UpSnap (CEENQ) 10QSB 2006 Q1 Quarterly report (small business)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the period ended March 31, 2006

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _______ to _______

Commission File No. 000-50560

UPSNAP, INC.

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

(Former name of registrant) 

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

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

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(Address of Principal Executive Offices)

(704) 895.4121

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(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]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.  Yes [  ] No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

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 May 10, 2006
Common Stock ($.001 par value)	21,151,324

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

UPSNAP, INC.

FORM 10-QSB

For the Quarter ended March 31, 2006

TABLE OF CONTENTS

Page

Cautionary Statement and Risk Factors that May Affect Future Results		1
	PART I - FINANCIAL INFORMATION
ITEM 1.	Selected Financial Statements	7
	Balance Sheet - March 31, 2006 (unaudited)	7
	Statements of Operations - Three and Six Months Ended March 31, 2006 and 2005 (unaudited)	8
	Statements of Stockholders’ Equity - (unaudited)	9
	Statements of Cash Flows - Six Months Ended March 31, 2006 and 2005	10
	Notes to Financial Statements (unaudited)	11
ITEM 2.	Plan of Operations	21
ITEM 3.	Controls and Procedures	25
	PART II - OTHER INFORMATION
ITEM 6.	Exhibits	27
Signatures		28

Cautionary Statement and Risk Factors that May Affect Future Results

This report and other presentations made by UpSNAP, Inc. (“UPSNAP,” “We” or “Company”) contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “will,” “predicts,” “estimates,” or similar expressions. In addition, any statements concerning future financial performance (including future revenues, expenses, earnings or losses or growth rates), ongoing business strategies or prospects and possible future actions are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning UPSNAP , the performance of the industries in which it does business and economic and market factors, among other things. These forward-looking statements are not guarantees of future performance.

Risks, uncertainties and other important factors that could cause actual results to differ materially from those in forward-looking statements and from historical results include, but are not limited to, the following:

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before you purchase any of our common stock. If any of these risks or uncertainties actually occurs, our business, financial condition or results of operations could be materially adversely affected. In this event, you could lose all or part of your investment.

Financial Risks

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, customer acquisition and retention which could lead to missing financial targets.

From the inception of our operating subsidiary, UpSNAP USA, until March 31, 2006, UpSNAP USA has had accumulated net losses of $868,503. In Q1 of 2006 UpSNAP posted sales of $244,042 net of carrier charges from the sale of it’s premium subscription services for mobile content. However, we expect to continue to have net operating losses until we can expand our sales channel and implement our marketing efforts. These continued net operating losses together with our limited working capital of $1,064,616 and the uncertainties of operating in a new industry make investing in our company a high-risk proposal.

We expect to incur expenses associated with the expansion of our sales and marketing efforts and from promotional arrangements with our strategic partners. We expect that our future agreements and promotional arrangements with our strategic partners may require us to pay consideration in various forms, including the payment of royalties, license fees and other significant guaranteed amounts based upon revenue sharing agreements and the issuance of stock in certain cases. In addition, our promotional arrangements and revenue sharing agreements may require us to incur significant expenses, and we cannot guarantee that we will generate sufficient revenues to offset these expenses. 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.

To date, UpSNAP has entered into revenue share relationships with carriers and content providers at industry standard margins, and has not issued, nor is in discussion with any party to issue stock or warrants, or enter into promotional arrangements to include guaranteed minimum payments. Based on management experience, future contractual arrangements will be based upon standard revenue share relationships at industry-standard margins.

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The Company has limited resources to execute its business plan.

In September and October 2005, we raised $2,146,200 in a private placement transaction. As of March 29, 2006, we had approximately $1.05 million in cash and cash equivalents. We believe that these funds are sufficient to meet our operating needs for the next 12 months. We expect to utilize all of this cash over the next 12 months to fund our sales and marketing efforts and for general working capital purposes. As a result, 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 may not be available when needed or on terms satisfactory to us. A lack of funds may cause us to delay, reduce and/or abandon certain or all aspects of our product development programs. If additional funds are raised through the issuance of equity or convertible debt securities, your percentage ownership in us will be reduced, existing stockholders may suffer dilution. The securities that we issue to raise money may also have rights, preferences and privileges that are senior to those of our existing stockholders.

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

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

· our ability to establish and strengthen brand awareness;

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

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

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

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

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

· our ability to compete in a highly competitive market, and the introduction of new products; and

· economic conditions specific to the telecommunications and mobile services industries and general economic conditions.

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

Business Risks

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

UpSNAP relies on the US mobile carriers Verizon, Sprint/Nextel, T-Mobile, and Cingular to sell its products and collect revenues which are then passed onto UpSNAP. Although management has no reason to believe that these arrangements are going to be adversely affected in the future, it is management experience that carrier contracts are prone to change and re-negotiation. UpSNAP also relies on the content developers to enter into commercially reasonable relationship with the company to allow for the re-selling of the content to consumers. UpSNAP has over 140 content partners and is not dependent on any one content supplier.

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

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

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

We compete in the mobile search engine market. This market is becoming increasingly more competitive. We face competition from the existing search players, such as Google and Yahoo!, and newcomers to the mobile search markets, such as 4INFO, and Askmenow. There are relatively low barriers to entry into the mobile search engine market. Many of our competitors or potential competitors have longer operating histories, longer customer relationships and significantly greater financial, managerial, sales and marketing and other resources than we do. We are particularly vulnerable to efforts by well funded competitors and will lose market share unless we can attain a critical mass of consumers, strategic partners, and affiliates, as well as strong brand identity.

UpSNAP is largely dependent on one strategic relationship. We need to significantly expand our distribution channels. Failure to expand our distribution channels will result in reduced customer acquisition, and reduced revenues.

In Q1 of 2006 95.7% of our revenues were generated from the Sprint/Nextel Distribution relationship. Due to the Sprint/Nextel merger, we do not have in place a current contract with Sprint. We continue to operate under the terms of the expired contract and as such, the relationship could be terminated at any time. We are working towards formalizing an ongoing contract with Sprint. In order to decrease our dependence on one major US carriers, we need to enhance our ability to find new strategic partners in order to create additional distribution channels for our products and to generate increased revenues. We expect that we will need to invest on an ongoing basis to expand our partner sales force. The creation of strategic partnerships requires a sophisticated sales effort targeted at the senior management of prospective partners. Given our limited budget of $150,000 dedicated to this effort, we expect that we will have a hard time trying to expand the number of strategic partners and other distributors for our products.

We plan to build our business through merger with or acquisition of existing technology companies but may not be successful in finding merger or acquisition partners. In addition we may need to seek additional finance to support the acquisitions. The financing and acquisitions will most likely involve the issuance of common stock, which may result in dilution of the current shareholders.

We plan to build our business through the merger with or acquisition of existing technology companies that will benefit our application service business. It is reasonable to expect that such activity will be an ongoing part of our business development efforts. At any given time, we could be in process of analyzing or making an offer for such a transaction. However, any discussion or speculation on specific transactions is only conjecture until such time that a definite agreement is signed and announced in an SEC filing. It is possible that no transactions will take place at all.

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

Our ability to compete effectively is dependent upon our ability to protect and preserve the intellectual property and other proprietary rights and materials owned, licensed or otherwise used by us. We currently have a patent- pending technology. We cannot assure you that the patent application will result in an issued patent, and failure to secure rights under the patent application may limit our ability to protect the intellectual property rights that the application was intended to cover. Although we have attempted to protect our intellectual property and other proprietary rights both in the United States and in foreign countries through a combination of patent, trademark, copyright and trade secret protection, these steps may be insufficient to prevent unauthorized use of our intellectual property and other proprietary rights, particularly in foreign countries where the protection available for such intellectual property and other proprietary rights may be limited. To date, we are not currently engaged in and have not had any material infringement or other claims pertaining to our intellectual property brought by us or against us in recent years. We cannot assure you that any of our intellectual property rights will not be infringed upon or that our trade secrets will not be misappropriated or otherwise become known to or independently developed by competitors. We may not have adequate remedies available for any such infringement or other unauthorized use. We cannot assure you that any infringement claims asserted by us will not result in our intellectual property being challenged or invalidated,

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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 not have sufficient resources to manage this growth effectively, which could lead to loss of customers through poor service and support.

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

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

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

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

As of March 29, 2006, officers, directors, and stockholders holding more than 5% of our outstanding shares collectively controlled approximately 68.9% of our outstanding common stock. As a result, these stockholders, if they act together, would be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Accordingly, this concentration of ownership may harm the market price of our common stock by delaying or preventing a change in control of us, even if a change is in the best interests of our other stockholders.

In addition, the interests of this concentration of ownership may not always coincide with the interests of other stockholders, and accordingly, they could cause us to enter into transactions or agreements that we would not

otherwise consider. No officers or directors of UpSNAP are currently or have ever been affiliated with any of the greater than 5% beneficial owners.

Market Risks

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

Our common stock is quoted on the NASD Over-the-Counter Bulletin Board. Our common stock is thinly traded and has little to no liquidity. The stock has a low-trading volume, a limited number of market makers, and a limited

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number of round lot holders. As a result, investors may find it difficult to dispose of our securities. This lack of liquidity of our common stock will likely will have an adverse effect on the market price of our common stock and on our ability to raise additional capital.

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

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

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

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

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

Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock. We have authorized 97,500,000 shares of common stock. As of March 31, 2006, we have outstanding 21,151,324 shares of common stock. Accordingly, we have 76,348,676 shares of common stock available for future sale.

As additional shares of our common stock become available for resale in the public market, the supply of our common stock will increase, which could decrease its price. Some or all of the shares of common stock may be offered from time to time in the open market under Rule 144, and these sales may have a depressive effect on the market for our shares of common stock. In general, a person who has held restricted shares for a period of one year may, on filing with the SEC a notification on Form 144, sell into the market common stock in an amount equal to 1% of the outstanding shares for Bulletin Board Companies. Such sales may be repeated once each three months, and any of the restricted shares may be sold by a non-affiliate after they have been held for two years.

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:

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· 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.

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PART I

ITEM 1. SELECTED FINANCIAL STATEMENTS

UPSNAP, INC.

CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 2006

UNAUDITED

ASSETS
Current Assets
Cash	$	1,064,637
Accounts receivable		110,423
Other current assets		32,833
TOTAL CURRENT ASSETS		1,207,893
PROPERTY & EQUIPMENT (Note H)
Computer and office equipment		163,287
Accumulated Depreciation		(8,470	)
NET PROPERTY & EQUIPMENT		154,817
OTHER ASSETS
Other intangibles (Note K)		1,593,773
Goodwill (Note K)		4,677,862
Security deposits		1,115
TOTAL ASSETS	$	7,635,459
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	142,815
Total Other Current Liabilities		463
TOTAL CURRENT LIABILITIES		143,277
LONG TERM LIABILITIES
Notes Payable		113,500
TOTAL LIABILITIES		256,777
Commitments (Note I)
STOCKHOLDERS' EQUITY (Note C and D)
Common stock, par value $0.001, 97,500,000 authorized,		21,151
issued and outstanding 21,151,324 shares at March 31, 2006
Additional paid-in capital		8,226,034
Accumulated deficit		(868,503	)
TOTAL STOCKHOLDERS' EQUITY		7,378,682
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	7,635,459

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

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UPSNAP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2006 AND 2005

UNAUDITED

	Three Months Ended March 31,						Six Months Ended March 31,
	2006			2005			2006			2005
SALES AND COST OF SALES
Sales	$	244,042		$	-		$	244,042		$	-
Cost of Sales		107,046			-			110,576			-
Gross Profit		136,996			-			133,466			-
OPERATING EXPENSES
Product development		113,211			27,504			199,153			53,205
Sales and marketing expenses		57,856			58			104,531			9,103
General and administrative		288,325			8,807			516,815			16,497
Total Expense		459,393			36,369			820,499			78,804
Net operating income		(322,396	)		(36,369	)		(687,033	)		(78,804	)
Other income and expense
Interest income		4,890			-			4,890			-
NET LOSS	$	(317,506	)	$	(36,369	)	$	(682,443	)	$	(78,804	)
Net loss per share	$	(0.02	)	$	(0.01	)	$	(0.04	)	$	(0.02	)
Weighted average common shares outstanding:
Basic and diluted		20,993,802			4,013,100			16,396,022			4,013,100

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

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UPSNAP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY

FOR THE PERIOD SEPTEMBER 30, 2004 TO MARCH 31, 2006

UNAUDITED

	Common Stock
										Total
					Additional					Stockholders'
					Paid-in		Accumulated			Equity
	Shares		Par Value		capital		Deficit			(Deficit)
Balances, September 30, 2004				-	$	27,474	$	(27,474	)	$	-
											-
Donated capital						119,525					119,525
Shares issued for cash ($.0003 per share)		12,999,999		1,300		1,700					3,000
Net loss								(158,586	)		(158,586	)
Balances, September 30, 2005		12,999,999		1,300		148,699		(186,060	)		(36,061	)
Shares issued in connection with reverse merger		5,788,495		17,488		2,079,623					2,097,112
Shares issued in connection with XSVoice acquisition		2,362,830		2,363		5,997,712					6,000,074
Net loss								(682,443	)		(682,443	)
Balances, March 31, 2006		21,151,324	$	21,151	$	8,226,034		($868,503	)	$	7,378,682

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

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UPSNAP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTH PERIODS ENDED MARCH 31, 2006 AND 2005

UNAUDITED

	For the six month period ended March 31, 2006			For the six month period ended March 31, 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(682,443	)	$	(78,804	)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation		8,470			-
Changes to goodwill		(36,408	)		-
CHANGES IN CURRENT ASSETS AND CURRENT
LIABILITIES: (Net of effect of acquisition)
Accounts receivable		(38,801	)		-
Other current assets		(29,833	)		-
Deposits		(1,115	)		-
Accounts payable and accrued expenses		122,255			-
Other current laibilities		(16,200	)		-
NET CASH USED FOR OPERATING ACTIVITIES		(656,308	)		(78,804	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash to acquire XSVoice, Inc.		(243,241	)		-
Cash received from the company merger		1,919,662			-
Purchase of equipment		(131,087	)		-
NET CASH PROVIDED BY INVESTING ACTIVITIES		1,545,334			-
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock		-			3,000
Donated capital		-			82,432
NET CASH PROVIDED BY FINANCING ACTIVITIES		-			85,432
NET INCREASE IN CASH		889,026			6,628
CASH, beginning of period		175,611			-
CASH, end of period	$	1,064,637		$	6,628
Taxes paid	$	-		$	-
Interest paid	$	-		$	-
Other non-cash investing and financing activities:
Shares issued in connection with reverse merger	$	2,097,112		$	-
Shares issued in connection with XSVoice acquisition	$	6,000,074		$	-

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

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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 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto incorporated by reference in the Company’s Annual Report on SEC Form 10-KSB for the year ended September 30, 2005.

In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all material adjustments required by GAAP to present fairly the financial position of UPSNAP, INC. and its subsidiaries as of March 31, 2006 and the results of their operations for the three and six month periods ended March 31, 2006 and 2005 and their cash flows for the six months ended March 31, 2006 and 2005. All such adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-QSB or other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year.

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

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

Organization

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

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

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

On January 6, 2006, the Company completed the purchase of XSVoice, Inc., a privately held wireless platform and application developer, by acquiring substantially all of the assets of XSVoice, Inc. for a total purchase price of $6.3 million. XSVoice, Inc.’s results of operations have been included in the consolidated financial statements since the date of acquisition. See Note K.

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The consolidated financial statements include the operations of UpSNAP, Inc. from November 15, 2005 through March 31, 2006.

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

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of consolidation

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

Use of Estimates

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

Cash and cash equivalents

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

Property and equipment

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

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

Disclosure about Fair Value of Financial Instruments

The Company estimates that the fair value of all financial instruments at March 31, 2006, as defined in FASB 107, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheet. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

Research and Development Expenditures

Research and development expenses consist primarily of web hosting and communication expenses. 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.

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Revenue Recognition

The Company receives revenue from the wireless carriers by providing streaming audio content that the carriers make available to their mobile handset customers. The Company recognizes revenue on the net funds received from the wireless carriers. 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 carriers provide the service to their mobile handset user and remit a percentage of revenues generated to the Company, therefore the Company recognizes as revenue only the net fees realized on the transactions.

The Company also contracts with third party content providers who are paid by the Company a fixed percentage of the net revenues received by the Company from the carriers. The payments to these third party content providers are treated as cost of sales.

Dividends

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

Long-lived assets

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

Accounting Policy for Impairment of Intangible Assets

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

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.

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Advertising costs

The Company expenses all advertising as incurred. For the six month periods ended March 31, 2006 and 2005 the Company incurred advertising expense of $10,053 and $0 respectively. During the three months ended March 31, 2006 and 2005, the Company incurred approximately $3,952 and $0, respectively for advertising expense.

Income Taxes

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

Loss per common share

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

Recent Accounting Pronouncements

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

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

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

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

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NOTE C - STOCKHOLDERS’ EQUITY

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

Donated capital represents Company expenses paid by certain directors of the Company totaling $146,999 during the period from inception to September 30, 2005.

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

On November 15, 2005, the closing under the Definitive Share Exchange Agreement occurred. 11,730,000 shares of common stock were issued to the stockholders of UpSNAP USA, Inc. Additionally, 370,000 shares of common stock and 560,000 warrants were issued to an investment banking firm in consideration for services provided. (See Note D).

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

NOTE D - WARRANTS

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

During September - October 2005, the Company issued Series A warrants to purchase 2,384,668 shares of common stock at $1.50 per share, in conjunction with the Company’s Private Placement. The fair value of the warrants in the amount of $1,935,260 was recorded as a debit and credit to additional paid in capital so there was no net impact on equity. The Private Placement warrants have a five-year life.

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

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

The following table summarizes information about warrants outstanding at March 31, 2006:

	Shares Exercisable	Exercise Price	Date of Expiration
Series A Warrant: Issued in conjunction with Private Placement	2,384,668	$1.50	September - October 2010
Series B Warrant: Issued for investor relations services	2,200,000	$1.10	October 2010
Viant Capital LLC Warrant	560,000	$0.90	November 2010
Total	5,144,668

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At March 31, 2006, a total of 5,144,668 warrants remain outstanding. All warrants are fully vested and exercisable upon issuance.

NOTE E - INCOME TAXES

For the twelve month period ended September 30, 2005, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At March 31, 2006, the Company had approximately $462,979 of accumulated net operating losses. The net operating loss carryforwards, if not utilized, will begin to expire in 2024.

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

	As of September 30
	2005
Deferred tax assets:
Net operating loss carryforwards	$	682,442
Total deferred tax assets		682,442
Net deferred tax assets before valuation allowance		682,442
Less: Valuation allowance		(682,442	)
Net deferred tax assets	$	-0-

For financial reporting purposes, the Company has incurred a loss since its inception. The Company provided for a full valuation allowance against its net deferred tax assets at March 31, 2006.

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

	Twelve Month Period Ended September 30
	2005
Federal and state statutory rate	$	238,854
Change in valuation allowance on deferred tax assets		(238,854	)
	$	0

NOTE F - GOING CONCERN

As shown in the accompanying financial statements, the Company has accumulated net losses from operations from inception through March 31, 2006 totaling $868,503, and as of March 31, 2006, has had limited revenues from operations. These factors raise substantial uncertainty about the Company’s ability to continue as a going concern.

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

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NOTE G - CONCENTRATION OF CREDIT RISK

The Company has deposits of $964,637 in a bank in excess of federally insured limits at March 31, 2006. The amount has not been reduced by items recorded in the account not yet clearing the bank.

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

NOTE H - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at March 31, 2006:

Fixed Assets
Computer and office equipment	$	163,286.70
Computer Equipment		159,286.70
Office Equipment		1,000.00
Office Furniture		3,000.00
Accumulated Depreciation		(8,470.12	)
Total Fixed Assets	$	154,816.58

Depreciation expense for the six months ended March 31, 2006 and 2005 was $8,470 and $ 0 , respectively.

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

NOTE I - COMMITMENTS

In March 2006, the Company began a lease for approximately 1800 square feet of office space. The lease extends through February 28, 2007 at a rate of $2,250 per month. .Future maturities associated with this commitment are as follows:

Year Ended September 30	Amount
2006	$13,500
2006	$11,250

NOTE J - RELATED PARTY TRANSACTION

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

NOTE K - ACQUISTION OF XSVOICE, INC.

On January 6, 2006, the Company completed the purchase of XSVoice, Inc., a privately held wireless platform and application developer, by acquiring substantially all of the assets of XSVoice, Inc. for a total purchase price of $6.3 million. XSVoice, Inc.’s results of operations have been included in the consolidated financial statements since the date of acquisition.

As a result of the acquisition, the Company acquired XSVoice's proprietary SWInG (Streaming Wireless Internet Gateway) technology, which enables mobile access to virtually any type of audio content, including Internet-based streaming audio, radio, television, satellite or other audio source. The acquisition also allowed the Company to gain access to carrier distribution channels and premium content provider relationships.

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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 2,258,470 common shares issued 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	$	71,621.43
Property, plant, and equipment
Computer equipment		28,200.00
Office equipment		1,000.00
Office furniture		3,000.00
SWinG copyright		1,345,040.00
Customer relationships		104,000.00
Employment contracts		78,000.00
Supplier contracts		84,500.00
Goodwill		4,791,361.53
Total assets acquired		6,506,722.96
Note payable		(113,500.00	)
Total liabilities assumed		(113,500.00	)
Net assets acquired	$	6,393,222.96

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

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

NOTE L - PROFORMA INFORMATION

The unaudited pro forma consolidating statement of operations give effect to the reverse merger and XSVoice acquisition as if it had occurred at the beginning of the six month period ended March 31, 2006 and the fiscal year ended September 30, 2005. The unaudited pro forma consolidating financial statements are based on available information and the assumptions and adjustments described in the accompanying notes. The unaudited pro forma consolidating financial statements do not purport to represent what the results of operations actually would have been if the events described had occurred as of the dates indicated or what such results will be for any future periods.

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

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UPSNAP, INC.

PRO-FORMA CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS

YEAR ENDED SEPTEMBER 30, 2005

UNAUDITED

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

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

See Notes to Financial Statements

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UPSNAP, INC.

PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED MARCH 31, 2006

UNAUDITED

	Consolidated UpSNAP, Inc. 10/1/2005 - 3/31/2006				UpSNAP, Inc. fka Manu Forti Group 10/1/2005 - 11/15/2005			XSVoice, Inc. 10/1/2005 -1/6/2006				Pro-Forma Entries				3/31/06 Pro-Forma Consolidated
SALES AND COST OF SALES
Sales	$	244,042.17					$	218,137.76							$	462,179.93
Cost of Sales		110,576.29						134,864.64								245,440.93
Gross Profit		133,465.88						83,273.12								216,739.00
OPERATING EXPENSES													-
Product development		199,152.79						21,666.64					-			220,819.43
Sales and marketing expenses		104,530.91						-								104,530.91
General and administrative		516,815.41			3,808,334.71			558,454.03								4,883,604.15
																-
Total Expense		820,499.11			3,808,334.71			580,120.67								5,208,954.49
																-
Net operating income (loss)		(687,033.23	)		(3,808,334.71	)		(496,847.55	)							(4,992,215.49	)
Other income and expense
Other Income		-						68,926.44		(1	)		(68,926.44	)		-
Interest income		4,890.39			162.74											5,053.13
Interest expense		300.00						40,896.91		(1	)		(40,896.91	)		300.00
																-
NET LOSS	$	(682,442.84	)	$	(3,808,171.97	)	$	(468,818.02	)			$	(28,029.53	)	$	(4,987,462.36	)

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

See Notes to Financial Statements

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ITEM 2. PLAN OF OPERATIONS.

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

BUSINESS OVERVIEW

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

General

Consumer interest and spend on mobile phones and services are showing the highest growth rates ever. In the US, according to the Cellular Telecommunications & Internet Assocation (CTIA) wireless subscribers grew by 25 million from June 2004 to June 2005. There are now some 195 million currently subscribed cell phone users in the US according to the CTIA.

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

According to CTIA figures, approximately 10 billion text messages will be sent each month in 2006, and approximately 7 billion were sent each month in 2005. For the same period in 2004, there were 2 billion text messages sent each month - representing a growth of 350% year to year according to the CTIA.

UpSNAP operates in the United States only.

Mobile Search Business Model

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

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

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

The business model is a media model - reliant on the sale of subscriptions and advertising from content-based services.

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

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

Principal Products and Services

UpSNAP has four principal products and services:

1 Mobile Search Engine Platform

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

3 SWinG streaming audio platform

4 Premium audio content supplied from content partners

MOBILE SEARCH ENGINE PLATFORM

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

Similarly, consumers looking for sports scores, for example, will receive a text message advertising UpSNAP premium sports services. The short-code can also be used for Premium Text Messaging Services (PSMS) which are directly billed by the carriers, and included on the consumers phone bill. UpSNAP has PSMS services provisioned for billing with most of the major US carriers including, Cingular, Sprint/Nextel, T-Mobile and Alltel. These short-codes at present will only work on US handsets, limiting the geographic coverage of the service to those areas in the United States with cell-phone coverage. Our mobile search engine was launched live to consumers in November 2005.

PAY-PER-CALL ADVERTISING PLATFORM

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

UpSNAP has a Voice Over Internet Protocol (VoIP) switch which seamlessly bridges the merchant telephone number with the consumer via a call connect. Our Pay Per Call advertising platform can then record the number of calls received by a merchant and produce an audit trail for a billing engine. UpSNAP partners with specialized “Pay-Per-Call” companies, that sign-up advertisers nationwide throughout the US for this type of advertising. Our pay-per-pall Advertising platform technology was built in 2005, and our first advertising partner is being integrated ready for launch in Q2 of 2006.

SWING STREAMING AUDIO PLATFORM

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

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FREE AND PREMIUM MOBILE CONTENT

Our catalog of free and premium streaming audio content delivers compelling content from some of the world’s premier brands including Fan Scan, the Nascar in car-audio application on Sprint/Nextel, ABC, FOX News, ESPN Radio, ESPN Deportes, Radio Disney & Botanga. The catalogue of content includes over 130 radio stations, with a wide selection of content ranging from Christian Radio to Hip-Hop.

DISTRIBUTING AGREEMENTS

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

1 Carrier or “on deck” promotion - where the carrier actually promotes the service from the menu’s on the carrier handset, bills the consumer on their mobile phone bill, and takes its cuts, and then remits the balance to UpSNAP. UpSNAP has ‘on deck’ agreements with Sprint/Nextel.

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

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

Plan of Operations

In Q1 of 2006 UpSNAP posted sales of $244,042 net of carrier charges from the sale of its premium subscription services for mobile content. These revenues were largely generated from sales of its Fan Scan Nascar in-car Audio content, sold via Sprint/Nextel and premium music radio sales.

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

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

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

As of March 31st we have a total of six full time employees and three full-time contractors working for UpSNAP. We do not expect significant increases in employees, but do expect incremental additions in line with revenues in all areas of the business.

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RESULTS OF OPERATIONS

SIX-MONTH PERIOD ENDED MARCH 31, 2006 COMPARED TO SIX-MONTH PERIOD ENDED MARCH 31, 2005

Our net losses during the six-month period ended March 31, 2006 were $682,443 compared to a net loss of $78,804 during the six-month period ended March 31, 2005.

The Company was a development stage company during the six month period ended March 31, 2005. Activities were primarily limited to outside contractors performing product development work, marketing costs, and officer’s travel expenses.

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

The Company commenced generating revenue immediately after the XSVoice, Inc. acquisition on January 6, 2006, resulting in revenues of $244,042 for the six month period and gross profit of $133,466. All of the revenues were generated from former XSVoice customers.

During the six-month period ended March 31, 2006, we incurred operating expenses of $820,499 compared to operating expenses of $78,804 incurred during the six-month period ended March 31, 2005, The increase in operating expenses during the six-month period ended March 31, 2006 from the same period in 2005 resulted from: (i) an increase of $145,949 in product development costs as the Company added personnel to support both the acquired streaming audio technology from XSVoice, Inc. as well as the Company’s mobile search platform, (ii) an increase of $95,428 reflecting the addition of a director of marketing position and public relations efforts, and (iii) an increase of $500,318, in general and administrative expenses resulting from increased operating costs associated with increased operations and professional fees related to our SEC filings and filing of a registration statement of form SB-2.

For the six months ended March 31, 2006, our net loss was ($682,443) or ($0.04) per common share compared to a net loss of ($78,804) or ($0.02) per common share for the six month period ended March 31, 2005.

THREE-MONTH PERIOD ENDED MARCH 31, 2006 COMPARED TO THREE-MONTH PERIOD ENDED MARCH 31, 2005

Our net losses during the three-month period ended March 31, 2006 were $317,506 compared to a net loss of $36,369 during the three-month period ended March 31, 2005. During the three-month period ended March 31, 2006, we generated $244,042 in net revenues compared to no net revenues for the three-months ended March 31, 2005. The increase in revenues is due to the XSVoice acquisition which closed on January 6, 2006.

During the three-month period ended March 31, 2006, we incurred operating expenses of $459,393 compared to operating expenses of $36,369 incurred during the three-month period ended March 31, 2005. The increase in operating expenses during the three-month period ended March 31, 2006 from the same period in 2005 resulted from: (i) an increase of $85,707 in product development costs as the Company added personnel to support both the acquired streaming audio technology from XSVoice, Inc. as well as the Company’s mobile search platform, (ii) an increase of $68,798 reflecting the addition of a director of marketing position and public relations efforts, and (iii) an increase of $279,518, in general and administrative expenses resulting from increased operating costs associated with increased operations and professional fees related to our SEC filings and filing of a registration statement of form SB-2.

For the three months ended March 31, 2006, our net loss was ($317,506) or ($0.02) per common share compared to a net loss of ($36,369) or ($0.01) per common share for the six month period ended March 31, 2005.

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LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2006, our current assets were $1,207,893 and our current liabilities were $143,277, which resulted in net working capital of $1,064,616. As of March 31, 2006, our total assets were $7,635,459 consisting of: (i) $1,064,637 in cash; (ii) $32,833 in prepaid expenses and other current assets; (iii) $110,423 in accounts receivable; (iv) $720,758 in net valuation of property and equipment (v) $1,593,733 in other intangibles and $4,677,862 in goodwill which were both resultant from the XSVoice acquisition.

As of March 31, 2006, our total liabilities were $256,777 consisting of: (i) $143,277 in accounts payable and accrued expenses; and (ii) $113,500 in a note assumed as part of the XSVoice, Inc. acquisition.

For the six months ended March 31, 2006, net cash flow used by operating activities was $656,308 compared to net cash used in operating activities of $78,804 for the six months ended March 31, 2005. The increase in cash flows used in operating activities is mainly due to the increase in operating loss for the period.

Net cash flows provided by investing activities amounted to $1,545,334 for the six months ended March 31, 2006 compared to none for the six months ended March 31, 2005. The Company received $1,919,662 in cash as part of the reverse merger. In addition, the Company spent $243,241 in cash as consideration and professional fees for the XSVoice acquisition and $131,087 to purchase computer equipment to support the expanding product development efforts.

There was no net cash flow provided by financing activities for the six months ended March 31, 2006 compared to $85,432 for the six months ended March 31, 2005 resulting primarily from donated capital from the Company’s founders.

In summary, based upon the cash flow activities as previously discussed, for the six months ended March 31, 2006, our overall cash position increased by $889,026

Overall, we have funded our cash needs from inception through March 31, 2006 with the $2,146,200 in funds acquired as part of the September - October 2005 Private Placement.

We had cash on hand of $1,064,637 and a working capital surplus of $1,064,616 as of March 31, 2006. Our cash on hand is sufficient to fund our current operating plan through the next twelve months without additional sources of capital. While we are hopeful that we will raise additional funds through the exercise of our warrants, which if exercised will yield an additional $6,501,002.

If we choose to launch a more aggressive operating plan and cash flow from existing operations is not sufficient, management may seek long-term financing through additional debt or equity financing to fund the rollout of an expanded product line.

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"). 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 securities counsel and 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 through 31.4, 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.

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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, and that our Internal Controls are effective at that assurance level to provide reasonable assurance that our financial statements are fairly presented inconformity with accounting principals generally accepted in the United States. Additionally, there has been no change in our Internal Controls that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to affect, our Internal Controls.

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PART II

ITEM 6. EXHIBITS

Exhibit No.	Description
2.1	Share Exchange Agreement, dated November 15, 2005, by and among Upsnap, Inc. and the former stockholder of UpSNAP USA*
3.1.1	Articles of Incorporation as filed with the Secretary of State of the State of Nevada on July 25, 2003*

3.1.2	Certificate of Amendment filed on November 7, 2005*
3.2	Bylaws adopted on July 25, 2003*
10.1	Form of Subscription Agreement for September 2005 Private Placement*
10.2	Form of Registration Rights Agreement for September 2005 Private Placement*
10.3	Debt Conversion Agreement, dated October 31, 2005, among UpSnap, Inc., 518464 B.C. Ltd., Art Mapp Communications, Inc., Jason Sundar, and Yvonne New*
10.4	Form of Series A Warrant*
10.5	Form of Series B Warrant*
10.6	Directors and Officers Insurance Policy, dated October 18, 2005*
10.7	Confirmatory Assignment, dated June 1, 2005, by and between UpSNAP USA, Inc. and Alto Ventures, Inc.*
10.8	Assignment of Patent Application, dated June 1, 2005, by and between UpSNAP USA, Inc. and Alto Ventures, Inc.*
10.9	Asset Purchase Agreement, dated January 6, 2006, by and between UpSNAP, Inc. and XSVoice, Inc.*

10.10	Nextel Online Handset Placement Agreement
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.

_________________________________

*Incorporated by reference.  See Exhibit Index.

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SIGNATURES

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

	UPSNAP, INC. (Registrant)
Date: May 15, 2006	/s/ Tony Philipp
	Tony Philipp
	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
Date: May 15, 2006	/s/ Paul C. Schmidt
	Paul C. Schmidt
	Chief Financial Officer (Principal Financial Officer)

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INDEX TO EXHIBITS

Exhibit No.	Description
2.1	Share Exchange Agreement, dated November 15, 2005, by and among Upsnap, Inc. and the former stockholder of UpSNAP USA (incorporated by reference to Exhibit 2.1 in our current report on Form 8-k filed on November 16, 2005)
3.1.1	Articles of Incorporation as filed with the Secretary of State of the State of Nevada on July 25, 2003 (incorporated by reference to Exhibit 3.1 in our Registration Statement SB-2 filed on September 18, 2003)
3.1.2	Certificate of Amendment filed on November 7, 2005 (incorporated by reference to Exhibit 3.1 in our current report on Form 8-K filed on November 16, 2005)
3.2	Bylaws adopted on July 25, 2003 (incorporated by reference to Exhibit 3.2 in our Registration Statement SB-2 filed on September 18, 2003)
10.1	Form of Subscription Agreement for September 2005 Private Placement (incorporated by reference to Exhibit 10.1 in our quarterly report for the fiscal period ended on September 2005)
10.2	Form of Registration Rights Agreement for September 2005 Private Placement (incorporated by reference to Exhibit 10.2 in our quarterly report for the fiscal period ended on September 2005)
10.3	Debt Conversion Agreement, dated October 31, 2005, among UpSnap, Inc., 518464 B.C. Ltd., Art Mapp Communications, Inc., Jason Sundar, and Yvonne New. (incorporated by reference to Exhibit 10.3 in our quarterly report for the fiscal period ended on September 2005)
10.4	Form of Series A Warrant (incorporated by reference to Exhibit 10.4 in our quarterly report for the fiscal period ended on September 2005)
10.5	Form of Series B Warrant (incorporated by reference to Exhibit 10.5 in our quarterly report for the fiscal period ended on September 2005)
10.6	Directors and Officers Insurance Policy, dated October 18, 2005 (incorporated by reference to Exhibit 10.6 in our transitional annual report for the fiscal period from March 31, 2005 to September 30, 2005)
10.7	Confirmatory Assignment, dated June 1, 2005, by and between UpSNAP USA, Inc. and Alto Ventures, Inc. (incorporated by reference to Exhibit 10.7 in our quarterly report for the fiscal period ended on December 31, 2005)
10.8	Assignment of Patent Application, dated June 1, 2005, by and between UpSNAP USA, Inc. and Alto Ventures, Inc. (incorporated by reference to Exhibit 10.7 in our transitional annual report for the fiscal period from March 31, 2005 to September 30, 2005)
10.9	Asset Purchase Agreement, dated January 6, 2006, by and between UpSNAP, Inc. and XSVoice, Inc. (incorporated by reference to Exhibit 10.1 in our current report on Form 8-K filed on January 12, 2006)
10.10	Nextel Online Handset Placement Agreement
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.

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