UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549  FORM 10-K  XANNUAL REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2009 OR 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 0-29651  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 of Organization) 8 West Main Street  Suite 3-13, Niantic, Connecticut 06357 (Address of principal executive offices) (ZIP Code) Registrants telephone number, including area code: (860) 739-8030 Securities registered pursuant to Section 12(b) of the Act None Securities registered pursuant to Section 12(g) of the Act: Common Shares (Title of Class)  Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No  x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No   x 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 shorter period that the registrant as required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x   No   o. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer and large accelerated filer in  Rule 12b-2 of the Exchange Act. Large Accelerated filer o Accelerated Filer o Non-accelerated filer x Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  o   No   x State the aggregate market value of the voting and non-voting equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed fiscal quarter:   $5,655,791 Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date:  188,526,363 Documents Incorporated by Reference: NONE


TABLE OF CONTENTS  Part 1 Item 1 Business 1 Item 1A Risk Factors 5 Item 1B Unresolved Staff Comments 11 Item 2 Properties 11 Item 3 Legal Proceedings 11 Item 4 Submission of Matters to a Vote of Security Holders 12  Part II Item 5 Market for Registrations Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 12 Item 6 Selected Financial Data 13 Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operation 13 Item 7A Quantitative and Qualitative Disclosures About Market Risk 16 Item 8 Financial Statements and Supplementary Data 16 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 17 Item 9A Controls and Procedures 17 Item 9B Other Information 18  PART III Item 10 Directors and Executive Officers of the Registrant 18 Item 11 Executive Compensation 19 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 22 Item 13 Certain Relationships and Related Transactions 22 Item 14 Principal Accountant Fees and Services 22  PART IV Item 15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 22          1   PART I   Item 1. Business.  Forward-looking Statements  Statements in this annual report on Form 10-K that are not historical facts constitute forward-looking statements which are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industrys actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Those factors include, among other things, those listed under Risk Factors and elsewhere in this annual report. In some cases, you can identify forward-looking statements by terminology such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue or the negative of these terms or other comparable terminology; as well as terms such as “we intend to continue to develop and expand our StreamHQTM services business, “upon successfully licensing our patent”, and “our future plans include the marketing and selling of our StreamHQTM systems”.  These statements are only predictions. Actual events or results may differ materially. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this annual report to conform these statements to actual results.  Introduction  We design and market to business customers digital watermarking, streaming video and video-on-demand systems, services 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.  Our systems, services and delivery solutions include digital watermark solutions and video content production, content encoding, media asset management, media and application hosting, multi-mode content distribution, transaction data capture and reporting, e-commerce, specialized engineering services, and Internet streaming hardware.  Although we have generated nominal sales for the 2009 year, we continue to explore opportunities that will result in new products for new revenue streams, but there can be no assurances that such efforts will be successful.  Our products and services are based on our proprietary rich media delivery infrastructure and software and our Store and Forward Video-on-Demand ("VOD") patent.  Our patent expired in February of 2010.  These technologies, together with video compression technology, facilitate the delivery of video to an end user in a timely and interactive fashion.  We have developed a number of specific products and services based on these technologies.  These include MediaSentinelTM and SmartMarksTM, a process that watermarks digital video content; StreamHQTM, a collection of source-to-destination media delivery services marketed to businesses; EncodeHQTM, a service that digitizes and compresses analog-source video; hardware server and encoder system applications under the brand name Hurricane MediacasterTM; ZMailTM, a service that delivers web and rich media content to targeted audiences, and mediaClixTM, a service that delivers content similar to ZmailTM but originating from an existing web presence.  Corporate Background  Our company was incorporated on April 18, 1986, as “First Commercial Financial Group Inc. in the Province of Alberta, Canada.  In 1989, our 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, we changed our name to USA Video Interactive Corp. and continued our corporate existence to the State of Wyoming.  We have five wholly-owned subsidiaries: USA Video (California) Corp., USA Video Corporation, Old Lyme Productions Inc., USA Video Technology Corporation and USVO Inc.  USA Video's executive and corporate offices are located in Niantic, Connecticut, and our Canadian offices are located in Vancouver, British Columbia.     2   Business Environment  The cost of bandwidth and supporting equipment, such as cable modems and other broadband connectivity to homes and businesses, is expected to continue to decrease over the next several years, bringing expanded use of high bandwidth applications for video transmission to the general market.  Meanwhile, compression technologies continue to improve, allowing delivery of higher quality content using existing connectivity.  Also, digital content piracy is increasing at an exponential rate.  Strategic Plan  We believe that the expected substantial increases in bandwidth capacity, accompanying decreases in bandwidth cost, increases in consumer computer and video appliance storage capacity, and the proliferation of fast video file transfer techniques will result in an industry focus on downloading as an alternative to streaming as a content delivery mechanism.  To position ourselves to take advantage of this anticipated shift, protecting our technology ownership rights, including pursuing licensing arrangements and other forms of enforcement and pursuing marketing of our patent-pending digital watermarking technology.  We continue to research and develop our patent-pending digital watermarking technology while pursuing marketing of our new releases of MediaSentinelTM and other related products.  We discontinued the sale of select services from our prototype StreamHQTM after customers' satisfaction and proof of concept.  We no longer sell our individual functions of StreamHQTM.  We intend to continue to develop and expand our StreamHQTM services business, while pursuing opportunities to sell replicated StreamHQTM systems to corporations and organizations that prefer systems solutions to services solutions.  Proprietary Technologies  Our proprietary technologies include our (1) Digital watermarking piracy deterrence technology; (2) StreamHQTM infrastructure, software, and service delivery processes, and (3) VOD patent.  · The objective of our patent-pending Digital Watermarking technology is to deter digital video piracy once a user has been authorized to view a video.  This is one of the major concerns preventing content owners from committing more of their content to the digital medium.  Digital watermarking helps trace content to incidents of piracy, thus deterring piracy.  · The ability of StreamHQTM to deliver services to clients with market-specific value propositions stems from its scalable, streaming-enabled web infrastructure, the software functionality that resides on this infrastructure (such as innovative asset management and user transaction data capture and reporting), and the processes developed for delivering media campaigns to clients.  By delivering features unique to individual markets, such as advertising, corporate communications and customer service, StreamHQTM services are differentiated from the generic services delivered by competitors.  · Our VOD Patent (US #5,130,792) (the "Patent") as well as patents we have obtained in other countries explicitly covers the rich media delivery model that is becoming more widely accepted as a means of delivering content for education, training, and entertainment; that is, faster-than-real-time download to computer and set-top box hard drives for subsequent content viewing without quality limitations resulting from insufficient or variable bandwidth.  The impact of this Patent becomes more significant as content owners and those that facilitate content delivery adopt this model.  Our Patent expired in February 2010.  Products and Services  Our principal products and services are our proprietary rich media delivery infrastructure and.  These technologies, together with video compression technology, facilitate the delivery of video to end users in a timely and interactive fashion.  We have developed a number of specific products and services based on these technologies.  These include:  · MediaSentinelTM, digital watermarking technology used to deter piracy of digital content;    3   · SmartMarksTM, are invisible, unremovable, forensic “digital watermarks” imbedded in every video frame to protect digital video from piracy; · StreamHQTM, a collection of source-to-destination media delivery services marketed to businesses; · EncodeHQTM, a service that digitizes and compresses analog-source video; hardware server and encoder system applications under the brand name Hurricane MediacasterTM; · ZmailTM, a service that delivers web and rich media content to targeted audiences; · mediaClixTM, a service that delivers content similar to ZmailTM, but originating from an existing web presence.  We propose to grant licenses to use our patent-pending digital watermarking technology on terms comparable to the reasonable royalty provided for by U.S. patent laws.  Upon successfully licensing our patent, we could earn an initial licensing fee and/or per-use royalties, meaning that each time a licensed event occurs (e.g. each time a digital watermark is encoded in a video) a specified royalty will be paid to us.  Upon suitable negotiated terms, we may also consider bulk-fee licensing agreements, either apart from or in addition to per-use royalties.  Our future plans include the marketing and selling of our StreamHQTM systems, whereby a customer would purchase an entire system, comprised of hardware assembled by us and software developed and installed by us.  After sale and delivery of the system to a customer, our service to the customer would then include updates of software and service and maintenance of hardware, as necessary, for additional compensation.  The services of ZmailTM and mediaClixTM are available to a customer only through the purchase of a StreamHQTM system.  As a cost cutting measure, we have terminated the operation of our StreamHQTM infrastructure, which provided individual functionality of StreamHQTMfor small customers, as this service was no longer cost effective or deemed necessary at this time.  Status of Products and Services  We are taking aggressive steps to advance our patent-pending digital watermarking technology.  These steps include actively seeking licensing initiatives.  Our product is designed to be easily customized to individual customer needs.  We have recognized a rising need for anti piracy applications, which we developed under the brand MediaSentinelTM”.  MediaSentinelTM utilizes SmartMarksTM which are digitally encoded forensic data invisibly embedded into a video stream.  Currently, research and development is focused on our MediaSentinelTM products.  The current release of MediaSentinelTM is designed for the motion picture industry.  Customers and Markets  The principal market for our services is the business-to-business sector, rather than the individual consumer sector. The market for digital watermarking technology may be required by copyright-owning content providers who have concerns about the potential for digital piracy of their material.  Protocols may develop which will require participants in the video industry to embrace some form of digital watermarking.  We will follow those developments closely, and, if necessary, take steps to promote and protect our digital watermarking technology.  Additionally, companies within the business-to-business sector, rather than the individual consumer, generally possess the greater financial wherewithal and purpose for purchasing StreamHQTM systems.  Our focus is on companies that can benefit from an engaging rich media and web presentation directed at a target audience.  Our customers for these services have included film companies, event promoters, ministries, travel companies, sports entertainment centers and political candidates.  Our customers for StreamHQTM systems may also be businesses or organizations that are dissatisfied with response rates from traditional email campaigns, or who have in the past been unable to track the response rate to such traditional email campaigns.  Additionally, any business that wishes to increase brand or product awareness in a more cost effective manner than television advertising would be an appropriate candidate for the StreamHQTM services.     4   Sources and Availability of Raw Materials  We assemble our hardware systems from components manufactured by others.  We specify, procure, assemble, test and deploy the various system components according to a precisely developed set of procedures.  We consult on an as-needed basis, with companies that supply the major materials needed to build our systems.  Systems are programmed and configured to meet a wide variety of individual customer requirements.  We procure the materials and hardware to assemble systems and their components from various companies, as needed, and in sufficient quantities to preclude any danger of significant sourcing problems in the immediate future.  There are no seasonal limitations on our operations.  Competitive Conditions  Civolution, Verance, Verimatrix,  and other companies large and small are active in the field of digital watermark technologies.  The video streaming market is currently dominated by a small number of larger companies, including Real Networks, Microsoft, Yahoo and several others, some of which offer source-to-destination streaming media solutions.  Most of our current and potential competitors have longer operating histories, larger customer bases, greater name recognition and significantly greater financial, marketing and other resources than us.  In addition, larger, well-established and well-financed entities may acquire, invest in or form joint ventures with online competitors as the use of the Internet and other online services increases.  In addition, new technologies and the expansion of existing technologies are expected to result in additional competition.  The streaming media market is new, rapidly evolving and extremely competitive and we expect that competition will intensify in the future.  We compete with other companies that provide all or certain aspects of our services, including other streaming media providers, content encoders, video production companies, Internet data management companies, and others, and expect that additional competition in the future will be provided by those types of providers.  Our current market share is insignificant.  We are, and will continue to be dependent on vendors and other providers to supply the hardware, software and co-location resources that comprise our products and services.  Further, we currently compete with, and expect to compete with in the future, providers of some of our technology or system components.  Competition is expected in all areas of business, including pricing, service, product performance, and our ability to keep up with rapidly improving technology, changing market conditions, evolving industry standards and changing customer demands.  Research and Development  Prior to 1999, we conducted seven years of research and development of our proprietary VOD technology. In 1999, our focus shifted to marketing and sales of our products and services, with research and development directed primarily at supporting sales and development of Wavelet compression technology.  In 2000, we devoted substantial resources to development of our StreamHQTM services and began development of our proprietary still and motion Wavelet technology, which has been completed as mathematical processes.  In 2001, we redirected the Wavelet development effort toward the invention of a content protection technology that is grounded in similar science as Wavelet compression.  The result is our patent pending digital watermark technology for piracy deterrence.  During 2002, as a result of cost cutting measures necessitated by the state of the market, we cut back on our marketing, sales and technical staff.  In 2004, we resumed development of our patent pending digital watermark technology.  During fiscal 2009 and 2008, our research and development expenditures were $36,000 and $80,000, respectively.  Intellectual Property  Our success is dependent, in part, upon our proprietary technology.  We generally rely upon patents, trademarks, and trade secret laws to establish and maintain our proprietary rights in our technology products and services.  On June 19, 2001, United States Patent Application No. 09/884,787, Method and Apparatus for Digitally Fingerprinting Videos, was officially filed with the U.S. Patent and Trademark Office.  This patent is for MediaSentinelTM”.     5   Employees  As of March 31st, 2010, we employed four people, including our two senior executive officers, one technology and one administrative employee. We consider the relationships with our employees to be good.  Competition for technical personnel in the industry that we compete in is intense.  Our future success will depend, in part, on our continued ability to contract or hire, assimilate, and retain qualified personnel. To date, we believe we have been successful in recruiting qualified contractors or employees, but there is no assurance that we will continue to do so in the future.  Item 1A. Risk Factors  Our business and operations are subject to a number of risks and uncertainties as described below. However, the risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we may currently deem immaterial, may become important factors that harm our business, financial condition or results of operations. If any of the following risks actually occur, our business, financial condition or results of operations could suffer.  OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND PROSPECTS.  We have a very limited operating history and have made very limited sales of our products and services and we were in the development stage through December 31, 1999. Our 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 digital watermarking.  Some of these risks relate to our ability to:  · maintain or develop relationships with suppliers and marketing partners; · establish a  customer base; · continue to develop and upgrade our technology, products and services; · provide superior customer service; · respond to competitive developments; and · retain and motivate qualified personnel.  WE HAVE INCURRED SUBSTANTIAL LOSSES; WE EXPECT TO INCUR LOSSES IN THE FUTURE, AND MAY NEVER ACHIEVE PROFITABILITY.  To date, we have not been profitable, have not generated significant revenue from operations, and have incurred substantial losses.  For the year ended December 31, 2009, we had a net loss of $811,004.  As of December 31, 2009, we had an accumulated deficit of $38,996,101 and a working capital deficit of $692,557.  We intend to continue to expend significant financial and management resources on the development of our proposed products and services, and other aspects of our business.  As a result, we expect operating losses and negative cash flows to increase for the foreseeable future.  Consequently, we will need to generate significant revenues to achieve and maintain profitability.  We may be unable to do so. If our revenues grow more slowly than anticipated or if operating expenses increase more than expected, or are not reduced sufficiently, we may never achieve profitability.  Because of factors discussed in this paragraph, our auditors, in their report on our financial statements, have expressed substantial doubt concerning our ability to continue as a going concern.  IF WE ARE UNABLE TO OBTAIN SUBSTANTIAL ADDITIONAL FINANCING, WE MAY NOT BE ABLE TO REMAIN IN BUSINESS.  We require substantial working capital to fund our business.  We have had significant operating losses and negative cash flow from operations since inception of our current business and expect to continue to do so for the foreseeable future.  Our capital requirements will depend on several factors, including the rate of market acceptance of our products and services, the ability to establish and expand a client base and the growth and effectiveness of our sales and marketing efforts.  We estimate we will require approximately $1.25 Million to    6   $1.75 Million in financing to meet our working capital needs over the remainder of 2010 and substantial additional financing thereafter.  Further, if capital requirements vary materially from those currently planned, we may require additional financing.  We have no arrangements or commitments for any financing.  Financing may not be available when needed on terms favorable to us, or at all.  If adequate funds are not available or are not available on acceptable terms, we may be unable to further develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures, or ultimately, to continue in business.  OUR OPERATING RESULTS IN FUTURE PERIODS ARE EXPECTED TO BE SUBJECT TO SIGNIFICANT FLUCTUATIONS, WHICH WOULD LIKELY AFFECT THE TRADING PRICE OF OUR COMMON SHARES.  Our quarterly and annual operating results are likely to fluctuate significantly in the future due to a variety of factors, many of which are outside of our control. Some of these factors include:  · our ability to attract and retain customers; · the introduction of new enhancements in digital watermarking; · price competition; · our ability to remain competitive in our product and service offerings; · our ability to attract new personnel; and · U.S. and foreign regulations relating to the Internet.  As a result of the factors listed above, and others, period-to-period comparisons of our operating results may not be meaningful in predicting our future performance.  It is possible that our operating results will not meet market expectations in some future quarter or quarters, which would likely result in a significant decline in our stock price.  THE DIGITAL WATERMARKING BUSINESS IS HIGHLY COMPETITIVE, AND OUR FAILURE TO COMPETE SUCCESSFULLY WOULD LIMIT OUR ABILITY TO RETAIN AND INCREASE OUR MARKET SHARE.  The digital watermarking market is new, rapidly evolving and extremely competitive.  We expect competition to intensify in the future.  We compete with companies that provide all or certain aspects of our services, including other streaming media providers, content encoders, video production companies, Internet data management companies, and others, and expect that additional competition in the future will be provided by those types of providers and others.  Our current market share is insignificant.  The digital watermarking market is currently dominated by a small number of larger companies, including Civolution, Verance, Verimatrix and other companies large and small, some of which offer digital watermarking products.  Most of our current and potential competitors have longer operating histories, larger customer bases, greater name recognition and significantly greater financial, marketing and other resources than us.  In addition, larger, well-established and well-financed entities may acquire, invest in or form joint ventures with online competitors as the use of the Internet and other online services increases.  In addition, new technologies and the expansion of existing technologies are expected to result in additional competition.  We may not be able to compete successfully against current and future competitors, and any inability to do so could decrease our revenues, contribute to our not achieving profitability and adversely affect our ability to establish, maintain and increase our market share.  THE MARKET FOR OUR PRODUCTS AND SERVICES IS RELATIVELY NEW AND IS EVOLVING, AND OUR SUCCESS WILL DEPEND ON OUR ABILITY TO ADAPT TO CHANGING MARKET CONDITIONS.  Our future financial performance will depend in large part on the growth in demand for our digital watermarking services and products.  This market is emerging and rapidly evolving, is characterized by an increasing number of market entrants and will be subject to frequent and continuing changes in customer preferences and technology.  As is typical in new and evolving markets, demand and market acceptance for our products and services is subject    7   to a high level of uncertainty.  Because the market for our products is evolving, it is difficult to assess or predict with any assurance the size or growth rate, if any, of this market.  There can be no assurance that a significant market for our products will develop, or that it will develop at an acceptable rate or that new competitors will not enter the market.  In addition, even if a significant market develops for such products, there can be no assurance that our products will be successful in such a market.  If a significant market fails to develop, develops more slowly than expected or attracts new competitors, or if our products do not achieve market acceptance, our business prospects, financial condition and results of operations will be materially adversely affected.  WE ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE, WHICH COULD RENDER OUR PRODUCTS AND SERVICES OBSOLETE.  Our future success will depend in part on our ability to offer products and services that incorporate leading technology and address the increasingly sophisticated and varied needs of our current and prospective customers.  Our market is characterized by rapidly changing and unproven technology, evolving industry standards, changes in customer needs, emerging competition and frequent new service introductions. Future advances in technology may not be beneficial to or compatible with our business.  In addition, we may not be able to incorporate technological advances into our products and services in a cost-effective and timely basis.  Keeping pace with the technological advances may require substantial expenditures and lead time, particularly with respect to acquiring updated hardware and infrastructure components of our systems.  We may require additional financing to fund such acquisitions.  Any such financing may not be available on commercially reasonably terms, if at all, when needed.  WE ARE DEPENDENT UPON VENDORS AND OTHER THIRD PARTY SERVICE PROVIDERS, AND WILL BE COMPETING WITH SOME OF THESE COMPANIES.  We are, and will continue to be dependent on vendors and other providers to supply the hardware, software and co-location resources that comprise our products and services.  We have no long-term or exclusive contracts or arrangements with any of these vendors or providers.  We cannot be certain that our current and proposed vendors and service providers will continue to do business with us or that we will be able to establish relationships with new vendors and service providers, if necessary.  If we are unable to establish and maintain satisfactory relationships and arrangements with these third parties, our business could be harmed.  In addition, we will be dependent upon our third party vendors and other suppliers to adequately test their products before release, and to provide support for the products after delivery.  The failure of any of these third party providers to do so could have a material adverse effect on our business.  Further, we currently compete with, and expect to compete with in the future, providers of some of our technology or system components.  Our inability to, at the same time, effectively cooperate and compete with these companies could harm our business.  IF WE DO NOT CONTINUOUSLY IMPROVE OUR TECHNOLOGY IN A TIMELY MANNER, OUR PRODUCTS COULD BE RENDERED OBSOLETE.  The markets for our products and services are characterized by:  · rapidly changing technology; · evolving industry standards; · frequent new product and service introductions; and · changing customer demands.  These changes and developments may render our products and technologies obsolete in the future.  As a result, our success depends on our ability to adapt to these changes, particularly to develop or adapt products and services or to acquire new products and services that can compete successfully.  There can be no assurance that we will be successful in these efforts.     8   OUR SERVICES ARE COMPLEX AND WE MAY NOT BE ABLE TO PREVENT DEFECTS THAT COULD DECREASE THEIR MARKET ACCEPTANCE, RESULT IN PRODUCT LIABILITY OR HARM OUR REPUTATION.  Our digital water marketing and streaming media products and services are complex, and the steps we take to ensure that they are free of errors or defects, particularly when first introduced or when new versions or enhancements are released, may not be successful.  We cannot guarantee that current versions or enhanced versions or our products will be free of significant software defects or bugs. Despite our testing, and testing by our third-party vendors and providers, current or future products may contain serious defects.  Serious defects or errors could result in lost revenue or a delay in market acceptance of our products and could seriously harm our business and operating results.  Errors in our products may be caused by defects in third-party hardware or software incorporated into our products.  If so, we may be unable to fix these defects without the co-operation of these third-party providers.  Because these defects may not be as significant to these providers as they are to us, we may not receive the rapid co-operation that we may require.  Errors, defects or other performance problems with our products could also harm our customers' businesses or result in potential product liability claims.  Even if unsuccessful, a product liability claim brought against us would likely be time-consuming, costly and harmful to our reputation.  Nor can there be any assurance that our product liability insurance coverage will be sufficient to satisfy any successful claim.  ANY LOSS OF OUR PERSONNEL OR INABILITY TO ADD NEW PERSONNEL COULD HARM OUR BUSINESS.  Our future success depends significantly on the continued services and performance of our senior management.  Our performance also depends on our ability to retain and motivate our other key personnel.  The loss of the services of any member of our senior management team or other key employees could cause significant disruption in our business.  We have no long-term employment agreements with senior management and do not currently maintain any "key person" life insurance. Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, operations, sales and marketing and customer service personnel.  Competition for such personnel is intense, and we may not successfully attract, assimilate or retain sufficiently qualified personnel.  The failure to retain and attract the necessary personnel could impede our future success.  IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS. AS A RESULT, CURRENT AND POTENTIAL STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING, WHICH COULD HAVE A NEGATIVE IMPACT ON OUR STOCK PRICE.  Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our Annual Report on Form 10-K our assessment of the effectiveness of our internal controls over financial reporting. Our Chief Executive Officer and Chief Financial Officer have determined that our internal controls are ineffective.  The material weaknesses in our internal controls related to a lack of segregation of duties due to inadequate staffing within our accounting department and upper management, the assignment of authority and responsibility, lack of consistent policies and procedures, inadequate monitoring controls and inadequate disclosure controls.  If we cannot adequately maintain the effectiveness of our internal controls over financial reporting, we may be subject to liability and/or sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission. Any such action could adversely affect our financial results and the market price of our common stock.  WE DO NOT CURRENTLY HAVE ANY PAYING CUSTOMERS.  Our sales were $48,000 in 2009 and $24,000 in 2008.  One customer accounted for 100% of our revenue for the years ended December 31, 2009 and 2008.  We expect a small number of customers will continue to account for a substantial portion of our revenue for the foreseeable future.  Our inability to increase the number of our customers could limit our ability to maintain or increase our market share, or could cause revenue to drop quickly and unexpectedly.  OUR BUSINESS MAY SUFFER IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY.  We seek to protect our proprietary rights through a combination of patents, trade secrets and trademark laws,    9   confidentiality procedures and contractual provisions with employees and third parties.  Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we consider as proprietary.  Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of the proprietary rights of others.  Any litigation could result in substantial costs and diversion of management and other resources with no assurance of success and could seriously harm our business and operating results.  OUR PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, CAUSING US TO INCUR SIGNIFICANT COSTS OR PREVENT US FROM LICENSING OUR PRODUCTS.  Other companies, including our competitors, may have or obtain patents or other proprietary rights that would prevent, limit or interfere with our ability to make, use or license our products.  We cannot be certain that our products do not and will not infringe patents or other proprietary rights of others.  We may be subject to legal proceedings, including claims of alleged infringement by others of the intellectual property rights of third parties.  If a successful claim of infringement is brought against us and we fail to or are unable to license the infringed technology on commercially reasonable terms, our business and operating results could be significantly harmed.  Companies in the technology market are increasingly bringing suits alleging infringement of their proprietary rights, particularly patent rights.  Although we are not currently subject to any litigation or claims, any future claims, whether or not valid, could result in substantial costs and diversion of resources with no assurance of success.  Intellectual property litigation or claims could force us to do one or more of the following:  · cease selling, incorporating or using products or services that incorporate the challenged intellectual property; · obtain a license from the holder of the infringed intellectual property right, which license may not be available on commercially reasonable terms, or at all; or · redesign our products or services.  If we are forced to take any of these actions, our business could be substantially harmed.  OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH IN DEMAND FOR E-BUSINESS APPLICATIONS.  Our primary business strategy involves the development of products and services that enable users to transmit video over the Internet.  As a result, our future sales and any future profits will be substantially dependent upon the widespread acceptance and use of the Internet as an effective medium of business by consumers and businesses.  To be successful, consumers and businesses that historically have used traditional means of commerce to transact business must continue to accept and utilize the Internet as a medium for conducting business and exchanging information.  Consumers and businesses may reject the Internet as a viable commercial medium for a number of reasons, including potentially inadequate network infrastructure, slow development of enabling technologies, insufficient commercial support and privacy concerns.  In addition, delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity or increased government regulation could cause the Internet to lose its viability as a commercial medium.  If the demand for e-business applications does not grow or grows more slowly than expected, demand for our products and services would be reduced and our revenue would suffer.  GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS AND RISKS TO DOING BUSINESS ON THE INTERNET.  We are not currently subject to direct regulation by any governmental agency, other than regulations applicable to businesses generally, export control laws and laws or regulations directly applicable to electronic commerce.  However, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet covering issues such as: user privacy, pricing, content, copyrights, distribution, and characteristics and quality of products and services.  Furthermore, the growth and development of the market for electronic commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business online.  The adoption of additional laws or regulations may decrease the growth of the Internet or other online    10   services, which could, in turn, decrease the demand for our products and services and increase our cost of doing business.  The applicability to the Internet of existing laws governing issues such as property ownership, copyrights, encryption and other intellectual property issues, taxation, libel, export or import matters, obscenity and personal privacy is uncertain.  The vast majority of such laws were adopted prior to the advent of the Internet and related technologies.  As a result, they do not contemplate or address the unique issues of the Internet and related technologies.  Changes to such laws intended to address these issues, including some recently proposed changes, could create uncertainty in the Internet marketplace.  Such uncertainty could reduce demand for our products and services or increase the cost of doing business due to increased costs of litigation or increased service delivery costs.  OUR SHARE PRICE HAS BEEN AND COULD BE HIGHLY VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES TO INVESTORS.  The trading price of our common shares has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in response to a number of factors including: variations in quarterly operating results; new products or services offered by us or our competitors; conditions or trends in the Internet and online commerce industries; changes in the economic performance and/or market valuations of other Internet and online service companies; and other events or factors, many of which are beyond our control.  In addition, the stock market in general, and the market for Internet-related and technology companies in particular, has experienced extreme price and volume fluctuations, including large price drops in 2009, 2008, 2003, 2002 and 2001, that have often been unrelated or disproportionate to the operating performance of such companies.  These broad market and industry factors may materially adversely affect the market price of our common shares, regardless of our actual operating performance.  In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against such companies.  Such litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources.  ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS COULD PREVENT OR DELAY A CHANGE IN CONTROL OF THE COMPANY.  Our Articles of Continuance and bylaws contain anti-takeover provisions that could discourage, delay or even prevent an acquisition of our company at a premium price or at all.  Any of these provisions might prevent the market price of our common shares from increasing in response to takeover attempts, and could prevent our shareholders from realizing a premium over the then-prevailing market price for the common shares.  WE INTEND TO ISSUE ADDITIONAL EQUITY SECURITIES, WHICH MAY DILUTE THE INTERESTS OF CURRENT SHAREHOLDERS OR CARRY RIGHTS OR PREFERENCES SENIOR TO THE COMMON SHARES.  We intend to issue additional equity securities in order to raise working capital.  Accordingly, existing shareholders may experience additional dilution of their percentage ownership interest in our company.  In addition, the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common shares.  LIMITED LIABILITY OF EXECUTIVE OFFICERS AND DIRECTORS MAY DISCOURAGE SHAREHOLDERS FROM BRINGING A LAWSUIT AGAINST THEM.  Our bylaws contain provisions that limit the liability of directors for monetary damages and provide for indemnification of officers and directors.  These provisions may discourage shareholders from bringing a lawsuit against officers and directors for breaches of fiduciary duty and may also reduce the likelihood of derivative litigation against officers and directors even though such action, if successful, might otherwise have benefited the shareholders.  In addition, a shareholder's investment in USA Video may be adversely affected to the extent that costs of settlement and damage awards against officers or directors are paid by USA Video pursuant to the indemnification provisions of the bylaws.     11   REQUIREMENTS OF THE SEC WITH REGARD TO LOW-PRICED "PENNY STOCKS" MAY ADVERSELY AFFECT THE ABILITY OF SHAREHOLDERS TO SELL THEIR SHARES IN THE SECONDARY MARKET.  "Penny stocks" are low-priced, and usually highly speculative, stock selling at less than $5.00 per share.  Our securities are subject to Rule 15g-9 under the Securities Exchange Act of 1934, which imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and "accredited investors" (generally, an individual with a net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse).  For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale.  The rule also requires the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market.  The broker-dealer must also disclose the commissions payable for the transaction, current quotations for the stock, and, if applicable, the fact that it is the sole market maker in the stock.  Consequently, the rule may adversely affect the ability of broker-dealers to sell our securities and may adversely affect the ability of shareholders to sell their shares in the secondary market.  WE DO NOT ANTICIPATE PAYING DIVIDENDS TO SHAREHOLDERS IN THE FORESEEABLE FUTURE.  We have not paid dividends on our common shares and we intend, for the foreseeable future, to invest any earnings in the further development of our business. Accordingly, shareholders should not expect to receive any dividends on their shares.  Our failure to manage or adequately address any one or more of these rights could result in our business suffering a material adverse effect.  Item 1B. Unresolved Staff Comments.  Not applicable.   Item 2. Properties.  Our headquarters and executive offices are located in Niantic, Connecticut consisting of 1,100 square feet with a two year lease that expires July of 2010.  The annual base rent is $13,560.  We also lease 800 square feet of office space located in Vancouver, British Columbia, on a month-to-month lease.  The annual base rent is $20,000.   Item 3. Legal Proceedings.  Our patent infringement litigation against Movielink LLC came to a substantive conclusion on September 8, 2006, when the U.S. Court of Appeals for the Federal Circuit affirmed certain rulings of the U.S. District Court for the District of Delaware granting Movielink summary judgment of non-infringement. A further procedural determination was entered on September 26, 2007, taxing litigation costs against us.  On September 13, 2006, USA Video Technology Corp., our wholly-owned subsidiary, filed suit in the U.S. District Court for the Eastern District of Texas, alleging that its U.S. Patent No. 5,130,792 is infringed by cable technology interests including Time Warner, Inc., Charter Communications, Inc., and Comcast Cable Communications LLC, and seeking statutory compensation and a court injunction against further infringement.  In December 2007, the court issued rulings adverse to our interests: a claim construction ruling interpreting certain terms in the patent's claims, and a related summary judgment of non-infringement.  Defendants then filed motions for costs and attorney fees.  The court denied defendants' motions for attorney fees and granted the motions for costs, so that we now have a remaining liability from this litigation in the amount of approximately $30,000, not counting our own remaining attorney fees and litigation expenses.  Our subsidiary filed notice of appeal from the district court's adverse substantive decisions, but was unable to prosecute the appeal and so it was dismissed.  USA Video Technology Corp has reported $30,000 accounts payable as of December 31, 2009.      12   Item 4. Submission of Matters to a Vote of Security Holders.  We held our annual meeting of shareholders on October 13th, 2009, adjourned from September 29th, 2009, in Calgary, Alberta, Canada.  At the meeting the shareholders voted as follows:  (a) to retain Anton Drescher, Edwin Molina, Maurice Loverso and Rowland Perkins as our Directors;  (b) the appointment of John A. Braden & Company, LLP as auditors for the ensuing year;  (c) to approve a resolution to increase the authorized share capital from 250,000,000 shares of common stock to 500,000,000 shares of common stock; and  (d) to approve a resolution to amend the Articles of Incorporation to reduce the quorum requirements for shareholder meeting to at least 25% of the outstanding shares entitled to vote.   Matter Voted UponNo. of Votes ForNo. of Votes AgainstNo. of Votes Withheld1.
Election of Directors
Edwin Molina
Anton J. Drescher
Maurice Loverso
Rowland Perkins94,745,681
94,798,061
94,848,811
94,819,051641,413
589,033
538,283
568,0432.
Appointment of John A. Braden & Company, LLP as auditors94,918,506141,924326,6643.
Increase authorized share capital93,208,4821,750,800500,6532.
Reduce quorum requirement93,135,6411,630,439548,173  PART II   Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.  There is a limited public market for our common shares.  Our common shares trade on the TSX Venture Exchange (the TSX) under the trading symbol "US", and on the NASD OTC Bulletin Board under the symbol "USVO".  The following table shows the high and low sales prices (in Canadian dollars) of our common shares as reported by the TSX for the periods indicated.  TSX (Symbol US)PeriodHigh
(Cdn $)Low
(Cdn $)First Quarter 20080.1950.11Second Quarter 20080.1850.06Third Quarter 20080.0750.04Fourth Quarter 20080.050.015First Quarter 20090.0620.02Second Quarter 20090.0680.025Third Quarter 20090.0550.017Fourth Quarter 20090.0650.021  The following table shows the high and low prices of our common shares on the NASD OTC Bulletin Board. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:    13    OTC Bulletin Board(Symbol USVO)PeriodHigh
(US $)Low
(US $)First Quarter 20080.190.105Second Quarter 20080.1750.061Third Quarter 20080.070.039Fourth Quarter 20080.0450.011First Quarter 20090.080.020Second Quarter 20090.080.025Third Quarter 20090.060.017Fourth Quarter 20090.070.021  As of March 31st 2010 there were 188,526,364 common shares outstanding, held by 1,332 shareholders of record. To date, we have not paid any dividends on our common shares and do not expect to declare or pay any dividends on such common shares in the foreseeable future. Payment of any dividends will depend upon future earnings, if any, our financial condition, and other factors as deemed relevant by our Board of Directors. All sales of securities made by us during the year ended December 31, 2010 that were not registered under the Securities Act have been disclosed in our report on Form 10-Q for the periods ended March 31, 2009, June 30, 2009 and September 30, 2009 or in this Form 10-K.  The sales did not involve the use of an underwriter and no commissions were paid in connection with the sale of any of these securities.  Item 6. Selected Financial Data. The following table presents selected historical financial data.  The consolidated statement of operations data for the years ended December 31, 2008 and 2009, and the balance sheet data as of December 31, 2008 and 2009 are derived from our consolidated financial statements included elsewhere in this report, which have been audited by John A. Braden & Company, P.C., independent auditors for fiscal 2008 and 2009.  The selected financial data should be read in conjunction with our consolidated financial statements, including the related notes, and the information in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."


|                         |             |           |             |             |          
|------------------------ | ----------- | --------- | ----------- | ----------- | ---------
|                         | December 31
|Item                     | 2009
$      | 2008
$    | 2007
$      | 2006
$      | 2005
$   
|Revenue                  | 48,000      | 24,000    | --          | --          | 18,800   
|Net loss                 | (811,004)   | (915,918) | (1,784,193) | (1,249,045) | (958,250)
|Loss per share           | (0.00)      | (0.01)    | (0.01)      | (0.01)      | (0.01)   
|Total assets             | 52,668      | 3,055     | 73,905      | 55,478      | 89,599   
|Long-term obligations    | --          | --        | --          | --          | --       
|Cash dividends per share | --          | --        | --          | --          | --       

Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operation.  You should read the following discussion and analysis of our financial condition and results of operations together with Selected Consolidated Financial Data and our consolidated financial statements and related notes appearing elsewhere in this annual report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under Risk Factors and elsewhere in this annual report on Form 10-K.  Overview  We were a development-stage company from January 1, 1992 to December 31, 1999, during which time we engaged primarily in the development of our end-to-end hardware systems and proprietary Video-on-Demand and Wavelet compression technologies, and had very limited sales. In 2000, we made the first of our end-to-end systems, and invested heavily in further development of our StreamHQTM streaming media system.  Due to    14   current market conditions, management has implemented consolidation procedures to reduce the expense of operations.  We have transitioned our wavelet compression technology into a digital watermark technology.  As more fully discussed below we have not been profitable, and our revenues for 2009 were $48,000.  We cannot predict our revenue levels for the next 12 months, or thereafter, nor when, or if, our operations will become profitable.  We will require additional financing, both for the remainder of fiscal 2010 and thereafter, to continue to operate and expand our business.  There is no assurance that such financing will be available on commercially reasonable terms, if at all.  CRITICAL ACCOUNTING POLICIES  Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an ongoing basis, we evaluate these estimates, including those related to customer programs and incentives, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, impairment or disposal of long-lived assets, contingencies and litigation.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  We have identified the policies below as critical to our business operations and to the understanding of our financial results. The impact and any associated risks related to these policies on our business operations is discussed throughout managements discussion and analysis of financial condition and results of operations where such policies affect our reported and expected financial results:   Revenue recognition;  Impairment or disposal of long-lived assets;  Deferred taxes;  Accounting for stock-based compensation; and  Commitments and contingencies.  REVENUE RECOGNITION.  Revenue is recognized for digital water marking based on a contracted usage schedule on a monthly billing cycle.  Software revenue and other services are recognized in accordance with the terms of the specific agreement, which is generally upon delivery and when accepted by customer.  Maintenance, support and service revenue are recognized ratably over the term of the related agreement.  In order to recognize revenue, we must not have any continuing obligations and it must also be probable that we will collect the accounts receivable.  IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS.  Long-lived assets are reviewed in accordance with Statement of Financial Accounting Standard (SFAS) 144.  Impairment or disposal of long-lived assets losses are recognized in the period the impairment or disposal occurs.  DEFERRED TAXES.  We record a valuation allowance to reduce deferred tax assets when it is more likely than not that some portion of the amount may not be realized.  ACCOUNTING FOR STOCK-BASED COMPENSATION.In December 2004, the Financial Accounting Standards Board FASB issued SFAS No. 123 (revised 2004), Share Based Payment (SFAS 123(R)). SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. We adopted SFAS 123(R) on January 1, 2007. SFAS 123(R) permits public companies to adopt its requirements using either the modified prospective or modified retrospective transition method. We use the modified prospective transition method, which requires that compensation cost is recognized for all awards granted, modified or settled after the effective date as well as for all awards granted to employees prior to the effective date that remain unvested as of the effective date.     15   COMMITMENTS AND CONTINGENCIES.    We account for commitments and contingencies in accordance with financial accounting standards board Statement No. 5, Accounting for Contingencies. We record a liability for commitments and contingencies when the amount is both probable and reasonably estimable.   Results of Operations  Revenues  Revenues for the year ended December 31, 2009 ("fiscal 2009") was $48,000 and for the year ended December 31, 2008 ("fiscal 2008)was$24,000.  All revenues for fiscal 2009 and 2008 were derived from a license agreement for digital watermarking.  We had one customer, which accounted for 100% of the revenue in both years.  Expenses  Total operating expenses for fiscal 2009 was $858,978, compared with $983,051 for fiscal 2008.  For fiscal 2009, cost of sales was $10,050, as compared with $750 for fiscal 2008.  Additional expenses included amortization of $-0- for fiscal 2009 and $3,323 for fiscal 2008 for the amortization of the patents.  Non-cash compensation charges for fiscal 2009 were $264,525 and for fiscal 2008 were $200,775, due mostly to issuance of common shares and share purchase warrants to our officers, directors and employees at a price or exercise price below the market price of the common shares at the time of issuance and the issuance of stock options to contractors due to our adoption of FASB 123R effective as of January 1, 2006.  Because the rules of the TSX allow that the offering price for privately placed securities of listed companies may be set at the market price when the offering is first announced, rather than upon 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 2006 fair value of employee stock options for employees are included in non-cash compensation which is included in selling, general, and administrative expenses in the statement of operations.  Product marketing costs decreased due to managements decision to direct our efforts toward the current customer in additional divisions.  Professional fees decreased due to the courts adverse ruling in the patent infringement litigation.   Administrative expenses have decreased as a result.  During the period ended December 31, 2008, we wrote off accounts payable obligations of approximately $43,000 and recorded a gain of $43,000  Fiscal 2009 versus fiscal 2008  Research and development expenses consisted primarily of contractors, compensation, hardware, software, licensing fees, and new product applications for our proprietary MediaSentinelTM.  Research and development expenses decreased to $35,965 for fiscal 2009, from $80,349 for the comparable period in fiscal 2008.  Selling, general and administrative expenses were $812,963 for fiscal 2009, as compared to $898,828 for fiscal 2008. Selling, general and administrative expenses consisted of marketing expenses, consulting fees, noncash compensation, office, professional fees, and other expenses to execute our business plan and for day-to-day operations.  The primary components of the increases/decreases from fiscal 2009 to fiscal 2008 were:  · a $54,098 decrease in fiscal 2009 in marketing expenses was due to managements decision to direct our efforts toward the current customer in additional divisions;  · a $65,720 decrease in professional fees in fiscal 2009 was due to the courts adverse ruling in the patent infringement litigation; and  · a $11,218 increase in fiscal 2009 in transfer agent fees was due to increase activity for stock transfer.  · a $63,750 increase in fiscal 2009 in non-cash compensation charges due to a higher amount of options and private placements.     16     Net Losses  To date, we have not achieved profitability and expect to incur substantial losses for the foreseeable future.  Our net loss for fiscal 2009 was $811,004, compared with a net loss of $915,918 for fiscal 2008.  Liquidity and Capital Resources  At December 31, 2009, our cash position was $765, a increase of $700 from December 31, 2008.  We had a working capital deficit of $692,557 and an accumulated deficit of $38,996,101 at December 31, 2009.  Our principal source of cash during fiscal 2009 was proceeds of $275,000 received from the issuance of common stock and common stock warrants. This was offset by $274,300 of cash used in operating activities.  We have historically satisfied our capital needs primarily by issuing equity securities to our officers, directors, employees and a small group of investors, and from short-term bridge loans from members of management.  During fiscal 2009, officers, directors, employees and a small group of investors exercised warrants and stock options, resulting in gross proceeds to us of $275,000.  Our independent registered public accounting firm, in their report accompanying our audited financial statements at and for the year ended December 31, 2009, have stated that there is substantial doubt about our ability to continue as a going concern.  As of December 31, 2009, we had $765 in cash. We will require an additional $1.25 million to $1.75 million to finance operations for the fiscal 2010 and we intend to obtain such financing through sales of our equity securities.  The threat to our ability to continue as a going concern will be removed only when revenues have reached a level that sustains our business operations.  Assuming the aforementioned $1.25 million to $1.75 million in financing is obtained, continuing operations for the longer-term will be supported through anticipated growth in revenues and through additional sales of our securities.  Although longer-term financing requirements may vary depending upon our sales performance, management expects that we will require additional financing of $2.0 million to $3.0 million for fiscal 2011.  We have 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 us, if at all.  Off-Balance Sheet Arrangements  As of fiscal 2009 we have no off-balance sheet arrangements.  Item 7A. Quantitative and Qualitative Disclosure About Market Risk.  We believe our exposure to overall foreign currency risk is not material.  We do not manage or maintain market risk sensitive instruments for trading or other purposes and we are not exposed to the effects of interest rate fluctuations as we do not carry any long-term debt.  We report our operations in US dollars and our currency exposure, although considered by us as immaterial, is primarily between 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 us will be denominated in US dollars.  As we increase our marketing efforts, the related expenses will be primarily in US dollars.  In addition, 90% of our bank deposits are maintained in U.S. dollars.   Item 8. Financial Statements and Supplementary Data.  The financial statements and supplementary financial information required to be filed under this item are presented on pages F-1 through F-21 of this Report and are incorporated herein by reference.


F-1                   USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES  CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2009





F-2


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-3 Comments by Auditors for Canadian Readers on U.S./Canada Reporting Differences F-4  Consolidated Financial Statements:  Balance Sheets F-5 Statements of Operations F-6 Statements of Stockholders' Equity (Deficiency) F-7 Statements of Cash Flows F-8 Notes to ConsolidatedFinancial Statements F-9 - F-18


F-3


JOHN A. BRADEN & COMPANY, P.C. ____________________________________________________________________________________________________________ Members of the Texas Society of            Members of the American Institute Certified Public AccountantsCertified Public Accountantsof Certified Public Accountants Members of PCPS & Center for Audit Quality     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  To the Board of Directors USA Video Interactive Corp.  We have audited the accompanying consolidated balance sheet of USA Video Interactive Corp. as of December 31, 2009 and 2008, and the related statement of operations, stockholders equity (deficiency), and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.  We conducted our audit in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of USA Video Interactive Corp. as of December 31, 2009 and 2008 and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.  The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations, has not generated significant revenue from operations and has a net working capital deficiency and a stockholders deficiency that raise substantial doubt about its ability to continue as a going concern.  Managements plan in regard to these matters is also described in Note 3.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.  /s/ John A. Braden & Company P.C.  JOHN A. BRADEN & COMPANY P.C. Houston, Texas  March 31, 2010     Tel. 281.873.5005 ·Fax 281.873.5383 · 12941 Interstate 45 North ·Suite 422 · Houston, Texas  77060 [usvoform10k2009001.jpg]


F-4


JOHN A. BRADEN & COMPANY, P.C. ____________________________________________________________________________________________________________ Members of the Texas Society of            Members of the American Institute Certified Public AccountantsCertified Public Accountantsof Certified Public Accountants Members of PCPS & Center for Audit Quality      Comments by Auditors for Canadian Readers on U. S.  Canada Reporting Differences    In Canada, reporting standards for auditors do not require the addition of an explanatory paragraph (following the opinion paragraph) or a reservation of opinion when the consolidated financial statements are affected by conditions and events that cast substantial doubt on the Companys ability to continue as a going concern.  Such doubt is accounted for and disclosed in accordance with United States generally accepted accounting principles.  Our report to the Board of Directors dated March 31, 2009, is expressed in accordance with the standards of the Public Company Accounting Oversight Board (United States), which requires an explanatory paragraph in the auditors report.  /s/ John A. Braden & Company P.C.   JOHN A. BRADEN & COMPANY P.C. Houston, Texas  March 31, 2010          Tel. 281.873.5005 ·Fax 281.873.5383 · 12941 Interstate 45 North ·Suite 422 · Houston, Texas  77060 [usvoform10k2009002.jpg]


F-5


|                                                                           |                    |                   
|-------------------------------------------------------------------------- | ------------------ | ------------------
|USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES                              
|CONSOLIDATED BALANCE SHEETS                                               
|December 31,                                                               | 2009               | 2008              
|                                                                           |                    |                   
|ASSETS                                                                     |                    |                   
|Current Assets:                                                            |                    |                   
|Cash and cash equivalents                                                  | $              765 | $               65
|Accounts receivable                                                        | 48,000             | -0-               
|Prepaid expenses and other current assets                                  | 3,903              | 2,990             
|Total current assets                                                       | 52,668             | 3,055             
|                                                                           |                    |                   
|Property and Equipment - at net                                            | -                  | -                 
|                                                                           |                    |                   
|Intangible assets, net                                                     | -                  | -                 
|                                                                           |                    |                   
|Prepaid rent                                                               | -                  | -                 
|                                                                           |                    |                   
|Deferred Tax Assets, net of valuation allowance of $9,896,000 and          |                    |                   
|$9,683,000, respectively                                                   | -                  | -                 
|Total Assets                                                               | $        52,668    | $         3,055   
|                                                                           |                    |                   
|LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                   |                    |                   
|Current Liabilities:                                                       |                    |                   
|Accounts payable and accrued expenses                                      | $      745,065     | $    423,973      
|Due to related parties                                                     | 160                | 160               
|Total current liabilities                                                  | 745,225            | 424,133           
|                                                                           |                    |                   
|Commitments and Contingencies                                              |                    |                   
|                                                                           |                    |                   
|Stockholders' Deficiency:                                                  |                    |                   
|Preferred stock - no par value; authorized 500,000,000 shares, none issued |                    |                   
|Common stock and additional paid-in capital - no par value; authorized     |                    |                   
|500,000,000 shares issued and outstanding 188,526,363 and                  |                    |                   
|178,526,363 shares, respectively                                           | 38,303,544         | 37,764,019        
|                                                                           |                    |                   
|Accumulated deficit                                                        | (38,996,101)       | (38,185,097)      
|Stockholders' deficiency                                                   | (692,557)          | (421,078)         
|Total Liabilities and Stockholders' Deficiency                             | $         52,668   | $         3,055   

See Notes to Consolidated Financial Statements     F-6


|                                                                                                                 |                  |                   | 
|---------------------------------------------------------------------------------------------------------------- | ---------------- | ----------------- | 
|USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES                                                                    
|CONSOLIDATED STATEMENTS OF OPERATIONS                                                                           
|Year ended December 31,                                                                                          | 2009             | 2008             
|                                                                                                                 |                  |                  
|Revenue                                                                                                          | $         48,000 | $         24,000 
|                                                                                                                 |                  |                  
|Expenses:                                                                                                        |                  |                  
|Cost of sales                                                                                                    | 10,050           | 750              
|Research and development                                                                                         | 35,965           | 80,150           
|Selling, general and administrative (includes noncash
compensation charges of approximately 265,000
and 201,000) | 812,963          | 898,828          
|Depreciation and amortization                                                                                    | -0-              | 3,323            
|Total expenses                                                                                                   | 858,978          | 983,051          
|Loss from operations                                                                                             | (810,978)        | (959,051)        
|                                                                                                                 |                  |                  
|Other income (expense), net:                                                                                     |                  |                  
|Interest income (expense) (net of interest income                                                                |                  |                  
|of $-0- and $-0-espectively)                                                                                     | (26)             | 288              
|Gain on settlement of accounts payable                                                                           | -0-              | 42,845           
|                                                                                                                 | (26)             | 43,133           
|                                                                                                                 |                  |                  
|Net loss                                                                                                         | $  (811,004)     | $   (915,918)    
|                                                                                                                 |                  |                   | 
|Net loss per share - basic and diluted                                                                           | $            -0- | $           (.01)
|Weighted-average number of common shares outstanding -                                                           |                  |                  
|basic and diluted                                                                                                | 180,252,391      | 173,348,574      

See Notes to Consolidated Financial Statements


F-7


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)  Common Stock andStockholders'Additional Paid-in CapitalAccumulatedEquitySharesAmountDeficit(Deficiency)Balance at January 1, 2008170,108,08837,065,407(37,269,179)(203,772)Issuance of common stock and commonstock warrants for cash6,000,000282,000-282,000Issuance of common stock upon exercise of warrants2,140,000188,010-188,010Issuance of common stock upon exercise of stock options278,27527,827-27,827Noncash compensation charges-200,775-200,775Net loss--(915,918)(915,918)Balance at December 31, 2008178,526,36337,764,019(38,185,097)(421,078)Issuance of common stock and commonstock warrants for cash10,000,000275,000-275,000Issuance of common stock upon exercise of warrants----Issuance of common stock upon exercise of stock options----Noncash compensation charges-264,525-264,525Net loss--(811,004)(811,004)Balance at December 31, 2009188,526,363$ 38,303,544$  (38,996,101)$    (692,557)  See Notes to Consolidated Financial Statements


F-8


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSYear ended December 31,20092008Cash flows from operating activities:Net loss$   (811,004)$   (915,918)Adjustments to reconcile net loss to net cash used in operatingactivities:Depreciation and amortization-3,323Gain on sale of equipment--Gain on settlement of accounts payable-(42,845)Impairment loss on long-lived assets-25,212Noncash compensation charge264,525200,775Changes in operating assets and liabilities:Increase in accounts receivable(48,000)-Decrease (increase) in prepaid expenses and other current assets(913)5,680Decrease (increase) in prepaid rent--Increase (decrease) in accounts payable and accrued expenses321,092189,301Net cash used in operating activities(274,300)(534,472)Cash flows from investing activities:Proceeds from equipment sales--Net cash provided by investing activities--Cash flows from financing activity - proceeds from theissuance of common stock and warrants and exercise of options275,000497,837Net cash provided by financing activitiesNet increase (decrease) in cash and cash equivalents700(36,635)Cash and cash equivalents at beginning of year6536,700Cash and cash equivalents at end of year$              765$              65Supplemental disclosures of cash flow information:Cash paid during the year for interest$                  -$                -  See Notes to Consolidated Financial Statements





F-9


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


|                          |                                                                                                                                                                                                                                                                                         
|------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.
BASIS OF PRESENTATION: | The following financial statements present the financial results of USA Video Interactive Corp and its wholly owned subsidiaries USA Video (California) Corp., USA Video Corporation, Old Lyme Productions Inc., USA Video Technology Corporation and USVO Inc. on a consolidated basis.




|             |                                                                                                                                                                                                                                                                                                                                          
|------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.
BUSINESS: | USA Video Interactive Corp. (the "Company") is a designer of high-tech Internet streaming video-on-demand systems, services and solutions.  At December 31, 2009 and for the three-year period then ended, substantially all of the Company's assets and substantially all its operations are located and conducted in the United States.




|                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: | The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  As shown in the financial statements, the Company has incurred losses of $811,004 and $915,918  for the years ended December 31, 2009 and 2008, respectively.  In addition, the Company has a working capital deficiency of $692,557 and a stockholders deficiency of $692,557 at December 31, 2009. These conditions raise doubt about the Company's ability to continue as a going concern.  The Company's ability to continue as a going concern is dependent upon its ability to generate sufficient revenue and cash flow to meet its obligations as they come due, which management believes it will be able to do.  To date, the Company has funded operations primarily through the issuance of common stock, warrants and options to outside investors and to the Company's management.  The Company believes that its operations will generate additional funds and that additional funding from outside investors and the Company's management will continue to be available to the Company when needed.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary in the event the Company cannot continue as a going concern.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All intercompany accounts and transactions have been eliminated.

The Company maintains cash in bank deposit accounts which, at times, may exceed federally insured limits.  The Company has not experienced any losses on these accounts.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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.

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.




F-10


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property and equipment is stated at cost.  Maintenance and repairs are expensed as incurred.  When property is retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.  Depreciation is computed on the straight-line method over the estimated useful lives of the assets.
Intangible assets consist of patents and patents pending owned by the Company for the Store and Forward Video System.  The patents and patents pending are recorded at cost and are being amortized on a straight-line basis over 17 years.
At each balance sheet date, the Company evaluates the impairment of intangible assets.  The factors used in evaluating the period of amortization include:  (i) current operating results, (ii) projected future operating results, and (iii) other material factors that affect the continuity of the business and economic life of the asset.
Revenue from hardware product sales is recognized when the product has been shipped and the collection of payment is reasonably assured.  Revenue recognized from these sales is net of applicable provisions for refunds, discounts and allowances.  Engineering services sales are recognized upon the service having been provided.
Revenue from software sales is recognized when the product has been delivered. Revenue from multiple element contracts (hardware, software and engineering) is allocated to the various elements based on fair value.  If objective evidence of fair value is not available, revenue from these contracts is deferred until the earlier of when objective evidence of fair value does exist or all elements of the contract have been delivered.  Discounts will be applied to each element on a proportionate basis.  No portion of the revenue will be recognized if the portion of the revenue allocable to delivered elements is subject to forfeiture, refund or other concession.
Revenue is recognized for digital water marking based on a contracted usage schedule on a monthly billing cycle.
Research and development costs are expensed as incurred.
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (R) (revised 2004), Share-Based Payment which revised Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. This statement supersedes Opinion No. 25, Accounting for Stock Issued to Employees. The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based compensation transactions using APB 25 and requires that the compensation costs relating to such transactions be recognized in the statement of operations. The revised statement has been implemented by the Company effective January 1, 2006
The implementation of FAS No. 123 (R) has resulted in charges of $264,525 and $200,775  or the years ended December 31, 2009 and 2008, respectively.




F-11


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  The fair value of each option grant was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:Year ended December 3120092008Expected dividend yield- 0 -- 0 -Risk-free interest rate1.66-1.95%1.55-2.50%Volatility181-187%136-145%Expected life (years)22


| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective January 1, 2007, the Company adopted FAS No. 123 (R) utilizing the modified prospective method. FAS No. 123 (R) requires the recognition of stock-based compensation expense in the financial statements.

Under the modified prospective method, the provisions of FAS No. 123 (R) apply to all awards granted or modified on or  after the date of adoption. In addition, the unrecognized expense of awards not yet vested at the date of adoption, determined under the original provisions of FAS 123, Accounting for Stock Based Compensation, is  in net earnings in the periods after the date of adoption. Stock based compensation consists primarily of stock options. Stock options are granted to employees at exercise prices equal to the fair market value of the Companys stock at the dates of grant. Stock options generally vest over three years and have a term of seven years. Compensation expense for stock options is recognized on a straight line basis over the period of the award.

The fair value for options issued was estimated at the date of grant using a Black-Scholes option-pricing model. The risk free rate was derived from the U.S. Treasury yield curve in effect at the time of the grant. The volatility factor was determined based on our historical stock prices. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including the expected stock price volatility. Because the Companys employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.




F-12


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Income taxes are accounted for under the liability method.  Under this method, deferred tax assets and liabilities are recorded based on the temporary differences between the financial statement and the tax bases of assets and liabilities and for operating loss carry forwards measured using the enacted tax rates in effect for the year in which the differences are expected to reverse.  The Company periodically evaluates the reliability of its net deferred tax assets and records a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.  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 December 31, 2009 and 2008.  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 amounts of approximately 17,400,000 and 14,000,000 for the years ended December 31, 2009 and 2008, respectively, have been excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive.  In June 2007, the FASB issued FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently assessing the impact of FIN No. 48 on its consolidated financial statements.  In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 The Company is currently assessing the impact of SFAS No. 157 on its consolidated financial statements.  Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.


F-13


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


|                   |                                                                                          
|------------------ | -----------------------------------------------------------------------------------------
|4
MAJOR CUSTOMERS: | During the year ended December 31, 2009 one customer accounted for 100% of total revenue.




|                                               |                                                                     |        |       
|---------------------------------------------- | ------------------------------------------------------------------- | ------ | ------
|5.
PREPAID  EXPENSES AND OTHER CURRENT ASSETS: | Prepaid expenses and other current assets consist of the following:
|                                               | December 31,                                                        | 2009   | 2008  
|                                               | Prepaid Rent                                                        | $1,100 | $1,100
|                                               | Taxes Receivable                                                    | 2,803  | 1,890 
|                                               | Other (none in excess of 5% of current assets)                      | -0-    | -0-   
|                                               |                                                                     | $3,903 | $2,990




| |                                                                      |                                                                                                             |                          |  | 
| | -------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ------------------------ |  | 
| | 6.
INTANGIBLE ASSETS:                                                | Intangible assets consist of the following (as of December 31, 2009 the asset was impaired and written off)
| |                                                                      | Gross Carrying
Amount                                                                                       | Accumulated
Amortization
| | Patents and patents pending                                          | -0-                                                                                                         | -0-                     
| | Aggregate Amortization Expense:
For the year ended December 31, 2008 |                                                                                                             | $3,323                  




|                           |                                                            
|-------------------------- | -----------------------------------------------------------
|7.
PROPERTY AND EQUIPMENT: | Property and equipment, at cost, consists of the following:




| |                               |               |              |                      
| | ----------------------------- | ------------- | ------------ | ---------------------
| | December 31,                  | 2009          | 2008         | Estimated
Useful Life
| | Office Equipment              | $   16,069    | $  16,069    | 5 years              
| | Less accumulated depreciation | 16,069        | 16,069       |                      
| |                               | $       - 0 - | $      - 0 - |                      




|                        |                                                                                                                                                                                        |           |          
|----------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---------
|                        | Depreciation and amortization expenses amounted to $-0-and $3,323, respectively, for the years ended December 31, 2009 and 2008.                                                      
|8.
ACCOUNTS
PAYABLE AND | Accounts payable and accrued expenses consist of the following:                                                                                                                       
|ACCRUED                 | December 31,                                                                                                                                                                           | 2009      | 2008     
|EXPENSES                | Accounts payable                                                                                                                                                                       | $ 387,839 | $ 224,537
|                        | Accrued professional fees                                                                                                                                                              | 87,113    | 101,627  
|                        | Accrued payroll and related tax withholdings                                                                                                                                           | 268,613   | 96,309   
|                        | Amounts due for purchased computer equipment                                                                                                                                           | 1,500     | 1,500    
|                        |                                                                                                                                                                                        | $ 745,065 | $ 423,973
|                        | During the period ended December 31, 2009 and 2008, we wrote off accounts payable obligations of approximately $-0- and $43,000 and recorded a gain of $-0- and $43,000, respectively.




F-14


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


|                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|--------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                            | 9.
COMMITMENTS AND CONTINGENCIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Our patent infringement litigation against Movielink LLC came to a substantive conclusion on September 8, 2006, when the U.S. Court of Appeals for the Federal Circuit affirmed certain rulings of the U.S. District Court for the District of Delaware granting Movielink summary judgment of non-infringement. A further procedural determination was entered on September 26, 2007, taxing litigation costs against us.

On September 13, 2006, USA Video Technology Corp., our wholly-owned subsidiary, filed suit in the U.S. District Court for the Eastern District of Texas, alleging that its U.S. Patent No. 5,130,792 is infringed by cable technology interests including Time Warner, Inc., Charter Communications, Inc., and Comcast Cable Communications LLC, and seeking statutory compensation and a court injunction against further infringement.  In December 2007, the court issued rulings adverse to our interests: a claim construction ruling interpreting certain terms in the patent's claims, and a related summary judgment of non-infringement.  Defendants then filed motions for costs and attorney fees.  The court denied defendants' motions for attorney fees and granted the motions for costs, so that we now have a remaining liability from this litigation in the amount of approximately $30,000, not counting our own remaining attorney fees and litigation expenses.  Our subsidiary filed notice of appeal from the district court's adverse substantive decisions, but was unable to prosecute the appeal and so it was dismissed.  USA Video Technology Corp has reported $30,000 accounts payable as of December 31, 2009.
|10.
STOCK-
HOLDERS'
EQUITY: | On September 30, 2008, the Company issued 2,275,000 units to investors at $0.047 per unit.  Each unit consisted of one share of common stock and one warrant to purchase an additional share of common stock at $0.094 per share.  The Company charged operations for approximately $-0- representing the differential between the fair value and the purchase price of the common stock and for approximately $51,000 representing the differential between the fair value of the underlying common stock and the exercise price of the warrants.

On September 30, 2008, the Company issued 3,725,000 units to employee and directors at $0.047 per unit.  Each unit consisted of one share of common stock and one warrant to purchase an additional share of common stock at $0.094 per share.  The Company charged operations for approximately $-0- representing the differential between the fair value and the purchase price of the common stock and for approximately $84,000 representing the differential between the fair value of the underlying common stock and the exercise price of the warrants.

On October 29, 2009, the Company issued 6,000,000 units to investors at $0.0275 per unit.  Each unit consisted of one share of common stock and one warrant to purchase an additional share of common stock at $0.045 per share until October 29, 2010 and $0.092 per share until October 29, 2011.  The Company charged operations for approximately $-0- representing the differential between the fair value and the purchase price of the common stock and for approximately $145,800 representing the differential between the fair value of the underlying common stock and the exercise price of the warrants.

On October 29, 2009, the Company issued 4,000,000 units to employees at $0.0275 per unit.  Each unit consisted of one share of common stock and one warrant to purchase an additional share of common stock at $0.045 per share until October 29, 2010 and $0.092 per share until October 29, 2011.  The Company charged operations for approximately $-0- representing the differential between the fair value and the purchase price of the common stock and for approximately $97,200 representing the differential between the fair value of the underlying common stock and the exercise price of the warrants.




F-15


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 2008, the Company issued 2,140,000 shares of common stock upon the exercising of warrants with exercise prices ranging from $.0870 to $.0890 per common share and issued 278,275 shares of common stock upon the exercising of stock options with exercise price of $.1000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In February 2008, the Company granted 500,000 options to an employee of the Company to purchase 500,000 shares at a price of $0.10 to February 2010. The Company charged operations for the fair value of these options, approximately $37,650, and this amount is included in selling, general and administrative expenses in the accompany statement of operations.

In April 2008, the Company granted 250,000 options to a contractor of the Company to purchase 250,000 shares at a price of $0.10 to April 2010. The Company charged operations for the fair value of these options, approximately $28,125, and this amount is included in selling, general and administrative expenses in the accompany statement of operations

In April 2009, the Company granted 650,000 options to contractors of the Company to purchase 650,000 shares at a price of $0.10 to April 2011. The Company charged operations for the fair value of these options, approximately $21,525, and this amount is included in selling, general and administrative expenses in the accompany statement of operations.
| | Shareholders approved a resolution to increase the authorized share capital from 250,000,000 shares of common stock to 500,000,000 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             




|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11.
STOCK OPTIONS AND STOCK WARRANTS: | The Company has a stock option plan under which options to purchase shares of common stock may be granted to certain officers, directors and service providers.

In June 2001, the Company adopted a Stock Option Plan (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.  The 2001 Plan provides for the issuance of both incentive stock options and nonqualified options as those terms are defined in the Internal Revenue Code of 1986, as amended (the "Code").  The Company's 2001 plan will remain in effect until all granted stock options are exercised, expired or canceled.  In February 2007, the Company adopted a new Stock Options Plan (the 2005 Plan).  The 2005 Plan authorizes the issuance of up to 13,900,000 of the Company's common shares, subject to adjustment under certain circumstances. Shareholders approved in the June 2008 annual meeting an amendment to the 2005 Stock Option Plan to increase the number of shares from 13,900,000 shares to 16,000,000 shares.  The Company is listed on the TSX Venture Exchange ("TSX") and is subject to a limitation on the number of options a company may have. The 2005 Plan provides for the issuance of both incentive stock options and nonqualified options as those terms are defined in the Internal Revenue Code of 1986, as amended (the "Code").  The Company's previous option plan will remain in effect until all granted stock options are exercised, expired or canceled.




F-16


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | A summary of the status of the Company's options and changes during the years is presented below:




| |                                                                |                  |                                 |                  |                                
| | -------------------------------------------------------------- | ---------------- | ------------------------------- | ---------------- | -------------------------------
| | Year  ended December 31                                        | 2009             |                                 | 2008             |                                
| |                                                                | Number of Shares | Weighted Average Exercise Price | Number of Shares | Weighted Average Exercise Price
| | Outstanding at
beginning of year                               | 8,000,000        | $0.10                           | 15,240,000       | $0.10                          
| | Granted                                                        | 650,000          | $0.10                           | 750,000          | $0.10                          
| | Exercised                                                      | -0-              | $0.10                           | 278,275          | $0.10                          
| | Cancelled/expired                                              | 7,250,000        | $0.10                           | 7,711,725        | $0.10                          
| | Outstanding at
end of year                                     | 1,400,000        | $0.10                           | 8,000,000        | $0.10                          
| | Options exercisable
at year end                                | 1,400,000        |                                 | 8,000,000        |                                
| | Weighted average
fair value of
options granted
during the year |                  | $0.10                           |                  | $0.10                          




| |                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The aggregate intrinsic value at December 31, 2009 was $140,000.

There is no future unrecognized compensation since all of the options granted are immediately exercisable and fully vested.

The following table summarizes information about fixed stock options outstanding at December 31, 2009:




| |                 |                     |                                             |                                 |                    |                                
| | --------------- | ------------------- | ------------------------------------------- | ------------------------------- | ------------------ | -------------------------------
| |                 | Options Outstanding | Options Exercisable                        
| | Exercise Prices | Number Outstanding  | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price
| | $0.10           | 1,400,000           | 0.76                                        | $0.10                           | 1,400,000          | $0.10                          




F-17


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


| |                                                            
| | -----------------------------------------------------------
| | Warrants to purchase shares of common stock are as follows:




| |                                  |                    |                         |                    |                        
| | -------------------------------- | ------------------ | ----------------------- | ------------------ | -----------------------
| | Year ended December 31,          | 2009               | 2008                   
| |                                  | Number of Warrants | Range of Exercise Price | Number of Warrants | Range of Exercise Price
| |                                  |                    |                         |                    |                        
| | Outstanding at beginning of year | 6,000,000          | $0.089                  | 10,175,000         | $0.087 - $0.089        
| | Issued                           | 10,000,000         | $0.045-$0.092           | 6,000,000          | $0.089                 
| | Exercised                        | -0-                |                         | (2,140,000)        | $0.087 - $0.089        
| | Expired                          | -0-                |                         | (8,035,000)        | $0.087 - $0.089        
| | Outstanding at end of year       | 16,000,000         | $0.045-$0.092           | 6,000,000          | $0.089                 




| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Warrants issued in 2009 and 2008 have a contractual life of two years from the date of issuance.




|                  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|12.
INCOME TAXES: | As of December 31, 2009 the Company had deferred tax assets resulting primarily from net operating loss carryforwards of approximately $29,000,000, which are available to offset future taxable income, if any, through 2029.  As utilization of the net operating loss carryforwards is not assured, a 100% valuation allowance has been provided.

The components of the net deferred tax assets are as follows:




| |                                  |                 |                
| | -------------------------------- | --------------- | ---------------
| | December 31,                     | 2009            | 2008           
| | Net operating loss carryforwards | $ 9,869,000     | $ 9,683,000    
| | Valuation allowance              | (9,869,000)     | (9,683,000)    
| | Net deferred tax assets          | $         - 0 - | $         - 0 -
| |                                  |                 |                
| |                                  |                 |                




| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | The reconciliation of the effective income tax rate to the federal statutory rate are as follows:




| |                                                    |         |        
| | -------------------------------------------------- | ------- | -------
| | Year ended December 31,                            | 2009    | 2008   
| | Federal statutory tax rate                         | 34%     | 34%    
| | Valuation allowance on net operating carryforwards | (34)    | (34)   
| | Effective income tax rate                          | - 0 - % | - 0 - %




F-18


USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                 |                                                                                                       
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------
|13.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED): | The following table summarizes selected quarterly data for the years ended December 31, 2009 and 2008:




| |                           |               |                |               |                |              
| | ------------------------- | ------------- | -------------- | ------------- | -------------- | -------------
| |                           | First
Quarter | Second
Quarter | Third
Quarter | Fourth
Quarter | Full
Year    
| | 2009:                     |               |                |               |                |              
| | Revenue                   | $       6,000 | $      6,000-  | $   6,000     | $    30,000-   | $      48,000
| | Expenses                  | (119,941)     | (157,305)      | (149,456)     | (432,302)      | (859,004)    
| | Net Loss                  | (113,941)     | (151,305)      | (143,456)     | (402,302)      | (811,004)    
| |                           |               |                |               |                |              
| | Net loss per common share |               |                |               |                |              
| | Basic and
Diluted         | $    (0.00)   | $    (0.00)    | $    (0.00)   | $    (0.00)    | $    (0.01)  
| | 2008:                     |               |                |               |                |              
| | Revenue                   | $       6,000 | $      6,000-  | $   6,000     | $      6,000-  | $      24,000
| | Expenses                  | (259,305)     | (242,053)      | (149,456)     | (141,989)      | (939,918)    
| | Net Loss                  | (253,305)     | (236,053)      | (143,456)     | (135,989)      | (915,918)    
| |                           |               |                |               |                |              
| | Net loss per common share |               |                |               |                |              
| | Basic and
Diluted         | $    (0.00)   | $    (0.00)    | $    (0.00)   | $    (0.00)    | $    (0.01)  




|                     |                                                                                                                            
|-------------------- | ---------------------------------------------------------------------------------------------------------------------------
|14.
SUBSEQUENT EVENT | The Company patent (US #5,130,792) expired in February 2010. The cost of the patent was fully expensed in previous periods.

17   Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.  None   Item 9A. Controls and Procedures  Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this report.  In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  No system of controls can prevent errors and fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur. Controls can also be circumvented by individual acts of some people, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with its policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.  Subject to the limitations above, management believes that the consolidated financial statements and other financial information contained in this report, fairly present in all material respects our financial condition, results of operations, and cash flows for the periods presented.  Based on the evaluation of the effectiveness of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were not effective as a result of the weaknesses in the design of our internal control over financial reporting.  Based upon their evaluation of our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer have concluded that our internal controls over financial reporting are ineffective.  The material weaknesses in our internal controls related to a lack of segregation of duties due to inadequate staffing within our accounting department and upper management, the assignment of authority and responsibility, lack of consistent policies and procedures, inadequate monitoring controls and inadequate disclosure controls.  There were no changes in our internal controls that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.  We are committed to improving our financial organization.  As part of this commitment, we will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to our company.  In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes.  Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result in proper segregation of duties and provide more checks and balances within the department.  Additional personnel will also provide the cross training needed to support our company if personnel turn over issues within the department occur.





18   We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.  This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit our company to provide only management's report in this annual report.  Item 9B. Other Information  Not applicable   PART III   Item 10. Directors and Executive Officers of the Registrant.  The following table sets forth the name, age, position, and period of service in his present position of each director and executive officer of USA Video:


|                    |     |                                                 |                  
|------------------- | --- | ----------------------------------------------- | -----------------
|Name                | Age | Position                                        | Period of Service
|Edwin Molina        | 54  | Director, Chief Executive Officer and President | Since 1998       
|Anton J. Drescher   | 53  | Director, Chief Financial Officer and Secretary | Since 1994       
|Maurice Loverso (1) | 49  | Director                                        | Since 2003       
|Rowland Perkins (1) | 56  | Director                                        | Since 2005       

(1) Member of the Audit Committee  Edwin Molina, Anton Drescher, Maurice Loverso and Rowland Perkins were re-elected as directors of USA Video in October 2009.  Executive Officers and Directors of the Company:  Edwin Molina - President, Chief Executive Officer and Director  Mr. Molina served as a Senior Administrator with USA Video from June 1992 to June 30, 1998, when he was appointed President, Chief Executive Officer and a director.  Mr. Molina was also a Senior Administrator with Adnet USA LLC, a private California company involved in Internet advertising, from May 1996 to June 1998.  Anton J. Drescher - Chief Financial Officer, Secretary and Director  Mr. Drescher has been Chief Financial Officer of USA Video since December 1994.  During the past 5 years to present, Mr. Drescher has provided administrative and consulting services in his capacity as President and a Director of Harbour Pacific Capital Corp. since 1998 and Westpoint Management Consultants Ltd. of Vancouver, British Columbia, Canada since 1978.  Mr. Drescher also currently serves as a director and/or officer of the following TSX listed companies: International Tower Hill Mines Ltd. since October 1991, Dorato Resources Inc. since December 1998; Ravencrest Resources Inc. since April 2007 and Trevali Resources Corp. since 2008.  Mr. Drescher obtained a Diploma in Financial Management from the British Columbia Institute of Technology in June 1974.  He also obtained his Certified Management Accountant's designation in October 1981.  Maurice Loverso  Director  Mr. Loverso has been an independent director of USA Video since May  2003.  He has been President of 3336298 Canada Inc. since 1996, providing financial consultation services to small capital public and private companies and has been a director of Group Intercapital Inc. since 1996, assisting a small cap venture capital firm with financial advice. Previously, from 1992 to 1995, he served as President of Almic Industries, a manufacturer of    19   bathroom vanities and accessories and provided financial consultant services to USA Video from 1992 to 1994. From 1998 to 1999, he was a director of QR Canada Capital Inc., a public company listed for trading on the TSX.  Rowland Perkins  Director  Mr. Perkins was appointed as an independent director of USA Video as of January 10, 2005.  He has been President and a director of eBackup Inc., of Calgary, Alberta, since 2001.  He was previously Alberta Regional Manager of Securitinet Storage Solutions from 1999 to 2001, Vice-President of Simul Corp. from 1997 to 1999 and President of Franchise Network from 1994 to 1997.  Mr. Perkins currently serves as a director of the following TSX listed companies:   Dorato Resources Inc. since January 2005, International Tower Hill Mines Ltd. since 1998 and Waymar Resources Ltd. since June 2005.  Section 16(a) Beneficial Ownership Reporting Compliance  Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section 16"), requires that reports of beneficial ownership of capital stock and changes in such ownership be filed with the SEC by Section 16 "reporting persons," including directors, certain officers, and holders of more than 10% of the outstanding common shares.  We are required to disclose in this Annual Report on Form 10-K each reporting person whom we know to have failed to file any required reports under Section 16 on a timely basis during the fiscal year ended December 31, 2009.  To our knowledge, based solely on a review of copies of Forms 3, 4 and 5 furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2009, our officers, directors and 10% shareholders complied with all Section 16(a) filing requirements applicable to them, with the exception of Edwin Molina, who filed a Form 4 late on a number of occasions.  Code of Ethics  We have adopted a Code of Ethics and Corporate Disclosure Policy that apply to the directors, officers and employees and Corporate Governance Guidelines that applies to our directors and officers.  A copy of the Code of Ethics, Corporate Disclosure Policy and Corporate Governance Guidelines are posted on our website at http://www.usvo.com. These documents are also available in print to any shareholder who requests a copy by sending a written request to our corporate secretary at #507, 837 West Hastings Street, Vancouver, British Columbia, V6C 3N6.  Audit Committee  The Audit Committee assists our Board of Directors in its oversight of the quality and integrity of the accounting, audit and reporting practices of the Company.  The Audit Committees role includes discussing with management our processes to manage business and financial risk and for compliance with significant applicable legal, ethical and regulatory requirements.  The Audit Committee is responsible for the appointment, replacement, compensation and oversight of the independent auditor engaged to prepare or issue audit reports on our financial statements.  The Audit Committee relies on the expertise and knowledge of management and the independent auditor in carrying out its oversight responsibilities.  The Audit Committee of the Board of Directors consists of Maurice Loverso and Rowland Perkins.  Rowland Perkins serves as Chairman.  The Board of Directors had determined that each Audit Committee member has sufficient knowledge in financial and accounting matters to serve on the Committee and that each member is an audit committee financial expert as defined by SEC rules.   Item 11. Executive Compensation.  The following table sets forth compensation awarded to, earned by or paid to USA Video's Chief Executive Officer (CEO), and to other persons serving as executive officers as of December 31, 2009, whose salary and bonus for such year exceeded $100,000 (collectively, the "Named Executive Officers") for the last three completed fiscal years.     20    Long Term CompensationSummary Compensation
Annual CompensationAwardsPayoutsName and Principal
PositionYearSalaryBonusOther
Annual
Compen-
sationRestricted
Stock
Award(s)Securities
Underlying
Options/SARs (#)LTIP
PayoutsAll Other Compen-sation$$$$$$Molina,
Edwin

CEO2009
2008
2007102,000
102,000
102,000-0-
-0-
-0-(1)12,150
(2)12,375
(3-4)326,940-0-
-0-
-0--0-
-0-
(3-4) 3,650,000-0-
-0-
-0--0-
-0-
-0-Drescher, Anton

CFO2009
2008
2007(5)72,000
(5)62,002
(5)60,000-0-
-0-
-0-(6)48,600
(7)62,438
(8-10)141,960-0-
-0-
-0--0-
-0-
(8-10)1,600,000-0-
-0-
-0--0-
-0-
-0-Loverso,
Maurice

Director2009
2008
2007-0-
-0-
-0--0-
-0-
-0--0-
-0-
(11-12)13,240-0-
-0-
-0--0-
-0-
(11-12)150,000-0-
-0-
-0--0-
-0-
-0-Perkins,
Rowland

Director2009
2008
2007-0-
-0-
-0--0-
-0-
-0--0-
-0-
(13-15)19,175-0-
-0-
-0--0-
-0-
(13-15)200,000-0-
-0-
-0--0-
-0-
-0-  (1) In October 2009, Mr. Molina purchased 500,000 units (each comprised of one common share and one warrant to acquire one common share at $0.045 per share until October 29, 2010 and $0.092 until October 29, 2011) at $0.0275 per unit.  This compensation resulted from the differential between the fair value and the purchase price of the common stock and the differential between the fair value of the underlying common stock and the exercise price of the warrants. (2) In September 2008, Mr. Molina purchased 550,000 units (each comprised of one common share and one warrant to acquire one common share at $0.094 per share) at $0.047 per unit.  This compensation resulted from the differential between the fair value and the purchase price of the common stock and the differential between the fair value of the underlying common stock and the exercise price of the warrants. (3) In July 2007, Mr. Molina was granted a stock option to purchase up to 1,650,000 shares of common stock at an exercise price of $0.14 per share, exercisable on or before July 30th, 2009.  This compensation resulted from the total fair value of the stock option (4) In December 2007, Mr. Molina was granted a stock option to purchase up to 2,000,000 shares of common stock at an exercise price of $0.10 per share, exercisable on or before December 27th, 2009.  This compensation resulted from the total fair value of the stock option (5) Represents consulting fees paid to Mr. Drescher through Harbour Pacific Capital Corp., a consulting firm wholly-owned by him, for his services as an executive officer of the Company. (6) In October 2009, Mr. Drescher purchased 2,000,000 units (each comprised of one common share and one warrant to acquire one common share at $0.045 per share until October 29, 2010 and $0.092 until October 29, 2011) at $0.0275 per unit.  This compensation resulted from the differential between the fair value and the purchase price of the common stock and the differential between the fair value of the underlying common stock and the exercise price of the warrants. (7) In September 2008, Mr. Drescher purchased 2,775,000 units (each comprised of one common share and one warrant to acquire one common share at $0.094 per share) at $0.047 per unit.  This compensation resulted from the differential between the fair value and the purchase price of the common stock and the differential between the fair value of the underlying common stock and the exercise price of the warrants. (8) In July 2007, Mr. Drescher was granted a stock option to purchase up to 600,000 shares of common stock at an exercise price of $0.14 per share, exercisable on or before July 30th, 2009.  This compensation resulted from the total fair value of the stock option (9) In December 2007, Mr. Drescher was granted a stock option to purchase up to 1,000,000 shares of common    21   stock at an exercise price of $0.10 per share, exercisable on or before December 27th, 2009.  This compensation resulted from the total fair value of the stock option (10) In December 2007, Mr. Drescher was granted a stock option to purchase up to 2,000,000 shares of common stock at an exercise price of $0.10 per share, exercisable on or before December 4th, 2008.  This compensation resulted from the total fair value of the stock option. (11) In July 2007, Mr. Loverso was granted a stock option to purchase up to 50,000 shares of common stock at an exercise price of $0.14 per share, exercisable on or before July 30th, 2009.  This compensation resulted from the total fair value of the stock option (12) In December 2007, Mr. Loverso was granted a stock option to purchase up to 100,000 shares of common stock at an exercise price of $0.10 per share, exercisable on or before December 27th, 2009.  This compensation resulted from the total fair value of the stock option (13) In January 2007, Mr. Perkins was granted a stock option to purchase up to 50,000 shares of common stock at an exercise price of $0.10 per share, exercisable on or before January 25th, 2009.  This compensation resulted from the total fair value of the stock option (14) In July 2007, Mr. Perkins was granted a stock option to purchase up to 50,000 shares of common stock at an exercise price of $0.14 per share, exercisable on or before July 30th, 2009.  This compensation resulted from the total fair value of the stock option (15) In December 2007, Mr. Perkins was granted a stock option to purchase up to 100,000 shares of common stock at an exercise price of $0.10 per share, exercisable on or before December 27th, 2009.  This compensation resulted from the total fair value of the stock option No stock options were granted to the Named Executive Officers during the year ended December 31, 2009. The following table sets forth certain information concerning exercises of stock options by the Named Executive Officers during the year ended December 31, 2009 and stock options held at year end.


|                                                                                     |                                 |                    |                                                                                   |                                                                         |     
|------------------------------------------------------------------------------------ | ------------------------------- | ------------------ | --------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----
|Aggregated Option / SAR Exercises in Last Fiscal Year and FY-End Option / SAR Values
|                                                                                     |                                 |                    | Number of Securities Underlying Unexercised Options / SARs at Fiscal year End (#) | Value of Unexercised In-the-Money Options / SARs at Fiscal Year End ($)
|Name                                                                                 | Shares Acquired on Exercise (#) | Value Realized ($) | Exercisable/ Unexercisable                                                        | Exercisable/ Unexercisable                                             
|Molina, Edwin                                                                        | -0-                             | -0-                | 0 / 0                                                                             | N/A                                                                     | / $0
|Drescher, Anton                                                                      | -0-                             | -0-                | 0 / 0                                                                             | N/A                                                                     | / $0
|Loverso, Maurice                                                                     | -0-                             | -0-                | 0 / 0                                                                             | N/A                                                                     | / $0
|Perkins, Rowland                                                                     | -0-                             | -0-                | 0 / 0                                                                             | N/A                                                                     | / $0

(1) On December 31, 2009, the average of the high and low bid prices of the common shares on the OTC BB was $0.02.  Compensation of Directors  Directors receive no compensation for their service as such.  Employment Contracts  We do not have an employment contract with Mr. Molina and the other Named Executive Officer.  We have no obligation to provide any compensation to Mr. Molina or any other Named Executive Officer in the event of his resignation, retirement or termination, or a change in control of our company, or a change in any Named Executive Officers' responsibilities following a change in control.  We may in the future create retirement, pension, profit sharing and medical reimbursement plans covering our Executive Officers and Directors.     22    Item 12. Security Ownership of Certain Beneficial Owners and Management.  The following table sets forth as of March 30th, 2009, the number of our outstanding common shares beneficially owned by (i) each person known to us to beneficially own more than 5% of our outstanding common shares, (ii) each director, (iii) each Named Executive Officer, and (iv) all officers and directors as a group.


|                                                               |              |                    
|-------------------------------------------------------------- | ------------ | -------------------
|Name                                                           | Shares Owned | Percentage of Class
|Edwin Molina (1)                                               | 6,102,624    | 5.64%              
|Anton J. Drescher (2)                                          | 14,696,885   | 6.91%              
|Maurice Loverso                                                | -0-          | 0.00%              
|Rowland Perkins                                                | 162,500      | 0.00%              
|All Executive Officers and Directors as a Group (four persons) | 20,962,009   | 11.13%             

(1) Includes 1,050,000 common shares underlying warrants and 3,650,000 common shares underlying stock options that are currently exercisable by Mr. Molina.  Mr. Molina's address is 8 West Main Street, Niantic, Connecticut.  (2) Includes 4,775,000 common shares underlying warrants and 1,600,000 common shares underlying stock options that are currently exercisable by Mr. Drescher.  Mr. Drescher's address is 8 West Main Street, Niantic, Connecticut.   Item 13. Certain Relationships and Related Transactions.  In 2009, we paid consulting fees of $72,000 to Harbour Pacific Capital Corp., a company controlled by Anton J. Drescher, in consideration of management and consulting services provided by Mr. Drescher's company.  Item 14. Principle Accountant Fees and Services  Audit and Non-Audit Fees  The following table presents fees for the professional audit services rendered by John A. Braden & Company P.C for the audit of our annual financial statements for the years ended December 31, 2009 and 2008 and fees billed for other services rendered by John A. Braden & Company P.C during those periods  John A. Braden & Company P.C.  Year ended December 3120092008Audit fees$ 18,000$ 9,000Audit-related fees-0--0-Tax fees-0--0-All other fees-0--0-Total$ 18,000$9,000  The Audit Committee reviews all audit and non-audit related fees at least annually.  The Audit Committee pre-approved all audit and non-audit related services in fiscal 2009 and 2008.  The Audit Committee had concluded that as no -audit services were provided during fiscal 2009 or fiscal 2008 there is no issue with respect to maintaining the independence of John A. Braden & Company P.C.   PART IV   Item 15. Exhibits, Financial Statements to Shareholders and Reports on Form 8-K.  (a)(1) Financial Statements Independent Auditors' Reports Consolidated Balance Sheets Consolidated    23   Statements of Operations Consolidated Statements of Comprehensive Operations Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements  (a)(2) All schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto included in this Report.  (b) Reports on Form 8-K  During the last quarter of the fiscal year covered by this Report, the Company filed the filing reports on Form 8-K:  (i) On October 15, 2009 we announced that at the annual meeting of shareholders held on October 13, 2009, as adjourned from September 29th, 2009, the shareholders approved the following matters:  (i) the election of Edwin Molina, Anton J. Drescher, Maurice Loverso and Rowland Perkins as directors; (ii) the appointment of John A. Braden & Company LLP as independent auditors; (iii) an increase in the authorized share capital from 250,000,000 shares of common stock to 500,000,000 shares of common stock; and (iv) an amendment of the Articles of Incorporation to reduce the quorum requirements for shareholder meetings to at least 25% of the outstanding shares entitled to vote.  (ii) On November 19, 2009 we announced that based on the success of the customized deployment of its proprietary watermarking technology to Twentieth Century Fox Home Entertainment LLC (FOX) over the past year, we had finalized negotiations to renew and expand the original contract with FOX.  After a year of customization and evaluation, FOX has acknowledged our watermarking technology to be a key component in identification and enforcement of video content, and plans to continue to utilize and expand the deployment of our MediaEscort and SmartMarks products within a number of FOX divisions, including FOX's international division.  We shall be compensated by FOX for the time, effort, and resources expended in developing, at FOX's request, specific and customized uses of the technologies, for continued deployment to the referenced FOX divisions.  (iii) On November 20, 2009 we announced that we retained Catalyst Xchange Corp. (CXC), represented by its principal, Jason Springett, to provide us with investor relations services under an investor relations agreement dated as of November 20, 2009.  CXC is an investor relations company located in London, Ontario.  It will provide a variety of promotional and investor relations services to us, including assisting with the dissemination of news and information to the public and initiating and maintaining contact with investors.  As part of its services, CXC uses social networking and Internet based marketing sites to disseminate news to the investment community.  The agreement is for a period of 12 months and can be terminated by either party with 30 days notice.  We agreed to pay fees of $7,500 per month to CXC.  In addition, we granted 750,000 stock options to purchase 750,000 common shares.  The options will have an exercise price of 10 cents per share.  Vesting of the options will be over a 12 month period with vesting increments of 25% every three months.  The term of the stock options will be two years from the date of the grant.  If the agreement is terminated, any unvested options will terminate immediately and any vested options will terminate 30 days following the termination or expiry of the agreement.  Certain members of CXC own a total of 101,000 of our shares.  The agreement and stock option grant are subject to TSX Venture Exchange approval and all terms will be subject to and in accordance with the rules and regulations of the TSX Venture Exchange.  (iv) On March 23, 2010 we announced that by Articles of Amendment to Articles of Incorporation dated December 28, 2009 and filed on February 23, 2010, we (a) increased our authorized share capital from 250,000,000 shares of common stock to 500,000,000 shares of common stock; and (b) decreased the quorum for shareholder meetings from at least a majority of the outstanding shares of stock entitled to vote to 25% of the outstanding shares of stock entitled to vote.     24   (c) Exhibits  3.1 Articles of Continuance (Wyoming) filed February 16, 1995 (incorporated by reference from Exhibit 3.1 to the registrant's Form 10).  3.2 Articles of Amendment (Alberta) filed January 3, 1995 (incorporated by reference from Exhibit 3.2 to the registrant's Form 10).  3.3 Articles of Amendment (Alberta) filed June 28, 1993 (incorporated by reference from Exhibit 3.3 to the registrant's Form 10).  3.4 Articles of Amendment (Alberta) filed April 6, 1992 (incorporated by reference from Exhibit 3.3 to the registrant's Form 10).  3.5 Articles of Amendment (Alberta) filed September 1, 1989 (incorporated by reference from Exhibit 3.5 to the registrant's Form 10).  3.6 Articles of Incorporation (Alberta) filed April 18, 1986 (incorporated by reference from Exhibit 3.6 to the registrant's Form 10).  3.7 Bylaws (incorporated by reference from Exhibit 3.7 to the registrant's Form 10).  4.3 Share Option Plan (incorporated by reference from Exhibit 4.3 to the registrant's Form 10).  10.4 Alliance Partner Agreement dated November 11, 1999, between Exodus Communications, Inc. and registrant (incorporated by reference from Exhibit 10.4 to the registrant's Form 10).  21. Subsidiaries of the Registrant:  Name State of Incorporation  USA Video (California) Corporation Nevada USA Video Corporation Texas Old Lyme Video Productions Inc. Wyoming USA Video Technology Corporation Wyoming USVO, Inc. Connecticut  31.1 Certification of the Chief Executive Officer Pursuant To Rule 13a-14 Or 15d-14 of the Securities Exchange Act Of 1934,as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  31.2 Certification of the Chief Financial Officer Pursuant To Rule 13a-14 Or 15d-14 of the Securities Exchange Act of 1934,as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) 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.   By:  /s/Edwin Molina Date: March 31st, 2010 Edwin Molina Chief Executive Officer   Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   Signature Title Date  /s/ Edwin Molina Chief Executive Officer, Director March 31st, 2010 ----------------------- Edwin Molina   /s/ Anton J. Drescher Chief Financial Officer, (principal March 31st, 2010 ----------------------- financial officer and principal Anton J. Drescher accounting officer), Director   /s/ Maurice Loverso Director March 31st, 2010 ----------------------- Maurice Loverso    /s/ Rowland Perkins Director March 31st, 2010 ----------------------- Rowland Perkins