**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington, D.C. 20549




**Form
      10-Q**




(Mark
      One)




**x**
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF****1934**


**For
      the quarterly period ended March 31, 2008**





**OR**




**o**
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**


**For
      the transition period from __________ to __________**





**COMMISSION**  **FILE
      NUMBER 000-25659**




**ROO
      GROUP, INC.**


(Exact
      Name of small business issuer as specified in its charter)




Delaware
            11-3447894(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)





**228
      East 45th Street 8th Floor New York, NY 10017**  ****


(Address
      of principal executive offices) (Zip Code)





**(212)
      661-4111**


Issuer's
      telephone Number:




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      definition of “ *large
      accelerated filer* ”,
      “ *accelerated
      filer* ”
and
      “ *smaller
      reporting company* ”
in
      Rule 12b-2 of the Exchange Act. (Check one):




Large
                accelerated filero
            Accelerated
                filero
            Non-accelerated
                filero
            Smaller
                reporting companyx(do
                not check if smallereporting
                company)




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No x




As
      of May
      14, 2008, the issuer had 47,436,039 outstanding shares of Common
      Stock.











**TABLE
      OF CONTENTS**





**Page****PART
                I - FINANCIAL INFORMATION**Item
                1.
            Financial
                StatementsConsolidated
                Balance Sheets - As of March 31, 2008 (unaudited) and December 31,
                2008
            3Consolidated
                Statements of Operations and Comprehensive Income (Loss) - For the
                three
                months ended March 31, 2008 and 2007 (unaudited)
            4Consolidated
                Statements of Cash Flows - For the three months ended March 31, 2008
                and
                2007 (unaudited)
            5Notes
                to Consolidated Financial Statements (unaudited)
            7Item
                2.
            Management’s
                Discussion and Analysis or Plan of Operation
            16Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            18Item
                4T.
            Controls
                and Procedures
            19**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            19Item
                1A.
            Risk
                Factors
            19Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            19Item
                3.
            Defaults
                Upon Senior Securities
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            19Item
                5.
            Other
                Information
            19Item
                6.
            Exhibits
                and Reports on Form 8-K
            20**SIGNATURES**
            21







**PART
      I - FINANCIAL INFORMATION**


**ITEM
        1.**  **FINANCIAL
        STATEMENTS.**




**ROO
      GROUP, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**(Amounts
      in Thousands, Except Share and Per Share Data)**


**March
                    31,**
                  **2008**
                
                **December
                    31, 2007 (A)**(Unaudited)***Assets:*****Current
                    assets:**Cash
                    and cash equivalents
                
                $
                5,580
                
                $
                10,189Accounts
                    receivable, net
                
                
                3,737
                
                
                3,057Other
                    current assets
                
                
                1,233
                
                
                1,288Restricted
                    cash
                
                
                -
                
                
                100**Total
                    current assets**
                
                
                10,550
                
                
                14,634Property
                    and equipment, net
                
                
                1,002
                
                
                1,307Deferred
                    tax assets
                
                
                275
                
                
                263Software,
                    net
                
                
                439
                
                
                505Customer
                    list, net
                
                
                185
                
                
                253Domain
                    names, net
                
                
                27
                
                
                30Goodwill
                
                
                1,123
                
                
                1,123**Total
                    assets**
                
                $
                13,601
                
                $
                18,115***Liabilities
                    and Stockholders' Equity:*****Current
                    liabilities:**Bank
                    overdraft and other obligations
                
                $
                280
                
                $
                190Accounts
                    payable
                
                
                2,586
                
                
                3,121Accrued
                    expenses
                
                
                3,051
                
                
                1,616Income
                    tax payable
                
                
                145
                
                
                139Deferred
                    revenue
                
                
                178
                
                
                -Other
                    current liabilities
                
                
                1,422
                
                
                1,478**Total
                    current liabilities**
                
                
                7,662
                
                
                6,544Capital
                    lease obligations
                
                
                300
                
                
                292**Total
                    liabilities**
                
                
                7,962
                
                
                6,836**Commitments**
                
                
                -
                
                
                -**Minority
                    interest**
                
                
                (172
                )
                
                (76
                )**Stockholders'
                    Equity:**Series
                    A preferred shares, $0.0001 par value: authorized 10,000,000
                    shares;
                    issued and outstanding 10,000,000
                
                
                1
                
                
                1Common
                    stock, $0.0001 par value: authorized 500,000,000 shares; issued
                    and
                    outstanding 38,936,039 at March 31, 2008 and December 31,
                    2007
                
                
                4
                
                
                4Additional
                    paid-in capital
                
                
                79,859
                
                
                74,820Accumulated
                    deficit
                
                
                (74,171
                )
                
                (63,524
                )Accumulated
                    other comprehensive income
                
                
                118
                
                
                54**Total
                    stockholders' equity**
                
                
                5,811
                
                
                11,355**Total
                    liabilities and stockholders' equity**
                
                $
                13,601
                
                $
                18,115


(A)
      -
      Reference is made to the company’s Annual Report on Form 10-KSB for the year
      ended December 31, 2007 filed with the Securities and Exchange Commission in
      April, 2008.




The
      Accompanying Notes are an Integral Part of these Consolidated Financial
      Statements.




3




**ROO
      GROUP, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)**


**(Amounts
      in Thousands, Except Share and Per Share Data)**


**(Unaudited)**





**Three
                  months ended****March
                  31,****2008**
              
              **2007****Revenue**
              
              $
              3,502
              
              $
              3,002**Expenses:**Operations
              
              
              2,906
              
              
              3,197Research
                  and development
              
              
              608
              
              
              1,339Sales
                  and marketing
              
              
              1,170
              
              
              1,613General
                  and administrative (exclusive of non-cash compensation)
              
              
              2,519
              
              
              2,262Non-cash
                  compensation
              
              
              4,001
              
              
              1,242Restructuring
                  charges
              
              
              2,745
              
              
              -Other
                  non-recurring charges
              
              
              135
              
              
              -Impairment
                  of property and equipment
              
              
              228
              
              
              -**Total
                  expenses**
              
              
              14,312
              
              
              9,653**(Loss)
                  from operations**
              
              
              (10,810
              )
              
              (6,651
              )Interest
                  income
              
              
              61
              
              
              119Interest
                  expense
              
              
              (14
              )
              
              (7
              )Other
                  income
              
              
              21
              
              
              -**Net
                  (loss) before income taxes**
              
              
              (10,742
              )
              
              (6,539
              )Income
                  tax (expense) benefit
              
              
              (1
              )
              
              5**Net
                  (loss) before minority interest**
              
              
              (10,743
              )
              
              (6,534
              )Minority
                  interest
              
              
              96
              
              
              5**Net
                  (loss) available to common shareholders**
              
              $
              (10,647
              )
              $
              (6,529
              )**Basic
                  and diluted net (loss) per common share**
              
              $
              (0.27
              )
              $
              (0.24
              )**Weighted
                  average common shares outstanding, basic and
                  diluted**
              
              
              38,936,039
              
              
              27,541,480**Comprehensive
                  (loss):**Net
                  (loss)
              
              $
              (10,647
              )
              $
              (6,529
              )Foreign
                  currency translation
              
              
              64
              
              
              19**Comprehensive
                  (loss)**
              
              $
              (10,583
              )
              $
              (6,510
              )




The
      Accompanying Notes are an Integral Part of these Consolidated Financial
      Statements.




4




**ROO
      GROUP, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Amounts
      in Thousands)**


**(Unaudited)**







**Three
                  months ended March 31,** ******2008**
              
              **2007****Operating
                  Activities:**Net
                  (loss)
              
              $
              (10,647
              )
              $
              (6,529
              )Adjustments
                  to reconcile net (loss) to net cash (used) by operating
                  activities:Provision
                  for doubtful accounts
              
              
              94
              
              
              9Depreciation
              
              
              108
              
              
              71Amortization
                  of intangible assets
              
              
              137
              
              
              230Non
                  cash stock based compensation
              
              
              4,001
              
              
              1,242Issuance
                  of warrants for settlement of separation agreements
              
              
              1,038
              
              
              -Loss
                  on impairment of property and equipment
              
              
              228
              
              
              -Minority
                  interest in subsidiaries
              
              
              (96
              )
              
              (5
              )Changes
                  in assets and liabilities:(Increase)
                  decrease in:Accounts
                  receivable
              
              
              (774
              )
              
              (220
              )Other
                  assets
              
              
              55
              
              
              (174
              )Increase
                  (decrease) in:Accounts
                  payable
              
              
              (534
              )
              
              1,129Accrued
                  expenses
              
              
              1,464
              
              
              (313
              )Income
                  tax payable
              
              
              (12
              )
              
              (45
              )Deferred
                  revenue
              
              
              178
              
              
              -Other
                  liabilities
              
              
              (58
              )
              
              314Total
                  adjustments
              
              
              5,829
              
              
              2,238**Net
                  Cash (Used) By Operating Activities - Forward**
              
              
              (4,818
              )
              
              (4,291
              )**Investing
                  Activities:**Release
                  of restricted cash
              
              
              100
              
              
              -Cash
                  paid in MyVideoDaily acquisition
              
              
              -
              
              
              (250
              )Issuance
                  of note receivable
              
              
              -
              
              
              (800
              )Capitalization
                  of content
              
              
              -
              
              
              (18
              )Proceeds
                  from sale of equipment
              
              
              33
              
              
              -Purchase
                  of equipment
              
              
              (26
              )
              
              (82
              )**Net
                  Cash Provided (Used) By Investing Activities -
                  Forward**
              
              $
              107
              
              $
              (1,150
              )




The
      Accompanying Notes are an Integral Part of these Consolidated Financial
      Statements.




5




**ROO
      GROUP, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Amounts
      in Thousands)**


**(Unaudited)**





**Three
                  months ended March 31,****2008**
              
              **2007****Net
                  Cash (Used) By Operating Activities - Forwarded**
              
              $
              (4,818
              )
              $
              (4,291
              )**Net
                  Cash Provided (Used) By Investing Activities -
                  Forwarded**
              
              
              107
              
              
              (1,150
              )**Financing
                  Activities:**Bank
                  overdrafts and other obligations, net
              
              
              89
              
              
              (7
              )Repayment
                  of capital leases
              
              
              (28
              )
              
              (5
              )**Net
                  Cash Provided (Used) By Financing Activities**
              
              
              61
              
              
              (12
              )**Effect
                  of Exchange Rate Changes on Cash**
              
              
              41
              
              
              14**Net
                  (Decrease) in Cash**
              
              
              (4,609
              )
              
              (5,439
              )**Cash
                  and Cash Equivalents - Beginning of Period**
              
              
              10,189
              
              
              11,937**Cash
                  and Cash Equivalents - End of Period**
              
              $
              5,580
              
              $
              6,498**Supplemental
                  Disclosures of Cash Flow Information:**Cash
                  paid during the periods for:Income
                  taxes
              
              $
              -
              
              $
              -Interest
              
              $
              13
              
              $
              4




The
      Accompanying Notes are an Integral Part of these Consolidated Financial
      Statements.




6




**ROO
      GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Amounts
      in Thousands, Except Share and Per Share Data)**


**(Unaudited)**







***(1)
      Basis of Presentation***





The
      accompanying unaudited consolidated financial statements of ROO Group, Inc.
      and
      Subsidiaries ("ROO" or the "Company") have been prepared in accordance with
      generally accepted accounting principles for interim financial information
      and
      the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly,
      they
      do not include all information and footnotes required by general accounting
      principles for complete financial statements. In the opinion of management,
      all
      adjustments (consisting of normal recurring accruals) considered necessary
      in
      order to make the interim financial statements not misleading have been
      included. The consolidated results of operations for the three months ended
      March 31, 2008 are not necessarily indicative of the results that may be
      expected for the year ending December 31, 2008. These interim consolidated
      financial statements should be read in conjunction with the consolidated
      financial statements and footnotes thereto of the Company and management's
      discussion and analysis of financial condition and results of operations
      included in the Company's annual report on Form 10-KSB for the year ended
      December 31, 2007.





***(2)
      Summary of Significant Accounting Policies***





***(A)
      Principles of Consolidation*** The
      consolidated financial statements include the accounts of ROO Group, Inc.,
      its
      wholly owned subsidiary ROO Media Corporation, its wholly owned subsidiary
      Bickhams Media, Inc. (“Bickhams”), its 51% owned subsidiary the Reality Group
      Pty. Ltd. (“Reality Group”), and its wholly owned subsidiary ROO HD, Inc.
      Included in the consolidation with ROO Media Corporation are ROO Media
      Corporation's wholly owned subsidiary ROO Media (Australia) Pty. Ltd. and ROO
      Media (Australia) Pty. Ltd.'s wholly owned subsidiary Undercover Media Pty.
      Ltd.
      (“Undercover Media”), its wholly owned subsidiary ROO Media Europe Limited, its
      wholly owned subsidiary ROO Broadcasting Limited, its 51% owned subsidiary
      Sputnik Agency Pty. Ltd. (“Sputnik”) (formerly Factory212 Pty. Ltd.) and its
      wholly owned subsidiary ROO TV Pty. Ltd. Included in the consolidation with
      Bickhams is Bickhams' wholly owned subsidiary VideoDome.com Networks, Inc.
      (“VideoDome.com”).





***(B)
      Management Estimates -*** The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities, disclosure of contingent
      assets and liabilities at the date of the financial statements, and the reported
      amounts of revenues and expenses during the reporting period. Certain amounts
      included in the financial statements are estimated based on currently available
      information and management's judgment as to the outcome of future conditions
      and
      circumstances. Changes in the status of certain facts or circumstances could
      result in material changes to the estimates used in the preparation of financial
      statements and actual results could differ from the estimates and assumptions.
      Every effort is made to ensure the integrity of such estimates.





***(C)
      Foreign Currency Translation -*** Assets
      and liabilities of ROO's foreign subsidiaries are translated at current exchange
      rates and related revenues and expenses are translated at average exchange
      rates
      in effect during the period. Resulting translation adjustments are recorded
      as a
      component of accumulated other comprehensive income (loss) in stockholders'
      equity.





***(D)
      Fair Value of Financial Measurements -*** On
      the
      first day of fiscal 2008, the Company adopted Statement of Financial Accounting
      Standards No. (“SFAS”) 157, “Fair Value Measurements.” SFAS 157 defines fair
      value, establishes a framework for measuring fair value in GAAP and expands
      disclosure about fair value measurements. SFAS 157 defines fair value as the
      amount that would be received upon sale of an asset or paid to transfer a
      liability in the principal or most advantageous market for the asset or
      liability in an orderly transaction between market participants on the
      measurement date. SFAS 157 also establishes a fair value hierarchy which
      prioritizes the types of inputs to valuation techniques that companies may
      use
      to measure fair value. The fair value hierarchy gives the highest priority
      to
      quoted prices in active markets for identical assets or liabilities (Level
      1).
      The next highest priority is given to inputs other than quoted prices included
      in Level 1 that are observable for the asset or liability, either directly
      or
      indirectly (Level 2). The lowest priority is given to unobservable inputs in
      which there is little or no market data available and which require the
      reporting entity to develop its own assumptions (Level 3).


The
        Company has only partially adopted SFAS 157 as implementation for certain
        assets
        of the Company (including customer lists, domain names, and goodwill) and
        has
        been deferred until the fiscal year beginning January 1, 2009. We are still
        considering the effects of full implementation.




7




**ROO
      GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Amounts
      in Thousands, Except Share and Per Share Data)**


**(Unaudited)**







***(2)
      Summary of Significant Accounting Policies (Continued)***





***(E)
      Going Concern -*** The
      accompanying consolidated financial statements have been prepared assuming
      that
      we will continue as a going concern, which contemplates the realization of
      assets and the satisfaction of liabilities in the normal course of business.
      Since our inception, we have incurred losses, had an accumulated deficit, and
      have experienced negative cash flows from operations. This raises doubt about
      our ability to continue as a going concern. We expect cash flows from operating
      activities to improve, primarily as a result of an increase in revenue and
      a
      decrease in costs, although there can be no assurance thereof. On April 16,
      2008, the Company was provided with notice of exercise by KIT Capital Limited
      ("KIT Capital") of its right pursuant to Section 4.5 of the Executive Management
      Agreement by and between the Company and KIT Capital dated December 18, 2007
      to
      purchase $5,000,000 of the Company's common stock (See Note 12 Subsequent
      Events). On May 8, 2008, the Company entered into a common stock purchase
      agreement pursuant to which the Company sold an aggregate of $15,000,000 of
      shares of common stock and warrants to accredited investors (See Note 12
      Subsequent Events). Having completed this financing, the Company does not
      anticipate that it will need to raise additional capital to achieve its
      operational and acquisition growth plan. The accompanying consolidated financial
      statements do not include any adjustments that might be necessary should we
      be
      unable to continue as a going concern.





***(F)
      Impairment of Long-Lived Assets -*** We
      review
      our long-lived assets and identifiable intangibles for impairment whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset
      may not be recoverable. When such factors and circumstances exist, we compare
      the projected undiscounted future cash flows associated with the future use
      and
      disposal of the related asset or group of assets to their respective carrying
      amounts. Impairment, if any, is measured as the excess of the carrying amount
      over the fair value based on market value (when available) or discounted
      expected cash flows of those assets, and is recorded in the period in which
      the
      determination is made.





***(G)
      Cash and Cash Equivalents -*** ROO
      considers all highly liquid investments with original maturities of 90 days
      or
      less to be cash and cash equivalents.





***(H)
      Property and Equipment -*** Property
      and equipment are stated at cost. Depreciation is provided for using the
      straight-line and declining balance methods of accounting over the estimated
      useful lives of the assets.





***(I)
      Intangible Assets -*** Intangible
      assets of the Company are recorded at cost less accumulated amortization.
      Amortization is computed using the straight-line method over the estimated
      useful lives of the assets, with periods of up to five years. All intangible
      assets are reviewed for impairment annually or more frequently if deemed
      necessary, and no impairment write-offs were recorded during each of the three
      month periods ended March 31, 2008 and 2007.





***(J)
      Risk Concentrations -*** Financial
      instruments which potentially subject us to concentrations of credit risk
      consist principally of cash and cash equivalents and trade accounts receivable.
      We place our cash and cash equivalents with high credit quality institutions
      to
      limit credit exposure, which invest primarily in commercial paper, high quality
      corporate obligations, and high quality asset and loan backed securities. We
      believe no significant concentration of credit risk exists with respect to
      these
      investments.





Concentrations
      of credit risk with respect to trade accounts receivable are limited due to
      the
      wide variety of customers who are dispersed across many geographic regions.
      Management believes that accounts receivable credit risk exposure beyond such
      allowance is limited. The allowance as of March 31, 2008 was $379.





We
      generally do not require collateral for our financial instruments.





***(K)
      Revenue Recognition -*** Revenues
      are derived principally from professional services, digital media management
      and
      advertising. Revenue is recognized when service has been provided.





***(L)
      Earnings (Loss) Per Share Calculation -*** Net
      loss
      per share is based on the weighted average number of shares outstanding.





Earnings
      (loss) per common share are calculated under the provisions of SFAS 128,
      "Earnings per Share," which establishes standards for computing and presenting
      earnings per share. SFAS 128 requires ROO Group to report both basic earnings
      (loss) per share, which is based on the weighted average number of common shares
      outstanding during the period, and diluted earnings (loss) per share, which
      is
      based on the weighted average number of common shares outstanding plus all
      potential dilutive common shares outstanding. Options and warrants are not
      considered in calculating diluted earnings (loss) per share since considering
      such items would have an anti-dilutive effect. Potential shares from the
      conversion of Series A Preferred Stock are excluded as any conversion thereof
      would also have an anti-dilutive effect.





8


**ROO
      GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Amounts
      in Thousands, Except Share and Per Share Data)**


**(Unaudited)**







***(2)
      Summary of Significant Accounting Policies (Continued)***





***(M)
      Stock-Based Compensation -*** On
      January 1, 2006, we adopted SFAS 123R, " *Share-Based
      Payment* .”
Among
      other items, SFAS 123R requires companies to record compensation expense for
      share-based awards issued to employees and directors in exchange for services
      provided. The amount of the compensation expense is based on the estimated
      fair
      value of the awards on their grant dates and is recognized over the required
      service periods. Our share-based awards include stock options and restricted
      stock awards.





We
      adopted SFAS 123R using the modified prospective transition method, which
      requires the application of the accounting standard to all share-based awards
      issued on or after January 1, 2006 and any outstanding share-based awards that
      were issued but not vested as of January 1, 2006. For the three months ended
      March 31, 2008 and 2007, we recognized $4,001 and $1,242, respectively of
      stock-based compensation expense as part of our statement of operations in
      our
      consolidated financial statements.





The
      estimated fair value underlying our calculation of compensation expense for
      stock options is based on the Black-Scholes-Merton pricing model. SFAS 123R
      requires forfeitures of share-based awards to be estimated at the time of grant
      and revised, if necessary, in subsequent periods if estimates change based
      on
      the actual amount of forfeitures experienced.





On
      March
      17, 2008 our Board of Directors adopted a stock option plan (the “2008 Incentive
      Stock Plan”). **** The 2008
      Incentive Stock Plan has reserved 14,000,000 shares of Common Stock for
      issuance. Under the 2008 Incentive Stock Plan, options may be granted which
      are
      intended to qualify as Incentive Stock Options under Section 422 of the Internal
      Revenue Code of 1986 (the "Code") or which are not intended to qualify as
      Incentive Stock Options thereunder. In addition, direct grants of stock or
      restricted stock may be awarded. Also, on March 17, 2008, our Board of Directors
      resolved that, subject to the agreement of the individuals, a surrender of
      options under the 2004 Stock Option Plan were exchanged for options under the
      2008 Incentive Stock Plan. A total of 3,540,500 stock options in the 2004 Stock
      Option Plan were surrendered, of which a total of 1,715,183 stock options were
      cancelled or expired and a total of 1,824,717 stock options were forfeited.
      These were exchanged for a total of 1,335,500 stock options under the 2008
      Incentive Stock Plan.





Under
      the
      2004 Stock Option Plan, the Company granted options with an exercise price
      of
      $0.1745 to purchase 2,100,000 shares of its common stock during the three months
      ended March 31, 2008. During the three months ended March 31, 2008, a total
      of
      1,149,087 stock options vested, a total of 2,026,429 stock options were
      cancelled or expired, a total of 2,902,136 stock options were forfeited, with
      1,322,222 stock options unvested as of March 31, 2008. A total of 3,652,019
      stock options were outstanding on March 31, 2008.





Under
      the
      2008 Incentive Stock Plan, the Company granted options with exercise prices
      ranging from $0.08 to $0.13 to purchase 8,285,000 shares of its common stock
      during the three months ended March 31, 2008. During the three months ended
      March 31, 2008, a total of 1,922,323 stock options vested with 6,362,677 stock
      options unvested as of March 31, 2008. A total of 8,285,000 stock options were
      outstanding on March 31, 2008.





***(3)
      Notes Receivable***





On
      March
      6, 2007, Reality Group Pty. Ltd. issued a promissory note to the Company in
      the
      principal amount of $380. Pursuant to the promissory note the Company advanced
      to Reality Group the sum of $190 on March 6, 2007 and $190 on March 13, 2007.
      Interest on the promissory note accrues at the rate of 8% per annum. The
      promissory note is due on June 30, 2008 and is secured by all the assets of
      Reality Group. In addition, Grant Lee and Mike Bollan agreed to pledge 20%
      of
      the ordinary shares of Reality Group which they own as security for Reality
      Group’s obligations under the promissory note. These eliminate in
      consolidation.





On
      May
      11, 2007, Reality Group Pty. Ltd. issued a promissory note to the Company in
      the
      principal amount of $400. Pursuant to the promissory note the Company advanced
      to Reality Group the sum of $400, on May 11, 2007. Interest on the promissory
      note accrues at the rate of 8% per annum. The promissory note is due on May
      11,
      2008. These eliminate in consolidation.





***(4)
      Goodwill***





Goodwill
      of $1,123 represents the excess of acquisition costs over the fair value of
      net
      assets of the Reality acquisition of $1,033 and ROO Media Europe Ltd. of $90.
      There was no impairment of goodwill during each of the three month periods
      ended
      March 31, 2008 and 2007.




9


**ROO
      GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Amounts
      in Thousands, Except Share and Per Share Data)**


**(Unaudited)**








***(5)
      Commitments and Contingencies***




*Contingent
      acquisition -* A
      contingent liability had been calculated as of December 31, 2007, based on
      an
      agreement between our subsidiary ROO Broadcasting Limited and the holders of
      the
      49% non-controlling interest in Sputnik on October 28, 2005. As of March 31,
      2008, there is no contingency that exists in relation to Sputnik because 100%
      of
      the shares of Sputnik have been subsequently purchased (See Note 12).




On
      March
      12, 2008, the Company entered into a binding Content Distribution Agreement
      (“CDA”) with Kamera Content AB (“Kamera”), providing for a collateralized and
      callable advance payment by the Company of $300. The CDA provides the Company
      with an exclusive time period during which to negotiate the acquisition of
      Kamera. Concurrent with the CDA, the Company executed a non-binding Letter
      of
      Intent (“Kamera LOI”) for the purchase of 100% of the capital stock of Kamera by
      the Company. According to the Kamera LOI, the cash payable to effect the
      purchase of Kamera Content AB by the Company is $2,500 upon closing of the
      acquisition. As additional consideration, according to the Kamera LOI, the
      Company will issue to Kamera additional consideration upon closing of the
      acquisition and at future dates based on certain timing and performance related
      benchmarks and thresholds. All such payments under the Kamera LOI may be paid
      in
      cash or common stock, at the election of the Company.




*Employment
      Agreements -* On
      December 18, 2007, the Company entered into an Executive Management Agreement
      (the “Management Agreement”) with KIT Capital for a term commencing on
      January 9, 2008 and terminating on January 9, 2011, unless sooner terminated
      or
      mutually extended. KIT Capital shall designate Kaleil Isaza Tuzman as Chief
      Executive Officer, Jamie Levine as Head of Communications and Rosario Davi
      as
      Corporate Development Manager of the Company. The Management Agreement provides
      for compensation as follows: (i) $51 monthly, which includes the cost of at
      least 3 employees inclusive of benefits and taxes, (ii) signing incentive
      payment of $69, (iii) an incentive bonus equal to the greater of (x) the
      preceding twelve months’ base compensation or (y) the previous month’s monthly
      installment of base compensation multiplied by twelve if the Company shall
      achieve 2 consecutive quarters of profitability or the Company’s total monthly
      revenue equals of exceeds $6,000. The Management Agreement provides that upon
      termination of the Management Agreement or after the expiration date for any
      reason except cause (as defined in the Management Agreement), the Company shall
      pay KIT Capital, in addition to any other payments due hereunder, a cash
      severance payment equal to the greater of (i) the total amount paid to KIT
      Capital during the preceding twelve months, including base compensation and
      all
      bonuses, or (ii) the previous month’s monthly installment of base compensation
      multiplied by twelve.




*Litigation* - Our
      wholly owned subsidiary, ROO HD, Inc. (“ROO HD”), has been served as a defendant
      in a lawsuit entitled Julie Vittengl *et
      al.* vs. ROO
      HD, Inc., a purported class action pending in New York Supreme Court, Saratoga
      County. The suit, brought by four former employees of Wurld Media, Inc.
      (“Wurld”) purportedly on behalf of themselves and “others similarly situated,”
claims that ROO HD’s acquisition of certain assets of Wurld was a fraudulent
      conveyance and that ROO HD is the alter-ego of Wurld. Plaintiffs seek the
      appointment of a receiver to take charge of the Company’s property in
      constructive trust for plaintiff and payment of plaintiff’s unpaid wages and
      costs of suit, both in an unspecified dollar amount. **** ROO HD
      timely filed its answer to the complaint, and there have been no further
      developments. We believe the suit is without merit and intend to defend
      ourselves vigorously.




10




**ROO
      GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Amounts
      in Thousands, Except Share and Per Share Data)**


**(Unaudited)**








***(5)
      Commitments and Contingencies (continued)***





On
      December 24, 2007, Rick Gell and Todd Pavlin, two former consultants of ROO
      Media, sued that entity together with ROO Group, ROO Group's Founder and Vice
      Chairman Robert Petty and ROO Media’s former President and Chief Operating
      Officer Steve Quinn in New York Supreme Court, New York County, alleging breach
      of an oral employment agreement, fraudulent inducement and other claims relating
      to the plaintiffs’ employment at ROO Media. Defendants have moved to dismiss the
      complaint, and the motion is scheduled to be argued in June 2008. We believe
      the
      suit is without merit and will defend ourselves vigorously.





***(6)
      Preferred Shares***





The
      Series A Preferred Stock has a stated value of $.0001 and a liquidation
      preference over the common stock and any other class or series of capital stock
      whose terms expressly provide that the holders of Series A Preferred Stock
      should receive preferential payment. Holders of Series A Preferred Stock are
      entitled to vote on all matters submitted to shareholders and are entitled
      to
      ten votes for each share of Series A Preferred Stock owned. Except as otherwise
      expressly required by law, holders of shares of Series A Preferred Stock vote
      together with the holders of common stock on all matters and do not vote as
      a
      separate class. Beginning two years from the date of issuance of the Series
      A
      Preferred Stock, each one share of Series A Preferred Stock is convertible,
      at
      the option of the holder, into 0.04 shares of common stock, as adjusted.
      However, holders cannot convert any share of Series A Preferred Stock if the
      market price of the Common Stock is below $3.00 per share. If within two years
      from the date of issuance, there is a sale or other disposition of all or
      substantially all of our assets, a transaction or series of related transactions
      in which more than 50% of the voting power of security holders is disposed
      of,
      or upon a consolidation, merger or other business combination where the Company
      is not the survivor, then immediately prior to such event each holder of Series
      A Preferred Stock may convert any or all of such holder’s shares of Series A
      Preferred Stock into Common Stock as described above. The Company is prohibited
      from taking action which would adversely and materially affect any of the
      preferences, limitations or relative rights of the Series A Preferred Stock
      without the vote of the holders of a majority of the then outstanding shares
      of
      Series A Preferred stock.





***(7)
      Stock Issuances***





On
      January 25, 2007, we entered into an agreement with News Corporation (“News
      Corp”). The Agreement provides for the issuance of 2,000,000 shares of our
      common stock upon execution of the Agreement, which were to be held in escrow
      and released to News Corp on January 1, 2008 if the average monthly revenues
      from News Corp and its affiliates for the three month period ended December
      31,
      2007 is not less than the revenue from News Corp and its affiliates for the
      one
      month period ending December 31, 2006 (the “Revenue Target”). On February 7,
      2008, we released the 2,000,000 shares of our common stock to News Corp for
      meeting the Revenue Target. The shares were valued at $0.17 per share, or $340,
      and that amount was recorded as sales and marketing expense on December 31,
      2007.





We
      also
      agreed to issue an additional 2,000,000 shares of our common stock to News
      Corp
      if within three years of the date of the Agreement the average monthly revenue
      from News Corp and its affiliates for any consecutive three month period equals
      at least six times the Revenue Target. Further, we agreed that if the foregoing
      is not timely achieved, we shall issue to News Corp warrants to purchase
      2,000,000 shares of our common stock which shall be exercisable for a term
      of
      two years at a price of $2.70. The exercise price of the warrants will be
      subject to customary anti-dilution protection for stock splits,
      recapitalizations, stock dividends and the like. No expenses have been recorded
      for this commitment to date, as management is unable to estimate this contingent
      liability.




We
      have
      granted News Corp piggy-back registration rights in connection with the shares
      issuable pursuant to the Agreement.




11




**ROO
      GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Amounts
      in Thousands, Except Share and Per Share Data)**


**(Unaudited)**







***(8)
      Restructuring charges***





We
      recorded restructuring charges of $2,745 in the three month period ended March
      31, 2008. This amount is comprised of employee termination costs related to
      the
      reorganization of the Company of $2,598 and contract settlement and facility
      closing costs of $147 related to the closing of the Clifton Park, New York
      office and vendor settlements related to the reorganization. Included in
      the employee termination costs are $2,397 related to the settlement of
      separation agreements as described below. On March 26, 2008 and March 30, 2008,
      the Company reached negotiated settlements with Robert Petty and Robin Smyth,
      respectively, restructuring their respective employment agreements, each of
      which involved one-time cash severance payments. In exchange for entering into
      new, "at will" employment agreements, Messrs. Petty and Smyth will receive
      upfront cash settlements of $675 and $275 respectively, as well as an aggregate
      of 7 million and 1.65 million fully vested warrants respectively to purchase
      the
      Company's common stock, at a strike price equal to the 3-day weighted average
      of
      closing price of the Company's common stock prior to the effective date. These
      warrants have been valued under the Black-Scholes-Merton method at $1,038.
      These
      warrants will become exercisable in 1/12 increments on a monthly basis starting
      six months from the effective date. Also, Mr. Smyth will receive a lump-sum
      payment of $100, less applicable tax withholding and deductions, within nine
      (9)
      months, and another lump-sum payment of $100, less applicable tax withholding
      and deductions, within thirteen (13) months. Mr. Smyth's restructured employment
      agreement involves certain warrant-based incentives which can be earned over
      a
      period of 3 years based on ongoing service to the Company. As part of their
      respective settlements, Messrs. Petty and Smyth agreed to vote their preferred
      shares according to the Company's designation. Included in the $2,397, are
      cash
      payments of $1,150, $1,088 related to the valuation of the warrants and $209
      in
      legal fees paid on behalf of Mr. Petty which is part of Mr. Petty’s separation
      agreement.





***(9)
      Other non-recurring charges***





We
      have
      recorded other non-recurring charges of $135 related to the IT overlap, which
      is
      the redundancy in staff and consultants for the transition of information during
      reorganization due to the centralizing of resources in Toronto, and
      corporate rebranding related to the reorganization.




***(10)
      Impairment of property and equipment***





In
      March
      2008, we decided to sublease our former offices in London and move to another
      location to reduce costs. This includes removing and abandoning the leasehold
      improvements and furniture and fixtures in the London office. Due to the
      Company’s office relocation, we recorded and impairment charge for certain
      property and equipment which totaled $228 during the three months ended March
      31, 2008. This amount is segregated within the Statement of
      Operations.




12




**ROO
      GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Amounts
      in Thousands, Except Share and Per Share Data)**


**(Unaudited)**








***(11)
      Segment Reporting***





We
      derive
      our revenue from two operating segments. These operating segments are presented
      on a worldwide basis and include: Online Digital Media and Advertising
      Agency.




Online
      Digital Media operations span all aspects from website creation and supply
      of
      technology, to content and delivery of static and video assets, online property
      development and management as well as monetizing video through advertising
      sales.





Advertising
      Agency operations represent varied forms of media and services which comprise
      and support client campaigns. These operations include direct marketing,
      incentive programs, internal communications, customer relationship management,
      brand planning, sales promotion, creative, brand identity, sponsorships, on-line
      marketing, new media, media planning, media buying and packaging.





As
      a
      result of the continued growth and the changing nature of our business, we
      believe it is now necessary to disclose our operations on a segment by segment
      basis. Although the Advertising Agency segment operations are greater than
      just
      traditional media, it has been decided that its activities are significantly
      different from the pure online activities of our Online Digital Media segment.
      As our operations continue to evolve, we will continue to regularly review
      the
      business to determine if there is a need to make changes to the reported
      segments.





In
      accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and
      Related Information”, all prior period information has been reported to conform
      to the new segment presentation. The following table provides revenue and
      segment income (loss) from operations for each of the segments. Segment income
      (loss) from operations, as shown below, is the performance measure used by
      management to assess segment performance and excludes the effects of:
      stock-based compensation, amortization of intangible assets and corporate
      expenses. Corporate expenses consist of those costs not directly attributable
      to
      a segment, and include: salaries and benefits for the Company’s corporate
      executives, corporate governance costs, fees for professional service providers
      including audit, legal, tax, insurance, and other corporate
      expenses.





**Three
                  months ended**
                **March
                  31,****2008**
            
            **2007****Revenue:**Online
                Digital Media
            
            $
            2,373
            
            $
            2,179Advertising
                Agency Business
            
            
            1,129
            
            
            823Corporate
            
            
            -
            
            
            -**Total
                revenue**
            
            $
            3,502
            
            $
            3,002**Net (loss)
                before income taxes and minority interest:**Online
                Digital Media
            
            $
            (3,348
            )
            $
            (4,692
            )Advertising
                Agency Business
            
            
            (6
            )
            
            (203
            )Corporate
            
            
            (7,388
            )
            
            (1,644
            )**Total
                net (loss) before income taxes and minority
                interest**
            
            $
            (10,742
            )
            $
            (6,539
            )




**March
                31,**
              **2008****Assets:**Online
                Digital Media
            
            $
            5,148Advertising
                Agency Business
            
            
            1,878Corporate
            
            
            6,575**Total
                assets**
            
            $
            13,601




13




**ROO
      GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Amounts
      in Thousands, Except Share and Per Share Data)**


**(Unaudited)**








***(12)
      Subsequent Events***





We
      executed definitive share purchase agreements with all Sputnik shareholders
      with
      a closing date of May 15, 2008. We exercised our right to complete the purchase
      of our 51% owned Sputnik subsidiary, and to acquire the remaining 49% of
      Sputnik. The total consideration is $4,562, of which net cash to be paid by
      us
      to the Sputnik shareholders to affect this purchase is approximately $4,000
      which includes such costs as legal fees. The full integration of the Companies
      will include a consolidation of products and creative services to address
      current and future client needs. As of March 31, 2008, no entries have been
      recorded in relation to this purchase.





On
      March
      17, 2008, the Company’s Board of Directors unanimously adopted a resolution
      approving, declaring advisable and recommending to the shareholders for their
      approval, an amendment to the Company’s Articles of Incorporation, as amended,
      to change the name of the Company to KIT digital, Inc. On March 30, 2008, the
      shareholders holding a majority of our voting stock approved the filing of
      an
      amendment to our Articles of Incorporation to change the name of the Company
      to
      KIT digital, Inc. The name change will be effective upon the filing of the
      amendment with the Secretary of State of Delaware.





On
      March
      30, 2008, our board of directors and shareholders holding a majority of our
      voting stock approved the filing of an amendment to our Articles of
      Incorporation to reduce our authorized preferred stock from 20,000,000 to
      10,000,000. Also, a majority of the holders of our Series A Preferred Stock
      have
      approved the filing of an amendment to the Company's Certificate of Designation
      of the Series A Preferred Stock to provide for the automatic conversion of
      the
      outstanding shares of Series A Preferred Stock into 400,000 shares of common
      stock. The conversion of the Series A Preferred Stock into common stock shall
      be
      conditional upon the effectuation of the amendment to the Company's Articles
      of
      Incorporation to reduce the authorized preferred stock from 20,000,000 to
      10,000,000. Upon the effectuation of the foregoing, the preferred class of
      stock
      will be eliminated.





On
      April
      16, 2008, ROO Group, Inc. (the "Company") was provided with notice of exercise
      by KIT Capital Limited ("KIT Capital") of its right pursuant to Section 4.5
      of
      the Executive Management Agreement by and between the Company and KIT Capital
      Limited dated December 18, 2007 (the "Management Agreement") to purchase $5,000
      of the Company's common stock at a price of $0.16 per share.  In
      addition, KIT Capital and the Company have agreed, conditional upon the approval
      of an independent committee of the Company's Board of Directors, that KIT
      Capital will (A) waive its right under the Management Agreement to purchase
      51%
      of the Company's preferred stock; and (B) waive its right to require the Company
      to register the shares of common stock underlying the $5,000 investment pursuant
      to the Management Agreement, in consideration for the issuance by the Company
      of
      a five-year warrant to purchase 2,800,000 shares of the Company's common stock
      at an exercise price of $0.16 per share.





On
      April
      28, 2008, we filed an Information Statement on Schedule 14C with the SEC to
      inform the Company’s stockholders of the action taken by the written consent of
      the holders of a majority of the Company’s voting stock on March 30, 2008. The
      actions taken by the Company’s stockholders will not become effective until 20
      days after the mailing of the Information Statement. We began mailing the
      Information Statement on April 28, 2008.





On
      May 8,
      2008, ROO Group, Inc. (the “Company”) received subscriptions for the sale of an
      aggregate of $15,000 or 75,000,000 Units. Each Unit consists of one share of
      common stock, par value $0.0001 per share, of the Company and a five-year
      warrant to purchase one share of Common Stock. The warrants have an exercise
      price of $0.34 per share and a term of five years.





14




**ROO
      GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Amounts
      in Thousands, Except Share and Per Share Data)**


**(Unaudited)**








***(12)
      Subsequent Events (Continued)***





Pursuant
      to the terms of the Securities Purchase Agreement entered into with each of
      the
      investors, the Company agreed to prepare and file a registration statement
      with
      the Securities and Exchange Commission registering the resale of the shares
      of
      common stock and the shares underlying the warrants on or prior to 30 days
      following the closing date. If the registration statement or any subsequent
      registration statement required to be filed by the Company is not filed within
      such time the Company is required to pay liquidated damages to the investors
      equal to 1% of the dollar amount of their investment per month (pro rata on
      a
      30-day basis), up to a maximum of 10% until the registration statement is filed.
      Further, if the registration statement is not declared effective within (i)
      90
      days of the closing (or in the event of a review by the SEC, within 120 days
      following the closing date), or (ii) 5 trading days after being notified that
      the registration will not be reviewed or will not be subject to further review,
      the Company is required to pay liquidated damages to the investors equal to
      1%
      of the dollar amount of their investment per month (pro rata on a 30-day basis),
      up to a maximum of 10% until the registration statement is declared effective;
      provided that if one or more registration statements shall not be effective
      two
      years after the closing, the Company shall be required to pay an additional
      8%
      in liquidated damages. In the event one or more registration statements is
      filed
      and declared effective, but shall thereafter cease to be effective and such
      lapse is not cured within 10 business days, the Company shall be required to
      pay
      liquidated damages to the investors equal to 1% of the dollar amount of their
      investment per month (pro rata on a 30-day basis), up to a maximum of 10% until
      the earlier of (i) the date the lapse is cured or (ii) the earlier of the
      expiration of the date on which all of the securities purchased by the investors
      can be sold either under the registration statement or pursuant to Rule 144.
      Management expects to file the registration statement within 30 days following
      the closing date and expects it to be declared effective within 90 days of
      the
      closing (or in the event of a review by the SEC, within 120 days following
      the
      closing date.




15


**ITEM
          2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
          OPERATION.**




Certain
      statements contained herein constitute forward-looking statements. In some
      cases, you can identify forward-looking statements by terminology such as "may,"
      "will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
      "predict," "potential" or "continue," the negative of such terms, or other
      comparable terminology. All statements other than statements of historical
      fact
      made in this report are forward looking. In particular, the statements herein
      regarding industry prospects and future results of operations or financial
      position are forward-looking statements. Because such statements include risks
      and uncertainties, actual results may differ materially from those expressed
      or
      implied by such forward-looking statements as a result of certain factors,
      including, but not limited to, risks associated with the integration of
      businesses following an acquisition, competitors with broader product lines
      and
      greater resources, emergence into new markets, the termination of any of our
      significant contracts, our inability to maintain working capital requirements
      to
      fund future operations, or our inability to attract and retain highly qualified
      management, technical and sales personnel.




**OVERVIEW**





ROO
      Group, Inc. is a leading, global provider of proprietary video distribution
      technologies and video-centric interactive marketing solutions. Through our
      end-to-end platform, we work closely with consumer brands and content providers
      to maximize the value of video content via the Internet. Our platform allows
      clients to publish, manage and distribute digital video content, build online
      communities and integrate advertising. In addition, enterprises can access
      approximately 100 syndicated channels and 40,000 syndicated videos. Through
      our
      subsidiary, Sputnik, we offer businesses a full range of interactive marketing
      solutions. Our subsidiary, Reality Group is an advertising agency offering
      clients a full range of traditional advertising services including media buying
      and planning, creative development, packaging and brand consultation. We have
      principal offices in Dubai, Melbourne (Australia), New York, and
      London.




Set
      forth
      below is a discussion of the financial condition and results of operations
      of
      ROO Group, Inc. and its consolidated subsidiaries (the "Company," "we," "us,"
      or
      "our") for the three months ended March 31, 2008 and 2007. The consolidated
      financial statements include the accounts of ROO Group, Inc., its wholly owned
      subsidiary ROO Media Corporation, its wholly owned subsidiary Bickhams Media,
      Inc. (“Bickhams”), its 51% owned subsidiary the Reality Group Pty. Ltd.
      (“Reality Group”), and its wholly owned subsidiary ROO HD, Inc. Included in the
      consolidation with ROO Media Corporation are ROO Media Corporation's wholly
      owned subsidiary ROO Media (Australia) Pty. Ltd. and ROO Media (Australia)
      Pty.
      Ltd.'s wholly owned subsidiary Undercover Media Pty. Ltd. (“Undercover Media”),
      its wholly owned subsidiary ROO Media Europe Limited, its wholly owned
      subsidiary ROO Broadcasting Limited, its 51% owned subsidiary Sputnik Agency
      Pty. Ltd. (“Sputnik”) (formerly Factory212 Pty. Ltd.) and its wholly owned
      subsidiary ROO TV Pty. Ltd. Included in the consolidation with Bickhams is
      Bickhams' wholly owned subsidiary VideoDome.com Networks, Inc.
      (“VideoDome.com”). The following discussion should be read in conjunction with
      the information set forth in the consolidated financial statements and the
      related notes thereto appearing elsewhere in this report.





As
      a
      component of Management’s review of the financial statements, and in light of
      recent and prospective business changes, including but not limited to (i) the
      integration of our Sputnik subsidiary, (ii) the closure of the RBS business
      unit
      and the cessation of certain other business activities, (iii) the
      regionalization of P&L accountability, and (iv) the acquisition of Kamera,
      management intends to review the classification of costs in the statements
      of
      operations. This may result in a change as to the presentation of costs
      including the development of new account groupings on the statements of
      operations or the re-classification of sub-accounts between certain categories.
      Management is currently considering implementing new cost classifications.
      New
      classifications currently being considered by management for potential
      implementation include “Hosting, delivery and reporting,” “Content licensing
      fees,” “Production and third-party services costs,” “Ad-serving costs,”
“Salaries and benefits,” Office rent and expenses” and “Corporate overheads
      (marketing, legal, accounting and auditing).” If Management determines that such
      changes in classifications would present additional information to the users
      of
      the financial statements, any such changes will be made on a prospective basis
      with previously reported amounts reclassified to conform with the presentation
      for the current period.





**RESULTS
      OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THE THREE MONTHS
      ENDED MARCH 31, 2007**


REVENUE.
        Consolidated revenue increased by $500,000 from $3,002,000 for the three
        months
        ended March 31, 2007 to $3,502,000 for the three months ended March 31, 2008,
        an
        increase of 17%.




16
 
 Online
          Digital Media segment revenue increased by $194,000 from $2,179,000 for
          the
          three months ended March 31, 2007 to $2,373,000 for the three months ended
          March
          31, 2008, an increase of 9%. The increase is principally from the increase
          in
          customers.
 
 Advertising
          Agency segment revenue increased by $306,000 from $823,000 for the three
          months
          ended March 31, 2007 to $1,129,000 for the three months ended March 31,
          2008, an
          increase of 37%. The increase is primarily from the increase in spending
          by our
          clients.
 
 EXPENSES
 
 OPERATIONS.
          Operating expenses consist primarily of content costs, salaries and related
          personnel costs, web hosting, content delivery and costs directly related
          to
          revenue generation. Operating expenses decreased by $291,000 from $3,197,000
          for
          the three months ended March 31, 2007 to $2,906,000 for the three months
          ended
          March 31, 2008, a decrease of 9%. This decrease was primarily due to broad
          cost
          cutting measures affected in the first quarter of 2008.
  RESEARCH
          AND DEVELOPMENT. Research and development expenses consist primarily of
          salaries
          and related personnel costs, and consulting fees associated with product
          development. Research and development expenses decreased by $731,000 from
          $1,339,000 for the three months ended March 31, 2007 to $608,000 for the
          three
          months ended March 31, 2008, a decrease of 55%. The decrease was due primarily
          to the decrease in development activities associated with enhancements
          to our
          technology platform in our Online Digital Media segment which included
          broad
          cost cutting measures affected in the first quarter of 2008.
 
 SALES
          AND
          MARKETING. Sales and marketing expenses consist primarily of expenses for
          sales
          and marketing personnel, expenditures for advertising, and promotional
          activities and expenses to bring our products to market. These expenses
          decreased by $443,000 from $1,613,000 for the three months ended March
          31, 2007
          to $1,170,000 for the three months ended March 31, 2008, a decrease of
          27%. This
          decrease was primarily due to an decrease in sales and marketing personnel
          and
          broad cost cutting measures affected in the first quarter of 2008.
  GENERAL
          AND ADMINISTRATIVE. General and administrative expenses consist primarily
          of
          expenses for management, finance and administrative personnel, legal,
          accounting, consulting fees, and facilities costs. These expenses increased
          by
          $3,016,000 from $3,504,000 for the three months ended March 31, 2007 to
          $6,520,000 for the three months ended March 31, 2008, an increase of 86%.
          The
          increase of $3,016,000 was due to the increase in non-cash compensation
          of
          $2,759,000, which consists of an increase in stock based compensation expense
          on
          stock options which included costs associated with the cancellation and
          reissue
          of options, plus $257,000 that is primarily associated with an increase
          in
          professional fees including management fees of $142,000.
 
 RESTRUCTURING
          CHARGES. Restructuring charges of $2,745,000 for the three months ended
          March
          31, 2008, consist of employee termination costs, contract settlements and
          facility closing costs.
 
 OTHER
          NON-RECURRING CHARGES. Other non-recurring charges of $135,000 for the
          three
          months ended March 31, 2008, consist of IT overlap, which is the redundancy
          in
          staff and consultants for the transition of information during reorganization
          due to the centralizing of resources in Toronto, and corporate
          rebranding.
 
 IMPAIRMENT
          OF PROPERTY AND EQUIPMENT. Impairment of property and equipment was $228,000
          for
          the three months ended March 31, 2008. This is related to the impairment
          of the
          property and equipment in the London office.
 
 INTEREST
          INCOME. Interest income decreased by $58,000 from $119,000 for the three
          months
          ended March 31, 2008 to $61,000 for the three months ended March 31, 2008,
          a
          decrease of 49%. This decrease was primarily due to a decrease in our cash
          and
          cash equivalents related to the timing of the proceeds from the private
          placements in May 2007 and November 2006.
  INTEREST
          EXPENSE, OTHER. Interest expense, other, was $14,000 for the three months
          ended
          March 31, 2008 and $7,000 for the three months ended March 31, 2007,
          respectively.
  NET
          LOSS
          BEFORE INCOME TAXES. As a result of the factors described above, we reported
          a
          net loss before income taxes of $10,742,000 for the three months ended
          March 31,
          2008 compared to $6,539,000 for the three months ended March 31, 2007,
          an
          increase of $4,203,000 or 64%.
  17
  **LIQUIDITY
          AND CAPITAL RESOURCES**
 
 As
          of
          March 31, 2008 we had working capital of approximately $2,888,000 and cash
          and
          cash equivalents of $5,580,000. On April 16, 2008, the Company was provided
          with
          notice of exercise by KIT Capital of its right pursuant to Section 4.5
          of the
          Executive Management Agreement by and between the Company and KIT Capital
          Limited dated December 18, 2007 to purchase $5,000,000 of the Company's
          common
          stock. On May 8, 2008, the Company entered into a common stock purchase
          agreement pursuant to which the Company sold an aggregate of $15,000,000
          of
          shares of common stock and warrants to accredited investors. Having completed
          this financing, the Company does not anticipate that it will need to raise
          additional capital to achieve its operational and acquisition growth
          plan.
 
 Net
          cash
          used in operating activities was $4,818,000 for the three months ended
          March 31,
          2008, compared to $4,291,000 for the three months ended March 31, 2007,
          an
          increase of $527,000 or 12%. The increase in net cash used in operating
          activities is primarily related to the timing of the receipts and
          payments.
 
 Net
          cash
          provided by investing activities was $107,000 for the three months ended
          March
          31, 2008 compared to net cash used in investing activities for the three
          months
          ended March 31, 2007 of $1,150,000, a decrease in net cash used in investing
          activities of $1,257,000 or 109%. The difference primarily represents the
          cash
          provided related to the release of the restricted cash of $100,000 in 2008
          plus
          the cash used in the issuance of $800,000 in notes receivable and the cash
          used
          in the investment in RJM of $250,000 in 2007.
 
 Net
          cash
          provided by financing activities was $61,000 for the three months ended
          March
          31, 2008 compared to net cash used in financing activities of $12,000 for
          the
          three months ended March 31, 2007, a decrease in net cash used in financing
          activities of $73,000.
 
 **MARKET
          RISKS**
 
 We
          conduct our operations in primary functional currencies: the United States
          dollar, the British pound and the Australian dollar. Historically, neither
          fluctuations in foreign exchange rates nor changes in foreign economic
          conditions have had a significant impact on our financial condition or
          results
          of operations. We currently do not hedge any of our foreign currency exposures
          and are therefore subject to the risk of exchange rate fluctuations. We
          invoice
          our international customers primarily in U.S. dollars, except in the Europe
          and
          Australia, where we invoice our customers primarily in British pounds,
          Euros and
          Australian dollars, respectively.
  We
          are
          exposed to foreign exchange rate fluctuations as the financial results
          of
          foreign subsidiaries are translated into U.S. dollars in consolidation
          and as
          our foreign currency consumer receipts are converted into U.S. dollars.
          Our
          exposure to foreign exchange rate fluctuations also arises from payables
          and
          receivables to and from our foreign subsidiaries, vendors and customers.
          Foreign
          exchange rate fluctuations did not have a material impact on our financial
          results in the three months ended March 31, 2008 and
          2007.
  Financial
          instruments which potentially subject us to concentrations of credit risk
          consist principally of cash and cash equivalents and trade accounts receivable.
          We place our cash and cash equivalents with high credit quality institutions
          to
          limit credit exposure. We believe no significant concentration of credit
          risk
          exists with respect to these investments.
 
 Concentrations
          of credit risk with respect to trade accounts receivable are limited due
          to the
          wide variety of customers who are dispersed across many geographic regions.
          We
          routinely assess the financial strength of customers and, based upon factors
          concerning credit risk, we establish an allowance for uncollectible accounts.
          Management believes that accounts receivable credit risk exposure beyond
          such
          allowance is limited.
 
 **OFF-BALANCE
          SHEET ARRANGEMENTS**
 
 We
          do not
          have any off balance sheet arrangements that are reasonably likely to have
          a
          current or future effect on our financial condition, revenues, results
          of
          operations, liquidity or capital expenditures.
 
 
 **ITEM
          3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
          RISK.**
 
 N/A
  18
  **ITEM
          4T. CONTROLS AND PROCEDURES.**
 
 *Evaluation
          of Disclosure Controls and Procedures* .
          Under
          the supervision and with the participation of our management, including
          our
          President, Chief Executive Officer and Chief Financial Officer, we evaluated
          the
          effectiveness of the design and operation of our disclosure controls and
          procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
          Exchange Act of 1934 (the "Exchange Act")) as of the end of the period
          covered
          by this report. Based upon that evaluation, our President, Chief Executive
          Officer and Chief Financial Officer concluded that our disclosure controls
          and
          procedures as of the end of the period covered by this report were effective
          such that the information required to be disclosed by us in reports filed
          under
          the Securities Exchange Act of 1934 is (i) recorded, processed, summarized
          and
          reported within the time periods specified in the SEC's rules and forms
          and (ii)
          accumulated and communicated to our management to allow timely decisions
          regarding disclosure. A controls system cannot provide absolute assurance,
          however, that the objectives of the controls system are met, and no evaluation
          of controls can provide absolute assurance that all control issues and
          instances
          of fraud, if any, within a company have been detected.
 
 *Changes
          in Internal Control Over Financial Reporting.* During
          the most recent quarter ended March 31, 2008, there has been no change
          in our
          internal control over financial reporting (as defined in Rule 13a-15(f)
          and
          15d-15(f) under the Exchange Act) ) that has materially affected, or is
          reasonably likely to materially affect, our internal control over financial
          reporting.
 
 **PART
          II - OTHER INFORMATION**
 
 **ITEM
          1. LEGAL PROCEEDINGS.**
 
 Except
          as
          set forth below, the Company is not a party to any pending legal proceeding,
          nor
          is the property of the Company the subject of a pending legal proceeding
          that is
          not in the ordinary course of business or otherwise material to the financial
          condition of the Company’s business. None of the Company’s directors, officers
          or affiliates is involved in a proceeding adverse to its business or has
          a
          material interest adverse to the Company’s business.
 
 The
          Company’s wholly owned subsidiary, ROO HD, Inc. (“ROO HD”), has been served as a
          defendant in a lawsuit entitled Julie Vittengl et al. vs. ROO HD, Inc.,
          a
          purported class action pending in New York Supreme Court, Saratoga County.
          The
          suit, brought by four former employees of Wurld Media, Inc. (“Wurld”)
          purportedly on behalf of themselves and “others similarly situated,” claims that
          ROO HD’s acquisition of certain assets of Wurld was a fraudulent conveyance and
          that ROO HD is the alter-ego of Wurld. Plaintiffs seek the appointment
          of a
          receiver to take charge of the Company’s property in constructive trust for
          plaintiff and payment of plaintiff’s unpaid wages and costs of suit, both in an
          unspecified dollar amount. ROO HD timely filed its answer to the complaint,
          and
          there have been no further developments. We believe the suit is without
          merit
          and will defend ourselves vigorously.
 
 On
          December 24, 2007, Rick Gell and Todd Pavlin, two former consultants of
          ROO
          Media sued that entity together with ROO Group and ROO Group’s Founder Chairman
          Robert Petty and ROO Media’s former President and Chief Operating Officer Steve
          Quinn in New York Supreme Court, New York County, alleging breach of an
          oral
          employment agreement, fraudulent inducement and other claims relating to
          the
          plaintiffs’ employment at ROO Media. Defendants have moved to dismiss the
          complaint, and the motion is scheduled to be argued in June 2008. We believe
          the
          suit is without merit and will defend ourselves vigorously.
 
 **ITEM
          1A. RISK FACTORS.**
 
 N/A
 
 **ITEM
          2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
          PROCEEDS.**
 N/A
 
 **ITEM
          3. DEFAULTS UPON SENIOR SECURITIES.**
 
 None
 
 **ITEM
          4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
  None
  **ITEM
          5. OTHER INFORMATION.**
  None
  19
  **ITEM
          6. EXHIBITS.**
 
 **Exhibit
                    Number**
                
                **Description**31.1
                
                Certification
                    by Chief Executive Officer, required by Rule 13a-14(a) or Rule
                    15d-14(a)
                    of the Exchange Act.31.2
                
                Certification
                    by Chief Financial Officer, required by Rule 13a-14(a) or Rule
                    15d-14(a)
                    of the Exchange Act.32.1
                
                Certification
                    by Chief Executive Officer, required by Rule 13a-14(b) or Rule
                    15d-14(b)
                    of the Exchange Act and Section 1350 of Chapter 63 of Title 18
                    of the
                    United States Code.32.2
                
                Certification
                    by Chief Financial Officer, required by Rule 13a-14(b) or Rule
                    15d-14(b)
                    of the Exchange Act and Section 1350 of Chapter 63 of Title 18
                    of the
                    United States Code.
  20
 
 **SIGNATURES**
 
 In
          accordance with the requirements of the Exchange Act, the registrant caused
          this
          report to be signed on its behalf by the undersigned, thereunto duly
          authorized.
  **ROO
                    GROUP, INC.**Dated:
                      May 15, 2008
                By:
                /s/
                    Kaleil Isaza TuzmanKaleil
                    Isaza TuzmanChief
                    Executive OfficerDated:
                      May 15, 2008
                By:
                /s/
                      Robin SmythRobin
                    SmythChief
                    Financial Officer
  21