U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

                                   (Mark One)

 [X]     QUARTERLY  REPORT  PURSUANT  TO  SECTION 13 OR 15(D) OF THE SECURITIES
                             EXCHANGE  ACT  OF  1934

                 For the quarterly period ended  MARCH 31, 2002
              ----------------------------------------------------

 [ ]     TRANSITION  REPORT  PURSUANT  TO  SECTION 13 OR 15(D) OF THE SECURITIES
                             EXCHANGE  ACT  OF  1934

                        For the transition period from to
                      ------------------------------------

                         Commission  File  No.  0-27649
                       ----------------------------------

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

Washington                                                            58-2441311
----------                                                            ----------
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)

            1411 FOURTH AVENUE - SUITE 629 SEATTLE, WASHINGTON 98101
                    (Address of principal executive offices)

                                 (206)  903-3116
                (Issuer's telephone number, including area code)

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
                                 ---        ---

State the number of shares outstanding of each of the issuer's classes of common
    equity as of the latest practicable date: As of May 15, 2002, 44,173,400
      shares of common stock, $.0001 par value were outstanding. (Excludes
45,000,000 shares registered in the Company's name and deposited into a custody
      account to support loan transaction to the Company. See Footnote F )

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


<PAGE>
<TABLE>
<CAPTION>
                                                          INDEX


PART I - Financial Information                                                                                       Page
<S>                                                                                                                  <C>

Item 1.   Financial Statements
------------------------------

Consolidated balance sheets at September 30, 2001 (audited) and March 31, 2002 (unaudited). . . . . . . . . . . . .     3

Consolidated statements of operations for the three and six months ended March 31, 2001 and 2002 (unaudited) and
cumulative since inception (February 5, 1997) through March 31, 2002 (unaudited). . . . . . . . . . . . . . . . . .     4

Consolidated statement of stockholders' equity since inception through September 30, 2001 and for the six months
ended March 31, 2002 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5-7

Consolidated statement of cash flows for the six months ended March 31, 2001 and 2002 (unaudited) and
Cumulative since inception (February 5, 1997) through March 31, 2002 (unaudited). . . . . . . . . . . . . . . . . .     8

Notes to the Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     9


Item 2.  Management's Discussion and Analysis or Plan of Operation  . . . . . . . . . . . . . . . . . . . . . . . .    12
-------------------------------------------------------------------

PART II - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    15

Item 1.  Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    15
-------  -----------------

Item 2.  Changes In Securities and Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    15
-------  -----------------------------------------

Item 5.  Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16
-------  -----------------

Item 6.  Exhibits and Reports on Form 8 - K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16
-------  ----------------------------------

Signatures
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                        Upgrade International Corporation and Subsidiaries
                               (A development stage enterprise)

                                 CONSOLIDATED BALANCE SHEETS

                                            ASSETS

                                                                 September 30,    March 31,
                                                                     2001           2002
                                                                 -------------  -------------
<S>                                                              <C>            <C>
                                                                                 (unaudited)

CURRENT ASSETS
  Cash and cash equivalents                                      $  2,551,465   $    668,786
  Restricted deposit                                                  300,000        300,000
  Subscriptions receivable                                            500,000            -0-
  Note receivable from related party                                  135,243        135,300
  Prepaid expenses, deposits and other                                110,022         92,583
                                                                 -------------  -------------

      Total current assets                                          3,596,730      1,196,669

PROPERTY AND EQUIPMENT - AT COST,
  less accumulated depreciation and amortization                    2,071,663      1,750,458

SPUTTERING MACHINE, held for sale                                   2,000,000      2,000,000

ADVANCES TO ROCKSTER GROUP                                          1,084,000      1,590,500

OTHER ASSETS
  Intangible and deferred assets, net of accumulated
  amortization                                                        466,256        889,033
  Acquisition deposits                                              1,820,715      1,820,715
  Deposits                                                            194,128        194,128
                                                                 -------------  -------------

      Total assets                                               $ 11,233,492   $  9,441,503
                                                                 =============  =============

                           LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
  Accounts payable                                               $  3,853,950   $  4,825,003
  Payable to related parties                                        5,503,022      3,271,911
  Accrued liabilities                                               2,972,713      2,781,733
  Notes payable                                                     1,717,231      1,967,594
  Equipment purchase contract payable                               2,024,748      2,024,748
  Royalty and license fee payable to CardTech, Inc.                 1,161,873      2,426,918
                                                                 -------------  -------------

      Total current liabilities                                    17,233,537     17,297,907

CONVERTIBLE DEBENTURES, net of unamortized discount                 2,004,488      1,075,756
LOAN PAYABLE                                                              -0-      1,210,000

MINORITY INTEREST                                                   1,473,179            -0-

COMMITMENTS AND CONTINGENCIES                                               -              -

STOCKHOLDERS' DEFICIT
  Common stock - $.0001 par value, 250,000,000 shares authorized       24,524         40,059
  Stock subscriptions                                               2,742,586      1,793,248
  Additional paid in capital                                       53,947,618     74,776,915
  Deferred compensation                                              (498,559)      (407,686)
  Receivable from stockholders of subsidiary                         (266,621)      (266,621)
  Accumulated development stage deficit                           (65,427,260)   (86,078,075)
                                                                 -------------  -------------
                                                                   (9,477,712)   (10,142,160)
                                                                 -------------  -------------

      Total liabilities and stockholders' deficit                $ 11,233,492   $  9,441,503
                                                                 =============  =============
</TABLE>

The accompanying notes are an integral part of these statements.


                                        3
<PAGE>
<TABLE>
<CAPTION>
                                Upgrade International Corporation and Subsidiaries
                                        (A development stage enterprise)

                                 CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


                                                                                                              Cumulative
                                                                                Three months ended            results of
                                                 Six months ended March 31,          March 31,             operations since
                                                --------------------------  --------------------------        inception
                                                    2001          2002          2001          2002       (February 5, 1997)
                                                ------------  ------------  ------------  ------------  -------------------
<S>                                             <C>           <C>           <C>           <C>            <C>
Costs and expenses                               (unaudited)   (unaudited)   (unaudited)   (unaudited)       (unaudited)

   Research and development                     $ 3,539,415   $ 2,609,469   $  1,124,990   $   830,799    $     17,141,872
   Purchased in-process research & development            -             -              -             -           5,971,603
   Sales and marketing                            1,135,651       141,214        421,814        33,824           5,380,019
   General and administrative                     7,089,692     5,361,813      5,489,902     3,040,715          28,292,470
                                                ------------  ------------  ------------  ------------  -------------------
                                                 11,764,758     8,112,496      7,036,706     3,905,338          56,785,964
Other expenses (income)
   Equity in losses of UltraCard                          -             -              -             -           1,264,316
   Interest expense                               1,026,842    11,655,096        723,230     4,040,146          18,377,397
   Loss on advances to Pathways                           -            -              -              -           3,549,780
   Other, net                                        86,786     1,628,754         62,081       714,915           3,397,154
                                                ------------  ------------  ------------  ------------  -------------------
                                                  1,113,628    13,283,850        785,311     4,755,061          26,588,647

Minority interest in losses
  of subsidiaries                                         -      (745,531)             -       (46,179)         (3,313,331)
                                                ------------  ------------  ------------  ------------  -------------------

NET LOSS                                        $12,878,386  $ 20,650,815   $  7,822,017  $  8,614,220  $       80,061,280
                                                ============  ============  ============  ============  ===================

LOSS PER COMMON
   SHARE-BASIC AND DILUTED                      $      0.62   $      0.57  $        0.37  $       0.22  $             5.21
                                                ============  ============  ============  ============  ===================
</TABLE>

The accompanying notes are an integral part of these statements.


                                        4
<PAGE>
<TABLE>
<CAPTION>
                                   Upgrade International Corporation and Subsidiaries
                                             (A development stage enterprise)

                                             STATEMENT OF STOCKHOLDERS' EQUITY

                                 Since September 30, 2001 through March 31, 2002 (unaudited)



                                   Voting common stock  Common stock subscribed   Additional                 Receivable from
                                   -------------------  ------------------------   paid-in      Deferred      stockholders
                                     Shares    Amount     Shares       Amount      capital     compensation   of subsidiary
                                   ----------  -------  -----------  -----------  ----------  -------------  --------------
<S>                                <C>         <C>      <C>          <C>          <C>         <C>            <C>
 Balances at September 30, 2001    24,523,523   24,524    3,892,323    2,742,586  53,947,618      (498,559)       (266,621)

Shares issued on October 5, 2001
  in connection with September
  2001 conversions of debentures
  at $.54 to $1.30 per share         971,725       972     (971,843)    (636,625)    635,653             -               -

Contribution from minority
  interest                                 -         -            -            -     727,648             -               -

Shares issued on October 11, 2001
  in lieu of loan interest and
  penalties at $1.48 per share        52,434        52            -            -      77,550             -               -



                                       Accumulated
                                       development
                                      stage deficit       Total
                                     ---------------  -------------
<S>                                  <C>              <C>
Balances at September 30, 2001          (65,427,260)    (9,477,712)

Shares issued on October 5, 2001
  in connection with September
  2001 conversions of debentures
  at $.54 to $1.30 per share                      -              -

Contribution from minority
  interest                                        -        727,648

Shares issued on October 11, 2001
  in lieu of loan interest and
  penalties at $1.48 per share                    -         77,602

</TABLE>

The accompanying notes are an integral part of these statements.


                                        5
<PAGE>
<TABLE>
<CAPTION>
                                        Upgrade International Corporation and Subsidiaries
                                                 (A development stage enterprise)

                                    CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - Continued

                                    Since September 30, 2001 through March 31, 2002 (unaudited)


                                     Voting common stock   Common stock subscribed    Additional                    Receivable from
                                     -------------------  -------------------------     paid-in       Deferred       stockholders
                                       Shares    Amount      Shares        Amount       capital      Compensation    of subsidiary
                                     ----------  -------  -----------  ------------  ------------  --------------  ---------------
<S>                                  <C>         <C>      <C>          <C>           <C>           <C>             <C>
Shares issued on October 20 and
  21, 2001 at $1.58 per share in
  lieu of loan interest and
  penalties                             151,671      152           -             -       239,488               -                -

Shares issued on November 7, 2001
  in connection with October 10,
  11 and 12, 2001 conversion of
  debentures at $.535 per share       3,116,633    3,117           -             -     1,684,299               -                -

Shares issued on November 7, 2001
  in connection with October 12,
  2001 conversion of convertible
  debentures $.543 per share            979,095      979           -             -       595,830               -                -

Shares issued on November 7, 200
  1 at $1.48 per share in lieu of
  penalties in connection with
  October 11, 2001 conversion
  of convertible debentures             351,743      352           -             -       520,228               -                -

Shares issued on November 7, 2001
  at $1.41 per share in lieu of
  penalties in connection with
  October 12, 2001 conversion
  of convertible debentures             445,540      445           -             -       627,766               -                -

Shares issued on November 7, 2001
  at $1.71 per share in lieu of
  penalties in connection with
  October 10, 2001 conversion
  of convertible debentures             413,864      414           -             -       707,293               -                -

Shares issued on November 9, 2001
  (previously subscribed to in
  September 2001 at $.50, $.70,
  and $1.00 per share)                2,800,000    2,800  (2,800,000)   (1,820,000)    1,817,200               -                -

Shares issued on November 9, 2001
  in lieu of finder's fees on
  previous placements                   750,000      750           -             -          (750)              -                -

Shares issued on November 9, 2001
  at a $1.00 in lieu of settlement
  of payables to stockholders
  and cash, net of fees                 905,205      905           -             -       901,700               -                -

Shares issued on November 9, 2001
  at a $1.41 lieu of fees in
  connection with a private
  placement                              25,000       25           -             -           (25)              -                -

Shares issued on November 9, 2001
  (previously subscribed to in
  July 2001 at $2.00 per share)          25,000       25     (25,000)      (50,000)       49,975               -                -

Shares issued on November 9, 2001
  in connection with October 15,
  2001 conversion of debentures
  at $1.25 and $1.50 per share          776,919      777           -             -     1,010,433               -                -

Shares subscribed to on
  November 11, 2001 at $1.41 per
  share in lieu of interest and
  penalties                                   -        -      56,970        80,328             -               -                -

Shares subscribed to on November
  19 and 21, 2001 at $1.15 per
  share in lieu of interest and
  penalties                                   -        -      48,532        55,812             -               -                -

Shares subscribed to on December
  1 and 2, 2001 at $1.34 per
  share in lieu of interest
  and penalties                               -        -      56,419        75,601             -               -                -

Shares subscribed to on
  December 9, 2001 at $1.09 per
  share in lieu of interest and
  penalties                                   -        -      32,593        35,526             -               -                -

Shares subscribed to on December
  12, 2001 at $1.05 per share in
  lieu of interest and penalties              -        -      22,070        23,102             -               -                -

Shares subscribed to on December
  19, 2001 at $0.88 per share in
  lieu of interest and penalties              -        -      47,124        41,469             -               -                -

Shares subscribed to on December
  22 and 29, 2001 at $0.80 per
  share in lieu of interest and
  penalties                                   -        -      33,914        27,131             -               -                -

Shares subscribed to on December
  31, 2001 at $0.78 per share in
  lieu of interest and penalties              -        -      26,253        20,477             -               -                -

Shares issued on November 26, 2001
  in lieu of payment of legal fees      100,000      100           -             -        99,900               -                -

Shares issued on November 26, 2001
  in connection with a private
  placement at $1.36 per share           18,437       18           -             -        24,982               -                -

Shares issued on November 26,
  2001 in connection with a
  private placement and
  satisfaction of liabilities at
  $1.10, net of transactions
  costs  per share                      562,171      562           -             -       443,184               -                -

Shares issued on December 7, 2001
  at $1.09 per share in lie of
  fees and penalties in connection
  with October 10 through 12, 2001
  conversion of convertible
  debentures                            948,843      949           -             -       972,536               -                -


                                       Accumulated
                                       development
                                      stage deficit       Total
                                      --------------  -------------
<S>                                   <C>             <C>
Shares issued on October 20 and
  21, 2001 at $1.58 per share in
  lieu of loan interest and
  penalties                                       -        239,640

Shares issued on November 7, 2001
  in connection with October 10,
  11 and 12, 2001 conversion of
  debentures at $.535 per share                   -      1,687,416

Shares issued on November 7, 2001
  in connection with October 12,
  2001 conversion of convertible
  debentures $.543 per share                      -        596,809

Shares issued on November 7, 200
  1 at $1.48 per share in lieu of
  penalties in connection with
  October 11, 2001 conversion
  of convertible debentures                       -        520,580

Shares issued on November 7, 2001
  at $1.41 per share in lieu of
  penalties in connection with
  October 12, 2001 conversion
  of convertible debentures                       -        628,211

Shares issued on November 7, 2001
  at $1.71 per share in lieu of
  penalties in connection with
  October 10, 2001 conversion
  of convertible debentures                       -        707,707

Shares issued on November 9, 2001
  (previously subscribed to in
  September 2001 at $.50, $.70,
  and $1.00 per share)                            -              -

Shares issued on November 9, 2001
  in lieu of finder's fees on
  previous placements                             -              -

Shares issued on November 9, 2001
  at a $1.00 in lieu of settlement
  of payables to stockholders
  and cash, net of fees                           -        902,605

Shares issued on November 9, 2001
  at a $1.41 lieu of fees in
  connection with a private
  placement                                       -              -

Shares issued on November 9, 2001
  (previously subscribed to in
  July 2001 at $2.00 per share)                   -              -

Shares issued on November 9, 2001
  in connection with October 15,
  2001 conversion of debentures
  at $1.25 and $1.50 per share                    -      1,011,210

Shares subscribed to on
  November 11, 2001 at $1.41 per
  share in lieu of interest and
  penalties                                       -         80,328

Shares subscribed to on November
  19 and 21, 2001 at $1.15 per
  share in lieu of interest and
  penalties                                       -         55,812

Shares subscribed to on December
  1 and 2, 2001 at $1.34 per
  share in lieu of interest
  and penalties                                   -         75,601

Shares subscribed to on
  December 9, 2001 at $1.09 per
  share in lieu of interest and
  penalties                                       -         35,526

Shares subscribed to on December
  12, 2001 at $1.05 per share in
  lieu of interest and penalties                  -         23,102

Shares subscribed to on December
  19, 2001 at $0.88 per share in
  lieu of interest and penalties                  -         41,469

Shares subscribed to on December
  22 and 29, 2001 at $0.80 per
  share in lieu of interest and
  penalties                                       -         27,131

Shares subscribed to on December
  31, 2001 at $0.78 per share in
  lieu of interest and penalties                  -         20,477

Shares issued on November 26, 2001
  in lieu of payment of legal fees                -        100,000

Shares issued on November 26, 2001
  in connection with a private
  placement at $1.36 per share                    -         25,000

Shares issued on November 26,
  2001 in connection with a
  private placement and
  satisfaction of liabilities at
  $1.10 per share, net of transaction
  costs                                           -        443,746

Shares issued on December 7, 2001
  at $1.09 per share in lieu of
  fees and penalties in connection
  with October 10 through 12, 2001
  conversion of convertible
  debentures                                      -        973,485
</TABLE>

The accompanying notes are an integral part of these statements.


                                        6
<PAGE>
<TABLE>
<CAPTION>
                                        Upgrade International Corporation and Subsidiaries
                                                 (A development stage enterprise)

                                    CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - Continued

                                     Since September 30, 2001 through March 31, 2002 (unaudited)


                                     Voting common stock   Common stock subscribed    Additional                    Receivable from
                                     -------------------  -------------------------     paid-in       Deferred      stockholders
                                       Shares    Amount      Shares        Amount       capital      Compensation   of subsidiary
                                     ----------  -------  -----------  ------------  ------------  --------------  ---------------
<S>                                  <C>         <C>      <C>          <C>           <C>           <C>             <C>
Warrants granted in lieu of
  interest and penalties                      -        -           -             -     1,956,457               -                -

Shares subscribed to and warrants
  issued in lieu of additional
  interest on convertible
  debentures                                  -        -     434,220       594,881       580,035               -                -

Shares subscribed at $.80 through
  $1.37 per share in connection
  with November and December 2001
  promissory notes                            -        -     202,167       182,265             -               -                -

Warrants issued in connection with
  November through December 2001
  promissory notes                            -        -           -             -       217,898               -                -

Adjustment due to modification
  of warrants                                 -        -           -             -        32,922               -                -

Adjustment due to added conversion
  feature on notes payable                    -        -           -             -       200,000               -                -

Allocation to beneficial
  conversion feature                          -        -           -             -       150,000               -                -

Amortization of deferred
  compensation for the three
  months ended December 31, 2001              -        -           -             -             -          49,326                -

Shares issued on January 13, 2002
pursuant to penalty and interest
adjustments to convertible debenture
at prices of $1.02 & $1.03                59,953       60                                 50,103

Shares issued February 4, 2002 as
loan inducement fees for shares
previously subscribed in November &
December 2001                            354,300      354   (354,300)     (119,024)      118,670

Shares issued February 4, 2002 at
prices from $1.03 to $1.08 pursuant to
loan inducement fees for loans provided
to the Company in January 2002            35,063       35                                131,380

Shares issued February 4, 2002 as
payment of penalties and interest on
Loan agreements                          345,683      346   (323,875)     (329,036)      412,072

Shares issued February 4, 2002 as
payment of penalty and interest on
loan agreements incurred in January
2002                                     299,993      300                                315,446

Shares and warrants issued
February 4,2002 as
payment of penalties and interest
On loan agreements incurred in
February 2002                             34,231       34                                 48,574

Shares issued and warrants
granted on January 15, 2002 and
Issued on February 26, 2002
in settlement of debts                 1,000,000    1,000                                1,465,000

Shares issued March 4, 2002 for
shares previously subscribed
Pursuant to private placements
at $2.00 per share                        12,000       12    (12,000)       (24,000)       23,988

Shares subscribed in connection with
February penalties and interest on loan
Agreements                                                   350,204        526,255

Adjustmenbt to shares subscribed and
warrants issued in March
in connection with notes payable                                             29,300       484,846

Warrants issued during the three
months ended March 31, 2002 as
penalties and interest on promissory
notes                                                                                   2,923,527

Shares and warrants granted in
Connection with March 2002 notes                              350,000       181,275       166,245

Shares and warrants granted in March
2002 at $1.01 to $1.08 per share
pursuant to loan inducement fees for
loan provided in March 2002                                   144,375       155,925       417,244



Amortization of deferred compensation for
the three months ended March 31, 2002                                                                     41,547

Net loss for the six months ended
March 31, 2002
                                       ---------  -------  -----------  ------------  -----------  --------------  ---------------
Balances at March 31, 2002            40,059,026  $40,059  $ 1,210,146  $  1,793,248  $74,776,915  $    (407,686)      $ (266,621)
                                      ==========  =======    =========  ============  ===========  ==============      ===========


                                       Accumulated
                                       development
                                      stage deficit       Total
                                     ---------------  -------------
<S>                                  <C>              <C>
Warrants granted in lieu of
  interest and penalties                          -      1,956,457

Shares subscribed to and warrants
  issued in lieu of additional
  interest on convertible
  debentures                                      -      1,174,916

Shares subscribed at $.80 through
  $1.37 per share in connection
  with November and December 2001
  promissory notes                                -        182,265

Warrants issued in connection with
  November through December 2001
  promissory notes                                -        217,898

Adjustment due to modification
  of warrants                                     -         32,922

Adjustment due to added conversion
  feature on notes payable                        -        200,000

Allocation to beneficial
  conversion feature                              -        150,000

Amortization of deferred
  compensation for the three
  months ended December 31, 2001                  -         49,326

Shares issued on January 13, 2002
pursuant to penalty and interest
adjustments to convertible debenture
at prices of $1.02 & $1.03                                  50,163

Shares issued February 4, 2002 as
loan inducement fees for shares
previously subscribed in November &
December 2001                                                    -

Shares issued February 4, 2002 at
prices from $1.03 to $1.08 pursuant to
loan inducement fees for loans provided
to the Company in January 2002                             131,415

Shares issued February 4, 2002 as
payment of penalties and interest on
Loan agreements                                             83,382

Shares issued February 4, 2002 as
payment of penalty and interest on
loan agreements incurred in January
2002                                                       315,746

Shares and warrants issued
February 4,2002 as
payment of penalties and interest
On loan agreements incurred in
February 2002                                              48,608

Shares and warrants issued February 26, 2002
in settlement of debts                                  1,466,000

Shares issued March 4, 2002 for
shares previously subscribed
Pursuant to private placements
at $2.00 per share                                              -

Shares subscribed in connection with
February penalties and interest on loan
Agreements                                                526,255

Adjustment to shares subscribed and
warrants issued in March
in connection with notes payable                          514,146

Warrants issued during the three
months ended March 31, 2002 as
penalties and interest on promissory
notes                                                   2,923,527

Shares and warrants granted in
Connection with March 2002 notes                          347,520

Shares and warrants granted in March
2002 at $1.01 to $1.08 per share
pursuant to laon inducement fees for
loan provided in March 2002                               573,169



Amortization of deferred compensation for
the three months ended March 31, 2002                      41,547

Net loss for the six months ended
March 31, 2002                          (20,650,815)  (20,650,815)
                                     ---------------  ------------
Balances at March 31, 2002           $ ( 86,078,075)  $ 10,097,160
                                     ===============  ============

</TABLE>

The  accompanying  notes  are  an  integral  part  of  this  statement.


                                        7
<PAGE>
<TABLE>
<CAPTION>
                                      Upgrade International Corporation and Subsidiaries
                                               (A development stage enterprise)

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


                                                                        Six months ended March 31,          Cumulative
                                                                    -------------------------------------   since inception
Increase (Decrease) in Cash and Cash Equivalents                          2001                2002         (February 5, 1997)
                                                                    -----------------  ------------------  -------------------
<S>                                                                 <C>                <C>                 <C>
Cash flows from operating activities
  Net loss                                                          $    (12,878,386)  $     (20,650,815)  $      (80,061,280)
  Adjustments to reconcile net loss to net
    cash used in operating activities
    Depreciation and amortization                                            297,683             185,887            1,376,497
    Amortization of beneficial conversion feature and debt discount          963,023           1,495,189            5,293,382
    Amortization of loan costs                                                     -             729,391              729,391
    Write off of leasehold improvements                                            -             210,805              210,805
    Modification of loan agreements                                                -             232,922              232,922
    Equity securities issued in lieu of interest and penalties on debt             -          11,044,688           13,723,434
    Employee stock options issued below fair value                                 -              90,873            1,354,877
    Adjustment to receivables from subsidiary's stockholders                       -                   -              133,379
    Write off of uncollectible advances                                            -                   -            3,549,780
    Write off due to impairment                                                    -                   -            1,054,125
    Write off of option cost                                                       -                   -               76,250
    Loss on sale of property and equipment                                     3,883                   -               26,021
    Common stock subscribed for Financing fees                               122,002
    Equity in loss of UltraCard                                                    -                   -            1,264,316
    Purchased in-process research and
      development                                                                  -                   -            5,971,603
    Warrants and options issued for services                               1,903,685                   -            5,134,175
    Warrants issued for financing fees                                        35,082
    Shares issued for services                                                     -                   -              488,650
    Expenses incurred through loan assumption                                      -                   -              470,005
    Stock of subsidiary issued in exchange for
      contribution of intellectual property
      charged to expense                                                           -                   -              125,000
    Minority interest                                                              -            (745,531)          (3,313,331)
    Changes in assets and liabilities:
      Prepaid expenses, deposits and other                                  (251,264)             14,818            1,018,920
      Payables, accrued liabilities and other                              3,127,025            3,223,983          11,532,564
                                                                    -----------------  ------------------  -------------------

        Net cash used in operating activities                             (6,677,267)         (4,217,790)         (29,658,515)

Cash flows from investing activities
  Advances to The Pathways Group, Inc.                                    (1,349,955)                  -           (3,533,955)
  Advances to Rockster, Inc.                                                (560,000)           (506,500)          (1,590,500)
  Advances to eCourier                                                             -                   -             (130,000)
  Payments on equipment under construction                                         -                   -           (1,200,000)
  Acquisition of property and equipment, net                                (429,364)            (54,649)          (1,753,416)
  Acquisition of Centurion Technologies, Inc.,
    net of cash acquired                                                           -                   -           (1,000,000)
  Acquisition of UltraCard, Inc., net of cash acquired                             -            (339,164)          (5,910,269)
  Acquisition of equity interest in EforNet Corp.
    from a minority shareholder                                                    -                   -             (200,000)
  Additions to note receivable from related party                           (130,000)
 Acquisition deposit                                                         (15,000)                  -              (62,500)
  Additions to intangible assets                                             (65,490)             (22,770)           (217,957)
                                                                    -----------------  ------------------  -------------------

        Net cash used in investing activities                             (2,549,809)           (923,083)         (15,598,597)

Cash flows from financing activities
  Proceeds from sale of common stock and stock subscriptions               5,575,614             971,746           36,701,964

  Borrowings, net of loan costs                                            4,604,039           2,302,500           12,455,120
  Principal payments on borrowings                                        (1,311,592)             (16,052)         (3,698,972)
  Purchase of collateral on subsidiary's letter of credit                          -                   -             (805,687)
  Release of restricted cash                                                 505,687                   -              505,687
  Proceeds from exercise of stock options and warrants                        55,000                                  767,786
                                                                    -----------------  ------------------  -------------------
        Net cash provided by financing activities                          9,428,748           3,258,194           45,925,898

                                                                    -----------------  ------------------  -------------------

Net increase (decrease) in cash and cash equivalents                         201,672          (1,882,679)             668,786

Cash and cash equivalents at the beginning of the period                     398,989           2,551,465                    -
                                                                    -----------------  ------------------  -------------------

Cash and cash equivalents at the end of the period                  $        600,661   $         668,786   $          668,786
                                                                    =================  ==================  ===================
</TABLE>

        The accompanying notes are an integral part of these statements.


                                        8
<PAGE>
               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            March 31, 2001 and 2002


NOTE  A  -  FINANCIAL  STATEMENTS

The  unaudited  consolidated  financial  statements  of  the  Company  and  its
subsidiaries  have  been  prepared  by  the  Company  pursuant  to the rules and
regulations  of  the Securities and Exchange Commission. Certain information and
footnote  disclosures  normally  included  in  financial  statements prepared in
accordance with generally accepted accounting principles of the United States of
America  (GAAP)  have  been  condensed  or  omitted  pursuant  to such rules and
regulations.  The  results of operations for interim periods are not necessarily
indicative  of  the  results  to  be  expected for the entire fiscal year ending
September 30, 2002. This form 10-QSB should be read in conjunction with the form
10-KSB  that  includes  audited  consolidated  financial statements for the year
ended  September  30,  2000 and 2001, and the related consolidated statements of
operations,  stockholders'  equity  (deficit)  and cash flows for the years then
ended  and  since  inception  (February  5,  1997),  and the form 10-QSB for the
quarters  ended  December  31,  2000  and  2001.


NOTE  B  -  BASIS  OF  PRESENTATION

The  Company  consolidates all companies in which it has a controlling financial
interest.  This  generally  occurs  when  the  Company owns more than 50% of the
outstanding  voting  shares  of  the  company. The Company also consolidates 50%
owned  companies  in  which  it has voting control through agreements with other
shareholders.  Investments  in  Companies  where  the  Company  has  significant
influence  through  ownership  of  20%  to 50% of the investors voting shares or
contractual  arrangements  are  accounted  for  by  the  equity  method.

The  balance  sheet  as  of  September 30, 2001 and March 31, 2002, reflects the
consolidated  financial  position  of  the  Company  and  its  subsidiaries
(Subsidiaries)  as  follows:  UltraCard,  Inc.  (UltraCard);  cQue  Corporation
(formerly  Centurion  Technologies,  Inc.);  CTI  Acquisition Corporation (CTI);
Global  CyberSystems,  Inc.  (Global);  EforNet  Corporation  (EforNet);  Global
CyberSystems  SA.  (GCSA),  Global  CyberSystems PLC (GCPLC) and UltraCard China
Inc.  The  statements of operations for the three and six months ended March 31,
2001  and  2002  and  for  the  period from inception (February 5, 1997) and the
statements  of  cash  flows for the six months ended March 31, 2001 and 2002 and
for  the  period  from  inception  (February  5,  1997) reflect the consolidated
results  of  operations  and  cash  flows  of the Company and the results of the
subsidiaries  beginning  on  the  dates  the  Company  acquired  control.  All
significant  inter-company  balances  and  transactions  have been eliminated in
consolidation.  Minority  interest  represents  the  minority  stockholders'
proportionate  share  in  the equity of the Company's consolidated Subsidiaries.
The  losses  incurred  by a subsidiary are allocated on a proportionate basis to
minority  interest until the carrying amount of minority interest is eliminated.
Further  losses  are  then  included  in  the  net  loss  of  the  Company.


NOTE  C  -  LOSS  PER  COMMON  SHARE  AND  SHARES  OUTSTANDING

Basic  loss  per  share  is  computed  by  dividing the net loss by the weighted
average  number  of  common  shares  outstanding during the period. The weighted
average  number  of  shares outstanding for the six and three months ended March
31,  2002  was  36,355,727  and  39,182,748,  respectively  and  20,938,724  and
21,191,279  for  the six and three months ended March 31, 2001 respectively, and
15,360,066 since inception (February 5, 1997) through December 31, 2001. Diluted
loss  per  share  for  all periods presented equaled basic loss per share due to
antidilutive  effect  of  the potentially dilutive securities.

In  addition  at March 31, 2002, 48,356,000 shares of the Company's common stock
were  not  included  in  the  shares  issued and outstanding on the consolidated
statement  of stockholders' deficit or loss per share computations. The excluded
shares  were  as  follows:

-    Shares issued in lieu of finders' fees in connection with future findings -
     1,365,000  (with  1,000,000 shares  outstanding  at September 30 , 2001 and
     365,000  shares  issued  during  the  quarter  ended  December  31,  2001).
-    Shares  held by the Company in connection with loan assumptions - 2,000,000
     shares.  In  October  2001,  the  Company  issued  2,000,000 to replace the
     2,000,000  shares  originally  transferred by the Company's president to an
     unrelated  third  party  as  a  collateral for $1,210,000 loan payable.  In
     October  2001,  the  Company  assumed the president's liability on the loan
     and  issued  2,000,0000  shares.  The  original collateral shares were then
     transferred  into  the  Company's  name  by  the  president.
-    Contingently  issued,  45,000,0000  restricted  shares  issued  to  an
     institutional  syndicator  ,  held  as  collateral on a future financing as
     described  in  note  F.


                                        9
<PAGE>
               Upgrade  International  Corporation  and  Subsidiaries
                        (A  development  stage  enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            March 31, 2001 and 2002



NOTE  D  -  MANAGEMENT  PLANS

The  Company  is  a  development  stage enterprise as defined under Statement of
Financial  Accounting  Standards  No.  7.  The  Company  is devoting its present
efforts  into establishing a new business in the information technology industry
and,  is  currently  in  the  process  of  identifying  markets and establishing
applications  for its technologies. Accordingly, no operating revenues have been
generated.  The  Company's  operations  to  date  have  consumed substantial and
increasing  amounts of cash. The Company's negative cash flow from operations is
expected to continue in the foreseeable future. The development of the Company's
technology  and  potential  products  will  continue  to require a commitment of
substantial funds. The Company expects that its existing and expected financings
will  be  adequate  to  satisfy  the  requirements  of  its  current and planned
operations until the end of the fiscal year 2002. However, the rate at which the
Company  expends  its resources is variable, may be accelerated, and will depend
on  many  factors. The Company will need to raise substantial additional capital
to  fund  its  operations and may seek such additional funding through public or
private  equity,  debt  financing  or  through  strategic  relationships  with
development  partners.  There  can  be no assurance that such additional funding
will  be  available  on  acceptable  terms,  if  at all. The Company's continued
existence  as a going concern is ultimately dependent upon its ability to secure
additional  funding  for completing and marketing its technology and the success
of  its  future  operations.

The  following  summarizes  the  debt  and  equity transactions completed by the
Company  during  the  three  months  ended  March  31,  2002:

In  January  2002,  the  Company  borrowed  $170,000  from existing debt holders
pursuant  to  30-day  note agreements. Interest and penalties are required under
the  terms  of the notes payable every 30 days comprised of 10% interest, 10% to
12.5% of the original loan amount payable in common stock and up to 37.5% of the
original  loan  amount  in  warrants at an exercise price of market but not more
than  $1.00.  In  addition,  as  a  cost of the financing, the Company granted a
$18,700  note  payable,  35,063  shares  of common stock, and warrants entitling
holder  to  purchase  105,188 shares of common stock at $.80 to $1.00 per share.
The  warrants are exercisable immediately and expire five years from the date of
grant.

In  February  2002,  the  Company issued 350,204 shares pursuant to the terms of
certain  loan  agreements maturing within 30 days of the date of issuance.  Loan
penalties  and  interest payable in shares is required for a 30 day extension on
the  loans.



In  March  2002,  the  Company  issued  371,427  shares pursuant to the terms of
certain  loan  agreements maturing within 30 days of the date of issuance.  Loan
penalties  and  interest payable in shares is required for a 30 day extension on
the  loans.

In March 2002, the Company borrowed $700,000 from existing debt holders pursuant
to  30-day  note agreements. Interest and penalties are required under the terms
of  the  notes  payable every 30 days comprised of 10% interest, 10% to 12.5% of
the original loan amount payable in common stock and up to 37.5% of the original
loan  amount  in warrants at an exercise price of market but not more than $.80.
In  addition,  as  a  cost  of the financing, the Company granted a $77,000 note
payable,  144,375  shares  of  common  stock,  and  warrants entitling holder to
purchase  433,125  shares  of  common  stock at $.80 per share. The warrants are
exercisable  immediately  and  expire  five  years  from  the  date  of  grant.


                                       10
<PAGE>
               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           March 31, 2001 and 2002


NOTE  D  -  MANAGEMENT  PLANS  -  Continued


During  the  three  month  period  ended  March  31,  2002, the Company borrowed
$587,500  from  an  officer.  On April 30, 2002 this balance, combined with then
outstanding  $150,000  loan  due  to the officer, along with additional advances
subsequent  to  March  31, 2002, which brought the total to $775,000, was rolled
into  a  convertible note payable bearing interest at a rate of 8% per annum and
convertible  into  the  common  stock  of  the  Company  at $0.75 per share. The
convertible  debenture is due December 31, 2002. In addition, on April 30, 2002,
the  Company granted 750,000 warrants issued as part of the debt transaction, to
acquire  common  stock  at  a  price of $0.75 per share with a cashless exercise
provision and a five-year term. In connection with this transaction, the Company
recognized  $150,000  in debt discount, with $87,500 being expensed in the first
quarter  of  the  year  ending  September  30,  2002.

In  January  2002,  the  Company  settled  a  payable  to  a  related  party  of
approximately  $955,000 for services performed and the reimbursement of expenses
incurred,  in  exchange  for the payment of $25,000, $125,000 payable in cash in
the  future,  the issuance of 1,000,000 shares of the Company's common stock and
the granting of warrants to purchase 500,000 shares of common stock at $1.25 per
share  on  or  before January 15, 2005. In connection with this transaction, the
Company  recognized  $666,730  in  additional  compensation expense representing
excess  of equity consideration granted over the fair value of the debt settled.

In  February  2002,  the Company entered into a debt financing agreement with an
institutional  syndicator  to  obtain  up  to $15 million in working capital for
Upgrade and its group of Companies. The debt instrument is for a seven-year term
with the principal due at maturity, and interest payable quarterly commencing in
year  three  of the financing. The loan is secured by the issuance of 40 million
shares  of  Company  Stock,  which have been issued under Rule 144A along with 5
million  restricted  common  shares  issued  under Rule 506D . The shares issued
under  Rule  144A  carries  a  different  CUSIP number from the Company's Common
Stock.  These  shares  are  restricted,  and  can only be traded among qualified
institutional  investors.  Upon repayment of the credit facility, the shares are
to  be  returned  to  the Company. Contained in the agreement is the stipulation
that the voting rights of the 45 million shares by way of proxy will be voted in
proportion  with  the  existing  shareholder  base. The Company also retains the
right  to substitute collateral 18 months after closing of the transaction. This
transaction has not yet funded and continues to be unfunded subsequent to period
end.

The Company is actively pursuing new investment into the Company. This financing
may  take  the  form  of  equity, convertible debentures and other types of debt
instruments.


                                       11
<PAGE>
               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            March 31, 2001 and 2002


NOTE  E  -  COMMITMENTS  AND  CONTINGENCIES

The Company is in default on its payments on its ten-year lease for office space
located  in  Los  Angeles, California. As of March 31, 2002, the Company is past
due  on  approximately  $170,000  in  lease  payments,  plus  facility expenses.
Rockster,  Inc.  had been occupying this facility, but vacated it in April 2002.
Subsequent  to  March 31, 2002, the Company began negotiations with the landlord
to  terminate  the  lease  and  settle the amounts owing. These negotiations are
expected  to  be  completed  during  the current fiscal year. Additional amounts
owing,  if  any,  will  be  recorded upon settlement. The carrying amount of the
related  leasehold  improvements were approximately $211,000, which were written
off  during  the  quarter  ended  March  31,  2002.

The  Company  remains  in  default  on  its payments under various agreements to
purchase  826,482  shares  of  UltraCard, Inc. common stock and 10,000 shares of
CardTech,  Inc. (CardTech) common stock. Cash flow permitting, the Company plans
to  become  current on its obligations under these agreements during the quarter
ending  June  30,  2002.  If  the  Company  is unable to do this, it may have to
write-off  as  much  as $1,820,715 in acquisition deposits recorded at March 31,
2002.

As of March 31, 2002, $2,426,918 in license and royalty payments remained unpaid
for  the  calendar  years 2000, 2001 and 2002, resulting in UltraCard being past
due  on  the CardTech license agreement. CardTech has agreed to defer payment of
amounts  owed  until  June  30,  2002.


NOTE  F   -  SUBSEQUENT  EVENTS

In  April  2002,  the  Company  borrowed  a  further  $425,000  from  existing
shareholders  pursuant to certain 30-day note agreements. Interest and penalties
are required under the terms of the notes payable upon maturity comprised of 10%
interest,  12.5%  payable  in  share  capital  and warrants of 37.5% of the loan
value, at a current market strike price but not to exceed $0.80. In addition, as
a  cost  of  the  financing, the Company entered into note payable agreements of
$33,000,  issued  33,000  shares of common stock, and granted warrants entitling
holder  to purchase 33,000 shares of common stock at a price of $0.25 per share.
The  warrants are exercisable immediately and expire five years from the date of
grant.



     ITEM  2.  MANAGEMENT  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
     RESULTS  OF  OPERATIONS

Certain statements contained in this Quarterly Report on Form 10-QSB, including,
without  limitation,  statements containing the words "believes, " anticipates,"
"estimates," "expects," and words of similar import, constitute "forward looking
statements."  You  should  not  place  undue  reliance on these forward- looking
statements. Our actual results could differ materially from those anticipated in
these forward- looking statements for many reasons, including the risks faced by
us  described  in  this Quarterly Report and in other documents we file with the
Securities  and  Exchange  Commission.

BUSINESS  OPPORTUNITIES  &  THE  COMMERCIALIZATION  PROCESS

Since the Company's year-end, there has been good progress toward completing the
commercialization  process  for  the UltraCard technology. As pointed out in the
previously  filed  2001  Form  10-KSB, among the steps necessary to complete the
process  include:  final design and production of the cardbody; (the proprietary
hard  drive like media, "shim", which is housed inside the cardbody, which meets
the  international  standards  for  card size, thickness and flexibility), final
design of the first read-write device and the operating and application software
which  resides  on  the  "shim".  The software includes the operating system and
specific  application  software  that  will  define  the  functionality  of  the
UltraCard.


                                       12
<PAGE>
The  Company  is  in  the  process  of aligning with others to commercialize the
UltraCard  technology.  This  has  taken  form  in  the  case  of  contracted
manufacturing  or  consulting  services,  i.e.  Pemstar, Infineon, and Komag, or
potential partnerships / joint ventures, like the one currently being negotiated
with  Giesecke & Devrient, Inc. ("G & D"). Pemstar, Infineon and Komag have made
significant  contributions to the commercialization of the UltraCard technology.
Without  their  individual efforts, the accomplishments to date would have taken
Longer.  These  types  of  relationships have proven successful for the Company,
and management believes they will continue to provide the necessary resources to
achieve  commerialization  of  the  UltraCard  technology.

Management  believes  that  the  UltraCard technology can be commercialized much
sooner  by using contract manufacturing from disk drive companies to produce its
products  than  by establishing its own manufacturing facilities. As a result of
the  excess  in  manufacturing  capacity  in  the disk drive industry today, the
contract  manufacturing approach should result in lower short-term investment by
the  Company,  maximize the ability to vary production levels to meet demand and
lower  the  risk  of  early  manufacturing  start-up  problems.

Additionally,  chip  manufacturers  are readily available, and with the low cost
memory  afforded  using the UltraCard solution, low cost chips can be used while
still  increasing  the  overall  functionality  of  the  card.

However, the Company does intend to maintain control over manufacturing from the
perspectives  of  manufacturing  process  and  inventory  exposure.  The Company
intends  to  monitor  the  quality  processes  in  the  individual  contract
manufacturers' plants including incoming inspection procedures, in-cycle quality
assurance  and  final  burn-in and test. The Company also will establish ongoing
reliability  inspection to ensure they meet specifications and reliability goals
before  shipping  to  customers.

The  negotiations  with G & D are continuing as the parties identify the various
aspects  of  the  relationship,  including  both  pre and post commercialization
timeframes.  This  includes  the points of manufacturing, as well as, licensing,
marketing  and  potential  joint-venture relationships. At the present time, G&D
and  the Company are continuing their dialogue attempting to work out all of the
details  with  respect  to  the agreement. The Company will make an announcement
upon  the  signing  of  the  definitive  agreement.

The  commercial  version  of  the  read-write  device design, 51/4" half-height,
(similar  in  size  to  a  CD-ROM  drive  that can be inserted into the standard
computer  tower,  has  been  substantially  completed during the quarter and the
pre-production  soft  tooled units for the initial pilot tests and demonstration
are  expected  to be completed by the Research and Development team at UltraCard
prior  to  the  end  of  the  fiscal  year  2002.  The  Company  is currently in
negotiations  with  a number of potential manufacturing partners to complete the
commercial  version  of  the  read-write  device.

Another  significant  issue  toward  commercialization  is that of the operating
system  for the UltraCard technology.  We believe that there are several systems
available  with only slight modifications necessary.  However, we believe that a
more  attractive  and longer-term option would be for the Company to develop its
own  operating  system. The advantage of developing its own system would be that
the  Company  would  then  enjoy  proprietary rights over  the initial and later
applications.  This  would  result  in  licensing  revenues  being  earned  on a
continuing  basis.  The  Company  is  exploring  this  possibility and has hired
consultants  and  contract  employees  for  this  purpose.

These  perspectives  lead  to  the  conclusion that a time-horizon based on this
calendar  year  cannot at all be ruled out. In fact, it is quite likely that the
process  will  be  done  within  that  timeframe.

It  cannot  be  stressed  enough  that  an upward shift in the priority given by
Upgrade  is  to  complete  the  commercialization  process of its core, patented
technology as soon as possible.  Through strategic partnerships and licensing of
its  proprietary  technology,  the  Company  can  plan  its  revenue stream. The
UltraCard  technology  product  development  strategy is guided by the tactic to
accumulate  and  retain  ownership of as broad and comprehensive an intellectual
property  package  as  possible  in  order  to  retain  as  much  ownership  of
intellectual  property  as  possible.

It  is  planned that all research and development  activities will be controlled
in  house  by  the  Company.


                                       13
<PAGE>
FINANCIAL  RESULTS

Net  losses  aggregated  $8.6  million  in the three months ended March 31, 2002
compared  with a $7.8 million net loss for the corresponding period of the prior
fiscal  year.  This  increase in net loss is reflective of the increased cost of
capital  incurred  by  the  Company  from  financings  through  short-term  loan
agreements.  Interest  costs  of  $4.0 million have been recorded in the current
quarter  which  is  comprised,  in  the most part, of shares, warrants and notes
issued  for interest and penalties on short term loans payable

The  Company's  general  and administrative costs of $3.9 million in the current
quarter  represents  a  decrease  in  the  quarterly  general and administrative
expenditure  from  the  prior  year  attributed  in  the most part to curtailing
certain  expenditures  as  a  result  of  limited cash resourses. The Company is
managing  to  keep its expenses to a minimum during the tight cash flow periods.
Expenses  relating  to  cQue  were kept to a minimum reflecting the focus of the
consolidated  groups  efforts to complete the UltraCard technology. For the near
future  research  and  development expenditures are expected to increase to meet
the  Company's  numerous  potential  market  opportunities. All of the Company's
research  and  development  costs  have  been  expensed  as  incurred.

Sales  and  marketing  expenditures  of $34,000 represent a significant decrease
over  the same quarter the prior fiscal year reflecting the Company's focus upon
product  completion, and not necessarily of potential sales. Sales and marketing
expenditures  typically  are  associated  with the Company's attendance at trade
shows  and industry awareness programs as the Company builds market awareness to
establish and develop new markets and prepare for effective product launches for
products  which  are  nearing  the  first  phase  of  completion.

For  the  first six months of the fiscal year, net losses were $20.7 million, of
which  $11.7  related  to  the  costs of capital. During this period the capital
markets  has been difficult in raising capital, as a result, the Company has had
to  pay  higher  costs  to  obtain  operating capital. The cost is significantly
higher  than  the  Company  would  prefer;  and  Management continues to spend a
significant  amount  of  time  and  resources seeking other forms and lower cost
capital to support operations. However, the Company's investment in research and
development,  of $2.6 million for the first six months, illustrates management's
objective  of  moving  the  technology  forward towards commercialization. Other
expenses  have  been  kept  to  only  those  essential  in  keeping the business
operational  with  minimal  discretionary  expenses  during this tight cash flow
period.  General  and  administrative  expenses were reduced 25%, as the Company
reduced  all  non-  essential  expenses.

LIQUIDITY  AND  CAPITAL  RESOURCES

At  March  31,  2001  the  Company  had available cash balances of approximately
$668,000.  The  Company  is  managing  very tight cash flows but still providing
funding  for  its  research and development program at UltraCard. During the six
months  ended  March  31,  2002,  the  Company  raised approximately $870,000 in
smaller  financings  comprised  of  promissory notes with equity kickers (common
stock and warrants) and equity penalties (common stock and warrants) for failure
either  to  repay  the  notes  or  register shares owned by the noteholders. The
Company  is  not  in  default  under these notes as long as it complies with the
equity penalty provisions. At March 31, 2002, the Company had total indebtedness
of  approximately  $2,553,000  under  these  arrangements.

Other  funds were raised in the forms of convertible debentures of approximately
$588,000  from  a  related  party  of  the  Company.  The Company's cash used in
operations  was  $4.2 million, which represents a decrease compared to the prior
quarter  of  $2.5  million.  This decrease results from the increase in accounts
payable  and  accrued  liability  levels.

Cash  flows  from  financing  activities of $3.3 million in the six month period
ended March 31, 2002 represents a level consistent with the last two quarters of
the  year  ended September 30, 2001. The Company has begun to focus it's efforts
upon  financing  initiatives  which  have  a  much  larger  magnitude than prior
financings  and  such  initiatives  have  much  longer  lead  times. While these
initiatives  are  in progress the Company is limiting the number of smaller more
expensive  financings  to  critical  needs.

In  order  for  the  Company  to  meet  the funding requirements of its investee
companies  and  to  meet  ongoing  operating requirements, it will have to raise
additional  financing.  However  the  rate  at  which  the  Company  expends its
resources  is variable, may be accelerated, and will depend on many factors. The
Company will need to raise substantial additional capital to fund its operations
and  may  seek  such additional funding through public or private equity or debt
financing, or through the licensing of its technology. There can be no assurance
that  such  additional funding will be available on acceptable terms, if at all.
The  Company's  continued  existence  as a going concern is ultimately dependent
upon  its  ability to secure additional funding for completing and marketing its
technology  and  the  success  of  its  future  operations.


                                       14
<PAGE>
PART  II     Other  Information

Item  1.     Legal  Proceedings
--------

Upgrade,  its  president,  Daniel  S. Bland, and Chief Financial Officer, Howard
Jaffe,  are  defendants  in  The  Pathways  Group, Inc. v. Upgrade International
                             ---------------------------------------------------
Corporation  et al., Superior Court of the State of California in for the County
-------------------

of  Sonoma,  c/a 227650.  The complaint, filed August 3, 2001, alleges breach of
merger  and  collateral agreements between Upgrade and plaintiff, breach of oral
argument,  fraud,  and  negligent material misrepresentation, and seeks specific
performance  of  the  agreements,  an  injunction  against exercising provisions
pursuant  to  the  merger  agreement  whereby  Upgrade  could  obtain control of
Pathways,  and  damages  in  excess of $150 million. Specifically, the complaint
alleges  that  Upgrade  failed  to provide interim financing to Pathways pending
consummation  of  the  proposed  merger transaction, and prevented Pathways from
obtaining alternate sources of financing.  Upgrade believes that the plaintiff's
allegations  are without legal or factual basis and therefore it has not accrued
any  potential losses resulting from this claim except for the $3.4 million debt
owed  by  Pathways  to  Upgrade,  which  Upgrade  has  recorded  a provision for
potentially uncollectible advances to Pathways as of June 30, 2001.  The case is
currently  is  discovery.

Item  2.          Changes  in  Securities  and  Use  of  Proceeds
--------


During  the  Three  Months  ended  March 31, 2002 the Company made the following
sales  of  unregistered  securities;

In  January, 2002, the Company issued 48,776 shares of its common stock pursuant
to the conversion of debentures at prices ranging from $1.02 to $1.03 per share.
The  issuances  were  pursuant to contractual rights granted in prior securities
offerings  that  were  exempt  under  Rule  506  and  Section  4(2)  of the Act.

During  the  period  November  and  December  2001  the  Company entered into 13
promissory  notes  for  aggregate  proceeds  to  the  Company of $1,008,500.  In
February,  2002,  the  Company  issued 354,300 shares of the common stock of the
Company  to  the  note  holders  as  an  inducement  to enter into the said note
agreements.

The  shares  were valued at $119,024. Each note carries an interest rate of 10%,
as  well  as  penalties  in the form of stock and warrants for failure either to
repay  the notes or register shares owned by the noteholders. The Company is not
in  default  under  these  notes  as long as it complies with the equity penalty
provisions.  None  of  the  notes  was  paid  at  maturity.  The notes and share
issuances  were issued pursuant to exemptions from registration under Regulation
S,  Rule  506  and  Section  4(2).

During  January  2002  the Company entered into a further 4 promissory notes for
aggregate proceeds to the Company of $170,000, net of financing costs of 18,700.
In  February,  2002, the Company issued 77,563 shares of the common stock of the
Company  to  the  note  holders  as  an  inducement  to enter into the said note
agreements.  The  shares  were  valued  at  $1.03  to $1.08 per share. Each note
carries  an  interest rate of 10%, as well as penalties in the form of stock and
warrants  for  failure either to repay the notes or register shares owned by the
note  holders.  The  Company  is  not in default under these notes as long as it
complies  with  the  equity  penalty  provisions.  None of the notes was paid at
maturity.  The notes and share issuances were issued pursuant to exemptions from
registration  under  Regulation  S,  Rule  506  and  Section  4(2).

On February 4, 2002 the Company issued 1,094,160 shares to holders of promissory
notes  in  payment of penalties and interest on the notes outstanding (including
678,175  of  shares previously subscribe unissued). but. In addition the Company
issued  3,178,954  warrants  to  acquire  common  stock in the Company at prices
ranging from $.47 to $1.34. The warrants were issued in payment of penalties and
interest  on  the  notes  payable.  The  share and warrant issuances were issued
pursuant  to  exemptions  from  registration  under  Regulation  S, Rule 506 and
Section  4(2).

On  February 26, 2002 the Company issued 1,000,0000 shares to a related party in
settlement  of liabilities due to that Company. The share issuance was valued at
$1,100,000.  The  share  issuances  were  issued  pursuant  to  exemptions  from
registration  under  Regulation  S,  and  Section 4(2) of the securities act. In
addition  the  Company  issued  500,000 common stock warrants as part of the the
same  settlement  agreement.

In  March 2002, the Company issued 12,000 shares pursuant to a private placement
for  aggregate proceeds of $24,000. The offer and sale of 12,000 shares was made
pursuant to an exemption from registration under Regulation S, and Section 4(2).

In March 2002, the Company borrowed $700,000 from existing debt holders pursuant
to  30-day  note agreements. Interest and penalties are required under the terms
of  the  notes  payable every 30 days comprised of 10% interest, 10% to 12.5% of
the original loan amount payable in common stock and up to 37.5% of the original
loan  amount  in warrants at an exercise price of market but not more than $.80.
In  addition,  as  a  cost  of the financing, the Company granted a $77,000 note
payable,  494,375  shares  of  common  stock,  and  warrants entitling holder to
purchase  783,125  shares  of  common  stock at $.80 per share. The warrants are
exercisable  immediately and expire five years from the date of grant. The note,
share  and  warrant  issuances  were  issued  pursuant  to  exemptions  from
registration  under  Regulation  S,  Rule  506  and  Section  4(2).

During  the  three  month  period  ended  March  31,  2002, the Company borrowed
$587,500  from  an  officer.  On April 30, 2002 this balance, combined with then
outstanding  $150,000 loan due to the officer, and increased by further advances
to  $775,000,  was  rolled into a convertible note payable bearing interest at a
rate  of  8%  per  annum and convertible into the common stock of the Company at
$0.75  per  share.  The  convertible  debenture  is  due  December  31, 2002. In
addition,  on  April  30,  2002  the Company granted 750,000 warrants to acquire
common  stock  at  a price of $0.75 per share with a cashless exercise provision
and  a  five-year  term.  In  connection  with  this  transaction,  the  Company
recognized  $150,000  in debt discount, with $87,500 being expensed in the first
quarter  of  the  year ending March 31, 2002. The convertible debenture issuance
was  issued  pursuant to exemptions from registration under Rule 506 and Section
4(2).


                                       15
<PAGE>
Item  5.     Other  Information
--------

In  February  2002,  the Company entered into a debt financing agreement with an
institutional  syndicator  to  obtain  up  to $15 million in working capital for
Upgrade and its group of Companies. The debt instrument is for a seven-year term
with the principal due at maturity, and interest payable quarterly commencing in
year  three  of the financing. The loan is secured by the issuance of 40 million
shares of Company Stock, which will be issued under Rule 144A. These shares will
carry  a different CUSIP number from the Company's Common Stock. Additionally, 5
million  restricted shares under Rule 506D were also deposited into the custody
account.  All  shares  are  restricted  , and can only be traded among qualified
institutional  investors.  Upon repayment of the credit facility, the shares are
to  be  returned  to the Company.  Contained in the agreement is the stipulation
that the voting rights of the 45 million shares by way of proxy will be voted in
proportion  with  the  existing  shareholder  base. The Company also retains the
right  to substitute collateral 18 months after closing of the transaction. This
transaction  has  not  as  yet  funded.

Item  6.    Exhibits
--------

     Exhibit  No.          Description





                                               Upgrade International Corporation


                                               /s/  Daniel Bland
Date:  May 20, 2002                            ---------------------------------
                                               Daniel Bland, President and Chief
                                               Executive Officer, and Secretary

                                               /s/  Howard A. Jaffe
Date: May 20, 2002                             ---------------------------------
                                               Howard A. Jaffe, Chief Operating
                                               and Financial Officer



                                       16
<PAGE>