**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





FORM
      10-QSB





x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the
      quarterly period ended June 30, 2008





 ̈ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934


For
      the
      transition period from _______ to _______





Commission
      File No. 000-50560





UPSNAP,
      INC.


(Exact
      name of small business issuer as specified in its charter)





Nevada
              (State
                or other jurisdiction of
              incorporation
                or organization)
            20-0118697
              (IRS
                Employer identification No.)




134
      Jackson Street, Suite 203, P.O. Box 2399, Davidson, North Carolina
      20836





(Address
      of Principal Executive Offices)





(704)
      895-4121





(Issuer’s
      Telephone Number)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of The Exchange Act) Yes  ̈ No x





State
      the
      number of shares outstanding of each of the issuers’ classes of common equity,
      as of the latest practicable date:





Class
                of Stock
            
            Outstanding
                August 10, 2008Common
                Stock ($.001 par value)
            
            23,370,324




Transitional
      Small Business Disclosure Format (Check one): Yes  ̈ No x









UPSNAP,
      INC.


FORM
      10-QSB





For
      the
      Quarter ended June 30, 2008





TABLE
      OF
      CONTENTS




PagePART
                I – FINANCIAL INFORMATIONITEM
                1.
            Selected
                Financial StatementsBalance
                Sheet – June 30, 2008 (unaudited)
            2Statements
                of Operations – Three and Nine months Ended June 30, 2008 and 2007
                (unaudited)
            3Statements
                of Stockholders’ Equity - (unaudited)
            4Statements
                of Cash Flows – Three and Nine months Ended June 30, 2008 and 2007
                (unaudited)
            5Notes
                to Financial Statements (unaudited)
            6ITEM
                2.
            Management’s
                Discussion and Analysis
            17ITEM
                3.
            Controls
                and Procedures
            32PART
                II - OTHER INFORMATIONITEM
                6.
            Exhibits
            33Signatures
            
            33




1




**PART
      I – FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**UPSNAP,
      Inc.**


CONSOLIDATED
      BALANCE SHEET


AS
      OF
      JUNE 30, 2008 and SEPTEMBER 30, 2007


UNAUDITED





June 30, 2008
            
            September 30, 2007ASSETSCurrent
                AssetsCash
            
            $
            21,027
            
            $
            21,888Accounts
                receivable
            
            
            105,730
            
            
            296,499Other
                current assets
            
            
            8,539
            
            
            17,813TOTAL
                CURRENT ASSETS
            
            
            135,296
            
            
            336,200PROPERTY
                & EQUIPMENT (Note F)Computer
                and office equipment
            
            
            173,742
            
            
            173,742Accumulated
                Depreciation
            
            
            (115,277
            )
            
            (92,631
            )NET
                PROPERTY & EQUIPMENT
            
            
            58,465
            
            
            81,111OTHER
                ASSETSOther
                intangibles (Note J)
            
            
            -
            
            
            756,584Goodwill
                (Note J)
            
            
            -
            
            
            4,916,418Security
                deposits
            
            
            1,114
            
            
            1,116TOTAL
                ASSETS
            
            $
            194,875
            
            $
            6,091,429LIABILITIES
                & STOCKHOLDERS' EQUITYCURRENT
                LIABILITIESAccounts
                payable
            
            $
            255,423
            
            $
            260,817Total
                Other Current Liabilities
            
            
            60,404
            
            
            7,436TOTAL
                CURRENT LIABILITIES
            
            
            315,827
            
            
            268,253LONG
                TERM LIABILITIESNote
                Payable (Note H)
            
            
            -
            
            
            113,500Total
                Long Term Liabilities
            
            
            -
            
            
            113,500TOTAL
                LIABILITIES
            
            
            315,827
            
            
            381,753Commitments
                (Note G)STOCKHOLDERS'
                EQUITYCommon
                stock, par value $0.001, 97,500,000 authorized,
            
            
            23,370
            
            
            22,720issued
                and outstanding 23,370,324 shares at June 30, 2008Additional
                paid-in capital
            
            
            9,000,574
            
            
            8,769,194Accumulated
                deficit
            
            
            (9,144,896
            )
            
            (3,082,238
            )TOTAL
                STOCKHOLDERS' EQUITY
            
            
            (120,952
            )
            
            5,709,676TOTAL
                LIABILITIES & STOCKHOLDERS' EQUITY
            
            $
            194,875
            
            $
            6,091,429





The
      accompanying notes are an integral part of these unaudited financial
      statements




2




**UPSNAP,
      INC.**


CONSOLIDATED
      STATEMENTS OF OPERATIONS


FOR
      THE
      THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007


UNAUDITED





Three
                Months Ended June 30,
            
            Nine
                Months Ended June 30,2008
            
            2007
            
            2008
            
            2007SALES
                AND COST OF SALESAdvertising
                Revenue
            
            $
            22,036
            
            $
            6,778
            
            $
            67,906
            
            $
            14,994Revenue
                Share
            
            
            78,925
            
            
            251,695
            
            
            357,720
            
            
            723,950Other
            
            
            30,844
            
            
            2,330
            
            
            45,344
            
            
            3,362Total
                Sales
            
            
            131,805
            
            
            260,803
            
            
            470,970
            
            
            742,306Cost
                of Sales
            
            
            40,462
            
            
            152,984
            
            
            186,589
            
            
            413,358Gross
                Profit
            
            
            91,343
            
            
            107,819
            
            
            284,381
            
            
            328,948OPERATING
                EXPENSESProduct
                development
            
            
            26,219
            
            
            71,236
            
            
            74,233
            
            
            239,884Sales
                and marketing expenses
            
            
            13,063
            
            
            9,086
            
            
            50,247
            
            
            46,891General
                and administrative
            
            
            79,394
            
            
            216,129
            
            
            532,589
            
            
            838,728Merger
                costs
            
            
            -
            
            
            
            
            
            307,215Stock
                based compensation
            
            
            99,029
            
            
            38,363
            
            
            232,030
            
            
            86,498Impairment
                of Goodwill
            
            
            -
            
            
            -
            
            
            4,677,862
            
            
            -Impairment
                of Intangible Asets
            
            
            -
            
            
            -
            
            
            588,455
            
            
            -Total
                Expense
            
            
            217,705
            
            
            334,814
            
            
            6,462,631
            
            
            1,212,001Net
                operating income
            
            
            (126,362
            )
            
            (226,995
            )
            
            (6,178,250
            )
            
            (883,053
            )Other
                income and expenseGain
                on extinguishment of debt (Note K)
            
            
            -
            
            
            -
            
            
            113,500
            
            
            -Gain
                on sale of assets
            
            
            1,175
            
            
            
            
            
            2,092Interest
                income
            
            
            -
            
            
            (1
            )
            
            -
            
            
            127Net
                Other Income
            
            
            1,175
            
            
            (1
            )
            
            115,592
            
            
            127NET
                LOSS
            
            $
            (125,187
            )
            $
            (226,996
            )
            $
            (6,062,658
            )
            $
            (882,926
            )Net
                loss per share
            
            $
            (0.01
            )
            $
            (0.01
            )
            $
            (0.26
            )
            $
            (0.04
            )Weighted
                average common shares outstanding:Basic
                and diluted
            
            
            23,720,324
            
            
            22,211,991
            
            
            23,091,065
            
            
            21,859,605The
                average shares listed below were notincluded
                in the computation of diluted lossesper
                share because to do so would have beenantidilutive
                for the periods presented:Warrants
                and options:
            
            
            4,083,333
            
            
            3,510,556
            
            
            3,849,444
            
            
            4,560,781





The
      accompanying notes are an integral part of these unaudited financial
      statements




3




**UPSNAP,
      INC.**


CONSOLIDATED
      STATEMENT OF STOCKHOLDER'S EQUITY


FOR
      THE
      PERIOD SEPTEMBER 30, 2005 to JUNE 30, 2008


UNAUDITED




TotalAdditional
                  
                  
                  
                  Stockholders'Common Stock
                  
                  Paid-in
                  
                  Accumulated
                  
                  EquityShares
                  
                  Par Value
                  
                  capital
                  
                  Deficit
                  
                  (Deficit)**Balances,
                      September 30, 2005**
                  
                  
                  12,999,999
                  
                  
                  1,300
                  
                  
                  148,699
                  
                  
                  (186,060
                  )
                  
                  (36,061
                  )Shares
                      issued in connection with reverse merger
                  
                  
                  5,788,495
                  
                  
                  17,488
                  
                  
                  2,079,623
                  
                  
                  -
                  
                  
                  2,097,112Shares
                      issued in connection with XSVoice acquisition
                  
                  
                  2,362,830
                  
                  
                  2,363
                  
                  
                  5,997,712
                  
                  
                  -
                  
                  
                  6,000,074Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,788,068
                  )
                  
                  (1,788,068
                  )**Balances,
                      September 30, 2006**
                  
                  
                  21,151,324
                  
                  
                  21,151
                  
                  
                  8,226,034
                  
                  
                  (1,974,128
                  )
                  
                  6,273,057Stock
                      based compensation
                  
                  
                  150,000
                  
                  
                  150
                  
                  
                  121,829
                  
                  
                  -
                  
                  
                  121,979Shares
                      issued for Placement Agreement
                  
                  
                  400,000
                  
                  
                  400
                  
                  
                  167,600
                  
                  
                  
                  
                  
                  168,000Exercise
                      of Series A Warrants
                  
                  
                  1,019,000
                  
                  
                  1,019
                  
                  
                  253,731
                  
                  
                  
                  
                  
                  254,750Net
                      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,108,110
                  )
                  
                  (1,108,110
                  )**Balances,
                      September 30, 2007**
                  
                  
                  22,720,324
                  
                  
                  22,720
                  
                  
                  8,769,194
                  
                  
                  (3,082,238
                  )
                  
                  5,709,676Stock
                      based compensation
                  
                  
                  650,000
                  
                  
                  650
                  
                  
                  231,380
                  
                  
                  
                  
                  
                  232,030Net
                      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (6,062,658
                  )
                  
                  (6,062,658
                  )**Balances,
                      June 30, 2008**
                  
                  
                  23,370,324
                  
                  $
                  23,370
                  
                  $
                  9,000,574
                  
                  $
                  (9,144,896
                  )
                  $
                  (120,952
                  )





The
      accompanying notes are an integral part of these unaudited financial
      statements




4




**UPSNAP,
      INC.**


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


FOR
      THE
      NINE MONTH PERIODS ENDED JUNE 30, 2008 AND 2007


UNAUDITED




June
                30, 2008
            
            June
                30, 2007CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (6,062,658
            )
            $
            (882,925
            )Adjustments
                to reconcile net lossto
                net cash used by operating activities:Depreciation
            
            
            22,646
            
            
            37,710Amortization
                of intangibles
            
            
            168,130
            
            
            318,820Stock
                based compensation
            
            
            232,030
            
            
            86,498Extinguishment
                of debt
            
            
            (113,500
            )
            
            -Impairment
                of goodwill
            
            
            4,677,862Impairment
                of intangibles
            
            
            588,455Merger
                costs written off
            
            
            307,215CHANGES
                IN CURRENT ASSETS AND CURRENT LIABILITIES:Accounts
                receivable
            
            
            190,770
            
            
            (10,753
            )Other
                current assets
            
            
            9,274
            
            
            (6,665
            )Accounts
                payable and accrued expenses
            
            
            (11,337
            )
            
            (27,511
            )Other
                current liabilities
            
            
            58,911
            
            
            27,869NET
                CASH USED FOR OPERATING ACTIVITIES
            
            
            67,798
            
            
            (456,957
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Cash
                paid for costs related to Mobile Greetings merger
            
            
            (68,660
            )
            
            -Purchase
                of equipment
            
            
            -
            
            
            (7,435
            )NET
                CASH PROVIDED BY INVESTING ACTIVITIES
            
            
            (68,660
            )
            
            (7,435
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Exercise
                of warrants
            
            
            -
            
            
            254,750NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            -
            
            
            254,750NET
                INCREASE IN CASH
            
            
            (862
            )
            
            (209,642
            )CASH,
                beginning of period
            
            
            21,889
            
            
            380,797CASH,
                end of period
            
            $
            21,027
            
            $
            171,155Taxes
                paid
            
            $
            -
            
            $
            -Interest
                paid
            
            $
            -
            
            $
            -





The
      accompanying notes are an integral part of these unaudited financial
      statements




5




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




NOTE
      A
      - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Basis
      of Presentation





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      conformity with Generally Accepted Accounting Principles (“GAAP”) for interim
      financial information and with the instructions to SEC Form 10-QSB and Article
      8
      of Regulation S-K. Accordingly, they do not include all of the information
      and
      footnotes required by GAAP for complete financial statements. In preparing
      the
      financial statements, management is required to make estimates and assumptions
      that affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the balance sheet and the
      reported amounts of revenues and expenses for the period. Actual results could
      differ significantly from those estimates. The accompanying unaudited
      consolidated financial statements should be read in conjunction with the audited
      consolidated financial statements and the notes thereto incorporated by
      reference in the Company’s Annual Report on SEC Form 10-KSB for the year ended
      September 30, 2007.





In
      the
      opinion of the Company’s management, the accompanying unaudited consolidated
      financial statements contain all material adjustments required by GAAP to
      present fairly the financial position of UPSNAP, INC. and its subsidiaries
      as of
      June 30, 2008 and the results of their operations for the three and Nine month
      periods ended June 30, 2008 and 2007 and their cash flows for the Nine months
      ended June 30, 2008 and 2007. All such adjustments are of a normal recurring
      nature, unless otherwise disclosed in this Form 10-QSB or other referenced
      material. Results of operations for interim periods are not necessarily
      indicative of results for the full year.





When
      required, certain reclassifications are made to the prior period’s consolidated
      financial statements to conform to the current presentation.





NOTE
      B
      - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





These
      financial statements have been prepared by management in accordance with GAAP.
      The significant accounting principles are as follows:





Principles
      of consolidation





The
      consolidated financial statements include the accounts of UpSNAP, Inc. since
      November 15, 2005 and its wholly-owned subsidiary, UpSNAP USA, Inc., which
      is
      100% consolidated in the financial statements, and the accounts and results
      from
      operations acquired as a result of the XSVoice, Inc. acquisition as of January
      6, 2006. All material inter-company accounts and transactions have been
      eliminated.





Use
      of
      Estimates





The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions that affect the amounts reported in the
      financial statements and the accompanying notes. These estimates and assumptions
      are based on management's judgment and available information and, consequently,
      actual results could be different from these estimates.





Cash
      and cash equivalents





For
      purposes of the statement of cash flows, the Company considers all highly liquid
      debt instruments purchased with an original maturity of three months or less
      to
      be cash equivalents.


6


Property
      and equipment





Property
      and equipment are stated at cost. Major renewals and improvements are charged
      to
      the asset accounts while replacements, maintenance and repairs, which do not
      improve or extend the lives of the respective assets, are expensed. At the
      time
      property and equipment are retired or otherwise disposed of, the asset and
      related accumulated depreciation accounts are relieved of the applicable
      amounts. Gains or losses from retirements or sales are credited or charged
      to
      income.


The
      Company depreciates its property and equipment on the double declining balance
      method with a five year life and half year convention.





Disclosure
      about Fair Value of Financial Instruments





The
      Company estimates that the fair value of all financial instruments at June
      30,
      2008 and 2007, as defined in FASB 107, does not differ materially from the
      aggregate carrying values of its financial instruments recorded in the
      accompanying balance sheet. The estimated fair value amounts have been
      determined by the Company using available market information and appropriate
      valuation methodologies. Considerable judgment is required in interpreting
      market data to develop the estimates of fair value, and accordingly, the
      estimates are not necessarily indicative of the amounts that the Company could
      realize in a current market exchange.





Research
      and Development Expenditures





The
      Company incurs product development expenses related to the ongoing development
      of their search engine technology and connecting new clients to the existing
      streaming audio platform. Research and development expenses consist primarily
      of
      wages paid to employees. The Company follows the guidelines in Statement of
      Financial Accounting Standards No. 2, *Accounting
      for Research and Development Costs* .
      Expenditures, including equipment used in research and development activities,
      are expensed as incurred.





Revenue
      Recognition





The
      Company recognizes revenue under the guidance provided by the SEC Staff
      Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” and the Emerging
      Issues Task Force (“EITF”) Abstract No. 99-19 “Reporting Revenue Gross as a
      Principal versus Net as an Agent” (“EITF 99-19”).





The
      Company receives revenue from the wireless carriers by providing streaming
      audio
      content that the carriers make available to their mobile handset customers.
      UpSNAP generates revenues from this line of business in two distinct ways:





1.
            Provider
                of Technology Platform: UpSNAP provides technology to brands that
                have
                their own mobile distribution and revenue arrangements with the carriers.
                In this case, UpSNAP does not act as the principal in the transaction.
                The
                brands look to UpSNAP to provide the technology platform and service,
                while they retain the relationship with the consumer and set the
                pricing.
                In these cases, UpSNAP typically reports net revenues received from
                the
                carrier which are revenues after both carrier charges and content
                provider
                charges.





The
      Company negotiated a new contract with its largest carrier customer effective
      February 12, 2007 in which the carrier is no longer deducting content provider
      charges before submitting revenue to the Company. Under this arrangement, the
      content provider charges are the responsibility of the Company. The net effect
      of this new contract was that revenues and cost of revenues are increased by
      an
      identical amount to reflect the content provider charges. This contract was
      terminated during the quarter ended December 31, 2007.





2.
            UpSNAP
                is Principal Party: UpSNAP acts as the principal party in the content
                relationships. Specifically, UpSNAP has the relationship with the
                carriers, sets the re-sale price at which consumers buy the product,
                pays
                the content provider for the content, and builds the mobile application
                or
                service. In these relationships, the Company recognizes revenue based
                on
                the gross fees remitted by the carrier to the company. The Company’s
                payments to the third party content providers are treated as cost
                of
                sales.




The
      Company also receives advertising revenues from third parties. These revenues
      are resultant from audio ads played on the Company’s SWInG platform, banner ads
      on the WAP deck, and pay per call revenues when the consumer proactively
      responds to a text message. These advertising revenues are recognized in the
      period the transactions are recorded by the third party provider. UpSNAP reports
      net advertising revenues received from third parties.


7




Dividends





The
      Company has not yet adopted any policy regarding payment of dividends. No
      dividends have been paid or declared since inception.





Long-lived
      assets





The
      Company reviews the carrying value of property, plant, and equipment for
      impairment whenever events and circumstances indicate that the carrying value
      of
      an asset may not be recoverable from the estimated future cash flows expected
      to
      result from its use and eventual disposition. In cases where undiscounted
      expected future cash flows are less than the carrying value, an impairment
      loss
      is recognized equal to an amount by which the carrying value exceeds the fair
      value of assets. The factors considered by management in performing this
      assessment include current operating results, trends and prospects, the manner
      in which the property is used, and the effects of obsolescence, demand,
      competition, and other economic factors.





Accounting
      Policy for Impairment of Intangible Assets





The
      Company is required for accounting purposes to measure the value of goodwill
      annually or whenever significant events that could be indicators of a change
      in
      value have occurred.  In completing our evaluation for the quarter ended
      March 31, 2008, we considered the impact of the Company’s announced termination
      of the proposed merger with Mobile Greetings, Inc., the Company’s recent stock
      price, and other industry trends and have determined that impairment to goodwill
      and other intangible assets was required.  To make this determination, the
      Company compared the carrying value of its equity to its fair value and
      forecasted future cash flows generated from operations.  For purposes of
      this evaluation, fair value has been determined based on the recent market
      value
      of Company’s equity.  As a result of this evaluation, the Company
      determined to write off all of the goodwill, recording a non-cash goodwill
      impairment charge of $5.3 million during the quarter ended March 31,
      2008.





Segment
      reporting





The
      Company follows Statement of Financial Accounting Standards No. 130, Disclosures
      About Segments of an Enterprise and Related Information. The Company operates
      as
      a single segment and will evaluate additional segment disclosure requirements
      as
      it expands its operations.





Advertising
      costs





The
      Company expenses all advertising as incurred. For the Nine month periods ended
      June 30, 2008 and 2007 the Company incurred advertising expenses of $2,430
      and
      $3,907 respectively.





Income
      Taxes





In
      accordance with Statement of Financial Accounting Standards No. 109, *Accounting
      for Income Taxes* ,
      the
      Company uses an asset and liability approach for financial accounting and
      reporting for income taxes. The basic principles of accounting for income taxes
      are: (a) a current tax liability or asset is recognized for the estimated taxes
      payable or refundable on tax returns for the current year; (b) a deferred tax
      liability or asset is recognized for the estimated future tax effects
      attributable to temporary differences and carryforwards; (c) the measurement
      of
      current and deferred tax liabilities and assets is based on provisions of the
      enacted tax law and the effects of future changes in tax laws or rates are
      not
      anticipated; and (d) the measurement of deferred tax assets is reduced, if
      necessary, by the amount of any tax benefits that, based on available evidence,
      are not expected to be realized.





Loss
      per common share





The
      Company adopted Statement of Financial Accounting Standards No. 128 that
      requires the reporting of both basic and diluted earnings (loss) per share.
      Basic loss per share is calculated using the weighted average number of common
      shares outstanding in the period. Diluted loss per share includes potentially
      dilutive securities such as outstanding options and warrants, using the
      "treasury stock" method and convertible securities using the "if-converted"
      method. The assumed exercise of options and warrants and assumed conversion
      of
      convertible securities have not been included in the calculation of diluted
      loss
      per share as the affect would be anti-dilutive.


8





Recent
      Accounting Pronouncements





In
      February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
      Financial Assets and Financial Liabilities-Including an amendment of FASB
      Statement No. 115" ("SFAS 159"). SFAS 159 expands the use of fair value
      accounting but does not affect existing standards which require assets or
      liabilities to be carried at fair value. Under SFAS 159, a company may elect
      to
      use fair value to measure accounts and loans receivable, available-for-sale
      and
      held-to-maturity securities, equity method investments, accounts payable,
      guarantees and issued debt. Other eligible items include firm commitments for
      financial instruments that otherwise would not be recognized at inception and
      non-cash warranty obligations where a warrantor is permitted to pay a third
      party to provide the warranty goods or services. If the use of fair value is
      elected, any upfront costs and fees related to the item must be recognized
      in
      earnings and cannot be deferred, e.g., debt issue costs.





The
      fair
      value election is irrevocable and generally made on an instrument-by-instrument
      basis, even if a company has similar instruments that it elects not to measure
      based on fair value. At the adoption date, unrealized gains and losses on
      existing items for which fair value has been elected are reported as a
      cumulative adjustment to beginning retained earnings. Subsequent to the adoption
      of SFAS 159, changes in fair value are recognized in earnings. SFAS 159 is
      effective for fiscal years beginning after November 15, 2007 and is required
      to
      be adopted by the Company in the first quarter of fiscal 2009. The Company
      is
      currently is determining whether fair value accounting is appropriate for any
      of
      its eligible items and cannot estimate the impact, if any, which SFAS 159 will
      have on its consolidated results of operations and financial
      condition.





In
      December 2007, the FASB issued SFAS No. 141(R), Business Combinations, or ("SFAS
      141(R)"). SFAS 141(R) establishes principles and requirements for how the
      acquirer of a business recognizes and measures in its financial statements
      the
      identifiable assets acquired, the liabilities assumed, and any noncontrolling
      interest in the acquiree. SFAS 141(R) also provides guidance for recognizing
      and
      measuring the goodwill acquired in the business combination and determines
      what
      information to disclose to enable users of the financial statements to evaluate
      the nature and financial effects of the business combination. The provisions
      of
      SFAS 141(R) are effective for financial statements issued for fiscal years
      beginning after December 15, 2008. We are currently assessing the financial
      impact of SFAS 141(R) on our consolidated financial statements.





In
      December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
      Consolidated Financial Statements - An Amendment of ARB No. 51("SFAS 160").
      SFAS
      160 amends Accounting Research Bulletin No. 51, "Consolidated Financial
      Statements," or ARB 51, to establish accounting and reporting standards for
      the
      noncontrolling interest in a subsidiary and for the deconsolidation of a
      subsidiary. This statement also amends certain of ARB 51's consolidation
      procedures for consistency with the requirements of SFAS 141(R). In addition,
      SFAS 160 also includes expanded disclosure requirements regarding the interests
      of the parent and its noncontrolling interest. The provisions of SFAS 160 are
      effective for fiscal years beginning after December 15, 2008. Earlier adoption
      is prohibited. We are currently assessing the financial impact of SFAS 160
      on
      our consolidated financial statements.





In
      March
      2008, the Financial Accounting Standards Board (FASB) issued Statement of
      Financial Accounting Standards (SFAS) 161, Disclosures about Derivative
      Instruments and Hedging Activities -an amendment of SFAS 133. SFAS 161 seeks
      to
      improve financial reporting for derivative instruments and hedging activities
      by
      requiring enhanced disclosures regarding the impact on financial position,
      financial performance, and cash flows. To achieve this increased transparency,
      SFAS 161 requires: (1) the disclosure of the fair value of derivative
      instruments and gains and losses in a tabular format; (2) the disclosure of
      derivative features that are credit risk-related; and (3) cross-referencing
      within the footnotes. SFAS 161 is effective for us on January 1, 2009. We are
      in
      the process of evaluating the new disclosure requirements under SFAS 161.





In
      May
      2008, the FASB issued Statement No. 162, "The Hierarchy of Generally Accepted
      Accounting Principles" ("SFAS 162"). The new standard is intended to improve
      financial reporting by identifying a consistent framework, or hierarchy, for
      selecting accounting principles to be used in preparing financial statements
      that are presented in conformity with U.S. generally accepted accounting
      principles (GAAP) for nongovernmental entities. Prior to the issuance of SFAS
      162, GAAP hierarchy was defined in the American Institute of Certified Public
      Accountants (AICPA) Statement on Auditing Standards (SAS) No. 69, The Meaning
      of
      Present Fairly in Conformity With Generally Accepted Accounting Principles.
      SAS
      69 has been criticized because it is directed to the auditor rather than the
      entity. SFAS 162 addresses these issues by establishing that the GAAP hierarchy
      should be directed to entities because it is the entity, not its auditor, that
      is responsible for selecting accounting principles for financial statements
      that
      are presented in conformity with GAAP.


9




SFAS
      162
      is effective 60 days following the SEC's approval of the Public Company
      Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning
      of
      Present Fairly in Conformity with Generally Accepted Accounting


Principles.
      It is only effective for nongovernmental entities; therefore, the GAAP hierarchy
      will remain in SAS 69 for state and local governmental entities and federal
      governmental entities. The Company is currently evaluating the impact adoption
      of SFAS 162 may have on the financial statements.





During
      May 2008, the FASB issued SFAS 163, "Accounting for Financial Guarantee
      Insurance Contracts." SFAS 163 provides enhanced guidance on the recognition
      and
      measurement to be used to account for premium revenue and claim liabilities
      and
      related disclosures and is limited to financial guarantee insurance (and
      reinsurance) contracts, issued by enterprises included within the scope of
      FASB
      Statement No. 60, "Accounting and Reporting by Insurance Enterprises". SFAS
      163
      also requires that an insurance enterprise recognize a claim liability prior
      to
      an event of default when there is evidence that credit deterioration has
      occurred in an insured financial obligation. SFAS 163 is effective for financial
      statements issued for fiscal years and interim periods beginning after December
      15, 2008, with early application not permitted. The Company does not expect
      SFAS
      163 to have an impact on its consolidated financial statements.





Stock
      Plan




On
      November 2, 2006 the Board of Directors of UpSNAP, Inc. approved a 2006 Omnibus
      Stock and Incentive Plan. The Plan made four million (4,000,000) shares, either
      unissued or reacquired by the Company, available for awards of either options,
      stock appreciation rights, restricted stocks, other stock grants, or any
      combination thereof. Eligible recipients include employees, officers,
      consultants, advisors and directors. Options granted generally have a ten-year
      term and vest over four years from the date of grant. Certain of the stock
      options granted under the Plan have been granted pursuant to various stock
      option agreements. Each stock option agreement contains specific terms. The
      Board of Directors increased the size of the Plan to seven and one half million
      (7,500,000) total shares on August 8, 2007, which was ratified by stockholders
      in September 2007.





Stock-Based
      Compensation





Under
      the
      fair value recognition provisions of SFAS No. 123(R), stock-based
      compensation cost is estimated at the grant date based on the fair value of
      the
      award and is recognized as expense over the requisite service period of the
      award. The Company has awarded stock-based compensation both as restricted
      stock
      and stock options.





Compensation
      expense for restricted stock is recognized on the date of the grant at the
      closing price of the stock on the date of the grant. The Company granted 650,000
      and 20,000 restricted shares respectively for the Nine month periods ended
      June
      30, 2008 and 2007 and recognized stock compensation expense of $104,000 and
      $7,900 respectively.





We
      use
      the Black-Scholes option valuation model to value option awards under SFAS
      No. 123(R). The Company currently has awards outstanding with only service
      conditions and graded-vesting features. We recognize compensation cost on a
      straight-line basis over the requisite service period.




Our
      statement of operations for the Nine month periods ended June 30, 2008 and
      2007
      included stock-based compensation expense for stock options of $232,030 and
      $86,498, respectively.




On
      May
      14, 2008, the Board of Directors approved the repricing of all outstanding
      stock
      options to an exercise price of $0.10 per share of common stock, which was
      the
      closing price on May 13, 2008.





Unrecognized
      stock-based compensation expense expected to be recognized over an estimated
      weighted-average amortization period of 2.4 years was approximately $286,246
      at
      June 30, 2008.


10


Time-Based
      Stock Awards




The
      fair
      value of each time-based award is estimated on the date of grant using the
      Black-Scholes option valuation model, which uses the assumptions described
      below. Our weighted-average assumptions used in the Black-Scholes valuation
      model for equity awards with time-based vesting provisions granted during the
      quarter ended June 30, 2008 are shown in the following table:




Expected
                volatility
            
            
            70.0
            %Expected
                dividends
            
            
            0
            %Expected
                terms
            
            
            6.0
                -6.25 yearsPre-vesting
                forfeiture rate
            
            
            50
            %Risk-free
                interest rate
            
            
            4.45%
                – 4.76
            %




The
      expected volatility rate was estimated based on historical volatility of the
      Company’s common stock over approximately the seventeen month period since the
      reverse merger and comparison to the volatility of similar size companies in
      the
      similar industry. The expected term was estimated based on a simplified method,
      as allowed under SEC Staff Accounting Bulletin No. 107, averaging the
      vesting term and original contractual term. The risk-free interest rate for
      periods within the contractual life of the option is based on U.S. Treasury
      securities. The pre-vesting forfeiture rate was based upon plan to date
      experience. As required under SFAS No. 123(R), we will adjust the estimated
      forfeiture rate to our actual experience. Management will continue to assess
      the
      assumptions and methodologies used to calculate estimated fair value of
      share-based compensation. Circumstances may change and additional data may
      become available over time, which could result in changes to these assumptions
      and methodologies, and thereby materially impact our fair value determination.




A
      summary
      of the time-based stock awards as of June 30, 2008, and changes during the
      quarter ended June 30, 2008, is as follows:





**Shares**
            
            **Weighted**
              **Average**
              **Exercise Price**Outstanding
                at September 30, 2007
            
            
            720,000
            
            $
            0.10Granted
            
            
            1,850,000
            
            $
            0.10Forfeited
                or expired
            
            
            (100,000
            )
            $
            -Outstanding
                June 30, 2008
            
            
            2,470,000
            
            $
            0.10Exercisable
                at June 30, 2008
            
            
            947,083
            
            $
            0.10


11




The
      following tables summarize information about fixed stock options outstanding
      and
      exercisable at June 30, 2008:





**Stock Options Outstanding****Range of Exercise Prices**
            
            **Number of**
              **Shares**
              **Outstanding**
            
            **Weighted**
              **Average**
              **Contractual Life**
              **in Years**$
            0.100
            
            
            2,470,000
            
            
            9.262,470,000
            
            
            9.26





**Stock Options Exercisable****Range of Exercise Prices**
            
            **Number of**
              **Shares**
              **Exercisable**
            
            **Weighted**
              **Average**
              **Exercise Price**$
            0.100
            
            
            947,083
            
            $
            0.100947,083





The
      exercise price of stock options granted during the Nine months ended June 30,
      2008 was equal to the market price of the underlying common stock on the grant
      date.





There
      was
      no aggregate intrinsic value as of June 30, 2008. Intrinsic value represents
      the
      pretax value (the period’s closing market price, less the exercise price, times
      the number of in-the-money options) that would have been received by all option
      holders had they exercised their options at the end of the period.





Warrants





The
      Company has recorded the warrant instruments as equity in accordance with SFAS
      No. 133, Accounting for Derivative Instruments and Hedging Activity, paragraph
      11(a), and EITF 00-19, Accounting for Derivative Financial Instruments Indexed
      to, and Potentially Settled in, a Company's Own Stock.




12





A
      summary
      of warrant activity for the nine month period ended June 30, 2008 is as
      follows:





***Series
      B***





*Weighted-*
            
            
            
            *Weighted-**Average*
            
            
            
            *Average**Number of*
            
            *Exercise*
            
            *Warrants*
            
            *Exercise**Warrants*
            
            *Price*
            
            *Exercisable*
            
            *Price*Outstanding,
                September 30, 2007
            
            
            1,800,000
            
            $
            1.10
            
            
            1,800,000
            
            $
            1.10Granted
            
            
            -Expired
            
            
            -Exercised
            
            
            -
            
            $
            -
            
            
            
            
            $
            -Outstanding,
                June 30, 2008
            
            
            1,800,000
            
            $
            1.10
            
            
            1,800,000
            
            $
            1.10





***Viant***





*Weighted-*
            
            
            
            *Weighted-**Average*
            
            
            
            *Average**Number of*
            
            *Exercise*
            
            *Warrants*
            
            *Exercise**Warrants*
            
            *Price*
            
            *Exercisable*
            
            *Price*Outstanding,
                September 30, 2007
            
            
            560,000
            
            $
            0.90
            
            
            560,000
            
            $
            0.90Granted
            
            
            -Exercised
            
            
            -Outstanding,
                June 30, 2008
            
            
            560,000
            
            $
            0.90
            
            
            560,000
            
            $
            0.90





At
      June
      30, 2008, the range of warrant prices for shares under warrants and the
      weighted-average remaining contractual life is as follows:





*Warrants Outstanding*
            
            *Warrants Exercisable**Weighted-**Weighted-*
            
            *Average*
            
            
            
            *Weighted-**Range of*
            
            
            
            *Average*
            
            *Remaining*
            
            *Number*
            
            *Average**Warrant*
            
            *Number of*
            
            *Exercise*
            
            *Contractual*
            
            *Of*
            
            *Exercise**Exercise Price*
            
            *Warrants*
            
            *Price*
            
            *Life*
            
            *Warrants*
            
            *Price*$
            1.10
            
            
            1,800,000
            
            $
            1.10
            
            
            2.28
            
            
            1,800,000
            
            $
            1.10$
            0.90
            
            
            560,000
            
            $
            0.90
            
            
            2.37
            
            
            560,000
            
            $
            0.902,360,000
            
            
            
            
            
            
            
            
            2,360,000





The
      Company may from time to time reduce the exercise price for any of the warrants
      either permanently or for a limited period or extend their expiration
      date.





NOTE
      C
      - INCOME TAXES





For
      the
      twelve month periods ended September 30, 2007 and 2006, the Company incurred
      net
      operation losses and accordingly, no provision for income taxes has been
      recorded. In addition, no benefit for income taxes has been recorded due to
      the
      uncertainty of the realization of any tax assets. At September 30, 2007, the
      Company had approximately $2,972,040 of accumulated net operating losses. The
      net operating loss carryforwards, if not utilized, will begin to expire in
      2022.


13





The
      components of the Company’s deferred tax asset are as follows:





Twelve Month Period
              Ended September 30
            
            Twelve Month Period
              Ended September 30**2007**
            
            **2006**Federal
                and state income tax benefit
            
            $
            1,040,214
            
            $
            864,783Change
                in valuation allowance on deferred tax assets
            
            
            (1,040,214
            )
            
            (864,783
            )Net
                deferred tax assets
            
            $
            -
            
            $
            -





A
      reconciliation between the amounts of income tax benefit determined by applying
      the applicable U.S. and State statutory income tax rate to pre-tax loss is
      as
      follows:





Twelve Month Period
              Ended September 30
            
            Twelve Month Period
              Ended September 30**2007**
            
            **2006**Federal
                and state statutory rate
            
            $
            1,040,214
            
            $
            864,783Change
                in valuation allowance on deferred tax assets
            
            
            (1,040,214
            )
            
            (864,783
            )$
            -
            
            $
            -





NOTE
      D
      - GOING CONCERN





As
      shown
      in the accompanying financial statements, the Company has accumulated net losses
      from operations from inception through June 30, 2008 totaling $9,144,895 and
      as
      of June 30, 2008, has had limited revenues from operations. These factors raise
      substantial uncertainty about the Company’s ability to continue as a going
      concern.





The
      Company’s financial statements are prepared using the generally accepted
      accounting principles applicable to a going concern, which contemplates the
      realization of assets and liquidation of liabilities in the normal course of
      business. The accompanying financial statements do not include any adjustments
      that might be necessary if the Company is unable to continue as a going
      concern.





NOTE
      E
      - CONCENTRATION OF CREDIT RISK





For
      the
      Nine month period ended June 30, 2008, our largest customer accounted for
      approximately 73% of sales.





NOTE
      F
      - PROPERTY AND EQUIPMENT





Property
      and equipment consisted of the following:





**As of June 30**
            
            **As
                of June 30****2008**
            
            **2007**Fixed
                AssetsComputer
                and office equipment
            
            $
            169,742
            
            $
            169,742Office
                Equipment
            
            
            1,000
            
            
            1,000Office
                Furniture
            
            
            3,000
            
            
            3,000Accumulated
                Depreciation
            
            
            (115,277
            )
            
            (79,923
            )Total
                Fixed Assets
            
            $
            58,465
            
            $
            93,819




Depreciation
      expense for the quarters ended June 30, 2008 and 2007 was $7,521 and $ 12,570,
      respectively. The estimated service lives of property and equipment are 3 – 7
      years.


14




NOTE
      G
– COMMITMENTS





In
      March
      2008, the Company began a lease for approximately 1,800 square feet of office
      space. The lease extends through February 28, 2009 at a rate of $1,500 per
      month. Future maturities associated with this commitment are as
      follows:





Fiscal Year
            
            Amount2008
            
            $
            4,5002009
            
            $
            7,500





The
      Company has not determined whether or not to extend the lease beyond the current
      term or negotiate a reduction in total square footage.





NOTE
      H
– NOTE PAYABLE





As
      part
      of the consideration for the purchase of XSVoice, the Company assumed the
      principal balance of a November 5, 2004 note that was in default between
      XSVoice, Inc. and one of its carrier partners. The principal balance of the
      note
      at the time of the acquisition of XSVoice, Inc. was $113,500 and it carries
      an
      interest rate is 5% above the prime rate and was subject to an additional 2%
      after any Event of Default. The Company has been unable to identify any parties
      within the carrier that are aware of the note and are thus able to negotiate
      terms. The carrier has also made no attempts to collect the note and the Company
      determined during the quarter ended December 31, 2007 that the Note was not
      going to be collected and wrote off the full amount of the Note to other income
      and expense. The Company had carried the note as long-term and was not accruing
      interest.





NOTE
      I
– MERGER AGREEMENT





On
      March
      5, 2008, the Company terminated the Agreement and Plan of Merger, by and among
      the Company, Mobile Greetings, Inc., a California corporation, and UpSNAP
      Acquisition Corp., a California corporation and a wholly owned subsidiary of
      Company dated August 9, 2007 (the “Agreement,” as described on Current Report on
      Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on August
      9, 2007), as amended on October 16, 2007 by Amendment No. 1 to the Agreement
      (as
      described on Current Report on Form 8-K filed with the SEC on October 16, 2007)
      and as further amended on January 14, 2008 by Amendment No. 2 to the Agreement
      (as described on 10-KSB for the fiscal year ended September 30, 2007, filed
      with
      the SEC on January 15, 2008).  In accordance with Section 7.02(ii) of
      the Agreement, as amended, any of the parties to the Agreement, to the extent
      it
      is not in breach of the Agreement, may terminate the Agreement if the
      merger is not consummated by February 29, 2008.  Due to current
      adverse market conditions, the parties were unable to consummate the Agreement
      and have decided to terminate the Agreement. Neither party had any
      post-termination obligation to the other.





As
      part
      of the termination, the Company wrote off $307,215 in merger related costs.
      $238,556 of these costs had been capitalized as of the year ended September
      30,
      2007.





NOTE
      J
– OTHER ASSETS





On
      January 6, 2006, the Company completed the purchase of XSVoice, Inc., a
      privately held wireless platform and application developer, by acquiring
      substantially all of the assets of XSVoice, Inc. for a total purchase price
      of
      $6.3 million. As a result of the acquisition, the Company acquired XSVoice's
      proprietary SWInG (Streaming Wireless Internet Gateway) technology, which
      enables mobile access to virtually any type of audio content, including
      Internet-based streaming audio, radio, television, satellite or other audio
      source. The acquisition also allowed the Company to gain access to carrier
      distribution channels and premium content provider
      relationships.


15




The
      aggregate purchase price of $6,393,223 consisted of $198,829 in cash
      consideration, the assumption of $130,000 in debt, and common stock valued
      at
      $5,735,000. In addition, the Company paid $80,820 for accounting and legal
      fees
      related to the acquisition and issued common stock valued at $265,074 for
      investment banking services.





The
      value
      of the 2,362,830 common shares issued as a result of this acquisition was
      determined based on the average market price of the Company’s common shares over
      the preceding 15-day period before the closing date of the
      acquisition.





The
      following table presents the allocation of the acquisition cost, including
      professional fees and other related acquisition costs, to the assets acquired
      and liabilities assumed, based on their fair values:




Allocation
                of acquisition cost:Accounts
                receivable
            
            $
            71,621Property,
                plant, and equipment
            
            
            -Computer
                equipment
            
            
            28,200Office
                equipment
            
            
            1,000Office
                furniture
            
            
            3,000SWinG
                copyright
            
            
            1,345,040Customer
                relationships
            
            
            104,000Employment
                contracts
            
            
            78,000Supplier
                contracts
            
            
            84,500Goodwill
            
            
            4,791,362Total
                assets acquired
            
            
            6,506,723Note
                payable
            
            
            (113,500
            )Total
                liabilities assumed
            
            
            (113,500
            )Net
                assets acquired
            
            $
            6,393,223





Of
      the
      $6,402,902 of acquired intangible assets, $1,345,040 was assigned to the SWinG
      technology platform, $104,000 for customer relationships, $78,000 for employment
      contracts, and $84,500 for supplier contracts. These intangible assets were
      assigned a life of 45 months. The remaining unallocated intangible balance
      of
      $4,791,362 was assigned to goodwill.





The
      Company is required for accounting purposes to measure the value of goodwill
      annually or whenever significant events that could be indicators of a change
      in
      value have occurred.  In completing our second quarter evaluation, we
      considered the impact of the Company’s announced termination of the proposed
      merger with Mobile Greetings, Inc. and the resultant drop in the Company’s stock
      price and other industry trends and have determined that impairment to goodwill
      and other intangible assets was required.  To make this determination, the
      Company compared the carrying value of its equity to its fair value and
      forecasted future cash flows generated from operations.  For purposes of
      this evaluation, fair value has been determined based on the recent market
      value
      of Company’s equity.  As a result of this evaluation, the Company wrote off
      the remaining value of the intangible assets as of March 31, 2008 related to
      the
      XSVoice acquisition and recorded a non-cash goodwill impairment charge of $5.3
      million.


16







**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS**





*The
      following discussion should be read in conjunction with the Financial Statements
      and related notes thereto included elsewhere in this report.*





During
      the Quarter UpSNAP management continued to wrestle with the decline in revenues
      from its largest customer, focused in on reducing cost of operation, and
      continued growing distribution with current and new distribution partners.


In
      addition, UpSNAP continued to build out the Mobile Advertising Network
      Platform.





The
      challenges moving forward and the near-term operational goals,
      include:





·
            Continue
                to grow traffic and advertising from current and new distribution
                Partners. In April and May 2008, two new/enhanced partnerships were
                signed
                and we expect to launch them in
                June.


·
            Continue
                to control costs and increase margins. Currently, we believe we have
                the
                infrastructure and support in place to handle future growth, with
                minimal
                increase in cost but there is still a need to decrease cost in order
                to
                reach profitability.


·
            Continue
                to build out the Mobile Advertising Network Platform. We expect
                advertising revenues to grow by adding more advertisers as well as
                more
                distribution partners.


In
        order
        to reduce expenses, the CEO continued to defer part of his salary.
 
 Upsnap
        continues advanced discussions with potential strategic partners/merger and
        acquisition targets.





**INTRODUCTION**




UpSNAP,
      Inc. and its subsidiaries are collectively referred to as UpSNAP. The following
      Management Discussion and Analysis of Financial Condition and Results of
      Operations was prepared by management and discusses material changes in UpSNAP’s
      financial condition and results of operations and cash flows for the Nine month
      periods and quarters ended June 30, 2008 and 2007. Such
      discussion and comments on the liquidity and capital resources should be read
      in
      conjunction with the information contained in the accompanying consolidated
      financial statements prepared in accordance with U.S. GAAP.




The
      discussion and comments contained hereunder include both historical information
      and forward-looking information. The forward-looking information, which
      generally is information stated to be anticipated, expected, or projected by
      management, involves known and unknown risks, uncertainties and other factors
      that may cause the actual results and performance to be materially different
      from any future results and performance expressed or implied by such
      forward-looking information. Potential risks and uncertainties include risks
      and
      uncertainties set forth under the heading “Risk Factors” and elsewhere in this
      Form 10-QSB.




**OVERVIEW**




UpSNAP
      provides a mobile search and entertainment platform that enables media companies
      to deliver their content to all mobile phones in the United States, and
      generates revenue from subscriptions and increasingly from mobile
      advertising.  UpSNAP has searchable mobile content from over 1,000
      content channels and over 150 content partners. Mobile consumers are now buying
      more and more powerful phones with Internet features capable of sending email,
      running applications and browsing the Internet. According to the Pew Wireless
      Internet Access study in February 2007, as many as 25% of Internet users now
      have a cell-phone able to access the Internet.  In the key youth
      demographic of 18-34, consumers are using their cell-phones as their primary
      method of communication and entertainment– effectively replacing their
      PC.




The
      market in general for mobile services is continuing to show very high growth
      rates.  In the U.S, according to the Cellular Telecommunications &
Internet Association (CTIA), as reported in its Wireless Quick Facts December
      2006, wireless subscribers reached 233 million by December 2006, reaching more
      than 76% of the total U.S. population.




Now
      that
      the number of subscribers has almost reached saturation point – particularly in
      the 18-35 demographic – we believe mobile operators are seeking to increase
      their revenues by offering mobile entertainment services. According to the
      CTIA,
      Mobile Entertainment Revenues in the US grew particularly sharply, showing
      growth of 82% from $4.8 billion in the first half of 2005, to $8.7 billion
      for
      the latter nine months of 2006.




17




In
      the
      past, the typical revenue model for mobile entertainment services has been
      a
      paid subscription model. Consumers have proved willing to spend several dollars
      on a 20 second ring-tone from a mobile carriers store, even when they can
      purchase the whole song on Apple’s iTunes for a mere 0.99 cents on their
      computer, an example of the current large discrepancies between the mobile
      and
      Internet content pricing models. As the features of the Internet and PCs
      converge into powerful handsets with wireless Internet access, the Company
      predicts that these discrepancies cannot last for long.




Mobile
      data revenues will increase by a compound annual growth rate of 16% from $24
      billion in 2007 to over $100 billion in 2017 according to a new forecast issued
      by financial intelligence firm SNL Kagan.




UpSNAP
      management believes that this paid content subscription model will start to
      migrate to a search and advertising driven model over time. Most mass media
      business models have started as subscription only, and then migrated with the
      increasing reach of consumers into advertising driven services. As John
      Templeton said: “History never repeats itself, but it often
      rhymes.”





UpSNAP
      has built a search and advertising driven business model, which enables UpSNAP
      and its media and carrier partners to generate revenue from advertising, rather
      than from the content subscription. UpSNAP believes that it is very well
      positioned to take advantage of the enormous consumer demand for mobile content
      and entertainment. A 2006 study from Shosteck Group showed that revenues from
      Mobile advertising could reach $9.6 billion by 2010. Consumers will also
      increasing need quick and convenient ways to search for all the latest content
      they can consume on their mobile phone.




UpSNAP
      currently has one major distribution arrangement, and in order to increase
      sales, UpSNAP must increase its media partnerships that can actively promote
      offers direct to consumers, as well as continue to partner with as many of
      the
      mobile operators as possible. The carrier partner behind this major distribution
      agreement has seen a large turnover of customers in the last year. As a result,
      wireless data services revenue under this distribution arrangement have fallen
      approximately 46.3% since the beginning of the fiscal year.




UpSNAP
      has also recently signed new distribution partnerships with Cablevision, Go2
      Media, Sports Byline, and Disney Radio.




In
      January 2006 UpSNAP derived 99% of its revenues from subscription revenue from
      one major US mobile operator. In our fiscal quarter April – June 2008, our
      dependency on this carrier has been reduced to approximately 78% of our
      revenues, as we move towards the more lucrative and higher margin search and
      advertising related revenues and the revenues from this mobile operator have
      fallen approximately 46.3% since the beginning of the fiscal year.




Media
      companies and Advertising Agencies are hopeful that mobile advertising can
      obtain the massive reach numbers of a TV campaign, combined with the direct
      response and tracking potential of the Internet.  Emarketer predicts
      that U.S. mobile ads will grow to $4.75 billion by 2011. However, mobile
      marketing is still in its infancy as they struggle with the right forms of
      direct marketing, privacy issues, and how to structure mobile advertising deals.
      The pace of our deal making activities with the media companies has been much
      slower than we would have liked.




UpSNAP
        is
        looking at acquisitions and strategic partners to push this process quicker
        and
        create new shareholder value Potential
        partners would include mobile marketing, loyalty schemes, advertising,
        mobile promotions & mobile social networking.





Principal
      Products and Services





UpSNAP
      has two principal products and services:





Mobile
                Entertainment Services – responsible for 78% of revenues during the
                quarter ended June 30, 2008





Mobile
                Advertising Network Platform – responsible for 22% of revenues during the
                quarter ended June 30, 2008




18




**MOBILE
      ENTERTAINMENT SERVICES**





The
      UpSNAP SWinG (Streaming Wireless Internet Gateway) platform enables mobile
      access to virtually any type of live and on-demand streaming audio content,
      such
      as radio, music, talk shows, and live sports events.   The software
      translates data from almost any type of common audio format, for example MP3
      files, to allow it to be streamed to cell-phones capable of supporting audio
      streaming. If the cell-phone does not have any data services, the platform
      broadcasts the audio via the voice channel on the cell-phone. The SWinG platform
      runs on any mobile phone in the US, regardless of handset, data package or
      software. The SWinG platform was built over the course of 2002-2004 and is
      fully
      operational.




Our
      catalog of free and premium streaming audio content delivers compelling content
      from some of the world’s premier brands including, Disney Radio, Sporting News
      Radio, Lincoln Financial’s Bob and Sheri show, Troy Aikman show, Tim Brando
      show, Inside Track Show (NASCAR), Cablevision. The catalogue of content includes
      over 1,000 services, with a wide selection of content ranging from Radio
      Stations, Business News, music channels, to sports coverage and SOAP Digest.
      UpSNAP also developed a prototype mobile dating service, UpSNAP
      Hook-up. The platform has also been optimized for iPhone.





The
      Company generates revenues from the SWinG platform by providing the technology
      platform to major companies that already have a relationship with the carriers
      or by acting as the principal in the relationship with the
      carriers.




The
      subscription revenues are primarily generated from mobile subscribers to premium
      services. Consumers subscribe to a premium service on a monthly basis. For
      example, in the case of the Sporting News Radio content, consumers pay $4.99
      per
      month. The cost of the premium service is added to the consumer’s phone-bill,
      and the carriers pay UpSNAP after deducting their margin and associated costs.
      In addition, revenues are generated from mobile advertising delivered with
      the
      free content.




**UpSNAP
      Mobile Advertising Network Platform**





Recently,
      UpSNAP has combined its search engine suite, entertainment services, call-based
      Advertising service, and distribution Network into the UpSNAP Mobile Ad Network
      Platform. The Platform combines premier national and local advertisers with
      Mobile enabled content and distribution through National Partners.





Our
      advertisers are aggregated from partners with traditional and mobile
      advertisers. These ads are then optimized, to generate the highest ROI, for
      the
      appropriate channel or content. The Platform is Multi-Modal, which means it
      can
      reach 230 Million Mobile phones via: IVR, SMS, and Mobile Internet.




The
      suite
      of mobile search products allows consumers to find and access mobile content
      and
      service from any mobile phone in the US. The UpSNAP mobile search engine suite
      allows consumers to search via text message, WAP, or through Interactive Voice
      Response (IVR) by simply texting a keyword to a “short-code” or 5 digit
      telephone number, which in our case is 2SNAP (27627).  Current
      services include yellow pages directory assistance, sport shows and content,
      horoscopes, comedy, and music channels.  Consumers type in search
      requests e.g. “Leo” for a text horoscope. The consumer will then be offered a
      free horoscope, along with an advertisement to speak with an astrologer direct
      or hear an extended audio horoscope. While the service is free, sponsored by
      advertising, carrier charges may apply, depending on the consumer's
      contract.




Similarly,
      consumers looking for sports content, for example, will receive a text message
      advertising UpSNAP premium sports services. The short-code can also be used
      for
      Premium Text Messaging Services (PSMS) which are subscription based services
      directly billed by the carriers, and included on the consumer’s phone bill.
      UpSNAP has PSMS services provisioned for billing with most of the major US
      carriers including, AT&T, Sprint/Nextel, Verizon, T-Mobile and Alltel. These
short-codes at present will only work on US handsets, limiting the geographic
      coverage of the service to those areas in the United States with cell-phone
      coverage. Our mobile search engine suite was launched live to consumers in
      November 2005.




These
      searches are free to use by the consumer – save for any communications cost
      incurred by their cellular phone usage according to their carrier
      contract.




UpSNAP
      generates revenues from advertisers who value the direct response pay-per-click
      model of the Internet, and now want the same model to work on mobile
      devices.




Once
      a
      consumer makes a search for a specific search category or uses a “key-word’
identified and purchased by an UpSNAP partner as indicative of buying behavior,
      the UpSNAP advertising platform inserts a “paid’ advertising listing into the
      search reply.




19




UpSNAP
      delivers a variety of call-based advertising services to national advertisers
      and advertiser aggregators. Our proprietary, patent-pending solution employs
      a
      rich VoIP technology that allows users and merchants to directly connect from
      search results. These services include phone number provisioning, call tracking,
      call analytics, click-to-call, and other phone call-based services that enable
      aggregators and advertisers to utilize mobile advertising to drive calls into
      their businesses and to use call tracking to measure the effectiveness of their
      mobile advertising campaigns. Advertisers pay us a fee for each phone call
      we
      place to their call center from call-based ads we distribute on our distribution
      network.




Our
      Pay-Per-Call advertising platform technology was built in 2005, and our first
      pay-per-call-partnership was announced with Ingenio, who provides pay-per-call
      advertisers nationwide on May 4, 2006.  Since we rely on third party
      operators for our advertising,  UpSNAP continues to sign up more
      advertising partners, including AdValient, Third Screen Media, and Millennial
      Media. In the last quarter, UpSNAP added several more national advertising
      partners.




Pay-Per-Call
      advertising is receiving a much higher margin than pay-per-click on the
      Internet. The average price of a pay-per-click on Google according to the Wall
      Street Journal was .50 cents. Pay-Per-Call, which directly bridges a consumer
      who is looking to buy on his cell-phone with a merchant, starts at $2 dollars
      a
      call, and goes up considerably depending on the nature of the sale. The average
      Pay-per-call on the Upsnap Mobile Advertising Network is $10.




**DISTRIBUTION
      AGREEMENTS**




UpSNAP’s
      revenues are directly affected by its distribution agreements. The distribution
      of our content occurs in one of two ways:


1.
              Carrier
                  or “on deck” promotion – where the carrier actually promotes the
                  service from the menu’s on the carrier handset, bills the consumer on his
                  mobile phone bill, and takes its cuts, and then remits the balance
                  to
                  UpSNAP. UpSNAP has ‘on deck’ agreements with
                  Sprint/Nextel.  Recently, UpSNAP signed an “on deck”
                  distribution agreement with Go2, one of the largest pure play mobile
                  internet traffic sites in the USA.  go2MediaTM,
                  a
                  company focused on the growing user demand for more localized,
                  personalized mobile content.  The goal is to further integrate
                  the vast UpSNAP audio services into the go2 mobile portal for the
                  benefit
                  of go2’s base audience of millions of U.S. mobile
                  consumers.  The initial offering utilizes go2’s one-touch
                  calling feature to provide mobile users with quick access to audio
                  recordings of current sports stories, scores and news.  The
                  recordings are updated several times a day. .
 
 2.
              Off
                  Deck Promotion – where the consumer signs up for services atwww.upsnap.com,
                  through media partner promotions, internet advertising, affiliate
                  marketing relationships, or other media channels directly. Revenue
                  is
                  generated via mobile advertising or via premium subscription which
                  is
                  billed via a short-code or Premium SMS (PSMS) to the consumer’s mobile
                  phone bill. UpSNAP has billing relationships in place with most
                  major US
                  carriers including, AT&T, T-Mobile, Sprint/Nextel, Verizon and Alltel.
                  Current Off deck partners include, Lincoln Financial, Cablevision’ News12,
                  Disney Radio, Interop Technologies, Sports Byline, Sporting News,
                  as well
                  as hundreds of smaller radio
                  stations.
 
 Specifically:
 
 Cablevision’s
        News 12. The goal is to enable Cablevision customers to receive real time
        news,
        traffic and weather for the seven coverage areas surrounding New York City
        via
        their cell phones.
 
 Disney
        Radio. UpSNAP renewed it’s partnership with the Disney Family and now offers
        mobile users free access to live Disney Radio. The service is available for
        dial-in use and also from Disney’s WAP site.
 
 UpSNAP
        continues to expand their Sports offering with new products and
        partners:
 
 Sports
        Byline USA. UpSNAP is now providing live sports talk radio feeds to mobile
        phone
        users via an agreement with Sports Byline USA. Users can listen to Sports
        Byline
        USA service on-demand for free. The Sports Byline USA network is heard on
        nearly
        200 syndicated radio stations.
 
 Sporting
        News. UpSNAP has expanded its partnership with Sporting News to offer mobile
        users access to two-minute Sporting News Flashes that are updated throughout
        the
        day. Sporting News Radio is a 24-hour sports radio network broadcasting live
        on
        stations from coast to coast. In addition, a new service will be launched
        in
        conjunction with one of our distribution partners and several
        carriers.
 
 20




***Revenues
      and Margins***




The
      revenue stream from the consumer is shared across several parties:




The
      wireless carrier, who operates the cellular infrastructure and billing interface
      to add micro-payments from wireless services onto the customer phone bill.
      The
      carrier will typically demand 30-50% of the gross revenues. UpSNAP reports
      revenues net of the carrier gross margin. For example, if UpSNAP sells an
      application for $10.00 to the consumer, UpSNAP would only report $5-$7 of net
      revenue.




An
      aggregator or mobile delivery and clearing house for the receipt and delivery
      of
      mobile messages will take 5-10% of the gross sale value




The
      content owner who has the rights to the mobile content.




The
      mobile supplier, in this case UpSNAP reports net revenue after the carrier
      and
      aggregator have taken their cut of 30 -60%. In turn, UpSNAP’s average pay-out to
      content providers is 30% of the net revenue.




UpSNAP’s
      margin improves considerably on advertising related services such as banner
      ads,
      audio ads, and Pay-per-call advertising. For these services, UpSNAP receives
      net
      revenue from an advertising partner. When UpSNAP deals directly with the media
      companies, the wireless carriers do not share in this revenue.




**SELECTED
                FINANCIAL INFORMATION**




In
      thousands (000’s) except for per share amounts





**Quarter Ended June
                30,****2008**
            
            **2007**Net
                revenue
            
            $
            132
            
            $
            261Net
                income (loss) for the quarter
            
            $
            (125
            )
            $
            (227
            )Net
                income (loss) applicable to common shareholders
            
            $
            (125
            )
            $
            (227
            )Basic
                and diluted income (loss) per share
            
            $
            (0.01
            )
            $
            (0.01
            )Total
                assets
            
            $
            195
            
            $
            5,982Shareholders’
                equity
            
            $
            (121
            )
            $
            5,731




21




**RESULTS
      OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2008 COMPARED WITH THE QUARTER
      ENDED JUNE 30, 200** **7**




In
      thousands (000’s)




**Quarter Ended June
                30,****2008**
            
            **2007**Sales
            
            $
            132
            
            $
            261Cost
                of Sales
            
            
            40
            
            
            153Gross
                Profit
            
            
            91
            
            
            108Product
                development
            
            
            26
            
            
            71Sales
                and marketing expenses
            
            
            13
            
            
            9General
                and administrative
            
            
            79
            
            
            132Merger
                costs
            
            
            0Stock
                based compensation
            
            
            99
            
            
            38Impairment
                of Goodwill
            
            
            0Impairment
                of Intangible Asets
            
            
            0Amortization
                expense
            
            
            0
            
            
            84Total
                Expense
            
            
            218
            
            
            335Net
                operating loss ****
            
            
            -126
            
            
            -227Net
                Other Income
            
            
            1
            
            
            0NET
                LOSS
            
            $
            (125
            )
            $
            (227
            )




***Revenue*** .





The
      composition of revenue in thousands ($000’s), except for units, is as
      follows:





**Quarter Ended June
                30,****2008**
            
            **2007**Wireless
                data services
            
            $
            79
            
            $
            252Advertising
                and other
            
            
            22
            
            
            9Other
            
            
            31
            
            
            2Revenue
            
            $
            132
            
            $
            261





Net
      revenue for the quarter ended June 30, 2008, decreased by $129,000, or 49.4%,
      compared with the same period in 2007.





The
      Company’s largest carrier customer, who accounted for 78% of fiscal 2008
      revenues, is shifting their wireless data services customers to a technology
      that the Company does not currently support. As a result, wireless data services
      revenue have fallen approximately 46.3% since the beginning of the fiscal year.
      This customer also has terminated supporting the NASCAR program which had
      accounted for approximately 20% of the revenues from this customer; although
      the
      Company’s total gross margins were not impacted by the loss of the NASCAR
      program due to a reduction in infrastructure costs.





Advertising
      revenues increased $13,000 or 145% compared with the same period in 2007 as
      the
      Company continues its efforts to shift its product mix to higher margin
      advertising revenues.





***Cost
      of goods sold*** .  
      Cost of revenues for the quarter ended June 30, 2008 were $40,000, resulting
      in
      a gross profit of $91,000 (68.9%) compared to cost of revenues for the quarter
      ended June 30, 2007 of $153,000 and a gross profit of $108,000 (41.3%). Costs
      of
      revenues were primarily fees paid to the Company’s content providers; royalty
      payments for the music content, server farm, and call connect charges. The
      increase margin is principally due to the Company’s ability to reduce
      infrastructure costs that supported the wireless data services revenue and
      a
      shift in the product mix to higher margin advertising revenues.




22




***Product
      development expenses.*** Product development costs consist primarily of salaries and related expenses
      for
      product development personnel as well as the cost of independent contractors.
      Product development expenses for the quarter ended June 30, 2008 decreased
      by
      $45,000, or 63.4%, compared with the same period in 2007. Product development
      expenses decreased primarily due to the elimination of product development
      headcount.  Product development expenses are expected to remain at
      current levels for the next several quarters.




***Sales
      and marketing expenses.*** Sales and marketing expenses consist primarily of salaries and related expenses
      for marketing personnel as well as the cost of public relations efforts. Sales
      and marketing expenses for the quarter ended June 30, 2008 increased by $4,000
      or 44.4.0%, compared with the same period in 2007. Sales and marketing expenses
      increased primarily due to the increased emphasis on marketing headcount and
      reduced public relations spending. Sales and marketing expenses are expected
      to
      remain at current levels for the next several quarters.




***General
      and administrative expenses.*** General and administrative expenses in the table above consist primarily of
      salaries and related costs for personnel as well as professional fees for legal,
      audit, and tax services. General and administrative expenses for the quarter
      ended June 30, 2008 decreased by $53,000, or 40.2%, compared with the same
      period in 2007. General and administrative expenses decreased primarily due
      to
      the elimination of headcount and reduced spending for audit fees and travel.





***Stock
      based compensation expenses.*** Stock based compensation expenses consist of expenses related to the Company’s
      granting of stock options and restricted shares.





***Amortization
      of intangibles.*** Amortization
      of intangibles for the quarter ended June 30, 2008 was $0 compared with $84,000
      in 2007. Amortization expense is related to the value assigned to the intangible
      assets resultant from the XSVoice acquisition. These intangible assets were
      written off during the quarter ended March 31, 2008.





**RESULTS
      OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED JUNE 30, 2008 COMPARED WITH THE
      NINE MONTH PERIOD ENDED JUNE 30, 2007**




In
      thousands (000’s)




**Nine
                months Ended June 30,****2008**
            
            **2007**Sales
            
            $
            471
            
            $
            742Cost
                of Sales
            
            
            187
            
            
            413Gross
                Profit
            
            
            284
            
            
            329Product
                development
            
            
            74
            
            
            240Sales
                and marketing expenses
            
            
            50
            
            
            47General
                and administrative
            
            
            364
            
            
            520Merger
                costs
            
            
            307
            
            
            0Stock
                based compensation
            
            
            232
            
            
            86Impairment
                of Goodwill
            
            
            4,678
            
            
            0Impairment
                of Intangible Asets
            
            
            588
            
            
            0Amortization
                expense
            
            
            168
            
            
            319Total
                Expense
            
            
            6,463
            
            
            1,212Net
                operating loss ****
            
            
            -6,178
            
            
            -883Net
                Other Income
            
            
            116
            
            
            0NET
                LOSS
            
            $
            (6,063
            )
            $
            (883
            )





23




***Revenue*** .





The
      composition of revenue in thousands ($000’s), except for units, is as
      follows:





**Nine
                months Ended June 30,****2008**
            
            **2007**Wireless
                data services
            
            $
            358
            
            $
            724Advertising
                and other
            
            
            68
            
            
            15Other
            
            
            45
            
            
            3Revenue
            
            $
            471
            
            $
            740




Net
      revenue for the Nine month ended June 30, 2008, decreased by $269,000, or 37.2%,
      compared with the same period in 2007.





The
      Company’s largest carrier customer, who accounted for 78% of fiscal 2008
      revenues, is shifting their wireless data services customers to a technology
      that the Company does not currently support. As a result, wireless data services
      revenue have fallen approximately 46.3% since the beginning of the fiscal year.





Advertising
      revenues increased $48,000 or 320% compared with the same period in 2007as
      the
      Company continues its efforts to shift its product mix to higher margin
      advertising revenues.





***Cost
      of goods sold*** .  
      Cost of revenues for the Nine month ended June 30, 2008 were $187,000, resulting
      in a gross profit of $284,000 (60.3%) compared to cost of revenues for the
      Nine
      month ended June 30, 2007 of $413,000 and a gross profit of $329,000 (44.3%).
      Costs of revenues were primarily fees paid to the Company’s content providers;
      royalty payments for the music content, server farm, and call connect charges.
      The increase margin is principally due to the Company’s ability to reduce
      infrastructure costs that supported the wireless data services revenue and
      shift
      in the revenue mix to higher margin advertising sales.




***Product
      development expenses.*** Product development costs consist primarily of salaries and related expenses
      for
      product development personnel as well as the cost of independent contractors.
      Product development expenses for the Nine month ended June 30, 2008 decreased
      by
      $166,000, or 69.2%, compared with the same period in 2007. Product development
      expenses decreased primarily due to the elimination of product development
      headcount.  Product development expenses are expected to remain at
      current levels for the next several months.




***Sales
      and marketing expenses.*** Sales and marketing expenses consist primarily of salaries and related expenses
      for marketing personnel as well as the cost of public relations efforts. Sales
      and marketing expenses for the Nine month ended June 30, 2008 increased by
      $3,000 or 6.3%, compared with the same period in 2007. Sales and marketing
      expenses are expected to remain at current levels for the next several
      months.




***General
      and administrative expenses.*** General and administrative expenses in the table above consist primarily of
      salaries and related costs for personnel as well as professional fees for legal,
      audit, and tax services. General and administrative expenses for the Nine month
      ended June 30, 2008 decreased by $156,000, or 30.0%, compared with the same
      period in 2007. General and administrative expenses decreased primarily due
      to
      the elimination of headcount and reduced spending for audit fees and travel.





***Merger
      Costs.*** During the Nine month ended June 30, 2008 the Company wrote off the costs
      associated with the Mobile Greetings, Inc. merger that was terminated during
      the
      period. In prior periods, $307,215 of these costs had been capitalized as
      pre-merger costs. $238,556 of these costs had been capitalized as of the year
      ended September 30, 2007.





***Impairment
      Costs.***  The
      Company is required for accounting purposes to measure the value of goodwill
      annually or whenever significant events that could be indicators of a change
      in
      value have occurred.  In completing our second Nine month evaluation, we
      considered the impact of the Company’s announced termination of the proposed
      merger with Mobile Greetings, Inc., the Company’s recent stock price, and other
      industry trends and have determined that impairment to goodwill and other
      intangible assets was required.  To make this determination, the Company
      compared the carrying value of its equity to its fair value and forecasted
      future cash flows generated from operations.  For purposes of this
      evaluation, fair value has been determined based on the recent market value
      of
      Company’s equity.  As a result of this evaluation, the Company recorded
      non-cash goodwill impairment charge during the Nine month ended June 30, 2008
      of
      $5.3 million.




24




***Stock
      based compensation expenses.*** Stock based compensation expenses consist of expenses related to the Company’s
      granting of stock options and restricted shares. Stock based compensation for
      the Nine month ended June 30, 2008 included $96,000 in restricted shares paid
      to
      an investor relations firm.





***Amortization
      of intangibles.*** Amortization
      of intangibles for the Nine month ended June 30, 2008 was $168,000 compared
      with
      $319,000 in 2007. Amortization expense is related to the value assigned to
      the
      intangible assets resultant from the XSVoice acquisition. During fiscal 2007
      the
      intangible asset value assigned to employment agreements, supplier agreements,
      and customer relationships became fully amortized. These intangible assets
      were
      written off during the quarter ended March 31, 2008.





***Other
      Income and expense.*** For
      the
      Nine month ended June 30, 2008 the Company recognized $114,000 in income related
      to the extinguishment of debt.





**LIQUIDITY
                AND CAPITAL RESOURCES**




We
      have
      funded our cash needs from inception through June 30, 2008 with the $2,146,200
      in funds acquired as part of the September – October 2005 Private
      Placement.  In addition, the Company raised $254,750 in February 2007
      from the sale of 619,000 Series A warrants and 400,000 Series B warrants at
      $0.25 each.




***Liquidity.*** At June 30, 2008, UpSNAP had cash and cash equivalents of $21,027, compared
      with
      $21,888 at September 30, 2007.




During
      the Nine months ended June 30, 2008, cash provided by operating activities
      was $67,799, consisting primarily of the net loss for the period
      of $6.1 million offset by non-cash charges related to:


·
              amortization
                  and depreciation charges of $168,000 and $23,000, respectively;
 ·
              extinguishment
                  of debt of $113,000;
 ·
              stock
                  based compensation of $232,000;
 ·
              non-cash
                  charges for impairment of intangible assets of $5.3 million, and
 ·
              working
                  capital changes increased cash by $248,000, consisting primarily
                  of a
                  decrease of $191,000 in accounts receivable and a $59,000 increase in
                  accrued expenses.




At
      the
      date of this report we are continuing to incur losses. The Company averaged
      a
      negative $6,000 per month in EBITDA for the quarter ended June 30, 2008. We
      had
      cash in the bank of approximately $62,000 as of August 2, 2008 and a working
      capital deficit of approximately $181,000. The Company continues to negotiate
      payment terms with its suppliers and believes that it has reached satisfactory
      arrangements with them.





The
      Company will need to continue to pursue revenue opportunities and closely
      monitor operations in order to generate enough cash to sustain operations and
      meet the payment terms negotiated with its vendors. The Company may no longer
      be
      able to continue as a going concern.




We
      are
      continuing to explore various financing alternatives, but the Company’s recent
      financial performance and current condition of the financial markets makes
      it
      highly improbable that it will be able to raise capital in the public markets.
      The Company will also continue to pursue new growth and strategic partnership
      opportunities.




**CRITICAL
                ACCOUNTING ESTIMATES AND POLICIES**




UpSNAP’s
      management makes certain assumptions and estimates that impact the reported
      amounts of assets, liabilities and stockholders’ equity, and revenues and
      expenses. These assumptions and estimates are inherently uncertain. Management
      judgments that are currently the most critical are related to revenue
      recognition, valuation of goodwill and stock based compensation. Below we
      describe these policies as well as the estimates involved. For a more detailed
      discussion on accounting policies, see the notes to the audited consolidated
      financial statements.




25




*Revenue
                recognition*




The
      Company recognizes revenue under the guidance provided by the SEC Staff
      Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” and the Emerging
      Issues Task Force (“EITF”) Abstract No. 99-19 “Reporting Revenue Gross as a
      Principal versus Net as an Agent” (“EITF 99-19”).




The
      Company receives revenue from the wireless carriers by providing streaming
      audio
      content that the carriers make available to their mobile handset customers.
      UpSNAP generates revenues from this line of business in two distinct
      ways:




Provider
      of Technology Platform: UpSNAP provides technology to brands that have their
      own
      mobile distribution and revenue arrangements with the carriers. In this case,
      UpSNAP does not act as the principal in the transaction. The brands have their
      own relationships with the carriers and look to UpSNAP to provide the technology
      platform and service, while they retain the relationship with the consumer
      and
      set the pricing. In these cases, UpSNAP typically reports net revenues received
      from the carrier which are revenues after both carrier charges and content
      provider charges.




The
      Company negotiated a new contract with its largest carrier customer effective
      February 12, 2007 in which the carrier is no longer deducting content provider
      charges before submitting revenue to the Company. Under this arrangement, the
      content provider charges are the responsibility of the Company. The net effect
      of this new contract is that revenues and cost of revenues are increased by
      an
      identical amount to reflect the content provider charges.




UpSNAP
      is
      Principal Party: UpSNAP acts as the principal party in the content
      relationships. Specifically, UpSNAP has the relationship with the carriers,
      sets
      the re-sale price at which consumers buy the product, pays the content provider
      for the content, and builds the mobile application or service.  In
      these relationships, the Company recognizes revenue based on the gross fees
      remitted by the carrier to the company. The Company’s payments to the third
      party content providers are treated as cost of sales.




The
      Company also receives advertising revenues from third parties. These revenues
      are resultant from audio ads played on the Company’s SWInG platform, banner ads
      on the WAP deck, and pay per call revenues when the consumer proactively
      responds to a text message. These advertising revenues are recognized in the
      period the transactions are recorded by the third party provider. UpSNAP reports
      net advertising revenues received from third parties.




*Valuation
                of goodwill*




In
      accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets,” UpSNAP reviews the carrying value of long-lived assets
      whenever events or changes in circumstances indicate that the carrying amount
      of
      an asset may not be recoverable. Such events or circumstances might include
      a
      significant decline in market share, a significant decline in revenue and/or
      profits, changes in technology, significant litigation or other
      items.




In
      completing our Nine month evaluation, we considered the impact of the Company’s
      announced termination of the proposed merger with Mobile Greetings, Inc., the
      Company’s recent stock price, and other industry trends and have determined that
      impairment to goodwill and other intangible assets was required.  To make
      this determination, the Company compared the carrying value of its equity to
      its
      fair value and forecasted future cash flows generated from operations.  For
      purposes of this evaluation, fair value has been determined based on the recent
      market value of Company’s equity.  As a result of this evaluation, the
      Company recorded non-cash goodwill impairment charge during the Nine month
      period ended June 30, 2008 of $5.3 million.




*Stock
                Based Compensation*




The
      fair
      value of each time-based award is estimated on the date of grant using the
      Black-Scholes option valuation model, which uses the assumptions described
      below. Our weighted-average assumptions used in the Black-Scholes valuation
      model for equity awards with time-based vesting provisions granted during the
      quarter ended June 30, 2008 are shown in the following table:




Expected
                volatility
            
            
            70.0
            %Expected
                dividends
            
            
            0
            %Expected
                terms
            
            
            6.0
                -6.25 yearsPre-vesting
                forfeiture rate
            
            
            50
            %Risk-free
                interest rate
            
            
            4.45%
                – 4.76
            %




26




The
      expected volatility rate was estimated based on historical volatility of the
      Company’s common stock over approximately the fourteen month period since the
      reverse merger and comparison to the volatility of similar size companies in
      the
      similar industry. The expected term was estimated based on a simplified method,
      as allowed under SEC Staff Accounting Bulletin No. 107, averaging the
      vesting term and original contractual term. The risk-free interest rate for
      periods within the contractual life of the option is based on U.S. Treasury
      securities. The pre-vesting forfeiture rate was based upon plan to date
      experience. As required under SFAS No. 123(R), we will adjust the estimated
      forfeiture rate to our actual experience. Management will continue to assess
      the
      assumptions and methodologies used to calculate estimated fair value of
      share-based compensation. Circumstances may change and additional data may
      become available over time, which could result in changes to these assumptions
      and methodologies, and thereby materially impact our fair value
      determination.




**OUTSTANDING
                SHARE DATA**




The
      outstanding share data as at June 30, 2008 and 2007 is as follows:





**Number of shares**
              **outstanding****2008**
            
            **2007**Common
                shares
            
            
            23,370,324
            
            
            22,170,324Options
                to purchase common shares
            
            
            2,470,000
            
            
            1,240,000Warrants
                to purchase common shares
            
            
            2,360,000
            
            
            2,360,000Debentures
                convertible to common shares
            
            
            -
            
            
            -Accrued
                interest convertible to common shares
            
            
            -
            
            
            -





***Risk
      Factors That May Affect Future Operating Results***




You
      should carefully consider the risks described below, which constitute the
      principal material risks facing us.  If any of the following risks
      actually occur, our business could be harmed.  You should also refer
      to the other information about us contained in this report, including our
      financial statements and related notes.





**Financial
      Risks**




***Our
      business has posted net operating losses, faces an uncertain path to
      profitability, and we have limited cash resources. For the investor, potential
      adverse effects of this include failure of the company to continue as a going
      concern. Our auditors have expressed substantial doubt about our ability to
      continue as a going concern.***





From
      the
      inception of our operating subsidiary, UpSNAP USA, until June 30, 2008, UpSNAP
      USA has had accumulated net losses of $9,144,895. Our auditors have raised
      substantial doubt about our ability to continue as a going concern due to
      recurring losses from operations. The Company incurred $307,215 in costs in
      attempting to close on the Merger Agreement with Mobile Greetings. In addition,
      the Company’s major carrier customer, which has historically accounted for more
      than 90% of revenues, is shifting its customers to a platform not supported
      by
      the Company and terminated the NASCAR program which accounted for approximately
      20% of the revenues generated from this carrier (although the Company’s total
      gross margins were not impacted by the loss of the NASCAR program due to a
      reduction in infrastructure costs). . As a result, revenues from this carrier
      have fallen significantly. We expect to continue to have net operating losses
      until we can expand our sales channel. These continued net operating losses
      together with our limited working capital and the uncertainties of operating
      in
      a new industry make investing in our company a high-risk proposal.




27






***We
      have limited cash resources and working capital. The private financing activity
      related to the merger with Mobile Greetings, Inc. was not successful, leaving
      us
      with extremely limited resources.***


We
      have
      only approximately $62,000 in cash and a working capital deficit of $181,000
      as
      of August 2, 2008. Since the private financing related to the merger with Mobile
      Greetings was not successful, we will need to severely restrict our activities
      in order to conserve cash and may need to cease
      operations.





***Our
      business is difficult to evaluate because we have a limited operating history
      in
      a new industry. The adverse effects of a limited operating history include
      reduced management visibility into forward sales, marketing costs, customer
      acquisition and retention which could lead to missing targets for achievement
      of
      profitability.***





UpSNAP
      is
      operating with a technology which is evolving and changing rapidly based around
      mobile entertainment services.





We
      expect
      to incur expenses associated with the planned expansion of our sales and
      marketing efforts and from promotional arrangements with our strategic partners.
      We expect that our future agreements and promotional arrangements with our
      strategic partners may require us to pay consideration in various
      forms, including the payment of royalties, license fees and other
      significant guaranteed amounts based upon revenue sharing agreements and the
      issuance of stock in certain cases. In addition, our promotional arrangements
      and revenue sharing agreements may require us to incur significant expenses,
      and
      we cannot guarantee that we will generate sufficient revenues to offset these
      expenses. To date, we have entered into revenue share relationships with
      carriers and content providers at industry standard margins, or enter into
      promotional arrangements to include guaranteed minimum payments. Based on
      management experience, future contractual arrangements will be based upon
      standard revenue share relationships at industry-standard margins. We cannot
      guarantee that we will be able to achieve sufficient revenues in relation to
      our
      expenses to become profitable. Even if we do attain profitability, we may not
      be
      able to sustain ourselves as a profitable company in the future.





***We
      have limited resources to execute our business plan. The risk for investors
      is
      that the share price may suffer as better financed competition takes market
      share, or the company is forced to raise additional funds on unfavorable terms
      to the existing stockholders.***





In
      September and October 2005, we raised $2,146,200 in a private placement
      transaction. As of the date of this report, we had approximately $34,200 in
      cash
      and cash equivalents. The Company’s current financial models indicate that the
      Company’s cash balances have fallen to levels that will make it difficult to
      sustain operations, if revenues continue to decline. The Company has no
      commitments for additional capital.





Our
      closing share price at June 30, 2008 was $0.04 per share, so any potential
      additional capital raise will be highly dilutive.




Current
      funding limits our operating plan to a conservative one and our auditors have
      expressed substantial doubt about our ability to continue as a going concern.
      We
      will need additional funding to ensure that we are able to continue operating
      and compete in a dynamic and high growth mobile sector. Our financial resources
      are limited and the amount of funding that we will need to develop and
      commercialize our products and services is highly uncertain. Adequate funds
      to
      sustain operations and grow the business may not be available when needed or
      on
      terms satisfactory to us. A lack of funds may cause us to cease operations,
      or
      delay, reduce and/or abandon certain or all aspects of our product development
      programs. If additional funds are raised through the issuance of equity or
      convertible debt securities, your percentage ownership in us will be reduced,
      existing stockholders may suffer dilution. The securities that we issue to
      raise
      money may also have rights, preferences and privileges that are senior to those
      of our existing stockholders.





***We
      anticipate that our results of operations may fluctuate significantly from
      period to period due to factors that are outside of our control, which may
      lead
      to reduced revenues or increased expenditures.***





Our
      operating results may fluctuate significantly as a result of a variety of
      factors, many of which are outside of our control. Some of the factors that
      may
      affect our quarterly and annual operating results include:




·
            our
                ability to establish and strengthen brand
                awareness;




·
            our
                success, and the success of our potential strategic partners, in
                promoting
                our products and services;




·
            the
                overall market demand for mobile services and applications of the
                type
                offered by us;




·
            the
                amount and timing of the costs relating to our marketing efforts
                or other
                initiatives;




28




·
            the
                timing of contracts with strategic partners and other
                parties;




·
            fees
                that we may pay for distribution and promotional arrangements or
                other
                costs that we may incur as we expand our
                operations;




As
      a
      result of our limited operating history and the emerging nature of the markets
      in which we compete, it is difficult for us to forecast our revenues or earnings
      accurately.





**Business
      Risks**





***We
      are dependent on strategic partners for content and sales distribution to
      consumers. If these partnerships were to cease, this could lead to loss of
      revenues and customers.***





UpSNAP
      relies on the US mobile carriers Verizon, Sprint/Nextel, T-Mobile, and AT&T
      to sell its products and collect revenues which are then passed onto UpSNAP.
      These arrangements may be adversely affected in the future, as it is
      management’s experience that carrier contracts are prone to change and
      re-negotiation. UpSNAP also relies on the content developers to enter into
      commercially reasonable relationship with the company to allow for the
      re-selling of the content to consumers. UpSNAP has over 150 content partners
      and
      is not dependent on any one content supplier.





***We
      are dependent upon our executive officers, managers and other key personnel,
      without whose services our prospects would be severely limited leading to loss
      of revenue and customer acquisition.***





Our
      success depends to a significant extent upon efforts and abilities of our key
      personnel, in particular our Chief Executive Officer Tony Philipp, who is
      currently deferring part of his salary. The loss of Tony Philipp could have
      a
      material adverse effect upon us, resulting in loss of current business
      relationships, strategy and planning. Competition for highly qualified personnel
      is intense and we may have difficulty replacing such key personnel. UpSNAP
      has no key man insurance in place to help alleviate the loss.





***The
      mobile entertainment services market in which we operate is subject to intense
      competition and we may not be able to compete effectively resulting in loss
      of
      revenues or customers.***





We
      compete in the mobile entertainment services market. This market is becoming
      increasingly more competitive. We face competition from the existing mobile
      entertainment players, such as Google and Yahoo!, and newcomers to the mobile
      entertainment services markets. There are relatively low barriers to entry
      into
      the mobile entertainment services market. Many of our competitors or potential
      competitors have longer operating histories, longer customer relationships
      and
      significantly greater financial, managerial, sales and marketing and other
      resources than we do. We are particularly vulnerable to efforts by well funded
      competitors and will lose market share unless we can attain a critical mass of
      consumers, strategic partners, and affiliates, as well as strong brand
      identity.





***UpSNAP
      is largely dependent on one strategic relationship which has diminished by
      approximately 60% since the beginning of the fiscal year. We need to
      significantly expand our distribution channels. Failure to expand our
      distribution channels will result in reduced customer acquisition, and reduced
      revenues.***





From
      inception, substantially all of our revenues were generated from the
      Sprint/Nextel Distribution relationship. During this quarter it has become
      apparent that cessation of the NASCAR program and the shift from the Nextel
      platform, which the Company supports, to the Sprint platform, which the Company
      does not support, will result in revenues from this customer falling more than
      50% from historic levels (although the Company’s total gross margins were not
      impacted by the loss of the NASCAR program due to a reduction in infrastructure
      costs). We need to enhance our ability to find new strategic partners in order
      to create additional distribution channels for our products and to generate
      increased revenues. The Company does not have the resources to invest on an
      ongoing basis to expand our partner sales force. The creation of strategic
      partnerships requires a sophisticated sales effort targeted at the senior
      management of prospective partners. Given our limited budget dedicated to this
      effort, we can only focus on a very limited number of distribution
      opportunities.




29




***Our
      intellectual property and other proprietary rights are valuable, and any
      inability to protect them could adversely affect our business and results of
      operations; in addition, we may be subject to infringement claims by third
      parties which we may be unable to settle.***





Our
      ability to compete effectively is dependent upon our ability to protect and
      preserve the intellectual property and other proprietary rights and materials
      owned, licensed or otherwise used by us. We currently have a patent-pending
      technology. We cannot assure you that the patent application will result in
      an
      issued patent, and failure to secure rights under the patent application may
      limit our ability to protect the intellectual property rights that the
      application was intended to cover. Although we have attempted to protect our
      intellectual property and other proprietary rights both in the United States
      and
      in foreign countries through a combination of patent, trademark, copyright
      and
      trade secret protection, these steps may be insufficient to prevent unauthorized
      use of our intellectual property and other proprietary rights, particularly
      in
      foreign countries where the protection available for such intellectual property
      and other proprietary rights may be limited. To date, we are not currently
      engaged in and have not had any material infringement or other claims pertaining
      to our intellectual property brought by us or against us in recent years. We
      cannot assure you that any of our intellectual property rights will not be
      infringed upon or that our trade secrets will not be misappropriated or
      otherwise become known to or independently developed by competitors. We may
      not
      have adequate remedies available for any such infringement or other unauthorized
      use. We cannot assure you that any infringement claims asserted by us will
      not
      result in our intellectual property being challenged or invalidated, that our
      intellectual property will be held to be of adequate scope to protect our
      business or that we will be able to deter current and former employees,
      contractors or other parties from breaching confidentiality obligations and
      misappropriating trade secrets. In addition, we may become subject to claims
      against us which could require us to pay damages or limit our ability to
      use certain intellectual property and other proprietary rights found to be
      in
      violation of a third party’s rights, and, in the event such litigation is
      successful, we may be unable to use such intellectual property and other
      proprietary rights at all or on reasonable terms. Regardless of its outcome,
      any
      litigation, whether commenced by us or third parties, could be protracted and
      costly and could result in increased litigation related expenses, the loss
      of
      intellectual property rights or payment of money or other damages, which may
      result in lost sales and reduced cash flow and decrease our net
      income.





***In
      order to be successful and profitable, we must grow rapidly. We expect that
      rapid growth will put a large strain on our management team and our other
      resources. We may no longer have sufficient resources to manage this growth
      effectively leading to potential loss of customers through poor service and
      support.***




We
      anticipate that a period of significant expansion will be required to address
      potential growth in our customer base, market opportunities and personnel.
      This
      expansion will place a significant strain on our management, operational and
      financial resources. To manage the expected growth of our operations and
      personnel, we will be required to implement new operational and financial
      systems, procedures and controls, and to expand, train and manage our growing
      employee base. We also will be required to expand our finance, administrative
      and operations staff. Further, we anticipate that we will be entering into
      relationships with various strategic partners and third parties necessary to
      our
      business. Our current and planned personnel, systems, procedures and controls
      may not be adequate to support our future operations. Management may not able
      to
      hire, train, retain, motivate and manage required personnel for our planned
      operations.




***Our
      business is subject to frequent technology changes, multiple standards, rapid
      roll-out of new mobile handsets, and changes in the method of Internet
      broadcasting delivery, that could lead to us being unable to provide our
      services to some our existing and new users, leading to loss of revenues, poor
      performance or both.***





We
      are
      presently able to sell and deliver information to our product carriers
      throughout the world, but any changes in the method of delivery of Internet
      broadcasting or mobile communications standards, could result in our not being
      able to deliver our services to some or all of our customers. We will continue
      to develop our technology to address emerging mobile platforms and standards
      to
      avoid this problem, but no assurance can be given that this will be accomplished
      in a timely manner. The Company is constrained by current resources and thus
      has
      limited funds to develop any new technology.





***Some
      of our existing stockholders can exert control over us and may not make
      decisions that are in the best interests of all stockholders which could lead
      to
      a reduced stock price.***





As
      of the
      date of this quarterly report, officers, directors, and stockholders holding
      more than 5% of our outstanding shares collectively controlled approximately
      55.8% of our outstanding common stock. As a result, these stockholders, if
      they
      act together, would be able to exert a significant degree of influence over
      our
      management and affairs and over matters requiring stockholder approval,
      including the election of directors and approval of significant corporate
      transactions. Accordingly, this concentration of ownership may harm the market
      price of our common stock by delaying or preventing a change in control of
      us,
      even if a change is in the best interests of our other
      stockholders.




30




In
      addition, the interests of this concentration of ownership may not always
      coincide with the interests of other stockholders, and accordingly, they could
      cause us to enter into transactions or agreements that we would not otherwise
      consider.  No officers or directors of UpSNAP are currently or have
      ever been affiliated with any of the other greater than 5% beneficial
      owners.





**Market
      Risks**





***A
      limited public market exists for the trading of our securities, which may result
      in shareholders being unable to sell their shares, or forced to sell them at
      a
      loss.***





Our
      common stock is quoted on the NASD Over-the-Counter Bulletin Board. Our common
      stock is thinly traded and has little to no liquidity. The stock has a limited
      number of market makers, and a limited number of round lot holders. As a result,
      investors may find it difficult to dispose of our securities. This lack of
      liquidity of our common stock will likely have an adverse effect on the market
      price of our common stock and on our ability to raise additional
      capital.





If
      an
      active trading market does develop, the market price of our common stock is
      likely to be highly volatile due to, among other things, the low revenue nature
      of our business and because we are a new public company with a relatively
      limited operating history. Further, even if a public market develops, the volume
      of trading in our common stock will presumably be limited and likely be
      dominated by a few individual stockholders. The limited volume, if any, will
      make the price of our common stock subject to manipulation by one or more
      stockholders and will significantly limit the number of shares that one can
      purchase or sell in a short period of time.





The
      equity markets have, on occasion, experienced significant price and volume
      fluctuations that have affected the market prices for many companies’ securities
      that have often been unrelated to the operating performance of these companies.
      Any such fluctuations may adversely affect the market price of our common stock,
      regardless of our actual operating performance. As a result, stockholders
      may be unable to sell their shares, or may be forced to sell them at a
      loss.





***We
      do not intend to pay dividends to our stockholders, so you will not receive
      any
      return on your investment in our company prior to selling your interest in
      us.***





We
      have
      never paid any dividends to our stockholders. We currently intend to retain
      any
      future earnings for funding growth and, therefore, do not expect to pay any
      dividends in the foreseeable future. If we determine that we will pay dividends
      to the holders of our common stock, we cannot assure that such dividends will
      be
      paid on a timely basis. As a result, you will not receive any return on your
      investment prior to selling your shares in our company and, for the other
      reasons discussed in this “Risk Factors” section, you may not receive any return
      on your investment even when you sell your shares in our company and your shares
      may become worthless.




***A
      significant number of our shares will be eligible for sale and their sale or
      potential sale may depress the market price of our common
      stock.***





Sales
      of
      a significant number of shares of our common stock in the public market could
      harm the market price of our common stock. We have authorized 97,500,000 shares
      of common stock. As of June 30, 2008, we had outstanding 23,370,324 shares
      of
      common stock. Accordingly, we have 74,129,676 shares of common stock available
      for future sale subject to outstanding options and warrants.





Under
      our
      2006 Omnibus Stock and Incentive Plan, (the “Plan”) up to 7,500,000 shares of
      Company Common Stock, either unissued or reacquired by the Company, are
      available for awards of options, stock appreciation rights, restricted stocks,
      other stock grants, or any combination thereof. Eligible recipients include
      employees, officers, consultants, advisors and directors.





As
      additional shares of our common stock become available for resale in the public
      market, the supply of our common stock will increase, which could decrease
      its
      price. Some or all of the shares of common stock may be offered from time to
      time in the open market under Rule 144, and these sales may have a depressive
      effect on the market for our shares of common stock. In general, a person who
      has held restricted shares for a period of Nine monthNine months may sell into
      the market common stock under Rule 144.




31




***Because
      our stock is considered a penny stock, any investment in our stock is considered
      to be a high-risk investment and is subject to restrictions on
      marketability.***





Our
      common stock is a “penny stock” within the meaning of Rule 15g-9 to the
      Securities Exchange Act of 1934, which is generally an equity security with
      a
      price of less than $5.00. Our common stock is subject to rules that impose
      sales
      practice and disclosure requirements on certain broker-dealers who engage in
      certain transactions involving a penny stock. Under the penny stock regulations,
      a broker-dealer selling penny stock to anyone other than an established customer
      or “accredited investor” must make a special suitability determination for the
      purchaser and must receive the purchaser’s written consent to the
      transaction prior to the sale, unless the broker-dealer is otherwise exempt.
      Generally, an individual with a net worth in excess of $1,000,000 or annual
      income exceeding $200,000 individually or $300,000 together with his or her
      spouse is considered an accredited investor.





In
      addition, the penny stock regulations require the broker-dealer to:





·  deliver,
      prior to any transaction involving a penny stock, a disclosure schedule prepared
      by the Securities and Exchange Commission relating to the penny stock market,
      unless the broker-dealer or the transaction is otherwise exempt;




·  disclose
      commissions payable to the broker-dealer and the Registered Representative
      and
      current bid and offer quotations for the securities; and





·  send
      monthly statements disclosing recent price information with respect to the
      penny
      stock held in a customer’s account, the account’s value and information
      regarding the limited market in penny stocks.





Because
      of these regulations, broker-dealers may encounter difficulties in their attempt
      to sell shares of our common stock, which may affect the ability of selling
      stockholders or other holders to sell their shares in the secondary market
      and
      have the effect of reducing the level of trading activity in the secondary
      market. These additional sales practice and disclosure requirements could impede
      the sale of our securities. In addition, the liquidity of our securities may
      be
      decreased, with a corresponding decrease in the price of our securities. 
Our common stock in all probability will be subject to such penny stock rules
      and our stockholders will, in all likelihood, find it difficult to sell their
      securities.





**ITEM
      3. CONTROLS AND PROCEDURES**





*Quarterly
      Evaluation of Controls* .
      As of
      the end of the period covered by this quarterly report on Form 10-QSB, we
      evaluated the effectiveness of the design and operation of our disclosure
      controls and procedures ("Disclosure Controls"), as defined in Rules 13a -15(e)
      and 15d - 15(e) under the Exchange Act. This evaluation (“Evaluation”) was
      performed by our Chairman and Chief Executive Officer, Tony Philipp, and our
      Chief Financial Officer, Paul C. Schmidt (“CFO”). In addition, we have discussed
      these matters with our board. In this section, we present the conclusions of
      our
      CEO and CFO as of the date of the Evaluation with respect to the effectiveness
      of our Disclosure Controls.





*CEO
      and CFO Certifications* .
      Attached to this quarterly report, as Exhibits 31.1 and 31.2, are certain
      certifications of the CEO and CFO, which are required in accordance with the
      Exchange Act and the Commission's rules implementing such section (the "Rule
      13a-14(a)/15d-14(a) Certifications"). This section of the quarterly report
      contains the information concerning the Evaluation referred to in the Rule
      13a-14(a)/15d-14(a) Certifications. This information should be read in
      conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete
      understanding of the topic presented.





*Disclosure
      Controls* .
      Disclosure Controls are procedures designed with the objective of ensuring
      that
      information required to be disclosed in our reports filed with the Commission
      under the Exchange Act, such as this quarterly report, is recorded, processed,
      summarized and reported within the time period specified in the Commission's
      rules and forms. Disclosure Controls are also designed with the objective of
      ensuring that material information relating to us is made known to the CEO
      and
      the CFO by others, particularly during the period in which the applicable report
      is being prepared.




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*Scope
      of the Evaluation* .
      The CEO
      and CFO's evaluation of our Disclosure Controls included a review of the
      controls' (i) objectives, (ii) design, (iii) implementation, and (iv) the effect
      of the controls on the information generated for use in this quarterly report.
      This type of evaluation is done on a quarterly basis so that the conclusions
      concerning the effectiveness of our controls can be reported in our quarterly
      reports on Form 10-QSB and annual reports on Form 10-KSB. The overall goals
      of
      these various evaluation activities are to monitor our Disclosure Controls,
      and
      to make modifications if and as necessary. Our intent in this regard is that
      the
      Disclosure Controls will be maintained as dynamic systems that change (including
      improvements and corrections) as conditions warrant.





*Conclusions.* Based
      upon the Evaluation, our Disclosure Controls and procedures are designed to
      provide reasonable assurance of achieving our objectives. Our CEO and CFO have
      concluded that our Disclosure Controls and procedures are effective at that
      reasonable assurance level to ensure that material information relating to
      the
      Company is made known to management, including the CEO and CFO, particularly
      during the period when our periodic reports are being prepared. Additionally,
      there has been no change in our internal controls, (as defined in Rules 13a
      -15(f) and 15d - 15(f) under the Exchange Act), over financial reporting that
      occurred during our most recent fiscal quarter that has materially affected,
      or
      is reasonably likely to affect, our internal controls over financial
      reporting.





**PART
      II –  OTHER INFORMATION**





**ITEM
      6. EXHIBITS**





**The
      exhibits to this form are listed in the attached Exhibit
      Index.**




SIGNATURES





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




UPSNAP,
                INC.
              (Registrant)Date:
              August 13, 2008
            
            /s/
                Tony
                PhilippTony
                Philipp
              Chairman
                  of the Board and
                Chief
                  Executive Officer
                (Principal
                  Executive Officer)  Date:
              August 13, 2008
            
            /s/
                Paul C.
                SchmidtPaul
                C.
                Schmidt
              Chief
                    Financial Officer
                  (Principal
                    Financial Officer)




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**INDEX
      TO EXHIBITS**





Exhibit No.
            
            **Description**31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of Tony Phillips, Chairman and
                Chief
                Executive Officer*31.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of Paul C. Schmidt, Chief Financial
                Officer*32
            
            Certification
                of Principal Executive Officer and Principal Financial Officer furnished
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.*





*
      filed
      herein





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