A fine game but explain the upgrade system.
A throwback to a type of game I haven't seen in ages. The gameplay is solid, though the reaction speed required from the player can change radically from on moment to the next in certain levels (to be expected when you don't have that many chapters, I suppose but still).
The upgrade system is is both the game's best asset as well as (currently) it's biggest flaw. By making you capable of upgrading while in mid combat you instantly feel the reward of playing and collecting power-ups since the upgrades are noticeable immediately, though I think you crammed too many power-ups in the first few levels compared to the significantly smaller amount you find in later levels.
The real flaw is that you haven't explained how the power-up system works. A few questions that flew through my mind were: "What, do the upgrades stop after the xth level?" "Do I get a bonus for gathering 6 upgrades?", "Huh, is there a limit to the amount with which I can upgrade something (yet I can still waste points by spending them in the same place)?" and "When I died just now, did I just lose an upgrade or two?".
By answering those few question's ahead of time you warn people that they should be more careful with their upgrades and spend them more strategically, rather then thinking that things would be just fine even if they didn't spend it wisely at first.