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  DECEMBER 31, 2001
                                -----------------

[ ]     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 January 31, 2002, 41,331,578
shares  of  common  stock,  $.0001  par  value  were  outstanding.

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


                                        1
<PAGE>
<TABLE>
<CAPTION>
                                                          INDEX



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

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

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

Consolidated statements of operations for the three months ended December 31, 2000 and 2001 (unaudited) and
cumulative since inception (February 5, 1997) through December 31, 2001 (unaudited) . . . . . . . . . . . . . . . .     4

Consolidated statement of stockholders' equity since inception through September 30, 2001 and for the three months
ended December 31, 2001 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5-11

Consolidated statement of cash flows for the three months ended December 31, 2000 and 2001 (unaudited) and
Cumulative since inception (February 5, 1997) through December 31, 2001 (unaudited) . . . . . . . . . . . . . . . .    12

Notes to the Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    13


Item 2.   Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . .    16
-------------------------------------------------------------------

PART II - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    18

Item 1.  Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    18
-------  -----------------

Item 2.  Changes In Securities and Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    18
-------  -----------------------------------------

Item 5.  Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    18
-------  -----------------

Item 6.  Exhibits and Reports on Form 8 - K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    18
-------  ----------------------------------

Signatures
</TABLE>


                                        2
<PAGE>
<TABLE>
<CAPTION>
                      Upgrade International Corporation and Subsidiaries
                               (A development stage enterprise)

                                 CONSOLIDATED BALANCE SHEETS



                                            ASSETS

                                                                 September 30,   December 31,
                                                                     2001           2001
                                                                 -------------  -------------
                                                                                 (unaudited)
<S>                                                              <C>            <C>
CURRENT ASSETS
  Cash and cash equivalents                                      $  2,551,465   $    350,928
  Restricted deposit                                                  300,000        300,000
  Subscriptions receivable                                            500,000              -
  Note receivable from related party                                  135,243        137,864
  Prepaid expenses, deposits and other                                110,022        109,190
                                                                 -------------  -------------

      Total current assets                                          3,596,730        897,982

PROPERTY AND EQUIPMENT - AT COST,
  less accumulated depreciation and amortization                    2,071,663      2,055,707

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

ADVANCES TO ROCKSTER GROUP                                          1,084,000      1,449,000

OTHER ASSETS
  Intangible and deferred assets, net of accumulated
  amortization                                                        466,256        361,969
  Acquisition deposits                                              1,820,715      1,820,715
  Deposits                                                            194,128        194,128
                                                                 -------------  -------------

      Total assets                                               $ 11,233,492   $  8,779,501
                                                                 =============  =============

                           LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
  Accounts payable                                               $  3,853,950   $  3,769,004
  Payable to related parties                                        5,503,022      3,471,810
  Accrued liabilities                                               2,972,713      2,233,380
  Notes payable                                                     1,717,231      2,474,874
  Convertible debentures, net of unamortized discount                       -      1,075,756
  Equipment purchase contract payable                               2,024,748      2,024,748
  Royalty fee payable to Card Tech, Inc.                            1,161,873      2,233,168
                                                                 -------------  -------------

      Total current liabilities                                    17,233,537     17,282,740

CONVERTIBLE DEBENTURES, net of unamortized discount                 2,004,488              -

MINORITY INTEREST                                                   1,473,179         46,179

COMMITMENTS AND CONTINGENCIES                                               -              -

STOCKHOLDERS' DEFICIT
  Common stock - $.0001 par value, 100,000,000 shares authorized       24,524         37,918
  Stock subscriptions                                               2,742,586      1,372,553
  Additional paid in capital                                       53,947,618     68,219,820
  Deferred compensation                                              (498,559)      (449,233)
  Receivable from stockholders of subsidiary                         (266,621)      (266,621)
  Accumulated development stage deficit                           (65,427,260)   (77,463,855)
                                                                 -------------  -------------
                                                                   (9,477,712)    (8,549,418)
                                                                 -------------  -------------

      Total liabilities and stockholders' deficit                $ 11,233,492   $  8,779,501
                                                                 =============  =============
</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
                                                                                         results of
                                                                                      operations since
                                                 Three months ended December 31,          inception
                                                     2000               2001         (February 5, 1997)
                                               ----------------  ------------------  -------------------
<S>                                            <C>               <C>                 <C>
Costs and expenses
  Research and development                     $      2,414,425  $       1,778,670   $       16,311,073
  Purchased in-process research and development               -                  -            5,971,603
  Sales and marketing                                   713,837            107,390            5,346,195
  General and administrative                          1,599,790          2,321,098           25,251,755
                                               ----------------  ------------------  -------------------
                                                      4,728,052          4,207,158           52,880,626
Other expenses
  Equity in losses of UltraCard                               -                  -            1,264,316
  Interest expense                                      303,112          7,614,950           14,337,251
  Loss on advances to Pathway                                 -                  -            3,549,780
  Other, net                                             24,205            913,839            2,682,239
                                               ----------------  ------------------  -------------------
                                                        328,317          8,528,789           21,833,586

Minority interest in losses of subsidiaries                   -           (699,352)          (3,267,152)
                                               ----------------  ------------------  -------------------

NET LOSS                                       $      5,056,369  $      12,036,595   $       71,447,060
                                               ================  ==================  ===================
LOSS PER COMMON
SHARE-BASIC AND DILUTED                        $           0.24  $            0.36   $             5.05
                                               ================  ==================  ===================
</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 inception through September 30, 2001 and December 31, 2001 (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>
Balance at February 5, 1997                 -  $     -           -   $        -   $      -   $           -  $            -

Issuance of founder's shares at
  $.03 per share in February 1997
  adjusted for December 1997
  1:2 reverse stock split             500,000      500           -            -     29,500               -               -

Issuance of common stock in
  February 1997 at $.10 per share
  adjusted for December 1997
  1:2 reverse stock split              29,000       29           -            -      5,771               -               -

Issuance of common stock at
  $.0025 per share in December
  1997 Reg. D Rule 504 offering     4,000,000    4,000           -            -      6,000               -               -

Issuance of common stock in
  December 1997 to an officer
  in exchange for property
  contribution                      4,000,000    4,000           -            -     47,250               -               -

Sale of common stock at $.50
  per share in January 1998
  Reg. D Rule 504 offering          1,680,988    1,681           -            -    838,813               -               -

Common stock subscribed in
  September 1998 at $.065
  per share                                 -        -   2,250,000      146,250          -               -               -

Net loss for the year ended
  September 30, 1998                        -        -           -            -          -               -               -

                                   ----------  -------  -----------  -----------  ---------  -------------  --------------
Balances at September 30, 1998     10,209,988   10,210   2,250,000      146,250    927,334               -               -

Issuance of subscribed shares
  in November 1998 Reg. D Rule
  04 offering                       2,250,000    2,250  (2,250,000)    (146,250)   144,000               -               -

Issuance of common stock in
  January 1999 to satisfy trade
  liabilities                         437,500      438           -            -    103,312               -               -

Issuance of common stock
  warrants at $.25 per share in
  January 1999                              -        -           -            -    221,000               -               -

Common stock subscribed at
  $1.80 per share in February
  1999 private placement                    -        -     999,999    1,799,998          -               -               -

Issuance of common stock
  warrants for services in
  August 1999                               -        -           -            -     64,155               -               -

Common stock subscribed at $.25
  per share in August 1999
  through exercise of common
  stock warrants                            -        -      27,500       71,030    (64,155)              -               -

Issuance of common stock
  warrants and options at
  exercise prices of $.25 and
  $2.50 per share in September
  1999 for services                         -        -           -            -    671,893               -               -

Issuance of common stock at
  $.25 per share in September
  1999 through exercise of
  employee stock options               60,000       60           -            -     14,940               -               -


                                     Accumulated
                                     Development
                                    stage deficit      Total
                                   ---------------  ------------
<S>                                <C>              <C>
Balance at February 5, 1997        $            -   $         -

Issuance of founder's shares at
  $.03 per share in February 1997
  adjusted for December 1997
  1:2 reverse stock split                       -        30,000

Issuance of common stock in
  February 1997 at $.10 per share
  adjusted for December 1997
  1:2 reverse stock split                       -         5,800

Issuance of common stock at
  $.0025 per share in December
  1997 Reg. D Rule 504 offering                 -        10,000

Issuance of common stock in
  December 1997 to an officer
  in exchange for property
  contribution                                  -        51,250

Sale of common stock at $.50
  per share in January 1998
  Reg. D Rule 504 offering                      -       840,494

Common stock subscribed in
  September 1998 at $.065
  per share                                     -       146,250

Net loss for the year ended
  September 30, 1998                   (1,213,530)   (1,213,530)
                                       -----------  ------------
Balances at September 30, 1998         (1,213,530)     (129,736)

Issuance of subscribed shares
  in November 1998 Reg. D Rule
  04 offering                                   -             -

Issuance of common stock in
  January 1999 to satisfy trade
  liabilities                                   -       103,750

Issuance of common stock
  warrants at $.25 per share in
  January 1999                                  -       221,000

Common stock subscribed at
  $1.80 per share in February
  1999 private placement                        -     1,799,998

Issuance of common stock
  warrants for services in
  August 1999                                   -        64,155

Common stock subscribed at $.25
  per share in August 1999
  through exercise of common
  stock warrants                                -         6,875

Issuance of common stock
  warrants and options at
  exercise prices of $.25 and
  $2.50 per share in September
  1999 for services                             -       671,893

Issuance of common stock at
  $.25 per share in September
  1999 through exercise of
  employee stock options                        -        15,000
</TABLE>


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

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - Continued

  Since inception through September 30, 2001 and December 31, 2001 (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>
Common shares subscribed at
  $2.50 per share in September
  1999                                        -       -   4,189,434    10,473,585            -              -              -

Receivable from UltraCard
  stockholders for payroll
  taxes and related charges in
  connection with stock issued
  by UltraCard as compensation                -       -           -             -            -              -       (400,000)

Net loss for the year ended
  September 30, 1999                          -       -           -             -            -              -              -
                                    -----------  ------  -----------  ------------  -----------  ------------  --------------
Balances at September 30, 1999       12,957,488  12,958   5,216,933    12,344,613    2,082,479              -       (400,000)

Common shares subscribed by a
  broker at $2.50 per share in
  October 1999 in connection
  with placement of $1 million
  in convertible debentures                   -       -      16,000        40,000      (40,000)             -              -

Issuance of common stock warrants
  with a strike price of $.25
  per share in October 1999                   -       -           -             -      339,500              -              -

Issuance of subscribed shares in
  November 1999                         999,999   1,000    (999,999)   (1,799,998)   1,798,998              -              -

Issuance of common shares,
  including shares subscribed,
  in November 1999 at $2.50 per
  share, net of expenses              4,652,281   4,652  (4,045,583)  (10,113,957)  11,521,038              -              -

Common shares subscribed by a
  broker at $2.50 per share in
  November 1999 in connection
  November 2000 private placements            -       -      24,000        60,000      (60,000)             -              -

Issuance of common stock at $.25
  per share in December 1999
  through exercise of employee
  stock options                          90,000      90           -             -       22,410              -              -

Common shares issued for
  services in December 1999              70,000      70           -             -      242,830              -              -

Allocation of debenture proceeds
  to beneficial conversion feature            -       -           -             -      676,360              -              -

Allocation of debenture proceeds
  to stock warrants                           -       -           -             -      323,640              -              -

Issuance of common stock at $44
  per share in January 2000
  through a private placement,
  net of expenses                       100,000     100           -             -    4,289,900              -              -

Issuance of common stock at $.25
  and $2.50 per share in February
  2000 through exercise of
  stock warrants                        294,449     295           -             -      304,046              -              -


                                      Accumulated
                                       Development
                                      stage deficit      Total
                                     --------------  ------------
<S>                                  <C>             <C>
Common shares subscribed at
  $2.50 per share in September
  1999                                           -    10,473,585

Receivable from UltraCard
  stockholders for payroll
  taxes and related charges in
  connection with stock issued
  by UltraCard as compensation                   -      (400,000)

Net loss for the year ended
  September 30, 1999                   (10,623,048)  (10,623,048)
                                     --------------  ------------
Balances at September 30, 1999         (11,836,578)    2,203,472

Common shares subscribed by a
  broker at $2.50 per share in
  October 1999 in connection
  with placement of $1 million
  in convertible debentures                      -             -

Issuance of common stock warrants
  with a strike price of $.25
  per share in October 1999                      -       339,500

Issuance of subscribed shares in
  November 1999                                  -             -

Issuance of common shares,
  including shares subscribed,
  in November 1999 at $2.50 per
  share, net of expenses                         -     1,411,733

Common shares subscribed by a
  broker at $2.50 per share in
  November 1999 in connection
  November 2000 private placements               -             -

Issuance of common stock at $.25
  per share in December 1999
  through exercise of employee
  stock options                                  -        22,500

Common shares issued for
  services in December 1999                      -       242,900

Allocation of debenture proceeds
  to beneficial conversion feature               -       676,360

Allocation of debenture proceeds
  to stock warrants                              -       323,640

Issuance of common stock at $44
  per share in January 2000
  through a private placement,
  net of expenses                                -     4,290,000

Issuance of common stock at $.25
  and $2.50 per share in February
  2000 through exercise of
  stock warrants                                 -       304,341
</TABLE>


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

                               CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - Continued

                      Since inception through September 30, 2001 and December 31, 2001 (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>
Issuance of common stock in
  February 2000 subscribed to in
  August 2000 through exercise
  of common stock warrants            27,500       27   (27,500)    (71,030)      71,003              -              -

Issuance of common stock in
  April 2000 in connection with
  reverse acquisition of Second
  CMA, Inc.                           45,000       45         -           -        1,155              -              -

Issuance of common stock
  options with a strike price
  of $10.00 per share in April
  2000 for legal services                  -        -         -           -    1,047,670              -              -

Issuance of common stock at $10
  per share in April 2000
  through a private placement,
  net of expenses                     50,000       50         -           -      449,950              -              -

Issuance of common stock at
  $11.31 per share in May 2000
  through a private placement,
  net of expenses                     80,000       80         -           -      859,480              -              -

Common shares subscribed to
  through a cashless exercise of
  common stock warrants in
  May 2000                                 -        -   102,609     323,640     (323,640)             -              -

Issuance of common stock at
  $2.50 per share in June 2000
  through exercise of stock
  warrants                            91,878       92         -           -      229,603              -              -

Issuance of common stock at
  $10.48 per share in July 2000
  through a private placement        160,000      160         -           -    1,676,640              -              -

Issuance of common stock at
  $.25 and $2.50 per share in
  July 2000 through exercise
  of stock warrants                  130,000      130         -           -      156,120              -              -

Distribution of common stock
  warrants on August 16, 2000              -        -         -           -    6,016,795              -              -

Issuance of common stock at
  $12.25 per share in September
  2000 through a private
  placement, net of expenses         408,164      408         -           -    4,899,301              -              -

Issuance of common stock in
  September 2000 subscribed in
  September 1999                     143,851      144  (143,851)   (359,628)     359,484              -              -

Issuance of common stock in
  September 2000 subscribed in
  October and November of 1999        40,000       40   (40,000)   (100,000)      99,960              -              -

Adjustment to market of options
  granted for services in April
  2000                                     -        -         -           -     (118,885)             -              -

Adjustment to receivable from
  subsidiary's stockholders                -        -         -           -            -              -        133,379

Net loss for the year ended
  September 30, 2000                       -        -         -           -            -              -              -

                                  ----------  -------  ---------  ----------  -----------  ------------  --------------
Balances at September 30, 2000    20,340,610  $20,341   102,609     323,640   36,925,837              -       (266,621)

Issuance of shares in October
  2000 subscribed to shares in
  May 2000                           102,609      102  (102,609)   (323,640)     323,538              -              -

Issuance of common shares at
  $10.50 per share in October
  2000, net of costs                 142,860      143         -           -    1,349,857              -              -

Shares subscribed to at $6.00
  per share in October 2000,
  net of costs                             -        -   258,333   1,070,000     (100,000)             -              -

Allocation of debenture proceeds
  to common stock                    167,768      168         -           -      444,435              -              -

Allocation of debenture proceeds
  to common stock warrants                 -        -         -           -      829,551              -              -

Allocation of debenture proceeds
  to beneficial conversion
  feature                                  -        -         -           -    1,051,096              -              -

Allocation of promissory note
  proceeds to common stock            40,000       40         -           -      136,167              -              -

Common stock subscribed to at
  $4.00 per share in December
  2000                                     -        -   125,000     500,000            -              -              -

Common shares subscribed at
  $2.00 per share in December
  2000, net of issuance costs              -        -   389,129     778,257     (102,208)             -              -


                                  Accumulated
                                  development
                                  stage deficit      Total
                                  --------------  ------------
<S>                               <C>             <C>
Issuance of common stock in
  February 2000 subscribed to in
  August 2000 through exercise
  of common stock warrants                    -             -

Issuance of common stock in
  April 2000 in connection with
  reverse acquisition of Second
  CMA, Inc.                                   -         1,200

Issuance of common stock
  options with a strike price
  of $10.00 per share in April
  2000 for legal services                     -     1,047,670

Issuance of common stock at $10
  per share in April 2000
  through a private placement,
  net of expenses                             -       450,000

Issuance of common stock at
  $11.31 per share in May 2000
  through a private placement,
  net of expenses                             -       859,560

Common shares subscribed to
  through a cashless exercise of
  common stock warrants in
  May 2000                                    -             -

Issuance of common stock at
  $2.50 per share in June 2000
  through exercise of stock
  warrants                                    -       229,695

Issuance of common stock at
  $10.48 per share in July 2000
  through a private placement                 -     1,676,800

Issuance of common stock at
  $.25 and $2.50 per share in
  July 2000 through exercise
  of stock warrants                           -       156,250

Distribution of common stock
  warrants on August 16, 2000        (6,016,795)            -

Issuance of common stock at
  $12.25 per share in September
  2000 through a private
  placement, net of expenses                  -     4,899,709

Issuance of common stock in
  September 2000 subscribed in
  September 1999                              -             -

Issuance of common stock in
  September 2000 subscribed in
  October and November of 1999                -             -

Adjustment to market of options
  granted for services in April
  2000                                        -      (118,885)

Adjustment to receivable from
  subsidiary's stockholders                   -       133,379

Net loss for the year ended
  September 30, 2000                (17,403,990)  (17,403,990)
                                  --------------  ------------
Balances at September 30, 2000      (35,257,363)    1,745,834

Issuance of shares in October
  2000 subscribed to shares in
  May 2000                                    -             -

Issuance of common shares at
  $10.50 per share in October
  2000, net of costs                          -     1,350,000

Shares subscribed to at $6.00
  per share in October 2000,
  net of costs                                -       970,000

Allocation of debenture proceeds
  to common stock                             -       444,603

Allocation of debenture proceeds
  to common stock warrants                    -       829,551

Allocation of debenture proceeds
  to beneficial conversion
  feature                                     -     1,051,096

Allocation of promissory note
  proceeds to common stock                    -       136,207

Common stock subscribed to at
  $4.00 per share in December
  2000                                        -       500,000

Common shares subscribed at
  $2.00 per share in December
  2000, net of issuance costs                 -       676,049
</TABLE>


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

                                    CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - Continued

                           Since inception through September 30, 2001 and December 31, 2001 (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>
Common shares subscribed in
  December 2000 at $0.25 through
  the exercise of stock warrants              -        -      20,000         5,000             -               -                -

Issuance of common shares at
  $2.02 per share pursuant to
  conversion of debenture               107,981      108           -             -       218,014               -                -

Issuance of common shares
  pursuant to warrant exercise
  at $0.25 per share                          -        -     200,000        50,000             -               -                -

Shares subscribed to at $2.50
  per share in January 2001,
  net of costs                                -        -     200,000       500,000       (50,000)              -                -

Modification of warrants                      -        -           -             -     2,414,000               -                -

Issuance of common shares at
  $1.43 per share pursuant to
  conversion of debentures              307,509      307           -             -       438,049               -                -

Shares subscribed to at $2.50
  per share in February 2001 net
  of costs                                    -        -      80,000       200,000       (20,000)              -                -

Common shares subscribed at
  $3.75 per share as additional
  consideration on debt                       -        -      16,267        61,001             -               -                -

Common shares subscribed at
  $3.31 as additional
  consideration on debt                       -        -      18,429        61,001             -               -                -

Common stock issued in March
  2001 for shares previously
  subscribed                            253,334      254    (253,334)     (925,000)      924,746               -                -

Warrants issued with a strike
  price of $6.00 per share as
  additional compensation on debt             -        -           -             -         7,708               -                -

Warrants issued with a strike
  price of $3.75 per share as
  additional compensation on debt             -        -           -             -        14,659               -                -

Warrants issued with a strike
  price of $3.31 per share as
  additional compensation on debt             -        -           -             -        12,715               -                -

Issuance of common shares at
  $2.00 per share net of
  financing costs                             -        -     806,073     1,612,146        (5,000)              -                -

Placement fees accrued on prior
  financings                                  -        -           -             -      (831,133)              -                -

Allocation of debenture proceeds
  to beneficial conversion
  feature                                     -        -           -             -       790,369               -                -

Adjustment to remeasurement of
  attorney stock options                      -        -           -             -      (510,315)              -                -

Issuance of common stock in April
  for shares previously
  subscribed                          1,606,721    1,607  (1,606,721)   (3,703,442)    3,701,835               -                -

Common stock subscribed at $2.00
  per share in April                          -        -      15,000        30,000             -               -                -

Common stock subscribed at $1.74
  per share pursuant to
  conversion of debentures in
  June 2001                                   -        -      12,784        22,203             -               -                -

Common stock subscribed at $2.70
  per share in connection with
  debt in June 2001                           -        -      50,000       106,299             -               -                -

Common stock subscribed at $2.32
  to $2.83 per share from April
  through June 2001 as
  additional financing fees                   -        -      47,490       125,000             -               -                -

Shares issued pursuant to
  conversion of debentures at
  $1.25 per share                        82,000       82           -             -       102,418               -                -

Shares issued pursuant to
  conversion of debentures
  at $1.74                              115,606      116           -             -       200,692               -                -

Shares issued pursuant to
  conversion of debentures
  at $1.00                               29,433       29           -             -        29,404               -                -

Shares subscribed in April, 2001
   for $2.00 per share pursuant
  to private placement net of
  stock issue costs                     375,000      375           -             -       649,625               -                -

Issuance of warrants issued at
  $2.03 to $3.75 as additional
  financing fees                              -        -           -             -     1,383,353               -                -

                                       Accumulated
                                       development
                                      stage deficit       Total
                                     ---------------  -------------
<S>                                  <C>              <C>
Common shares subscribed in
  December 2000 at $0.25 through
  the exercise of stock warrants                  -          5,000

Issuance of common shares at
  $2.02 per share pursuant to
  conversion of debenture                         -        218,122

Issuance of common shares
  pursuant to warrant exercise
  at $0.25 per share                              -         50,000

Shares subscribed to at $2.50
  per share in January 2001,
  net of costs                                    -        450,000

Modification of warrants                          -      2,414,000

Issuance of common shares at
  $1.43 per share pursuant to
  conversion of debentures                        -        438,356

Shares subscribed to at $2.50
  per share in February 2001 net
  of costs                                        -        180,000

Common shares subscribed at
  $3.75 per share as additional
  consideration on debt                           -         61,001

Common shares subscribed at
  $3.31 as additional
  consideration on debt                           -         61,001

Common stock issued in March
  2001 for shares previously
  subscribed                                      -              -

Warrants issued with a strike
  price of $6.00 per share as
  additional compensation on debt                 -          7,708

Warrants issued with a strike
  price of $3.75 per share as
  additional compensation on debt                 -         14,659

Warrants issued with a strike
  price of $3.31 per share as
 additional compensation on debt                  -         12,715

Issuance of common shares at
  $2.00 per share net of
  financing costs                                 -      1,607,146

Placement fees accrued on prior
  financings                                      -       (831,133)

Allocation of debenture proceeds
  to beneficial conversion
  feature                                         -        790,369

Adjustment to remeasurement of
  attorney stock options                          -       (510,315)

Issuance of common stock in April
  for shares previously
  subscribed                                      -              -

Common stock subscribed at $2.00
  per share in April                              -         30,000

Common stock subscribed at $1.74
  per share pursuant to
  conversion of debentures in
  June 2001                                       -         22,203

Common stock subscribed at $2.70
  per share in connection with
  debt in June 2001                               -        106,299

Common stock subscribed at $2.32
  to $2.83 per share from April
  through June 2001 as
  additional financing fees                       -        125,000

Shares issued pursuant to
  conversion of debentures at
  $1.25 per share                                 -        102,500

Shares issued pursuant to
  conversion of debentures
  at $1.74                                        -        200,808

Shares issued pursuant to
  conversion of debentures
  at $1.00                                        -         29,433

Shares subscribed in April, 2001
  for $2.00 per share pursuant
  to private placement net of
  stock issue costs                               -        650,000

Issuance of warrants issued at
  $2.03 to $3.75 as additional
  financing fees                                  -      1,383,353
</TABLE>


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

                                    CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - Continued

                           Since inception through September 30, 2001 and December 31, 2001 (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>
Allocation of debenture proceeds
  to beneficial conversion
  feature                                     -        -           -             -       281,843               -                -

Allocation of debenture proceeds
  to cashless exercise warrants               -        -           -             -        48,487               -                -

Common stock subscribed in lieu
  of loan origination fees                    -        -      50,000       145,000             -               -                -

Common stock issued at $3.19
  per share form April through
  June 2001 as additional
  financing fees                         53,185       53           -             -       169,474               -                -

Common stock subscribed at $0.54
  per share pursuant to conversion
  of debentures in September 2001             -        -     563,080       304,063             -               -                -

Common stock subscribed at $0.60
  per share pursuant to conversion
  of debentures in September 2001             -        -     284,042       170,425             -               -                -

Common stock subscribed at $1.30
  in September 2001 to satisfy
  penalty on late filing of the
  Registration Statement with the
  SEC for conversion shares in
  connection with convertible
  debt agreements dated
  November 2000                               -        -     124,721       162,141             -               -                -

Common stock issued in July 2001
  for shares previously subscribed      262,784      263    (262,784)     (178,506)      178,243               -                -

Common stock issued at $2.70 per
  share in June 2001 in lieu of
  loan origination fee                   50,000       50           -             -       134,950               -                -

Common stock subscribed at $1.00
  per share in July 2001                      -        -      37,000        74,000             -               -                -

Common stock subscribed at $1.00,
  net of financing costs,
  per share in September 2001                 -        -     200,000       200,000             -               -                -

Common stock subscribed at $0.50, net
  per share in September 2001                 -        -   1,000,000       500,000             -               -                -

Common stock issued at $0.72 to
  $2.08 per share form July
  through September 2001 as
  additional finance fees               363,432      363           -             -       361,774               -                -

Common stock issued in September
  2001 for shares previously
  subscribed                             82,186       82           -             -       246,920               -                -

Common stock issued at $1.98 per
  share in July 2001 for late
  issuance of debt converted
  in June 2001                            2,649        3     (82,186)     (247,002)        5,242               -                -

Common stock issued at $1.56 per
  share in July 2001 for prepaid
  debt penalty                           14,322       14           -             -        22,328               -                -

Common stock issued at $0.96 per
  share in August 2001 as prepaid
  debt penalty                           23,534       24           -             -        22,569               -                -

Warrants issued between July and
  September 2001, with exercise
  price form $0.72 to $6.00, as
  additional financing fees                   -        -           -             -       828,602               -                -

Adjustment of warrants issued
  between January and June 2001
  as a result of settlement
  agreement dated June 2001
  regarding additional finance
  fees                                        -        -           -             -      (559,273)              -                -

Warrants issued in August 2001
  with exercise price of $1.00 in
  connection with debt                        -        -           -             -       114,484               -                -

Stock option issued to employees
  below fair market value on
  March 27, 2001                              -        -           -             -     1,763,563        (498,559)               -

Common stock subscribed on
  September 26, 2001 at $0.70,
  net per share                               -        -   1,600,000     1,120,000             -               -                -

Net loss for the year ended
  September 30, 2001                          -        -           -             -             -               -                -
                                     ----------  -------  -----------  ------------  ------------  --------------  ---------------
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>
Allocation of debenture proceeds
  to beneficial conversion
  feature                                         -        281,843

Allocation of debenture proceeds
  to cashless exercise warrants                   -         48,487

Common stock subscribed in lieu
  of loan origination fees                        -        145,000

Common stock issued at $3.19
  per share form April through
  June 2001 as additional
  financing fees                                  -        169,527

Common stock subscribed at $0.54
  per share pursuant to conversion
  of debentures in September 2001                 -        304,063

Common stock subscribed at $0.60
  per share pursuant to conversion
  of debentures in September 2001                 -        170,425

Common stock subscribed at $1.30
  in September 2001 to satisfy
  penalty on late filing of the
  Registration Statement with the
  SEC for conversion shares in
  connection with convertible
  debt agreements dated
  November 2000                                   -        162,141

Common stock issued in July 2001
  for shares previously subscribed                -              -

Common stock issued at $2.70 per
  share in June 2001 in lieu of
  loan origination fee                            -        135,000

Common stock subscribed at $1.00
  per share in July 2001                          -         74,000

Common stock subscribed at $1.00,
  net of financing costs
  per share in September 2001                     -        200,000

Common stock subscribed at $0.50,
  net per share in September 2001                 -        500,000

Common stock issued at $0.72 to
  $2.08 per share form July
  through September 2001 as
  additional finance fees                         -        362,137

Common stock issued in September
  2001 for shares previously
  subscribed                                      -              -

Common stock issued at $1.98 per
  share in July 2001 for late
  issuance of debt converted
 in June 2001                                     -          5,245

Common stock issued at $1.56 per
  share in July 2001 for prepaid
  debt penalty                                    -         22,342

Common stock issued at $0.96 per
  share in August 2001 as prepaid
  debt penalty                                    -         22,593

Warrants issued between July and
  September 2001, with exercise
  price form $0.72 to $6.00, as
  additional financing fees                       -        828,602

Adjustment of warrants issued
  between January and June 2001
  as a result of settlement
  agreement dated June 2001
  regarding additional finance
  fees                                            -       (559,273)

Warrants issued in August 2001
  with exercise price of $1.00 in
  connection with debt                            -        114,484

Stock option issued to employees
  below fair market value on
  March 27, 2001                                  -      1,264,004

Common stock subscribed on
  September 26, 2001 at $1.10,
  net of financing costs
  per share                                       -      1,120,000

Net loss for the year ended
  September 30, 2001                    (30,169,897)   (30,169,897)
                                     ---------------  -------------
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>


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

                                    CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - Continued

                           Since inception through September 30, 2001 and December 31, 2001 (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 lie of
  fees and penalties in connection
  with October 10 through 12, 2001
  conversion of convertible
  debentures                                      -        973,485
</TABLE>


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

                                    CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - Continued

                           Since inception through September 30, 2001 and December 31, 2001 (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                -

Net loss for the three months
  ended December 31, 2001                     -        -           -             -             -               -                -
                                     ----------  -------  -----------  ------------  ------------  --------------  ---------------
Balances at December 31, 2001        37,917,803  $37,918   1,055,742   $ 1,372,553   $68,219,820   $    (449,233)  $     (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

Net loss for the three months
  ended December 31, 2001               (12,036,595)   (12,036,595)
                                     ---------------  -------------
Balances at December 31, 2001        $  (77,463,855)  $ (8,549,418)
                                     ===============  =============
</TABLE>


The  accompanying  notes  are  an  integral  part  of  this  statement.


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

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


                                                                      Three months ended December 31,          Cumulative
                                                                    -------------------------------------   since inception
Increase (Decrease) in Cash and Cash Equivalents                          2000                2001         (February 5, 1997)
                                                                    -----------------  ------------------  -------------------
<S>                                                                 <C>                <C>                 <C>
Cash flows from operating activities
  Net loss                                                          $     (5,056,369)  $     (12,036,595)  $      (71,447,060)
  Adjustments to reconcile net loss to net
    cash used in operating activities
    Depreciation and amortization                                            140,999              92,734            1,283,344
    Amortization of beneficial conversion feature and debt discount          263,815           1,226,913            5,025,106
    Amortization of loan costs                                                     -             443,050              443,050
    Modification of loan agreements                                                -             232,922              232,922
    Equity securities issued in lieu of interest and penalties on debt             -           6,638,044            9,316,790
    Employee stock options issued below fair value                                 -              49,326            1,313,330
    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 equipment                                                      -                   -               26,021
    Equity in loss of UltraCard                                                    -                   -            1,264,316
    Purchased in-process research and
      development                                                                  -                   -            5,971,603
    Warrants and options issued for services                                (672,685)                  -            5,134,175
    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                                                              -            (699,352)          (3,267,152)
    Changes in assets and liabilities:
      Prepaid expenses, deposits and other                                  (272,516)             (1,789)           1,002,313
      Payables, accrued liabilities and other                              1,155,823             744,216            9,052,797
                                                                    -----------------  ------------------  -------------------

        Net cash used in operating activities                             (4,440,933)         (3,310,531)         (28,751,256)

Cash flows from investing activities
  Advances to The Pathways Group, Inc.                                    (1,264,955)                  -           (3,533,955)
  Advances to Rockster, Inc.                                                (150,000)           (365,000)          (1,449,000)
  Advances to eCourier                                                             -                   -             (130,000)
  Payments on equipment under construction                                         -                   -           (1,200,000)
  Acquisition of property and equipment, net                                (403,144)            (65,588)          (1,764,355)
  Acquisition of Centurion Technologies, Inc.,
    net of cash acquired                                                           -                   -           (1,000,000)
  Acquisition of UltraCard, Inc., net of cash acquired                             -            (276,164)          (5,847,269)
  Acquisition of equity interest in EforNet Corp.
    from a minority shareholder                                                    -                   -             (200,000)
  Acquisition deposit                                                        (15,000)                  -              (62,500)
  Additions to intangible assets                                             (55,658)                  -             (195,187)
                                                                    -----------------  ------------------  -------------------

        Net cash used in investing activities                             (1,888,757)           (706,752)         (15,382,266)

Cash flows from financing activities
  Proceeds from sale of common stock and stock subscriptions               3,428,774             971,746           36,701,964
  Proceeds from exercise of stock options and warrants                         5,000                   -              767,786
  Borrowings, net of loan costs                                            3,107,880             845,000           10,997,620
  Principal payments on borrowings                                        (1,037,245)                  -           (3,682,920)
  Purchase of collateral on subsidiary's letter of credit                          -                   -             (805,687)
  Proceeds from release of collateral on subsidiary's
    letter of credit                                                         505,687                   -              505,687
                                                                    -----------------  ------------------  -------------------
        Net cash provided by
          financing activities                                             6,010,096           1,816,746           44,484,450
                                                                    -----------------  ------------------  -------------------

Net increase (decrease) in cash and cash equivalents                        (319,594)         (2,200,537)             350,928

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                  $         79,395   $         350,928   $          350,928
                                                                    =================  ==================  ===================
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       12
<PAGE>
               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2000 and 2001


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  and  cash flows for the years then ended and
since  inception  (February  5,  1997).


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 December 31, 2001, 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  and cash flows for the three months ended
December  31, 2000 and 2001 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 was 20,966,989 and 33,528,705 for the three
months  ended  December  31,  2000  and 2001, respectively, and 14,148,744 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.  At December 31, 2000 and 2001,
the  Company had 5,371,869 and 8,346,042 in additional common stock equivalents.

At  December  31,  2001, 3,356,000 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 notes payable. In
     October  2001,  the  Company assumed the president's liability on the loans
     and  issued  2,000,0000  shares.  The  original collateral shares were then
     transferred  into  the  Company's  name  by  the  president.




                                       13
<PAGE>
               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2000 and 2001



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  December  31,  2001/

In  October  2001,  the  Company  received  $500,000  pursuant  to  subscription
agreement  for  a Regulation S private placement and debt settlement, subscribed
in  September  2001  at  a  net  price  of  $0.50  per  share.

In  October 2001, the Company settled $100,000 of liabilities owed to a law firm
for  the  services  rendered  by the issuance of 100,000 shares of the Company's
common  stock.

In November 2001, the Company issued 905,205 shares in settlement of $802,605 in
loans  from  shareholders  and  $100,000  cash.

In  November  2001,  the  Company  issued  562,171  shares pursuant to a private
placement  for  aggregate  proceeds  of  $468,746  (including  $132,000 of funds
received  prior  to  October  1,  2001).  In conjunction with the placement, the
Company  issued  to  the  shareholders warrants to acquire 562,171 shares of the
Company  at  an  exercise price of $1.00. The warrants have a five-year term and
cashless  exercise  provision.

In  November 2001, the Company issued 18,437 shares of common stock at $1.35 per
share  for  total  proceeds  of  $25,000.


                                       14
<PAGE>
               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2000 and 2001



NOTE  D  -  MANAGEMENT  PLANS  -  Continued

In  November  2001,  the  holders  of then outstanding $3,037,935 of convertible
debentures  elected to convert into the Company's common stock.   The conversion
prices  were  determined in accordance with terms of the original agreements and
varied  from  $0.54 to $1.50 per share.   Total shares issued  upon conversions
(including  shares  received  in  lieu  of  accrued interest and penalties) were
5,821,490.

In  November  2001,  the  Company  borrowed  $520,000 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  to  $1.50.  In  addition,  as  a cost of the financing, the Company
granted  a  $50,000  note  payable,  74,000 shares of common stock, and warrants
entitling  holder  to purchase 72,250 shares of common stock at $1.37 per share.
The  warrants are exercisable immediately and expire five years from the date of
grant.  Additionally,  in  connection  with  November 2001 notes agreements, the
Company agreed to reduce exercise price on then outstanding warrants (previously
issued  in  connection  with June 2001 note agreements) from $6 to $3 per share,
and  added  a conversion feature for $200,000 of the June 2001 loans that allows
conversion  into  the  Company's common stock. As a result of the aforementioned
modifications,  the  Company  recognized  $232,922  in  additional  expenses.

In  December  2001,  the  Company  borrowed  $350,000 from existing shareholders
pursuant  to  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 to $1.00. In addition, as a cost of
the financing, the Company granted notes payable of $38,500, 117,937 shares, and
warrants  entitling  the  holder  to  purchase  218,363  shares of common stock
exercisable  at  a  price  of  $0.80  per  share.  The  warrants are exercisable
immediately  and  expire  five  years  from  the  date  of  grant.

In  December  2001, the Company borrowed $25,000 from an officer.  This balance,
combined with then outstanding $125,000 loan due to the officer, 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 March 15, 2002.  In addition, the Company granted
350,000  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
September  30,  2002.

In  addition  to  debt  and  equity transactions by the parent company described
above,  in October 2001, one of the Company's subsidiaries completed the sale of
shares  of  its  common  stock  to  a minority shareholder for total proceeds of
$1,425,000  (the  money was received prior to October 1, 2001). This transaction
resulted  in an increase of consolidated additional paid-in capital of $727,648.

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.


                                       15
<PAGE>
               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2000 and 2001



NOTE  E   -  SUBSEQUENT  EVENTS

In  January  2002,  the  Company  borrowed  a  further  $170,000  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 to $1.00. In
addition,  as  a  cost  of  the financing, the Company entered into note payable
agreements  of  $18,700,  issued  37,400  shares  of  common  stock, and granted
warrants  entitling  holder to purchase 37,400 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.

During  January  and  February  2002,  the  Company  completed the issuance of a
further  convertible  debenture  for  $200,000,  to  an  officer of the Company,
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 March 15,
2002.  In  addition,  the  Company  granted  200,000 warrants to acquire 200,000
shares of common stock at $0.75 per share with a cashless exercise provision and
a  five-year  term.

In  February 2002, the Company entered into a letter of intent to grant Giesecke
&  Devrient  the  right  to be the exclusive provider to UltraCard for card body
design,  assembly,  production, embedding, initialization and personalization of
the  UltraCard.  The document also outlines joint efforts in product development
and marketing for both companies' products. The Companies intend to enter into a
definitive  agreement  within  45  days  of  the  above  referenced  date.


     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.


                                       16
<PAGE>
Net  losses  aggregated  $12  million  in  the first three months of the current
fiscal  year  ended December 31, 2001 compared with a $5.1 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 $7.6 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.  In  addition, the Company has accrued $1.1 million in licensing
fees  related  to  the UltraCard technology, which is reflected as a part of the
Company's research and development expenditures. The balance of the expenditures
of  3.3  million  reflects  the  ongoing  level of investment into the Company's
technology,  development  of  production  specifications and the cost associated
with  the  commercialization  process  of  the  Company's  core  technology.

The  Company's  general  and  administrative costs of $2.3 million represents an
increase  in  the  average quarterly general and administrative expenditure from
the  prior  year attributed in the most part to the Companies current focus upon
the  development  of  it's  core technology. This increase is offset somewhat by
lower  legal costs, and reduced compensation components related to equity grants
to  key  employees  .  Research and development expenditures decreased from $2.4
million compared in the corresponding prior period to $1.8 million primarily due
to  minimal  operations  of  cQue  and  dormant  condition of EForNet. The other
significant  operating  subsidiary cQue (formerly Centurion) and UltraCard China
Inc.  contributed  $57,000 and $80,200 respectively of the total loss 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 $107,000 represent a 70% decrease over the
prior  quarter reflecting the Company's focus upon product completion. Sales and
marketing  expenditures  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.


LIQUIDITY  AND  CAPITAL  RESOURCES

At  December  31,  2001 the Company had available cash balances of $350,928. The
Company  is  managing  tight  cash  flows in providing funding for an aggressive
research and development program at UltraCard in an effort to put into place the
Company's  first pilot project in China, comprised of 2,000,000 cards and 10,000
read  write  device.

During  the  quarter  ended  December 31, 2001, 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  December  31,  2001,  the  Company  had  total
indebtedness  of  approximately  $1,265,000  under  these  arrangements.

The  Company's  cash  used  in  operations  was $3.3 million, which represents a
decrease  compared  to  the prior quarter of $4.4 million. This decrease results
from  the  increase  in  accounts  payable  and  accrued  liability  levels.

Cash  flows  from  financing  activities  of  $1.8 million in the current period
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  July,  2001,  the  Company  received  from its President and Chief Executive
Officer,  Daniel  S.  Bland,  funds in the amount of $1,210,000 as a loan to the
company.  The Company's Board of Directors as of November 1, 2001, converted the
$1,210,000 loan into equity by issuing 2,000,000 shares of common stock to Bland
in  full  satisfaction  of the company's loan obligation to him. As part of this
transaction,  Upgrade  assumed  the  obligations  of  Bland,  as borrower, under
Bland's  loan  agreements  with  International  Mercantile  Holding  Group, Inc.
(IMHG),  the  original  lender  of  the  funds.  Under  the  terms  of  the loan
agreements, repayment of the loan amount is secured by collateral in the form of
2,000,000 shares of Upgrade, which have been pledged by Bland to IMHG. Bland has
assigned  his residual rights in the 2,000,000 pledged shares of common stock to
the  Company.  Upon  repayment of the loan and return of the collateral, Upgrade
intends  to  cancel  the 2,000,000 shares of stock. The term of the loan is five
years.

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.


                                       17
<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.

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

In October, 2001, the Company issued 971,725 shares of its common stock pursuant
to  the conversion of debentures at prices ranging from $.54 to $1.30 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.

In  October, 2001, the Company issued warrants to purchase 766,980 shares of its
common  stock  at  an  exercise  price of $1.00 per share for financial advisory
services  performed  on behalf of the Company in the form of a private placement
for  905,205  shares  for  total  proceeds  of  $905,205.  Due  to  the  foreign
nationality  of  the investor, the issuance was exempt under Regulation S of the
Act,  as  well  as  Rule  506  and  Section  4(2)  of  the  Act.

In  October, 2001, the Company issued 250,000 shares and warrants to purchase an
additional  230,363  shares  of its common stock at exercise prices ranging from
$1.00-$2.00 per share for financial advisory services performed on behalf of the
Company  in  the  form  of  a  private  placement  of 1,200,000 shares for total
proceeds  of  $700,000.  Due  to  the  foreign  nationality of the investor, the
issuance  was  exempt  under  Regulation  S  of the Act, as well as Rule 506 and
Section  4(2)  of  the  Act.

In  November,  2001,  the  Company  issued  3,116,633 shares of its common stock
pursuant  to the conversion of debentures at $.535 per share. The issuances were
pursuant  to  contractual rights granted in prior securities offerings that were
exempt  under  Rule  506,  Section  4(2),  and  Regulation  S  of  the  Act.

In  November,  2001,  the  Company  issued  979,095  shares  of its common stock
pursuant  to the conversion of debentures at $.543 per share. The issuances were
pursuant  to  contractual rights granted in prior securities offerings that were
exempt  under  Regulation  S,  Rule  506  and  Section  4(2)  of  the  Act.

In  November,  2001,  the  Company  issued 351,743 shares of its common stock at
$1.48  per  share  in  lieu  of  penalties  in connection with the conversion of
debentures.  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.

In November, 2001, the Company issued 445,540 shares of its common stock at 1.41
per  share in lieu of penalties in connection with the conversion of debentures.
The  issuances  were  pursuant to contractual rights granted in prior securities
offerings that were exempt under Rule 506, Section 4(2), and Regulation S of the
Act.

In November, 2001, the Company issued 413,864 shares of its common stock at 1.71
per  share in lieu of penalties in connection with the conversion of debentures.
The  issuances  were  pursuant to contractual rights granted in prior securities
offerings  that were exempt under Regulation S, Rule 506 and Section 4(2) of the
Act.

In  November,  2001,  the  Company issued 525,000 shares of its common stock for
financial  advisory  services  performed  on behalf of the Company in connection
with  a  private  placement  of 1,600,000 shares for proceeds of $1,120,000. The
issuance  was  exempt  under  Regulation S due the to foreign nationality of the
investors,  and  Rule  506  and  Section  4(2)  of  the  Act.

In November, 2001, the Company issued 905,205 shares of its common stock at 1.00
per  share in lieu of settlement of payables to stockholders. The issuances were
exempt  under  Regulation  S,  Rule  506  and  Section  4(2)  of  the  Act.

In  November,  2001,  the  Company  issued  776,919  shares  of its common stock
pursuant  to  the  conversion of debentures at prices ranging from $1.25 - $1.50
per  share.  The  issuances were pursuant to contractual rights granted in prior
securities  offerings  that  were  exempt  under  Rule  506,  Section  4(2), and
Regulation  S  of  the  Act.

In  November,  2001,  the Company issued 100,000 shares of its common stock as a
settlement of debt. The issuances were exempt under Rule 506 and Section 4(2) of
the  Act.

In  November, 2001, the Company completed a private placement of 18,437 units of
one  share  of  common  stock  at $1.36 per share and one warrant to acquire one
additional  share  of  common  stock  at  the  same price. The offer and sale of
securities  was  made  pursuant to an exemption from registration under Rule 506
and  Section  4(2)  of  the  Act.

In  November  2001,  the  Company  issued  562,171  shares pursuant to a private
placement  for  aggregate  proceeds  of  $468,746  (including  $132,000 of funds
received  prior  to  October  1,  2001).  In conjunction with the placement, the
Company  issued  to  the  shareholders warrants to acquire 562,171 shares of the
Company  at  an  exercise price of $1.00. The warrants have a five-year term and
cashless  exercise  provision.  The  offer  and  sale  of 66,275 shares was made
pursuant  to  an  exemption  from  registration under Regulation S, Rule 506 and
Section  4(2)  and  the offer and sale of 495,896 shares was made pursuant to an
exemption  from  registration  under  Rule  506  and  Section  4(2)  of the Act.

In  November,  2001,  the  Company converted a $1,210,000 loan received from its
President  and  Chief Executive Officer, Daniel S. Bland, into equity by issuing
2,000,000  shares of common stock to Bland in full satisfaction of the Company's
loan  obligation  to  him.  As part of this transaction, the Company assumed the
obligations  of  Bland,  as  borrower,  under  Bland's  loan  agreements  with
International  Mercantile Holding Group, Inc. (IMHG), the original lender of the
funds.  Under  the terms of the loan agreements, repayment of the loan amount is
secured  by  collateral  in  the form of 2,000,000 shares of common stock, which
have  been  pledged  by Bland to IMHG. Bland has assigned his residual rights in
the  2,000,000  pledged shares of common stock to the Company. Upon repayment of
the  loan  and  return  of  the  collateral,  the  Company intends to cancel the
2,000,000  shares  of  stock.  The term of the loan is five years. The offer and
sale  of  securities  was  made pursuant to an exemption from registration under
Rule  506  and  Section  4(2)  of  the  Act.

In November, 2001, the Company issued seven short term promissory notes totaling
$520,000. 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 were issued pursuant to exemptions from registration
under  Regulation  S,  Rule  506  and  Section  4(2).

In November, 2001, the Company issued 434,200 shares of common stock pursuant to
the  conversion  of  debentures  at  $1.37  per shares. In addition, the Company
issued  cashless  warrants to purchase 523,181 additional shares of common stock
at  prices  ranging  from $.535 to $3.00 in conjunction with the conversion. The
offer and sale of securities were made pursuant to contractual rights granted in
prior  securities  offerings that were exempt from registration under Regulation
S,  Rule  506  and  Section  4(2)  of  the  Act.

In  November,  2001,  the Company issued 57,000 shares of common stock at prices
ranging  from  $1.37  to  $1.41 per share along with warrants to purchase 55,250
additional  shares  of  common  stock  at  $1.37  per  share in conjunction with
promissory  notes.  The  offer  and  sale  of securities was made pursuant to an
exemption from registration under Regulation S, Rule 506 and Section 4(2) of the
Act.

In  December,  2001,  the  Company  issued  948,843  shares  of its common stock
pursuant  to the conversion of debentures at $1.09 per share. The issuances were
made  pursuant  to contractual rights granted in prior securities offerings that
were  exempt  under  Rule  506,  Section  4(2),  and  Regulation  S  of the Act.

In  December,  2001,  the Company issued 65,730 shares of common stock at prices
ranging  from  $.83  to $1.09 along with warrants to purchase 218,363 additional
shares  of  common  stock  at  prices  ranging  from  $.80 to $1.37 per share in
conjunction  with  promissory  notes.  The offer and sale of securities was made
pursuant  to  an  exemption  from  registration under Regulation S, Rule 506 and
Section  4(2)  of  the  Act.

In December, 2001, the Company issued eight short term promissory notes totaling
$388,500.  Seven  of the notes carry interest rates of 12.5%, and one carries an
interest  rate  of  10%.  Each  note  carries 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 were issued pursuant to exemptions from registration under
Regulation  S,  Rule  506  and  Section  4(2).

The Company has entered into short term promissory notes pursuant to which it is
required to pay penalties in the form of stock and warrants if not paid in full
on the maturity date.

During  the  month  of  October, the Company issued a total of 204,105 shares of
common  stock as such penalties at deemed prices ranging from $1.48 to $1.58 per
share.  152,891  shares  were  issued  pursuant to contractual rights granted in
prior  securities  offerings that were exempt from registration under Regulation
S,  Rule  506 and Section 4(2) of the Act and 51,214 shares were issued pursuant
to  contractual  rights  granted  in prior securities offerings that were exempt
under  506  of  Regulation  D  and  Section 4(2) of the Act. During the month of
October,  the Company also issued a total of 637,974 warrants to purchase shares
of  common  stock  as  penalties at strike prices ranging from $.72 to $6.00 per
share.  484,303  of  the  warrants  were  issued  pursuant to contractual rights
granted  in prior securities offerings that were exempt under Regulation S, Rule
506  and Section 4(2) of the Act and 153,671 were issued pursuant to contractual
rights granted in prior securities offerings that were exempt under Regulation D
and  Section  4(2)  of  the  Act.

During  the  month  of November, the Company issued a total of 105,502 shares of
common  stock as such penalties at deemed prices ranging from $1.15 to $1.41 per
share. 80,151 shares were issued pursuant to contractual rights granted in prior
securities offerings that were exempt from registration under Regulation S, Rule
506  and  Section  4(2)  of  the  Act  and 25,351 shares were issued pursuant to
contractual  rights granted in prior securities offerings that were exempt under
506  of  Regulation D and Section 4(2) of the Act. During the month of November,
the Company also issued a total of 685,099 warrants to purchase shares of common
stock  as  penalties  at  strike  prices  ranging from $1.03 to $6.00 per share.
539,769  of  the  warrants were issued pursuant to contractual rights granted in
prior  securities  offerings  that  were exempt under Regulation S, Rule 506 and
Section  4(2)  of the Act and 145,420 were issued pursuant to contractual rights
granted  in  prior  securities offerings that were exempt under Regulation D and
Section  4(2)  of  the  Act.

During  the  month  of December, the Company issued a total of 235,568 shares of
common  stock  as such penalties at deemed prices ranging from $.78 to $1.34 per
share.  175,524  shares  were  issued  pursuant to contractual rights granted in
prior  securities  offerings that were exempt from registration under Regulation
S,  Rule  506 and Section 4(2) of the Act and 60,044 shares were issued pursuant
to  contractual  rights  granted  in prior securities offerings that were exempt
under  506  of  Regulation  D  and  Section 4(2) of the Act. During the month of
December, the Company also issued a total of 764,051 warrants to purchase shares
of  common  stock  as  penalties at strike prices ranging from $.72 to $6.00 per
share.  577,586  of  the  warrants  were  issued  pursuant to contractual rights
granted  in prior securities offerings that were exempt under Regulation S, Rule
506  and Section 4(2) of the Act and 186,465 were issued pursuant to contractual
rights granted in prior securities offerings that were exempt under Regulation D
and  Section  4(2)  of  the  Act.

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

During  the  period  of  May, 2000, through June, 2001, the Company issued eight
short  term  promissory notes totaling $989,322. Six of the notes carry interest
rates 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.  The  other  two  notes  carry interest rates of 8%
without  penalty.  None of the notes was paid at maturity. The notes were issued
pursuant  to  exemptions  from  registration  under  Regulation  S, Rule 506 and
Section  4(2).

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

     Exhibit  No.          Description
     ------------          -----------




                                               Upgrade International Corporation



Date:  February 18, 2002                       ---------------------------------
                                               Daniel Bland, President and Chief
                                               Executive Officer, and Secretary


Date: February 18, 2002                        ---------------------------------
                                               Howard A. Jaffe, Chief Operating
                                               and Financial Officer


                                       18
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