<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                 Amendment #3 to

                                  FORM 10-KSB/A


(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, 2001

                                    or

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

                        COMMISSION FILE NUMBER 000-27915

                              GENIUS PRODUCTS, INC.
                              A NEVADA CORPORATION
             (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)

             11250 EL CAMINO REAL #100, SAN DIEGO, CALIFORNIA 92130
               (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. [ ]

         Revenues for fiscal year 2001 were $1,349,000.

         The aggregate market value of voting stock held by non-affiliates of
the registrant was $20,718,434 as of April 10, 2002 (computed by reference to
the last sale price of a share of the registrant's common stock on that date as
reported by the OTC 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 13,628,755 shares outstanding of the registrant's Common
Stock as of April 10, 2002.

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

                       DOCUMENTS INCORPORATED BY REFERENCE

         Specified exhibits are listed in Part III of this report at page 35.



<PAGE>

PART I

ITEM 1.  DESCRIPTION OF BUSINESS

OVERVIEW

         We are a producer, publisher and distributor of classical, instrumental
and vocal compact disks ("CDs"), cassettes and videos for children under the
Baby Genius brand name, which sell at retail outlets nationwide and at numerous
commercial retail websites on the Internet. We currently produce 24 CD and
cassette titles, and three video titles. The trademark Baby Genius is
registered, allowed or pending in the United States across a wide range of baby
and child product categories. We publish the Baby Genius website at
www.BabyGenius.com where visitors can buy Baby Genius products and obtain free
information on pregnancy, childcare, parenting and other matters related to
child development.

         Our corporate mission is to develop Baby Genius, Kid Genius and other
"Genius" names into premiere brand names across a broad range of baby and child
product categories. We plan to develop and publish additional music and other
educational and entertaining CDs, cassettes and videos under the Baby Genius
name. We also plan to publish CD-ROMs, DVDs and other interactive media for
babies and children under these brand names. We have licensed the Baby Genius
name to a number of third-party companies that will produce toys, books, apparel
and other products. We intend to continue to seek manufacturers of top quality
baby and child products who are interested in licensing the Baby Genius and Kid
Genius names.

         Our business model projects revenues from three sources: retail sales
of our music CDs and cassettes; licensing revenues from the licensing and
merchandising of products under the Baby Genius and other "Genius" brand names;
and revenues from our video distribution agreement with Warner Home Video.

         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 by
Klaus Moeller, our current Chairman and Chief Executive Officer, and Gerald
Edick. At the time of the acquisition, Salutations was a public company with
shares quoted on the Over the Counter ("OTC") Bulletin Board. 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"). In October 1999, we changed our name again from International Trading
and Manufacturing Corporation to Genius Products, Inc., to reflect our new
business.

         The original business of ITM/ITMC involved the design, development and
distribution of semi-precious and precious gemstone and costume jewelry. Since
1997, however, the jewelry business has experienced increased competition,
erosion of profit margins and a decline in sales. While we continue to sell our
jewelry products, jewelry sales in 2001 represented less than 35% of our
revenues and contributed a gross margin of 22%. Even though we have reached
agreement for several new jewelry markets, we have shifted our focus and
resources to lines of business involving the Baby Genius product line discussed
below, which we believe have greater potential for profitability.

BABY GENIUS PRODUCTS

         In September 1998, we commenced development of a line of classical
music CDs and cassettes for children under the Baby Genius brand name. This was
inspired by a proclamation by the Governor of Georgia, Zell Miller, which stated
that all newborn children should receive a free classical CD or cassette as a
gift from the state, to enhance the child's intellectual development and
well-being. This was validated by certain published reports indicating that
classical music could play an important role in a child's mental development. We
were also attracted by the gross margins associated with CDs, cassettes and
videos. We now publish, distribute and license a line of musical CDs, cassettes
and videos for children under the Baby Genius brand name and publish a website
at www.BabyGenius.com.

                                       2



<PAGE>

         The Baby Genius CDs and cassettes come in three series: Classical,
Instrumental/Relaxation and Vocal. The 12 titles in the Classical Series are
Bedtime Beethoven, Best of the IQ Builder, Brain Power, Breakfast with Bach,
Classics for Intelligence, Classical Vitamins, It's a Boy!, It's a Girl!, Learn
with Vivaldi, Magic Mozart, Night-Night Classics and one sampler title. Each
CD/cassette has over 50 minutes of baroque and classical music played by top
orchestras, ensembles and soloists.

         The five titles in the Instrumental Series are Lulla-Drive for the Car,
Nature Experience, Sweet Dreams Lullabies, Sleepytime and one sampler title. The
three titles in the Vocal Series are Children's Songs, Favorite Nursery Rhymes,
and Sing, Dance, Play. Two Christmas titles were released in December 1999,
Classical Christmas and Christmas Sleighride.

         We produce three Baby Genius videos: Mozart & Friends, Mozart & Friends
Sleepytime and The Four Seasons, all released in 2001. The videos contain
real-life and animated images accompanied by classical music.

         We are producing 2 new videos with the San Diego Zoo and San Diego Wild
Animal Park, which introduce infants and children to animals from around the
globe. The titles are World Famous San Diego Zoo and Animal Adventures. We
expect to release these new titles in 2002.

OTHER PRODUCTS

         We continue to produce a line of Jade and Gemstone Jewelry that is sold
over the Home Shopping Network under our Sanuk brand. We had planned to sell the
jewelry business during the year 2001; however it continued to provide some
operating revenues and the new customers provide some incentive to maintain the
jewelry line for another year.

ENDORSEMENTS AND AWARDS

         The Baby Genius product line was 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 shareholders of the Company.

         The quality of our products has been recognized. In March 1999, CBS
This Morning chose the Baby Genius line of CDs as one of the "Best Products for
Mother's Day." In September 1999, the Baby Genius CD Nature Experience received
the 1999 National Parenting Publications Gold Award. All three videos have won
the Film Advisory Board's Award of Excellence. The video titles Mozart & Friends
and Mozart & Friends Sleepytime are approved by Kid First! for the Coalition for
Quality Children's Media. The titles Favorite Nursery Rhymes and Night Night
Classics received a Parents' Choice Award from the Parents' Choice Foundation.

DISTRIBUTION

         Our Baby Genius product line is distributed through our own
distribution center in Iowa and also through several national distributors.

         We have been approached by a number of distributors wishing to
distribute Baby Genius products in overseas markets including Canada (where we
already have sales), Mexico, Europe, Australia, New Zealand, Singapore, Central
America, Middle East, and South Africa. We have entered into distribution
agreements with companies located in the Philippines, Argentina and Chile, and
with the Australian Broadcasting Corporation in Australia and New Zealand. While
we hope to enter into relationships with other international distributors, there
can be no assurance that any such relationships will be entered into or, if we
enter into any such relationships, that it will result in profitable or any
international sales.

                                       3



<PAGE>

         During 2002 we entered into an exclusive production and distribution
agreement with Warner Home Video, a division of Time Warner Entertainment
Company. The Warner agreement provides Warner with exclusive worldwide
distribution rights for our videos, except for certain titles in Argentina,
Australia, Chile, Hong Kong, New Zealand, the Philippines and Singapore. Under
the Warner agreement, we expect that at least two new Baby Genius video titles
will be produced and distributed each year; however, fewer titles may be
released if market conditions so warrant or under other circumstances. We
pledged all of our rights in our videos to Warner as security for our
obligations under the Warner agreement.

         Baby Genius products are currently available at retail outlets
nationwide, including mass retail stores such as Sams, Shopko, Pamida and
Meijers; children's toy stores such as Toys R Us, Babies R Us and Zany Brainy;
music and video stores such as Blockbuster, Hollywood Video and Musicland/Sam
Goody stores; book stores such as Borders and Barnes & Noble and other
non-traditional outlets. Baby Genius products are also sold on numerous Internet
websites including leading music, book and toy sites, such as Amazon.com,
Borders.com and KBToys.com.

MARKETS, MARKETING AND SALES

         Our Baby Genius line of products is designed to appeal to mothers and
parents of newborn children as well as their immediate and extended family and
friends. According to the US Census Bureau, approximately 3.9 million babies
were born in the United States in each of the last five years. With respect to
our future product lines, our targeted markets are the parents, family and
friends of all children from birth through the age of 12 and beyond.

         Our marketing and sales strategies are designed to build up the Baby
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, in-store advertising programs,
and cross-marketing to customers of our strategic partners. We also exhibit at
major toy fairs and industry trade shows.

         We exhibit the Baby Genius product line at national shows and
exhibitions. Trade shows at which we exhibited include the Juvenile Products
Manufacturers Association in Dallas, the California Gift Show in Los Angeles,
the International Toy Fair in New York City, the Video Software Dealers
Association ("VSDA") in Las Vegas and the Book Expo Association ("BEA") in
Chicago.

THIRD-PARTY LICENSES

         We license our classical music from Naxos of America, Inc. The license
agreements terminate upon the expiration of the copyright of the music, which is
held by Naxos, or upon our discontinuation of the product line.

COPYRIGHTS, TRADEMARKS AND LICENSES

         We own the copyright to all of the music used in our Baby Genius
Instrumental Relaxation Series and Vocal Series. We have applied for trademarks
under the Baby Genius, Kid Genius and other Genius names across a range of
product categories. As of April 8, 2002, the status of our applications for Baby
Genius and Kid Genius are as listed below.

<TABLE>
<CAPTION>
                                       REGISTERED                  ALLOWED                  PENDING
------------------------------ ---------------------------- ----------------------- -------------------------
<S>                            <C>                          <C>                     <C>
Baby Genius                    Music                        Baby food
                               Books                        Bed clothing
                               Clothing                     Cartoon characters
                               Toys                         Infant cradles and
                                                            furniture
                                                            Infant carriers
                                                            Potties and baths
                                                            School book bags
                                                            Baby bags
                                                            Children's car
                                                            seats Baby
                                                            bottles
------------------------------ ---------------------------- ----------------------- -------------------------

                                       4



<PAGE>

                                       REGISTERED                  ALLOWED                  PENDING
------------------------------ ---------------------------- ----------------------- -------------------------
Kid Genius                                                                          Music
                                                                                    Books
                                                                                    Clothing
                                                                                    Toys
------------------------------ ---------------------------- ----------------------- -------------------------
Child Genius                   Music
                               Books
                               Clothing
                               Toys
------------------------------ ---------------------------- ----------------------- -------------------------
                               Music
                               Books
                               Clothing
Little Genius                  Toys
------------------------------ ---------------------------- ----------------------- -------------------------
                                                                                    Music
                                                                                    Books
                                                                                    Clothing
Parent Genius                                                                       Toys
------------------------------ ---------------------------- ----------------------- -------------------------
Got Baby                                                                            Advertising
------------------------------ ---------------------------- ----------------------- -------------------------
Genius Gear                                                 Clothing
------------------------------ ---------------------------- ----------------------- -------------------------
Pet Tunes                                                                           Music
------------------------------ ---------------------------- ----------------------- -------------------------
Motor City Music                                                                    Music
------------------------------ ---------------------------- ----------------------- -------------------------
Genius Products                Wholesale and retail
                               services for general
                               merchandise and advertising
------------------------------ ---------------------------- ----------------------- -------------------------
Genius Entertainment                                                                Music
------------------------------ ---------------------------- ----------------------- -------------------------
Dj the Dinosaur                                                                     Music
                                                                                    Books
                                                                                    Clothing
                                                                                    Toys
------------------------------ ---------------------------- ----------------------- -------------------------
                                                                                    Music
                                                                                    Books
                                                                                    Clothing
Harmony the Kitty                                                                   Toys
------------------------------ ---------------------------- ----------------------- -------------------------
                                                                                    Music
                                                                                    Books
Major the Dog with the                                                              Clothing
Golden Ears                                                                         Toys
------------------------------ ---------------------------- ----------------------- -------------------------
                                                                                    Music
                                                                                    Books
                                                                                    Clothing
Oboe the Monkey                                                                     Toys
------------------------------ ---------------------------- ----------------------- -------------------------
                                                                                    Music
                                                                                    Books
                                                                                    Clothing
Rhythm the Rabbit                                                                   Toys
------------------------------ ---------------------------- ----------------------- -------------------------
                                                                                    Music
                                                                                    Books
                                                                                    Clothing
Vinko the Dancing Bear                                                              Toys
------------------------------ ---------------------------- ----------------------- -------------------------
Tempo the Tiger                                                                     Music
                                                                                    Books
                                                                                    Clothing
                                                                                    Toys
------------------------------ ---------------------------- ----------------------- -------------------------
</TABLE>

                                       5



<PAGE>

         We have applied for registration of the Baby Genius name in Canada,
Mexico and the countries of the European Union for product categories covering
music videos, books, clothing, music and toys.

         We believe that the brand names Baby Genius, Kid Genius and other
related family of Genius names and marks we have listed, have significant
licensing potential across a broad range of products. In June 2000, we entered
into a master licensing representation agreement with Global Icons, LLC. Through
representation by Global Icons, we have entered into license agreements with the
following companies:

<TABLE>
<CAPTION>
                                                   ROYALTY
 LICENSEE                  PRODUCT                    %              EXPIRATION DATE    TERRITORY
 --------                  -------                 --------          ---------------    ---------

<S>                      <C>                          <C>            <C>                   <C>
AME                      Infant & Toddler Sleepwear   8              12/31/2002            US

Baby Boom                Mobiles, Pull Toys, Plush    8-10           12/31/2003            US
                         Pillows, Crib Lights,
                         Bookends

Catton Bros.             Infant & Toddler Apparel     6-8             2/28/2004            US

J. Wasson                Diaper Bags                  9              12/31/2003            US/Canada

NYCE Kids                Infant Care Products         8               6/30/2004            US

Planet Toys              Plush, Ride-ons,             8-10           12/31/2004            US
                         Wagons, CD Players,
                         Activity Centers

Weisner Products         Infant and Baby Footwear     7-10           12/31/2004            US

</TABLE>

         We have pledged our rights regarding our video titles to Warner Home
Video, in connection with our entry into a production and distribution agreement
with Warner Home Video. See "Distribution."

         We exhibited the Baby Genius brand with Global Icons, LLC at the
Licensing International 2001 show in New York City in June 2001. We also have
plans to exhibit at this show in 2002.

SUPPLIERS AND COMPLIANCE WITH ENVIRONMENTAL LAWS

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

         We are not aware of any environmental laws that affect our business.

                                       6



<PAGE>

OTHER PRODUCTS

         Our original business involved distributing and marketing semi-precious
and precious gemstone and costume jewelry. Due to a decline in jewelry sales
towards the end of 1998 and the beginning of 1999, and as a result of the growth
in the Baby Genius product line, we believe it will be in our best interests to
eventually sell the jewelry business. In order to focus on the Baby Genius
business, we hope to sell at some future date. No formal plan, however, to
divest or wind up the jewelry business has yet been adopted by management.

INTERNET BUSINESS

         In March 2000, we reformatted and re-launched our website
www.BabyGenius.com. Visitors to the website can obtain free content and
information on a range of child-related matters, including pregnancy and
child-care issues. In addition visitors can purchase the full range of Baby
Genius products. The objective of our website is to develop a vertical portal in
the baby sector that provides to our visitors a comprehensive range of content,
products and services in the three areas we believe to be of most concern to
parents: the health and well-being and education of their children.

         In addition to generating Internet revenues from sales of our own
products, we intend to generate sales from the receipt of referral fees from the
recommendations of third-party products, the receipt of commissions from
procuring sales of third party products and the sale of banner ads and other
web-based advertising.

         Our current website customer database holds over 71,000 names,
addresses, e-mail addresses and credit card numbers of the visitors who
responded to our TV promotional offers or who bought Baby Genius products from
our website. Continued activity in this arena adds a very desirable, and
potentially profitable, market.

COMPETITION

         The retail and Internet markets for baby development, educational and
entertainment products, including CDs, cassettes and videos, 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 products
competitive to our Baby Genius 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. These established companies include Disney, Fox, Paramount,
Sony and Time-Warner.

         Within the category of classical music CDs and cassettes for children,
established competitors include:

         o        Bach & Baby: Playtime by Bach & Baby
         o        Baby Bach by Baby Einstein
         o        Baby Beethoven by Baby Einstein
         o        Baby Tunes series by Baby Tunes
         o        Classical Kid by The Children's Group
         o        Mozart for Mothers-to-Be
         o        Smart Music: Classical Music series
         o        The Classical Child series by Metromusic, Inc.
         o        The Mozart Effect Vols. 1-3 by Classical Productions for
                  Children Ltd./The Children's Group Inc., and BMG
         o        The Kid Collection of Greatest Classics

         Baby Genius classical music CDs and cassettes also compete with other
non-classical titles for children such as:

         o        Baby, It's You:  Giggles & Gurgles by Sony
         o        Baby Sounds by various artists

                                       7



<PAGE>

         o        Baby Tunes series
         o        Teletubbies series
         o        KidRhino series
         o        Music for Little People series

         Within the category of classical music videos for children, established
competitors include:

         o        The Baby Einstein series by Baby Einstein
         o        So Smart

         Baby Genius classical music videos also compete with other
non-classical titles for children such as:

         o        Barney series by Lyrick Studios
         o        Dr. Seuss series by Fox Home Entertainment
         o        Little Bear series by Paramount Home Video
         o        Madeleine, The Jungle Book, The Little Mermaid,
                  Winnie-the-Pooh by Disney Home Video
         o        Paddington Bear series by Time-Life
         o        Sesame Street series by Sony Wonder
         o        Teletubbies series by PBS HomeVideo/Warner

         With respect to Internet websites, there are numerous websites that are
devoted exclusively to the delivery of content, products, services and features
within the baby sector, including Babycenter.com, IBaby.com, Babyserv.com,
Babystyle.com and Parenthoodweb.com. These websites have a competitive advantage
over our website to the extent they are now established as the leading websites
with the highest traffic in the baby/parent Internet sector. In addition, the
companies operating these websites have greater financial resources, which can
be used exclusively for the development of their e-commerce business.

         There are also a number of companies that offer jewelry products
similar to the ones that our companies manufacture at similar price-points to
the Home Shopping Network.

RISKS RELATED TO OUR BUSINESS

         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.

         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, 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.

         WE ARE DEPENDENT UPON SHORT-TERM FINANCING. We are dependent on
obtaining short-term financing to sustain operations. We are currently operating
at a loss and have negative cash flow. The credit terms we extend to our
customers are more favorable than those we have with our vendors and service
providers, and we have insufficient cash balances to sustain losses.
Accordingly, we have to finance our working capital requirements by selling
shares of our common stock for cash or in consideration of services rendered.
Failure to obtain financing will have a material adverse effect on our business,
operations and financial condition and would jeopardize our ability to continue
operations.

                                       8



<PAGE>

         WE ARE DEPENDENT UPON LONG-TERM FINANCING. Our ability to implement our
business plan and grow the company is dependent on raising a significant amount
of capital.

         WE MUST ESTABLISH AND MAINTAIN STRONG BRAND IDENTITY TO COMPETE
EFFECTIVELY. We believe that continuing to strengthen the Baby Genius brand name
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 brand.

         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 able to render their
services to us. We have successfully, in 2002, negotiated new 3-year employment
agreements with our senior executives.

         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 believe we need 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. The total number of shares subject to repurchase is 76,888 (adjusted
for reverse stock split of April 10, 2001), and the potential cost to us is
approximately $420,323, plus accrued interest of approximately $79,127, as of
December 31, 2001. If we do not repurchase 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 security 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. We believe that because the price of our common stock
is significantly lower than this price, affected shareholders would be more
likely than not to accept repurchase offers.

         WE ARE DEPENDENT UPON NEW PRODUCTS. Our future growth will be dependent
on our ability to identify and develop Genius-branded 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.

         OUR PRODUCTS ARE SUBJECT TO INDUSTRY AND CONSUMER TRENDS. Our recent
growth in sales has been based in part on both the evolution of consumer tastes
and preferences towards educational products for babies and children. We believe
it is also based on publicity on the effect of classical music on child
development. There are differences of opinion, however, in the scientific
community regarding the efficacy of classical music on child development. 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.

                                       9



<PAGE>

         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 are likely to
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 CDs, cassettes and video 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 CDs, cassettes and video. In addition, existing CD technology may also be
replaced by new CD technologies such as digital videodisc technology. The
replacement of CD technology by another information storage and retrieval
technology, or the replacement of existing CD 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 CDs, cassettes, videos or other products infringes upon the copyrights or
trademarks of others. Such claims of infringement, if brought, could materially
adversely affect our business or financial condition. In addition, it has come
to our attention that certain third parties may be infringing upon the Baby
Genius trademarks in certain product categories. We are consulting with our
counsel and will defend 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 MAY NOT BE ABLE TO UTILIZE OUR NET OPERATING LOSS. In 1997, 1998,
1999, 2000 and 2001, we incurred losses resulting in a net operating loss carry
forward as of December 31, 2001, of $7,570,000 and $3,784,000 for federal and
state income tax purposes, respectively. The federal and state net operating
losses begin to expire in 2012 and 2002 respectively. Because we anticipate
significant expenditures with respect to implementing our business plan,
including our Internet e-commerce business, there is a risk that we will be
unable to make enough profits, if any, during the net operating loss carry
forward period to realize the deferred income tax asset.

         OUR COMMON STOCK IS TRADED ON THE OTC BULLETIN BOARD, WHICH MAY BE
DETRIMENTAL TO INVESTORS. Our shares of common stock are currently traded on the
OTC Bulletin Board. Stocks traded on the OTC Bulletin Board generally have
limited trading volume and exhibit a wide spread between the bid/ask quotation.

         OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES. 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
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.

                                       10



<PAGE>

Additionally, our common stock is subject to the Securities and Exchange
Commission 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
Securities and Exchange Commission 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 which 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.

EMPLOYEES

         We currently have nine full-time employees and one part-time employee.
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.

ITEM 2.  DESCRIPTION OF PROPERTY.

         In September 1998, we entered into a sublease agreement for a 3,928
square foot facility located in San Diego, California, which we use as our
principal executive offices. The sublease has a five-year term which commenced
in December 1998. Our monthly rent for this space is as follows:

MONTH OF TERM                                                    AMOUNT
-------------                                                    ------
1-12....................................................         $9,034.40
13-24...................................................         $9,230.80
25-36...................................................         $9,427.20
37-48...................................................         $9,623.60
49-60...................................................         $9,820.00

         In addition, we have an informal sub-lease arrangement under which we
rent a portion of a warehouse facility (approximately 5,000 square feet) in
Atlantic, Iowa, for a monthly rent of $650, from which we distribute Baby Genius
products to certain customers. The lease expires in June, 2002. We plan to
re-negotiate a new lease at that time. We believe that these facilities are
adequate for the immediate future.

ITEM 3.  LEGAL PROCEEDINGS

         On September 23, 1999, the Securities Administrator of the State of
Washington 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, 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 alleges, among other things, that Engelman and the Company offered
to sell shares of the Company that were not registered in the state or otherwise
qualified for an exemption from registration. Engelman was hired by us to
represent us at the Third Annual Seattle Money Show and provide information to
interested parties about the Company and its products. We are in discussions
with the Securities Administrator regarding entering into an administrative
order and although no terms of an order have yet been proposed by the Securities
Administrator, the purpose of entering 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 $251,240 of our securities were sold in Washington, and
we anticipate that any resolution of this matter with the Securities
Administrator would include the repurchase of these securities that amount, plus

                                       11


<PAGE>

interest thereon from the date of purchase. Until we receive a draft 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 order will be prepared,
and we are compiling such information. If we determine that the terms of a
proposed order are not acceptable, we would likely contest the Summary Order 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 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, 2001.

         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 2001.

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 to GNPI. The market
represented by the OTC Bulletin Board is extremely limited and the price for our
common stock quoted on the OTC Bulletin Board 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 OTC Bulletin Board. 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.

                YEAR                 PERIOD            HIGH               LOW
                ----                 ------            ----               ---
       Fiscal Year 2000         First Quarter          12.248             2.248
                                Second Quarter          5.248             1.500
                                Third Quarter           4.248             1.500
                                Fourth Quarter          1.872             0.624
       Fiscal Year 2001         First Quarter           1.750             0.375
                                Second Quarter          1.26              0.520
                                Third Quarter           1.38              0.730
                                Fourth Quarter          1.02              0.530

         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 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.

         As of April 10, 2002, we had approximately 13,628,755 shares of common
stock issued and outstanding which were held by approximately 402 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

         We have never declared or paid cash dividends on our common stock. We
currently anticipate that we will retain all future earnings for use in the
operation and expansion of our business, and we do not anticipate paying any
cash dividends in the foreseeable future.

                                       12



<PAGE>

SALES OF UNREGISTERED SECURITIES

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

         During the year ended December 31, 2000, we issued an aggregate of
65,421 unregistered shares pursuant to a number of agreements with third-party
consultants and service providers. All such shares were issued under Section
4(2) of the Securities Act. Additionally, 265,000 shares were issued for the
conversion of short-term debt and related interest of $268,000.

         During 2001, we issued an aggregate of 489,746 unregistered shares
pursuant to agreements with third-party consultants and service providers. All
such shares were issued under Section Rule 506 or Section 4(2) of Regulation D
under the Securities Act. During this time period, $458,543 of short-term debt
and related interest was converted through the issuance of 573,179 shares. We
also issued shares to certain officers in payment of salaries. Two officers
accepted 29,174 shares as payment for $23,339 of accrued salaries from the year
2000. Four officers accepted 150,000 shares as payment of $120,000 of 2001
salary.  We issued 24,000 shares as director compensation.

         In the first quarter 2001, we adjusted debenture agreements that were
issued in the year 2000 to allow conversion at $.80 per share and the conversion
option was exercised.

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."

         In 2000 and again in 2001, we redesigned the Baby Genius corporate
identity to reinforce its strong branding and image in the market place. During
2000 we signed, and are currently negotiating, with several licensees to
manufacture a variety of products with the Baby Genius identity (for details see
our Copyrights, Trademarks and Licenses section). We believe that our new
identity will result in stronger product sales in 2002 and attract more
licensees. As a result of producing a new graphic image for our Baby Genius
product, we continued to receive returns of our old style product sold and paid
for by a significant customer in 1999, which decreased our 2000 and 2001 net
sales. Cash constraints in 2001 have again limited our marketing and advertising
efforts. Jewelry sales declined in 2000 and 2001 as a result of reduced
marketing effort.

RESULTS OF OPERATIONS 2001 COMPARED TO 2000

         Revenues consist of music (Baby Genius) product sales to wholesale
customers and via the Internet to retail customers, and charges to customers for
shipping and handling, net of product returns and discounts. Commencing the
quarter ended June 30, 2000, we recognized royalty revenue related to licensing
the Baby Genius trademark. Revenues also comprise sales of jewelry products, net
of returns.

         Total revenues increased by .3% ($4,752) to $1,348,768 for the twelve
months ended December 31, 2001 from $1,344,016 for the twelve months ended
December 31, 2000.

         Music sales increased by 13% ($96,278) to $863,249 for the twelve
months ended December 31, 2001 from $766,971 for the twelve months ended
December 31, 2000. Increasing delivery of the newly designed music products, and
shipments of the newly packaged five CD value packs helped end the year on a

                                       13



<PAGE>

strong note. In the twelve months ended December 31, 2001 we recognized
licensing revenues of $20,350 relating to the granting of a master toy license
and foreign licenses under our Baby Genius licensing program.

         Jewelry and other sales decreased 13% ($70,892) to $465,169 for the
twelve months ended December 31, 2001 from $536,061 for the twelve months ended
December 31, 2000. The reduction in sales was a result of reduced marketing
efforts as management focused on developing the music business.

         Cost of sales consists primarily of the cost of products sold to
customers, packaging and shipping costs, commissions relating to licensing
revenues and provisions for obsolescence of inventory. Cost of sales for music
products was 32% of music sales ($275,554) for the twelve months ended December
31, 2001 compared to 43% for the same period in 2000. The resulting increase in
profit margin to 68% for the twelve months ended December 31, 2001 from 57% for
the twelve months ended December 31, 2000, was due to a change in the purchasing
and fulfillment strategy and vendors, which lowered our net packaged cost. Cost
of sales for jewelry products and other sales was 78% ($360,504) of related
sales compared to 87% ($467,613) for the same period in 2000, reflecting closer
scrutiny and quality control over our product manufacturer.

         Sales and marketing expenses consist of costs for consultants,
marketing personnel and promotional activities. Sales and marketing expenses
decreased by 27% ($151,908) to $414,897 for the twelve months ended December 31,
2001 from $566,805 for the twelve months ended December 31, 2000. These
decreases are a result of our declining to renew our contract with our
spokesperson, and in addition conserving funds by not renewing a number of
consulting contracts. The shortage of funds experienced during the year forced a
reduction and curtailment of many short-term promotions and marketing
activities.

         Product and web development expenses consist of personnel, consultants
and services in the development of the Baby Genius website and product line.
Product and web development costs decreased by 29% ($151,908) to $335,984 for
the twelve months ended December 31, 2001 from $566,805 for the twelve months
ended December 31, 2000. The decrease was primarily due to our lack of funding
and the reduction of resources being directed to the development of the website.

         General and administrative expenses consist of payroll and related
costs for executive and administrative personnel, professional services and
other general corporate expenses. General and administrative expenses increased
by 26% ($467,893) to $2,285,976 for the twelve months ended December 31, 2001
from $1,818,083 for the twelve months ended December 31, 2000. This increase was
due to a rise in personnel costs and the payment, with common stock, of
consulting. The cost of these expenses was partially offset by our conserving
funds in the area of office administrative and other general corporate expenses.

         Interest expense consists of costs related to debentures, short-term
loans and stock subject to rescission. Interest expense increased by 270%
($67,940) to $93,100 for the twelve months ended December 31, 2001 from $25,160
for the twelve months ended December 31, 2000. This increase reflects the
increase in borrowing during the year compared with the prior year.

         Our net loss decreased $206,260 to $2,427,032 in 2001 from $2,633,292
in 2000. As a result of this loss and the losses incurred since 1997, we accrued
a net operating loss carry forward as of December 31, 2001, of $7,570,000 and
$3,784,000 for federal and state income tax purposes, respectively. The federal
and state net operating losses begin to expire in 2012 and 2002, respectively.
Because we anticipate significant expenditures with respect to implementing our
business plan, including our Internet e-commerce business, 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.

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. We have held no significant cash
balances. 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

                                       14



<PAGE>

value as compared to freely-trading shares on the open market). The number of
shares and share prices disclosed below reflect the reverse stock split which
occurred on April 10, 2001.

         In 2001, we received cash from accredited investors in two private
placement offerings under Regulation D of the Securities Act. These funds were
used for accounts payable and other working capital requirements. We project
that, on an adjusted basis we will be cash-flow positive from operations in the
fourth quarter of 2002. Such projections do not, however, take into account the
possible repayment of the $420,323 plus accrued interest of $79,127 that we may
be obligated to pay in connection with certain repurchases, as described in
detail in the section under "Risks Related to Our Business" under the heading
"We May Have to Repurchase Some of our Outstanding Common Stock at Prices Higher
Than Current Market Prices." If our sales decline or we are unable to sell
shares to fund operations and obligatory share repurchases, we would reduce our
overhead expenses and take other appropriate cost-cutting measures.

         Net cash used in operating activities was $862,880 and $1,650,537 for
the twelve months ended December 31, 2001 and December 31, 2000, respectively.
Net operating cash flows for the twelve months ended December 31, 2001 were
primarily attributable to operating losses of $2,427,032 partially offset by an
increase in accounts payable of $176,722, and accrued expenses of $30,673, and
non-cash charges for depreciation and amortization and stock and options issued
for services. Net operating cash flows for the twelve months ended December 31,
2000 were primarily attributable to operating losses of $2,633,292 partially
offset by a decrease in accounts receivable of $224,945, increases in accounts
payable of $114,358 and accrued expenses of $103,781, and non-cash charges for
depreciation and amortization and stock and options issued for services.

         Net cash used in investing activities was $143,154 and $106,568 for the
twelve months ended December 31, 2001 and December 31, 2000 respectively. Net
cash used in investing activities for the twelve months ended December 31, 2000
was attributable to the development of production masters ($88,205), additions
to patents and trademarks ($11,969), and the purchase of property and equipment
($6,394). Net cash used in investing activities for the twelve months ended
December 31, 2001 was attributable to the production of music masters and other
one-time production costs ($131,449) related to the Baby Genius catalogue of
twenty music and two video titles, and costs of additional trademarks and
patents.

         Net cash provided by financing activities was $1,766,400 for the twelve
months ended December 31, 2000. The cash provided was primarily attributable to
proceeds from the issuance of common stock through private placement offerings
and was used in product development and marketing of the Baby Genius product
line and to provide additional working capital. Financing activities provided
$979,104 in the twelve months ended December 31, 2001. The issuance of common
Stock ($769,771) and the proceeds from the issuance of debentures and loans
($406,000) was partially offset by the repayment of third party and shareholder
loans aggregating $196,667.

         We believe we now have sufficient liquidity to sustain operations
through the end of the second quarter of 2003. If our capital requirements vary
from our current plans, we may require additional financing sooner than we
anticipate.

SUBSEQUENT EVENTS

         During the first quarter of 2002, the sale of more than 4,167,000
shares of common stock has resulted in capitalization to us in excess of
$2,600,000. We believe this funding will allow the company to meet its
obligations through the end of the second quarter of 2003; however, if our
capital requirements vary from our current plans, we may require additional
financing sooner than we anticipate. We anticipate the video licensing
arrangement with Warner Home Video and additional arrangements for merchandising
licenses through Global Icons, both completed in the first quarter 2002, will
begin to produce revenues in the fourth quarter 2002. No assurance can be made
however, that such arrangements will produce revenues for us in the fourth
quarter of 2002, or ever.

         During the first quarter of 2002, we entered into employment agreements
with Klaus Moeller, Michael Meader, Larry Balaban and Howard Balaban. In the
second quarter of 2002, we entered into an employment agreement with Julie
Ekelund. These agreements are substantially the same. See, "Certain
Relationships and Related Transactions."

ITEM 7.  FINANCIAL STATEMENTS

                                       15



<PAGE>

                          INDEPENDENT AUDITORS' REPORT

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, 2001 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, 2001. 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 auditing standards generally accepted
in the United States of America. 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, 2001, and the results of their
operations and cash flows for each of the years in the two-year period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.

                                         /s/ CACCIAMATTA ACCOUNTANCY CORPORATION

Irvine, California
April 5, 2002

                                       F-1



<PAGE>

<TABLE>

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

                                                                                             DECEMBER 31,
                                                                                                 2001
                                                                                            -------------
                                        ASSETS
<S>                                                                                         <C>
Current assets:

    Cash and equivalents                                                                    $     27,998
    Accounts receivable, net of allowance for doubtful accounts and sales returns of
       $96,000                                                                                   381,508
    Inventories                                                                                  123,311
    Prepaid and other                                                                             48,829
                                                                                            -------------
       Total current assets                                                                      581,646
Property and equipment, net                                                                       63,298
Production masters, net of accumulated amortization of $434,805                                  181,964
Patents and trademarks, net of accumulated amortization of $13,683                                31,566
Deposits                                                                                          36,138
                                                                                            -------------
                                                                                            $    894,612
                                                                                            =============

                         LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

    Accounts payable                                                                        $    845,582
    Accrued payroll and related expenses                                                          97,537
    Other accrued expenses                                                                       153,427
                                                                                            -------------
       Total current liabilities                                                               1,096,546
Redeemable common stock                                                                          499,450
Commitments and contingencies                                                                         --
Stockholders' deficit:
    Common stock, $.001 par value; 25,000,000 shares authorized; 6,183,756 shares
       outstanding                                                                                 6,184
    Additional paid-in capital                                                                 9,292,867
    Accumulated deficit                                                                      (10,000,435)
                                                                                            -------------
       Total stockholders' deficit                                                              (701,384)
                                                                                            -------------
                                                                                            $    894,612
                                                                                            =============
</TABLE>

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

                                            F-2



<PAGE>
<TABLE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>

                                                           YEAR ENDED DECEMBER 31,
                                                     ----------------------------------
                                                         2001                 2000
                                                     ------------          ------------
<S>                                                  <C>                   <C>
Revenues
    Music                                            $   863,249           $   766,971
    Jewelry                                              465,169               536,061
    Licensing                                             20,350                40,984
                                                     ------------          ------------
       Total Revenues                                  1,348,768             1,344,016
                                                     ------------          ------------

Costs and expenses:
    Cost of sales:
       Music                                             275,554               328,993
       Jewelry                                           360,564               467,613
       Licensing                                           8,925                11,250
       Inventory writedown                                    --               235,000
    Sales and marketing                                  414,897               566,805
    Product and Web development                          335,984               522,804
    General and administrative                         2,285,976             1,818,083
                                                     ------------          ------------

    Total costs and expenses                           3,681,900             3,950,548

    Loss from operations                              (2,333,132)           (2,606,532)
Interest expense                                         (93,100)              (25,160)
                                                     ------------          ------------
    Loss before provision for income taxes            (2,426,232)           (2,631,692)
Provision for income taxes                                  (800)               (1,600)
                                                     ------------          ------------
    Net Loss                                         $(2,427,032)          $(2,633,292)
                                                     ============          ============
Basic and diluted loss per common shares:
    Net Loss per share                               $     (0.48)          $     (0.80)
                                                     ============          ============
Basic and diluted weighted average shares              5,016,717             3,304,868
                                                     ============          ============
</TABLE>

                               The accompanying notes are an
                        of these consolidated financial statements.

                                            F-3



<PAGE>
<TABLE>

                                    GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                                FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

<CAPTION>

                                                           Additional      Stock                        Total
                                      Common Stock           Paid-in    Subscription  Accumulated   Stockholders'
                                  Shares        Amount       Capital     Receivable     Deficit        Deficit
                                  ------        ------       -------     ----------     -------        -------

<S>                             <C>          <C>          <C>          <C>            <C>            <C>
Balance, December 31, 1999      2,687,531    $   2,687    $4,966,871   $        --    $ (4,940,111)  $   29,447

  Shares issued in private
    placement, net of
    offering costs                471,667          472       814,628            --           --         815,100
  Shares issued in private
    placement, net of
    offering costs                304,200          304       303,896            --           --         304,200
  Shares issued for services       65,421           65       160,843            --           --         160,908
  Shares issued upon
    conversion of loans
    from shareholders             265,000          265       264,735            --           --         265,000
  Exercise of stock options       185,625          186       350,064            --           --         350,250
  Stock option costs                   --           --       119,174       119,174
  Stock subscription
    receivable                         --           --            --      (106,000)          --        (106,000)
  Net loss                             --           --            --            --      (2,633,292)  (2,633,292)
                                ----------   ----------   -----------  ------------   -------------  -----------
Balance, December 31, 2000      3,979,444        3,979     6,980,211      (106,000)     (7,573,403)    (695,213)

  Shares issued in private
    placement                     962,213          963       768,808            --           --         769,771
  Debt conversion and partial
    interest                      573,179          573       457,970            --           --         458,543
  Shares issued for
    compensation                  179,174          179       143,160            --           --         143,339
  Shares issued for services      489,746          490       393,898            --           --         394,388
  Stock option costs                   --           --       548,820            --           --         548,820
  Stock subscription write off         --           --            --       106,000           --         106,000
  Net loss                             --           --            --            --      (2,427,032)  (2,427,032)
                                ----------   ----------   -----------  ------------   -------------  -----------
Balance, December 31, 2001      6,183,756    $   6,184    $9,292,867   $        --    $(10,000,435)  $ (701,384)
                                ==========   ==========   ===========  ============   =============  ===========

</TABLE>

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

                                                      F-4



<PAGE>
<TABLE>

                          GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

                                                                 2001              2000
                                                             ------------      ------------
<S>                                                          <C>               <C>
Cash flows from operating activities:
  Net loss                                                   $(2,427,032)      $(2,633,292)
  Adjustments to reconcile net loss to
    net cash used by operating activities:
    Depreciation and amortization                                214,339           166,992
    Interest expense on redeemable stock                          25,590            14,750
    Bad debt expense                                              96,000            13,179
    Common stock issued for services                             394,388           160,908
    Common stock issued for compensation                         143,339                --
    Stock options granted to non-employees for services          548,820           119,174
    Uncollectible stock subscription                             106,000                --
  Changes in assets and liabilities:
    (Increase) decrease in:
      Accounts receivable                                       (143,239)          224,945
      Inventories                                                 (4,442)           56,278
      Other assets                                               (24,038)            8,390
    Increase (decrease) in:
      Accounts payable                                           176,722           114,358
      Accrued expenses                                            30,673           103,781
                                                             ------------      ------------
    Net cash used by operating activities                       (862,880)       (1,650,537)
                                                             ------------      ------------

Cash flows from investing activities:
  Development of production masters                             (131,449)          (88,205)
  Additions to patents and trademarks                            (10,945)          (11,969)
  Purchase of property and equipment                                (760)           (6,394)
                                                             ------------      ------------
    Net cash used in investing activities                       (143,154)         (106,568)
                                                             ------------      ------------

Cash flows from financing activities:
  Proceeds from issuance of convertible debentures               256,000           191,250
  Proceeds from loans                                            150,000                --
  Loans from shareholders                                             --           265,000
  Proceeds from exercise of options                                   --           244,250
  Proceeds from issuance of common stock                         769,771         1,119,300
  Repayment of loans                                            (150,000)               --
  Repayment of loans from shareholders                           (46,667)          (53,400)
                                                             ------------      ------------
    Net cash provided by financing activities                    979,104         1,766,400
                                                             ------------      ------------
Net increase (decrease) in cash and equivalents                  (26,930)            9,295

Cash and equivalents, beginning of year                           54,928            45,633
                                                             ------------      ------------
Cash and equivalents, end of year                            $    27,998       $    54,928
                                                             ============      ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid                                                $    50,313       $     4,345
Income taxes paid                                            $       800       $       800
Debentures converted into common stock                       $   447,250       $   265,000

</TABLE>

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

                                            F-5



<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

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 classical, instrumental and vocal compact
         disks, cassettes and videos for children under the BABY GENIUS brand
         name, which sell at retail outlets nationwide, and at numerous
         e-commerce retail web sites on the Internet. The Company has developed
         a website to serve as an e-commerce retail and information site with an
         intended focus on parents, parents-to-be and children.

         The Company also sells, on a wholesale basis, fine and costume jewelry.
         The Company's major jewelry customer is a U.S. television shopping
         network. The Company designs its jewelry products and uses independent
         foreign manufacturing facilities to produce them to the Company's
         specifications.

         The Company has licensed the Baby Genius name to a number of
         third-party companies that have produced (or will produce) toys, books,
         apparel and other products.

         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 sales returns includes
         management's estimate of the amount expected to be lost on specific
         accounts and for losses 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 sales returns in the
         accompanying financial statements.

                                       F-6



<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

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

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

         In 2001, the largest jewelry and music customer accounted for 96% and
         31% of jewelry and music sales, respectively. In 2000, the largest
         jewelry and music customer accounted for 93% and 29% of jewelry and
         music sales, respectively. At December 31, 2001, four customers
         accounted for 66% 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.

         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 2000, the Company recorded inventory
         writedowns of $235,000; $207,000 related to the Wunder Boner product
         line which the Company decided not to pursue, and $28,000 related to
         obsolete Baby Genius packaging.

         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 year period from the
         time a title is initially released, consistent with the estimated
         timing of revenue for a title. Amortization expense was $152,077 in
         2001 and $136,066 in 2000. Patents and trademarks covering a number of
         the Company's products are being amortized on a straight line basis
         over 5 years. Amortization expense was $6,085 in 2001 and $5,560 in
         2000.

         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.

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

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

                                       F-7



<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

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 SFAS
         123 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.

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

         Revenues, the related cost of sales, and an allowance for returned
         goods are recorded upon the shipment of goods.

         Advertising and infomercial costs
         ---------------------------------

         Advertising costs including infomercial costs are expensed as incurred.
         Advertising costs were $44,473 in 2001 and $80,034 in 2000.

         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 carryforwards 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.

         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.

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

         Certain items in the 2000 financial statements have been reclassified
         to conform with the 2001 presentation.

                                       F-8



<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

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

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

         In September 2000, the FASB issued Financial Accounting Standards SFAS
         No. 140, "Accounting for Transfers and Servicing of Financial Assets
         and Extinguishments of Liabilities, and a replacement of FASB Statement
         No. 125." The impact of this statement did not have a material affect
         on the Company's financial statements.

         On July 20, 2001, the FASB issued SFAS No. 141, "Business
         Combinations," and SFAS No. 142, "Goodwill and Other Intangible
         Assets." These statements make significant changes to the accounting
         for business combinations, goodwill, and intangible assets. SFAS No.
         141 establishes new standards for accounting and reporting requirements
         for business combinations and will require that the purchase method of
         accounting be used for all business combinations initiated after June
         30, 2001. Use of the pooling-of-interests method will be prohibited.
         This statement is effective for business combinations completed after
         June 30, 2001. SFAS No. 142 establishes new standards for goodwill
         acquired in a business combination and eliminates amortization of
         goodwill and instead sets forth methods to periodically evaluate
         goodwill for impairment. Intangible assets with a determinable useful
         life will continue to be amortized over that period. This statement
         becomes effective January 1, 2002. Management does not expect these
         pronouncements to materially impact the Company's financial position or
         results of operations.

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 143,
         "Accounting for Asset Retirement Obligations". SFAS 143 addresses
         financial accounting and reporting for obligations associated with the
         retirement of tangible long-lived assets and the associated asset
         retirement costs. This Statement is effective for financial statements
         issued for fiscal years beginning after June 15, 2002. The impact of
         the adoption of SFAS 143 on the Company's reported operating results,
         financial position and existing financial statement disclosure is not
         expected to be material.

         In August 2001, Statement of Financial Accounting Standards No. 144,
         "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
         144"), was issued. This statement addresses financial accounting and
         reporting for the impairment or disposal of long-lived assets and
         broadens the definition of what constitutes a discontinued operation
         and how the results of a discontinued operation are to be measured and
         presented. The provisions of SFAS 144 are effective for financial
         statements issued for fiscal years beginning after December 15, 2001.
         The impact of the adoption of SFAS 144 on the Company's reported
         operating results, financial position and existing financial statement
         disclosure is not expected to be material.

         In January 2001, the Financial Accounting Standards Board Emerging
         Issues Task Force issued EITF 00-27 effective for convertible debt
         instruments issued after November 16, 2000. This pronouncement requires
         the use of the intrinsic value method for recognition of the detachable
         and imbedded equity features included with indebtedness, and requires
         amortization of the amount associated with the convertibility feature
         over the life of the debt instrument rather than the period for which
         the instrument first becomes convertible. The impact of this statement
         did not have a material affect on the Company's financial statements.

                                       F-9



<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

2.       PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                  2001                 USEFUL LIVES
                                                                  ----                 ------------
          <S>                                                  <C>                 <C>
          Computers and equipment                              $    90,166              3 - 5 years
          Furniture and fixtures                                    27,961              3 - 7 years
          Leasehold improvements                                    25,134         Lesser of lease term
                                                               ------------           or useful life.
                                                                   143,261
          Accumulated depreciation and amortization                (79,963)
                                                               ------------
                                                               $    63,298
                                                               ============
</TABLE>

         Depreciation expense was $23,703 in 2001 and $18,206 in 2000.

3.       DEBT

         Convertible Debentures
         ----------------------

         In the fourth quarter of 2000, the Company issued two convertible
         debentures to an individual investor totaling $191,250. The debentures
         bear interest at 7%, principal and interest due December 31, 2001.
         These debentures were converted into common shares of the Company's
         common stock at a conversion price of $1.00 per share in the first
         quarter of 2001.

         Loans from Shareholders
         -----------------------

         During 2000, the Company borrowed $265,000 from two shareholders and
         converted the debt into 265,000 shares of common stock. In the fourth
         quarter of 1999, the Company borrowed a total of $100,067 from two of
         its shareholders. The notes are due on demand and accrue interest at a
         rate of 7% per year. The accrued interest is not due until demand for
         payment is made by the shareholders. One note totaling $53,400 was
         repaid in 2000, and the other note of $46,667 was repaid in 2001.

4.       COMMON STOCK

         During 2001, the Company sold 962,213 shares of its common stock at
         $.80, pursuant to a private placement for proceeds of $769,771. During
         2001, the Company issued 489,746 shares of common stock for services
         valued at $394,388 and issued 179,174 shares of common stock for
         compensation valued at $143,339.

         During 2001, $447,250 of debt and $11,293 of interest was converted
         into 573,179 common shares.

         During 2000, the Company sold 471,667 shares of its common stock at
         $2.00, pursuant to a private placement, less commissions and offering
         costs, for net proceeds of $815,100.

                                      F-10



<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

4.       COMMON STOCK (CONTINUED)

         During 2000, the Company sold 304,200 shares of its common stock at
         $1.00, pursuant to a private placement, less commissions and offering
         costs, for net proceeds of $304,200.

         During 2000, the Company issued 65,421 shares of common stock for
         services valued at $160,908.

         During 2000, $265,000 of debt was converted into 265,000 common shares.
         During 2000, options were converted into 185,625 common shares for net
         proceeds of $350,250.

         In March 1999, the Company entered into an investment agreement with
         Minnesota Communications Group ("MCG"), an affiliate of Minnesota
         Public Radio, giving MCG the right to purchase up to 375,000 shares of
         the Company's common stock at $4.00 per share. During 1999, MCG
         purchased 150,000 common shares for net proceeds of $600,000. In
         December 2000, MCG released the Company from the investment agreement.

         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
         which may be subject to redemption. The total number of shares subject
         to redemption at December 31, 2001 was 76,888. Accordingly, additional
         paid in capital has been reduced by $420,323 to reflect the cumulative
         amounts subject to redemption. In addition, accrued interest of $79,127
         is included in the caption redeemable common stock in the accompanying
         balance sheet.

         Reverse stock split
         -------------------

         On April 10, 2001, the Board of Directors approved a 1 for 4 reverse
         stock split of common stock to stockholders of record on that date.
         Per-share amounts in the accompanying financial statements have been
         adjusted for the split.

5.       STOCK OPTIONS

         Employees
         ---------

         During 2001, the Company granted options to its employees to purchase a
         total of 947,500 shares of its common stock at exercise prices of $.80
         per share, which equaled or exceeded fair market value at the time the
         options were granted.

         During 2000, the Company granted options to its employees to purchase a
         total of 953,750 shares of its common stock at exercise prices of $.80
         to $5.12 per share, which exceeded fair market value at the time the
         options were granted.

                                      F-11



<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

5.       STOCK OPTIONS (CONTINUED)

         The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
         Employees" and related interpretations in accounting for its plans. 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 FASB Statement No. 123, the Company's net
         loss and loss per common share would have been increased to the pro
         forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                    2001                2000
                                                                    ----                ----
                   <S>                                        <C>                 <C>
                   Net loss
                        As reported                           $  (2,427,032)      $  (2,633,292)
                        Pro forma                             $  (3,102,457)      $  (3,664,292)
                   Basic and diluted loss per share:
                        As reported                           $       (0.48)      $       (0.80)
                        Pro forma                             $       (0.62)      $       (1.12)
</TABLE>

         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 2001 and
         2000, respectively: expected volatility of 50% and 50%, respectively,
         and risk-free interest of 4.40% and 6.50%, 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 2001
         and 2000 was $.52 and $.22, respectively.

         Nonemployees
         ------------

         In 2001, the Company granted options to individuals for services
         rendered, to purchase a total of 1,746,900 shares of its common stock
         at exercise prices from $.50 to $.80 per share, resulting in the
         recognition of $548,820 of expense.

         In 2000, the Company granted options to individuals for services
         rendered, to purchase a total of 233,135 shares of its common stock at
         exercise prices from $.80 to $5.00 per share, resulting in the
         recognition of $119,174 of expense.

                                      F-12



<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

5.       STOCK OPTIONS (CONTINUED)

         A summary of stock option activity follows:

<TABLE>
<CAPTION>
                                                             Weighted                        Weighted
                                                              Average                         Average
                                              Number       Exercise Price   Exercisable    Exercise Price
                                              ------       --------------   -----------    --------------
          <S>                                <C>                 <C>           <C>               <C>
          December 31, 1999                    992,500           $7.04           672,375         $5.80
          Granted                            1,186,885           $2.24
          Exercised                           (148,125)          $2.08
          Canceled                                  --           --
                                             ----------                        ----------
          December 31, 2000                  2,031,260           $3.48         1,916,260         $3.44
          Granted                            2,694,400           $0.67                           $0.67
          Exercised                                 --           --
          Canceled                                  --           --
                                             ----------                        ----------
          December 31, 2001                  4,725,660           $1.41         4,658,994         $1.41
                                             ==========                        ==========
</TABLE>

         The following information applies to all options outstanding at
December 31, 2001:

<TABLE>
<CAPTION>

                                           Average         Weighted                           Weighted
                         Options       remaining life       average           Number           average
  Exercise Price       Outstanding         (years)      exercise price     exercisable     exercise price
  --------------       -----------         -------      --------------     -----------     --------------
<C>                      <C>                   <C>           <C>             <C>               <C>
$.50 - .80               4,002,525             5.75          $  0.71         3,952,525         $   0.71
$1.12 - 4.36                80,635             7.5           $  2.33            67,302         $   2.26
$5.00 - 5.12               591,250             6             $  5.00           587,917         $   5.00
$9.00 - 13.60               51,250             7             $ 12.45            51,250         $  12.45
                         ----------                                          ----------
                         4,725,660                                           4,658,994
                         ==========                                          ==========
</TABLE>

         In February 2000, 337,500 employee options with exercise prices ranging
         from $9.00-$10.52 were re-priced to $5.00, which exceeded the then
         current market price.

                                      F-13



<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

6.       COMMITMENTS AND CONTINGENCIES

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

         The Company leases certain facilities and automobiles under
         noncancelable operating leases. Rental expense for 2001 and 2000 was
         $148,942 and $155,248, respectively.

         As of December 31, 2001, the future minimum annual rental commitments
         required under existing noncancelable operating leases are as follows:

                 2002                                $ 121,000
                 2003                                  118,000
                                                     ----------
                                                     $ 239,000
                                                     ==========

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

         The Company has entered into employment agreements with seven of its
         executive officers and key employees. The agreements provide for a lump
         sum payment equal to ten times the employee's annual compensation in
         the event of the employee's termination due to a change in control of
         the Company occurring on or before December 31, 2001.

         Agreements with former officer
         ------------------------------

         In October 1999, the Company entered into a severance letter agreement
         with its former president, Gerald Edick, for a cash bonus totaling
         $200,000 to be paid in equal installments over one year. On March 1,
         2000 the Company entered into a consulting agreement to amend the
         severance letter agreement. Edick revoked his rights to the cash bonus,
         and instead was to be paid $14,500 per month through September 30, 2000
         in consideration for investor relations and fund raising services. At
         December 31, 2001, $95,333 of this amount remains unpaid and is
         included in accrued liabilities.

         Letter of credit
         ----------------

         In September 1998, the Company entered into a letter of credit
         agreement with its bank. The letter of credit is for $10,000 and is
         used to satisfy the reserve requirement of the Company's merchant
         account for processing credit card purchases of the Company's products.
         The letter of credit is collateralized by a $10,000 certificate of
         deposit and expired August 21, 2000.

7.       RELATED PARTY TRANSACTION

         Included in prepaid and other assets is $22,951 of advances made to two
         officers of the Company.

                                      F-14



<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

8.       INCOME TAXES

         The provision for income taxes in 2001 and 2000 consists of California
         income taxes of $800 and $1600.

         The Company has net operating loss (NOL) carryforwards that can be
         utilized to offset future taxable income. At December 31, 2001, federal
         NOL carryforwards totaled approximately $7,570,000. The federal
         carryforwards 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                                     1,999,000
                                                           -------------
                                                           $  7,570,000
                                                           =============

         In addition, the Company has approximately $3,784,000 of California NOL
         carryforwards that expire in various years through 2006. Deferred
         income taxes at December 31, 2001 and 2000 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.

                                                   2001                2000
                                                ------------       ------------
                    NOL carryforwards           $ 3,028,000        $ 2,360,000
                    Allowance accounts              (39,000)          (154,000)
                                                ------------       ------------
                    Deferred tax assets           2,989,000          2,206,000
                    Less valuation allowance     (2,989,000)        (2,206,000)
                                                ------------       ------------
                    Net deferred tax asset      $        --        $        --
                                                ============       ============

         The valuation allowance increased by $783,000 in 2001 and $815,000 in
         2000.

                                      F-15



<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

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

<TABLE>
<CAPTION>
                                                             2001          2000
                                                         ------------   ------------
      <S>                                                <C>            <C>
      Numerator
      ---------
          Net loss                                       $(2,427,032)   $(2,633,292)
                                                         ============   ============

      Denominator
      -----------
          Basic and diluted weighted average number of
          common shares outstanding during the period      5,016,717      3,304,868
                                                         ============   ============

      Basic and diluted net loss per share               $     (0.48)   $     (0.80)
                                                         ============   ============

      The effect of the potentially dilutive securities listed below were not included
      in the computation of diluted loss per share, since to do so would have been
      anti-dilutive.

      Employee stock options                               2,821,125      1,901,875
      Non-employee stock options and warrants              1,904,535        129,385
      Convertible debentures                                      --        191,250
</TABLE>

10.   SUBSEQUENT EVENT (UNAUDITED)

      The Company commenced a private placement of shares under Regulation D of
      the 1933 Securities Act, to provide financing for the production of new
      video and music products and other working capital requirements and to
      date has sold 4,228,548 shares for net proceeds of $2,661,280.

                                      F-16



<PAGE>

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

         None.

PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT

EXECUTIVE OFFICERS

         The executive officers of the Company are as follows:
<TABLE>
<CAPTION>

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

          <S>                       <C>       <C>
          Klaus Moeller             41        Chairman of the Board, Chief Executive Officer,
                                              Interim Chief Financial Officer, Director
          Deborah L. Cross          47        Director
          Michael Meader            36        Executive Vice President - Distribution
          Larry Balaban             38        Executive Vice President of Marketing and
                                              Production
          Howard Balaban            41        Executive Vice President of New Business
                                              Development
          Julie Ekelund             40        Executive Vice President of Sales
</TABLE>

         KLAUS MOELLER has served as the Chief Executive Officer and as a
director of the Company since we acquired ITM in October 1997. Mr. Moeller has
served as the Interim Chief Financial Officer of the Company since May 2001.
Prior to the acquisition, Mr. Moeller had been the Chairman of the Board and
Chief Executive Officer of ITM since its inception in 1992. Mr. Moeller has a
background in marketing, advertising, real estate and auditing.

         DEBORAH LAW CROSS has served as a director of the Company since March
14, 2000. Since 1999, Ms. Cross has been the Director of Contract Services at
HearPO, a division of Sonus Corp. which owns and operates 99 hearing care
centers in the United States and Western Canada. As Director of Contract
Services, Ms. Cross designs, negotiates and implements managed care contracts.
From 1996 to 1999, Ms. Cross was an area manager for Sonus, during which she
managed 21 audiology clinics. From 1983 to 1996, Ms. Cross was the owner and
president of Hearing Dynamics, Inc. which owned and operated four audiology
clinics. Ms. Cross sold Hearing Dynamics to Sonus in 1996.

         MICHAEL MEADER has served as the Company's Executive Vice President
since April of 1998. Mr. Meader worked as an outside consultant to the Company
for a number of years prior to him 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.

         LARRY BALABAN has served as the Company's Vice President of Marketing
and Production since January 1999, after having rendered consulting services to
the Company for just over six months. Prior to his appointment, 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.

                                       16



<PAGE>

         HOWARD BALABAN has served as the Company's 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 the Company 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.

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

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Forms 3 and 4 are being filed as follows: (i) a Form 3 filing for
Deborah Law Cross due on March 24, 2000; (ii) a Form 3 filing for Julie Ekelund
due on April 11, 2002; (iii) Form 4s for Klaus Moeller, Michael Meader, Larry
Balaban and Howard Balaban for one transaction each that occurred in June 2001,
for one transaction each that occurred in December 2001 and for three
transactions each that occurred in January 2002; (ii) Form 4s for Klaus Moeller
and Deborah Law Cross for one transaction each that occurred in July 2001 and
for Klaus Moeller for one transaction that occurred in October 2001. No other
person, who, at any time during the year ended December 31, 2001, was a
director, officer or beneficial owner of more than 10 percent of any class of
equity securities of the Company 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, 2000, or any prior years ended December 31. The foregoing is
based solely upon a review of Form 3 and 4 filings furnished to the Company
during the year ended December 31, 2001, certain written representations and
shareholders who, to the best of our knowledge, hold 10% or more of Company
shares.

ITEM 10. EXECUTIVE COMPENSATION

         The compensation and benefits program of the Company 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 the Company's 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.

DIRECTOR COMPENSATION

         Directors receive no cash compensation for their services to the
Company as directors, but are reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors and receive
2000 restricted shares of our common stock for each quarter of service
on the board.  All of our directors are accredited investors.

EXECUTIVE OFFICER COMPENSATION

         The following table sets forth compensation information for services
rendered to the Company by certain executive officers in all capacities 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.

                                       17



<PAGE>

<TABLE>
                                                          SUMMARY COMPENSATION TABLE*
<CAPTION>

                                                  Annual Compensation                Long-Term Compensation
                                                  --------------------    ---------------------------------------
                                                                                   Awards                 Payouts
                                                                          ---------------------------     -------
                                                                                          Securities
                                                           Other Annual     Restricted     Underlying        LTIP        All Other
                                   Salary         Bonus    Compensation    Stock Awards    Option/SARs      Payouts    Compensation
 Name and Position      Year         $              $            $               $              $              $             $
                                                                                                              (Car Allowance)
------------------      ----       ------         -----    ------------    ------------    -----------      -------    ------------
<S>                     <C>        <C>              <C>           <C>         <C>           <C>                 <C>          <C>
Klaus Moeller           2001       150,000(1)       0             0           117,560(1)    200,000             0         5000
CEO and Interim         2000       150,000(1)       0             0            14,587(1)    137,500             0            0
CF0                     1999       146,000          0             0                 0             0             0            0

Michael Meader          2001       150,000(2)       0             0            42,560(2)    200,000             0         5000
Executive VP -          2000       150,000(2)       0             0            14,587(2)    137,500             0            0
Distribution            1999       146,000          0             0                 0             0             0            0

Larry Balaban           2001       150,000(3)       0             0            38,397(3)    200,000             0         5000
Executive VP of         2000       110,000          0             0                 0       237,500             0            0
Marketing and           1999       107,874          0             0                 0        75,000             0            0
Production

Howard Balaban          2001       150,000(4)       0             0            38,397(4)    200,000             0         5000
Executive VP of New     2000       110,000          0             0                 0       237,500             0            0
Business Development    1999       113,892          0             0                 0        75,000             0            0

</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 approximately $12,000 of unpaid 2000 salary and
         $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 108,337
         shares of stock on June 10, 2001. Mr. Moeller received 23,810
         shares on January 3, 2002, for an additional $15,000 of unpaid
         2001 salary and agreed to accept 47,619 shares in lieu of $30,000 of
         2002 salary. These issuances were at $0.63 per share (the closing price
         of the common stock on January 2, 2002 was $0.62).

(2)      During 2001, in response to the Company's limited cash flow, Mr. Meader
         accepted approximately $12,000 of unpaid 2000 salary and $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 33,337 shares of
         common stock on June 10, 2001. Mr. Meader received 23,810 shares on
         January 3, 2002, for an additional $15,000 of unpaid 2001 salary and
         agreed to accept 47,619 shares in lieu of $30,000 of 2002 salary. These
         issuances were at $0.63 per share (the closing price of the common
         stock on January 2, 2002 was $0.62).

(3)      During 2001, in response to the Company's limited cash flow, Mr. L.
         Balaban accepted approximately $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. L. Balaban was issued 18,750 shares of common stock on June 10,
         2001. Mr. L. Balaban received 23,810 shares on January 3, 2002, for an
         additional $15,000 of unpaid 2001 salary and agreed to accept 47,619
         shares in lieu of $30,000 of 2002 salary. These issuances were at $0.63
         per share (the closing price of the common stock on January 2, 2002 was
         $0.62).

(4)      During 2001, in response to the Company's limited cash flow, Mr. H.
         Balaban accepted approximately $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,

                                       18



<PAGE>

         Mr. H. Balaban was issued 18,750 shares of common stock on June 10,
         2001. Mr. H. Balaban received 23,810 shares on January 3, 2002, for an
         additional $15,000 of unpaid 2001 salary and agreed to accept 47,619
         shares in lieu of $30,000 of 2002 salary. These issuances were at $0.63
         per share (the closing price of the common stock on January 2, 2002 was
         $0.62).

         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, 2001.

<TABLE>
                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                (INCLUDES OPTIONS REPRICED IN LAST FISCAL YEAR)*
<CAPTION>

                                                  INDIVIDUAL GRANTS

                                                PERCENT OF TOTAL OPTIONS
                         NUMBER OF SECURITIES       / SARS GRANTED TO          EXERCISE OR
                         UNDERLYING OPTIONS /   EMPLOYEES IN FISCAL YEAR       BASE PRICE            EXPIRATION
         NAME              SARS GRANTED (#)                (%)                   ($/SH)                 DATE
         ----              ----------------                ---                   ------                 ----
<S>                               <C>                     <C>                      <C>           <C>
Klaus Moeller                     200,000                 21%                      $0.80         December 31, 2011
Michael Meader                    200,000                 21                        0.80         December 31, 2011
Larry Balaban                     200,000                 21                        0.80         December 31, 2011
Howard Balaban                    200,000                 21                        0.80         December 31, 2011

</TABLE>

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

         The following table sets forth information concerning the exercise of
stock options by each person named in the "Summary Compensation Table" during
the Company's fiscal year ended December 31, 2001, and the value of all
exercisable and unexercisable options at December 31, 2001.

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

                                     NUMBER OF SECURITIES UNDERLYING            VALUE OF UNEXERCISED
                                          UNEXCERCISED OPTIONS AT               IN-THE-MONEY OPTIONS
                                                 FY-END (#)                       AT FY-END ($) (1)
                                     --------------------------------     ---------------------------------
                    NAME             Exercisable        Unexercisable     Exercisable         Unexercisable
                    ----             -----------        -------------     -----------         -------------
            <S>                        <C>                    <C>              <C>                  <C>
            Klaus Moeller              525,000                0                $0                   $0
            Michael Meader             525,000                0                 0                    0
            Larry Balaban              525,000                0                 0                    0
            Howard Balaban             525,000                0                 0                    0
</TABLE>

(1)      Based on the closing price for our common stock at the close of market
         on December 31, 2001. On December 31, 2001, the price of our common
         stock was $0.75. The lowest exercise price of any outstanding option at
         December 31, 2001 was $0.80.

                                       19



<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information known to the Company
with respect to the beneficial ownership of common stock as of April 10, 2002
(with percentages based on 13,628,755 shares outstanding) by (i) each person who
is known by the Company to own beneficially more than 5% of common stock, (ii)
each of the Company's directors and executive officers and (iii) all officers
and directors of the Company as a group. Except as otherwise listed below, the
address of each person is c/o Genius Products, Inc., 11250 El Camino Real, #100,
San Diego, California 92130.

<TABLE>
<CAPTION>
               NAME AND ADDRESS OF OWNER                             SHARES BENEFICIALLY OWNED (1)
               -------------------------                             -----------------------------
                                                                   NUMBER                   PERCENT(2)
                                                                   ------                   ----------
<S>                                                                <C>                       <C>
Klaus Moeller, Director, Chief Executive                             653,141                  5(3)(4)(5)
     Officer, Chairman of the Board and
     Interim Chief Financial Officer
Deborah L. Cross, Director                                            19,500                 <1
Michael Meader, President                                            716,641                  5(6)
Larry Balaban,
     Executive Vice President and Director                           616,492                  5
Howard Balaban, Executive Vice President                             616,429                  5
Julie Ekelund, Executive Vice President                              192,000                 <1

S G Consulting Inc.                                                  660,000                  6
David C. Anderson & Pamela N. Anderson                               793,651                  7

All officers and directors as a group (6 persons)                  2,814,203                 20

</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 10, 2002 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)      Does not include 162,500 shares of Common Stock issuable upon exercise
         of outstanding warrants.

(3)      Includes 90,000 shares held by Shelly Moeller (as her sole property),
         who is the wife of Klaus Moeller. Mr. Moeller disclaims all beneficial
         ownership of such shares.

(4)      Includes 37,500 shares held by Dorian Lowell as custodian for Tia
         Moeller, who is the daughter of Klaus Moeller. Mr. Moeller disclaims
         all beneficial ownership of such shares.

(5)      Includes 37,500 shares held by Dorian Lowell as custodian for Hayden
         Moeller, who is the son of Klaus Moeller. Mr. Moeller disclaims all
         beneficial ownership of such shares.

(6)      Includes 25,000 shares held by Suzanne Meader, who is the wife of
         Michael Meader. Mr. Meader disclaims all beneficial ownership of such
         Shares.

(7)     Includes 10,000 options expiring on July 1, 2006, with an exercise
        price of $0.80 and 162,000 warrants expiring on April 1, 2007, with an
        exercise price of $0.63.

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.

         On March 1, 2000, we entered into a Consulting Agreement with Gerald
Edick to revise the terms on which we entered into the 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. Mr. Edick will, however, retain his options to purchase

                                       20



<PAGE>

187,500 shares of our common stock as set forth in the severance letter. Under
the Consulting Agreement, Mr. Edick 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 Mr. Edick.

         On December 31, 2000, Dorian Lowell left the Company and resigned as
President. Mr. Lowell will retain his options to purchase 275,800 shares of our
common stock.

         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; Michael Meader, our
Executive Vice President; Larry Balaban, our Executive Vice President and a
Director; and Howard Balaban, our Executive Vice President. 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 a grant of options to purchase
up 450,000 shares of common stock which vest one-third each year beginning on
December 31, 2002. The options granted will be exercisable for a period of 10
years at a price equal to $0.63 per share. Under these employment agreements, if
the senior executive dies or is terminated without cause (as defined in the
employment agreement) during the first year of the employment agreement, the
senior executive will receive twenty-four months of salary as severance pay. If
the senior executive dies or is terminated without cause during the second year
of the employment agreement, the senior executive will receive 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.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B

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

         2.1      Agreement and Plan of Reorganization with Salutations, Inc.,
                  and related exhibits and consents*
         3.1.1    Articles of Incorporation, as amended*
         3.1.2    Certificate of Change in Stock++++
         3.1.3    Certificate of Amendment of Articles of Incorporation++++
         3.2.1    Bylaws, as amended*
         3.2.2    Bylaws, as amended on April 20, 2000****

         4.2      Shareholders Agreement with Minnesota Communications Group,
                  and related exhibits and schedules*
         4.3      Convertible Debenture with Russ Karlen*
         4.4      Convertible Debenture with Steve Livingston*
         4.5      Option Agreement to Purchase Common Stock with Kevin
                  Harrington Enterprises, Inc.*
         4.6      Option agreement to Purchase Common Stock with Tim Harrington*
         4.7      Form of Stock Option Agreement with Employees*
         4.8      Specimen Certificate for Common Stock***

         10.1     License Agreement with Minnesota Communications Group*
         10.2     License Agreement with Minnesota Public Radio*
         10.3     Spokesperson Agreement for Deidre Hall with Panache, Inc., and
                  related exhibits and addendum thereto*
         10.4     Sublease with Torrey Hills Corporate Center++++
         10.5     Fulfillment Services Agreement with Professional Marketing
                  Associates, Inc.*
         10.6     Letter Agreement with Lido Group*
         10.7     International Marketing and Distribution Agreement with HSND,
                  and amendment and addendum thereto*
         10.8     Non-Qualified Stock Option Plan*
         10.9     Senior Executive Employment Agreement with Klaus Moeller dated
                  June 1, 1999*
         10.10    Change of Control Executive Employment Agreement with Klaus
                  Moeller dated June 1, 1999*
         10.11    Senior Executive Employment Agreement with Dorian Lowell dated
                  August 23, 1999*
         10.12    Change of Control of Executive Employment Agreement with
                  Dorian Lowell dated August 23, 1999*

                                       21



<PAGE>

         10.13    Senior Executive Employment Agreement with Michael Meader
                  dated June 1, 1999*
         10.14    Change of Control of Executive Employment Agreement with
                  Michael Meader dated June 1, 1999*
         10.15    Executive Employment Agreement with Larry Balaban dated
                  January 1, 1999*
         10.16    Change of Control of Executive Employment Agreement with Larry
                  Balaban dated January 1, 1999*
         10.17    Executive Employment Agreement with Howard Balaban dated
                  January 1, 1999*
         10.18    Change of Control of Executive Employment Agreement with
                  Howard Balaban dated January 1, 1999*
         10.19    Executive Employment Agreement with Vinko Kovac dated January
                  1, 1999*
         10.20    Change of Control of Executive Employment Agreement with Vinko
                  Kovac dated January 1, 1999*
         10.21    License Agreement with Sasha St. Clair*
         10.22    Letter Agreement with Gerald Edick*
         10.23    Form of License Agreement with Naxos of America, Inc.*
         10.24    Financial Public Relations Letter of Agreement with Porter,
                  LeVay & Rose, Inc.**
         10.25    License Agreement with Boomerang Marketing, Inc.*
         10.26    Service(s) Agreement with Cost Care, Inc. (dba Unicare Managed
                  Care Services)**
         10.29    Consulting Agreement with Gerald Edick***
         10.30    Production Agreement with Richard Perry*****
         10.31    Representation Agreement with Global Icons*****
         10.32    Consulting Agreement with Johnny Drummond+
         10.33    Stock Option Agreement with Klaus Moeller dated May 25, 2000+
         10.34    Stock Option Agreement with Dorian Lowell dated May 25, 2000+
         10.35    Stock Option Agreement with Michael Meader dated May 25, 2000+
         10.36    Stock Option Agreement with Larry Balaban dated May 25, 2000+
         10.37    Stock Option Agreement with Howard Balaban dated May 25, 2000+
         10.38    Stock Option Agreement with Alison Elliott dated May 25, 2000+
         10.39    License Agreement with Jakks Pacific, Inc. ++
         10.40    License Agreement with Catton Apparel Group++
         10.41    License Agreement with J. Wasson Enterprises, Inc. ++
         10.42    Settlement Agreement (Investment Agreement) with American
                  Public Media Group (formerly known as Minnesota Communications
                  Group) ++
         10.43    Settlement Agreement (Shareholders Agreement) with American
                  Public Media Group (formerly known as Minnesota Communications
                  Group) ++
         10.44    Production Agreement with James Sommers++
         10.45    Stock Purchase Agreement with Klaus Moeller dated July 31,
                  2001+++
         10.46    Stock Purchase Agreement with Michael Meader dated July 31,
                  2001+++
         10.47    Stock Purchase Agreement with Larry Balaban dated July 31,
                  2001+++
         10.48    Stock Purchase Agreement with Howard Balaban dated July 31,
                  2001+++
         10.49    Consulting Agreement with Dennis Levin+++
         10.50    Consulting Agreement with Pete Wilson+++
         10.51    Employment Agreement with Klaus Moeller dated January 3,
                  2002+++++
         10.52    Employment Agreement with Michael Meader dated January 3,
                  2002+++++
         10.53    Employment Agreement with Larry Balaban dated January 3,
                  2002+++++
         10.54    Employment Agreement with Howard Balaban dated January 3,
                  2002+++++
         10.55    Employment Agreement with Vinko Kovac dated January 3,
                  2002+++++
         10.56    Employment Agreement with Julie Ekelund dated April 1,
                  2002+++++
         10.61    Amended and Restated 1997 Non-Qualified Stock Option Plan+++++
         10.62    Second Amended and Restated 2000 Non-Qualified Stock Option
                  Plan+++++

         23       Consent of independent auditors

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

                                       22



<PAGE>

*        Incorporated by reference from the exhibits included with the Company's
         Registration Statement (No. 000-27915) on Form 10-SB filed with the SEC
         on November 2, 1999.

**       Incorporated by reference from the exhibits included with the Company's
         Registration Statement (No. 000-27915), Amendment No. 1, on Form 10-SB
         filed with the SEC on December 17, 1999.

***      Incorporated by reference from the exhibits included with the Company's
         Form 10-KSB filed with the SEC on April 14, 2000.

****     Incorporated by reference from the exhibits included with the Company's
         Form 10-KSB, Amendment No. 1, filed with the SEC on May 1, 2000.

*****    Incorporated by reference from the exhibits included with the Company's
         Form 10-QSB, Amendment No. 1, filed with the SEC on May 18, 2000.

+        Incorporated by reference from the exhibits included with the Company's
         Form 10-QSB, filed with the SEC on August 21, 2000.

++       Incorporated by reference from the exhibits included with the Company's
         Form 10-KSB, filed with the SEC on April 17, 2001.

+++      Incorporated by reference from the exhibits included with the Company's
         Form S-8, filed with the SEC on August 3, 2001.

++++     Incorporated by reference from the exhibits included with the Company's
         Form 10-KSB, filed with the SEC on April 16, 2002.

+++++   Incorporated by reference from the exhibits included with the Company's
Form 10-KSB, Amendment #1, filed with the SEC on April 30, 2002.

         (b)      REPORTS ON FORM 8-K

                  No reports on Form 8-K were filed by the Company during the
last quarter of fiscal 2001.

                                       23



<PAGE>

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                 GENIUS PRODUCTS, INC.,
                                 a Nevada Corporation

May 9, 2002                   By:  /s/ Klaus Moeller
                                      ------------------------------------------
                                      Klaus Moeller, Chief Executive Officer,
                                      Chairman of the Board 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>
<CAPTION>

<S>                                          <C>                                                <C>
 /s/ Klaus Moeller                           Chief Executive Officer,                           May 9, 2002
---------------------------------------      Chairman of the Board and Interim Chief
Klaus Moeller                                Financial Officer (principal executive
                                             officer and principal financial officer)

 /s/ Deborah L. Cross                        Director                                           May 9, 2002
---------------------------------------
Deborah L. Cross

 /s/ Larry Balaban                           Director                                           May 9, 2002
---------------------------------------
Larry Balaban

</TABLE>

                                       24