Includes holdings of (i) Spencer Trask Ventures, Inc., a Delaware
corporation and wholly-owned subsidiary of Spencer Trask & Co., a Delaware
corporation, of which Kevin Kimberlin is the controlling shareholder, (ii)
Spencer Trask Investment Partners LLC, a Delaware limited liability
company, of which Kevin Kimberlin is the non-member manager, and (iii)
Spencer Trask Private Equity Fund I, LP, Spencer Trask Private Equity Fund
II LP, Spencer Trask Private Equity Accredited Fund III, LLC, and Spencer
Trask Illumination Fund (collectively, the "Funds"), of which Kevin
Kimberlin is an approximately 80% owner of the manager of such Funds.
Includes 4,328,514 shares of common stock subject to warrants. Excludes
9,445 shares of common stock to be issued as a finder's fee in connection
with the November 2003 bridge financing. If such shares were included,
Kevin Kimberlin would beneficially own 4,564,070 shares of our common
stock, representing 63.95% of the outstanding common shares and 31.60% of
the total capital stock (see footnote 4 above).
(6) Consists of 257,333 shares of common stock subject to warrants.
(7) Includes 135,012 shares of common stock subject to warrants.
(8) Excludes 63,274 shares of common stock subject to issuance in connection
with the November 2003 bridge financing and 94,323 shares of common stock
subject to issuance in connection with the 2004 Private Placement.
(9) Includes 21,250 shares of common stock subject to options. Also includes
342 shares held in trust for the benefit of Mr. Cassetta's wife and 2,300
shares of common stock held by his children.
(10) Consists of 50,000 shares of common stock subject to warrants and 603,570
shares of common stock subject to options.
(11) Includes 325,000 shares of common stock subject to options.
(12) Consists of 50,000 shares of common stock subject to warrants and 21,667
shares of common stock subject to options.
(13) Includes 29,083 shares of common stock subject to options.
(14) Includes 9,167 shares of common stock subject to options.
(15) Includes 5,000 shares of common stock subject to options and 33 shares of
common stock held for her daughter under the Uniform Gift to Minors Act.
(16) Includes 3,333 shares of common stock subject to options.
(17) Includes 33 shares of common stock held for Ms. Talmadge's daughter under
the Uniform Gift to Minors Act and 996,070 shares of common stock subject
to options and warrants issued to our executive officers and directors.
Excludes shares of common stock beneficially owned by Messrs. Cassetta,
Haller and Kerschner as they were not officers of SmartServ as of April 15,
2004.
(18) Excludes 2,612 shares of Series A preferred stock and 26,120 shares of
common stock subject to warrants issued to Adam Stern, an employee of
Spencer Trask, in connection with the 2004 Private Placement.

SELLING STOCKHOLDERS

An aggregate of 733,818 outstanding shares of common stock, 15,123,474 shares of
common stock underlying warrants and 8,764,910 shares of common stock underlying
Series A convertible preferred stock are being offered for resale by the selling
stockholders in this offering. The following table sets forth the names of the
selling stockholders, the number of shares of common stock beneficially owned by
the selling stockholders as of April 15, 2004 (assuming the exercise or
conversion of all warrants, options and convertible preferred stock owned by the
selling stockholder), the number of shares of common stock to be offered for the
selling stockholder's account, and the number of shares and the percentage of
the common stock to be owned by such selling stockholder after the offering is
complete (assuming the selling stockholder sells all shares being offering in
this prospectus). 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. 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. All information with respect to share ownership has been furnished
by the selling stockholders or, with respect to shares of common stock
underlying warrants, options and convertible preferred stock, from our records.

Certain of the selling stockholders have or, within the past three years had, a
position, office or other material relationship with us or any of our
predecessors or affiliates. Any such relationship with respect to a selling
stockholder is described in a footnote to the table below.

Beneficial Ownership Shares Percentage of Common
Prior to the Available for Beneficial Ownership Stock Owned After
Offering (1) Sale After the Offering (1) Offering (2)
------------ ---- ---------------------- ------------

Abishour, Issac ................................ ** 13,337 ** *

Abramson, Clarence A. .......................... ** 20,000 ** *

Adair, Lincoln & Adair, Sally TIC .............. ** 40,000 ** *

Agajanian, Artie ............................... ** 46,072 ** *

Aran Asset Management SA ....................... ** 45,335 ** *

Arnett, Dr. Jan ................................ ** 66,663 ** *

ARS Family Revocable Trust ..................... ** 68,215 ** *

AS Capital Partners, LLC ....................... ** 133,337 ** *

Bakshi, Pradeep ................................ ** 20,000 ** *

Bartlett, Richard .............................. ** 6,663 ** *

Battin, Michael ................................ ** 6,000 ** *

Beadle, Robert S. .............................. ** 33,337 ** *

Beem, Craig .................................... ** 66,663 ** *

Bell, Lon ...................................... ** 46,010 ** *

Bell, Lon E. ................................... ** 136,441 ** *

Bennie, Robert ................................. ** 33,337 ** *

Berger, Cliff .................................. ** 333,337 ** *

Berns, Michael T. .............................. ** 6,663 ** *

Berzow, Harold ................................. ** 9,211 ** *

Blomstedt, Jeffrey & Lascala, Susan JTWROS ..... ** 16,663 ** *

Blue & Gold Enterprises ........................ ** 362,715 ** *

Blumberg, Estate of Richard .................... ** 10,800 **

Boim, David .................................... ** 46,072 ** *

Boyd, Dr. John ................................. ** 26,663 ** *

Bremer Family Partnership ...................... ** 66,663 ** *

Breslin, Dorothy ............................... ** 205,257 ** *

Burrows, Gregory A. & Lorraine E. .............. ** 33,337 ** *

Callahan, William & Joan ....................... ** 136,441 ** *

Callahan, William J. & Joan M. JTWROS ........ ** 133,337 ** *

Capital Management & Administration,
Inc. .......................................... ** 45,335 ** *

Cardwell , Jack ................................ ** 45,335 ** *

Cassetta, Sebastian E. (3) ..................... 118,598 94,707 23,891 *

Castlerigg Master Investment Ltd................ ** 333,337 ** *

Charles Schwab Todd Mabach
Contributory Account (IRA) ..................... ** 16,663 ** *

Chestler, Daniel ............................... ** 66,663 ** *

Clariden Bank .................................. ** 402,782 ** *

Clofine, Michael ............................... ** 34,113 ** *

Cohen, Donald .................................. ** 18,431 ** *

Cohen, Donald E. ............................... ** 13,337 ** *

Cohen, Larry ................................... ** 33,337 ** *

Colacino, Thomas & Elizabeth ................... ** 27,641 ** *

Cooper, Arthur G. .............................. ** 33,337 ** *

Crestview Capital Masters LLC .................. ** 653,337 ** *

Currie, Dr. Malcolm R. ......................... ** 26,663 ** *

Curtis, Paul ................................... ** 13,337 ** *

DCG&T c/f Robert G. Heidenreich IRA ............ ** 33,337 ** *

DCG&T Walter J. Krzanowski IRA ................. ** 33,337 ** *

De Kanter, Stephen ............................. ** 33,337 ** *

Delaware Charter G&T C/F Elizabeth A. Eller IRA ** 26,663 ** *

Delaware Charter G&T Co FBO
Elizabeth H. Bone SEP IRA ...................... ** 13,337 ** *

Delaware Charter G&T Co FBO Ronald Hutchison IRA ** 33,337 ** *

Delaware Charter G&T Co. FBO
Benjamin King IRA .............................. ** 33,337 ** *

Delaware Charter Guarantee & Trust Co FBO Chatri
Jhunjhnuwala SEP IRA ........................... ** 45,335 ** *

Delaware Charter Lee R. Beck SEP IRA ........... ** 33,337 ** *

Delis, Dean .................................... ** 33,337 ** *

Deloach, Jr., Dennis R. ........................ ** 33,326 ** *

Deutsch, Steven H. & Deutsch, Wilma K. JTWROS .. ** 40,000 ** *

Deutsch, Steven H. or Deutsch,
Wilma K......................................... ** 45,335 ** *

Dolgin, Cindy .................................. ** 66,663 ** *

Donald E. Yohe & Sheri J. Yohe Revocable Trust . ** 66,663 ** *

Dreyfuss, Jules H. ............................. ** 33,337 ** *

Duymazlar, Erol ................................ ** 20,000 ** *

E.A. Moos & CO LP .............................. ** 133,337 ** *

Elliot, Iona S. ................................ ** 6,663 ** *

Ellis, Jr., U. Bertram ......................... ** 90,679 ** *

Engel, Jacob ................................... ** 136,441 ** *

Esposito, Joanne K. ............................ ** 34,113 ** *

F. Berdon Defined Benefit Plan ................. ** 66,663 ** *

Field & Field, LP .............................. ** 64,503 ** *

Finelt, Harold ................................. ** 45,335 ** *

Fisher, Andrew ................................. ** 266,663 ** *

Fleisig, Jonathan D. ........................... ** 399,460 ** *

Forsyth, Dr. Richard ........................... ** 33,337 ** *

Gans, Walter G. ................................ ** 66,663 ** *

Garfield Associates LLC ........................ ** 20,000 ** *

Gearns, Richard ................................ ** 20,000 ** *

Genovese, Richard .............................. ** 272,882 ** *

Giambrone, Carol ............................... ** 93,337 ** *

Gilson, David .................................. ** 40,000 ** *

Ginsburg, Jerome Z. ............................ ** 66,663 ** *

Gioia, Louis G. ................................ ** 33,337 ** *

Global Capital Funding Group, L.P. (4).......... 257,333 257,333 0 *

Goekjian, Samuel ............................... ** 33,337 ** *

Golden Gate Ventures LLC ....................... ** 242,209 ** *

Goldstein, William M. .......................... ** 66,663 ** *

Goodale, Robert ................................ ** 33,337 ** *

Goodman, Rhoda ................................. ** 66,663 ** *

Goodman, Steve ................................. ** 85,952 ** *

Goodman, Steven ................................ ** 64,212 ** *

Gould, Peter C. ................................ ** 33,337 ** *

Gozlan, Maurice & Stacy ........................ ** 170,554 ** *

Gozlan, Maurice & Stacy TIE .................... ** 66,663 ** *

Greenwood Partners, LP ......................... ** 133,326 ** *

Gross, Irwin & Linda JTWROS .................... ** 66,663 ** *

Haboush, Ronald ............................... ** 333,337 ** *

Hanam Capital Corporation ...................... ** 53,337 ** *

Hannahs, Gerald ................................ ** 133,337 ** *

Harold A. Havekotte Inc. Pension Plan 11/28/80 . ** 16,663 ** *

Harrigan, Robert & Lane, Cindy ................. ** 33,337 ** *

Hawkeye Ventures, Inc. ......................... ** 533,337 ** *

Headwaters Holdings ............................ ** 545,754 ** *

Hochman, David P. .............................. ** 22,672 ** *

Hughey, Byron C. & Julie L. Tenants By the
Entirety ....................................... ** 20,000 ** *

IMT Industries, Inc. ........................... ** 133,337 ** *

Iseli, Andre ................................... ** 33,337 ** *

Jacobson, David ................................ ** 66,663 ** *

Jaret, Alec .................................... ** 20,000 ** *

Jericho Investments ............................ ** 66,663 ** *

Joe N. & Jamie Behrendt Revocable
Trust 10/20/96 ................................. ** 33,337 ** *

John P. Funkey Revocable Trust
2/26/90 ........................................ ** 66,663 ** *

Jones, W. Kentley .............................. ** 66,663 ** *

Kahn, David V. ................................. ** 30,000 ** *

Kahn, Jonathan ................................. ** 50,000 ** *

Kantor, Robert ................................. ** 66,663 ** *

Karfunkel, George .............................. ** 333,337 ** *

Karfunkel, Michael ............................. ** 333,337 ** *

Keenan, Steven & Marilyn JTWROS ................ ** 33,337 ** *

Kellogg Capital Group LLC ...................... ** 66,663 ** *

Kendall, James ................................. ** 133,337 ** *

Kerschner, Richard D. (5) ...................... 71,667 50,000 21,667

Kim M. Berretta Trust DTD 10/24/94 ............. ** 16,663 ** *

Klingenstein, William P. ....................... ** 266,663 ** *

Kobayashi, Patrick ............................. ** 33,337 ** *

Kokales, John .................................. ** 33,337 ** *

Kostal, Kenneth J. ............................. ** 33,337 ** *

Koukoulis, Athanasios .......................... ** 6,663 ** *

Kousouros, James ............................... ** 33,337 ** *

Kredietbank (Suisse) SA Acting for Customers A/C ** 66,663 ** *

Kroening, John C. .............................. ** 33,337 ** *

Lachman, Ronald ................................ ** 66,663 ** *

Laddcap Value Partners, LP ..................... ** 400,000 ** *

Lang, Allan .................................... ** 33,337 ** *

Lawrence Cohen Trust ........................... ** 66,663 ** *

Lee O. Hill CGM IRA Rollover
Custodian ...................................... ** 33,337 ** *

Lee, Shellie Lyn Peck .......................... ** 26,663 ** *

Leishman, Gregory J. ........................... ** 33,337 ** *

Levine, Lee A. ................................. ** 33,337 ** *

Levy Jr., Robert ............................... ** 33,337 ** *

Lincoln Associates LLC ......................... ** 20,000 ** *

Lorch, Timothy R. .............................. ** 53,337 ** *

Madigan, Elizabeth ............................. ** 6,663 ** *

Martone, Anthony J. ............................ ** 33,337 ** *

Masci, Jr., Thomas A. .......................... ** 16,663 ** *

McBride, Gerald & Patricia JTWROS .............. ** 33,337 ** *

McGuire, Mikell Rigg ........................... ** 66,663 ** *

MCP Global Corporation Ltd. .................... ** 184,039 ** *

Meadowbrook Capital Corp. Profit
Sharing Plan ................................... ** 266,663 ** *

Merkle, Robert ................................. ** 13,337 ** *

Michael, Daniel ................................ ** 33,337 ** *

Millet, Craig H. ............................... ** 33,337 ** *

Molinsky, Richard .............................. ** 80,000 ** *

Morris Holdings, LLC ........................... ** 66,663 ** *

Moskowitz, Leonard ............................. ** 33,337 ** *

Mouton Family Living Trust ..................... ** 20,000 ** *

Nash, Ronald ................................... ** 160,000 ** *

Navigato, Daniel ............................... 6,000 6,000 **

Nicolopoulos, Gus & Karen ...................... ** 20,000 ** *

O'Connell, Edward J. ........................... ** 45,335 ** *

Oliphant, James ................................ ** 33,337 ** *

Omenn, Dr. Gilbert S. .......................... ** 66,663 ** *

One Station Place, Limited Partnership ......... 22,000 22,000 0

Orlando, John .................................. ** 66,663 ** *

Pallini, Larry ................................. ** 45,335 ** *

Patel, Suresh .................................. ** 33,337 ** *

PEAK Private Equity AG ......................... ** 30,000 ** *

Pepper, Christopher ............................ ** 18,431 ** *

Pepper, Christopher K. ......................... ** 13,337 ** *

Perl, Sheldon .................................. ** 92,019 ** *

Perl, Sheldon & Perl, Ruth TIC ................. ** 33,337 ** *

Peterson, Lisa & Smith, Mark JTWROS ............ ** 13,337 ** *

Peterson, Todd ................................. ** 7,440 **

Pizzo, James ................................... ** 13,337 ** *

Plum Glen Partners, LP ......................... ** 33,337 ** *

Rajagopalan, K.V. .............................. ** 26,663 ** *

Ralph C. Wintrode Trust dtd
May 9, 2001 .................................... ** 33,337 ** *

Rarey, David ................................... ** 13,337 ** *

Restatement of the Tan 1994 Family
Trust dated 5/22/03 ............................ ** 26,663 ** *

Rice, Donald S. ................................ ** 20,000 ** *

Roberts, William Martin ........................ ** 13,337 ** *

Rosner, Robert ................................. ** 286,521 ** *

Rossi, Mario (7) ............................... ** 41,667 **

Rothman, Eli ................................... ** 92,144 ** *

Rothman, Elisha ................................ ** 133,056 ** *

Rubin, Alan J. ................................. ** 133,337 ** *

Rubin, Stanley M. .............................. ** 33,337 ** *

Russey, Richard ................................ ** 16,663 ** *

Sadow, Bernard ................................. ** 66,663 ** *

Sakakeeny, Richard ............................. ** 20,000 ** *

Saker, Wayne ................................... ** 66,663 ** *

Schackner, Martin .............................. ** 13,337 ** *

Schmidt, Daniel R. & Schmidt,
Kaliana C. JTWROS .............................. ** 13,337 ** *

Schrager, Howard ............................... ** 66,663 ** *

Scott, C. Dennis ............................... ** 13,337 ** *

Segal, Aaron ................................... ** 9,200 ** *

Shaoul, Ralph .................................. ** 34,663 ** *

Shea Ventures LLC .............................. ** 581,357 ** *

Shemaria, Barry ................................ ** 33,337 ** *

Shippel, Ronald ................................ ** 18,431 ** *

Shippel, Ronald M. ............................. ** 18,140 ** *

Silva, Michael P. .............................. ** 29,760 **

Silverman, Arthur .............................. ** 40,000 ** *

Sokolow, Elliot ................................ ** 46,072 ** *

Soyak, James & Deborah JTWROS .................. ** 66,663 ** *

Spencer Trask Illumination Fund (4)(8) ......... 93,337 93,337 0 *

Spencer Trask Investment Partners, LLC (4)(8) .. 643,287 643,287 0 *

Spencer Trask Private Equity Accredited Fund
III, LP (4)(8) ................................. 201,133 201,133 0 *

Spencer Trask Private Equity Fund I, LP (4)(8) . 247,796 247,796 0 *

Spencer Trask Private Equity Fund II, LP (4)(8) 181,133 181,133 0 *

Spencer Trask Ventures, Inc. (4)(8) ............ 3,658,034 3,658,034 0 *

SPH Investments, Inc. .......................... ** 266,663 ** *

Steadman, Mark C. .............................. ** 33,337 ** *

Stern, Adam K. (9).............................. ** 90,215 ** *

Stollwerk, David or Stollwerk, Ida ............. ** 45,335 ** *

Struett, Joanna ................................ ** 33,337 ** *

Sue Berland Revocable Living Trust ............. ** 66,663 ** *

Sunflower Trading Fund ......................... ** 133,337 ** *

Swartz, Jack ................................... ** 20,000 ** *

Sweetland L.L.C. ............................... ** 33,337 ** *

Sydorick, David ................................ ** 232,539 ** *

Taney, Richard ................................. ** 66,663 ** *

Taus, Amy ...................................... ** 47,450 ** *

TecCapital, Ltd. ............................... ** 343,555 **

The Bansi Bhaswani Revocable
Trust dtd-6-23-92 .............................. ** 33,337 ** *

THE PAUL F PETRUS REV TRUST OF 1988 UAD 4-15-88 ** 53,337 ** *

Union Securities, Ltd .......................... ** 181,357 ** *

Vestcap International Management,
Ltd. ........................................... ** 333,337 ** *

Viswanath, Premnath ............................ ** 184,298 ** *

Vitel Ventures ................................. ** 409,312 ** *

Vitel Ventures, Inc. ........................... ** 200,000 ** *

Vito Stamato Family Limited Partnership
#22-3181014 .................................... ** 100,000 ** *

Wagner, John V., Jr. ........................... ** 33,337 ** *

WEC Partners, LLC .............................. ** 133,337 ** *

Weinger, Jerold & Weinger, Lilli
JTWROS ......................................... ** 133,337 ** *

Weir, Paul J. .................................. ** 33,337 ** *

Weisbeck, Kevin ................................ ** 33,337 ** *

Weiss, Michael ................................. ** 92,019 ** *

Wheeler, Donald C. ............................. ** 66,663 ** *

William C. Wetzel TTEE for the Livingston,
Berger, Brandt & Schroeder Self Employment Ret
Plan DTD 9/30/94 FBO Richard E. Stites ......... ** 33,337 ** *

Yamada, Ray Y. ................................. ** 13,337 ** *

Zimmerman, Michael ............................. ** 10,000 ** *

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

* Less than 1%.
** To be filed by amendment.

(1) The number of shares owned prior to and after the offering includes all
shares of common stock that the selling stockholder may acquire upon the
exercise of warrants, exercise of options and conversion of Series A
preferred stock, regardless of whether these derivative securities are
currently exercisable or not.
(2) The percentage of common stock owned after the offering is based on the
fully diluted number of shares of common stock outstanding assuming the
exercise of all warrants and options and the conversion of all Series A
preferred stock held by the selling stockholders.
(3) Mr. Cassetta is our former Chief Executive Officer and Chairman of the
Board of Directors. See also "Certain Relationships and Related
Transactions" and "Agreements with Named Executive Officers" for a
description of certain material relationships between the selling
stockholder and us.
(4) The selling stockholder (and affiliates where applicable) was the
beneficial owner of at least 5% of our outstanding common stock as of April
15, 2004.
(5) Mr. Kerschner is our former Senior Vice President and General Counsel. See
"Agreements with Named Executive Officers" for a description of certain
material relationships between the selling stockholder and us.
(6) Mr. Rosner is an investor, provides consulting services to us and acted as
a finder. See "Certain Relationships and Related Transactions" for a
description of certain material relationships between the selling
stockholder and us.
(7) Mr. Rossi is our former Executive Vice President and Chief Technology
Officer. See also "Certain Relationships and Related Transactions" and
"Agreements with Named Executive Officers" for a description of certain
material relationships between the selling stockholder and us
(8) We have been advised by each selling stockholder that its controlling
person is Kevin Kimberlin. Spencer Trask Ventures, Inc. provided services
to us as a consultant and placement agent. The other Spencer Trask entities
invested in the May through November 2003 bridge financings. See also
"Security Ownership of Certain Beneficial Owners and Management" and
"Certain Relationships and Related Transactions" for a description of
certain material relationships between the selling stockholder and us.
(9) Adam Stern is an employee of Spencer Trask. See footnote (8) above
regarding Spencer Trask's relationship with us.

PLAN OF DISTRIBUTION

The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:

o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, if available, rather than under this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

The selling stockholders may from time to time pledge or grant a security
interest in some or all of the shares of common stock or warrants owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.

The selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.

To the extent required, a supplement to this prospectus will be distributed
which sets forth the name or names of any underwriters, dealers or agents, the
purchase price paid by any underwriter for shares purchased from the selling
stockholders and any discounts, concessions or commissions and other items
constituting compensation from the selling stockholders and any discounts,
concessions or commissions allowed or reallowed or paid to dealers, including
the proposed selling price to the public.

The selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933.

We are required to pay all fees and expenses incident to the registration of the
shares. We have agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act of 1933.

With certain exceptions, Regulation M precludes the selling stockholders, any
affiliated purchasers, and any broker-dealer or other person who participates in
such distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the shares offered by this prospectus.

In order to comply with the securities laws of certain states, if applicable,
the shares of common stock offered hereby will be sold in such jurisdictions, if
required, only through registered or licensed brokers or dealers. In addition,
in certain states these shares may not be sold unless they have been registered
or qualified for sale in such state or an exemption from registration of
qualification is available and the conditions of such exemption have been
satisfied.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Steven B. Rosner, a beneficial owner of more than 5% of our common stock,
entered into an agreement with us, dated October 25, 1999, whereby Mr. Rosner
was to provide consulting services to us. Pursuant to an amendment dated January
4, 2000, the agreement was extended until October 24, 2002 (the agreement as
amended, the "Rosner Agreement"). Pursuant to the Rosner Agreement, Mr. Rosner
received $125,000 and warrants to purchase (i) 16,667 shares of common stock at
$15.75 per share, (ii) 16,667 shares of common stock at $21.75 per share and
(iii) 1,334 shares of common stock at $110.25 per share. Mr. Rosner has
exercised warrants to purchase 33,333 shares of common stock. The remaining
warrants expire on October 25, 2004. In December 2002, we entered into a two
year consulting agreement with Mr. Rosner to replace the Rosner Agreement. As
consideration for such services, we granted Mr. Rosner a warrant to purchase
41,667 shares of common stock at an exercise price of $7.68 per share. The
warrants expire on December 4, 2005. In March 2004, we amended and restated the
December 2002 consulting agreement by extending the term by one year until March
2005. In consideration for this new agreement, we granted Mr. Rosner a warrant
to purchase 300,000 shares of common stock at an exercise price of $1.50 per
share and Mr. Rosner waived $60,000 in consulting fees that we owed him under
the December 2002 consulting agreement. This amended and restated agreement
superceded the December 2002 consulting agreement.

Mr. Rosner also acted as a finder in the September 2002 private placement of our
Units. For his services as a finder, Mr. Rosner received warrants to purchase
31,062 shares of common stock at $5.10 per share and a cash fee of $157,500 from
us. The warrants expire on September 8, 2007. In May and June 2003, Mr. Rosner
acted as a finder in connection with our private placement of Units consisting
of convertible notes and warrants to purchase common stock issued by us to 20
accredited investors, Mr. Rosner received a finder's fee of $10,500, warrants to
purchase 12,283 shares of common stock at $4.464 per share and 5,556 shares of
unregistered common stock. As a result of anti-dilution provisions and
subsequent financings, the exercise price of the warrants was reduced to $1.50
per share in September 2003.

In January 2003, we issued a note to Mr. Rosner in consideration of $70,000.
Proceeds from the note were used for working capital. The debt was evidenced by
an unsecured note bearing an interest rate of 12% per annum and was repaid in
February 2003.

In December 2000, our Board of Directors authorized the issuance of a line of
credit of up to $500,000 to Sebastian E. Cassetta, our then Chief Executive
Officer and Chairman of the Board. Mr. Cassetta issued promissory notes,
effective on January 2, 2001 and March 20, 2001, aggregating $500,000 to us in
exchange for amounts borrowed under the line of credit. Each note bears interest
at the prime rate and matures three years from the date the note was issued.
Interest for the period January 2, 2001 to June 30, 2002 has been accrued and is
payable at maturity. Commencing July 1, 2002 interest is payable semi-annually
in arrears. In October 2003 we agreed to forgive these loans over a three-year
period and we extended the term of certain other loans pursuant to Mr.
Cassetta's Separation Agreement with us as described in the section entitled
"Agreements with Named Executive Officers".

In January 2000, we issued Mr. Mario Rossi, our then Executive Vice President
and Chief Technology Officer, 34,347 shares of restricted common stock in
exchange for Mr. Rossi's note in the amount of $152,500. Such note is secured by
the common stock issued to Mr. Rossi. In October 2003, pursuant to Mr. Rossi's
rights under his Restricted Stock Agreement and in connection with his
retirement, the principal amount of this note will be cancelled upon his
delivery to us of the 34,347 shares of restricted stock securing this note. In
January 2004, Mr. Rossi assigned and transferred all

34,397 restricted shares of common stock to us in full satisfaction of the
outstanding non-recourse debt of $68,000. Please see the description of the
Separation Agreement with Mr. Rossi in the section entitled "Agreements with
Named Executive Officers" for additional information.

We entered into a consulting arrangement with Spencer Trask in May 2003
providing that Spencer Trask would render corporate financial consulting,
financial advisory, and investment banking services to us ("Trask Consulting
Agreement"). Under the Trask Consulting Agreement, we agreed to pay consulting
fees of $7,500 per month commencing July 1, 2003 through May 31, 2004 and we
issued Spencer Trask 83,333 shares of our common stock. Spencer Trask is a
beneficial owner of more than 5% of our common stock.

As part of the consulting arrangement, Spencer Trask acted as a finder and
assisted us with sales of Units consisting of convertible debentures and
warrants from May 2003 through November 2003 in the aggregate amount of
$2,685,000. We paid Spencer Trask a finders fee consisting of $349,050 in cash
(including finders fees and non-accountable expenses), 152,223 shares of our
common stock (includes 9,445 shares which have yet to be issued to Spencer
Trask) and a warrant to purchase 749,146 shares of our common stock at exercise
prices ranging from $1.50 to $1.90 per share. We also reimbursed Spencer Trask
for $20,000 of legal expenses and $5,000 of out-of-pocket expenses. As a result
of the anti-dilution provisions in the warrant, we subsequently issued Spencer
Trask an additional warrant to purchase 445,393 shares of our common stock at an
exercise price of $1.50.

Under the terms of the Trask Consulting Agreement, we are obligated to pay
Spencer Trask a fee upon closing of our acquisition of nReach, based on 5% of
the first two-million dollars of the aggregate consideration of such
acquisition, 4% of the next two million dollars or portion thereof, 3% of the
third $2,000,000 or portion thereof, and 2.5% of the balance of the
consideration. For purposes of determining the aggregate consideration, the
total value of liabilities assumed are included, and fees on any contingent
payment shall be paid to Spencer Trask when such contingent payment is made.
Spencer Trask has agreed to accept shares of our common stock in lieu of cash
with respect to such fees.

Under the terms of the Trask Consulting Agreement, in the event that on or
before May 31, 2004 or 18 months thereafter (under certain conditions), we sell,
outside the ordinary course of business, our company or any of our assets,
securities or business by means of a merger, consolidation, joint venture or
exchange offer, or any transaction resulting in any change in control of us or
our assets or business, or we purchase, outside the ordinary course of business,
another company or any of its assets, securities or business by means of a
merger, consolidation, joint venture or exchange offer, or we receive an
investment in us (other than an investment pursuant to an agented offering,
which will be subject to compensation pursuant to a separate arrangement with
Spencer Trask), we will owe Spencer Trask a cash fee and in some instances,
warrants.

Spencer Trask served as the placement agent for the 2004 Private Placement. In
accordance with the terms of the Placement Agency Agreement, dated January 29,
2004, Spencer Trask received compensation consisting of (i) a cash fee of
$1,002,500, or 10% of the aggregate purchase price of all of the Units acquired
for cash, (ii) a non-accountable expense allowance of $300,750, or 3% of the
aggregate proceeds of all Units sold for cash in the transaction, and (iii)
warrants to purchase a number of shares of common stock equal to 20% of the
shares of common stock underlying the securities in the Units sold for cash,
constituting in the aggregate warrants to purchase 1,336,666 shares of common
stock at $1.50 per share and warrants to purchase 1,336,666 shares of common
stock at $2.82 per share.

In February 2003, we issued a convertible note to Global Capital Funding Group,
LP ("Global") in consideration for the receipt of $1 million. Global is the
beneficial owner of more than 5% of our common stock. The note bore interest at
the rate of 10% per annum, and was secured by our assets, exclusive of our
internally developed software products. The note matured on February 14, 2004,
contained certain anti-dilution provisions, and could have been converted into
shares of our common stock at $6.60 per share. As additional consideration, we
issued Global a warrant for the purchase of 33,333 shares of our common stock at
an exercise price of $9.68 per share. In April 2003, we borrowed an additional
$250,000 from Global and amended the convertible note to include such amount. As
additional consideration, we issued Global a warrant for the purchase of 3,333
shares of our common stock at an exercise price of $7.20 per share. The warrants
issued to Global and Alpine contain certain antidilution provisions and expire
on February 14, 2006. Proceeds from the notes were used for working capital
purposes.

In connection with a September 2003 sale of Units (comprised of convertible
debentures and warrants to purchase common stock), we required the consent of
Global, the holder of $1.25 million of our convertible debentures issued in
February and April 2003, and of 51% or more of the holders of our $1.5 million
convertible debentures issued in connection with the bridge financings in May
and June 2003. As an inducement to obtain their consent, such holders received
(a) a change in the conversion price of their convertible debentures equal to
the lowest conversion price of the debentures issued in September 2003 financing
($1.896 per share) and (b) an increase in the number of shares purchasable
pursuant to the warrant to reflect a full ratchet dilution formula with a
decrease in the exercise price of the warrants to the exercise price of the
warrants issued in such September financing ($1.50). In November, 2003, as an
inducement to obtain Global's consent to the sale of Units (comprised of
convertible debentures and warrants to purchase common stock) in the November
2003 transaction and the sale of Units in the 2004 Private Placement
transaction, we issued Global a warrant to purchase 16,667 shares of common
stock at an exercise price of $2.40 per share.

On February 13, 2004, we paid $1,391,504 to Global in full satisfaction of our
convertible debentures issued in February and April 2003 in the principal amount
of approximately $1.25 million plus accrued interest of $141,504.

Pursuant to Robert Pons' Consulting Agreement and Employment Agreement, he was
entitled to a transaction fee equal to 1% of any cash or securities received by
us from any equity transaction. Based on this, he received $100,000 from us in
2004 in connection with the 2004 Private Placement transaction. Mr. Pons is
currently our Chief Executive Officer, but he was neither a director nor Chief
Executive Officer at the time the Consulting Agreement was executed.

We believe that the terms of the transactions described above were no less
favorable to us 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 our policy, such transactions were approved by a majority of our
independent disinterested directors.

DESCRIPTION OF CAPITAL STOCK
General

The following is a description of our capital stock which summarizes all
material rights of holders of such stock but does not purport to be complete.
The Amended and Restated Certificate of Incorporation, as amended, and Bylaws
contain certain provisions that are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors and which
may have the effect of delaying, deferring or preventing a future takeover or
change in control of us unless such takeover or change in control is approved by
our Board of Directors. The Amended and Restated Certificate of Incorporation
and Bylaws 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.

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 April 15, 2004, we had 2,808,283 shares of common stock and
876,491 shares of Series A convertible preferred stock issued and outstanding.
We have reserved 27,534,698 shares of common stock for issuance pursuant to
outstanding shares of Series A preferred stock, options and warrants, as of
April 15, 2004.

Common Stock

The holders of our 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, subject to the voting rights
of our preferred stockholders. Holders of common stock are entitled to receive
ratably such dividends as may be declared by the Board out of funds legally
available for such distributions, subject to any preferential dividend rights of
holders of our preferred stock. 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, subject to the prior rights of any
holder of shares of our preferred stock. 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 series of preferred stock having the designations, number
of shares, dividend rates and preferences, liquidation preferences, redemption
provisions, sinking fund provisions, conversion or exchange 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.

The Board of Directors has designated 876,491 shares of preferred stock as
Series A Convertible Preferred Stock. Our Series A preferred stock ranks senior
to our common stock and senior to any class or series of our capital stock
hereafter created, in each case as to payment of dividends, distributions of
assets upon liquidation, and our dissolution or winding up, whether voluntary or
involuntary. Each outstanding share of Series A preferred stock receives a
liquidation preference equal to the aggregate purchase price at which the
shares, along with accompanying warrants, were first issued and sold by us to
the original holder thereof pursuant to the 2004 Private Placement (the "Initial
Purchase Price"), plus all accrued and unpaid dividends. Each holder of Series A
preferred stock is further entitled to share pro rata in the distribution of any
remaining assets with the common stockholders, such distribution to be based on
the number of shares of our common stock that would be held if the Series A
preferred stock were converted into shares of common stock. In this context, the
term liquidation includes:

o a consolidation or merger of us with or into any other corporation or
a merger of any other corporation into us (except where the holders of
our common stock immediately prior to the transaction would own more
than 50% of the voting securities of the surviving entity);

o our reorganization;

o a purchase or redemption of all or a substantial part of the
outstanding shares of any class or classes of our capital stock; or

o a sale, transfer, assignment, or other disposition of all or
substantially all of our assets.

Each holder of the Series A preferred stock is entitled to receive preferential
cumulative dividends at the rate of 8% per year on the Initial Purchase Price of
the Series A preferred stock, payable quarterly. These dividends will be paid in
cash or, at our option, in fully-paid nonassessable registered shares of our
common stock.

Each share of Series A preferred stock is convertible into 10 shares of our
common stock at the election of the holder thereof. Additionally, all Series A
preferred stock automatically converts into common stock upon the earliest of
(i) the third anniversary of the date on which shares of Series A preferred
stock are last issued and sold by us (the "Original Issue Date") or (ii) upon
written notice by us if, following the second anniversary of the Original Issue
Date, the closing price of our common stock is $4.00 per share (subject to
adjustment in connection with any forward or reverse stock split, stock
dividend, merger, reorganization or similar event) or greater for 20 consecutive
trading days, as listed or quoted on either the OTC Bulletin Board, American
Stock Exchange, New York Stock Exchange, Nasdaq National Market or Nasdaq Small
Cap Market, as applicable at the time. The Series A preferred stock is not
redeemable.

The holders of our Series A preferred stock are entitled to notice of any
stockholders' meeting and to vote with the common stockholders on all matters
submitted to a vote of our stockholders. The Series A preferred stockholders are
entitled to the number of votes equal to the number of shares of common stock
into which the Series A preferred stock are then convertible. Additionally, the
Series A preferred stock is entitled to vote separately on:

o any alteration of the rights of the Series A preferred stock;

o any change in the authorized number of shares of the Series A
preferred stock, except as authorized by our Certificate of
Incorporation (other than an increase in the number of the Series A
preferred stock in connection with shares to be issued pursuant to an
offering described in the Private Placement Memorandum issued in
connection with the 2004 Private Placement ("Memorandum"));

o the redemption or repurchase of shares of Series A preferred stock; or

o with respect to those matters required by law to be submitted to a
separate class or series vote.

The Series A preferred stockholders have preemptive rights, except in respect of
the issuance of:

o shares of common stock or options or warrants to our employees,
consultants, advisors, officers or directors that have been approved
by the Board of Directors or issued pursuant to any stock or option
plan adopted by the Board of Directors;

o securities upon anti-dilution adjustments under any securities,
options or warrants issued and outstanding on the Original Issue Date,
and securities upon the exercise of or conversion of any convertible
securities, options or warrants issued and outstanding on the Original
Issue Date, provided that such securities have not been amended since
such date;

o securities in connection with acquisitions or strategic investments
(including any licensing or distribution arrangements), the primary
purpose of which is not to raise capital;

o securities to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar
transactions, where the principal consideration for the transaction is
not the issuance of such securities; or

o securities issued in connection with the financing described in the
Memorandum.

We may not, without the prior written consent of the Series A preferred
stockholders holding at least two-thirds of the then outstanding Series A
preferred shares, create or issue any additional shares of preferred stock
(other than shares of Series A preferred stock offered pursuant to the
Memorandum) or securities which rank senior to or on an equal basis with the
Series A preferred stock with respect to payment of dividends or liquidation or
other distribution of assets.

Warrants

As of April 15, 2004, there are warrants outstanding to purchase 16,149,316
shares of our common stock in the aggregate. These warrants are held by various
different persons and are exercisable at prices ranging from $1.34 to $110.25,
subject to anti-dilution adjustments set forth in the applicable warrant. These
warrants expire between July 31, 2004 and February 9, 2099.

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 in any "business combination" with an
"interested stockholder" for a period of three years following the time that
such stockholder became an interested stockholder unless:

o 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,

o the stockholder owned at least 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

o 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 defined to mean, with certain exceptions, any
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" broadly to include various mergers,
consolidations, stock sales and asset-based transactions and other transactions
resulting in a financial benefit to the interested stockholder.

Our Amended and Restated Certificate of Incorporation restricts the ability of
our stockholders to call a stockholders' meeting and provides that our
stockholders may not act by written consent. Additionally, our Board of
Directors is divided into three classes with each class being elected by our
stockholders in different years. Our Amended and Restated Certificate of
Incorporation restricts the ability of our stockholders to 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 our company, including transactions in which our
stockholders might 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.

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 monetary
damages for breach of the director's fiduciary duty, except:

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

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

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

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

Our Amended and Restated Certificate of Incorporation provides for the
elimination of the liability of directors to the extent permitted by the DGCL.

Section 145 of the DGCL sets forth the extent to which a corporation may
indemnify its directors, officers, employees and agents. More specifically, this
law empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with such action, suit or proceeding if the person
(i) acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interest of the corporation, and (ii) with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful.

in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent the Court
of Chancery or the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.

o by a majority vote of the directors who are not parties to such
action, suit or proceeding, even though less than a quorum,

o by a committee of such directors designated by majority vote of such
directors, even though less than a quorum,

o if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or

o by the stockholders.

A present or former director or officer of a corporation is entitled to be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense of any action, suit or proceeding or in
defense of any claim, issue or matter therein to the extent that the director or
officer is successful on the merits thereof. Expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding, provided that the director or officer undertakes to repay this
amount if it is ultimately determined that he or she is not entitled to be
indemnified.

Our By-laws provide that we shall indemnify members of the Board to the fullest
extent permitted by the DGCL and may, if authorized by the Board, indemnify our
officers, employees and agents and any and all persons whom we shall have the
power to indemnify against any and all expenses, liabilities or other matters.
We also maintain liability insurance for our officers and directors.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have 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.

TRANSFER AGENT

The Transfer Agent and Registrar for the common stock is American Stock Transfer
& Trust Company, 6201 15th Avenue, Brooklyn, NY 11219. Its telephone number is
(718) 921-8124.

LEGAL MATTERS

The validity of the shares of common stock offered in this prospectus has been
passed upon for us by Stradley Ronon Stevens & Young, LLP, 2600 One Commerce
Square, Philadelphia, PA 19103-7098.

EXPERTS

The consolidated financial statements of SmartServ Online, Inc. at December 31,
2003, and for the year ended December 31, 2003, appearing in this prospectus and
registration statement have been audited by Grant Thornton LLP independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing. The consolidated financial statements of
SmartServ Online, Inc. at December 31, 2002, and for the year ended December 31,
2002, appearing in this prospectus

and registration statement have been audited by Ernst & Young LLP independent
auditors, as set forth in their report thereon (which contains 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
consolidated 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.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). You may read
and copy any document we file with the SEC at the Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, we file electronic versions of these documents on the SEC's Electronic
Data Gathering Analysis and Retrieval, or EDGAR, System. The SEC maintains a web
site at http.//www.sec.gov that contains reports, proxy and information
statements and other information filed with the SEC.

We have filed a registration statement on Form SB-2 with the SEC 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 SEC'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 SEC, and on the SEC'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.

SMARTSERV ONLINE, INC.
INDEX TO FINANCIAL STATEMENTS

Page

Report of Grant Thornton LLP F-2

Report of Ernst & Young LLP F-3

Consolidated Balance Sheets as of December 31, 2003 and 2002 F-4

Consolidated Statements of Operations for the years ended
December 31, 2003 and 2002 F-6

Consolidated Statement of Stockholders' Equity (Deficiency) for
the years ended December 31, 2003 and 2002 F-7

Consolidated Statements of Cash Flows for the years ended December
31, 2003 and 2002 F-9

Notes to Consolidated Financial Statements F-10

F-1

Report of Independent Certified Public Accountants

To the Shareholders and Board of Directors
SmartServ Online, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of SmartServ Online,
Inc. and subsidiaries as of December 31, 2003, and the related consolidated
statement of operations, stockholders equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SmartServ Online,
Inc. and subsidiaries as of December 31, 2003, and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.

/s/ Grant Thornton LLP

Philadelphia, Pennsylvania
March 24, 2004

F-2

Report of Independent Auditors

Stockholders and Board of Directors
SmartServ Online, Inc.

We have audited the accompanying consolidated balance sheet of SmartServ Online,
Inc. as of December 31, 2002, and the related consolidated statements of
operations, stockholders' equity (deficiency), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
SmartServ Online, Inc. at December 31, 2002, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming
that SmartServ Online, Inc. will continue as a going concern. As more fully
described in Note 1, the Company has earned limited revenues and incurred
recurring operating losses which raise substantial doubt about its 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 this uncertainty.

/s/ ERNST & YOUNG LLP

New York, New York
April 23, 2003, except for the second paragraph
of Note 1 as to which the date is March 24, 2004

F-3

SmartServ Online, Inc.

Consolidated Balance Sheets

December 31
-----------------------
2003 2002
---------- ----------

Assets
Current assets
Cash and cash equivalents $ 139,178 $ 154,759
Accounts receivable 103,230 55,907
Accrued interest receivable 47,004 50,658
Prepaid compensation 133,127 117,500
Prepaid expenses 86,798 164,258
Deferred financing costs 322,192 --
---------- ----------
Total current assets 831,529 543,082

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

Other assets
Capitalized software development costs, net of accumulated amortization of -- 888,467
$1,097,148, and $208,681 at December 31, 2003 and 2002
Security deposits 5,156 238,690
Note receivable from officer, net of an allowance for uncollectibility of -- --
$664,640 at December 31, 2003 and 2002
Prepaid compensation -- 107,708
---------- ----------
5,156 1,234,865
---------- ----------

Total Assets $ 836,685 $3,351,925
========== ==========

See accompanying notes.

F-4

SmartServ Online, Inc.

Consolidated Balance Sheets

December 31
----------------------------
2003 2002
------------ ------------

Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable $ 1,702,768 $ 1,307,342
Accrued liabilities 928,393 476,346
Accrued salaries 78,133 295,437
Note payable -- 500,000
Accrued interest payable 218,848 --
------------ ------------
Total current liabilities 2,928,142 2,579,125

Deferred revenues 37,500 193,294
Deferred lease costs -- 242,300
Accounts payable - noncurrent -- 163,907

Note payable 3,340,430 --

Commitments and Contingencies -- --

Stockholders' Equity (Deficit)
Preferred stock - $0.01 par value
Authorized - 1,000,000 shares
Issued and outstanding - None -- --
Common Stock - $0.01 par value
Authorized - 40,000,000 shares
Issued and outstanding - 2,261,300 shares at 2003 and 22,613 19,060
1,906,040 shares at 2002
Additional paid-in capital 85,160,306 73,623,241
Notes receivable from officers (255,525) (609,996)
Accumulated deficit (90,396,781) (72,859,006)
------------ ------------
Total stockholders' equity (deficit) (5,469,387) 173,299
------------ ------------

Total Liabilities and Stockholders' Equity (Deficit) $ 836,685 $ 3,351,925
============ ============

See accompanying notes.

F-5

SmartServ Online, Inc.

Consolidated Statements of Operations

Year Ended December 31
----------------------------
2003 2002
------------ ------------

Revenues $ 709,388 $ 195,817
------------ ------------
Costs and expenses
Cost of services (2,732,571) (5,620,994)
Sales and marketing expenses (460,836) (3,003,834)
General and administrative expenses (3,335,109) (4,423,642)
Provision for losses on loans to officer (354,206) (664,640)
Stock-based compensation (374,569) 80,295
Impairment of capital assets and capitalized software (1,548,473) --
------------ ------------

Total costs and expenses (8,805,764) (13,632,815)
------------ ------------

Loss from operations (8,096,376) (13,436,998)
------------ ------------

Other income (expense):
Interest income 11,601 266,118
Interest expense (235,921) (525,165)
Gain from extinguishment of debt 305,822 5,679,261
Insurance recovery 374,000 --
Debt origination and other financing costs (9,896,951) --
Foreign exchange gain (loss) 50 (20,389)
------------ ------------

(9,441,399) 5,399,825
------------ ------------

Net loss $(17,537,775) $ (8,037,173)
============ ============

Basic and diluted loss per share $ (8.46) $ (6.01)
============ ============

Weighted average shares outstanding - basic and diluted 2,073,448 1,336,673
============ ============

See accompanying notes.

F-6

SmartServ Online, Inc.

Consolidated Statement of Stockholders' Equity (Deficiency)

Common Stock
-------------------------- Notes Additional
Par Receivable Paid-in Unearned Accumulated
Shares Value from Officers Capital Compensation Deficit
----------------------------------------------------------------------------------------------

Balances at December 31, 2001 1,043,964 $ 10,440 $ (666,841) $ 69,732,257 $ (540,354) $(64,821,833)

Issuance of common stock upon 2,833 28 -- 15,794 -- --
exercise of employee stock
options

Conversion of 6.5 prepaid common 4,643 47 -- (47) -- --
stock purchase warrants into
common stock

Issuance of common stock through 778,321 7,783 -- 4,057,281 -- --
private placements of
securities

Issuance of common stock upon 34,142 341 -- 175,818 -- --
exercise of warrants

Amortization of unearned -- -- -- -- 540,354 --
compensation over the terms
of consulting agreements

Warrants issued to consultants -- -- -- 282,250 -- --
as compensation for services

Issuance of common stock 42,137 421 -- (421) -- --
pursuant to the antidilution
provisions of the May 2000
stock purchase agreement

Warrants issued as compensation -- -- -- 1,500 -- --
to a former employee

Warrants to purchase common -- -- -- 38,000 -- --
stock issued as a condition of
debt extinguishment

Change in market value of -- -- -- (679,191) -- --
employee stock options

Repayment of note receivable from -- -- 56,845 -- -- --
officer

Net loss for the year -- -- -- -- -- (8,037,173)
------------ ------------ ------------ ------------ ------------ ------------

Balances at December 31, 2002 1,906,040 $ 19,060 $ (609,996) $ 73,623,241 $ -- $(72,859,006)
------------ ------------ ------------ ------------ ------------ ------------

F-7

SmartServ Online, Inc.

Consolidated Statement of Stockholders' Equity (Deficiency)
(Continued)

Balances at December 31, 2002 1,906,040 $ 19,060 $ (609,996) $ 73,623,241 $ -- $(72,859,006)

Issuance of common stock upon 958 10 -- 9,650 -- --
exercise of employee stock
options

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

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

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

Issuance of common stock as 166,666 1,667 -- 1,221,931 -- --
compensation for services

Issuance of common stock related 93,315 933 -- 436,867 -- --
to debt financing

Warrants issues as compensation -- -- -- 154,500 -- --
for services

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

Issuance of warrants related to -- -- -- 7,273,960 -- --
debt financing

Beneficial conversion features -- -- -- 1,902,489 -- --
of notes

Net loss for the year -- -- -- -- -- (17,537,775)
------------ ------------ ------------ ------------ ---------- ------------

Balances at December 31, 2003 2,261,300 $ 22,613 $ (255,525) $ 85,160,306 $ -- $(90,396,781)
============ ============ ============ ============ ========== ============

F-8

SmartServ Online, Inc.

Consolidated Statements of Cash Flows

Year Ended December 31
2003 2002
------------ ------------

Operating Activities
Net loss $(17,537,775) $ (8,037,173)
Adjustments to reconcile net loss to net
cash used for operating activities:
Gain from extinguishment of debt (305,822) (5,679,261)
Provision for losses on loans to officer 354,471 664,640
Amortization of deferred financing costs 9,748,076
Depreciation and amortization 913,972 1,944,515
Impairment of capital assets and capitalized software 1,548,473 --
Provision for losses on receivables -- 2,228
Noncash compensation costs -- (677,690)
Noncash consulting services 600,400 597,396
Amortization of unearned revenues (403,794) (16,706)
Changes in operating assets and liabilities:
Accounts receivable (47,323) (17,337)
Accrued interest receivable 3,654 (215,298)
Prepaid expenses 77,460 366,770
Accounts payable and accrued liabilities 637,538 783,169
Deferred revenues 248,000 210,000
Security deposits 233,534 235,855
------------ ------------

Net cash used for operating activities (3,929,136) (9,838,892)
------------ ------------

Investing Activities
Capitalization of software development costs -- (185,895)
Purchase of equipment -- (166,666)
------------ ------------
Net cash used for investing activities -- (352,561)
------------ ------------

Financing Activities
Proceeds from the issuance of common stock 385,545 4,836,392
Proceeds from the issuance of notes 3,823,010 --
Repayment of note payable (295,000) (500,000)
Repayment of note receivable from officer -- 56,845
Costs of issuing securities -- (579,348)
------------ ------------
Net cash provided by financing activities 3,913,555 3,813,889
------------ ------------

Decrease in cash and cash equivalents (15,581) (6,377,564)
Cash and cash equivalents - beginning of period 154,759 6,532,323
------------ ------------
Cash and cash equivalents - end of period $ 139,178 $ 154,759
============ ============

See accompanying notes.

F-9

SmartServ Online, Inc.

Notes to Consolidated Financial Statements

1. Nature of Business and Operations

SmartServ Online, Inc. (the "Company" or "SmartServ") designs, develops and
distributes software and services that enable the delivery to wireless devices
of various content, with special emphasis on cell phones. The content which the
Company provides includes premium content such as ringtones, images and games,
and dynamic changing content such as horoscopes, lottery results and weather
reports. Historically, the Company has licensed its applications, content, and
related services to wireless carriers and enterprises. The Company has revenue
sharing license agreements with wireless carriers such as Verizon Wireless, AT&T
Wireless, Nextel, and ALLTEL Wireless, that allow it to deliver its services and
branded content to a wide base of consumer cell phone users. For enterprises,
the Company has in the past offered solutions that deliver financial market
data, proprietary internal documents and other useful information to mobile
workers, although this no longer comprises a core part of the Company's business
or strategy.

The Company is incorporated in the State of Delaware. The Company commenced
operations in August 1993, and had its initial public offering in March, 1996.
The Company did a one-for-six reverse stock split effective November 25, 2003.
The par value of the common stock remained at $0.01 per share in accordance with
Delaware corporation law. The reverse stock split also effected the conversion
price and number of shares into which an outstanding convertible security is
convertible or exercisable. Unless otherwise noted, descriptions of
shareholdings and convertible securities reflect such one-for-six reverse stock
split in all years presented.

The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company has since its
inception earned limited revenues and incurred substantial recurring operating
losses, including net losses of $17,537,775 and $8,037,173 for the years ended
December 31, 2003 and 2002, respectively. Additionally, we have an accumulated
deficit of $90,396,781 at December 31, 2003. 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, the Company closed its
UK and Hong Kong sales offices and downsized its domestic operations through
staff reductions to a level sufficient to support the Company's projected
operations. During 2003, the Company continued to reduce its cost structure
through the termination of additional personnel and the relocation of the
Company's headquarters to Plymouth Meeting, Pennsylvania. Personnel headcount
was reduced from 66 in May 2002 to the level of 9 in December 2003. These
efforts have reduced the Company's average monthly operating expenses from
approximately $1,090,000 in July 2002 to approximately $370,000 from September
through December 2003, excluding noncash stock compensation and depreciation and
amortization and working capital used to settle accounts payable. As discussed
in Note 14, the Company received $10 million in gross proceeds from the 2004
Private Placement.

As a result of the factors identified above, the Company believes it has
sufficient capital for approximately the next 12 months. However, no assurance
can be given that the Company will be able meet its revenue and cash flow
projections, maintain its cost structure as presently configured, or raise
additional capital on satisfactory terms. Should the Company be unable to raise
additional debt or equity financing, it may be forced to seek a merger or cease
operations.

2. Summary of Significant Accounting Policies

Basis of Presentation
- ---------------------

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States.

Principles of Consolidation
- ---------------------------

F-10

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

Use of Estimates
- ----------------

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

Revenue Recognition
- -------------------

The Company recognizes revenue from the use of its products and services in
accordance with American Institute of Certified Public Accountants' ("AICPA")
Statement of Position ("SOP") 97-2, "Software Revenue Recognition", SOP 98-9,
"Modification of SOP 97-2, Software Recognition, With Respect to Certain
Transactions", and the SEC Staff Accounting Bulletin No.104, "Revenue
Recognition". Specifically, there must be (1) evidence of an arrangement, (2)
delivery of the Company's products and services, (3) fixed and determinable fees
and (4) probable collectibility of such fees. Revenues from multi-element
revenue agreements are recognized based on vendor specific objective evidence of
individual components or, if the elements in the arrangement cannot be
separated, as has been the situation to date, recognized as one element ratably
over the term of the agreement.

Subscription Revenue
- --------------------

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

Development and Integration Revenue
- -----------------------------------

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

Service Revenue
- ---------------

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

Hosting Services
- ----------------

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

Deferred Revenues
- -----------------

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

Deferred Financing Costs
- ------------------------

F-11

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

Earnings Per Share
- ------------------

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

Capitalized Software Development Costs
- --------------------------------------

In connection with certain contracts entered into between SmartServ and its
customers, as well as other development projects, the Company has capitalized
costs related to certain product enhancements and application development in
accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed." Specifically, all software development
costs are charged to expense as incurred until technological feasibility has
been established for the product. Thereafter, additional costs incurred for
development are capitalized. The Company ceased capitalizing such costs in
connection with its current product offering during the quarter ended September
30, 2002 when the products became available for general release to customers.
Amortization of capitalized software development costs commences with the
products' general release to customers and is provided on a product-by-product
basis over the economic life, not to exceed three years, using the greater of
the straight-line or a flow of revenue method.

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

Fair Value of Financial Instruments
- -----------------------------------

The carrying amounts of our financial instruments approximate fair value due to
their terms and maturities.

Supplemental Cash Flow Data
- ---------------------------

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

During the year ended December 31, 2003, the Company issued 20,590 shares of
common stock to 5 vendors in settlement of the Company's obligations,
aggregating $164,000, to such vendors. These transactions are considered
non-cash transactions for the purposes of the Statement of Cash Flows.

Interest, debt origination and other financing costs paid during the years ended
December 31, 2003 and 2002 were $322,000 and $373,339, respectively.

Concentration of Credit Risk
- ----------------------------

Financial instruments that potentially subject SmartServ to concentrations of
credit risk consist solely of accounts receivable. At December 31, 2003 and
2002, accounts receivable consist principally of amounts due from major
telecommunications carriers, as well as a financial services company. The
Company performs periodic credit evaluations

F-12

of its customers and, if applicable, provides for credit losses in the financial
statements. As of December 31, 2003 and 2002 the Company did not have a reserve
for doubtful accounts.

Property and Equipment
- ----------------------

Property and equipment are stated at cost, net of accumulated depreciation.
Equipment purchased under a capital lease is recorded at the present value of
the future minimum lease payments at the date of acquisition. Depreciation is
computed using the straight-line method over estimated useful lives of three to
ten years.

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

Advertising Costs
- -----------------

Advertising costs are expensed as incurred and were approximately $6,600 and
$280,000 for the years ended December 31, 2003 and 2002, respectively.

Stock Based Compensation
- ------------------------

Employee Stock Option Plans
- ---------------------------

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

Non-Employee Compensation
- -------------------------

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

The Company adopted the disclosure provisions of SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, which amends SFAS No. 123.
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation, which was originally provided under SFAS No. 123. SFAS No. 148
also improves the timeliness of disclosures by requiring the information to be
included in interim as well as annual financial statements. The adoption of
these disclosure provisions had no impact on the Company's 2003 consolidated
results of operations, financial position or cash flows.

SFAS No. 123 requires companies to recognize compensation expense based on the
respective fair values of the options at the date of grant. Companies that
choose not to adopt such rules will continue to apply the existing accounting
rules contained in APB No. 25, but are required to disclose the pro forma
effects on net income (loss) and earnings (loss) per share, as if the fair value
based method of accounting had been applied.

F-13

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. As such, the pro forma
net earnings (loss) and earnings (loss) per share are not indicative of future
years.

SmartServ's pro forma information is as follows:

Year Ended
December 31
----------------------------
2003 2002
------------ ------------

Net loss as reported $(17,537,775) $ (8,037,173)

Employee stock-based compensation included
in net loss 374,569 (677,690)

Employee stock-based compensation pursuant
to SFAS 123 (677,416) (4,278,214)
------------ ------------

Proforma net loss $(17,840,622) $(12,993,077)
============ ============

Basic and diluted loss per share $ (8.46) $ (6.01)
------------ ------------

Proforma basic and diluted loss per share $ (8.60) $ (9.72)
============ ============

Foreign Currency Translation
- ----------------------------

The financial statements of the Company's foreign subsidiaries whose functional
currencies are other than the U.S. dollar, have been translated into U.S.
dollars in accordance with SFAS No. 52, Foreign Currency Translation. All
balance sheet accounts have been translated using the exchange rates in effect
at the balance sheet date. Income statement amounts have been translated using
the average rate for the year. Gains and losses resulting from the changes in
exchange rates from year to year have been reported in accumulated other
comprehensive income.

Recent Accounting Pronouncements
- --------------------------------

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.

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

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

On January 1, 2003, the company adopted SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the

F-14

associated asset retirement costs. The adoption of SFAS No. 143 did not have any
impact on the company's financial position or results of operations.

On January 1, 2003, the company adopted Financial Accounting Standards Board
(FASB) Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements
for Guarantors, Including Indirect Guarantees of Indebtedness of Others, which
requires that upon issuance of a guarantee, the guarantor must recognize a
liability for the fair value of the obligation that it assumes under the
guarantee. Guarantors are also required to meet expanded disclosure obligations.
The adoption of Interpretation No. 45 did not have a material impact on the
company's financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. Interpretation No. 46 addresses consolidation by
business enterprises of variable interest entities, which are entities that
either (a) do not have equity investors with vesting rights or (b) have equity
investors that do not provide sufficient financial resources for the entity to
support its activities. The interpretation is effective immediately for variable
interest entities created after February 1, 2003. In December 2003, the FASB
published FASB Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities (FIN 46(R)). FIN 46(R), among other things, defers
the effective date of implementation for certain entities. The revised
interpretation is effective for the first interim or annual reporting period
ending after March 15, 2004, with the exception of structures that are commonly
referred to as special-purpose entities, for which the statement is effective
for periods ending after December 15, 2003. The adoption of Interpretation No.
46 is not expected to have a material impact on the company's results of
operations or financial position.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133. SFAS No. 149 requires that contracts with
comparable characteristics be accounted for similarly. The statement is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The provisions of SFAS No.
149 generally are to be applied prospectively only. The adoption of SFAS No. 149
did not have a material impact on the company's results of operations or
financial position.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for classification and measurement by an issuer of certain
financial instruments with characteristics of both liabilities and equity. The
statement requires that an issuer classify a financial instrument that is within
the scope as a liability (or asset in some circumstances). This statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003, except as it relates to consolidated limited-life
subsidiaries. The FASB indefinitely deferred the effective date of this
statement as it relates to certain mandatorily redeemable non-controlling
interests in consolidated limited-life subsidiaries. The company does not have
any interest in limited-life entities as of December 31, 2003. The adoption of
the effective provisions of SFAS No. 150 did not have an impact on the company's
results of operations or financial position.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employer's
Disclosures about Pensions and Other Postretirement Benefits. This statement
revises employers' disclosures about pension plans and other postretirement
benefit plans; however it does not change the measurement or recognition of
those plans required by SFAS No. 87, Employers' Accounting for Pensions, SFAS
No. 88, Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, and SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. The revised
statement retains the disclosure requirements contained in the original SFAS No.
132 and requires additional disclosures to those in the original statement about
the assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. The
revised statement is effective for fiscal years ending after December 15, 2003.
The adoption of SFAS 132R is not expected to have a material impact on the
company's results of operations or financial position.

F-15

3. Property and Equipment

Property and equipment consist of the following:

December 31
-----------------------------
2003 2002
----------- -----------
Data processing equipment $ 4,594,526 $ 4,842,941
Office furniture and equipment 397,474 151,263
Display equipment 71,335 71,335
Leasehold improvements 69,852 69,852
----------- -----------

5,133,187 5,135,391
Impairment of capital assets (843,768) --
Accumulated depreciation (4,289,419) (3,561,413)
----------- -----------
$ -- $ 1,573,978
=========== ===========

4. Note Receivable From Officer

In December 2000, 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. Pursuant to the terms of the note, interest for
the period January 2, 2001 to June 30, 2002 has been accrued and is payable at
maturity. Commencing July 1, 2002 until maturity, interest shall be payable
semi-annually in arrears on January 1st and July 1st. In October 2003 we agreed
to forgive this loan over a three-year period pursuant to Mr. Cassetta's
Separation Agreement with us as described in the section entitled "Agreements
with Named Executive Officers."

The financial statements at December 31, 2002 contain a valuation allowance for
a potential loss of $552,467, relating to the collectibility of Mr. Cassetta's
note and the interest accrued thereon through June 30, 2002.

Additionally, during the quarter ended June 30, 2003, the Company recorded a
valuation allowance of $270,000 in connection with the potential
uncollectibility of a loan made to Mr. Cassetta for the purchase of SmartServ
restricted stock. Such reserve is classified as a reduction of stockholders'
equity. While this loan had original maturity date of December 2003, Mr.
Cassetta's ability to repay this loan and interest thereon is highly contingent
on the market value of his investment in the Company. In his separation
agreement in October 2003, the Company extended the maturity date of the
restricted stock note until September 2004.

5. Note Payable

In May 2000, the Company entered into a Business Alliance Agreement with
Hewlett-Packard Company ("HP") whereby the companies agreed to jointly market
their respective products and services, and to work on the build-out of
SmartServ's domestic and international infrastructure. In furtherance of these
objectives, HP provided the Company with a line of credit of up to $20,000,000
for the acquisition of approved hardware, software and services. On September
10, 2002, the Company and HP amended the terms of the promissory note to provide
for the (i) reduction of SmartServ's aggregate outstanding principal and accrued
interest amount of $7,045,000 to $1,000,000, (ii) return of certain unused
hardware by SmartServ, (iii) issuance by SmartServ of a warrant for the purchase
of 8,333 shares of common stock and (iv) repayment of $500,000 of the amended
obligation on September 10, 2002. The remaining $500,000 obligation was
evidenced by a note, bearing an interest rate of 11%, secured by the Company's
assets exclusive of its internally developed software products, and was
satisfied through a partial repayment in February 2003. The warrant expires on
September 9, 2005 and has an exercise price of $6.996, determined as 110% of the
average closing bid price of the common stock for the five trading days prior to
September 10, 2002. In connection therewith, the Company recorded a charge to
earnings of $38,000 representing the fair value of the warrant as determined in
accordance with the Black-Scholes pricing model. The restructuring of the
obligation resulted in a net gain in 2002 of $5,679,261 which has been recorded
as "Other income" in the consolidated financial statements.

F-16

In February 2003, the Company issued a convertible note to Global Capital
Funding Group, LP ("Global") in consideration for the receipt of $1 million. The
note bears interest at the rate of 10% per annum, and is secured by the
Company's assets, exclusive of its internally developed software products. The
note matures on February 14, 2004, contains certain antidilution provisions, and
may be converted into shares of SmartServ common stock at $6.60 per share. As
additional consideration, the Company issued Global a warrant for the purchase
of 33,333 shares of its common stock at an exercise price of $9.66 per share.
The note and the warrant have been recorded in accordance with APB No. 14,
"Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants".
The warrant has been valued in accordance with the Black-Scholes pricing
methodology and is netted against the outstanding obligation in the financial
statements. Such amount is being amortized into operations as interest expense
and other financing costs over the life of the obligation. Alpine Capital
Partners, Inc. ("Alpine") received a finder's fee of $70,000, representing 7% of
the aggregate purchase price of the convertible note and a warrant to purchase
15,167 shares of common stock exercisable at $9.66 per share, expiring on
February 14, 2005, in connection with this transaction. This warrant has been
valued in accordance with SFAS No. 123 and the Black-Scholes pricing methodology
and recorded in the financial statements as deferred financing costs. This
amount is being amortized into operations on a straight-line basis as interest
expense and other financing costs over the life of the obligation. Also in
connection with the 10% convertible notes, the Company has recorded a non-cash
charge for other financing costs of $406,400, representing a portion of the
intrinsic value of the beneficial conversion feature of the notes. Emerging
Issues Task Force ("EITF") Issue No. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios" ("Issue No. 98-5") as more fully described in EITF Issue No.
00-27 "Application of Issue No. 98-5 to Certain Convertible Instruments",
defines the beneficial conversion feature as the non-detachable conversion
feature that is "in-the-money" at the date of issuance. Issue No. 98-5 requires
the recognition of the intrinsic value of the conversion feature as the
difference between the conversion price and the fair value of the common stock
into which the notes are convertible. In April 2003, the Company borrowed an
additional $250,000 from Global and amended the convertible note to include such
amount. As additional consideration, the Company issued Global a warrant for the
purchase of 3,333 shares of its common stock at an exercise price of $7.20 per
share. Alpine is to receive a finder's fee of $17,500 in connection with the
April amendment. The warrants issued to Global and Alpine contain certain
antidilution provisions and expire on February 14, 2006. In November 2003, as an
inducement to obtain Global's consent to the sale of Units in the November 2003
transaction and the 2004 private placement, the Company issued Global a warrant
to purchase 16,667 shares of common stock at an exercise price of $2.40 per
share. On February 13, 2004, we paid off the convertible note in full for the
principal and accrued interest due under the Global note.

In May 2003, the Company, in consideration of $358,000, issued 3.58 Units
consisting of convertible notes and warrants to purchase common stock ("May
Units") to 8 investors. Each May Unit consists of a $100,000 convertible note
and a warrant to purchase 33,333 shares of the Company's common stock. The
convertible notes bear interest at 8% per annum, are convertible into the
Company's common stock at $4.464 (the average of the closing bid prices of the
Company's common stock for the 5 days prior to the closing of the transaction)
per share and were to mature on the earlier of November 19, 2003 or the closing
of an equity placement of not less than $3 million. The warrants are exercisable
at $4.464 per share and expire on May 19, 2006. In June 2003, the Company in
consideration of $1,142,000 issued 11.42 Units ("June Units") (each May or June
Unit referred to individually as a "Unit") to 20 accredited investors. Each June
Unit also consists of a $100,000 convertible note and a warrant to purchase
33,333 shares of the Company's common stock. The convertible notes bear interest
at 8% per annum, are convertible into the Company's common stock at $4.764 (the
average of the closing bid prices of the Company's common stock for the 5 days
prior to the closing of the transaction) per share and were to mature on the
earlier of November 19, 2003 or the closing of an equity placement of not less
than $3 million. The warrants are exercisable at $4.764 per share and expire on
June 13, 2006. The Units have been recorded in accordance with APB No. 14. The
warrants have been valued in accordance with the Black-Scholes pricing
methodology and are netted against the outstanding obligation in the financial
statements. Such amount is being amortized into operations as interest expense
and other financing costs over the life of the obligation. Also in connection
with the 8% convertible notes, the Company has recorded a non-cash charge for
other financing costs of $81,400, representing a portion of the intrinsic value
of the beneficial conversion feature of the notes. EITF Issue No. 98-5, as more
fully described in EITF Issue No. 00-27, defines the beneficial conversion
feature as the non-detachable conversion feature that is "in-the-money" at the
date of issuance. Issue No. 98-5 requires the recognition of the intrinsic value
of the conversion feature as the difference between the conversion price and the
fair value of the common stock into which the notes are convertible. In November
2003, the Company, as an inducement to extend the maturity date of the notes to
February 19,

F-17

2004, offered the note holders a warrant to purchase additional shares of common
stock in an amount equal to 25% of the number of shares into which the notes
purchased in the Unit are convertible.

Spencer Trask Ventures, Inc. ("Spencer Trask"), Steven B. Rosner and Richard
Berland acted as finders for the May and June 2003 transactions. As
consideration therefor, the finders received their proportionate share of (i) a
cash fee of $150,000, or 10% of the aggregate purchase price of the Units sold;
(ii) warrants to purchase 510,158 shares of the Company's common stock at an
exercise price of $1.50 per share; and (iii) 5,555 shares of unregistered common
stock per Unit sold. These warrants provide for cashless exercise and expire 5
years from the date of grant. In addition, Spencer Trask received a
non-accountable expense allowance of $45,000, or 3% of the aggregate proceeds of
all Units sold in the May and June 2003 transactions. The warrants have been
valued in accordance SFAS No. 123 and the Black-Scholes pricing methodology and
recorded in the financial statements as deferred financing costs. Such costs are
being amortized into operations on a straight-line basis as interest expense and
other financing costs over the life of the obligation.

On September 16, 2003, SmartServ issued 7.4 Units in a financing transaction
consisting of an offering of up to 12 Units comprised of a $50,000 convertible
note and a warrant to purchase 16,667 shares of SmartServ's common stock. On
September 19, 2003, SmartServ issued the remaining 4.6 Units of the financing
transaction (collectively the "September Transaction"). The Units were sold to
18 investors for an aggregate of $600,000. Holders of the notes have the right
to convert the notes into shares of common stock at a price equal to $1.896 per
share for the notes issued on September 16, 2003 and $1.920 per share for the
notes issued on September 19, 2003. The maturity date of the notes was to be the
earlier of November 19, 2003 or the completion of an equity placement of at
least $3 million, at which time the notes will automatically convert into the
equity placement. Holders of the warrants have the right to exercise the
warrants into shares of common stock at a price equal to $1.500 per share.
Spencer Trask and Richard Berland acted as finders for the September
transaction. As consideration therefor, the finders received their proportionate
share of (i) a cash fee of $60,000, or 10% of the aggregate purchase price of
all of the Units; (ii) warrants to purchase 102,988 shares of common stock, or
20% of the shares of common stock underlying the securities in the Units sold,
at exercise prices ranging from $1.50 to $1.90 per share and expiring 5 years
from the date of grant; and (iii) 2,778 shares of unregistered common stock per
Unit sold. In addition, Spencer Trask received a non-accountable expense
allowance of $18,000, or 3% of the aggregate proceeds of all Units sold in the
September Transaction. All of the notes and the warrants have full ratchet
anti-dilution protection. In November 2003, the Company, as an inducement to
extend the maturity date of the notes to February 19, 2004, offered the
noteholders a warrant to purchase additional shares of common stock in an amount
equal to 25% of the number of shares into which the notes purchased in the Unit
are convertible.

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

On November 11, 2003, SmartServ issued 18 Units in a financing transaction
comprised of a $50,000 convertible note ("November Notes") and a warrant
("November Warrant") to purchase 16,667 shares of SmartServ's common stock. The
Units were sold to 20 investors for an aggregate of $900,000. Holders of the
November Notes have the right to convert the November Notes into shares of
common stock at a price equal to $2.10 per share. The maturity date of the
November Notes is the earlier of December 19, 2003 or the completion of an
equity placement of at least $3 million, at which time the November Notes will
automatically convert into the equity placement. Holders of the November
Warrants have the right to exercise the November Warrants into shares of common
stock at a price equal to $1.500 per share. Finders' compensation to Spencer
Trask and Richard Berland consisted of (i) a cash fee of $90,000, or 10% of the
aggregate purchase price of all of the Units; (ii) warrants to purchase 136,000
shares of common stock, or 20% of the shares of common stock underlying the
securities in the Units sold, at exercise prices ranging from $1.50 to $1.90 per
share and expiring 5 years from the date of grant; and (iii) 2,778 shares of
unregistered common stock per Unit sold. In addition,

F-18

Spencer Trask received a non-accountable expense allowance of $27,000, or 3% of
the aggregate proceeds of all Units sold in the November transaction. All of the
November Notes and the November Warrants have full ratchet anti-dilution
protection. In December 2003, as an inducement to extend the maturity date of
the November Notes to February 19, 2004, the Company offered the noteholders a
warrant to purchase additional shares of common stock in an amount equal to 25%
of the number of shares into which the notes purchased in the Unit are
convertible.

While the warrants to purchase common stock issued during the year ended
December 31, 2003 and thereafter represent an additional source of capital, they
expire between May 2006 and November 2008 and are not callable by the Company.
Therefore, they cannot be relied upon by the Company as a definite source of
capital. The warrant holders may choose to exercise their warrants if the market
price of the Company's common stock exceeds the exercise price of the warrant.

As of December 31, 2003, the face amount of the Company's debt obligations is
$4,250,010 and the unamoritzed discount amounted to $909,580.

6. Equity Transactions

In December 1998, the Company's Board of Directors approved the terms of
restricted stock purchase agreements for Sebastian E. Cassetta, Chairman and
Chief Executive Officer, and Mario F. Rossi, Executive Vice President of
Technology. In connection with Mr. Cassetta's purchase of 103,040 shares of
restricted stock, SmartServ received cash in the amount of $6,182 and a 5 year,
non-recourse promissory note in the amount of $457,497. In connection with Mr.
Rossi's purchase of 34,347 shares of restricted stock, SmartServ received cash
in the amount of $2,061 and a 5 year, non-recourse promissory note in the amount
of $152,499. The notes are secured by the stock and bear interest at the rate of
7.50% per annum. The stock purchase agreements provide SmartServ with certain
repurchase options and provide Messrs. Cassetta and Rossi with a put option in
the event of the termination of their employment. Through December 31, 1999, the
restricted stock purchase agreements were variable plan awards pursuant to APB
No. 25 and accordingly, SmartServ was required to recognize compensation expense
for the changes in the market value of its common stock. As a result thereof,
the Company recorded a charge to compensation expense of $15,636,300, as well as
a corresponding increase to additional paid-in capital during the year ended
June 30, 2000. The restricted stock purchase agreements with Messrs. Cassetta
and Rossi were amended to provide for certain recourse against them in the event
of their default on their obligations the Company. Commencing January 1, 2000,
the restricted stock awards are no longer variable plan awards pursuant to APB
No. 25.

In October 1999, SmartServ entered into a restricted stock agreement with Robert
Pearl, the former Senior Vice President Business Development, providing for the
sale to Mr. Pearl of 12,803 shares of common stock at a purchase price of $4.50
per share. SmartServ received cash in the amount of $768 and a 5 year,
promissory note in the amount of $56,845. The note was secured by the common
stock, bore an interest rate of 7.50% and contained certain recourse provisions
in connection with the payment of such interest. The stock purchase agreement
provided SmartServ with certain repurchase options and provided Mr. Pearl with a
put option in the event of the termination of his employment without cause. In
August 2002, this loan was repaid.

In October 1999, SmartServ entered into an agreement for consulting services. As
consideration for such services, the Company granted this consultant warrants to
purchase 16,667 shares of common stock at an exercise price of $15.75 per share
and warrants to purchase 16,667 shares of common stock at $21.75 per share. In
January 2000, in consideration of $125,000 and the issuance of warrants to
purchase 1,333 shares of common stock at $110.25 per share, the Company extended
this agreement for the two-year period commencing October 24, 2000. The warrants
expire on October 24, 2004. A noncash charge of $62,400 was recorded in the year
ended June 30, 2000 for the fair value of the warrants to unearned compensation
that was amortized to income over the term of the agreement. In July 2000, we
issued 33,333 shares of our common stock to this consultant upon exercise of
warrants to purchase such shares. Proceeds from the exercise were $625,000.

During the year ended June 30, 2000, the Company issued warrants to purchase
21,000 shares of its common stock to various marketing and technical consultants
as partial compensation for services rendered and to be rendered to SmartServ.
The warrants have exercise prices of between $15.00 and $297.00 and expire
through April 30, 2003. The

F-19

Company recorded $74,000 as unearned compensation which has been amortized to
income over the terms of the consulting agreements.

In January 2000, the Company completed an offering of 55,500 shares of its
common stock to accredited investors. Gross proceeds from the offering amounted
to $4,995,000 or $90.00 per share of common stock. America First Associates
Corp. received a commission of $279,600, an unaccountable expense allowance of
$25,000 and warrants to purchase 3,107 shares of common stock at $90.00 per
share through January 18, 2005 as compensation for services as placement agent
for the offering.

In August 2000, the Company issued warrants to purchase 8,333 shares of its
common stock to a financial consultant as partial consideration for services to
be rendered to SmartServ. The warrants have an exercise price of $297.00. and
expired on April 30, 2003. During the six months ended December 31, 2000, the
Company recorded a charge to earnings of $60,000 in connection with these
warrants.

In April 2001, the Company issued a warrant to purchase an aggregate of 333
shares of common stock to a member of the Company's Advisory Board as partial
consideration for services to be provided to SmartServ as a member of such
Board. The warrant is exercisable after one year at an exercise price of $56.16
per share, expires on April 15, 2005, and has been recorded in the financial
statements based on the Black-Scholes pricing methodology.

In June 2002, SmartServ issued units consisting of 130,952 shares of its common
stock and warrants, callable under certain conditions, for the purchase of an
aggregate of 238,095 shares of common stock at an exercise price of $8.40 per
share through the expiration date on June 5, 2007, as well as non-callable
warrants for the purchase of an aggregate of 32,738 shares of common stock,
subject to antidilution adjustments upon the occurrence of certain events, at an
exercise price of $8.82 per share through June 5, 2007 to two accredited
investors at a purchase price of $8.40 per share. The callable warrants provided
that upon exercise the investors would receive non-callable warrants for the
purchase of an aggregate of 59,524 shares of common stock at an exercise price
of $8.82 per share. In August 2002, pursuant to the terms of the callable
warrants, the Company provided the investors with a notice, calling such
warrants. In September 2002, the callable warrants expired unexercised. Gross
proceeds from this transaction amounted to $1,100,000. First Albany Securities
Corporation, the placement agent, received a commission of $66,000 in connection
with this transaction. Additionally, the Company incurred costs and other fees
of $80,500 in connection with this transaction. Each of the investors received a
fee of $65,000 in connection with the performance of due diligence related to
their investment in the Company. In September 2002, SmartServ issued 28,309
shares of common stock upon the exercise, by Bonanza Master Fund, Ltd., an
investor in the June 2002 financing, of warrants to purchase such shares at an
exercise price, after antidilution adjustments, of $5.10 per share. Proceeds
from the issuance were $144,375. In December 2002, the Company issued 5,833
shares of common stock to Vertical Ventures Investments, LLC, an investor in the
June 2002 financing, upon the exercise of warrants to purchase such shares.
Proceeds from the exercise of these warrants were $31,850.

In September 2002, SmartServ issued units consisting of 647,368 shares of its
common stock and warrants to purchase 323,685 shares of common stock exercisable
at $5.10 per share through September 8, 2007 to 22 accredited investors at a
purchase price of $5.475 per unit. Gross proceeds from this transaction amounted
to $3,544,346. SmartServ paid fees consisting of $249,050, an expense allowance
of $25,000, and issued warrants to purchase 73,008 shares of common stock at an
exercise price of $5.10 per share, expiring on September 8, 2007, as
compensation to certain individuals and entities that acted as finders.
Additionally, the Company incurred costs and other fees of $28,800 in connection
with this transaction.

In December 2002, the Company entered into a consulting agreement with Steven B.
Rosner. As consideration for such services, the Company granted Mr. Rosner a
warrant to purchase 41,667 shares of common stock at an exercise price of $7.68
per share. The warrants have been valued in accordance with the Black-Scholes
pricing methodology, recorded in the financial statements as deferred
compensation and are being amortized as consulting costs over the two-year term
of the agreement.

During the year ended December 31, 2002, the Company issued warrants to purchase
44,500 shares of our common stock to certain financial and marketing consultants
as partial compensation for services rendered and to be rendered to SmartServ.
The warrants have exercise prices ranging from $7.68 to $32.64, expire in April
and December 2005, and have

F-20

been recorded in the consolidated financial statements at fair market value as
determined in accordance with the Black-Scholes pricing model.

At December 31, 2002, the Company had 287,500 public warrants (SSOLW) and 50,000
warrants with terms identical to the public warrants outstanding. In February
2002, the Company's Board of Directors modified the terms of, and extended such
warrants which were due to expire on March 20, 2002. These warrants, which had
an exercise formula requiring the surrender of 11.598 warrants and the payment
of $46.686 for each share of common stock, were modified to provide for the
surrender of .42 warrants and the payment of $63.00 for each share of common
stock. The modified warrants expired on March 20, 2003.

At December 31, 2002, there were 317,667 shares reserved for issuance upon the
exercise of options granted to employees and 846,667 shares reserved for the
exercise of warrants to purchase common stock granted to investors in, and
consultants to the Company.

During the year ended December 31, 2003, the Company issued 73,731 shares of
common stock to investors upon the exercise of warrants to purchase such shares.
Proceeds from the exercise of these warrants were $376,000.

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

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

Also, during the year ended December 31, 2003, the Company issued 72,222 shares
of common stock to Spencer Trask as fees related to the May, June, September and
November 2003 bridge financing (excluding 80,002 shares earned but that have not
yet been issued) and 14,441 shares of common stock to two individuals as fees
for assisting with such bridge financings.

Also during the year ended December 31, 2003, the Company issued 93,315 shares
related to an anti-dilution adjustment with respect to a certain May 2000 equity
financing.

At December 31, 2003, there were 186,297 shares reserved for the issuance upon
the exercise of options granted to employees and 4,261,119 shares reserved for
the exercise of warrants to purchase common stock granted to investors in, and
consultants to the Company. The range of exercise prices of the warrants to
purchase common stock are as follows:

Exercise Price Range Underlying Shares
---------------------------- ----------------------
$1.34 to $15.00 4,254,429

$15.00 to $30.00 -0-

Above $30.00 6,690
-----------------
4,261,119
=================

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

F-21

Obligations to Maintain Effective Registration Statements:
- ----------------------------------------------------------

Vertical Ventures Investments, LLC holds a warrant to purchase up to 22,476
shares of common stock that is subject to registration rights. The Registration
Statement covering the shares underlying this warrant is no longer effective.
The Company had until May 14, 2003 to cause the Registration Statement to again
become effective. The Company failed to do so by May 14, 2003, so it is required
to pay a fee of $8,250 for the first month of the deficiency and a fee of
$16,500 for each month thereafter until the shares underlying the warrant are
registered.

Accredited investors in the Company's September 2002 Equity Placement hold up to
an aggregate of 616,991 shares of common stock, and warrants to purchase up to
an aggregate of 249,954 shares of common stock, all subject to registration
rights requiring the Company to use its commercially reasonable best efforts to
maintain the effectiveness of the Registration Statement covering the shares of
common stock and the shares underlying the warrants. The Registration Statement
is no longer effective.

Obligation to File a Registration Statement:
- --------------------------------------------

Global Capital Funding Group, L.P. holds warrants to purchase up to 257,333
shares of common stock, and a convertible note convertible into 189,394 shares
of common stock (which was paid off in February, 2004). The Company was required
to file a Registration Statement covering all such shares on April 14, 2003 and
by agreement with Global is required to include such shares in a Registration
Statement. The Company has not yet filed the Registration Statement, but
negotiated a cure of the penalty fee, equal to $25,000 for each month that this
deficiency remained uncured, by paying off the convertible note in February
2004.

7. Stock-based Compensation

In connection with the grant of certain stock options, warrants and other
compensation arrangements, the Company has recorded charges to earnings that are
noncash in nature. Certain of these stock option grants are subject to the
variable plan requirements of APB No. 25 that require the Company to record
compensation expense for changes in the fair value of its common stock.

As more fully described in Note 13 to the financial statements, stock-based
compensation for the years ended December 31, 2003 and 2002, consisted primarily
of the impact of changes in the market value of the Company's common stock on
the value of options to purchase common stock issued to employees and the
amortization of deferred costs associated with the prior issuance of warrants to
purchase common stock to various consultants.

The following table illustrates 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
in the accompanying Consolidated Statements of Operations:

Year Ended December 31
-------------------------
2003 2002
--------- ---------
Costs of services $ (81,604) $ 184,726
Sales and marketing -- (50,542)
General and administrative (292,965) (53,889)
--------- ---------
$(374,569) $ 80,295
========= =========

F-22

8. Earnings Per Share

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

Year Ended December 31
----------------------------
2003 2002
------------ ------------
Numerator
Net loss $(17,537,775) $ (8,037,173)
============ ============
Denominator
Denominator for basic and diluted loss per
share - weighted average shares 2,073,448 1,336,673

------------ ------------
Basic and diluted loss per common share $ (8.46) $ (6.01)
============ ============

Outstanding employee stock options and other warrants to purchase an aggregate
of 4,447,416 and 1,163,833 shares of common stock at December 31, 2003 and 2002,
respectively, were not included in the computation of diluted earnings per share
because either the Company reported a loss for the period or their exercise
prices were greater than the average market price of the common stock and
therefore would be antidilutive.

9. Income Taxes

At December 31, 2003 and 2002, SmartServ has deferred tax assets as follows:

December 31
-------------------------
2003 2002
----------- -----------

Net operating loss carryforwards $35,800,000 $33,100,000
=========== ===========

In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company has
established a valuation allowance to fully reserve the future income tax benefit
of these deferred tax assets due to uncertainty about their future realization.
The valuation allowances were $35,800,000 and $33,100,000 at December 31, 2003
and 2002, respectively.

At December 31, 2003, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $90,700,000 which expire in the
years 2009 through 2023. As a result of ownership changes, pursuant to Internal
Revenue Code Section 382, the utilization of net operating losses may be
limited.

10. Leases

SmartServ leased office space for its Stamford, Connecticut headquarters under a
noncancelable lease. The lease included escalation clauses for items such as
real estate taxes, building operation and maintenance expenses, and electricity
usage. In January 2004 the Company negotiated a settlement of that lease the
terms of which include a cash payment of $175,000 (evidenced by a promissory
note) payable over time through December 31, 2004 and a warrant to purchase
22,000 shares of SmartServ common stock at an exercise price equal to $1.34 per
share. The warrant vests upon grant and expires on the three year anniversary of
the grant date.

In September 2003, the Company relocated its headquarters and leases office
space in Plymouth Meeting, Pennsylvania. The lease includes escalation clauses
for items such as real estate taxes, building operation and maintenance
expenses.

Rent expense amounted to approximately $384,800 and $642,000 for the years ended
December 31, 2003, and 2002, respectively.

F-23

Minimum future rental payments at December 31, 2003 are as follows:

Year Ending December 31
- -----------------------

2004 $58,100
2005 60,400
2006 62,600
2007 48,200
2008 --
Thereafter --
-------------

$229,300
=============

11. Commitments and Contingencies

On or about June 4, 1999, Michael Fishman, SmartServ's former Vice President of
Sales, commenced an action against the Company and certain directors and
officers, in the Connecticut Superior Court for the Judicial District of
Stamford/Norwalk at Stamford (Michael Fishman v. SmartServ Online, Inc., et
al.). On February 11, 2003, the Company received a favorable trial decision in
this matter. This decision, entered after a trial in the Superior Court of
Connecticut, found no liability by SmartServ or the individual defendants on any
of Mr. Fishman's claims. Mr. Fishman's time to appeal has expired.

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

On or about March 22, 2004, Jenkens & Gilchrist Parker Chapin, LLP, SmartServ's
former legal counsel, filed a complaint against SmartServ in the Supreme Court
of the State of New York, County of New York. The complaint seeks payment of
unpaid invoices for legal services in the amount of $599,244. While the Company
intends to vigorously defend such lawsuit, an unfavorable outcome could have a
material adverse effect on the Company's financial condition, results of
operation and cash flows.

12. Significant Relationships

During the year ended December 31, 2002, substantially all of the Company's
revenues were earned through its licensing agreement with Salomon Smith Barney.
During the year ended December 31, 2003, substantially all of the Company's
revenues were earned through four customers.

The Company entered into a consulting arrangement with Spencer Trask in May 2003
providing that Spencer Trask would render corporate financial consulting,
financial advisory, and investment banking services ("Trask Consulting
Agreement"). Under the Trask Consulting Agreement, the Company agreed to pay
consulting fees of $7,500 per month commencing July 1, 2003 thru May 31, 2004
and the Company issued Spencer Trask 83,333 shares of common stock. Spencer
Trask is a beneficial owner of more than 5% of the Company's common stock.

As part of the consulting arrangement, Spencer Trask acted as a finder and
assisted the Company with sales of Units consisting of convertible debentures
and warrants from May 2003 through November 2003 in the aggregate amount of
$2,685,000. The Company paid Spencer Trask a finders fee consisting of $349,050
in cash (including finders fees and non-accountable expenses), 152,223 shares of
common stock (includes 80,002 shares which have yet to be issued to

F-24

Spencer Trask) and a warrant to purchase 749,146 shares of common stock at
exercise prices ranging from $1.50 to $1.90 per share. The Company also
reimbursed Spencer Trask for $20,000 of legal expenses and $5,000 of
out-of-pocket expenses. As a result of the anti-dilution provisions in the
warrant, the Company subsequently issued Spencer Trask an additional warrant to
purchase 445,393 shares of common stock at an exercise price of $1.50.

Under the terms of the Trask Consulting Agreement, SmartServ is obligated to pay
Spencer Trask a fee upon closing of the acquisition of nReach, based on 5% of
the first two-million dollars of the aggregate consideration of such
acquisition, 4% of the next two million dollars or portion thereof, 3% of the
third $2,000,000 or portion thereof, and 2.5% of the balance of the
consideration. For purposes of determining the aggregate consideration, the
total value of liabilities assumed are included, and fees on any contingent
payment shall be paid to Spencer Trask when such contingent payment is made.
Spencer Trask has agreed to accept shares of the Company's common stock in lieu
of cash with respect to such fees.

Under the terms of the Trask Consulting Agreement, in the event that on or
before May 31, 2004 or 18 months thereafter (under certain conditions),
SmartServ sells, outside the ordinary course of business, its company or any of
its assets, securities or business by means of a merger, consolidation, joint
venture or exchange offer, or any transaction resulting in any change in control
of SmartServ or its assets or business, or SmartServ purchases, outside the
ordinary course of business, another company or any of its assets, securities or
business by means of a merger, consolidation, joint venture or exchange offer,
or SmartServ receives an investment (other than an investment pursuant to an
agented offering, which will be subject to compensation pursuant to a separate
arrangement with Spencer Trask), SmartServ will owe Spencer Trask a cash fee and
in some instances, warrants.

13. Employee Stock Option Plans

In April 1996, the Company's Board of Directors approved the establishment of an
Employee Stock Option Plan ("1996 Plan") authorizing stock option grants to
directors, key employees and consultants. The options are intended to qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or as nonqualified stock options. The 1996
Plan provided for the issuance of up to 41,667 of such options at not less than
the fair value of the stock on the date of grant. The options are partially
exercisable after one year from the date of grant and expire on the tenth
anniversary of the date of grant. As of December 31, 2003, there were options to
purchase 28,880 shares of common stock issued and outstanding and -0- available
for grant pursuant to the 1996 Plan.

In October 1999, the Board of Directors authorized the establishment of the 1999
Employee Stock Option Plan ("1999 Plan"). The 1999 Plan provided for the
issuance of options to employees and directors for the purchase of a maximum of
66,667 shares of the Company's common stock. The Board of Directors authorized
the issuance of 66,667 of such options to both employees and directors at the
fair value of the common stock on that date. The 1999 Plan provides for the
issuance of such options at not less than the fair value of the common stock on
the date of grant. As of December 31, 2003, there were options to purchase
40,367 shares of common stock issued and outstanding and -0- available for grant
pursuant to the 1999 Plan.

In May 2000, the Board of Directors authorized the establishment of the 2000
Employee Stock Option Plan ("2000 Plan"). In November 2000, the Board of
Directors increased the number of shares available for issuance under the 2000
Plan by 100,000 to a maximum of 225,000. The 2000 Plan provides for the issuance
of such options at not less than the fair value of the common stock on the date
of grant. The Board of Directors has authorized the issuance of options to
purchase 113,717 shares of common stock to employees and directors at exercise
prices equal to the fair value on the dates of grant. The stockholders approved
the repricing of options to purchase 132,875 shares of common stock with
exercise prices ranging between $35.82 and $297.00 to $8.52 per share at the
Annual Meeting of Stockholders on December 13, 2002. In connection therewith,
the Company recorded a charge to earnings of approximately $42,600 in the year
ended December 31, 2003 for the increase in the market value of the Company's
common stock between the date the repricing was authorized by the Board and the
date it was approved by the stockholders. As of December 31, 2003, there were
options to purchase 113,717 shares of common stock issued and outstanding and
- -0- shares of common stock available for grant pursuant to the 2000 Plan.

F-25

In connection with the stockholders' approval of the Company's 2002 Stock Option
Plan at the Annual Meeting of Stockholders on December 13, 2002, the Board of
Directors amended all previously existing stock option plans by reducing the
size of such plans to the number of options issued and outstanding at that date.
Additionally, the Board of Directors amended such plans so that options that are
terminated or forfeited may not be re-granted.

In November 2000, the Board of Directors granted non-qualified options to
purchase 25,000 shares of common stock to Sebastian E. Cassetta and granted
non-qualified options to purchase 9,375 shares of common stock to Mario F.
Rossi, subject to stockholder approval, which was received at the Annual Meeting
of Stockholders held on December 8, 2000. The options were exercisable at
$114.00 per share and expire on November 3, 2010. The stockholders approved the
repricing of such options to $8.52 per share at the Annual Meeting of
Stockholders on December 13, 2002.

In September 2001, the Board of Directors voted to cancel certain outstanding
employee options and reissue options to employees at an exercise price not less
than the fair value at the date of grant. Officers of the Company were required
to surrender 20% of such options to receive the new options. The exercise price
of the options reissued to employees was $50.40 per share. The stockholders
approved the repricing of such options to $8.52 per share at the Annual Meeting
of Shareholders on December 13, 2002.

At the Annual Meeting of Stockholders on December 13, 2002, the stockholders
approved the establishment of the Company's 2002 Employee Stock Option Plan
("2002 Plan"). The 2002 Plan provides for the issuance of options to employees
and directors for the purchase of a maximum of 250,000 shares of common stock at
an exercise price not less than the fair value of the common stock on the date
of grant. No options have been granted pursuant to the 2002 Plan.

Information concerning stock options for the Company is presented below. The
Company has shown the repricings of options previously granted to employees and
directors of the Company as both a cancellation and a grant of options.

Average
Exercise
Options Price
-------- ---------
Balance at December 31, 2001 305,114 $ 72.96
Granted 238,250 9.06
Exercised (2,833) 5.82
Cancelled (223,367) 99.72
-------- ---------
Balance at December 31, 2002 317,164 $ 9.54
Granted -- --
Exercised (958) 5.90
Cancelled (129,909) 9.60
-------- ---------
Balance at December 31, 2003 186,297 $ 9.55
======== =========

The following table summarizes information about employee stock options
outstanding as of December 31, 2003.

Options Outstanding Options Exercisable
------------------------------------------------------- ----------------------------------------
Average Remaining
Range of Average Contractual Life Average Exercise
Exercise Prices Number of Options Exercise Price (Years) Number of Options Price
- --------------------------- ------------------ ---------------- ------------------- --------------------- ------------------

$5.63 to $9.75 182,964 $7.86 6.6 147,564 $7.70

$102.00 3,333 102.00 6.0 3,333 102.00
------------ ------------

186,297 150,897
============ ============

F-26

The pro forma information regarding net income (loss) and income (loss) per
share required by SFAS No. 123, as more fully disclosed in Note 2, has been
determined as if SmartServ had accounted for its employee stock option plan
under the fair value methods described in SFAS No. 123. The fair value of
options granted under the Company's employee stock option plans was estimated at
the date of grant using the Black-Scholes option pricing model.

There were no options granted in 2003.

Pertinent assumptions with regard to the determination of fair value of the
options granted during the years ended December 31, 2003 and 2002 are as
follows:

Year Ended December 31
-----------------------------------
2003 2002
---------------- --------------

Weighted average dividend yield for options -- --
granted

Weighted average expected life in years -- 3.0

Weighted average volatility -- 84.0%

Risk-free interest rate -- 3.0%

Weighted average fair value of options granted -- $0.66

14. Subsequent Events (Unaudited)

During February 2004, SmartServ completed a private placement of Units of Series
A Convertible Preferred Stock ("Series A") and warrants for $10 million in
aggregate gross proceeds. Pursuant to their terms, the principal and accrued
interest on SmartServ's convertible debentures issued in the May, June,
September and November, 2003 transactions, which was approximately $3,122,000,
were automatically converted into Units. Each Unit consisted of one share of
Series A Preferred Stock initially convertible into ten shares of common stock
and one warrant for the purchase of ten shares of common stock. The purchase
price per Unit was $15.00. The Series A receives dividends at the rate of 8% per
year payable quarterly in cash or, in SmartServ's sole discretion, in registered
shares of its common stock. The Series A is entitled to a liquidation preference
equal to the purchase price per unit plus accrued and unpaid dividends. The
Series A is not redeemable. The warrants have an exercise price of $2.82 per
share and expire three years after their issuance. The company is obligated to
register the common stock upon conversion of the Series A and exercise of the
warrants.

During February 2004, SmartServ paid in full the principal and accrued interest
due Global Capital Funding Group, L.P., which was $1,391,504.

SmartServ acquired all of the stock of nReach, Inc. on February 28, 2004 in
exchange for 500,002 shares of its common stock; provided, if the value of such
500,002 shares immediately prior to June 1, 2004 is less than $900,000,
SmartServ will issue up to 299,167 additional shares of its common stock with
respect to such difference in value. The nReach shareholders may also earn up to
916,667 shares of our common stock in the event SmartServ reaches certain
revenue targets within five fiscal quarters following the closing of this
transaction at the rate of one share of common stock for every one dollar of
SmartServ revenue in excess of $2,700,000 (the "Earnout Trigger") during such
five fiscal quarters. In addition to liabilities set forth on the financial
statements of nReach, SmartServ assumed (i) ordinary course liabilities since
November 30, 2003, (ii) taxes accrued on earnings since December 31, 2002 which
were not due and payable as of the closing date, (iii) expenses incurred to
accountants and attorneys in the transaction not to exceed $25,000, and (iv)
short term borrowings up to $75,000 due to an nReach shareholder.

F-27

F-28

PART II

INFORMATION REQUIRED IN REGISTRATION STATEMENT

Item 24 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:

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

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

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

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

Our Amended and Restated Certificate of Incorporation provides for the
elimination of the liability of directors to the extent permitted by the DGCL.

Section 145 of the DGCL sets forth the extent to which a corporation may
indemnify its directors, officers, employees and agents. More specifically, such
law empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with such action, suit or proceeding if the person
(i) acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interest of the corporation, and (ii) with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful.

Additionally, Section 145 empowers the corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys fees)
actually and reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation. However, no such indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent the Court
of Chancery or the court in which such action or suit was brought determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.

Indemnification under these circumstances (unless ordered by a court) shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the present or former director, officer,
employee or agent is proper under the circumstance because the person has met
the applicable standard of conduct. This determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (i) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (ii) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (iii) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (iv)
by the stockholders.

II-1

A present or former director or officer of a corporation is entitled to be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense of any action, suit or proceeding or in
defense of any claim, issue or matter therein to the extent that the director or
officer is successful on the merits thereof. Expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding, provided that the director or officer undertakes to repay such
amount if it is ultimately determined that he or she is not entitled to be
indemnified.

Item 25 Other Expenses of Issuance and Distribution.
-------------------------------------------

The following is a list of the costs and expenses we expect to pay in
connection with the registration and sale of the shares of common stock
registered hereby. The selling stockholders are not paying for any of these
expenses. All amounts are estimated except the Securities and Exchange
Commission Registration Fee.

SEC Filing and Registration Fees $ 8,112
Legal Fees and Expenses *
Cost of Printing *
Accounting Fees and Expenses *
Blue Sky Filing Fees *
Miscellaneous Expenses *
-----------------
Total $ *

- --------------
* To be filed by amendment

Item 26. Recent Sales of Unregistered Securities.
---------------------------------------

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

Between January 2000 and December 2002, an aggregate of 1,489 of our Prepaid
Common Stock Purchase Warrants ("Prepaid Warrants") were converted into an
aggregate of 156,234 shares of our common stock. No sales commissions were paid
in connection with such conversions. The shares were issued in reliance upon the
exemption from registration provided by Section 3(a)(9) of the Securities Act of
1933, as amended ("Securities Act").

In December 1999, we issued a warrant to purchase an aggregate of 1,667 shares
of common stock at an exercise price of $15.00 per share to the Andrew Seybold
Group LLC, a sophisticated investor. This warrant was issued as partial
consideration for marketing consulting services provided to us. Thereafter, this
warrant was transferred by Andrew Seybold LLC to Andrew Seybold and Barney
Dewey, principals of Andrew Seybold LLC and sophisticated investors. No sales
commissions were paid in connection with such transaction. These warrants were
issued in reliance upon the exemption from registration provided by Section 4
(2) of the Securities Act. In December 2001, we issued 833 shares to each of
Messrs. Seybold and Dewey upon exercise of the warrants. Proceeds from the
exercise of the warrants were $25,000.

In December 1999, we issued to Brauning Associates, a sophisticated investor,
warrants to purchase an aggregate of 8,333 shares of common stock at an exercise
price of $18.00 per share. Thereafter, these warrants were transferred by
Brauning Associates to Michael Silva and Todd Peterson, principals of Brauning
Associates and sophisticated investors. These

II-2

warrants were issued as partial consideration for marketing consulting services
provided to us. No sales commissions were paid in connection with such
transaction. These warrants were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act. In August and
September 2001, we issued an aggregate of 8,333 shares to Messrs. Silva and
Peterson upon exercise of the warrants. Proceeds from the exercise of the
warrants were $150,000.

In May 2000, we entered into a Business Alliance Agreement with Hewlett-Packard
Company ("HP"), an accredited investor, whereby the companies agreed to jointly
market their respective products and services and to work on the build-out of
our domestic and international infrastructure. In furtherance of these
objectives HP, an accredited investor, provided us with a line of credit of up
to $20,000,000 for the acquisition of approved hardware, software and services.
As of September 28, 2001, the expiration date of the facility, HP had advanced
us $6,723,156 thereunder. The debt was evidenced by a secured note, bearing an
interest rate of 11% per annum, with a three year maturity and was convertible
into our common stock at $201.36 per share. In September 2002, we agreed to
amend the terms of the promissory note to provide for, among other things, the
issuance by us of a warrant for the purchase of 8,333 shares of common stock. In
February 2003, we amended the terms of the amended promissory note to provide
for the settlement of our outstanding obligation of $530,800, inclusive of
interest of $30,800, in consideration of the payment by us of $225,000. The
warrant has an exercise price of $6.996 and expires on September 9, 2005. No
sales commissions were paid in connection with such transaction. The note and
the warrant were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act.

In April 2001, we issued a warrant to purchase an aggregate of 333 shares of
common stock to Randy Granovetter, a sophisticated investor, as partial
consideration for consulting services to be provided to us as a member of our
Advisory Board. The warrant is exercisable after one year at an exercise price
of $56.16 per share and expires on April 15, 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.

Between August and December 2001, we issued 9,607 shares of common stock to
Bruno Guazzoni, an accredited investor, upon the exercise of warrants to
purchase such shares. No sales commissions were paid in connection with such
transactions. The shares were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act. Proceeds from the
exercise of the warrants were $250,000.

In April 2002, we issued a warrant to purchase an aggregate of 833 shares of
common stock to Pertti Johansson, a sophisticated investor, as partial
consideration for consulting services to be provided to us. The warrant is
exercisable at an exercise price of $32.28 per share, vests equally on the first
and second anniversaries of issuance, and expires on April 29, 2005. In May
2002, we issued a warrant to purchase an aggregate of 333 shares of common stock
to Mr. Johansson as partial consideration for consulting services to be provided
to us as a member of our Advisory Board. The warrant is exercisable at an
exercise price of $30.06 per share and expires on April 29, 2005. In February
2003, we issued 1,786 shares of common stock to Mr. Johansson in full
satisfaction of a $15,903 obligation for services rendered to us. No sales
commissions were paid in connection with such transactions. The shares and the
warrant were issued in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act.

In April 2002, we issued a warrant to purchase an aggregate of 1,667 shares of
common stock to Jeffrey Braile, a sophisticated investor, as partial
consideration for consulting services to be provided to us. The warrant is
exercisable at an exercise price of $30.06 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, we issued Units consisting of 130,952 shares of common stock and
warrants to purchase common stock to two accredited investors at a purchase
price of $8.40 per Unit. Gross proceeds from the issuance of these units were
$1,100,000. The investors received warrants, callable under certain conditions,
for the purchase of an aggregate of 238,095 shares of common stock at an
exercise price of $8.40 per share through the expiration date on June 5, 2007.
The investors also received non-callable warrants for the purchase of an
aggregate of 32,738 shares of common stock, subject to antidilution adjustments
upon the occurrence of certain events, at an exercise price of $8.82 per share
through June 5, 2007. In August 2002, pursuant to the terms of the callable
warrants, we provided the investors with a notice, calling such

II-3

warrants. In September 2002, the callable warrants expired unexercised. 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. In September 2002, we issued 28,309 shares of common stock upon the
exercise, by Bonanza Master Fund, Ltd., an investor in the June 2002 financing,
of noncallable warrants to purchase such shares at an exercise price, after
antidilution adjustments, of $5.10 per share. Proceeds from the issuance were
$144,375. In December 2002, we issued 5,833 shares of common stock to Vertical
Ventures Investments, LLC, an investor in the June 2002 financing, upon the
exercise of warrants to purchase such shares. Proceeds from the exercise of
these warrants were $31,850. No sales commissions were paid in connection with
these transactions. The shares and the warrants were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act.

In September 2002, we authorized the issuance of a warrant to purchase 1,250
shares of common stock to Brian Meek, a sophisticated investor, as partial
compensation in connection with his termination. The warrant is exercisable at
an exercise price of $10.50 per share and expires on July 31, 2004. 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 September 2002, we issued Units consisting of 647,368 shares of our common
stock and warrants to purchase 323,685 shares of our common stock exercisable at
$5.10 per share through September 8, 2007 to 22 accredited investors at a
purchase price of $5.475 per Unit. Gross proceeds from this transaction amounted
to $3,544,346. Steven B. Rosner, a consultant to us, received a finder's fee of
$192,500, representing 7% of the aggregate purchase price of the shares
purchased by investors introduced to us by Mr. Rosner, an unaccountable expense
allowance of $25,000 in connection with such transaction and warrants to
purchase 50,228 shares of our common stock at an exercise price of $5.10 per
share. America First Associates Corp. received a finder's fee of $7,550,
representing 8% of the aggregate purchase price of the shares purchased in the
offering by investors introduced to us by America First Associates Corp. and
warrants to purchase 862 shares of our common stock at an exercise price of
$5.10 per share. Alpine Capital Partners, Inc. received a finder's fee of
$49,000, representing 7% of the aggregate purchase price of the shares purchased
in the offering by investors introduced to us by Alpine Capital Partners, Inc.
and warrants to purchase 21,918 shares of our common stock at an exercise price
of $5.10 per share. In January 2003, we issued 36,530 shares of common stock to
Robert Gorman, an accredited investor in the September 2002 financing, upon the
exercise of warrants to purchase such shares. Proceeds from the exercise of
these warrants were $186,301. No sales commissions were paid in connection with
such transaction. In February 2003, we issued 5,883 shares of common stock to
Frazier Investments, an accredited investor in the September 2002 financing,
upon the exercise of warrants to purchase such shares. Proceeds from the
exercise of these warrants were $30,000. No sales commissions were paid in
connection with such transaction. In March 2003, we issued 21,515 shares of
common stock to Frazier Investments, an accredited investor in the September
2002 financing, upon the exercise of warrants to purchase such shares. Proceeds
from the exercise of these warrants were $109,726. No sales commissions were
paid in connection with such transactions. In April 2003, we issued 9,804 shares
of common stock to Joel Rotter, an accredited investor in the September 2002
financing, upon the exercise of warrants to purchase such shares. Proceeds from
the exercise of these warrants were $50,000. No sales commissions were paid in
connection with such transaction. These shares and warrants were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act.

In December 2002, we entered into a consulting agreement with Steven B. Rosner,
an accredited investor. As consideration for such services, we granted Mr.
Rosner a warrant to purchase 41,667 shares of common stock at an exercise price
of $7.68 per share. In connection with amending this consulting agreement in
March 2004, we granted Mr. Rosner a warrant to purchase 300,000 shares of common
stock at an exercise price of $1.50 per share. No sales commissions were paid in
connection with such transactions. These warrants were issued in reliance upon
the exemption from registration provided by Section 4(2) of the Securities Act.

In February 2003, we issued a convertible note to Global Capital Funding Group,
LP ("Global"), an accredited investor, in consideration for the receipt of $1
million. The note bore interest at the rate of 10% per annum and was secured by
our assets, exclusive of our internally developed software products. The note
was to mature on February 14, 2004, contained certain antidilution provisions,
and could be converted into shares of our common stock at $6.60 per share. As
additional consideration, we issued Global a warrant for the purchase of 33,333
shares of our common stock at an exercise price of

II-4

$9.66 per share. The warrant contains certain antidilution provisions and
expires on February 14, 2006. Alpine Capital Partners, Inc. received a finder's
fee of $70,000, representing 7% of the aggregate purchase price of the
convertible note and warrants to purchase 15,167 shares of common stock at $9.66
per share expiring on February 14, 2006 in connection with this transaction. In
April 2003, we borrowed an additional $250,000 from Global and amended the
convertible note to include such amount. As additional consideration, we issued
Global a warrant for the purchase of 3,333 shares of our common stock at an
exercise price of $7.20 per share. Alpine is to receive a finder's fee of
$17,500 in connection with the April amendment. In August 2003, we issued Global
a warrant to purchase 16,677 shares of common stock at an exercise price of
$2.40 per share as consideration for allowing us to complete the May and June
2003 bridge financings. The warrant contains certain antidilution provisions and
expires on February 14, 2006. In February 2004, we repaid the convertible note
and accrued interest. The note and the warrants were issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

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

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

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

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

In May 2003, we entered into a consulting arrangement with Spencer Trask
Ventures, Inc. ("Spencer Trask") whereby Spencer Trask will render services to
us as a corporate finance consultant, financial advisor and our investment
banker. As partial compensation for such services, we issued 83,333 shares of
common stock to Spencer Trask. These shares were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act.

In May 2003, in consideration of $358,000, we issued 3.58 Units consisting of
convertible notes and warrants to purchase common stock ("May Units") to 8
accredited investors. Each May Unit consisted of a $100,000 convertible note and
a warrant to purchase 33,333 shares our common stock. The convertible notes bore
interest at 8% per annum, were convertible into our common stock at $4.464 (the
average of the closing bid prices of our common stock for the 5 days prior to
the closing of the transaction) per share and were to mature on the earlier of
November 19, 2003 or the closing of an equity placement of not less than $3
million. The warrants are exercisable at $4.464 per share and expire on May 19,
2006. In June 2003, in consideration of $1,142,000, we issued 11.42 Units ("June
Units") to 20 accredited investors. Each June Unit also consisted of a $100,000
convertible note and a warrant to purchase 33,333 shares of our common stock.
The convertible notes bore interest at 8% per annum, were convertible into our
common stock at $4.764 (the average of the closing bid prices of the our common
stock for the 5 days prior to the closing of the transaction) per share and were
to mature on the earlier of November 19, 2003 or the closing of an equity
placement of not less than $3 million. The warrants are exercisable at $4.764
per share and expire on June 13, 2006. Spencer Trask, Steven B. Rosner and
Richard Berland, each an accredited investor, acted as finders for the May and
June 2003 transactions. As consideration therefor, the finders received their
proportionate share of (i) a cash fee of $150,000, or 10% of the aggregate
purchase price of the Units sold; (ii) warrants to purchase 510,158 shares of
our common stock at an exercise price of $1.50 per share; and (iii) 5,555 shares
of unregistered common stock per Unit sold. These warrants provide for cashless
exercise and expire 5 years

II-5

from the date of grant. In addition, Spencer Trask received a non-accountable
expense allowance of $45,000, or 3% of the aggregate proceeds of all Units sold
in the May and June 2003 transactions. These convertible notes, shares and
warrants were issued in reliance upon the exemption from registration provided
by Section 4(2) of the Securities Act.

In August 2003, we entered into a consulting agreement with Robert Pons, an
accredited investor, whereby Mr. Pons rendered consulting services related to
our business activities, strategic planning, and market research and strategic
due diligence on proposed business opportunities. This was prior to Mr. Pons
becoming our Chief Executive Officer in January 2004. As partial compensation
for such consulting services, we issued warrants to purchase 50,000 shares of
common stock to Mr. Pons, which warrants expire in August 2008 and are
convertible at the price of $2.04 per share. The warrants became exercisable in
December 2003. These warrants were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.

In August 2003, we entered into a consulting agreement with Timothy Wenhold, an
accredited investor, whereby Mr. Wenhold rendered consulting services to us
related to our business activities, including technology and operations. This
was prior to Mr. Wenhold becoming our Chief Operating Officer in March 2004. As
partial compensation for such services, we issued warrants to purchase 8,333
shares of common stock to Mr. Wenhold, which warrants expire in August 2008 and
are convertible at the price of $2.04 per share. The warrants will become
exercisable in August 2004. These warrants were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act.

On September 16, 2003, we issued 7.4 Units in a financing transaction consisting
of an offering of up to 12 Units comprised of a $50,000 convertible note and a
warrant to purchase 16,667 shares of our common stock. On September 19, 2003, we
issued the remaining 4.6 Units of the financing transaction (collectively the
"September Transaction"). The Units were sold to accredited investors for an
aggregate of $600,000. Holders of the notes had the right to convert the notes
into shares of common stock at a price equal to $1.896 per share for the notes
issued on September 16, 2003 and $1.920 per share for the notes issued on
September 19, 2003. The convertible notes bore interest at 8% per annum, and the
maturity date of the notes was the earlier of November 19, 2003 or the
completion of an equity placement of at least $3 million, at which time the
notes would automatically convert into the equity placement. Holders of the
warrants have the right to exercise the warrants into shares of common stock at
a price equal to $1.50 per share for a three year period following the date of
grant. Finders' compensation to Spencer Trask and Richard Berland, each an
accredited investor, for the September Transaction consisted of (i) a cash fee
of $60,000, or 10% of the aggregate purchase price of all of the Units; (ii)
warrants to purchase 102,988 shares of common stock, or 20% of the shares of
common stock underlying the securities in the Units sold, at exercise prices
ranging from $1.50 to $1.90 per share and expiring 5 years from the date of
grant; and (iii) 2,778 shares of unregistered common stock per Unit sold. In
addition, Spencer Trask received a non-accountable expense allowance of $18,000,
or 3% of the aggregate proceeds of all Units sold in the September Transaction.
All of the notes and the warrants have full ratchet anti-dilution protection.
These convertible notes, shares and warrants were issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

On November 11, 2003, we issued 18 Units in a financing transaction comprised of
a $50,000 convertible note ("November Notes") and a warrant ("November Warrant")
to purchase 16,667 shares of our common stock. The Units were sold to 20
accredited investors for an aggregate of $900,000. Holders of the November Notes
had the right to convert the November Notes into shares of common stock at a
price equal to $2.10 per share. The maturity date of the November Notes was the
earlier of December 19, 2003 or the completion of an equity placement of at
least $3 million, at which time the November Notes would automatically convert
into, and on the same terms as, the equity placement. Holders of the November
Warrants have the right to exercise the November Warrants into shares of common
stock at a price equal to $1.50 per share for a three year period following the
date of grant. Finders' compensation to Spencer Trask and Richard Berland
consisted of (i) a cash fee of $90,000, or 10% of the aggregate purchase price
of all of the Units; (ii) warrants to purchase 136,000 shares of common stock,
or 20% of the shares of common stock underlying the securities in the Units
sold, at exercise prices ranging from $1.50 to $1.90 per share and expiring 5
years from the date of grant; and (iii) 2,778 shares of unregistered common
stock per Unit sold. In addition, Spencer Trask received a non-accountable
expense allowance of $27,000, or 3% of the aggregate proceeds of all Units sold
in the November transaction. All of the November Notes and the November Warrants
have full ratchet anti-dilution protection. In December 2003, as an inducement
to extend the maturity date of the notes to February 19, 2004, we offered the
noteholders a warrant to purchase additional shares of our common stock in an
amount equal to 25% of the number of shares into which the notes

II-6

purchased in the Unit are convertible. This resulted in the grant of warrants to
purchase 107,155 additional shares of common stock in the aggregate. The
November Notes, the November Warrants, the additional warrants issued in
December 2003 to extend the term, and the warrants and common stock issued to
the finders were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act. Following the first closing of
the private offering of investment Units in February 2004 ("2004 Private
Placement") which exceeded the $3,000,000 threshold, the November Notes
(principal and accrued interest) were automatically converted into the Units
issued in connection with the 2004 Private Placement. See below for details
regarding the 2004 Private Placement.

In November 2003, as an inducement to extend the maturity date of the various
convertible notes issued in May, June and September 2003 from November 19, 2003
to February 19, 2004, we offered these noteholders a warrant to purchase
additional shares of common stock in an amount equal to 25% of the warrants
purchased in the Unit initially acquired. This resulted in the grant of warrants
to purchase 276,520 additional shares of common stock in the aggregate. These
additional warrants were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act.

In connection with the sale of Units in the September 2003 bridge financing, we
required the consent of Global, the holder of $1.25 million of our convertible
notes issued in February and April 2003, and of 51% or more of the holders of
our $1.5 million convertible notes issued in connection with the bridge
financings in May and June 2003. As an inducement to obtain their consent, such
holders received (a) a change in the conversion price of their notes equal to
the lowest conversion price of the notes issued in the September financings
($1.896 per share) and (b) an increase in the number of shares purchasable
pursuant to the warrant to reflect a full ratchet dilution formula with a
decrease in the exercise price of the warrants to the exercise price of the
warrants issued in the September financing ($1.50). Such amendment, as it
pertains to the holders of convertible notes issued in the May and June 2003
bridge financings, was effective on November 25, 2003, coincident with the
effective date of a one-for-six reverse stock split. These amendments to the
existing warrants were made in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act. In February 2004, the
convertible notes issued in the May, June and September bridge financings were
also automatically converted into the Units issued in connection with the 2004
Private Placement, as described in detail below.

In November, 2003, in connection with the sale of Units in the November 2003
bridge financing and the sale of Units in the 2004 Private Placement, we
required the consent of Global. As an inducement to obtain its consent, we
issued a warrant to purchase 16,667 shares of common stock at an exercise price
of $2.40 per share. This warrant was issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act.

In connection with settling a lawsuit brought by Brauning Inc., Mike Silva and
Todd Peterson, former consultants to us (collectively, the "Claimants"), we
entered into a settlement agreement, dated February 27, 2004, under which we
issued 60,000 shares of our common stock as partial consideration for settling
the claim. These shares were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act.

In February 2004, we completed the closing of a $10 million private offering of
investment Units to approximately 190 accredited investors at the price of $15
per Unit ("2004 Private Placement"). Each Unit consists of (i) one share of
Series A convertible preferred stock, $.01 par value, each of which is initially
convertible into 10 shares of common stock, and (ii) one warrant for the
purchase of 10 shares of common stock. The Series A receives dividends at the
rate of 8% per year payable quarterly in cash or, in our sole discretion, in
registered shares of our common stock. The Series A is entitled to a liquidation
preference equal to the purchase price per Unit plus accrued and unpaid
dividends. The Series A is not redeemable. The warrants have an exercise price
of $2.82 per share, are immediately exercisable and expire in February 2007. We
also completed the closing of an additional $25,000 private offering of these
Units to an accredited investor in March 2004, which Units have the same terms
as described above other than the expiration date which will be March 2007.
These Units, shares of preferred stock and warrants were all issued in reliance
upon the exemption from registration provided under the SEC's Rule 506 adopted
under the Securities Act. Spencer Trask, the placement agent, received
compensation consisting of (i) a cash fee of $1,002,500, or 10% of the aggregate
purchase price of all of the Units acquired for cash, (ii) a non-accountable
expense allowance of $300,750, or 3% of the aggregate proceeds of all Units sold
for cash in the transaction, and (iii) warrants to purchase a number of shares
of common stock equal to 20% of the shares of common stock underlying the
securities in the Units sold for cash, constituting in the aggregate warrants to

II-7

purchase 1,336,666 shares of common stock at $1.50 per share and warrants to
purchase 1,336,666 shares of common stock at $2.82 per share. These warrants
were issued in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act.

In addition, the convertible notes issued in the May, June, September and
November 2003 bridge financings were automatically converted into the Units
issued in connection with the 2004 Private Placement. The conversion took place
at the rate of $15 per Unit, which is the price at which the Units were sold in
the 2004 Private Placement. This resulted in the conversion of the aggregate
outstanding amount of debt owing from these convertible notes ($3,122,302 -
representing principal and accrued interest) into 208,147 Units from the 2004
Private Placement, which in the aggregate consists of 208,147 shares of Series A
convertible preferred stock and warrants to purchase 2,081,470 shares of common
stock at an exercise price of $2.82 per share. These warrants are immediately
exercisable and expire in February 2007. These Units, shares of preferred stock
and warrants to the investors were issued in reliance upon the exemption from
registration provided under the SEC's Rule 506 adopted under the Securities Act.

In March 2004, we entered into a consulting agreement with Brockington
Securities, Inc., whereby Brockington agreed to render consulting services to
us. As partial compensation for such services, we issued a warrant to purchase
100,000 shares of common stock to Brockington, which warrant is convertible at
the price of $1.50 per share. This warrant was issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act.

As partial consideration for our acquisition of nReach in March 2004, we issued
500,002 shares of our common stock to the 10 shareholders of nReach, each of
whom was either sophisticated or an accredited investor, and may issue more
shares if certain contingencies are met. Spencer Trask is owed a fee for this
transaction based on the aggregate consideration paid, as described in more
detail under "Certain Relationships and Related Transactions." These shares of
common stock were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act.

Item 27. Exhibits.
--------

Exhibit Description
- ------- -----------

2.1 Reorganization and Stock Purchase Agreement dated as of January 29, 2004
by and among nReach, SmartServ and the shareholders of nReach set forth
on Schedule A thereto /12/
3.1 Amended and Restated Certificate of Incorporation of SmartServ, as
amended/16/
3.2 By-laws of SmartServ, as amended /8/
4.1 Specimen Certificate of SmartServ's Common Stock /8/
4.2 Stock Purchase Agreement, dated May 12, 2000, between SmartServ and
TecCapital, Ltd., The Abernathy Group and Conseco Equity Fund /11/
4.3 Convertible Note, dated February 14, 2003, between SmartServ and Global
Capital Funding Group, LP /2/
4.4 Security Agreement dated February 14, 2003, between SmartServ and Global
Capital Funding Group, LP /2/
4.5 Amendment No. 1 to the Convertible Note between SmartServ and Global
Capital Funding Group, LP /15/
4.6 Amendment No. 1 to the Security Agreement between SmartServ and Global
Capital Funding Group, LP /15/
4.7 Amendment No. 2 to the Convertible Note between SmartServ and Global
Capital Funding Group, LP /15/
4.8 Amendment No. 2 to the Security Agreement between SmartServ and Global
Capital Funding Group, LP /15/
4.9 Form of Warrant for the Investors in the September 2003 Placement (the
"September Investors") /13/
4.10 Form of Registration Rights Agreement between SmartServ and the
September Investors /13/
4.11 Form of Warrant for the Investors in the November 2003 Placement (the
"November Investors") /13/
4.12 Form of Registration Rights Agreement between SmartServ and the November
Investors /13/
4.13 Form of Warrant for the Investors in the May 2003 Placement (the "May
Investors") /14/
4.14 Form of Registration Rights Agreement, dated May 19, 2003, between
SmartServ and the May Investors /14/
4.15 Form of Warrant for the Investors in the June 2003 Placement (the "June
Investors") /14/
4.16 Form of Registration Rights Agreement, dated June 13, 2003, between
SmartServ and the June Investors /14/
4.17 Form of Letter Agreement Extending the Maturity Date of Convertible
Debentures from November 19, 2003 to February 19, 2004, between
SmartServ and each of the May, June and September Investors /16/

II-8

4.18 Form of Letter Agreement Extending the Maturity Date of Convertible
Debentures from December 19, 2003 to February 19, 2004, between
SmartServ and the November Investors /16/
4.19 Form of Warrant for the Investors in the 2004 Private Placement (the
"2004 Private Placement Investors") /16/
4.20 Form of Registration Rights Agreement, dated February 13, 2004, between
SmartServ and the Investors in the 2004 Private Placement /16/
4.21 Specimen Certificate of SmartServ's Series A Convertible Preferred Stock
/16/
4.22 Form of Warrant for Spencer Trask issued pursuant to the 2004 Private
Placement /16/
5.1 Legal Opinion of Stradley Ronon Stevens & Young, LLP*
10.1 Information Distribution License Agreement dated as of July 18, 1994
between SmartServ and S&P ComStock, Inc. /8/
10.2 New York Stock Exchange, Inc. Agreement for Receipt and Use of Market
Data dated as of August 11, 1994 between SmartServ and the New York
Stock Exchange, Inc. /8/
10.3 The Nasdaq Stock Market, Inc. Vendor Agreement for Level 1 Service and
Last Sale Service dated as of September 12, 1994 between SmartServ and
The Nasdaq Stock Exchange, Inc. ("Nasdaq") /8/
10.4 Amendment to Vendor Agreement for Level 1 Service and Last Sale Service
dated as of October 11, 1994 between SmartServ and Nasdaq. /8/
10.5 License Agreement between SmartServ and Salomon Smith Barney
(Confidential treatment has been requested with respect to certain
portions of this agreement) /4/
10.6 1996 Stock Option Plan /10/
10.7 1999 Stock Option Plan /11/
10.8 2000 Stock Option Plan /6/
10.9 2002 Stock Option Plan /3/
10.10 Separation Agreement between SmartServ and Sebastian Cassetta, effective
as of October 21, 2003 /13/
10.11 Restricted Stock Purchase Agreement between SmartServ and Sebastian E.
Cassetta, dated December 29, 1999 /7/
10.12 Separation Agreement between SmartServ and Mario F. Rossi, effective as
of October 21, 2003 /13/
10.13 Restricted Stock Purchase Agreement between SmartServ and Mario F.
Rossi, dated December 29, 1999 /7/
10.14 Amended Restricted Stock Purchase Agreement between SmartServ and
Sebastian E. Cassetta, dated December 31, 1999 /11/
10.15 Amended Promissory Note between SmartServ and Sebastian E. Cassetta,
dated January 4, 2000 /11/
10.16 Amended Security Agreement between SmartServ and Sebastian E. Cassetta,
dated January 4, 2000 /11/
10.17 Promissory Note, dated January 2, 2001, between SmartServ and Sebastian
E. Cassetta /5/
10.18 Promissory Note, dated March 20, 2001, between SmartServ and Sebastian
E. Cassetta /5/
10.19 Amended Restricted Stock Purchase Agreement between SmartServ and Mario
F. Rossi, dated December 31, 1999 /11/
10.23 Amended Promissory Note between SmartServ and Mario F. Rossi, dated
January 4, 2000 /11/
10.24 Amended Security Agreement between SmartServ and Mario F. Rossi, dated
January 4, 2000 /11/
10.25 Form of Securities Purchase Agreement between SmartServ and the
September Investors /13/
10.26 Form of Convertible Debenture for the September Investors /13/
10.27 Form of Securities Purchase Agreement between SmartServ and the November
Investors /13/
10.28 Form of Convertible Debenture for the November Investors /13/
10.29 Form of Securities Purchase Agreement, dated May 19, 2003, between
SmartServ and the May Investors /14/
10.30 Form of Convertible Debenture for the May Investors /14/
10.31 Form of Securities Purchase Agreement, dated June 13, 2003, between
SmartServ and the June Investors /14/
10.32 Form of Convertible Debenture for the June Investors /14/
10.33 Consulting Agreement, dated May 15, 2003, between SmartServ and Spencer
Trask Ventures, Inc. /14/
10.34 Employee Separation Agreement, dated February 2, 2004, between SmartServ
and Richard Kerschner +
10.35 Severance Agreement, dated June 20, 2003, between SmartServ and Thomas
Haller /14/
10.36 Form of Amendment Agreement, dated June 13, 2003, to the May 19, 2003
Securities Purchase Agreement between SmartServ and the May Investors
/14/
10.37 Consulting Agreement between SmartServ and Robert Pons, dated August 4,
2003, as amended /16/
10.38 Consulting Agreement between SmartServ and Timothy G. Wenhold, dated
August 1, 2003 /16/

II-9

10.39 Placement Agency Agreement, dated January 29, 2004, between SmartServ
and Spencer Trask in connection with the 2004 Private Placement /16/
10.40 Employment Agreement dated as of March 12, 2004 between SmartServ and
Robert Pons+
10.41 Employment Agreement dated as of March 12, 2004 between SmartServ and
Timothy G. Wenhold+
10.42 Option Agreement dated as of March 12, 2004 between SmartServ and Robert
Pons+
10.43 Option Agreement dated as of March 12, 2004 between SmartServ and
Timothy G. Wenhold+
10.44 Option Agreement dated as of April 9, 2004 between SmartServ and Len Von
Vital*
10.45 Settlement Agreement dated as of February 27, 2004 by and among
SmartServ and Michael Silva, Todd Peterson and Brauning Inc.+
10.46 Amended and Restated Consulting Agreement dated as of March 31, 2004
between SmartServ and Steven B. Rosner, as amended+
10.47 Consulting Agreement dated as of March 31, 2004 between SmartServ and
Brockington Securities, Inc., as amended+
10.48 Employment Agreement dated as of February 28, 2004 between SmartServ and
Michael Stemple+
10.49 Option Agreement dated as of April 15, 2004 between SmartServ and
Matthew Stecker*
10.50 Option Agreement dated as of April 26, 2004 between SmartServ and Daniel
Wainfan*
10.51 Warrant for Richard Kerschner dated as of February 2, 2004+
21.1 List of Subsidiaries /16/
23.1 Consent of Grant Thornton, LLP+
23.2 Consent of Ernst & Young LLP +
23.3 Consent of Stradley Ronon Stevens & Young, LLP (contained in Exhibit 5.1
above)*
24.1 Powers of Attorney (contained in Signature Page hereof)

* To be filed by amendment.
+ Filed herewith

1 Filed as an exhibit to our Form 8-K, dated November 13, 2003
2 Filed as an exhibit to our Form 8-K, dated March 3, 2003
3 Filed as an exhibit to our Proxy Statement for the 2002 Annual Meeting of
Stockholders
4 Filed as an exhibit to Amendment No. 3 to our registration statement on
Form S-3 (Registration No. 333-100193) on February 11, 2003
5 Filed as an exhibit to our Annual Report on Form 10-KSB for the year ended
December 31, 2001
6 Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2000
7 Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1999
8 Filed as an exhibit to our registration statement on Form SB-2
(Registration No. 333-114)
9 Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1996
10 Filed as an exhibit to our Proxy Statement dated October 10, 1996
11 Filed as an exhibit to our Registration Statement on Form SB-2
(Registration No. 333-43258) on August 7, 2000
12 Filed as an exhibit to our Form 8-K, dated February 28, 2004
13 Filed as an exhibit to our Quarterly Report on Form 10-QSB for the quarter
ended September 30, 2003
14 Filed as an exhibit to our Quarterly Report on Form 10-QSB for the quarter
ended June 30, 2003
15 Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2002
16 Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2003 on April 13, 2004

Item 28 Undertakings.
------------

(a) The undersigned registrant hereby undertakes:

(i) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

II-10

(A) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");

(B) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and

(ii) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.

(iii) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.

(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer 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 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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, the small business
issuer 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.

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SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Plymouth
Meeting, Commonwealth of Pennsylvania on May 13, 2004.

SMARTSERV ONLINE, INC.

By: /s/ Robert M. Pons
-------------------------------------------
Robert M. Pons
Chief Executive Officer

Each person whose signature appears below constitutes and appoints Robert M.
Pons and Len von Vital, jointly and severally, his attorneys-in-fact and agents,
each with the power of substitution, to sign for him in any and all capacities
any amendments (including any post-effective amendments) to this registration
statement on Form SB-2, and to sign any registration statements for the same
offering covered by this registration statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and
any post-effective amendments thereto, and to file any and all of the foregoing,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact and agents, or his substitute or substitutes, may
do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:

Signature Title Date
--------- ----- ----

/s/ Robert M. Pons Director and Chief Executive May 13, 2004
- ------------------------------- Officer
Robert M. Pons (Principal Executive Officer)

/s/ Len von Vital Chief Financial Officer May 13, 2004
- ------------------------------- (Principal Financial and
Len von Vital Accounting Officer)

/s/ L. Scott Perry Chairman of the Board May 13, 2004
- ------------------------------- of Directors
L. Scott Perry

/s/ Catherine Cassel Talmadge Director May 13, 2004
- -------------------------------
Catherine Cassel Talmadge

/s/ Charles R. Wood Director May 13, 2004
- -------------------------------
Charles R. Wood

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List of Exhibits
----------------

Exhibit Description
- ------- -----------

10.34 Employee Separation Agreement, dated February 2, 2004, between SmartServ
and Richard Kerschner
10.40 Employment Agreement dated as of March 12, 2004 between SmartServ and
Robert Pons
10.41 Employment Agreement dated as of March 12, 2004 between SmartServ and
Timothy G. Wenhold
10.42 Option Agreement dated as of March 12, 2004 between SmartServ and Robert
Pons
10.43 Option Agreement dated as of March 12, 2004 between SmartServ and
Timothy G. Wenhold
10.45 Settlement Agreement dated as of February 27, 2004 by and among
SmartServ and Michael Silva, Todd Peterson and Brauning Inc.
10.46 Amended and Restated Consulting Agreement dated as of March 31, 2004
between SmartServ and Steven B. Rosner, as amended
10.47 Consulting Agreement dated as of March 31, 2004 between SmartServ and
Brockington Securities, Inc., as amended
10.48 Employment Agreement dated as of February 28, 2004 between SmartServ and
Michael Stemple
10.51 Warrant for Richard Kerschner dated as of February 2, 2004
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ernst & Young LLP