SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                    FORM 10-Q


             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2001


                         Commission file number: 0-29651


                           USA VIDEO INTERACTIVE CORP.
             (Exact name of registrant as specified in its charter)


                WYOMING                                 06-1576391
     (State or Other Jurisdiction of       (I.R.S. Employer Identification No.)
     Incorporation or Organization)


      70 Essex Street, Mystic, Connecticut                06355
     (Address of principal executive offices)            (ZIP code)


                                 (860) 572-1560
              (Registrant's Telephone Number, including Area Code)


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  |_|

At  August  10,  2001,  there  were 84,420,089 shares of the registrant's common
stock  outstanding.



PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements


<PAGE>




                           USA VIDEO INTERACTIVE CORP.

                        CONSOLIDATED FINANCIAL STATEMENTS

                                  JUNE 30, 2001

                                   (UNAUDITED)

                             (STATED IN US DOLLARS)
                              --------------------






<PAGE>
<TABLE>
<CAPTION>
                              USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
                                      CONSOLIDATED BALANCE SHEETS
                                         (STATED IN US DOLLARS)
=======================================================================================================


                                                                            JUNE 30,      DECEMBER 31,
                                                                              2001            2000
                                                                           (UNAUDITED)
-------------------------------------------------------------------------------------------------------
<S>                                                                       <C>            <C>

ASSETS

Current Assets:
  Cash and cash equivalents                                               $    109,460   $     231,197
  Marketable securities - related parties                                      105,030         202,826
  Accounts receivable, net of allowance for doubtful accounts of $7,000         20,060         122,813
  Inventory                                                                    145,911         145,911
  Prepaid expenses and other current assets                                     17,031          99,368
-------------------------------------------------------------------------------------------------------

      TOTAL CURRENT ASSETS                                                     397,492         802,115

Property and Equipment - at cost, net of accumulated
  depreciation of $358,944 and $194,871, respectively                        1,126,747         873,544

Other Assets, net of accumulated amortization of $24,858
  and $22,170, respectively                                                     69,724          68,412

Deferred Tax Assets, net of valuation allowance
  of $6,762,000 and $6,168,000, respectively                                         -               -
-------------------------------------------------------------------------------------------------------

      TOTAL ASSETS                                                        $  1,593,963   $   1,744,071
========================================================================  =============  ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable and accrued expenses                                   $    994,447   $   1,110,033
  Accounts payable and accrued expenses - related parties                            -          20,830
  Due to related parties                                                       418,160          75,896
-------------------------------------------------------------------------------------------------------

      TOTAL CURRENT LIABILITIES                                              1,412,607       1,206,759
-------------------------------------------------------------------------------------------------------


Commitments and Contingencies

Stockholders' Equity:
  Preferred stock - no par value; authorized 250,000,000 shares,
    none issued
  Common stock - no par value; authorized 250,000,000 shares,
    issued and outstanding 84,420,088 and 81,700,088 shares, respectively   27,725,787      25,766,071
  Accumulated other comprehensive income (loss)                                (24,073)         73,723
  Accumulated deficit                                                      (27,520,358)    (25,302,482)
-------------------------------------------------------------------------------------------------------

      STOCKHOLDERS' EQUITY                                                     181,356         537,312
-------------------------------------------------------------------------------------------------------

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $  1,593,963   $   1,744,071
=======================================================================================================
</TABLE>


                             SEE ACCOMPANYING NOTES


<PAGE>

<TABLE>
<CAPTION>
                                USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                           (STATED IN US DOLLARS)
                                                 (UNAUDITED)
============================================================================================================


                                             FOR THE THREE MONTHS ENDED         FOR THE SIX MONTHS ENDED
                                              JUNE 30,        JUNE 30,          JUNE 30,         JUNE 30,
                                               2001             2000             2001             2000
                                          ---------------  ---------------  ---------------  ---------------
<S>                                       <C>              <C>              <C>              <C>
Revenue                                   $       33,175   $       75,000   $       34,235   $      238,600
------------------------------------------------------------------------------------------------------------

Expenses:
  Cost of sales                                   19,843           50,641           20,566          152,583
  Research and development                       204,375          185,232          439,609          250,490
  Selling, general and administrative            638,490          773,828        1,060,996        1,243,381
  Depreciation and amortization                   91,429           60,773          171,977          114,408
  Noncash compensation charges                         -                -          565,597                -
------------------------------------------------------------------------------------------------------------
Total expenses                                   954,137        1,070,474        2,258,745        1,760,862
------------------------------------------------------------------------------------------------------------
Loss from operations                            (920,962)        (995,474)      (2,224,510)      (1,522,262)
------------------------------------------------------------------------------------------------------------

Other income (expense)
  Interest income                                  1,443            3,594            5,034            7,739
  Other                                             (289)         101,265            1,600          100,754
------------------------------------------------------------------------------------------------------------
                                                   1,154          104,859            6,634          108,493
------------------------------------------------------------------------------------------------------------

Net loss                                  $     (919,808)  $     (890,615)  $   (2,217,876)  $   (1,413,769)
============================================================================================================

Net loss per share - basic and diluted    $         (.01)  $         (.01)  $         (.03)  $         (.02)
============================================================================================================
Weighted-average number of common
  shares outstanding - basic and diluted      84,373,990       74,162,088       83,331,719       74,162,088
============================================================================================================
</TABLE>


                             SEE ACCOMPANYING NOTES


<PAGE>

<TABLE>
<CAPTION>
                                 USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
                                            (STATED IN US DOLLARS)
                                                  (UNAUDITED)
==============================================================================================================


                                               FOR THE THREE MONTHS ENDED         FOR THE SIX MONTHS ENDED
                                                JUNE 30,        JUNE 30,         JUNE 30,         JUNE 30,
                                                 2001             2000             2001             2000
                                            ---------------  ---------------  ---------------  ---------------
<S>                                         <C>              <C>              <C>              <C>
Net loss                                    $     (919,808)  $     (890,615)  $   (2,217,876)  $   (1,413,769)

Other comprehensive income:
  Change in unrealized gain on investments         (64,684)               -          (97,796)               -
--------------------------------------------------------------------------------------------------------------

Comprehensive loss                          $     (984,492)  $     (890,615)  $   (2,315,672)  $   (1,413,769)
==============================================================================================================
</TABLE>


                             SEE ACCOMPANYING NOTES


<PAGE>

<TABLE>
<CAPTION>
                                      USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                 (STATED IN US DOLLARS)
==========================================================================================================

                                       COMMON STOCK            ACCUMULATED
                                                                  OTHER
                                                              COMPREHENSIVE   ACCUMULATED   STOCKHOLDERS'
                                    SHARES         AMOUNT          LOSS         DEFICIT        EQUITY
<S>                              <C>            <C>           <C>             <C>            <C>
----------------------------------------------------------------------------------------------------------
Balance at December 31, 2000        81,700,088  $ 25,766,071  $      73,723   $(25,302,482)  $    537,312
Issuance of common stock and
 common stock warrants for cash      2,500,000     1,333,260              -              -      1,333,260
Issuance of common stock upon
 exercise of warrants                  220,000        60,859              -              -         60,859
Noncash compensation charges                 -       565,597              -              -        565,597
Change in unrealized gains
 on investments                              -             -        (97,796)             -        (97,796)
Net loss                                     -             -              -     (2,217,876)    (2,217,876)


----------------------------------------------------------------------------------------------------------
Balance at June 30, 2001            84,420,088  $ 27,725,787   $    (24,073)  $(27,520,358)  $    181,356
==========================================================================================================
</TABLE>


                             SEE ACCOMPANYING NOTES


<PAGE>

<TABLE>
<CAPTION>
                           USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (STATED IN US DOLLARS)
=================================================================================================


SIX MONTHS ENDED JUNE 30,                                                  2001          2000
<S>                                                                    <C>           <C>
-------------------------------------------------------------------------------------------------
                                          (UNAUDITED)
Cash flows from operating activities:
Net loss                                                               $(2,217,876)  $(1,413,769)
Adjustments to reconcile net loss to net cash
 used in operating activities:
Depreciation and amortization                                              171,977       113,323
Noncash compensation charge                                                565,597             -
Changes in operating assets and liabilities:
 (Increase)  Decrease in accounts receivable                               102,753      (134,721)
 (Increase) in loan receivable                                                   -      (100,000)
  Decrease in prepaid expenses and other current assets                     82,337        21,150
  Increase in other assets                                                  (4,000)            -
  Increase in accounts payable and accrued expenses                       (115,586)      143,568
  Decrease in accounts payable and accrued expenses -
     related parties                                                       (20,830)            -
  Increase in due to related parties                                        42,348        58,005

-------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES                                   (1,393,280)   (1,312,444)
-------------------------------------------------------------------------------------------------

Cash flows from investing activities:
Purchases of property and equipment, net                                  (422,492)     (235,795)
Patent fees                                                                      -        (1,928)

-------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                                     (422,492)     (237,723)
-------------------------------------------------------------------------------------------------

Cash flows from financing activities:
Proceeds from the issuance of common stock                               1,333,260       947,122
Proceeds from the issuance of common stock upon exercise of warrants
warrants                                                                    60,859             -

Common stock subscribed                                                          -       803,643
Loans from related parties                                                 299,916             -

-------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                1,694,035     1,750,765
-------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                      (121,737)      200,598

Cash and cash equivalents at beginning of period                           231,197       417,666
-------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                             $   109,460   $   618,264
=================================================================================================
</TABLE>


                             SEE ACCOMPANYING NOTES


<PAGE>

                           USA VIDEO INTERACTIVE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2001
                                   (UNAUDITED)
                             (STATED IN US DOLLARS)
                              --------------------


NOTE  A  -  BASIS  OF  PRESENTATION

The  accompanying unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting  principles  for  interim
financial  information  and  with  the  instructions  to  Form  10-Q  and  Rule
10-01(a)(5)  of  Regulation  S-X.  Accordingly,  they  do not include all of the
information  and  footnotes required by generally accepted accounting principles
for  complete  financial  statements.  In  the  opinion  of  the management, all
adjustments  (consisting  of normal recurring accruals) considered necessary for
fair  presentation  have been included.  The results for the interim periods are
not  necessarily  indicative  of  the results that may be attained for an entire
year  or  any  future  periods.  For further information, refer to the Financial
Statements and footnotes thereto in the Company's annual report on Form 10-K for
the  fiscal  year  ended  December  31,  2000.

NOTE  B  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES:

Basic  loss  per  common  share  ("EPS")  is computed as net loss divided by the
weighted-average  number of common shares outstanding during the period. Diluted
EPS  includes  the impact of common stock potentially issuable upon the exercise
of  options  and  warrants.  Potential  common  stock has been excluded from the
computation  of  diluted  net  loss  per  share  as  their  inclusion  would  be
antidilutive.

Inventory,  which consists of computer equipment, is stated at the lower of cost
or  market  using  the  specific-identification  method.

 The assets and liabilities of the Company's foreign subsidiaries are translated
into  U.S.  dollars  at  current  exchange  rates,  and revenue and expenses are
translated  at  average  rates  of  exchange  prevailing  during the period. The
aggregate  effect  of translation adjustments is immaterial at June 30, 2001 and
2000.

NOTE  C  -  COMMON  STOCK

On  March  12, 2001, the Company issued 1,585,000 units to investors at $.54 per
unit.  Each  unit  consisted  of  one  share  of common stock and one warrant to
purchase  an  additional  share  of  common  stock  at  $.66  per  share.

On  March  12,  2001,  the Company issued 915,000 units to employees at $.54 per
unit.  Each  unit  consisted  of  one  share  of common stock and one warrant to
purchase  an  additional  share  of  common stock at $.66 per share. The Company
charged  operations  for  approximately  $278,000  representing the differential
between  the  fair  value  and  the  purchase  price of the common stock and for
approximately  $168,000  representing the differential between the fair value of
the  underlying  common  stock  and  the  exercise  price  of  the  warrants.

From  January  1,  2001  to June 30, 2001, the Company issued 125,000 and 95,000
shares  of  common  stock  upon  the exercise of warrants with exercise price of
$.125  and  $.476  per  common  share,  respectively.


<PAGE>

                           USA VIDEO INTERACTIVE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2001
                                   (UNAUDITED)
                             (STATED IN US DOLLARS)
                              --------------------



NOTE  D  -  RELATED  PARTIES

Included  in  Due to Related Parties are advances from Shareholders of $299,916.
These  advances  are  at  a  9%  rate  of  interest  and  due  on  demand.

NOTE  E  -  STOCK  OPTION  PLAN

In  June  2001  the Company adopted a new Stock Option Plan named the 2001 Plan.
The 2001 Plan authorizes the issuance of up to 8,400,000 of the Company's common
shares,  subject to adjustment under certain circumstances, pursuant to exercise
of  options  to  be  granted  under  the 2001 Plan. The Company is listed on the
Canadian  Venture  Exchange ("CDNX") and therefore is subject to certain listing
requirements which include that the aggregate of the stock option plans does not
exceed  10%  of the Company's issued and outstanding stock. The stock subject to
options under the 2001 Plan will be authorized but unissued common shares of the
Company,  including  shares  issuable under options that terminate without being
exercised  in  whole or in part. The 2001 Plan provides for the issuance of both
incentive  stock options and non-qualified options as those terms are defined in
the  Internal Revenue Code of 1986, as amended (the "Code").  As of June 2001 no
stock  options have been granted from the 2001 Plan.  The 1990 Stock Option Plan
will  remain in effect until all granted stock options are exercised, expired or
canceled.

NOTE  F  -  CONTINGENT  LIABILTIY

The Company is party to a default judgement entered against one of the Company's
subsidiaries.  During  the year ended December 31, 1995, a claim was made to the
Company  for  the  total  amount  payable  under the terms of the lease with the
Company's  subsidiaries  for  office  space  in  Dallas Texas through 2002.  The
Company's  management  is of the opinion that the amount payable under the terms
of  this  judgement  is  not  estimable  or determinable at this time and may be
substantially  mitigated  by the landlord renting the property to another party.
The  range  of  possible  loss  is  from  $-0-  to  approximately $500,000.  Any
settlement  resulting  from the resolution of this contingency will be accounted
for in the period of settlement when such amounts are estimable or determinable.


<PAGE>

Item 2.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

CAUTIONARY STATEMENT

Certain statements contained in this Quarterly Report on Form 10-Q ("Report"),
including, without limitation, statements containing the words  "believes,"
"anticipates,"  "estimates," "expects," and words of similar import,  constitute
"forward-looking  statements."  Readers should not place undue reliance on these
forward-looking  statements.  USA Video's actual results could differ materially
from those  anticipated  in these  forward-looking  statements for many reasons,
including risks and uncertainties set forth in USA Video Interactive Corp.'s
Annual Report on Form 10-K, the most important of which are summarized below
under Factors Which May Affect Future Results of Operations, as well as in other
documents  USA  Video  files  with the Securities and Exchange Commission
("SEC").

The following information has not been audited.  You should read this
information in conjunction with the unaudited financial statements and related
notes to financial statements included in this report.

OVERVIEW OF THE COMPANY

USA Video Interactive Corp. ("USVO" or the "Company") designs and markets to
business customers streaming video and video-on-demand services, systems, and
source-to-destination digital media delivery solutions that allow live or
recorded digitized and compressed video to be transmitted through Internet,
intranet, satellite, or wireless connectivity.  The Company's systems, services,
and delivery solutions include video content production, content encoding, media
asset management, media and application hosting, content distribution,
specialized engineering services, and Internet streaming hardware.  Key areas of
market focus are advertising, education, training, and entertainment for
corporations, institutions, and consumers.

USVO holds the patent for Store-and-Forward Video-on-Demand (#5,130,792), filed
in 1990 and issued by the United States Patent and Trademark Office on July 14,
1992.  It has been cited by at least 145 subsequent patents.  USVO holds similar
patents in England, France, Spain, Italy, Germany, and Canada, and has a patent
pending in Japan.  USVO is actively engaged in licensing this patent.

MARKETS AND PRODUCTS:
As an outgrowth of its video streaming systems business and specialized
engineering services, USVO has identified emerging markets for global media
streaming services and has developed a unique solution to provide a wide range
of business customers with value-added streaming media support services.  With
this services-based approach, called StreamHQ(TM), customers can leverage USVO's
infrastructure and technical expertise, while focusing on their own core
business competencies.

StreamHQ(TM) facilitates the transmission of digitized and compressed video to
the user's desktop via multiple streaming modes that take advantage of the
available connectivity.  While competitive services take a "one-size-fits-all"
streaming approach, StreamHQ(TM) brings unique value propositions to individual
vertical markets with functionality designed specifically for those markets.
Beyond quality streaming, USVO's overriding goal has been to give customers
media asset management tools and information that provide a basis for them to
calculate their return on investment in streaming media expenditures.

StreamHQ(TM) encompasses a range of end-to-end services from source to viewing,
including content production, content encoding, asset management and protection,
media and application hosting, multi-mode content distribution, and transaction
data capture and reporting.

USVO has tailored an initial deployment product, Zmail(TM), which uses
StreamHQ(TM) to deliver rich media emails.  Zmail(TM) leverages the diverse
functional capabilities of this architecture to provide a value-added service to
advertisers, as well as other business applications, such as corporate
communications, consumer notices, product recalls, and customer support.

Clicking on a link within a Zmail(TM) accesses a customized web page with an
embedded, non-proprietary streaming player (e.g., Windows Media, QuickTime).
The user can customize his or her viewing experience and access any of the web
page links for additional information, guidance, or e-commerce.  Zmail(TM)
functionality monitors all media player transactions, as well as web
click-throughs, and aggregates the data across multiple users to provide
web-based campaign reports to the customer.


<PAGE>

TECHNOLOGY APPROACH:
USVO is approaching the global media streaming services market with a Tier 1
media-streaming infrastructure that the Company has attempted to differentiate
from competitive products and services in terms of architectural, functional,
and business  features.  Leveraging some of the industry's most prominent
providers for data storage, networking, and data management, StreamHQ(TM)
strives to compete based on service availability,  an efficient streaming
process, redundancy and fail-over features, and continuity in the event of power
outages.

USVO has created a modular system that can be scaled to meet the requirements of
a growing clientele.  StreamHQ(TM) can also be rapidly replicated to provide a
streaming utility in multiple Internet Data Centers around the world.

StreamHQ(TM) functionality is software driven, allowing USVO to create future
system enhancements based on the needs of the marketplace.  Additionally, USVO
can customize the baseline features of StreamHQ(TM)  and plans to  expand the
system features to support the specialized needs of additional types of
customers.

RESEARCH AND DEVELOPMENT:
USVO has ongoing research and development (R&D) efforts that are aimed at
improving the efficiency and security of media delivery to clients.  Among these
R&D efforts is the ongoing development of wavelet-based video compression
techniques that allow high-quality video files to be streamed at low bit rates,
thereby optimizing the use of available bandwidth.  USVO also has a proprietary
still-image wavelet compression technology.  Part of USVO's R&D effort is the
development of technology that will help protect the intellectual property of
content owners.

BUSINESS OBJECTIVES:
USVO has established the following near-term business objectives:
1.     Establish StreamHQ(TM) as the industry standard in the streaming video
       and rich media marketplace;
2.     Generate services- and systems-based revenues in accordance with the
       corporate business plan;
3.     Attain industry recognition for the superior architectural, functional,
       and business differentiators of the StreamHQ(TM) architecture;
4.     Leverage USVO's digital video patent for licensing fees and partnerships
       in the United States and internationally;
5.     Develop at least one client per year for a complete StreamHQ(TM) system,
       including intellectual property licensing and operational support;
6.     Expand StreamHQ(TM) functionality to provide enhanced support for
       corporate training and education markets; and
7.     Patent and license new technology developed within the corporate R&D
       program.

MARKET PERSPECTIVE:
With its StreamHQ(TM) service offering, USVO's goals are:  1) to become a
market-leading streaming media service provider; 2) to establish itself as a
leader in streaming technology innovation; 3) to capture revenue and market
share from services and products in advertising, corporate communications,
education, entertainment, and other markets.  Numerous published reports
estimate the current value of these markets as in excess of 20 billion dollars.
As a secondary objective, USVO intends to leverage its broad video-on-demand
patent by licensing it to other companies.

The Company was incorporated on April 18, 1986, as First Commercial Financial
Group Inc. in the Province of Alberta, Canada.  In 1989,its name was changed to
Micron Metals Canada Corp., which purchased 100% of the outstanding shares of
USA Video Inc., a Texas corporation, in order to focus on the digital media
business.  In 1995, the Company changed its name to USA Video Interactive Corp.
and continued its corporate existence to the State of Wyoming. The Company has
four wholly-owned subsidiaries:  USA Video (California) Corp., USA Video Corp.,
USA Video Productions Inc., and USA Video Technologies, Inc. USA Video's
executive and corporate offices are located in Mystic, Connecticut, and its
Canadian offices are located in Vancouver, British Columbia.

RESULTS OF OPERATIONS

Sales

The Company had essentially no sales revenue for the six-month period ended June
30, 2001, compared to revenue of $238,600 for the six-month, $75,000 three month


<PAGE>

period ended June 30, 2000. The decline in revenue, which began in the fourth
quarter and is continuing, is attributable to the continuing decline in demand
throughout the technology sector, as well as the Company's decreased marketing
of its hardware products in connection with the shift in focus of its core
business. Starting in the fourth quarter of 2000 and continuing during the first
six months of 2001, the Company concentrated its managerial and technical
efforts on the remaining critical stages of developing and refining its new
streaming rich media services. The Company expects to bring these services to
market during the third quarter of 2001.

These services are intended to become the Company's core business in place of
its hardware-based systems for video encoding, decoding and streaming; the
market for which has diminished significantly in the last nine to 12 months. The
Company believes the market declined for a number reasons, the most important of
which is that customers no longer can afford to invest in expensive hardware
systems of this type. As a result, profit margins on the Company's hardware
systems have continued to decline, as the Company has lowered prices in the face
of declining demand. A change in focus was necessary to capture the market for
affordable streaming media services.

The change in focus required shifting technical and managerial resources from
sales of the old line of products to service-based offerings. Additionally, the
Company was required to make a significant investment in a centralized computer
hardware and software infrastructure that will be used to provide the new
services, as well as hiring a core sales team on which to build a growing sales
organization for the future.

Cost of Sales

The cost of sales for the six months ended June 30, 2001 was $20,566, as
compared to $152,583 for the comparable period of 2000.  For the three month
period ended June 30, 2001, the cost of sales was $19,843 as compared to $50,641
for the comparable period 2000. The decrease in cost of sales is directly
attributable to the decline in sales.

Selling, General and Administrative Expenses

Selling, General and Administrative expenses consisted of product marketing
expenses, consulting fees, office, professional fees and other expenses to
execute the business plan and for day-to-day operations of the Company.

Selling, General and Administrative expenses for the three months ended June 30,
2001 decreased $135,338 to $638,490 from $773,828 for the three months ended
June 30, 2000.  The six months eneded June 30, 2001 these cost decreased by
$182,385 to $1,060,996 from $1,243,381 for the comparable period.

Product marketing expenses for the six months ended June 30, 2001, decreased to
$314,092 from $333,630 for the comparable period of 2000 and increased to
$200,170 for the three months ended June 30, 2001 from $180,792 for the
comparable period in 2000, as the Company reduced its marketing efforts for its
old, hardware-based systems. The Company expects product marketing expenses to
increase significantly during the remainder of 2001 as new products are
launched. The Company has hired additional staff and engaged in marketing
activities in an effort to identify and assess appropriate market segments,
develop business arrangements with prospective partners, create awareness of new
products and services, and communicate to the industry and potential customers.
Other components of Selling, General and Administrative expense did not change
significantly.

Research and Development Expenses

Research and development expenses consisted primarily of compensation, hardware,
software, licensing fees, and new product applications for the Company's
proprietary StreamHQ(TM). Research and development expenses increased by 76% to
$439,609 for the six months ended June 30, 2001, from $250,490 for the
comparable period in 2000 and by 10% to $204,375 for the three months ended June
30, 2001 from $185,232 for the comparable period in 2000, reflecting development
of the StreamHQ(TM) and other technologies underlying the shift in the Company's
business to a services-based model.

As the Company expands its business, its product development, product marketing,
and other general and administrative expenses will continue to increase. Product
development expenses, which include research and development expenses, will
increase as the Company adds engineering personnel to its technology and Web
development teams, and as its new technologies are integrated into its product
line. Product marketing expenses will increase as the Company adds business
development, sales, and marketing personnel to build business relationships,
sell advertising time and build brand awareness. Advertising also will increase
as the Company invests to grow its business. Other general and administrative
expenses will grow as the Company continues to build its management
infrastructure, including additional personnel, office space and internal
information systems.


<PAGE>

Non-Cash Compensation Charges

Non-cash compensation charges for the six months ended June 30, 2001 reflected
charges in the first quarter of 2001 of $565,597. Of this amount, $462,097 was
due to the issuance of common shares and common share warrants to the Company's
officers, directors and employees at a price or exercise price below the market
price of the common shares at the time of issuance. Because the rules of the
Canadian Venture Exchange require that the offering price for privately placed
securities of listed companies be set when the offering is first announced,
rather than upon closing, and the market price of the common shares increased
between announcement of the offering and closing, the sale price of the common
shares and the exercise price of the warrants were below the market price of the
common shares on the date of issuance. In addition, the Company issued options
to purchase 150,000 common shares to consultants, resulting in a $97,500 charge.
The Company also incurred a charge of $6,000 for the issuance of employee stock
options.

Net Losses

To date, the Company has not achieved profitability and, in fact, expects to
incur substantial net losses for at least the remainder of 2001. The Company's
net loss for the six months ended June 30, 2001 was $2,217,876 as compared with
a net loss of $1,413,769 for the six months ended June 30, 2000 and for the
three months ended June 30, 2001 was $919,808 as compared to $890,615 for the
comparable period.


LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2001, the Company's had a cash position of $109,460, compared to
$231,197 at December 31, 2000. The Company's principal sources of cash during
the six months ended June 30, 2001, were proceeds of $1,333,260 from the
issuance of stock in a private placement and $60,859 from the exercise of
outstanding warrants. This was substantially offset by $1,393,280 of cash used
in operating activities.

The Company will require additional financing to fund current operations through
the third quarter of 2001. The Company has historically satisfied its capital
needs primarily by issuing equity securities. The Company will require an
additional $3.0 million to $3.5 million to finance operations for the rest of
fiscal 2001 and intends to seek such financing through sales of its equity
securities.

Assuming the aforementioned $3.0 million to $3.5 million in financing is
obtained, the Company believes that continuing operations for the longer term
will be supported through anticipated growth in revenues and through additional
sales of the Company's securities. Although longer-term financing requirements
may vary depending upon the Company's sales performance, management expects that
the Company will require additional financing of $5.0 million to $6.0 million
for fiscal 2002. The Company has no binding commitments or arrangements for
additional financing, and there is no assurance that management will be able to
obtain any additional financing on terms acceptable to the Company, if at all.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

Certain risks and uncertainties could cause actual results to differ materially
from the results contemplated by the forward-looking statements contained in
this Report. Risks and uncertainties have been set forth in the Company's Annual
Report on Form 10-K, as well as in other documents the Company files with the
SEC. These risk factors include the following:

THE COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE ITS
BUSINESS AND PROSPECTS.

The Company's business and prospects must be considered in light of the risks
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets such as streaming media.

IF THE COMPANY IS UNABLE TO OBTAIN SUBSTANTIAL ADDITIONAL FINANCING IN THE NEXT
FEW MONTHS IT MAY NOT BE ABLE TO MAINTAIN OPERATIONS AT CURRENT LEVELS.


<PAGE>

The Company requires substantial additional financing to maintain operations at
current levels beyond the second quarter of 2001. Financing may not be available
when needed on terms favorable to the Company, or at all. If adequate funds are
not available or are not available on acceptable terms, the Company may be
unable to further develop or enhance its products and services, take advantage
of future opportunities or respond to competitive pressures, or ultimately, to
continue in business.

CONTINUATION OF THE CURRENT SLUMP IN THE TECHNOLOGY SECTOR WILL ADVERSELY AFFECT
DEMAND FOR THE COMPANY'S PRODUCTS AND SERVICES.

The Company's sales have been adversely affected by the ongoing slump in the
technology industry segment and the continuation of these market conditions can
be expected to result in depressed demand for the Company's products and
services.

THE COMPANY'S OPERATING RESULTS IN FUTURE PERIODS ARE EXPECTED TO BE SUBJECT TO
SIGNIFICANT FLUCTUATIONS, WHICH WOULD LIKELY AFFECT THE TRADING PRICE OF ITS
COMMON SHARES.

Factors that could cause such fluctuations include the Company's ability to
attract and retain customers; the introduction of new video transmission
services or products by others; price competition; the continued development of
and changes in the streaming media market; its ability to remain competitive in
its product and service offerings; its ability to attract new personnel; and
potential U.S. and foreign regulation of the Internet.

THE COMPANY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, WHICH COULD RENDER THE
COMPANY'S PRODUCTS AND SERVICES OBSOLETE.

Keeping pace with the technological advances may require substantial
expenditures and lead time, particularly with respect to acquiring updated
hardware and infrastructure components of its systems. The Company may require
additional financing to fund such acquisitions. Any such financing may not be
available on commercially reasonably terms, if at all, when needed.

IF THE COMPANY DOES NOT CONTINUOUSLY IMPROVE ITS TECHNOLOGY IN A TIMELY MANNER,
ITS PRODUCTS COULD BE RENDERED OBSOLETE.

These changes and developments may render the Company's products and
technologies obsolete in the future. As a result, the Company's success depends
on its ability to develop or adapt products and services or to acquire new
products and services that can compete successfully. There can be no assurance
that the Company will be successful in these efforts.

THE COMPANY INTENDS TO ISSUE ADDITIONAL EQUITY SECURITIES, WHICH MAY DILUTE THE
INTERESTS OF CURRENT SHAREHOLDERS OR CARRY RIGHTS OR PREFERENCES SENIOR TO THE
COMMON SHARES.

Accordingly, existing shareholders may experience additional dilution of their
percentage ownership interest in the Company. In addition, the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of the Company's common shares.


Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company believes its exposure to overall foreign currency risk is not
material. The Company does not manage or maintain market risk sensitive
instruments for trading or other purposes and is not exposed to the effects of
interest rate fluctuations as it does not carry any long-term debt.

The Company reports its operations in US dollars and its currency exposure,
although considered by the Company as immaterial, is primarily between the US
and Canadian dollars. Exposure to other currency risks is also not material as
international transactions are settled in US dollars. Any future financing
undertaken by the Company will be denominated in US dollars. As the Company
increases its marketing efforts, the related expenses will be primarily in US
dollars. In addition, 90% of the Company's bank deposits are in US dollars.

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings


<PAGE>

The Company is a party to an action entitled USA Video Interactive Corp. v.
William Meyer in the United States District Court for the District of
Connecticut, the details of which were reported in the Company's Annual Report
on Form 10-K for the year ended December 31, 2000. The status of the action is
unchanged from that described in the Form 10-K.

The Company is not a party to any other material pending legal proceedings.

Item 2.   Changes in Securities and Use of Proceeds

During the quarter ended June 30, 2001, 95,000 common shares were issued
pursuant to warrants exercised for total proceeds of $45,234. The issuance of
the shares was exempt from registration under Rules 504 and 506 of Regulation D
under the Securities Act of 1933 ("Securities Act"). The Company has made
publicly available financial and disclosure information with its filings to the
Canadian Venture Exchange, and provided disclosure regarding the offering and
the Company to the investors. The Company limited the manner of the offering.
The purchasers included an executive officer/director and a non-affiliated
investors.

Item 3.   Defaults Upon Senior Securities.  None.

Item 4.   Submission of Matters to a Vote of Security Holders.




The Company held an annual meeting of shareholders on June 28, 2001, at
Providence, Rhode Island.  At the meeting the shareholders voted to retain
Anthony Castagno, Anton Drescher and Edwin Molina as Directors of the Company.

At the meeting the shareholders also approved the Company's 2001 Stock Option
Plan (the "2001 Plan").
The 2001 Plan authorizes the issuance of up to 8,400,000 of the Company's common
shares.  However, because the Company's shares are listed on the Canadian
Venture Exchange, the maximum number of shares issuable under the 2001 Plan and
any other stock option plan of the Company may not exceed 10% of the issued and
outstanding shares at the time of issuance.
The Company's other stock option plan, adopted in 1990 when the Company was a
Canadian corporation and its employees located mostly in Canada, did not provide
for the granting of incentive stock options under the Code (define).

Also at the meeting, the shareholders approved the appointment of Goldstein
Golub Kessler LLP as auditors for the year ending December 31, 2001.


<TABLE>
<CAPTION>
Matter Voted Upon             No. of Votes For  No. of Votes Against  No. of Votes Withheld
-----------------             ----------------  --------------------  ---------------------
<S>                           <C>               <C>                   <C>
1. Election of Directors            43,712,401                   nil              1,221,089

2. Approval of he 2001
     Stock Option Plan              20,553,266             2,231,982                 40,130


3. Appoint Goldstein Golub
     Kessler LLP as auditors
     of the Company for the
     year ending
     December 31, 2001              47,596,817                   nil                295,604
</TABLE>


Item 5.   Other Information.  None.

Item 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits

               I - 2001 Stock Option Plan.

          (b)  Reports on Form 8-K

               None.


<PAGE>
SIGNATURE


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                     USA Video Interactive Corp.

Dated: August 10, 2001               By:  /s/  Anton J. Drescher
                                     --------------------------------
                                     Name: Anton J. Drescher
                                     Title:  Chief Financial Officer


<PAGE>

                                     - 10 -
                                                                      APPENDIX I
MS  Word:  32138.04
                           USA VIDEO INTERACTIVE CORP.
                           ---------------------------

                             2001 STOCK OPTION PLAN
                             ----------------------

1.     PURPOSE  OF  PLAN
       -----------------

     The  purpose  of  this 2001 Stock Option Plan (the "Plan") is to assist USA
Video  Interactive  Corp. (the "Company") and any parent or subsidiary (together
with  the  Company,  the  "Companies") in the continued employment or service of
officers,  employees, consultants and directors by offering them a greater stake
in  the  Companies' success and a closer identity with the Companies, and to aid
in  attracting  individuals whose employment or services would be helpful to the
Companies  and  would  contribute  to  their  success.

2.     DEFINITIONS
       -----------

     (a)  "Board"  means  the  board  of  directors  of  the  Company.

     (b)  "Code"  means  the  Internal  Revenue  Code  of  1986,  as  amended.

     (c)  "Committee"  means  the  committee  described  in  Paragraph  5.

     (d)  "Companies" means the Company and any parent or subsidiary, as defined
          in  Sections  424(e)  and  424(f)  of  the  Code.

     (e)  "Date  of  Grant"  means the date on which an Option is granted, or on
          which  the  exercise  price  of  an  outstanding  Option  is modified.

     (f)  "Exercise  Price"  means the price per Share that an Optionee must pay
          in  order  to  exercise  an  Option.

     (g)  "Incentive  Stock Option" shall mean an Option granted under the Plan,
          designated at the time of such grant as an incentive stock option (and
          qualifying  as  such under Section 422 of the Code) and containing the
          terms  specified  herein  for  incentive  stock  options.

     (h)  "Non-Qualified  Option"  shall  mean an Option granted under the Plan,
          which  is  designated  at  the  time  of such grant as a non-qualified
          option,  which  contains  the terms specified herein for non-qualified
          options,  and  which  fails  to  qualify  as an Incentive Stock Option
          within  the  meaning  of  Section  422  of  the  Code.

     (i)  "Option"  means  any stock option granted under the Plan and described
          either  in  Paragraph  3(a)  or  3(b).

     (j)  "Option  Agreement"  shall  have the meaning set forth in Paragraph 7.


<PAGE>

     (k)  "Optionee" means a person to whom an Option has been granted under the
          Plan,  which  Option  has  not  been  exercised and has not expired or
          terminated.

     (l)  "Shares"  means  common  shares,  no  par  value,  of  the  Company.

     (m)  "Ten  Percent Shareholder" means a person who on the Date of the Grant
          owns,  either  directly or within the meaning of the attribution rules
          contained  in  Section  424(d) of the Code, stock possessing more than
          ten percent of the total combined voting power of all classes of stock
          of  his  or  her  employer  corporation or of its parent or subsidiary
          corporations,  as  defined  respectively in Sections 424(e) and (f) of
          the  Code.

     (n)  "Value"  means  on any given date, the fair market value of the Shares
          as  determined  by the Board or the Committee, taking into account all
          information  that  the  Board  or  the  Committee  considers relevant,
          including  applicable  provisions  of  the  Code  and  rulings  and
          regulations  thereunder.

3.     RIGHTS  TO  BE  GRANTED
       -----------------------

     Rights  that  may  be  granted  under  the  Plan  are:

     (a)  Incentive  Stock  Options,  that  give  the  Optionee  the right for a
          specified  time  period to purchase a specified number of Shares at an
          Exercise  Price  not  less  than  that  specified  in  Paragraph 7(a).

     (b)  Non-Qualified  Options,  that  give  the  Optionee  the  right  for  a
          specified  time  period to purchase a specified number of Shares at an
          Exercise  Price  not  less  than  that  specified  in  Paragraph 7(a).

4.     STOCK  SUBJECT  TO  PLAN
       ------------------------

     The maximum number of Shares that may be issued under the Plan is 8,400,000
Shares, subject to adjustment pursuant to the provisions of Paragraph 10.  If an
Option  terminates without having been exercised in whole or part, other Options
may  be  granted  covering  the Shares as to which the Option was not exercised.
Notwithstanding  anything  to  the contrary contained in the Plan, the aggregate
number  of Shares issued to an Optionee on the exercise of Options granted under
the  Plan,  or  reserved  for issuance to an Optionee on the exercise of Options
granted  under  the Plan, may not exceed ten percent (10%) of the maximum number
of  Shares  authorized  to  be issued on the exercise of Options under the Plan.

5.     ADMINISTRATION  OF  PLAN
       ------------------------

     (a)  The  Plan  shall  be administered, and the grant of Options under this
          Plan  shall  be  approved in advance, by the Board, or if the Board by
          resolution  so  decides, by a stock option committee (the "Committee")
          designated  by  the  Board, the members of which shall be appointed by
          and  serve  on  such  Committee  at  the  pleasure  of  the  Board.


<PAGE>

     (b)  To  the extent required for transactions under the Plan to qualify for
          exemptions  available  under  Rule  16b-3  promulgated  under the U.S.
          Securities  Act  ("Rule  16b-3"),  if  the  Board  shall  delegate its
          authority to the Committee then each member of the Committee will be a
          "Non-Employee  Director"  within  the  meaning  of  Rule 16b-3. To the
          extent required for compensation realized from the exercise of options
          issued  under  the  Plan to be deductible by the Company or any of the
          Companies  pursuant to Section 162(m) of the Code, the members of said
          Committee  will  be  "outside directors" within the meaning of Section
          162(m)  of  the  Code.

6.     GRANTING  OF  OPTIONS
       ---------------------

     (a)  Subject  to  Paragraph  7  hereof, the Company may, from time to time,
          designate:  the  officers,  employees, consultants and/or directors of
          any  of  the  Companies  to whom Options may be granted; the number of
          Shares covered by an Option; the relevant Exercise Price of an Option;
          the  vesting  provisions  of  an  Option;  and  the term of an Option.

     (b)  An  Incentive  Stock  Option  shall  not  be  granted to a director or
          consultant  of  any  of the Companies unless, as of the Date of Grant,
          such  director or consultant is also an officer or key employee of any
          of  the  Companies.

     (c)  An  Incentive  Stock  Option  shall  not  be  granted to a Ten Percent
          Shareholder  except  on  such  terms concerning the Exercise Price and
          period of exercise as are provided in Paragraph 7 with respect to such
          a  person.

     (d)  Any  Option granted under the Plan shall be subject to the requirement
          that,  if  at any time counsel to the Company shall determine that the
          listing,  registration  or qualification of the Shares subject to such
          Option upon any securities exchange or other self-regulatory entity or
          under  any  law  or  regulation of any jurisdiction, or the consent or
          approval of any securities exchange or other self-regulatory entity or
          any  governmental  or regulatory body, is necessary as a condition of,
          or  in  connection  with,  the grant or exercise of such option or the
          issuance  or  purchase  of  Shares  hereunder,  such option may not be
          accepted  or  exercised  in  whole  or  in  part  unless such listing,
          registration,  qualification,  consent  or  approval  shall  have been
          effected  or  obtained  on conditions acceptable to the Board. Nothing
          herein  shall  be  deemed  to  require  the Company to apply for or to
          obtain such listing, registration, qualification, consent or approval.

     (e)  So  long  as  the  Shares  are traded on the Canadian Venture Exchange
          ("CDNX"),  all  options  granted  under the Plan shall comply with the
          policies  of  the  CDNX,  including,  but  not limited to, the maximum
          number of Shares issuable under Options that may be granted to any one
          person  and  any restrictions from trading Shares issued upon exercise
          of  Options.


<PAGE>

     (f)  The  exercise  price  of  any  Option will not be reduced without CDNX
          approval  and,  in  addition,  if  the  Optionee  is an insider of the
          Company,  disinterested  shareholder approval will be required for any
          such  reduction  in  the  exercise  price.  "Disinterested shareholder
          approval" means approval by a majority of the shareholders who vote on
          the  resolution,  provided  that  the  insiders of the Company who are
          Optionees  under  the  Plan  and their associates may not vote on that
          resolution.  An  "insider"  is  any executive officer, director or Ten
          Percent Shareholder of the Company. An "associate" of any person is: a
          partner  of  that person; a trust or estate in which that person has a
          substantial  beneficial  interest  or in which that person serves as a
          trustee  or executor; a company of which that person beneficially owns
          or  controls,  directly or indirectly, voting securities carrying more
          than  10%  of  the voting rights; the spouse (including a "common law"
          spouse) or child of that person if that person is an individual; and a
          relative  of  that  person  or  that  person's spouse if that relative
          resides  in  the  same  home  as  that  person.  Holders of non-voting
          securities,  if any, of the Company shall have full voting rights on a
          resolution  requiring  disinterested  shareholder  approval under this
          subsection.

     (g)  For  Options  granted  to employees, consultants or management company
          employees,  the  Company  hereby  represents  to  the  CDNX  that such
          Optionee  is  a  bona  fide employee, consultant or management company
          employee,  as  the  case may be, of at least one of the Companies. The
          terms "employee," "consultant" and "management company employee" shall
          have  the  meanings  set  out  in  CDNX  Policy  4.4.

7.     OPTION  AGREEMENTS  AND  TERMS
       ------------------------------

     Each Option shall be granted within ten (10) years of the date on which the
Plan  is  adopted  by  the  Board  or  the  date  the  Plan  is  approved by the
shareholders  of  the  Company,  whichever  is  earlier.  Each  Option  shall be
evidenced by an option agreement that shall be executed on behalf of the Company
and  by  the  respective  Optionee  ("Option  Agreement"),  in  such  form  not
inconsistent  with  the Plan as the Board or the Committee may from time to time
determine,  provided that the substance of this Paragraph 7 be included therein.
The  terms  of  each  Option  Agreement  shall be consistent with the following:

     (a)  Exercise  Price.  In  the case of a Non-Qualified Option, the Exercise
          ---------------
          Price  per  Share  shall not be less than eighty-five percent (85%) of
          the  Value  of  such  Share  on  the  Date of Grant. In the case of an
          Incentive Stock Option, the Exercise Price per share shall not be less
          than one hundred percent (100%) of the Value of such Share on the Date
          of  Grant;  provided  that with respect to any Incentive Stock Options
          granted  to  a  Ten  Percent Shareholder, the Exercise Price per Share
          shall  not be less than one hundred ten percent (110%) of the Value of
          such  Share  on  the  Date of Grant; provided, that for so long as the
          Shares are traded on the Canadian Venture Exchange, no Option shall be
          granted  having  an  exercise  price  that  is  less  than the minimum
          exercise  price permitted under the rules of such exchange at the time
          of  grant.

     (b)  Restriction  on  Transferability. No Option granted hereunder shall be
          --------------------------------
          pledged,  hypothecated,  charged,  transferred,  assigned or otherwise
          encumbered  or  disposed of by the Optionee, whether voluntarily or by
          operation  of  law,  otherwise than by will or the laws of descent and
          distribution,  and  any  attempt to do so will cause such Option to be
          null and void. During the lifetime of the Optionee, an Option shall be
          exercisable  only by him. Upon the death of an Optionee, the person to
          whom  the  rights  shall have passed by will or by the laws of descent
          and  distribution  may  exercise  any  Option  in  accordance with the
          provisions  of  Paragraph  7(e).

     (c)  Payment.  Full  payment  for  Shares purchased upon the exercise of an
          -------
          Option shall be made in cash or by wire transfer (at the option of the
          Optionee),  certified  check,  cashier's  check,  personal  check  or
          "cashless  exercise"  (i.e., the Company's retention of that number of
          Shares  acquired  by  the  Optionee on exercise, which, at the time of
          exercise, has an aggregate fair market value equal to the payment owed
          by  the  Optionee  to the Company under this Paragraph 7(c)). Upon the
          exercise of an Option, the Company shall have the right to require the
          Optionee  to  remit  to  the  Company,  in  cash  or by wire transfer,
          certified  check,  cashier's  check  or  personal  check,  an  amount
          sufficient  to  satisfy  all U.S. federal, state and local withholding
          tax  requirements  prior  to  the  delivery  by  the  Company  of  any
          certificate  for  Shares.

     (d)  Issuance  of  Certificates.  Upon  payment  of  the  Exercise Price, a
          --------------------------
          certificate  for  the  number  of  Shares  shall  be delivered to such
          Optionee  by  the Company. If listed on a national securities exchange
          or  the  Canadian  Venture  Exchange,  or  quoted  on the Nasdaq Stock
          Market, the Company shall not be obligated to deliver any certificates
          for  Shares  until  (A)(i) such Shares have been listed (or authorized
          for  listing  upon  official  notice  of  issuance) on each securities
          exchange  upon  which the outstanding Shares at the time are listed or
          (ii)  if the outstanding Shares are quoted on the Nasdaq Stock Market,
          such Shares have been approved for quotation thereon and (B) there has
          been  compliance with such laws or regulations as the Company may deem
          applicable.  The  Company shall use commercially reasonable efforts to
          effect  such  listing  or  reporting  and  compliance  as  promptly as
          practical.

     (e)  Periods  of  Exercise  of  Options.  An Option shall be exercisable in
          ----------------------------------
          whole  or  in  part  for  such  time  as  may  be stated in the Option
          Agreement,  provided  that:

          (i)  an  Incentive  Stock  Option granted to a Ten Percent Shareholder
               shall  in  no  event be exercisable after five (5) years from the
               Date  of  Grant,  and  all  other  Options  shall  in no event be
               exercisable  after  ten  (10)  years  from  the  Date  of  Grant;
               provided,  that  for  so  long  as  the  Shares are traded on the
               Canadian  Venture  Exchange,  no Option shall be granted having a
               term  in  excess  of  five years or such other period as provided
               under  the  rules  of  such  exchange  at  the  time  of  grant.


<PAGE>

          (ii) Incentive  Stock  Options  shall be subject to the limitation set
               forth  in  Paragraph  8;

          (iii)  if  an Optionee ceases to be employed by, or ceases to serve as
               an  officer or director of, at least one of the Companies for any
               reason other than death, disability or termination for cause, any
               Option or unexercised portion thereof shall not be exercisable by
               such  Optionee  after  three  months  from  the date the Optionee
               ceases  to  be  employed  by, or ceases to serve as an officer or
               director  of,  at  least  one  of  the  Companies;

          (iv) if an Optionee ceases to be employed by, or ceases to serve as an
               officer  or  director of, at least one of the Companies, and such
               employment  or  service  was  terminated for cause, any Option or
               unexercised  portion  thereof  shall  terminate  forthwith;

          (v)  if an Optionee ceases to be employed by, or ceases to serve as an
               officer  or  director  of,  at  least one of the Companies due to
               disability,  any  Option or unexercised portion thereof shall not
               be  exercisable by such Optionee after one year from the date the
               Optionee  ceases  to  be  employed  by,  or ceases to serve as an
               officer,  consultant  or  director  of,  at  least  one  of  the
               Companies;  and

          (vi) if an Optionee ceases to be employed by, or ceases to serve as an
               officer,  consultant or director of, one or more of the Companies
               due to death, any Option or unexercised portion thereof shall not
               be  exercisable  after  one year from the date of death; provided
               that in such event, the person to whom the rights of the Optionee
               shall  have  passed  by  will  or  by  the  laws  of  descent and
               distribution  may  exercise  any of the decedent's Options to the
               extent  determined  by the Company in its discretion, even if the
               date  of exercise is within any time period before or after which
               such  Option  would  not  be  exercisable  under  the  Plan.

          (vii)  Notwithstanding anything to the contrary in this Section 7, for
               so  long as the Shares are traded on the CDNX, any Option granted
               to  an Optionee engaged in providing investor relations services,
               as  defined  in  CDNX Policy 1.1, to one or more of the Companies
               shall  not  be  exercisable  after  (a) 90 days from the date the
               Optionee  ceases  to be employed by at least one of the Companies
               by  reason of disability, (b) one year from the date the Optionee
               ceases  to be employed by at least one of the Companies by reason
               of death, and (c) 30 days from the date the Optionee ceases to be
               employed  by,  or  to  provide investor relations services to, at
               least  one  of the Companies for any reason other than disability
               or  death.


<PAGE>

     (f)  Date  of Exercise. The date of exercise of an Option shall be the date
          -----------------
          on which written notice of exercise is hand delivered or telecopied to
          the Company, attention: Secretary; provided that the Company shall not
          be  obliged  to  deliver  any  certificates for Shares pursuant to the
          exercise  of an Option until the Optionee shall have made full payment
          for  such Shares in accordance with Paragraph 7(c). Each such exercise
          shall  be  irrevocable  when given. Each notice of exercise must state
          whether  the  Optionee  is  exercising  an Incentive Stock Option or a
          Non-Qualified  Option and must include a statement of preference as to
          the  manner  in which payment to the Company shall be made (cash, wire
          transfer,  certified  check,  cashier's  check  or  personal  check).
          Moreover, if required by the Board or Committee by notification to the
          Optionee  at  the  time  of  granting  of  the  option,  it shall be a
          condition  of  such  exercise  that  the Optionee represent that he is
          purchasing  the  Shares  in  respect  of  which  the  Option  is being
          exercised  for  investment  only  and  not  with  a  view to resale or
          distribution.

     (g)  Termination  of Status. For the purposes of the Plan, a transfer of an
          ----------------------
          employee,  officer, consultant or director between two companies, each
          of  which is a company considered to be either a parent of the Company
          within  the  meaning  of Section 424(e) of the Code or a subsidiary of
          the  Company  within  the meaning of Section 424(f) of the Code, shall
          not  be  deemed  a  termination  of  employment  or  of  service as an
          employee,  officer,  consultant  or  director.

     (h)  No Relation between Incentive Stock Options and Non-Qualified Options.
          ---------------------------------------------------------------------
          The  grant, exercise, termination or expiration of any Incentive Stock
          Option  granted  to  an  Optionee  shall  have  no  effect  upon  any
          Non-Qualified  Option  held  by  such  Optionee,  nor shall the grant,
          exercise,  termination  or  expiration  of  any  Non-Qualified  Option
          granted to an Optionee have any effect upon any Incentive Stock Option
          held  by  such  Optionee.

8.     LIMITATION  ON  EXERCISE  OF  INCENTIVE  STOCK  OPTIONS
       -------------------------------------------------------

     The aggregate fair market value (determined as of the Date of Grant) of the
Shares  with  respect  to  which Incentive Stock Options are exercisable for the
first time by an Optionee during any calendar year under the Plan (and any other
plan  of his employer corporation and its parent and subsidiary corporations, as
defined  respectively  in Sections 424(e) and (f) of the Code), shall not exceed
One  Hundred  Thousand Dollars in U.S. funds (US $100,000).  Accordingly, to the
extent that the aggregate fair market value (determined as of the Date of Grant)
of  the Shares with respect to which Incentive Stock Options (determined without
reference to this Paragraph 8) are exercisable for the first time by an Optionee
during  any  calendar  year  under this Plan (and any other plan of his employer
corporation  and its parent and subsidiary corporations, as defined respectively
in  Sections 424(e) and (f) of the Code) exceeds One Hundred Thousand Dollars in
U.S.  funds  (US $100,000), such Options will be treated as Nonqualified Options
(i.e.,  options  which  fail  to  qualify  as incentive stock options within the
meaning  of  Section  422  of the Code) in accordance with Section 422(d) of the
Code.

9.     RIGHTS  AS  A  SHAREHOLDER
       --------------------------

     The  Optionee  (or  his personal representatives or legatees) shall have no
rights  whatsoever  as  a  shareholder  in  respect of any Shares covered by his
option until the date of issuance of a share certificate to him (or his personal
representatives  or  legatees) for such Shares.  Without in any way limiting the
generality  of the foregoing, no adjustment shall be made for dividends or other
rights  for which the record date is prior to the date such share certificate is
issued.


<PAGE>

10.     CHANGES  IN  CAPITALIZATION
        ---------------------------

     In  the  event  of  a  stock  dividend,  stock  split,  recapitalization,
combination,  subdivision,  issuance  of  rights  to  all stockholders, or other
similar  corporate  change,  the  Company  shall  make  such  adjustment  in the
aggregate  number of Shares that may be issued under the Plan, and the number of
Shares  subject  to, and the Exercise Price of, each then-outstanding Option, as
it,  in  its  sole  and  absolute  discretion,  deems  appropriate.

11.     MERGERS,  DISPOSITIONS  AND  CERTAIN  OTHER  TRANSACTIONS
        ---------------------------------------------------------

     If  during  the  term  of  any  Option, the Company shall be merged into or
consolidated  with  or  otherwise  combined  with  another  person or entity, or
substantially all of the property or stock of the Company is acquired by another
person or entity, or there is a divisive reorganization, spin-off or liquidation
or partial liquidation of the Company ("Reorganization"), the Company may choose
to  take  no action with regard to the Options outstanding or to take any of the
following  courses  of  action:

     (a)  The  Company  may  provide  in  any agreement with respect to any such
          Reorganization  that the surviving, new or acquiring corporation shall
          grant  options  to the Optionees to acquire shares in such corporation
          with  respect  to  which  the  excess  of the fair market value of the
          shares  of  such corporation subject to such options immediately after
          the  consummation  of  such Reorganization over the aggregate exercise
          price  of  such  options  shall  not be greater than the excess of the
          aggregate value of the Shares over the aggregate Exercise Price of the
          Options  immediately prior to the consummation of such Reorganization;
          and  that  the  grant  of  such options after the consummation of such
          Reorganization  would  not  give the Optionees any additional benefits
          that  the  Optionees  did  not  have  before  the consummation of such
          Reorganization;  or

     (b)  If  the Board shall determine that such action is reasonable under the
          circumstances,  it may give each Optionee the right, immediately prior
          to the consummation of such Reorganization, to exercise his Options in
          whole  or  in  part, without regard to any restrictions on the time of
          exercise  otherwise imposed pursuant to Paragraph 7(e) of the Plan, or
          the  Board  may  take  such  other  action as it shall determine to be
          reasonable  under  the  circumstances  in order to permit Optionees to
          realize  the  value  of  rights  granted  to  them  under  the  Plan.

12.     PLAN  NOT  TO  AFFECT  EMPLOYMENT
        ---------------------------------

     Neither  the  Plan  nor any Option granted thereunder shall confer upon any
employee,  officer,  consultant or director of any of the Companies any right to
continue  in  the  employment  or  service  of  any  of  the  Companies.


<PAGE>

13.     INTERPRETATION
        --------------

     The  Board  or the Committee shall have the power to interpret the Plan and
to  adopt,  amend  and  rescind  rules  for  putting  the  Plan  into effect and
administering  it.  The  administration,  interpretation,  construction  and
application  of  the  Plan  and  any provisions thereof made by the Board or the
Committee  shall  be final and binding on all Optionees and on any other persons
eligible  under the provisions of the Plan to participate therein.  No member of
the  Board  or  Committee  shall  be  liable  for  any  action  taken or for any
determination  made  in  good  faith  in  connection  with  the  administration,
interpretation,  construction  or  application of the Plan.  It is intended that
the  Incentive Stock Options shall constitute incentive stock options within the
meaning  of  Section  422  of  the  Code,  that  the Non-Qualified Options shall
constitute  property  subject to U.S. Federal income tax at exercise pursuant to
the  provisions  of  Section 83 of the Code, and that the Plan shall qualify for
the  exemption  available under Rule 16b-3.  The provisions of the Plan shall be
interpreted  and  applied  insofar  as  possible  to  carry  out  such  intent.

14.     AMENDMENT  OR  DISCONTINUANCE  OF  THE  PLAN
        --------------------------------------------

     The  Board  may,  subject  to regulatory approval, amend or discontinue the
Plan  at  any time, provided, however, that no such amendment may materially and
adversely  affect  any option rights previously granted to an Optionee under the
Plan  without  the written consent of the Optionee or other person then entitled
to  exercise  such  Option,  except  to  the  extent  required  by law or by the
regulations,  rules,  by-laws  or  policies of any regulatory authority or stock
exchange.  However,  any  amendment  of  this  Plan  that  would (a) increase or
decrease  the  number  of  Shares that may be issued pursuant to Options granted
under  this  Plan  or  (b)  modify  the  requirements  as  to  eligibility  for
participation  in  this  Plan,  shall  be  effective  only  if such amendment is
approved by the shareholders of the Company within twelve months before or after
the  date  on  which such amendment is adopted by the Board and, if required, is
also approved by any securities and stock exchange regulatory authorities having
jurisdiction  over  the  Shares.

15.     SECURITIES  LAWS
        ----------------

     The  Company shall have the power to make each grant under the Plan subject
to  such conditions as it deems necessary or appropriate to comply with the then
existing rules and regulations of the Securities and Exchange Commission and the
applicable  laws  and  regulations  of  any  other  jurisdiction.

16.     EFFECTIVE  DATE  AND  TERM  OF  PLAN
        ------------------------------------

     The  Plan  shall  become  effective  on the date the Plan is adopted by the
Board, and, unless sooner terminated by the Board, shall expire on the date that
is  ten  years  after  the date on which the Plan is adopted by the Board or the
date  the  Plan  is approved by the Company's shareholders, whichever is earlier
("Expiration  Date").  No Option granted under the Plan shall become exercisable
unless and until the Plan shall have been approved by the Company's shareholders
within  twelve months before or after the date the Plan is adopted by the Board,
and  no  Option  may  be  granted  under the Plan following the Expiration Date.


<PAGE>

17.     GOVERNING  LAW
        --------------

     The  Plan  and  all  matters  to  which  reference  is made herein shall be
governed  by  and  interpreted  in accordance with the laws of Wyoming, provided
that,  notwithstanding such choice of law, the federal laws of the United States
shall  be  applicable herein to the extent specified or to the extent compliance
with  such  laws  is  mandatory.

        By order of the Board of Directors of USA Video Interactive Corp.


<PAGE>