**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-KSB**


(Mark
      One)





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


FOR
      THE
      FISCAL YEAR ENDED DECEMBER 31, 2007


 ̈
              TRANSITION
                  REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934


FOR
      THE
      TRANSITION PERIOD FROM __________ TO __________


COMMISSION
      FILE NUMBER: 000-25659





**ROO
      GROUP, INC.**


(Name
      of
      the registrant in its charter)





**DELAWARE**
              (State
                or other jurisdiction of incorporation or
organization)
            **11-3447894**
              (I.R.S.
                Employer Identification No.)





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


(Address
      of principal executive offices) (Zip Code)





Issuer’s
      telephone Number: **(212)
      661-4111**





Securities
      registered under Section 12(b) of the Exchange Act: None.





Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, $.0001 par
      value





Indicate
      by check mark whether the registrant (1) has filed all reports required by
      Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 12 months (or for such shorter period that the registrant was
      required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days. Yes**x**No**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 shell company (as defined in
      Rule 12b-2 of the Exchange Act). Yes **o** No **x**




The
      Registrant’s revenues for its most recent fiscal year were
      $13,929,000





The
      aggregate market value of the common stock held by non-affiliates of the
      registrant, based upon the last sale price of the common stock reported on
      the
      OTC-Bulletin Board on December 31, 2007 was $6,619,127.




The
      number of shares of registrant’s common stock outstanding, as of March 28, 2008
      was 38,936,039.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




None.







**TABLE
      OF CONTENTS**




Page**PART
                I**Item
                1.
            Description
                of Business
            1Item
                1A.
            Risk
                Factors
            9Item
                1B.
            Unresolved
                Staff Comments
            16Item
                2.
            Properties
            16Item
                3.
            Legal
                Proceedings
            17Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            17**PART
                II**Item
                5.
            Market
                for Common Equity and Related Stockholder Matters
            18Item
                6.
            Selected
                Financial Data
            18Item
                7.
            Management’s
                Discussion and Analysis or Plan of Operation
            19Item
                7A.
            Quantitative
                and Qualitative Disclosures about Market RisksItem
                8.
            Financial
                Statements
            25Item
                9.
            Changes
                In and Disagreements with Accountants on Accounting and Financial
                Disclosure
            25Item
                9A.
            Controls
                and Procedures
            25Item
                9B.
            Other
                Information
            26**PART
                III**Item
                10.
            Directors,
                Executive Officers, Promoters and Control Persons;Compliance
                With Section 16(a) of the Exchange Act
            26Item
                11.
            Executive
                Compensation
            29Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Managementand
                Related Stockholder Matters
            32Item
                13.
            Certain
                Relationship and Related Transactions
            36Item
                14.
            Principal
                Accountant Fees and Services
            37Item
                15.
            Exhibits
            38**SIGNATURES**
            43





**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS.**





**BACKGROUND**





ROO
      Group, Inc. was incorporated on August 11, 1998 under the laws of the State
      of
      Delaware as Virilitec Industries, Inc. We were not successful in implementing
      our original business plan, and our management determined that it was in the
      best interests of our shareholders to attempt to acquire an operating company.
      As a result, we terminated all of our existing contracts and were inactive
      until
      we acquired ROO Media Corporation (“ROO Media”), a Delaware
      corporation.




**ACQUISITION
      OF ROO MEDIA CORPORATION**




On
      December 2, 2003, Virilitec Industries, VRLT Acquisition Corp., a Delaware
      corporation and wholly-owned subsidiary of Virilitec Industries, ROO Media,
      Jacob Roth and Bella Roth, entered into an Agreement and Plan of Merger. Upon
      the terms and subject to the conditions set forth in the Agreement and Plan
      of
      Merger, VRLT Acquisition Corp. was merged with and into ROO Media. As a result
      of the merger, Virilitec Industries, through VRLT Acquisition Corp., acquired
      100% of the capital stock of ROO Media. All of the issued and outstanding shares
      of capital stock of ROO Media held by the stockholders of ROO Media were
      cancelled and converted into the right to receive an aggregate of 2,960,000
      shares of common stock of Virilitec Industries. The separate corporate existence
      of VRLT Acquisition Corp. ceased, and ROO Media continued as the surviving
      corporation in the merger, as a wholly owned subsidiary of Virilitec
      Industries.





In
      connection with the merger, we agreed to cause the resignation of all of the
      members of our Board of Directors and appoint new Directors as designated by
      the
      Chairman of the Board of Directors of ROO Media. As additional consideration
      for
      the 2,960,000 shares of common stock of Virilitec Industries, (1) ROO Media
      paid
      to Virilitec Industries $37,500 cash prior to the execution of the Agreement
      and
      Plan of Merger, (2) ROO Media paid an aggregate of $100,000 of Virilitec
      Industries' total $162,500 of liabilities as reflected on Virilitec Industries'
      balance sheet on the closing date of the merger, and (3) ROO Media paid
      Virilitec Industries' $62,500 debt to Jacob Roth, Virilitec Industries' former
      Chief Executive Officer.





**OVERVIEW
      OF OUR BUSINESS**





We,
      through our operating subsidiaries, are a digital media company in the business
      of providing products and solutions that enable the broadcast of topical video
      content from our customers' Internet websites. This includes providing the
      technology and content required for video to be played on computers via the
      Internet as well as emerging broadcasting platforms such as set top boxes and
      wireless devices (i.e., mobile phones and PDAs). Our core activities include
      the
      aggregation of video content, media management, traditional and online
      advertising, hosting, and content delivery. In conjunction with our
      subsidiaries, we currently provide video solutions for over 400 web sites
      internationally through our offices in the United States, United Kingdom,
      Colombia and Australia. In 2007, over 80% of revenues were generated in the
      Asia
      Pacific and European zones.





Supporting
      the core digital media function are two key subsidiary businesses: (i) Sputnik
      Agency and (ii)Reality Group. Sputnik Agency is an online marketing services
      company providing integrated online marketing solutions, as agency services
      for
      client businesses. Services include strategic planning services, creative
      services, media planning and buying, technical development, data management
      and
      modeling. Reality Group provides integrated communication solutions, as agency
      services for client businesses, including but not limited to, brand and retail
      advertising, direct marketing, CRM (Customer Relationship
      Management) solutions, call centre solutions and design
      services.


1


**HISTORY
      OF THE DEVELOPMENT OF OUR BUSINESS**





Our
      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 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., its wholly-owned
      subsidiary ROO Media Europe Pty Ltd, 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.. ROO Media Europe Ltd. was 76%
      owned by ROO Media Corporation until January 27, 2006 when ROO Media Corporation
      purchased the remaining 24% of ROO Media Europe Ltd. for $90,000. We provide
      topical video content, including news, business, entertainment, fashion, music,
      sport and travel video, and associated services for broadcasting video over
      the
      Internet to a global base of clients. ROO Media's delivery platform supports
      worldwide syndication and television-style advertising. During 2001 and 2002,
      ROO Media focused on developing and refining its products and solutions, and
      commenced the commercial selling of its solutions in late 2003. ROO Media
      developed a technology platform specifically designed to provide a cost
      effective, robust, and scaleable solution to manage and syndicate video content
      over the Internet.




We
      announced on March 17, 2008 that we intend to exercise our right to complete
      the
      purchase of our 51% owned Sputnik subsidiary, and that an agreement had been
      reached in principle to acquire the remaining 49% of Sputnik. On March 31,
      2008
      we announced that the Company had executed definitive share purchase agreements
      with certain Sputnik shareholders. We expect to effect the purchase of the
      remaining Sputnik shares during the quarter ending June 30, 2008. As currently
      contemplated, the total consideration will be approximately $4.6 million of
      which net cash to be paid by us to the Sputnik shareholders to affect this
      purchase is to be approximately $4 million. Although we are optimistic that
      we
      will complete the purchase of Sputnik according to the key terms and conditions
      outlined in the Sputnik MOU, there is no guarantee that the Sputnik purchase
      will indeed close, that it will close in the form outlined in the Sputnik MOU
      or
      that it will close during the quarter ended June 30, 2008.





The
      full
      integration of Sputnik will include a consolidation of products and creative
      services to address current and future client needs. Our mission is to be the
      global leader in the provision of marketing services-driven online video
      solutions that grow clients’ businesses. Our product and service offerings
      include online video enablement through our proprietary technology platform,
      interactive marketing solutions to monetize our clients’ digital assets and
      content / programming consultation, syndication and rights
      acquisition.





**OPERATIONS
      STRATEGY**





Since
      December 2007, significant changes have been and continue to be made to the
      core
      operations of our business:





1.
            Refocus
                of commercial proposition in market place.





We
      are in
      the process of repositioning our business focus towards providing marketing
      services driven Internet Protocol Television (“IPTV”) solutions that grow our
      clients’ businesses. We expect to deliver this revised focus through:





a.  The
      formal integration of Sputnik’s services into to a unified client services
      approach. We expect this integration with Sputnik to further drive our
      customers’ businesses, and therefore our own, through our provision
      of:


i.
            Strategic
                planning services;


ii.
            Creative
                services;


2


iii.
            Media
                planning and buying;


iv.
            Technical
                development; and


v.
            Data
                management and modeling





b.
            Re-branding
                our business from ROO Group to “KIT
                Digital”.





2.
            Revised
                and expanded new business acquisition strategy
                through:


a.
            identifying
                and focusing on key corporate market verticals;


b.
            targeting
                the expanding market for IPTV solutions internationally;
                and


c.
            continuing
                to evolve our mutually beneficial pricing model (including contract
                minimums wherever possible).





3.
            Cost
                Reduction. We are realizing cost savings and expect to realize additional
                significant cost savings from the following
                initiatives:


a.
            Significantly
                reduced compensation, especially at the senior executive
                level;


b.
            Assessment
                of our current office spaces both from the standpoint of geographic
                location as well as ability to sublet or cancel leases in favor of
                more
                appropriate office spaces and locations;
                and


c.
            Consolidation
                and centralization of key back-office functions,
                including;


i.
            Product
                Development;


ii.
            Product
                and Service Deployment; and


iii.
            Support.





4.
            Product
                Strategy. We plan to implement:


a.
            Greater
                product systemization and stability across our core technology
                functions;


b.
            A
                market and client-led product development
                strategy;


c.
            Partnerships
                with best-in-class technologies (viz.. Viewdle, Pando and Abacast
                partnerships mentioned below);


d.
            Improved
                streaming capabilities; and


e.
            Device-agnostic
                delivery capability to include mobile device
                delivery.





5.
            Mergers
                & Acquisitions (“M&A”). Development of a suitable M&A
                strategy, seeking to identify companies compatible with our business
                model
                which ideally can be acquired
                accretively.





6.
            Content
                Strategy. We are re-focusing our content strategy to deliver brand
                and
                target market-led content solutions that add measurable value to
                our
                clients without minimum guarantees to the content
                providers.





7.
            Enabling
                advertising model. We have creative services, ad operations and ad
                reporting tools which we will be coalescing into an advertising model
                that
                provides key clients with the tools and skills to expand the value
                of
                their IPTV advertising market.





8.
            Relocation
                of corporate headquarters to Dubai, UAE: We expect to complete this
                during
                the quarter ended June 30, 2008, allowing for streamlined executive
                communication and lower headquarter operating
                costs.




**STRATEGIC
      RELATIONSHIPS**





**VIEWDLE,
      INC.**





On
      March
      26, 2008, the Company announced that it had concluded a letter of intent (the
      “Viewdle LOI”) to enter into a strategic partnership with Viewdle, Inc., whereby
      Viewdle will provide, with limited exclusivity, its facial recognition-based
      video search to the Company’s customers in the business-to-business IPTV
      platform marketplace. According to the Viewdle LOI, Viewdle will integrate
      its
      video search capability into the the Company’s video player to offer a seamless
      user experience as either a stand-alone product or integrated with a broader
      solution. The Company and Viewdle have begun to integrate their product
      offerings and the Company expects live customer deployment in the third quarter
      of 2008. The Viewdle LOI contemplates limited form exclusivity for ROO, where
      ROO’s direct competitors will not be able to use or integrate the Viewdle
      technology during the course of the agreement signed between the
      companies.


3


Viewdle,
      Inc. was founded to improve video search by solving the inefficiencies inherent
      in using text-based metadata and other existing tools for indexing video.
      Viewdle Inc.’s core technology is the Viewdle Engine, a facial-recognition
      powered digital media platform for indexing, searching and monetizing video
      assets.





**ABACAST
      AND PANDO NETWORKS**





On
      January 30, 2008, the Company partnered with Abacast, Inc. and Pando Networks,
      Inc. to offer current and future customers peer-to-peer (“P2P”) streaming
      solutions that deliver live streaming and video-on-demand (VoD) through the
      ROO
      Media Player. Through this partnership with Abacast and Pando, the Company
      will
      be able to offer these P2P products as white-label solutions to its
      international network of customers - with the hope and expectation of increasing
      streaming quality while reducing associated bandwidth costs. As part of the
      agreement, the Company has exclusive access to the technology of Abacast and
      Pando vis-à-vis certain of its direct competitors. We anticipate that Abacast
      and Pando will work with the Company to integrate their respective technologies
      into the ROO Media Player environment to facilitate a seamless end-user
      experience - offering both solutions through the single ROO client
      application.





Through
      the partnership, Abacast is expected to supply its hybrid P2P/CDN solution
      for
      live streaming content while Pando is expected to provide managed P2P
      distribution services for VoD content. Abacast and Pando, which are both
      privately held companies, reported having a combined installed base of
      approximately 62 million individual customers as of January 30,
      2008





**KAMERA
      CONTENT AB**





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 $300,000. 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 immediately payable to effect
      the purchase of Kamera Content AB by the Company is US$2.5 million upon closing
      of the acquisition. As additional consideration, according to the Kamera LOI,
      the Company will issue to Kamera common shares upon closing of the acquisition
      and at future dates based on certain timing and performance related benchmarks
      and thresholds. All the common stock payments considered under the Kamera LOI
      may be paid in cash instead, at the election of the Company.





Kamera
      is
      privately held and based in Stockholm, Sweden, with certain back-office
      operations in Cairo, Egypt. Through its proprietary software and content
      distribution agreements, Kamera enables corporate clients such as Vodafone,
      MSN,
      Orange, Telefonica, O2, Hutchinson and China Mobile to deliver IPTV channels
      to
      their customers over mobile and online networks. Kamera’s content library
      includes localized, ready-to-publish clips from ABC News, Associated Press
      (AP),
      SNTV and others, and its proprietary ingestion engine allows for video content
      to be transcoded into a variety of mobile/digital formats.





**NEWS
      CORPORATION**





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”). The Agreement
      provided that if the Revenue Target was not met, we were to issue to News Corp
      warrants to purchase 2,000,000 shares of our common stock which were to be
      exercisable for a term of two years at a price of $2.70. The exercise price
      of
      the warrants was subject to customary anti-dilution protection for stock splits,
      recapitalizations, stock dividends and the like. The Agreement provided for
      the
      release of the shares to News Corp upon a change of control, so long as the
      average monthly revenue from News Corp and its affiliates during the three
      months prior to the change of control was not materially less than the Revenue
      Target. On February 7, 2008, the escrowed shares were released to News Corp
      upon
      the achievement of the Revenue Target.


4


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





**INTELLECTUAL
      PROPERTY**





We
      have
      obtained a service mark of the name "ROO" (Reg. No. 3095622) from the U.S.
      Patent and Trademark Office and obtained a trademark of the name "ROO" in the
      European Union (Reg. No. 4758488). We have applied for a trademark of the name
      “ROO” in Australia (Australian Trademark Application Serial No.
      1110843). This application is pending.




We
      depend
      on a portion of technology licensed to us by third parties and a portion owned
      and developed by us. We license technology from third parties, including
      software that is integrated with internally developed software and used in
      our
      products to perform key functions. We anticipate that we will continue to
      license technology from third parties in the future. Although we do not believe
      that we are substantially dependent on any individual licensed technology,
      some
      of the software that we license from third parties could be difficult for us
      to
      replace. The effective implementation of our products depends upon the
      successful operation of third-party licensed products in conjunction with our
      products, and therefore any undetected errors in these licensed products could
      prevent the implementation of our products, impair the functionality of our
      products, delay new product introductions, and/or damage our
      reputation.





**OUR
      PRODUCTS AND SERVICES**





The
      evolution of our business model, above, redefines our core service
      as:





*Marketing
      services-driven IPTV solutions that grow our clients’
businesses.*





Our
      strategy is to assist our clients not only in the deployment of world-class
      IPTV
      technology and content solutions, but also to guide our clients (and the
      industry as a whole) in the monetization of the IPTV capability—thus leading and
      growing the overall IPTV enablement category.





With
      a
      marketing services slant to our technology solutions, our strategy is to
      provide:





-
            Strategic
                planning relating to brand, marketing and
                communications;




-
            Media
                planning and buying;




-
            Creative
                services;




5


-
            Technical
                development and support; and




-
            Data
                management and modeling.




ROO
      VIDEO
      SOLUTIONS. We build customized video solutions for specific customers or
      industry segments. Our platform has been designed to be flexible, scalable
      and
      device-agnostic, allowing for the delivery of video via Internet Protocol to
      computers, mobile phones or internet-enabled televisions.




ROO
      SYNDICATION OF LICENSED VIDEO CONTENT. We provide a turnkey solution for
      customers located throughout the world to activate licensed topical video
      content on their web sites. ROO Media supplies our wholesale clients with a
      cost-effective solution whereby the client receives the licensed video content
      it selects, such as news, business, music, fashion, entertainment, travel,
      etc.,
      the technology to integrate the video into its website, daily management and
      updating of the content, and regular reporting on which content is being viewed.




Our
      platform has been developed around providing multiple verticals the ability
      to:




-
            Increase
                online revenues;




-
            Increase
                brand recognition;




-
            Increase
                and retain competitive advantage;




-
            Improve
                users buying and viewing experience;
                and




-
            Reduce
                the divide between buying online and the in store
                experience.




The
      Technology platform provides:




-
            Digital
                asset management;




-
            The
                ability to manage multiple video properties through a single
                interface;




-
            Content
                transcoding to ease penetration into multiple mediums and
                platforms;




-
            Hosting
                and delivery;




-
            Marketing
                tools;




-
            Search
                engine tools;




-
            Geo-targeting
                capabilities around content and
                advertising;




-
            The
                ability to email a friend;




-
            RSS
                reader linking;




-
            The
                capability to program a commercial to run a specific amount of times
                or
                between a selected range of dates;




-
            The
                capability to program a commercial to run within a selected content
                category; and




-
            insightful,
                mission-critical reporting including how many times the advertisement
                was
                viewed, unique traffic data and duration of viewing time and geographic
                penetration.




INTERACTIVE
      ADVERTISING. Our operating subsidiary Sputnik Agency is an online marketing
      services company providing integrated online marketing solutions, as agency
      services for client businesses. Services include strategic planning services,
      creative services, media planning and buying, technical development, data
      management and modeling


6


TRADITIONAL
      ADVERTISING. Our operating subsidiary Reality Group Pty. Ltd. is a
      communications agency that combines various forms of media for each client
      campaign, such as incentive programs, internal communications, CRM, brand
      planning, sales promotion, brand identity, sponsorships, on-line advertising,
      new media, media planning, and packaging





**INDUSTRY**





We
      focus
      on providing technology, content, advertising and marketing solutions to
      consumer brands and content providers. Our proprietary, end-to-end video
      platform enables websites to publish, manage and distribute content, build
      communities and integrate advertising.  We offer consulting services for
      those clients interested in content procurement and distribution strategy.
      Our
      interactive marketing services arm, Sputnik Agency, helps clients grow their
      business by developing innovative online solutions that drive traffic, create
      new revenue streams and extend clients’ brands.  Sputnik provides a fully
      integrated service offering from creative development to trends and insights,
      media and strategy planning and online video activation.  Reality Group is
      an off line advertising agency offering clients a full range of traditional
      advertising services including media buying and planning, creative development,
      packaging and brand consultation.




**COMPETITION**





The
      provisioning and streaming of digital media content over the Internet is rapidly
      becoming a competitive industry. The key barriers to entry into the digital
      media segment are (1) the timeframe and costs to develop a commercially robust,
      feature rich media delivery platform, and (2) the time involved to build a
      digital media data base of licensed videos. While there are only a few industry
      participants similar to us that provide a full suite of associated products
      and
      services, there are a number of traditional content syndicators who have entered
      the industry by providing their own content for streaming over their own
      portals. For example, Disney, Time Warner and CNN all provide access to their
      own content in digital format over their own destination Internet portals.
      There
      are also a number of smaller operations that provide wholesale syndication
      services such as Narrowstep (www.narrowstep.com) as well as Maven
      Networks ( www.maven.net ),
      the
      Platform (www.theplatform.com) and Brightcove ( www.brightcove.com ),
      which
      provide a range of online broadcasting solutions. Other competitors on select
      products of ROO Media include: Real Networks, Inc., a global provider of
      network-delivered digital media service and the technology that enables digital
      media creation, distribution and consumption, as well as interactive advertising
      agencies such as 24-7/Real Media (www.247realmedia.com), BurstMedia
      (www.burstmedia.com) and Doubleclick (www.doubleclick.com), which
      on March 11, 2008 was purchased by Google Inc. We believe that as the market
      segment continues to grow, new competitors will enter the market and compete
      directly with us. We compete with these firms and emerging competitors by
      offering competitive pricing, unique products, flexible business models for
      our
      customers to generate revenue, and continually developing and adding new
      functionality to our media management platform. In addition, our global
      footprint and marketing solution offering distinguishes us in the
      marketplace.





**GOVERNMENT
      REGULATION**





We
      are
      subject to risks associated with governmental regulation and legal
      uncertainties. Few existing laws or regulations specifically apply to the
      Internet, other than laws and regulations generally applicable to businesses.
      Many laws and regulations, however, are pending and may be adopted in the United
      States, individual states and local jurisdictions and other countries with
      respect to the Internet. These laws may relate to many areas that impact our
      business, including content issues (such as obscenity, indecency and
      defamation), caching of content by server products, sweepstakes, promotions,
      and
      the convergence of traditional communication services with Internet
      communications, including the future availability of broadband transmission
      capability and wireless networks. These types of regulations are likely to
      differ between countries and other political and geographic divisions. Other
      countries and political organizations are likely to impose or favor more and
      different regulation than that which has been proposed in the United States,
      thus furthering the complexity of regulation. In addition, state and local
      governments may impose regulations in addition to, inconsistent with, or
      stricter than federal regulations. The adoption of such laws or regulations,
      and
      uncertainties associated with their validity, interpretation, applicability
      and
      enforcement, may affect the available distribution channels for and costs
      associated with our products and services, and may affect the growth of the
      Internet. Such laws or regulations may harm our business. Our products and
      services may also become subject to investigation and regulation of foreign
      data
      protection authorities, including those in the European Union. Such activities
      could result in additional product and distribution costs for us in order to
      comply with such regulation.


7


There
      is
      uncertainty regarding how existing laws governing issues such as illegal or
      obscene content and retransmission of media apply to the Internet. The vast
      majority of such laws were adopted before the advent of the Internet and related
      technologies and do not address the unique issues associated with the Internet
      and related technologies. Most of the laws that relate to the Internet have
      not
      yet been interpreted. In addition to potential legislation from local, state
      and
      federal governments, labor guild agreements and other laws and regulations
      that
      impose fees, royalties or unanticipated payments regarding the distribution
      of
      media over the Internet may directly or indirectly affect our business. While
      we
      and our customers may be directly affected by such agreements, we are not a
      party to such agreements and have little ability to influence the degree such
      agreements favor or disfavor Internet distribution or our business
      models.




The
      Child
      Online Protection Act and the Child Online Privacy Protection Act impose civil
      and criminal penalties on persons distributing material harmful to minors (e.g.,
      obscene material) over the Internet to persons under the age of 17, or
      collecting personal information from children under the age of 13. We do not
      knowingly distribute harmful materials to minors or collect personal information
      from children under the age of 13. The manner in which these Acts may be
      interpreted and enforced cannot be fully determined, and future legislation
      similar to these Acts could subject us to potential liability if we were deemed
      to be non-compliant with such rules and regulations, which in turn could harm
      our business.




**RESEARCH
      AND DEVELOPMENT**





We
      continue to pursue opportunities to improve and expand our products and services
      and have dedicated resources which continue to review and enhance our technology
      platform and the products and solutions we offer. Currently, research and
      development is conducted internally as well as through outsourcing agreements.
      We plan to consider opportunities to expand our current content categories
      to
      offer specific lifestyle, children's content, sport, science and educational
      content.  We
      also
      plan to explore opportunities including both internal Company product
      development initiatives as well as partnership opportunities with best-in-class
      providers of technology such as Viewdle, Pando Networks and Abacast (see
      Strategic Partnerships) to further enhance our distribution and technological
      infrastructure, and maintain our competitive position. We cannot assure you,
      however, that we will achieve our research and development goals.





**EMPLOYEES**





As
      of
      March 21, 2008 we had a total of 125 full time employees and 10 part time
      employees based in Australia, Europe, Latin America and the United States.
      Included in this total, our subsidiary Reality Group had 28 full time employees
      and 3 part time employees. We consider our relations with our employees to
      be
      good.




8


**ITEM
      1A. RISK FACTORS**




An
      investment in our common stock has a high degree of risk. Before you invest
      you
      should carefully consider the risks and uncertainties described below and the
      other information in this report. Each of the following risks may materially
      and
      adversely affect our business, results of operations and financial condition.
      These risks may cause the market price of our common stock to decline, which
      may
      cause you to lose all or a part of the money you paid to buy our common
      stock





**RISKS
      RELATED TO OUR BUSINESS:**





**WE
      HAVE A HISTORY OF LOSSES WHICH MAY CONTINUE AND WHICH MAY NEGATIVELY IMPACT
      OUR
      ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES.**





We
      have
      incurred losses since our inception. For the years ended December 31, 2007
      and
      2006, we generated revenues of $13,929,000 and $9,768,000, respectively, and
      incurred net losses of $34,564,000 and $14,625,000, respectively. At December
      31, 2007, we had working capital of $8,090,000 (current assets less current
      liabilities) and an accumulated deficit of $63,524,000. Our auditors, in their
      report dated March 27, 2008, have expressed substantial doubt about our ability
      to continue as going concern. There can be no assurance that future operations
      will be profitable. Our failure to increase our revenues significantly or
      improve our gross margins will harm our business. Even if we do achieve
      profitability, we may not be able to sustain or increase profitability on a
      quarterly or annual basis in the future. If our revenues grow more slowly than
      we anticipate, our gross margins fail to improve, or our operating expenses
      exceed our expectations, our operating results will suffer. The prices we charge
      for our products and services may decrease, which would reduce our revenues
      and
      harm our business. If we are unable to sell our products or services at
      acceptable prices relative to our costs, or if we fail to develop and introduce
      on a timely basis new products and services from which we can derive additional
      revenues, our financial results will suffer.




**OUR
      OPERATING SUBSIDIARIES HAVE LIMITED OPERATING HISTORIES AND THEREFORE WE CANNOT
      ENSURE THE LONG-TERM SUCCESSFUL OPERATION OF OUR BUSINESS OR THE EXECUTION
      OF
      OUR BUSINESS PLAN.**





Our
      prospects must be considered in light of the risks, expenses and difficulties
      frequently encountered by growing companies in new and rapidly evolving markets,
      such as the digital media software markets in which we operate. We must meet
      many challenges including:





·
            Establishing
                and maintaining broad market acceptance of our products and services
                and
                converting that acceptance into direct and indirect sources of
                revenue;·
            Establishing
                and maintaining adoption of our technology on a wide variety of platforms
                and devices;·
            Timely
                and successfully developing new products, product features and services
                and increasing the functionality and features of existing products
                and
                services;·
            Developing
                services and products that result in high degrees of customer satisfaction
                and high levels of customer usage;·
            Successfully
                responding to competition, including competition from emerging
                technologies and solutions; and




9





·
            Developing
                and maintaining strategic relationships to enhance the distribution,
                features, content and utility of our products and
                services.·
            Identifying,
                attracting and retaining talented technical and creative services
                staff at
                reasonable market compensation rates in the markets in which we
                employ.





Our
      business strategy may be unsuccessful and we may be unable to address the risks
      we face in a cost-effective manner, if at all. If we are unable to successfully
      address these risks our business will be harmed.




**OUR
      RESOURCES MAY NOT BE SUFFICIENT TO MANAGE OUR EXPECTED GROWTH; FAILURE TO
      PROPERLY MANAGE OUR POTENTIAL GROWTH WOULD BE DETRIMENTAL TO OUR
      BUSINESS.**





We
      may
      fail to adequately manage our anticipated future growth. Any growth in our
      operations will place a significant strain on our administrative, financial
      and
      operational resources, and increase demands on our management and on our
      operational and administrative systems, controls and other resources. We cannot
      assure you that our existing personnel, systems, procedures or controls will
      be
      adequate to support our operations in the future or that we will be able to
      successfully implement appropriate measures consistent with our growth strategy.
      As part of this growth, we may have to implement new operational and financial
      systems, procedures and controls to expand, train and manage our employee base,
      and maintain close coordination among our technical, accounting, finance,
      marketing, sales and editorial staff. We cannot guarantee that we will be able
      to do so, or that if we are able to do so, we will be able to effectively
      integrate them into our existing staff and systems. To the extent we acquire
      other businesses, we will also need to integrate and assimilate new operations,
      technologies and personnel. If we are unable to manage growth effectively,
      such
      as if our sales and marketing efforts exceed our capacity to install, maintain
      and service our products or if new employees are unable to achieve performance
      levels, our business, operating results and financial condition could be
      materially adversely affected.





**IF
      WE DO NOT SUCCESSFULLY DEVELOP NEW PRODUCTS AND SERVICES, OUR BUSINESS WILL
      BE
      HARMED.**





Our
      business and operating results would be harmed if we fail to expand our suite
      of
      products and services (either through internal product or capability development
      initiatives or through partnerships with best-in-class providers of digital
      media technologies) that achieve widespread market acceptance or that fail
      to
      generate significant revenue or gross profits to offset our operating and other
      costs. We may not successfully identify, develop and market new product and
      service opportunities in a timely manner. If we introduce new products and
      services, they may not attain broad market acceptance or contribute meaningfully
      to our revenue or profitability. Competitive or technological developments
      may
      require us to make substantial, unanticipated investments in new products and
      technologies or in new strategic partnerships, and we may not have sufficient
      resources to make these investments. Because the markets for our products and
      services are subject to rapid change, we must expand and/or evolve our product
      and service offerings quickly. Delays and cost overruns could affect our ability
      to respond to technological changes, evolving industry standards, competitive
      developments or customer requirements.


**IF
      USE OF THE INTERNET DOES NOT CONTINUE TO GROW, OR IF THE INTERNET INFRASTRUCTURE
      CANNOT SUPPORT DEMANDS PLACED ON IT BY SUCH CONTINUED GROWTH, OUR BUSINESS
      WILL
      BE HARMED.**




10




The
      growth of our business depends on the continued growth of the Internet as a
      medium for media consumption, communications, electronic commerce and
      advertising, and also on the growth of the wireless data market, including
      the
      growth of devices with multimedia capability. Our business will be harmed if
      Internet usage does not continue to grow, particularly as a source of media
      information and entertainment and as a vehicle for commerce in goods and
      services, or if widespread adoption of technology to access data and multimedia
      content on wireless devices does not occur. If Internet usage grows, the
      Internet infrastructure may not be able to support the demands placed on it
      by
      such growth, specifically the demands of delivering high-quality media content.
      If this were to occur, our business and financial condition would be
      harmed.





**WE
      MAY BE SUBJECT TO LEGAL LIABILITY FOR PROVIDING THIRD-PARTY PRODUCTS, SERVICES
      OR CONTENT.**





We
      have
      arrangements to offer third-party products, services, content or advertising
      via
      distribution on our Web sites. We may be subject to claims concerning these
      products, services, content or advertising by virtue of our involvement in
      marketing, branding, broadcasting or providing access to them, even if we do
      not
      ourselves host, operate, or provide access to these products, services, content
      or advertising. While our agreements with these parties often provide that
      we
      will be indemnified against such liabilities, such indemnification may not
      be
      adequate. It is also possible that if any information provided directly by
      us
      contains errors or is otherwise negligently provided to users, third parties
      could make claims against us. Investigating and defending any of these types
      of
      claims is expensive, even if the claims do not result in liability. While to
      date we have not been subject to material claims, if any potential claims do
      result in liability, we could be required to pay damages or other penalties,
      which could harm our business and our operating results.





**OUR
      COMPETITORS MAY BE LARGER AND HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN
      WE
      DO AND THOSE ADVANTAGES COULD MAKE IT DIFFICULT FOR US TO COMPETE WITH
      THEM.**




The
      market for software and services for media delivery over the Internet is
      relatively new and constantly changing. We expect that competition will continue
      to intensify. Increased competition may result in price reductions, reduced
      margins, loss of customers, and changes in our business and marketing
      strategies, any of which could harm our business. Current and potential
      competitors may have longer operating histories, greater name recognition,
      more
      employees and significantly greater financial, technical, marketing, public
      relations and distribution resources than we do. In addition, new competitors
      with potentially unique or more desirable products or services may enter the
      market at any time. The competitive environment may require us to make changes
      in our products, pricing, licensing, services or marketing to maintain and
      extend our current brand and technology. Price concessions or the emergence
      of
      other pricing, licensing and distribution strategies or technology solutions
      of
      competitors may reduce our revenue, margins or market share, any of which will
      harm our business. Other changes we have to make in response to competition
      could cause us to expend significant financial and other resources, disrupt
      our
      operations, strain relationships with partners, or release products and
      enhancements before they are thoroughly tested, any of which could harm our
      operating results and stock price.




**ANY
      FAILURE OF OUR NETWORK COULD LEAD TO SIGNIFICANT DISRUPTIONS IN OUR SERVICES
      BUSINESS, WHICH COULD DAMAGE OUR REPUTATION, REDUCE OUR REVENUES OR OTHERWISE
      HARM OUR BUSINESS.**




Our
      business is dependent upon providing our customers with fast, efficient and
      reliable services. A reduction in the performance, reliability or availability
      of our Web sites and network infrastructure may harm our ability to distribute
      our products and services to our clients, as well as our reputation and ability
      to attract and retain clients, customers, advertisers and content providers.
      Our
      systems and operations are susceptible to, and could be damaged or interrupted
      by outages caused by fire, flood, power loss, telecommunications failure,
      Internet breakdown, earthquake and similar events. Our systems are also subject
      to human error, security breaches, power losses, computer viruses, break-ins,
      "denial of service" attacks, sabotage, intentional acts of vandalism and
      tampering designed to disrupt our computer systems, Web sites and network
      communications, and our systems could be subject to greater vulnerability in
      periods of high employee turnover. A sudden and significant increase in traffic
      on our Web sites could strain the capacity of the software, hardware and
      telecommunications systems that we deploy or use. This could lead to slower
      response times or system failures. Our failure to protect our network against
      damage from any of these events will harm our business.


11


Our
      operations also depend on receipt of timely feeds from our content providers,
      and any failure or delay in the transmission or receipt of such feeds could
      disrupt our operations. We also depend on Web browsers, ISP’s (Internet Service
      Providers) and online service providers to provide Internet users access to
      our
      websites and the websites of our customers on which we display advertising.
      Many
      of these providers have experienced significant outages in the past, and could
      experience outages, delays and other difficulties due to system failures
      unrelated to our systems.





**WE
      DEPEND ON VARIOUS THIRD PARTIES TO MAINTAIN OUR COMMUNICATIONS HARDWARE AND
      PERFORM MOST OF OUR COMPUTER HARDWARE OPERATIONS. IF THE THIRD PARTIES' HARDWARE
      AND OPERATIONS FAIL, OUR BUSINESS WILL BE HARMED.**





Substantially
      all of our communications hardware and most of our computer hardware operations
      are operated by third parties. If any of these providers’ hardware and
      operations fail, our reputation and business will suffer. We do not have
      complete backup systems for these operations. We have a limited disaster
      recovery plan in the event of damage from fire, floods, hurricanes, earthquakes,
      power loss, telecommunications failures, break-ins and similar events. Our
      operations are dependent on our ability to protect our computer systems against
      these unexpected adverse events. If any of the foregoing occurs, we may
      experience a complete system shutdown. We have service level agreements in
      place
      with some telecommunication providers. A problem with, or failure of, our
      communications hardware or operations could result in interruptions or increases
      in response times on the Internet sites of our customers. If we cannot maintain
      our system in the event of unexpected occurrences, make necessary modifications
      and/or improvements to the technology, such deficiencies could have a material
      adverse effect upon our business, financial condition and results of
      operations.





**WE
      DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES. IF WE ARE UNABLE TO
      MAINTAIN THESE LICENSES, OUR OPERATIONS AND FINANCIAL CONDITION WILL BE
      MATERIALLY ADVERSELY AFFECTED.**





We
      license technology from third parties, including software that is integrated
      with internally developed software and used in our products to perform key
      functions. The loss of, or our inability to maintain, these licenses could
      result in increased costs or delay sales of our products. We anticipate that
      we
      will continue to license technology from third parties in the future. This
      technology may not continue to be available on commercially reasonable terms,
      if
      at all. Although we do not believe that we are substantially dependent on any
      individual licensed technology, some of the software that we license from third
      parties could be difficult for us to replace. The loss of any of these
      technology licenses could result in delays in the license of our products until
      equivalent technology, if available, is developed or identified, licensed and
      integrated. The use of additional third-party software would require us to
      negotiate license agreements with other parties, which could result in higher
      royalty payments and a loss of product differentiation.




**WE
      DEPEND ON CONTENT LICENSED TO US BY THIRD PARTIES. IF WE ARE UNABLE TO MAINTAIN
      THESE LICENSES, OUR OPERATIONS AND FINANCIAL CONDITION WILL BE MATERIALLY
      ADVERSELY AFFECTED.**


12


We
      rely
      on content provided by third parties to increase market acceptance of our
      products and services. Currently, our major third party content providers are
      Associated Press, Reuters and Fox. If third parties do not develop or offer
      compelling content to be delivered over the Internet, or grant necessary
      licenses to us or our customers to distribute or perform such content, our
      business will be harmed and our products and services may not achieve or sustain
      broad market acceptance. We rely on third-party content providers to develop
      and
      offer content in formats that can be delivered using our products. We
      also rely entirely on third-party content for our programming and content
      offerings. In some cases, we pay substantial fees to obtain content for these
      services. We cannot guarantee that third-party content providers will continue
      to support our technology or offer compelling content in our formats, nor can
      we
      guarantee that we will be able to secure licenses to third-party content or
      that
      such licenses will be available at commercially reasonable rates, to encourage
      and sustain broad market acceptance of our products and services. The failure
      to
      do so would materially adversely harm our business operations and financial
      condition.




**IF
      WE DO NOT ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WE MAY EXPERIENCE
      A LOSS OF REVENUE AND OUR OPERATIONS MAY BE MATERIALLY
      HARMED.**





A
      portion
      of our software was acquired from third parties. We have not registered
      copyrights on any of the software we have developed. We rely upon
      confidentiality agreements signed by our employees, consultants and third
      parties to protect our intellectual property. We cannot assure you that we
      can
      adequately protect our intellectual property or successfully prosecute potential
      infringement of our intellectual property rights. Also, we cannot assure you
      that others will not assert rights in, or ownership of, trademarks and other
      proprietary rights of ours or that we will be able to successfully resolve
      these
      types of conflicts to our satisfaction. Our failure to protect our intellectual
      property rights may result in a loss of revenue and could materially adversely
      affect our operations and financial condition.





**IF
      WE ARE UNABLE TO RETAIN THE SERVICES OF KALEIL ISAZA TUZMAN AND GAVIN CAMPION
      OR
      IF WE ARE UNABLE TO SUCCESSFULLY RECRUIT QUALIFIED PERSONNEL, WE MAY NOT BE
      ABLE
      TO CONTINUE OPERATIONS.**





Our
      success depends to a significant extent upon the continued service of Kaleil
      Isaza Tuzman, our Chief Executive Officer and Chairman of our Board of Directors
      and Gavin Campion, our President. The loss of the services of Mssrs. Isaza
      Tuzman and Campion could have a material adverse effect on our growth, revenues,
      and prospective business. We have entered into a management agreement with
      KIT
      Capital, including the services of Mr. Isaza Tuzman and other KIT Capital
      personnel, for a term of three years, pursuant to which Mr. Isaza Tuzman serves
      as Chief Executive Officer. We have also entered into an employment agreement
      with Mr. Campion. If either Mr. Isaza Tuzman or Mr. Campion were to resign,
      the
      loss could result in loss of sales, delays in new product development and
      diversion of management resources, and we could face high costs and substantial
      difficulty in hiring a qualified successor and could experience a loss in
      productivity while any such successor obtains the necessary training and
      experience. In addition, in order to successfully implement and manage our
      business plan, we are dependent upon, among other things, successfully
      recruiting qualified personnel who are familiar with the specific issues facing
      the Internet media industry. In particular, we must hire and retain experienced
      management personnel to help us continue to grow and manage our business, and
      skilled software engineers to further our research and development efforts.
      Competition for qualified personnel is intense. If we do not succeed in
      attracting new personnel or in retaining and motivating our current personnel,
      our business could be harmed.





**IF
      WE DO NOT MEET THE EARN-OUT REQUIRED PAYMENT TO SPUTNIK, WE WILL BE UNABLE
      TO
      COMPLETE OUR ACQUISITION OF SPUTNIK WHICH ACCOUNTS FOR A MATERIAL PORTION OF
      OUR
      REVENUES.**


13


Pursuant
      to the agreement between the Company and Sputnik Agency Pty. Ltd. if we fail
      to
      make a payment of approximately $3,000,000 which is based upon our financial
      results as of December 31, 2007, we will lose the right to complete the purchase
      of the 51% interest in Sputnik. Sputnik currently accounts for approximately
      35%
      of our revenues. While we have executed share purchase agreements with a number
      of Sputnik’s shareholders already and we have indicated our intention to acquire
      100% of Sputnik, there is no guarantee that we will be able to consummate these
      purchases. If we do not complete the purchase of Sputnik our revenues will
      decline materially. Further, Gavin Campion, the managing director of Sputnik
      Agency Pty Ltd., may as a result terminate his employment agreement with ROO,
      which would cause us to lose the services of Mr. Campion as President of the
      Company.





**WE
      MAY BE UNABLE TO INTEGRATE SUCCESSFULLY SPUTNIK’S BUSINESS AND REALIZE THE FULL
      BENEFITS OF THE COMBINED BUSINESS**





The
      acquisition of Sputnik involves the integration of businesses that have
      previously operated separately. The difficulties of combining the operations
      of
      these businesses include:


•
                The
                    challenge of effecting integration while carrying on the ongoing
                    businesses;
 •
                The
                    necessity of coordinating geographically separate organizations;
                    and
 •
                Effective
                    integration of personnel with diverse business
                    backgrounds.




The
      process of integrating operations could cause an interruption of, or loss of
      momentum in, the activities of the Company and the loss of key personnel. The
      diversion of management’s attention and any delays or difficulties encountered
      in connection with the merger and the integration of the two operations could
      have an adverse effect on our business, financial condition or results of
      operations.




**OUR
      GROWTH STRATEGY DEPENDS, IN PART, ON OUR ACQUIRING COMPLEMENTARY BUSINESSES
      AND
      ASSETS AND EXPANDING ITS EXISTING OPERATIONS, WHICH WE MAY BE UNABLE TO DO**





Our
      growth strategy is based, in part, on our ability to acquire other complementary
      businesses and assets. The success of this acquisition strategy will depend,
      in
      part, on its ability to accomplish the following:





•
            Identify
                suitable businesses or assets to buy;





•
            Complete
                the purchase of those businesses on terms acceptable to us





•
            Complete
                the acquisition in the time frame we expect;
                and





•
            Improve
                the results of operations of the businesses that we buy and successfully
                integrate its operations;





There
      can
      be no assurance that we will be successful in pursuing any or all of these
      steps. Our failure to implement our acquisition strategy could have an adverse
      effect on other aspects of our business strategy and our business in general.
      We
      may not be able to find appropriate acquisition candidates, acquire those
      candidates that it identifies or integrate acquired businesses effectively
      or
      profitably.


14


**RISKS
      RELATED TO OUR SECURITIES:**




**OUR
      HISTORIC STOCK PRICE HAS BEEN VOLATILE AND THE FUTURE MARKET PRICE FOR OUR
      COMMON STOCK IS LIKELY TO CONTINUE TO BE VOLATILE. FURTHER, THE LIMITED MARKET
      FOR OUR SHARES WILL MAKE OUR PRICE MORE VOLATILE. THIS MAY MAKE IT DIFFICULT
      FOR
      YOU TO SELL OUR COMMON STOCK FOR A POSITIVE RETURN ON YOUR
      INVESTMENT.**  ****





The
      public market for our common stock has historically been very volatile. Over
      the
      last two completed fiscal years and subsequent quarterly periods, the market
      price for our common stock has ranged from $0.14 to $4.49; see “Market for
      Common Equity and Related Stockholder Matters” in this report. Any future market
      price for our shares is likely to continue to be very volatile. This price
      volatility may make it more difficult for you to sell shares when you want
      at
      prices you find attractive. We do not know of any one particular factor that
      has
      caused volatility in our stock price. However, the stock market in general
      has
      experienced extreme price and volume fluctuations that have often been unrelated
      or disproportionate to the operating performance of companies. Broad market
      factors and the investing public’s negative perception of our business may
      reduce our stock price, regardless of our operating performance. Further, the
      market for our common stock is limited and we cannot assure you that a larger
      market will ever be developed or maintained. Market fluctuations and volatility,
      as well as general economic, market and political conditions, could reduce
      our
      market price. As a result, this may make it difficult or impossible for you
      to
      sell our common stock for a positive return on your investment.





**OUR
      COMMON STOCK IS SUBJECT TO THE “PENNY STOCK” RULES OF THE SEC AND THE TRADING
      MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK
      CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR
      STOCK.**





The
      Securities and Exchange Commission has adopted Rule 3a51-1 which establishes
      the
      definition of a "penny stock," for purposes relevant to us, as any equity
      security that has a market price of less than $5.00 per share or with an
      exercise price of less than $5.00 per share, subject to certain exceptions.
      For
      any transaction involving a penny stock, unless exempt, Rule 15g-9
      requires:




•
            That
                a broker or dealer approve a person's account for transactions in
                penny
                stocks; and•
            The
                broker or dealer receive from the investor a written agreement to
                the
                transaction, setting forth the identity and quantity of the penny
                stock to
                be purchased





**IN
      ORDER TO APPROVE A PERSON’S ACCOUNT FOR TRANSACTIONS IN PENNY STOCKS, THE BROKER
      OR DEALER MUST:**





•
            Obtain
                financial information and investment experience objectives of the
                person;
                and•
            Make
                a reasonable determination that the transactions in penny stocks
                are
                suitable for that person and the person has sufficient knowledge
                and
                experience in financial matters to be capable of evaluating the risks
                of
                transactions in penny stocks.




The
      broker or dealer must also deliver, prior to any transaction in a penny stock,
      a
      disclosure schedule prescribed by the SEC relating to the penny stock market,
      which, in highlight form:


15




•
            Sets
                forth the basis on which the broker or dealer made the suitability
                determination; and•
            That
                the broker or dealer received a signed, written agreement from the
                investor prior to the transaction.





Generally,
      brokers may be less willing to execute transactions in securities subject to
      the
“penny stock” rules. This may make it more difficult for investors to dispose of
      our common stock and cause a decline in the market value of our
      stock.





Disclosure
      also has to be made about the risks of investing in penny stocks in both public
      offerings and in secondary trading and about the commissions payable to both
      the
      broker-dealer and the registered representative, current quotations for the
      securities and the rights and remedies available to an investor in cases of
      fraud in penny stock transactions. Finally, monthly statements have to be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks.





**ITEM
      1B. UNRESOLVED STAFF COMMENTS**




None




**ITEM
      2. PROPERTIES.**





We
      have
      two offices in the United States, one of which is in New York, New York, and
      one
      in Clifton Park, New York, which is vacated and we are in negotiations to
      terminate this lease. We also have two offices in Melbourne, Australia, one
      office in London, United Kingdom and one office in Bogota, Columbia. We also
      use
      KIT Capital’s office in Dubai, United Arab Emirates.





Our
      principal office and operations are located at 228 East 45th Street 8th Floor
      New York, NY 10017. These premises consist of 9,000 square feet of office space.
      The related sublease agreement expires November 29, 2008. Rent on the premises
      is currently $19,214 per month through November 29, 2008.





Our
      Clifton Park, New York office is located at 240 Clifton Corporate Parkway,
      Clifton Park, NY 12065. This office consists of 5,000 square feet of office
      space. The term of the lease expires on August 31, 2012. Rent on the premises
      is
      $50,000 for the first year and will increase to $165,000 in the second year
      of
      lease for 15,000, square feet. We have vacated this office and are in
      negotiations to terminate this lease.





We
      have
      an Australian office located at 210 Albert Road, South Melbourne 3205, Victoria,
      Australia. These premises consist of 18,654 square feet of office space and
      19
      parking spaces. The lease period commenced July 15, 2006 and expires on July
      14,
      2011 and includes parking and outgoings. Rent on these premises is (Australian
      dollars) 46,230 per month until July 14, 2007, and is scheduled monthly as
      follows: from July 15, 2007 to July 14, 2008, (Australian dollars) 47,639,
      from
      July 15, 2008 to July 14, 2009, (Australian dollars) 49,104, from July 15,
      2009
      to July 14, 2010, (Australian dollars) 50,628, from July 15, 2010 to July 14,
      2011, (Australian dollars) 52,214. We are currently seeking to sublet
      approximately 40% of the 210 Albert Road premises,which will result in cost
      savings.


16


We
      have
      another Australian office located at 116 - 122 Chapel Street, Windsor 3181,
      Victoria, Australia. These premises consist of 8,611 square feet of office
      space. The lease period commenced for us on October 1, 2006 to coincide with
      the
      purchase of Sputnik and schedules to expire on June 30, 2013. Rent on these
      premises is (Australian dollars) 8,050 per month until June 30, 2008, and is
      scheduled monthly as follows: from July 1, 2008 to June 30, 2009, (Australian
      dollars) 8,453, from July 1, 2009 to June 30, 2010, (Australian dollars) 8,875,
      from July 1, 2010 to June 30, 2011, (Australian dollars) 9,319, from July 1,
      2011 to June 30, 2012, (Australian dollars) 9,785, from July 1, 2012 to June
      30,
      2013, (Australian dollars) 9,785.





Our
      London office is located at 55 Greek Street, First Floor, London W1D 3DT.This
      office consists of 3,357 square feet. The lease commenced on August 6, 2007
      and
      is for a term of 10 years. Rent on this premise is £ 11,190 per month.
      We are negotiating an assignment of the lease of our London office, and plan
      to
      move London-based staff to smaller and less expensive premises.





Our
      Bogota office is located at Cra 7 #74-64, Edificio Corficaldas, Bogota,
      Colombia. This office consists of 538 square feet. The lease commenced in
      February 2008 and is for one year. Rent on this premise is approximately $800
      per month.





KIT
      Capital staff assigned to ROO under the Executive Management Agreement between
      the companies use KIT Capital’s office in Dubai, United Arab Emirates for ROO
      business. This office is located at Dubai Media City, Building #9, Suite 107,
      Dubai, UAE. KIT Capital does not currently charge the Company for the use of
      its
      Dubai office space, but in the future the Company may have to obtain its own
      Dubai office, with associated lease and leasehold improvement
      costs.




**ITEM
      3. LEGAL PROCEEDINGS.**





Except
      as
      described below, we are not currently a party to, nor is any of our property
      currently the subject of, any pending legal proceeding that will have a material
      adverse effect on our business. None of our directors, officers or affiliates
      is
      involved in a proceeding adverse to our business or has a material interest
      adverse to our business.





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. ROO HD
      believes the suit is without merit and will defend it 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 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. On February 21, 2008, defendants
      moved to dismiss the complaint, and the motion will be fully briefed to the
      Court by April 24, 2008, whereupon the Court shall rule, either with or without
      first taking oral argument. We believe the suit is without merit and will defend
      it vigorously.





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





No
      matter
      was submitted to a vote of security holders during the fourth quarter of the
      fiscal year covered by this report.




17


**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS.**





Our
      common stock is currently quoted on the OTC Bulletin Board under the symbol
      “RGRP.” For the periods indicated, the following table sets forth the high and
      low bid prices per share of common stock. These prices represent inter-dealer
      quotations without retail markup, markdown, or commission and may not
      necessarily represent actual transactions.





Fiscal
                2007
            
            Fiscal
                2006
            
            Fiscal
                2005Quarter
                Ended
            
            High
            
            Low
            
            High
            
            Low
            
            High
                (1)
            
            Low
                (1)March
                31
            
            $
            4.49
            
            $
            2.42
            
            $
            3.65
            
            $
            2.35
            
            $
            4.00
            
            $
            2.50June
                30
            
            $
            3.19
            
            $
            1.84
            
            $
            3.76
            
            $
            1.95
            
            $
            3.00
            
            $
            2.00September
                30
            
            $
            2.18
            
            $
            0.55
            
            $
            3.43
            
            $
            1.35
            
            $
            2.50
            
            $
            0.50December
                31
            
            $
            1.18
            
            $
            0.14
            
            $
            3.42
            
            $
            1.35
            
            $
            4.20
            
            $
            0.60





(1)
            Prices
                adjusted to reflect a one-for-50 reverse stock split effective October
                3,
                2005.





As
      of
      March 27, 2008, our shares of common stock were held by approximately 238
      stockholders of record. The number of record holders was determined from the
      records of our transfer agent and does not include beneficial owners common
      stock whose shares are held in the names of various securities brokers, dealers
      and registered clearing agencies.





The
      transfer agent of our common stock is Continental Stock Transfer and Trust
      Company.





**DIVIDENDS**





We
      have
      not declared any dividends to date. We have no present intention of paying
      any
      cash dividends on our common stock in the foreseeable future, as we intend
      to
      use earnings, if any, to generate growth. The payment by us of dividends, if
      any, in the future, rests within the discretion of our Board of Directors and
      will depend, among other things, upon our earnings, our capital requirements
      and
      our financial condition, as well as other relevant factors. There are no
      restrictions in our articles of incorporation or bylaws that restrict us from
      declaring dividends.





**RECENT
      SALES OF UNREGISTERED SECURITIES**





We
      sold
      the following equity securities during the fiscal year ended December 31, 2007
      that were not registered under the Securities Act of 1933, as amended (the
      "Securities Act").




On
      May 4,
      2007, we sold an aggregate of 10,000,000 shares of common stock and 3,000,000
      warrants to purchase shares of our common stock to accredited investors. The
      shares of common stock were sold at a price of $2.50 per share. Each investor
      was issued warrants to purchase a number of shares of common stock equal to
      30%
      of the number of shares of common stock purchased. The warrants have an exercise
      price of $4.50 per share and a term of five years.





For
      each
      of the above transactions exempt from registration requirements under Rule
      506,
      the individuals and entities to whom we issued securities are unaffiliated
      with
      us. For each of such sales, no advertising or general solicitation was employed
      in offering the securities. The offerings and sales were made to a limited
      number of persons, all of whom were accredited investors, business associates
      of
      ours or our executive officers, and transfer was restricted by us in accordance
      with the requirements of the Securities Act. Each of such persons represented
      to
      us that they were accredited or sophisticated investors, that they were capable
      of analyzing the merits and risks of their investment, and that they understood
      the speculative nature of their investment. Furthermore, all of the
      above-referenced persons had access to our Securities and Exchange Commission
      filings.





**ITEM
      6. SELECTED FINANCIAL DATA**


**N/A**


18





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





**FORWARD-LOOKING
      STATEMENTS**





The
      information in this report contains forward-looking statements. 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. Forward-looking statements reflect management's current expectations
      and are inherently uncertain. Our actual results may differ significantly from
      management's expectations.





The
      following discussion and analysis should be read in conjunction with the
      consolidated financial statements of ROO Group, Inc., included herewith. This
      discussion should not be construed to imply that the results discussed herein
      will necessarily continue into the future, or that any conclusion reached herein
      will necessarily be indicative of actual operating results in the future. Such
      discussion represents only the best present assessment of our
      management.





**GENERAL**





We,
      through our operating subsidiaries, are a digital media company in the business
      of providing products and solutions that enable the broadcast of topical video
      content from our customers' Internet websites. This includes providing the
      technology and content required for video to be played on computers via the
      Internet as well as emerging broadcasting platforms such as set top boxes and
      wireless devices (i.e., mobile phones and PDAs). Our core activities include
      the
      aggregation of video content, media management, traditional and online
      advertising, hosting, and content delivery. In conjunction with our
      subsidiaries, we currently provide video solutions for over 400 web sites
      internationally through our offices in the United States, United Kingdom,
      Colombia and Australia. In 2007, over 80% of revenues were generated in the
      Asia
      Pacific and European zones.




We
      are
      now keenly focused on the global business-to-business market and less
      aggressively pursuing business-to-consumer advertising sales.  Our
      revenue sources have shifted accordingly, with a greater percentage than before
      coming from the business-to-business sector.





When
      we
      were more focused on business-to-consumer advertising sales, we placed more
      emphasis on the generation of advertising revenues through the monetization
      of video streams on websites we own, and we utilized various external marketing
      tools, including pop-unders, that were dedicated to driving increased traffic
      across those websites. The decrease in traffic on those sites
      beginning in early 2007 resulted from our decision to terminate the use of
      these
      marketing tools, which generated a high quantity, but not necessarily high
      quality, of traffic and were costly to implement.  This in turn affected
      our ComScore ranking (127th as of August, 2007). (ComScore measures videos
      served on both owned and hosted client sites but is limited to the United States
      and does not include hosted client sites that have their own ComScore accounts.)





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 years ended December 31, 2007 and 2006. 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. (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”). ROO Media Europe
      Limited was 76% owned by ROO Media Corporation until January 27, 2006 when
      ROO
      Media Corporation purchased the remaining 24% of ROO Media Europe Limited for
      $90,000. 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.


19


**RESULTS
      OF OPERATIONS - YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE YEAR ENDED DECEMBER
      31, 2006**





**REVENUE.** Total
      revenue increased by $4,161,000 from $9,768,000 for the year ended December
      31,
      2006 to $13,929,000 for the year ended December 31, 2007, an increase of
      43%.





Online
      Digital Media segment revenue increased by $4,164,000 from $5,361,000 for the
      year ended December 31, 2006 to $9,525,000 for the year ended December 31,
      2007,
      an increase of 78%. The increase is principally from the increase in customers
      and the inclusion of revenue of the acquisition of Sputnik in October 2006
      not
      included for prior period results.





Advertising
      Agency Business segment revenue decreased by $3,000 from $4,407,000 for the
      year
      ended December 31, 2006 to $4,404,000 for the year ended December 31, 2007.
      The
      revenue has remained static for the year ended December 31, 2007 compared to
      the
      year ended December 31, 2006.




**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 increased by $5,011,000 from $8,530,000
      for the year ended December 31, 2006 to $13,541,000 for the year December 31,
      2007, an increase of 59%. This increase was primarily due to the increase in
      operations personnel, content costs and content delivery costs due to increased
      revenue generation, and the inclusion of operating costs related to the
      acquisition of Sputnik in October 2006 not included in prior period
      results.




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 increased by $4,006,000 from $2,140,000 for
      the year ended December 31, 2006 to $6,146,000 for the year ended December
      31,
      2007, an increase of 187%. The increases were due primarily to the increase
      in
      development activities associated with enhancements to our technology platform
      in our Online Digital Media segment.





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 increased by $2,212,000 from
      $5,318,000 for the year ended December 31, 2006 to $7,530,000 for the year
      ended
      December 31, 2007, an increase of 42%. These increases were primarily due to
      an
      increase in sales and marketing personnel, and the inclusion of sales and
      marketing costs related to the acquisition of Sputnik in October 2006 not
      included in prior period results.





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 $5,442,000 from $6,098,000 for
      the
      year ended December 31, 2006 to $11,540,000 for the year December 31, 2007,
      an
      increase of 89%. The increase of $5,442,000 is primarily due to an increase
      in
      salaries for administrative support, an increase in office space, an increase
      in
      depreciation and amortization on assets, and the inclusion of general and
      administrative costs related to the acquisition of Sputnik in October 2006
      not
      included in prior period results.


20


NON-CASH
      COMPENSATION. Non-cash
      compensation increased by $2,151,000 from $2,597,000 for the year ended December
      31, 2006 to $4,748,000 for the year December 31, 2007, an increase of 83%.
      The
      increase of $2,151,000 consists of an increase in stock based compensation
      expense on stock options of $2,344,000 less $129,000 in the valuation of
      warrants for services in 2006 and $64,000 in preferred shares issued as a
      performance bonus in 2006.




IMPAIRMENT
      OF PROPERTY AND EQUIPMENT .
      In
      2007, a loss on impairment of property and equipment of $788,000 was recorded
      related to the abandonment of the assets of the peer-to-peer business that
      we
      acquired in the agreement with Wurld Media.





IMPAIRMENT
      OF GOODWILL AND INTANGIBLE ASSETS. In 2007,
      a loss on impairment of goodwill and intangible assets of $3,288,000 was
      recorded. This is comprised of $2,783,000 related to the abandonment of the
      software assets of the peer-to-peer business that we acquired in the agreement
      with Wurld Media, $255,000 related to the impairment of content and $250,000
      related to the impairment of goodwill related to the MyVideoDaily
      acquisition.





INTEREST
      INCOME.
      Interest income increased by $559,000 from $166,000 for the year ended December
      31, 2006 to $725,000 for the year ended December 31, 2007. This increase was
      primarily due to an increase in our cash and cash equivalents from the proceeds
      of the private placements in May 2007 and November 2006.




INTEREST
      EXPENSE. Interest
      expense, decreased by $8,000 from $78,000 for the year ended December 31, 2006
      to $70,000 for the year ended December 31, 2007.





NET
      LOSS BEFORE INCOME TAXES .
      As a
      result of the factors described above, we reported a net loss before income
      taxes of $34,426,000 for the year ended December 31, 2007, compared to
      $14,897,000 for the year ended December 31, 2006, an increase of $19,529,000
      or
      131%.




**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      December 31, 2007, we had working capital of approximately $8,090,000 with
      a
      cash balance of $10,189,000. Although revenues are expected to increase, it
      is
      unclear whether additional cash resources will be required during the next
      twelve months. We may undertake additional debt or equity financings if needed
      to better enable us to grow and meet our future operating and capital
      requirements. However, we cannot guarantee that any additional equity or debt
      financing will be available in sufficient amounts or on acceptable terms when
      needed. If such financing is not available in sufficient amounts or on
      acceptable terms, our results of operations and financial condition may be
      adversely affected. In addition, equity financing may result in dilution to
      existing stockholders and may involve securities that have rights, preferences,
      or privileges that are senior to our common stock, and any debt financing
      obtained must be repaid regardless of whether or not we generate profits or
      cash
      flows from our business activities.





Net
      cash
      used in operating activities was $20,785,000 for the year ended December 31,
      2007, compared to $12,426,000 for the year ended December 31, 2006, an increase
      of $8,359,000 or 67%. The increase in net cash used in operating activities
      is
      primarily the result of our increased expenses with our expanded operations
      during the 2007 fiscal year period. A substantial portion of these expanded
      operating activities have been scaled back in the first quarter of
      2008.





Net
      cash
      used in investing activities was $4,342,000 for the year ended December 31,
      2007, compared to net cash used in investing activities for the year ended
      December 31, 2006 of $822,000, an increase of $3,520,000 or 428%. The net cash
      used in investing activities increased primarily due to the investment in assets
      acquired from Wurld Media of $3,174,000, the $374,000 increase in property
      and
      equipment purchased and the cash paid in MyVideoDaily acquisition of $250,000
      in
      2007, offset by the investment in ROO Media Europe of $90,000 and the investment
      in Factory 212 of $197,000 in 2006. On January 27, 2006 ROO Media Corporation
      purchased 24% of ROO Media Europe Limited for $90,000. ROO Media Europe is
      now a
      wholly owned subsidiary of ROO Media Corporation.


21


Net
      cash
      provided by financing activities was $23,345,000 for the year ended December
      31,
      2007 compared to net cash provided by financing activities of $19,903,000 for
      the year ended December 31, 2006, an increase in net cash provided by financing
      activities of $3,442,000 or 17%. The increase is primarily the result of the
      proceeds from the May 2007 private placement of $23,875,000, which were greater
      than the proceeds from the August 2006 and November 2006 private placements,
      which totaled $19,478,000.




Below
      is
      a description of significant financings we completed during the fiscal year
      ended December 31, 2007.





**MAY
      2007 FINANCING**





On
      May 4,
      2007, we entered into a Securities Purchase Agreement pursuant to which we
      sold
      an aggregate of 10,000,000 shares of common stock and warrants to purchase
      3,000,000 shares of common stock to 31 accredited investors (the “May 2007
      Financing”). The offering closed on May 10, 2007. The shares of common stock
      were sold at a price of $2.50 per share or an aggregate of $25,000,000. Each
      investor was issued warrants to purchase a number of shares of common stock
      equal to 30% of the number of shares of common stock purchased. The warrants
      have an exercise price of $4.50 per share and a term of five years. At any
      time
      at which the market price of the Company's Common Stock exceeds $6.00 for 10
      trading days during any 20 consecutive trading days, the Company may elect
      to
      call the warrants, provided that, the shares underlying such warrants are
      registered pursuant to a registration statement and provided further that,
      in no
      event shall the number of shares that may be acquired by the holder in the
      event
      the Company calls the warrant will result in the holder's ownership of more
      than
      4.9% of our common stock, for purposes of Section 13(d) or Section 16 of the
      1934 Act.





We
      agreed
      to prepare and file a registration statement with the Securities and Exchange
      Commission registering the resale of the shares of common stock sold in the
      private placement on or prior to 30 days following the closing date. If the
      registration statement is not filed within such time we are 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. The registration statement was filed on
      June 11, 2007.





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) five 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, we will be required to pay an additional 8% in
      liquidated damages. The registration statement was declared effective on August
      14, 2007. 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, we will 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 date on which all of
      the
      securities purchased by the investors can be sold pursuant to Rule 144(k) or
      all
      the securities are sold pursuant to a registration statement. A post effective
      amendment to the registration statement was declared effective on December
      26,
      2007. There are no liquidated damages owed as of December 31, 2007 related
      to
      this private placement.




Merriman
      Curhan Ford & Co., registered broker-dealer, acted as placement agent for
      the sale of the common stock.




**MARKET
      RISKS**




We
      conduct our operations in three 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 United
      Kingdom and Australia, where we invoice our customers primarily in British
      pounds and Australian dollars, respectively. In the future we anticipate billing
      certain European customers in Euros, though we have not done so to date.




22




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 years ended December 31, 2007 and 2006.




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.
      As
      of December 31, 2007, one customer accounted for approximately 12% of our trade
      accounts receivable portfolio. 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.




**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 ROO Group's inception, we have incurred losses, had an accumulated
      deficit, and have experienced negative cash flows from operations. We expect
      this trend to continue. The expansion and development of our business will
      likely require additional capital. This condition raises substantial 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 revenues,
      although there can be no assurance thereof. The consolidated financial
      statements, included at the end of this annual report beginning on page F-1 do
      not include any adjustments that might be necessary should we be unable to
      continue as a going concern. If we fail to generate positive cash flows or
      obtain additional financing when required, we may have to modify, delay or
      abandon some or all of our business and expansion plans.





**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.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





The
      policies discussed below are considered by our management to be critical to
      an
      understanding of our financial statements because their application places
      the
      most significant demands on our management's judgment, with financial reporting
      results relying on estimation about the effect of matters that are inherently
      uncertain. Specific risks for these critical accounting policies are described
      below. For these policies, our management cautions that future events rarely
      develop as forecast, and that best estimates may routinely require
      adjustment.




The
      SEC
      has issued cautionary advice to elicit more precise disclosure about accounting
      policies management believes are most critical in portraying our financial
      results and in requiring management's most difficult subjective or complex
      judgments.


23


The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      judgments and estimates. On an on-going basis, we evaluate our estimates, the
      most significant of which include establishing allowances for doubtful accounts
      and determining the recoverability of our long-lived tangible and intangible
      assets. The basis for our estimates are historical experience and various
      assumptions that are believed to be reasonable under the circumstances, given
      the available information at the time of the estimate, the results of which
      form
      the basis for making judgments about the carrying values of assets and
      liabilities that are not readily available from other sources. Actual results
      may differ from the amounts estimated and recorded in our financial
      statements.




We
      believe the following critical accounting policies affect our more significant
      judgments and estimates used in the preparation of our consolidated financial
      statements.




Revenue
      Recognition: Revenues are derived principally from professional services,
      digital media management and advertising. Revenue is recognized when service
      has
      been provided. We may enter into agreements whereby we guarantee a minimum
      number of advertising impressions, click-throughs or other criteria on our
      websites or products for a specified period. To the extent these guarantees
      are
      not met, we may defer recognition of the corresponding revenue until guaranteed
      delivery levels are achieved.




Allowance
      for Doubtful Accounts: We maintain an allowance for doubtful accounts for
      estimated losses resulting from our customers not making their required
      payments. Based on historical information, we believe that our allowance is
      adequate. Changes in general economic, business and market conditions could
      result in an impairment in the ability of our customers to make their required
      payments, which would have an adverse effect on cash flows and our results
      of
      operations. The allowance for doubtful accounts is reviewed monthly and changes
      to the allowance are updated based on actual collection experience. We use
      a
      combination of the specific identification method and analysis of the aging
      of
      accounts receivable to establish an allowance for losses on accounts
      receivable.




Tangible
      and Intangible Asset Impairment: We review our long-lived assets and
      identifiable intangibles for impairment at least annually and 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. In assessing the recoverability of our goodwill, we
      review goodwill for impaiment at each reporting period to determine whether
      events and circumstances continue to support the indefinite useful life of
      the
      asset. Then, we perform the first step of the goodwill impairment test which
      compares the fair value of the reporting unit with its carrying value, including
      goodwill. The fair value of the reporting unit is based on expected future
      cash
      flows associated with the group of assets. This valuation method is used if
      quoted market prices are not available. If the fair value of the reporting
      unit
      exceeds the carrying amount, goodwill is not impaired. If the carrying amount
      of
      a reporting unit exceeds its fair value, the second step of the goodwill
      impairment test shall be performed. The second step, used to measure the amount
      of impairment loss, compares the implied fair value of reporting unit goodwill
      with the carrying amount of that goodwill. If the carrying amount of the
      reporting unit goodwill exceeds the implied fair value of that goodwill, an
      impairment loss is recognized in an amount equal to the excess.





**RECENTLY
      ISSUED ACCOUNTING STANDARDS**





In
      February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      159, "The Fair Value Option for Financial Assets and Financial Liabilities
      -
      Including an amendment of FASB Statement No. 115," which is effective for fiscal
      years beginning after November 15, 2007. This statement permits entities to
      choose to measure many financial instruments and certain other items at fair
      value. This statement also establishes presentation and disclosure requirements
      designed to facilitate comparisons between entities that choose different
      measurement attributes for similar types of assets and liabilities. Unrealized
      gains and losses on items for which the fair value option is elected would
      be
      reported in earnings. We have evaluated the new statement and have determined
      that it will not have a significant impact on the determination or reporting
      of
      our financial results.


24


In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
      Combinations" (SFAS 141(R)), which replaces SFAS No. 141, "Business
      Combinations." SFAS 141(R) retains the underlying concepts of SFAS 141 in that
      all business combinations are still required to be accounted for at fair value
      under the acquisition method of accounting but SFAS 141(R) changed the method
      of
      applying the acquisition method in a number of significant aspects. Acquisition
      costs will generally be expensed as incurred; noncontrolling interests will
      be
      valued at fair value at the acquisition date; in-process research and
      development will be recorded at fair value as an indefinite-lived intangible
      asset at the acquisition date; restructuring costs associated with a business
      combination will generally be expensed subsequent to the acquisition date;
      and
      changes in deferred tax asset valuation allowances and income tax uncertainties
      after the acquisition date generally will affect income tax expense. SFAS 141(R)
      is effective on a prospective basis for all business combinations for which
      the
      acquisition date is on or after the beginning of the first annual period
      subsequent to December 15, 2008, with the exception of the accounting for
      valuation allowances on deferred taxes and acquired tax contingencies. SFAS
      141(R) amends SFAS 109 such that adjustments made to valuation allowances on
      deferred taxes and acquired tax contingencies associated with acquisitions
      that
      closed prior to the effective date of SFAS 141(R) would also apply the
      provisions of SFAS 141(R). Early adoption is not permitted. We are currently
      evaluating the effects, if any, that SFAS 141(R) may have on our financial
      statements and believe it could have a significant impact if business
      combinations are consummated. However, the effect is indeterminable as of
      December 31, 2007.





In
      December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
      Consolidated Financial Statements—an amendment of ARB No. 51." This statement is
      effective for fiscal years, and interim periods within those fiscal years,
      beginning on or after December 15, 2008, with earlier adoption prohibited.
      This
      statement requires the recognition of a noncontrolling interest (minority
      interest) as equity in the consolidated financial statements and separate from
      the parent's equity. The amount of net income attributable to the noncontrolling
      interest will be included in consolidated net income on the face of the income
      statement. It also amends certain of ARB No. 51's consolidation procedures
      for
      consistency with the requirements of SFAS 141(R). This statement also includes
      expanded disclosure requirements regarding the interests of the parent and
      its
      noncontrolling interest. We are currently evaluating this new statement and
      anticipate that the statement will not have a significant impact on the
      reporting of our results of operations.





**ITEM
      8. FINANCIAL STATEMENTS.**





All
      financial information required by this Item is attached hereto at the end of
      this report beginning on page F-1 and is hereby incorporated by reference.





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





None





**ITEM
      9A.**  **CONTROLS
      AND PROCEDURES.**





As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of our chief executive officer and chief
      financial officer of our disclosure controls and procedures (as defined in
      Rule
      13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
      our chief executive officer and chief financial officer concluded that our
      disclosure controls and procedures are effective to ensure that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Exchange Act is: (1) accumulated and communicated to our management, including
      our chief executive officer and chief financial officer, as appropriate to
      allow
      timely decisions regarding required disclosure; and (2) recorded, processed,
      summarized and reported, within the time periods specified in the Commission's
      rules and forms. There was no change to our internal controls or in other
      factors that could affect these controls during our last fiscal quarter that
      has
      materially affected, or is reasonably likely to materially affect, our internal
      control over financial reporting.


25


**Changes
      in Internal Control Over Financial Reporting**





During
      the quarter ended December 31, 2007, there were no changes in our internal
      control over financial reporting that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**Management’s
      Annual Report on Internal Control Over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as such term is defined in Exchange Act Rule
      13a - 15(f). Our internal control system was designed to provide reasonable
      assurance to our management and the Board of Directors regarding the preparation
      and fair presentation of published financial statements. All internal control
      systems, no matter how well designed have inherent limitations. Therefore,
      even
      those systems determined to be effective can provide only reasonable assurance
      with respect to financial statement preparation and presentation. Our management
      assessed the effectiveness of our internal control over financial reporting
      as
      of December 31, 2007. In making this assessment, our management used the
      criteria set forth by the Committee of Sponsoring Organizations of the Treadway
      Commission (“COSO”) in Internal Control - Integrated Framework - Guidance for
      Smaller Public Companies (the COSO criteria). Based on our assessment we believe
      that, as of December 31, 2007, our internal control over financial
      reporting is effective based on those criteria.





**Attestation
      Report of our Registered Public Accounting Firm**





This
      annual report does not include an attestation report of our independent
      registered public accounting firm regarding internal control over financial
      reporting. Our management's report was not subject to attestation by our
      independent registered public accounting firm pursuant to rules of the
      Securities and Exchange Commission that permit us to provide only management's
      report in this annual report.




**ITEM
      9B.**  **OTHER
      INFORMATION.**





On
      March
      30, 2008, the Company reached negotiated settlements with Robert Petty and
      Robin
      Smyth, restructuring their respective employment agreements, each of which
      involved one-time cash severance payments. In exchange for entering into new
      below-market, "at will" employment agreements, Messrs. Petty and Smyth will
      receive upfront cash settlements of $675,000 and $275,000 respectively, as
      well
      as an aggregate of 8.65 million fully vested warrants to purchase the Company’s
      common stock, at a strike price equal to $0.133 per share (representing the
      3-day weighted average of closing price of the Company’s common stock prior to
      and including March 28, 2008). These warrants will become exercisable in 1/12
      increments on a monthly basis starting six months from March 30, 2008. Mr.
      Smyth's restructured employment agreement involves certain cash and warrant-
      based incentives which can be earned-in 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.





Also,
      on
      March 30, 2008, Mr. Smyth was appointed as Chief Financial Officer of the
      Company. Mr. Smyth previously served as Interim Chief Financial Officer and
      Chief Financial Officer of the Company.




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.




**PART
      III**





**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH SECTION 16(A) OF THE EXCHANGE ACT.**





The
      following table sets forth the names and ages of the members of our Board of
      Directors and our executive officers and the positions held by each.





**Name**
            
            **Age**
            
            **Position**Kaleil
                Isaza Tuzman
            
            36
            
            Chief
                Executive Officer and Chairman of the Board of
                DirectorsRobert
                Petty
            
            43
            
            Vice-Chairman
                of the Board of DirectorsKamal
                El-Tayara
            
            37
            
            DirectorDaniel
                Hart
            
            34
            
            DirectorLars
                Kroijer
            
            36
            
            DirectorRobin
                Smyth
            
            54
            
            Chief
                Financial Officer and DirectorWayne
                Walker
            
            48
            
            Director





26


KALEIL
      ISAZA TUZMAN. Mr.
      Isaza
      Tuzman was appointed as Chief Executive Officer and Chairman of the Board of
      Directors effective January 9, 2008. Mr.
      Isaza
      Tuzman previously served as the President and COO of JumpTV Inc. (TSX, AIM:
      JTV), a leader in broadcasting international television and sports over the
      Internet. He has been a venture capitalist and entrepreneur in digital media
      since the late '90s, as managing partner of KIT Capital, a Dubai and New
      York-based merchant bank focusing on new media companies. Mr. Isaza Tuzman
      has
      served as chairman and CEO of KPE, Inc., a leading digital media services
      company with clients such as Sony Entertainment, Viacom and Carnival Cruises,
      and as chairman and CEO of govWorks, Inc., a venture-backed government
      technology services firm. Mr. Isaza Tuzman previously worked at Goldman Sachs,
      on investment banking and risk arbitrage teams. He has been a member of the
      Council of Foreign Relations, a U.S. trade representative, and was recently
      named one of the 100 Most Influential Hispanics by Hispanic Magazine. Mr. Isaza
      Tuzman graduated magna cum laude from Harvard University, with graduate
      certificates in International Relations from El Colegio de Mexio and in Latin
      American Studies from Harvard University. Mr. Isaza Tuzman is also on the Board
      of Directors of ROO Media Corporation, Reality Group Pty Ltd, Undercover Media
      Pty Ltd, ROO Media (Australia) Pty Ltd, ROO Media Europe Ltd, Bickhams Media
      Inc, VideoDome.com Newsworks Inc, ROO Broadcasting Ltd, Sputnik Agency Pty
      Ltd
      and ROO TV Pty Ltd.




ROBERT
      PETTY. Mr.
      Petty
      currently serves as Vice-Chairman. Mr. Petty previously served as Chief
      Executive Officer, President and Chairman of the Board of Directors through
      January 8, 2008. Mr. Petty has also served as the President, Chief Executive
      Officer and Chairman of the Board of Directors of ROO Media Corporation since
      May 2001. From December 2002 to June 30, 2003, Mr. Petty was a Director of
      A.
      Cohen & Co, Plc. From 1999 to 2002, Mr. Petty worked in New York in various
      positions, including Chairman and Chief Executive Officer of Avenue Group,
      Inc.
      (AVNU) (formerly I.T. Technology Inc.) and President of VideoDome.com Networks,
      Inc, a middleware streaming media service provider. From 1997 to 1999, Mr.
      Petty
      was Manager of Electronic Business Services for e-commerce products for Telstra
      Corp. Mr. Petty is also on the Board of Directors of Petty Consulting Inc.
      and
      BAS Digital Pty Ltd.





KAMAL
      EL-TAYARA. Mr. El-Tayara was appointed as a Director of the Company and Chairman
      of the Company’s Audit Committee effective January 14, 2008. Mr. El-Tayara is
      the managing partner of MNA Partners, a Dubai-based merchant bank, and has
      served in such capacity since 2004. Mr. El-Tayara has 11+ years of experience
      working in the investment banking and financial transactions arena in the Middle
      East and other markets. Prior to establishing his own firm, Mr. El-Tayara was
      with investment banks Merrill Lynch and Salomon Smith Barney. In early 2003,
      Mr.
      El-Tayara managed the corporate finance initiatives of MBC Group, MENA’s (Middle
      East and North Africa) largest media company, where he participated in the
      set
      up of Alarabiya News Channel, for which he acted as CFO. Mr. El-Tayara also
      set
      up the Swiss EFG Bank in Dubai, for which he acted as the Dubai Head. Mr.
      El-Tayara is an Electrical Engineering graduate from the American University
      of
      Beirut (with distinction) and holds an MBA from INSEAD in Fontainebleau, France.
      Mr. El-Tayara is fluent in English, French and Arabic.




DANIEL
      HART. Mr. Hart was appointed as a Director on the Company effective March 31,
      2008. Mr. Hart is the founder and managing partner of River Road Ventures,
      a
      private equity and advisory firm. Mr. Hart’s background combines venture capital
      and financing experience with CEO/operating experience and expertise in digital
      media, wireless, semiconductor, enterprise software, and technology convergence.
      Mr. Hart most recently led River Road’s investments in Nextivity, a leading
      ASIC-based wireless products company, and Slipgate Ironworks, a
      highly-innovative massively multiplayer online gaming studio. Prior to River
      Road Ventures, Mr. Hart founded Fundamental Capital, an investment partnership
      which pioneered the integration of operational leadership with early-stage
      venture capital, creating over $1 billion in market value in less than five
      years. Mr. Hart holds a B.A. in Economics from Harvard University.




LARS
      KROIJER .
      Mr.
      Kroijer was appointed as a Director of the Company and Chairman of the Company’s
      Compensation Committee effective February 7, 2008. Mr. Kroijer is the CEO of
      Holte Capital Ltd, a London-based special situations hedge fund which he founded
      in 2002. Prior to establishing Holte Capital, Mr. Kroijer served in the London
      office of HBK Investments focusing on special situations investing and
      event-driven arbitrage. In addition, he previously worked at SC Fundamental,
      a
      value-focused hedge fund based in New York, and the investment banking division
      of Lazard Freres in New York. Mr. Kroijer graduated Magna Cumme Laude from
      Harvard University and received a MBA from Harvard Business School.


27


ROBIN
      SMYTH. Mr. Smyth currently serves as Chief Financial Officer of the Company.
      Mr.
      Smyth also served as our Chief Financial Officer from December 2003 through
      December 2006. Mr. Smyth was appointed as a Director on December 3, 2003, the
      effective date of the merger with ROO Media Corporation. Mr. Smyth became
      involved with ROO Media Corporation in 2002 and was appointed a Director in
      2003. Since 1998 Mr. Smyth was a partner at Infinity International, a consulting
      and IT recruitment operation. During the period from 1990 to 1998 Mr. Smyth
      worked for three years as EVP of Computer Consultants International in the
      U.S.
      and for five years in London as CEO of Computer Consultants International's
      European operations. Mr. Smyth was Secretary and a Director of the All-States
      group of companies involved in merchant banking operations, where he was
      responsible for corporate banking activities. Mr. Smyth is also on the Board
      of
      Directors of ROO Media Corporation, Reality Group Pty Ltd, Undercover Media
      Pty Ltd ROO Media (Australia) Pty Ltd, ROO Media Europe Ltd, Bickhams Media
      Inc,
      ROO Broadcasting Ltd, Sputnik Agency Pty Ltd, ROO TV Pty Ltd,
      VideoDome.com Networks Inc, and Corporate Advice Pty Ltd.





WAYNE
      WALKER. Mr. Walker was appointed as a Director of the Company and chairman
      of
      the Company’s Compliance Committee, effective January 14, 2008. Mr. Walker is
      the managing partner of Philadelphia-based Walker Nell Consultants, Inc.
      and Walker Bowman, PC and has served in such capacity since 2004. Mr.
      Walker has over 20 years of experience in corporate law and corporate
      restructuring. Prior to establishing Walker Nell, Mr. Walker was the Principal
      of Parente Randolph, LLC, an accounting and consulting firm in Philadelphia.
      He
      previously served as Senior Counsel of DuPont Corporation and as former Chairman
      of the global charity Habitat for Humanity. Mr. Walker has a Doctor of
      Jurisprudence from Catholic University (Washington, DC) and a Bachelor of Arts
      from Loyola University (New Orleans). He also studied Finance for Non-Financial
      Managers at the University of Chicago’s Graduate School of Business.





**BOARD
      COMPOSITION**





At
      each
      annual meeting of our stockholders, all of our directors are elected to serve
      from the time of election and qualification until the next annual meeting of
      stockholders following election. The exact number of directors is to be
      determined from time to time by resolution of the board of
      directors.




Each
      officer is elected by, and serves at the discretion of the board of directors.
      Each of our officers and employee directors devotes his full time to our
      affairs.





**BOARD
      COMMITTEES**





The
      Board
      of Directors has made the following appointments: Wayne Walker-chairman of
      the
      Compliance Committee, Kamal El Tayara chairman of the Audit Committee, and
      Lars
      Kroijer chairman of the Compensation Committee. The Company intends to appoint
      additional members to serve on these committees.





**CODE
      OF ETHICS**





We
      have
      adopted a Code of Ethics that applies to our Chief Executive Officer and Chief
      Financial Officer. The Code of Ethics has been filed with our amended annual
      report for the fiscal year ended December 31, 2003 on Form 10-KSB/A as Exhibit
      14.1, filed with the Securities and Exchange Commission on March 2, 2004. Upon
      request, we will provide to any person without charge a copy of our Code of
      Ethics. Any such request should be made to Attn: Robin Smyth, ROO Group, Inc.,
      228 East 45th Street, 8th Floor, New York, NY 10017.





**SECTION
      16(A) BENEFICIAL OWNERSHIP COMPLIANCE**





Section
      16(a) of the Securities Exchange Act of 1934 requires our directors and
      executive officers and persons who beneficially own more than ten percent of
      a
      registered class of our equity securities to file with the SEC initial reports
      of ownership and reports of change in ownership of common stock and other equity
      securities of our company. Officers, directors and greater than ten percent
      stockholders are required by SEC regulations to furnish us with copies of all
      Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4
      and
      amendments thereto furnished to us under Rule 16a-3(e) during the fiscal year
      ended December 31, 2007, we believe that during the year ended December 31,
      2007, our executive officers, directors and all persons who own more than ten
      percent of a registered class of our equity securities complied with all Section
      16(a) filing requirements, except Messrs. Lou Kerner, Simon Bax, Stuart Ackerman
      did not timely file Form 3s.


28


**ITEM
      11.**  **EXECUTIVE
      COMPENSATION.**





The
      following table sets forth information concerning the annual and long-term
      compensation of our Chief Executive Officer and the other named executive
      officers, for services as executive officers for the last three fiscal years.


Name
                    & Principal Position
                
                Year
                
                Salary
                  ($ )
                
                Bonus
                  ($ )
                
                Stock
                  Awards
                  ($ )
                
                Option
                  Awards
                  ($ )
                
                Non-Equity
                  Incentive Plan
                  Compensation
                  ($ )
                
                Change in
                  Pension Value
                  and Non-
                  Qualified
                  Deferred
                  Compensation
                  Earnings ($ )
                
                All Other
                  Compensation
                  ($ )
                
                Total ($ )Robert Petty (1)
                
                
                2007
                
                $
                344,500
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                344,500Chief
                    Executive Officer
                
                
                2006
                
                $
                310,766
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                310,766President
                    and Chairman of the Board
                
                
                2005
                
                $
                253,846
                
                
                
                
                $
                600,000
                (4)
                
                
                
                
                
                
                
                
                
                
                
                
                $
                853,846Robin
                    Smyth (2)
                
                
                2007
                
                $
                250,000
                
                $
                150,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                400,000Chief
                    Financial Officer
                
                
                2006
                
                $
                207,164
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                207,164Secretary,
                    Treasurer, Principal Accounting Officer
                
                
                2005
                
                $
                152,307
                
                
                
                
                $
                150,000
                (5)
                
                
                
                
                
                
                
                
                
                $
                5,000
                
                $
                307,307Lou
                    Kerner (3)
                
                
                2007
                
                $
                124,359
                
                $
                75,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                199,359Former
                    Chief Financial Officer and Former Principal Accounting
                    Officer
                
                
                2006
                
                $
                16,025
                
                $
                25,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                41,025





(1)
            Mr.
                Petty currently serves as Vice-Chairman as of January 9, 2008. Mr.
                Petty
                previously served as Chief Executive Officer, President and Chairman
                of
                the Board of Directors through January 8, 2008. Mr. Petty became
                our Chief
                Executive Officer, President and Chairman on December 3, 2003. Mr.
                Petty’s
                employment with ROO Group, Inc. was terminated on March 26,
                2008.


(2)
            Mr.
                Smyth currently serves as Chief Financial Officer, Secretary, Treasurer
                and Principal Accounting Officer. Mr. Smyth served as our Chief Financial
                Officer and Principal Accounting Officer from December 2003 through
                December 2006. Mr. Smyth became our Chief Financial Officer, Secretary,
                Treasurer, Principal Accounting Officer and a Director on December
                3,
                2003.


(3)
            Mr.
                Kerner was our Chief Financial Officer and Principal Accounting Officer
                from November 17, 2006 through August
                2007.


(4)
            On
                March 17, 2005, we issued 6,000,000 shares of Series A Preferred
                Stock to
                Mr. Petty as a performance bonus. These shares have been valued at
                the
                equivalent of common shares valued as at the issue
                date.


(5)
            On
                March 17, 2005, we issued 1,500,000 shares of Series A Preferred
                Stock to
                Mr. Smyth as a performance bonus. These shares have been valued at
                the
                equivalent of common shares valued as at the issue
                date.


29


**Options
      Grant Table**




**Individual
      Grants**





**(a)**
            
            **(b)**
            
            **(c)**
            
            **(d)**
            
            **(e)****Name**
            
            **Number
                of Securities Underlying Options/ SARs**
              **Granted
                (#)**
            
            **%
                of Total**
              **Options/ SARs
                Granted to**
              **Employees
                in**
              **Fiscal
                Year**
            
            **Exercise or Base
                Price ($/Sh)**
            
            **Expiration Date**Robert
                Petty
            
            
            1,250,000
            
            
            30
            %
            $
            4.5
            
            
            Mar.
            
            
            2013Robin
                Smyth
            
            
            400,000
            
            
            10
            %
            $
            4.5
            
            
            Mar.
            
            
            2013Robert
                Petty
            
            
            600,000
            
            
            14
            %
            $
            2.2
            
            
            Nov.
            
            
            2010Robin
                Smyth
            
            
            450,000
            
            
            11
            %
            $
            2.2
            
            
            Nov.
            
            
            2010Lou
                Kerner
            
            
            500,000
            
            
            12
            %
            $
            2.2
            
            
            Nov.
            
            
            2010Doug
                Chertok
            
            
            100,000
            
            
            2
            %
            $
            2.1
            
            
            Jun
            
            
            2008Doug
                Chertok
            
            
            350,000
            
            
            8
            %
            $
            2.2
            
            
            Nov.
            
            
            2010Stephen
                Palley
            
            
            100,000
            
            
            2
            %
            $
            4.5
            
            
            May
            
            
            2013Simon
                Bax
            
            
            100,000
            
            
            2
            %
            $
            4.5
            
            
            May
            
            
            2013Scott
                Ackerman
            
            
            100,000
            
            
            2
            %
            $
            4.5
            
            
            May
            
            
            2013





**Aggregate
      option exercises in last fiscal year**





No
      options were exercised by the named executive officers during the most recent
      fiscal year.





**Director
      Compensation**




With
      the
      exceptions of Mr. Isaza Tuzman’s, Mr. Petty’s and Mr. Smyth’s compensation that
      is paid pursuant to their employment agreements described below, all directors
      are reimbursed for their reasonable out-of-pocket expenses incurred in
      connection with their duties to us.In
      addition, on March 17, 2008, a resolution was unanimously passed granting new
      directors the following compensation package:





(i)
      Grant
      of 285,000 options for common stock of the Corporation (“Options”) pursuant to
      the Corporation’s 2008 Incentive Stock Plan:





(ii)
      Annual compensation in the amount of US$25,000, payable in arrears for the
      preceding calendar year on February 15 of every year beginning 2009, which
      may
      be paid in either cash or options (priced using Black-Scholes) or a combination
      of both. Constitution of payment (i.e., cash or options or combination) shall
      be
      determined by the Corporation in its sole discretion; provided, however, that
      if
      the Corporation is EBITDA-positive in the preceding calendar year, such
      determination may be made by each Independent Director.





(iii)
      Fees of US$2,000 per board meeting attended; US$1,500 per committee meeting
      chaired; and US$750 per committee meeting attended but not chaired. The
      foregoing fees shall be discounted by 50% when meetings are attended or chaired
      telephonically. Payment shall be made according to the same schedule and in
      the
      same manner as set forth in Subparagraph (ii) above.


30


(iv)
      All
      dollar amounts set forth in Paragraphs (ii) and (iii) shall increase by 50%
      immediately following the first fiscal quarter during which the Corporation
      is
      EBITDA-positive.





**EMPLOYMENT
      AGREEMENTS**





On
      December 18, 2007, ROO Group, Inc. the Company entered into an Executive
      Management Agreement (the “Management Agreement”) with KIT Capital Limited
      (“KIT”) for a term commencing on January 9, 2008 and terminating on January 9,
      2011, unless sooner terminated or mutually extended. KIT designates Kaleil
      Isaza
      Tuzman as Chief Executive Officer, Jamie Levine as Head of Communications and
      Rosario Davi as Corporate Development Manager of the Company. The Agreement
      provides for aggregate compensation of all KIT Capital personnel and associated
      costs as follows: (i) $50,800 monthly, (ii) signing incentive payment of
      $68,500, (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 million.





In
      addition, the Company agreed to grant to KIT options to purchase 2,100,000
      of
      the Company’s common stock, 700,000 which shall vest as of January 9, 2008, and
      the remainder of which shall vest, pro rata on a monthly basis over a period
      of
      three years. The option price is $0.1745. The Company also agreed to create
      a
      synthetic or “phantom” stock plan pursuant to which the Company will grant
“phantom” shares equal to 2,100,000 shares of the Company’s common stock which
      will vest, pro rata on a monthly basis over a three year period.





The
      Company agreed to use its best efforts to cause the holders of the Company’s
      preferred stock to agree to sell to KIT up to 5,100,000 shares of preferred
      stock at a price of $0.38 per share, within 15 days of receiving a written
      request from KIT. The failure of the Company to comply with its obligation
      to
      cause the holders of the preferred stock to agree to the sale will constitute
      a
      breach under the Management Agreement.





In
      addition, the Company agreed to permit the sale of (i) up to a maximum of $5
      million dollars of the Company’s Common stock at a price per share of no higher
      than 15% to the closing price of the Company’s common stock on the date of the
      Management Agreement; and (ii) an additional $10 million dollars of the
      Company’s common stock at a price not exceeding ninety (90%) percent of the five
      (5) day trading weighted average trading price of the Company’s Common Stock at
      the time of purchase, subject to board approval.





The
      Company agreed to use its best efforts to register the shares underlying the
      preferred stock and the common stock purchased under the Management
      Agreement.





The
      Management Agreement provides that upon termination of the Agreement or after
      the expiration date for any reason except cause (as defined in the Agreement),
      the Company shall pay KIT, in addition to any other payments due hereunder,
      a
      cash severance payment equal to the greater of (i) the total amount paid to
      KIT
      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.





On
      March
      30, 2008, the Company entered into a Separation and Re-Employment Agreement
      with
      Robin Smyth (the “Smyth Agreement”). Pursuant to the terms of the Smyth
      Agreement, Mr. Smyth was retained as Chief Financial Officer on a “at will”
basis at a base salary of $180,000. In addition, Mr. Smyth will receive a
      discretionary bonus and no less than 400,000 stock options. In addition, Mr.
      Smyth received two tranches of warrants, the first tranche provides for the
      purchase up to 1,650,000 common shares in the Company and the second tranche
      provides for the right to purchase up to 1,200,000 common shares in the Company
      both at an exercise price equal to the 3-day trailing weighted average closing
      price per share as of March 30, 2008. Both warrants contain vesting provisions.
      The Smyth Agreement also provides for the termination of the employment
      agreement between Mr. Smyth and the Company dated as of November 1, 2004 and
      the
      payment of $475,000 in satisfaction of the company’s obligations under the
      November 1, 2004 employment agreement payable in three payments of $275,000,
      $100,000 and $100,000. The first, second and third cash payments (the first
      being a non-contingent, guaranteed obligation of the Company and the latter
      two
      being contingent only upon Mr. Smyth not being dismissed for cause—within the
      meaning of that term in the November 1, 2004 employment agreement—or having
      resigned from the Company prior to the second or third Cash Payments being
      made).


31


**ITEM
      12.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS.**





The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of March 27, 2008. The information in this table provides the
      ownership information for: each person known by us to be the beneficial owner
      of
      more than 5% of our common stock; each of our directors; each of our executive
      officers; and our executive officers and directors as a group.





Unless
      otherwise indicated, the persons named in the table below have sole voting
      and
      investment power with respect to the number of shares indicated as beneficially
      owned by them. Furthermore, unless otherwise indicated, the address of the
      beneficial is c/o ROO Group, Inc., 228 East 45th Street, 8th Floor, New York,
      NY
      10017.





Name and Address
              of Beneficial Owner
            
            Common Stock
              Beneficially
              Owned(1)
            
            Percentage
              of
              Common
              Stock(1)
            
            Series A Preferred
              Stock
              Beneficially
              Owned(2)
            
            Percentage of
              Series A
              Preferred
              Stock
            
            Percentage of
              Total Vote(1) (2)KIT Capital, Ltd.
              P.O Box 112888
              Dubai, UAE
            
            
            777,778(3
            )
            
            1.96
            %
            
            0
            
            
            0
            
            
            0.56
            %Robin
                Smyth
            
            
            535,413(4
            )
            
            1.36
            %
            
            1,500,000
            
            
            15
            %
            
            11.15
            %Robert
                Petty
            
            
            2,389,587(5
            )
            
            5.98
            %
            
            6,000,000
            
            
            60
            %
            
            44.65
            %Wayne
                Walker
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Kamal
                El-Tayara
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Lars
                Kroijer
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Cobble
                Creek Consulting, Inc.445
                Central Ave.Cedarhurst,
                NY 11516
            
            
            40,000
            (6)
            
            <
                1
            %
            
            1,000,000
            
            
            10
            %
            
            7.23
            %Rubin
                Irrevocable Family Trust25
                Highland Blvd.Dix
                Hills, NY 11746
            
            
            60,000
            (7)
            
            <
                1
            %
            
            1,000,000
            
            
            10
            %
            
            7.24
            %Paul
                Tudor Jones, IIc/o
                Tudor Investment Corp.1275
                King streetGreenwich,
                CT 06831
            
            
            4,216,216
            (9)
            
            9.77
            %
            
            0
            
            
            0
            
            
            2.95
            %Ashford
                Capital Partners, L.POne
                Walkers Mill Rd.Wilmington,
                DE 19807
            
            
            2,596,157
            (10)
            
            6.25
            %
            
            0
            
            
            0
            
            
            1.83
            %News
                Corporation1211
                Avenue of the Americas, 8thFl.New
                York, NY 10017
            
            
            2,000,000
            
            
            4.89
            %
            
            0
            
            
            0
            
            
            1.42
            %Wellington
                Trust Company, NA75
                State StreetBoston,
                MA 02169
            
            
            2,363,700
            (11)
            
            5.72
            %
            
            0
            
            
            0
            
            
            1.67
            %Wellington
                Management
              Company,
                LLP75
                State StreetBoston,
                NA
            
            
            5,294,700
            (12)
            
            11.97
            %
            
            0
            
            
            0
            
            
            3.67
            %All
                Directors and Executive Officers as a Group (3 persons)
            
            
            3,702,778
            
            
            9.30
            %
            
            7,500,000
            
            
            75
            %
            
            56.36
            %


32


(1)
            Applicable
                percentage ownership is based on 38,936,039 shares of common stock
                outstanding as of March 27, 2008, together with securities exercisable
                or
                convertible into shares of common stock within 60 days of March 27,
                2008
                for each stockholder. Beneficial ownership is determined in accordance
                with the rules of the Securities and Exchange Commission and generally
                includes voting or investment power with respect to securities. Shares
                of
                common stock that are currently exercisable or exercisable within
                60 days
                of March 27, 2008 are deemed to be beneficially owned by the person
                holding such securities for the purpose of computing the percentage
                of
                ownership of such person, but are not treated as outstanding for
                the
                purpose of computing the percentage ownership of any other
                person.


(2)
            Holders
                of Series A Preferred Stock are entitled to vote on all matters submitted
                to shareholders of the Company and are entitled to ten votes for
                each
                share of Series A Preferred Stock owned. 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. As of March 27, 2008
                there
                were 10,000,000 outstanding shares of Series A Preferred
                Stock.


(3)
            Represents
                shares underlying options granted to KIT Capital Limited pursuant
                to that
                certain Executive Management Agreement dated as of December 18, 2007.
                700,000 of the options vested on January 8, 2008. The remainder of
                the
                options vest and become exercisable at the rate of 1/36thper month commencing on February 9, 2008. Mr. Isaza Tuzman is the
                beneficial owner of a majority of the issued and outstanding capital
                of
                KIT Capital Limited.


(4)
            Represents:
                (a) 32,000 shares of common stock owned directly by Mr. Smyth; (b)
                8,000
                shares of common stock owned indirectly through the Smyth Family
                Superannuation Fund; (c) 450,000 share of common stock issuable upon
                the
                exercise of stock options of which 318,750 will be vested within
                the next
                60 days with an exercise price of $2.20 per share and an expiration
                date
                of November 16, 2010; (d) 400,000 share of common stock issuable
                upon the
                exercise of stock options of which 116,663 will be vested within
                the next
                60 days with an exercise price of $4.50 per share and an expiration
                date
                of March 7, 2011and (e) 60,000 shares of common stock issuable upon
                the
                conversion of outstanding shares of Series A Preferred
                Stock.


(5)
            (a)
                1,360,000 shares of common stock; (b) 600,000 share of common stock
                issuable upon the exercise of stock options of which 425,000 will
                be
                vested within the next 60 days with an exercise price of $2.20 per
                share
                and an expiration date of November 16, 2010; and (c) 1,250,000 share
                of
                common stock issuable upon the exercise of stock options of which
                364,587
                will be vested within the next 60 days with an exercise price of
                $4.50 per
                share and an expiration date of March 7, 2011; and (d) 240,000 shares
                of
                common stock issuable upon the conversion of outstanding shares of
                Series
                A Preferred Stock.


33


(6)
            Represents
                40,000 shares of common stock issuable upon the conversion of outstanding
                shares of Series A Preferred Stock.


(7)
            Represents:
                (a) 20,000 shares of common stock; and (b) 40,000 shares of common
                stock
                issuable upon the conversion of outstanding shares of Series A Preferred
                Stock.


(8)
            As
                reported in a Schedule 13G filed with the Securities and Exchange
                Commission on February 14, 2008, Lawrence C. Longo the Chief Operating
                Officer of 033 Asset Management, LLC which is the investment manager
                of
                133 Growth Partners I, L.P., 033 Growth Partners II, Oyster Pond
                Partners,
                L.P. and 033 Growth International Fund, Ltd. holds the power to vote
                and
                dispose of the subject shares. Mr. Longo disclaims beneficial ownership
                of
                the shares held by the shareholder.


(9)
            As
                reported in a Schedule 13G filed with the Securities and Exchange
                Commission on November 22, 2006, Witches Rock Portfolio, Ltd. directly
                owns 2,597,374 shares of common stock and 779,212 warrants to purchase
                common stock of the Company. BVI Portfolio directly owns 419,815
                shares of
                common stock and 125,945 warrants. Tudor Investment Corporation provides
                investment advisory services to Witches Rock Portfolio and BVI Portfolio
                and may be deemed to beneficially own the securities held by Witches
                Rock
                Portfolio and BVI Portoflio, Ltd. TIC disclaims beneficial ownership
                of
                the securities held by Witches Rock Portfolio, LTD and BVI Portfolio,
                LTD.
                In addition, as the controlling shareholder of Tudor Investment
                Corporation and the indirect controlling shareholder of Tudor Proprietary
                Trading, L.L.C., Paul Tudor Jones, II may be deemed to be the beneficial
                owner of the shares of the Company held by Witches Portfolio, Ltd.,
                BVI
                Portfolio, Ltd., and Tudor Proprietary Trading, L.L.C. Tudor Proprietary
                Trading, L.L.C. owns 226,054 shares of common stock and 67,816 warrants
                to
                purchase shares of the Company’s common stock. Tudor Investment
                Corporation and Mr. Jones disclaims beneficial ownership of the securities
                held by Witches Rock Portfolio, Ltd, BVI Portfolio Ltd., and Tudor
                Proprietary Trading L.L.C...


(10)
            As
                reported in a Schedule 13G filed with the Securities and Exchange
                Commission on February 14, 2008, Represents 2,843,370 shares of common
                stock and 681,081 warrants. Theodore H. Ashford, President of Ashcap.
                Corp., the General Partner of Ashford Capital Partners, L.P. has
                voting
                and dispositive control over the securities held by Ashford Capital
                Partners, L.P.


(11)
            As
                reported in a Schedule 13G filed with the Securities and Exchange
                Commission on February 13, 2007, Represents 1,517,050 shares of common
                stock and 405,405 warrants.


(12)
            As
                reported in a Schedule 13G filed with the Securities and Exchange
                Commission on February 13, 2008, Represents shares of common stock
                which
                are owned by clients of Wellington Management Except for Wellington
                Trust
                Company, NA, none of these clients own more than 5% of the Company’s
                securities.




**SECURITIES
      AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS**





The
      following table shows information with respect to each equity compensation
      plan
      under which the Company's common stock is authorized for issuance as of the
      fiscal year ended December 31, 2007.





**EQUITY
      COMPENSATION PLAN INFORMATION**





**Plan
                category**
            
            **Number of securities**
              **to be issued upon**
              **exercise of**
              **outstanding options,**
              **warrants and rights**
            
            **Weighted average**
              **exercise price of**
              **outstanding options,**
              **warrants and rights**
            
            **Number of securities**
              **remaining available for**
              **future issuance under**
              **equity compensation**
              **plans (excluding**
              **securities reflected in**
              **column (a)****(a)**
            
            **(b)**
            
            **(c)****Equity
                compensation plans approved by security holders**
            
            
            -0-
            
            
            -0-
            
            
            -0-**Equity
                compensation plans not approved by security
                holders**
            
            
            6,480,584
            
            $
            3.20
            
            
            5,519,416**Total**


34


On
      April
      1, 2004 our Board of Directors adopted a stock option plan (the “2004 Stock
      Option Plan”). Pursuant to this plan, which expires on April 1, 2014, incentive
      stock options or non-qualified options to purchase an aggregate of 1,000,000
      shares of common stock may be issued, as adjusted. The plan may be administered
      by our Board of Directors or by a committee to which administration of the
      plan,
      or part of the plan, may be delegated by our Board of Directors. Options granted
      under the plan are not generally transferable by the optionee except by will,
      the laws of descent and distribution or pursuant to a qualified domestic
      relations order, and are exercisable during the lifetime of the optionee only
      by
      such optionee. Options granted under the plan vest in such increments as is
      determined by our Board of Directors or designated committee thereof. To the
      extent that options are vested, they must be exercised within a maximum of
      three
      months of the end of the optionee's status as an employee, director or
      consultant, or within a maximum of 12 months after such optionee's termination
      or by death or disability, but in no event later than the expiration of the
      option term. The exercise price of all stock options granted under the plan
      shall be determined by our Board of Directors or designated committee thereof.
      With respect to any participant who owns stock possessing more than 10% of
      the
      voting power of all classes of our outstanding capital stock, the exercise
      price
      of any incentive stock option granted must equal at least 110% of the fair
      market value on the grant date.





On
      November 16, 2006 our Board of Directors of ROO Group, Inc. increased the number
      of shares which may be issued under the 2004 Stock Option Plan to an aggregate
      of 8,000,000 shares of common stock. The number of shares subject to the 2004
      Stock Option Plan was subsequently increased to 12,000,000 shares effective
      April 3, 2007.





As
      of
      December 31, 2007, the following options have been granted under our 2004 Stock
      Option Plan:





**Options
                Issued Under 2004 Stock Option Plan**Exercise
            
            Date
            
            Vest
            
            ExpirationQuantity
            
            Price
            
            Granted
            
            Date
            
            DateRobert
                Petty
            
            
            520,000
            
            $
            2.00
            
            
            August
                23,2005
            
            
            August
                23,2005
            
            
            August
                23, 2007Robin
                Smyth
            
            
            260,000
            
            $
            2.00
            
            
            August
                23, 2005
            
            
            August
                23, 2005
            
            
            August
                23, 2007Robert
                Petty
            
            
            600,000
            
            $
            2.20
            
            
            November 16, 2006
            
            
            November
                16, 2008
            
            
            November
                16, 2010Robin
                Smyth
            
            
            450,000
            
            $
            2.20
            
            
            November
                16, 2006
            
            
            November
                16, 2008
            
            
            November
                16, 2010Robert
                Petty
            
            
            1,250,000
            
            $
            4.50
            
            
            March
                6, 2007
            
            
            March
                6, 2011
            
            
            March
                6, 2013Robin
                Smyth
            
            
            400,000
            
            $
            4.50
            
            
            March
                6, 2007
            
            
            March
                6, 2011
            
            
            March
                6, 2013Lou
                Kerner
            
            
            500,000
            
            $
            2.20
            
            
            November
                16, 2006
            
            
            November
                16, 2008
            
            
            November
                16, 2010Other
                Staff
            
            
            110,000
            
            $
            2.00
            
            
            August
                23, 2005
            
            
            August
                23, 2005
            
            
            August
                23, 2010Other
                Staff
            
            
            611,000
            
            $
            2.00
            
            
            August
                23, 2005
            
            
            August
                23, 2007
            
            
            August
                23, 2010Other
                Staff
            
            
            200,000
            
            $
            2.45
            
            
            February
                15, 2006
            
            
            February
                15, 2008
            
            
            February
                15, 2010Other
                Staff
            
            
            545,000
            
            $
            3.00
            
            
            May
                1, 2006
            
            
            May
                1, 2008
            
            
            May
                1, 2010Other
                Staff
            
            
            60,000
            
            $
            2.00
            
            
            June
                1, 2006
            
            
            June
                1, 2008
            
            
            June
                1, 2010Other
                Staff
            
            
            226,000
            
            $
            2.40
            
            
            September 29, 2006
            
            
            September 29, 2008
            
            
            September 29, 2010Other
                Staff
            
            
            1,073,000
            
            $
            2.40
            
            
            November
                28, 2006
            
            
            November
                28, 2008
            
            
            November
                28, 2010Other
                Staff
            
            
            50,000
            
            $
            3.05
            
            
            December
                31, 2006
            
            
            December
                31, 2008
            
            
            December
                31, 2010Other
                Staff
            
            
            110,000
            
            $
            2.75
            
            
            January
                10, 2007
            
            
            January
                10, 2011
            
            
            January
                10. 2011Other
                Staff
            
            
            250,000
            
            $
            2.89
            
            
            January
                30, 2007
            
            
            January
                30, 2008
            
            
            January
                30. 2013Other
                Staff
            
            
            750,000
            
            $
            4.50
            
            
            March
                6, 2007
            
            
            March
                6, 2011
            
            
            March
                6, 2013Other
                Staff
            
            
            900,000
            
            $
            2.89
            
            
            March
                30, 2007
            
            
            March
                30, 2011
            
            
            March
                30, 2013Other
                Staff
            
            
            100,000
            
            $
            3.00
            
            
            March
                30, 2007
            
            
            March
                30, 2011
            
            
            March
                30, 2013Other
                Staff
            
            
            50,000
            
            $
            2.76
            
            
            April
                30, 2007
            
            
            April
                30, 2011
            
            
            April
                30, 2013


35


Description
      of the ROO Group 2008 Incentive Stock Plan




On
      March
      17, 2008 our Board of Directors adopted a stock option plan (the “2008 Incentive
      Stock Plan”). **** The
      2008
      Incentive Stock Plan has initially reserved 10,000,000 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.


Purpose
      .
      The primary purpose of the 2008 Incentive Stock Plan is to attract and retain
      the best available personnel in order to promote the success of our business
      and
      to facilitate the ownership of our stock by employees and others who provide
      services to us.


Administration
      . The 2008 Incentive Stock Plan is administered by our Board of Directors,
      provided that the Board may delegate such administration to the Compensation
      Committee.


Eligibility
      . Under the 2008 Stock Incentive Plan, options may be granted to employees,
      officers, directors or consultants of the Company, as provided in the 2008
      Stock
      Incentive Plan.


Terms
      of
      Options . The term of each option granted under the 2008 Incentive Stock Plan
      shall be contained in a stock option agreement between the optionee and the
      Company and such terms shall be determined by the Board of Directors consistent
      with the provisions of the 2008 Stock Incentive Plan, including the
      following:


(a)
      Purchase Price. The purchase price of the common stock subject to each incentive
      stock option shall not be less than the fair market value (as set forth in
      the
      2008 Incentive Stock Plan), or in the case of the grant of an incentive stock
      option to a principal stockholder, not less that 110% of fair market value
      of
      such common stock at the time such option is granted;


(b)
      Vesting. The dates on which each option (or portion thereof) shall be
      exercisable and the conditions precedent to such exercise, if any, shall be
      fixed by the Board of Directors, in its discretion, at the time such option
      is
      granted. Unless otherwise provided in the grant agreement, in the event of
      a
      change of control (as set forth in the 2008 Incentive Stock Plan ) 50% of the
      vesting restrictions shall terminate;


(c)
      Expiration. Any Option granted to an employee of the Company shall become
      exercisable over a period of no longer than five years. No option shall in
      any
      event be exercisable after ten years from, and no Incentive Stock Option granted
      to a ten percent shareholder shall become exercisable after the expiration
      of
      five years from the date of the Option;


(d)
      Transferability. No option shall be transferable, except by will or the laws
      of
      descent and distribution, and any option may be exercised during the lifetime
      of
      the optionee only by such optionee. No option granted under the 2008 Incentive
      Stock Plan shall be subject to execution, attachment or other
      process;


(e)
      Option Adjustments. In the event of any change in the outstanding the Company’s
      stock by reason of a stock split, stock dividend, combination or
      reclassification of shares, recapitalization, merger, or similar event, the
      Board or the Committee may adjust proportionally (a) the number of shares of
      common stock (i) reserved under the 2008 Incentive Stock Plan, (ii) available
      for Incentive Stock Options and Nonstatutory Options and (iii) covered by
      outstanding stock awards or restricted stock purchase offers; (b) the Stock
      prices related to outstanding grants; and (c) the appropriate Fair market value
      and other price determinations for such grants. In the event of a corporate
      merger, consolidation, acquisition of property or stock, separation,
      reorganization or liquidation, the Board or the Committee shall be authorized
      to
      issue or assume stock options, whether or not in a transaction to which Section
      424(a) of the Code applies, and other grants by means of substitution of new
      Grant Agreements for previously issued grants or an assumption of previously
      issued grants.


(f)
      Termination, Modification And Amendment. The Board may, insofar as permitted
      by
      law, from time to time, suspend or terminate the 2008 Incentive Stock Plan
      or
      revise or amend it in any respect whatsoever, except that without the approval
      of the shareholders of the Company, no such revision or amendment shall (i)
      increase the number of shares subject to the 2008 Incentive Stock Plan, (ii)
      decrease the price at which grants may be granted, (iii) materially increase
      the
      benefits to Participants, or (iv) change the class of persons eligible to
      receive grants under the 2008 Incentive Stock Plan; provided, however, no such
      action shall alter or impair the rights and obligations under any option, or
      stock award, or restricted stock purchase offer outstanding as of the date
      thereof without the written consent of the Participant thereunder.





**ITEM
      13.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS.**





None.


36





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.**





**AUDIT
      FEES**





The
      aggregate fees billed for professional services rendered by our independent
      registered public accounting firm for the audit of our financial statements
      included in our annual report on Form 10-KSB and for the reviews of the
      financial statements included in our quarterly reports on Form 10-QSB were
      $109,961 and $74,500 for the years ended December 31, 2007 and December 31,
      2006, respectively.





**AUDIT-RELATED
      FEES**





We
      incurred fees of $13,629 and $10,710 for the years ended December 31, 2007
      and
      December 31, 2006, respectively, for professional services rendered by our
      independent registered public accounting firm that are reasonably related to
      the
      performance of the audit or review of our financial statements and not included
      in "Audit Fees", such fees were principally related to registration
      statements.


**TAX
        FEES**
 
 Tax
        fees
        billed by our independent registered public accounting firm during the year
        ended December 31, 2007, were $1,200, related to tax research. No tax fees
        were
        billed in 2006.





**ALL
      OTHER FEES**





We did
      not incur any fees for other professional services rendered by our
      independent registered public accounting firm during the years ended December
      31, 2007 and December 31, 2006.





**AUDIT
      COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES**





Mr
      Kamal
      El-Tayara has been appointed as Chair of the Audit Committee, and consults
      with
      respect to audit policy, choice of auditors, and approval of out of the ordinary
      financial transactions in conjunction with the board of directors.


37


**ITEM
      15.**  **EXHIBITS.**




**Exhibit Number**
            
            **Description**2.1
            
            Agreement
                and Plan of Merger dated as of December 2, 2003 by and among Virilitec
                Industries, Inc., ROO Media Corporation, VRLT Acquisition Corp.,
                and Jacob
                Roth and Bella Roth (Incorporated by reference to Form 8-K, filed
                with the
                Securities and Exchange Commission on December 18,
                2003)2.2
            
            Stock
                Purchase Agreement dated as of March 11, 2004 by and among the Company
                and
                the shareholders of Reality Group Pty Ltd (Incorporated by reference
                to
                Form 8-K, filed with the Securities and Exchange Commission on May
                17,
                2004)2.3
            
            Asset
                Purchase Agreement dated as of May 26, 2004 by and among the Company,
                Undercover Holdings Pty Ltd. and Undercover Media Pty Ltd. (Incorporated
                by reference to Form 8-K, filed with the Securities and Exchange
                Commission on June 16, 2004)2.4
            
            Stock
                Purchase Agreement dated as of September 10, 2004 by and among the
                Company
                and Avenue Group, Inc. in connection with the purchase of common
                stock of
                Bickhams Media, Inc. (Incorporated by reference to Form 8-K, filed
                with
                the Securities and Exchange Commission on September 22,
                2004)2.5
            
            Stock
                Purchase Agreement dated as of November 1, 2004 by and between Bickhams
                Media, Inc., ROO Group, Inc., and Daniel and Vardit Aharonoff
                (Incorporated by reference to Form 8-K/A, filed with the Securities
                and
                Exchange Commission on November 5, 2004)2.6
            
            Amendment
                No. 1 dated October 28, 2005 to Stock Purchase Agreement among ROO
                Group,
                Inc. and the shareholders of Reality Group Pty Ltd. (Incorporated
                by
                reference to Form 8-K/A, filed with the Securities and Exchange Commission
                on November 2, 2005)2.7
            
            Share
                Purchase Agreement dated October 28, 2005 by and among Roo Broadcasting
                Limited and the Sellers thereto (Incorporated by reference to Form
                8-K/A,
                filed with the Securities and Exchange Commission on November 2,
                2005)3.1
            
            Certificate
                of Incorporation of Virilitec Industries, Inc. (Incorporated by reference
                to Form 10-SB (File No. 000-25659), filed with the Securities and
                Exchange
                Commission on March 29, 1999)3.2
            
            Certificate
                of Amendment of Certificate of Incorporation of Virilitec Industries,
                Inc.
                filed with the State of Delaware on October 31, 2003 (Incorporated
                by
                reference to Form SB-2 (File No. 333-120605), filed with the Securities
                and Exchange Commission on November 18, 2004)3.3
            
            Certificate
                of Amendment to the Amended Certificate of Incorporation of Virilitec
                Industries, Inc. filed with the State of Delaware on February 18,
                2004
                (Incorporated by reference to Form SB-2 (File No. 333-120605), filed
                with
                the Securities and Exchange Commission on November 18,
                2004)3.4
            
            Certificate
                of Designation, Powers, Preferences and Rights of Series A Preferred
                Stock, filed with the State of Delaware on March 9, 2005 (Incorporated
                by
                reference to Form 8-K, filed with the Securities and Exchange Commission
                on March 14, 2005)3.5
            
            Certificate
                of Designation, Powers, Preferences and Rights of Series A Preferred
                Stock, filed with the State of Delaware on March 9, 2005 (Incorporated
                by
                reference to the Company’s Form 8-K filed with the Securities and Exchange
                Commission on March 14, 2005)3.6
            
            Amendment
                to the Certificate of Designation, Powers, Preferences and Rights
                of
                Series A Preferred Stock, filed with the State of Delaware on September
                30, 2005 (Incorporated by reference to the Company’s Form 8-K filed with
                the Securities and Exchange Commission on October 4,
                2005)3.7*
            
            Certificate
                of Amendment to Amended Certificate of Incorporation, effective as
                of
                October 3, 20053.8
            
            Bylaws
                (Incorporated by reference to Form 10-SB (File No. 000-25659), filed
                with
                the Securities and Exchange Commission on March 29,
                1999)4.1
            
            Stock
                Purchase Warrant issued to to AJW Offshore, Ltd., dated September
                10, 2004
                (Incorporated by reference to Form 8-K, filed with the Securities
                and
                Exchange Commission on September 16,
                2004)


38





4.2
            
            Stock
                Purchase Warrant issued to AJW Qualified Partners, LLC, dated September
                10, 2004 (Incorporated by reference to Form 8-K, filed with the Securities
                and Exchange Commission on September 16, 2004)4.3
            
            Stock
                Purchase Warrant issued to AJW Partners, LLC, dated September 10,
                2004
                (Incorporated by reference to Form 8-K, filed with the Securities
                and
                Exchange Commission on September 16, 2004)4.4
            
            Stock
                Purchase Warrant issued to New Millennium Capital Partners II, LLC,
                dated
                September 10, 2004 (Incorporated by reference to Form 8-K, filed
                with the
                Securities and Exchange Commission on September 16,
                2004)4.5
            
            Stock
                Purchase Warrant issued to to AJW Offshore, Ltd., dated November
                23, 2004
                (Incorporated by reference to Form 8-K, filed with the Securities
                and
                Exchange Commission on November 30, 2004)4.6
            
            Stock
                Purchase Warrant issued to AJW Qualified Partners, LLC, dated November
                23,
                2004 (Incorporated by reference to Form 8-K, filed with the Securities
                and
                Exchange Commission on November 30, 2004)4.7
            
            Stock
                Purchase Warrant issued to AJW Partners, LLC, dated November 23,
                2004
                (Incorporated by reference to Form 8-K, filed with the Securities
                and
                Exchange Commission on November 30, 2004)4.8
            
            Stock
                Purchase Warrant issued to New Millennium Capital Partners II, LLC,
                dated
                November 23, 2004 (Incorporated by reference to Form 8-K, filed with
                the
                Securities and Exchange Commission on November 30,
                2004)4.9
            
            Stock
                Purchase Warrant issued to to AJW Offshore, Ltd., dated February
                3, 2005
                (Incorporated by reference to Form 8-K, filed with the Securities
                and
                Exchange Commission on February 15, 2005)4.10
            
            Stock
                Purchase Warrant issued to AJW Qualified Partners, LLC, dated February
                3,
                2005 (Incorporated by reference to Form 8-K, filed with the Securities
                and
                Exchange Commission on February 15, 2005)4.11
            
            Stock
                Purchase Warrant issued to New Millennium Capital Partners II, LLC,
                dated
                February 3, 2005 (Incorporated by reference to Form 8-K, filed with
                the
                Securities and Exchange Commission on February 15, 2005)4.12
            
            Promissory
                Note in the principal amount of $1,100,000 issued to Robert Petty
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on May 24, 2005)4.13
            
            Stock
                Purchase Warrant issued to AJW Offshore, Ltd., dated July 18, 2005
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on July 22, 2005)4.14
            
            Stock
                Purchase Warrant issued to AJW Qualified Partners, LLC, dated July
                18,
                2005 (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on July 22, 2005)4.15
            
            Stock
                Purchase Warrant issued to AJW Partners, LLC, dated July 18, 2005
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on July 22, 2005)4.16
            
            Stock
                Purchase Warrant issued to New Millennium Capital Partners II, LLC,
                dated
                July 18, 2005 (Incorporated by reference to the Company’s Form 8-K filed
                with the Securities and Exchange Commission on July 22,
                2005)4.17
            
            Form
                of placement agent warrant in connection with August 2005 Equity
                Financing
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on August 25, 2005)4.18
            
            Form
                of placement agent warrant in connection with October 2005 Equity
                Financing (Incorporated by reference to the Company’s Form 8-K filed with
                the Securities and Exchange Commission on October 26,
                2005)4.19
            
            Form
                of investor warrant in connection with December 2005 Equity Financing
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on December 30,
                2005)




39





4.20
            
            Form
                of placement agent warrant in connection with December 2005 Equity
                Financing (Incorporated by reference to the Company’s Form 8-K filed with
                the Securities and Exchange Commission on December 30,
                2005)4.21
            
            Form
                of investor warrant in connection with August 2006 Equity Financing
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on August 28, 2006)4.22
            
            Form
                of warrant in connection with November 2006 Equity Financing (Incorporated
                by reference to the Company’s Form 8-K filed with the Securities and
                Exchange Commission on November 20, 2006)4.23
            
            Form
                of warrant in connection with May 2007 Equity Financing (Incorporated
                by
                reference to the Company’s Form 8-K filed with the Securities and Exchange
                Commission on May 10, 2007)5.1
            
            Opinion
                and Consent of Sichenzia Ross Friedman Ference LLP (Incorporated
                by
                reference to the Company’s Registration Statement on Form SB-2 filed with
                the Securities and Exchange Commission on June 11,
                2007)10.1
            
            Employment
                Agreement with Robert Petty dated April 1, 2004 (Incorporated by
                reference
                to Form 10-QSB, filed with the Securities and Exchange Commission
                on
                August 16, 2004)10.2
            
            Employment
                Agreement with Robin Smyth dated April 1, 2004 (Incorporated by reference
                to Form 10-QSB, filed with the Securities and Exchange Commission
                on
                August 16, 2004)10.3
            
            Employment
                Agreement with Robert Petty dated November 1, 2004 (Incorporated
                by
                reference to Form SB-2 (File No. 333-120605), filed with the Securities
                and Exchange Commission on November 18, 2004)10.4
            
            Employment
                Agreement with Robin Smyth dated November 1, 2004 (Incorporated by
                reference to Form SB-2 (File No. 333-120605), filed with the Securities
                and Exchange Commission on November 18, 2004)10.5
            
            Sublease
                dated April 1, 2005 (Incorporated by reference to the Company’s Form 8-K
                filed with the Securities and Exchange Commission on June 13,
                2005)10.6
            
            AT&T
                Intelligent Content Distribution Service Agreement dated August 16,
                2001
                (Incorporated by reference to Form SB-2 (File No. 333-120605), filed
                with
                the Securities and Exchange Commission on November 18,
                2004)10.7
            
            Network
                Services Agreement with Speedera Networks, Inc. dated June 1, 2004
                (Incorporated by reference to Form SB-2 (File No. 333-120605), filed
                with
                the Securities and Exchange Commission on November 18,
                2004)10.8
            
            Securities
                Purchase Agreement, dated September 10, 2004, by and among ROO Group,
                Inc.
                and AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners,
                LLC and
                New Millennium Capital Partners II, LLC (Incorporated by reference
                to Form
                8-K, filed with the Securities and Exchange Commission on September
                16,
                2004)10.9
            
            Letter
                agreement dated May 12, 2005 between the Company, AJW Offshore, Ltd.,
                AJW
                Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital
                Partners II, LLC (Incorporated by reference to the Company’s Form 8-K
                filed with the Securities and Exchange Commission on May 12,
                2005)10.10
            
            Note
                Purchase Agreement made as of May 18, 2005 by and between ROO Group,
                Inc.
                and Robert Petty (Incorporated by reference to the Company’s Form 8-K
                filed with the Securities and Exchange Commission on May 24,
                2005)10.11
            
            Registration
                Rights Agreement made as of May 18, 2005 by and among Robert Petty,
                ROO
                Group, Inc. and the purchasers listed on Schedule I thereto (Incorporated
                by reference to the Company’s Form 8-K filed with the Securities and
                Exchange Commission on May 24, 2005)10.12
            
            Securities
                Purchase Agreement, dated July 18, 2005, by and among ROO Group,
                Inc. and
                AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC
                and New
                Millennium Capital Partners II, LLC (Incorporated by reference to
                the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                July 22, 2005)




40





10.13
            
            Registration
                Rights Agreement, dated as of July 18, 2005, by and among ROO Group,
                Inc.
                and AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners,
                LLC and
                New Millennium Capital Partners II, LLC (Incorporated by reference
                to the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                July 22, 2005)10.14
            
            Omnibus
                Consent and Waiver dated August 18, 2005 between ROO Group, Inc.,
                AJW
                Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and
                New
                Millennium Capital Partners II, LLC (Incorporated by reference to
                the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                August 24, 2005)10.15
            
            Common
                Stock Purchase Agreement dated August 19, 2005 among ROO Group, Inc.
                and
                the purchasers listed on Exhibit A thereto (Incorporated by reference
                to
                the Company’s Form 8-K filed with the Securities and Exchange Commission
                on August 25, 2005)10.16
            
            Registration
                Rights Agreement dated August 19, 2005 among ROO Group, Inc. and
                the
                purchasers listed on Schedule 1 thereto (Incorporated by reference
                to the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                August 25, 2005)10.17
            
            Escrow
                Agreement dated August 19, 2005 among ROO Group, Inc., the purchasers
                signatory thereto and Kramer Levin Naftalis & Frankel LLP
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on August 25, 2005)10.18
            
            Common
                Stock Purchase Agreement dated October 20, 2005 among ROO Group,
                Inc. and
                the purchasers listed on Exhibit A thereto (Incorporated by reference
                to
                the Company’s Form 8-K filed with the Securities and Exchange Commission
                on October 26, 2005)10.19
            
            Registration
                Rights Agreement dated October 20, 2005 among ROO Group, Inc. and
                the
                purchasers listed on Schedule 1 thereto (Incorporated by reference to the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                October 26, 2005)10.20
            
            Escrow
                Agreement dated October 20, 2005 among ROO Group, Inc., the purchasers
                signatory thereto and Kramer Levin Naftalis & Frankel LLP
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on October 26, 2005)10.21
            
            Common
                Stock Purchase Agreement dated December 28, 2005 among ROO Group,
                Inc. and
                the purchasers listed on Exhibit A thereto (Incorporated by reference
                to
                the Company’s Form 8-K filed with the Securities and Exchange Commission
                on December 30, 2005)10.22
            
            Escrow
                Agreement dated December 28, 2005 among ROO Group, Inc., the purchasers
                signatory thereto and Kramer Levin Naftalis & Frankel LLP
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on December 30,
                2005)10.23
            
            Registration
                Rights Agreement dated December 28, 2005 among ROO Group, Inc. and
                the
                purchasers listed on Schedule 1 thereto (Incorporated by reference
                to the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                December 30, 2005)10.24
            
            Securities
                Purchase Agreement dated August 18, 2006 among ROO Group, Inc. and
                the
                purchasers listed on Exhibit A thereto (Incorporated by reference
                to the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                August 24, 2006)10.25
            
            Escrow
                Agreement dated August 18, 2006 among ROO Group, Inc., the purchasers
                signatory thereto and Savvian LLC and Sichenzia Ross Friedman Ference
                LLP
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on August 24, 2006)10.26
            
            Securities
                Purchase Agreement dated November 14, 2006 among ROO Group, Inc.
                and the
                Purchasers listed on Exhibit A thereto (Incorporated by reference
                to the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                November 20, 2006)


41





10.27
            
            Escrow
                Agreement dated November 14, 2006 among ROO Group, Inc., the purchasers
                signatory thereto (Incorporated by reference to the Company’s Form 8-K
                filed with the Securities and Exchange Commission on November 20,
                2006)10.28
            
            Securities
                Purchase Agreement dated May 4, 2007 among ROO Group, Inc., the purchasers
                signatory thereto (Incorporated by reference to the Company’s Form 8-K
                filed with the Securities and Exchange Commission on May 10,
                2007)10.29
            
            Escrow
                Agreement dated May 4, 2007 among ROO Group, Inc., the purchasers
                signatory (Incorporated by reference to the Company’s Form 8-K filed with
                the Securities and Exchange Commission on May 10, 2007)10.30
            
            Asset
                Purchase Agreement dated July 12, 2007 by and among ROO HD, Inc.,
                Wurld
                Media, Inc., Gregory Kerber, and Kirk Feathers (Incorporated by reference
                to the Company’s Form 8-K filed with the Securities and Exchange
                Commission on July 18, 2007)10.31
            
            Agreement
                dated January 25, 2007 by and among ROO Group, Inc. and News Corporation
                (Incorporated by reference to the Company’s Form 8-K/A filed with the
                Securities and Exchange Commission on July 26, 2007)10.32
            
            Executive
                Management Agreement between ROO Group, Inc. and KIT Capital Limited
                dated
                December 18, 2007 (Incorporated by reference to the Company’s Form 8-K
                filed with the Securities and Exchange Commission on December 26,
                2007)10.33*
            
            ROO
                Group, Inc. 2008 Incentive Stock Plan10.34*
            
            Separation
                Agreement and Release between ROO Group, Inc. and Robert Petty dated
                as of
                March 30, 200810.35
            
            Separation
                Agreement and Release between ROO Group, Inc. and Robin Smyth dated
                as of
                March 30, 200816.1
            
            Letter
                of Mark Cohen, C.P.A. dated February 1, 2004 on change in certifying
                accountant (Incorporated by reference to Form 8-K, filed with the
                Securities and Exchange Commission on February 6, 2004)16.2
            
            Letter
                of Mark Cohen, C.P.A. dated March 12, 2004 on change in certifying
                accountant (Incorporated by reference to Form 8-K/A, filed with the
                Securities and Exchange Commission on March 15, 2004)21.1*
            
            Subsidiaries
                of the Company23.1*
            
            Consent
                  of Moore Stephens, P.C.31.1*
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act31.2*
            
            Certification
                by Interim Chief Financial Officer, required by Rule 13a-14(a) or
                Rule
                15d-14(a) of the Exchange Act32.1*
            
            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 Code32.2*
            
            Certification
                by Interim 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


***** Filed
      herewith


42


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized, in the City of New York, State of New York, on April 1, 2008.




**ROO
                GROUP, INC.**By:
            /s/
                Kaleil Isaza TuzmanKaleil
                Isaza TuzmanChief
                Executive Officerand
                Chairman of the BoardBy:
            /s/
                Robin SmythRobin
                SmythChief
                Financial Officer and Principal Accounting Officer





Pursuant
      to the requirements of the Securities Act of 1933, this report has been signed
      by the following persons in the capacities and on the date
      indicated:


**Signature**
              
              **Title**
              
              **Date**/s/
                  Kaleil Isaza Tuzman
              
              Chief
                  Executive Officer and
              
              April
                  1, 2008Kaleil
                  Isaza Tuzman
              
              Chairman
                  of the Board*/s/
                  Robert Petty*
              
              Director
              
              April
                  1, 2008Robert
                  Petty*/s/
                  Kamal El-Tayara*
              
              Director
              
              April
                  1, 2008Kamal
                  El-Tayara*/s/
                  Robin Smyth*
              
              Chief
                  Financial Officer, Principal
              
              April
                  1, 2008Robin
                  Smyth
              
              Accounting
                  Officer and Director*/s/
                  Wayne Walker*
              
              Director
              
              April
                  1, 2008Wayne
                  Walker




43




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**


To
        the
        Board of Directors and Stockholders of
 ROO
        Group, Inc. and Subsidiaries
 
 We
        have
        audited the accompanying consolidated balance sheet of ROO Group, Inc. and
        Subsidiaries as of December 31, 2007, and the related consolidated statements
        of
        operations and comprehensive income (loss), stockholders' equity, and cash
        flows
        for each of the two years in the period 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 audits.
 
 We
        conducted our audits in accordance with the 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
        consolidated 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 consolidated financial statements, assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall consolidated financial statement presentation. We
        believe
        that our audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of ROO Group, Inc. and
        Subsidiaries as of December 31, 2007, and the results of their operations
        and
        their cash flows for each of the two years in the period 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
        and
        negative cash flows from operations that raise substantial doubt about its
        ability to continue as a going concern. Management's plans in regard to these
        matters are also discussed in Note 3. The consolidated financial statements
        do
        not include any adjustments that might result from the outcome of this
        uncertainty.
  MOORE
                  STEPHENS, P. C.Certified
                  Public Accountants.New
                  York, New YorkMarch
                  27, 2008
  F-1
 
 **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET AS OF DECEMBER 31, 2007**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***Assets:*****Current
                  assets:**Cash
                  and cash equivalents
              
              $
              10,189Accounts
                  receivable, net
              
              
              3,057Other
                  current assets
              
              
              1,288Restricted
                  cash
              
              
              100**Total
                  current assets**
              
              
              14,634Property
                  and equipment, net
              
              
              1,307Deferred
                  tax assets
              
              
              263Software,
                  net
              
              
              505Customer
                  list, net
              
              
              253Domain
                  names, net
              
              
              30Goodwill
              
              
              1,123**Total
                  assets**
              
              $
              18,115***Liabilities
                  and Stockholders' Equity:*****Current
                  liabilities:**Bank
                  overdraft and other obligations
              
              $
              190Accounts
                  payable
              
              
              3,121Accrued
                  expenses
              
              
              1,616Income
                  tax payable
              
              
              139Other
                  current liabilities
              
              
              1,478**Total
                  current liabilities**
              
              
              6,544**Capital
                  lease obligations**
              
              
              292**Total
                  liabilities**
              
              
              6,836**Commitments
                  and contingencies**
              
              
              —**Minority
                  interest**
              
              
              (76
              )**Stockholders'
                  Equity:**Series
                  A preferred shares, $0.0001 par value: authorized 10,000,000 shares;
                  issued and outstanding 10,000,000
              
              
              1Common
                  stock, $0.0001 par value: authorized 500,000,000 shares; issued
                  and
                  outstanding 38,936,039
              
              
              4Additional
                  paid-in capital
              
              
              74,820Accumulated
                  deficit
              
              
              (63,524
              )Accumulated
                  other comprehensive income
              
              
              54**Total
                  stockholders' equity**
              
              
              11,355**Total
                  liabilities and stockholders' equity**
              
              $
              18,115
  The
        Accompanying Notes are an Integral Part of these Consolidated Financial
        Statements.
  F-2
 
 **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  **Years
                  ended**
                **December
                  31,****2007**
              
              **2006****Revenue**
              
              $
              13,929
              
              $
              9,768**Expenses:**Operations
              
              
              13,541
              
              
              8,530Research
                  and development
              
              
              6,146
              
              
              2,140Sales
                  and marketing
              
              
              7,530
              
              
              5,318General
                  and administrative (exclusive of non-cash compensation)
              
              
              11,540
              
              
              6,098Non-cash
                  compensation
              
              
              4,748
              
              
              2,597Settlement
                  of MVD agreement
              
              
              500
              
              
              —Impairment
                  of property and equipment
              
              
              788
              
              
              —Impairment
                  of intangible assets
              
              
              3,124
              
              
              —Impairment
                  of goodwill
              
              
              250
              
              
              —**Total
                  expenses**
              
              
              48,167
              
              
              24,683**(Loss)
                  from operations**
              
              
              (34,238
              )
              
              (14,915
              )Interest
                  income
              
              
              725
              
              
              166Interest
                  expense
              
              
              (70
              )
              
              (78
              )Other
                  income (expense)
              
              
              (51
              )
              
              —Registration
                  rights liquidated damages
              
              
              (792
              )
              
              (70
              )**Net
                  (loss) before income taxes**
              
              
              (34,426
              )
              
              (14,897
              )**Income
                  tax expense (benefit)**
              
              
              125
              
              
              (92
              )**Net
                  (loss) before minority interest**
              
              
              (34,551
              )
              
              (14,805
              )**Minority
                  interest**
              
              
              (13
              )
              
              180**Deduct:**Preferred shares dividend
              
              
              —
              
              
              —**Net
                  (loss) available to common shareholders**
              
              $
              (34,564
              )
              $
              (14,625
              )**Basic
                  and diluted net (loss) per common share**
              
              $
              (0.99
              )
              $
              (0.92
              )**Weighted
                  average common shares outstanding**
              
              
              34,869,325
              
              
              15,901,049**Comprehensive
                  (loss):**Net
                  (loss)
              
              $
              (34,564
              )
              $
              (14,625
              )Foreign
                  currency translation
              
              
              46
              
              
              43**Comprehensive
                  (loss)**
              
              $
              (34,518
              )
              $
              (14,582
              )
  The
        Accompanying Notes are an Integral Part of these Consolidated Financial
        Statements.
  F-3
 
 **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' EQUITY**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  **Series
                  A**
                **Preferred
                  Shares**
              
              
              **Series
                  A Preferred**
                **Shares**
                **Par
                  Value**
              
              
              **Common**
                **Stock**
              
              
              **Common**
                **Stock**
                **Par
                  Value****Balance
                  - January 1, 2006**
              
              
              9,500,000
              
              $
              1
              
              
              13,176,436
              
              $
              1Issuance
                  of stock in private placements
              
              
              —
              
              
              —
              
              
              12,798,377
              
              
              2Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —Issuance
                  of Series A Preferred shares as Performance Bonuses
              
              
              500,000
              
              
              —
              
              
              —
              
              
              —Issuance
                  of stock for share price guarantee related to Reality
                  Group
              
              
              —
              
              
              —
              
              
              —
              
              
              —Issuance
                  of stock for achievement of milestones related to
                  Undercover
              
              
              —
              
              
              —
              
              
              100,000
              
              
              —Issuance
                  of warrants for services
              
              
              —
              
              
              —
              
              
              —
              
              
              —Foreign
                  currency translation adjustment
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  (loss)
              
              
              —
              
              
              —
              
              
              —
              
              
              —**Balance
                  - December 31, 2006**
              
              
              10,000,000
              
              $
              1
              
              
              26,074,813
              
              $
              3Issuance
                  of stock in private placements
              
              
              —
              
              
              —
              
              
              10,000,000
              
              
              1Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —Issuance
                  of stock for News Corp.
              
              
              —
              
              
              —
              
              
              2,000,000
              
              
              —Issuance
                  of stock for MyVideoDaily acquisition
              
              
              —
              
              
              —
              
              
              92,379
              
              
              —Return
                  and cancellation of stock for MyVideoDaily acquisition
              
              
              —
              
              
              —
              
              
              (92,379
              )
              
              —Issuance
                  of stock upon conversion of warrants
              
              
              —
              
              
              —
              
              
              10,000
              
              
              —Issuance
                  of stock upon cashless conversion of warrants
              
              
              —
              
              
              —
              
              
              195,726
              
              
              —Issuance
                  of stock into escrow related to Wurld Media
              
              
              —
              
              
              —
              
              
              655,500
              
              
              —Foreign
                  currency translation adjustment
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  (loss)
              
              
              —
              
              
              —
              
              
              —
              
              
              —**Balance
                  - December 31, 2007**
              
              
              10,000,000
              
              $
              1
              
              
              38,936,039
              
              $
              4
  The
        Accompanying Notes are an Integral Part of these Consolidated Financial
        Statements.
  F-4
 
 **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' EQUITY**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  **Other**
                **Additional**
                **Paid-in**
                **Capital**
              
              **Accumulated**
                **(Deficit)**
              
              **Accumulated
                  Other**
                **Comprehensive**
                **Income**
                **(Loss)**
              
              **Total**
                **Shareholders’**
                **Equity****Balance
                  - January 1, 2006**
              
              $
              23,366
              
              $
              (14,335
              )
              $
              (35
              )
              $
              8,998Issuance
                  of stock in private placements
              
              
              19,476
              
              
              —
              
              
              —
              
              
              19,478Stock-based
                  compensation
              
              
              2,404
              
              
              —
              
              
              —
              
              
              2,404Issuance
                  of Series A Preferred shares as Performance Bonuses
              
              
              64
              
              
              —
              
              
              —
              
              
              64Issuance
                  of stock for share price guarantee related to Reality
                  Group
              
              
              (961
              )
              
              —
              
              
              —
              
              
              (961
              )Issuance
                  of stock for achievement of milestones related to
                  Undercover
              
              
              260
              
              
              —
              
              
              —
              
              
              260Issuance
                  of warrants for services
              
              
              129
              
              
              —
              
              
              —
              
              
              129Foreign
                  currency translation adjustment
              
              
              —
              
              
              —
              
              
              43
              
              
              43Net
                  (loss)
              
              
              —
              
              
              (14,625
              )
              
              —
              
              
              (14,625
              )**Balance
                  - December 31, 2006**
              
              $
              44,738
              
              $
              (28,960
              )
              $
              8
              
              $
              15,790Issuance
                  of stock in private placements
              
              
              23,874
              
              
              —
              
              
              —
              
              
              23,875Stock-based
                  compensation
              
              
              4,748
              
              
              —
              
              
              —
              
              
              4,748Issuance
                  of stock for News Corp
              
              
              340
              
              
              —
              
              
              —
              
              
              340Issuance
                  of stock for MyVideoDaily acquisition
              
              
              250
              
              
              —
              
              
              —
              
              
              250Return
                  and cancellation of stock for MyVideoDaily acquisition
              
              
              (250
              )
              
              —
              
              
              —
              
              
              (250
              )Issuance
                  of stock upon conversion of warrants
              
              
              12
              
              
              —
              
              
              —
              
              
              12Issuance
                  of stock upon cashless conversion of warrants
              
              
              —
              
              
              —
              
              
              —
              
              
              —Issuance
                  of stock into escrow related to Wurld Media
              
              
              1,108
              
              
              —
              
              
              —
              
              
              1,108Foreign
                  currency translation adjustment
              
              
              —
              
              
              —
              
              
              46
              
              
              46Net
                  (loss)
              
              
              —
              
              
              (34,564
              )
              
              —
              
              
              (34,564
              )**Balance
                  - December 31, 2007**
              
              $
              74,820
              
              $
              (63,524
              )
              $
              54
              
              $
              11,355
  The
        Accompanying Notes are an Integral Part of these Consolidated Financial
        Statements.
  F-5
 
 **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(Amounts
        in Thousands)**
  **Years
                  ended December 31,****2007**
              
              **2006****Operating
                  Activities:**Net
                  (loss)
              
              $
              (34,564
              )
              $
              (14,625
              )Adjustments
                  to reconcile net (loss) to net cash (used) by operating
                  activities:Provision
                  for doubtful accounts
              
              
              120
              
              
              225Depreciation
              
              
              902
              
              
              173Amortization
                  of intangible assets
              
              
              1,334
              
              
              674Impairment
                  of property and equipment
              
              
              788
              
              
              —Impairment
                  of goodwill and intangible assets
              
              
              3,374
              
              
              —Non
                  cash stock based compensation
              
              
              4,748
              
              
              2,404Non
                  cash warrants and options for services
              
              
              —
              
              
              129Non
                  cash preferred stock issued as performance bonuses
              
              
              —
              
              
              64Non
                  cash issuance of shares for News Corporation agreement
              
              
              340
              
              
              —Minority
                  interest in subsidiaries
              
              
              13
              
              
              (180
              )Changes
                  in assets and liabilities:(Increase)
                  decrease in:Accounts
                  receivable
              
              
              231
              
              
              (2,134
              )Other
                  assets
              
              
              (137
              )
              
              (767
              )Increase
                  (decrease) in:Accounts
                  payable
              
              
              1,348
              
              
              673Accrued
                  expenses
              
              
              613
              
              
              294Income
                  tax payable
              
              
              (34
              )
              
              (198
              )Other
                  liabilities
              
              
              139
              
              
              842Total
                  adjustments
              
              
              13,779
              
              
              2,199**Net
                  Cash (Used) By Operating Activities - Forward**
              
              
              (20,785
              )
              
              (12,426
              )**Investing
                  Activities:**Investment
                  in Bickhams/Videodome
              
              
              —
              
              
              (20
              )Investment
                  in restricted cash
              
              
              (100
              )
              
              —Investment
                  in ROO Media Europe
              
              
              —
              
              
              (90
              )Cash
                  paid in Sputnik acquisition
              
              
              —
              
              
              (197
              )Cash
                  paid in MyVideoDaily acquisition
              
              
              (250
              )
              
              —Investment
                  in assets acquired from Wurld Media
              
              
              (3,174
              )
              
              —Capitalization
                  of content
              
              
              (89
              )
              
              (160
              )Purchase
                  of equipment
              
              
              (729
              )
              
              (355
              )**Net
                  Cash (Used) By Investing Activities - Forward**
              
              $
              (4,342
              )
              $
              (822
              )
  The
        Accompanying Notes are an Integral Part of these Consolidated Financial
        Statements.
  F-6
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(Amounts
        in Thousands)**
  **Years
                  ended December 31,****2007**
              
              **2006****Net
                  Cash (Used) By Operating Activities - Forwarded**
              
              $
              (20,785
              )
              $
              (12,426
              )**Net
                  Cash (Used) By Investing Activities - Forwarded**
              
              
              (4,342
              )
              
              (822
              )**Financing
                  Activities:**Proceeds
                  from private placements, net
              
              
              23,875
              
              
              19,478Bank
                  overdraft and other obligations
              
              
              (372
              )
              
              445Proceeds
                  from exercise of warrants
              
              
              12
              
              
              —Payments
                  on capital leases
              
              
              (170
              )
              
              (20
              )**Net
                  Cash Provided By Financing Activities**
              
              
              23,345
              
              
              19,903**Effect
                  of Exchange Rate Changes on Cash**
              
              
              34
              
              
              8**Net
                  (Decrease) Increase in Cash**
              
              
              (1,748
              )
              
              6,663**Cash
                  - Beginning of Year**
              
              
              11,937
              
              
              5,274**Cash
                  - End of Year**
              
              $
              10,189
              
              $
              11,937**Supplemental
                  Disclosures of Cash Flow Information:**Cash
                  paid during the years for:Income
                  taxes
              
              $
              —
              
              $
              120Interest
              
              $
              50
              
              $
              78
  **Supplemental
        Disclosure of Non-Cash Investing and Financing Activities:**
 
 During
        the years ended December 31, 2006 and 2007, the Company acquired equipment
        under
        capital lease obligations of $211 and $184, respectively.
  The
        Accompanying Notes are an Integral Part of these Consolidated Financial
        Statements.
  F-7
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(1)
        Basis of Presentation***
  ROO
          Group, Inc. ("we," "us," "our," the "Company" or "ROO Group"), through
          our
          operating subsidiaries, is a service provider that enables businesses to
          leverage digital media assets and provide an enhanced user experience.
          Our
          business is divided into two segments: Online Digital Media and Advertising
          Agency. Online Digital Media provides products and solutions that enable
          the
          broadcast of topical video content from our customers’ Internet web sites as
          well as monetizing that video through advertising sales. This includes
          website
          creation and providing the technology and content required for video to
          be
          played on computers via the Internet as well as emerging broadcast platforms
          such as set top boxes and wireless devices (mobile phones and PDAs). Advertising
          Agency provides varied forms of media and services which support our client
          campaigns. Our competencies span from creative, account service and media
          planning and buying to technical web development, direct marketing, incentive
          programs, CRM, and sales promotion.
 ***(2)
        Summary of Significant Accounting Policies***
 
 ***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., its 51% owned subsidiary Reality Group and its wholly
        owned subsidiary ROO HD, Inc. Included in the consolidation with ROO Media
        Corporation are its wholly owned subsidiary ROO Media (Australia) Pty. Ltd.
        and
        ROO Media (Australia) Pty. Ltd.'s wholly owned subsidiary Undercover Media
        Pty.
        Ltd., its wholly owned subsidiary ROO Media Europe Limited, its wholly owned
        subsidiary ROO Broadcasting Limited, ROO Broadcasting Limited’s 51% owned
        subsidiary Sputnik Agency Pty. Ltd. and its wholly owned subsidiary ROO TV
        Pty.
        Ltd. Included in the consolidation with Bickhams Media, Inc. is its wholly
        owned
        subsidiary VideoDome.com Networks, Inc.
 
 ***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.
  ***Foreign
        Currency Translation -*** Assets
        and liabilities of ROO Group’s foreign subsidiaries are translated at current
        exchange rates and related revenues and expenses are translated at average
        exchange rates in effect during the periods. Resulting translation adjustments
        are recorded as a component of accumulated comprehensive income (loss) in
        stockholders' equity.
 
 ***Fair
        value of Financial Instruments -*** Statement of Financial Accounting Standards (“SFAS”) No. 107, "Disclosures about
        Fair Value of Financial Instruments," defines the fair value of a financial
        instrument as the amount at which the instrument could be exchanged in a
        current
        transaction between willing parties. In assessing the fair value of our cash
        and
        cash equivalents, accounts receivables, other current assets, accounts payables,
        accrued liabilities, and other current liabilities, management concluded
        that
        the carrying amount of these financial instruments approximates fair value
        because of the immediate or short-term maturity of these financial
        instruments.
  F-8
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(2)
        Summary of Significant Accounting Policies
        (Continued)***
 
 ***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. We believe no significant concentration
        of credit risk exists with respect to these investments. The amount of cash
        beyond insured amounts as of December 31, 2007, was $10,084.
 
 Concentrations
        of credit risk with respect to trade accounts receivable are limited due
        to the
        nature of our customers who are dispersed across many industries and geographic
        regions. The allowance for doubtful accounts as of December 31, 2007 was
        $282.
        As of December 31, 2007, one customer accounted for approximately 12% of
        our
        trade accounts receivable. We routinely assess the financial strength of
        customers and, based upon factors concerning credit risk, we establish an
        allowance for doubtful accounts. Management believes that accounts receivable
        credit risk exposure beyond such allowance is limited.
 
 We
        generally do not require collateral for our financial instruments.
 
 ***Impairment
        of Long-Lived Assets -*** We
        review our long-lived assets and identifiable intangibles for impairment
        at
        least annually and 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.
 
 ***Cash
        and Cash Equivalents -***We
        consider all highly liquid investments with original maturities of ninety
        days
        or less when purchased to be cash and cash equivalents.
 
 ***Restricted
        Cash*** - As of
        December 31, 2007, we pledged approximately $100 as collateral for a standby
        letter of credit that guarantees our obligation related to a real estate
        lease
        agreement.
 
 ***Property
        and Equipment -*** Property
        and equipment are stated at cost less accumulated depreciation. Depreciation
        is
        provided for using the straight-line and declining balance methods of accounting
        over the estimated useful lives of the assets [See Note 6].
 
 Routine
        maintenance and repair costs are charged to expense as incurred and renewals
        and
        improvements that extend the useful life of the assets are capitalized. Upon
        sale or retirement, the cost and related accumulated depreciation are eliminated
        from the respective accounts and any resulting gain or loss is reported in
        the
        statement of operations.
 
 ***Income
        Taxes -*** Pursuant
        to SFAS No. 109, "Accounting for Income Taxes," income tax expense [or benefit]
        for the year is the sum of deferred tax expense [or benefit] and income taxes
        currently payable [or refundable]. Deferred tax expense [or benefit] is the
        change during the year in a company's deferred tax liabilities and assets.
        Deferred tax liabilities and assets are determined based on differences between
        financial reporting and tax bases of assets and liabilities, and are measured
        using the enacted tax rates and laws that will be in effect when the differences
        are expected to reverse.
 
 ***Intangible
        Assets -*** Amortizable 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, including goodwill, are reviewed for impairment
        annually or more frequently if events or circumstances indicate that carrying
        amounts may not be recoverable [See Note 8].
  F-9
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
 
 ***(2)
        Summary of Significant Accounting Policies
        (Continued)***
 
 ***Research
        and Development -*** Costs
        incurred in research and development are expensed as incurred. Software
        development costs are required to be capitalized when a product’s technological
        feasibility has been established through the date the product is available
        for
        general release to customers. The Company does not capitalize any software
        development costs, as technological feasibility is generally not established
        until a working model is completed, at which time substantially all development
        is complete.
 
 ***Revenue
        Recognition -*** Revenues
        are derived principally from professional services, digital media management
        and
        advertising. Revenue is recognized when service has been provided.
 
 ***Stock-Based
        Compensation -***On
        January 1, 2006, we adopted SFAS No. 123R, "*Share-Based
        Payment*,"
        or
        SFAS 123R. 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 years ended December
        31, 2006 and 2007, we recognized $2,597 and $4,748, respectively of stock-based
        compensation expense in our consolidated financial statements. We recognized
        expense because we had (a) stock options granted prior to January 1, 2006
        that
        had not yet vested as of January 1, 2006 and (b) stock options granted
        subsequent to January 1, 2006.
 
 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.
 
 ***Net
        (Loss) Per Share -***We
        compute net (loss) income per common share under the provisions of SFAS No.
        128,
        "Earnings per Share," which establishes standards for computing and presenting
        earnings per share. SFAS No. 128 requires us to report both basic net (loss)
        income per share, which is based on the weighted average number of common
        shares
        outstanding during the period, and diluted net (loss) income per share, which
        is
        based on the weighted average number of common shares outstanding plus all
        potentially dilutive common shares outstanding. All equivalent shares underlying
        options, warrants, and convertible Series A Preferred Stock were excluded
        from
        the calculation of diluted loss per share because we had net losses for all
        years presented and therefore equivalent shares would have an anti-dilutive
        effect.
 
 ***Reclassification
        -*** Certain
        prior period amounts have been reclassified to conform to the current
        presentation.
  F-10
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
 
 ***(2)
        Summary of Significant Accounting Policies
        (Continued)***
 
 ***Recent
        Accounting Pronouncements -*** In
        February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
        159, "The Fair Value Option for Financial Assets and Financial Liabilities
        -
        Including an amendment of FASB Statement No. 115," which is effective for
        fiscal
        years beginning after November 15, 2007. This statement permits entities
        to
        choose to measure many financial instruments and certain other items at fair
        value. This statement also establishes presentation and disclosure requirements
        designed to facilitate comparisons between entities that choose different
        measurement attributes for similar types of assets and liabilities. Unrealized
        gains and losses on items for which the fair value option is elected would
        be
        reported in earnings. We have evaluated the new statement and have determined
        that it will not have a significant impact on the determination or reporting
        of
        our financial results.
 
 In
        December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
        Combinations" (SFAS 141(R)), which replaces SFAS No. 141, "Business
        Combinations." SFAS 141(R) retains the underlying concepts of SFAS 141 in
        that
        all business combinations are still required to be accounted for at fair
        value
        under the acquisition method of accounting but SFAS 141(R) changed the method
        of
        applying the acquisition method in a number of significant aspects. Acquisition
        costs will generally be expensed as incurred; noncontrolling interests will
        be
        valued at fair value at the acquisition date; in-process research and
        development will be recorded at fair value as an indefinite-lived intangible
        asset at the acquisition date; restructuring costs associated with a business
        combination will generally be expensed subsequent to the acquisition date;
        and
        changes in deferred tax asset valuation allowances and income tax uncertainties
        after the acquisition date generally will affect income tax expense. SFAS
        141(R)
        is effective on a prospective basis for all business combinations for which
        the
        acquisition date is on or after the beginning of the first annual period
        subsequent to December 15, 2008, with the exception of the accounting for
        valuation allowances on deferred taxes and acquired tax contingencies. SFAS
        141(R) amends SFAS 109 such that adjustments made to valuation allowances
        on
        deferred taxes and acquired tax contingencies associated with acquisitions
        that
        closed prior to the effective date of SFAS 141(R) would also apply the
        provisions of SFAS 141(R). Early adoption is not permitted. We are currently
        evaluating the effects, if any, that SFAS 141(R) may have on our financial
        statements and believe it could have a significant impact if business
        combinations are consummated. However, the effect is indeterminable as of
        December 31, 2007.
 
 In
        December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
        Consolidated Financial Statements—an amendment of ARB No. 51." This statement is
        effective for fiscal years, and interim periods within those fiscal years,
        beginning on or after December 15, 2008, with earlier adoption prohibited.
        This
        statement requires the recognition of a noncontrolling interest (minority
        interest) as equity in the consolidated financial statements and separate
        from
        the parent's equity. The amount of net income attributable to the noncontrolling
        interest will be included in consolidated net income on the face of the income
        statement. It also amends certain of ARB No. 51's consolidation procedures
        for
        consistency with the requirements of SFAS 141(R). This statement also includes
        expanded disclosure requirements regarding the interests of the parent and
        its
        noncontrolling interest. We are currently evaluating this new statement and
        anticipate that the statement will not have a significant impact on the
        reporting of our results of operations.
 
 ***(3)
        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.
        We
        have incurred substantial net operating losses and used substantial amounts
        of
        cash in our operating activities. Since ROO Group’s inception, we have incurred
        losses, had an accumulated deficit, and have experienced negative cash flows
        from operations. We expect this trend to continue. The expansion and development
        of our business will likely require additional capital. This condition raises
        substantial 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, although there can be no assurance thereof. The
        accompanying consolidated financial statements do not include any adjustments
        that might be necessary should we be unable to continue as a going concern.
        If
        we fail to generate positive cash flows or obtain additional financing when
        required, we may have to modify, delay or abandon some or all of our business
        and expansion plans.
  F-11
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(4)
        Acquisitions***
 
 On
        January 27, 2006 ROO Media Corporation purchased the remaining 24% of ROO
        Media
        Europe Limited that it did not own for $90.
 
 On
        October 1, 2006, ROO Group, through a majority-owned subsidiary (the “Acquiring
        Subsidiary”), entered into an agreement to acquire the business, assets and name
        from an Australian based interactive marketing agency. As consideration for
        the
        business, assets and name, 24.5% of the issued shares of the Acquiring Entity
        were transferred to the shareholders of the agency. Also, a cash amount of
        $250
        was paid to the shareholders of the agency in December 2006. In addition
        to this
        amount, 50% of any further payment as detailed in Note 11 will be made to
        the
        shareholders of the agency less the cash amount of $250.
 
 The
        following table summarizes the estimated fair values of the assets acquired
        and
        liabilities assumed at the date of acquisition (October 1, 2006).
  Current
                  assets
              
              $
              43Property,
                  Plant and Equipment
              
              
              55Intangible
                  Asset - Customer List
              
              
              262Total
                  Assets Acquired
              
              
              360Current
                  Liabilities
              
              
              163Total
                  Liabilities Assumed
              
              
              163**Net
                  Assets Acquired**
              
              $
              197
 
 In
        2007,
        the “Acquiring Subsidiary” changed its name to Sputnik Agency Pty.
        Ltd.
 
 On
        October 1, 2006, The Reality Group Pty Ltd. (“Reality Group”), a 51% owned
        subsidiary of the Company, and the shareholders of Cooee Melbourne Pty Ltd.
        (“Cooee”) entered into an agreement, pursuant to which Reality Group acquired
        the business and assets of Cooee. Cooee is a provider of integrated
        communication solutions, including direct marketing, internet advertising
        and
        sales promotion. As consideration for the business and assets of Cooee, Reality
        Group will make a cash payment monthly for a period of 21 months to the
        shareholders of Cooee, subject to adjustment as follows. For the first six
        months, a payment of approximately $20 will be paid to Cooee at the conclusion
        of the month. After every six months, the amount due and payable to Cooee
        will
        be reconciled against revenue earned and paid from Cooee’s clients. At the end
        of each six month period, a reconciliation statement will be prepared and
        provided by Reality Group to Cooee. In the event that revenue from the six
        month
        period exceeds $394 (based on the pro rata expectation of a $788 annualized
        revenue) or is less than $394, the variance percentage between the expected
        $394
        revenue shall be either adjusted by way of deduction or an increase in respect
        of the fee paid in the following six month period in equal
        installments.
 
 The
        operations of Cooee, which are included in the operations of Reality Group
        during the period from October 1, 2006 to December 31, 2007, have been included
        in the consolidated statements.
 
 In
        November 2007, it was mutually agreed to terminate the Cooee acquisition
        agreement and settle the remaining payments. As final settlement of all payments
        per this agreement, $24 has been accrued and recorded in Accrued Expenses.
        An
        impairment loss of $86 was recorded during the year ended December 31, 2007
        related to the net book value of customer lists purchased (See note
        8).
  F-12
 
 **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(4)
        Acquisitions (Continued)***
 
 On
        November 21, 2006, we issued 100,000 shares of our common stock in full and
        final settlement of the milestones, as detailed in the agreement to purchase
        Undercover Media Pty Ltd. The shares were valued at $260, based on the closing
        trading value on the previous day of $2.60. The value of these shares was
        originally recorded as an intangible asset (See Note 8).
 
 On
        January 22, 2007, we entered into an Asset Purchase Agreement (the "APA")
        with
        RJM Price & Company, Inc. (“RJM”) and Robertson Price. Pursuant to the APA,
        we acquired all of the properties, rights and assets constituting the business
        of RJM, which operates under the name MyVideoDaily (“MVD”). The APA provided for
        consideration of up to an aggregate of $1,350, of which $250 was paid upon
        the
        execution of the APA. The APA included milestone payments, which provided
        certain defined targets and conditions to be met. Pursuant to the terms of
        the
        APA, we also entered into an employment agreement with Mr. Price. On
        May
        17, 2007, RJM was issued 92,379 shares of our common stock valued at $250,
        for
        achieving the first quarter milestone.
 
 On
        October 18, 2007, we entered into a settlement agreement with RJM and Robertson
        Price, resolving all payment and other obligations among the parties arising
        out
        of the APA dated as of January 22, 2007. Pursuant to the agreement, ROO paid
        RJM
        $500 on October 23, 2007, and RJM delivered to ROO 92,379 shares of ROO common
        stock, which had been previously issued by ROO. These shares have been canceled
        and the value recorded on May 17, 2007 has been reversed. This agreement
        is the
        full and final settlement of any outstanding items or amounts related to
        the
        APA. The $250 paid upon execution of the APA was recorded as goodwill. The
        $500
        paid upon the execution of the settlement agreement was recorded as settlement
        of MVD agreement in the Statement of Operations. As of December 31, 2007,
        the
        goodwill of $250 was impaired and recorded as impairment of goodwill expense
        in
        the Statement of Operations (See Note 8).
 
 On
        February 16, 2007, Wurld Media, Inc. (‘Wurld Media’) issued a promissory note to
        the Company in the principal amount of $1,500. Pursuant to the promissory
        note
        the Company advanced to Wurld Media the sum of $800, and in its sole discretion
        may make additional advances of up to, but not exceeding $1,500. The promissory
        note accrues interest at the annual rate of 8% and in the event of a default
        will accrue interest at the annual rate of 10%. The promissory note is secured
        by all of the assets of Wurld Media. The promissory note is due and payable
        upon
        the earlier of (i) the closing of the acquisition of the assets of Wurld
        Media,
        in which event, the loan amount will be credited against the purchase price
        of
        the assets or (ii) November 26, 2007. This promissory note has been paid
        in full
        and is included in the assets of Wurld Media acquired. The loan made to Wurld
        Media was recorded as a component of “Investment in assets acquired from Wurld
        Media” on the Statement of Cash Flows.
 
 On
        June
        15, 2007, Gregory Kerber issued a promissory note to the Company in the
        principal amount of $400. Pursuant to the promissory note, the Company advanced
        to Mr. Kerber the sum of $394. The promissory note accrues interest at the
        rate
        of 8% and in the event of a default will accrue interest at the rate of 10%.
        The
        promissory note is secured by certain of his shares in Wurld Media. The
        promissory note is due and payable upon demand by the Company. This promissory
        note has been paid in full and is included in the assets of Wurld Media
        acquired. The loan made to Mr. Kerber was recorded as a component of “Investment
        in assets acquired from Wurld Media” on the Statement of Cash
        Flows.
 
 On
        July
        12, 2007, ROO HD, Inc. (“ROO HD”), a wholly owned subsidiary of ROO Group,
        entered into an asset purchase agreement with Wurld Media, Gregory Kerber
        and
        Kirk Feathers. Wurld Media specializes in the peer-to-peer distribution of
        music, movies, games, TV shows and other audio, video, and audio/video
        content.  The
        acquisition was completed and closed on July 17, 2007. The assets acquired
        by
        ROO HD, pursuant to the agreement, included: (i) certain fixed assets,
        equipment, fixtures, and leasehold improvements located at Wurld Media’s office
        in Saratoga Springs, New York; (ii) certain intellectual property of Wurld
        Media; (iii) the customer logs, location files and records of Wurld Media,
        (iv)
        all claims, entitlements, rebates, refunds, settlements, awards or other
        rights
        related to the assets acquired by ROO HD.  The
        consideration for the assets acquired by ROO HD was an aggregate of $4,320,
        consisting of $3,174 in cash, $38 in accrued liabilities related to the purchase
        and the issuance of 655,500 shares of our common stock valued on July 17,
        2007
        at $1.69 per share or $1,108. The total purchase consideration was allocated
        to
        the assets acquired at their estimated fair values as of the date of
        acquisition, as determined by management, as $3,180 of software and $1,140
        of
        fixed assets.
 
 At
        the end of December 2007, we decided to abandon the development and assets
        of
        the peer-to-peer business that we acquired
        in the asset purchase agreement with Wurld Media (See Note 8).
  F-13
   **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(5)
        Related Party Transactions***
 
 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. This eliminates 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. This eliminates in consolidation.
 
 ***(6)
        Property and Equipment***
 
 Property
        and equipment at December 31, 2007 consists of the following:
 
 Assetsunder
                  Capital
              
              Motor
              
              Computer
              
              Leasehold
              
              Furniture
                  and
              
              OfficeLease
              
              Vehicles
              
              Software
              
              Improvements
              
              Fixtures
              
              Equipment
              
              TotalCost
              
              $
              290
              
              $
              61
              
              $
              169
              
              $
              536
              
              $
              268
              
              $
              1,208
              
              $
              2,532Accumulated
                  Depreciation
              
              
              (197
              )
              
              (51
              )
              
              (103
              )
              
              (141
              )
              
              (60
              )
              
              (673
              )
              
              (1,225
              )Net
              
              $
              93
              
              $
              10
              
              $
              66
              
              $
              395
              
              $
              208
              
              $
              535
              
              $
              1,307Estimated
                  useful life
              
              
              7
                  years
              
              
              6
                  years
              
              
              2
                  years
              
              
              5
                  years
              
              
              5
                  years
              
              
              4
                  years
  Depreciation
        expense (including amortization of capital lease assets) amounts to $902
        and
        $173 for the years ended December 31, 2007 and 2006, respectively.
  F-14
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(7)
        Goodwill and Intangible Assets***
 
 As
        of
        December 31, 2007, goodwill totals $1,123 and is comprised of $1,033, which
        represents the excess of acquisition costs over the fair value of net assets
        of
        the Reality Group acquisition at the date of acquisition of $1,990 less $957,
        which represents the buyback of shares which was recorded as a reduction
        of
        goodwill. Also included in goodwill is $90 related to the acquisition of
        24% of
        ROO Media Europe Limited, which was owned by a third party.
 
 At
        December 31, 2007 intangible assets include the following:
 
 Customer
                  List
              
              Software
              
              Domain
                  NameCost
              
              $
              931
              
              $
              1,320
              
              $
              54Less
                  Amortization
              
              
              (678
              )
              
              (815
              )
              
              (24
              )Totals
              
              $
              253
              
              $
              505
              
              $
              30
  Estimated
        future annual amortization expense as of December 31, 2007 is as
        follows:
 
 Customer
                  List
              
              Software
              
              Domain
                  Name2008
              
              $
              134
              
              $
              265
              
              $
              112009
              
              
              70
              
              
              226
              
              
              112010
              
              
              49
              
              
              14
              
              
              8Totals
              
              $
              253
              
              $
              505
              
              $
              30
 
 The
        customer lists were acquired as a component of the Reality Group and Sputnik
        acquisitions and are being amortized over a 4 year period on a straight line
        basis. The software is being amortized over a 5 year period on a straight
        line
        basis. The Company purchased the domain name www.roo.com in
        November 2005 and it is being amortized over a 5 year period on a straight
        line
        basis.
  F-15
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
 
 ***(8)
        Impairment of Assets***
 
 At
        the
        end of December 2007, we decided to abandon the development and assets of
        the
        peer-to-peer business that we acquired
        in the Asset Purchase Agreement with Wurld Media, which was comprised of
        software and property and equipment. Accordingly, we evaluated the ongoing
        value
        of these assets. Based on this evaluation, we determined that software with
        a
        carrying amount of $2,783 was impaired; this is recorded as loss on impairment
        of intangible assets in the Statement of Operations. Based on this evaluation,
        we also determined that property and equipment with a carrying amount of
        $855
        was impaired and we wrote it down by $788; this amount was recorded as loss
        on
        impairment of property and equipment in the Statement of Operations. Subsequent
        to December 31, 2007, $33 of this property and equipment was sold to a third
        party for book value, and no gain or loss was recorded on the sale.
 
 At
        the
        end of 2007, we determined that goodwill recorded when we acquired the
        properties, rights and assets pursuant to the Asset Purchase Agreement with
        MVD
        was impaired. We evaluated the goodwill for impairment by comparing the
        estimated fair value, which was based on the present value of estimated future
        cash flows to be generated to the carrying amount of $250. The estimated
        future
        cash flows were determined to be negligible based on actual results in 2007.
        Based on this evaluation, we determined that goodwill was impaired and we
        recorded $250 as a loss on impairment of goodwill in the Statement of
        Operations.
 
 At
        the
        end of November 2007, we decided to stop the production of content and terminate
        the content production department. We have and will continue to license content
        from outside sources. Accordingly, we evaluated the ongoing value of the
        content
        recorded as an asset. Based on this evaluation, we determined that content
        with
        a carrying amount of $255 was impaired; this amount was recorded as impairment
        of intangible assets in the Statement Operations.
 
 In
        November 2007, it was
        mutually agreed to terminate the agreement between Reality Group and Coeee
        and
        settle the remaining payments in the agreement due to the loss of the customers
        acquired from Cooee. Accordingly, we evaluated the ongoing value of these
        assets. Based
        on
        this evaluation, we determined that customer lists with a gross carrying
        amount
        of $220 and a net carrying amount of $86 was impaired; this is recorded as
        impairment of intangible assets in the Statement Operations.
 
 ***(9)
        401(k) Plan***
 
 Beginning
        in 2007, the Company offered its eligible U.S. employees the opportunity
        to
        participate in a defined contribution retirement plan qualifying under the
        provisions of Section 401(k) of the Internal Revenue Code (“the 401(k) Plan”).
        Each employee is eligible to contribute, on a tax-deferred basis, a portion
        of
        annual earnings not to exceed certain federal income tax limitations. The
        401(k)
        Plan also includes company matching contributions for all participants making
        elective deferrals. The Company makes matching contributions for all eligible
        employees who contribute to the 401(k) Plan an amount equal to the salary
        deferrals that do not exceed 3% of their compensation. The Company has accrued
        $62 for matching contributions as of December 31, 2007 and will make the
        contribution by March 15, 2008 as required by the 401(k) Plan. The Company
        ceased matching contributions to the 401(k) Plan effective January 1,
        2008.
  F-16
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(10)
        Income Taxes***
 
 Income
        taxes consisted of the following:
 
 Years
                  ended December 31,2007
              
              2006Current:Australian
                  Federal Tax expense (benefit)
              
              $
              114
              
              $
              (84
              )Non-Current:Australian
                  Federal Tax expense (benefit)
              
              
              11
              
              
              (8
              )***Totals***
              
              $
              125
              
              $
              (92
              )The
                  reconciliation of reported income tax expense to the amount of
                  income tax
                  expense that would result from applying Australian federal tax
                  rates to
                  pretax income is as follows:Statutory
                  Federal Income Tax (benefit)
              
              $
              16
              
              $
              (138
              )Other
                  (Non Allowable Deductions)
              
              
              109
              
              
              46***Totals***
              
              $
              125
              
              $
              (92
              )The
                  components of deferred tax assets and liabilities as of December
                  31, 2006
                  for Australian federal taxes, are as follows:Deferred
                  Tax Assets:Provision
                  Accounts
              
              $
              89Depreciation
              
              
              (7
              )Other
                  Liabilities
              
              
              21Tax
                  Loss Carryforward
              
              
              160***Total***
              
              $
              263
  At
        December 31, 2007, we have approximately $37,500 in U.S. federal net operating
        tax loss carryforwards expiring at various dates through 2027. The Tax Reform
        Act of 1986 enacted a complex set of rules which limits a company's ability
        to
        utilize net operating loss carryforwards and tax credit carryforwards in
        periods
        following an ownership change. These rules define an ownership change as
        a
        greater than 50 percent point change in stock ownership within a defined
        testing
        period which is generally a three-year period. As a result of stock issued
        by us
        from time to time, including the stock issued related to the conversion of
        outstanding warrants, or the result of other changes in ownership of our
        outstanding stock, we may have experienced an ownership change and consequently
        our utilization of net operating loss carryforwards could be significantly
        limited. A 100% valuation allowance has been established due to the uncertainty
        about the realization of the deferred tax asset.
  F-17
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(11)
        Commitments and Contingencies***
 
 *Leases* - The
        Company is a party to a number of non-cancelable lease agreements primarily
        involving office premises and computer equipment. Computer equipment leases
        are
        generally for three year periods. There are five leases of office premises.
        The
        first is in New York, New York, United States and is for three years and
        ten
        months ending in November 2008 with no renewal options. The second is in
        South
        Melbourne, Victoria, Australia and is for a five year period ending in July
        2011. The third is in Windsor, Victoria, Australia and is for eight years
        ending
        in June 2013. The fourth is in Clifton Park, New York, United States and
        is for
        five years ending in July 2012. The fifth is in London, United Kingdom and
        is
        for five years ending in August 2012.
 
 The
        following is a schedule of future minimum payments under capital leases and
        operating leases, and obligations under capital leases (present value of
        future
        minimum rentals) as of December 31, 2007.
  Periods
                  January to December unless stated otherwise
              
              Capital
              
              Operating
                  Property
              
              Total2008
              
              $
              129
              
              $
              1,366
              
              $
              1,4952009
              
              
              104
              
              
              1,201
              
              
              1,3052010
              
              
              90
              
              
              1,223
              
              
              1,3132011
              
              
              83
              
              
              986
              
              
              1,0692012
              
              
              —
              
              
              448
              
              
              448Thereafter
              
              
              —
              
              
              54
              
              
              54Total
                  Minimum Lease Payments
              
              
              406
              
              $
              5,278
              
              $
              5,684Less
                  Amount Representing Interest
              
              
              (92
              )***Total
                  Obligations Under Capital Leases***
              
              $
              314
  Rent
        expense amounted to $1,170 and $743 for the years ended December 31, 2007
        and
        2006, respectively.
  F-18
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(11)
        Commitments and Contingencies (continued)***
 
 *Contingent
        acquisition -* A
        contingent liability has been calculated based on the agreement between ROO
        Broadcasting Limited, a wholly owned subsidiary of the Company and the holders
        of the 49% non-controlling interest in Sputnik on October 28, 2005. Subject
        to
        the conditions described below, the Company may issue additional shares
        ("Additional Shares") of common stock to those holders, issuable after December
        31, 2007, calculated as follows:
 
 51%
        of
        [(1 * Sputnik Revenue) + (4 * Sputnik Earnings)]
 Average
        ROO Share Price
 
 where:
        "Sputnik Revenue" means the billings less all media and third party supplier
        costs of Sputnik for the twelve month period ending December 31, 2007; "Sputnik
        Earnings" means the earnings of Sputnik before tax and after deduction of
        interest and all other expenses for the twelve month period ending December
        31,
        2007; and "Average ROO Share Price" means the average price of the Company's
        common stock during the final five trading days of December 2007.
 
 If
        the
        Company does not issue the computed number of Additional Shares, ROO
        Broadcasting Limited’s 51% ownership of Sputnik will be reduced on a pro rata
        basis by the difference between the computed number of Additional Shares
        and the
        actual number of Additional Shares issued. If the Company does not issue
        any
        Additional Shares, ROO Broadcasting will relinquish all of its 51% ownership
        of
        Sputnik. However, if the Sputnik Earnings are greater than 15% of the Sputnik
        Revenue and the number of Additional Shares, to be issued are less than 4.9%
        of
        the then current outstanding shares of common stock of the Company, the Company
        must proceed with issuing the maximum number of Additional Shares in accordance
        with the above formula. As of December 31, 2007, neither of these conditions
        was
        met and therefore we are under no obligation to complete the transaction
        (See
        Note 17 for more information). The contingent liability calculated is
        approximately $3,000 as of December 31, 2007 based on actual results for
        the
        year ended December 31, 2007.
  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
        $300,000. 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 immediately payable to effect the purchase of Kamera Content
        AB by
        the Company is US$2.5 million upon closing of the acquisition. As additional
        consideration, according to the Kamera LOI, the Company will issue to Kamera
        common shares upon closing of the acquisition and at future dates based on
        certain timing and performance related benchmarks and thresholds. All the
        common
        stock payments considered under the Kamera LOI may be paid in cash instead,
        at
        the election of the Company.
 *Employment
          Agreements -* On
          December 18, 2007, ROO Group, Inc. the Company entered into an Executive
          Management Agreement (the “Management Agreement”) with KIT Capital Limited
          (“KIT”) for a term commencing on January 9, 2008 and terminating on January 9,
          2011, unless sooner terminated or mutually extended. KIT 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 Agreement
          provides for compensation as follows: (i) $50,800 monthly, (ii) signing
          incentive payment of $68,500, (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 million. The Management Agreement
          provides
          that upon termination of the Agreement or after the expiration date for
          any
          reason except cause (as defined in the Agreement), the Company shall pay
          KIT, in
          addition to any other payments due hereunder, a cash severance payment
          equal to
          the greater of (i) the total amount paid to KIT 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. ROO
        HD
        believes the suit is without merit and will defend it 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 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. On February 21, 2008, defendants
        moved to dismiss the complaint, and the motion will be fully briefed to the
        Court by April 24, 2008, whereupon the Court shall rule, either with or without
        first taking oral argument. We believe the suit is without merit and will
        defend
        it vigorously.
  F-19
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(12)
        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.
 
 On
        June
        30, 2006, ROO Group, Inc. (the “Company”) issued 500,000 shares of Series A
        Preferred Stock to an employee. These shares were valued at the equivalent
        number (1:25) of common shares based upon the fair market value as at the
        issue
        date at $64. Such amount is included in "Non-Cash Compensation". These shares
        were issued as a performance bonus for, among other things, the employee’s role
        in helping expand and grow the Company’s business operations.
  ***(13)
        Stock Issuances***
 
 On
        July
        28, 2006, the Company issued 50,000 warrants at an exercise price of $2.00
        to
        Highbridge International LLC for Investor Relations services. These warrants
        were valued under the Black-Scholes method as $129.
 
 On
        August
        18, 2006, the Company entered into a Common Stock Purchase Agreement pursuant
        to
        which the Company sold 4,420,000 shares of its common stock and 2,210,000
        warrants to purchase shares of common stock to accredited investors, a number
        of
        which are existing shareholders of the Company. The offering closed on August
        23, 2006. The warrants were valued under the Black-Scholes method as $2,658.
        The
        shares of common stock were sold at a price of $1.25 per share resulting
        in
        gross proceeds of $5,525. Each investor was issued warrants to purchase a
        number
        of shares of common stock equal to 50% of the number of shares of common
        stock
        purchased. The warrants have an exercise price of $2.00 per share and a term
        of
        five years.
 
 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
        sold in the private placement on or prior to 30 days following the closing
        date.
        If the registration statement was not filed within such time or if the
        registration statement was not declared effective within 120 days following
        the
        closing date, the Company would be required to pay liquidated damages to
        the
        investors equal to 1% of the dollar amount of their investment for each calendar
        month or portion thereof that the registration statement is not filed or
        declared effective. The Company failed to fulfill its obligations to timely
        file
        the Registration Statement and keep it effective and owes approximately $216
        in
        liquidated damages to the investors, this amount has been accrued and is
        included in accrued expenses and registration rights liquidated
        damages.
  F-20
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(13)
        Stock Issuances (Continued)***
 
 Savvian
        LLC, Burnham Hill Partners, a division of Pali Capital, Inc. and Brimberg
&
Co., registered broker-dealers, acted as placement agents for the sale of
        the
        Company's common stock. In connection with the closing, the Company paid
        the
        placement agents a cash fee of $461. In addition, the Company issued the
        placement agents 801,369 warrants to purchase shares of common stock with
        an
        exercise price of $1.25 per share for a period of five years and were valued
        under the Black-Scholes-Merton method as $1,057. The net proceeds of $4,985
        were
        received after deducting placement agent fees of $461, legal fees of $74
        and
        escrow agent fees of $5. The transaction was exempt from registration
        requirements pursuant to Rule 506 of Regulation D promulgated under the
        Securities Act of 1933, as amended.
 
 On
        November 14, 2006, the Company entered into a securities purchase agreement
        pursuant to which the Company sold an aggregate of 8,378,377 shares of the
        Company’s common stock and warrants to purchase an additional 2,513,513 shares
        of the Company’s common stock to accredited investors resulting in gross
        proceeds of $15,500. The offering closed on November 16, 2006. The unit price
        of
        the common stock and corresponding warrant was $1.85. The warrants have an
        exercise price of $3.00 per share and a term of five years. The warrants
        were
        valued under the Black-Scholes-Merton method as $2,943. At any time at which
        the
        market price of the Company's Common Stock exceeds $5.00 for 10 trading days
        during any 20 consecutive trading days, the Company may elect to call the
        warrants, provided that, the shares underlying such warrants are registered
        pursuant to a registration statement.
 
 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
        sold in the private placement on or prior to 30 days following the closing
        date.
        If the registration statement is not filed within such time, the Company
        must
        pay liquidated damages to the investors equal to 1% of the dollar amount
        of
        their investment for each calendar month or portion thereof that the
        registration statement is not filed, up to a maximum of 10%. Also, if the
        registration statement is not declared effective within 120 days following
        the
        closing date, the Company must pay liquidated damages to the investors equal
        to
        1% of the dollar amount of their investment for each calendar month or portion
        thereof that the registration statement is declared effective, up to a maximum
        of 10%. The Company failed to fulfill its obligations to timely file the
        Registration Statement and keep it effective and owes approximately $254
        in
        liquidated damages to the investors, this amount has been accrued and included
        in accrued expenses and registration rights liquidated damages.
 
 Merriman
        Curhan Ford & Co. and Brimberg & Co., financial advisors and registered
        broker-dealers, acted as placement agents for the sale of the Company's common
        stock. In connection with the closing we paid the placement agents a cash
        fee of
        an aggregate $930. In addition, the Company issued to the placement agents
        326,757 warrants to purchase shares of our common stock with an exercise
        price
        of $3.00 per share exercisable for a period of five years and were valued
        under
        the Black-Scholes-Merton method as $383. In connection with the November
        2006
        Financing, we received net proceeds of $14,493 after payment of placement
        agent
        fees of $930, legal fees and expenses of $72, and escrow agent fees of $5.
 
 On
        November 21, 2006, we issued 100,000 shares of common stock in full and final
        settlement of the milestones detailed in the Undercover Media Purchase
        Agreement. The shares were valued at $260, based on the closing trading value
        of
        the shares on the previous day of $2.60. The value of these shares was recorded
        as an intangible asset.
 
 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.
  F-21
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(13)
        Stock Issuances (Continued)***
 
 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.
  We
        have
        granted News Corp piggy-back registration rights in connection with the shares
        issuable pursuant to the Agreement.
 
 On
        May 4,
        2007, we entered into a securities purchase agreement pursuant to which the
        Company sold an aggregate of 10,000,000 shares of our common stock and warrants
        to purchase an additional 3,000,000 shares of our common stock to accredited
        investors resulting in gross proceeds of $25,000. The offering closed on
        May 10,
        2007. The unit price of the common stock and corresponding warrant was $2.50.
        The warrants have an exercise price of $4.50 per share and a term of five
        years.
        The warrants were valued under the Black-Scholes method as $5,117. At any
        time
        at which the market price of our Common Stock exceeds $6.00 for 10 trading
        days
        during any 20 consecutive trading days, we may elect to call the warrants,
        provided that, the shares underlying such warrants are registered pursuant
        to a
        registration statement. We agreed to prepare and file a registration statement
        with the Securities and Exchange Commission registering the resale of the
        shares
        of common stock sold in the private placement on or prior to 30 days following
        the closing date. If the registration statement is not filed within such
        time,
        the Company must pay liquidated damages to the investors equal to 1% of the
        dollar amount of their investment for each calendar month or portion thereof
        that the registration statement is not filed, up to a maximum of 10%. The
        registration statement was filed on June 11, 2007. Also, if the registration
        statement is not declared effective within 120 days following the closing
        date,
        the Company must pay liquidated damages to the investors equal to 1% of the
        dollar amount of their investment for each calendar month or portion thereof
        that the registration statement is declared effective, up to a maximum of
        10%,
        which increases to 18% if the registration statement is not declared effective
        within two years following the closing date. The registration statement was
        declared effective on August 14, 2007. Merriman Curhan Ford & Co. and
        Brimberg & Co., registered broker-dealers, acted as placement agents for the
        sale of the Company’s common stock. In connection with the May 2007 Financing,
        we received net proceeds of $23,875 after payment of placement agent fees
        of
        $1,000, legal fees and expenses of $120, and escrow agent fees of
        $5.
 
 In
        2007,
        the Company failed to fulfill its obligations to keep the registration
        statements effective related to the August 23, 2005, October 20, 2005 and
        December 28, 2005 private placements and owes approximately $393 in liquidated
        damages to these investors. This amount has been accrued and is included
        in
        accrued expenses and registration rights liquidated damages.
  F-22
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ****  ***(13)
        Stock Option Plan***
 
 On
        November 16, 2006 our Board of Directors of ROO Group, Inc. increased the
        number
        of shares which may be issued under the 2004 Stock Option Plan to an aggregate
        of 8,000,000 shares of common stock.
 
 On
        April
        3, 2007 our Board of Directors of ROO Group, Inc. increased the number of
        shares
        which may be issued under the 2004 Stock Option Plan to an aggregate of
        12,000,000 shares of common stock.
 The
        Plan
        is administered by the Board of Directors of ROO Group (the "Board") or by
        a
        committee to which administration of the Plan, or of part of the Plan, may
        be
        delegated by the Board (in either case, the "Administrator"). Options granted
        under the Plan are not generally transferable by the optionee except by will,
        the laws of descent and distribution or pursuant to a qualified domestic
        relations order, and are exercisable during the lifetime of the optionee
        only by
        such optionee. Options granted under the Plan vest in such increments as
        is
        determined by the Administrator. To the extent that options are vested, they
        must be exercised within a maximum of three months of the end of optionee's
        status as an employee, director or consultant, or within a maximum of 12
        months
        after such optionee's termination by death or disability, but in no event
        later
        than the expiration of the option term. The exercise price of all stock options
        granted under the Plan shall be determined by the Administrator. With respect
        to
        any participant who owns stock possessing more than 10% of the voting power
        of
        all classes of ROO Group's outstanding capital stock, the exercise price
        of any
        incentive stock option granted must equal at least 110% of the fair market
        value
        on the grant date.
  Under
        SFAS No. 123(R) the fair value of each option grant is estimated on the date
        of
        grant using the Black-Scholes option-pricing model with the following
        weighted-average assumptions:
  Year
                  Ended December 31, 2007
              
              Year
                  Ended December 31, 2006Expected
                  life (in years)
              
              
              4.78
              
              
              2.77Risk-free
                  interest rate
              
              
              4.54
              %
              
              4.74
              %Volatility
              
              
              89
              %
              
              96
              %Dividend
                  yield
              
              
              0
              %
              
              0
              %
  A
        summary
        of the status of stock option awards as of December 31, 2007 and changes
        during
        the year then ended is presented below:
 
 **Shares**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual**
                **Life
                  (Years)**
              
              **Intrinsic**
                **Value**Outstanding
                  at December 31, 2005
              
              
              1,783,050
              
              $
              2.00Granted
              
              
              4,284,500
              
              
              2.36Exercised
              
              
              —
              
              
              —Cancelled,
                  expired, or forfeited
              
              
              (419,695
              )
              
              2.23Outstanding
                  at December 31, 2006
              
              
              5,647,855
              
              
              2.25Granted
              
              
              4,110,000
              
              
              3.77Exercised
              
              
              —
              
              
              —Cancelled,
                  expired, or forfeited
              
              
              (3,277,271
              )
              
              2.28Outstanding
                  at December 31, 2007
              
              
              6,480,584
              
              
              3.20
              
              
              
              
              
              3.84
              
              $
              0Exercisable
                  at December 31, 2007
              
              
              3,207,140
              
              
              2.75
              
              
              
              
              
              3.20
              
              
              0
  The
        weighted-average grant-date fair value of option awards granted during the
        years
        ended December 31, 2007 and 2006 was $2.25 and $1.39, respectively. There
        have
        been no options exercised from inception through December 31, 2007.
  F-23
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(15)
        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.
  **Year
                  ended****December
                  31,****2007**
              
              **2006****Revenue:**Online
                  Digital Media
              
              $
              9,525
              
              $
              5,361Advertising
                  Agency Business
              
              
              4,404
              
              
              4,407Corporate
              
              
              -
              
              
              -**Total
                  revenue**
              
              $
              13,929
              
              $
              9,768**Operating
                  (loss):**Online
                  Digital Media
              
              $
              (21,920
              )
              $
              (10,271
              )Advertising
                  Agency Business
              
              
              (57
              )
              
              (524
              )Corporate
              
              
              (12,261
              )
              
              (4,120
              )**Total
                  operating (loss) income**
              
              $
              (34,238
              )
              $
              (14,915
              )
  **December
                  31,****2007****Assets:**Online
                  Digital Media
              
              $
              5,049Advertising
                  Agency Business
              
              
              1,887Corporate
              
              
              11,179**Total
                  assets**
              
              $
              18,115
  F-24
  **ROO
        GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Amounts
        in Thousands, Except Share and Per Share Data)**
  ***(16)
        Subsequent Events***
 
 We
        announced on March 17, 2008 that we intend to exercise our right to complete
        the
        purchase of our 51% owned Sputnik subsidiary, and that an agreement had been
        reached in principle to acquire the remaining 49% of Sputnik. The full
        integration of the Companies will include a consolidation of products and
        creative services to address current and future client needs.
  ***(17)
          Subsequent Events (Unaudited) Occurring After the Date of the Report of
          the
          Independent Registered Public Accounting Firm***
  On
              March
              31, 2008 we announced that the Company had executed definitive share
              purchase
              agreements with certain Sputnik shareholders. We expect to effect the
              purchase
              of the remaining Sputnik shares during the quarter ending June 30,
              2008. As
              currently contemplated, the total consideration will be approximately
              $4.6
              million of which net cash to be paid by us to the Sputnik shareholders
              to affect
              this purchase is to be approximately $4 million. Although we are optimistic
              that
              we will complete the purchase of Sputnik according to the key terms
              and
              conditions outlined in the Sputnik MOU, there is no guarantee that
              the Sputnik
              purchase will indeed close, that it will close in the form outlined
              in the
              Sputnik MOU or that it will close during the quarter ended June 30,
              2008.
 
 On
              March 30, 2008,
              the
              Company reached negotiated settlements with Robert Petty and Robin
              Smyth,
              restructuring their respective employment agreements, each of which
              involved
              one-time cash severance payments. In exchange for entering into new
              below-market, "at will" employment agreements, Messrs. Petty and Smyth
              will
              receive upfront cash settlements of $675 and $275 respectively,
              as well
              as an aggregate of 8.65 million fully vested warrants to purchase the
              Company's
              common stock, at a strike price equal to $0.133 per share (representing
              the
              3-day weighted average of closing price of the Company's common stock
              prior to
              and including March 28, 2008). These warrants will become exercisable
              in 1/12
              increments on a monthly basis starting six months from March 30, 2008. Mr. Smyth's
              restructured employment agreement involves certain cash and warrant-
              based
              incentives which can be earned-in 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.
 
 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.
  F-25