1 2. Description of Property 7 3. Legal Proceedings 7 4. Submission of Matters to a Vote of Security Holders 8

Part II

5. Market for Common Equity, Related Stockholder Matters and S Issuer Purchases of Equity Securities 8 6. Management's Discussion and Analysis or Plan of Operations 11 7. Financial Statements 31 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 61 8A. Controls and Procedures 61 8B. Other Information 61

Part III

9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 62 10. Executive Compensation 65 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 70 12. Certain Relationships and Related Transactions 74 13. Exhibits 77 14. Principal Accountant Fees and Services 80

Part I

Item 1. Description of Business

Company Overview

We are a Mobile Virtual Network Operator (MVNO) planning to launch a prepaid mobile phone service in 2005 under the UPHONIA(TM) brand name utilizing the Sprint nationwide PCS network. The planned service will include low cost prepaid mobile wireless minute plans, discounted international long distance, and free mobile content such as ringtones, mobile games and images. In advance of our mobile phone service launch we are marketing UPHONIA(TM) mobile content products and UPHONIA(TM) prepaid international long distance phone cards. Our business strategy is based on the opportunity to utilize international long distance and mobile content and as a way to differentiate telecom products and services in the prepaid wireless market. Prepaid wireless is a $10 billion business and the fastest growing segment of the U.S. wireless sector. The prepaid wireless market has a high representation of urban ethnic, immigrants who are heavy users of international long distance products for calling their friends and family in their country of origin. Our MVNO products will bundle prepaid wireless phones and service with discounted international long distance to enable international calls from UPHONIA(TM) wireless phones. The availability of free mobile content will also be utilized as a value-added feature to further differentiate our products to the urban ethnic, immigrant consumer and youth market.

As identified below, we believe we have sufficient capital to support our operations through December 31, 2005. To implement our MVNO launch and strategic plans we will need to raise additional capital. Our plan to address our liquidity issue is also described below. No assurance can be given that we will be able to raise sufficient capital to support our operations. Should we be unable to raise additional debt or equity financing, we will be forced to seek a strategic buyer, a merger, cease operations or enter into bankruptcy.

As an MVNO we are a mobile operator that does not own or operate supporting infrastructure such as cell towers and related support systems. We intend to give consumers a better choice in mobile phone service by bundling flexible prepaid minute plans, discounted international long distance, and free mobile content utilizing the existing cell tower infrastructure made available to us through our agreement with Sprint. Under this agreement, Sprint wholesales wireless minutes from their network directly to us for resale to our customers. We benefit from this agreement by receiving access to Sprint's enhanced nationwide network with turnkey reliability and performance. As an MVNO, we have the advantage of market access without the need to build the telecom infrastructure necessary to originate and terminate domestic wireless calls. Sprint benefits by gaining a distribution and marketing partner that is focused on a niche market (i.e., the urban ethnic, immigrant and youth market).

o Our UPHONIA(TM) brand will provide consumers flexible prepaid minute plans - UPHONIA(TM) customers will not sign up for one preset monthly contract, but instead will be able to decide how many minutes they want to purchase each month.

o UPHONIA(TM) MVNO customers will be able to access discounted international long distance through their UPHONIA(TM) mobile phones.

o UPHONIA(TM) MVNO customers will be able to personalize their cell phones with thousands of ringtones, images, mobile games and graphics. Mobile content downloads will be accessible from the uphonia.com mobile content website, directly from UPHONIA(TM) phones and from selected stores through the UPHONIA(TM) retail mobile content kiosk.

Prior to becoming an MVNO, we designed, developed and distributed software and services to enable the delivery of premium mobile content to wireless devices. The content included ringtones, images and games, and dynamic changing content such as horoscopes, lottery results and weather reports. The mobile content infrastructure, aggregation and hosting capabilities, and applications development expertise previously acquired by SmartServ is being leveraged to help differentiate our planned MVNO products and services.

During 2004 we continued to have revenue sharing license agreements with wireless carriers including Verizon Wireless, AT&T Wireless, and ALLTEL Wireless, that allowed us to deliver premium mobile content in the form of dynamic applications to 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 through their cell phones, although this no longer comprises a part of our business or strategy.

In February 2004, we received $10 million in gross proceeds from our private placement of Units consisting of shares of Series A Convertible Preferred Stock and warrants to purchase common stock. We have used the net proceeds of approximately $8,600,000 from this offering to repay outstanding obligations, including $1,391,500 that was used to repay Global Capital Funding Group, LP, completion of a strategic acquisition and for general working capital purposes. In particular, we used a significant portion of our working capital to settle our accounts payable, which accounts payable were approximately $447,000 and $1,700,000 as of December 31, 2004 and December 31, 2003, respectively.

During February 2004, we acquired the business of an early stage company, nReach, Inc., to increase our offerings of mobile content products and services to the cell phone industry. nReach was a wireless content distribution company that offered a broad portfolio of popular mass-market cell phone content including ringtones, mobile games, and on-device images. Prior to our acquisition, nReach had minimal revenues and incurred a significant loss in 2003.

We signed an agreement with Sprint during November, 2004 allowing us to purchase cellular airtime on Sprint's national wireless network for resale to our wireless customers. The agreement has a term of five years. This will allow us to enter the prepaid wireless marketplace and to offer plans that bundle prepaid wireless airtime with discounted international long distance and premium mobile content such as ringtones, images and games. We are required to provide Sprint with a $1,000,000 letter of credit to secure our obligations relating to this agreement prior to Sprint giving us access to its network.

On November 17, 2004, we signed a non-binding letter of intent to acquire Telco Group, Inc., and affiliates. Telco Group, Inc. is a New York-based provider of pay-as-you-go wireless telecommunications services, prepaid international long distance, nationwide dial around long distance and nationwide dial up high speed internet services. While the letter of intent has expired, the acquisition discussions are continuing with Telco Group. This acquisition, if completed, is expected to add approximately $300 million in annual revenues. The closing of this acquisition is subject to customary closing conditions for this type of transaction, including the negotiation and execution of a binding purchase agreement. In addition, we must secure financing to obtain the necessary funds to pay for this acquisition and provide working capital for the combined company. There can be no assurance that these conditions will be met and the closing will occur.

On January 7, 2005, we acquired KPCCD, Inc., a New York City-based distributor of international prepaid calling cards. Founded in 1998, KPCCD distributes international prepaid calling cards through a network of hundreds of retail outlets along the East Coast. We believe that the acquisition of KPCCD will expand our distribution network for our planned prepaid wireless products and services. The acquisition of KPCCD is expected to add as much as approximately $3 million in monthly revenue. In connection with the closing of the transaction on January 7, 2005, KPCCD, the sellers of KPCCD and Prima Communications, Inc. ("Prima"), a company controlled by the sellers, entered into a Master Vendor Agreement ("Vendor Agreement"). Under the Vendor Agreement, Prima will sell to KPCCD at cost all of KPCCD's requirements of international prepaid calling cards for up to one year after January 7, 2005. The Company has guaranteed the obligations of KPCCD under the Vendor Agreement. The Vendor Agreement can be terminated prior to its one year term under certain conditions.

We have since our inception earned limited revenues and have incurred substantial recurring operating losses, including net losses of $10,580,372 and $17,537,775 for the years ended December 31, 2004 and 2003, respectively. Additionally, we have an accumulated deficit of $100,977,153 at December 31, 2004.

As of March 30, 2005, after reviewing the Company's cash flow projections, the Company adopted a plan designed to insure that we have sufficient working capital to support a reduced level of operations through March 2006. As of March 31, 2005 we had $1,012,000 in cash. Elements of the plan include: 1) maximizing of KPCCD's international calling card profits since the acquisition of KPCCD on January 7, 2005, 2) reduce the level of operating expenses by relocating our hosting facility from an off site location to an on-site location, and 3) elimination of employee positions.

In addition, the Company is pursuing various action items to improve its liquidity in conjunction with beginning to execute its business strategy. Those action items include pursuing the Telco Group acquisition and obtaining sufficient financing to cover the costs of such acquisition and provide a sufficient surplus to address the Company's liquidity requirements. The Company is also pursuing other sources of capital in the form of a private placement unrelated to the Telco Group acquisition to address the Company's liquidity requirements.

However, no assurance can be given that the Company will conclude the acquisition or will be able meet its revenue and cash flow projections, reduce its cost structure as presently configured or that unforeseen liabilities or expenses will not arise, or raise additional capital on satisfactory terms. Should the Company be unable to raise additional debt or equity financing, it will be forced to seek a strategic buyer, a merger or cease operations.

We are incorporated in the State of Delaware and have our headquarters in Plymouth Meeting, Pennsylvania. We commenced operations in August 1993, and had our initial public offering in March, 1996. In this report, 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 and references to KPCCD refer to KPCCD, Inc. (our wholly owned subsidiaries). We completed a one-for-six reverse stock split effective November 25, 2003. Unless otherwise noted, descriptions of shareholdings and convertible securities reflect such one-for-six reverse stock split.

Industry Overview

The U.S. wireless market is now over $110 billion in annual sales. Over 150 million U.S. consumers own or have access to a cell phone. Household penetration is over 50% and on average U.S. wireless subscribers now spend more minutes talking on their cell phones than they do on traditional landlines. Dynamics within the overall wireless market however are changing.

While overall wireless penetration growth in the U.S. is slowing, the prepaid segment of the market has emerged as the high growth segment. Prepaid sales have gone from a standing start to approximately $10 billion annually since the late 1990's.

Industry analysts forecast that U.S. prepaid market growth will escalate, doubling over the next three years. At these growth rates the prepaid wireless market will generate well over $1 billion in new market opportunity each year over the next three to five years. Even after five years of this rapid projected growth, the prepaid segment will still be significantly below international penetration rates (in Western Europe and Latin America prepaid represents between 50% and 75% of the wireless user base).

Our MVNO business strategy targets the large market convergence of prepaid wireless, international long distance calling and premium mobile content usage:

o Prepaid wireless is changing the dynamics of the entire wireless market. By offering pay-as-you-go flexibility and cost control without the need for credit checks or multi-year contracts, prepaid has become the fastest growth segment in the wireless market. The prepaid segment is forecast by industry experts to grow from approximately $10 billion in 2004 to between $20 billion and $25 billion over the next 3 years.

o The international long distance business in the U.S. is approximately $8 billion. According to the FCC, international long distance volume has greatly expanded over the past 20 years from about 200 million to more than 6.2 billion calls per year. The prepaid portion of the international long distance market (approximately $2 billion) is a crucial service demanded by many of the more than 30 million immigrants living in the United States for making calls to friends and family in their country of origin. As a value added service integrated into UPHONIA(TM) phones, it is an attractive feature to bring subscribers to the UPHONIA(TM) brand.

o The global mobile content business is approximately $4 billion. The U.S. market is still at a very early stage in its life cycle, ranging between $100 million and $200 million based on various industry estimates. Mobile content has lifestyle appeal and represents a way to attract and retain wireless users by providing the ability to personalize a cell phone with ringtones, images, mobile games and dynamic applications. Our MVNO plans include providing customized content that will appeal to the ethnic immigrant market.

Our business model focuses on acquiring and holding the prepaid wireless subscriber. International long distance services and premium mobile content offerings will be utilized as bundled "value-added" features to attract and retain the target market to the brand.

Strategy

Our goal is to build a large wireless subscriber base by providing value-added prepaid wireless services to the urban ethnic, immigrant target market. The basic strategic principles that we have established to achieve this goal are:

o Deliver products to the target market with straightforward, simple rate plans that cut through the complexity of current prepaid wireless programs.

o Utilize the technology, operations and systems infrastructure of SmartServ and our affiliates to bundle value-added features including discounted international long distance and mobile content with premium handsets and mobile phone service.

o Focus on the underserved urban ethnic, immigrant market that shops in small format retailers and smaller chains that do not get primary focus from large carriers and are often left with inferior "white label/generic" product choices from 2nd tier resellers.

Access to the prepaid international calling card distribution network via KPCCD and our mobile content distribution and aggregation capabilities are important elements of this overall strategy.

Our products will be marketed under the UPHONIA(TM) brand name. The name was developed to accomplish important consumer product branding objectives. The UPHONIA(TM) brand has been well received both by our prepaid card distributor network and on-line at the Uphonia.com mobile content website. The brand name was developed to deliver premium, contemporary imagery for the youth and ethnic segments, to appeal to a broad range of ethnic immigrant consumer segments, and to retain appeal for the broader wireless market.

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.

In addition to the delivery of applications, our platform allows us to deliver content to most cell phones. We have created and deployed software capable of delivering mobile content (including ring tones, wallpapers and games) to over 200 different handsets through the networks of over 12 carriers.

In support of our application and content sales, we have developed an extensive customer support queue management system, and interfaces to partners to process consumer payments (credit card and PayPal transactions).

Wireless carriers and service providers require that the back-end services that deliver content and applications be reliably available on a 24/7 basis. In the past we have hosted 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 has been 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. We believe that no single point of failure has existed 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.

As part of our cost reduction plan, we intend to host our systems on-site. We intend to build redundancy systems similar to off-site facilities, although no assurance can be given we will be able to host on-site to the same quality level.

Competition and Competitive Risk

Within the prepaid wireless market, there are two main types of service providers. Mobile Network Operators (MNO's) include the major national and regional wireless carriers that own wireless spectrum licenses and significant network infrastructure. Mobile Virtual Network Operators (MVNO's) do not own wireless spectrum nor do they operate their own networks, but rather contract with MNO's to lease wireless minutes which they then supply to their own subscribers under their own brands. While the prepaid wireless sector in the U.S. is expected to grow rapidly over the next several years, the MVNO sub-segment is expected to contribute disproportionately to this expansion.

Following in the footsteps of European operators such as British Telecom, which has an MVNO agreement with Vodafone, MVNO's are starting to blossom in the U.S. market. Virgin Mobile, the best known MVNO in the U.S., has exceeded the 2 million subscriber mark, after launching its service just several years ago.

Virgin Mobile and TracFone have been the most visible of the wireless resellers in the U.S. prepaid 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.

In addition to TracFone and Virgin Mobile many companies now offer MVNO products for sale in the U.S. Other entrants, as well as nationally-recognized brands in retail and other non-wireless sectors, are also being attracted to the market.

We also face competition from the wireless carriers themselves, all of whom offer prepaid wireless services, and separately, mobile content and applications. The principal competitive factors in the MVNO sector include quality of service, price of mobile handsets and prepaid minutes, amount and type of features provided, quality and type of mobile handset provided, ease of use, access to distribution channels, brand recognition, and reliability among other factors.

Overall the size and growth of the prepaid wireless sector is expected to continue to attract many competitors and robust competition for the prepaid wireless subscriber.

Proprietary Rights

We have filed an application to trademark our UphoniaTM.

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 1, 2005, we employed a total of 21 people, all of whom were employed in the United States. Fifteen employees are at SmartServ headquarters and 6 are employed at KPCCD. As part of our cost reduction plan, we intend to reduce the number of employees at our headquarters. If we are able to raise additional capital to launch our MVNO business, we anticipate that staffing requirements associated with the implementation of our plan of operation will require the addition of approximately 3 people and the replacement of our terminated headquarters employees. None of our employees are covered by a collective bargaining agreement, and we believe that our relationship with our employees is satisfactory.