Table
      of Contents




U.S.
      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 period ended
              June
                30, 2006





[  
                ]
            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)








(Former
      name of registrant)





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 14, 2006Common
                Stock ($.001 par value)
            21,151,324





Transitional
      Small Business Disclosure Format (Check one): Yes [   ] No
      [X]




Table
          of Contents




UPSNAP,
      INC.


FORM
      10-QSB





For
      the
      Quarter ended June 30, 2006





TABLEOF
      CONTENTS





Page




RISK
              FACTORS
            3PART
                I - FINANCIAL INFORMATION
            9ITEM
                1.
            Selected
                Financial Statements
            9Balance
                Sheet - June 30, 2006
                (unaudited)
            9Statements
                of Operations - Nine
                months Ended June 30, 2006 and 2005 (unaudited)
            10Statements
                of Operations - Three
                Months Ended June 30, 2006 and 2005 (unaudited)
            10Statements
                of Stockholders’ Equity -
                (unaudited)
            11Statements
                of Cash Flows - Nine months Ended
                June 30, 2006 and 2005
            12Notes
                to Financial Statements
                (unaudited)
            13ITEM
                2.
            Plan
                of Operations
            22ITEM
                3.
            Controls
                and Procedures
            27PART
                II - OTHER INFORMATION
            29ITEM
                6.
            Exhibits
            29Signatures
            
            30




Table
          of Contents




RISKFACTORS
  Investing
        in our common stock involves a high degree of risk. If any of these risks
        or
        uncertainties actually occurs, our business, financial condition or results
        of
        operations could be materially adversely affected.
  **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, 2006, UpSNAP
        USA has had accumulated net losses of $1,497,762. Our auditors raised
        substantial doubt about our ability to continue as a going concern due to
        recurring losses from operations. In Q3 of fiscal 2006 UpSNAP posted sales
        of
        $247,407 net of carrier charges from the sale of its premium subscription
        services for mobile content. However, we expect to continue to have net
        operating losses until we can expand our sales channel and implement our
        marketing efforts. These continued net operating losses together with our
        limited working capital of $737,427 and the uncertainties of operating in
        a new
        industry make investing in our company a high-risk proposal.
 
 ***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 brand new business based around mobile search and content.
        Business planning and forecasting is difficult to achieve, because the company
        has a new business model which has not been applied to the mobile markets
        before. For example, in order to track customer retention and repeat sales
        levels, it is necessary to have at least 12-24 months of operating history,
        before management can provide accurate levels of customer churn. It is also
        difficult to measure seasonal effects with a limited operating
        history.
 
 We
        expect
        to incur expenses associated with the 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, UpSNAP
        has
        entered into revenue share relationships with carriers and content providers
        at
        industry standard margins and has not issued, nor is in discussion with any
        party to issue stock or warrants, 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.
 
 ***The
        Company has limited resources to execute its 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 June 30, 2006, we had $723,848 in cash and cash equivalents.
        The company's current financial models indicate that the company's cash balances
        may fall to levels that will not sustain operations. This financial model
        is
        highly sensitive to revenue forercasts based on new revenue sources which
        may
        not materialize, in which case the company will not have adequate cash to
        fund
        its operations over the next twelve months. Therefore, the company may be
        dependent on raising additional capital. We have no commitments for such
        capital.
  3
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            of Contents
  However,
          current funding limits our operating plan to a conservative one and the
          company's 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 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
          aggressively grow the business may not be available when needed or on terms
          satisfactory to us. A lack of funds may cause us to 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; ·
            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; ·
            our
                ability to compete in a highly competitive market, and the introduction
                of
                new products; and ·
            economic
                conditions specific to the telecommunications and mobile services
                industries and general economic conditions. 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 Cingular
        to sell its products and collect revenues which are then passed onto UpSNAP.
        Although management has no reason to believe that these arrangements are
        going
        to be adversely affected in the future, it is management 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
        140 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. 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.
  4
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            of Contents
 ***The
        mobile search engine 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 search engine market. This market is becoming increasingly
        more competitive. We face competition from the existing search players, such
        as
        Google and Yahoo!, and newcomers to the mobile search markets, such as 4INFO,
        and Askmenow. There are relatively low barriers to entry into the mobile
        search
        engine 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. We need to significantly
        expand our distribution channels. Failure to expand our distribution channels
        will result in reduced customer acquisition, and reduced
        revenues.***
 
 In
        Q3 of
        fiscal 2006 more than 99% of our revenues were generated from the Sprint/Nextel
        Distribution relationship. Due to the Sprint/Nextel merger, we do not have
        in
        place a current contract with Sprint. We continue to operate under the terms
        of
        the expired contract and as such, the relationship could be terminated at
        any
        time. We are working towards formalizing an ongoing contract with Sprint.
        In
        order to decrease our dependence on one major US carriers, 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.
        We
        expect that we will need 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 of $150,000 dedicated to this effort, we expect that we
        will
        have a hard time trying to expand the number of strategic partners and other
        distributors for our products.
 
 ***We
        plan to build our business through merger with or acquisition of existing
        technology companies but may not be successful in finding merger or acquisition
        partners. In addition we may need to seek additional finance to support the
        acquisitions. The financing and acquisitions will most likely involve the
        issuance of common stock, which may result in dilution of the current
        shareholders.***
 
 We
        plan
        to build our business through the merger with or acquisition of existing
        technology companies that will benefit our application service business.
        It is
        reasonable to expect that such activity will be an ongoing part of our business
        development efforts. At any given time, we could be in process of analyzing
        or
        making an offer for such a transaction. However, any discussion or speculation
        on specific transactions is only conjecture until such time that a definite
        agreement is signed and announced in an SEC filing. It is possible that no
        transactions will take place at all.
 
 ***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
  5
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            of Contents
  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 not have sufficient resources to manage this growth effectively, which
        could lead to 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.
 
 ***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
        August 14, 2006, officers, directors, and stockholders holding more than
        5% of
        our outstanding shares collectively controlled approximately 55.5% 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.
 
 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 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
        low-trading volume, a limited
  6
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  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 will 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 August 14, 2006, we have outstanding 21,151,324 shares
        of
        common stock. Accordingly, we have 76,348,676 shares of common stock available
        for future sale.
  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 one year may, on filing with the
        SEC
        a notification on Form 144, sell into the market common stock in an amount
        equal
        to 1% of the outstanding shares for Bulletin Board Companies. Such sales
        may be
        repeated once each three months, and any of the restricted shares may be
        sold by
        a non-affiliate after they have been held for two years.
  7
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            of Contents
  ***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.


8
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          of Contents




**PARTI**





**ITEM1. 
SELECTED
      FINANCIAL
      STATEMENTS**





**UPSNAP,
        Inc.**
 CONSOLIDATED
        BALANCE SHEET
 AS
        OF
        JUNE 30, 2006
 UNAUDITED
  ASSETSCurrent AssetsCash
              
              
              
              
              $
              723,848Accounts
                  receivable
              
              
              
              
              
              172,993Other
                  current assets
              
              
              
              
              
              23,786TOTAL
                  CURRENT ASSETS
              
              
              
              
              
              920,627PROPERTY
                  & EQUIPMENT (Note H)Computer
                  and office equipment
              
              
              
              
              
              166,307Accumulated
                  Depreciation
              
              
              
              
              
              (25,250
              )NET
                  PROPERTY & EQUIPMENT
              
              
              
              
              
              141,057OTHER
                  ASSETSOther
                  intangibles (Note L)
              
              
              
              
              
              1,310,160Goodwill
                  (Note L)
              
              
              
              
              
              4,677,862Security
                  deposits
              
              
              
              
              
              1,114TOTAL
                  ASSETS
              
              
              
              
              $
              7,050,820LIABILITIES
                  & STOCKHOLDERS' EQUITYCURRENT
                  LIABILITIESAccounts
                  payable
              
              
              
              
              $
              167,532Total
                  Other Current Liabilities
              
              
              
              
              
              15,668TOTAL
                  CURRENT LIABILITIES
              
              
              
              
              
              183,200LONG
                  TERM LIABILITIESNote
                  Payable (Note K)
              
              
              
              
              
              113,500TOTAL
                  LIABILITIES
              
              
              
              
              
              296,700Commitments
                  (Note I)STOCKHOLDERS'
                  EQUITY (Note C and D)Common
                  stock, par value $0.001, 97,500,000 authorized,
              
              
              
              
              
              21,151issued
                  and outstanding 21,151,324 shares at June 30, 2006Additional
                  paid-in capital
              
              
              
              
              
              8,226,034Accumulated
                  deficit
              
              
              
              
              
              (1,493,065
              )TOTAL
                  STOCKHOLDERS' EQUITY
              
              
              
              
              
              6,754,120TOTAL
                  LIABILITIES & STOCKHOLDERS' EQUITY
              
              
              
              
              $
              7,050,820




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


9
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          of Contents





**UPSNAP,
        INC.**
 CONSOLIDATEDSTATEMENTS
        OF
        OPERATIONS
 FOR
        THE
        THREE AND NINE MONTHS ENDED JUNE 30, 2006 AND 2005
 UNAUDITED
  **Three
                  Months Ended June 30,**
              
              **Nine
                  Months Ended June 30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**SALES AND COST OF SALESSales
              
              
              
              $
              247,408
              
              $
              -
              
              $
              491,450
              
              $
              -Cost
                  of Sales
              
              
              
              
              135,173
              
              
              -
              
              
              245,749
              
              
              -Gross
                  Profit
              
              
              
              
              112,235
              
              
              -
              
              
              245,701
              
              
              -OPERATING
                  EXPENSESProduct
                  development
              
              
              
              
              100,748
              
              
              12,911
              
              
              299,901
              
              
              66,116Sales
                  and marketing expenses
              
              
              
              
              63,778
              
              
              -
              
              
              168,309
              
              
              9,103General
                  and administrative
              
              
              
              
              581,033
              
              
              16,972
              
              
              1,097,848
              
              
              33,468Total
                  Expense
              
              
              
              
              745,559
              
              
              29,883
              
              
              1,566,058
              
              
              108,687Net
                  operating income
              
              
              
              
              (633,324
              )
              
              (29,883
              )
              
              (1,320,357
              )
              
              (108,687
              )Other
                  income and expenseInterest
                  income
              
              
              
              
              8,762
              
              
              -
              
              
              13,653
              
              
              -Interest
                  expense
              
              
              
              
              -
              
              
              -
              
              
              300
              
              
              -Net
                  Other Income
              
              
              
              
              8,762
              
              
              -
              
              
              13,353
              
              
              -NET
                  LOSS
              
              
              
              $
              (624,562
              )
              $
              (29,883
              )
              $
              (1,307,004
              )
              $
              (108,687
              )Net
                  loss per share
              
              
              
              $
              (0.03
              )
              $
              (0.01
              )
              $
              (0.07
              )
              $
              (0.03
              )Weighted
                  average common shares outstanding:Basic and diluted
              
              
              
              
              21,151,324
              
              
              4,013,100
              
              
              17,981,123
              
              
              4,013,100The
                  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:
              
              
              
              
              5,144,668
              
              
              -
              
              
              4,287,223
              
              
              -


The
          accompanying notes are an integral part of these unaudited financial
          statements
  10
 Table
              of Contents


**UPSNAP,
        INC.**
 CONSOLIDATED
        STATEMENT OF STOCKHOLDER'S EQUITY
 FOR
        THE
        PERIOD SEPTEMBER 30, 2004 to JUNE 30, 2006
 UNAUDITED
  Common
                    StockTotalAdditional
                
                
                
                Stockholders'Paid-in
                
                Accumulated
                
                EquityShares
                
                Par
                    Value
                
                capital
                
                Deficit
                
                (Deficit)**Balances,
                    September 30, 2004**
                
                
                
                
                
                
                $
                -
                
                $
                27,474
                
                $
                (27,474
                )
                $
                --Donated
                    capital
                
                
                
                
                
                
                
                
                
                
                119,525
                
                
                
                
                
                119,525Shares
                    issued for cash ($.0003 per share)
                
                
                
                
                12,999,999
                
                
                1,300
                
                
                1,700
                
                
                
                
                
                3,000Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                (158,586
                )
                
                (158,586
                )**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
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,307,005
                )
                
                (1,307,005
                )**Balances,
                    June 30, 2006**
                
                
                
                
                21,151,324
                
                $
                21,151
                
                $
                8,226,034
                
                
                ($1,493,065
                )
                $
                6,754,120


The
          accompanying notes are an integral part of these unaudited financial
          statements
  11
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              of Contents
  **UPSNAP,
        INC.**


CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 FOR
        THE
        NINE MONTH PERIODS ENDED JUNE 30, 2006 AND 2005
 UNAUDITED
 For
                  the nine month period ended June 30, 2006
              
              For
                  the nine month period ended June 30, 2005CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (1,307,004
              )
              $
              (108,687
              )Adjustments
                  to reconcile net loss to net cash used by operating
                  activities:Depreciation
              
              
              25,250
              
              
              -Amortization
                  of intangibles
              
              
              301,380
              
              
              -Changes
                  to goodwill
              
              
              (36,408
              )
              
              -CHANGES
                  IN CURRENT ASSETS AND CURRENT LIABILITIES:(Net
                  of effect of acquisition)Accounts
                  receivable
              
              
              (101,371
              )
              
              -Other
                  current assets
              
              
              (20,786
              )
              
              -Deposits
              
              
              (1,115
              )
              
              -Accounts
                  payable and accrued expenses
              
              
              162,178
              
              
              -Other
                  current laibilities
              
              
              (16,200
              )
              
              -NET
                  CASH USED FOR OPERATING ACTIVITIES
              
              
              (994,076
              )
              
              (108,687
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Cash
                  to acquire XSVoice, Inc.
              
              
              (243,241
              )
              
              -Cash
                  received from the company merger
              
              
              1,919,662
              
              
              -Purchase
                  of equipment
              
              
              (134,107
              )
              
              -NET
                  CASH PROVIDED BY INVESTING ACTIVITIES
              
              
              1,542,314
              
              
              -CASH
                  FLOWS FROM FINANCING ACTIVITIES:Sale
                  of common stock
              
              
              -
              
              
              3,000Donated
                  capital
              
              
              -
              
              
              109,205NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              -
              
              
              112,205NET
                  INCREASE IN CASH
              
              
              548,238
              
              
              3,518CASH,
                  beginning of period
              
              
              175,610
              
              
              -CASH,
                  end of period
              
              $
              723,848
              
              $
              3,518Taxes
                  paid
              
              $
              -
              
              $
              -Interest
                  paid
              
              $
              -
              
              $
              -Other
                  non-cash investing and financing activities:Shares issued in connection with reverse merger
              
              $
              2,097,112
              
              $
              -Shares issued in connection with XSVoice acquisition
              
              $
              6,000,074
              
              $
              -




The
        accompanying notes are an integral part of these unaudited financial
        statements
  12
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            of Contents
  **NOTESTO
      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 Item
      310
      of Regulation S-B. 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, 2005.





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, 2006 and the results of their operations for the three and nine month
      periods ended June 30, 2006 and 2005 and their cash flows for the nine months
      ended June 30, 2006 and 2005. 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.





As
      of
      January 1, 2006 the Company exited the development stage company as defined
      in
      Financial Accounting Statements Board (“FASB”) Statement No. 7, *Accounting
      and Reporting for Development Stage Companies.*





Organization





In
      November, 2005, UpSNAP, Inc. (formerly Manu Forti Group) completed an
      acquisition of UpSNAP USA, Inc. The acquisition was accounted for as a
      recapitalization effected by a reverse merger, wherein UpSNAP USA, Inc. is
      considered the acquirer for accounting and financial reporting purposes
      (collectively, UpSNAP, Inc. and UpSNAP USA, Inc are referred to hereinafter
      as
      the “Company”). The pre-merger assets and liabilities of the acquired entity
      have been brought forward at their book value and no goodwill has been
      recognized. The accumulated deficit of UpSNAP USA, Inc. has been brought
      forward, and common stock and additional paid-in-capital of the combined company
      have been retroactively restated.





Pursuant
      to a definitive share exchange agreement dated November 15, 2005 (as previously
      filed on SEC Form 8-k on November 16, 2005), UpSNAP, Inc. acquired 100% of
      the
      issued and outstanding shares of UpSNAP USA, Inc.




Under
      the
      terms of the agreement UpSNAP, Inc. issued 11,730,000 shares of its common
      stock
      for all of the issued and outstanding stock of UpSNAP USA, Inc. As a result
      of
      the acquisition, the former shareholders of UpSNAP USA, Inc. held immediately
      after the acquisition 62.4% of the issued and outstanding shares of UpSNAP,
      Inc.'s common stock. The remaining 37.8% were held by UpSNAP, Inc.’s (formerly
      Manu Forti Group, Inc.) shareholders.





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. XSVoice, Inc.’s results of operations have been included in the
      consolidated financial statements since the date of acquisition ( See Note
      L).




13
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The
      consolidated financial statements include the operations of UpSNAP, Inc. from
      November 15, 2005 through June 30, 2006.





UpSNAP,
      Inc. changed its year-end to September 30 to coincide with the year-end of
      UPSNAP USA, Inc.





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.





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,
      2006, 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 and to independent contractors. 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.




14
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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 - typically large brands such as NASCAR or ESPN, 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 reports
                net
                revenues received from the carrier which are revenues after both
                carrier
                charges and content provider charges.





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.




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 evaluates the recoverability of identifiable intangible assets whenever
      events or changes in circumstances indicate that an intangible asset’s carrying
      amount may not be recoverable. Such circumstances could include, but are not
      limited to: (1) a significant decrease in the market value of an asset, (2)
      a
      significant adverse change in the extent or manner in which an asset is used,
      or
      (3) an accumulation of costs significantly in excess of the amount originally
      expected for the acquisition of an asset. The Company measures the carrying
      amount of the asset against the estimated undiscounted future cash flows
      associated with it. Should the sum of the expected future net cash flows be
      less
      than the carrying value of the asset being evaluated, an impairment loss would
      be recognized. The impairment loss would be calculated as the amount by which
      the carrying value of the asset exceeds its fair value. The fair value is
      measured based on quoted market prices, if available. If quoted market prices
      are not available, the estimate of fair value is based on various valuation
      techniques, including the discounted value of estimated future cash flows.
      The
      evaluation of asset impairment requires the Company to make assumptions about
      future cash flows over the life of the asset being evaluated. These assumptions
      require significant judgment and actual results may differ from assumed and
      estimated amounts.




15
 Table
          of Contents


Segment
      reporting




T he
      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, 2006 and 2005 the Company incurred advertising expense of $19,899
      and
      $0 respectively. During the three months ended June 30, 2006 and 2005, the
      Company incurred $9,847 and $0, respectively for advertising
      expense.





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.





Recent
      Accounting Pronouncements





In
      November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
      No.
      151, Inventory Costs, which clarifies the accounting for abnormal amounts of
      idle facility expense, freight, handling costs, and wasted material. SFAS No.
      151 will be effective for inventory costs incurred during fiscal years beginning
      after June 15, 2005. We do not believe the adoption of SFAS No. 151 will have
      a
      material impact on our financial statements.




In
      December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets,
      which eliminates the exception for nonmonetary exchanges of similar productive
      assets and replaces it with a general exception for exchanges of nonmonetary
      assets that do not have commercial substance. SFAS No. 153 will be effective
      for
      nonmonetary asset exchanges occurring in fiscal periods beginning after June
      15,
      2005. We do not believe the adoption of SFAS No. 153 will have a material impact
      on our financial statements.





In
      December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which
      establishes standards for transactions in which an entity exchanges its equity
      instruments for goods or services. This standard requires an issuer to measure
      the cost of employee services received in exchange for an award of equity
      instruments based on the grant-date fair value of the award. This eliminates
      the
      exception to account for such awards using the intrinsic method previously
      allowable under Accounting Principles Board (APB) Opinion No. 25. We do not
      believe the adoption of SFAS No. 123 (R) will have a material impact on our
      financial statements.





In
      May
      2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections - a
      replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement
      replaces APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3,
“Reporting Accounting Changes in Interim Financial Statements” and changes the
      requirements for the accounting for and reporting of a change in accounting
      principle. This Statement applies to all voluntary changes in accounting
      principle.  It also applies to changes required by an accounting
      pronouncement in the unusual instance that the pronouncement does not include
      specific transition provision. When a pronouncement includes specific transition
      provisions, those provisions should be followed. The Company has no transactions
      that would be subject to SFAS 154.




16
 Table
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In
      February 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      155, Accounting for Certain Hybrid Instruments-an amendment of FASB Statements
      No. 133 and 140 ("SFAS 155"). SFAS 155 allows financial instruments that have
      embedded derivatives to be accounted for as a whole if the holder elects to
      account for the whole instrument on a fair value basis. SFAS 155 eliminates
      the
      need to bifurcate the derivative from its host, as previously required under
      Statement of Financial Accounting Standards No. 133, Accounting for Derivative
      Instruments and Hedge Accounting ("SFAS 133"). SFAS 155 also amends SFAS 133
      by
      establishing a requirement to evaluate interests in securitized financial assets
      to determine whether they are free standing derivatives or whether they contain
      embedded derivatives that require bifurcation. SFAS 155 is effective for all
      hybrid financial instruments acquired or issued by the Company on or after
      January 1, 2007. The Company does not anticipate any material impact to its
      financial condition or results of operations as a result of the adoption of
      SFAS
      155.





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets” (“SFAS 156”). SFAS 156 addresses the accounting for recognized servicing
      assets and servicing liabilities related to certain transfers of the servicer’s
      financial assets and for acquisitions or assumptions of obligations to service
      financial assets that do not relate to the financial assets of the servicer
      and
      its related parties. SFAS 156 requires that all recognized servicing assets
      and
      servicing liabilities are initially measured at fair
      value ,
      and
      subsequently measured at either fair value or by applying an amortization method
      for each class of recognized servicing assets and servicing liabilities. SFAS
      156 is effective in fiscal years beginning after September 15, 2006. The
      adoption of SFAS 156 is not expected to have a material impact on our
      consolidated financial statements.





NOTE
      C
      - STOCKHOLDERS’ EQUITY





The
      Company issued 9,999,999 shares of common stock to its directors on December
      20,
      2004 for $3,000 of which, $2,000 was paid in cash and $1,000 was paid by
      director’s reimbursable company expense. The shares issued have been restated to
      12,999,999 to reflect the 1.3 to 1 forward split on August 28,
      2005.





Donated
      capital represents Company expenses paid by certain directors of the Company
      totaling $119,525 during the period from inception to June 30,
      2006.





On
      August
      28, 2005, the Board of Directors of UpSNAP, Inc. approved a 1.3 for 1 forward
      stock split which was approved by a majority of the existing shareholders.
      The
      forward stock split has been retroactively applied and is reflected in the
      statement of stockholders’ equity.





On
      November 15, 2005, the closing under the Share Exchange occurred. 5,788,495
      shares of common stock were issued to the stockholders of UpSNAP USA, Inc.
      Additionally, 370,000 shares of common stock and 560,000 warrants were issued
      to
      an investment banking firm in consideration for services provided (See Note
      D).





On
      January 6, 2006, the Company acquired substantially all of the assets of
      XSVoice, Inc. 2,362,830 shares of common stock were issued to the stockholders
      of XSVoice, Inc. (See Note K).





NOTE
      D
      - WARRANTS





The
      Company has recorded the warrant instruments described below 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.





During
      September - October 2005, the Company issued Series A warrants to purchase
      2,384,668 shares of common stock at $1.50 per share, in conjunction with the
      Company’s Private Placement. The fair value of the warrants in the amount of
      $1,032,561 was recorded as a debit and credit to additional paid in capital
      so
      there was no net impact on equity. The Private Placement warrants have a twelve
      month life.




17
 Table
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In
      October 2005, the Company issued Series B warrants to purchase 2,200,000 shares
      of common stock at $1.10 per share to investor relations firms in conjunction
      with services related to the Private Placement offering. The warrants have
      a
      term of five years. These warrants have been recorded at fair value using the
      Black-Scholes option-pricing model. The value of these warrants, $2,057,125,
      was
      recorded as additional paid-in capital and a non-cash compensation expense
      in
      October 2005 in the financial statements of UpSNAP, Inc. This non-cash
      compensation expense was eliminated in the accounting associated with the
      reverse merger.





In
      November 2005, the Company issued warrants to purchase 560,000 shares of common
      stock at $0.90 per share to an investment bank in conjunction with investment
      services related to the Private Placement offering. The warrants have a term
      of
      five years. These warrants have been recorded at fair value using the
      Black-Scholes option-pricing model. The value of these warrants, $900,063,
      was
      recorded as additional paid-in capital and a non-cash compensation expense
      in
      November 2005. This non-cash compensation expense was eliminated in the
      accounting associated with the reverse merger.





The
      following table summarizes information about warrants outstanding at June 30,
      2006:




**Shares**
                **Exercisable**
              **Exercise**
                **Price**
              **Date
                  of Expiration**Series
                  A Warrant: Issued in conjunction with Private Placement
              2,384,668
              $1.50
              September
                  - October 2006Series
                  B Warrant: Issued for investor relations services
              2,200,000
              $1.10
              October
                  2010Viant
                  Capital LLC Warrant
              560,000
              $0.90
              November
                  2010Total
              5,144,668
 At
        June
        30, 2006, a total of 5,144,668 warrants remain outstanding. All warrants
        are
        fully vested and exercisable upon issuance.





NOTE
      E
      - INCOME TAXES





For
      the
      twelve month period ended September 30, 2005, the Company incurred net operating
      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 June 30, 2006, the Company had
      approximately $1,989,000 of accumulated net operating losses. The net operating
      loss carryforwards, if not utilized, will begin to expire in 2024.





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




As
                  of
                September
                  30**2005**Deferred
                  tax assets:Net
                  operating loss carryforwards
              
              $
              682,442Total
                  deferred tax assets
              
              
              682,442Net
                  deferred tax assets before valuation allowance
              
              
              682,442Less: 
                  Valuation allowance
              
              
              (682,442
              )Net
                  deferred tax assets
              
              $
              -0-
 For
        financial reporting purposes, the Company has incurred a loss since its
        inception. The Company provided for a full valuation allowance against its
        net
        deferred tax assets at June 30, 2006.





A
      reconciliation between the amount 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**2005**Federal
                  and state statutory rate
              
              $
              238,854Change
                  in valuation allowance on deferred tax assets
              
              
              (238,854
              )$
              0
 
 18
 Table
            of Contents





NOTE
      F
      - GOING CONCERN





As
      shown
      in the accompanying financial statements, the Company has accumulated net losses
      from operations from inception through June 30, 2006 totaling $1,493,065 and
      as
      of June 30, 2006, 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
      G
      - CONCENTRATION OF CREDIT RISK





Since
      inception of revenues in January 2006, our largest customer accounted for more
      than 99% of sales.





The
      Company has deposits of $725,306 in a bank in excess of federally insured limits
      at June 30, 2006. The amount has not been reduced by items recorded in the
      account not yet clearing the bank.




Management
      periodically reviews the adequacy and strength of the financial institutions
      and
      deems this to be an acceptable risk.





NOTE
      H
      - PROPERTY AND EQUIPMENT





Property
      and equipment consisted of the following at June 30, 2006:




Fixed
                AssetsComputer and office equipment
            
            $
            166,306.75Computer Equipment
            
            
            162,306.75Office Equipment
            
            
            1,000.00Office Furniture
            
            
            3,000.00Accumulated Depreciation
            
            
            (25,249.71
            )Total
                Fixed Assets
            
            $
            141,057.04





Depreciation
      expense for the nine months ended June 30, 2006 and 2005 was $25,250 and $
      0 ,
      respectively. Depreciation expense for the three months ended June 30, 2006
      and
      2005 was $8,297 and $ 0, respectively.





The
      estimated service lives of property and equipment are 3 - 7years.





NOTE
      I
      - COMMITMENTS





In
      March
      2006, the Company began a lease for approximately 1,800 square feet of office
      space. The lease extends through February 28, 2007 at a rate of $2,250 per
      month. Future maturities associated with this commitment are as
      follows:





Year
                Ended
              September
                30
            Amount2006
            $6,7502007
            $11,250




19
 Table
          of Contents




NOTE
      J
      - RELATED PARTY TRANSACTION





The
      Chairman of the Board of the Company provides services to the Company as its
      CEO, for monthly compensation of $10,000 and related expenses. The Company
      pays
      $10,000 per month in fees to a board member who is providing services related
      to
      product content.





NOTE
      K
      - 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 of 5% above the prime rate and is 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.
      The
      Company carries the note as long-term and is not accruing interest.





NOTE
      L
      - ACQUISITION OF XSVOICE, INC.





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
      $6.4 million. XSVoice, Inc.’s results of operations have been included in the
      consolidated financial statements since the date of acquisition.





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.





The
      aggregate purchase price of $6,393,223 consisted of $198,829 in cash
      consideration, the assumption of $113,500 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
            
            $
            71,621.43Property, plant, and equipmentComputer
                equipment
            
            
            28,200.00Office
                equipment
            
            
            1,000.00Office furniture
            
            
            3,000.00SWinG copyright
            
            
            1,345,040.00Customer relationships
            
            
            104,000.00Employment contracts
            
            
            78,000.00Supplier contracts
            
            
            84,500.00Goodwill
            
            
            4,791,361.53Total
                assets acquired
            
            
            6,506,722.96Note payable
            
            
            (113,500.00
            )Total
                liabilities assumed
            
            
            (113,500.00
            )Net
                assets acquired
            
            $
            6,393,222.96




20
 Table
          of Contents


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 12 months with the exception of the SWinG technology
      platform that was assigned a life of 48 months. The remaining unallocated
      intangible balance of $4,791,362 was assigned to goodwill .





The
      allocation of the purchase price is based on preliminary data and could change
      when final valuation of certain intangible assets is obtained.





In
      connection with the XSVoice, Inc. acquisition, the Company agreed to pay an
      additional $550,000 in cash consideration by January 6, 2007, if the company
      raises an additional $3.2 million in additional equity capital or the Series
      A
      warrants are exercised. In accordance with Statement of Financial Accounting
      Standards No. 141, *Business
      Combinations* ,
      the
      Company does not accrue contingent consideration obligations prior to the
      attainment of the objectives. Any such payments would result in increases in
      goodwill.





NOTE M
      - PRO FORMA INFORMATION





The
      unaudited pro forma consolidating statement of operations give effect to the
      reverse merger and XSVoice acquisition as if it had occurred at the beginning
      of
      the nine month period ended June 30, 2006 and the fiscal year ended September
      30, 2005. The unaudited pro forma consolidating financial statements are based
      on available information and the assumptions and adjustments described in the
      accompanying notes. The unaudited pro forma consolidating financial statements
      do not purport to represent what the results of operations actually would have
      been if the events described had occurred as of the dates indicated or what
      such
      results will be for any future periods.





The
      combining companies have different year ends. For purposes of these statements,
      the year end of December 31 for XSVoice, Inc. has been changed to September
      30,
      which is the year end of UpSNAP, Inc. which is the surviving
      entity.




**UPSNAP,
        INC.**
 PRO-FORMA
        CONSOLIDATED STATEMENT OF OPERATIONS
 YEAR
        ENDED SEPTEMBER 30, 2005
 UNAUDITED





**UpSNAP,
                Inc. 10/1/2004 - 9/30/2005**
            
            **UpSNAP
                USA, Inc. 10/1/2004 - 9/30/2005**
            
            **September
                30, 2005 Consolidated Pro Forma Results before Acquisition of
                XSVoice**
            
            **XSVoice,
                Inc. 10/1/2004 - 9/30/2005**
            
            
            
            **Pro-Forma
                Entries**
            
            **September
                30, 2005 Pro-Forma Consolidated**REVENUESSales
            $
            -
            
            $
            -
            
            $
            -
            
            $
            801,645
            
            
            
            
            
            
            $
            801,645Cost
                of sales
            
            
            
            
            
            
            
            -
            
            
            (454,289
            )
            
            
            
            
            
            
            (454,289
            )Gross
                profit
            
            -
            
            
            -
            
            
            -
            
            
            347,356
            
            
            
            
            
            
            
            347,356EXPENSESSelling,
                general and administrative
            
            119,912
            
            
            158,586
            
            
            278,498
            
            
            1,052,417
            
            
            
            
            
            
            
            1,330,915Depreciation
            
            
            
            
            
            
            
            -
            
            
            55,335
            
            
            
            
            
            
            
            55,335Total
                expense
            
            119,912
            
            
            158,586
            
            
            278,498
            
            
            1,107,752
            
            
            
            
            
            
            
            1,386,250Loss
                from
                operations
            
            (119,912
            )
            
            (158,586
            )
            
            (278,498
            )
            
            (760,396
            )
            
            
            
            
            
            
            (1,038,894
            )OTHER
                INCOME AND EXPENSES
            
            
            
            
            
            
            
            -Gain
                on forgiveness of debt
            
            
            
            
            
            
            
            -
            
            
            51,963
            
            (1)
            
            
            (51,963
            )
            
            -Gain
                on sale of assets
            
            
            
            
            
            
            
            -
            
            
            33,250
            
            (1)
            
            
            
            
            
            33,250Gain
                on settlement with vendors
            
            
            
            
            
            
            
            -
            
            
            69,279
            
            (1)
            
            
            (69,279
            )
            
            -Interest
                income
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            -Vendor
                reimbursement for equipment
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            -Other
                income
            
            
            
            
            
            
            
            -
            
            
            80
            
            
            
            
            
            
            
            80Loan
                cost expense
            
            
            
            
            
            
            
            -
            
            
            (66,503
            )
            (1)
            
            
            66,503
            
            
            -Interest
                expense
            
            -
            
            
            -
            
            
            -
            
            
            (30,834
            )
            (1)
            
            
            30,834
            
            
            -Total
                other income
                and expenses
            
            -
            
            
            -
            
            
            -
            
            
            57,235
            
            
            
            
            (23,905
            )
            
            33,330-
            
            
            
            
            
            
            
            
            
            
            --
            
            
            
            
            
            
            
            
            
            
            -NET
                LOSS
            $
            (119,912
            )
            $
            (158,586
            )
            $
            (278,498
            )
            $
            (703,161
            )
            
            
            $
            (23,905
            )
            $
            (1,005,564
            )




(1)  To
        eliminate expenses related to assets and liabilites of XSVoice not acquired
        as
        part of the January 6, 2006 Asset Purchase Agreement.


**UPSNAP,
      INC.**


PRO-FORMA
      CONSOLIDATED STATEMENTS OF OPERATIONS


FOR
      THE
      NINE MONTHS ENDED JUNE 30, 2006


UNAUDITED





**Consolidated
                UpSNAP, Inc. 10/1/2005 - 6/30/2006**
            
            **UpSNAP,
                Inc. fka Manu Forti Group 10/1/2005 - 11/15/2005**
            
            **XSVoice,
                Inc. 10/1/2005 -1/6/2006**
            
            
            
            **Pro-Forma
                Entries**
            
            **6/30/06**
              **Pro-Forma
                Consolidated**SALES AND COST OF SALESSales
            
            
            
            $
            491,449.72
            
            
            
            
            $
            218,137.76
            
            
            
            
            
            
            
            $
            709,587.48Cost
                of Sales
            
            
            
            
            245,748.60
            
            
            
            
            
            134,864.64
            
            
            
            
            
            
            
            
            380,613.24Gross
                Profit
            
            
            
            
            245,701.12
            
            
            
            
            
            83,273.12
            
            
            
            
            
            
            
            
            328,974.24OPERATING
                EXPENSES
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Product
                development
            
            
            
            
            299,901.28
            
            
            
            
            
            21,666.64
            
            
            
            
            
            -
            
            
            321,567.92Sales
                and marketing expenses
            
            
            
            
            168,308.89
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            168,308.89General
                and administrative
            
            
            
            
            1,097,848.13
            
            
            3,808,334.71
            
            
            558,454.03
            
            
            
            
            
            
            
            
            5,464,636.87Total Expense
            
            
            
            
            1,566,058.30
            
            
            3,808,334.71
            
            
            580,120.67
            
            
            
            
            
            
            
            
            5,954,513.68Net
                operating income (loss)
            
            
            
            
            (1,320,357.18
            )
            
            (3,808,334.71
            )
            
            (496,847.55
            )
            
            
            
            
            
            
            
            (5,625,539.44
            )Other
                income and expenseOther
                Income
            
            
            
            
            -
            
            
            
            
            
            68,926.44
            
            
            (1)
            
            
            (68,926.44
            )
            
            -Interest
                income
            
            
            
            
            13,652.77
            
            
            162.74
            
            
            
            
            
            
            
            
            
            
            
            13,815.51Interest
                expense
            
            
            
            
            300.00
            
            
            
            
            
            40,896.91
            
            
            (1)
            
            
            (40,896.91
            )
            
            300.00NET
                LOSS
            
            
            
            $
            (1,307,004.41
            )
            $
            (3,808,171.97
            )
            $
            (468,818.02
            )
            
            
            
            $
            (28,029.53
            )
            $
            (5,612,023.93
            )




(1)  To
        eliminate expenses related to assets and liabilites of XSVoice not acquired
        as
        part of the January 6, 2006 Asset Purchase Agreement.




21
 Table
          of Contents




**ITEM
      2.  PLAN OF OPERATIONS.**





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





**BUSINESS
      OVERVIEW**





UpSNAP
      is
      a mobile search engine that helps mobile US consumers quickly find mobile
      content and entertainment services. UpSNAP provides a seamless platform for
      search & content delivery to almost all mobile devices in the United States.
      Our catalog of free and premium streaming audio content delivers compelling
      content from some of the world’s premier brands including Fan Scan, the NASCAR
      in car-audio application on Sprint/Nextel, ABC, , ESPN Radio, ESPN Deportes,
      Radio Disney & Batanga. UpSNAP currently operates in the United States
      only.





General





Consumer
      interest and spend on mobile phones and services are showing the highest growth
      rates ever. In the US, according to the Cellular Telecommunications &
Internet Association (CTIA) as reported in its Semi-Annual Wireless Survey
      Year-End 2005, subscribers grew by 25 million from June 2004 to June 2005.
      As of
      December 2005 there are 207 million currently subscribed cell phone users in
      the
      US according to this report.





UpSNAP’s
      search technology is based on text messaging or Short Message Service (SMS)
      which is proving to be extremely popular amongst the youth demographic in the
      United States.





According
      to the CTIA’s April 2006 Wireless Quick Facts Report, 9.8 billion messages were
      sent in December 2005, up 109% from 4.8 billion messages in December 2004.
      48.7
      billion SMS messages were sent in the last six months of 2005, up 50% from
      32.5billion in the first six months of 2005, and up 97% from 24.7 billion in
      the
      last six months of 2004.





Reports
      are available from http://www.ctia.org/ and are
      free to the public.




Mobile
      Search Business Model





Putting
      as few obstacles between joining merchants and buyers together has proved to
      be
      a highly successful business strategy that has created several billion dollar
      industries. In the 1980s 1-800 services became enormously popular, and enabled
      consumers to reach merchants at no cost. In the 1990s, merchants paid for
‘clicks’ on Internet advertisements on search engines such as Yahoo! and Google.
      Again, these services were virtually free to the consumer, and the merchant
      paid
      for new incoming business. In 2000, cellular customers have to pay up to $1.50
      for a merchant number using cellular 411 directory assistance services, or
      have
      to use expensive handsets and data packages to view a web site, crammed onto
      a
      tiny mobile browser.




UpSNAP
      provides a SMS based search engine that allows mobile subscribers to quickly
      and
      easily search for mobile content and information services. The consumer pays
      for
      the cost of sending a text message, which can vary from free, to a few cents
      per
      message depending on their mobile contract with their carrier.





UpSNAP
      business model is to generate consumer traffic from the provision of these
      search services, and then up-sell premium content, or direct response
      advertising as a ‘pay per call” service targeted according to the nature of the
      consumer search.





The
      business model is a media model - reliant on the sale of subscriptions and
      advertising from content-based services. UpSNAP relies on third-party operators
      for our advertising.





One
      of
      the key problems to establishing a media model for cell-phones is the difficulty
      of rolling out media based services to all the many carrier platforms and
      different handsets. The cellular industry has many competing technologies,
      standards and platforms.





22
 Table
          of Contents





UpSNAP
      solves this problem by allowing its premium services to be broadcast to any
      cell-phone using its proprietary technology outlined below.





Principal
      Products and Services





UpSNAP
      has four principal products and services:





1
            Mobile
                Search Engine Platform





2
            Pay-Per-Call
                Advertising services using our Voice over Internet Protocol (VoIP)
                platform





3
            SWinG
                streaming audio platform





4
            Premium
                audio content supplied from content
                partners





**MOBILE
      SEARCH ENGINE PLATFORM**





The
      UpSNAP mobile search engine platform allows consumers to search via text message
      to a mobile “short-code” or 5 digit telephone number, which in our case is 2SNAP
      (27627). Current services include yellow pages directory assistance, sport
      scores, horoscopes, price comparison shopping services, weather, calorie
      counter, spelling, and airline travel information. Consumers type in search
      requests e.g. Leo for a star sign reading. The consumer will be offered a free
      horoscope, but also receive an advertisement via a text message to speak with
      an
      astrologer direct or hear an extended audio horoscope.





Similarly,
      consumers looking for sports scores, 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 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, Cingular,
      Sprint/Nextel, 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 was
      launched live to consumers in November 2005.





These
      searches do not generate any revenue for UpSNAP. They are free content to the
      consumer and are used by UpSNAP as a promotional vehicle to convert consumers
      from free to paid services.




**PAY-PER-CALL
      ADVERTISING PLATFORM**





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.





UpSNAP
      has a Voice Over Internet Protocol (VoIP) switch which seamlessly bridges the
      merchant telephone number with the consumer via a call connect. Our Pay Per
      Call
      advertising platform can then record the number of calls received by a merchant
      and produce an audit trail for a billing engine. UpSNAP partners with
      specialized “Pay-Per-Call” companies, that sign-up advertisers nationwide
      throughout the US for this type of advertising **.** 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. We rely on third party operators for
      our
      advertising. For example if a national pizza chain were to only want to target
      select US cities, our third party partners would only pass us the advertising
      for a specific geographical locale.





UpSNAP
      will generate future revenues based on negotiated revenue share arrangements
      with “Pay-Per-Call” companies.





23
 Table
          of Contents





**SWING
      STREAMING AUDIO PLATFORM**





UpSNAP’s
      SWinG (Streaming Wireless Internet Gateway) platform enables mobile access
      to
      virtually any type of live and on-demand streaming audio content. 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
      is thus able to be used on any cell phone in the United States, 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 Fan Scan, the NASCAR in
      car-audio application on Sprint/Nextel, ABC, FOX News, ESPN Radio, ESPN
      Deportes, Radio Disney & Botanga. The catalogue of content includes over 130
      radio stations, with a wide selection of content ranging from Christian Radio
      to
      Hip-Hop.





The
      company generates subscription revenues from the SWinG platform by providing
      the
      technology platform to major companies that already have a relationship with
      the
      carriers, such as ESPN and NASCAR. In addition, the Company generates revenues
      acting as the principal in the relationship with the carriers, providing content
      from over one hundred third party content providers.





The
      subscription revenues can take two forms. 1.) One off Subscription: A consumer
      subscribes for a particular event or for a limited amount of time. For example,
      in the case of the NASCAR Fan-Scan in car audio content, consumers purchase
      a
“$4.99 race pass” that is only good for one NASCAR race, and will simply expire
      after the race is finished. 2.) Recurring Subscribers: Consumers can also
      subscribe per month. For example, in the case of the NASCAR Fan-Scan in car
      audio content, consumers purchase a “$9.99 race pass” that is valid for use each
      month, until the consumer chooses to opt out.





In
      each
      case, the cost of the paid service is added to the consumer’s phone-bill, and
      the carriers pay UpSNAP after deducting their margin and associated costs.





***Margins***





The
      selling of mobile content typically involves





1
            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.





2
            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





3
            The
                content owner who has the rights to the mobile content typically
                will take
                20-85% of the net proceeds of the sale after all carrier and distribution
                charges depending on the nature, exclusivity and licensing rights
                of the
                content. If the content owner has a large brand, and distribution
                rights
                and relationships with the wireless operators, the content owner
                will be
                able to demand a higher margin, but will also bring much higher volume
                to
                the transaction. If the content is not exclusive, or is not a name
                brand,
                the content owner will be reliant on other companies such as UpSNAP
                to
                promote and distribute the application, and will thus take a much
                smaller
                margin.





The
      mobile supplier, in this case UpSNAP, takes between 15-80% of the remaining
      net
      revenue, A large media brand that has distribution with the wireless carriers
      and exclusive content will typically act as the principal in the wireless
      application deal, and will retain their brand and direct consumer relationship
      (via the mobile operator) with the consumer. In this case UpSNAP acts as a
      service provider, and will typically be paid a smaller margin and will not
      show
      the revenues from the content. In all other cases, UpSNAP acts a the principal
      in the wireless application deal. UpSNAP builds the application, makes it
      available on its servers, and on the wireless handsets, introduces the content
      into the wireless distribution channels, sets the price, and handles all the
      customer related issues and support.





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**DISTRIBUTION
      AGREEMENTS**





Distribution
      of the UpSNAP suites of services is multi-tiered but can be summarized
      as:





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 their mobile
                phone bill, and takes its cuts, and then remits the balance to UpSNAP.
                UpSNAP has ‘on deck’ agreements with
                Sprint/Nextel.





2
            Off
                Deck Promotion - where the consumer signs up for services through
                traditional media promotions, internet advertising, affiliate marketing
                relationships, or other media channels directly, and payment is made
                via a
                short-code or Premium SMS (PSMS) to the consumers mobile phone bill.
                UpSNAP has billing relationships in place with most major US carriers
                including, Cingular, T-Mobile, Sprint/Nextel and Alltel, and will
                market
                its existing suite of services direct to consumers in Q2 of
                2006.





3
            White-label
                or third-party branded services, where UpSNAP sells its suite of
                search
                applications, content and services to third-parties, who when resell
                its
                services. UpSNAP has not yet entered into any such deals, but industry
                standard arrangements for these type of deals are largely done on
                a
                revenue-share basis, while some are performed on a license basis.
                These
                third-parties include media companies, who have relationships with
                local
                media and merchants, but lack the technology to offer mobile search
                and
                entertainment services.





Plan
      of Operations





In
      Q3 of
      fiscal 2006 UpSNAP posted sales of $247,408 net of carrier charges from the
      sale
      of its premium subscription services for mobile content. These revenues were
      largely generated from sales of its Fan Scan NASCAR in-car Audio content, sold
      via Sprint/Nextel and premium music radio sales.





In
      order
      to increase its revenues UpSNAP plans to aggressively market its search and
      entertainment technology to all three of these distribution channels outlined
      above over the course of 2006.





In
      addition, we expect to perform continued research and development around mobile
      search and integration of multi-media content during the course of the next
      12
      months. We may also enter into significant acquisitions, joint ventures, or
      offshore outsourcing programs to rapidly increase the amount of programming
      resource available to the company to allow us to continue to innovate in the
      marketplace.





Our
      growth strategy contemplates acquisitions.  During the second Quarter of
      fiscal 2006 we successfully integrated the assets and personnel of XSVoice
      into
      the company. We continue to look for acquisition targets for 2006 although
      this
      will depend upon the timing and availability of appropriate acquisition
      opportunities. Our business plan calls for acquisitions in the advertising
      sector, that will allow us increase our average revenue per subscriber as well
      as our distribution channels.





As
      of
      June 30, 2006 we have a total of nine full-time employees and three
      full-time contractors working for UpSNAP, one full time and six part time
      individual contractors. We do not expect significant increases in employees,
      but
      do expect incremental additions in line with revenues in all areas of the
      business.





***RESULTS
      OF OPERATIONS***





NINE-MONTH
      PERIOD ENDED JUNE 30, 2006 COMPARED TO NINE-MONTH PERIOD ENDED JUNE 30,
      2005





Our
      net
      losses during the nine-month period ended June 30, 2006 were $1,307,004 compared
      to a net loss of $108,687 during the nine-month period ended June 30, 2005.





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The
      Company was a development stage company during the nine month period ended
      June
      30, 2005. Activities were primarily limited to outside contractors performing
      product development work, marketing costs, and officer’s travel expenses.





The
      Company began to build an infrastructure after the reverse merger was completed
      on November 15, 2005. The Company opened an office in Davidson, North Carolina
      and added nine employees, four of whom were former employees of XSVoice, Inc.





The
      Company commenced generating revenue immediately after the XSVoice, Inc.
      acquisition on January 6, 2006, resulting in revenues of $491,450 for the nine
      month period and gross profit of $245,701.




During
      the nine-month period ended June 30, 2006, we incurred operating expenses of
      $1,566,058 compared to operating expenses of $108,687 incurred during the
      nine-month period ended J, 2005, The increase in operating expenses during
      the
      nine-month period ended June 30, 2006 from the same period in 2005 resulted
      from: (i) an increase of $233,785 in product development costs as the Company
      added personnel to support both the acquired streaming audio technology from
      XSVoice, Inc. as well as the Company’s mobile search platform, (ii) an increase
      of $159,206 in sales and marketing costs reflecting the addition of a director
      of marketing position and public relations efforts, and (iii) an increase of
      $1,064,379, in general and administrative expenses resulting from increased
      operating costs associated with increased operations and professional fees
      related to our SEC filings and filing of a registration statement of form SB-2
      and $301,380 in amortization expense related to intangible assets generated
      as a
      result of the XSVoice acquisition.





For
      the
      nine months ended June 30, 2006, our net loss was ($1,307,004) or ($0.07) per
      common share compared to a net loss of ($108,687) or ($0.03) per common share
      for the nine month period ended June 30, 2005.





THREE-MONTH
      PERIOD ENDED JUNE 30, 2006 COMPARED TO THREE-MONTH PERIOD ENDED JUNE 30,
      2005





Our
      net
      losses during the three-month period ended June 30, 2006 were $624,562 compared
      to a net loss of $29,883 during the three-month period ended June 30, 2005.
      During the three-month period ended June 30, 2006 we generated $247,408 in
      net
      revenues compared to no net revenues for the three-months ended June 30, 2005.
      The increase in revenues is due to the XSVoice acquisition which closed on
      January 6, 2006.





During
      the three-month period ended June 30, 2006, we incurred operating expenses
      of
      $745,559 compared to operating expenses of $29,883 incurred during the
      three-month period ended June 30, 2005. The increase in operating expenses
      during the three-month period ended June 30, 2006 from the same period in 2005
      resulted from: (i) an increase of $87,837 in product development costs as the
      Company added personnel to support both the acquired streaming audio technology
      from XSVoice, Inc. as well as the Company’s mobile search platform, (ii) an
      increase of $63,778 in sales and marketing costs reflecting the addition of
      a
      director of marketing position and public relations efforts, and (iii) an
      increase of $564,061, in general and administrative expenses resulting from
      increased operating costs associated with increased operations and professional
      fees related to our SEC filings and filing of a registration statement of form
      SB-2 and $283,613 in amortization expense related to intangible assets generated
      as a result of the XSVoice acquisition.





For
      the
      three months ended June 30, 2006, our net loss was ($624,562) or ($0.03) per
      common share compared to a net loss of ($29,883) or ($0.01) per common share
      for
      the nine month period ended June 30, 2005.





LIQUIDITY
      AND CAPITAL RESOURCES





As
      of
      June 30, 2006, our current assets were $920,627 and our current liabilities
      were
      $183,200, which resulted in net working capital of $737,427.





For
      the
      nine months ended June 30, 2006, net cash flow used by operating activities
      was
      $994,077 compared to net cash used in operating activities of $108,687 for
      the
      nine months ended June 30, 2005. The increase in cash flows used in operating
      activities is mainly due to the increase in operating loss for the
      period.




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Net
      cash
      flows provided by investing activities amounted to $1,542,314 for the nine
      months ended June 30, 2006 compared to none for the nine months ended June
      30,
      2005. The Company received $1,919,662 in cash as part of the reverse merger.
      In
      addition, the Company spent $243,241 in cash as consideration and professional
      fees for the XSVoice acquisition and $134,107 to purchase computer equipment
      to
      support the expanding product development efforts.





There
      was
      no net cash flow provided by financing activities for the nine months ended
      June
      30, 2006 compared to $112,205 for the nine months ended June 30, 2005 resulting
      primarily from donated capital from the Company’s founders.





In
      summary, based upon the cash flow activities as previously discussed, for the
      nine months ended June 30, 2006, our overall cash position increased by
      $548,237.





Overall,
      we have funded our cash needs from inception through June 30, 2006 with the
      $2,146,200 in funds acquired as part of the September - October 2005 Private
      Placement.




We
        had
        cash on hand of $723,848 and a working capital surplus of $737,427 as of
        June
        30, 2006. The company's current financial models indicate that the company's
        cash balances may fall to levels that will not sustain operations. This
        financial model is highly sensitive to revenue forercasts based on new revenue
        sources which may not materialize, in which case the company will not have
        adequate cash to fund its operations over the next twelve months. Therefore,
        the
        company may be dependent on raising additional capital. We have no commitments
        for such capital.
 
 If
        we
        choose to launch a more aggressive operating plan and cash flow from existing
        operations is not sufficient, management
        may seek long-term financing through additional debt or equity financing
        to fund
        the rollout of an expanded product line. No assurance can be given that such
        financing would be available.
  **ITEM
      3.  CONTROLS AND PROCEDURES**





**Evaluation
      of Controls** .
      We
      recently reevaluated the effectiveness of the design and operation of our
      disclosure controls and procedures (“Disclosure Controls”). This evaluation
      (“Evaluation”) was performed by our Chairman and Chief Executive Officer, Tony
      Philipp, and our Chief Financial Officer, Paul C. Schmidt .As a result of this
      evaluation we have revised the evaluation included in our 10QSB quarterly
      reports for the periods ended December 31, 2005 and March 31, 2006.





**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 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.





**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 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.





**Result
      of the Evaluation.** Our
      principal executive officer and principal financial officer recently reevaluated
      the effectiveness of our disclosure controls and procedures as of June 30,
      2006.
      The result of that review concluded that our disclosure controls and procedures
      were in part ineffective, as of the end of the period covered by this report,
      so
      as to insure that all of the information required to be reported in our periodic
      reports was recorded, processed, summarized, and reported, within the time
      periods specified in the Commission's rules and forms, because we had failed
      to
      recognize that there was a deficiency in our Disclosure Controls in our failure
      to report on their adequacy as required by Item 8A in our annual report on
      Form
      10-KSB for the transition period ending September 30, 2005. These failures
      existed as of the end of the December 31, 2005, March 31, 2006 and June 30,
      2006
      financial quarters as we did not recognize them.




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We
      have
      undertaken certain remedial actions in our Disclosure Controls to insure that
      all of the information required to be reported in our periodic reports was
      recorded, processed, summarized, and reported, within the time periods specified
      in the Commission's rules and forms. We now have put in place a Regulatory
      Disclosure Committee composed of our CFO, another senior executive and an
      independent Board member, to ensure that all filings are reviewed and discussed
      by the members of this Committee in consultation with our outside securities
      law
      counsel before they are filed. The Committee will also examine the Company
      disclosure controls, and work towards developing a systematic process for
      evaluating the effectiveness of these controls over time.





Additionally,
      there has been no change in our internal controls 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.





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**PART
      II**




**ITEM6. 
EXHIBITS**





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





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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 14, 2006
            /s/
                Tony PhilippTony
                Philipp
              Chairman
                of the Board andChief
                Executive Officer
              (Principal
                Executive Officer)Date: 
                August 14, 2006
            /s/
                Paul C. SchmidtPaul
                C. Schmidt
              Chief
                Financial Officer
              (Principal
                Financial Officer)





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**INDEX
      TO EXHIBITS**





**Exhibit
                No.**
            **Description**2.1
            Share
                Exchange Agreement, dated November 15, 2005, by and among Upsnap,
                Inc. and
                the former stockholder of UpSNAP USA (incorporated by reference to
                Exhibit
                2.1 in our current report on Form 8-k filed on November 16,
                2005)3.1.1
            Articles
                of Incorporation as filed with the Secretary of State of the State of
                Nevada on July 25, 2003 (incorporated by reference to Exhibit 3.1
                in our
                Registration Statement SB-2 filed on September 18,
                2003)




3.1.2
            Certificate
                of Amendment filed on November 7, 2005 (incorporated by reference
                to
                Exhibit 3.1 in our current report on Form 8-K filed on November 16,
                2005)3.2
            Bylaws
                adopted on July 25, 2003 (incorporated by reference to Exhibit 3.2
                in our
                Registration Statement SB-2 filed on September 18,
                2003)10.1
            Form
                of Subscription Agreement for September 2005 Private Placement
                (incorporated by reference to Exhibit 10.1 in our quarterly report
                for the
                fiscal period ended on September 2005)10.2
            Form
                of Registration Rights Agreement for September 2005 Private Placement
                (incorporated by reference to Exhibit 10.2 in our quarterly report
                for the
                fiscal period ended on September 2005)10.3
            Debt
                Conversion Agreement, dated October 31, 2005, among UpSnap, Inc.,
                518464
                B.C. Ltd., Art Mapp Communications, Inc., Jason Sundar, and Yvonne
                New.
                (incorporated by reference to Exhibit 10.3 in our quarterly report
                for the
                fiscal period ended on September 2005)10.4
            Form
                of Series A Warrant (incorporated by reference to Exhibit 10.4 in
                our
                quarterly report for the fiscal period ended on September 2005)10.5
            Form
                of Series B Warrant (incorporated by reference to Exhibit 10.5 in
                our
                quarterly report for the fiscal period ended on September
                2005)10.6
            Directors
                and Officers Insurance Policy, dated October
                18, 2005*10.7
            Confirmatory
                Assignment, dated June 1, 2005, by and between UpSNAP USA, Inc. and
                Alto
                Ventures, Inc. (incorporated by reference to Exhibit 10.7 in our
                quarterly
                report for the fiscal period ended on December 31,
                2005)10.8
            Asset
                Purchase Agreement, dated January 6, 2006, by and between UpSNAP,
                Inc. and
                XSVoice, Inc. (incorporated by reference to Exhibit 10.1 in our current
                report on Form 8-K filed on January 12, 2006)10.9
            Nextel
                Online Handset Placement Agreement with Nextel Finance Company110.10
            Commercial
                Service Agreement between UpSNAP, Inc. and Simplewire, Inc. dated
                February
                7, 2006110.11
            Letter
                Agreement between UpSNAP, Inc. and Tony Philipp dated July 10, 20061




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10.12
            Letter
                Agreement between UpSNAP, Inc. and Richard Jones dated July 10, 2006110.13
            Letter
                Agreement between UpSNAP, Inc. and Paul Schmidt dated July 10, 2006131.1
            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


1 incorporated by reference to Amendment No. 2 our Form SB-2 Registration
      Statement, Reg. No. 333-132893, filed July 13, 2006.




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