UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

[_]   TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION

                  FILE NUMBER ________________________________

                                 ROO GROUP, INC.
                 (Name of small business issuer in its charter)

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

                  62 White Street, Suite 3A, New York, NY 10013
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone Number: (646) 352-0260

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

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

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will 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-KSB
or any amendment to this Form 10-KSB. |_|

      State issuer's revenues for its most recent fiscal year. $3,937,488

      The aggregate market value of the voting and non-voting common equity held
by  non-affiliates,  computed by reference to the average bid and asked price of
such common equity as of March 28, 2005, was $3,466,250.81.

      As of March 28, 2005,  the issuer had  197,683,425  outstanding  shares of
Common Stock.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE

      Transitional Small Business Disclosure Format (check one): Yes |_| No |X|

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                Page
                                                                                                ----
                                                  PART I

<S>      <C>                                                                                     <C>
Item 1.  Description of Business .............................................................    1
Item 2.  Description of Property .............................................................   10
Item 3.  Legal Proceedings ...................................................................   10
Item 4.  Submission of Matters to a Vote of Security Holders .................................   10

                                             PART II

Item 5.  Market for Common Equity and Related Stockholder Matters ............................   10
Item 6.  Management's Discussion and Analysis or Plan of Operation ...........................   15
Item 7.  Financial Statements ................................................................   20
Item 8.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure    20
Item 8A. Controls and Procedures .............................................................   21
Item 8B. Other Information ...................................................................   21

                                             PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
             Compliance With Section 16(a) of the Exchange Act ...............................   21
Item 10. Executive Compensation ..............................................................   23
Item 11. Security Ownership of Certain Beneficial Owners and Management ......................   25
Item 12. Certain Relationship and Related Transactions .......................................   26
Item 13. Exhibits ............................................................................   26
Item 14. Principal Accountant Fees and Services ..............................................   29

SIGNATURES ...................................................................................   31
</TABLE>

<PAGE>

                                     PART I

Item 1. Description of Business.

Background

      ROO Group, Inc. ("we," "us" and "our") was incorporated on August 11, 1998
under the laws of the State of Delaware as  Virilitec  Industries,  Inc. We were
formed to license and distribute a line of  bioengineered  virility  nutritional
supplements  designed to enhance human male sperm count and potency. We were not
successful  in  implementing  our  business  plan,  and after  looking  at other
possible products to expand our product line, 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, 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
148,000,000  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  148,000,000   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.  In  connection  with the $62,500
payment to Mr. Roth, ROO Media entered into an agreement to pay such debt within
90 days after the effective date of the merger,  which was December 3, 2003. The
$62,500 debt to Jacob Roth was paid during the first quarter of 2004.

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.  We specialize in
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.  We also
operate a global network of individual  destination  portals under the brand ROO
TV, that enables end users in different  regions  around the world to view video
content over the Internet that is topical, informative, up to date, and specific
to the region in which they  live.  In  conjunction  with our  subsidiaries,  we
currently  service  websites based in Europe,  Australia,  the United States and
South Africa.

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 and its 80% subsidiary Reality Group Pty. Ltd.  ("Reality").
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"),  its 76%-owned  subsidiary  ROO Media Europe Pty Ltd, its wholly
owned subsidiary ROO Broadcasting Limited and its wholly owned subsidiary ROO TV
Pty Ltd. Included in the  consolidation  with Bickhams is Bickhams' wholly owned
subsidiary  VideoDome,  Inc. We provide  topical video content,  including news,
business,  entertainment,  fashion, video games, movies, 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.


                                       1
<PAGE>

      Our media operations management and updating functions are partially based
in Australia and partially in the United  States.  We believe that our Australia
presence  is  beneficial  due to  lower  currency  costs  and  because  the time
differences  between  the  eastern  and  western  hemispheres  allow daily media
content to be processed  during the evening in the United  States and the United
Kingdom and during the daytime in Australia.  As a result,  we believe we have a
strategic cost benefit over our competitors.

      Our  business  plan is to develop a  worldwide  network of  websites  that
utilize our technology and content to broadcast video from individual  websites.
The  network  of  websites  includes  third  party  websites  that  license  our
technology and content as well as our own network of websites, which are branded
as ROO TV. The  network is designed to be similar to  traditional  satellite  or
cable networks that distribute content throughout the world, with the difference
being it is  broadcasted  over the  Internet  rather  than via  television.  Our
technology  platform  allows access to over 5,000 videos that can be viewed on a
daily basis by computer users. The video content  available for viewing includes
topical content such as news, business,  entertainment,  fashion,  music, movies
and travel.  We update the video content and  distribute the content to websites
receiving our services on a daily basis.  We generate  revenue from fees paid by
the websites for our content and technology services and, like traditional media
companies, from advertising across our network of websites.

Operations Strategy

      Our  operations  strategy  for the next  twelve  months is broken into the
following core areas:

      o     Expanding  content database and developing new products based on our
            existing pool of video content for emerging markets such as wireless
            and set top boxes;

      o     Increasing   market   penetration   and  growing  market  share  and
            distribution in the United States, Europe, Asia and Australia;

      o     Expanding  the network of  websites in which we provide  content and
            technology  by  expanding  the ROO TV  network of  websites  to more
            countries,  and  activating  new customers to our content  solutions
            using our direct  sales  force and  resellers  of our  products  and
            services in markets in the United States, Australia,  United Kingdom
            and Asia;

      o     Acquiring  commercially viable companies or businesses that have the
            potential for accelerating or enhancing our business model;

      o     Investing in research  and  development  of  products,  platform and
            technology to offer a wider range of video content and improved user
            experience for users viewing videos from our platform; and

      o     Developing awareness and relationships with advertising agencies and
            advertisers  of  the  benefits  of  advertising  on our  network  of
            websites.

      The  implementation  of our operational  strategies will depend on raising
additional  capital and we cannot be sure that such operational  strategies will
be achieved.  To obtain  funding for our ongoing  operations,  we entered into a
Securities  Purchase  Agreement with four accredited  investors on September 10,
2004 for the sale of (i) $3,000,000 in callable  secured  convertible  notes and
(ii) warrants to purchase 3,000,000 shares of our common stock. See the "Selling
Stockholders"  and "Risk  Factors"  sections of this  prospectus  for a complete
description of the callable secured convertible notes and warrants.

Sales and Marketing

      Our products and services are sold by our direct sales force and appointed
resellers.  Our syndication and video solutions  products are sold by our direct
sales force based in the United States and Australia,  our online advertising is
sold  by our  direct  sales  force  and  through  appointed  interactive  online
advertising agencies.

      Our direct  sales force  targets the  following  market  segments  for our
content  syndication  products:  (1) media and  newspaper  chains;  (2) Internet
service  providers;  and (3) dedicated  vertical  websites such as entertainment
websites that are potential  purchasers of entertainment video content.  Through
our direct sales force and third party advertising agencies, we target potential
advertisers  to  advertise  on our  network  of  websites.  We manage  our sales
database through a customer  relationship  management  system,  which allows for
access and tracking  from any ROO Media sales staff  connected to the  Internet.
Marketing  of our  products  and  services is done  through  traditional  public
relations and web-based marketing.


                                       2
<PAGE>

Technology

      Our proprietary technology platform and infrastructure is largely based in
the United States and is designed to be accessed and  maintained  from satellite
offices  anywhere  in the world via a Virtual  Private  Network  (VPN)  over the
Internet.  The technology  platform has been specifically  designed to provide a
cost effective, robust, scaleable solution to manage and syndicate video content
over the  Internet.  The  platform  architecture  allows for the flexible use of
third party software, hardware and internally developed applications. Components
forming the  platform  are housed with  various  third party  service  providers
located within the United States and Australia.

      The key features of our technology platform include:

      o     Full screen video viewing;

      o     Viewing  of  all  content  via  either  a  narrowband  (Dial  up) or
            broadband connection;

      o     Platform  supporting  Real  Networks  and  Microsoft  Windows  Media
            formats;

      o     Global  delivery and hosting  allowing for video viewing  throughout
            the world by anyone connected to the Internet;

      o     Ability to  program  TV  commercials  to be played  before  selected
            videos on selected web sites;

      o     Secure storage and protection of media files;

      o     Full reporting on videos viewed by type,  date,  country,  web site,
            etc.;

      o     The  ability to present the videos in players  and  templates  which
            match the branding of the multiple web sites on which the content is
            syndicated; and

      o     Central  technology  platform  allowing  videos to be  automatically
            updated across the multiple web sites in which they are displayed.

Speedera Networks Network Services Agreement

      On June 1,  2004,  we  entered  into a  Network  Services  Agreement  with
Speedera Networks Inc.  Speedera  Networks  provides us network services,  which
includes  account setup,  customer  configuration  and  assistance  with content
streaming and download services. We are billed by Speedera Networks based on the
amount of data that is transferred  each month.  The initial term of the Network
Services  Agreement ends May 31, 2005.  Upon expiration of the initial term, the
agreement  automatically  renews for additional  one-year terms unless and until
either  party  notifies the other party in writing of its intent to terminate at
least 60 days prior to the expiration of the then current term. Either party may
terminate the agreement in the event that the other party materially defaults in
performing  their  respective  obligations  under the agreement and such default
continues  uncured for a period of 30 days following  written notice of default,
except that Speedera  Networks may  immediately  terminate the agreement where a
delay in termination would have a material adverse effect on Speedera  Networks.
In addition,  the agreement will  terminate,  effective upon delivery of written
notice  by  either  party  to the  other  party  upon  (i)  the  institution  of
insolvency,  receivership or bankruptcy proceedings or any other proceedings for
the settlement of debts of the other party; (ii) the making of an assignment for
the benefit of  creditors by the other party;  or (iii) the  dissolution  of the
other party.  Further,  we may cancel the agreement at any time for  convenience
upon written notice to Speedera Networks,  in which case we must pay to Speedera
Networks all accrued and unpaid fees as of the  cancellation  date plus an early
cancellation fee.

Intellectual Property

      Through our subsidiary,  VideoDome.com Networks,  Inc., we have the rights
to a  registered  service mark of the name  "VideoDome.com  Network"  (Reg.  No.
2,214,202).  This service mark was registered with the U.S. Patent and Trademark
Office on December 29, 1998.  We do not have any  registered  copyrights  on any
software  and do not have the  rights  to any  other  registered  trademarks  or
service  marks.  A portion of our software is licensed  from third parties and a
large  portion  is  developed  by our own  team  of  developers.  We  rely  upon
confidentiality  agreements  signed  by our  employees,  consultants  and  third
parties to protect our intellectual property.


                                       3
<PAGE>

      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

      Our products and services, including those of our subsidiaries, are broken
into the following core areas:

      ROO  SOLUTIONS.  We utilize our expertise in video  broadcasting  over the
Internet to build customized video solutions for specific  customers or industry
segments. Our platform has been designed to be flexible in accommodating various
opportunities   for  activating  video  for  broadcast  over  the  Internet  and
accommodating  emerging  technologies  such as wireless  devices  (i.e.,  mobile
phones and PDAs) and set top boxes.  The same platform,  or components  thereof,
used by us to run our network of websites can be adapted to suit the  individual
needs of clients with specific  objectives  in mind.  As our profile  within the
market segment increases,  organizations have increasingly  approached us to aid
them in addressing a variety of individual Internet  broadcasting  requirements.
An example is B & T Weekly, a Reed Business Information  publication targeted to
the advertising and marketing industry; we utilize our platform and solutions to
provide a wide range of television  commercials  for the  advertising  industry,
which can be viewed from the B & T Website located at www.bandt.com.au.

      We   recently   launched   a  web  site   targeting   wireless   users  at
www.roomobile.com  which allows wireless users with the Microsoft Windows Mobile
operating system to access and view News, Business  entertainment etc videos via
their wireless devise.

      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  turnkey  solution  whereby the client  receives  the  licensed  video
content it selects,  such as news,  business,  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. We generally receive a base fee per month from the client and a share of
the advertising  revenue generated on the client's  website.  Samples of current
customers for this service include Verizon http://broadbandbeat.verizon.net/ and
Red Nova www.rednova.com, both based in the United States.

      ROO MEDIA ONLINE ADVERTISING NETWORK.  Through our syndication clients, we
have  developed  a network  of web sites  across  which we can sell  advertising
inventory.  Specifically,  we have  developed  and  implemented  an  advertising
platform  specifically  designed to  simultaneously  provide  advertisers with a
targeted  demographic  and  calculated  success,  and  ROO  Media,  our  content
providers  and  our  wholesale   clients  with  a  substantial   and  additional
incremental revenue stream. The advertising  includes traditional banner ads and
television-style 15 second and 30 second commercials, which can be programmed to
play before and after  topical  video clips that are most likely to be viewed by
the  advertisers'  chosen  demographic.  The platform has also been  designed to
allow  for two to  three  minute  advertorials  to be  included  on a  wholesale
client's website,  or as a standalone clip within certain content  categories of
our content bank.  Advertising inventory across our network of web sites is sold
by our direct sales force and through appointed  interactive  online advertising
agents.  Revenue is generated for us every time an  advertising  clip is viewed.
Our  syndication  clients  receive  a  percentage  of  the  advertising  revenue
generated on their websites by our online advertising.


                                       4
<PAGE>

      Our platform provides the ability to:

      o     Program  an  advertisement  to run  only on  selected  web  sites in
            selected countries;

      o     Program a commercial to run a specific  amount of times or between a
            selected range of dates;

      o     Program a commercial to run within a selected content category; and

      o     Provide reports on how many times the advertisement was viewed.

      Recent  advertisers  over our network of websites  utilizing  our instream
advertising have included Microsoft, Apple's Ipod, Vonage and Pfizer.

Acquisitions

Reality Group Pty Ltd.

      On April 30, 2004, we purchased 80% of the issued and  outstanding  common
stock of  Reality  Group  Pty  Ltd.,  a  corporation  formed  under  the laws of
Australia,  from the  shareholders of Reality Group. The  consideration  for the
Reality Group shares was the issuance of an aggregate of 8,360,000 shares of our
common stock. As additional  consideration for the Reality Group shares, we paid
an  aggregate  of  A$200,000 to the Reality  Group  shareholders.  Further,  the
Reality Group shareholders  agreed to cause Reality Group to increase the number
of  directors  on its  Board of  Directors  to allow  us to  appoint  up to four
nominees to its Board.

      The  Reality  Group  shareholders  also  agreed  to grant us an  option to
purchase the remaining 20% of the issued and outstanding common stock of Reality
Group over the next two years.  The terms of the option shall be  negotiated  in
good faith.  Notwithstanding  this,  the option is exercisable by us on July 30,
2004,  January 30, 2005, July 30, 2005 and January 30, 2006, and shall expire on
March 5, 2006. At March 28, 2005 we had not exercised this option.

      Pursuant to the purchase  agreement,  we guaranteed that the Reality Group
shareholders  will be able to sell the  shares  of our  common  stock  that they
received,  subject to the requirements of Rule 144, for greater than or equal to
US$0.30  per  share  for a period  of twelve  months  after  the  Reality  Group
shareholders have satisfied the Rule 144 requirements.  The foregoing  guarantee
was predicated upon the assumption that the Reality Group  shareholders  will be
able to sell the  greater  of (a) 1/4 of their  respective  exchange  shares per
quarter of the guarantee  period or (b) such maximum  number of exchange  shares
permissible  under Rule 144 per quarter of the guarantee  period. If the Reality
Group shareholders do not sell their quarterly  allotment during any one quarter
of the guarantee period,  the guarantee shall not be effective for the number of
shares not sold during that quarter.

      During the  guarantee  period,  the Reality  Group  shareholders  have the
option to buy back an aggregate of 29 Reality  Group  shares,  or such number of
shares as shall  decrease our ownership  percentage in Reality Group to 51%. The
consideration  for such  buy-back  shares shall be 114,000  shares of our common
stock for each  share of Reality  Group  common  stock.  The  earliest  date for
exercising  this  buy-back  provision is September 1, 2004. No such buy-back has
been exercised through March 28, 2005.

      In the event  that the  Reality  Group  shareholders  are not able to sell
their shares of our common stock for greater than or equal to US $0.30 per share
during the guarantee  period,  a share variance shall be determined based on the
difference between (a) the number of exchange shares to be sold multiplied by US
$0.30 per share and (b) the number of exchange  shares to be sold  multiplied by
the closing  sale price of the  exchange  shares on the trading day  immediately
prior to the day that a Reality Group shareholder notifies us of its enforcement
of the  guarantee.  In the event that a Reality Group  shareholder  enforces the
guarantee, we, in our sole discretion, may pay the share variance to the Reality
Group  shareholder  in one of the  following  ways:  (1) in  cash;  (2) we shall
authorize  the escrow agent (as defined in the purchase  agreement) to return to
the Reality Group shareholders on a pro rata basis that amount of shares,  based
on a share valuation of US $20,900 per Reality Group ordinary share,  that shall
constitute the share variance; or (3) if mutually agreeable to the Reality Group
shareholders,  in shares of our common  stock based on the average  closing sale
price of shares of our common  stock  during the  previous 15 trading  days.  To
ensure the guarantee, we agreed to not offer or negotiate,  either in writing or
orally,  the sale of the Reality Group shares or any Reality Group option shares
acquired by us with any other party during the guarantee period.

      If during the guarantee period:  (a) we undergo a voluntary or involuntary
dissolution,  liquidation  or winding  up; (b) our shares of common  stock cease
trading for more than 15 business days; or (c) the quotation of our common stock
is  removed  or  suspended  from  the  Over-the-Counter  Bulletin  Board  for  a
continuous  period of greater than 30 days (other than as a  consequence  of the
quotation of our securities on an  internationally  recognized  stock exchange),
then the following  shall occur:  (1) the Reality Group shares shall revert back
to the Reality Group shareholders;  (2) the shares of our common stock exchanged
for 80% of the  Reality  Group  shares  shall  revert back to us; (3) the option
shall be revoked; and (4) our nominees to the Reality Group's Board of Directors
shall immediately resign.


                                       5
<PAGE>

      Pursuant  to the  terms of the  purchase  agreement,  each  Reality  Group
shareholder agreed to not, unless permitted by our Board of Directors, sell more
than 25% of their exchange shares during any three-month  period for a period of
two years after the effective date of the purchase agreement.  Furthermore, each
Reality Group  shareholders  granted to us a right of first refusal with respect
to the purchase of the Reality Group shareholders'  exchange shares for a period
of one year after the first date on which the  exchange  shares are eligible for
sale by the Reality Group  shareholders in accordance with Rule 144 or any other
applicable legislation,  regulation or listing rule. If we elect to purchase the
shares, such shares shall be purchased at the highest closing sale price for the
period  commencing on the trading day immediately prior to our receipt of notice
of intent to sell from the  Reality  Group  shareholders  until the  trading day
immediately  prior to the date on which we give  notice to the  selling  Reality
Group shareholder of its election to purchase.

      Reality  Group  provides  integrated  communication  solutions,  including
direct marketing,  Internet  advertising and sales promotion.  Reality Group was
formed as a result of the change in direction  of  marketing  with the advent of
the Internet and a need for more accountable,  integrated  advertising.  Reality
Group  believes  that  it is a  pioneer  of  integrated  communication,  with an
emphasis on web-based  solutions and customer  relationship  management  systems
built to manage the inquiries  generated through their web based campaigns.  Its
clients  include Saab  Automobile  Australia,  BP  Australia,  Bob Jane T-Marts,
Tontine, Dennis Family Corporation, Tabaret, Superannuantion Trust of Australia,
Federal Hotels & Resorts, and CityLink.

      To help identify the most effective way to communicate  with each client's
audience, Reality Group created the Information Engine, a proprietary management
tool  that  provides  specific  costs  per  response  for  each  media  channel.
Information Engine allows Reality Group to focus on effective media channels and
eliminate  the rest by  identifying  the  parts of a  client's  budget  that are
working.

Undercover Media Pty Ltd.

      On May 26, 2004, we entered into an asset  purchase  agreement to purchase
the  business  and business  assets of  Undercover  Media Pty Ltd., a Victorian,
Australia  corporation.   The  purchase  price  for  Undercover  Media's  assets
consisted  of  1,000,000  shares of our common  stock.  We also  agreed to issue
additional   shares  of  our  common  stock  upon  Undercover   Media  attaining
performance milestones as follows: (a) upon the commercial launch of a broadband
music  portal  suitable  for  operation as a stand alone site that is capable of
worldwide  syndication,  the  issuance of that number of shares of common  stock
that is equal to the  quotient  of (x) US  $75,000  divided  by (y) the  average
closing sale price of the shares of common stock for the five trading days prior
to such commercial launch; (b) upon the execution of an agreement for the supply
and  worldwide  syndication  of music videos with an aggregate of four  mutually
acceptable  major music labels,  the issuance of that number of shares of common
stock that is equal to the quotient of (x) US $75,000 divided by (y) the closing
sale price prior to the  execution  of the last of the four of such  agreements;
(c) upon the  generation  of at least US $30,000 per month in revenues for three
consecutive months attributable to the company's music subdivision, the issuance
of that number of shares of common stock that is equal to the quotient of (x) US
$75,000  divided by (y) the closing sale price prior to the  determination  that
such revenues have been achieved;  and (d) upon obtaining an aggregate of thirty
video interviews with mutually acceptable  recognized  artists;  the issuance of
that  number of shares of common  stock that is equal to the  quotient of (x) US
$75,000  divided by (y) the  closing  sale price prior to the last of the thirty
interviews.

      Included in the  purchase  is the  www.undercover.com.au  web site,  which
currently  serves  approximately  500,000  visitors  per month with 55% from the
United  States,  18% from  Europe,  7% from  Asia and 20% from  other  countries
throughout the world.  The Undercover  Media website,  through its  relationship
with HMV, clearly displays the link between music content and the sale of music;
the user reads the article or interview  and can then click through to purchase
the artist's CD from HMV's web site.


                                       6
<PAGE>

      Undercover  Media  features   original  music  content  ranging  from  raw
interview footage to propriety editorial content combined with industry released
footage. Undercover Media has served both the music industry and music community
with daily  music news,  reviews and  editorial  bulletins.  Undercover  Media's
clients include  Telstra  Corporation,  AAP and Coca Cola, and its  distribution
partners  include  Google,  VH1, Nova,  Artist Direct and News Now. In addition,
Undercover has a strategic online partnership with HMV for online music sales.

Bickhams Media, Inc.

      On September  10, 2004, we entered into an agreement to purchase of all of
the  outstanding  shares of common  stock of Bickhams  Media,  Inc.  from Avenue
Group, Inc. pursuant to a Stock Purchase Agreement dated September 10, 2004. The
only  business  of  Bickhams  Media,  Inc.  is its  ownership  of  VideoDome.com
Networks, Inc. ("VideoDome"), a California corporation. In consideration for the
purchase,  we agreed to: (1) pay Avenue Group  $300,000  cash;  (2) issue Avenue
Group  4,000,000  shares  of our  common  stock;  and  (3)  guaranty  all of the
obligations of VideoDome.com Networks, Inc. under a promissory note of VideoDome
that was  issued to Avenue  Group in  October  2003 in the  principal  amount of
$290,000.  In addition,  we agreed to issue Avenue Group 3,000,000 shares of our
common  stock in  consideration  for a  termination  letter which shall serve to
terminate a Registration Rights Agreement dated as of November 28, 2003.

      As of November 1, 2004, we entered into an agreement  with Bickhams  Media
and  Daniel and Vardit  Aharonoff  for  Bickhams  Media to  purchase  50% of the
outstanding  common stock of VideoDome.com  Networks,  Inc. Prior to November 1,
2004, Bickhams Media already owned the other 50% of the outstanding common stock
of VideoDome.  As a result of this transaction,  Bickhams Media now owns 100% of
the outstanding  common stock of VideoDome.  Under the agreement,  we agreed to:
(1) issue  5,000,000  shares of our  common  stock to  Daniel  Aharonoff  on the
closing date;  (2) issue an additional  3,000,000  shares of our common stock to
Daniel  Aharonoff  upon meeting  jointly  agreed  milestones;  and (3) pay up to
$220,000 in cash to Daniel Aharonoff upon meeting jointly agreed milestones.

      The jointly  agreed  milestones  are as follows:  (1) upon the  commercial
launch of  VideoDome's  embedded  player and music player,  we agreed to pay Mr.
Aharonoff  $100,000 cash and issue Mr. Aharonoff  1,000,000 shares of our common
stock;  (2) upon the  commercial  launch of a combined  ROO Media and  VideoDome
Media Manager platform,  we agreed to pay Mr. Aharonoff  $100,000 cash and issue
Mr.  Aharonoff  2,000,000 shares of our common stock; and (3) after the combined
platform has delivered a minimum of 50,000,000  video views for two  consecutive
months excluding mini player views, we agreed to pay Mr. Aharonoff $20,000 cash.
On December  21, 2004 the first  milestone  was reached and we issued  1,000,000
shares and $100,000 to Mr. Aharonoff.

      In connection with the agreement,  Mr. Aharonoff agreed not to directly or
indirectly  agree or offer to sell, grant an option for the purchase or sale of,
transfer,  pledge,  assign,  hypothecate,  distribute  or otherwise  encumber or
dispose of the shares of our common  stock  acquired by him under the  agreement
until the  earlier  of: (a) two years from the  respective  issuance(s)  of such
shares; or (b) the date that holders (the "Holders") of certain Callable Secured
Convertible  Notes (the "Notes") and Stock Purchase  Warrants (the  "Warrants"),
issued by us on September  10,  2004,  no longer hold the Notes and the Warrants
and no longer  beneficially  own any shares of our common  stock  issuable  upon
conversion or exercise of the Notes or the  Warrants,  without the prior written
consent of such  Holders of the Notes and the  Warrants.  The Holders  agreed to
waive any adjustment  that otherwise  would have been required to the conversion
and exercise  prices of the Notes and the Warrants due to the issuance of shares
of common stock to Mr. Aharonoff.

      VideoDome is a Los Angeles  based  company that  provides a range of Media
Management  solutions  through its  flagship  5th  generation  ASP  application,
VideoDome  Media  Manager(R).  VideoDome  customers  have direct access to their
individual  accounts,  media  inventory,  customized  media delivery  method and
style, as well as the ability to add, edit,  delete,  schedule & track streaming
media from any Internet  enabled  browser.  Some of VideoDome's  clients include
Kenneth Cole, L'Oreal Cosmetics,  Redken,  Lacome, and Stanley Tools.  VideoDome
provides its media  management  application to these customers which allows them
the  ability  to manage and  publish  video on their web  sites.  The  VideoDome
Publishing  Platform is a database  driven,  web-based  application  that allows
clients  to  upload,  organize  and  publish  streaming  media  through  unified
interface.


                                       7
<PAGE>

      The most current  version of VideoDome Media Manager is Media Manager 4.0,
which offers VideoDome  customers  direct access to their  individual  accounts,
media  inventory,  customized  media delivery  method and style,  as well as the
ability to add, edit, delete, schedule & track streaming media from any Internet
enabled browser.

      The features of Media Manager 4.0 include:

      o     VideoDome Tracker(R) - Generate colorful user reports/statistics and
            find out what your viewing audience is experiencing.

      o     VideoDome  Scheduler(R) - Schedule when you would like certain media
            to be  available  on your  web  site.  o  VideoDome  AutoSense(R)  -
            AutoSense  technology  automatically takes the guess work out of the
            equation by detecting  installed media player & available  bandwidth
            across all media formats.

      o     VideoDome Skin Wizard(R) - Create a compelling  branded media player
            or video portal within minutes using our skin wizard system.

      o     VideoDome  Syndication  Manager(R)  -  Powerful  syndication  module
            allows you to replicate  then  syndicate  streaming  content to your
            partners in a completely controlled environment.

Industry

      We focus on providing technology and content solutions to the emerging and
growing   segment  of   broadcasting   video  over  the  Internet  and  emerging
broadcasting  platforms such as wireless and set top boxes.  Through  technology
advancements and the expansion of broadband services worldwide, the Internet now
enables the viewing of video from a computer  connected  to the  Internet.  This
creates a fundamental change in the way people can view media and transforms the
Internet into a broadcasting platform similar to television and radio platforms.
According to industry  statistics,  Internet access and audio and video use over
the Internet  have grown  substantially  over the past twelve  months.  A recent
study by  Arbitron/Edison  Media Research called Internet and Multimedia 11: New
Media Enters the Mainstream  reported that Internet use in the United States has
grown 5% in the period from January 2003 to July 2003, and that currently 80% of
Americans  have access to the Internet  compared to 48% in July 1999. The weekly
Internet broadcast audience has grown from approximately 16 million Americans in
July 2000 to 30 million in July 2003. Furthermore, in July 2003 more than one in
five consumers (approximately 50 million Americans) have accessed audio or video
over the Internet.  In addition,  a study by AccuStream  iMedia  Research showed
video streams rose by 80.7% in 2004 to 14.2 billion served and video streams are
forecast   to   grow   by   48%   in   2005   to   over   21   billion   served.
http://www.edisonresearch.com/                   Internet%2012%20Web%20cast.htm.
http://www.accustreamresearch.com/products/streaming2007analysis.html

Competition

      The  provisioning and streaming of digital media content over the Internet
is rapidly  becoming a  competitive  industry.  The key barriers to new firms to
enter and compete against  existing  companies  within the digital media segment
are (1) The timeframes 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 topic 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
The FeedRoom (www.feedroom.com), which provides a destination service similar to
that of ROO TV. 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; and Loudeye Corporation, a service provider facilitating the use of
digital media for live and on-demand applications for enterprise  communication,
marketing and entertainment.  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. We also complete by continuing to expand our media database
and the amount of content categories and videos available.


                                       8
<PAGE>

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.

      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 to further enhance
our distribution and technological  infrastructures  to maintain our competitive
position.  Furthermore,  we are planning to launch a new upgraded version of our
platform offering improved user features and to improve  operational process and
costs for  maintaining  and uploading  our database on a daily basis.  We cannot
assure you, however, that we will achieve our research and development goals.

Employees

      We currently have 57 full time employees and 7 part time employees,  based
in Australia and the United States. We consider our relations with our employees
to be good.


                                       9
<PAGE>

Item 2. Description of Property.

      Our operations are based in a rented  premises  located at 11-15 Buckhurst
St South Melbourne 3205, Victoria,  Australia.  Rent at the Victoria,  Australia
premises is $4,103 per month.  The Australian lease expires on January 30, 2006.
Our  principal  executive  offices  are a rented  premises  located  at 62 White
Street,  3rd Floor,  New York, New York 10013.  Rent at the New York location is
$1,000 per month. The New York office is rented on a month to month basis and is
not subject to a documented lease agreement.

      We also have an office  at 42 Barky  Street,  St.  Kilda,  Victoria  3182,
Australia and an office at 17547 Ventura Blvd.,  Suite 305,  Encino,  California
91316.  Rent for the  Australia  office  is  $10,744  per month and rent for the
California office is $2,768 per month.

Item 3. Legal Proceedings.

      We are not a party to any pending  legal  proceeding,  nor is our property
the subject of a pending legal proceeding, that is not in the ordinary course of
business or otherwise material to the financial condition of our business

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

      On November 4, 2004,  holders of a majority of our  outstanding  shares of
common  stock  acted  by  written  consent  in  lieu  of a  special  meeting  of
shareholders  and adopted an amendment to our  Certificate of  Incorporation  to
authorize the issuance of 20,000,000 shares of blank check preferred stock.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

Market Information

      Our common stock is currently  quoted on the OTC Bulletin  Board under the
symbol  "ROOG." 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 Quarter Ended (1)          High            Low
             ------------------------------ --------------- ---------------
                        Oct. 31, 2001             $2.50          $1.30
                        Jan. 31, 2002             $3.10          $0.70
                       April 30, 2002             $1.20          $0.28
                        July 31, 2002             $0.30          $0.08
                        Oct. 31, 2002             $0.12          $0.04
                         Jan. 1, 2003             $0.07          $0.04
                       April 30, 2003             $0.07          $0.02
                        July 31, 2003             $0.06          $0.03
                        Oct. 31, 2003             $0.09          $0.03
                       March 31, 2004             $0.25          $0.07
                        June 30, 2004             $0.35          $0.07
                       Sept. 30, 2004             $0.24          $0.06
                        Dec. 31, 2004             $0.08          $0.05

      (1) On January 23, 2004,  our Board of Directors  approved a change in our
fiscal year end from July 31 to December 31.


                                       10
<PAGE>

Holders

      As  of  March  28,  2005,   our  shares  of  common  stock  were  held  by
approximately  222  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.

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, 2004.

<TABLE>
<CAPTION>
                      EQUITY COMPENSATION PLAN INFORMATION
-----------------------------------------------------------------------------------------------------------------
Plan category                        Number of securities     Weighted average        Number of securities
                                     to be issued upon        exercise price of       remaining available for
                                     exercise of              outstanding options,    future issuance under
                                     outstanding options,     warrants and rights     equity compensation plans
                                     warrants and rights                              (excluding securities
                                                                                      reflected in column (a)
-----------------------------------------------------------------------------------------------------------------
                                               (a)                     (b)                       (c)
-----------------------------------------------------------------------------------------------------------------
<S>                                        <C>                       <C>                      <C>
Equity compensation plans approved
by security holders                            -0-                     -0-                       -0-
-----------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders               13,700,000                $0.1266                  36,300,000
-----------------------------------------------------------------------------------------------------------------
Total                                      13,700,000                $0.1266                  36,300,000
-----------------------------------------------------------------------------------------------------------------
</TABLE>

      On April 1, 2004 our Board of Directors  adopted a 2004 Stock Option Plan.
Pursuant to the plan, which expires on April 1, 2014, incentive stock options or
non-qualified  options to purchase an aggregate of  50,000,000  shares of common
stock may be issued.  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.


                                       11
<PAGE>

      As of March 28, 2005,  the  following  options have been granted under our
2004 Stock Option Plan:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                     Options Issued Under 2004 Stock Option Plan
-----------------------------------------------------------------------------------------------------------------------------
            Name          Quantity       Exercise         Date Granted                Vest Date           Expiration Date
                                           Price
-----------------------------------------------------------------------------------------------------------------------------
<S>                      <C>               <C>            <C>                     <C>                       <C>
Robert Petty              6,000,000        0.1265         April 8, 2004                 May 8,2004          April 8, 2006
-----------------------------------------------------------------------------------------------------------------------------
Michael Neistat           3,000,000        0.115          April 8, 2004           September 1,2004          April 8, 2006
-----------------------------------------------------------------------------------------------------------------------------
Robin Smyth               3,000,000        0.1265         April 8, 2004                 May 8,2004          April 8, 2006
-----------------------------------------------------------------------------------------------------------------------------
Marc Mulgrum                500,000        0.16           June 29, 2004               June 29,2005          June 29, 2006
-----------------------------------------------------------------------------------------------------------------------------
Tristan Place               500,000        0.115          April 8, 2004                 May 8,2004          April 8, 2006
-----------------------------------------------------------------------------------------------------------------------------
Luke Douglas                200,000        0.115          April 8, 2004                 May 8,2004          April 8, 2006
-----------------------------------------------------------------------------------------------------------------------------
Justin Thompson              50,000        0.16           June 14, 2004               June 14,2005           June 14,2006
-----------------------------------------------------------------------------------------------------------------------------
Stephen Molloy               50,000        0.16           June 14, 2004               June 14,2005           June 14,2006
-----------------------------------------------------------------------------------------------------------------------------
Colin Schmidt                50,000        0.16           June 14, 2004               June 14,2005           June 14,2006
-----------------------------------------------------------------------------------------------------------------------------
Trenn Sayer                 100,000        0.16           June 29, 2004               June 29,2005           June 29,2006
-----------------------------------------------------------------------------------------------------------------------------
Kevin Williams              100,000        0.20           Nov. 26, 2004               Nov. 26, 2004          Nov. 26, 2006
-----------------------------------------------------------------------------------------------------------------------------
Kevin Williams              150,000        0.20           Nov. 26, 2004               Dec. 15, 2004          Nov. 26, 2006
-----------------------------------------------------------------------------------------------------------------------------
Total                    13,700,000
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Recent Sales of Unregistered Securities

      On February 18, 2004, we authorized  the issuance of 148,200 shares of our
common stock to Gersten,  Savage,  Kaplowitz,  Wolf & Marcus, LLP, our corporate
and securities  counsel,  as payment for outstanding  legal fees. The securities
were issued  pursuant  to an  exemption  from  registration  requirements  under
Section 4(2) of the Securities Act of 1933, as amended.

      On March 1, 2004,  we  authorized  the  issuance  of  non-qualified  stock
options to purchase an aggregate  of 6,000,000  shares of our common stock at an
exercise  prices  ranging  between  $.05 and $.10  per  share to two  accredited
investors.  The options were issued for services  provided or to be provided and
expire on March 1, 2006.  The  securities  were issued  pursuant to an exemption
from registration requirements under Section 4(2) of the Securities Act of 1933,
as amended.

      On March 3, 2004,  we  authorized  the issuance of an aggregate of 954,547
shares of our common stock to three accredited  investors in a private placement
conducted by us without the use of a placement agent. We sold the securities for
an  average  of $.0576  per  share.  The  securities  were sold  pursuant  to an
exemption from  registration  requirements  under Section 4(2) of the Securities
Act of 1933, as amended.

      During April 2004 we issued  4,720,833  shares of common stock,  including
325,000 shares issued as compensation for non-cash placement fees netted against
proceeds of shares,  to 17 accredited  investors.  The stock issued for cash was
issued at three price  levels  that were  determined  based on  changing  market
conditions - 333,333 shares were issued at $0.075 per share, 812,500 shares were
issued at $0.08 per share and  3,250,000  shares were issued at $0.10 per share.
The securities were sold pursuant to an exemption from registration requirements
under Section 4(2) of the Securities Act of 1933, as amended.


                                       12
<PAGE>

      In April 2004 we authorized the issuance of 5,000,000 shares of our common
stock to Vertex Capital  Corporation  for marketing  services  provided or to be
provided  until December 31, 2004.  The  securities  were issued  pursuant to an
exemption from  registration  requirements  under Section 4(2) of the Securities
Act of 1933, as amended.

      In April  2004,  we issued an  aggregate  of 9.7 million  incentive  stock
options to  fouraccredited  investors,  including our Chief  Executive  Officer,
Chief Financial Officer and two employees. Of the 9.7 million options, we issued
6 million to our Chief Executive Officer, Robert Petty. Such options vest on May
8, 2004,  expire on May 8, 2006 and are  exercisable at $.1265 per share.  Three
million of the 9.7 million options were issued to our Chief  Financial  Officer,
Robin Smyth.  Such  options  vest on May 8, 2004,  expire on May 8, 2006 and are
exercisable at $.1265 per share. The remaining 700,00 options were issued to two
employees.   These  options  vest  pursuant  to  the  respective   stock  option
agreements,  expire on April 8, 2006 and are exercisable at $0.115 per share. In
addition, we issued 3 million nonqualified stock options to a director of one of
our  subsidiaries.  Such options vest  pursuant to the  respective  stock option
agreements,  expire on April 8, 2006 and are  exercisable  at $0.115  per share.
These  securities  were  issued  pursuant  to  an  exemption  from  registration
requirements under Section 4(2) of the Securities Act of 1933, as amended.

      On April 30, 2004 we completed the  acquisition of 80% of the  outstanding
ordinary shares of The Reality Group Pty Ltd. The  consideration  for the shares
was the issuance of an aggregate of 8,360,000  shares of our common stock to the
Reality Group  shareholders  pro rata based on the Reality  Group  shareholders'
ownership  interest in Reality Group. Each of the Reality Group  shareholders is
an  accredited  investor  as  defined  in Rule  501(a),  promulgated  under  the
Securities  Act of 1933, as amended.  The shares were valued at time of issue at
$0.30 per share as this was the price  that we  guaranteed  the  closing  market
price of our common  stock would be one year from the date of the closing of the
Reality  acquisition.  The securities  were issued pursuant to an exemption from
registration  requirements  under Section 4(2) of the Securities Act of 1933, as
amended.

      During May 2004 we issued 974,996 shares of common stock, including 75,000
shares  issued as  compensation  for  non-cash  placement  fees  netted  against
proceeds of shares, to seven accredited investors. The stock issued for cash was
issued at $0.15 per share.  The securities  were issued pursuant to an exemption
from registration requirements under Section 4(2) of the Securities Act of 1933,
as amended.

      In May 2004 we  authorized  the  issuance  of 37,765  shares of our common
stock to Gersten,  Savage,  Kaplowitz,  Wolf & Marcus,  LLP, our  corporate  and
securities  counsel,  as payment for outstanding legal fees. The securities were
issued  pursuant to an exemption from  registration  requirements  under Section
4(2) of the Securities Act of 1933, as amended.

      During  June  2004  we  issued  986,333  shares  of  common  stock  to two
accredited  investors.  The stock issued for cash was issued at two price levels
that were determined  based on changing market  conditions - 353,000 shares were
issued at $0.10 per share and 633,333 shares were issued at $0.15 per share. The
securities  were sold pursuant to an exemption  from  registration  requirements
under Section 4(2) of the Securities Act of 1933, as amended.

      In June 2004, we issued an aggregate of 750,000 incentive stock options to
five  accredited  investors,  each of whom are  employees.  These  options  vest
pursuant to the respective stock option agreements,  expire on June 29, 2006 and
are  exercisable at $0.16 per share.  The securities  were issued pursuant to an
exemption from  registration  requirements  under Section 4(2) of the Securities
Act of 1933, as amended.

      On June 1, 2004 we completed the  acquisition of the business and business
assets of  Undercover  Media Pty Ltd.  The  consideration  for the  business was
1,000,000  shares of our common stock.  In determining a fair value for the cost
of the  acquisition  of Undercover  Media,  we  considered  the effects of price
fluctuations in the common stock during the period prior to negotiations through
the period  subsequent  to the closing of the  acquisition,  quantities  traded,
issue costs and the like.  We consider the fair value for the stock issued to be
$0.15 per share.  The  securities  were  issued  pursuant to an  exemption  from
registration  requirements  under Section 4(2) of the Securities Act of 1933, as
amended.

      On August 2, 2004, we issued 675,000 shares of common stock and options to
purchase 675,000 shares of common stock a two year life and an exercise price of
$.10 to one  accredited  investor for  aggregate  consideration  of $50,000.  We
relied upon the  exemption  from  registration  provided by Section  4(2) of the
Securities  Act.  The  securities  were  issued  pursuant to an  exemption  from
registration  requirements  under Section 4(2) of the Securities Act of 1933, as
amended.


                                       13
<PAGE>

      On August 25, 2004, we authorized the issuance of 330,557 shares of common
stock to two entities,  Bishopcourt  Investments  Pty Ltd for 165,300 shares and
Corporate  Communications  Group,  Inc. 165,257 shares,  for investor  relations
services  provided  to us.  These  shares  were  recorded at a price of $.10 per
share,  the quoted  price of our common  stock at that time.  This  issuance was
exempt from registration  requirements  under Section 4(2) of the Securities Act
of 1933, as amended.

      On August 25, 2004,  we authorized  the issuance of 440,350  shares to two
accredited  investors as consideration  for the acquisition of 200,000 shares in
A. Cohen & Co Plc a company  listed on the London Stock  Exchange.  A negotiated
price was paid for the shares in A. Cohen & Co Plc at 6.95p which  converted  to
440,350  shares at $.0575 share of our common  stock.  This  issuance was exempt
from registration requirements under Section 4(2) of the Securities Act of 1933,
as amended.

      To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with four accredited  investors on September 10, 2004 for the
sale of (i) $3,000,000 in callable secured  convertible  notes and (ii) warrants
to purchase 3,000,000 shares of our common stock. The investors are obligated to
provide us with an aggregate of $3,000,000 as follows:

      o     $1,000,000 was disbursed on September 13, 2004;

      o     $1,000,000  was  disbursed  on November  26,  2004,  after  filing a
            registration statement covering the number of shares of common stock
            underlying the secured convertible notes and the warrants; and

      o     $1,000,000 was disbursed on February 9, 2005, after effectiveness of
            the registration statement.

      The callable  secured  convertible  notes bear  interest at 8%, mature two
years from the date of issuance,  and are convertible  into our common stock, at
the investors' option, at the lower of:

      o     $0.20; or

      o     65% of the average of the three lowest  intraday  trading prices for
            the common stock on the  Over-The-Counter  Bulletin Board for the 20
            trading days before but not including the conversion date.

      The full principal  amount of the callable secured  convertible  notes are
due upon a default under the terms of the callable  secured  convertible  notes.
Subsequent  to December  31, 2004 but prior to March 28, 2005 a total of $70,080
of these notes were converted into 2,100,000 shares of our common stock.

      The warrants are exercisable until five years from the date of issuance at
a purchase price of $0.10 per share.  The investors may exercise the warrants on
a cashless  basis if the shares of common stock  underlying the warrants are not
then registered pursuant to an effective  registration  statement.  In the event
the investors  exercise the warrants on a cashless basis,  then the Company will
not receive any proceeds.  In addition,  the exercise price of the warrants will
be  adjusted  in the event the  Company  issues  common  stock at a price  below
market,  with  the  exception  of any  securities  issued  as of the date of the
warrants or issued in connection  with the callable  secured  convertible  notes
issued pursuant to the Securities Purchase Agreement.

      On September 15, 2004, we completed the purchase of all of the outstanding
shares of common stock of Bickhams Media,  Inc. from Avenue Group,  Inc pursuant
to a Stock Purchase Agreement dated September 10, 2004. In consideration for the
purchase,  we agreed to: (1) pay Avenue Group  $300,000  cash;  (2) issue Avenue
Group  4,000,000  shares  of our  common  stock;  and  (3)  guaranty  all of the
obligations of VideoDome.com Networks, Inc. under a promissory note of VideoDome
that was  issued to Avenue  Group in  October  2003 in the  principal  amount of
$290,000.  In addition,  we agreed to issue Avenue Group 3,000,000 shares of our
common  stock in  consideration  for a  termination  letter which shall serve to
terminate a  Registration  Rights  Agreement  dated as of November 28, 2003. The
securities were issued pursuant to an exemption from  registration  requirements
under Section 4(2) of the Securities Act of 1933, as amended.


                                       14
<PAGE>

      On November  23,  2004,  we issued  1,285,714  share of common stock to
Sichenzia  Ross  Friedman  Ference LLP, our  corporate  securities  counsel,  as
payment for outstanding legal fees. These securities were issued pursuant to the
exemption from  registration  requirements  under Section 4(2) of the Securities
Act of 1933, as amended.

      On November 23, 2004, we issued 5,000,000 shares of common stock to Daniel
Aharonoff in partial consideration for the purchase by Bickhams Media, Inc., one
of our wholly  owned  subsidiaries,  of 50% of the  outstanding  common stock of
VideoDome.com Networks, Inc. The securities were issued pursuant to an exemption
from registration requirements under Section 4(2) of the Securities Act of 1933,
as amended.

      On  November  26, 2004 we issued  100,000  incentive  stock  options to an
employee.  These options vest pursuant to the stock option agreement,  expire on
November 26, 2006 and are exercisable at $0.20 per share.  These securities were
issued  pursuant to an exemption from  registration  requirements  under Section
4(2) of the Securities Act of 1933, as amended.

      On  December  15, 2004 we issued  150,000  incentive  stock  options to an
employee.  These options vest pursuant to the stock option agreement,  expire on
November 26, 2006 and are exercisable at $0.20 per share.  These securities were
issued  pursuant to an exemption from  registration  requirements  under Section
4(2) of the Securities Act of 1933, as amended.

      On December 21, 2004, we issued 1,000,000 shares of common stock to Daniel
Aharonoff in partial consideration for the purchase by Bickhams Media, Inc., one
of our wholly  owned  subsidiaries,  of 50% of the  outstanding  common stock of
VideoDome.com  Networks,  Inc. These shares of common stock were issued upon the
satisfaction of certain  jointly agreed  milestones by  VideoDome.com  Networks,
Inc.  The  securities  were issued  pursuant to an exemption  from  registration
requirements under Section 4(2) of the Securities Act of 1933, as amended.

      Except as expressly set forth above,  the individuals and entities to whom
we issued securities as indicated in this section of the registration  statement
are  unaffiliated  with  us.  For  each  of  the  above  sales  of  unregistered
securities,  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 of  1933,  as  amended.  In  addition  to
representations  by the  above-referenced  persons,  we  have  made  independent
determinations  that all of the  above-referenced  persons  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. Management's Discussion and Analysis or Plan of Operation.

Forward-Looking Statements

      The information in this registration  statement  contains  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995.  This Act  provides a "safe  harbor"  for  forward-looking  statements  to
encourage companies to provide prospective  information about themselves so long
as they  identify  these  statements as forward  looking and provide  meaningful
cautionary  statements  identifying  important  factors  that could cause actual
results  to  differ  from the  projected  results.  All  statements  other  than
statements of historical  fact made in this  registration  statement 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 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  operate  as 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.  We specialize in 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.


                                       15
<PAGE>

Results of Operations

Matters Affecting Comparability

      On December 3, 2003, we acquired all of the  outstanding  shares of common
stock of ROO  Media  Corporation,  a  provider  of  topical  video  content  and
associated  services for broadcasting  video over the Internet,  in exchange for
the issuance of an aggregate of 148,000,000  shares of our common stock,  valued
at $0.05 per share.  Prior to the  acquisition of ROO Media,  we had no tangible
assets and had no operations since  approximately  July 2003, when we terminated
all of our existing  contracts and began  exploring  offers from various private
operating companies seeking to merge into a public company.

      For  accounting  purposes  the  purchase  of ROO Media was  reported  as a
recapitalization  of ROO Media with ROO Media as the acquirer.  The  transaction
was treated as an issuance of shares for cash by ROO Media. Shares issued in the
acquisition  are  shown  as  outstanding  for  all  periods   presented  in  the
accompanying  financial  statements in the same manner as for a stock split. Pro
forma  information  on this  transaction  is not presented as at the date of the
transaction.  Virilitec  is  considered  a public  shell  and  accordingly,  the
transaction is not considered a business  combination.  The financial statements
prior to December 2, 2003 reflect the operations of ROO Media only.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Net Revenues

      Total  revenues  increased by $3,792,236  from $145,252 for the year ended
December  31,  2003 to  $3,937,488  for the year ended  December  31,  2004,  an
increase  of  2,611%.  The  increase  reflects  the  inclusion  of the  Reality,
Undercover  and VideoDome  revenues from the date of  acquisition as well as the
increase in revenues from the commercialization of the digital media operations.

Operating Expenses

Operations

      Operating  expenses have no comparable  amounts in the previous  year. The
operating  expenses for the year ended  December 31, 2004 were  $2,540,622.  The
primary  reason for the inclusion of operating  expenses as a separate  category
stems  from  the  inclusion  of  the  Reality   operations  since  the  date  of
acquisition. These expenses are primarily the costs directly associated with the
generation of revenues.  It also reflects the change from development to selling
products in our digital media operations.

Research and Development

      Research  and  development  expenses  consist  primarily  of salaries  and
related personnel costs, consulting fees associated with product development and
costs of technology  acquired from third  parties to  incorporate  into products
currently under development. Research and development expenses were $321,991 for
the year ended  December 31, 2004, an increase of $179,146 or 125% from $142,845
for the year ended December 31, 2003. The increase in expenses was due primarily
to the increase in  activities to bring our products to market and the inclusion
of VideoDome operations since the date of acquisition.

Sales and Marketing

      Sales and marketing expenses consist primarily of expenses for advertising
sales and  marketing  personnel  and  associated  costs to bring our products to
market.  These  expenses  increased by $641,570 from $199,877 for the year ended
December 31, 2003 to $841,447 for the year ended  December 31, 2004, an increase
of 321%.  This  increase  was due  primarily  to the  inclusion  of the  Reality
expenses  from the date of  acquisition  and increase  costs in the marketing of
digital media products.


                                       16
<PAGE>

      We believe that additional sales and marketing  personnel and programs are
required  to  remain  competitive.  Therefore,  we  expect  that our  sales  and
marketing  expenses  will  continue  to  increase  in  absolute  dollars for the
foreseeable future.

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 $2,088,303 from $318,950
for the year ended  December 31, 2003 to $2,407,253  for the year ended December
31, 2004,  an increase of 655%.  This  increase  was due  primarily to providing
financing and administrative support to the increased activity of operations and
the inclusion of the Reality and Videodome general and  administrative  expenses
since acquisition in the consolidated statements.

      We expect our general and administrative  expenses to increase in absolute
dollars for the  foreseeable  future as we continue to hire  personnel and incur
expenses to build our  infrastructure  to support the growth of our business and
our operations.

      Interest Income. Interest income totaled $1,487 in the year ended December
31, 2004 and $29 in the year ended December 31, 2003 an increase of $1,458.

Interest Expense, Related Party

      Interest  expense,   related  party,  includes  interest  charges  on  our
indebtedness to Robert Petty, our Chief Executive Officer. The expense decreased
by $11,442 from $62,422 for the year ended  December 31, 2003 to $50,980 for the
year ended  December  31, 2004,  a decrease of 18%.  This  decrease was due to a
reduction in the amount of the debt outstanding.

Net Loss From Operations

      Net  loss  from  operations  for the  year  ended  December  31,  2004 was
$4,225,767  compared to a net loss of $578,813  for the year ended  December 31,
2003, an increase of 630%.  The net loss is due to the increase in activities to
developing  products for future  revenue  generation,  the increase in sales and
marketing expenses in marketing these products and the increase in operating and
administration expenses to support these activities.

Liquidity and Capital Resources

      From our  inception  through  December  31,  2004,  we have  financed  our
activities  through  funding from a loan facility  from Robert Petty,  our Chief
Executive  Officer,  through private  placements and a debt financing  through a
convertible note.

      To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with four accredited  investors on September 10, 2004 for the
sale of (i) $3,000,000 in callable secured  convertible  notes and (ii) warrants
to purchase 3,000,000 shares of our common stock. The investors are obligated to
provide us with an aggregate of $3,000,000 as follows:

      o     $1,000,000 was disbursed on September 13, 2004;

      o     $1,000,000  was  disbursed  on November  26,  2004,  after  filing a
            registration statement covering the number of shares of common stock
            underlying the secured convertible notes and the warrants; and

      o     $1,000,000 was disbursed on February 9, 2005, after effectiveness of
            the registration statement.

      The callable secured  convertible notes bear interest at 8% per annum from
the date of issuance. Interest is computed on the basis of a 365-day year and is
payable  monthly.  Any amount of principal  or interest on the callable  secured
convertible  notes which is not paid when due will bear  interest at the rate of
15% per annum from the due date thereof  until such amount is paid.  Interest on
the  callable  secured  convertible  notes  will  be paid  initially  out of the
proceeds  that we  receive  from the sale of the  callable  secured  convertible
notes.  When our  operations  begin  generating  positive  net cash  flows,  the
interest will be paid from cash generated from operations.  The callable secured
convertible  notes  mature  two  years  from  the  date  of  issuance,  and  are
convertible into our common stock, at the selling  stockholders'  option, at the
lower of (i)  $0.20 or (ii) 65% of the  average  of the  three  lowest  intraday
trading prices for the common stock on the  Over-The-Counter  Bulletin Board for
the 20 trading days before but not  including the  conversion  date. As of March
28, 2005, $70,080 of principal and $nil of interest was converted into 2,100,000
shares of our common stock.


                                       17
<PAGE>

      In  connection  with the  Securities  Purchase  Agreement,  we agreed not,
without the prior written  consent of a  majority-in-interest  of the investors,
negotiate  or  contract  with any party to obtain  additional  equity  financing
(including  debt  financing  with an equity  component)  that  involves  (i) the
issuance of common  stock at a discount to the market  price of the common stock
on the date of  issuance  (taking  into  account  the value of any  warrants  or
options to acquire common stock in connection  therewith),  (ii) the issuance of
convertible  securities that are  convertible  into an  indeterminate  number of
shares of common  stock,  or (iii) the  issuance of warrants  during the lock-up
period beginning September 13, 2004 and ending on the later of (A) 270 days from
September 13, 2004 and (B) 180 days from the date this registration statement is
declared  effective.  In addition we agreed not to conduct any equity  financing
(including debt financing with an equity  component) during the period beginning
September  13,  2004 and  ending  two years  after the end of the above  lock-up
period  unless we have first  provided  each  investor an option to purchase its
pro-rata  share  (based  on the  ratio of each  investor's  purchase  under  the
Securities  Purchase  Agreement) of the securities being offered in any proposed
equity  financing.  Each investor must be provided written notice describing any
proposed equity financing at least 20 business days prior to the closing of such
proposed  equity  financing  and the option must be  extended  to each  investor
during the 15-day period following delivery of such notice.

      Net cash used in operating  activities  was  $1,470,160 for the year ended
December 31, 2004, compared to $365,708 for the year ended December 31, 2003, an
increase of 302%.  The  increase  in net cash used in  operating  activities  is
primarily the result of increased activities in sales and marketing,  operations
and administrative activities to support bringing our products to market.

      Net cash used in  investing  activities  was  $607,379  for the year ended
December 31, 2004,  compared to net cash used in  investing  activities  for the
year ended  December  31,  2003 of  $12,814.  The  increase  in net cash used in
investing  activities  is primarily  the result of the  acquisitions  of Reality
Bickhams and Videodome.  These amounts were partially offset by cash received in
these acquisitions and the proceeds from the sale of equipment.

      Net cash  provided by financing  activities  was  $2,403,852  for the year
ended  December 31, 2004  compared to $405,422  for the year ended  December 31,
2003.  The increase in net cash provided by financing  activities  was primarily
due to he  proceeds  from  private  placements  and a debt  financing  through a
convertible note.

      As of December 31, 2004, we had a working capital  deficiency of $818,827.
Our cash  balance  as of  December  31,  2004 of  $321,602  is, in  management's
opinion,  not  sufficient to ensure our  continued  operation and the payment of
debts until our business is profitable  and generating  sufficient  cash flow to
meet our liquidity  requirements,  of which there can be no assurance. We do not
expect additions to property and equipment to be material in the near future.

      We conduct our  operations in primary  functional  currencies:  the United
States  dollar,   the  British  pound,  the  Euro  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 Europe,  the  United  Kingdom  and  Australia,  where we  invoice  our
customers primarily in euros, pounds and Australian  dollars,  respectively.  We
are exposed to foreign  exchange rate  fluctuations as the financial  results of
foreign  subsidiaries are translated into U.S.  dollars in consolidation  and as
our foreign  currency  consumer  receipts are converted into U.S.  dollars.  Our
exposure to foreign  exchange  rate  fluctuations  also arises from payables and
receivables to and from our foreign subsidiaries, vendors and customers. Foreign
exchange  rate  fluctuations  did not have a  material  impact on our  financial
results in the fiscal years ended December 31, 2004 and 2003.


                                       18
<PAGE>

      We  anticipate  that our  liquidity  needs  over the next 12  months  will
require additional financings. If cash generated from operations is insufficient
to satisfy our liquidity requirements,  we may seek to sell additional equity or
debt securities or obtain a credit  facility.  The sale of additional  equity or
convertible  debt  securities  could  result  in  additional   dilution  to  our
stockholders.  The incurrence of  indebtedness  would result in increased  fixed
obligations  and could result in  operating  covenants  that would  restrict our
operations.  We cannot assure you that financing will be available in amounts or
on terms acceptable to us, if at all.

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 net operating losses of approximately  $4,226,000
for the year ended  December 31,  2004,  compared to $579,000 for the year ended
December 31, 2003.  Additionally,  as of December 31, 2004, we had a net working
capital  deficiency  of  approximately  $819,000  and  negative  cash flows from
operating activities of approximately $1,470,000.  Since ROO Media Corporation's
inception,  we have  incurred  losses,  had an  accumulated  deficit,  and  have
experienced  negative cash flows from operations.  The expansion and development
of  our  business  may  require  additional   capital.   This  condition  raises
substantial  doubt  about  our  ability  to  continue  as a going  concern.  Our
management expects cash flows from operating activities to improve during fiscal
year 2005,  primarily  as a result of an increase  in sales,  and plans to raise
financing  through  various  methods to achieve their business  plans,  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.

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.

      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  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.

      Goodwill and Intangible Asset Impairment:  In assessing the recoverability
of our  goodwill  and  other  intangibles  we must  make  assumptions  regarding
estimated future cash flows and other factors to determine the fair value of the
respective  assets.  This impairment test requires the determination of the fair
value of the intangible asset. If the fair value of the intangible asset is less
than its carrying  value,  an  impairment  loss will be  recognized in an amount
equal to the difference.  If these estimates or their related assumptions change
in the future, we may be required to record impairment charges for these assets.
We adopted Statement of Financial  Accounting  Standards No. 142,  "Goodwill and
Other Intangible  Assets," (FAS 142) effective January 1, 2002, and are required
to analyze goodwill and indefinite lived intangible  assets for impairment on at
least an annual basis.

Recently Issued Accounting Standards

      In November  2004,  the FASB issued  SFAS No. 151,  "Inventory  Costs - an
amendment  to ARB No.  43." This  statement  provides  guidance  to clarify  the
accounting  for abnormal  amounts of idle  facility  expense,  freight  handling
costs, and wasted material (spoilage),  among other production costs. Provisions
of ARB No. 43 stated that under some circumstances,  items such as idle facility
expense,  excessive  spoilage  and other  costs may be so abnormal as to require
treatment as current period charges. This statement requires that those items be
recognized  as  current  period  charges  regardless  of  whether  they meet the
criterion of "so abnormal." In addition,  SFAS No. 151 requires that  allocation
of fixed production  overheads to the costs of conversion be based on the normal
capacity of the production facilities.  The provisions of this Statement will be
applied  prospectively  during our fiscal year  beginning  after June 15,  2005.
Adoption  of the  Statement  is not  expected  to have a material  impact on our
financial statements.


                                       19
<PAGE>

      In November 2004, the FASB issued SFAS No. 152 "Accounting for Real Estate
Time-Sharing  Transactions  - An amendment of SFAS No. 66 and 67. This Statement
amends SFAS No. 66.  "Accounting  for Sales of Real  Estate," to  reference  the
financial  accounting  and  reporting  guidance  for  real  estate  time-sharing
transactions  that is  provided  in AICPA  Statement  of  Position  (SOP)  04-2,
Accounting  for Real Estate  Time-Sharing  Transactions."  This  Statement  also
amends SFAS No. 67,  "Accounting for Costs and Initial Rental Operations of Real
Estate  Projects," to state the guidance for (a) incidental  costs and (b) costs
incurred to sell real estate projects does not apply to real estate time-sharing
transactions.  The  accounting  for those  operations  and costs is  subject  to
guidance in SOP 04-2.  SFAS No. 152 is effective  for financial  statements  for
fiscal years  beginning  after June 15, 2005.  Adoption of this Statement is not
expected to have a material impact on our financial statements.

      In November 2004, the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
Assets  - an  amendment  to APBO  No.  29."  This  Statement  amends  Accounting
Principles  Board  Opinion  ("APBO")  No.  29 to  eliminate  the  exception  for
nonmonetary  exchanges  of  similar  productive  assets and  replaces  it with a
general  exception  for  exchanges  of  nonmonetary  assets  that  do  not  have
commercial  substance.  A nonmonetary  exchange has commercial  substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange.  This is effective for fiscal periods  beginning after June 15,
2005.  Adoption of this  statement is not expected to have a material  impact on
our financial statements.

Item 7. Financial Statements.

      All financial  information required by this Item is attached hereto at the
end of this report.

Item 8. Changes  In  and  Disagreements  With  Accountants  on  Accounting  and
        Financial Disclosure.

      On January 30, 2004,  Mark Cohen C.P.A.,  was dismissed as approved by our
Board of Directors.  Mark Cohen's report on the financial  statements for either
of the past two years did not  contain  an  adverse  opinion  or  disclaimer  of
opinion,  and was not modified as to  uncertainty,  audit scope,  or  accounting
principles. During the fiscal years ended July 31, 2003 and 2002, the reports by
Mark Cohen on our financial statements contained a going concern opinion. During
our two most recent fiscal years and  subsequent  period up to January 30, 2004,
there  were no  disagreements  with  Mark  Cohen  on any  matter  of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure,  which disagreements,  if not resolved to Mark Cohen's  satisfaction,
would have caused it to make reference to the subject matter of the disagreement
in connection with its report.

      On January 30, 2004, subsequent to approval of our Board of Directors,  we
engaged Moore Stephens,  P.C. to serve as our independent  auditors.  During our
two most recent fiscal years,  and during any subsequent  period through January
30, 2004, we did not consult with Moore  Stephens on any  accounting or auditing
issues.


                                       20
<PAGE>

Item 8A. 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 recorded,  processed,
summarized and reported,  within the time periods  specified in the Commission's
rules  and  forms.  There was no change  in 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.

Item 8B. Other Information.

      None.

                                    PART III

Item 9. 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
--------------------------------------------------------------------------------
Robert Petty          40         Chief Executive Officer and Chairman of the
                                 Board of Directors
--------------------------------------------------------------------------------
Robin Smyth           51         Chief Financial Officer, Secretary, Treasurer,
                                 Principal Accounting Officer and Director
--------------------------------------------------------------------------------

      ROBERT PETTY. Mr. Petty was appointed Chief Executive Officer and Chairman
of the Board of Directors on December 3, 2003,  the effective date of the merger
with ROO Media  Corporation.  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 Reality Group Pty Ltd,  Undercover  Media Pty Ltd, Petty Consulting
Inc., ROO Media  (Australia) Pty Ltd, ROO Media Europe Ltd,  Bickhams Media Inc,
VideoDome.com  Networks Inc, BAS Digital Pty Ltd, ROO Broadcasting  Ltd, and ROO
TV Pty Ltd.

      ROBIN SMYTH. Mr. Smyth was appointed Chief Financial  Officer,  Secretary,
Treasurer,  Principal Accounting Officer and 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 he 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
Reality Group Pty Ltd,  Undercover Media Pty Ltd ROO Media  (Australia) Pty Ltd,
ROO Media Europe Ltd,  Bickhams Media Inc, ROO Broadcasting Ltd, ROO TV Pty Ltd,
VideoDome.com Networks Inc, and Corporate Advice Pty Ltd.


                                       21
<PAGE>

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  directors  devotes  his full time to our
affairs.

Audit Committee Financial Expert

      We do not have an audit committee financial expert as that term is defined
in Item 401 of Regulation S-B. We have not been able to identify a suitable
nominee to serve as an audit committee financial expert.

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., 62 White Street, Suite 3A, New York, NY 10013. Our telephone number
is (646) 352-0260. We are in the process of building a section of our website at
www.roogroupinc.com where our Code of Ethics will be available to investors.

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,  2004,  and  Forms 5 and  amendments  thereto
furnished  to us with respect to the fiscal year ended  December  31,  2004,  we
believe that during the year ended  December 31, 2004,  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 as follows:  (1) Robert Petty reported one transaction late and filed one
Form 4 late; (2) Robin Smyth reported three transactions late and filed two Form
4s late; (3) Avenue Group,  Inc.  reported two  transactions  late and filed two
Form 4s late; and (4) Midnight Bay Holdings Pty Ltd.  reported five transactions
late, filed its Form 3 late and filed three Form 4s late.


                                       22
<PAGE>

Item 10. Executive Compensation.

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

                          Executive Compensation Table
<TABLE>
<CAPTION>
                                                                                               Long-Term
                                                                                              Compensation
                                                                               -----------------------------------------
                                                 Annual Compensation                     Awards               Payouts
                                         ------------------------------------- ---------------------------- ------------
                                                                    Other                      Securities                  All
                                                                    Annual       Restricted    Under-lying                 Other
             Name and                                              Compen-         Stock        Options/       LTIP       Compen-
        Principal Position         Year   Salary ($)  Bonus ($)    sation ($)    Award(s) ($)    SARs (#)    Payouts ($)  sation ($)
-------------------------------- ------- ----------- ----------- ------------- --------------- ------------ ------------ -----------
<S>                                <C>      <C>           <C>         <C>              <C>          <C>          <C>         <C>
Robert Petty (1),                  2004     $192,501      0           0                0            0            0           0
     Chief Executive Officer and   2003     $ 10,000      0           0                0            0            0           0
     Chairman of the Board

Robin Smyth (2)                    2004     $101,619      0           0                0            0            0           0
     Chief Financial Officer,      2003     $  5,000      0           0                0            0            0           0
     Secretary, Treasurer,
     Principal Accounting Officer
     and Director
</TABLE>

      (1) Mr. Petty became Chairman,  President,  Chief Executive Officer of ROO
Group, Inc. on December 3, 2003.

      (2) Mr.  Smyth  became  Chief  Financial  Officer,  Secretary,  Treasurer,
Principal  Accounting  Officer and a Director of ROO Group,  Inc. on December 3,
2003.

                               Options Grant Table

      The  following  table sets  forth  information  with  respect to the named
executive officers  concerning the grant of stock options during the fiscal year
ended  December 31, 2004. We did not have during such fiscal year, and currently
do not have,  any plans  providing  for the grant of stock  appreciation  rights
("SARs").

                      Option/SAR Grants in Last Fiscal Year
--------------------------------------------------------------------------------
                               Individual Grants
--------------------------------------------------------------------------------
           (a)                 (b)             (c)          (d)           (e)

                                            % of Total
                                            Options/
                            Number of       SARs
                            Securities      Granted to    Exercise
                            Underlying      Employees     or Base
                            Options/ SARs   in Fiscal     Price      Expiration
           Name             Granted (#)     Year          ($/Sh)     Date
--------------------------------------------------------------------------------
Robert Petty                   6,000,000        43.8%     $0.1265    5/8/2006
--------------------------------------------------------------------------------
Robin Smyth                    3,000,000        21.9%     $0.1265    5/8/2006


                                       23
<PAGE>

Aggregate Option Exercises in Last Fiscal Year

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

Compensation of Directors

      With the exception of Robert Petty  pursuant to his  employment  agreement
described below, no Director receives any cash compensation for their service as
a Director.  All directors are  reimbursed  for their  reasonable  out-of-pocket
expenses incurred in connection with their duties to us.

Employment Agreements

      On April 1, 2004,  we entered  into an  employment  agreement  with Robert
Petty.  Under the agreement,  Mr. Petty agreed to serve as our President,  Chief
Executive Officer and Chairman of our Board of Directors. The expiration date of
the  agreement is March 31,  2006,  but will  automatically  be extended for two
additional  years  unless  at least  90 days  prior to such  time  either  party
notifies  the other party that the term will not be extended.  Mr.  Petty's base
salary under the agreement is $200,000 annually and will increase 10% each year.
Mr.  Petty's  base  salary will also be  reviewed  at least  annually  for merit
increases and may, by action and in the discretion of the Board, be increased at
any time or from time to time.  Mr. Petty is entitled to receive bonus  payments
or incentive  compensation  as may be determined  by our Board of Directors.  In
addition,  Mr. Petty was granted a two-year  incentive  stock option to purchase
6,000,000  shares of our common stock,  which is exercisable at $.1265 per share
and expires on May 8, 2006.

      On November 1, 2004, we entered into an employment  agreement  with Robert
Petty  that  supersedes  the April 1,  2004  employment  agreement  except as it
relates to the options that were issued to Mr. Petty. This agreement is also for
the  employment  of Mr.  Petty as our  President,  Chief  Executive  Officer and
Chairman of our Board of Directors.  The  expiration of the agreement is October
31, 2007, but will  automatically be extended for two additional years unless at
least 90 days prior to such time either party  notifies the other party that the
term will not be  extended.  Mr.  Petty's  base salary  under the  agreement  is
$250,000  annually and will increase 10% each year. Mr. Petty's base salary will
also be  reviewed  against  milestones  set by our  Board of  Directors,  and be
increased in line with these  milestones  at any time or from time to time.  The
agreement  provides  that we will  provide  Mr.  Petty  with  the use of a motor
vehicle  and we will  contribute  10% of Mr.  Petty's  base  salary to a 401K or
similar  plan. In addition,  Mr. Petty is entitled to receive bonus  payments or
incentive compensation as may be determined by our Board of Directors.

      On April 1,  2004,  we entered  into an  employment  agreement  with Robin
Smyth.  Under the  agreement,  Mr. Smyth agreed to serve as our Chief  Financial
Officer.  The  expiration  date of the  agreement  is March 31,  2006,  but will
automatically be extended for two additional years unless at least 90 days prior
to such time  either  party  notifies  the other party that the term will not be
extended.  Mr. Smyth's base salary under the agreement is $120,000  annually and
will  increase 10% each year.  Mr.  Smyth's base salary will also be reviewed at
least  annually for merit  increases and may, by action and in the discretion of
the Board,  be increased at any time or from time to time. Mr. Smyth is entitled
to receive bonus payments or incentive  compensation as may be determined by our
Board of  Directors.  In addition,  Mr.  Smyth was granted a two-year  incentive
stock  option  to  purchase  3,000,000  shares  of our  common  stock,  which is
exercisable at $.1265 per share and expires on May 8, 2006.

      On November 1, 2004,  we entered into an employment  agreement  with Robin
Smyth  that  supersedes  the April 1,  2004  employment  agreement  except as it
relates to the options that were issued to Mr. Smyth. This agreement is also for
the employment of Mr. Smyth as our Chief  Financial  Officer.  The expiration of
the agreement is October 31, 2007,  but will  automatically  be extended for two
additional  years  unless  at least  90 days  prior to such  time  either  party
notifies  the other party that the term will not be extended.  Mr.  Smyth's base
salary under the agreement is $150,000 annually and will increase 10% each year.
Mr.  Smyth's  base salary will also be reviewed  against  milestones  set by our
Board of Directors,  and be increased in line with these  milestones at any time
or from time to time. The agreement provides that we will provide Mr. Smyth with
the use of a motor vehicle and we will contribute 10% of Mr. Smyth's base salary
to a 401K or similar plan.  In addition,  Mr. Smyth is entitled to receive bonus
payments  or  incentive  compensation  as may be  determined  by  our  Board  of
Directors.


                                       24
<PAGE>

Item 11. 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 28, 2005.  The  information  in this
table provides the ownership information for:

      o     each person known by us to be the  beneficial  owner of more than 5%
            of our common stock;

      o     each of our directors;

      o     each of our executive officers; and

      o     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., 62 White Street,  Suite 3A, New York,
NY 10013.

<TABLE>
<CAPTION>
                                                      Percentage        Series A
                                   Common Stock           of        Preferred Stock     Percentage of
Name and Address                   Beneficially         Common        Beneficially        Series A       Percentage of
of Beneficial Owner                 Owned (1)         Stock (1)        Owned (2)       Preferred Stock   Total Vote (1)
--------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                  <C>          <C>                     <C>               <C>
Robert Petty                        78,000,000 (3)       38.3%        6,000,000               63.2%             46.2%

Robin Smyth                          5,000,000 (4)        2.5%        1,500,000               15.8%              6.8%

Avenue Group, Inc.                  33,660,483           17.0%                0                  0%             11.5%
15303 Ventura Blvd.
9th Floor
Sherman Oaks, CA 91403

Midnight Bay Holdings Pty.,         18,000,000            9.1%                0                  0%              6.2%
Ltd.
11 Torresdale Court
Toorak Victoria 3142
Australia

All Directors and Executive         83,000,000           40.2%        7,500,000               79.0%             52.4%
Officers as a Group (2 persons)
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

      (1)   Applicable  percentage  ownership is based on 197,683,425  shares of
            common  stock  outstanding  as of  March  28,  2005,  together  with
            securities  exercisable or  convertible  into shares of common stock
            within 60 days of March 28,  2005 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 28,  2005 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.

      (3)   Includes  6,000,000  shares that are  issuable  upon the exercise of
            outstanding  incentive  stock options  issued by ROO Group,  Inc. on
            April 8, 2004.  Such options are exercisable at $.1265 per share and
            expire on May 8, 2006.

      (4)   Includes  400,000  shares held  indirectly  through the Smyth Family
            Trust.  Also  includes  3,000,000  shares that are issuable upon the
            exercise of outstanding incentive stock options issued by ROO Group,
            Inc. on April 8, 2004.  Such options are  exercisable  at $.1265 per
            share and expire on May 8, 2006.


                                       25
<PAGE>

Item 12. Certain Relationships and Related Transactions.

      ROO Media entered into a consulting agreement with Petty Consulting,  Inc.
on August 1, 2001, whereby Petty Consulting, Inc. made Robert Petty available to
ROO Media to serve as its Chairman,  President and Chief Executive Officer.  The
agreement  expired  on August  1,  2004.  Mr.  Petty is the  President  of Petty
Consulting,  Inc.  Mr.  Petty was paid $10,000 per month for his services to ROO
Media  pursuant to the  consulting  agreement.  In April 2004 this agreement was
terminated and Robert Petty entered into an employment  agreement  directly with
us.  Our  management  believes  that  this  agreement  was on  terms at least as
favorable as could have been obtained from an unrelated third party.

      On January 7, 2003,  ROO Media entered into a new loan  agreement with Mr.
Petty to replace the loan  agreement  entered into with Mr. Petty dated July 29,
2001. The interest on the loan is 10% per annum and the  outstanding  balance as
of  December  31,2003  was  $514,164.  Mr.  Petty has agreed  that no demand for
payment  will be made to the  company  over  the  following  12  months  and any
principle  repayment during any month above $20,000 will require board approval.
The loan is secured by all of the assets of ROO Media.  Our management  believes
that this loan is on terms at least as  favorable  as could  have been  obtained
from an unrelated third party.

      Pursuant to the terms of an Agreement and Plan of Merger,  dated  December
2, 2003, between Virilitec,  VRLT Acquisition Corp., a Delaware  corporation and
wholly-owned subsidiary of Virilitec,  ROO Media, and Jacob Roth and Bella Roth,
each an  individual,  ROO Media  entered into an agreement to pay within 90 days
after December 3, 2003, the effective  date of the Merger,  Virilitec's  $62,500
debt to Jacob Roth,  Virilitec's former Chief Executive Officer.  The obligation
to pay such  debt is  secured  by the  pledge  of the  72,000,000  shares of the
Virilitec  Common Stock issued to Robert Petty,  the Chief Executive  Officer of
ROO Media, after the merger. Our management  believes that this agreement was on
terms at least as favorable as could have been obtained from an unrelated  third
party. The final payment on this debt was made on May 10, 2004.

      On September  10, 2004, we entered into an agreement to purchase of all of
the  outstanding  shares of common  stock of Bickhams  Media,  Inc.  from Avenue
Group,  Inc.  Avenue  Group is a founding  shareholder  of ROO Group,  Inc.  and
currently  owns over 20% of our  outstanding  common stock.  Also, in connection
with  the  purchase  of  Bickhams  Media,  we  agreed  to  guaranty  all  of the
obligations of VideoDome.com Networks, Inc. under a promissory note of VideoDome
that was  issued to Avenue  Group in  October  2003 in the  principal  amount of
$290,000.  Our management  believes that the terms of this  transaction  were at
least as favorable as could have been obtained from an unrelated third party.

Item 13. 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)

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)


                                       26
<PAGE>

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  Amendment  to  the  Amended  and  Restated
                    Certificate of Incorporation  of ROO Group,  Inc. filed with
                    the State of Delaware on January 19, 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 Form
                    8-K, filed with the  Securities  and Exchange  Commission on
                    March 14, 2005)

3.4                 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                 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)

4.2                 Callable  Secured  Convertible  Note issued 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)

4.3                 Callable  Secured  Convertible  Note 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)

4.4                 Callable  Secured  Convertible  Note 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)

4.5                 Callable  Secured  Convertible Note 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)

4.6                 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)

4.7                 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)

4.8                 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)

4.9                 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)

4.10                Registration  Rights  Agreement,  dated as of 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)

4.11                Security  Agreement,  dated as of 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)

4.12                Intellectual  Property Security  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)


                                       27
<PAGE>

4.13                Guaranty and Pledge Agreement,  dated September 10, 2004, by
                    and among ROO Group, Inc., Robert Petty, 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)

4.14                Callable  Secured  Convertible  Note issued 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)

4.15                Callable  Secured  Convertible  Note 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)

4.16                Callable  Secured  Convertible  Note 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)

4.17                Callable  Secured  Convertible Note 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)

4.18                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)

4.19                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)

4.20                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)

4.21                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)

4.22                Callable  Secured  Convertible  Note issued 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)

4.23                Callable  Secured  Convertible  Note 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)

4.24                Callable  Secured  Convertible  Note issued to AJW Partners,
                    LLC,  dated February 3, 2005  (Incorporated  by reference to
                    Form 8-K, filed with the Securities and Exchange  Commission
                    on February 15, 2005)

4.25                Callable  Secured  Convertible Note 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)

4.26                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)

4.27                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)

4.28                Stock Purchase  Warrant  issued to AJW Partners,  LLC, dated
                    February 3, 2005  (Incorporated  by  reference  to Form 8-K,
                    filed  with  the  Securities  and  Exchange   Commission  on
                    February 15, 2005)

4.29                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)

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)


                                       28
<PAGE>

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  August 12, 2004,  between  J.G.  King Pty.
                    Ltd.,  ROO Media  Australia Pty. Ltd. and  Beachfronts  Pty.
                    Ltd.  (Incorporated  by  reference  to Form  SB-2  (File No.
                    333-120605),   filed  with  the   Securities   and  Exchange
                    Commission on November 18, 2004)

10.6                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)

16.1                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 Company  (Incorporated  by reference to
                    Form  8-K/A,   filed  with  the   Securities   and  Exchange
                    Commission on March 15, 2004)

31.1                Certification by Chief Executive  Officer,  required by Rule
                    13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2                Certification by Chief Financial  Officer,  required by Rule
                    13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1                Certification by Chief Executive  Officer,  required by Rule
                    13a-14(b) or Rule  15d-14(b) of the Exchange Act and Section
                    1350 of Chapter 63 of Title 18 of the  United  States  Code,
                    promulgated  pursuant to Section  906 of the  Sarbanes-Oxley
                    Act of 2002.

32.2                Certification by Chief Financial  Officer,  required by Rule
                    13a-14(b) or Rule  15d-14(b) of the Exchange Act and Section
                    1350 of Chapter 63 of Title 18 of the  United  States  Code,
                    promulgated  pursuant to Section  906 of the  Sarbanes-Oxley
                    Act of 2002.

Item 14. Principal Accountant Fees and Services.

Audit Fees

      The  aggregate  fees  billed for  professional  services  rendered  by our
principal accountants for the audit of our financial statements, for the reviews
of the financial  statements  included in our annual report on Form 10-KSB,  and
for other services  normally  provided in connection with statutory filings were
$20,000 and $0 for the years ended  December  31, 2004 and  December  31,  2003,
respectively.

Audit-Related Fees

      We incurred  fees of $5,000 and $0 for the years ended  December  31, 2004
and December 31, 2003,  respectively,  for professional services rendered by our
principal  accountants  that are  reasonably  related to the  performance of the
audit or review of our financial statements and not included in "Audit Fees."

All Other Fees

      We did not incur any fees for other professional  services rendered by our
principal  accountants during the years ended December 31, 2004 and December 31,
2003.


                                       29
<PAGE>

Audit Committee Pre-Approval Policies and Procedures

      Not applicable.


                                       30
<PAGE>

                                   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.

                                       ROO GROUP, INC.

Dated: March 31, 2005                  By: /s/ Robert Petty
                                           -------------------------------------
                                          Robert Petty
                                          Chief Executive Officer

Dated: March 31, 2005                  By: /s/ Robin Smyth
                                           -------------------------------------
                                           Robin Smyth
                                           Chief Financial Officer and
                                           Principal Accounting Officer

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

SIGNATURE                  TITLE                              DATE
---------                  -----                              ----

/s/ Robert Petty           Chairman of the Board              March 31, 2005
------------------
Robert Petty

/s/ Robin Smyth            Director                           March 31, 2005
------------------
Robin Smyth


                                       31
<PAGE>

             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,  2004,  and  the  related  consolidated
statements of operations and comprehensive  income (loss),  stockholders' equity
(deficit),  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, 2004,  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
from  operations and has a working  capital  deficiency  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.

                                       /s/ Moore Stephens, P.C.

                                       MOORE STEPHENS, P. C.
                                       Certified Public Accountants.

New York, New York
March 24, 2005


                                      F-1
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2004.
--------------------------------------------------------------------------------

Assets:
Current Assets:
   Cash and Cash Equivalents                                        $   321,602
   Accounts Receivable                                                  974,458
   Related Party Loans                                                  228,346
   Other Current Assets                                                 235,927
                                                                    -----------

   Total Current Assets                                               1,760,333
                                                                    -----------

Marketable Equity Securities - Available for Sale                        15,023
Property and Equipment - Net                                            402,674
Long-Term Loans                                                          17,555
Deferred Tax Assets                                                      42,388
Content - Net                                                           160,451
Software - Net                                                        1,117,236
Customer List - Net                                                     541,713
Goodwill                                                              1,990,413
                                                                    -----------
   Total Assets                                                     $ 6,047,786
                                                                    ===========

Liabilities and Stockholders' Equity:
Current Liabilities:
   Bank Overdraft                                                   $   265,547
   Accounts Payable                                                     435,568
   Capital Leases                                                        48,531
   Accrued Expenses                                                     426,507
   Stockholder Loans Payable                                            500,000
   Related Party Loans                                                   50,714
   Income Tax Payable                                                    97,405
   Accrued Employee Benefits                                            121,563
   Other Current Liabilities                                            357,325
   Note Payable - Other                                                 276,000
                                                                    -----------

   Total Current Liabilities                                          2,579,160
                                                                    -----------

Non Current Liabilities:
   Convertible Note - Net of Discounts of $173,698                    1,826,302
   Capital Leases                                                        77,554
                                                                    -----------

   Total Non-Current Liabilities                                      1,903,856
                                                                    -----------

Commitments                                                                  --
                                                                    -----------

Minority Interest                                                        19,928
                                                                    -----------

Stockholders' Equity:
   Common Stock, $.0001 Par Value: Authorized 500,000,000 shares;
      Issued and Outstanding 195,583,425                                 19,559

   Additional Paid-in Capital                                         6,910,989

   Accumulated Deficit                                               (5,378,409)

   Accumulated Other Comprehensive Loss                                  (7,297)
                                                                    -----------

   Total Stockholders' Equity                                         1,544,842
                                                                    -----------

   Total Liabilities and Stockholders' Equity                       $ 6,047,786
                                                                    ===========

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


                                      F-2
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                                                                             Years ended
                                                                             December 31,
                                                                        2004              2003
                                                                    -------------    -------------
<S>                                                                 <C>              <C>
Revenue                                                             $   3,937,488    $     145,252
                                                                    -------------    -------------

Expenses:
   Operations                                                           2,540,622               --
   Research and Development                                               321,991          142,845
   Sales and Marketing                                                    841,447          199,877
   General and Administration                                           2,407,253          318,950
                                                                    -------------    -------------

   Total Expenses                                                       6,111,313          661,672
                                                                    -------------    -------------

   (Loss) from Operations                                              (2,173,825)        (516,420)

Non Cash Cost of Capital                                                 (512,230)              --

Cost of Capital                                                           (72,530)              --

Interest Income                                                             1,487               29

Interest Expense - Related Party                                          (50,980)         (62,422)

Interest Expense - Other                                               (1,143,577)              --

Agreement Termination Costs                                              (210,000)              --
                                                                    -------------    -------------

   Net (Loss) before Income Taxes                                      (4,161,655)        (578,813)

Income Taxes                                                               48,621               --
                                                                    -------------    -------------

   Net (Loss) before Minority Interest                                 (4,210,276)        (578,813)

Minority Interest                                                          15,491               --
                                                                    -------------    -------------

   Net (Loss)                                                       $  (4,225,767)   $    (578,813)
                                                                    =============    =============

Basic and Diluted Net (Loss) Per Common Share                       $       (0.02)   $          --
                                                                    =============    =============

Average Common Shares Outstanding                                     175,139,455      157,669,130
                                                                    =============    =============

Comprehensive Income:
   Net (Loss)                                                       $  (4,225,767)   $    (578,813)
   Foreign Currency Translation                                            15,956          (11,956)
   Fair Market Value Adjustment for Available for Sale Securities         (10,315)              --
                                                                    -------------    -------------

   Comprehensive Income (Loss)                                      $  (4,220,126)   $    (590,769)
                                                                    =============    =============
</TABLE>

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


                                      F-3
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [DEFICIT]

<TABLE>
<CAPTION>
                                                                                                    Accumulated Other     Total
                                                               Common      Additional                 Comprehensive    Stockholders'
                                                  Common        Stock       Paid-in     Accumulated      Income          Equity
                                                   Stock      Par Value     Capital       Deficit        (Loss)         [Deficit]
                                                -----------  -----------  -----------   -----------    -----------     -----------

<S>                                             <C>          <C>          <C>           <C>            <C>             <C>
   Balance - January 1, 2003                    148,000,000  $    14,800  $   394,308   $  (573,829)   $      (982)    $  (165,703)

Equity of Shell in Merger Transaction             9,669,130          967         (967)           --             --              --
Net (Loss) for the year ended December 31, 2003          --           --           --      (578,813)            --        (578,813)
Foreign Currency Translation Adjustment                  --           --           --            --        (11,956)        (11,956)
                                                -----------  -----------  -----------   -----------    -----------     -----------

   Balance December 31, 2003                    157,669,130       15,767      393,341    (1,152,642)       (12,938)       (756,472)

   Stock issued in private placements             8,311,709          831      870,984            --             --         871,815
   Stock issued for services                      6,802,236          681      575,461            --             --         576,142
   Stock issued for investments                     440,350           44       25,296            --             --          25,340
   Stock issued as compensation for the
      termination of an agreement                 3,000,000          300      209,700            --             --         210,000
   Shares issued for the acquisition of
      Reality Group, Pty, Ltd                     8,360,000          836    2,507,164            --             --       2,508,000
   Shares issued for the acquisition of
      Undercover Media, Pty, Ltd                  1,000,000          100      149,900            --             --         150,000
   Shares issued for the acquisition of
      Bickhams Media, Inc.                        4,000,000          400      279,600            --             --         280,000
   Shares issued for the acquisition of
      Videodome Networks.com, Inc.                6,000,000          600      329,400            --             --         330,000
   Grant of options for services                         --           --      425,715            --             --         425,715
   Computed discount on convertible debt                 --           --       89,584            --             --          89,584
   Beneficial conversion feature of
      convertible debt                                   --           --    1,054,844            --             --       1,054,844
   Foreign currency translation adjustment               --           --           --            --         15,956          15,956
   Fair market value adjustment for available
      for sale securities                                --           --           --            --        (10,315)        (10,315)
   Net (Loss)                                            --           --           --    (4,225,767)            --      (4,225,767)
                                                -----------  -----------  -----------   -----------    -----------     -----------

   Balance - December 31, 2004                  195,583,425  $    19,559  $ 6,910,989   $(5,378,409)   $    (7,297)    $ 1,544,842
                                                ===========  ===========  ===========   ===========    ===========     ===========
</TABLE>

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


                                      F-4
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     Years ended
                                                                     December 31,
                                                                 2004           2003
                                                             -----------    -----------
<S>                                                          <C>            <C>
Operating Activities:
   Net (Loss)                                                $(4,225,767)   $  (578,813)
                                                             -----------    -----------
   Adjustments to Reconcile Net (Loss) to Net Cash
      Provided by Operating Activities:
      Provision for Doubtful Accounts                             34,833             --
Depreciation                                                      65,056          4,863
      Amortization of Customer Lists                             108,341             --
      Amortization of Content                                     83,236             --
      Amortization of Software                                    38,525             --
      Non Cash Cost of Capital                                   512,230             --
      Non Cash Termination of Registration Rights                210,000             --
      Non Cash Legal Expenses                                     93,087             --
      Non Cash Stock for Services                                 33,055             --
      Non Cash Marketing Expenses                                450,000             --
      Non Cash Interest on Convertible Note                    1,074,295             --
      Minority Interest in Reality                                15,491             --

   Changes in Assets and Liabilities:
      (Increase) Decrease in:
         Accounts Receivable                                     (52,630)        (4,976)
         Other Current Assets                                   (118,539)

      Increase (Decrease) in:
         Accounts Payable                                       (276,767)       161,356
         Accrued Expenses                                        139,247             --
         Income Tax Payable                                       (3,361)            --
         Accrued Employee Benefits                                67,755             --
         Other Current Liabilities                               281,753         51,862
                                                             -----------    -----------

         Total Adjustments                                     2,755,607        213,105
                                                             -----------    -----------

   Net Cash (Used) By Operating Activities - Forward          (1,470,160)      (365,708)
                                                             -----------    -----------

Investing Activities:
   Investment Bickhams/Videodome                                (400,000)            --
   Investment in Reality                                        (144,456)            --
   Net Cash Received in Acquisition of Reality & Videodome        85,788             --
   Capitalization of Content                                     (80,322)            --
   Purchase of Equipment                                        (113,305)       (12,814)
   Proceeds from Sale of Equipment                                44,916             --
                                                             -----------    -----------

   Net Cash (Used) By Investing Activities - Forward         $  (607,379)   $   (12,814)
</TABLE>

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


                                      F-5
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                Years ended
                                                                December 31,
                                                            2004           2003
                                                         -----------    -----------
<S>                                                      <C>            <C>
   Net Cash (Used) By Operating Activities - Forwarded   $(1,470,160)   $  (365,708)
                                                         -----------    -----------

   Net Cash (Used) By Investing Activities - Forwarded      (607,379)       (12,814)
                                                         -----------    -----------

Financing Activities:
   Capital Contribution                                      785,300        409,108
   Bank Overdraft                                            197,398             --
   Increase in Related Party Loans                           115,833             --
   (Decrease) in Related Party Loans                        (452,079)            --
   Increase in Stockholder Loan                               87,983        405,896
   (Decrease) in Stockholder Loan                           (102,087)      (472,082)
   Convertible Note                                        1,896,436             --
   Note Payable                                              (72,500)        62,500
   (Decrease) in Capital Leases                              (52,432)            --
                                                         -----------    -----------

   Net Cash Provided By Financing Activities               2,403,852        405,422
                                                         -----------    -----------

Effect of Exchange Rate Changes on Cash                      (31,082)       (11,956)
                                                         -----------    -----------

   Net Increase in Cash                                      295,231         14,944

   Cash - Beginning of Years                                  26,371         11,427
                                                         -----------    -----------

   Cash - End of Years                                   $   321,602    $    26,371
                                                         ===========    ===========

Supplemental Disclosures of Cash Flow Information:
   Cash paid during the years for:
      Income Taxes                                       $    24,925    $        --
      Interest                                           $   108,474    $    62,181
</TABLE>

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

      During the year ended  December 31,  2004,  the Company  issued  5,000,000
shares of the Company's  common stock which was valued at $450,000 for marketing
services  and  $1,802,236  shares of the common  stock of the Company  which was
valued at $126,142 for other services.  In addition,  the Company issued 440,350
shares in exchange for 200,000 shares in A. Cohen & Co. These shares were valued
at $25,340.  We issued  19,360,000 shares of our common stock in connection with
acquisitions (Note 5).

      During the year ended  December 31, 2003 there were no non-cash  investing
or financing activities.

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


                                      F-6
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(1) Basis of Presentation

ROO Group,  Inc. ("we," "us," "our," the "Company" or "ROO Group"),  through our
operating subsidiaries,  is 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.  We specialize in 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. We also operate a global network of individual destination
portals  under the brand ROO TV,  that  enables end users in  different  regions
around  the world to view  video  content  over the  Internet  that is  topical,
informative,  up to date,  and  specific  to the region in which  they live.  In
conjunction  with our  subsidiaries,  we  currently  service  websites  based in
Europe, Australia, the United States and South Africa. We also generate revenues
through the  operation  of Reality  Group Pty.  Ltd  ("Reality"),  our 80% owned
subsidiary.  Reality  is  a  provider  of  integrated  communication  solutions,
including direct marketing,  internet  advertising and sales promotion.  Reality
generates  revenue  through  traditional  and online  services to their  clients
including strategy, creative and media placement.

      On December 2, 2003,  ROO Media  Corporation  ("ROO  Media") and Virilitec
Industries  entered into an Agreement  and Plan of Merger (the  "Merger").  As a
result of the Merger, Virilitec Industries 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 at that time were  cancelled  and
converted into the right to receive an aggregate of 148,000,000 shares of common
stock of Virilitec  Industries.  For accounting purposes the Merger was recorded
as a  recapitalization  of ROO Media with ROO Media as the acquirer.  The Merger
was treated as an issuance of shares for cash by ROO Media. Shares issued in the
Merger are shown as outstanding for all periods presented, in the same manner as
for a stock split.  The financial  statements  prior to December 2, 2003 reflect
the operations of ROO Media only.  Subsequent to the Merger,  Virilitec  changed
its name to ROO Group, Inc.

In prior years,  we were in the  development  stage.  During 2004, our principal
operations  generated  significant  revenues.  As such,  we no  longer  consider
ourselves a development stage company.

(2) Summary of Significant Accounting Policies

(A) Principles of Consolidation - The consolidated  financial statements include
the  accounts  of ROO  Group,  Inc.,  its  wholly  owned  subsidiary  ROO  Media
Corporation, its wholly owned subsidiary Bickhams and its 80% subsidiary Reality
Group  Pty.  Ltd.  ("Reality").  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"),  its 76%-owned subsidiary
ROO Media Europe Pty Ltd, its wholly owned subsidiary ROO  Broadcasting  Limited
and its wholly owned  subsidiary ROO TV Pty Ltd.  Included in the  consolidation
with Bickhams is Bickhams' wholly owned subsidiary VideoDome, Inc.

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

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

(D) Fair value of Financial  Instruments - The carrying  amounts reported in the
balance  sheet  for cash and cash  equivalents,  accounts  receivable,  accounts
payable and accrued  liabilities  approximate  their fair values  because of the
immediate or short-term maturity of these financial instruments.  The fair value
of long-term  debt is based on current  rates at which the Company  could borrow
funds with similar remaining maturities.

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


                                      F-7
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(2) Summary of Significant Accounting Policies (Continued)

(F) Cash  and  Cash  Equivalents  - The  Company  considers  all  highly  liquid
investments with original  maturities of ninety days or less to be cash and cash
equivalents. Such investments are valued at quoted market prices.

(G)  Property  and  Equipment  -  Property  and  equipment  are  stated at cost.
Depreciation  is provided  for using the  straight-line  and  declining  balance
methods of accounting  over the  estimated  useful lives of the assets [See Note
5].

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

(I) 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.

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,  2004,  one  customer  accounted  for
approximately  23% 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.  Allowances
are established based on a variety of factors,  including the length of time the
receivables  are  past  due,   significant   one-time  events,   and  historical
experience.  Management  believes that accounts  receivable credit risk exposure
beyond such  allowance  is limited.  The  allowance  as of December 31, 2004 was
$42,952.  If  circumstances  related  to  customers  change,  estimates  of  the
recoverability of receivables would be further adjusted.

We generally do not require collateral for our financial instruments.

The  accompanying  balance sheet  includes  assets of  approximately  $4,700,000
relating  to the  Company's  operations  in  Australia.  Although  Australia  is
considered  politically  and  economically  stable,  it is always  possible that
unanticipated   events  in  foreign   countries   could  disrupt  the  Company's
operations.

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

In December 1999, the  Securities and Exchange  Commission  ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"),  "Revenue  Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements  filed with the SEC. SAB 101 outlines the basic criteria that must be
met to recognize revenue and provide guidance for disclosures related to revenue
recognition  policies.  Management believes that ROO Group's revenue recognition
practices  are in  conformity  with the  guidelines of SAB 101 as amended by SAB
104.

(K) Earnings  (Loss) Per Share  Calculation - Net loss per share is based on the
weighted  average number of shares  outstanding  reflecting the shares issued in
the merger as outstanding for all periods presented.

Earnings  (Loss)  per  common  share  are  calculated  under the  provisions  of
Statement  of  Financial  Accounting  Standards  (SFAS) No. 128,  "Earnings  per
Share," which  establishes  standards for computing and presenting  earnings per
share.  SFAS No. 128 requires ROO Group to report both basic earnings (loss) per
share,  which  is  based  on  the  weighted  average  number  of  common  shares
outstanding  during the period,  and diluted earnings (loss) per share, which is
based on the  weighted  average  number of common  shares  outstanding  plus all
potential  dilutive  common  shares  outstanding.  Options and  warrants are not
considered in calculating  diluted  earnings (loss) per share since  considering
such items would have an anti-dilutive effect.


                                      F-8
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(2) Summary of Significant Accounting Policies (Continued)

(L) Stock-Based Compensation - We account for stock-based compensation utilizing
the  intrinsic  value method in  accordance  with the  provisions  of Accounting
Principles  Board  Opinion  No. 25 (APB  25),  "Accounting  for Stock  Issued to
Employees" and related Interpretations.  Accordingly, no compensation expense is
recognized  because the exercise prices of these employee stock options equal or
exceed the estimated fair market value of the  underlying  stock on the dates of
grant.

In December  2004, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of Financial  Accounting  Standards  ("SFAS") No. 123R,  "Share-Based
Payment".  SFAS No. 123R is a revision of SFAS No.  123,  "Accounting  for Stock
Based  Compensation",  and  supersedes  APB 25.  Among  other  items,  SFAS 123R
eliminates the use of APB 25 and the intrinsic  value method of accounting,  and
requires  companies  to  recognize  the cost of  employee  services  received in
exchange for awards of equity instruments, based on the grant date fair value of
those awards,  in the financial  statements.  The effective date of SFAS 123R is
the first reporting period beginning after June 15, 2005, which is third quarter
2005 for calendar year companies,  although early adoption is allowed. SFAS 123R
requires  companies  to adopt its  requirements  using a "modified  prospective"
method. Under the "modified prospective" method, compensation cost is recognized
in the financial  statements  beginning  with the effective  date,  based on the
requirements of SFAS 123R for all share-based  payments granted after that date,
and based on the  requirements of SFAS 123 for all unvested awards granted prior
to the effective  date of SFAS 123R.  The "modified  retrospective"  method also
permits  entities to restate  financial  statements of previous periods based on
proforma disclosures made in accordance with SFAS 123.

We currently  utilize a standard option pricing model (i.e.,  Black-Scholes)  to
measure  the fair value of stock  options  granted  to  employees  for  proforma
purposes.  While SFAS 123R permits entities to continue to use such a model, the
standard also permits the use of a "lattice"  model.  We have not yet determined
which model we will use to measure the fair value of employee stock options upon
the adoption of SFAS 123R.

SFAS 123R also requires that the benefits  associated with the tax deductions in
excess of  recognized  compensation  cost be reported as a financing  cash flow,
rather than as an operating cash flow as required under current  literature.  We
have not yet  determined  what effect,  if any,  this change will have on future
periods.

We currently expect to adopt SFAS 123R effective July 1, 2005;  however, we have
not yet determined which of the aforementioned adoption methods we will use.

(M) Non Cash Cost of Capital - During the twelve month  periods  ended  December
31, 2004 and 2003, non cash cost of capital  included options issued for capital
raising services and options attached to stock issued for cash which were valued
using the Black-Scholes method totaling $512,230 and $-0-, respectively.


                                      F-9
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(2) Summary of Significant Accounting Policies (Continued)

(N)  Advertising  Expense  - Our  policy  is to  expense  advertising  costs  as
incurred. We incurred no significant advertising expense in 2004 or 2003.

(O) Recent  Accounting  Pronouncements  - In November 2004, the FASB issued SFAS
No. 151, "Inventory Costs - an amendment to ARB No. 43." This statement provides
guidance  to clarify  the  accounting  for  abnormal  amounts  of idle  facility
expense,  freight  handling costs, and wasted material  (spoilage),  among other
production costs. Provisions of ARB No. 43 stated that under some circumstances,
items such as idle facility expense,  excessive  spoilage and other costs may be
so abnormal as to require  treatment as current period  charges.  This statement
requires that those items be recognized as current period charges  regardless of
whether they meet the  criterion  of "so  abnormal."  In addition,  SFAS No. 151
requires  that  allocation  of  fixed  production  overheads  to  the  costs  of
conversion be based on the normal  capacity of the  production  facilities.  The
provisions of this  Statement  will be applied  prospectively  during our fiscal
year beginning after June 15, 2005. Adoption of the Statement is not expected to
have a material impact on our financial statements.

In  November  2004,  the FASB issued  SFAS No. 152  "Accounting  for Real Estate
Time-Sharing  Transactions  - An amendment of SFAS No. 66 and 67. This Statement
amends SFAS No. 66.  "Accounting  for Sales of Real  Estate," to  reference  the
financial  accounting  and  reporting  guidance  for  real  estate  time-sharing
transactions  that is  provided  in AICPA  Statement  of  Position  (SOP)  04-2,
Accounting  for Real Estate  Time-Sharing  Transactions."  This  Statement  also
amends SFAS No. 67,  "Accounting for Costs and Initial Rental Operations of Real
Estate  Projects," to state the guidance for (a) incidental  costs and (b) costs
incurred to sell real estate projects does not apply to real estate time-sharing
transactions.  The  accounting  for those  operations  and costs is  subject  to
guidance in SOP 04-2.  SFAS No. 152 is effective  for financial  statements  for
fiscal years  beginning  after June 15, 2005.  Adoption of this Statement is not
expected to have a material impact on our financial statements.

In November 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an  amendment to APBO No. 29." This  Statement  amends  Accounting  Principles
Board  Opinion  ("APBO")  No. 29 to  eliminate  the  exception  for  nonmonetary
exchanges of similar  productive assets and replaces it with a general exception
for exchanges of nonmonetary  assets that do not have  commercial  substance.  A
nonmonetary  exchange has  commercial  substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. This is
effective for fiscal  periods  beginning  after June 15, 2005.  Adoption of this
statement is not expected to have a material impact on our financial statements.

(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 net loss of  approximately  $4,226,000 for the year ended December
31, 2004,  $579,000 for the year ended  December 31, 2003.  Additionally,  as of
December 31, 2004,  we had a net working  capital  deficiency  of  approximately
$819,000 and negative  cash flows from  operating  activities  of  approximately
$1,470,000.  Since the Company's inception, we have incurred losses, have had an
accumulated  deficit,  and have experienced negative cash flows from operations.
The expansion and  development of our business may require  additional  capital.
This condition raises substantial doubt about our ability to continue as a going
concern.  Our management expects cash flows from operating activities to improve
during  fiscal year 2005,  primarily  as a result of an  increase in sales,  and
plans to raise  financing  through  various  methods to achieve  their  business
plans, 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-10
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(4) Marketable Securities - At Fair Value

The Company has classified its investments in marketable securities as available
for sale in conformity with generally accepted accounting principles.

Cost and fair value of marketable  securities  available for sale as of December
31, 2004 are as follows:

                                 Unrealized      Unrealized
                    Cost           Gain            Losses           Fair Value
                    ----         ----------      ----------        ----------
Common Stock     $    25,338      $    --        $    10,315       $    15,023
                 ===========      =======        ===========       ===========

Available for sale securities are valued at fair value,  with  unrealized  gains
and losses shown as a separate  component of stockholders'  equity. For the year
ended December 31, 2004, stockholders' equity includes unrealized holding losses
of $10,315.

Realized gains and losses are determined on the basis of sales price compared to
original  cost.  Cost is determined  under the specific  identification  method.
During the fiscal year ended December 31, 2004,  there were no sales proceeds or
gross realized gains and losses on securities classified as available for sale.

The unrealized  gain on marketable  securities,  which is included as a separate
component of stockholders' equity in the accompanying  balance sheet,  increased
by $10,315 during the year ended December 31, 2004.

(5) Acquisitions

(i) On April  30,  2004 the  Company  completed  the  acquisition  of 80% of the
outstanding  ordinary  shares  (the  "Shares")  of The  Reality  Group  Pty Ltd.
("Reality").  Reality  is a  provider  of  integrated  communication  solutions,
including direct marketing, internet advertising and sales promotion.

The  consideration  for the Shares was the  issuance  of an  aggregate  of eight
million three hundred and sixty thousand (8,360,000) shares of common stock, par
value $.0001 per share, of ROO Group, Inc. to the Reality shareholders, pro rata
based on the Reality shareholders'  ownership interest in Reality. As additional
consideration  for the Shares,  ROO Group,  Inc.  agreed to pay an  aggregate of
US$144,456  ($200,000  Australian  Dollars)  to the Reality  shareholders  on or
before  September  30,  2004,  to be  divided  proportionally  to  each  Reality
shareholder based on the Reality  shareholder's  current ownership percentage in
Reality.  The shares were valued at time of issue at $0.30 per share as this was
the price that the Company  guaranteed the closing market price of the Company's
common  stock  would be one year  from the date of the  closing  of the  Reality
acquisition and, together with the deferred cash payment,  placed a value on the
Reality  acquisition  of  $2,652,456.  Unless the trading price of the Company's
common  stock  is at  least  $0.30  per  share  for a period  of  twelve  months
commencing  one year from the  closing of the Reality  acquisition,  the Company
will be required to pay the difference between the closing share price per share
and $0.30 per share (a) in cash,  (b) by returning a number of shares in Reality
to the original  Reality  shareholders  on a pro rata basis based upon an agreed
valuation  of the  Reality  ordinary  shares  or (c) with the  agreement  of the
Reality  shareholders,  by issuing  additional  common shares of ROO Group, Inc.
proportionately to the Reality shareholders.

The  operations  of Reality  during the period from May 1, 2004 to December  31,
2004 have been included in the consolidated statements.


                                      F-11
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(5) Acquisitions (Continued)

The following table  summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition (April 30, 2004).

Current assets                                                        $  961,780
Property, Plant and Equipment                                            326,532
Deferred Tax Assets                                                       13,108
Customer List (Note 9)                                                   650,054
Goodwill (Note 9)                                                      1,990,413
                                                                      ----------

Total Assets Acquired                                                  3,941,887
                                                                      ----------

Current Liabilities                                                    1,160,326
Non Current Liabilities                                                  123,943
Minority Interest                                                          5,162
                                                                      ----------

Total Liabilities Assumed                                              1,289,431
                                                                      ----------

  Net Assets Acquired                                                 $2,652,456
                                                                      ==========

Of the  $1,990,413  of  Goodwill  acquired,  none is  deductible  for income tax
purposes.

(ii) On June 1, 2004 the Company  completed the  acquisition of the business and
business  assets of Undercover  Media Pty Ltd.  ("Undercover").  Included in the
purchase  is  the   www.undercover.com.au   website,   which  currently   serves
approximately 500,000 visitors per month with 55% from the USA, 18% from Europe,
7% from Asia and 20% from  other  countries  around the  world.  The  Undercover
website,  through its relationship with HMV,  exemplifies the link between music
content and the sale of music;  the user reads the article or interview  and can
then click through and purchase the artist's CD from HMV's web site.

The consideration for the business was one million  (1,000,000) shares of common
stock,  par value $.0001 per share,  of ROO Group,  Inc. In  determining  a fair
value for the cost of the acquisition of Undercover,  the Company considered the
effects of price  fluctuations  in the common  stock  during the period prior to
negotiations  through the period  subsequent to the closing of the  acquisition,
quantities  traded,  issue costs and the like.  The Company  considers  the fair
value for the stock issued to be $0.15 per share, for a total cost of $150,000.

The estimated fair value of the assets  acquired was $150,000 for music,  audio,
video and photographic  content acquired.  There were no liabilities  assumed in
the acquisition.

As a component of this  contract,  the Company  committed  to certain  milestone
payments totaling $300,000 in stock. No payments have been made through December
31, 2004, and future payments will be capitalized as a component of the purchase
price when deemed payable.

The operations of the business of Undercover for the period from June 1, 2004 to
December 31, 2004 have been included in the consolidated statements.

(iii) On September 10, 2004,  the Company  entered into an agreement to purchase
of all of the outstanding  shares of common stock of Bickhams  Media,  Inc. from
Avenue Group,  Inc pursuant to a Stock Purchase  Agreement  dated  September 10,
2004. In consideration  for the purchase,  the Company agreed to: (1) pay Avenue
Group $300,000 cash; (2) issue Avenue Group 4,000,000 shares of our common stock
(which was valued at  $280,000);  and (3)  guaranty  all of the  obligations  of
VideoDome.com  Networks,  Inc.  under a promissory  note of  VideoDome  that was
issued to Avenue Group in October 2003 in the principal  amount of $290,000.  In
addition,  the Company  agreed to issue  Avenue  Group  3,000,000  shares of our
common  stock in  consideration  for a letter which  terminated  a  Registration
Rights  Agreement  dated as of November  28,  2003,  these shares were valued at
$210,000.


                                      F-12
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(5) Acquisitions (Continued)

As of November 1, 2004,  the Company  entered  into an agreement  with  Bickhams
Media and Daniel and Vardit  Aharonoff for Bickhams Media to purchase 50% of the
outstanding  common stock of VideoDome.com  Networks,  Inc. Prior to November 1,
2004, Bickhams Media already owned the other 50% of the outstanding common stock
of VideoDome.  As a result of this transaction,  Bickhams Media now owns 100% of
the  outstanding  common stock of VideoDome.  Under the  agreement,  the Company
agreed to: (1) issue 5,000,000 shares of our common stock to Daniel Aharonoff on
the closing date (these shares were valued at $275,000); (2) issue an additional
3,000,000  shares of our common stock to Daniel  Aharonoff upon meeting  jointly
agreed  milestones (of which 1,000,000 shares valued at $55,000 have been issued
through  December  31,  2004);  and (3)  pay up to  $220,000  in cash to  Daniel
Aharonoff  upon meeting  jointly  agreed  milestones (of which $100,000 has been
paid through  December 31,  2004).  The  remaining  milestone  payments  will be
capitalized as a component of the purchase price when deemed payable.

The operations of Bickhams and VideoDome during the period from November 1, 2004
to December 31, 2004 have been included in the consolidated statements.

The following table  summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition (November 1, 2004).

Current Assets                                                        $  133,087
Property, Plant and Equipment                                             26,176
Software                                                               1,155,761
                                                                      ----------

Total Assets Acquired                                                  1,315,024
                                                                      ----------

Current Liabilities                                                      305,024
Non Current Liabilities                                                       --
                                                                      ----------

Total Liabilities Assumed                                                305,024
                                                                      ----------

  Net Assets Acquired                                                 $1,010,000
                                                                      ==========

Selected  unaudited  pro forma  combined  results of  operations  for the twelve
months ended  December 31, 2004,  assuming the Reality,  Undercover and Bickhams
acquisitions  occurred on January 1, 2004 using  actual  unaudited  figures from
each entity prior to acquisition, are presented as follows:

Total Revenues                                                      $ 5,682,152
Net (Loss)                                                          $(3,991,287)
Net (Loss) per Common and Common Equivalent Share                   $     (0.02)

(6) Leases

The Company is a party to a number of noncancelable  lease agreements  primarily
involving office premises and computer equipment.  Computer equipment leases are
generally  for 3-year  periods and the lease of office  premises is for a 4-year
period ending April 2006. The office  premises lease has a renewal option for an
additional 3-year term.


                                      F-13
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(6) Leases (Continued)

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, 2004.

Periods January to December                               Operating
unless stated otherwise                          Capital   Property      Total

2005                                            $ 48,540    $226,406    $274,946
2006                                              23,875      49,176      73,051
2007                                              33,027          --      33,027
2008                                              33,325          --      33,325
2009                                                  --          --          --
2010 and Thereafter                                   --          --          --
                                                --------    --------    --------

Total Minimum Lease Payments                     138,767    $275,582    $414,349
                                                            ========    ========
Less Amount Representing Interest                 12,682
                                                --------

Total Obligations Under Capital Leases          $126,085
                                                ========

Rent expense  amounted to $160,024  and $7,783 for the years ended  December 31,
2004 and 2003, respectively.

(7) Property and Equipment

Property and equipment at December 31, 2004 consists of the following:

<TABLE>
<CAPTION>
                               Plant and                  Motor
                               Equipment                 Vehicles
                 Plant and      Capital       Motor      Capital      Computer      Other
                 Equipment      Lease       Vehicles      Lease       Software    Equipment      Total
                 ---------    ---------    ---------    ---------    ---------    ---------    ---------
<S>              <C>          <C>          <C>          <C>          <C>          <C>          <C>
Cost             $ 165,101    $   9,280    $   4,119    $ 108,811    $  34,259    $ 153,167    $ 474,737
Accumulated
  Depreciation     (21,072)      (2,427)        (637)      (5,644)      (9,872)     (32,411)     (72,063)
                 ---------    ---------    ---------    ---------    ---------    ---------    ---------

  Net            $ 144,029    $   6,853    $   3,482    $ 103,167    $  24,387    $ 120,756    $ 402,674
                 =========    =========    =========    =========    =========    =========    =========

Estimated
  Useful Life     10 years      3 years      6 years      7 years      2 years     5 years
</TABLE>

Depreciation expense (including amortization of capital lease assets) amounts to
$65,056  and $4,652 for the twelve  months  ended  December  31,  2004 and 2003,
respectively.


                                      F-14
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(8) Income Taxes

The provision (benefit) for income taxes consisted of the following:

<TABLE>
<CAPTION>
                                                                                       Years ended
                                                                                        December 31,
                                                                                   2004         2003
                                                                                 ---------    --------
<S>                                                                              <C>          <C>
Current:
   Australian Federal Tax Expense                                                $  83,242    $     --
Non-Current:
   Australian Federal Tax Expense                                                  (34,621)         --
                                                                                 ---------    --------

   Totals                                                                        $  48,621    $     --
                                                                                 =========    ========

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                                                     $  37,822    $     --
Other (Non Allowable Deductions)                                                    10,799          --
                                                                                 ---------    --------

   Totals                                                                        $  48,621    $     --
                                                                                 =========    ========

The components of deferred tax assets and liabilities were as follows:

Deferred Tax Assets:
   Provision Accounts                                                            $  25,702    $     --
   Depreciation                                                                       (481)         --
   Other Liabilities                                                                17,167          --
                                                                                 ---------    --------

   Totals                                                                        $  42,388    $     --
                                                                                 =========    ========
</TABLE>

Although  realization  of the  deferred  tax  asset is not  insured,  management
believes it is more likely than not that this tax asset will be realized.

The Company has net operating loss carryforwards  related both to its Australian
and U.S. operations.  The Australian carryforwards of approximately 843,000 have
no expiration date. The U.S. carryforwards of approximately  3,685,000 expire in
2024.  The deferred tax asset of  $1,727,000  has been offset by an allowance of
the same amount due to uncertainty regarding realization.

(9) Goodwill And Intangible Assets

Goodwill of $1,990,413  represents the excess of acquisition costs over the fair
value of net assets of the Reality acquisition.

At December 31, 2004 intangible assets include the following:

                    Customer List    Software       Content

Cost                $   650,054    $ 1,155,761    $   249,739
Less Amortization      (108,341)       (38,525)       (89,288)
                    -----------    -----------    -----------

  Totals            $   541,713    $ 1,117,236    $   160,451
                    ===========    ===========    ===========

The customer lists were acquired as a component of the Reality  acquisition  and
are  being  amortized  over a 4 year  period on a  straight  line  basis.  It is
estimated that the aggregate annual amortization  expense for each of the next 3
years will be $162,510 for customer lists.  The software is being amortized over
a 5 year  period on a straight  line  basis.  It is  estimated  that the minimum
aggregate  annual  amortization  expense  for each of the  next 4 years  will be
$231,152  for  software.  Content  is  made  up of  digital  videos,  audio  and
photographs and is capitalized at the cost of production or acquisition. Content
is amortized over a 2 year period on a straight line basis. It is estimated that
the minimum  amortization  of content costs will total  $126,978 and $33,473 for
the years ending December 31, 2006 and 2005, respectively.


                                      F-15
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(9) Goodwill And Intangible Assets (Continued)

There was no  amortization  expense  related to  intangible  assets for the year
ended December 31, 2003.

The Company's  policy is to regularly  review goodwill and intangible  assets to
determine if they have been permanently  impaired by adverse  conditions.  As at
December 31, 2004  management  does not believe the  goodwill or its  intangible
assets to be impaired.

(10) Shareholder Loan Payable

The Company has  periodically  received cash  advances from its Chief  Executive
Officer.  These  amounts are  recorded  as a loan  payable by the  Company.  The
interest on the loan is 10% per annum and the outstanding balance as of December
31, 2004 was  $500,000.  Interest  expense for this loan  amounts to $50,980 and
$62,422 for the twelve months ended December 31, 2004 and 2003, respectively.

(11) Stock Issuances

On February 18, 2004, we authorized the issuance of 148,200 shares of our common
stock to Gersten,  Savage,  Kaplowitz,  Wolf & Marcus,  LLP, our  corporate  and
securities  counsel,  as payment for  $14,820 of  outstanding  legal  fees.  The
securities were issued pursuant to an exemption from  registration  requirements
under Section 4(2) of the Securities Act of 1933, as amended.

During the three months ended June 30, 2004,  the Company  issued  shares of its
common stock in a private placement conducted by the Company. The Company relied
upon the exemption from registration  provided by Section 4(2) of the Securities
Act. The Company determined that the fair value, based on market conditions, was
cash received for the common stock.

On March 3, 2004,  we  authorized  the issuance of an aggregate of 954,547
shares of our common stock to three accredited  investors in a private placement
conducted by us without the use of a placement agent. We sold the securities for
an  average  of $.0576  per  share.

During April 2004 the Company issued 4,720,833 shares of common stock, including
325,000 shares issued as compensation for non cash placement fees netted against
proceeds of shares.  The stock  issued for cash was issued at three price levels
that were determined  based on changing market  conditions - 333,333 shares were
issued at $0.075 per share,  812,500  shares  were issued at $0.08 per share and
3,250,000 shares were issued at $0.10 per share.

During May 2004 the Company  issued  974,996  shares of common stock,  including
75,000 shares issued as compensation  for non cash placement fees netted against
proceeds of shares. The stock issued for cash was issued at $0.15 per share.

During June 2004 the Company issued  986,333  shares of common stock.  The stock
issued for cash was issued at two price  levels  that were  determined  based on
changing  market  conditions - 353,000 shares were issued at $0.10 per share and
633,333 shares were issued at $0.15 per share.

During the three months ended June 30, 2004,  the Company also issued  shares of
its common stock as  consideration  for its  strategic  acquisitions  of Reality
Group Pty Ltd. and Undercover Media Pty. Ltd. (Note 3)

In addition,  during the three months  ended June 30, 2004,  the Company  issued
shares  of its  common  stock as  consideration  for  services  provided  to the
Company.

In April 2004, the Company  authorized  the issuance of 5,000,000  shares of its
common  stock to an entity for  marketing  services  provided  or to be provided
until December 31, 2004.

In May 2004, the Company  authorized the issuance of 37,765 shares of its common
stock to Gersten,  Savage,  Kaplowitz,  Wolf & Marcus,  LLP, its  corporate  and
securities counsel, as payment for outstanding legal fees.


                                      F-16
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(11) Stock Issuances (Continued)

During the three months ended  September 30, 2004,  the Company issued shares of
its common stock in a private  placement  conducted by the Company.  The Company
relied upon the  exemption  from  registration  provided by Section  4(2) of the
Securities  Act.  The Company  determined  that the fair value,  based on market
conditions, was cash received for the common stock.

During August 2004 the Company issued 675,000 shares of common stock and 675,000
options with an exercise price of 10 cents for a consideration of $50,000.

In  addition,  during the three  months ended  September  30, 2004,  the Company
issued shares of its common stock as consideration  for services provided to the
Company.

In August 2004,  the Company  authorized  the issuance of 330,557  shares of its
common stock to two entities for  investor  relations  services  provided to the
company.

In August  2004,  the  Company  authorized  the  issuance  of 440,350  shares as
consideration  for the acquisition of 200,000 shares in A. Cohen & Co., a listed
company on the London Stock Exchange. (Note 4)

On September 10, 2004,  the Company  entered into an agreement  where  4,000,000
shares of ROO common stock were issued in part  consideration  for the purchases
of all the outstanding shares of Bickhams Media, Inc. (Note 5)

On September 10, 2004,  the Company  entered into an agreement  where  3,000,000
shares of ROO common stock were issued in  consideration  for the termination of
the Registration Rights Agreement dated as of November 28, 2003. (Note 5)

On November 23, 2004, the Company to issued  1,285,714  share of common stock to
Sichenzia  Ross  Friedman  Ference LLP, our  corporate  securities  counsel,  as
payment for outstanding legal fees. These securities were issued pursuant to the
exemption from  registration  requirements  under Section 4(2) of the Securities
Act of 1933, as amended.

On November 23, 2004,  the Company  issued  5,000,000  shares of common stock to
Daniel  Aharonoff in partial  consideration  for the purchase by Bickhams Media,
Inc., one of our wholly owned  subsidiaries,  of 50% of the  outstanding  common
stock of VideoDome.com  Networks, Inc. The securities were issued pursuant to an
exemption from  registration  requirements  under Section 4(2) of the Securities
Act of 1933, as amended. (Note 5)

On December 21, 2004,  the Company  issued  1,000,000  shares of common stock to
Daniel  Aharonoff in partial  consideration  for the purchase by Bickhams Media,
Inc., one of our wholly owned  subsidiaries,  of 50% of the  outstanding  common
stock of VideoDome.com  Networks,  Inc. These shares of common stock were issued
upon the  satisfaction  of certain  jointly agreed  milestones by  VideoDome.com
Networks,  Inc.  The  securities  were  issued  pursuant  to an  exemption  from
registration  requirements  under Section 4(2) of the Securities Act of 1933, as
amended. (Note 5)

(12) Cost of Capital

During the years ended December 31, 2004, a company  associated  with a director
of a subsidiary of the Company received a cash payment  equivalent to 10% of the
cash received from the issuances of common stock from private  placements during
the period.


                                      F-17
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(13) Callable Secured Convertible Notes and Note Payable - Other

On September 10, 2004, the Company entered into a Securities  Purchase Agreement
with AJW Offshore,  Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New
Millennium  Capital  Partners II, LLC for the sale of (i) $3,000,000 in callable
secured  convertible notes and (ii) warrants to purchase 3,000,000 shares of our
common stock.

The investors are obligated to provide us with the funds as follows:

o     $1,000,000 was disbursed on September 13, 2004;

o     $1,000,000 was disbursed on November 26, 2004; and

o     $1,000,000 was disbursed on February 9, 2005. [See Note 15]

The callable  secured  convertible  notes bear  interest at 8%, mature two years
from the date of issuance,  and are  convertible  into our common stock,  at the
investors' option, at the lower of:

o     $0.20; or

o     65% of the average of the three  lowest  intraday  trading  prices for the
      common  stock on the  Over-The-Counter  Bulletin  Board for the 20 trading
      days before but not including the conversion date.

Upon placement of the first and second $1,000,000  callable secured  convertible
note and the issuance of the first and second 1,000,000  detachable warrants the
Company recorded this event under the guidance of the Emerging Issues Task Force
(EITF) issue number 00-27 "Application of Issue No. 98-5 to Certain  Convertible
Instruments".

The Company computed the value of the beneficial  conversion feature as $585,040
for first placement and $469,804 for the second placement and these were charged
to interest  expense  during the year ended  December 31, 2004. The Company also
recorded a discount  of $46,576  for the first  placement  and  $43,006  for the
second  placement for the detachable  warrants  issued in  conjunction  with the
callable  secured  convertible  notes.  The convertible note is shown net of the
unamortized  discount on the balance sheet. The discount is being amortized on a
straight  line basis over the life of the callable  secured  convertible  notes.
Amortization  expense for the discount amounted to $9,140 and $-0- for the years
ended December 31, 2004 and 2003 respectively.

Note Payable - Other  represents the  promissory  note issued to Avenue Group by
VideoDome.com Networks, Inc. (Note 5).

(14) Stock Option Plan

On April 1, 2004 the Board of  Directors of ROO Group,  Inc.  adopted ROO Group,
Inc.'s 2004 Stock Option Plan (the "Plan").  Pursuant to the Plan, which expires
on April 1, 2014,  incentive stock options or non-qualified  options to purchase
an aggregate of 50,000,000 shares of common stock may be issued. Of that amount,
options  to  acquire  13,700,000  shares of  common  stock  have been  issued to
officers,  directors,  employees and  consultants of ROO Group at prices ranging
from  $0.10 to $0.16 per  share.  In  addition  there are  6,150,000  options to
acquire  shares of common stock issued to employees  that are tied to milestones
that have not been  achieved at  December  31, 2004 and have not been valued for
the pro forma amounts  following.  The balance of options to acquire  30,150,000
shares issuable under the Plan have not been issued or committed for issuance.

<TABLE>
<CAPTION>

                                     2004                              2003
                                        Weighted Average                  Weighted Average
                              Options    Exercise Price       Options      Exercise Price
                              -------    --------------       -------      --------------
<S>                         <C>               <C>                  <C>            <C>
Outstanding - Beginning
  of year                           --        $    --              --             $  --
   Granted                  13,700,000        $0.1266              --             $  --
   Cancellations                    --        $    --              --             $  --
   Exercised                        --        $    --              --             $  --
   Expired                          --        $    --              --             $  --
                            ----------        -------          ------             ------
Outstanding - End of year   13,700,000        $0.1266              --             $  --
                            ==========        =======          ======             ======
Exercisable - End of year   13,700,000        $0.1266              --             $  --
</TABLE>


                                      F-18
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(14) Stock Option Plan (Continued)

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.

If the compensation  cost for the stock-based  employee  compensation  plans had
been  determined  based on fair  values of awards on the grant  date,  estimated
using the Black-Scholes option pricing model, which would be consistent with the
method  described in SFAS No. 123, the Company's  reported net (loss) and (loss)
per share would have been reduced to the pro forma amounts shown below:

                                                            Years ended
                                                            December 31,
                                                         2004           2003
                                                     -----------    -----------

Net (Loss) As Reported                               $(4,225,767)   $  (578,813)
Deduct: Amount By Which Stock-Based Employee
   Compensation As Determined Under Fair Value
   Based Method For All Awards Exceeds The
   Compensation As Determined Under The Intrinsic
   Value Method                                       (1,079,407)            --
                                                     -----------    -----------

Pro Forma Net (Loss)                                 $(5,304,674)   $  (578,813)
                                                     ===========    ===========

Basic and Diluted (Loss) Per Share As Reported       $     (0.02)   $        --
                                                     ===========    ===========

Pro Forma Basic and Diluted (Loss) Per Share         $     (0.03)   $        --
                                                     ===========    ===========

The weighted  average  assumptions for options granted during 2004 and 2003 were
as follows:

                                                2004      2003
                                                ----      ----

        Risk-free interest rate                 4.75%       --
        Dividend yield                             0%       --
        Volatility                               135%       --
        Expected life                         2 years       --


(15) Subsequent Events

On February 9, 2005,  the Company made the third  drawing of  $1,000,000  of the
convertible note (see Note 13)

Since  December  31,  2004  to the  date  of  this  report  the  holders  of the
convertible note AJW Offshore,  Ltd., AJW Qualified Partners, LLC, AJW Partners,
LLC and New Millennium  Capital  Partners II, LLC have converted an aggregate of
$70,080 of the convertible  notes for the issuance of 2,100,000 shares of common
stock in the Company.

On March 1, 2005 the Company entered in to a consulting agreement with Strategic
Growth, Inc, for investment  relations services.  Part of that agreement was the
issuance  of  7,000,000  options to purchase  shares in the common  stock of the
Company at $0.20 per share.


                                      F-19
<PAGE>

ROO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(15) Subsequent Events (Continued)

On March 9, 2005,  the Board of Directors of the Company  amended the  Company's
Certificate  of  Incorporation  to  designate  the rights of Series A  Preferred
Stock.  The  Certificate  of  Designation  authorizes the Company to issue up to
10,000,000  shares of Series A Preferred  Stock, par value $.0001 per share. The
Series  A  Preferred  Stock  has a  stated  value of  $.0001  and a  liquidation
preference  over the  Company's  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 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.

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 two shares of the Company's common stock.  However,  holders cannot
convert  any  share of  Series A  Preferred  Stock  if the  market  price of the
Company's common stock is below $0.40 per share.

On March 17, 2005, ROO Group,  Inc. (the "Company")  issued  6,000,000 shares of
Series A Preferred  Stock to its Chief  Executive  Officer,  Robert  Petty,  and
1,500,000  shares of Series A Preferred  Stock to its Chief  Financial  Officer,
Robin Smyth.  These shares were issued as a performance  bonus to Messrs.  Petty
and Smyth for,  among other  things,  their role in helping  expand and grow the
Company's  business  operations.  These  shares  were  issued  pursuant  to  the
exemption  from  registration  provided by Rule 506 under the  Securities Act of
1933.

Also on March 17, 2005, the Company  issued an aggregate of 2,000,000  shares of
Series A Preferred Stock valued at to two accredited  investors as consideration
for  investor  relations  services.  These  shares were  issued  pursuant to the
exemption  from  registration  provided by Rule 506 under the  Securities Act of
1933.

                               . . . . . . . . . .

                                      F-20