SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549
                                   ___________

                                   FORM 10-KSB

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

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

     FOR  THE  FISCAL  YEAR  ENDED  SEPTEMBER  30,  2000

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

     FOR  THE  TRANSITION  PERIOD  FROM  __________  TO  __________

                         COMMISSION FILE NUMBER 0-27649

                        UPGRADE INTERNATIONAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

             WASHINGTON                                  58-2441311
   (STATE OR OTHER JURISDICTION             (I.R.S. EMPLOYER IDENTIFICATION NO.)
 OF INCORPORATION OR ORGANIZATION)

1411 FOURTH AVE., SUITE 629; SEATTLE, WASHINGTON          98101
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)           ( ZIP CODE)

     REGISTRANT'S  TELEPHONE  NUMBER,  INCLUDING  AREA  CODE:  (206)  903-3116

     SECURITIES  REGISTERED  PURSUANT  TO  SECTION  12(B)  OF  THE  ACT:  NONE

          TITLE OF EACH CLASS          NAME OF EACH EXCHANGE ON WHICH REGISTERED
          -------------------          -----------------------------------------

   _______________________________    _________________________________________

   _______________________________    _________________________________________

SECURITIES  REGISTERED  PURSUANT  TO  SECTION  12(G)  OF  THE  ACT:
            COMMON  STOCK,  PAR  VALUE  $0.0001  PER  SHARE
--------------------------------------------------------------------------------
                                (TITLE OF CLASS)

--------------------------------------------------------------------------------
                                (TITLE OF CLASS)

     Indicate  by  check  mark  whether the registrant (1) has filed all reports
required  to  be  filed by Section 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  12  months  (or  for  such shorter period that the
registrant  was  required to file such reports) and (2) has been subject to such
filing  requirements  for  the  past  90  days.  Yes [X]  No[ ]

     Indicate  by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best  of  registrant's  knowledge,  in definitive proxy or information statement
incorporated  by  reference  in Part III of this Form 10-KSB or any amendment to
this  Form  10-KSB.  [X]

     The registrant's revenues for the fiscal year ended September 30, 2000 were
$-0-.



     The  aggregate  market  value  as  of  January  6,  2001  of the voting and
non-voting  common  equity  held by non-affiliates of the registrant computed by
reference  to  the  closing  price  on  January  5,  2001,  was  $52,776,318.

     There  were  issued  and  outstanding 21,543,886 shares of the Registrant's
common  stock  as  of  January  6,  2001.


                    DOCUMENTS INCORPORATED BY REFERENCE: NONE











================================================================================





                             UPGRADE INTERNATIONAL CORPORATION AND SUBSIDIARIES

                                            FORM 10-KSB

                                         SEPTEMBER 30, 2000

                                               INDEX


           
                                                                                                         PAGE
                                                                                                         ----
PART I
Item 1        Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1
Item 2        Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16
Item 3        Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   17
Item 4        Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . .   17


PART II
Item 5        Market for Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . .   18
Item 6        Management's Discussion and Analysis of Financial Condition and Results of Operations. . .   19
Item 7        Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . .   24
Item 8        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . .    57

PART III
Item 9        Directors and Executive Officers of the Registrant. . . . . . . . . . . . . . . . . . . .    58
Item 10       Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    59
Item 11       Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . .    59
Item 12       Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . . . . .    61
Item 13       Exhibits and Reports on Form 8-K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .   61




                                     PART 1

ITEM  1.  BUSINESS

        GENERAL

        Upgrade  International  Corporation  (the  "Company")  is  a  Washington
corporation  that  was originally incorporated in Florida in 1997 and intends to
be  a  fully integrated smart card solutions provider.  The business is centered
on developing and marketing a patented data storage technology that incorporates
hard  drive  type  of  memory  storage  into  a  standard  credit  card  format.

The  ULTRACARD  technology  provides  increased  data  storage  that  enables  a
combination  of  high  security,  privacy  and  a  greater  amount  of personal,
transportable  data  storage-at  the  lowest  cost  in  the industry.  ULTRACARD
operates in conjunction with a read/write device and operating software that the
Company  is also developing.  In addition, Upgrade may acquire and is developing
application  software  and  systems  for  specific applications of the ULTRACARD
technology,  as  well  as  conventional  smart  card  solutions.

Upgrade  intends  to  first  complete  the commercialization process of its core
patented technology through its UltraCard, Inc. subsidiary.  In conjunction with
the  completion  of  this commercialization, the Company intends to leverage off
this  technology  through  its  ownership  interest  in:

     -    EFORNET CORPORATION, a smart card research and development company,
     -    CQUE CORPORATION (formerly Centurion Technologies, Inc.), a smart card
          application provider for the medical industry, and
     -    The GLOBAL CYBERSYSTEMS group of companies will provide European smart
          card sales and marketing.

And  by  pending  acquisition  of  an  ownership  interest  in:
     -    THE PATHWAYS  GROUP,  INC., a fully  integrated  smart card  solutions
          provider specializing in transaction  processing (definitive agreement
          pending)

These  companies  are  developing applications software and systems for specific
applications  of  the  UltraCard  technology  as well as conventional smart card
solutions.  The  acquisition and development of existing smart card solutions to
be  provided  by these groups represent a market strategy designed to accelerate
the  effective  integration  of  UltraCard  technology into newly developing and
existing  markets.

Upgrade  intends  to  further  leverage  off  its  technology platform by making
additional  acquisitions  that  will  vertically  integrate  its technology into
numerous  business  applications.  This tracks with Upgrade's goal to become the
high  capacity  transportable  data  storage  standard.

Upgrade's  principal  executive  office  is  currently  located  in  Seattle,
Washington.

     Our  Vision
Upgrade International Corporation's vision is to be the leader in developing and
providing  state of the art ultra high capacity portable data storage technology
designed  to  become the new smart card industry platform for existing and newly
developing  markets.

     Our  Mission
Upgrade's  mission  is  to  create shareholder value through the development and
commercialization  of  UltraCard  patented technologies, and then leverage those
technologies  to  create  new  smart  card  products and applications solutions.

     Business  Strategy
Upgrade  intends  to  first  complete  the commercialization process of its core
patented  technology  through  its  UltraCard, Inc.  subsidiary.  In conjunction
with  the  completion of this commercialization, the Company intends to leverage
off  this  technology  through  its ownership interest in EforNet Corp., a smart
card  application  research  and development company, cQue Corporation (formerly
Centurion Technologies, Inc.), a smart card application provider for the medical
industry,  and  the  Global Cybersystems companies, which provide European smart
card  sales  and  marketing.  In addition, Upgrade has entered into a definitive
agreement  with  The  Pathways  Group,  Inc.,  an  electronic  data  transaction
processor.  The  family  of  companies  are developing applications software and
systems  for  specific  applications  of  the  UltraCard  technology  as well as
conventional  smart card solutions.  The development of solutions to be provided
by  these  entities  is  an  integral  part the Company's market strategy and is
designed  to  accelerate  the  integration  of  UltraCard  technology into newly
developing  and  existing  markets.


                                        1

Upgrade  intends  to  further  leverage  off  its  technology platform by making
additional  acquisitions  that  will  vertically  integrate  its technology into
numerous  business  applications.  This tracks with Upgrade's goal to become the
high  capacity  transportable data storage standard, and then to leverage off of
that  platform.

     Subsidiaries
Upgrade  owns  a  controlling  interest  in  the  following  companies:

     -    ULTRACARD,  INC.-a 53% subsidiary holding the patented technology that
          is Upgrade's core technological platform.  UltraCard is developing and
          marketing  ultra high  capacity data storage and retrieval in a credit
          card format, a read/write device, and a supporting operating system.

     -    CQUE  CORPORATION  (formerly  Centurion   Technologies,   Inc.)-a  51%
          subsidiary  of Upgrade  that is  developing  a medical card on a smart
          card platform capable of providing a host of interrelated  services on
          line for the medical industry  including such services as pharmacology
          conflict analysis.

     -    EFORNET CORPORATION-a wholly-owned subsidiary of Upgrade is a research
          and  development  resource to the Upgrade group of companies.  EforNet
          provides  alternative  smart card  solutions  for specific  markets in
          addition to the  conventional  smart card and the high memory capacity
          UltraCard.

     -    GLOBAL CYBERSYSTEMS INC. (U.S. Corporation),  GLOBAL CYBERSYSTEMS S.A.
          (a  Swiss   Corporation),   and  GLOBAL   CYBERSYSTEMS   PLC  (a  U.K.
          Corporation)-provide  European  marketing  and sales for the  products
          developed by the Upgrade group of companies.

Upon  completion  of  the  pending  acquisition,  Upgrade  will  own 100% of the
following  company:

     -    THE PATHWAYS GROUP,  INC.-Pathways and its subsidiaries design, market
          and service  custom smart card  applications  and  services.  Pathways
          develops  unique  solutions  for  creating  and  processing  data  and
          ensuring  secure  electronic  transactions  by  utilizing  proprietary
          hardware and application  software systems. A key element of Pathways'
          business plan is the processing of  transactions  associated  with its
          current and prospective smart card installations.

Upgrade  provides  its  subsidiaries  with  strategic  direction,  financial and
financing   services,   administrative  and  investor  relations  services,  and
additional  services  facilitating  the  development  of  each  business  unit's
operating plans.  Upgrade intends to hold substantial interests in, and maintain
an  active  involvement  with  the  companies and technologies it has developed.

     Organizational  Structure
Upgrade  International  Corporation  will  have  the  following   organizational
structure, once  acquisitions  in  progress  are  complete:


                                        2

[GRAPHIC:  Organization  chart  shows Upgrade at the top level and the following
five  subsidiaries  side-by-side on the next level: 51% owned cQue, described as
"Health  Care"; 100% owned EforNet, described as "Operating System"; 76.5% owned
Global  Cyber  Systems,  described  as "Eurpoean Marketing"; 100% owned Pathways
Group,  described as "Transaction Processing"; 53% owned UltraCard, described as
"Core  Technology".]

                                    ULTRACARD

          UltraCard  is  a  Nevada  corporation which was formed in 1997.  It is
headquartered  in  Los  Gatos,  CA  with  research and development facilities in
Campbell,  Newport Beach, and San Jose California.  UltraCard's principal assets
are  patented,  patent pending and unpatented proprietary intellectual property,
that it either owns or holds a license to use.  UltraCard is a development stage
company;  its  operations  to date have principally been limited to research and
development  activities.

          UltraCard  is  the  developer  of  UltraCard(TM)  technology  for high
security,  high  capacity,  portable information storage in a wallet size credit
card  for existing and future market sectors.  The UltraCard technology combines
hard  disk  drive  technology,  magnetic  stripe  technology,  smart card "chip"
technology  and  UltraCard patented technology to achieve a new platform in data
storage  which  allows  the  sharing, exchange, archiving and transport of large
amounts  of  data  storage  -  all  on  the  familiar  credit  card form factor.

          This  enterprise  represents the combination of scientists, engineers,
marketing and management personnel from the computer storage, the e-commerce and
the  credit  card transaction industries.  The development of the initial stages
of  the  technology  was  completed  in  late  1998.  At  that time, the company
conducted  a proof of concept demonstration for a panel of independent engineers
and  technical  advisors.  With  this  milestone  under  its  belt,  the company
embarked on the commercial Alpha unit launch of the technology.  On November 16,
1999,  at  Comdex  '99  in Las Vegas, UltraCard introduced the 5 MB data storage
card.


                          THE TECHNOLOGY & THE PRODUCT


     What  Is  UltraCard?

-    UltraCard  uses a variety  of  proprietary  and  patented  technologies  to
     provide a reliable,  secure  reader/writer  and a secure and  private  data
     storage card.

-    The UltraCard  product line will start with 5 MB of data on a "credit card"
     sized  media - a form  factor  that is  familiar  and  highly  accepted  by
     consumers


                                        3

-    UltraCard has developed a way to use hard disk drive media  technology in a
     credit card profile with a  reader/writer  design that will  interface with
     computers,  hand held  devices,  ATM  terminals,  cash  registers and other
     devices.  The  UltraCard is fully  downward  compatible  with existing card
     reader installations, both mag-stripe and smart card chips.

-    The patent protected  technology enables, for the first time, high capacity
     re-writeable  credit  card-sized memory cards with enough capacity to store
     powerful error protection  schemes,  redundant data areas,  high-resolution
     biometric  information and  sophisticated  encryption and privacy  schemes.
     Invisible  card  watermarking,   several  biometric  recognition  programs,
     FBI-level  fingerprints,   handprints,  iris  scans,  photographs,  x-rays,
     voiceprints, can all be accommodated on the high capacity UltraCard.

-    The patent protected technology can be used to eliminate fraud and skimming
     which is a major problem with current credit cards and smart cards. Because
     of the increased storage  capabilities,  several  encryption  libraries can
     reside on the card.  The  UltraCard  high  capacity  memory,  the  magnetic
     stripe,   the  smart  card  chip  and  a  PIN  or  biometric   can  all  be
     mathematically  tied  together with  encryption  technology to validate the
     card and user 4 ways. That means it's secure,  and private,  not public. No
     hackable web site is needed to validate  either the card or user.  The card
     itself can also  provide the  biometric  recognition  program and a digital
     signature  in  order  to  deliver  a  "non-repudiatable"   transaction  and
     faultless authentication.

Where  Does  UltraCard  Stand  Against  the  Competition?

Memory  cards  on  the  market  today  include:

1.   Magnetic  Stripe Card:  256K memory;  ATM cards,  POS readers,  door entry,
     phone cards.

2.   IC Smart Cards:  2K-64K memory,  also with magnetic strip; look like credit
     cards.

3.   Optical Cards: 4.1MB to 40 MB memory;  lasercards with proprietary  readers
     or trimmed discs with standard CD-ROM readers.

4.   Magnetic: 2 KB; Cards: magnetically treated plastic card.

5.   Flash Cards: 2MB - 128 MB; portable,  removable and interchangeable  memory
     chips (similar to computer chip); cell phones, digital cameras, MP3 audio.

Management  believes  the  UltraCard  can  replace  all of the competitive cards
listed  above  and  will  solve  the  inherent  deficiencies  of  each  such as:

1    Magnetic Stripe Card: low memory and prone to wear and accidental erasure.

2    IC Smart Cards:  more memory  capacity  than  magnetic  stripe  cards,  but
     expensive, require a special card reader, and more fragile.

3    Optical  Cards:  memory  capacity  competes with magnetic  media,  but only
     available with Write Once Read Many ("WORM") capability;  lasercard time to
     read and  write is slow and  prone to  deterioration  with  high  humidity;
     trimmed  optical  discs  unconventional  and  hardware  to write on disc is
     expensive.

4    Magnetic: slightly higher storage than magnetic stripe, but not significant
     compared to smart cards,  optical cards and flash cards and need  different
     readers than magnetic stripe.

5    Flash Cards:  fast and versatile,  but very  expensive to  manufacture  and
     prone to damage at connectors and breaking in field use.


                                        4

     WHAT  IS  THE  ULTRACARD  TECHNOLOGY  ADVANTAGE?

-    5MB card entry  level  product  offers  more memory than any of the current
     credit card sized cards, 20,000 times the capacity of magnetic stripe cards
     and 2,500 times the capacity of the most popular smart cards (2KB)

-    Lowest  price per megabyte in  comparison  to other  popular  forms of data
     storage.

-    Hard disk media magnetic recording  technology permits very fast read/write
     capability  while still being  cheaper to  manufacture  than smart cards or
     flash cards.  The magnetic  recording  industry has historically and always
     been a step ahead of any other technology  attempting to displace  magnetic
     data storage technology.

-    Fully editable-the  UltraCard may be written on, edited and read similar to
     the hard disk on your computer. Data storage files can also be formatted in
     a Read Only Memory (ROM), Random Access Memory (RAM) or overwritable.

-    A patented  scheme of card  protection is available  that ensures  magnetic
     data is not vulnerable to accidental  erasure by common  household  fields.
     Proprietary  magnetic  layers over the media are also  available to prevent
     the stored magnetic fields from being detected by unauthorized readers.

-    Compatibility with existing smart card and magnetic stripe technology. As a
     result,  UltraCard  technology  can  integrate  existing  technologies,  is
     backwards  compatible  with  conventional  card  readers and offers a clear
     migration path to increased capabilities.

     WHAT  TECHNOLOGY  "FIRSTS"  DOES  ULTRACARD  DELIVER?

-    20,000  times the  capacity  of magnetic  stripe  cards and 2,500 times the
     capacity of the most popular smart cards (2KB): raises the bar in security,
     privacy,  and personal  protection.  The  UltraCard  and reader  technology
     enables  true   security  of  data  access,   internet   transactions   and
     person-to-person  communications,  creating market opportunities prohibited
     until now by limited technology.

-    Answers the interoperability  challenge:  The high data storage capacity of
     the  UltraCard  is the only  technology  that offers  sufficient  memory to
     permit interoperability with multiple operating systems, several encryption
     and  biometic  schemes,   many  application  programs  and  still  maintain
     compatibility with existing technologies.

-    Rugged:  Because  of a patent  pending  design,  UltraCard  holds up to the
     "torturous"  environment  of the  consumer  wallet and daily abuse that may
     leave a credit card inoperable.

-    Highly resistant to fraud:  The only way to ensure  card-based data storage
     that is both secure and private is to have the data reside on the card that
     is in your  possession  and not on a "secure"  web site.  All web sites are
     hackable.  This allows the consumer to control how, when and from where the
     data is put on and taken off the card.

-    Scalable: the technology allows smooth transition to larger memory capacity
     as needs and technology  expands.  Our entry product is based on technology
     developed by IBM in 1953. We anticipate a lot of growth  potential.  5MB is
     just the beginning.

-    Designed   for  high   volume  mass  production:  At  the  same  time  that
     UltraCard represents  a  ramping  up  of  capacity,  security and  privacy,
     it  represents  a  downward   spiral   of   cost.   It  uses  high  volume,
     high-throughput  sputter technology  that's  a  mature,  proven  production
     process already cost-reduced  substantially.  For  example,  the  UltraCard
     sputter  production  equipmentcan produce  up  to  a  million  memories for
     cards per day.  In terms of production projections,  this  speaks  in terms
     of  transforming  production  dollars  per  megabytes  into  megabytes  per
     cents.


                                        5


[GRAPHIC: Bar graph with heading "Competitive".  Vertical axis denoted "Per MB".
Three  vertical  bars  rise  from  the  horizontal axis.  The first bar (left to
right)  is  approximately 3 inches high, beneath the horizontal axis the caption
is  "250  Characters",  and  above  the bar the caption is "Magnetic Stripe Card
$3000".  The  second  bar  is  approximately 1 inch high, beneath the horizontal
axis  the  caption  is  "2,000 Characters", and above the bar the caption is "2K
Smart  Card  $500".  The  third  bar  is  less  than  1/8 inch high, beneath the
horizontal  axis  the  caption  is "5 Million Characters", and above the bar the
caption  is  "UltraCard  $0.20".]


                                        6

HARD  DISK  DRIVE  AERIAL  DENSITY  COMPARED  TO  ULTRACARD  CAPACITY


[GRAPHIC:  The  graph  is  headed  "IBM  Areal  Density  Perspective 43 Years of
Technology  Progress".  The  "IBM"  logo appears in the lower left corner of the
graphic.  Vertical  axis  labeled  as  "Areal  Density  Megabits/in2" (i.e., per
square  inch),  with  scaling labeled from 10 to the minus 3rd power up to 10 to
the  5th  power.  Horizontal  axis  labeled  as  "Production Year", with scaling
labeled from 60 (meaning 1960) to 2010.  The plot points form a line that slopes
upward  to  the right, denoting a continued increase in density with the advance
of  time.  At  the far right of the graph, there is an indication of a 5 Million
times  increase in density over the time period to which the graph applies.  The
UltraCard  is  superimposed  on IBM's graphic next to a plot point on IBM's line
that  is denoted as "1st Thin Film Head".  The UltraCard plot points also form a
line  that  slopes  upward  to  the  right, denoting a potential for increase in
density  based  on  existing  technological  advances.]

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

     UltraCard  is  not  inventing new core technology.  UltraCard's idea was to
transfer  a  technology  that  is  mature  and proven to the credit card format.
Advances  in  disk  drive storage densities have set the stage for the UltraCard
performance.

     During  the  past  20  years,  storage  densities  have multiplied from 2.5
million  bits  of information per square inch of media space to approximately 20
billion  bits  of  information per square inch.  And this growth is not about to
stop.  Prior to 1991, the rate of increase in storage density accelerated at 60%
per  year,  setting the pace for the disk drive industry to follow.  Since 1991,
that  rate  increase  per  year  has  approached  100%.


       WHAT  MAKES  THE  ULTRACARD  REVOLUTIONARY?

-    It will  deliver a solution to re-invent an OEM  business.  UltraCard,  the
     product,  delivers  a whole  new way to  create  and  retain  customers  by
     enabling  a  "personalized"  relationship  with  the  client,  establishing
     customer  loyalty,  offering a solution for a new  application and entrance
     into new markets. This means keeping current revenues in-house and creating
     new revenues  through new services,  expanded market  opportunities,  and a
     better solution to customers.


                                        7

-    It will store your  life's  information.  Whether  it's your car's  service
     history,  health  records,   company  inventory,   financial  transactions,
     insurance  benefits,   credit  history,   Internet  personal   preferences,
     passport, phone access, or school records, the UltraCard can store it all.

WHAT ARE THE POSSIBLE APPLICATIONS FOR ULTRACARD? Many applications and examples
of  potential  users  for  UltraCard  are  under investigation.  Practically any
application  requiring  data  that  can  be  transported  easily  and   accessed
inexpensively,  can  use  UltraCard  technology.

-    GOVERNMENT:  Access control, security cards, bill of lading shipping cards,
     criminal  record files,  training  records,  VA benefit  cards,  all agency
     interoperability General Services Administration, Department of Defense.

-    FINANCE:  e-Commerce,  business-to-business,  purse-to-purse,  stored value
     cards, transaction cards VISA, MasterCard, American Express.

-    THE INTERNET:  Personal preferences card, transaction card, micro payments,
     privacy plus security for all transactions Hard Rock International, Disney,
     VISA.

-    ID  SYSTEMS:   Passports/immigrations,   retail  store,   valued  customer,
     multi-biometrics,  logical and physical access, multiple operating systems,
     multiple security protocols General Services Administration,  Department of
     Defense.

-    HEALTHCARE  INDUSTRY:  HMO loyalty cards, patient record cards and archival
     processes,   x-rays,   insurance  records  &  pharmacy  transaction  cards,
     maternity and family care cards Blue Cross, Humana.

-    TRANSPORTATION  INDUSTRY:  Mass transit payment cards,  QC/Process  control
     records, parts lists,  maintenance records, RF entry cards Virgin Airlines,
     United Airlines, Aloha Airlines.

-    COMMUNICATIONS:  Cell phones,  PDAs, universal phone cards, access control,
     web access, subscriber ID Nokia, Ericsson, Sagem, Motorola.

                                   THE MARKET

POTENTIAL  WORLDWIDE  MARKET  FOR  ULTRACARD

             Market Segment  1999    2000      2001        2002
                             -------------------------------------

          ANNUAL % INCREASE     --   13.5%  15% (EST.)  20% (EST.)
        (UNITS IN MILLIONS)
              Payment Cards  2,755  3,118        3,586       4,303

           Nonpayment Cards  2,824  3,211        3,693       4,432

            Telephone Cards  2,251  2,557        2,941       3,529

                Total Cards  7,830  8,886       10,220      12,264

Note:  These  numbers exclude the impact of UltraCard applications. Data source:
The  Nilson  Report,  Aug.,  2000,  Issue  721


                                        8


POTENTIAL  MARKETS  FOR  ULTRACARD

          The  identified  market  for UltraCard is broken into three categories
based  upon  the  technologies that are currently applied to these markets.  The
first  market  is  the Magnetic Stripe Card market, the second is the smart card
market  and  the  third  is  the  Computer  Storage Media market.  Each of these
markets  has its own form of storage technology that UltraCard has the potential
to  replace.  There  are currently an estimated 50 billion cards of all types in
circulation.  In  1999,  the  total  turnover  was  10 billion cards (The Nilson
Report,  Aug.,  2000,  Issue  721).

          THE  MAGNETIC  STRIPE  CARD MARKET.  The amount of information that is
stored  on  a common credit card today is quite small.  Most credit cards have a
magnetic  stripe  installed  across  the back that contains an extremely limited
amount  of information, usually no more than 256 bytes of data.  Because of this
storage  capacity  limitation  the  common credit card is good for storage of no
more  than  cardholder  name,  credit  card number and authorization codes.  The
capacity  to  store any more information such as inventories of purchases or any
personal  information  about the cardholder is  not available.  But  these cards
cost  less  than  $1  to  produce and can be read by relatively inexpensive card
readers  (less  than  $100) at point-of-sale locations everywhere.  The magnetic
card  lasts  about  one year on average and less in cases of de-magnetization or
physical  destruction.  The  magstripe  market is the largest single application
market  estimated  to  have  exceeded 2 billion cards on a worldwide basis.  The
growth  rate  for  this  market is projected at a modest 8% per year through the
year  2000  by  various  sources.

          SMART CARD MARKET.  Smart cards with greater storage capacity than the
magnetic  stripe  variety  will  be increasingly available over the next several
years.  They  can  accommodate  a  variety  of  uses  that  allow  users to make
purchases  from  a  credit  account, debit account, or stored value on the card.
These  cards  can even have multiple applications operating on them at one time.

          The  first  of these is the so-called "smart card" that consists of an
integrated circuit (IC) chip imbedded in a credit card.  These devices currently
can  contain  up to 64 kilobytes (kb) of data but are quite expensive (more than
$15  per  card)  and  require  a  special  card  reader  different from the ones
typically  found  at  point-of-sale  locations.  The  average memory capacity of
smart cards  that are actually in use is much lower than their maximum capacity,
with  over  90%  of  the  smart cards on the market capable of only 2 kb of data
storage.  This  capacity is enough to store about one page of text.  In addition
to  their storage capacity shortcomings, smart cards are much more delicate than
magstripe  cards  and  rarely  last  a  year  before  requiring  replacement.

          There  are  at  least ten subcategories in this market including phone
cards,  GSM (Global System for Mobile communications) cards, health cards, brand
and  loyalty cards, ID cards, transport tickets, pay TV cards, games, meters and
automatic  dispensers.  The single largest application for the smart card is the
telephone  calling  card  which  is  used  extensively  in  Europe.  Recent
announcements by financial institutions such as Providian Financial and VISA USA
indicate  an attempt to make the smart card popular as an e-Commerce tool in the
United  States.

          THE COMPUTER STORAGE MEDIA MARKET. There  are  many  types of computer
storage media on the market today.  The trend in this market is towards a higher
concentration of data in smaller and smaller packages.  UltraCard is expected to
be  quite  competitive  at  the  low-cost  end  of  this  storage  market.

          When  UltraCard  is  marketed in the computer storage media market, it
will  bring  a  new  level of micro-packaged computer storage media that has the
potential  to  change  the vast market for small floppy disks and to enhance the
growth  of  both  flash  memory  and small hard disk memory media markets.  This
market  has  the smallest impact viewed from today's technology but may hold the
largest  opportunity  for  development  and  growth for UltraCard.  It certainly
holds the greatest potential for high dollar volume specialty card applications.
Storage  media  in  this market vary greatly in price with the flash card market
priced  at  less than $0.50 per unit.  It is difficult to average prices in this
market  but  a  price in excess of $5 per unit is not out of line for UltraCard.


                                        9

                              APPLICATION  SCENARIOS

                                   WIRELESS

          The future expectation for wireless market is driven by data and multi
media.  There  is  significant  unfulfilled demand for more storage capacity for
the  mobile  users.  Today  there are more than 365 million global GSM customers
and  estimates  are that the 500 million customer mark will be achieved early in
2001.  The  GSM  Association  today announced that a record 9 billion G-mails or
SMS (GSM mail or Short Message Service) text messages were sent over the world's
GSM  wireless  networks  during  August  2000.

          UltraCard  technology  can  provide  a  distinctive  "smart  card"that
enables  more  storage capacity to provide additional services for mobile users.
UltraCard offers the ability to cost-effectively extend the existing services to
new  access  channels such as mobile phones, personal digital assistants (PDAs),
or  even  the  "new" access devices that combine voice, data, and perhaps video.
These  products  provide  cardholders  with  the  ability  to:  .

     -     Conduct  banking
     -     Wireless  commerce
     -     Pay  bills
     -     Stock  trading
     -     Make  purchases
     -     Gather  information
     -     Family  photo,  address  book,  and  personal  information

           For merchants, the new storage capacity will allow multifunctional
Services onto  the  card:

     -     Advertising,  promotion
     -     Target  Marketing
     -     News,  Sports,  Weather
     -     Pictures,  Video  clips
     -     Location  locator
     -     Driving  direction
     -     Family  area  network  value-added  services
     -     Corporate  inter  communication  value-added  services

          Consumers  benefit  as they become empowered with the ability to store
more  information,  and  access  these  services with greater ease, security and
convenience.




                         BANKING AND FINANCIAL SERVICES

          General  purpose credit and debit cards displaying the brands of Visa,
MasterCard,  American  Express, JCB, and Diners Club totaled 1.24 billion at the
end  of  1999,  up  11.1%  over  1998.

          Banking  and  financial  services  industries  are  in  the  midst  of
significant  change  resulting from the latest round of deregulation.  The lines
between  banks,  brokerages  and  insurance  companies  are  quickly  blurring.
Additionally, financial services formerly offered only by large institutions are
now the domain of new, sometimes smaller firms.  The Internet has emerged as the
great  equalizer  among  these  institutions.  It  has  offered  a  tremendous
opportunity  to  reach  the global user, and at the same time increases security
risk  for  identifying,  and  authenticating  the  proper  authorizer.

          UltraCard  technology  will  allow  multi-application  solutions  for
financial  institutions  far  beyond  the  stored  value  smart  card technology
available  today.  Encryption,  digital signature, certification authority, PKI,
and  biometric  security  solutions demand large data capacity.  These solutions
will integrate directly into existing payment systems infrastructures, including
ATM networks, POS networks and automated clearinghouses and will support kiosks,
POS,  ATM  and  PC-connected  devices  capable  of  loading  value  to the card.


                                       10

     Already  there are worldwide applications in the banking and financial
services  industries:

     -     Credit,  Debit  Cards
     -     Stored  Value  (Prepaid)
     -     Loyalty,  Rewards
     -     Market  segment,  i.e.,  campus,  corporate,  etc
     -     ECommerce
     -     ETrade
     -     ELoan




                            TRAVEL AND ENTERTAINMENT

          WEFA's  report  maintains  that  worldwide spending on core travel and
entertainment  segments  totaled  $680  billion  in  1997.

          UltraCard  technology  will provide cost-effective marketing solutions
for  the  travel  and  entertainment  industries.  Theme  parks,  cruise  lines,
resorts,  golf courses and casinos can all benefit from high capacity, UltraCard
based  "frequent customer" cards to promote brand loyalty.  In addition to being
cost-effective and highly secure, they drastically reduce fraud and the inherent
costs  associated with the handling of tickets, credit cards and cash.  Further,
there  is  no  need  to  incur the costs typical of expensive telecommunications
infrastructures  or  processing  fees.

          UltraCard  based  loyalty cards can be issued on-site on cruise ships,
at golf courses and at resorts.  In addition to storing loyalty points, they can
also  be  used  as identification/access devices and to make off-line purchases.
For  example,  one  UltraCard  could  allow  a  cardholder  to:

-     Be identified as being able to attend a certain event, meal or participate
      in  an  entertainment  program  functioning  as  a  "paperless"  ticket.

-     Purchase  gifts,  golf balls, or even chips at a casino without the use of
      cash  or  credit  cards.  This  also  allows  the  user  of  the  card  to
      have a transaction  record  that  can  be  used  for further marketing and
      promotional efforts.

-     Automatically  receive  premiums,  rewards  and  incentives  for  their
      patronage.

-     Traveling  profiles

-     True  electronic  ticketing  (no  identification  necessary)

-     Check-in  and  check-out  access  (remote,  or  in-room)

-     Car  rental  and  hotel  room  reservations

-     Automatic  updating  of  frequent  flyer  accounts


                                       11

                                   GOVERNMENT

          On  May  19,  2000,  the USGSA created a pool of five vendor groups to
supply  smart  card systems to federal agencies.  These awards could be worth up
to  $1.5  billion  over the next few years.  These firms are expected to develop
interoperable,  multi-application  cards  for  use  by  any  federal agency with
functions  such  as  ID  and  authentication, access control, PKI and electronic
signatures,  biometrics,  health records and electronic purses-just to mention a
few.

          However,  because  smart  card  technology  has  reached  its limit in
capacity  and  capability  they  do  not  have  the  ability to support the data
capacity  requirement of this GSA award that includes an interoperable operating
system.  As  a  solution  to  this  problem the common solution among these five
vendor  groups  is  to  use the smart card to its limited capacity where it will
access  a  "secure"  web  site  where  the bulk of the personal information will
reside.

          This  is  a  seemingly  logical  but flawed theory.  There is not such
thing  as a secure web site.  All web sites are hackable.  It has been estimated
that  there  are  currently  more than 2,000,000 active hackers trying to access
secure web sites.  Hackers often look at security systems as a challenge, not an
obstacle.

          The only way to ensure card based data storage that is both secure and
private is to have the data reside on the card.  UltraCard is the only card that
has the increased storage capacity to put a full encryption library on the card.
In  an  age  where  most people have real concerns about control of personal and
private  information,  UltraCard  is  designed  to  ensure  it.


ACCESS  CONTROL  AND  AUTOMATIC  IDENTIFICATION  AND  DATA  COLLECTION

          According  to market research and industry sources, the overall market
for  the  security  industry  is projected to be $80 billion by the end of 1999.
The  electronic  segment  of  the  industry  is  growing  at  40%  rate in 1999.

          Hand-held  capturing devices demand greater storage needs.  Due to the
versatility  of  UltraCard  technology  and  storage  capacity, UltraCard offers
multiple  applications  from  identification  badge,  access  control,  time and
attendance,  and  data  capture  and  storage.

          Workflow  process,  inventory  control,  product manuals, and training
materials  are  some  of  the  information  that  UltraCard can store to provide
greater  accountability and easy interface with larger manufacturing facilities.



          PRODUCT  DEVELOPMENT  STRATEGY

          The  UltraCard product development strategy is guided by the tactic to
accumulate  and  retain  ownership of as broad and comprehensive an intellectual
property  package  as  possible.  It  is  estimated  that  to date the two broad
patents  already on file combined with the 2 issued patents will result in 20 to
40  individual  patents  covering  all technical facets of both the card and the
reader/writer.  To  ensure UltraCard ownership of all intellectual property, all
R&D  activities  are  funded  and  controlled  in  house  by  UltraCard.

          After  successful  proof  of  concepts  during the R&D phase and after
patent  applications are on file, product specific development will be completed
by  contract  engineering firms and disk drive companies such as Pemstar.  These
are  companies  with  vast  experience  in  taking  an  R&D data storage type of
platform  from the soft-tooled R&D stage into beta and pilot quantities and hard
tooled  for  full scale production.  This effort will be directed and managed by
the  Product  Engineering  Group  of  UltraCard.



          MEDIA

          The  magnetic  recording  media  is the most critical component in the
UltraCard  intellectual  property  package.  Full  control of the media from R&D
through  full  scale  production will be maintained by UltraCard.  This includes
process  and quality control of the substrate, the sputter deposition equipment,
the  magnetic  film,  the  protective  overcoats  and  inspection  equipment and
material  handling  and  automation  technology for high volume production.  The
volume  production  goal from day one has been to achieve one million "shims" or
media  inserts  per  day.  The  current  capability  is several hundred thousand
"shims"  and  this  can  be expanded to meet the one-million-per-day goal.  Card
bodies  will  be  purchased  from  two to four venders including CPI and Cards &
More.


                                       12

          MANUFACTURING STRATEGY

          UltraCard  intends  to  use  contract  manufacturing  to  produce  its
products.  Because there is more than ample excess manufacturing capacity in the
disk  drive  industry  today, the contract manufacturing approach will result in
lower  short  term investment, maximum ability to vary production levels to meet
demand  and  lower  risk of early manufacturing start-up problems.  In addition,
contract  manufacturing  will dramatically reduce UltraCard's required headcount
and  will  result in better return on assets than would be possible if UltraCard
were  to  invest  in  a  manufacturing  facility.

          However,  UltraCard  does  intend  to  maintain  absolute control over
manufacturing  from  the  perspectives  of  manufacturing  process and inventory
exposure.  UltraCard  will purchase its own raw materials and will consign these
materials  to  the contract manufacturer for final assembly and test.  UltraCard
also  intends  to  control  the  quality  processes  in  the plant including all
incoming inspection procedures, in-cycle quality assurance and final burn-in and
test.  UltraCard also will set up an ongoing reliability inspection of UltraCard
products  to  fully  meet  specifications  and reliability goals before they are
shipped.



                                CQUE CORPORATION

cQue  Corporation  (formerly  Centurion  Technologies,  Inc.)  is  a systems and
communications  developer  that  has  created a database and secure network that
services  the  medical,  educational  and  government  markets.  The Company was
formed  in  November  1996  in Redmond, Washington.  Its product is in the final
stages  of  initial  project  implementation  with:

         -     The  University  of  Illinois  Medical  School  at  Chicago,  and
         -     Department  of  Defense  Health  Records  Automation  Program.

A  news  article  recently  published by the Washington Post (November 30, 1999)
reads,  "As  many  as 98,000 Americans die unnecessarily every year from medical
mistakes  made  by  physicians, pharmacists and other health care professionals,
according  to  an independent report released that calls for a major overhaul of
how  the  nation  addresses  medical  errors.  More  Americans  die from medical
mistakes  than  from  breast cancer, highway accidents or Aids, according to the
report  from the Institute of Medicine.  That costs the nation almost $9 billion
a  year."  cQue  intends  to  provide  a  solution  to  this  problem.

cQue  has  designed  a  Web-based software application called EPRIM that manages
data  stored  on  a  smart  card and has the capability of disseminating private
information  securely,  easily  and  efficiently.  EPRIM  currently  uses  the
available  smart card technology, although it is being upgraded to the UltraCard
platform.  The  application  can  be  accessed  through  any dial up, dedicated,
hard-wired  (Ethernet)  or  wireless  connection  running over a Virtual Private
Network  or  Windows  NT  Web  or  LAN Server.  The primary market focus of this
technology is in the medical industry, developing a medical card on a smart card
platform  capable  of providing a host of interrelated services online including
such  things  as  pharmacology  conflict  analysis.

Computerized  prescribing  is long overdue in the United  States.  Virtually all
prescriptions  are still  handwritten  or even worse,  verbally  called into the
pharmacy.  cQue's web-based software application permits both offline and online
access to portable smart card data, local client server, and national repository
(cQue global server). EPRIM Rx uses SmartCheck,  an interactive medical advisory
database.  Every Rx MD order is carefully  reviewed for  potential  conflicts or
interactions  with   over-the-counter   products,   foods,  herbals,  and  other
medications  in use.  A medical  alert is  displayed  and sent  directly  to the
appropriate physician and pharmacist.


                                       13

EPRIM  is  designed  to  connect  any  person  around  the  globe with real-time
encrypted data transfer instantaneously.  The smart card is a key component in a
system  that uses EPRIM, because it provides off-line record access and provides
the  security  link  to the database by keeping the passwords or other biometric
access  controls  on  a  computer  chip embedded on a plastic card.  Centurion's
Medical  Division  believes  that  it  makes patient data readily available in a
secure,  universally accessible, portable, nonproprietary, digital format, using
a  Centurion  smart  card integrated into EPRIM application software-providing a
real-time,  universal,  online,  interactive,  MD-based  order  entry  system.

                    The EPRIM workstation application manages the patient's data
through  various  screens.  The  entrance  into  a  patient's  data is through a
"profile"  screen  that  shows  all  of the data.  The profile screen displays a
summary  of  the information stored on a User's card in a flexible and intuitive
manner.  The  information  is  grouped by category into a series of boxes, which
the  access  user  can  arrange  and resize to their liking.  The profile screen
arrangement is stored on the access user's card-their preferences are present on
whatever  workstation  they  use.

          EPRIM  stores  a  patient  profile  that consists of several blocks of
information  including  prescription  medications, over-the-counter medications,
allergies, immunizations, foods, herbals and insurance coverage as well as other
patient  information specific to the application.  For example, Rx SmartCheck is
a  component  of  EPRIM  that  can  alert physicians and pharmacists to possible
conflicts,  drug  interactions  or  medical  insurance  coverage  qualification.

          The  ability  to  provide  proper  identification  of  the  patient is
important.  The  EPRIM  system  provides  alternative  identification  options,
including:  Voice  print , finger print and photo identification.  Two different
photo  resolution versions could be created at patient registration.  The higher
quality,  size  and larger digital file size photo would be stored either on the
work  station or server and the thumbprint (e.g., drivers license size) could be
stored  on  the  smart  card.

          Keeping  a  patient's medical history safe from computer intruders can
be  accomplished  by having them carry their personal health records in a wallet
or purse on smart cards or the new UltraCard.  Centurion believes that new media
will  change the way people think about prescription orders and medical records.
Through  the  use  of  secure  encrypted data, smart cards (and soon UltraCards)
allow  physicians  and other healthcare providers to create, maintain and update
standardized  patient  medical  information for use throughout the whole medical
community  on  a tightly controlled "right-to-know" basis.  This is accomplished
through  individual  patient, pharmacist and physician personal smart cards (and
soon  UltraCards),  read/write  card  terminals  and high security cryptographic
software  globally  tied  together  with  the  use  of  Internet and interlinked
networks.

          The  smart  card  (and  soon  the  UltraCard)  contains  the patient's
emergency health details, established in compliance with most generally accepted
American medical standards.  The patient's general practitioner, who possesses a
professional's  card,  may  update  the  medical  file,  as  permitted  by legal
standards.  Read  and  write  access  to  the patient's card is protected by the
card-bearer's confidential code.  The card also contains the name and address of
the  patient  and  even  details of insurance coverage, if necessary.  A special
smart  card  reader  (soon to be an UltraDrive), reads the card via the software
application  program.

          Data  storage  space  on  the  smart  card is very limited, unlike the
relatively  larger  storage capacity of the new UltraCard.  Using existing smart
cards,  in  order  to  use  the  space effectively and efficiently, literal data
(text)  is  used sparingly.  The Schlumberger Multiflex card, as an example, has
only  8192  bytes of available EEPROM (non-volatile storage space).  Such a card
will  only  hold  approximately  1-1/2  typewritten  pages.  The  alternative to
storing literal data, such as a personal physician's demographic information, is
to  provide  a  database  table populated with this information for all relevant
physicians  and  a  reference number, or "key" for each one stored.  This method
requires  much  less  space  on the smart card than the literal data.  A problem
associated  with  this method occurs when the database is stored on a server.  A
connection  to the server is required or some alternative method must be used to
retrieve  the  literal data associated with a key.  With the introduction of the
UltraCard,  the  medical  industry  will be able to make portable in the form of
literal  data  much more of the patient information, while also using additional
UltraCard  space  to  enhance  data  security.


                                       14

                               EFORNET CORPORATION

EforNet  Corporation,  a  wholly-owned  subsidiary of Upgrade, is a software and
hardware  development  company  focused upon the commercialization of smart card
initiatives.

EforNet's  objective  has  been  to  extend the high capacity, hard disk storage
technology  of  the  UltraCard  by  incorporating  this  technology  into  a new
innovative  smart  card  solution.  Currently activities at EforNet are dormant.



                               GLOBAL CYBERSYSTEMS

Global  Cybersystems  is a privately owned company based in London, England with
the  exclusive  rights to commercialize the UltraCard technology in Europe.  The
purpose  of  the  company  is  to  provide  a  variety of services including the
distribution,  trade  and  licensing of electronic data storage media, hardware,
and  software.  Currently  activities  at  Global  Cybersystems  are  dormant.


                            THE PATHWAYS GROUP, INC.

The  Pathways Group, Inc.  is currently under a definitive merger agreement with
Upgrade.  The  acquisition  is  subject  to  a  number  of  conditions including
approval  by the stockholders of Pathways and the registration of Upgrade common
stock to be  exchanged  for  Pathway's stock.  Either party to the agreement can
terminate  the  agreement  after  December  29,  2000.

The  Pathways  Group,  Inc.  was  founded  in  1993  as  a successor to Pathways
International  Ltd.,  which,  in turn was established in 1988.  Pathways and its
subsidiaries  design,  market  and  service  unique  solutions  for creating and
processing  data  and  ensuring  secure  electronic  transactions  by  utilizing
proprietary  hardware  and application software systems.  Pathways provide "turn
key"  solutions  in  the smart card arena as a full service hardware integrator,
software  developer  and  backroom  transactions  processor.  Pathways  systems
accommodate  credit  and  debit  payment  methods,  electronic benefit transfer,
electronic  funds  transfer  and  smart  card  systems utilizing its three-state
infrastructure  of  processing centers (California, Washington, and Hawaii) that
operate  on  a  24-hour,  seven-day-a-week  basis.

Pathways'  products  are  configurable  for  diverse communications and security
protocols  associated  with debit, ATM, credit and smart card transactions.  Its
products  are  flexible  and  technologically  capable  of  performing  on-line,
off-line  or  a  combination  of  data  and  transaction  processing.


          FOREIGN  OPERATIONS

          The  Company  does  not engage in any operations in foreign countries.



          COMPETITION

          Upgrade  and  UltraCard,  Inc.  believe that the major competition for
the UltraCard will come from other smart cards providers.  Smart cards are being
represented  as  the  replacement  to  magnetic strip technology.  Sophisticated
smart  cards  can  hold  as  much  as  100  times the amount of information of a
magnetic  strip card.  This increased storage capacity results in the ability to
incorporate  tighter  security  measures  and hold more data.  Companies such as
Schlumberger,  Gemplus  and  Bull  lead  the smart card market.  It is estimated
there  will  be more than two billion smart card chips circulating by the end of
2000.

          Upgrade  and  UltraCard,  Inc.  believe that the UltraCard can compete
successfully  with  other  smart  cards providers.  Smart cards require frequent
replacement  and are unlikely to remain operable for an extended period of time.
The  UltraCard,  on  the  other  hand,  offers the benefits of smart cards-and a
number of improvements-while not suffering from the primary limitations of smart
card  technology.  The  UltraCard  technology is comparable in price to magnetic
strip  technology  and  stores  orders  of magnitude more data than smart cards,
permitting  more  security and fraud prevention techniques.  The following table
summarizes  the  attributes  of  the cards that comprise the competition for the
UltraCard:


                                       15

UltraCard(TM)  Price/Memory  Capacity  Comparison


                                              Average Price
Card Type       Memory (MB)     Price Range     For Reader
-------------  --------------  -------------  --------------
UltraCard                 5.0  $     4 to $6  $   25 to $100
Lasercard                 4.0  $     6 to $8  $2000 to $3000
Magstrip Card            .002  $.50 to $1.50  $    25 to $75

          High  capacity  smart  cards (capacities greater than 32kb) are vastly
more  expensive than magnetic strip cards, about $12 per card, and are even more
susceptible  to  damage.  Although Upgrade realizes that price per megabyte will
not  be  a direct point of price comparison, because ultimately increased memory
capacity  will  drive new card uses, low capacity smart cards cost about $500.00
per megabyte of information while the UltraCard is only $0.80 per megabyte.  The
UltraCard  is also considerably more rugged than expensive smart card technology
and  requires  fewer  replacements.

          There  are  many  companies  engaged  in  electronic  medical  records
management,  but  few  have moved to the new dynamic of the Web and data storage
cards.  One notable exception is Healtheon/WebMD, which is engaged in developing
one  of  the  leading  platforms  for  MDs  and  other health providers.  cQue's
competitive  analyses  of  potential  competitors  are  broken  into categories:
e-prescribing,  electronic  medical  records  and  managed  care  transactions.

          -    e-prescribing  with  personal desk  accessories  (palm pilots) or
               devices: Allscripts, eMD, PocketScripts,  Cyber-CARE, ePhysician,
               ePorcrates,  eScript,  Healtheon/WebMD,HIE,  iScribe,  Med-I-Net,
               TechRx,
          -    electronic  medical  records:  Med-Assure  (DataCard),  LeapFrog,
               National  CacheCard,  and most smart card integrators  offer some
               limited capability of medical applications.
          -    Managed   care   processing    services:    WebMD,    CareInsite,
               AmericasDoctor, HealthAxis, EDIC, SoftMed, PBX, IDX, HBOC

Most  competitors use the traditional method of developing pilots, then continue
to  expand  from  one  provider  to another to the process of building strategic
alliances.  The  pricing  models  are  typically  end-user  licensing agreements
and/or  site  licensing.

          PERSONNEL

          As of September 30, 2000, the Company and its subsidiaries had 57 full
time  employees  and  4 part-time employees.  The Company from time-to-time will
contract  with  outside  programmers,  engineers  and  other  data  processing
professionals,  rather  than  hiring  full-time  staff.  The  employees  are not
represented  by  a  collective  bargaining  unit,  and the Company considers its
relationship with its employees to be good.  The Pathways Group on September 30,
2000  had  52  full  time  equivalent  employees.

 ITEM  2.  PROPERTIES

          The  following  table  sets  forth information relating to each of the
Company's  offices  as  of  September 30, 2000.  The total net book value of the
Company's  premises  and  equipment  (including  land,  building  and  leasehold
improvements  and  furniture,  fixtures and equipment) at September 30, 2000 was
$1.8  million.

          PRINCIPAL  BUSINESS  OFFICE:

          1411  Fourth  Avenue,  Suite  629,  Seattle,  Washington   98101

          SUBSIDIARY  OFFICES:

          Ultracard,  Inc.
          ----------------
          980 University Ave., Los Gatos, California   95032  (effective January
          11, 2001)
          16795  Lark  Ave.,  Suite  102,  Los  Gatos,  California   95032
          (relocating to University  Ave.  effective  Jan,  2001)


                                       16

          1550  S.  Bascom  Ave.,  Suite  100,  Campbell,  California   95008
          4101  Westerly  Place,  Suite  108,  Newport  Beach, California 92660
          2220  Eastman,  Suite  106,  Ventura,  California   93003

          cQue  Corporation
          -----------------
          10900  NE  8th  Street,  Suite  900,  Bellevue,  Washington   98004

          Efornet
          -------
          180  Knowles  Drive,  Suite  100,  Los  Gatos,  California

          The Pathway Group,  Inc. (Pending)
          ---------------
          1221  N.  Dutton,  Santa  Rosa,  California   95404
          1455  N.  Dutton,  Santa  Rosa,  California   95404
          14201  NE  189th  St.,  Woodinville,  Washington   98072
          2500  Makai  Tower,  Grosvenor  Center,  Honolulu,  Hawaii   96813
          117  Aspen  Airport Business Center, Suite 211, Aspen, Colorado 81611


          Upgrade  and  all  its subsidiaries lease their facilities for various
terms.  Ultracard  also owns a residence near the company's office which is used
by  management  when necessary.  The Company believes that all of its properties
and  equipment are well maintained, in good operating condition and adequate for
all  present  and anticipated needs of the Company.  The premises are adequately
insured  against  perils  consistent  with  industry  standards.

ITEM  3.  LEGAL  PROCEEDINGS
----------------------------

Pursuant to a court order dated May 26, 2000, the three actions previously filed
against  Upgrade and its president, Daniel S. Bland, have been consolidated into
one  action, In Re Upgrade International Corporation Securities Litigation, U.S.
District  Court,  Western  District  of  Washington at Seattle, c/a #C00-0298. A
Consolidated  and  Amended  Class  Action Complaint was filed July 24, 2000. Six
minority  shareholders  are named as lead plaintiffs. The complaint alleges that
material  misrepresentations and omissions were made by Upgrade and Mr. Bland in
violation  of  the  Securities Exchange Act of 1934. Specifically, the complaint
alleges  that  Upgrade  and  Mr.  Bland  made  false statements regarding market
readiness  and  technological  capabilities of its UltraCard technology, thereby
artificially  inflating  Upgrade's stock. The consolidated complaint seeks class
certification and payment of unspecified damages and attorneys fees. Upgrade has
engaged  the  firm  of  Cohen,  Milstein,  Hausfeld  & Toll, P.L.L.C. as defense
counsel.  On  August  8,  2000, Upgrade filed a motion to dismiss the complaint.
Oral  arguments  are  scheduled  for  January  18,  2001.  A  ruling is expected
sometime  thereafter.

ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS
---------------------------------------------------------------------

On August 16, 2000 a special meeting of the shareholders was called to vote upon
the  reincorporation  of  the  Company from Florida into Washington via a merger
with a wholly owned subsidiary of the Company.  The August 16, 2000, meeting was
adjourned  due  to  lack  of  a  quorum.  The  special shareholders' meeting was
reconvened on August 21, 2000. Shareholders present at the meeting, in person or
by  proxy,  represented  51.64%  of  common  stock  of  the  Corporation.  The
shareholders  approved  the  motion  as  follows:

     In  Favor  of  Motion:          9,927,325  shares  representing   51.53%
     Opposed  to  Motion                14,610  shares  representing     .08%
     Abstain                            5,270  shares  representing      .03%


                                       17

                                     PART II

ITEM  5.  MARKET  FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's common stock is traded on the OTC Bulletin Board Market under
the  symbol  "UPGD"as  well  as  the  Frankfort Stock Exchange.  The approximate
number  of  stockholders  of  record  of  common stock as of January 6, 2001 was
368.  Certain  shares  of  the  Company  are  held in "nominee" or "street" name
and accordingly, the number of beneficial owners of such shares are not known or
included in the foregoing number.  Such shares are not separated to count actual
beneficial owners.  As of January 6, 2001 there were 21,543,886 shares of common
stock  outstanding.  The  following  table presents quarterly market information
for  the  Company's  common  stock for the fiscal year ended September 30, 2000:


                                     MARKET PRICE RANGE
                                  -----------------------
                                   LOW     HIGH   CLOSING
                                  -----------------------

              FISCAL YEAR 2000
              ----------------
Quarter ended September 30, 2000  $ 9.13  $20.25  $ 9.91
Quarter ended June 30, 2000       $ 8.00  $27.50  $14.88
Quarter ended March 31, 2000      $17.50  $89.88  $23.94
Quarter ended December 31, 1999   $ 3.00  $52.25  $40.50


              FISCAL YEAR 1999
              -----------------
Quarter ended September 30, 1999  $ 2.25  $ 3.88  $ 3.53
Quarter ended June 30, 1999       $ 1.88  $ 5.06  $ 3.50
Quarter ended March 31, 1999      $ 0.15  $ 5.63  $ 2.00
Quarter ended December 31, 1998   $ 0.15  $ 0.60  $ 0.20


During  fiscal year 2000, the Company sold unregistered securities that have not
previously  been  disclosed  in  its  filings  on  Form  10-QSB  as  follows:

In  October 1999, Upgrade issued a $1,000,000 convertible debenture to The Gross
Foundation  that  bears  7%  simple  interest  and is due October 15, 2001.  The
debenture  is convertible into shares of Upgrade's common stock at the lesser of
the  average  bid  price  of  the stock for the five days prior to conversion or
$2.50.  An additional 40,000 shares were issued to placement agents at $2.50 per
share  in  connection with the offering of the convertible debenture, and 70,000
shares  were issued to Chaim Gross for services performed in connection with the
subordinated  debenture  agreement.  These  issuances were exempt under Rule 506
under  and  Section  4(2)  of  the  Securities  Act  of  1933  (the  "Act").

In  December  1999  employees  exercised  90,000 options at an exercise price of
$0.25  per share.  The exercises were exempt pursuant to Rule 701 under the Act.

On  July  24,  2000,  Upgrade  completed a private placement offering of 160,000
shares  of  its  common  stock to Devon Properties Ltd. at a price of $10.48 per
share  for  total  proceeds of $1,676,800.  The offer and sale of securities was
made  pursuant  to  an exemption from registration under Regulation S of the Act
due  to  the  foreign  nationality  of  the  investor.

In  July  2000,  Upgrade  issued  130,000 shares of its common stock pursuant to
warrants  exercised  at  prices  between  $0.25  and  $2.50  per share for total
proceeds  of  $156,250.  The  sale  of  the  securities  was made pursuant to an
exemption from registration under Rule 506 and/or Regulation S under the Act due
to  the  foreign  nationality  of  the  relevant  investors.

On  August  16,  2000,  Upgrade issued warrants to acquire 465,228 shares of its
common  stock  at  an  exercise  price of $10.00 per share.  The issuance of the
warrants  was  exempt from registration under Rule 506 of Regulation D under the
Act  and under Regulation S under the Act, due to the foreign nationality of the
relevant  investors.

On  September 8, 2000, Upgrade completed a private placement offering of 408,164
shares  of its common stock to Fonditel EGFP, SA, at a price of $12.25 per share
for  gross  proceeds  of  $5,000,000.  The offer and sale of securities was made
pursuant  to an exemption from registration under Regulation S under the Act due
to  the  foreign  nationality  of  the  investor.


                                       18

ITEM  6.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATION

     The  following  is  a  discussion  and  analysis of the Company's financial
position  and  results  of  operation and should be read in conjunction with the
information  set  forth under "General" in Item 1 and the consolidated financial
statements  and  notes  thereto  appearing  elsewhere  in  this report.  Certain
statements  contained  in  this  Annual Report on Form 10-KSB, 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  the Annual Report and in other documents we file with the
Securities  and  Exchange  Commission.

     GENERAL

     YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO  YEAR  ENDED SEPTEMBER 30, 1999.

Net  losses  from  operations  totaled  $17.4  million for the fiscal year ended
September  30,  2000.  This compares to a net loss of $10.6 million for the year
ended  September 30, 1999.  The loss reflects the Company's continuously growing
level  of  investment  into  the Company's subsidiaries technologies, production
processes  and industrialization opportunities. The  increase in the net loss as
compared  to  the  prior  year  is  also  attributable  to the operations of the
Company's  subsidiaries  whose operating results were included, primarily, using
equity  accounting  prior to September 30, 1999.  In addition, due to continuous
losses  incurred  by  the  subsidiaries,  the  Company's  minority  interest was
eliminated  and  all  losses  are  now  included in the net loss of the Company.
The losses for the year ended September 30, 2000 borne by each subsidiary are as
follows:  Ultracard  42%, cQue Corporation (formerly Centurion) 15%, EforNet 11%
and  32%  the  Company  itself.

For  all  expense   categories,   changes  are  largely   attributable   to  the
aforementioned  differences in inclusion of subsidiaries  operating  results and
minority interest  allocations in the fiscal year 2000 as compared to the fiscal
year 1999. Other specific explanations by expense categories follow.

Direct  research  and  development  expenditures  increased  by  $5.7 million as
compared  to  the  fiscal  year  1999.  This  increase is due primarily to costs
incurred  in  developing  Ultracard's  technology.  A significant portion of the
increase  was  due  to  the addition of new personnel, prototype development and
contracts  with  external  research  and  development  personnel.


All  of  the  Company's  research and development costs are expensed as incurred
except  for  capitalized  cost  of  research  and development equipment that has
alternative  future  uses.  Research  and  development  costs  are  expected  to
accelerate  in  order  to  meet  anticipated  market  opportunities.


In  an  effort  to establish the Company's market for Ultracard's technology and
related  products,  and  in  order  to augment internally developed research and
development  initiatives,  the  Company  anticipates  licensing  technology from
others,  engaging others to develop components and/or acquiring other businesses
with  similar  strategic  focus.

General  and  administrative  expenses have increased from $2.0 to $8.8 million.
Included  in  expenses  incurred during the year ended September 30, 2000, was a
noncash  compensation  of approximately $1 million in legal expenses incurred in
connection  with  defending  the  Company  against  the outstanding class action
lawsuit  and  approximately  $0.5 million in other contract costs.  In addition,
fiscal  year  2000  general and administrative expenses include approximately $1
million  in  legal  and  other  professional  costs incurred in conjunction with
occurred  and  pending  acquisitions.  General  and  administrative  costs  are
expected  to  continue  to  grow  in  the  foreseeable  future.

Sales  and marketing expenditures increased to approximately $2.0 million or 21%
reflecting  Company's  trade  show  attendances  and  efforts to increase market
awareness  in  anticipation  of  product  launches.

In  process  research  and  development  decreased  in  the fiscal year 2000 and
compared  to 1999 as majority of the acquisitions occurred during the year ended
September  30,  1999.


                                       19

YEAR  ENDED  SEPTEMBER 30, 1999 AS COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1998

Net  losses aggregated $10.6 million in fiscal year 1999 when compared to a $1.2
million  loss  in  1998.  1999  represented  the  first  full year of developing
technology  activities  at  the  Company's  subsidiaries.  The loss reflects the
continued  and  growing  level  of  investment  into  the  subsidiary companies'
technologies,  production  processes.  This increase in the net loss compared to
the  prior  year  is,  in  the  most  part attributable to the operations of the
Company's  subsidiary,  UltraCard  Inc.,  whose  results of operations 1999 were
recorded  using  the  equity  method  of  accounting  and purchased research and
development.  The  other two significant operating subsidiaries EforNet and cQue
Corporation  (formally  Centurion)  contributed to the remaining loss reflecting
the results of those entities in developing software and smart card initiatives.
All  of  these  entities are expanding their staff and scale of operations level
and  losses  are  expected  to  be  incurred  for  the  foreseeable  future.

Direct  research  and  development  expenditures  of  $1.1 million and purchased
research  and development of  $5.1 million for 1999, a significant increase over
1998,  reflecting  the  increased  costs  incurred  in  establishing  production
equipment,  facilities  and  processes  within  UltraCard.  The increase is also
comprised  in  part  of refining and expanding upon the consolidated groups core
support  technologies  to establish a base of products for production. The costs
also  reflects  a  focused effort at the establishment of an operating system by
Efornet  that  will  form  the standard for the UltraCard product. A significant
portion  of  the  increase  was  due to the addition of new personnel, prototype
development  and  contracts  with external research and development contractors.
For  the  near  future  research and development expenditures are expected to be
maintained  and increase to meet the Company's anticipated market opportunities.
All  of  the  Company's research and development costs are expensed as incurred.

In  an  effort  to establish the Company's market with the UltraCard and related
products,  and in order to augment internally developed research and development
initiatives,  the  Company will license technology from other businesses, engage
others  to  develop components and/or acquire other businesses as an alternative
to  internal  research  and  development  and  marketing  efforts.

General  and  administrative  expenses  have  increased from $.2 million to $1.1
million  for 1999 compared to 1998.  The significant portion of this loss is the
recording  of  the  Company's  equity  position in the loss of Ultracard of $1.1
million  compared  to $.2 million in 1998.  General and administrative costs
are  expected  to  continue  to  grow  as  the  subsidiaries commercialize their
products  and  develop  more  extensive  infrastructures.



     LIQUIDITY  AND  CAPITAL  RESOURCES

Cash  and  cash  equivalents were approximately $0.4 million as of September 30,
2000,  a  decrease of $4.3 million from September 30, 1999.  The decrease is due
to  the increased research and development and administrative expense as well as
additional investments in subsidiaries and production equipment during the year.
During the year ended September 30, 2000, the Company raised approximately $13.7
million  through  common  stock sales and another $0.7 million was received from
current  shareholders  that exercised various options and common stock warrants.
In addition, the Company completed a $1 million convertible debenture placement.
The  Company's negative cash flow from operations is expected to continue and to
accelerate in the foreseeable future.  The Company expects that its existing and
expected  financings  capital  resources  will  be  adequate  to  satisfy  the
requirements  of  its current and planned operations until the end of the fiscal
year  2001.

The  Company's ability to implement its business plan depends upon its continued
success  raising capital.  The US and international economy, conditions of world
capital markets, and other external factors impact the ability of the Company to
raise  capital.  During the last quarter of the fiscal year, the capital markets
willingness  to  invest in development companies has become more restrictive and
limited  the  Company's  ability  to  fund  the  financing  agreements  of  the
subsidiaries  resulting  in  increased  accounts payable balances. Subsequent to
September  30,  2000, the Company raised an additional $5.6 million through $2.9
million  equity  placements  and $2.7 million  in debt and convertible debenture
placements.  The Company continues to devote extensive efforts in its ability to
raise  capital,  including  the  identification  of  a significant number of new
sources  of  capital.


                                       20

SUBSEQUENT  EVENTS

Since  September  30,  2000,  the  following significant activities are detailed
below

Equity  placements;

     In  October 2000, the  Company  issued  142,860  shares at $10.50 per share
     pursuant  to  Regulation  "S" for  aggregate  proceeds  to the  Company  of
     $1,500,030

     In  November 2000, the  Company  issued  233,333  shares at $6.00 per share
     pursuant  to  Regulation  "S" for  aggregate  proceeds  to the  Company  of
     $1,399,998


  Debt  placements;

     During November 2000, the Company  entered into agreements for the issuance
     of  convertible   subordinated  debentures   aggregating  $2,325,250.   The
     convertible  subordinated debentures provide for 8% interest payable on the
     principal amount of the debenture, have a term of 18 months and provide for
     the  following  additional  compensation  comprised of 7% of the  principal
     amount of the  debenture in common stock based upon a $6.00 share price and
     warrants  coverage  equal to 10% of the value of the debenture  again based
     upon a $6.00 share price. Two debentures in the amount of $750,000 provided
     for finder's fees aggregating 10% of the debenture payable as to 7% in cash
     and 3% in  shares  calculated  on a $4.50  share  price  was also  payable.
     Pursuant to the agreements,  the Company issued additional compensation and
     finder's fees aggregating  cash of $52,500,  common stock of 167,768 shares
     and five year warrants to acquire 334,406 common shares at a purchase price
     of  $6.00  per  share.  Additional  compensation  equal  to 2% to 3% of the
     conversion  shares is payable in the event that the common stock underlying
     the convertible debentures are not registered by January 1, 2001.

     In December  2000 the Company  borrowed  $400,000  pursuant to the terms of
     four promissory  notes. The notes have a term of 30 days, and bear interest
     at a rate of 10% per  annum.  In the event that the loans are not repaid on
     the maturity date, a penalty charge will be due and payable as follows;

          -    10% of the unpaid  principal  and interest at the  maturity  date
               will be issued in common  stock to the lender,  calculated  based
               upon  the  average  trading  price  of the  common  stock  of the
               borrower on the loan maturity date.

          -    Warrants to acquire common stock will be issued equal to 12.5% of
               the unpaid  principal  and  interest  at the loan  maturity  date
               issued at a strike price being the average  trading  price of the
               borrowers common stock on the maturity date.

          -    Additional  warrants to acquire common stock will be issued equal
               to 20% of the unpaid  principal and interest at the loan maturity
               date calculated at the current market issued at a strike price of
               $6.00.

          -    In the event that the loan  principal and interest is not repaid,
               an  additional  penalty will become due and payable every 30 days
               following the maturity date.


Letters  of  Intent;

     The  Company  has  entered  into  letters of intent to acquire  controlling
     interest in Cards & More,  etal, a manufacturer and producer of credit card
     stock and other niche  systems.  Additionally  the Company  entered  into a
     letter of intent to acquire  controlling  interest  in  Rockster,  Inc.,  a
     software  company that can conduct  transactions  on the internet which can
     provide  efficient,  anonymous  transactions  on the web. Each  acquisition
     transaction  is subject to the  execution of a definitive  agreement and is
     subject to due diligence processes.

EforNet;

     The Company suspended  operations  temporarily at its Efornet subsidiary on
     December 1, 2000.  Efornet,  a research  and  development  business for the
     Company's business is expected to recommence activities during 2001. In the
     meantime,  management  has  taken  all steps to  significantly  reduce  all
     non-essential  operating  expenses  at Efornet.  On  December 1, 2000,  the
     Company acquired all outstanding  shares of Efornet not previously owned by
     the Company, and therefore now owns 100% of EforNet.


                                       21

UltraCard  funding  agreement;

     In order to permit  Ultracard to explore  strategic  partnerships and other
     funding  alternatives,  some of which could include  equity  participation;
     Upgrade waived its provisions  including its non-dilution  clause contained
     in its financing  agreement with Ultracard.  Upgrade and Ultracard continue
     to work  together to explore  alternative  methods and alliances  which can
     provide funding to the Company.

Liquidity  and  other  financing  activities;

     The Company is actively  pursuing over $60 million in new investment in the
     Company.  This  financing  can  takes  the  form  the  equity,  convertible
     debentures and debt.  The Company  expects to close on at least $20 million
     of these activities in the first three months of 2001.

     The  Company  contemplates that any financings will be accomplished through
     private transactions with persons the Company will contact through existing
     relationships.  This  disclosure  is  not  an offer to sell securities or a
     solicitation of an offer to buy securities. No money or other consideration
     is being  solicited  or  will  be  accepted by way of this disclosure.  Any
     public offer of the  Company's common stock will be made only by means of a
     prospectus filed with  the  SEC.


     FORWARD  LOOKING  STATEMENTS

     Statements made about the Company's future economic performance,  strategic
plans or objectives,  revenues or earnings projections, or other financial items
and similar statements are not guarantees of future performance, but are forward
looking  statements.  By their nature,  these statements are subject to numerous
uncertainties that could cause actual results to differ materially from those in
the statements.  Important factors that might cause the Company's actual results
to differ materially include, but are not limited to, the following:

     -    The Company's  ability to continue the development of its products and
          services in a timely manner;
     -    The Company's ability to adapt successfully to technological changes;
     -    The Company's ability to access cost effective funding; and
     -    Changes in financial markets and general economic conditions.

     SELECTED  FINANCIAL  DATA

     The  following  table  sets  forth certain consolidated financial and other
data of the Company at the dates and for the periods indicated.  The information
is  derived  in  part  from and should be read in conjunction with the Company's
consolidated  financial  statements  and  notes  thereto  (dollars in thousands,
except  common  share  data):



                                                        YEAR ENDED SEPTEMBER,
                                               -------------------------------------
                                                 2000      1999     1998    1997(1)
                                               -------------------------------------
                                                                
STATEMENT OF OPERATIONS DATA:
Costs and expenses
Research and development                       $ 6,834   $ 1,108   $  209   $
Purchased in-process research and development      426     5,122      424
Sales and marketing                              1,973     1,642      -0-
General and administrative                       8,771     1,972      404
                                               -------------------------------------
                                                18,004     9,844    1,037

Other expenses
Equity in losses of Ultracard                      -0-     1,088      177
Interest expense                                   953        11      -0-
Other, net                                         206        36       (1)
                                               -------------------------------------
                                                 1,159     1,135      176

                                               -------------------------------------
Minority interest in losses of subsidiaries     (1,759)     (356)     -0-
                                               -------------------------------------


                                       22

                                               -------------------------------------
Net Loss                                       $17,404   $10,624   $1,213   $
                                               -------------------------------------

COMMON SHARE DATA:
Basic and diluted loss per common share        $  0.93   $  0.79   $ 0.15


1.     Upgrade  commenced operations February 5, 1997, the results of operations
       during  1997  were  negligible.


                                       23

ITEM  7.  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA


     Consolidated  Financial  Statements  and  Report  of
          Independent  Certified  Public  Accountants

     UPGRADE  INTERNATIONAL  CORPORATION  AND
                    SUBSIDIARIES
        (A  development  stage  enterprise)

         September  30,  2000  and  1999


                                       24

                                 C O N T E N T S



                                                                            Page

STATEMENT OF MANAGEMENT RESPONSIBILITY                                       26

REPORT  OF  INDEPENDENT  CERTIFIED  PUBLIC  ACCOUNTANTS                      27


FINANCIAL  STATEMENTS

     CONSOLIDATED  BALANCE  SHEETS                                           28

     CONSOLIDATED  STATEMENTS  OF  OPERATIONS                                29

     CONSOLIDATED  STATEMENT  OF  STOCKHOLDERS'  EQUITY                      30

     CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS                               33

     NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS                          34


                                       25

                     STATEMENT OF MANAGEMENT RESPONSIBILITY

Upgrade International's management is responsible for the preparation, integrity
and  fair  presentation  of its published financial statements. The consolidated
financial  statements  have  been prepared in accordance with generally accepted
accounting  principles  and,  as  such,  include  amounts based on judgments and
estimates  made  by  management.  Management  also  prepared  other  information
included  in  the  annual  report  and  is  responsible  for  its  accuracy  and
consistency  with  the  consolidated  financial  statements.

     The  consolidated financial statements have been  audited by an independent
accounting  firm,  Grant Thornton, LLP, which has been given unrestricted access
to  all financial records and related data, including minutes of all meetings of
shareholders,  the  Board  of  Directors and committees of the Board. Management
believes  that  representations  made  to  the independent auditors during their
audit  were  valid  and  appropriate.

     Management  maintains a system of internal controls over the preparation of
its  published  financial  statements,  which  is intended to provide reasonable
assurance to the Company's Board of Directors and officers regarding preparation
of  financial  statements presented fairly in conformity with generally accepted
accounting  principles.

     Management  has  long  recognized  its  responsibility  for  conducting the
Company's affairs in a manner, which is responsive to the interest of employees,
stockholders, investors and society in general.  This responsibility is included
in the statement of policy on ethical standards, which provides that the Company
will  fully  comply with laws, rules and regulations of every community in which
it operates and adhere to the highest ethical standards. Officers, employees and
agents  of  the  Company are expected and directed to manage the business of the
Company  with  complete  honesty,  candor  and  integrity.

     Internal auditors monitor the operation of the internal control system, and
actions  are  taken  by  management  to  respond  to  deficiencies  as  they are
identified.  The Board, operating through its audit committee, which is composed
entirely of directors who are not officers or employees of the Company, provides
oversight  to  the  financial  reporting  process.

     Even  effective  internal  controls,  no  matter  how  well  designed, have
inherent limitations, such as the possibility of human error or of circumvention
or  overriding of controls, and the consideration of cost in relation to benefit
of a control.  Further, the effectiveness of an internal control can change with
circumstances.

     Upgrade  International's  management  periodically  assesses  the  internal
controls  for inadequacy.  Based upon these assessments, Upgrade International's
management  believes  that,  in  all  material  respects, its internal  controls
relating to preparation of consolidated financial statements as of September 30,
2000  functioned  effectively  during  the  year  ended  September  30,  2000.

Daniel  S.  Bland                                        Howard  A.  Jaffe
Chief Executive Officer                                  Chief Financial Officer


                                       26

               Report of Independent Certified Public Accountants
               --------------------------------------------------




Board  of  Directors
Upgrade  International  Corporation

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Upgrade
International  Corporation  and Subsidiaries (a development stage enterprise) as
of  September  30,  2000  and  1999,  and the related consolidated statements of
operations,  stockholders'  equity  and  cash flows for the years then ended and
since inception (February 5, 1997).  These consolidated financial statements are
the  responsibility  of  the  Company's  management.  Our  responsibility  is to
express  an  opinion  on  these  financial  statements  based  on  our  audits.

We conducted our audits in accordance with auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the  audit  to  obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

In  our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Upgrade
International  Corporation  and  Subsidiaries as of September 30, 2000 and 1999,
and  the  results  of  their consolidated operations and their consolidated cash
flows  for  the  years  then  ended  and  since  inception,  in  conformity with
accounting  principles  generally  accepted  in  the  United  States of America.


GRANT THORTON, LLP
Seattle,  Washington
December 21, 2000  (except for Note B as to which the date is January 15, 2001)


                                       27



                   UPGRADE  INTERNATIONAL  CORPORATION  AND  SUBSIDIARIES
                               (A development stage enterprise)

                                 CONSOLIDATED BALANCE SHEETS

                                            ASSETS

                                                                        September 30,
                                                                 ----------------------------
                                                                     2000           1999
                                                                 -------------  -------------
                                                                          
CURRENT ASSETS
    Cash and cash equivalents                                    $    398,989   $  4,781,330
    Restricted deposit                                                805,687              -
    Subscriptions receivable                                           32,725        165,000
    Prepaid expenses, deposits and other                              121,491        209,054
                                                                 -------------  -------------

        Total current assets                                        1,358,892      5,155,384

PROPERTY AND EQUIPMENT - AT COST,
    less accumulated depreciation and amortization                  1,791,257      1,003,381

EQUIPMENT UNDER CONSTRUCTION                                        3,301,625              -

ADVANCES TO THE PATHWAYS GROUP, INC.                                1,900,825              -

OTHER ASSETS
    Intangible and deferred assets, net of accumulated amortization   370,206        253,763
    Deposits                                                          328,051        135,032
                                                                 -------------  -------------

        Total assets                                             $  9,050,856   $  6,547,560
                                                                 =============  =============

                          LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                             $  1,993,796   $  1,100,091
    Accrued liabilities                                               733,241        843,493
    Bridge loans                                                      799,177              -
    Equipment purchase contract payable                             2,307,025              -
    Royalty fee payable to Card Tech, Inc., net                       487,500              -
    Payable to related parties                                        175,240        607,635
                                                                 -------------  -------------

         Total current liabilities                                  6,495,979      2,551,219

CONVERTIBLE DEBENTURES, net of unamortized discount                   809,043              -

MINORITY INTEREST                                                           -      1,792,869

COMMITMENTS AND CONTINGENCIES                                               -              -

STOCKHOLDERS' EQUITY
    Common stock - $.001 par value, 50,000,000 shares authorized       20,341         12,958
    Stock subscriptions                                               323,640     12,344,613
    Additional paid in capital                                     36,925,837      2,082,479
    Receivable from stockholders of subsidiary                       (266,621)      (400,000)
    Accumulated development stage deficit                         (35,257,363)   (11,836,578)
                                                                 -------------  -------------
                                                                    1,745,834      2,203,472
                                                                 -------------  -------------

Total liabilities and stockholders' equity                       $  9,050,856   $  6,547,560
                                                                 =============  =============



 The  accompanying  notes  are  an  integral  part  of  these  statements.


                                       28



                   Upgrade  International  Corporation  and  Subsidiaries
                               (A development stage enterprise)

                             CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                              Cumulative
                                                                              results of
                                                 Year ended September 30,   operations since
                                               --------------------------     inception
                                                   2000          1999      (February 5, 1997)
                                               ------------  ------------  -------------------
                                                                  
Costs and expenses
    Research and development                   $ 6,834,508   $ 1,107,385   $        8,150,672
    Purchased in-process research and development  425,800     5,121,946            5,971,603
    Sales and marketing                          1,972,838     1,642,125            3,614,963
    General and administrative                   8,770,862     1,972,283           11,148,007
                                               ------------  ------------  -------------------
                                                18,004,008     9,843,739           28,885,245
Other expenses
    Equity in losses of UltraCard                        -     1,088,173            1,264,316
    Interest expense                               953,286        10,708              963,994
    Other, net                                     205,787        36,472              242,148
                                               ------------  ------------  -------------------
                                                 1,159,073     1,135,353            2,470,458
                                               ------------  ------------  -------------------

Minority interest in losses of subsidiaries     (1,759,091)     (356,044)          (2,115,135)
                                               ------------  ------------  -------------------

NET LOSS                                       $17,403,990   $10,623,048   $       29,240,568
                                               ============  ============  ===================

LOSS PER COMMON
    SHARE-BASIC AND DILUTED                    $      0.93   $      0.79   $             2.74
                                               ============  ============  ===================



 The  accompanying  notes  are  an  integral  part  of  these  statements.


                                       29



                                  Upgrade  International  Corporation  and  Subsidiaries
                                               (A development stage enterprise)

                                              STATEMENT OF STOCKHOLDERS' EQUITY

                                        SINCE  INCEPTION  THROUGH  SEPTEMBER 30, 2000

                                    Voting common stock  Common stock subscribed  Additional  Receivable from   Accumulated
                                    -------------------  ------------------------   paid-in    stockholders     Development
                                      Shares    Amount     Shares       Amount      capital   of subsidiary    stage deficit
                                    ----------  -------  -----------  -----------  ---------  --------------  ---------------
                                                                                         
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                        -        -           -            -          -                -      (1,213,530)
                                    ----------  -------  -----------  -----------  ---------  --------------  ---------------

Balances at September 30, 1998      10,209,988   10,210   2,250,000      146,250    927,334                -      (1,213,530)

Issuance of subscribed shares
   in November 1998 Reg. D
   Rule 504 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                -               -



                                       Total
                                    ------------
                                 
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 $.0065
   per share                            146,250

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

Balances at September 30, 1998         (129,736)

Issuance of subscribed shares
   in November 1998 Reg. D
   Rule 504 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
   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



 The  accompanying  notes  are  an  integral  part  of  these  statements.


                                       30



CONTINUED
                                      Upgrade International Corporation and Subsidiaries
                                               (A development stage enterprise)

                                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - Continued

SINCE  INCEPTION  THROUGH  SEPTEMBER  30,  2000

                                                                                   Additional   Receivable from   Accumulated
                                   Voting common stock   Common stock subscribed     paid-in    stockholders     Development
                                  Shares      Amount       Shares       Amount       capital    of subsidiary    stage deficit
                                 ---------  ----------  -----------  ------------  -----------  --------------  --------------
                                                                                           
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                                  -           -           -             -            -               -     (10,623,048)
                                 ---------  ----------  -----------  ------------  -----------  --------------  --------------

Balances at September 30,
  1999                          12,957,488      12,958   5,216,933    12,344,613    2,082,479        (400,000)    (11,836,578)

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 1999
   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               -               -


                                    Total
                                 ------------
                              
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 consolidated loss for the
   year ended September 30,
                                 (10,623,048)
                                 ------------

Balances at September 30,
                                   2,203,472

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



 The  accompanying  notes  are  an  integral  part  of  these  statements.


                                       31



CONTINUED
                                     Upgrade International Corporation and Subsidiaries
                                              (A development stage enterprise)

                                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - Continued

SINCE  INCEPTION  THROUGH  SEPTEMBER  30,  2000


                                   Voting common stock   Common stock subscribed   Additional   Receivable from   Accumulated
                                 ---------------------  -------------------------    paid-in    stockholders     Development
                                  Shares      Amount       Shares       Amount       capital    of subsidiary    stage deficit
                                 ---------  ----------  -----------  ------------  -----------  --------------  --------------
                                                                                           

Issuance of common stock in
   February 2000 subscribed
   to in August 1999
   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               -      (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                                  -           -           -             -            -               -     (17,403,990)
                                 ---------  ----------  -----------  ------------  -----------  --------------  --------------

Balances at September 30,
   2000                         20,340,610  $   20,341     102,609   $   323,640   $36,925,837  $    (266,621)  $ (35,257,363)
                                ==========  ==========  ===========  ============  ===========  ==============  ==============



                                       Total
                                   -------------
                                

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

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 consolidated loss for the
   year ended September 30,
                                    (17,403,990)
                                   -------------

Balances at September 30,
                                   $  1,745,834
                                   =============



 The  accompanying  notes  are  an  integral  part  of  these  statements.


                                       32



UPGRADE  INTERNATIONAL  CORPORATION  AND  SUBSIDIARIES
                                        (A development stage enterprise)

                                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                Year ended September 30      Cumulative
                                                            ----------------------------    since inception
Increase (Decrease) in Cash and Cash Equivalents                2000           1999       (February 5, 1997)
                                                            -------------  -------------  -------------------
                                                                                 
Cash flows from operating activities
    Net loss                                                $(17,403,990)  $(10,623,048)  $      (29,240,568)
    Adjustments to reconcile net loss to net
        cash used in operating activities
        Depreciation and amortization                            289,885         11,262              301,852
        Amortization of beneficial conversion feature            676,360              -              676,360
        Amortization of debenture discount                       132,683              -              132,683
        Adjustment to receivables from subsidiary's stockholders 133,379              -              133,379
        Write off of option cost                                       -         76,250               76,250
        Equity in loss of UltraCard                                    -      1,088,173            1,264,316
        Purchased in-process research and
             development                                         425,800      5,121,946            5,971,603
        Warrants and options issued for services               1,268,285      1,962,205            3,230,490
        Shares issued for services                               242,900         55,750              298,650
        Expenses incurred through loan assumption                      -        470,005              470,005
        Stock of subsidiary issued in exchange for
            contribution of intellectual property
            charged to expense                                         -        125,000              125,000
        Minority interest                                     (1,759,091)      (356,044)          (2,115,135)
        Changes in assets and liabilities:
            Prepaid expenses, deposits and other                 244,544        615,902              858,710
            Payables, accrued liabilities and other            1,382,446        204,215            1,797,624
                                                            -------------  -------------  -------------------

                 Net cash used in operating activities       (14,366,799)    (1,248,384)         (16,018,781)

Cash flows from investing activities
    Advances to The Pathways Group, Inc.                      (1,885,000)             -           (1,885,000)
    Payments on equipment under construction                  (1,200,000)             -           (1,200,000)
    Acquisition of property and equipment                     (1,000,796)       (55,862)          (1,068,291)
    Acquisition of Centurion Technologies, Inc.,
          net of cash acquired                                  (350,000)      (650,000)          (1,000,000)
    Acquisition of UltraCard, Inc., net of cash acquired        (260,300)    (4,710,805)          (5,571,105)
    Acquisition of equity interest in EforNet Corp.
         from a minority shareholder                            (200,000)             -             (200,000)
    Additions to intangible assets                              (117,178)             -             (117,178)
                                                            -------------  -------------  -------------------

              Net cash used in investing activities           (5,013,274)    (5,416,667)         (11,041,574)

Cash flows from financing activities
    Proceeds from sale of common stock and stock subscriptions13,720,077     11,770,829           26,523,450
    Borrowings, net of loan costs                              3,453,100        185,805            3,671,538
    Principal payments on borrowings                          (2,082,544)      (513,950)          (2,642,743)
    Purchase of collateral on subsidiary's letter of credit     (805,687)             -             (805,687)
    Proceeds from exercise of stock options and warrants         712,786              -              712,786
                                                            -------------  -------------  -------------------
           Net cash provided by
                  financing activities                        14,997,732     11,442,684           27,459,344
                                                            -------------  -------------  -------------------

Net increase (decrease) in cash and cash equivalents          (4,382,341)     4,777,633              389,989

Cash and cash equivalents at the beginning of the period       4,781,330          3,697                    -
                                                            -------------  -------------  -------------------

Cash and cash equivalents at the end of the period          $    398,989   $  4,781,330   $          398,989
                                                            =============  =============  ===================

Supplementary information:
Interest paid                                               $     54,793   $          -   $           54,793
                                                            =============  =============  ===================

See note E for nonmontary exchanges and transactions.


The  accompanying  notes  are  an  integral  part  of  these  statements.


                                       33

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER  30,  2000  AND  1999



NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

Upgrade  International  Corporation  (the  Company  or Upgrade) is a development
stage  company  incorporated  on  February  5,  1997 (inception) in the State of
Florida  and  currently  headquartered  in Seattle, Washington.  In August 2000,
Upgrade reincorporated in the State of Washington.  The Company is active in the
acquisition  and  development  of  proprietary  hardware  and  software  in  the
information  technology  industry.  Its  primary  business  focus  has  been the
acquisition,  development  and  commercial  exploitation  of  the  UltraCard
technology,  a  super  high  capacity  data  storage  and  retrieval device. The
aforementioned  activities are conducted through its subsidiary, UltraCard, Inc.
In  addition,  the  Company has investments in two technology companies that are
currently  developing  application  software  and  "know-how"  integral  to
commercialization  of  the  Company's  base  technology.

On  April  6, 2000, Upgrade issued 45,000 shares of its common stock in exchange
for  all  the outstanding shares of common stock of Second CMA, Inc., a Colorado
corporation,  pursuant  to  an Agreement and Plan of Merger dated as of April 4,
2000  between  Upgrade  and  Second CMA.  The transaction was accounted for as a
reverse  acquisition  resulting  in  a $1,200 credit to the Company's additional
paid  in  capital to record the issuance of the shares used in the exchange.  In
addition, the Company expensed $300,000 in cash paid for this transaction.  This
expense  was  included  in  other  expenses  in  the  consolidated  statement of
operations  for  the  year  ended  September  30,  2000.

1.     Basis  of  Presentation
       -----------------------

The  Company consolidates all companies in which it invests when the Company has
a  controlling  financial  interest in the investee.  This generally occurs when
the Company owns more than 50% of the outstanding voting shares of the investee.
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,  statement of operations and statements of cash flows as of
September  30,  2000, and  for  the  year  then  ended, reflect the consolidated
financial  position  and  results  of  the  Company  and  its  subsidiaries
(Subsidiaries)  as follows: UltraCard, Inc. (UltraCard), Centurion Technologies,
Inc.  (Centurion),  CTI Acquisition Corporation (CTI), Global CyberSystems, Inc.
(Global),  Global  CyberSystems PLC (Global PLC), Global CyberSystems SA (Global
SA)  and  EforNet  Corporation  (EforNet). The balance sheet as of September 30,
1999, reflects the consolidated financial position of the Company and UltraCard,
Centurion,  CTI,  Global,  and  EforNet.  The  statements of operations and cash
flows for the year ended September 30, 1999, 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
intercompany  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.


                                       34

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  -  Continued

2.     Property  and  Equipment
       ------------------------

Property  and  equipment  are stated at cost. Depreciation expense is charged to
operations using the straight-line depreciation method over the estimated useful
life  of  the  assets  ranging  as  follows:

       Equipment                  3-5  years
       Software                   3  years
       Office  Furniture          10  years
       Corporate  Condominium     30  years
       Leasehold Improvements     Over the term of the related lease or life of
                                  assets, whichever  is  shorter

The  Company  uses  accelerated  depreciation  methods  for  tax  purposes, when
allowable.

3.     Intangible  and  Deferred  Assets
       ---------------------------------

Intangible  assets  consist  of  capitalized  license fees, patent and trademark
costs,  and  loan fees.  Intangible assets are amortized using the straight-line
method over seven years, the estimated useful life of the underlying technology.
Loan fees are amortized on a straight-line basis over the life of the underlying
borrowing.

4.     Research  and  Development
       --------------------------

Research  and  development  costs  are  expensed  as  incurred.

5.     Software  Development  Costs
       ----------------------------

Statement  of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer  Software  to  be  Sold,  Leased  or  Otherwise  Marketed,  requires
capitalization  of  certain  software  developments  costs  subsequent  to  the
establishment of technological feasibility.  The Company considers technological
feasibility  to  be established upon completion of a working model.  The Company
believes that costs incurred between completion of a working model and the point
at  which  the  product will be ready for general release will be insignificant.
As  a  result,  all  product  development  costs have been expensed as incurred.


                                       35

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  -  Continued

6.     Cash  Equivalents
       -----------------

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

Included  in  cash  and  cash  equivalents are trust accounts with the Company's
corporate counsel.  The  balances of the accounts were $15,719 and $1,725,460 at
September  30,  2000  and  1999,  respectively.

The  Company  and its subsidiaries maintain their bank accounts with a number of
financial institutions.  At September 30, 2000 and 1999, the balances in some of
these  accounts  were  in  excess  of the $100,000 federally insured limit.  The
Company  has  not  experienced  any  losses  with  these  cash  accounts.

7.     Financial  Instruments
       ----------------------

The  Company's  financial  instruments  consist  of  cash,  restricted  deposit,
advances,  accounts  payable,  payable  to  related  parties,  bridge  loans and
debentures.  The  Company  believes  that  the  fair  value  of  these financial
instruments approximates their carrying amounts based on their short-term nature
or  current  market  indicators  such  as  prevailing  interest  rates.

8.     Loss  per  Common  Share
       ------------------------

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 18,635,082 and 13,467,876 for the years
ended  September 30, 2000 and 1999, respectively, and 10,687,777 since inception
(February  5,  1997) through September 30, 2000.  Diluted loss per share for all
periods presented equaled basic loss per share due to antidilutive effect of the
potentially  dilutive  securities.  As  of  September  30,  2000 and 1999, total
warrants and options of 3,579,236 and 4,332,141, respectively, were not included
in  loss  per  share  computations  due  to  their  antidilutive  effect.

9.     Use  of  Estimates
       ------------------

In  preparing the Company's financial statements, management is required to make
estimates  and  assumptions  that  affect  the  reported  amounts  of  assets,
liabilities  and  equity, the disclosure of contingent assets and liabilities at
the  date  of  the financial statements, and the reported amounts of revenue and
expenses  during  the  reporting period.  Actual results could differ from those
estimates.

10.     Reclassifications
        -----------------

Certain reclassifications were made to prior year balances to conform to current
year  presentation.


                                       36

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999


NOTE  B  -  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  and  to  accelerate  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 2001.

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. 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.

In  October 2000, the Company issued 142,860 shares at $10.50 per share pursuant
to  Regulation  "S"  for  aggregate  proceeds  to  the  Company  of  $1,500,030.
In  November 2000, the Company issued 233,333 shares at $6.00 per share pursuant
to  Regulation  "S"  for  aggregate  proceeds  to  the  Company  of  $1,399,998.

During  November  2000,  the Company entered into agreements for the issuance of
convertible  subordinated  debentures  aggregating  $2,325,250.  The convertible
subordinated  debentures provide for 8% interest payable on the principal amount
of  the  debenture,  have  a  term  of  18  months and provide for the following
additional compensation comprised of 7% of the principal amount of the debenture
in  common stock based upon a $6.00 share price and warrants equal to 10% of the
value  of the debenture again based upon a $6.00 share price.  Two debentures in
the  aggregate  amount of $750,000 provided for finder's fees aggregating 10% of
the  debenture,  payable 7% in cash and 3% in shares calculated on a $4.50 share
price.  Pursuant  to  the agreements, the Company issued additional compensation
and  finder's  fees  aggregating  as  follows: cash of $52,500;  common stock of
167,768  shares;  and  five  year warrants to acquire 334,406 common shares at a
purchase price of $6.00 per share.  Additional compensation equal to 2% to 3% of
the  conversion  shares  is payable in common stock in the event that the common
stock  underlying  the  convertible  debentures  is not registered by January 1,
2001.


                                       37

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999


NOTE  B  -  MANAGEMENT  PLANS  -  Continued

In  December  2000,  the Company borrowed $400,000 pursuant to the terms of four
promissory  notes. The notes have a term of 30 days, and bear interest at a rate
of  10%  per  annum.  In the event that the loans are not repaid on the maturity
date,  a  penalty  charge  will  be  due  and  payable  as  follows;

          -    10% of the unpaid  principal  and interest at the  maturity  date
               will be issued in common  stock to the lender,  calculated  based
               upon  the  average  trading  price  of the  common  stock  of the
               Company on the loan maturity date.
          -    Warrants to acquire common stock will be issued equal to 12.5% of
               the unpaid  principal  and  interest  at the loan  maturity  date
               issued at a  strike  price  of the average  trading  price of the
               Companies' common stock on the maturity date.
          -    Additional  warrants to acquire common stock will be issued equal
               to 20% of the unpaid  principal and interest at the loan maturity
               date calculated at the current market issued at a strike price of
               $6.00.
          -    In the event that the loan  principal and interest is not repaid,
               an  additional  penalty will become due and payable every 30 days
               following the maturity date.

The  Company  is  actively  pursuing  over  $60 million in new investment in the
Company.  This  financing will takes the form the equity, convertible debentures
and  other  types of debt.  The Company expects to close on at least $20 million
of  these  activities  in  the  second  quarter  of  fiscal  year  2001.


NOTE  C  -  INVESTMENTS

1.     UltraCard,  Inc.
       ----------------

On  January 16, 1998, the Company entered into an agreement to acquire an 18.53%
equity  interest  in  UltraCard,  Inc.,  a  high-tech  development stage company
located  in  Campbell,  California,  for  cash  of  $450,000.  The agreement was
subsequently  modified  to  provide Upgrade with an option to acquire additional
equity  interest in UltraCard for $7,500,000 and bring its ownership interest to
a  non-diluted  50%.

The  Company's investment in UltraCard was accounted for using the equity method
until  the  Company acquired its controlling interest on September 30, 1999.  On
this  date,  the  investment  was  accounted  for  using  the purchase method of
accounting, and accordingly, the balance sheet of UltraCard has been included in
the  Company's consolidated balance sheet at September 30, 1999.  At the date of
investment in UltraCard, the purchase price totaling $7,950,000 was allocated to
the assets acquired and liabilities assumed based on their estimated fair values
at  the date of acquisition, which approximated the carrying amounts recorded by
UltraCard.  The  remaining unallocated amount of purchase price was allocated to
purchased  in-process  research and development (IPR&D).  During the years ended
September  30, 2000 and 1999 and since inception through September 30, 2000, the
Company  expensed,  $225,800, $4,193,870, and $4,843,527, respectively, of IPR&D
associated  with  its  investments  in  UltraCard.


                                       38

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999


NOTE  C  -  INVESTMENTS  -  Continued

On  September 30, 1999, the Board of Directors of UltraCard approved an employee
stock  option  plan  which authorized the issuance of up to three million shares
(after  effect of 3:1 split) in the share capital of UltraCard to its directors,
officers  and  employees.  In order to avoid dilution of the 50% equity interest
of  Upgrade  if  these  stock options are granted and exercised, the Company was
issued an additional 3,000,000 shares.  In the event that UltraCard completes an
Initial  Public  Offering  (IPO),  UltraCard reserves the right to buy back from
Upgrade any portion of those shares issued to the extent that option grants have
not  been  completed  under  the  terms of the employee stock option plan.  As a
result,  at  September  30, 1999, the Company held shares equaling approximately
54%  of the outstanding common shares of UltraCard.  The Company cannot vote the
3,000,000  shares  issued  as  a result of the antidilution provisions described
above  until the occurrence of an IPO or the exercise of options and issuance of
shares  under  the UltraCard stock option agreement.  In addition, a stockholder
of  UltraCard  has  granted  to  the Company certain proxy rights that allow the
Company  to  vote an additional 2% of the outstanding common stock of UltraCard.
During  the year ended September 30, 2000, the Company acquired an additional 1%
interest  in  UltraCard  from  one  of  UltraCard's stockholders, increasing the
Company's  interest  in  UltraCard  to  approximately  55%.

The  Company  has  expressed  an  intention to acquire an additional interest in
UltraCard  and  to  continue funding its operations until UltraCard completes an
anticipated  IPO.  Under  terms of the Funding Agreement between the Company and
UltraCard  dated  March  21, 2000, should UltraCard require additional financing
prior  to  an  IPO, the Company has agreed to provide sufficient funds on a firm
commitment  basis  in  an  amount  not  to  exceed  $20 million.  All such funds
advanced  by  the Company will be subject to a note payable agreement, the terms
of  which will require the accrual of interest at the bank's prime interest rate
and repayment of principal and accrued interest on the earlier of the occurrence
of  the  following  events:  the  payment  of  dividends  to  stockholders;  the
completion  of  an  IPO  where  the  proceeds  exceed $35 million subject to the
conversion  provisions  described  below;  or upon the occurrence of a change in
control  of  UltraCard; but no later than March 31, 2001.  Pursuant to the terms
of  the  Funding  Agreement,  the  unpaid  principal  and  accrued  interest  is
convertible  into  common  stock of UltraCard at specified conversion rates upon
the  completion  of  an IPO.  The graduated conversion rates range from $0.63 to
$5.00  per  share  depending  on  the  amount owed to the Company at the time of
conversion.  During  the  year  ended  September 30, 2000, the Company loaned to
UltraCard  approximately  $7,835,000  to  fund  its  operations.

In order to permit Ultracard to explore strategic partnerships and other funding
alternatives,  some of which could include outside equity participation, Upgrade
waived  its  provisions  of  the  Funding  Agreement  including its non-dilution
clause.  Upgrade  and Ultracard continue to work together to explore alternative
methods  and  alliances that can  provide  funding to UltraCard.


                                       39

                UPGRADE  INTERNATIONAL  CORPORATION  AND  SUBSIDIARIES

                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999


NOTE  C  -  INVESTMENTS  -  Continued

2.     EforNet  Corporation
       --------------------

On  February  22,  1999,  the Company and one of its directors formed EforNet, a
Washington  corporation,  each  receiving  a  50%  interest  in the company.  At
formation,  certain  intellectual  property  assets under development, including
switching  software  valued  at $250,000, was transferred to EforNet.  Since the
intellectual  property  was  still  under  development  and  had not yet reached
technological  feasibility, it was considered contributed IPR&D, and accordingly
IPR&D  in the amount of $125,000 (Upgrade's contribution) was charged to expense
during  the  year  ended September 30, 1999.  EforNet is currently developing an
application  for  the  UltraCard  technology,  for  secure, anonymous electronic
commerce over the Internet, utilizing the UltraCard technology and the switching
software  referred  to  above.  The  results  of  operations  of  EforNet  since
formation  have  been  included  in  the  accompanying  consolidated  financial
statements.  The  stockholders  of  EforNet  have  entered  into a stockholder's
agreement  that  includes,  among  other  things,  a buy and sell agreement.  In
addition,  the other stockholder of EforNet has granted to Upgrade certain proxy
rights  that  allow  Upgrade  to vote an additional 1% of the outstanding common
stock  of  EforNet.  During  the  second quarter of the year ended September 30,
2000, the Company acquired an additional 2% interest from other shareholder.  In
connection  with that acquisition, the Company recognized IPR&D of $200,000.  As
of  September  30,  2000 and 1999, Upgrade held a 54% and 51% voting interest in
EforNet, respectively.  In January 2000, EforNet re-incorporated in the state of
California.

The  Company  suspended  operations  temporarily  at  its  EforNet subsidiary on
December  1, 2000.  EforNet, a research and development business, is expected to
recommence  activities during the fiscal year 2001.  In the meantime, management
has  taken steps to significantly reduce all non-essential operating expenses at
EforNet.  On  December  1,  2000, the Company acquired all remaining outstanding
shares  of  EforNet for a nominal  consideration.  As a result, the Company owns
100% of EforNet.

3.     CTI  Acquisition  Corporation  and  Centurion  Technologies  Inc.
       -----------------------------------------------------------------

On  May  12,  1999,  the Company formed CTI Acquisition Corporation for the sole
purpose  of  acquiring  an  equity  interest  in  Centurion  Technologies,  Inc.
(Centurion),  a  development stage company headquartered in Redmond, Washington.
Centurion  is  developing a proprietary transaction processing software "EPRIM,"
designed for the real-time transmission of encrypted data over the Internet with
a  business focus in the medical, educational and government market niches.  CTI
then acquired an option from one of the Centurion's stockholders' to purchase up
to  50%  equity  interest  in  Centurion.  On  May  13, 1999, CTI acquired a 50%
interest in Centurion for an aggregate price of $1,100,000, including the option
cost  of $100,000.  As of September 30, 1999, Upgrade owed $350,000 to Centurion
for  its  50% interest, which was paid during the year ended September 30, 2000.
In  addition, at September 30, 1999, Upgrade had a liability of $100,000 related
to  the  option  to  purchase  shares  of Centurion, which was included in loans
payable  to related parties.  This liability was satisfied during the year ended
September  30,  2000.

The  results  of  operations of Centurion from the date of acquisition have been
recorded  in  these consolidated financial statements. The purchase price of the
acquisition  in  excess  of  the  carrying  amount  of  Centurion's  net assets,
aggregating  $803,076,  was  accounted  for as IPR&D and was expensed during the
year  ended  September  30,  1999.


                                       40



               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  C  -  INVESTMENTS  -  Continued

Two  stockholders of Centurion have granted to Upgrade certain proxy rights that
allow  Upgrade  to  vote an additional 1% of the outstanding common stock of the
Centurion.  As  a  result,  Upgrade  holds  a  51% voting interest in Centurion.

During  November  2000,  Centurion   changed its name to cQue Corporation.

4.     Global  CyberSystems,  Inc.,  Global  CyberSystems  PLC  and  Global
       --------------------------------------------------------------------
CyberSystems  SA
----------------

Global  CyberSystems  Inc.,  was incorporated in Nevada on January 12, 1998.  As
part  of  the  UltraCard  acquisition  agreement  (see  note C (1)), the Company
received  a  50% interest in the newly formed corporation with the remaining 50%
being  owned  by UltraCard.  On July 11, 1998, the Company entered into a master
distribution  agreement  with UltraCard which provided Global with the exclusive
distribution rights for the UltraCard products and technology in territories and
applications  as  follows:  (1)  in  the  U.S.,  Global  holds  the  exclusive
distribution  for  banking applications and retail/convenience applications; and
(2)  worldwide, Global holds the exclusive rights to gaming applications for the
UltraCard  products  and  technology.  As  of September 30, 2000, Global had not
commenced its operations and the carrying amounts of its assets, liabilities and
stockholders'  equity  were  nominal.

During  the  second  quarter  of  the year ended September 30, 2000, the Company
formed  Global  CyberSystems PLC (incorporated in the United Kingdom) and Global
CyberSystems  SA  (incorporated  in  Switzerland).  Global  SA  is 100% owned by
Global  CyberSystems,  Inc.  and Global PLC is an 80% owned subsidiary of Global
SA.  Neither of the  European  company  has  commenced  its  operations and each
had nominal  assets and liabilities.

5.     Purchased  In-Process  Research  and  Development  Costs
       --------------------------------------------------------

The  purchased  or  contributed  cost  of  in-process  research  and development
represents the value assigned in a purchase business combination to research and
development projects of the acquired business that had commenced but had not yet
reached  technological  feasibility  at  the date of the acquisition and have no
future  alternative  use.  In  accordance with Statement on Financial Accounting
Standards  No. 2, Accounting for Research and Development Costs, as clarified by
Financial  Accounting Standards Board Interpretation No. 4, the amounts assigned
to IPR&D meeting these criteria are charged to expense as part of the allocation
of  the  purchase  price  of the business combination.  A similar accounting was
also  utilized for the Company's investment in UltraCard accounted for under the
equity  method.  Accordingly,  charges totaling $425,800, $5,121,946, $5,971,603
were  recorded  as  IPR&D during the years ended September 30, 2000 and 1999 and
for  the period from inception through September 30, 2000, respectively, as part
of  the allocations of purchase price and equity investment of the Subsidiaries.

Since  all  of  the  Subsidiaries are development stage companies, which had not
commenced  their  respective  planned  principal  operations  nor  generated any
significant  revenues,  the entire amount of the excess of the purchase price or
investment  amount  over  the  fair  market value of the identifiable assets and
liabilities  of  the  investee,  which approximated the carrying amount of these
assets  and  liabilities, was allocated to IPR&D.  As a result, no amount of the
purchase  prices  or  investment  amounts  were  allocated  to goodwill or other
intangibles,  except  those  already  recorded  by  the  investees.


                                       41

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  D  -  RELATED  PARTY  TRANSACTIONS

Payable to related parties is comprised  of  the  following as of September 30:

                                             2000      1999
                                          --------  --------

Bridge loan from a Centurion stockholder  $147,500  $156,645
Stockholders and officers                   27,740   213,625
Loan payable                                     -   237,365
                                          --------  --------

                                          $175,240  $607,635
                                          ========  ========

The  above  borrowings  bear  interest at 7% to 15% and have stated terms of one
year or  less.

In  February  1999,  the  Company  assumed  liabilities  of  $470,005, including
principal  and  accrued  interest.  The  original  loan  was entered into by the
Company's  president  and  proceeds  were  used principally to fund research and
development  activities.  As  a result, this amount was expensed as research and
development costs during the year ended September 30, 1999.  As of the September
30,  1999,  the  outstanding  balance  of  principal  and  interest  on  this
note  was  $137,365 and is included in loans payable above.  The loan, including
accrued  interest,  was  paid  in  full  in  October  1999.

During each of the years ended September 30, 2000 and 1999, the Company incurred
$60,000  in  fees  for consulting services provided by a company owned by one of
the  Company's  directors.  These fees amounted to $125,000 for the period since
inception  through  September 30, 2000.  At September 30, 2000 and 1999, $25,000
and  $40,000, respectively, of the aforementioned fees were included in accounts
payable.


NOTE  E  -  NONMONETARY  EXCHANGES  AND  TRANSACTIONS

On  the dates of acquisition and consolidation of the Subsidiaries, as described
in  note  C,  the  Subsidiaries had non-cash assets with an estimated fair value
aggregating  approximately  $2,000,000 and liabilities aggregating approximately
$1,300,000.

On December 12, 1997, the Company purchased options, to acquire equity interests
in  Finet  Corporation  (Finet)  and  World  Wide  Wireless  Web (WWWW) from the
Company's  President  in  exchange for a note payable in the amount of $150,000,
bearing  interest  at  prime  rate plus two percent, and 4,000,000 shares of the
Company's  common  stock.  The  stock was valued at $51,250 based on the cost of
the  assets  received.  During  the year ended September 30, 1999, the option to
acquire  WWWW  lapsed,  and  was written off as a loss in the amount of $76,250.
The  Finet option was transferred to EforNet, (see note C (2)) after negotiation
with  Finet's controlling stockholder who, at the time, also held an interest in
EforNet.


                                       42

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999


NOTE  E  -  NONMONETARY  EXCHANGES  AND  TRANSACTIONS  -  Continued

In  connection  with  a  Regulation  D  Rule  504 private placement in 1999, the
Company  incurred  the following costs:  $645,529 fees accrued as a liability at
September  30, 1999, 143,851 shares of its voting common stock included in total
shares  subscribed at September 30, 1999, and warrants to acquire 279,814 common
shares (with exercise prices of $0.25 per share for 100,000 shares and $2.50 per
share  for  179,814  shares)  that  vested  immediately  at the date of grant on
September  30, 1999.  See note O for additional information related to warrants.
These  costs  totaled  $1,703,612  and  are  accounted  for  as placement costs.

In  connection with private placements in fiscal year 2000 and 1999, the Company
recorded  a  subscription  receivable from stockholders in the amount of $32,725
and  $165,000,  respectively.  Since  the  subscriptions  receivable  has  been
collected  in  full  subsequent  to  September  30,  2000  and  1999,  they were
classified  as  a  current  receivable  at  September  30,  2000  and  1999.

In  December 1999,  the Company issued 70,000 shares and 100,000 warrants with a
$.25  strike  price in lieu of a payment for public relation services performed.
The  shares  were  valued using the closing market price on October 18, 1999 and
were  recorded  as  marketing  expense  of  $242,900.  See  note  O  for warrant
information.

In  connection  with  the  October  1999  sale  of  $1,000,000  in  convertible
debentures,  the  Company  allocated $323,640 and $676,360 to 120,000 detachable
warrants  and  beneficial  conversion  feature,  respectively,  based  on  their
relative fair values and computation of the effective conversion rate.  See note
K  for  additional  information.

Also  in  connection  with  the  October 1999 debenture and November 2000 equity
placements,  the  Company  issued  68,194  warrants  in  lieu of placement fees.

Additionally,  in  connection  with  the  same  debt  and equity offerings, the
Company  issued  40,000  shares  of  its  common  stock  to  the  same  broker.

In  April  2000, the Company granted 195,000 options to an outside legal counsel
for  services  to  be  performed  in  connection  with  the class action lawsuit
described  in  the note M.  The options were granted with a $10 strike price and
were  scheduled  to  vest in three tranches of 65,000.  The first tranche vested
immediately  and related to services to be performed from April through June 30,
2000.  The  second  applies  to  services from July 1, 2000 through December 31,
2000, and the final tranche is a consideration for services to be performed from
January  1, 2001 through June 30, 2001.  All options expire April 17, 2005.  The
value  of  the  first  tranche as determined by the Black-Scholes option pricing
model  using  184%  volatility, 6% risk free rate and $14.88 price per share was
$1,047,670  and  was  recorded  as  additional  legal  expense.

As  of  September 30, 2000, in addition to the first 65,000 options, half of the
second  tranche  was  considered  earned  and legal expense was recognized.  The
additional expense was computed using the Black-Scholes model with a $9.91 stock
price  and  other  assumptions  discussed  previously.  In  addition,  the first
tranche  was  revalued  using the current market price.  The net result of these
computations  was  a  reduction  of  legal  expenses  by  $118,885.

On  August  16,  2000,  the Company distributed 465,228 warrants to stockholders
that  acquired shares at $2.50 per share in a private placement during September
and  October  1999 (See note O).


                                       43

               Upgrade International Corporation and Subsidiaries

                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999


NOTE  F  -  RESTRICTED  DEPOSIT  AND  LINE  OF  CREDIT  ARRANGEMENT

In  connection  with  a  building  lease  entered  into  by one of the Company's
subsidiaries  on  September  19, 2000, the subsidiary entered into a arrangement
with  its  bank to maintain a letter of credit and related loan agreement in the
amount of $805,687.  The letter of credit guarantees the lessor has available up
to  $805,687  in  funds  to cure defaults specified in the lease agreement.  The
arrangement  is  collateralized  by a $805,687 certificate of deposit.  The loan
bears  interest  at the prime rate plus 2% and has no stated maturity date.  The
certificate  of  deposit  matures  on  September  15,  2001,  which  is also the
expiration  date  of  the  letter of credit.  As of September 30, 2000, no funds
were  drawn  by  the  lessor.  See  note  M for subsequent modifications of this
arrangement.


NOTE  G  -  EQUIPMENT  UNDER  CONSTRUCTION

During  February 28, 2000, a subsidiary of the Company entered into an agreement
with  SciVac,  Inc.  to  build  a sputtering machine for use in its research and
development  activities  in the amount of $3,000,000.  As of September 30, 2000,
the  subsidiary  had  paid  $1,200,000  and recorded a liability for the amounts
billed  but  unpaid  as  of September 30, 2000 equaling $2,307,025, inclusive of
sales  tax  and  amounts  due under a development contract with SciVac requiring
$50,000  monthly  payments,  which  expired  prior  to  September 30, 2000.  The
machine  is  expected  to  be  completed  and installed by the second quarter of
fiscal  year  2001.

NOTE  H  -  PROPERTY  AND  EQUIPMENT

The composition of property and equipment is as follows as of September 30:

                                                    2000        1999
                                                ----------  ----------

     Equipment                                  $1,165,284  $  344,933
     Software                                      124,763      15,851
     Office furniture and fixtures                  71,310      43,766
     Corporate condominium                         651,353     643,532
     Leasehold improvement                          42,262           -
                                                ----------  ----------
                                                 2,054,972   1,048,082
     Accumulated depreciation and amortization     263,715      44,701
                                                ----------  ----------

                                                $1,791,257  $1,003,381
                                                ==========  ==========


                                       44

             UPGRADE  INTERNATIONAL  CORPORATION  AND  SUBSIDIARIES
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  I  -  ACCRUED  LIABILTIES

Accrued  liabilities  are  comprised  of  the  following  as  of  September  30:

                                        2000      1999
                                      --------  --------

     Compensation                     $414,232  $283,021
     Payroll taxes and related costs   134,074   539,850
     Vacation and other                184,935    20,622
                                      --------  --------

                                      $733,241  $843,493
                                      ========  ========

NOTE  J  -  BRIDGE  LOANS

During  the  year  ended  September  30, 2000, the Company periodically borrowed
funds  from  various  third  parties on a short-term basis.  The borrowings were
generally  settled within a period of two to three days.  On September 30, 2000,
there  was  $799,177  in  bridge loans payable, which were paid in early October
2000, along with a finance fee of 5% of the principal amount of the loan.


NOTE  K  -  CONVERTIBLE  DEBENTURES

In  October 1999, the Company issued $1,000,0000 in convertible debentures.  The
debentures  bear  interest at the annual rate of 7%, are convertible immediately
and  mature  on  October  5,  2001.  In  addition  to the debentures, the holder
received 120,000 detachable common stock warrants expiring on December 31, 2004.

Each  debenture is convertible into one share of the Company's common stock at a
rate  equal  to  a  75%  of  the  average  bid  price  for the five trading days
immediately  preceding conversion.   However, the conversion price cannot exceed
$2.50  per  share.

Each  warrant can be exchanged into one share of the Company's common stock at a
price  of  $2.50  per share.  The warrants contain cashless exercise provisions,
whereas  the  number  of  common stock shares to be received are determined as a
quotient  of  the  number  of  warrants  exercised  multiplied by the difference
between the fair value of the stock on the date of exercise and the strike price
of  the  warrant  divided  by  the  fair  value  of  the  stock.

In  connection with the issuance, the Company allocated $323,640 and $676,360 of
the  proceeds  to  the  detachable  warrants  and beneficial conversion feature,
respectively,  based  on  their  relative  fair  values  and  computation of the
effective  conversion  rate.  Due  to the immediate convertibility provisions of
the  debentures,  the  allocated amount of the beneficial conversion feature was
charged  to  interest expense.  The remaining discount related to the detachable
warrants  is being amortized using the effective interest method over two years,
the  contractual  life  of  the debentures.  During the year ended September 30,
2000,  the  Company  recorded a total of $809,043 of interest expense related to
the  amortization  of  the  aforementioned  allocated  discounts.


                                       45

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  K  -  DEBENTURES  -  Continued

In  May  2000,  all  warrants were exchanged for 102,609 shares of the Company's
common  stock by means  of a cashless exercise.  As of September 30, 2000, these
shares  are  included  in total shares subscribed as no certificates were issued
until  November  2000.

No debentures were converted or repaid through September 30, 2000.  At September
30,  2000,  the  unamortized discount of $190,957 is presented as a reduction in
the  carrying  amount  of  the  debentures.


NOTE  L  -  INCOME  TAXES

The  differences  between financial and tax reporting are comprised primarily of
the  timing  in  the  recognition  of  net  operating  loss (NOL) and tax credit
carryforwards,  vacation  expenses  and  methods  used  to  compute depreciation
expense.  The  income  tax  benefits  reconciled  to  the  tax  computed  at the
statutory  rate  were  approximately as follows during the years ended September
30:

                                                         2000          1999
                                                     ------------  ------------
     Tax benefit computed at federal statutory rate  $(7,530,000)  $(3,600,000)
     Non-deductible expenses                           1,480,000     1,810,000
     Research credit                                    (410,000)     (220,000)
     Valuation allowance                               6,460,000     2,010,000
                                                     ------------  ------------

                                                     $         -   $         -
                                                     ============  ============


                                       46

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  L  -  INCOME  TAXES  -  Continued

Deferred  tax  assets  and liabilities are measured using enacted tax rates that
are  expected  to  apply to taxable income in the years in which those temporary
differences  are  expected to be recovered or settled.  A valuation allowance is
recorded  for  deferred  tax  assets  when  it is more likely than not that such
deferred tax assets will not be realized.  Deferred income taxes reflect the net
tax  effects  of temporary differences between the consolidated carrying amounts
of  assets  and  liabilities for financial reporting purposes and the respective
amounts  used  for income tax purposes.  Significant components of the Company's
deferred  tax  assets  are  as  follows  at  September  30:

                                              2000          1999
                                         -------------  ------------
     Deferred tax assets:
       Net operating loss carryforwards  $  8,920,000   $ 1,390,000
       Research credit                        650,000       240,000
       Equity in losses of UltraCard          430,000       430,000
       Options, warrants and other         (1,260,000)      220,000
                                         -------------  ------------
         Total gross deferred tax asset     8,740,000     2,280,000
                                         -------------  ------------

     Valuation allowance                   (8,740,000)   (2,280,000)
                                         -------------  ------------

Net deferred tax asset                   $          -   $         -
                                         =============  ============

Upgrade  and  its  subsidiaries  are  each  required to file their own corporate
federal  and  state  tax  returns.  As  of  September  30, 2000, the Company and
Subsidiaries  had  aggregated NOL carryforwards and tax credits carryforwards of
approximately  $29,700,000  and $730,000, respectively, of which the majority of
the  carryforwards  begin  expiring in 2018 for federal purposes and earlier for
state  purposes.

Internal  Revenue  Code  Section  382  and  similar  California  rules  place  a
limitation  on  the amount of taxable income that can be offset by carryforwards
after  a  change  in control (generally greater than a 50% change in ownership).
As  a  result  of  these  provisions,  utilization  of  the  NOL  and tax credit
carryforwards  may  be  limited.


NOTE  M  -  COMMITMENTS  AND  CONTINGENCIES

1.     License  Agreements
       -------------------

     a.     AMPEX  Agreement

Effective October 1, 1999, UltraCard entered into a license agreement with AMPEX
Corporation  (AMPEX)  to  use  AMPEX developed proprietary technology, generally
referred  to  as  Keepered  Media Technology, for incorporation into UltraCard's
development,  use  and  sale of its core product.  The agreement is scheduled to
continue  for  the  life  of  each  Keepered  Media patent, for the life of each
Keepered Media patent issued under a patent application, and for of each license
granted  under  the  Keepered  Media  Technology,  in  perpetuity.


                                       47

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  M  -  COMMITMENTS  AND  CONTINGENCIES  -  Continued

     Under the terms of the  agreement,  UltraCard is required to pay  royalties
     for each sale of the UltraCard's magnetic card product on a per card basis.
     Additionally,  in order for  UltraCard  to  maintain an  exclusive  license
     agreement, the minimum yearly payments are as follows:

      Year ending September 30,
      -------------------------
              2001                  $ 3,500,000
              2002                   15,000,000
           Thereafter                24,000,000 per year


     Either party has a right to terminate all or part of the agreement  with 30
     days  notice.  There were no fees  incurred  and paid  under the  agreement
     through September 30, 2000.

     b.     CardTech  Agreement

     On October  10,  1997,  UltraCard  licensed  the  rights to two  technology
     patents from CardTech,  Inc. (CardTech).  UltraCard's President is also the
     controlling  stockholder of CardTech. The license agreement terminates upon
     the expiration of the last licensed  patent.  Because the agreement  covers
     any  new  patent  applications  filed  in  conjunction  with  the  original
     technology patents, the agreement does not have a definite expiration date.

     Through  September  30,  1999,  UltraCard  had paid  $30,000 for an initial
     licensing fee,  $950,000 in minimum  royalty fees and $1,009,813 in capital
     fees under the  license  agreement.  Capital  fees were paid as part of the
     agreement  requiring  UltraCard  to  remit to the  CardTech  12.5% of every
     dollar received from equity financing.  In October 1997, as required by the
     license  agreement,  UltraCard issued 7,500,000 shares (after effect of 3:1
     stock  split) of  its common stock, valued at the time of the  issuance  at
     $250,000.  Related  to the  shares issued, UltraCard capitalized as license
     cost the amount of $250,000.

     for the years ended  September  30, 2000 and 1999,  UltraCard  has recorded
     $650,000  and  $1,484,636,   respectively,  in  expenses  related  to  this
     agreement.  Expenses  for the  year  ended  September  30,  1999,  included
     $919,375  in  capital  fees.  Royalty  fees  are due on  January  1 of each
     calendar  year.  As of September  30, 2000,  $650,000 in calendar year 2000
     royalty  fees  remained  unpaid,  causing  UltraCard  to be past due on the
     agreement.  CardTech has  deferred  the required  2000 and 2001 payment  to
     march 30, 2001.


                                       48


               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999


NOTE  M  -  COMMITMENTS  AND  CONTINGENCIES  -  Continued

     AS OF  SEPTEMBER  30, 2000,  ULTRACARD'S  REMAINING  COMMITMENTS  UNDER THE
     LICENSE AGREEMENT ARE SUMMARIZED AS FOLLOWS:

          -    An earned royalty fee of 5% of the gross proceeds  generated from
               sales,  leases or other  distributions of products  incorporating
               the  CardTech  technology.  The  minimum  annual  royalty  fee is
               payable at $650,000 per calendar year through 2009.

          -    A capital  fee equal to 12.5% of all equity  capital  invested in
               the UltraCard  until such time that CardTech has received a total
               of $3,000,000 in such fees. The maximum  remaining  amount of the
               commitment is $1,990,187.

2.     Agreement  with  International  Funding  Corporation
       ----------------------------------------------------

Effective July 1, 1999, the Company entered into an agreement with International
Funding  Corporation  (IFC).  Under  the  terms  of  the agreement, IFC provides
various  investment  banking services and assisted the Company in conducting its
private  placement  to  sell  shares  at  $2.50  in  exchange  for the following
consideration:

     a)   Warrant for the purchase of 100,000  shares of common stock at a price
          of $0.25 which vest at the time the Company raises  $6,000,000.  As of
          September 30, 2000, the warrant is fully vested;  however,  it has not
          been exercised. It expires September 30, 2004.
     b)   Cash  fee  of 7% of the  gross  proceeds  raised  through  the  equity
          placement;
     c)   Fee of 4% of  the  gross  proceeds  of the  placement  payable  in the
          Company's voting common stock;
     d)   Fee of 5% of the gross  proceeds  of the  placement  payable in common
          stock warrants which would vest immediately and expire five years from
          the date of grant.
     e)   Monthly fee of $18,750.

At  September  30,  1999, the Company issued 143,851 shares of its voting common
stock  and  granted  to IFC warrants to purchase 279,814 shares of common stock,
100,000  with  an exercise price of $0.25 per share and 179,814 with an exercise
price of $2.50 per share.  During the year ended September 30, 2000, the Company
granted IFC additional 68,194 warrants under provision (d) above.  The number of
warrants  was determined as contractual fee of 5% of the funds raised ($125,000)
divided  by  computed  fair value of an individual warrant.  The warrants issued
were  valued using the Black-Scholes pricing model and the assumptions described
in  the note N.  In addition, IFC received 40,000 shares of the Company's common
stock  and $105,000 in cash as required under provisions (b) and (c) above.  All
of the costs  associated with the warrants  and cash  fees payable were recorded
as  a  reduction  of  the  proceeds  from  the  offering.


                                       49

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  M  -  COMMITMENTS  AND  CONTINGENCIES  -  Continued

In  addition  to  the  aforementioned  placement  costs,  during  the year ended
September  30,  2000  and  1999,  the  Company  incurred  $247,500  and $30,000,
respectively,  in  consulting  fees  for investor relation services performed by
IFC.  At  September  30, 2000 and 1999,  accounts  payable include  $75,000  and
$645,529,  respectively, payable to  IFC.

The IFC agreement expired on June 30, 2000, and was automatically renewed for an
additional  year.  In  the  event  of  any  future  private placements conducted
through  IFC,  fees described in (b)-(d) above are payable by the Company out of
the  proceeds raised.  In addition, IFC is entitled to a monthly retainer in the
amount  of  $7,500  and  a  reimbursement  of  expenses incurred while providing
services  for  the  Company.

3.     Employment  and  Consulting  Agreements
       ---------------------------------------

UltraCard has entered into a number of employment and consulting agreements. The
agreements vary in length from one to five years with total remaining commitment
amounts,  excluding  shares  to  be  issued,  as  follows:

                 Year ending
               September 30,
             -------------------
                  2001            $748,333
                  2002             577,500
                  2003              87,500
                                 ---------
                                 1,413,333
                                 =========

Certain  of the employment and consulting agreements also call for issuance of a
specified  number of shares of the Company's common stock.  The estimated market
value  of  these  shares  issued  were  charged to expense in the period issued.
During  the  year  ended  September 30, 1999, the Company recorded $1,038,564 of
employee  compensation  and consulting expenses related to the issuance of these
shares  of  UltraCard's common stock.  No shares were issued for compensation or
consulting  services  during  the  year  ended  September  30,  2000.


                                       50

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  M  -  COMMITMENTS  AND  CONTINGENCIES  -  Continued

4.     Funding  Agreements
       -------------------

Upgrade  has entered into funding agreements with each of its subsidiaries based
upon  budgets  and operating projections for one to three years prepared by each
subsidiary  and  submitted to and approved by the Board of Directors of Upgrade.
Those  agreements  provide to each of those subsidiaries funding commitments for
aggregate  proceeds  as  follows  to  finance the expansion of their operations:

                       Funding     Portion Funded through
           Company    Commitment     September 30, 2000
           ---------  -----------  -----------------------
           UltraCard  $28 million  $         15.78 million
           EforNet    $ 5 million  $           2.9 million
           Centurion  $ 3 million  $           2.5 million


Each of these funding arrangements are convertible (or were partially converted)
into  common  stock  in  the  subsidiary  and  bear  an  8%  interest  rate.

5.     Pending  Acquisition  of  The  Pathways  Group,  Inc.
       -----------------------------------------------------

The Company entered into a letter of intent dated July 11, 2000 and on September
8,  2000  signed  an Agreement and Reorganization Plan (the Agreement), with The
Pathways  Group,  Inc.  (Pathways) to acquire 100% of Pathways.  The acquisition
is  subject  to a number of conditions including approval by the stockholders of
Pathways  and  the  registration  of  Upgrade  common  stock to be exchanged for
Pathways stock.  Either party to the Agreement can terminate the agreement after
December  29,  2000.  Pursuant  to  the  Agreement,  Pathways' stockholders will
receive  one  share  of  Upgrade  common  stock for each 14.3 shares of Pathways
common  stock,  subject  to  adjustment  as  described  below.

Under  the  Agreement,  the  Company  is  required under certain conditions  and
receipt  of  required  documents, to advance up to $5,000,000 in interim finance
funds  to  Pathways  at a rate of $385,000 every two weeks starting on September
15, 2000.  As of September 30, 2000, Pathways has received $1,885,000, including
an  up  front  advance by the Company.  The advances are secured by a promissory
note  that  bears  interest  at  10% and matures on or before June 30, 2001.  In
addition,  the  Company was issued two warrants to acquire up to an aggregate of
5,000,000  shares of Pathways with an exercise price $.65.  The Company vests in
each  warrant  at  a  1  for  1  rate  (one  warrant  vested for each one dollar
advanced).  The  Company  also has a right to reserve $500,000 of total advances
to  be  applied  towards  accrued  interest  on  the advances made.  Total funds
advanced  through  the  date  of the merger, including accrued interest, will be
entered  into  a  computation  of  the  share conversion ratio to be used in the
merger.  The  acquisition  is  subject to approval of Pathways' shareholders and
expected  to  be  concluded  during  fiscal  year  2001.


                                       51

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  M  -  COMMITMENTS  AND  CONTINGENCIES  -  Continued

6.     Operating  Lease  Agreements
       ----------------------------

The  Company  and  its subsidiaries have entered into operating lease agreements
for  its office and engineering facilities located in Washington and California.
The  leases  have terms varying from monthly to five years, which expire in 2001
to  2005, some of which provide for one and two year extensions.  Certain leases
provide  for  fixed annual increases in base rent and others require adjustments
based  on  the  change  in  the Consumer Price Index and in facility maintenance
costs.  Total   minimum   operating   lease  commitments  for  the  Company  are
approximately  as  follows:

              Year ending
              September 30,
            ----------------
                  2001            $1,526,000
                  2002             1,374,000
                  2003             1,406,000
                  2004             1,365,000
               Thereafter          1,170,000
                                 -----------
                                 $ 6,841,000
                                 ===========


Consolidated  rent  expense  for the year ended September 30, 2000 and 1999, was
approximately  $747,000  and  $55,000,  respectively.

During  the  year  ended  September 30, 2000, UltraCard entered into a five-year
66,400  square  foot  building  lease  to  expand its corporate headquarters and
research  and  development  facilities.  Pursuant  to the lease terms, UltraCard
paid  a  refundable  securities  deposit  of  $190,313  and  entered  into  a
letter-of-credit arrangement described in the note F.  UltraCard is scheduled to
move  into  the  new  facilities  during  the  second  quarter  of  fiscal 2001.
Subsequent  to  September 30, 2000, the new building lease was amended, reducing
the  amount  of  leased space to 41,330 square feet.  The minimum lease schedule
above  reflects  the  reduced  rent  amount  based  on  the  new square footage.
Pursuant  to  the  same  lease amendment, the letter of credit requirements were
reduced  to  $300,000 with collateral also replaced by a $300,000 certificate of
deposit.


                                       52

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  M  -  COMMITMENTS  AND  CONTINGENCIES  -  Continued

7.     Legal  Proceedings
       ------------------

Pursuant to a court order dated May 26, 2000, the three actions previously filed
against Upgrade and its president, Daniel S.  Bland, have been consolidated into
one  action, In Re Upgrade International Corporation Securities Litigation, U.S.
District  Court,  Western  District  of Washington at Seattle, c/a #C00-0298.  A
Consolidated  and  Amended  Class Action Complaint was filed July 24, 2000.  Six
minority  shareholders are named as lead plaintiffs.  The complaint alleges that
material misrepresentations and omissions were made by Upgrade and Mr.  Bland in
violation  of  the Securities Exchange Act of 1934.  Specifically, the complaint
alleges  that  Upgrade  and  Mr.  Bland  made  false statements regarding market
readiness  and  technological  capabilities of its UltraCard technology, thereby
artificially  inflating Upgrade's stock.  The consolidated complaint seeks class
certification  and  payment  of unspecified damages and attorneys fees.  Upgrade
has  engaged  the firm of Cohen, Milstein, Hausfeld & Toll, P.L.L.C.  as defense
counsel  Upgrade filed a motion to dismiss the complaint.  Oral arguments on the
motion  are scheduled to be held on January 18, 2001.  A ruling on the motion is
expected  sometime  thereafter.  Management  and  legal  counsel  are  unable to
predict  the  ultimate  outcome of the motion.  If the case proceeds the company
plans  to  vigorously  defend its position.  The ultimate outcome of the case is
uncertain.  As  a  result,  no  liability  for  the  case  is  recorded  in  the
accompanying  financial  statements.


NOTE  N  -  STOCK  OPTION  PLAN

In January 1999, the Company established the 1999 Stock Option Plan (1999 Plan).
The 1999 Plan allows the Company to grant options to employees, consultants, and
directors  for  up  to 1,550,000 shares of common stock.  On September 30, 1999,
the  Company  implemented  the  2000  Stock Option Plan (2000 Plan) allotting an
additional  800,000  shares  for  grants  to  employees and contractors.  Option
prices  are  generally  equal  to  the  fair  market  value of the shares of the
Company's  common  stock  on the date of grant.  Options, generally, vest over a
four-year  period  and  expire  four  to  five years from the date of the grant.


                                       53

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  N-  STOCK  OPTION  PLAN  -  Continued

The  following  is  a  summary  of the employee stock option information for the
years  ended  September  30,  2000  and  1999:

                                                              Weighted Average
                                                Shares        Exercise Price
                                           -----------------  ---------------
Options outstanding at September 30, 1998                 -   $             -

  Options granted                                 2,310,000              1.05
  Options exercised                                 (60,000)             0.25
                                           -----------------  ---------------

Options outstanding at September 30, 1999         2,250,000              1.07

  Options granted                                   100,000             12.50
  Options exercised                                 (90,000)             0.25
  Options forfeited                                 (75,000)             2.50
                                           -----------------  ---------------

Options outstanding at September 30, 2000         2,185,000   $          1.52
                                           =================  ===============


The  following  table  summarizes  information  about  options  outstanding  at
September  30,  2000:



                    Options Outstanding                      Options Exercisable
                  ----------------------------------------  ----------------------
                               Weighted      Weighted                    Weighted
                                Average       Average                    Average
   Range of         Number     Exercise      Remaining        Number     Exercise
Exercise Prices   Outstanding    Price    Contractual Life  Exercisable    Price
                               ---------  ----------------  -----------  ---------
                                                          
      0.25         1,400,000  $    0.25              3.30    1,350,500  $    0.25
  0.50 - $2.50       685,000       2.50              4.00      510,010       2.25
     12.50           100,000      12.50              4.94            -
                  ----------                                 ----------
                   2,185,000                                 1,860,510
                  ==========                                 ==========


The  weighted  average  fair value of the options granted during the years ended
September  30,  2000  and  1999 was $12.13 and  $0.98, respectively.  No options
were  granted  with a strike price below the stock's market value on the date of
grant.


                                       54

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  N-  STOCK  OPTION  PLAN  -  Continued

The  Company  accounts  for its stock-based compensation plan in accordance with
Accounting  Principle  Board ("APB") Opinion No. 25, Accounting for Stock Issued
to  Employees,  under  which  no  compensation was recognized in connection with
options  granted  to employees.  The Company adopted the disclosure requirements
SFAS No. 123, Accounting for Stock-Based Compensation.  Accordingly, the Company
is required to calculate and present the pro forma effect of all awards granted.
For  disclosure  purposes,  the fair value of each option granted to an employee
has  been  estimated  as  of  the  date  of grant using the Black-Scholes option
pricing  model  with the following assumptions for the years ended September 30,
2000  and  1999,  respectively:  risk-free  interest  rate  of  6.00% and 6.00%,
dividend yield 0% and 0%, and volatility of 189% and 218%, and expected lives of
4  and  5  years.  Based  on  the  computed  option values and the number of the
options  issued,  had the Company recognized compensation expense, the following
would  have  been  its  effect  on  the  Company's  net  loss:


                    Year ended           Year ended
Net loss        September 30, 2000   September 30, 1999
--------------  -------------------  -------------------

As reported     $        17,403,990  $        10,623,048
Pro forma                18,689,702           10,918,275

Loss per share
As reported     $              0.94  $              0.79
Pro forma                      1.01                 0.81


On  September  30,  1999,  the  Company  granted  40,000 options to non-employee
consultants.  Options were granted at an exercise price of $2.50 per share which
at the time was equal to the private placement price of the underlying Company's
common  stock.  The  options  expire  five years from the date of grant and vest
over  a  four-year period.  The Company recorded $98,720 in compensation expense
in connection with the options granted to non-employees.  At September 30, 1999,
3,336  of  these  options  became  exercisable.  On  April 18, 2000, the Company
granted 195,000 options to one of  its  legal  counsels, as described in note E.

As  of  September  30,  1999,  UltraCard  adopted  a  stock option plan of up to
3,000,000  shares  of  its  common  stock  and  granted  841,998  options to its
employees, as adjusted for UltraCard's April 12, 2000, 3:1 stock split.  The pro
forma  effect  on  the  consolidated  loss  was  not  material.

During  the  year ended September 30, 2000, UltraCard granted 289,500 additional
options.  Also,  during the year 88,750 post split options were forfeited due to
employment  terminations.  The  net pro forma effect of the subsidiary's options
is  approximately  $294,000.

As  of  September  30,  2000,  certain  other subsidiaries had established stock
option plans.  However, none of the plans had significant activities material to
the  consolidated  financial  statements  or  for pro forma disclosure purposes.


                                       55

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  O  -  WARRANTS

During  the years ended September 30, 2000 and 1999, the Company granted 753,422
and  2,069,641  warrants,  respectively,  to investment bankers, consultants and
other  service  providers  as  follows:

-    On January 20, 1999,  warrants to purchase 1,000,000 shares of common stock
     were granted to a family trust in which the Company's President is the sole
     trustee.  The warrants have an exercise  price of $0.25 per share (the fair
     value price of the stock on the date of grant), vested immediately, and are
     exercisable  within two years.  They were  valued  using the  Black-Scholes
     pricing model using a 6% risk-free rate, 218% volatility, and a 0% dividend
     yield.  The Company  recorded a $221,000  expense in  connection  with this
     grant.

-    On August 1, 1999,  warrants to purchase 27,500 shares of common stock were
     granted to a consulting  company.  The  warrants  had an exercise  price of
     $0.25 per share,  vested immediately and had a term of two years. On August
     15, 1999, all of the warrants were exercised for $6,875.  The warrants were
     valued at the date of grant using the  Black-Scholes  model and assumptions
     described in note E. In connection with the grant,  the Company recorded an
     expense of $64,155.

-    On September  30, 1999,  the Company  granted  warrants to acquire  762,327
     shares of common stock to various  consultants.  The warrants have exercise
     prices  ranging $0.25 to $2.50,  vested  immediately  and have  contractual
     lives of two and five years,  respectively.  The warrants were valued using
     the Black-Scholes pricing model described in note E. In connection with the
     grants, $1,642,485 was recorded as a professional service expense.

-    In October 1999, the Company  issued  100,000  warrants with a $0.25 strike
     price in lieu of a payment  for public  relation  services  performed.  The
     warrants  were  valued at 339,500 on the date of grant  (October  15, 1999)
     using  the  Black-Scholes  pricing  model  and the  following  assumptions:
     volatility  of  218%,  risk  free  rate  of  6%  and  a  fair value of each
     underlying  share  of  $3.562.  The  warrants  vested  immediately and were
     exercised in May 2000.

-    In October 1999, in connection with a placement of convertible  debentures,
     the Company issued 120,000 warrants with a $2.50 strike price.

-    Also in  connection  with the October 1999  debenture and the November 1999
     equity  placement,  the Company issued 68,194 warrants in lieu of placement
     fees. The number of warrants was determined as a placement  contractual fee
     of 5% of the funds raised  ($125,000)  divided by computed fair value of an
     individual  warrant.  The  value of a  warrant  was  determined  using  the
     Black-Scholes option pricing model with assumptions as follows:  volatility
     of 218%, risk  free  rate of 6%, dividend yield of 0% and the fair value of
     underlying  stock  of  $2.50  the per share (price received in the November
     placement).  Each  warrant  has  a  $2.50  strike  price.  The warrants are
     scheduled to expire  in  five years from the date of issuance.


                                       56

               Upgrade International Corporation and Subsidiaries
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999



NOTE  O  -  WARRANTS  -  Continued

-    Due   to   unforseen   delays   in  registering   certain  securtities,  on
     August  16,  2000,  the  Company   distributed   465,228   warrants  to
     stockholders that acquired shares at $2.50 per share in a private placement
     during  September  and  October  1999.  One  warrant was issued for each 10
     shares acquired through the  aforementioned  placement.  On the date of the
     grant,  the stock was traded at $15 per share.  The warrants  have a strike
     price of $10 and an expiration date of August 16, 2002. All warrants vested
     immediately.   The  aggregate  fair  value  of  the  warrants  issued  were
     determined  using the  Black-Scholes  pricing model with an 189% volatility
     and 6% risk free rate was $6,016,795 and was recorded as a distribution  on
     the date of the grant.

At  September  30,  2000  and  1999,  there  were 100,000 and 1,250,000 warrants
exercisable  at  $.25, and 594,008 and 792,141 warrants exercisable at $2.50 per
share, respectively.  None of the 465,228 warrants with a strike price of $10.00
were  exercised  as  of  September  30,  2000.


NOTE  P  -  OTHER SUBSEQUENT EVENTS

The  Company  entered  into letters of intent to acquire controlling interest in
Cards  &  More, etal, a manufacturer and producer of credit card stock and other
niche  systems.  Additionally,  the  Company  entered into a letter of intent to
acquire  controlling  interest  in  Rockster,  Inc., a software company that can
conduct  transactions  on  the  internet  which can provide efficient, anonymous
transactions  on  the  web.  Each  acquisition  transaction  is  subject  to the
execution  of  a definitive agreement and is subject to due diligence processes.


                                       57

ITEM  8.       CHANGES  IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL  DISCLOSURE

     None


                                    PART III

ITEM 9.      DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS OF THE REGISTRANT



     The following table sets forth the names and ages of, and all positions and
offices  held  by,  each  of Upgrade's directors and its executive officers, Mr.
Bland and Mr.  Jaffe, and certain key employees of Upgrade's subsidiaries.  Also
set  forth are the dates Upgrade's directors were initially elected to the Board
of  Directors,  a summary of each identified person's business experience during
the  last  five  years  and  any  directorship(s)  held  in other companies with
securities registered under Section 12 or subject to the requirements of Section
15(d) of the Securities Exchange Act of 1934, as amended.  Directors are elected
at  Upgrade's  annual  meeting  of  shareholders  and  hold  office  until their
successors  are  elected  at the next annual meeting and qualify.  Officers hold
office  at  the  pleasure  of  the  Board  of  Directors.



                                                  Director
Name                                      Age      Since           Position(s)
--------------------------------------  --------  --------  --------------------------
                                                   
Daniel S. Bland                               42  12/11/97  President, Secretary,
                                                            Director of Upgrade

Malcolm P. Burke                              58   6/30/98  Director of Upgrade

Ronald P. Erickson                            56   8/15/98  Director of Upgrade

Brian J. Kerr                                 55    9/8/00  Director of Upgrade

Howard A. Jaffe                               47    1/3/01  Executive Vice President,
                                                            Chief Operating and Financial
                                                            Officer & Director of  Upgrade

Daniel Kehoe                                  54  n/a       President & Director of
                                                            UltraCard

John A. French                                56  n/a       President & Director of
                                                            Centurion

David I. Zucker(1)                            61  n/a       President and Director of
                                                            Efornet



(1)     Mr.  Zucker  resigned   as  a  member  of  the Board of Directors in September
2000  and  as  CEO  of  EforNet  in  December  2000.



Daniel  S. Bland is the founder of Upgrade and has served as its President since
1997.  He  also  was  a founder, and from 1993  to 1996 served as a director and
the  chief  executive officer of, Empyrean Diagnostics Ltd., a reporting company
in  British  Columbia  under  the  British  Columbia  Securities  Commission.

Malcolm  P.  Burke  is  the  founder,  and  since  1998  to present has been the
president  and  chief executive officer, of Primary Ventures Corp., a Vancouver,
British  Columbia  company providing financial and strategic consulting services
to start-up companies.  He also is president of Sopio Investments Ltd., a family
holding  company.  From 1992 to 1998 Mr. Burke was president and chief executive
officer  of Interactive Entertainment Limited, an NASD Small Cap Market company.


                                       58

Ronald  P.  Erickson  has  served  as  a  director  and senior executive officer
(currently chairman of the board of directors) of eCharge Corporation, a Seattle
based  provider  of  Internet  billing  solutions, from October 1997 to present.
From January 1996 through August 1998, Mr. Erickson was chairman of the board of
directors  and  chief  executive  officer  of  GlobalTel  Resources,  Inc.,  an
international  provider  of  telecommunications services, messaging and intranet
solutions.  From  September  1994  to  January  1996,  Mr. Erickson was managing
director  of  GlobalVision  LLC,  a  consulting  firm.  Mr.  Erickson also was a
co-founder  of  Egghead  Software,  a  leading  software  retailer, where he was
variously  chairman,  vice  chairman, president and chief executive officer from
1992  to  1994.

Brian J. Kerr, the former President of the Institute of Chartered Accountants of
British  Columbia, and a past member of the Board of Governors of that entity is
a  financial  professional  with  substantial  business experience including the
directorship  of  a  senior  reporting  Company,  Clearly  Canadian  Beverage
Corporation.  Mr. Kerr is a business owner with interests in retail and internet
businesses,  a  former  partner  of  BDO Dunwoody Chartered Accountants, current
business owner of a chain of Grocery and convenience stores in British Columbia,
and  a  candidate  for  the Malahat Juan de Fuca liberal party riding in British
Columbia,  Canada.


Howard  A.  Jaffe,  joined  the  Company  in October 2000 as a consultant and in
January  2001  as  the  Chief  Operating  and Financial Officer.  Mr. Jaffe is a
business  and  financial professional with substantial experience in mergers and
acquisitions and other capital market transactions.  During the prior five years
Mr.  Jaffe  was  the  Executive Vice President and Chief Financial Officer of MB
Financial  and  Manufacturers  Bank  a  $1.4  billion  financial  institution.


Daniel  Kehoe  has held the position of President and director of UltraCard Inc.
since  1997.  Prior  thereto,  from  1994  to  1997  Mr.  Kehoe  operated  as an
independent consultant to various technology companies specializing in strategic
business  development.  Mr.  Kehoe has a degree from Northwestern School of Law.

John  A.  French  has  been  the  President  of  cQue  Corporation since 1996, a
subsidiary of Upgrade which specializes in the development and implementation of
online  Web  Access  software  products for instant data retrieval featuring the
latest  products  in  IT technology, including the smart card. Prior to that Mr.
French  worked as a business consultant with Horizon Resources/2000 specializing
in  the  software  and  smartcard  development  business.


David  I.  Zucker  has  been  the  President  of  EforNet  since the date of its
inception  in  February 1999 until December 1, 2000.  He served as a director of
Upgrade until September 2000.  Prior to that, he served  as senior consultant of
Innovative Consulting Services.  From August 1996 to June 1998, he was president
of  the  Eyestream  Group  of  Quadstate  Corporation,  where  he was engaged in
Internet  video  development.  From  January  1995  to July 1996, Mr. Zucker was
employed  by  Altamira  Group  as  manager  of product development for a fractal
compression  plug-in  for  Adobe  Photoshop  software.  Previously,  Mr.  Zucker
developed  the  point  of  sale credit card switching and merchant authorization
processing  software base upon which ATM point of purchase processing was based.

Upgrade is not aware of any arrangements or understandings pursuant to which its
directors   or   executive  officers  are  nominated  or  selected,  other  than
arrangements  or  understandings  with  directors  or officers of Upgrade acting
solely  in  their  capacities  as  such.

          SECTION  16(A)  BENEFICIAL  OWNERSHIP  REPORTING  COMPLIANCE

Based on a review of Forms 3, 4 and 5 filed with the Company and inquiry of  the
Company directors and officers,  the Company believes that  all  required  forms
were timely filed.

                                       59

ITEM  10.      EXECUTIVE  COMPENSATION

EXECUTIVE  COMPENSATION

     Executive officers of the Company currently do not receive any remuneration
in  their capacity as Company executive officers. The following table sets forth
information  concerning  the  compensation of the Named Officers for services in
all  capacities  to  the  Bank  for the years ended September 30, 2000, 1999 and
1998.



                                                SUMMARY COMPENSATION TABLE

             NAME AND                   FISCAL              ANNUAL         LONG TERM COMPENSATION       ALL OTHER
        PRINCIPAL POSITION               YEAR            COMPENSATION              AWARDS              COMPENSATION($)
-------------------------------------  ---------  ----------------------  -----------------------     ---------------
                                                                                            OPTIONS/
                                                      SALARY       BONUS  RESTRICTED STOCK  WARRANTS
                                                        ($)          $)   AWARD(S)($)(2)     (#)(3)
                                                  ---------------  -----  ----------------  --------
                                                                                     


Daniel S. Bland                             2000  $       175,000  $    -  $             -                        -
President and Chief Executive               1999          115,000       -                -  1,750,000             -
Officer                                     1998          112,500       -                -                        -

Daniel Kehoe                                2000          350,000  $    -                -          -             -
President Ultracard, Inc.                   1999          204,166       -                -          -             -
                                            1998          132,199       -  $       234,862          -             -

John A. French                              2000          125,000  $    -                -          -       6,600(4)
President, cQue Corporation                 1999          108,814       -                -          -       4,200(4)
                                            1998           54,000       -                -          -             -

David I. Zucker (5)                         2000          149,000  $    -                -          -       6,000(4)
President, EforNet Corporation              1999           81,250       -                -          -             -
Officer                                     1998           60,000       -                -          -             -

Howard A. Jaffe (1)                         2000  $             -  $    -                -          -             -
Executive Vice President and                1999                -       -                -          -             -
Chief Operating  & Financial Officer        1998                -       -                -          -             -


__________
(1)     Mr.  Jaffe  was  hired  as  a  consultant  in  October  2000  and  as  an  executive  officer  in  January  2001.
(2)     Represents  restricted  stock  issued.
(3)     Represents  warrants,  or incentive and non-qualified stock options granted pursuant to the Company's Stock Option
        Plans.  All  options  were granted at or above the market price of the stock on the date of the grant and vest up to
        Three years.
(4)     Represents  automobile  allowance.
(5)     Mr.  Zucker  resigned  as  President  of  EforNet  on  December  1,  2000.


STOCK  OPTIONS

     The  following  table  sets forth certain information with respect to stock
options  granted  to  the Named Officers during  the fiscal year ended September
30,  2000.

     In  addition  to  providing  the  number  of options granted in the Summary
Compensation  Table,  the  following  table  discloses  the  range  of potential
realizable values at various assumed appreciation rates. The table discloses for
the  Chief  Executive Officer and other Named Officers the gain or "spread" that
would  be  realized at the end of the option term for the options granted during
2000,  if  the  price of the Common Stock appreciates annually by the percentage
levels  indicated  from  the  market  price  on  the  date  of  grant.



OPTION  GRANTS  IN  2000

                             % OF TOTAL
                               OPTIONS
                              GRANTED TO                          POTENTIAL REALIZABLE VALUE AT
                              EMPLOYEES   EXERCISE                   ASSUMED ANNUAL RATES OF
                  OPTIONS     IN FISCAL  PRICE PER  EXPIRATION     STOCK PRICE APPRECIATION FOR
         NAME     GRANTED     2000(1)     SHARE        DATE              OPTION TERM
         ----     -------     -------     -----        ----               -----------
                                                                  5.00%                 10.00%
                                                                  -----                 ------
               
Daniel S. Bland     -0-         -0-        -0-         -0-          -0-                  -0-
Daniel Kehoe        -0-         -0-        -0-         -0-          -0-                  -0-
John A. French      -0-         -0-        -0-         -0-          -0-                  -0-
David I. Zucker     -0-         -0-        -0-         -0-          -0-                  -0-
Howard A. Jaffe     -0-         -0-        -0-         -0-          -0-                  -0-



The  following table sets forth information with respect to shares of the Common
Stock  acquired  in  2000  through  the exercise of stock options, including the
value  realized  upon  the  exercise, and the value of all stock options held at
September  30,  2000.



                        OPTION  EXERCISES, HOLDINGS AND VALUES TABLE

                    SHARES                             NUMBER OF             VALUE OF UNEXERCISED
                   ACQUIRED        VALUE         UNEXERCISED OPTIONS       "IN-THE-MONEY" OPTIONS
   NAME          ON EXERCISE     REALIZED       AT SEPTEMBER 30, 2000     AT SEPTEMBER 30, 2000 (1)
                                              EXERCISABLE  UNEXERCISABLE  EXERCISABLE UNEXERCISABLE
                                                                    

Daniel S. Bland          -0-             -0-      950,000            -0-  $8,302,000  $    -0-
Daniel Kehoe             -0-             -0-          -0-            -0-         -0-       -0-
John A. French           -0-             -0-          -0-            -0-         -0-       -0-
David I. Zucker       90,000  $       22,500       25,000         75,000     185,250   555,750
Howard A. Jaffe          -0-             -0-          -0-            -0-         -0-       -0-


__________
(1)     Represents  the  difference between the closing price of the Common Stock on September
30,  2000  ($9.91  per  share)  and  the  exercise  price  of  the  stock  options.


ITEM  11.      SECURITY  OWNERSHIP  OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


     The following table sets forth, as of  January 6, 2001, certain information
as to the beneficial ownership of Common Stock by: (i) those persons or entities
known  by  management  to  beneficially  own  more  than  5%  of  the  Company's
outstanding  shares of Common Stock; (ii) the Company's Chief Executive Officer,
its  Chairman  of the Board and the other executive officers of the Company (the
"Named Officers"), and (iii) all directors and executive officers of the Company
as  a  group.


                                       60



                                                               SHARES
                                                            BENEFICIALLY    PERCENT
BENEFICIAL OWNER                                              OWNED (1)    OF CLASS
----------------------------------------------------------  -------------  ---------
                                                                     

             Daniel S. Bland (2)                               6,226,100      28.90%
             Chief Executive Officer, President,
             Secretary and Director

             Malcom P. Burke (3)                                 251,333       1.17
             Director

             Ronald P. Erickson (4)                              591,667       2.75
             Director

             Brian J. Kerr (6)                                    12,500       0.00
             Director

             Howard A. Jaffe (7)                                 223,601       1.04
             Executive Vice President and
             Chief Operating and Financial
             Officer and Director

             Daniel Kehoe                                            -0-        -0-
             President and CEO of Ultracard, Inc.

             John A. French                                          -0-        -0-
             President and CEO of cQue Corporation

             David I. Zucker (5)                                 165,000       0.77
             President and CEO of EforNet

              Directors and executive officers as a group
             (8 persons)                                       7,470,201      34.67%


(1)  Includes  shares  held  directly,  in  retirement  accounts,  in  a  fiduciary
capacity  or  by  certain  affiliated  entities or members of the named individuals'
families, with respect to which shares the named individuals and group may be deemed
to  have  sole  or  shared  voting  and/or  dispositive  powers.

(2)  Comprised  of  4,000,000  shares and 800,000 warrants (exercisable at $0.25 per
share  and  expiring  1/20/2001)  owned  by  the Bland Family Trust, as to which Mr.
Bland,  as  trustee,  has sole voting and investment powers, 476,100 shares owned by
International  Internet  Corporation,  which Mr. Bland controls, and 600,000 options
(exercisable at $0.25 per share and expiring 1/20/2004) owned directly by Mr. Bland,
and  350,000  options (exercisable at $2.50 per share and expiring 09/30/2004) owned
directly  by  Mr.  Bland.

(3)  Comprised  of 7,500 shares and 150,000 options  (exercisable at $0.25 per share
and  expiring  1/20/2004)  owned  directly  by  Mr.  Burke,  and  200,000  options
(exercisable  at  $2.50  per  share  and  expiring 09/30/2004) owned directly by Mr.
Burke.  In  addition  10,500 shares owned by Primary Ventures Corporation, a company
controlled  by  Mr.  Burke.

(4)  Comprised  of  550,000  options  (exercisable  at  $0.25 per share and expiring
1/20/2001)  and  100,000  options  (exercisable  at  $2.50  per  share  and expiring
09/30/2004)  owned  directly  by  Mr.  Erickson.

(5)  Comprised  of  140,000  shares  owned  directly  by  Mr.  Zucker  and  100,000
options,  all  currently  exercisable  at  $2.50 per share until September 30, 2004.

(6)  Comprised  of 100,000  options to acquire shares at a price  of $2.50 per share
vesting  quarterly  commencing  December  28,  2000,  owned  directly by Brian Kerr.

(7)  Comprised of 200,000  options to acquire shares  at a price of $2.50  per share
fully  vested,  and  200,000  options  to acquire shares at a price of $2.50 vesting
quarterly  over  a  period  of  three  years,  owned  directly  by  Howard  Jaffe.



                                       61

There  are  no  arrangements known to the Company that may result in a change in
control  of  the  Company.

ITEM  12.      CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     Under  the  rules  of  the  SEC  Mr.  Bland is considered a promoter of the
Company.  His  interests in the Company are disclosed in Items 10 and 11, above.

On  October  10,  1997,  UltraCard licensed the rights to two technology patents
from  CardTech, Inc. (CardTech).  UltraCard's President Daniel Kehoe is also the
controlling stockholder  of CardTech.  The license agreement terminates upon the
expiration  of  the  last licensed patent.  Because the agreement covers any new
patent  applications  filed in conjunction with the original technology patents,
the  agreement  does  not  have  a  definite  expiration  date.

Through  September 30, 1999, UltraCard had paid $30,000 for an initial licensing
fee,  $950,000  in minimum royalty fees and $1,009,813 in capital fees under the
license  agreement.  Capital  fees  were paid as part of the agreement requiring
UltraCard  to  remit  to the CardTech 12.5% of every dollar received from equity
financing.  In  October  1997,  as  required by the license agreement, UltraCard
issued  2,500,000 shares of its common stock, valued at the time of the issuance
at  $250,000.  Related  to  the  shares issued, UltraCard capitalized as license
cost  the  amount  of  $250,000.

For the years ended September 30, 2000 and 1999, UltraCard has recorded $650,000
and  $1,484,636,  respectively, in expenses related to this agreement.  Expenses
for  the  year  ended  September  30,  1999,  included $919,375 in capital fees.
Royalty  fees  are  due on January 1 of each calendar year.  As of September 30,
2000,  $650,000  in  calendar  year  2000  royalty fees remained unpaid, causing
UltraCard  to  be past due on the agreement.  CardTech has deferred the required
2000 and 2001 payment to March 30, 2001.

As  of  September  30, 2000, UltraCard's remaining commitments under the license
agreement  are  summarized  as  follows:

-     An  earned  royalty  fee of 5% of the gross proceeds generated from sales,
      leases  or  other  distributions  of  products  incorporating the CardTech
      technology. The  minimum annual royalty fee is  payable  at  $650,000  per
      calendar year through 2009.

-     A  capital  fee  equal  to  12.5%  of  all  equity capital invested in the
      UltraCard until such time that CardTech has received a total of $3,000,000
      In  such  fees.   The  maximum  remaining  amount  of  the  commitment  is
      $1,990,187.

ITEM  13.  EXHIBITS  AND  REPORTS  ON  FORM  8-K
------------------------------------------------

A.     Exhibits



Exhibit
Number      Description
----------  -----------
         
  3.1(3)    Articles of Incorporation
    3.2     Articles of Merger
  3.3(3)    Bylaws
  4.1(1)    Specimen Stock Certificate
    4.2     $1,000,000 Subordinated Debenture
    4.3     Form of Warrant
    4.4     Form of Warrant (with Cashless Exercise)
   10.1     Merger Agreement by and between Upgrade and The Pathways Group, Inc.
 10.2(1)    Upgrade Form of 2000 Stock Option Plan
 10.3(1)    Upgrade Form of 1999 Stock Option Plan, as Amended and Restated
 10.4(4)    Upgrade Form of Stock Option Agreement
   10.5     UltraCard Inc. Employee Stock Option Plan
   10.6     UltraCard, Inc. Stock Purchase, Voting and Cancellation Rights and Redemption Agreement
   10.7     Option Agreement by and between Upgrade and UltraCard for acquisition of UltraCard stock, as amended
   10.8     License Agreement between AMPEX Corporation and UltraCard Inc. for Keepered Media technology
   10.9     Agreement by and between SciVac and UltraCard for development of vacuum system
10.10(2)    Funding Agreement by and between Upgrade and UltraCard, Inc.
  10.11     Exclusive License Agreement by and between UltraCard and CardTech, Inc.
  10.12     Sub-Distribution Agreement by and between Global CyberSystems, Inc. and Financial Electronic Systems, Inc.
  10.13     Letter of Intent by and between National CacheCard Company and Upgrade to purchase Smart Card assets
  10.14     Assignment Of Intellectual Property Rights By Work Product Investment Trust and David Zucker to EforNet Corporation
  10.15     Funding Agreement by and between Upgrade and EforNet Corporation
  10.16     Loan Agreement by and between Upgrade and EforNet Corporation
  10.17     Voting Trust Agreement by and between Upgrade and Work Product Investment Trust
10.18(4)    UltraCard Los Gatos Lease
  10.19     Acquisition of Centurion Technologies which contains funding agreement by and between Centurion and Upgrade
  10.20     Joint Development and Supply Agreement for Card Substrates by and between UltraCard and Colorado Plasticard
10.21(4)    Design Agreement for UltraCard Writer/Reader Devices by and between UltraCard and PEMSTAR INC.
10.22(2)    Stock Purchase Agreement between Upgrade and Zucker
  10.23     Letter of Intent by and between Upgrade and Cards & More, Inc.
  10.24     Letter of Intent by and between Upgrade and Rockster, Inc.
 16.1(5)    Letter on Change of Certifying Accountant
   21.1     Subsidiaries
   27.1     Financial Data Schedule (Upgrade)
   27.2     Financial Data Schedule (UltraCard)


(1)  Incorporated  by  reference  from  our  Form  8-K  filed  with  the  Securities  and  Exchange Commission on April 6, 2000.
(2)  Incorporated  by  reference  from  our  Form  10-QSB  filed  with  the  Securities and Exchange Commission on May 15, 2000.
(3)  Incorporated  by  reference  from our Definitive Proxy Statement filed with the Securities and Exchange Commission July 24,
2000.
(4)  Incorporated  by  reference  from  our  Form  10-QSB  filed with the Securities and Exchange Commission on August 14, 2000.
(5)  Incorporated  by  reference  from  our  Form  8-K  filed with the Securities and Exchange Commission on September 22, 2000.



                                       62

B.     Reports  on  Form  8-K

On  July  6,  2000,  the  Company filed a Form 8-K reporting under Item 5, Other
Events,  a clarification in the manner that its public filings could be accessed
via  the  Internet.

On  July  21,  2000,  the Company filed a Form 8-K reporting under Item 5, Other
Events, that on July 11, 2000, it had entered into a letter of intent to acquire
The  Pathways  Group,  Inc.

On  September 22, 2000, the Company filed a Form 8-K reporting under (1) Item 4,
Changes  in  Accountant,  that  on  September  18, 2000 it received a reply from
Comiskey  and Comiskey in connection with a prior change in accountants, and (2)
Item 5, Other Events, (A) the resignation of David Zucker effective September 1,
2000,  (B)  a $5,000,000 private placement closed on September 8, 2000, (C) that
on  September 7, 2000, it had entered into a letter of intent to acquire Cards &
More,  and  (D)  that  effective  September  18,  2000, its reincorporation into
Washington  state  was  effective.


                                       63

                                   SIGNATURES

In  accordance  with  Section  13  or  15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

UPGRADE  INTERNATIONAL  CORPORATION


/s/  Daniel  S.  Bland                  /s/ Howard A. Jaffe
----------------------                  ----------------------
By  Daniel  S.  Bland,  President       Howard A. Jaffe Executive Vice President

Dated:  January  12,  2001

In  accordance  with  the Exchange Act, this report has been signed below by the
following  persons  on behalf of the registrant and in the capacities and on the
dates  indicated.




/s/ Daniel S. Bland
-------------------------
Daniel S. Bland                 President, Secretary and Director                 1/12/01
                                                                                 --------
                                                                                  (Date)
                             
/s/ Howard A. Jaffe
Howard A. Jaffe                 Executive Vice-President, Chief Operating and     1/12/01
                                Financial Officer, and Director                  --------
                                                                                  (Date)
/s/ Malcolm P. Burke
-------------------------
Malcolm P. Burke                Director                                         1/12/01
                                                                                 --------
                                                                                  (Date)
/s/ Ronald P. Erickson
-------------------------
Ronald P. Erickson              Director                                         1/12/01
                                                                                 --------
                                                                                  (Date)
/s/ Brian J. Kerr
-------------------------
Brian J. Kerr                   Director                                          1/12/01
                                                                                 --------
                                                                                  (Date)



                                       64



                                            EXHIBIT  INDEX

Exhibit
Number      Description
----------  -----------
         
  3.1(3)    Articles of Incorporation
    3.2     Articles of Merger
  3.3(3)    Bylaws
  4.1(1)    Specimen Stock Certificate
    4.2     $1,000,000 Subordinated Debenture
    4.3     Form of Warrant
    4.4     Form of Warrant (with Cashless Exercise)
   10.1     Merger Agreement by and between Upgrade and The Pathways Group, Inc.
 10.2(1)    Upgrade Form of 2000 Stock Option Plan
 10.3(1)    Upgrade Form of 1999 Stock Option Plan, as Amended and Restated
 10.4(4)    Upgrade Form of Stock Option Agreement
   10.5     UltraCard Inc. Employee Stock Option Plan
   10.6     UltraCard, Inc. Stock Purchase, Voting and Cancellation Rights and Redemption Agreement
   10.7     Option Agreement by and between Upgrade and UltraCard for acquisition of UltraCard stock, as amended
   10.8     License Agreement between AMPEX Corporation and UltraCard Inc. for Keepered Media technology
   10.9     Agreement by and between SciVac and UltraCard for development of vacuum system
10.10(2)    Funding Agreement by and between Upgrade and UltraCard, Inc.
  10.11     Exclusive License Agreement by and between UltraCard and CardTech, Inc.
  10.12     Sub-Distribution Agreement by and between Global CyberSystems, Inc. and Financial Electronic Systems, Inc.
  10.13     Letter of Intent by and between National CacheCard Company and Upgrade to purchase Smart Card assets
  10.14     Assignment Of Intellectual Property Rights By Work Product Investment Trust and David Zucker to EforNet Corporation
  10.15     Funding Agreement by and between Upgrade and EforNet Corporation
  10.16     Loan Agreement by and between Upgrade and EforNet Corporation
  10.17     Voting Trust Agreement by and between Upgrade and Work Product Investment Trust
10.18(4)    UltraCard Los Gatos Lease
  10.19     Acquisition of Centurion Technologies which contains funding agreement by and between Centurion and Upgrade
  10.20     Joint Development and Supply Agreement for Card Substrates by and between UltraCard and Colorado Plasticard
10.21(4)    Design Agreement for UltraCard Writer/Reader Devices by and between UltraCard and PEMSTAR INC.
10.22(2)    Stock Purchase Agreement between Upgrade and Zucker
  10.23     Letter of Intent by and between Upgrade and Cards & More, Inc.
  10.24     Letter of Intent by and between Upgrade and Rockster, Inc.
 16.1(5)    Letter on Change of Certifying Accountant
   21.1     Subsidiaries
   27.1     Financial Data Schedule (Upgrade)
   27.2     Financial Data Schedule (UltraCard)


(1)  Incorporated  by  reference  from  our  Form  8-K  filed  with  the  Securities  and  Exchange Commission on April 6, 2000.
(2)  Incorporated  by  reference  from  our  Form  10-QSB  filed  with  the  Securities and Exchange Commission on May 15, 2000.
(3)  Incorporated  by  reference  from our Definitive Proxy Statement filed with the Securities and Exchange Commission July 24,
2000.
(4)  Incorporated  by  reference  from  our  Form  10-QSB  filed with the Securities and Exchange Commission on August 14, 2000.
(5)  Incorporated  by  reference  from  our  Form  8-K  filed with the Securities and Exchange Commission on September 22, 2000.



                                       65