<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               AMENDMENT NO. 2 TO
                                   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, 2003

                                       or

( )      Transition Report Under Section 13 or 15(d) of the Securities Exchange
         Act of 1934

                        COMMISSION FILE NUMBER 000-27915

                              GENIUS PRODUCTS, INC.
             (Exact name of registrant as specified in its charter)

             NEVADA                                     33-0852923
   (State or Other Jurisdiction             (I.R.S. Employer Identification No.)
of Incorporation or Organization)

          740 LOMAS SANTA FE, SUITE 210, SOLANA BEACH, CALIFORNIA 92075
               (Address of principal executive offices) (Zip Code)

                                 (858) 793-8840
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

Title of each class so registered:                Name of each exchange on which
                                                     each class is registered:

             NONE                                               NONE

           Securities registered pursuant to Section 12(g) of the Act:

                         COMMON STOCK, PAR VALUE $0.001
                                (Title of Class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

         Net revenues for fiscal year 2003 were $3,068,506.

         The aggregate market value of voting stock held by non-affiliates of
the registrant was $42,957,308 as of March 26, 2004 (computed by reference to
the last sale price of a share of the registrant's common stock on that date as
reported by the Over the Counter Bulletin Board). For purposes of this
computation, it has been assumed that the shares beneficially held by directors
and officers of registrant were "held by affiliates"; this assumption is not to
be deemed to be an admission by such persons that they are affiliates of
registrant.

         There were 24,744,257 shares outstanding of the registrant's Common
Stock as of April 27, 2004.

         Transitional small business disclosure format (check one):
Yes [ ] No [X]



<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

                                     PART I

ITEM 1.      DESCRIPTION OF BUSINESS...........................................1

ITEM 2.      DESCRIPTION OF PROPERTY..........................................12

ITEM 3.      LEGAL PROCEEDINGS................................................12

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............13

                                     PART II

ITEM 5.      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........14

ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS........................................15

ITEM 7.      FINANCIAL STATEMENTS.............................................19

ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
             AND FINANCIAL DISCLOSURE.........................................20

ITEM 8A.     CONTROLS AND PROCEDURES..........................................20

                                    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...............................................25

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         AND RELATED STOCKHOLDER MATTERS......................................27

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................28

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.....................................31

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES...............................35





<PAGE>
                                EXPLANATORY NOTE


         On July 12, 2004, Genius Products, Inc. ("we" or "us") filed Amendment
No. 1 to our Registration Statement on Form SB-2 with the Securities and
Exchange Commission (SEC file No. 333-115613). In connection with the review of
that filing, the Securities and Exchange Commission also reviewed our Annual
Report on Form 10-KSB for the year ended December 31, 2003. In response to
suggestions put forth by the Securities and Exchange Commission and to make
certain conforming changes, we are amending certain of our disclosures to
enhance the overall quality of disclosure in our Annual Report. Other than as
indicated above, this amendment does not reflect events occurring after the
filing of our original Form 10-KSB or modify or update those disclosures that
may have been affected by subsequent events.



                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

OVERVIEW

         Genius Products, Inc., is a family-entertainment company that produces,
publishes and distributes digital video discs ("DVDs"), videos ("VHS") and
compact discs ("CDs"). Our products are sold at retail outlets nationwide and,
to a lesser extent, internationally, either through the distributors we sell to
or retailers we sell to directly. We also sell our products through various
websites on the Internet, including our own, www.geniusproducts.com. We market
both proprietary and licensed brand products.

         Our corporate mission is: "TO BECOME A LEADING PROVIDER OF FAMILY
ENTERTAINMENT FOCUSED ON CREATING, DEVELOPING AND ACQUIRING HIGH-QUALITY
PRODUCTS AND BRINGING THEM TO THE CONSUMER AT AFFORDABLE PRICES".

         We own or have the rights to publish DVDs, VHS and music
cassettes and CDs under the following trademarked brands. We also offer other
products as described below.

<TABLE>

PROPRIETARY DVD/VHS              PROPRIETARY MUSIC         LICENSED MUSIC                       OTHER/GIFT
-------------------------------- ------------------------- ------------------------------------ -------------------
<S>                              <C>                       <C>                                  <C>
Baby Genius                      Baby Genius               Beatrix Potter                       Zoo Babies
Kid Genius                       Kid Genius                Guess How Much I Love You            Gift Sets
Genius Entertainment             Wee Worship               Curious George
                                 Tranquility               Spot the Dog
                                                           Raggedy Ann & Andy
LICENSED DVD/VHS                                           Paddington Bear
--------------------------------                           Rainbow Fish
TV Guide                                                   The Snowman
AMC Movies                                                 Little Tikes
AMC TV for Movie People                                    Tonka
AMC Monsterfest                                            My Little Pony
BOZO the Clown

</TABLE>

         We intend to continue to explore opportunities to develop additional
licensed properties that build upon our family entertainment mission.

REVENUE SOURCES

         Our business model includes revenues from four major sources:

         1.       Sales of our branded proprietary and licensed DVDs and VHS;
         2.       Sales of our branded proprietary and licensed music audio CDs
                  and cassettes;
         3.       Sales of non-branded DVDs; and
         4.       Sales of Zoo Babies and gift sets.

CORPORATE STRUCTURE

         We were incorporated in the State of Nevada on January 6, 1996 under
the name Salutations, Inc. ("Salutations"). In September 1997, Salutations
acquired all of the outstanding shares of a company called International Trade
and Manufacturing Corporation ("ITM"), a Nevada corporation founded in 1992. At
the time of the acquisition, Salutations was a public company with shares quoted
on the Over the Counter Bulletin Board ("OTCBB"). Immediately after the
acquisition, Salutations assumed all of the operations and businesses of ITM and
changed its name to International Trading and Manufacturing Corporation
("ITMC"). The original business of ITM/ITMC involved the design, development and
distribution of semi-precious and precious gemstone and costume jewelry. In
October 1999, we changed our name again from International Trading and
Manufacturing Corporation to Genius Products, Inc., to reflect our primary
business of producing, publishing and distributing children's audio and video
products. We have evolved the business since then, adding family entertainment
product to the mix.

                                       1


<PAGE>

DVD AND VHS PRODUCTS

         We believe that the DVD market is a fast growing entertainment format.
Genius Products has made the strategic decision to try to become a more
significant participant in the DVD marketplace. We intend to continue to expend
additional resources on product development. Through an agreement with Falcon
Picture Group, LLC ("Falcon"), we have access to over 10,000 classic public
domain movies and television shows, and are digitally remastering selected shows
and enhancing their sound. We also sublicense the TV Guide(TM) and AMC(TM)
(American Movie Classics(TM)) brand names through our Falcon agreement. We plan
to distribute these AMC and TV Guide branded digitally remastered classic movies
and television programs on DVD and radio programs with other brand names on CD
through our existing distribution network to major mass-market retailers.

         On September 8, 2003, we entered into a license agreement with Falcon
for the exclusive rights to distribute a majority of its audio and video
products, including AMC branded DVD movie and television collections, in the
U.S. and Canada. This agreement expires on July 1, 2006, with an automatic
renewal for an additional three years if both parties are fulfilling their
obligations under the agreement, and calls for a royalty to be paid to Falcon on
the sales of the video and audio products. We have committed to pay a minimum
annual royalty of $240,000. Falcon assists us in compiling what we believe to be
commercially appealing DVD sets and digitally remasters a minimum of 100 hours
of classic movies and television programs per year at a one-time cost of
$300,000 for the first 100 hours of programming provided. For the remainder of
the agreement, the next 50 hours of remastered programming we receive will cost
$500 per hour. Additional hours of remastered branded programming will cost
$2,500 per hour. Additional hours of remastered non-branded programming will
cost $1,000 per hour or $1,000 per movie title.

         The agreement also provides us with a three-year option to acquire
Falcon's assets for $3,600,000 (payable in cash or stock or a combination of
cash and stock). As consideration for the issuance of the option, we issued to
Falcon 70,922 shares of our common stock, with a market value of approximately
$100,000 based on the average of the closing market price of the common stock as
of September 8, 2003, the date of issuance of such shares, and July 1, 2003, the
effective date of the agreement, as per the terms of the agreement relating to
the valuation of these shares. The specific assets and liabilities of Falcon
that we may decide to acquire under this option will be negotiated by the
parties at the time the acquisition is considered. BOZO(TM) television shows are
licensed to us by Falcon under a separate agreement.

         AMC is a 24-hour, movie-based network which reaches over 85 million
homes. AMC is devoted to showcasing and preserving the world of classic TV
programs and films. In October 2003, under the Falcon agreement, we started
releasing classic movies and television shows under three AMC brands: AMC
Movies(TM), AMC Monsterfest(TM) and AMC TV for Movie People(TM).

         TV Guide has an estimated audience of approximately 100 million
(including all of its various media outlets) for its entertainment information
and guidance. Working with TV Guide, we plan to release "TV Guide Selects"
classic television programming on DVD in the fall of 2004.

         Baby Genius videos were introduced in 1999. They feature real life and
animated images and are accompanied by classical music. There are seven Baby
Genius videos and DVDs in our current video library. All seven Baby Genius
videos have won the Film Advisory Board's Award of Excellence and are endorsed
by Kid's First! For the Coalition for Quality Children's Media. In addition, our
video "The Four Seasons" won the Kid's First! Video of the Year for 2001, and
our "A Trip to the San Diego Zoo" video won Parenting Magazine's Video of the
Year Award for 2002. Baby Genius videos and DVDs were distributed by Warner Home
Video from 2002 until the termination of our agreement with Warner Home Video in
the first quarter of 2004. As we have increased our presence in the DVD
marketplace, we developed the ability to self-distribute our DVD content. As a
result, we will begin self-distributing our regained line of videos and DVDs in
2004. We intend to continue to develop and release new titles in the infant and
children's DVD business under the names Baby Genius and Kid Genius.

         In November 2002, we entered into an exclusive worldwide agreement to
distribute the original BOZO the Clown television shows on VHS and DVD. The
first two BOZO videos and DVDs were introduced to the marketplace in 2003.

                                       2

<PAGE>

PROPRIETARY MUSIC

         In September 1998, we developed a line of classical music CDs and
cassettes for children under the Baby Genius brand name. Certain published
reports at the time indicated that classical music could play an important
positive role in a child's mental development. We publish, distribute and
license a line of musical CDs under the Baby Genius brand name which come in
three series: Classical, Instrumental and Vocal. We currently have 23 titles in
our Baby Genius music catalog. The CDs are sold individually and in three packs.
They are endorsed by Public Radio Music Source and Minnesota Public Radio
("MPR"), a subsidiary of Minnesota Communications Group ("MCG"). MCG funded a
portion of the Baby Genius development costs and has been instrumental in
assisting us to obtain classical music licenses. MPR and MCG are both current
shareholders and continue to work with us on music licensing and production.

         In 2003, we introduced the first two Kid Genius titles. While Baby
Genius products are developed for children up to the age of three, Kid Genius
music is targeted for children ages three to seven. Future releases are
currently under consideration.

LICENSED MUSIC

         We have focused on developing, producing and acquiring the music rights
to quality children's entertainment and toy brands. In addition to developing
our own Genius brand name products, we are seeking licenses for the audio and/or
video rights for established third-party properties. In this regard, we have
identified high-quality brands that have not licensed their music rights. We
have successfully introduced seven licensed music properties in 2003, which are
Guess How Much I Love You(TM), Rainbow Fish(TM), Curious George(TM), Paddington
Bear(TM), Raggedy Ann and Andy(TM), The Snowman(TM) and Spot(TM), with more new
titles slated for 2004. We intend to continue to seek to license additional
properties in the future.

OTHER PRODUCTS

         We are developing other music-based products and gift sets that we
expect to market to our existing retail customers. These products utilize our
ability to create and provide quality music-based products through our existing
distribution channels.

         Zoo Babies are collectible plush animals on pillows. We have designed
24 styles of Zoo Babies and plan to launch six styles in the fourth quarter of
this year through our existing distribution channels.

         We have created a line of gift sets that includes audio CDs and a
value-added item such as a picture frame or gift cards, ornaments or plush toys.

DISTRIBUTION

         We utilize a distribution facility located centrally in Atlantic, Iowa.
We sell our products directly to retailers and through key select distribution
companies. Genius Products has relationships with retailers nationwide and is a
direct supplier to nearly every major retailer or major distributor that carries
video and/or music products. We have distribution in approximately 10,000 retail
locations. Our products can be found at retail outlets nationwide, including
mass retail stores such as Target, Wal-Mart, Kmart, Meijers, ShopKo, Costco and
Sam's Club; children's toy stores such as Toys R us and Babies R Us; music and
video stores such as Best Buy and Sam Goody; bookstores such as Borders and
other non-traditional outlets.

         We have entered into distribution agreements with companies located in
the United States, Canada, the Philippines, Singapore, Hong Kong, Argentina and
Chile, and with the Australian Broadcasting Corporation in Australia and New
Zealand. In each of these instances, we receive licensing fees for the licensed
products that are produced and sold by the licensees. These products include
Baby Genius music products and videos in certain countries and products
developed by the licensees for sale that utilize Genius Products brand names and
marks. While we hope to enter into relationships with other international
distributors, there can be no assurance that we will do so or, if we do enter
into any such relationships, that they will be profitable. To date, our
international sales have not constituted a material portion of our business.

                                       3

<PAGE>

MARKETING AND SALES

         Our marketing and sales strategies are designed to build up the Genius
brand name for the retail, Internet and licensing components of our business. We
use what we consider to be innovative and relatively low-cost marketing
techniques, including public relations, promotional programs, in-store
advertising programs and cross-marketing with customers of our strategic
partners which are useful for marketing purposes but do not generate revenues
directly. We continue to exhibit our products at select industry trade shows.
Our new products are marketed to our existing mass-market retail customers
through our existing distribution channels.

         We own the majority of our vocal and instrumental music content. Genius
Products has built a considerable catalog of royalty-free children's music that
allows us to use low-cost music for most of our audio products.

         Our two largest customers in 2003 which accounted for 36% and 18% of
our net revenues were Anderson Merchandising, Inc., and Target Corporation,
respectively. In the first quarter of 2004, our major customer accounting for
54% of our net revenues was Dollar Tree Stores, Inc.

THIRD-PARTY LICENSES

         We license our classical music from Naxos of America, Inc. ("Naxos").
The various license agreements we have with Naxos terminate upon the expiration
of the copyright of the music that is held by Naxos, or upon our discontinuation
of the product line. We also pay royalties to other parties for selected songs
that were chosen for inclusion in the Baby Genius product line.

         In September 2003, we entered into a license agreement for the
exclusive right to distribute a majority of Falcon Picture Group's audio and
video products, including AMC branded DVD movie and television collections, in
the U.S. and Canada. This license agreement calls for a royalty to be paid on
the sales of the video and audio products. Through a separate agreement with
Falcon, in 2002 we obtained the right to distribute the original BOZO the Clown
television shows on video and DVD. This distribution agreement calls for a
distribution fee and a royalty to be paid on the sales of BOZO videos and DVDs.

         Also as discussed above, we have entered into licensing agreements to
develop, manufacture and distribute music CDs in association with the books
Guess How Much I Love You(TM), Rainbow Fish(TM), Curious George(TM), Paddington
Bear(TM), Raggedy Ann and Andy(TM), The Snowman(TM), Spot(TM), Beatrix
Potter(TM), My Little Pony(TM), Little Tikes(TM) and Tonka(TM). These agreements
call for a royalty to be paid on all related music sales. Ownership of the music
we create for these products becomes the property of the licensor.

COPYRIGHTS, TRADEMARKS AND LICENSES

         We have applied for trademarks under the Baby Genius, Kid Genius and
other Genius names across a range of product categories. As of March 26, 2004,
the status of our United States Trademark Applications are as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------

MARK                           REGISTERED                   ALLOWED                     PENDING
--------------------------------------------------------------------------------------------------------------------
<S>                            <C>                          <C>                         <C>
Wee Worship                                                                             Music
                                                                                        Printed Matter
                                                                                        Books
                                                                                        Clothing
                                                                                        Toys
--------------------------------------------------------------------------------------------------------------------
Wee Sing                                                                                Music
--------------------------------------------------------------------------------------------------------------------
Hollywood Classics                                                                      DVDs and Video Tapes
--------------------------------------------------------------------------------------------------------------------
Genius Entertainment                                                                    DVDs and Video Tapes
Hollywood Classics
--------------------------------------------------------------------------------------------------------------------

                                       4

<PAGE>

--------------------------------------------------------------------------------------------------------------------

MARK                           REGISTERED                   ALLOWED                     PENDING
--------------------------------------------------------------------------------------------------------------------

Baby Genius                    Music                        Cartoon characters         Television Shows; Motion
                               Books                                                   Pictures; and Live
                               Clothing                                                Performances by Costumed
                               Toys                                                    Characters
                               Baby bottles
                               Infant Cradles
                               Bassinets
                               Bedroom Furniture
                               Highchairs
                               Furniture Toy Boxes
                               Playpens
                               Infant Walkers
                               Sleeping Bags
                               Pillows
--------------------------------------------------------------------------------------------------------------------

Kid Genius                     Music                                                    Television Shows; Motion
                               Books                                                    Pictures; and Live
                               Clothing                                                 Performances by Costumed
                               Toys                                                     Characters
--------------------------------------------------------------------------------------------------------------------

Child Genius                   Music
                               Books
                               Clothing
                               Toys
--------------------------------------------------------------------------------------------------------------------

Little Genius                  Music
                               Books
                               Clothing
                               Toys
--------------------------------------------------------------------------------------------------------------------

Parent Genius                                                                           Music
                                                                                        Books
                                                                                        Clothing
                                                                                        Toys
--------------------------------------------------------------------------------------------------------------------

Got Baby                                                    Advertising
--------------------------------------------------------------------------------------------------------------------

Genius Gear                                                 Clothing
--------------------------------------------------------------------------------------------------------------------

Genius Products                Wholesale and retail
                               services for general
                               merchandise, and
                               advertising.
--------------------------------------------------------------------------------------------------------------------

Genius Entertainment                                        Music
                                                            DVDs and Video Tapes
--------------------------------------------------------------------------------------------------------------------

DJ the Dinosaur                Music                        Books

                               Toys                         Clothing
--------------------------------------------------------------------------------------------------------------------

Harmony the Kitty                                                                       Music
                                                                                        Books
                                                                                        Clothing
                                                                                        Toys
--------------------------------------------------------------------------------------------------------------------

                                       5

<PAGE>

--------------------------------------------------------------------------------------------------------------------

MARK                           REGISTERED                   ALLOWED                     PENDING
--------------------------------------------------------------------------------------------------------------------

Golden Ears                                                                             Music
                                                                                        Books
                                                                                        Clothing
                                                                                        Toys
--------------------------------------------------------------------------------------------------------------------

Oboe the Monkey                                                                         Music
                                                                                        Books
                                                                                        Clothing
                                                                                        Toys
--------------------------------------------------------------------------------------------------------------------

Rhythm the Rabbit                                                                       Music
                                                                                        Books
                                                                                        Clothing
                                                                                        Toys
--------------------------------------------------------------------------------------------------------------------

Vinko the Dancing Bear                                                                  Music
                                                                                        Books
                                                                                        Clothing
                                                                                        Toys
--------------------------------------------------------------------------------------------------------------------

Tempo the Tiger                                                                         Music
                                                                                        Books
                                                                                        Clothing
                                                                                        Toys
--------------------------------------------------------------------------------------------------------------------
Carnegie Falls                                                                          Television Shows; Motion
                                                                                        Pictures; and Live
                                                                                        Performances by Costumed
                                                                                        Characters
--------------------------------------------------------------------------------------------------------------------
Lifetones Music                                                                         Music
--------------------------------------------------------------------------------------------------------------------
The Zoo Collection by Kid                                   Toys
Genius
--------------------------------------------------------------------------------------------------------------------
Zoo Babies                                                                              Toys
--------------------------------------------------------------------------------------------------------------------
Music For Life                                                                          Music
--------------------------------------------------------------------------------------------------------------------
Celebrate the Season                                                                    Music
--------------------------------------------------------------------------------------------------------------------
Celebrate the Seasons                                                                   Music
--------------------------------------------------------------------------------------------------------------------
Noah's Ark Collection                                                                   Toys
--------------------------------------------------------------------------------------------------------------------
Noah's Babies                                                                           Toys
--------------------------------------------------------------------------------------------------------------------
</TABLE>

         The mark Baby Genius is registered in Canada and registration of the
Baby Genius name in Mexico, Japan, Korea, the Philippines and the countries of
the European Union is in process for product categories covering music videos,
music, books, clothing and toys.

                                       6

<PAGE>

SUPPLIERS AND COMPLIANCE WITH ENVIRONMENTAL LAWS

         We are able to obtain our CDs, cassettes, videos and DVDs from a
variety of suppliers. These items are readily available, and we would not expect
our production to be seriously affected by the failure of any one supplier. We
are not aware of any environmental laws that affect our business.

INTERNET BUSINESS

         We are currently reformatting our website (www.GeniusProducts.com).
Consumers who visit the website can purchase our music products directly from
us. We are also creating a business-to-business section that will allow smaller
independent retailers to order our products for resale in their stores. We
believe that a continued Internet presence is desirable in that it aids in
consumer sales, business-to-business sales and name recognition and, in doing
so, assists our retail business.

COMPETITION

         The retail and Internet markets for infant and toddler developmental,
educational and entertainment products and for family entertainment products,
including cassettes, CDs, videos and DVDs, are highly competitive. We face
significant competition with respect to the number of products currently
available, as well as in securing distribution and retail outlets. The costs of
entry into the retail and Internet markets for competitive products are low, and
there are no significant barriers to entry. There are many companies who could
introduce directly competitive products in the short term that have established
brand names, are better funded, have established distribution channels, and have
greater resources than us.

         Within the category of family video, these established companies
include Disney, Fox, Paramount, Sony, Time-Warner, Lionsgate and more. Within
the category of children's music, established competitors include Disney, Kid
Rhino, Madacy, Music for Little People, St. Clair, Direct Source, Twin Sisters,
Great American Audio, Razor & Tie and more. Within the category of videos for
children, established competitors include the Baby Einstein and Winnie-the-Pooh
series by Disney Home Video, Barney series by Lyrick Studios, Dr. Suess series
by Fox Home Entertainment, Little Bear series by Paramount Home Video,
Paddington Bear series by Time-Life, Sesame Street series by Sony Wonder,
Teletubbies and Boohbah series by PBS Home Video/Warner, Madeleine, The Jungle
Book, The Little Mermaid, Fisher Price, Leapfrog, Brainy Baby and So Smart.

RISK FACTORS

         FORWARD-LOOKING STATEMENTS. Some of the information in this document
contains forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by forward-looking words such
as "may", "will", "expect", "anticipate", "believe", "estimate", "plan",
"intend", and "continue" or similar words. You should read statements that
contain these words carefully because they:

         o        discuss our future expectations;
         o        contain projections of our future results of operations or of
                  our financial condition; and
         o        state other "forward-looking" information.

                                       7


<PAGE>

         We believe it is important to communicate our expectations. There may
be events in the future, however, that we are not able to accurately predict or
over which we have no control. The risk factors listed in this section, as well
as any cautionary language in this Annual Report on Form 10-KSB, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. You should be aware that the occurrence of the events described in
these risk factors and elsewhere in this annual report could have an adverse
effect on our business, results of operations and financial condition.

RISKS RELATED TO OUR BUSINESS:

WE HAVE A HISTORY OF SIGNIFICANT LOSSES, AND WE MAY NEVER ACHIEVE OR SUSTAIN
PROFITABILITY.

         We have incurred operating losses in every quarter since we commenced
operations. As of December 31, 2003, we had an accumulated deficit of
approximately $15.5 million. Our net loss for the year ended December 31, 2003,
was approximately $2.7 million; our net loss for the year ended December 31,
2002, was approximately $2.8 million; and our net loss for the year ended
December 31, 2001, was approximately $2.4 million. We expect to continue to
devote substantial resources to acquire additional licenses, to develop
additional proprietary DVD and VHS products, and continue our sales and
marketing activities, including our branding efforts. As a result, our operating
losses may increase. Our continued operational loss may have a material adverse
effect upon the value of our common stock and may jeopardize our ability to
continue our operations.

WE MUST ESTABLISH AND MAINTAIN STRONG BRAND IDENTITY TO COMPETE EFFECTIVELY.

         We believe that continuing to strengthen our "Genius" brand names and
other brand names we license will be critical to achieve widespread acceptance
of our products. Favorable public perception of our branded products will depend
largely on our ability to continue providing users with high-quality products
and the success of our marketing efforts. We plan to increase our marketing
expenditures to create and maintain brand recognition. However, brand promotion
activities may not yield increased revenues and, even if they do, any increased
revenues may not offset the expenses we incur in building our brands.

THE LOSS OF ANY OF OUR MAJOR CUSTOMERS COULD HARM US.

         In 2003, our two largest customers, Anderson Merchandising, Inc., and
Target Corporation, accounted for 33% and 18% of our net revenues, respectively.
In 2002, our three largest customers accounted for 37%, 20% and 12% of our net
revenues, respectively. At December 31, 2003, three customers accounted for 72%
of accounts receivable. The loss of any of these significant customers could
have a material adverse effect upon the value of our common stock and our
business, operations and financial condition.

WE ARE DEPENDENT UPON KEY PERSONNEL.

         We are dependent on our executive officers, the loss of any one of whom
would have an adverse effect on us. While we have employment agreements with our
executive officers, unforeseen circumstances could cause these persons to no
longer be available to render their services to us. If we are unable to retain a
skilled management team, it would have a material adverse effect upon the value
of our common stock and our business, operations and financial condition.

PAYMENTS DUE UNDER EMPLOYMENT AGREEMENTS COULD ADVERSELY AFFECT OUR FINANCIAL
RESULTS.

         Under the terms of employment agreements with our executives, certain
payments amounting to an aggregate maximum of approximately $1,110,500 could
become due that might have a material adverse effect upon our liquidity and
results of operations. Payments would be due if we have a change of control and
our executives are terminated without cause. If an executive dies or is
terminated without cause, severance pay averaging up to $206,250 per executive
would be due.

                                       8


<PAGE>

WE MAY HAVE TO REPURCHASE SOME OF OUR OUTSTANDING COMMON STOCK AT PRICES HIGHER
THAN CURRENT MARKET PRICES.

         During the period 1997 through 1999, we issued shares in Arizona,
Pennsylvania and Washington, for which no share registration filings were made
under the securities laws of those states and for which exemptions from
registration appear to be unavailable. In order to comply with the laws of
those states, we plan to offer to repurchase all such shares from investors who
originally acquired them from us, who were residents in those states at the time
of purchase, and who continue to hold such shares at the time the offer is made.
We will have to pay to each shareholder who accepts the offer the price per
share they originally paid, plus interest where applicable, accrued from the
date of initial purchase to the date of repurchase.

         We believe the potential cost to us of conducting this repurchase would
be approximately $500,000 for the 66,888 shares that are subject to repurchase
(adjusted for the reverse stock split of April 10, 2001). At December 31, 2003,
a liability of $490,932 has been accrued representing the amount of stock
purchased and accrued interest for the rescission matters in Arizona,
Pennsylvania and Washington. If we do not repurchase the shares, the
shareholders involved may seek to exercise certain rights as creditors or seek
to enforce claims for breach of contract. Additionally, such investors may file
complaints with the applicable securities regulatory body of these states and
such governmental bodies could take various actions against us requiring us to
conduct these repurchase offers. In addition, interest would continue to accrue
on the outstanding amounts owed to shareholders in Pennsylvania and Washington
at annual rates of 6% and 8%, respectively.

         As described in more detail in "Legal Proceedings", on September 23,
1999, the Securities Administrator of the State of Washington filed a Summary
Order to Cease and Desist against us with the State of Washington Department of
Financial Institutions Securities Division against us. The relief sought is that
we cease and desist from violations of certain sections of the Securities Act of
Washington. We are in discussions with the Securities Administrator regarding
entering into an administrative order and although no terms of an administrative
order have yet been proposed by the Securities Administrator, the purpose of
entering such an order would be to resolve all claims based on the allegations
set forth in the Summary Order to Cease and Desist. We anticipate that any
resolution of this matter with the Securities Administrator would include our
making an offer to repurchase these securities for the amount paid for them,
plus interest thereon from the date of purchase. Entering into an administrative
order may affect our business or our ability to raise capital in the State of
Washington and those states where having an outstanding administrative order may
result in the loss of certain available exemptions from registration of
securities. Legal proceedings have not been initiated in Arizona or
Pennsylvania. We are working with the State of Pennsylvania regarding the terms
for a rescission offer in that state. We are investigating our options regarding
a voluntary rescission offer in Arizona, including an interest payment at 10%
annually on the stock purchase price.

         We believe that because the price of our common stock is currently
significantly lower than the original purchase price paid by affected
shareholders, they would be likely to accept repurchase offers.

WE ARE DEPENDENT UPON NEW PRODUCTS.

         Our future growth will be dependent on our ability to identify and
develop products which can be sold at acceptable margins through wholesale and
retail outlets, as well as on the Internet, and on our ability to acquire the
necessary rights to market and distribute such products and to enter into
arrangements with third-party manufacturers and distributors to produce and
distribute such products. There can be no assurance that we will be successful
in identifying and developing quality products that may be successfully marketed
through these channels or in entering into relationships with third-party
manufacturers and distributors. A failure to identify and develop new products
would have a detrimental impact on our future performance.

WE ARE DEPENDENT ON OUR LICENSING AND DISTRIBUTION RELATIONSHIPS.

         Our future growth will be dependent on our ability to maintain our
distribution and licensing relationships. There can be no assurance that we will
be successful in maintaining and developing these relationships, or, that if we
are successful in maintaining and developing these relationships, that our
distribution and licensing relationships will result in a positive effect on our
future performance.

                                       9

<PAGE>

OUR PRODUCTS ARE SUBJECT TO RETURNS.

         Major distributors to which we sell have in the past returned
significant amounts of products to us if it has not sold in accordance with
their expectations or if we have newer versions of the product available. We
expect that they will continue to do so in the future and anticipate a certain
level of returns, accounting for such when recognizing revenue based upon our
historic return rates and estimates of returns based upon new product
introduction. If product returns are significantly greater than we anticipate,
it will negatively impact our net revenues.

OUR PRODUCTS ARE SUBJECT TO INDUSTRY AND CONSUMER TRENDS.

         Our growth in sales has been based in part on both the evolution of
consumer tastes and preferences towards educational and entertaining products
for babies and children, in part due to publicity on the effect of music on
child development, and an increase in purchases of DVDs as a popular form of
family entertainment. There are differences of opinion, however, in the
scientific community regarding the positive impact of music and video products
on child development, and a change in consumer tastes and preferences regarding
our products may have an adverse effect on our results of operations. There can
be no assurance that consumer tastes and preferences will continue to favor our
products and marketing segments.

OUR MARKETS ARE HIGHLY COMPETITIVE.

         Increased competition could result in reduced margins or loss of market
share, any of which could harm both our retail and e-commerce businesses.
Competition is likely to increase significantly as new companies enter the
market and current competitors expand their services. Many of our present and
potential competitors enjoy substantial competitive advantages, including larger
numbers of users, more fully developed e-commerce opportunities, larger
technical, production and editorial staffs, and substantially greater financial,
marketing, technical and other resources. If we do not compete effectively or if
we experience any pricing pressures, reduced margins or loss of market share
resulting from increased competition, our business could be adversely affected.

RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR CURRENT PRODUCTS OBSOLETE.

         The market for cassettes, CDs, VHS and DVD technology is subject to
change. There can be no assurance that over time these technologies will not be
affected by competition from another form of information storage and retrieval
technology, such as on-line information services. A further strong advance in
the technology surrounding cable and satellite that would give consumers access
to information and entertainment may limit the expansion of the market for
applications based on cassettes, CDs, VHS and DVDs. The replacement of our
technology by another information storage and retrieval technology, or the
replacement of existing technology by a new technology at a pace too rapid for
production adjustments, may also have a material adverse effect on our business,
financial condition and results of operations.

WE MAY BE SUBJECT TO TRADEMARK INFRINGEMENT CLAIMS.

         We may be held liable for copyright or trademark infringement if the
content or packaging of our cassettes, CDs, VHS, DVDs or other products
infringes upon the copyrights or trademarks of others. Such claims of
infringement, if brought, could have a material adverse affect on our business
or financial condition. In addition, if it comes to our attention that third
parties may be infringing upon the Baby Genius trademarks in certain product
categories, we may prosecute as we deem necessary any such infringements.
Defending our intellectual property rights may be costly in terms of legal fees
and management time. Expenditure of significant legal fees could have a material
adverse effect on our financial condition and no assurance can be made that we
would prevail in any litigation defending our intellectual property rights.
Failure to take necessary defensive legal action for lack of cash could result
in compromising our rights to our intellectual property, which would have a
material adverse effect on our business, our financial position and the value of
our intellectual property.

WE ARE DEPENDENT UPON LONG-TERM FINANCING.

         Our ability to implement our business plan and grow is dependent on
raising a significant amount of capital. We have sustained our operations in
large part from sales of our equity. There can be no assurance that we will be
able to successfully generate revenues or raise additional funds sufficient to
finance our continued operations. In the long term, failure to generate
sufficient revenues or obtain financing would have a material adverse effect on
our business, operations and financial condition and would jeopardize our
ability to continue our operations.

                                       10

<PAGE>

WE MAY NOT BE ABLE TO UTILIZE OUR NET OPERATING LOSS.

         In 1996, 1997, 1998, 1999, 2000, 2001, 2002 and 2003, we incurred
losses resulting in a net operating loss carryforward as of December 31, 2003,
of $11,825,000 and $6,420,000 for federal and state income tax purposes,
respectively. The federal and state net operating losses begin to expire in 2011
and 2004, respectively. Because we anticipate significant expenditures with
respect to implementing our business plan, there is a risk that we will be
unable to make enough profits, if any, during the net operating loss
carryforward period to realize the deferred income tax asset.

RISKS RELATED TO OUR COMMON STOCK:

OUR COMMON STOCK HAS EXPERIENCED IN THE PAST, AND MAY EXPERIENCE IN THE FUTURE,
SIGNIFICANT PRICE VOLATILITY, WHICH SUBSTANTIALLY INCREASES THE RISK OF LOSS TO
PERSONS OWNING OUR COMMON STOCK.

         Because of the limited trading market for our common stock, and because
of the significant price volatility, stockholders may not be able to sell their
shares of common stock when they desire to do so. In 2002, our stock price
ranged from a high of $2.83 to a low of $0.62, and in 2003, our stock price
ranged from a high of $2.45 to a low of $0.72. The inability to sell shares in a
rapidly declining market may substantially increase the risk of loss as a result
of such illiquidity and the price for our common stock may suffer greater
declines due to its price volatility.

OUR COMMON STOCK IS TRADED ON THE OTCBB, WHICH MAY BE DETRIMENTAL TO INVESTORS.

         Our shares of common stock are currently traded on the Over the Counter
Bulletin Board ("OTCBB"). Stocks traded on the OTCBB generally have limited
trading volume and exhibit a wide spread between the bid/ask quotation.

OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES WHICH MAY BE DETRIMENTAL
TO INVESTORS.

         Our common stock is subject to Rule 15g-1 through 15g-9 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which imposes
certain sales practice requirements on broker-dealers which sell our common
stock to persons other than established customers and "accredited investors"
(generally, individuals with net worths in excess of $1,000,000 or annual
incomes exceeding $200,000 (or $300,000 together with their spouses)). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to the sale. This rule adversely
affects the ability of broker-dealers to sell our common stock and purchasers of
our common stock to sell their shares of such common stock. Additionally, our
common stock is subject to the SEC regulations for "penny stock". Penny stock
includes any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. The regulations require that
prior to any non-exempt buy/sell transaction in a penny stock, a disclosure
schedule set forth by the SEC relating to the penny stock market must be
delivered to the purchaser of such penny stock. This disclosure must include the
amount of commissions payable to both the broker-dealer and the registered
representative and current price quotations for the common stock. The
regulations also require that monthly statements be sent to holders of penny
stock that disclose recent price information for the penny stock and information
of the limited market for penny stocks. These requirements adversely affect the
market liquidity of our common stock.

                                       11

<PAGE>

EMPLOYEES

         We currently have sixteen full-time employees and two part-time
employees. None of our employees are represented by an organized labor union. We
believe our relationship with our employees is good, and we have never
experienced an employee-related work stoppage. We will need to hire and retain
highly-qualified management personnel in order to execute our business plan. No
assurance can be given that we will be able to locate and hire such personnel,
or that, if hired, we will continue to be able to pay the higher salaries
necessary to retain such skilled employees. In 2002, we entered into employment
agreements with our executive officers that were originally for a three-year
term and provided for stock options, employee benefits and severance pay in case
of termination without cause of between 12 and 24 months' salary. In 2003, these
agreements were amended to increase the term for an additional year, salary
increases and additional stock options. In 2004, we entered into an employment
agreement with a new executive officer that provides for stock options, employee
benefits and severance pay in case of termination without cause of up to six
months' salary.

ITEM 2.  DESCRIPTION OF PROPERTY

         In November 2003, we entered into a sublease agreement for a 5,603
square foot facility located in Solana Beach, California, which we use as our
principal executive offices. This sublease is for a five-year term which
commenced in January 2004. Our monthly rent for this space is as follows:

MONTH OF TERM                                                            AMOUNT
-------------                                                            ------
1-12............................................................         $11,206
13-24...........................................................         $11,598
25-36...........................................................         $12,004
37-48...........................................................         $12,424
49-60...........................................................         $12,859

         In addition to the monthly rent, we will pay for increases in common
area expenses over the base year of 2004. We also have the option to extend the
lease for an additional five-year period.

         On December 31, 2003, we entered into a sublease arrangement with the
Meader Family Limited Trust, a related party, under which we rent a portion of a
warehouse facility (approximately 8,000 square feet) in Atlantic, Iowa, for a
monthly rent of $2,900. This centrally located facility is used to distribute
our products to certain customers. The lease expires in December 2007.

         Also on December 31, 2003, we entered into a sublease arrangement with
Ekelund Properties, LLC, a related party, under which we rent sales offices
(approximately 1,300 square feet) in Excelsior, Minnesota, for a monthly rent of
$1,200. This is a one-year lease with the option to renew for additional
one-year periods.

         We believe that these facilities are adequate for the immediate future.
However, should we experience significant growth in our revenues, we would have
to seek additional space.

ITEM 3.  LEGAL PROCEEDINGS

         On September 23, 1999, the Securities Administrator of the State of
Washington (the "Securities Administrator") filed a Summary Order to Cease and
Desist with the State of Washington Department of Financial Institutions
Securities Division against us, the Martin Consulting Group, Martin H. Engelman,
and their employees and agents. The relief sought is that the respondents cease
and desist from violations of RCW 21.20.140, 21.20.040, and 21.20.010 of the
Securities Act of Washington. The Summary Order to Cease and Desist alleges,
among other things, that Mr. Engelman and Genius Products offered to sell shares
of our common stock that were not registered in the state or otherwise qualified
for an exemption from registration. Mr. Engelman represented us at the Third
Annual Seattle Money Show and provided information to interested parties about
us and our products. We are in discussions with the Securities

                                       12

<PAGE>

Administrator regarding entering into an administrative order and although no
terms of an administrative order have yet been proposed by the Securities
Administrator, the purpose of entering such an order would be to resolve all
claims based on the allegations set forth in the Summary Order to Cease and
Desist. A total of approximately $241,240 of our shares of common stock were
sold in the State of Washington, and we anticipate that any resolution of this
matter with the Securities Administrator would include our making an offer to
repurchase these securities for the amount paid for them, plus interest thereon
from the date of purchase. Until we receive a draft administrative order from
the Securities Administrator, we are unable to determine the ultimate effects or
consequences of such an order. We have been requested to provide the Securities
Administrator with certain information before a draft administrative order will
be prepared, and we are currently compiling such information. If we determine
that the terms of a proposed administrative order are not acceptable, we would
likely contest the Summary Order to Cease and Desist at a hearing. The potential
costs of a hearing and the uncertainty of the outcome leads us to believe,
however, that entering into an administrative order on acceptable terms is in
our best interests. Entering into an administrative order may affect our
business or our ability to raise capital in the State of Washington and those
states where having an outstanding administrative order may result in the loss
of certain available exemptions from registration of securities.

         All sales of our shares of common stock in the State of Washington were
made pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"). There has been no change in the status of this issue during
the year ended December 31, 2003.

         Legal proceedings have not been initiated in Arizona or Pennsylvania.
We are working with the State of Pennsylvania regarding the terms for a
rescission offer in that state. At December 31, 2003, a liability of $490,932
has been accrued representing the amount of stock purchased and accrued interest
for the rescission matters in Arizona, Pennsylvania and Washington.

         We are not a party to any other legal or administrative proceedings.

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

         There were no matters submitted to a vote of security holders during
the fourth quarter of 2003.

                                       13

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         On November 9, 1999, following our name change to Genius Products,
Inc., our stock symbol changed from ITMH to GNUS. Following our reverse stock
split on April 10, 2001, our stock symbol changed from GNUS to GNPI. The market
represented by the OTCBB is extremely limited and the price for our common stock
quoted on the OTCBB is not necessarily a reliable indication of the value of our
common stock. The following table sets forth the high and low bid prices for
shares of our common stock for the periods noted, as reported on the OTCBB.
Quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. The prices reflect the
reverse stock split which occurred on April 10, 2001.

<TABLE>
<CAPTION>
                      YEAR                     PERIOD                 HIGH               LOW
             ----------------         --------------------            -----             ------
             <S>                      <C>                              <C>               <C>
             Fiscal Year 2002         First Quarter                    1.59              0.62
                                      Second Quarter                   2.83              1.42
                                      Third Quarter                    2.21              1.08
                                      Fourth Quarter                   1.19              0.68
             Fiscal Year 2003         First Quarter                    1.18               .76
                                      Second Quarter                   1.26               .72
                                      Third Quarter                    1.85              1.01
                                      Fourth Quarter                   2.45              1.20
</TABLE>

         Our common stock is subject to Rule 15g-1 through 15g-9 under the
Securities Exchange Act of 1934, as amended, which imposes certain sales
practice requirements on broker-dealers who sell our common stock to persons
other than established customers and "accredited investors" (generally,
individuals with net worths in excess of $1,000,000 or annual incomes exceeding
$200,000 or $300,000 together with their spouses). For transactions covered by
this rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to the sale.

SHAREHOLDERS

         As of March 26, 2004, we had approximately 24,725,525 shares of common
stock issued and outstanding which were held by approximately 472 shareholders
of record, including the holders that have their shares held in a depository
trust in "street" name. The transfer agent for our common stock is Interwest
Transfer Company, 1981 East 4800 South, Salt Lake City, Utah 84117.

DIVIDEND POLICY

         Our board of directors determines any payment of dividends. We have
never declared or paid cash dividends on our common stock. We do not expect to
authorize the payment of cash dividends on our shares of common stock in the
foreseeable future. Any future decision with respect to dividends will depend on
future earnings, operations, capital requirements and availability, restrictions
in future financing agreements and other business and financial considerations.

SALES OF UNREGISTERED SECURITIES

         The number of shares and share prices disclosed below reflect the
reverse stock split which occurred on April 10, 2001.

         A total of 89,746 unregistered shares were issued to accredited
investors pursuant to Rule 506 of Regulation D of the Securities Act for fees in
connection with our 2003 private placement under Rule 506 of Regulation D of the
Securities Act.

                                       14

<PAGE>

         On December 22, 2003, we completed a transaction amending our September
8, 2003 licensing agreement with Falcon Picture Group, LLC, to address Falcon's
acquisition of a license to use the TV Guide name and logo in connection with
the development, marketing and sale, throughout the United States, of a full
line of DVD products featuring classic television content from 1946 through
1989. The terms for this amendment were reached on October 2, 2003. For his part
in the negotiations for this acquisition and the completion of the transaction,
Carl Amari, an accredited investor and Chief Executive Officer of Falcon who
later became a director of Genius on October 20, 2003, purchased 1,350,000
unregistered shares of Genius common stock for $972,000 on December 22, 2003 at
the price of $0.72 per share under Regulation D of the Securities Act.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Financial
Statements and the related notes. This discussion contains forward-looking
statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations and intentions. Our actual results
and the timing of certain events could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under "Risks Relating to Our Business", "Description of
Business" and elsewhere in this document. See "Forward-Looking Statements".

         Prior to the third quarter of 2003, our revenues were comprised
primarily of:

         o    Baby Genius and Kid Genius music product sales directly to mass
              retailers, distributors and independent retailers (70% of revenues
              for first half of 2003);

         o    sales of jewelry to retailers (12% of revenues for first half of
              2003);

         o    licensing revenue related to licensing the Baby Genius trademark
              for use on various products distributed by third parties (5% of
              revenues for first half of 2003); and

         o    royalties related to the distribution of our line of VHS and DVDs
              through our agreement with Warner Home Video (13% of revenues for
              first half of 2003).

         In an effort to expand the sales of our product line through our
distribution network, we entered into agreements in 2003 to manufacture and sell
music products under license from various children's books ("licensed music")
and classic radio programs, branded (AMC and TV Guide) and non-branded classic
movies and television shows which have been remastered for sale on DVD, and
classic radio programs. Our current business model includes revenues from four
major sources:

         1.    Sales of our branded proprietary and licensed DVDs and VHS;
         2.    Sales of our branded proprietary and licensed music audio CDs
               and cassettes;
         3.    Sales of non-branded DVDs; and
         4.    Sales of Zoo Babies and gift sets.

         We began shipping the first two releases of movies on DVD, titled AMC
Monsterfest and AMC Movies, in the fourth quarter of 2003. These new DVD and
licensed music products, along with our existing Baby Genius and Kid Genius
music products, provided most of our revenues in the fourth quarter of 2003, and
we expect that they will do so in the remainder of 2004. Sales of non-branded
DVDs of classic movies and television shows also began in the first quarter of
2004. We do not expect royalties, licensing and other revenue to be significant
in 2004, primarily due to our agreement with Warner Home Video to terminate the
distribution agreement, and due to only occasional orders for jewelry. We intend
to self-distribute our Baby Genius line of VHS and DVD.

         We are continuing to seek agreements for licensed music, and in the
first quarter of 2004, have signed agreements to develop and market music for
Beatrix Potter(TM), My Little Pony(TM), Little Tikes(TM) and Tonka(TM). We are
also developing additional music lines and gift sets (audio CDs with gifts) for
our existing retail clients. We began selling religious music for children
entitled Wee Worship(TM) in the first quarter of 2004 as well as our new
Tranquility CDs (music marketed to adults), and we are continuing to develop
additional proprietary musical products to enhance our existing offerings. We
intend to commence sales of Zoo Babies pillows and gift sets in fall of 2004.

         Within three years of our September 2003 agreement with Falcon Picture
Group, LLC, we have the option to acquire its assets for $3,600,000 (payable in
cash or stock or a combination of cash and stock). The specific assets and
liabilities of Falcon that we may decide to acquire under this option will be
negotiated by the parties at the time the acquisition is considered. We have not
made a decision regarding any asset purchase at this time.

         Jewelry revenues declined in 2003 as our main jewelry customer has only
ordered infrequently, and although we may continue to sell jewelry in the
future, we expect to focus our efforts on selling other products and anticipate
that jewelry will not be a significant contributor to revenues in the future.
Licensing revenues also declined in 2003, and are also not expected to be a
significant contributor to our revenues in the future. Royalties related to the
distribution of our videos by Warner Home Video declined in 2003, as the sales
of Baby Genius VHS and DVDs by Warner Home Video failed to reach the levels we
anticipated. In the first quarter of 2004, we reached an agreement to terminate
the agreement with Warner Home Video that will allow us to self-distribute the
Baby Genius VHS and DVDs directly to our customers. As a result of this
agreement, there will be no further royalties received. As part of the
agreement, we will pay a settlement amount of $300,000 by paying a royalty on
the future sales of our Baby Genius videos and DVDs, and this amount will be our
maximum obligation under the settlement agreement. We also purchased the
remaining inventory of our VHS and DVDs from Warner Home Video for approximately
$192,000.

         We experienced delays in the signing of agreements for our new products
in 2003, and in getting timely design approvals in order to start manufacturing.
We also experienced delays in our internal product development and some
difficulties in manufacturing the products. As a result of these delays, we only
began receiving orders and shipping the new products in September 2003. We have
taken action to attempt to prevent future delays, including adding new personnel
and streamlining the product development process. The licensed music that was
shipped in the third and fourth quarters of 2003 was Guess How Much I Love
You(TM), Rainbow Fish(TM), Curious George(TM), Paddington Bear(TM), Raggedy Ann
and Andy(TM), The Snowman(TM) and Spot(TM).

                                       15

<PAGE>

         We believe that over the past two years we have built a strong
distribution network and have fostered strong relationships with many wholesale
and retail buyers. We believe that this will allow us to place new properties
that we are able to produce or acquire with these customers and thereby increase
our sales.

         We do not report our different products as segments because we do not
allocate our resources among products and measure performance by product, and we
do not maintain discrete financial information concerning each of them. Our
chief operating decision maker receives financial information taken as a whole.
Due to our size and limited resources, our sales, marketing and product
development efforts are performed by the same personnel working on all of the
different products and our warehousing costs also are for all products.

         Like many retail product distributors, we experience some seasonality
because during the summer months the purchasing staff of our customers may be on
vacation, thereby decreasing sales in such periods. In the fourth quarter, we
typically have a general increase for sales as retail inventory levels are
raised in anticipation of the Christmas season.

CRITICAL ACCOUNTING POLICIES

         Accounts receivable
         -------------------

         The allowance for doubtful accounts and provision for sales returns
         includes management's estimate of the amount expected to be lost or
         returned on specific accounts and for losses or returns on other as yet
         unidentified accounts included in accounts receivable. In estimating
         the allowance component for unidentified losses and returns, management
         relies on historical experience. The amounts the Company will
         ultimately realize could differ materially in the near term from the
         amounts assumed in arriving at the allowance for doubtful accounts and
         provision for sales returns in the accompanying financial statements.

         Inventories
         -----------

         Inventories consist of finished goods and are valued at the lower of
         cost or market, on a first-in-first-out basis. The Company regularly
         monitors inventory for excess or obsolete items and makes any valuation
         corrections when such adjustments are needed.

         Long-lived assets
         -----------------

         Depreciation and amortization of property and equipment are provided
         over the estimated useful lives of the assets using the straight-line
         method. Production masters are stated at cost net of accumulated
         amortization. Costs incurred for production masters, including licenses
         to use certain classical compositions, royalties, recording and design
         costs, are capitalized and amortized over a three or seven year period
         from the time a title is initially released, consistent with the
         estimated timing of revenue for a title. Patents and trademarks
         covering a number of the Company's products are being amortized on a
         straight line basis over 5 to 17 years.

         Long-lived assets are reviewed annually for impairment whenever events
         or changes in circumstances indicate that carrying amount of an asset
         may not be recoverable. Impairment is necessary when the undiscounted
         cash flows estimated to be generated by the asset are less than the
         carrying amount of the asset.

         Revenue recognition
         -------------------

         Revenues are recorded upon the shipment of goods.  Cost of sales and an
         allowance for returns are also recorded at the time of shipment.

RESULTS OF OPERATIONS 2003 COMPARED TO 2002

         Audio revenues are composed of Baby Genius, Kid Genius and licensed
music CDs that are typically sold as three packs (packages of three CDs in vinyl
or chipboard sleeve packaging), although single CDs and five packs are also
sold. Audio revenues increased $444,183 or 26% during 2003 to $2,149,096, as
compared to $1,704,913 in 2002. This increase was entirely the result of the
sales of the new licensed music products in the period September to December
2003.

         DVD and VHS revenues for 2003 are composed of the sales of AMC branded
movies on DVD and BOZO the Clown DVD and VHS units. DVD and VHS revenues were
$876,285 during 2003 as compared to $39,609 during 2002 as we began selling
these new products in 2003. Revenues in 2002 were from Baby Genius videos that
were sold prior to our agreement with Warner Home Video.

         Royalties, licensing and other revenues are composed of royalties from
our prior agreement with Warner Home Video, licensing fees from the license of
our Baby Genius brand name and sales of jewelry. Royalties, licensing and other
revenues declined to $456,110 in 2003 from $873,315 in 2002, a decrease of
$417,205, due to reductions in all three categories as noted above.

         Gross revenues increased $863,654, or 33% during 2003 to $3,481,491, as
compared to $2,617,837 in the prior year, as the sales of new licensed products,
music, DVD and VHS, more than offset the decreased revenues from royalties,
licensing and other.

         Sales returns, discounts and allowances decreased $61,152 during 2003
to $412,985, from $474,137 during 2002. In 2002, there was a large increase in
sales returns as certain customers chose to discontinue carrying the Baby Genius
product because we could no longer sell them the Baby Genius videos directly as
a result of the new agreement with Warner Home Video. This amount decreased in
2003 as the effect of the Warner Home Video agreement no longer made an unusual
impact on sales returns in the year.

         Net revenues increased by $924,806 or 43% to $3,068,506 for the twelve
months ended December 31, 2003, from $2,143,700 for the twelve months ended
December 31, 2002, primarily due to sales of our new licensed products.

         Cost of sales consists primarily of the cost of products sold to
customers, packaging and shipping costs, and royalties paid on sales of licensed
products. Audio cost of sales during 2003 was 50% of audio revenues, as compared
to 47% during 2002, primarily due to the royalties payable on licensed music
products. DVD and VHS cost of sales in 2003 was 53% of DVD and VHS revenues, as
compared to 37% during 2002. This is partially due to the royalties payable on
licensed products, and partially due to distribution pricing in order to get our
products placed with a major retailer. Royalties, licensing and other cost of

                                       16

<PAGE>

sales during 2003 was 57% of revenues in 2003 as compared to 64% in 2002. The
current year margin is higher primarily due to the lower volume of jewelry sales
in 2003. Jewelry sales have lower margins than our other products due to the
competitive pressures in the jewelry sales market. Warehouse expenses increased
by $74,677, or 118% in 2003 due to freight in on inventory, as we began stocking
the new products for delivery.

         Sales and marketing expenses consist of costs for personnel,
consultants and promotional activities. Sales and marketing expenses increased
by $638,395 or 167% to $1,020,860 for the year ended December 31, 2003, from
$382,466 for the prior year. This increase is primarily the result of the hiring
of additional sales personnel and increases in advertising and consulting costs
related to the marketing of our new products as we increased our sales effort
compared to 2002 when sales were primarily handled by executive management whose
costs were reflected in general and administrative expenses.

         Product development expenses consist of personnel, consultants,
supplies and the amortization of product development costs. Product development
expenses increased by 18% or $98,312, to $632,958 for the year ended December
31, 2003, as compared to $534,646 for the year ended December 31, 2002. The
increase was primarily due to the increased payroll expenses related to new
product development.

         General and administrative expenses consist of payroll and related
costs for executive and administrative personnel, consulting services,
professional fees and other general corporate expenses. General and
administrative expenses decreased by 18% or $455,227, to $2,081,651 for the year
ended December 31, 2003, from $2,536,878 for the year ended December 31, 2002.
This decrease was primarily due to a reduction in our use of consultants and a
reduction in the cost of issuing options or warrants to non-employees as fewer
options and warrants were issued for these purposes in 2003. Significant
portions of consulting expenses in 2002 were paid by the issuance of shares
instead of cash payments.

         Interest expense in 2003 increased compared to 2002 primarily as the
result of $86,634 of interest on the warrants issued with the notes payable
in the fourth quarter of 2003. Both 2003 and 2002 include interest
expense on stock subject to rescission and convertible debentures.

         During 2003, our net loss decreased $45,406 to $2,742,676 from
$2,788,082 during 2002. The slight decrease in the loss for 2003 is primarily
the result of an increase in revenues due to new product business that was
offset by increased expenditures in sales and marketing. We believe that the
increased sales and marketing expenses have helped us to increase our
distribution network in 2003, and when combined with the ongoing development of
new products, will assist us in increasing revenues in 2004.

         As a result of this loss and the losses incurred since 1997, we have
a net operating loss carry-forward as of December 31, 2003, of $11,825,000 and
$6,420,000 for federal and state income tax purposes, respectively. The federal
and state net operating losses begin to expire in 2011 and 2004, respectively.
Because we anticipate continued significant expenditures with respect to
implementing our business plan, it is uncertain that we will be sufficiently
profitable, if at all, during the net operating loss carry-forward period to
realize the benefit of the deferred income tax asset, and accordingly, a
valuation allowance for the entire amounts has been recorded.

LIQUIDITY AND CAPITAL RESOURCES

         Since 1997, we have incurred significant losses. Our primary source of
cash is the sale of shares of our common stock in private placements to
accredited investors. We have held no significant cash balances until 2002. We
issue shares in private placements at a discount to the then-current market
price (as resales of privately-placed shares are restricted under the Securities
Act, which reduces their liquidity and, accordingly, their value as compared to
freely-trading shares on the open market). We do not have any letter or lines of
credit, or loans or advances from officers or shareholders available to us, or
other liquidity resources that we can draw on. The number of shares and share
prices set forth below reflect the reverse stock split which occurred on April
10, 2001.

         During 2003, we received net proceeds of $2,618,780 from accredited
investors in two private placement offerings under Regulation D of the
Securities Act and $121,378 from the exercise of stock options. In the private
placements, 2,397,040 unregistered shares were issued at $0.70 per share and
1,350,000 unregistered shares were issued at $0.72 per share. The stock option
exercises were for 159,330 shares at exercise prices of $0.63, $0.80 and $1.02
per share. These funds were used for accounts payable and other working capital
requirements. In the fourth quarter of 2003, we received $1,150,000 from the
issuance of notes payable. The notes bear interest at 10.5% and are due on
December 31, 2004. Interest is payable quarterly, beginning March 31, 2004. Each
lender was also granted one warrant to purchase common stock at $1.00 per share
and one warrant at $3.00 per share, for each dollar loaned. The notes are
secured by the production masters of twelve movies sold by us under the AMC
logo. In March 2004, we received net proceeds of approximately $6,500,000 from a
private placement as more fully described in Subsequent Events. The addition of
these funds is expected to provide sufficient working capital for 2004.

                                       17

<PAGE>

         Net cash used in operating activities was $2,693,491 and $2,143,014 for
the years ended December 31, 2003, and December 31, 2002, respectively. Net
operating cash flows for the year ended December 31, 2003, were primarily
attributable to operating losses of $2,742,676 and increases in accounts
receivable, inventory and prepaid expenses, which were partially offset by an
increase in accounts payable, non-cash charges for depreciation and
amortization, stock and options issued for services and prepayment on production
masters. Net operating cash flows for the year ended December 31, 2002, were
primarily attributable to operating losses of $2,788,082 and reduction in
accounts payable, partially offset by non-cash charges for depreciation and
amortization, stock and options issued for services and compensation and an
increase in unearned income - royalties on the Warner Home Video contract that
resulted from advance payments against future royalties.

         Net cash used in investing activities was $1,001,328 and $645,175 for
the years ended December 31, 2003, and December 31, 2002, respectively. Net cash
used in investing activities for the year ended December 31, 2003, was primarily
attributable to the development of production masters for the new licensed
music, DVD and video products. Net cash used in investing activities for the
year ended December 31, 2002, was mainly attributable to the development of
production masters and the purchase of property and equipment.

         Net cash provided by financing activities was $3,890,158 for the year
ended December 31, 2003, primarily as the result of the proceeds from the
issuance of our common stock in private placements and the issuance of notes
payable. The cash provided was used to fund operations and for increased product
development. Financing activities provided $3,506,184 in the year ended December
31, 2002, as proceeds from the issuance of our common stock in private
placements and the proceeds from loans were used to fund operations and the
development of production masters.

         We believe we currently have sufficient liquidity to sustain operations
through 2004 as the result of the private placement in March 2004, which we
intend to use to finance our working capital needs. We also have sufficient
liquidity to repay a $50,750 debenture and to make a rescission offer for the
redemption of redeemable common stock. We intend to continue working to develop
our existing brands and new products, including new children's music lines, and
to increase our sales and marketing efforts in the coming year. Our success at
increasing revenue levels from operations in 2004 and beyond will determine our
future working capital requirements.

SUBSEQUENT EVENTS

         A.       PAYOFF OF SUBSCRIPTION RECEIVABLE AND OFFICERS' ADVANCES

         On January 22, 2004, the officers' notes receivable held by Genius
Products as subscriptions receivable were paid off by tendering shares of Genius
Products common stock pursuant to the terms of the notes. Klaus Moeller and
Michael Meader each tendered 168,052 shares to retire their loans. Larry Balaban
and Howard Balaban tendered 170,405 shares and 174,883 shares, respectively,
tendering additional shares to retire advances previously made to them.

         B.       NEW PRIVATE PLACEMENT AND PAYOFF OF CERTAIN NOTES PAYABLE

         On March 19, 2004, a private placement offering of $7,000,000 was
completed pursuant to Rule 506 of Regulation D of the Securities Act. Proceeds
to us net of commissions totaled approximately $6,500,000. We intend to use
the proceeds for working capital purposes. Sands Brothers International Limited
served as the selected dealer for the transaction. The private placement was
priced at $70,000 per unit. Each unit consists of 50,000 shares of common stock
and a warrant to purchase 10,000 shares of common stock. The warrants have an
exercise price of $3.00 per share and a five-year term. Pursuant to the sales of
the units, we issued 5,000,000 new unregistered shares of common stock and
warrants to purchase up to 1,650,000 shares of common stock (including those
warrants issued as compensation to the selected dealer). In accordance with the
terms of the Registration Rights Agreement we entered into with the investors
and the selected dealer in connection with this financing, we have agreed to
file a resale registration statement for the resale of the common stock and the
common stock underlying the warrants by May 18, 2004. We will be subject to
penalties if we do not timely file a registration statement or if such
registration statement does not become and remain effective as we agreed.

         Upon the request of certain secured promissory note holders, our early
repayment of their notes in the aggregate amount of $295,799 was invested in the
private placement.

                                       18


<PAGE>

         C.       TERMINATION OF DISTRIBUTION AGREEMENT WITH WARNER HOME VIDEO

         On March 5, 2004, Genius Products and Warner Home Video agreed to
terminate the distribution agreement between the parties, allowing us to begin
self-distribution of our Baby Genius line of VHS and DVDs. We already
self-distribute most of our other products, so we anticipate we will be able to
efficiently distribute the Baby Genius VHS and DVDs through our pre-existing
distribution channels. As previously disclosed, the royalties related to the
distribution of our VHS and DVDs by Warner Home Video had been less than
anticipated. We expect that we will be able to increase our revenues from these
products through self-distribution. Under the termination agreement, we also
regained the distribution rights for our planned line of Kid Genius VHS and
DVDs. The agreement calls for us to repay $300,000 to Warner Home Video by
paying them a royalty on net sales of the Baby Genius VHS and DVDs made by us in
the future. We also purchased approximately $192,000 in remaining inventory of
our VHS and DVDs from them.

ITEM 7.  FINANCIAL STATEMENTS

         Our financial statements follow on pages F-1 through F-16.

                                       19

<PAGE>

                    REPORT OF INDEPENDENT REGISTERED PUBLIC
                               ACCOUNTING FIRM

The Board of Directors and Stockholders
Genius Products, Inc.

We have audited the accompanying consolidated balance sheet of Genius Products,
Inc. and Subsidiaries as of December 31, 2003 and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
years in the two-year period ended December 31, 2003. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
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 Genius Products,
Inc. and Subsidiaries as of December 31, 2003, and the results of their
operations and cash flows for each of the years in the two-year period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America.

                                         /s/ CACCIAMATTA ACCOUNTANCY CORPORATION

Irvine, California
March 19, 2004

                                      F-1


<PAGE>
<TABLE>

                               GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                                     CONSOLIDATED BALANCE SHEET
<CAPTION>

                                                                                         DECEMBER 31,
                                                                                             2003
                                                                                        -------------
                                               ASSETS
<S>                                                                                     <C>
Current assets:

    Cash and equivalents                                                                $    941,332
    Accounts receivable, net of allowance for doubtful accounts and provision for
       sales returns of $182,597                                                           1,321,998
    Inventories                                                                              830,284
    Prepaid royalties                                                                        376,043
    Prepaid and other                                                                        533,150
                                                                                        -------------
       Total current assets                                                                4,002,807
Property and equipment, net                                                                  140,962
Production masters, net of accumulated amortization of $372,601                            1,186,247
Patents and trademarks, net of accumulated amortization of $31,403                           109,916
Other assets                                                                                 135,196
                                                                                        -------------
                                                                                        $  5,575,128
                                                                                        =============

                                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

    Notes payable                                                                       $  1,150,000
    Accounts payable                                                                       1,081,614
    Accrued payroll and related expenses                                                      65,772
    Payable on terminated contract                                                           300,000
    Convertible debenture                                                                     50,750
    Other accrued expenses                                                                   133,429
                                                                                        -------------
      Total current liabilities                                                            2,781,565
Redeemable common stock                                                                      490,932
Commitments and contingencies                                                                     --
Stockholders' equity:
    Common stock, $.001 par value; 50,000,000 shares authorized; 20,658,425 shares
       outstanding                                                                            20,658
    Preferred stock, $.001 par value; 10,000,000 shares authorized; 0 shares
       outstanding                                                                                --
    Additional paid-in capital                                                            20,609,408
    Subscriptions receivable                                                              (2,796,242)
    Accumulated deficit                                                                  (15,531,193)
                                                                                        -------------
       Total stockholders' equity                                                          2,302,631
                                                                                        -------------
                                                                                        $  5,575,128
                                                                                        =============

                        The accompanying notes are an integral part of these
                                 consolidated financial statements.
</TABLE>

                                                F-2

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                    YEAR ENDED DECEMBER 31,
                                                --------------------------------
                                                    2003               2002
                                                -------------      -------------
Revenues:
    Audio                                       $  2,149,096       $  1,704,913
      DVD and VHS                                    876,285             39,609
      Royalties, licensing and other                 456,110            873,315
                                                -------------      -------------
Gross revenues                                     3,481,491          2,617,837
    Sales returns, discounts and allowances         (412,985)          (474,137)
                                                -------------      -------------
       Net revenues                                3,068,506          2,143,700
                                                -------------      -------------

Costs and expenses:
    Cost of sales:
        Audio                                      1,081,149            801,594
        DVD and VHS                                  466,384             14,828
        Royalties, licensing and other               259,463            562,018
        Warehouse expenses                           138,021             63,344
    Sales and marketing                            1,020,860            382,465
    Product development                              632,958            534,646
    General and administrative                     2,081,651          2,536,878
                                                -------------      -------------

    Total costs and expenses                       5,680,486          4,895,773

    Loss from operations                          (2,611,980)        (2,752,073)

Interest income                                        3,640              7,424
Interest expense                                    (144,021)           (41,340)
Other Income (expense)                                10,485             (1,293)
                                                -------------      -------------
    Loss before provision for income taxes        (2,741,876)        (2,787,282)
Provision for income taxes                              (800)              (800)
                                                -------------      -------------
    Net Loss                                    $ (2,742,676)      $ (2,788,082)
                                                =============      =============

Basic and diluted:
    Net Loss per share                          $      (0.16)      $      (0.20)
                                                =============      =============
    Weighted average shares                       17,574,405         13,838,743
                                                =============      =============

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-3

<PAGE>
<TABLE>

                                              GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                          FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
<CAPTION>

                                                                                                                        Total
                                                                    Additional       Stock                          Stockholders'
                                          Common Stock               Paid-in      Subscription      Accumulated        Equity
                                     Shares          Amount          Capital        Receivable        Deficit         (Deficit)
                                  -------------   -------------   -------------   -------------    -------------    -------------
<S>                                 <C>           <C>             <C>             <C>              <C>              <C>
Balance, December 31, 2001           6,183,756           6,184       9,292,867              --      (10,000,435)        (701,384)

  Shares issued in private
    placement, net of
    offering costs                   5,146,267           5,147       3,193,253              --               --        3,198,400
  Debt conversion                      446,410             446         280,792              --               --          281,238
  Shares issued for
    compensation                       305,716             306         209,694              --               --          210,000
  Shares issued for services
    and production masters             223,251             223         267,403              --               --          267,626
  Exercise of stock options             57,580              58          25,142              --               --           25,200
  Stock option costs                        --              --         560,362              --               --          560,362
  Stock subscriptions
    receivable                       3,507,700           3,507       2,502,893      (2,506,400)              --               --
  Interest on subscriptions
    Receivable                              --              --         139,458        (139,458)              --               --

  Net loss                                  --              --              --              --       (2,788,082)      (2,788,082)
                                  -------------   -------------   -------------   -------------    -------------    -------------
Balance, December 31,2002           15,870,680    $     15,871    $ 16,471,864    $ (2,645,858)    $(12,788,517)    $  1,053,360
                                  -------------   -------------   -------------   -------------    -------------    -------------
  Shares issued in private
    placement, net of
    offering costs                   3,836,786           3,837       2,614,943              --               --        2,618,780
  Debt conversion                       10,000              10           9,990              --               --           10,000
  Shares issued for
    compensation                       142,860             143          99,857              --               --          100,000
  Shares issued for services           217,847             217         174,283              --               --          174,500
  Exercise of stock options            159,330             159         121,219              --               --          121,378
  Stock option costs                        --              --         430,655              --               --          430,655
  Shares issued for payment of
  DVD remastering costs                350,000             350         349,650              --               --          350,000
  Shares issued for option to
  Acquire                               70,922              71          99,929              --               --          100,000
  Interest on subscriptions
  Receivable                                --              --         150,384        (150,384)              --               --
  Interest on warrants                      --              --          86,634              --               --           86,634
  Net loss                                  --              --              --              --       (2,742,676)      (2,742,676)
                                  -------------   -------------   -------------   -------------    -------------    -------------
Balance, December 31, 2003          20,658,425    $     20,658    $ 20,609,408    $ (2,796,676)    $(15,531,193)    $  2,302,631
                                  =============   =============   =============   =============    =============    =============

                                       The accompanying notes are an integral part of these
                                                consolidated financial statements.
</TABLE>

                                                               F-4

<PAGE>
<TABLE>

                                    GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       FOR THE YEARS ENDED DECEMBER 31,
<CAPTION>

                                                                               2003            2002
                                                                           ------------    ------------
<S>                                                                        <C>             <C>
Cash flows from operating activities:
  Net loss                                                                 $(2,742,676)    $(2,788,082)
  Adjustments to reconcile net loss to
    Net cash used by operating activities:
    Depreciation and amortization                                              300,283         243,468
    Write-off of production masters                                                 --          16,055
    Interest expense on redeemable stock                                        25,155          25,731
    Change in allowance for doubtful accounts and provision for returns        112,597         (26,000)
    Common stock issued for services                                           174,500         194,026
    Common stock issued as prepayment on production masters                    350,000              --
    Common stock issued for compensation                                       100,000         210,000
    Stock options granted to non-employees for services                        430,655         560,362
    Uncollectible stock subscription                                                --              --
    Interest on warrants issued with notes payable                              86,634              --
  Changes in assets and liabilities:
    (Increase) decrease in:
      Accounts receivable                                                   (1,147,870)        120,783
      Inventories                                                             (570,025)       (136,948)
      Additions to prepaid royalties                                          (209,519)       (166,524)
      Prepaid and other                                                       (480,898)         (2,481)
    Increase (decrease) in:
      Accounts payable                                                         849,542        (613,510)
      Accrued payroll & related expenses                                        21,613         (53,378)
      Other accrued expenses                                                   112,357        (132,355)
      Payable on terminated contract                                          (105,839)        405,839
                                                                           ------------    ------------
    Net cash used by operating activities                                   (2,693,491)     (2,143,014)
                                                                           ------------    ------------

Cash flows from investing activities:
  Development of production masters                                           (945,063)       (463,728)
  Additions to patents and trademarks                                          (32,424)        (63,646)
  Purchase of property and equipment                                           (23,841)       (117,801)
                                                                           ------------    ------------
    Net cash used in investing activities                                   (1,001,328)       (645,175)
                                                                           ------------    ------------

Cash flows from financing activities:
  Proceeds from issuance of convertible debentures                                  --          10,000
  Proceeds from loans                                                               --         281,238
  Proceeds from exercise of options                                            121,378          25,200
  Net proceeds from issuance of common stock                                 2,618,780       3,198,400
  Proceeds from issuance of notes payable                                    1,150,000              --
  Purchase of redeemable common stock                                               --          (8,654)
                                                                           ------------    ------------
    Net cash provided by financing activities                                3,890,158       3,506,184
                                                                           ------------    ------------

Net increase (decrease) in cash and equivalents                                195,339         717,995

Cash and equivalents, beginning of year                                        745,993          27,998
                                                                           ------------    ------------
Cash and equivalents, end of year                                          $   941,332     $   745,993
                                                                           ============    ============
</TABLE>

                        The accompanying notes are an integral part of these
                                 consolidated financial statements.

                                                F-5

<PAGE>
<TABLE>
<CAPTION>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:             2003            2002
                                                          -----------      -----------
<S>                                                       <C>              <C>
Interest paid                                             $       --       $   14,894
Income taxes paid                                         $      800       $      800
Shares issued for Notes Receivable, including interest    $  150,384       $2,645,858
Production masters purchased for shares                   $       --       $   73,600
Shares issued for option to acquire                       $  100,000       $       --
Loans converted into common stock                         $       --       $  281,238
Debentures converted into common stock                    $   10,000       $       --

</TABLE>

                        The accompanying notes are an integral part of these
                                 consolidated financial statements.

                                                F-6

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1.       NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of business
         ------------------

         Genius Products, Inc. and Subsidiaries (the "Company"), is a producer,
         publisher and distributor of audio, DVD and VHS products that sell at
         retail outlets in the United States and Canada. The Company markets
         products developed by it, including Baby Genius and Kid Genius music
         compact discs (CDs), as well as CDs that feature brand names licensed
         from third parties. The Company also markets DVD and VHS products that
         are the property of third parties through license agreements. The
         Company sells its products to both distributors and retailers.

         In addition, the Company received royalties from the sale of its Baby
         Genius video and DVDs under an agreement with Warner Home Video, and
         license fees from third-party companies that have (or will) produce
         toys, books, apparel or other products under the Baby Genius name. The
         Company also sells, on a wholesale basis, fine and costume jewelry to
         one major jewelry customer.

         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of consolidation
         ---------------------------

         The consolidated financial statements include the accounts of Genius
         Products, Inc. and its three wholly owned subsidiaries which are
         virtually inactive. All significant intercompany transactions and
         accounts have been eliminated.

         Use of estimates
         ----------------

         The preparation of consolidated financial statements in conformity with
         generally accepted accounting principles requires management to make
         estimates and assumptions that affect the reported amounts of assets
         and liabilities and disclosure of contingent assets and liabilities at
         the date of the financial statements and the reported amounts of
         revenues and expenses during the reporting period. Actual results could
         differ from those estimates.

         Cash and equivalents
         --------------------

         For purposes of the statement of cash flows, cash equivalents include
         time deposits, certificates of deposit and all highly liquid debt
         instruments with original maturities of three months or less.

         Accounts receivable
         -------------------

         The allowance for doubtful accounts and provision for sales returns
         includes management's estimate of the amount expected to be lost or
         returned on specific accounts and for losses or returns on other as yet
         unidentified accounts included in accounts receivable. In estimating
         the allowance component for unidentified losses and returns, management
         relies on historical experience. The amounts the Company will
         ultimately realize could differ materially in the near term from the
         amounts assumed in arriving at the allowance for doubtful accounts and
         provision for sales returns in the accompanying financial statements.

                                      F-7

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1.       NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

         Concentrations of credit risk
         -----------------------------

         In 2003, the two largest customers accounted for 36% and 18% of net
         revenues, respectively. In 2002, the three largest customers accounted
         for 37%, 20% and 12% of net revenues, respectively. At December 31,
         2003, three customers accounted for 72% of accounts receivable.

         Financial instruments that potentially subject the Company to
         concentration of credit risk consist primarily of temporary cash
         investments and trade receivables. The Company restricts investment of
         temporary cash investments to financial institutions with investment
         grade credit ratings. The Company provides credit in the normal course
         of business to customers located throughout the United States. The
         Company performs ongoing credit evaluations of its customers, generally
         does not require collateral and maintains allowances for potential
         credit losses which, when realized, have been within the range of
         management's expectations.

         Prepaid expenses
         ----------------

         In August 2003, the Company reached an agreement with Falcon Pictures
         Group ("Falcon") to develop and distribute classic movies on DVD under
         the AMC brand name. As part of this agreement, which is detailed below,
         the Company issued 350,000 of its common shares at a value of $1.00 per
         share as a prepayment for DVD remastering to be done by Falcon. The
         shares were to be registered and sold by Falcon, thus reducing the cash
         payments required by the Company. The shares were never registered, and
         in January 2004, the shares were returned to the Company and cancelled.
         The costs of DVD remastering were paid by the Company from working
         capital instead. The $350,000 is included in prepaid expenses at
         December 31, 2003.

         Inventories
         -----------

         Inventories consist of finished goods and are valued at the lower of
         cost or market. Cost is determined on a first-in-first-out method of
         valuation. The Company regularly monitors inventory for excess or
         obsolete items and makes any valuation corrections when such
         adjustments are needed. In 2002, the Company recorded an inventory
         write-down of $30,000 related to obsolete Baby Genius products. There
         was no write-down in 2003.

         Long-lived assets
         -----------------

         Depreciation and amortization of property and equipment are provided
         over the estimated useful lives of the assets using the straight-line
         method. Production masters are stated at cost net of accumulated
         amortization. Costs incurred for production masters, including licenses
         to use certain classical compositions, royalties, recording and design
         costs, are capitalized and amortized over a three or seven year period
         from the time a title is initially released, consistent with the
         estimated timing of revenue for a title. Amortization expense was
         $264,796 in 2003 and $197,257 in 2002. Patents and trademarks covering
         a number of the Company's products are being amortized on a
         straight-line basis over 5 to 17 years. Amortization expense was $7,780
         in 2003 and $9,940 in 2002.

         Long-lived assets are reviewed annually for impairment whenever events
         or changes in circumstances indicate that the carrying amount of an
         asset may not be recoverable. Impairment is necessary when the
         undiscounted cash flows estimated to be generated by the asset are less
         than the carrying amount of the asset.

         Fair value of financial instruments
         -----------------------------------

         The carrying amounts of cash and equivalents, accounts receivable,
         accounts payable, convertible debentures and accrued expenses
         approximate fair value.

                                      F-8

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1.       NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

         Stock-based compensation
         ------------------------

         The Company has elected to adopt the disclosure provisions only of
         Statement of Financial Accounting Standards ("SFAS") 123, ACCOUNTING
         FOR STOCK-BASED COMPENSATION, and continues to measure compensation
         cost related to stock and stock options issued to employees using the
         intrinsic method of accounting prescribed by Accounting Principles
         Board Opinion No. 25 ("APB25"), ACCOUNTING FOR STOCK ISSUED TO
         EMPLOYEES, and related interpretations.

         Had compensation cost for the Company's stock option plan been
         determined based on the fair value at the grant dates for awards under
         this plan consistent with the method of SFAS 123, the Company's net
         loss and loss per common share would have been increased to the pro
         forma amounts indicated below:

                                                     2003            2002
                                                 ------------    ------------
         Net loss
              As reported                        $(2,742,646)    $(2,788,082)
              Compensation cost at fair value       (332,764)     (1,314,767)
              Pro forma                          $(3,075,410)    $(4,102,849)
         Basic and diluted loss per share:
              As reported                        $     (0.16)    $     (0.20)
              Pro forma                          $     (0.18)    $     (0.30)

         The pro forma compensation cost was recognized for the fair value of
         the stock options granted, which was estimated using the Black-Scholes
         model with the following weighted-average assumptions for 2003 and
         2002, respectively: expected volatility of 50% and 50%, respectively,
         and risk-free interest of 4.00% and 4.00%, respectively, expected life
         of 1 to 10 years and no expected dividends for both years. The
         estimated weighted-average fair value of stock options granted in 2003
         and 2002 was $1.53 and $.77, respectively.

         Revenue recognition
         -------------------

         Revenues, the related cost of sales and an allowance for returned goods
         are recorded upon the shipment of goods. Royalties and licensing
         revenues are recorded based on notification to us by licensees of
         amounts due us.

         Advertising costs
         -----------------

         Advertising costs, including the costs of placement of the Company's
         products with retailers, are expensed. Advertising costs were $195,811
         in 2003 and $55,747 in 2002.

         Income taxes
         ------------

         Deferred taxes are accounted for using an asset and liability approach,
         whereby deferred tax assets are recognized for deductible temporary
         differences and operating loss carry-forwards and deferred tax
         liabilities are recognized for taxable temporary differences. Temporary
         differences are the differences between the reported amounts of assets
         and liabilities and their tax bases. Deferred tax assets are reduced by
         a valuation allowance when, in the opinion of management, it is more
         likely than not that some portion or all of the deferred tax assets
         will not be realized. Deferred tax assets and liabilities are adjusted
         for the effects of changes in tax laws and rates on the date of
         enactment.

                                      F-9

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1.       NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

         Loss per share
         --------------

         Basic EPS is calculated using income available to common stockholders
         divided by the weighted average of common shares outstanding during the
         year. Diluted EPS is similar to Basic EPS except that the weighted
         average of common shares outstanding is increased to include the number
         of additional common shares that would have been outstanding if the
         dilutive potential common shares, such as options, had been issued. The
         treasury stock method is used to calculate dilutive shares which
         reduces the gross number of dilutive shares by the number of shares
         purchasable from the proceeds of the options assumed to be exercised.
         All potential common shares were anti-dilutive, and excluded from loss
         per share calculations.

         Reclassifications
         -----------------

         Certain items in the 2002 financial statements have been reclassified
         to conform to the 2003 presentation.

         Recent accounting pronouncements
         --------------------------------

         In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB
         STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND
         TECHNICAL CORRECTIONS. SFAS No. 145 requires most gains and losses on
         extinguishment of debt to be classified as income or loss from
         continuing operations rather than as extraordinary items as previously
         required. SFAS No. 145 also amends SFAS No. 13, ACCOUNTING FOR LEASES,
         to require certain lease modifications to be treated as sale-leaseback
         transactions. Certain provisions of SFAS No. 145 are effective for
         transactions occurring after May 15, 2002, while other provisions are
         effective for fiscal years beginning after May 15, 2002. We do not
         expect a material impact on our results of operations or financial
         condition as a result of the adoption of SFAS No. 145.

         In July 2002, the FASB issued SFAS 146, ACCOUNTING FOR COSTS ASSOCIATED
         WITH EXIT OR DISPOSAL ACTIVITIES. SFAS 146 addresses financial
         accounting and reporting for costs associated with exit or disposal
         activities and nullifies the Emerging Issues Task Force Issue No. 94-3,
         LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND
         OTHER COSTS TO EXIT AN ACTIVITY INCLUDING CERTAIN COSTS INCURRED IN A
         RESTRUCTURING. SFAS 146 requires that a liability for a cost associated
         with an exit or disposal activity be recognized when the liability is
         incurred, whereas EITF 94-3 had recognized the liability at the
         commitment date to an exit plan. The Company is required to adopt the
         provisions of SFAS 146 effective for exit or disposal activities
         initiated after December 31, 2002 and therefore the adoption has no
         impact on the Company's financial position or results of operations as
         of December 31, 2002.

         On December 31, 2002, the FASB issued SFAS 148, ACCOUNTING FOR
         STOCK-BASED COMPENSATION --TRANSITION AND DISCLOSURE. The Company
         currently utilizes the intrinsic value method of accounting for its
         stock-based employee compensation described in APB Opinion No. 25,
         ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. SFAS 148 does not amend SFAS
         123 to require companies to account for their employee stock-based
         awards using the fair value approach. However, the disclosure
         provisions are required for all companies with stock-based employee
         compensation, regardless of whether they utilize the fair value method
         of accounting as described in SFAS 123 or the intrinsic value method
         described in APB Opinion No. 25. In addition, SFAS 148 amends the
         disclosure provisions of SFAS 123 to require disclosure in the summary
         of significant accounting policies of the effects of an entity's
         accounting policy with respect to stock-based employee compensation
         reported in net income and earnings per share in annual and interim
         financial statements.

         SFAS 148 amends SFAS 123 to provide alternative methods of transition
         to the fair value method of accounting for stock-based employee
         compensation should the Company decide to change its method of
         accounting from the intrinsic value method to the fair value method.
         The three methods provided in SFAS 148 include (1) the prospective
         method which is the method currently provided for in SFAS 123, (2) the

                                      F-10

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1.       NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

         retroactive restatement method which would allow companies to restate
         all periods presented and (3) the modified prospective method which
         would allow companies to present the recognition provisions to all
         outstanding stock-based employee compensation instruments as of the
         beginning of the fiscal year of adoption. The Company believes that it
         has provided the disclosures required under SFAS 148 in these financial
         statements and has no current plans to change its accounting for
         stock-based compensation to the fair value method.

         In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN
         FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
         EQUITY. SFAS No. 150 changes the accounting for certain financial
         instruments that, under previous guidance, could be classified as
         equity or "mezzanine" equity, by now requiring those instruments to be
         classified as liabilities (or assets in some circumstances) in the
         balance sheet. Further, SFAS No. 150 requires disclosure regarding the
         terms of those instruments and settlement alternatives. The guidance in
         SFAS No. 150 generally is effective for all financial instruments
         entered into or modified after May 31, 2003, and is otherwise effective
         at the beginning of the first interim period beginning after June 15,
         2003. The Company has evaluated SFAS No. 150 and determined that it
         does not have an impact on the Company's financial reporting and
         disclosures.

2.       PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                    2003               USEFUL LIVES
                                                                -----------         --------------------
          <S>                                                   <C>                     <C>
          Computers and equipment                               $  230,924              3 - 5 years
          Furniture and fixtures                                    31,614              3 - 7 years
                                                                                    Lesser of lease term
          Leasehold improvements                                    22,365            or useful life.
                                                                ------------
                                                                   284,903
          Accumulated depreciation and amortization               (143,941)
                                                                ------------
                                                                $  140,962
                                                                ============
</TABLE>

         Depreciation expense was $52,842 in 2003 and $36,271 in 2002.

                                      F-11

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

3.       NOTES PAYABLE AND CONVERTIBLE DEBENTURES

         In the fourth quarter of 2003, the Company issued notes payable
         totaling $1,150,000 to private lenders. The notes bear interest at
         10.5% and are due December 31, 2004. Interest is payable quarterly,
         beginning March 31, 2004. Each lender was also granted one warrant at
         $1.00 per share and one warrant at $3.00 per share for the Company's
         common stock for each dollar loaned. The fair value of the warrants
         using the Black-Scholes valuation method totaled $506,557 at the time
         of issuance, which amount is being amortized over the lives of the
         notes payable as interest expense. The notes are secured by the
         production masters of twelve movies sold by the Company under the AMC
         logo. As further explained in Subsequent Events, Note 10 to these
         Financial Statements, part of these notes were repaid by the Company in
         March 2004 in relation to the private placement conducted at that time.

         In 2001, the Company issued a convertible debenture for $50,750 to a
         shareholder in place of redeemable common stock. The debenture bears
         interest at 8%, was due March 31, 2002, and was convertible into common
         shares at $.50 per share; however, the conversion feature of this
         debenture has expired. Interest on the debenture was accrued through
         December 31, 2003. There was no beneficial conversion interest related
         to this debenture. The Company also issued a convertible debenture for
         $10,000 for cash in 2002, which required interest of 10.75% and was due
         February 28, 2004. This debenture was converted into common shares in
         February 2003 at $1.00 per share.

4.       COMMON STOCK

         During 2003, the Company issued 2,397,040 shares of its common stock at
         $.70 and 1,350,000 shares at $.72 pursuant to two private placements.
         Net proceeds were $2,618,780 from these offerings, after the payment of
         $31,140 and the issuance of 89,746 shares of common stock for finder's
         fees. During 2003, we issued 217,847 shares to third-party consultants
         and service providers for a total of $174,500, 350,000 shares of common
         stock as a prepayment against the development of remastered DVDs and
         70,922 shares of common stock for an option to acquire Falcon Picture
         Group. Also during this time period, a debenture of $10,000 was
         converted through the issuance of 10,000 shares. We also issued shares
         to certain officers in payment of salaries. Five officers accepted
         142,860 shares and warrants as payment of $100,000 of 2003 salary.

         In 2003, 159,330 options were exercised at prices of $.63, $.80 and
         $1.02 per share, resulting in proceeds of $121,378.

         Redeemable common stock
         -----------------------

         During 1999, the Company reviewed certain aspects of its issuances of
         common stock and determined that during 1997, 1998 and through
         September 1999, it sold common stock in private placement transactions
         that may be subject to redemption. In 2002, 1250 shares were redeemed
         and in 2001, 8,750 shares were exchanged for a convertible debenture of
         $50,750 bearing interest at 8%. The total number of shares subject to
         redemption at December 31, 2003 was 66,888. Accordingly, additional
         paid in capital has been reduced by $362,322 to reflect the cumulative
         amounts subject to redemption. In addition, accrued interest of
         $128,610 is included in the total of $490,932 shown in the caption
         "redeemable common stock" in the accompanying balance sheet.

5.       STOCK OPTIONS

         Employees
         ---------

         During 2003, the Company granted options to its employees and directors
         to purchase a total of 2,652,617 shares of its common stock at exercise
         prices of $.78 to $1.98 per share, which equaled or exceeded fair
         market value at the time the options were granted.

                                      F-12

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

5.       STOCK OPTIONS (CONTINUED)

         During 2002, the Company granted options to its employees and directors
         to purchase a total of 2,939,032 shares of its common stock at exercise
         prices of $.63 to $2.59 per share, which equaled or exceeded fair
         market value at the time the options were given.

         Non-employees
         -------------

         In 2003, the Company granted options and warrants to purchase a total
         of 4,416,471 shares of its common stock at exercise prices from $.70 to
         $1.40 per share to individuals for services rendered and in relation to
         the private placement, resulting in the recognition of $430,655 of
         expense. Also in 2003, the Company granted warrants to purchase
         2,300,000 shares of its common stock at exercise prices of $1.00 and
         $3.00 per share in relation to the issuance of notes payable. These
         warrants resulted in the recognition of $86,634 of interest expense.
         During 2003, options for 159,330 shares were exercised.

         In 2002, the Company granted options and warrants to purchase a total
         of 1,793,800 shares of its common stock at exercise prices from $.63 to
         $5.00 per share to individuals for services rendered, resulting in the
         recognition of $560,362 of expense. During 2002, options for 40,000
         shares were exercised.

         A summary of stock option and warrant activity follows:
<TABLE>
<CAPTION>
                                                     Weighted                       Weighted
                                                      Average                        Average
                                     Number        Exercise Price    Exercisable  Exercise Price
                                     ------        --------------    -----------  --------------
          <S>                      <C>                 <C>           <C>               <C>
          December 31, 2001         4,725,660          $ 1.41         4,658,994        $ 1.41
          Granted                   4,732,832          $ 0.76
          Exercised                (3,583,950)         $ 0.71
          Canceled                   (100,000)         $ 0.80
                                   -----------                       -----------
          December 31, 2002         5,774,542          $ 1.03         3,949,542        $ 1.17
          Granted                   9,369,088          $ 1.53
          Exercised                  (159,330)         $ 0.76
          Canceled                    (33,135)          $2.10
                                   -----------                       -----------
          December 31, 2003        14,951,165           $1.35        11,540,092         $1.40
                                   ===========                       ===========
</TABLE>

         The following information applies to all options and warrants
outstanding at December 31, 2003:

<TABLE>
<CAPTION>
                                 Options and         Average         Weighted                           Weighted
                                   warrants      remaining life       average           Number           average
            Exercise price       outstanding         (years)      exercise price     exercisable     exercise price
            --------------       -----------         -------      --------------     -----------     --------------
          <S>                     <C>                    <C>            <C>           <C>                  <C>
          $.50 - 1.00              5,012,154             5.5            $ 0.66         4,253,821            $0.67
          $1.01 - 2.59             8,512,761             5.5            $ 1.37         5,860,021            $1.38
          $3.00 - 5.12             1,375,000             2.5            $ 3.32         1,375,000            $3.32
          $9.00 - 13.60               51,250             5.0            $12.45            51,250           $12.45
                                  -----------                                         -----------
                                  14,951,165                                          11,540,092
                                  ===========                                         ===========
</TABLE>

                                      F-13

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

6.       COMMITMENTS AND CONTINGENCIES

         Operating leases
         ----------------

         The Company leases certain facilities and computer equipment under
         non-cancelable operating leases. Rental expense for 2003 and 2002 was
         $149,865 and $172,306, respectively.

         As of December 31, 2003, the future minimum annual rental commitments
         required under existing non-cancelable operating leases are as follows:

                 Related Party  Non Related      Total
                 -------------  -----------      -----

         2004      $ 49,200      $109,726      $158,926
         2005      $ 34,800      $145,832      $180,632
         2006      $ 34,800      $144,050      $178,850
         2007      $ 34,800      $149,092      $183,892
         2008            --      $154,310      $154,310
                   ---------     ---------     ---------
                   $153,600      $703,010      $856,610
                   =========     =========     =========

         Executive employment agreements
         -------------------------------

         In 2002, the Company entered into employment agreements with six of its
         executive officers and key employees. The agreements are for a
         three-year term and provide for stock options, employee benefits and
         severance pay in case of termination without cause of between 12 and 24
         months' salary. In 2003, these agreements were amended to increase the
         term for an additional year, salary increases and additional stock
         options. In 2004, we entered into an employment agreement with a new
         executive officer that provides for stock options, employee benefits
         and severance pay in case of termination without cause of up to six
         months' salary. If an executive dies or is terminated without cause,
         severance pay averaging up to $206,250 per executive would be due.

7.       RELATED-PARTY TRANSACTIONS

         On September 8, 2003, we entered into a license agreement with Falcon
         Picture Group, LLC ("Falcon"), for the exclusive rights to distribute a
         majority of its audio and video products, including AMC branded DVD
         movie and television collections, in the U.S. and Canada. Carl Amari, a
         member of our board of directors, is the CEO of Falcon. This agreement
         expires on July 1, 2006, with an automatic renewal for an additional
         three years if both parties are fulfilling their obligations under the
         agreement, and calls for a royalty to be paid on the sales of the video
         and audio products. We have committed to pay a minimum annual royalty
         of $240,000 and to have Falcon digitally remaster a minimum of 100
         hours of classic movies and television programs per year at a one-time
         cost of $300,000 for the first 100 hours of programming provided. For
         the remainder of the agreement, the next 50 hours of remastered
         programming we receive will cost $500 per hour. Additional hours of
         remastered branded programming will cost $2,500 per hour. Additional
         hours of remastered non-branded programming will cost $500 per hour.

         The agreement also provides us with a three-year option to acquire
         Falcon's assets for $3,600,000 (payable in cash or stock or a
         combination of cash and stock). As consideration for the issuance of
         the option, we issued to Falcon 70,922 shares of our common stock, with
         a market value of approximately $100,000 based on the average of the
         closing market price of the common stock as of September 8, 2003, the
         date of issuance of such shares, and July 1, 2003, the effective date
         of the agreement, as per the terms of the agreement relating to the
         valuation of these shares. The specific assets and liabilities of
         Falcon that we may decide to acquire under this option will be
         negotiated by the parties at the time the acquisition is considered.

         Included in prepaid and other assets is $25,751 of advances made to two
         officers of the Company. Advances are due on demand and bear interest
         at 7%. These advances were paid in January 2004 by return of the
         Company's common stock in an amount equal to the total indebtedness.

                                      F-14

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

7.       RELATED-PARTY TRANSACTIONS (CONTINUED)

         The Company leases its warehouse facility in Iowa from a related party.
         Lease payments in 2003 were $20,400 and in 2002 were $11,900 under this
         lease agreement. The Company also leases sales offices in Minnesota
         from a related party. Lease payments in the year ended December 31,
         2003 were $7,200 under this agreement.

         In 2002, 3,507,700 options and warrants were exercised in exchange for
         notes receivable. Of the total, 1,285,200 shares were issued for
         warrants that were previously issued in relation to loans, and
         2,222,500 shares were issued for warrants previously granted to four
         officers and an employee. The 1,285,200 shares issued for warrants were
         issued for notes receivable totaling $728,400 to two related parties.
         Of the total, 660,000 shares were issued to S G Consulting, an entity
         controlled by Sean Goodchild, who was the owner of more than 5% of our
         common stock when these shares were included in his ownership. The
         balance, of 625,200 shares were issued to Algarvida LDA, an entity that
         is controlled by Isabel Moeller, who is the sister of our Chief
         Executive Officer, Klaus Moeller. The notes receivable bear interest at
         6% annually, are repayable on January 3, 2004, and are secured by the
         shares of common stock. These notes receivable and the $289,842
         interest accrued on them are shown as subscriptions receivable at
         December 31, 2003. On January 22, 2004, the notes receivable and
         accrued interest, along with the advances to officers and accrued
         interest, were paid in full by the return of the Company's common stock
         in an amount equal to the total indebtedness.

         In 2003, five officers accepted 142,860 shares and warrants of the
         Company's common stock as payment of $100,000 of 2003 salary.

8.       INCOME TAXES

         The provision for income taxes in 2003 and 2002 consists of California
         income taxes of $800 for each year.

         The Company has net operating loss ("NOL") carry-forwards that can be
         utilized to offset future taxable income. At December 31, 2003, federal
         NOL carry-forwards totaled approximately $11,825,000. The federal
         carry-forwards expire in various years ending December 31 as follows:

                     2011                           $    238,000
                     2012                                435,000
                     2018                              1,506,000
                     2019                                997,000
                     2020                              2,395,000
                     2021                              1,853,000
                     2022                              2,176,000
                     2023                              2,225,000
                                                    -------------
                                                    $ 11,825,000
                                                    =============

         In addition, the Company has approximately $6,420,000 of California NOL
         carry-forwards that expire in various years commencing in 2004 through
         2013. Deferred income taxes at December 31, 2003 and 2002 relate to net
         operating losses and allowance accounts. A valuation allowance has been
         established to reduce deferred tax assets to amounts which management
         believes are more likely than not to be realized.

                                           2003              2002
                                       ------------      ------------
         NOL carry-forwards            $ 4,716,000       $ 3,754,000
         Allowance accounts                (45,000)          (40,000)
                                       ------------      ------------
         Deferred tax assets             4,671,000         3,714,000
         Less valuation allowance       (4,671,000)       (3,714,000)
                                       ------------      ------------
         Net deferred tax asset        $        --       $        --
                                       ============      ============

         The valuation allowance increased $957,000 in 2003 and $725,000 in
         2002.

                                      F-15

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

9.       BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE

<TABLE>
<CAPTION>
                                                                    2003             2002
                                                               -------------      -------------
<S>                                                            <C>                <C>
Numerator
      Net Loss                                                 $ (2,742,683)      $ (2,788,082)
                                                               =============      =============
Denominator
      Basic and diluted weighted average number of common
      shares outstanding during the period                       17,574,405         13,838,743
                                                               =============      =============

Basic and diluted net loss per share                           $      (0.16)      $      (0.20)
                                                               =============      =============

    The effect of the potentially dilutive securities listed below (options and
    warrants that are exercisable) were not included in the computation of
    diluted loss per share, since to do so would have been anti-dilutive.

    Stock options and warrants                                   14,951,165          5,774,542
    Convertible debentures                                               --            121,500
</TABLE>

10.      SUBSEQUENT EVENTS (UNAUDITED)

         A.       PAYOFF OF SUBSCRIPTION RECEIVABLE AND OFFICERS' ADVANCES

         On January 22, 2004, the officers' notes receivable held by Genius
Products as subscription receivable were paid off by tendering shares of Genius
Products common stock pursuant to the terms of the notes. Klaus Moeller and
Michael Meader each tendered 168,052 shares to retire their loans. Larry Balaban
and Howard Balaban tendered 170,405 shares and 174,883 shares, respectively,
tendering additional shares to retire advances previously made to them.

         B.       NEW PRIVATE PLACEMENT AND PAYOFF OF CERTAIN NOTES PAYABLE

         On March 19, 2004, a private placement offering of $7,000,000 was
completed pursuant to Rule 506 of Regulation D of the Securities Act. Proceeds
to us net of commissions totaled approximately $6,500,000. We intend to use the
proceeds for working capital purposes. Sands Brothers International Limited
served as the selected dealer for the transaction. The private placement was
priced at $70,000 per unit. Each unit consists of 50,000 shares of common stock
and a warrant to purchase 10,000 shares of common stock. The warrants have an
exercise price of $3.00 per share and a five-year term. The fair value of the
warrants using the Black-Scholes valuation method totaled $403,220 at the time
of issuance, which amount is being amortized over the five-year life of the
warrants. Pursuant to the sales of the units we issued 5,000,000 new
unregistered shares of common stock and warrants to purchase up to 1,650,000
shares of common stock (including those warrants issued as compensation to the
selected dealer). In accordance with the terms of the Registration Rights
Agreement we entered into with the investors and the selected dealer in
connection with this financing, we have agreed to file a resale registration
statement for the resale of the common stock and the common stock underlying the
warrants by May 18, 2004. We will be subject to penalties if we do not timely
file a registration statement or if such registration statement does not become
and remain effective as we agreed.

         Upon the request of certain secured promissory note holders, our early
repayment of their notes in the aggregate amount of $295,799 was invested in the
private placement.

         C.       TERMINATION OF DISTRIBUTION AGREEMENT WITH WARNER HOME VIDEO

         On March 5, 2004, Genius Products and Warner Home Video agreed to
terminate the distribution agreement between the parties, allowing us to begin
self-distribution of our Baby Genius line of VHS and DVDs. We already
self-distribute most of our other products, so we anticipate we will be able to
efficiently distribute the Baby Genius VHS and DVDs through our pre-existing
distribution channels. As previously disclosed, the royalties related to the
distribution of our VHS and DVDs by Warner Home Video had been less than
anticipated. We expect that we will be able to increase our revenues from these
products through self-distribution. Under the termination agreement, we also
regained the distribution rights for our planned line of Kid Genius VHS and
DVDs. The agreement calls for us to repay $300,000 to Warner Home Video by
paying them a royalty on net sales of the Baby Genius VHS and DVDs made by us in
the future. We also purchased approximately $192,000 in remaining inventory of
our VHS and DVDs from them.

                                      F-16

<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

ITEM 8A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

         As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act
pursuant to Rule 13a-14. Based upon that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that as of the end of the period
covered by this report, our disclosure controls and procedures are effective in
timely alerting him to material information relating to us required to be
included in our periodic filings with the Securities and Exchange Commission.

         There have been no changes in our internal controls over financial
reporting that occurred during our most recently completed fiscal quarter that
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

                                       20


<PAGE>
                                    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 certain information with respect to each
of our directors and executive officers as of April 27, 2004.

NAME                    AGE     POSITION
----                    ---     --------

Klaus Moeller           43      Chairman of the Board, Chief Executive Officer,
                                  Interim Chief Financial Officer, Director and
                                  Director Nominee
Michael Meader          38      President
Mark J. Miller          52      Chief Operating Officer
Larry Balaban           40      Executive Vice President of Marketing and
                                  Production and Director
Howard Balaban          43      Executive Vice President of New Business
                                  Development
Julie Ekelund           42      Executive Vice President of Sales
Carl Amari              40      Director*
Nancy Evensen           48      Director*

* Member of Audit and Compensation Committees.

         KLAUS MOELLER has served as our Chief Executive Officer and as a
Director since October 1997. Mr. Moeller has served as our Interim Chief
Financial Officer since May 2001. Mr. Moeller had been the Chairman of the Board
and Chief Executive Officer of ITM, which we acquired in October 1997. Mr.
Moeller has a background in marketing, advertising, real estate and auditing.

         MICHAEL MEADER has served as our Executive Vice President since April
of 1998, and our Executive Vice President - Distribution since January 2002. He
was appointed our President in May of 2002. Mr. Meader worked as an outside
consultant with us for a number of years prior to joining the Company. His
expertise encompasses distribution, category management and service for programs
designed for mass-market retailers. From 1994 to 1998, Mr. Meader served as Vice
President of Specialty Products at ARAMARK Corporation. While at ARAMARK, he
controlled all corporate operations related to ARAMARK's Music Division.

         MARK J. MILLER has served as our Chief Operating Officer since February
2004. Previously, Mr. Miller served as President of Esports Arena from
2002-2003. From 2000-2002, he was President of Boom Buy, an Internet Retailer.
At Consolidated Stores, he acted as President from 1988-1989, overseeing buying,
marketing and distributing. Mr. Miller previously spent six years at PicNSave as
an Executive Vice President for buying. He also was Vice President of
Merchandising for the Disney Stores.

         LARRY BALABAN has served as our Executive Vice President of Marketing
and Production since January 1999, after having rendered consulting services to
us for approximately six months. He was elected to our Board of Directors in
July 2001. Before joining Genius, Mr. Balaban was President of Mr. B
Productions, a non-traditional marketing firm based in New York City,
specializing in TV production, target marketing and membership programs. From
1994-1997, Mr. Balaban was President of Virtual Reality Productions, where he
specialized in marketing, and coordinated specialized audio productions for
licensed products including Star Trek(TM), The Simpsons and the X-Files. Larry
and Howard Balaban are brothers.

         HOWARD BALABAN has served as our Executive Vice President of New
Business Development since January 2002. He was previously appointed Senior Vice
President of Sales in January 1999 after having rendered consulting services to
us for just over six months. Prior to his appointment, Mr. Balaban was a sales
and marketing consultant to various companies. From 1994-1997, Mr. Balaban was
Senior Vice President of Business Development for Future Call, Inc., a prepaid
telephone card company that he co-founded with William Shatner, and which held
the rights to all Star Trek(TM) properties associated with prepaid phone cards.
From 1991-1995, he was the Chief Executive Officer of 3B Telecommunications, a
company he founded and which acted as a master agent for telecom networks
reselling phone time and telecom services. Howard and Larry Balaban are
brothers.

                                       21


<PAGE>

         JULIE EKELUND was appointed as our Executive Vice President of Sales in
April 2002 after having rendered consulting services to us for a year. She has
also worked in sales with Ekelund & Associates since 1994.

         CARL AMARI was appointed a Director in October 2003. Mr. Amari
currently serves as CEO and President of Falcon Picture Group LLC, a company he
founded that specializes in the distribution of classic film and television
programming. In 1985, he founded Radio Spirits, Inc., a licensor and distributor
of nostalgia radio content. He sold this company to the public company MediaBay
in 1998, serving as President of the Radio Spirits subsidiary until he founded
Falcon Picture Group in 2001.

         NANCY EVENSEN was appointed to our Board of Directors in May 2002. Ms.
Evensen joined North American Membership Group, a club-based affinity marketing
and publishing company in 1994 as Senior Vice President of Marketing to oversee
all marketing functions. She has served as President and CEO at North American
Membership Group since 1999. Ms. Evensen was previously a Senior Vice President
of Marketing at Nordic Track, after starting her career at Fingerhut and later
moving to CVN Companies, a home shopping and mail order business that was sold
to QVC.

         During fiscal year 2003, the Board held five meetings. All directors
attended at least 75% of the meetings held by the Board of Directors and the
committees on which he or she served during 2003, except for Deborah Law Cross
and Margaret Loesch who each attended two of the three Audit Committee meetings,
and Nancy Evensen who attended one of the three meetings held by the Audit
Committee. Directors do not receive cash compensation for their services as
directors but are reimbursed for expenses actually incurred in connection with
attending meetings of the Board of Directors. For the last two quarters of
fiscal year 2001 and the first two quarters of fiscal year 2002, each director
received 2,000 restricted shares of our common stock for each quarter of service
on the Board. A total of 24,000 shares was awarded at a value of $1.30 per
share, 8,000 shares each to Klaus Moeller and Larry Balaban, who were members of
the Board at that time.

         Each director appointed on or after April 2002 who is not also an
officer received an option to purchase 10,000 shares of our common stock for
joining the Board. David Anderson, Richard Bermingham and Nancy Evensen, each
appointed to the Board on May 13, 2002, received options with an exercise price
of $2.59 per share which was the closing price of our common stock on May 13,
2002, the date of the grant.

         At our 2002 Annual Meeting, each director who is not also an officer
received an option to purchase 25,000 shares of our common stock for a year of
service on the Board. These options vest following the year of service. The
exercise price for options granted to David Anderson, Richard Bermingham,
Deborah Law Cross, Nancy Evensen and Margaret Loesch was $1.53 per share, which
was the closing price of our common stock on July 8, 2002, the date of the
grant.

         At our 2003 Annual Meeting, each director who is not also an officer
received an option to purchase 25,000 shares of our common stock for a year of
service on the Board. These options vest following the year of service. The
exercise price for options granted to David Anderson, Richard Bermingham, Nancy
Evensen and Margaret Loesch was $1.13 per share, which was the closing price of
our common stock on July 7, 2003, the date of the grant. David Anderson, Richard
Bermingham and Margaret Loesch resigned from the Board in the last quarter of
2003 for personal reasons.

         On October 20, 2003, Carl Amari was granted a vested option to purchase
10,000 shares of our common stock his appointment to the Board and an option to
purchase 17,877 shares of our common stock for service on the Board until the
next annual meeting (the grant of an option to purchase 25,000 shares of common
stock for a year's service on the Board granted to other directors was prorated
for the remainder of the term of service). The option for board service vests at
the anniversary date of the prior year's annual meeting. The exercise price for
these options was $1.40 per share, which was the closing price of our common
stock on October 20, 2003, the date of the grant.

                                       22

<PAGE>

         On October 31, 2003, the Compensation Committee authorized the grant of
options for Board service to directors who are also officers (Klaus Moeller and
Larry Balaban). The committee also authorized an increase in the annual option
grant to directors, including directors who are also officers. This increase
from an annual option grant to purchase 25,000 shares of our common stock to an
option to purchase 37,500 shares of our common stock was prorated for the
remainder of the directors' year of service and will vest on the anniversary
date of the prior year's annual meeting. Carl Amari and Nancy Evensen each
received an option to purchase 8,562 shares of common stock. Larry Balaban and
Klaus Moeller each received an option to purchase 25,685 shares of our common
stock. The exercise price for each option was $1.50 per share. The closing price
of our common stock on October 31, 2003, the date of the grant, was $1.36.

         Carl Amari is the President and CEO of Falcon Picture Group, LLC.
Falcon has received payments of approximately $663,650 in 2003 under two
licensing agreements, the first for the distribution of Bozo videos and DVDs
dated November 12, 2002, and the second for the licensing and distribution of
various Falcon properties on video and DVD dated September 8, 2003. We also
issued 70,922 restricted shares of our common stock to Falcon under the
September 2003 license agreement for the option to purchase Falcon's assets
before September 8, 2006. On December 22, 2003, we completed a transaction
amending our September 8, 2003 licensing agreement with Falcon to address
Falcon's acquisition of a license to use the TV GUIDE name and logo in
connection with the development, marketing and sale, throughout the United
States, of a full line of DVD products featuring classic television content from
1946 through 1989. The terms for this amendment were reached on October 2, 2003.
For his part in the negotiations for this acquisition and the completion of the
transaction, Carl Amari purchased 1,350,000 restricted shares of Genius common
stock on December 22, 2003 at the price of $0.72 per share.

         Directors and executive officers are elected annually.

         The Board of Directors has a Compensation Committee whose members are
currently Carl Amari and Nancy Evensen. The Compensation Committee held five
meetings during 2003. The Board also has an Audit Committee that reviews the
results and scope of the audit and other accounting-related matters. The Audit
Committee held three meetings during 2003 but has not held any meetings since
August 2003 pending the appointment of a new chairperson, a financial expert and
additional independent directors. The members of the Audit Committee are
currently Carl Amari and Nancy Evensen. Nancy Evensen is the only independent
Audit Committee member. A Nominating Committee has not been established due to
the small size of the company and our Board. Until a Nominating Committee is
established the nominating decisions are made by the Board. The Board of
Directors does not currently have an audit committee financial expert. The Board
is actively seeking independent directors and a suitable director candidate who
would become the financial expert for the Audit Committee. The Board seeks
candidates with mature business judgment, financial acumen and may also seek
specific industry or technical skills that can complement those held by
management. The Board also requires high ethical standards and successful
experience with public and growth companies.

AUDIT COMMITTEE CHARTER

         Our Board of Directors has previously adopted a written charter for the
Audit Committee, which established operating guidelines for the Audit Committee.

                                       23

<PAGE>

CODE OF ETHICS

         We adopted a Code of Ethics on February 27, 2004, that applies to our
principal executive officer, principal financial officer and controller or
principal accounting officer, or persons performing similar functions.
The Code of Ethics is filed as an exhibit to this Annual Report.

                  COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT

         Late filings of Forms 3 and 4 were made as follows: (i) a Form 3 filing
for Carl Amari due on October 22, 2003; (ii) Form 4s for Carl Amari due on
November 4, 2003, and December 24, 2003; (iii) Form 4s for Klaus Moeller,
Michael Meader, Larry Balaban, Howard Balaban and Julie Ekelund for due on June
4, 2003 and November 4, 2003; (iv) Form 4s for Nancy Evensen due on July 9,
2003, and November 4, 2003; (v) Form 4s for David Anderson (a former director)
due on May 29, 2003, and July 9, 2003; (vi) Form 4s for Richard Bermingham (a
former director) due on July 9, 2003; and (vii) a Form 4 for Margaret Loesch (a
former director) due on July 9, 2003. No other person, who, at any time during
the year ended December 31, 2003, was a director, officer or beneficial owner of
more than 10 percent of any class of our equity securities registered pursuant
to Section 12 of the Exchange Act failed to file on a timely basis, as disclosed
in Form 3 and 4 filings, reports required by Section 16(a) of the Exchange Act
during the year ended December 31, 2003. The foregoing is based solely upon a
review of Form 3 and 4 filings furnished to us during the year ended December
31, 2003, and certain written representations from officers, directors and
shareholders who, to the best of our knowledge, hold 10 percent or more of our
shares.

                                       24

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

         Our compensation and benefits program is designed to attract, retain
and motivate employees to operate and manage the Company for the best interests
of its constituents.

         Executive compensation is designed to provide incentives for those
senior members of management who bear responsibility for our goals and
achievements. The compensation philosophy is based on a base salary, with
opportunity for significant bonuses to reward outstanding performance and a
stock option program.

EXECUTIVE OFFICER COMPENSATION

         The following table sets forth compensation information for services
rendered to us by certain executive officers in all capacities, other than as
directors, during each of the prior three fiscal years. Other than as set forth
below, no executive officer's salary and bonus exceeded $100,000 in any of the
applicable years. The following information includes the dollar value of base
salaries, bonus awards, the number of stock options granted and certain other
compensation, if any, whether paid or deferred. This table does not include
stock and options granted to certain executives for service as directors which
is described above under "Director Compensation". Shares issued in lieu of
compensation are listed in the year the salary was due.
<TABLE>

                           SUMMARY COMPENSATION TABLE*
<CAPTION>

                                                 Annual Compensation          Long-Term Compensation
                                                ---------------------- ------------------------------------
                                                                                 Awards            Payouts
                                                                       -------------------------  ---------
                                                                                                              All Other
                                                                                                             Compensation
                                                                       Restricted    Securities                   $
                                                          Other Annual   Stock       Underlying     LTIP     -----------
                                     Salary       Bonus   Compensation   Awards      Option/SARs    Payouts     (Car
   Name and Position      Year         $            $          $            $        and Warrants      $      Allowance)
------------------------  ----    ------------  --------  ------------ ------------  -------------  -------  ------------
<S>                       <C>       <C>          <C>           <C>       <C>           <C>             <C>       <C>
Klaus Moeller             2003      150,000(1)   45,000        0         28,572(1)     572,000(1)      0         9,000
CEO and Interim CFO       2002      150,000(1)        0        0         47,619(1)     450,000         0         9,000
                          2001      150,000(1)        0        0        117,560(1)     200,000         0         5,000

Michael Meader            2003      150,000(2)   15,000        0         28,572(2)     468,000(2)      0         9,000
President, formerly       2002      150,000(2)        0        0         47,619(2)     450,000         0         9,000
Executive Vice            2001      150,000(2)        0        0         42,560(2)     200,000         0         5,000
President -
Distribution and
Executive Vice President

Larry Balaban             2003      150,000(3)   15,000        0         28,572(3)     427,500(3)(4)   0         9,000
Executive VP of           2002      150,000(3)        0        0         47,619(3)(4)  450,000         0         9,000
Marketing and             2001      150,000(3)        0        0         42,560(3)     200,000         0         5,000
Production

Howard Balaban            2003      150,000(3)   15,000        0         28,572(3)     427,500(3)      0         9,000
Executive VP of New       2002      150,000(3)        0        0         47,619(3)     450,000         0         9,000
Business Development      2001      150,000(3)        0        0         42,560(3)     200,000         0         5,000

Julie Ekelund             2003      150,000(5)   15,000        0         28,572(5)     427,500(5)      0         9,000
Executive VP of Sales     2002      150,000(5)        0        0         20,000(5)     450,000         0         9,000

                    Prior year not applicable as Ms. Ekelund's employment commenced on April 1, 2002.
</TABLE>

* The number of shares and share prices disclosed reflect the reverse stock
split which occurred on April 10, 2001.

(1)  During 2001, in response to the Company's limited cash flow, Mr. Moeller
     accepted $75,000 of unpaid 2001 salary in the form of shares of common
     stock based upon the closing price of the common stock on January 2, 2001,
     which was $0.80 (as adjusted for the April 10, 2001 reverse stock split).
     Pursuant to this agreement, Mr. Moeller was issued 93,750 shares of stock
     on June 10, 2001. Mr. Moeller received 23,810 shares for an additional
     $15,000 of unpaid 2001 salary and agreed to accept 47,619 shares as a
     signing bonus for entering into a three-year employment agreement as of
     January 3, 2002, with a $30,000 reduction of 2002 salary. These issuances
     were made as of January 3, 2002, at $0.63 per share. During 2003, in
     response to the Company's limited cash flow, Mr. Moeller accepted $20,000
     of his 2003 salary in exchange for 28,572 shares of common stock valued at
     $0.70 per share and a five-year warrant to purchase 28,572 shares of common
     stock at an exercise price of $1.40. These issuances were made as of June
     2, 2003, at the same price of a private placement that was ongoing at that
     time. For his service as a director, Mr. Moeller received (i) 12,000 shares
     of common stock on July 31, 2001, for service for the six quarters prior to
     the date of grant (2,000 shares per quarter); (ii) 8,000 shares of common
     stock on August 23, 2002, for service for the four quarters prior to the
     date of grant (2,000 shares per quarter); and (iii) on October 31, 2003, an
     option to purchase 25,685 shares of common stock at an exercise price of
     $1.50 per share, as further described under "Director Compensation", above.

                                       25

<PAGE>

(2)  During 2001, in response to the Company's limited cash flow, Mr. Meader
     accepted $15,000 of unpaid 2001 salary in the form of shares of common
     stock based upon the closing price of the common stock as of January 2,
     2001, which was $0.80 (as adjusted for the April 10, 2001 reverse stock
     split). Pursuant to this agreement, Mr. Meader was issued 18,750 shares of
     common stock on June 10, 2001. Mr. Meader received 23,810 shares for an
     additional $15,000 of unpaid 2001 salary and agreed to accept 47,619 shares
     as a signing bonus for entering into a three-year employment agreement as
     of January 3, 2002, with a $30,000 reduction of 2002 salary. These
     issuances were made as of January 3, 2002, at $0.63 per share. During 2003,
     in response to the Company's limited cash flow, Mr. Meader accepted $20,000
     of his 2003 salary in exchange for 28,572 shares of common stock valued at
     $0.70 per share and a five-year warrant to purchase 28,572 shares of common
     stock at an exercise price of $1.40. These issuances were made as of June
     2, 2003, at the same price of a private placement that was ongoing at that
     time.

(3)  During 2001, in response to the Company's limited cash flow, Mr. Larry
     Balaban and Mr. Howard Balaban each accepted $15,000 of unpaid 2001 salary
     in the form of shares of common stock based upon the closing price of the
     common stock as of January 2, 2001, which was $0.80 (as adjusted for the
     April 10, 2001 reverse stock split). Pursuant to this agreement, each was
     issued 18,750 shares of common stock on June 10, 2001. Mr. Larry Balaban
     and Mr. Howard Balaban each received 23,810 shares for an additional
     $15,000 of unpaid 2001 salary and agreed to accept 47,619 shares as a
     signing bonus for entering into a three-year employment agreement as of
     January 3, 2002, with a $30,000 reduction of 2002 salary. These issuances
     were made as of January 3, 2002, at $0.63 per share. During 2003, in
     response to the Company's limited cash flow, Mr. Larry Balaban and Mr.
     Howard Balaban each accepted $20,000 of his 2003 salary in exchange for
     28,572 shares of common stock valued at $0.70 per share and a five-year
     warrant to purchase 28,572 shares of common stock at an exercise price of
     $1.40. These issuances were made as of June 2, 2003, at the same price of a
     private placement that was ongoing at that time.

(4)  For his service as a director, Mr. Larry Balaban received (i) 8,000 shares
     of common stock on August 23, 2002, for service for the four quarters prior
     to the date of grant (2,000 shares per quarter); and (ii) on October 31,
     2003, an option to purchase 25,685 shares of common stock at an exercise
     price of $1.50 per share, as further described under "Director
     Compensation", above.

(5)  Ms. Ekelund agreed to accept 20,000 shares of common stock as a signing
     bonus for entering into a three-year employment agreement as of April 1,
     2002, with a $30,000 reduction of 2002 salary. This issuance was made as of
     April 1, 2002, at $1.50 per share. The table reflects Ms. Ekelund's annual
     salary of $150,000. She received compensation for nine months in 2002.
     During 2003, in response to the Company's limited cash flow, Ms. Ekelund
     accepted $20,000 of her 2003 salary in exchange for 28,572 shares of common
     stock valued at $0.70 per share and a five-year warrant to purchase 28,572
     shares of common stock at an exercise price of $1.40. These issuances were
     made as of June 2, 2003, at the same price of a private placement that was
     ongoing at that time.

         The following table sets forth the options granted, if any, to the
persons named in the "Summary Compensation Table" during the Company's fiscal
year ended December 31, 2003. This table does not include the warrant to
purchase 28,572 shares of common stock granted to each executive in lieu of
$20,000 of 2003 salary or options granted to certain executives also serving as
directors as described above.

<TABLE>

                              OPTION/SAR GRANTS IN LAST FISCAL YEAR*
<CAPTION>

                                         INDIVIDUAL GRANTS

                        Number of           Percent of Total
                        Securities            Options/SARs
                        Underlying             Granted to
                       Options/SARs        Employees in Fiscal      Exercise or Base
    Name                Granted (#)              Year (%)             Price ($/SH)        Expiration Date
    ----                -----------              --------             ------------        ---------------
<S>                      <C>                        <C>                <C>               <C>
Klaus Moeller            572,000                    23                 $1.50             October 31, 2013
Michael Meader           468,000                    19                  1.50             October 31, 2013
Larry Balaban            427,500                    17                  1.50             October 31, 2013
Howard Balaban           427,500                    17                  1.50             October 31, 2013
Julie Ekelund            355,500                    14                  1.50             October 31, 2013
</TABLE>

* The number of shares and share prices disclosed reflect the reverse stock
split which occurred on April 10, 2001.

                                       26

<PAGE>

         The following table sets forth information concerning the exercise of
stock options by each person named in the "Summary Compensation Table" during
our fiscal year ended December 31, 2003, and the value of all exercisable and
unexercisable options at December 31, 2003. This table includes options granted
on October 31, 2004, to Klaus Moeller and Larry Balaban for service as
directors. This table does not include warrants.
<TABLE>

                            AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
                                         FISCAL YEAR-END OPTION VALUES
<CAPTION>

                      Number of Securities Underlying       Value of Unexercised In-The-Money Options
                     Unexercised Options at FY-End (#)                  at FY-End ($) (1)
                     ---------------------------------      -----------------------------------------
  Name                Exercisable       Unexercisable          Exercisable          Unexercisable
  ----                -----------       -------------          -----------          -------------
<S>                     <C>                <C>                   <C>                   <C>
Klaus Moeller           622,000            425,685               $883,000              $556,185
Michael Meader          518,000            400,000               $779,000              $530,500
Larry Balaban           477,500            425,685               $738,500              $556,185
Howard Balaban          477,500            400,000               $738,500              $530,500
Julie Ekelund           415,000            400,000               $666,000              $530,500
</TABLE>

 (1) Based on the closing price for our common stock at the close of market on
     December 31, 2003. On December 31, 2003, the price of our common stock was
     $2.50. The lowest exercise price of any outstanding option at December 31,
     2003, was $0.63.

         All of the above executives signed three-year employment agreements
which commenced as of January 3, 2002, except for Julie Ekelund, whose agreement
commenced as of April 1, 2002. These employments were extended until January 2,
2006, pursuant to an amendment to each agreement as of October 31, 2003. See
"Certain Relationships and Related Transactions."

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

         The following table sets forth certain information known to us with
respect to the beneficial ownership of common stock as of April 27, 2004, by (i)
each person who is known by us to own beneficially more than 5% of common stock,
(ii) each of our directors and executive officers and (iii) all of our officers
and directors as a group. Except as otherwise listed below, the address of each
person is c/o Genius Products, Inc., 740 Lomas Santa Fe, Suite 210, Solana
Beach, California 92075.
<TABLE>
<CAPTION>
                                                               Shares Beneficially Owned (1)
                                                               -----------------------------
               Name and Address of Owner                        Number            Percent (2)
               -------------------------                        ------            -----------

<S>                                                            <C>                  <C>
Klaus Moeller, Director, Chairman of the Board, Chief          1,325,233 (3)          5.22
   Executive Officer and Interim Chief Financial Officer
Carl Amari, Director                                           1,430,922 (4)          5.78
Nancy Evensen, Director                                           35,000 (5)      Less than 1
Michael Meader, President                                      1,123,733 (6)          4.44
Mark J. Miller, Chief Operating Officer                                0          Less than 1
Larry Balaban, Executive Vice President, Director                983,731 (7)          3.90
Howard Balaban, Executive Vice President                         971,190 (8)          3.85
Julie Ekelund, Executive Vice President                          812,875 (9)          3.21

All officers and directors as a group (8 persons)              6,682,684             24.23
____________________
</TABLE>

(1)  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 subject
     to options and warrants currently exercisable or convertible, or
     exercisable or convertible within 60 days of April 27, 2004, are deemed
     outstanding for computing the percentage of the person holding such option
     or warrant but are not deemed outstanding for computing the percentage of
     any other person. Except as pursuant to applicable community property laws,
     the persons named in the table have sole voting and investment power with
     respect to all shares of common stock beneficially owned.

(2)  Percentages are based on 24,744,257 shares of common stock outstanding
     which does not include 6,665,919 shares of common stock issuable upon the
     exercise of outstanding options (other than as described in footnote 1
     above) and 11,811,471 shares of common stock issuable upon the exercise of
     outstanding warrants.

                                       27

<PAGE>

(3)  Includes 90,000 shares held by Shelly Moeller (as her sole property), who
     is the wife of Klaus Moeller and 75,000 shares held by Dorian Lowell as
     custodian for 37,500 shares each for Tia and Hayden Moeller. Tia Moeller is
     the daughter of Klaus Moeller. Hayden Moeller is the son of Klaus Moeller.
     Excludes 543,787 shares held by Algarvida LDA, an entity controlled by
     Isable Moeller, who is the sister of Klaus Moeller. Mr. Moeller disclaims
     all beneficial ownership of such shares. Also includes an option to
     purchase 300,000 shares expiring on January 3, 2012, with an exercise price
     of $0.63 per share; an option to purchase 322,000 shares expiring on
     October 31, 2013, with an exercise price of $1.50 per share and a warrant
     to purchase 28,572 shares expiring on June 2, 2008, with an exercise price
     of $1.40 per share.

(4)  Includes 70,922 shares held by Falcon Picture Group, LLC. Mr. Amari is the
     CEO and President of Falcon. Also includes an option to purchase 10,000
     shares expiring on October 20, 2013, with an exercise price of $1.40 per
     share.

(5)  Includes an option to purchase 10,000 shares expiring on May 13, 2012, with
     an exercise price of $2.59 per share and an option to purchase 25,000
     shares expiring on July 7, 2012, with an exercise price of $1.53 per share.

(6)  Includes 25,000 shares held by Suzanne Meader, who is the wife of Michael
     Meader. Also includes an option to purchase 300,000 shares expiring on
     January 3, 2012, with an exercise price of $0.63 per share; an option to
     purchase 218,000 shares expiring on October 31, 2013, with an exercise
     price of $1.50 per share and a warrant to purchase 28,572 shares expiring
     on June 2, 2008, with an exercise price of $1.40 per share.

(7)  Includes an option to purchase 300,000 shares expiring on January 3, 2012,
     with an exercise price of $0.63 per share; an option to purchase 177,500
     shares expiring on October 31, 2013, with an exercise price of $1.50 per
     share and a warrant to purchase 28,572 shares expiring on June 2, 2008,
     with an exercise price of $1.40 per share.

(8)  Includes an option to purchase 300,000 shares expiring on January 3, 2012,
     with an exercise price of $0.63 per share and an option to purchase 177,500
     shares expiring on October 31, 2013, with an exercise price of $1.50 per
     share.

(9)  Includes an option to purchase 10,000 shares expiring on July 1, 2006, with
     an exercise price of $0.80 per share; an option to purchase 300,000 shares
     expiring on January 3, 2012, with an exercise price of $0.63 per share; a
     warrant to purchase 162,000 shares expiring on April 1, 2007, with an
     exercise price of $0.63 per share and a warrant to purchase 28,572 shares
     expiring on June 2, 2008, with an exercise price of $1.40 per share.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The number of shares and share prices disclosed below reflect the
reverse stock split which occurred on April 10, 2001.

         Mark J. Miller entered into a one-year employment agreement with us to
act as our Chief Operating Officer effective February 2, 2004. Under the
employment agreement, Mr. Miller was awarded a signing bonus of $20,000 and is
entitled to an annual salary of $173,000 and a grant of an option to purchase
150,000 shares of common stock which vest on February 1, 2005. The option is
exercisable for a period of 10 years from the date of grant at an exercise price
of $2.55 per share, the market price on the date of grant. Under the term of
this employment agreement, after the first three months of the agreement, if Mr.
Miller dies or is terminated without cause (as defined in the employment
agreement), he will receive six months of salary as severance pay. Severance pay
under this employment agreement is due and payable in full immediately upon Mr.
Miller's termination or death.

         On January 22, 2004, the officers' notes receivable held by Genius
Products as subscriptions receivable were paid off by tendering shares of Genius
Products common stock pursuant to the terms of the notes. The balance of each
note at the time of the payoff was approximately $471,219. Klaus Moeller and
Michael Meader each tendered 168,052 shares to retire their loans. Larry Balaban
and Howard Balaban tendered 170,405 shares and 174,883 shares, respectively,
tendering additional shares to retire advances in the amount of approximately
$6,600 and $19,153, respectively, previously made to them.

                                       28

<PAGE>

         On January 22, 2004, certain notes receivable held by Genius Products
as subscriptions receivable were paid off by tendering shares of Genius Products
common stock pursuant to the terms of the notes. 1,285,200 restricted shares
were previously issued upon the conversion of certain warrants. The warrant
exercise price was paid by secured promissory notes totaling $728,400 with two
related parties. Of the total, 660,000 shares with an exercise price of $0.63
each ($312,600 total) were issued to S G Consulting Inc., an entity controlled
by Sean Goodchild, who was the owner of more than 5% of our common stock when
these shares were included in his ownership. The balance of 625,200 shares with
an exercise price of $0.50 each ($415,800 total) were issued to Algarvida LDA,
an entity that is controlled by Isabel Moeller, who is the sister of our Chief
Executive Officer, Klaus Moeller. Mr. Goodchild and Ms. Moeller tendered 164,346
and 123,556 shares, respectively, in repayment of the balance of the loans in
the amount of approximately $460,826 and $346,451, respectively.

         On December 31, 2003, we entered into a sublease arrangement with the
Meader Family Limited Trust, a related party, under which we rent a portion of a
warehouse facility (approximately 8,000 square feet) in Atlantic, Iowa, for a
monthly rent of $2,900. This centrally located facility is used to distribute
our products to certain customers. The lease expires in December 2007.

         Also on December 31, 2003, we entered into a sublease arrangement with
Ekelund Properties, LLC, a related party, under which we rent sales offices
(approximately 1,300 square feet) in Excelsior, Minnesota, for a monthly rent of
$1,200. This is a one-year lease with the option to renew for additional
one-year periods.

         Effective January 3, 2002, we entered into new three-year employment
agreements with Klaus Moeller, our Chief Executive Officer, Chairman of the
Board, Interim Chief Financial Officer and a Director and Director Nominee;
Michael Meader, our President and former Executive Vice President -
Distribution; Larry Balaban, our Executive Vice President of Marketing and
Production and a Director and Director Nominee; and Howard Balaban, our
Executive Vice President of New Business Development. Effective April 1, 2002,
we entered into a three-year employment agreement with Julie Ekelund, our
Executive Vice President. Under each employment agreement, the senior executive
is entitled to an annual salary of $150,000 and was granted an option to
purchase 450,000 shares of common stock which vest one-third each year beginning
on December 31, 2002. The options granted are exercisable for a period of 10
years from the date of grant at an exercise price of $0.63 per share, the market
price on the date of grant. Under these employment agreements, if the senior
executive died or was terminated without cause (as defined in the employment
agreement) during the first year of the employment agreement, the senior
executive would have received twenty-four months of salary as severance pay. If
the senior executive died or was terminated without cause during the second year
of the employment agreement, the senior executive would have received eighteen
months of salary as severance pay. If the senior executive dies or is terminated
without cause during the third year of the employment agreement, the senior
executive will receive twelve months of salary as severance pay. Severance pay
under these employment agreements is due and payable in full immediately upon
death or termination of the senior executive. If we were required to make
payments under the severance pay provisions contained in one or more of these
employment agreements, such would have a material adverse effect upon our
liquidity and results of operations.

         Effective October 31, 2003, the above employment agreements were
amended to (i) extend the expiration date until January 2, 2006, (ii) to
increase annual salaries as described below, and (iii) to grant to each senior
executive a ten-year stock option to purchase 250,000 shares of the Company's
common stock, par value $.001 per share (the "Shares") at an exercise price of
$1.50 per share, of which 50,000 shares will vest on December 31, 2004, and
200,000 shares will vest on December 31, 2005.

                                         2004 SALARY      2005 SALARY
                                         -----------      -----------
                Klaus Moeller             $222,500         $244,750
                Mike Meader               $197,500         $217,250
                Howard Balaban            $172,500         $189,750
                Larry Balaban             $172,500         $189,750
                Julie Ekelund             $172,500         $189,750

         Effective October 1, 2003, we entered into a sales representative
agreement with Greg Meader, the brother of Michael Meader. The agreement is for
an automatically renewable one-year term. Greg Meader will receive a 5%
commission for sales of Genius' products to certain accounts in North America.

                                       29

<PAGE>

         On March 1, 2000, we entered into a Consulting Agreement with Gerald
Edick which included a rescission of a severance letter of October 26, 1999.
Pursuant to the Consulting Agreement, Mr. Edick has irrevocably revoked his
rights to the cash bonus and other benefits under the severance letter. Under
the Consulting Agreement, Mr. Edick received an option to purchase 187,500
shares of our common stock. Mr. Edick also was to be paid $14,500 per month from
March 1 through September 30, 2000, in consideration for investor relations and
fundraising services to be performed by him. All payments due to Mr. Edick have
been settled for $67,000 and our agreement for his option to purchase 187,500
shares of our common stock to remain fully vested and exercisable until January
7, 2007, at an exercise price of $5.00 per share.

                      EQUITY COMPENSATION PLAN INFORMATION

         The following table provides information about the common stock that
may be issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2003.
<TABLE>
<CAPTION>

                                                                                      Number of Securities Remaining
                              Number of Securities To         Weighted-Average         Available for Future Issuance
                              Be Issued upon Exercise        Exercise Price of           under Equity Compensation
                              of Outstanding Options,       Outstanding Options,        Plans (Excluding Securities
      Plan Category            Warrants and Rights(1)      Warrants and Rights(2)     Reflected in the Second Column)
--------------------------    -------------------------    -----------------------    --------------------------------
<S>                                  <C>                      <C>                             <C>
Equity Compensation
Plans Approved by                    6,665,919                     $1.33                        168,926(3)
Shareholders

                                        None                   Not Applicable                  5,000,000(4)
Equity Compensation
Plans Not Approved by
Shareholders
</TABLE>

(1)  462,750 shares issuable upon exercise of outstanding options granted under
     the 1997 Stock Option Plan; 5,203,169 shares issuable upon exercise of
     outstanding options granted under the 2000 Stock Option Plan; and 1,000,000
     shares issuable upon exercise of outstanding options granted under the 2003
     Stock Option Plan.

(2)  Option exercise prices range from $0.63 to $13.60.

(3)  Reflects shares issuable under the Second 2000 Amended and Restated 2000
     Non-Qualified Stock Option Plan.

(4)  A 2004 Stock Option Plan is currently being drafted. Upon Board and
     shareholder approval, up to 5,000,000 shares will be issuable under this
     plan. The plan will vest broad discretionary power in the Board or a
     subcommittee of the Board, including the power to (i) select eligible
     optionees to be granted stock options, (ii) set the option exercise price
     (subject to certain restrictions), (iii) establish the duration of each
     option (not to exceed ten years), (iv) specify the method of exercise, and
     (v) designate the medium and time of payment.

                                       30



<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits.  References to "the Company" in this Exhibit List mean
Genius Products, Inc., a Nevada corporation.

     Exhibit No.    Description
     -----------    -----------

         2.1      Agreement and Plan of Reorganization with Salutations, Inc.,
                  and related exhibits and consents (incorporated by reference
                  from Exhibit 2.1 included with the Company's Registration
                  Statement (No. 000-27915) on Form 10-SB filed with the SEC on
                  November 2, 1999).
         3.1      Articles of Incorporation, as amended (incorporated by
                  reference from Exhibit 3.1 included with the Company's
                  Registration Statement (No. 000-27915) on Form 10-SB filed
                  with the SEC on November 2, 1999).
         3.2      Certificate of Change in Stock (incorporated by reference from
                  Exhibit 3.2.2 included with the Company's Form 10-KSB, filed
                  with the SEC on April 16, 2002).
         3.3      Certificate of Amendment of Articles of Incorporation
                  (incorporated by reference from Exhibit 3.2.3 included with
                  the Company's Form 10-KSB, filed with the SEC on April 16,
                  2002).
         3.4      Certificate of Amendment of Articles of Incorporation
                  (incorporated by reference from Exhibit 3.4 included with the
                  Company's Registration Statement (No. 333-108966) on Form SB-2
                  filed with the SEC on September 19, 2003).
         3.5      Bylaws, as amended on April 20, 2000 (incorporated by
                  reference from Exhibit 3.2.2 included with the Company's Form
                  10-KSB, Amendment No. 1, filed with the SEC on May 1, 2000).
         4.1      Shareholders Agreement with Minnesota Communications Group,
                  and related exhibits and schedules (incorporated by reference
                  from Exhibit 4.2 included with the Company's Registration
                  Statement (No. 000-27915) on Form 10-SB filed with the SEC on
                  November 2, 1999).
         4.2      Option Agreement to Purchase Common Stock with Kevin
                  Harrington Enterprises, Inc. (incorporated by reference from
                  Exhibit 4.5 included with the Company's Registration Statement
                  (No. 000-27915) on Form 10-SB filed with the SEC on November
                  2, 1999).
         4.3      Form of Stock Option Agreement with Employees (incorporated by
                  reference from Exhibit 4.7 included with the Company's
                  Registration Statement (No. 000-27915) on Form 10-SB filed
                  with the SEC on November 2, 1999).
         4.4      Specimen Certificate for Common Stock (incorporated by
                  reference from Exhibit 4.8 included with the Company's Form
                  10-KSB filed with the SEC on April 14, 2000).
         10.1     License Agreement with Minnesota Communications Group
                  (incorporated by reference from Exhibit 10.1 included with the
                  Company's Registration Statement (No. 000-27915) on Form 10-SB
                  filed with the SEC on November 2, 1999).
         10.2     License Agreement with Minnesota Public Radio (incorporated by
                  reference from Exhibit 10.2 included with the Company's
                  Registration Statement (No. 000-27915) on Form 10-SB filed
                  with the SEC on November 2, 1999).
         10.3     International Marketing and Distribution Agreement with HSND,
                  and amendment and addendum thereto (incorporated by reference
                  from Exhibit 10.7 included with the Company's Registration
                  Statement (No. 000-27915) on Form 10-SB filed with the SEC on
                  November 2, 1999).
         10.4     Non-Qualified Stock Option Plan (incorporated by reference
                  from Exhibit 10.8 included with the Company's Registration
                  Statement (No. 000-27915) on Form 10-SB filed with the SEC on
                  November 2, 1999).
         10.5     Form of License Agreement with Naxos of America, Inc.
                  (incorporated by reference from Exhibit 10.23 included with
                  the Company's Registration Statement (No. 000-27915) on Form
                  10-SB filed with the SEC on November 2, 1999).
         10.6     Representation Agreement with Global Icons (incorporated by
                  reference from Exhibit 10.31 included with the Company's Form
                  10-QSB, Amendment No. 1, filed with the SEC on May 18, 2000).
         10.7     License Agreement with Jakks Pacific, Inc. (incorporated by
                  reference from Exhibit 10.39 included with the Company's Form
                  10-KSB, filed with the SEC on April 17, 2001).
         10.8     License Agreement with Catton Apparel Group (incorporated by
                  reference from Exhibit 10.40 included with the Company's Form
                  10-KSB, filed with the SEC on April 17, 2001).
         10.9     License Agreement with J. Wasson Enterprises, Inc.
                  (incorporated by reference from Exhibit 10.41 included with
                  the Company's Form 10-KSB, filed with the SEC on April 17,
                  2001).
         10.10    Settlement Agreement (Investment Agreement) with American
                  Public Media Group (formerly known as Minnesota Communications
                  Group) (incorporated by reference from Exhibit 10.42 included
                  with the Company's Form 10-KSB, filed with the SEC on April
                  17, 2001).

                                       31

<PAGE>

   Exhibit No.      Description
   -----------      -----------
         10.11    Settlement Agreement (Shareholders Agreement) with American
                  Public Media Group (formerly known as Minnesota Communications
                  Group) (incorporated by reference from Exhibit 10.43 included
                  with the Company's Form 10-KSB, filed with the SEC on April
                  17, 2001).
         10.12    Stock Purchase Agreement with Klaus Moeller dated July 31,
                  2001 (incorporated by reference from Exhibit 4.4 included with
                  the Company's Form S-8, filed with the SEC on August 3, 2001).
         10.13    Stock Purchase Agreement with Michael Meader dated July 31,
                  2001 (incorporated by reference from Exhibit 4.5 included with
                  the Company's Form S-8, filed with the SEC on August 3, 2001).
         10.14    Stock Purchase Agreement with Larry Balaban dated July 31,
                  2001 (incorporated by reference from Exhibit 4.6 included with
                  the Company's Form S-8, filed with the SEC on August 3, 2001).
         10.15    Stock Purchase Agreement with Howard Balaban dated July 31,
                  2001 (incorporated by reference from Exhibit 4.7 included with
                  the Company's Form S-8, filed with the SEC on August 3, 2001).
         10.16    Employment Agreement with Klaus Moeller dated January 3, 2002
                  (incorporated by reference from Exhibit 10.51 included with
                  the Company's Form 10-KSB, Amendment #1, filed with the SEC on
                  April 30, 2002). This agreement was amended effective October
                  31, 2003 to increase the term by one year, to grant additional
                  stock options and to provide for salary increases in 2004 and
                  2005.
         10.17    Employment Agreement with Michael Meader dated January 3, 2002
                  (incorporated by reference from Exhibit 10.52 included with
                  the Company's Form 10-KSB, Amendment #1, filed with the SEC on
                  April 30, 2002). This agreement was amended effective October
                  31, 2003 to increase the term by one year, to grant additional
                  stock options and to provide for salary increases in 2004 and
                  2005.
         10.18    Employment Agreement with Larry Balaban dated January 3, 2002
                  (incorporated by reference from Exhibit 10.53 included with
                  the Company's Form 10-KSB, Amendment #1, filed with the SEC on
                  April 30, 2002). This agreement was amended effective October
                  31, 2003 to increase the term by one year, to grant additional
                  stock options and to provide for salary increases in 2004 and
                  2005.
         10.19    Employment Agreement with Howard Balaban dated January 3, 2002
                  (incorporated by reference from Exhibit 10.54 included with
                  the Company's Form 10-KSB, Amendment #1, filed with the SEC on
                  April 30, 2002). This agreement was amended effective October
                  31, 2003 to increase the term by one year, to grant additional
                  stock options and to provide for salary increases in 2004 and
                  2005.
         10.20    Employment Agreement with Vinko Kovac dated January 3, 2002
                  (incorporated by reference from Exhibit 10.55 included with
                  the Company's Form 10-KSB, Amendment #1, filed with the SEC on
                  April 30, 2002).
         10.21    Employment Agreement with Julie Ekelund dated April 1, 2002
                  (incorporated by reference from Exhibit 10.56 included with
                  the Company's Form 10-KSB, Amendment #1, filed with the SEC on
                  April 30, 2002). This agreement was amended effective October
                  31, 2003 to increase the term by one year, to grant additional
                  stock options and to provide for salary increases in 2004 and
                  2005.
         10.22    Amended and Restated 1997 Non-Qualified Stock Option Plan
                  (incorporated by reference from Exhibit 10.61 included with
                  the Company's Form 10-KSB, Amendment #1, filed with the SEC on
                  April 30, 2002).
         10.23    Second Amended and Restated 2000 Non-Qualified Stock Option
                  Plan (incorporated by reference from Exhibit 10.62 included
                  with the Company's Form 10-KSB, Amendment #1, filed with the
                  SEC on April 30, 2002).
         10.24    2003 Stock Option Plan (incorporated by reference from Exhibit
                  A included with the Company's Proxy Statement, filed with the
                  SEC on April 30, 2003).
         10.25    Form of Incentive Stock Option Agreement under the 2003 Stock
                  Option Plan (incorporated by reference from Exhibit 10.30
                  included with the Company's Registration Statement (No.
                  333-108966) on form SB-2 filed with the SEC on September 19,
                  2003).
         10.26    Form of Non-Qualified Stock Option Agreement under the 2003
                  Stock Option Plan (incorporated by reference from Exhibit
                  10.31 included with the Company's Registration Statement (No.
                  333-108966) on form SB-2 filed with the SEC on September 19,
                  2003).
         10.27    Form of Executive Stock Payment Agreement dated as of January
                  3, 2002, with Klaus Moeller, Michael Meader, Larry Balaban and
                  Howard Balaban for stock paid in lieu of $15,000 each of 2001
                  salary and $30,000 each of 2002 salary (incorporated by
                  reference from Exhibit 10.64 included with the Company's Form
                  10-KSB filed with the SEC on April 3, 2003).

                                       32

<PAGE>
   Exhibit No.      Description
   -----------      -----------
         10.28    Executive Stock Payment Agreement dated as of April 1, 2002,
                  with Julie Ekelund for stock paid in lieu of $30,000 of 2002
                  salary (incorporated by reference from Exhibit 10.33 included
                  with the Company's Registration Statement (No. 333-108966) on
                  form SB-2 filed with the SEC on September 19, 2003).
         10.29    Form of Executive Stock Payment Agreement dated as of June 2,
                  2003, with Klaus Moeller, Michael Meader, Larry Balaban.
                  Howard Balaban and Julie Ekelund for stock and warrants paid
                  in lieu of $20,000 each of 2003 salary (incorporated by
                  reference from Exhibit 10.1 included with the Company's Form
                  10-QSB filed with the SEC on August 14, 2003).
         10.30    Sublease with Citibank (West), FSB for office space in Solana
                  Beach, California.
         10.31    Sublease with the Meader Family Limited Trust dated December
                  31, 2003 for warehouse facility in Iowa.
         10.32    Sublease with Ekelund Properties, LLC dated December 31, 2003
                  for sales offices in Minnesota.
         10.33    Form of Secured Promissory Note and Pledge Agreement dated as
                  of January 3, 2002, for notes receivable for warrants
                  exercised by S G Consulting, Inc., and Algarvida LDA, in the
                  amounts of $415,800 and $312,600, respectively, and for
                  options exercised by Klaus Moeller, Michael Meader, Larry
                  Balaban and Howard Balaban in the amount of $419,500 and by
                  Vinko Kovac in the amount of $100,000 (incorporated by
                  reference from Exhibit 10.66 included with the Company's Form
                  10-KSB filed with the SEC on April 3, 2003).
         10.34    Employment Agreement with Mark Miller dated February 2, 2004.
         10.35    Form of Secured Promissory Notes for total of $1,150,000
                  issued in last quarter of 2003.
         10.36    Form of Security Agreement executed in conjunction with 2003
                  Secured Promissory Notes.
         10.37    Form of Collateral Agent Agreement executed in conjunction
                  with 2003 Secured Promissory Notes.
         10.38    Form of $1 and $3 Warrants issued in conjunction with 2003
                  Secured Promissory Notes.
         10.39    Code of Ethics adopted February 27, 2004.
         10.40    Amendment to Employment Agreement with Klaus Moeller dated
                  October 31, 2003 (filed with the Company's Form 10-KSB,
                  Amendment #1, on April 29, 2004).
         10.41    Amendment to Employment Agreement with Michael Meader dated
                  October 31, 2003 (filed with the Company's Form 10-KSB,
                  Amendment #1, on April 29, 2004).
         10.42    Amendment to Employment Agreement with Howard Balaban dated
                  October 31, 2003 (filed with the Company's Form 10-KSB,
                  Amendment #1, on April 29, 2004).
         10.43    Amendment to Employment Agreement with Larry Balaban dated
                  October 31, 2003 (filed with the Company's Form 10-KSB,
                  Amendment #1, on April 29, 2004).
         10.44    Amendment to Employment Agreement with Julie Ekelund dated
                  October 31, 2003 (filed with the Company's Form 10-KSB,
                  Amendment #1, on April 29, 2004).
         23*      Consent of independent auditors.
         31.1*    Certification of Chief Executive Officer pursuant to Section
                  302 of the Sarbanes-Oxley Act.
         31.2*    Certification of Chief Financial Officer pursuant to Section
                  302 of the Sarbanes-Oxley Act.
         32.1*    Certification of Chief Executive Officer pursuant to Section
                  906 of the Sarbanes-Oxley Act.
         32.2*    Certification of Chief Financial Officer pursuant to Section
                  906 of the Sarbanes-Oxley Act.

* Filed herewith.

                                       33



<PAGE>

         (b) Reports on Form 8-K.

         We filed a Form 8-K on December 4, 2003 to disclose the issuance of a
press release announcing a music license for The Snowman.

         We filed a Form 8-K on December 4, 2003 to disclose the issuance of a
press release announcing our financial results for the third quarter ended
September 30, 2003, as reported in our 10-QSB filed on November 19, 2003.

         We filed a Form 8-K on February 3, 2004, to disclose various events as
follows:

     - The completion of a transaction amending our licensing agreement with
Falcon Picture Group to address our sublicense of Falcon's acquisition of a
license to use the TV Guide name and loge in connection with a line of DVD
products and Mr. Carl Amari's purchase of 1,350,000 restricted shares of Genius
common stock for $0.72 per share pursuant to terms reached on October 2, 2003.
Mr. Amari is the CEO of Falcon and became a member of our board of directors on
October 20, 2003.
         - The issuance of a press release announcing our release of the "AMC
Movies" DVD Collection with Falcon Picture Group.
         - The payoff of notes receivable held by the company by certain
officers using shares of stock to retire the notes.
         - The issuance of a press release regarding Margaret Loesch's
resignation from the board of directors.
         - The issuance of a press release regarding Falcon Picture Group's
license with TV Guide for TV Guide branded DVDs that we will distribute.
         - Our request to withdraw our SB-2 Registration Statement filed with
the Securities and Exchange Commission on September 19, 2003.

          We filed a Form 8-K on February 20, 2004 to disclose the issuance of a
press release announcing the appointment of Mark J. Miller as our Chief
Operating Officer.

          We filed a Form 8-K on March 12, 2004, to disclose the issuance of a
press release announcing that we had regained from Warner Home Video our right
to self-distribute our Baby Genius line of VHS and DVDs.

          We filed a Form 8-K on March 22, 2004, to disclose the issuance of a
press release announcing the closing of a $7,000,000 private placement.

                                       34



<PAGE>
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

         The aggregate fees billed for our fiscal years ended December 31, 2003
and 2002 by Cacciamatta Accountancy Corporation, our principal accountants in
2003 and 2002, for the audit of our financial statements for each of those years
and the review of our financial statements included in our Quarterly Reports on
Form 10-QSB during those financial years were $51,260 and $48,798, respectively.

AUDIT-RELATED FEES

         Fees billed by our principal accountants for assurance and related
services during our fiscal years ended December 31, 2003 and 2002 were
$6,335 and $2,126, respectively.

TAX FEES

         Our principal accountants did not bill us any fees for tax compliance,
tax advice and tax planning for our fiscal years ended December 31, 2003 and
2002.

OTHER FEES

         Our principal accountants did not bill us for any services or products
other than as reported above in this Item 14 during our fiscal years ended
December 31, 2003 and 2002, respectively.

AUDIT COMMITTEE APPROVALS

         Effective May 6, 2003, the Securities and Exchange Commission adopted
rules that require that before our auditor is engaged by us to render any
auditing or permitted non-audit related services, the engagement must be
approved by our audit committee or entered into pursuant to pre-approval
policies and procedures established by the audit committee, provided the
policies and procedures are detailed as to the particular service, the audit
committee is informed of each service, and such policies and procedures do not
include delegation of the audit committee's responsibilities to management.

         Our audit committee requires advance approval of all audit, audit-
related, tax and other services performed by the independent auditor.  Unless
the specific service has been previously pre-approved with respect to that year,
the audit committee must approve the permitted service before the independent
auditor is engaged to perform it.

         We are in the process of adding a financial expert and new independent
directors to our audit committee.

                                       35

<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.

Date: July 13, 2004
                                      GENIUS PRODUCTS, INC.,
                                      a Nevada corporation

                                      By: /s/ Klaus Moeller
                                          --------------------------------------
                                          Klaus Moeller, Chief Executive Officer
                                            and Interim Chief Financial Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

<TABLE>
<S>                             <C>                                                <C>
/s/ Klaus Moeller               Chief Executive Officer, Chairman of the           July 13, 2004
---------------------------     Board and Interim Chief Financial Officer
Klaus Moeller                   (principal executive officer and
                                principal financial officer)

/s/ Carl Amari                  Director                                           July 13, 2004
---------------------------
Carl Amari

/s/ Nancy Evensen               Director                                           July 13, 2004
---------------------------
Nancy Evensen

</TABLE>
                                       36