Upsnap, Inc. - Quarterly Report of Financial Condition (10QSB)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

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

For the quarterly period ended June 30, 2008

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

For the transition period from _______ to _______

Commission File No. 000-50560

UPSNAP, INC.

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

Nevada

(State or other jurisdiction of

incorporation or organization)

20-0118697

(IRS Employer identification No.)

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

(Address of Principal Executive Offices)

(704) 895-4121

(Issuer’s Telephone Number)

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

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

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

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

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

UPSNAP, INC.

FORM 10-QSB

For the Quarter ended June 30, 2008

TABLE OF CONTENTS

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

Signatures		33

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UPSNAP, Inc.

CONSOLIDATED BALANCE SHEET

AS OF JUNE 30, 2008 and SEPTEMBER 30, 2007

UNAUDITED

	June 30, 2008			September 30, 2007
ASSETS
Current Assets
Cash	$	21,027		$	21,888
Accounts receivable		105,730			296,499
Other current assets		8,539			17,813

TOTAL CURRENT ASSETS		135,296			336,200

PROPERTY & EQUIPMENT (Note F)
Computer and office equipment		173,742			173,742
Accumulated Depreciation		(115,277	)		(92,631	)

NET PROPERTY & EQUIPMENT		58,465			81,111

OTHER ASSETS
Other intangibles (Note J)		-			756,584
Goodwill (Note J)		-			4,916,418
Security deposits		1,114			1,116

TOTAL ASSETS	$	194,875		$	6,091,429

LIABILITIES & STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	255,423		$	260,817
Total Other Current Liabilities		60,404			7,436

TOTAL CURRENT LIABILITIES		315,827			268,253

LONG TERM LIABILITIES
Note Payable (Note H)		-			113,500
Total Long Term Liabilities		-			113,500

TOTAL LIABILITIES		315,827			381,753

Commitments (Note G)

STOCKHOLDERS' EQUITY
Common stock, par value $0.001, 97,500,000 authorized,		23,370			22,720
issued and outstanding 23,370,324 shares at June 30, 2008
Additional paid-in capital		9,000,574			8,769,194
Accumulated deficit		(9,144,896	)		(3,082,238	)

TOTAL STOCKHOLDERS' EQUITY		(120,952	)		5,709,676

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	194,875		$	6,091,429

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

UPSNAP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

UNAUDITED

	Three Months Ended June 30,						Nine Months Ended June 30,
	2008			2007			2008			2007
SALES AND COST OF SALES
Advertising Revenue	$	22,036		$	6,778		$	67,906		$	14,994
Revenue Share		78,925			251,695			357,720			723,950
Other		30,844			2,330			45,344			3,362
Total Sales		131,805			260,803			470,970			742,306

Cost of Sales		40,462			152,984			186,589			413,358
Gross Profit		91,343			107,819			284,381			328,948

OPERATING EXPENSES
Product development		26,219			71,236			74,233			239,884
Sales and marketing expenses		13,063			9,086			50,247			46,891
General and administrative		79,394			216,129			532,589			838,728
Merger costs		-						307,215
Stock based compensation		99,029			38,363			232,030			86,498
Impairment of Goodwill		-			-			4,677,862			-
Impairment of Intangible Asets		-			-			588,455			-
Total Expense		217,705			334,814			6,462,631			1,212,001

Net operating income		(126,362	)		(226,995	)		(6,178,250	)		(883,053	)

Other income and expense
Gain on extinguishment of debt (Note K)		-			-			113,500			-
Gain on sale of assets		1,175						2,092
Interest income		-			(1	)		-			127
Net Other Income		1,175			(1	)		115,592			127

NET LOSS	$	(125,187	)	$	(226,996	)	$	(6,062,658	)	$	(882,926	)

Net loss per share	$	(0.01	)	$	(0.01	)	$	(0.26	)	$	(0.04	)

Weighted average common shares outstanding:
Basic and diluted		23,720,324			22,211,991			23,091,065			21,859,605

The average shares listed below were not
included in the computation of diluted losses
per share because to do so would have been
antidilutive for the periods presented:
Warrants and options:		4,083,333			3,510,556			3,849,444			4,560,781

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

UPSNAP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY

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

UNAUDITED

										Total
					Additional					Stockholders'
	Common Stock				Paid-in		Accumulated			Equity
	Shares		Par Value		capital		Deficit			(Deficit)
Balances, September 30, 2005		12,999,999		1,300		148,699		(186,060	)		(36,061	)

Shares issued in connection with reverse merger		5,788,495		17,488		2,079,623		-			2,097,112
Shares issued in connection with XSVoice acquisition		2,362,830		2,363		5,997,712		-			6,000,074
Net loss								(1,788,068	)		(1,788,068	)

Balances, September 30, 2006		21,151,324		21,151		8,226,034		(1,974,128	)		6,273,057

Stock based compensation		150,000		150		121,829		-			121,979
Shares issued for Placement Agreement		400,000		400		167,600					168,000
Exercise of Series A Warrants		1,019,000		1,019		253,731					254,750
Net loss		-		-		-		(1,108,110	)		(1,108,110	)

Balances, September 30, 2007		22,720,324		22,720		8,769,194		(3,082,238	)		5,709,676

Stock based compensation		650,000		650		231,380					232,030
Net loss		-		-		-		(6,062,658	)		(6,062,658	)

Balances, June 30, 2008		23,370,324	$	23,370	$	9,000,574	$	(9,144,896	)	$	(120,952	)

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

UPSNAP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

UNAUDITED

	June 30, 2008			June 30, 2007

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(6,062,658	)	$	(882,925	)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation		22,646			37,710
Amortization of intangibles		168,130			318,820
Stock based compensation		232,030			86,498
Extinguishment of debt		(113,500	)		-
Impairment of goodwill		4,677,862
Impairment of intangibles		588,455
Merger costs written off		307,215
CHANGES IN CURRENT ASSETS AND CURRENT LIABILITIES:
Accounts receivable		190,770			(10,753	)
Other current assets		9,274			(6,665	)
Accounts payable and accrued expenses		(11,337	)		(27,511	)
Other current liabilities		58,911			27,869

NET CASH USED FOR OPERATING ACTIVITIES		67,798			(456,957	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for costs related to Mobile Greetings merger		(68,660	)		-
Purchase of equipment		-			(7,435	)

NET CASH PROVIDED BY INVESTING ACTIVITIES		(68,660	)		(7,435	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of warrants		-			254,750

NET CASH PROVIDED BY FINANCING ACTIVITIES		-			254,750

NET INCREASE IN CASH		(862	)		(209,642	)

CASH, beginning of period		21,889			380,797
CASH, end of period	$	21,027		$	171,155

Taxes paid	$	-		$	-
Interest paid	$	-		$	-

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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

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

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of consolidation

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

Use of Estimates

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

Cash and cash equivalents

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

Property and equipment

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

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

Disclosure about Fair Value of Financial Instruments

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

Research and Development Expenditures

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

Revenue Recognition

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

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

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

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

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

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

Dividends

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

Long-lived assets

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

Accounting Policy for Impairment of Intangible Assets

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

Segment reporting

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

Advertising costs

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

Income Taxes

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

Loss per common share

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

Recent Accounting Pronouncements

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

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

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

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

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

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

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

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

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

Stock Plan

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

Stock-Based Compensation

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

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

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

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

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

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

Time-Based Stock Awards

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

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

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

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

	Shares			Weighted Average Exercise Price

Outstanding at September 30, 2007		720,000		$	0.10

Granted		1,850,000		$	0.10

Forfeited or expired		(100,000	)	$	-

Outstanding June 30, 2008		2,470,000		$	0.10

Exercisable at June 30, 2008		947,083		$	0.10

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

		Stock Options Outstanding
Range of Exercise Prices		Number of Shares Outstanding		Weighted Average Contractual Life in Years

$	0.100		2,470,000		9.26

			2,470,000		9.26

		Stock Options Exercisable
Range of Exercise Prices		Number of Shares Exercisable		Weighted Average Exercise Price

$	0.100		947,083	$	0.100

			947,083

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

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

Warrants

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

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

Series B

			Weighted-				Weighted-
			Average				Average
	Number of		Exercise		Warrants		Exercise
	Warrants		Price		Exercisable		Price

Outstanding, September 30, 2007		1,800,000	$	1.10		1,800,000	$	1.10
Granted		-
Expired		-
Exercised		-	$	-			$	-

Outstanding, June 30, 2008		1,800,000	$	1.10		1,800,000	$	1.10

Viant

			Weighted-				Weighted-
			Average				Average
	Number of		Exercise		Warrants		Exercise
	Warrants		Price		Exercisable		Price

Outstanding, September 30, 2007		560,000	$	0.90		560,000	$	0.90
Granted		-
Exercised		-

Outstanding, June 30, 2008		560,000	$	0.90		560,000	$	0.90

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

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

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

NOTE C - INCOME TAXES

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

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

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

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

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

NOTE D - GOING CONCERN

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

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

NOTE E - CONCENTRATION OF CREDIT RISK

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

NOTE F - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

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

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

NOTE G – COMMITMENTS

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

Fiscal Year	Amount
2008	$	4,500
2009	$	7,500

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

NOTE H – NOTE PAYABLE

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

NOTE I – MERGER AGREEMENT

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

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

NOTE J – OTHER ASSETS

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

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

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

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

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

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

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

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

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

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

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

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

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

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

In order to reduce expenses, the CEO continued to defer part of his salary.

Upsnap continues advanced discussions with potential strategic partners/merger and acquisition targets.

INTRODUCTION

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

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

OVERVIEW

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

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

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

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

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

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

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

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

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

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

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

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

Principal Products and Services

UpSNAP has two principal products and services:

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

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

MOBILE ENTERTAINMENT SERVICES

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

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

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

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

UpSNAP Mobile Advertising Network Platform

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

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

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

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

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

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

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

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

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

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

DISTRIBUTION AGREEMENTS

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

Carrier or “on deck” promotion – where the carrier actually promotes the service from the menu’s on the carrier handset, bills the consumer on his mobile phone bill, and takes its cuts, and then remits the balance to UpSNAP. UpSNAP has ‘on deck’ agreements with Sprint/Nextel. Recently, UpSNAP signed an “on deck” distribution agreement with Go2, one of the largest pure play mobile internet traffic sites in the USA. go2Media ^TM , a company focused on the growing user demand for more localized, personalized mobile content. The goal is to further integrate the vast UpSNAP audio services into the go2 mobile portal for the benefit of go2’s base audience of millions of U.S. mobile consumers. The initial offering utilizes go2’s one-touch calling feature to provide mobile users with quick access to audio recordings of current sports stories, scores and news. The recordings are updated several times a day. .

Off Deck Promotion – where the consumer signs up for services at www.upsnap.com , through media partner promotions, internet advertising, affiliate marketing relationships, or other media channels directly. Revenue is generated via mobile advertising or via premium subscription which is billed via a short-code or Premium SMS (PSMS) to the consumer’s mobile phone bill. UpSNAP has billing relationships in place with most major US carriers including, AT&T, T-Mobile, Sprint/Nextel, Verizon and Alltel. Current Off deck partners include, Lincoln Financial, Cablevision’ News12, Disney Radio, Interop Technologies, Sports Byline, Sporting News, as well as hundreds of smaller radio stations.

Specifically:

Cablevision’s News 12. The goal is to enable Cablevision customers to receive real time news, traffic and weather for the seven coverage areas surrounding New York City via their cell phones.

Disney Radio. UpSNAP renewed it’s partnership with the Disney Family and now offers mobile users free access to live Disney Radio. The service is available for dial-in use and also from Disney’s WAP site.

UpSNAP continues to expand their Sports offering with new products and partners:

Sports Byline USA. UpSNAP is now providing live sports talk radio feeds to mobile phone users via an agreement with Sports Byline USA. Users can listen to Sports Byline USA service on-demand for free. The Sports Byline USA network is heard on nearly 200 syndicated radio stations.

Sporting News. UpSNAP has expanded its partnership with Sporting News to offer mobile users access to two-minute Sporting News Flashes that are updated throughout the day. Sporting News Radio is a 24-hour sports radio network broadcasting live on stations from coast to coast. In addition, a new service will be launched in conjunction with one of our distribution partners and several carriers.

Revenues and Margins

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

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

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

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

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

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

SELECTED FINANCIAL INFORMATION

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

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

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

In thousands (000’s)

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

Revenue .

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

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

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

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

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

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

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

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

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

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

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

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

In thousands (000’s)

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

Revenue .

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

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

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

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

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

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

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

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

amortization and depreciation charges of $168,000 and $23,000, respectively;

extinguishment of debt of $113,000;

stock based compensation of $232,000;

non-cash charges for impairment of intangible assets of $5.3 million, and

working capital changes increased cash by $248,000, consisting primarily of a decrease of $191,000 in accounts receivable and a $59,000 increase in accrued expenses.

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

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

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

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

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

Revenue recognition

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

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

Valuation of goodwill

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

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

Stock Based Compensation

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

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

OUTSTANDING SHARE DATA

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

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

Risk Factors That May Affect Future Operating Results

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

Financial Risks

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

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

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

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

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

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

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

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

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

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

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

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

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

·	our ability to establish and strengthen brand awareness;

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

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

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

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

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

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

Business Risks

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Market Risks

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 3. CONTROLS AND PROCEDURES

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

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

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

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

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

PART II – OTHER INFORMATION

ITEM 6. EXHIBITS

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

SIGNATURES

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


	UPSNAP, INC. (Registrant)

Date: August 13, 2008		/s/ Tony Philipp

		Tony Philipp Chairman of the Board and Chief Executive Officer (Principal Executive Officer)


Date: August 13, 2008		/s/ Paul C. Schmidt

		Paul C. Schmidt Chief Financial Officer (Principal Financial Officer)

INDEX TO EXHIBITS

Exhibit No.		Description

31.1		Rule 13a-14(a)/15d-14(a) Certification of Tony Phillips, Chairman and Chief Executive Officer*

31.2		Rule 13a-14(a)/15d-14(a) Certification of Paul C. Schmidt, Chief Financial Officer*

32		Certification of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* filed herein

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