<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                         AMENDMENT NO. 1 TO FORM 10-KSB

(Mark One)
(x)                   Annual Report Under Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                   For the fiscal year ended December 31, 1999

                                       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                                 33-085292
      (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 1999 were $2,302,015.

         The aggregate market value of voting stock held by non-affiliates of
the registrant was $11,444,106 as of April 6, 2000 (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).

         There were 12,360,923 shares outstanding of the registrant's Common
Stock as of April 6, 2000.

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

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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

OVERVIEW

      Genius Products, Inc. (the "COMPANY") is 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 e-commerce retail web sites on the
Internet. We currently produce 24 CD and cassette titles, and two video titles.
The trademark BABY GENIUS is registered, allowed or pending across a wide range
of baby and child product categories. We publish the BABY GENIUS web site 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. Visitors can also buy third party products and services and
become members of our BABY GENIUS CLUB.

      Our corporate mission is to develop BABY GENIUS, KID GENIUS (subject to
trademark registration) and other "GENIUS" names into premier 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
intend to develop our web site into a premier parent partner/child-care site to
provide content, products and services on the three areas we believe to be of
greatest concern to parents: the health and well-being, education and financial
security of their children. Our plans to develop our Internet site include
entering into strategic partnerships with major corporations to provide content,
goods, and services, and to engage in cross-marketing programs with our
partners. We intend to license the BABY GENIUS brand name directly to licensees
or through a master licensing agent to manufacturers of top quality baby and
child products.

      Our business model projects revenues from three sources: retail sales of
our music CDs, cassettes and videos, licensing revenues from the licensing and
merchandising of products under the BABY GENIUS and other "GENIUS" brand names,
and revenues from our Internet site. Our Internet e-commerce model projects
revenues from four sources: the sales of our proprietary products, referral fees
and commissions from recommendations and sales of third party products and
services, membership fees from subscriptions to the BABY GENIUS CLUB, and banner
and other advertising.

      The Company was 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 the name of the Company 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, an
erosion of profit margins and a decline in sales. As a result, in September
1998, we shifted our focus to more profitable lines of business involving the
product line discussed below.

                                       2
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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, who 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. We were also attracted by the gross margins associated with CDs,
cassettes and videos. We launched the first BABY GENIUS titles in February 1999
and since then the Company's business operations, financial condition and
prospects have changed significantly. 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 web site at WWW.BABYGENIUS.COM.

      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 four titles in the INSTRUMENTAL SERIES are LULLA-DRIVE FOR THE CAR,
NATURE EXPERIENCE, SWEET DREAMS LULLABIES, UP ALL NIGHT 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.

      The Company produces two BABY GENIUS videos: MOZART & FRIENDS VOL. 1, and
MOZART AND FRIENDS SLEEPYTIME, VOL. 2. The videos contain real-life and animated
images accompanied by classical music.

      The Company also recently released four CD/cassette titles under the PET
TUNES brand name, containing classical and instrumental music to soothe pets
when separated from their owners. The four titles are CALMING KITTY, DELIGHTED
DOGGY, BLISSFUL BIRDY and HAPPY HORSY.

ENDORSEMENTS AND AWARDS

      The BABY GENIUS product line is 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 and our success 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. The
videos recently won the FILM ADVISORY BOARD'S AWARD OF EXCELLENCE, and are
approved by KID FIRST!, for the COALITION FOR QUALITY CHILDREN'S MEDIA.

PRODUCTION, DISTRIBUTION AND SALES OF CDs, CASSETTES AND VIDEOS

      We are the sole producers of the CDs and cassettes for our BABY GENIUS
INSTRUMENTAL RELAXATION SERIES and our BABY GENIUS VOCAL SERIES. We co-produce
with MPR the CDs and cassettes for the BABY GENIUS CLASSICAL SERIES. Our CDs and
cassettes are manufactured by Zomax, Inc. We are the sole producers of our two
BABY GENIUS videos. Our videos are manufactured by Media Group, Inc.

      Our BABY GENIUS product line is distributed through our own distribution
center in Iowa and also through nine national distributors.

                                       3

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      In November 1999, we entered into a distribution agreement with a UK
company which grants it exclusive rights to distribute BABY GENIUS products in
the UK and non-exclusive rights to distribute BABY GENIUS products in all other
areas other than North and South America. We have the right to terminate the
exclusive UK distribution arrangement on 60-days' notice in our sole discretion,
and the non-exclusive arrangement without prior notice.

      We have also 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, New Zealand, and South Africa. While we
hope to enter into relationships with 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 international
sales.

      BABY GENIUS products are currently available at retail outlets nationwide,
including mass retail stores, children's and toy stores, music and video stores,
book stores and other non-traditional outlets. BABY GENIUS products are also
sold on numerous Internet web sites including leading music, book and toy sites.

                                       4
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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 PET TUNES line of products is designed to appeal to all pet owners,
and in particular all dog and cat owners. According to the American Veterinary
Medical Association in 1996, approximately 31% of US households owned a dog, 27%
owned a cat.

      Our marketing and sales strategies are designed to build up the BABY
GENIUS brand name for the retail, Internet and licensing components of the
Company's business. We use what we consider to be innovative and relatively
low-cost marketing techniques, including public relations using celebrity
spokespersons on TV shows, in-store advertising programs, and cross-marketing to
customers of our strategic partners. We also exhibit at major toy fairs and
industry trade shows.

      In 1999, the BABY GENIUS line of products was endorsed by the TV celebrity
spokesperson, Deidre Hall. We entered into an agreement in February of 1999 with
Ms. Hall's representative company, Panache, Inc. which provided for Ms. Hall to
act as a spokesperson for BABY GENIUS products.

      Ms. Hall has for over 20 years played the role of a pediatrician, Dr.
Marlena Evans, in the television program DAYS OF OUR LIVES. During the term of
her 1999 contract, Ms. Hall promoted BABY GENIUS products through TV and print
media, including: SOAP OPERA DIGEST MAGAZINE, CBS THIS MORNING, THE TV CHANNEL
GUIDE, LIVE WITH REGIS AND KATHIE LEE, ACCESS HOLLYWOOD, THE ROSIE O'DONNELL
SHOW, E! "OUT TO LUNCH", LATER TODAY AND E! "NEWS DAILY", THE DONNY AND MARIE
OSMOND SHOW, and THE MARTIN SHORT SHOW. After Ms. Hall appeared on THE ROSIE
O'DONNELL SHOW in September 1999 to promote one of our BABY GENIUS CD special
offers, we received and processed over 20,000 orders. Ms. Hall's appearance on
THE DONNY AND MARIE OSMOND SHOW in January 2000 resulted in over 5,000 credit
card transactions; a re-run of the show in March 2000, resulted in over 5,500
additional transactions being processed.

      Our agreement with Ms. Hall expired in February 2000, and we are currently
negotiating a multi-year renewal of the contract with Ms. Hall's agent. While we
believe we will reach agreement with Ms. Hall for a renewal of her service
agreement, no assurance can be made that we will in fact reach agreement on
terms as favorable as her previous engagement or at all.

      Retail sales were also promoted though our participation in programs to
secure prime shelf space and fixtures, including listening stations and displays
at the end of aisles. We also actively market BABY GENIUS counter and floor
displays, blister packs, and interactive kiosks where customers can listen to
our music. In addition, we participate in co-op advertising campaigns with many
of our retailers in which BABY GENIUS products are featured items.

      We exhibit the BABY GENIUS product line at national shows and exhibitions.
Trade shows at which we exhibited in 1999 included the East Coast Video Show in
Atlantic City, the Atlanta Gift Show in Atlanta, Investment Expo, Inc. in New
York City, the Juvenile Products Manufacturers Association in Dallas, the
California Gift Show in Los Angeles, and Toy Fair 2000 in New York City.

                                       5
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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.

      MCG has granted us a license to use the names Public Radio MusicSource,
PRMS, and PRMS designs. MPR has granted us a license to use the names Minnesota
Public Radio, MPR, and MPR designs.

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 4, 2000, the status of our applications for BABY
GENIUS and KID GENIUS are as listed below. (A mark that has been "allowed" means
the period for filing an opposition has been completed and a notice of allowance
has been issued. We then have six months to use the mark or file for a six-month
extension. An "*" denotes that a request for an extension of time to file an
opposition has been filed. A double "**" denotes that final review has been
completed and that the application will be published for opposition.)

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

BABY GENIUS         Music           Baby food             Baby bottles*
                    Clothing        Bed clothing          Children's car seats*
                    Toys            Cartoon characters    Books*
                                    Infant cradles and
                                      furniture
                                    Potties
                                    School book bags

KID GENIUS          -               -                     Books**
                                                          Clothing*
                                                          Music**
                                                          Toys*

      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 and KID GENIUS have
significant licensing potential across a broad range of products. We are
currently in negotiations with a number of parties regarding a master licensing
agency/representation agreement. While we intend to enter into a multi-year
master agreement and, to the extent possible, exhibit the BABY GENIUS brand at
the trade fair Licensing International 2000 in New York City in June 2000, no
assurance can be made that we will succeed in entering into such agreement on
favorable terms or at all or that we will exhibit at the licensing fair.

                                       6
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OTHER PRODUCTS

      The Company's 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 the
Company's best interests to phase out or sell the jewelry business. Although we
continue to receive and fulfill orders from our sole jewelry distributor, Home
Shopping Network, in order to focus on the BABY GENIUS business we do not intend
to continue the jewelry business and we hope to sell it by the end of 2000. No
formal plan, however, to divest or wind up the jewelry business has yet been
adopted by management.

      As a result of an agreement that we entered into in March 1999 (since
terminated) to sell a device for de-boning fish, we have surplus inventory that
we plan to sell through a home shopping channel and pursuant to a TV commercial
(in each case subject to satisfying certain quality assurance tests), as well as
through retail outlets and Internet web sites. The revenues and costs associated
with any such sales are expected to be minimal.

      In 1999, we entered into a license agreement with Boomerang Marketing,
Inc. to market and sell a retrievable fishing lure. In order to focus on the
BABY GENIUS line of business, we are negotiating with a third party to assume
all distribution, marketing and sales obligations under the agreement. No
assurance can be made that we will succeed in reaching agreement on terms
acceptable to us or at all. We are entitled to terminate the license agreement
without cause on 30-days' prior written notice which we may do if we are
unsuccessful in assigning our rights under the license agreement.

INTERNET BUSINESS

      In March 2000 we re-launched our web site WWW.BABYGENIUS.COM. Visitors to
the web site can obtain free content and information on a range of child-related
matters, including pregnancy and child care issues. Visitors can buy the full
range of BABY GENIUS products and select co-branded grocery coupons that are
mailed directly to the visitor's residence. Visitors will also obtain a free
one-year membership in the BABY GENIUS CLUB by purchasing any BABY GENIUS
product at the full retail price. We expect our membership service to be
operational in May 2000. Membership benefits, which are continually revised and
expanded, include 20% discounts on, and free shipping and handling of, BABY
GENIUS products, access to the HEALTHWISE KNOWLEDGEBASE, one of the most
comprehensive on-line medical information services, access to MEDCALL, a 24-hour
seven days per week, live nurse help line, and access to a comprehensive series
of family help sheets provided by GuidanceResources.com, L.L.C. The HEALTHWISE
KNOWLEDGEBASE and MEDCALL services are provided by UNICARE Life & Health
Insurance Company, an operating affiliate of WellPoint Health Networks Inc., one
of the nation's largest publicly-traded managed care companies serving the
health care needs of seven million medical and over 30 million specialty
products members. GuidanceResources.com, L.L.C. is a leading Internet provider
of work/life and related services that help companies and organizations attract
and retain employees and members. GuidanceResources.com, L.L.C., an affiliate of
ComPsych Corporation, currently serves over one million members by providing
solutions and recommendations through online guidance in multiple topic areas
including family, financial, legal, career and wellness. ComPsych Corporation is
an international Employee Assistance Program and Managed Care Company covering
approximately four million employees of its clients.

      The objective of our web site is to develop a vertical portal in the baby
sector that provides to our visitors and members of the BABY GENIUS CLUB 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, education
and financial security of their children. Over the next 18 months we intend to
significantly expand the BABY GENIUS CLUB membership and continue to enter into
strategic partnerships with premier companies.

                                       7
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      We intend to generate Internet revenues from sales of the Company's own
products, the receipt of referral fees from the recommendations of third party
products, the receipt of commissions from procuring sales of third party
products, the sale of membership fees and benefits, and the sale of banner and
other web-based advertising. It is our intention to induce visitors who
responded to the promotions ("participants") and other customers to become
members of the BABY GENIUS CLUB, and to offer to our members information,
content, products and services on a regular basis.

      Our marketing strategy is to sell our products and recruit visitors,
promotion participants, customers and members through a comprehensive marketing
campaign involving premium offers, product give-a-ways, per-inquiry offers,
public relations promotions, and direct mailing (including e-mail) offers. We
intend to implement this strategy through our strategic partners, such as
UNICARE and GuidanceResources.com, L.L.C. We plan to work with our partners to
engage in cross-marketing programs to sell memberships to the BABY GENIUS CLUB
as well as BABY GENIUS products, to recommend our partners' products and
services in return for referral fees and commissions, and to engage them to
compile original and high quality content for the benefit of our visitors and
members.

      Our current web site data base holds over 35,000 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 web site. Our TV
promotional offers have been particularly successful. In September 1999, Deidre
Hall appeared on THE ROSIE O'DONNELL SHOW and introduced a special offer of two
free BABY GENIUS CDs worth $28 for a charge of $4.95, which covered the cost of
shipping and handling. Over a 48-hour period, the Company received 90,000 visits
to the web site and processed approximately 20,000 credit card transactions. To
date, guest appearances by Ms. Hall on a variety of TV shows have resulted in
sales to over 35,000 persons. All of these participants are potential future
BABY GENIUS CLUB members with whom we can interact and cultivate a long-term
commercial relationship. Our goal is to maximize the numbers of members, the
revenues generated by sales of products and services to our members and
visitors, and the value of our membership base. We believe the value of the
Company will partly be based on the number of members in the BABY GENIUS CLUB,
and the free cash flow generated by each member.

RETAIL AND INTERNET COMPETITORS

      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 the Company. 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 by Mozart
     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 by The Kid Collection

                                       8
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     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
     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

     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 (IVILLAGE),
BABYDATA.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.

RISKS RELATED TO OUR BUSINESS

      FORWARD-LOOKING STATEMENTS. Some of the information in this registration
statement 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 registration statement could have an adverse effect on our
business, results of operations and financial condition.


                                       9
<PAGE>

      DEPENDENCE ON 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 the Company's
common stock for cash or in consideration of services rendered. In March 1999,
we entered into an Investment Agreement with MCG which grants MCG the right to
purchase up to 1,500,000 shares of our common stock at a purchase price of $1.00
per share, of which 600,000 shares had been purchased by MCG by April 1999. No
further shares have been sold to date, and MCG has indicated to us that it will
not purchase any additional shares in the Company. In March 2000, we completed a
private placement of shares under Regulation D of the 1933 Securities Act, as
amended, pursuant to which we raised net proceeds of $715,000, all of which was
immediately spent on accounts payable and other working capital requirements. We
have also retained an investment bank to help us raise funds through private
placements of our common shares on a "best efforts" basis over the short and
medium term, as well as to provide investor relations services. No assurance can
be made that the investment bank will succeed in raising any cash in a timely
manner or at all. The retention is on a non-exclusive basis and we are actively
seeking funds from other sources. A further source of short-term financing is
the selling of our accounts receivable (factoring) although the costs of such
financing are expensive. Failure to obtain financing will have a material
adverse effect on our business, operations and financial condition.

      DEPENDENCE ON LONG-TERM FINANCING. Our ability to implement our business
plan and grow the Company is dependent on raising a significant amount of
capital. In March 2000, we retained an investment bank to help us raise up to $5
million through private placements of our common shares on a "best efforts"
basis. No assurance can be made that the investment bank will succeed in raising
all or any of such amount. The retention is on a non-exclusive basis and we are
actively seeking funds from other sources. If we are unable to raise capital,
our ability to implement our business plan and the growth of the Company will be
adversely affected.

      NEED FOR STRONG BRAND IDENTITY. We believe that our growth in sales and
the recognition of the BABY GENIUS brand name have been partly attributable to
Deidre Hall's participating in a successful national media campaign and the
endorsement of the BABY GENIUS music titles by Ms. Hall, Minnesota Public Radio
and Public Radio MusicSource. Ms. Hall's agreement expired in February 2000, and
while we are negotiating its renewal, no assurance can be made that it can be
renewed on terms acceptable to us, or at all. The frequency or quality of this
media exposure and these endorsements may not continue. 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
GENIUS-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.

      DEPENDENCE ON KEY PERSONNEL. We are dependent on our executive officers,
the loss of any one of whom would have an adverse effect on the Company. 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.

      CHANGE OF CONTROL PAYMENTS. We have entered into Change of Control
Executive Employment Agreements with seven of our executive officers and key
employees. These agreements provide that if any executive officer or key
employee is terminated after a change of control of the Company occurring on or
before December 31, 2001, the terminated officer or employee may receive, among
other things, a lump sum payment equal to ten times the highest annual
compensation paid by the Company to that officer or employee in the preceding
three years. If a change of control of the Company occurs on or before December
31, 2001, and any executive officer or key employee is terminated, we may incur
substantial expenditures to satisfy the payments due under the Change of Control
Executive Employment Agreements. These expenditures could adversely affect our
financial results and potentially discourage any hostile buyer from making an
unsolicited offer to purchase the Company.

                                       10
<PAGE>

      DEPENDENCE ON 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.

      DEPENDENCE ON SIGNIFICANT SPOKESPERSON. In 1999, Deidre Hall served as the
celebrity spokesperson for our products. We believe our continued success can be
helped by our ability to renew Ms. Hall's agreement or attract other celebrity
spokespersons. Our agreement with Ms. Hall expired in February 2000, and we are
currently negotiating a multi-year renewal of the contract with Ms. Hall's
agent. While we believe we will reach agreement with Ms. Hall for a renewal of
her service agreement, no assurance can be made that we will in fact reach
agreement at all or on terms as favorable as her previous engagement. Nor can
there be any assurance that we will be able to recruit and retain other
celebrity spokespersons of comparable stature.

      ACCEPTANCE AND EFFECTIVENESS OF INTERNET ELECTRONIC COMMERCE. Our success
in establishing an e-commerce business through our BABY GENIUS web site will be
dependent on consumer acceptance of e-retailing and an increase in the use of
the Internet for e-commerce. If the markets for e-commerce do not develop or
develop more slowly than we expect, our e-commerce business may be harmed. If
Internet usage does not grow, we may not be able to increase revenues from
Internet advertising and sponsorships which also may harm both our retail and
e-commerce business. Internet use by consumers is in an early stage of
development, and market acceptance of the Internet as a medium for content,
advertising and e-commerce is uncertain. A number of factors may inhibit the
growth of Internet usage, including inadequate network infrastructure, security
concerns, inconsistent quality of service, and limited availability of
cost-effective, high-speed access. If these or any other factors cause use of
the Internet to slow or decline, our results of operations could be adversely
affected.

      COMPETITION IN INTERNET COMMERCE. Increased competition from e-commerce
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.

      UNRELIABILITY OF INTERNET INFRASTRUCTURE. If the Internet continues to
experience increased numbers of users, frequency of use or increased bandwidth
requirements, the Internet infrastructure may not be able to support these
increased demands or perform reliably. The Internet has experienced a variety of
outages and other delays as a result of damage to portions of its
infrastructure, and could face additional outages and delays in the future.
These outages and delays could reduce the level of Internet usage and traffic on
our website. In addition, the Internet could lose its viability due to delays in
the development or adoption of new standards and protocols to handle increased
levels of activity. If the Internet infrastructure is not adequately developed
or maintained, use of our website may be reduced. Even if the Internet
infrastructure is adequately developed, and maintained, we may incur substantial
expenditures in order to adapt our services and products to changing Internet
technologies. Such additional expenses could severely harm our financial
results.

                                       11
<PAGE>

      TRANSACTIONAL SECURITY CONCERNS. A significant barrier to Internet
e-commerce is the secure transmission of confidential information over public
networks. Any breach in our security could cause interruptions in the operation
of our website and have an adverse effect on our business.

      GOVERNMENTAL REGULATION OF THE INTERNET. There are currently few laws that
specifically regulate communications or commerce on the Internet. Laws and
regulations may be adopted in the future, however, that address issues including
user privacy, pricing, taxation and the characteristics and quality of products
and services sold over the Internet. An increase in regulation or the
application of existing laws to the Internet could significantly increase our
costs of operations and harm our business.

      TECHNOLOGICAL CHANGE. 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 video disc 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.

      DISTRIBUTION FACILITIES. We have an informal sub-lease arrangement
pursuant to which we rent a portion of a warehouse facility in Atlantic, Iowa
(for a monthly rent of $500) from which we distribute BABY GENIUS products to
certain customers. The warehouse sub-lessor has indicated to us that it may
assign its lease sometime in the next three months. If the head lease is
assigned, our sub-lease would terminate and we would either have to renegotiate
a new lease with a new lessor, or find alternative warehousing facilities. No
assurance can be made that in such circumstances that we would be able to renew
or renegotiate our existing sub-lease, or enter into a new lease at a new
facility, on as favorable terms as the existing sub-lease or at all. If we are
required to vacate our warehouse facility without having established alternative
distribution arrangements, our distribution and sales operations may be
adversely affected.

      INDUSTRY 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 recent 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.

      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 the
Company's business, its financial position and the value of its intellectual
property.

                                       12
<PAGE>

      COSTS OF REPURCHASING CERTAIN SHARES. 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 will offer to repurchase all such shares from
investors who originally acquired them from the Company, 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 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 307,550, and the potential
cost to the Company is $420,323, plus accrued interest of approximately $38,787
if we repurchased all shares on May 30, 2000. The costs of repurchasing shares
subject to the offer would be paid out of company funds, but we have not had,
and do not have, sufficient cash to repurchase all such shares, and even a low
number of repurchases would have a material adverse impact on the Company's
operations and financial condition if the Company is unable to raise funds to
pay for such costs. If we are unable to repurchase shares for lack of funds, the
selling shareholders may seek to exercise certain rights as creditors or seek to
enforce claims for breach of contract. 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. If, at the time a
repurchase offer is made, the market price of the Company's shares is higher
than the repurchase price, we do not believe that all affected shareholders
would accept the repurchase offer. No assurance can be made, however, that
shareholders will decline any repurchase offer, and the Company may be obligated
to repurchase all shares subject to the offers. Repurchase offers in
Pennsylvania and Washington have to be approved by the regulatory authorities of
those states, and the authorities in Washington will not approve our repurchase
offers until certain proceedings between the Company and the state's Department
of Financial Institutions, Securities Division, have been concluded. To date,
approval to extend repurchase offers to the affected shareholders in Washington
is dependent on our providing certain additional information to the Washington
Securities Division, which is currently being prepared by the Company. Those
proceedings are described in the section on "Legal Proceedings" below. Delays in
obtaining regulatory approval would also cause increases in the amount of
interest payable pursuant to repurchase offers. To date, we have delayed making
redemption offers to all affected shareholders because the share price of our
stock has, on average, traded below the prices at which such shareholders
purchased the affected securities. We believe that given such price differences,
affected shareholders would be more likely than not to accept repurchase offers.
The Company's current cash shortages preclude us from honoring any acceptances.
We therefore believe it is in the best interests of the Company and the
shareholders, especially the affected shareholders, that we first raise
sufficient capital to pay affected shareholders who may accept repurchase
offers, prior to making the repurchase offers.

      INABILITY TO UTILIZE NET OPERATING LOSS. In 1997, 1998, and 1999 the
Company incurred losses resulting in a net operating loss carryforward as of
December 31, 1999, of $4,310,317 and $2,155,159 for federal and state income tax
purposes, respectively. The federal and state net operating losses begin to
expire in 2012 and 2002, respectively. Because the Company anticipates
significant expenditures with respect to implementing its business plan,
including its Internet e-commerce business, there is a risk that the Company
will be unable to make enough profits, if any, during the net operating loss
carryforward period to realize the deferred income tax asset.

      INABILITY TO QUALIFY FOR OR MAINTAIN A LISTING ON THE NASDAQ MARKET. Our
shares of common stock are currently traded on the OTC Bulletin Board. We intend
to apply for the listing of our shares of common stock on the Nasdaq SmallCap
Market ("Nasdaq") at such time, if ever, as we qualify for such listing. We
believe a listing on Nasdaq will improve the market liquidity of our shares of
common stock by eliminating the delay of buy/sell transactions and the wide
spread between the bid/ask quotation which are commonly experienced on the OTC
Bulletin Board, and by creating greater coverage of our company by the news
media and security analysts. There can be no assurance that we will be able to
achieve the minimum financial requirements and other criteria to be listed on
Nasdaq. If we become listed on Nasdaq, we will have to maintain the financial
requirements and other criteria required for continued listing on Nasdaq. Our
failure to maintain these requirements would result in our shares being delisted
from Nasdaq. If we are delisted from Nasdaq, our shares will once again trade on
the OTC Bulletin Board.

                                       13
<PAGE>

      RISK OF LOW-PRICE STOCKS. 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. 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 prepared 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.

IMPACT OF YEAR 2000 COMPUTER ERRORS

      We outsource and rely on other companies for the manufacture of CDs,
cassettes and video tapes, for the fulfillment of our wholesale and on-line
customers' orders, for the processing of our on-line customers' payments by
credit card and checks, and for the distribution of our products. Although we
have not suffered any adverse consequences from our own or third-party computer
system failures caused by the year 2000 date change, no assurance can be made
that no such failures may arise. Any such failures could have a material adverse
effect on the Company's business, results of operations and final condition. Our
web site is hosted, maintained and operated by American Digital Networks
Corporation of San Diego which has given us oral assurances that their Internet
hosting operations and computer systems are year 2000 compliant.

EMPLOYEES

      We currently have twelve 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 very 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


                                       14
<PAGE>

      In addition, we have an informal sub-lease arrangement under which we rent
a portion of a warehouse facility (approximately 1,500 square feet) in Atlantic,
Iowa, for a monthly rent of $500, from which we distribute BABY GENIUS products
to certain customers. The warehouse sub-lessor has indicated to us that it may
assign its lease sometime in the next three months. If the head lease is
assigned, our sub-lease would terminate and we would either have to renegotiate
a new lease with a new lessor, or find alternative warehousing facilities. No
assurance can be made that in such circumstances that we would be able to renew
or renegotiate our existing sub-lease, or enter into a new lease at a new
facility, on as favorable terms as the existing sub-lease or at all. If we are
required to vacate our warehouse facility without having established alternative
distribution arrangements, our distribution and sales operations may be
adversely affected.


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 the
Company, 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 the Company 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. Until we receive a draft order from the Securities
Administrator, we are unable to determine the 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 currently
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
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
the best interests of the Company. We do not believe that entering into an
administrative order will affect the Company's business or its ability to raise
capital except possibly 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 the Company's shares in the State of Washington were made
pursuant to Section 4(2) of the Securities Act of 1933, as amended.

       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 securityholders during
fiscal year 1999.

                                       15
<PAGE>

                                     PART II


ITEM 5.       MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

       After our acquisition of International Trade and Manufacturing
Corporation, our common stock traded on the OTC Bulletin Board under the trading
symbol ITMH. On November 9, 1999, following our name change to Genius Products,
Inc., our stock symbol changed to GNUS. 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.

       YEAR                               PERIOD              HIGH        LOW
       ----                               ------              ----        ---

       Fiscal Year 1998...............    First Quarter       5.500       2.000
                                          Second Quarter      5.125       1.812
                                          Third Quarter       5.375       2.562
                                          Fourth Quarter      3.375       1.312

       Fiscal Year 1999...............    First Quarter       4.500       1.500
                                          Second Quarter      4.375       2.000
                                          Third Quarter       6.250       1.750
                                          Fourth Quarter      1.625       0.5625

       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.

         On March 28, 2000 by a unanimous consent of the Board of Directors, the
Company increased the number of shares reserved for issuance upon conversion of
options, warrants and other securities convertible into shares of the Company's
common stock by 5,000,000 from 5,000,000 to 10,000,000.

       As of April 6, 2000 we had approximately 12,360,923 shares of common
stock issued and outstanding which were held by approximately 930 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.

         On April 20, 2000, by a unanimous consent of the Company's Board of
Directors, the Board amended and restated Section 1 of Article II of the
Company's Bylaws to the effect that the annual meeting of the shareholders shall
be held at the registered office of the Company or at such other place as may be
specified or fixed in the notice of such meeting at a time that may be
determined by the directors in accordance with the laws of the State of Nevada.
As a result of the amendment, the Company intends to hold its annual
shareholders meeting in October 2000.

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.

SALES OF UNREGISTERED SECURITIES.

       Reference is made to information contained under the heading "Recent
Sales of Unregistered Securities" in the Company's Form 10-SB, Amendment No. 2,
filed with the Securities and Exchange Commission on January 14, 2000, which
information is incorporated herein.

                                       16
<PAGE>

      In March 2000, we completed a private placement of shares of the Company's
common stock pursuant to Section 506 of Regulation D under the Securities
Exchange Act of 1934, as amended. Pursuant to the offering, the Company issued
1,430,000 shares at a price of $0.50 per share, and raised net cash proceeds of
$715,000 and issued 176,667 shares in finders' fees. All shares issued in the
private placement and as finders' fees were unregistered and restricted within
the meaning of Rule 144 of the 1933 Securities Act, as amended.

         Between January 1, 2000, and March 2, 2000, we issued an aggregate of
80,800 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 1933 Securities Act, as amended.

         Pursuant to an Affiliation Agreement with GuidanceResources.com,
L.L.C.("GuidanceResources"), effective March 1, 2000, we are required to issue
to GuidanceResources a warrant to purchase up to 150,000 unregistered shares of
the Company's common stock in three tranches of 50,000 as of March 1, 2000,
January 1, 2001 and January 1, 2002, at exercise prices equal to the average
closing price of the stock in the 20 days immediately preceding such dates. The
warrant may be exercised at any time during the three year period following the
date on which the shares may first be purchased. We are also obligated under the
agreement to use our best efforts to file a registration statement to register
the shares underlying the warrant within 90 days of a request by
GuidanceResources. For shares that GuidanceResources may exercise as of March 1,
2000, we are required to use our best efforts to effect any demand registration
by filing a registration with the SEC no later than June 1, 2000. To date,
GuidanceResources has not exercised any rights under the warrant and has made no
demand to file a registration for any of the underlying shares.


         Pursuant to an investment banking agreement with Donner Corporation
International, effective March 15, 2000, we have agreed to compensate Donner by
issuance of 2,000 unregistered shares of the Company's common stock per month,
plus up to an additional 106,500 unregistered shares conditional on the bank
satisfying certain performance criteria. We have agreed to file a registration
statement of the shares issuable under the agreement by August 15, 2000. The
agreement can be terminated without cause upon 30 days, prior written notice.


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 "Risk Factors," "Business" and elsewhere in this document.
See "Forward-Looking Statements."

         In 1999, we changed our core business to the BABY GENIUS product line
and started generating sales immediately. The growth in net sales of BABY GENIUS
products went from zero in December 1998 to just over $1.2 million by the end of
December 1999. Correspondingly, our expenses also rose in connection with the
fulfillment of these sales and the costs associated with the development of the
BABY GENIUS product line. In 1999, we experienced a significant drop in sales in
our jewelry business mainly as a result of increased competition. While our
revenues for the fiscal years 1998 and 1999 can be compared on an aggregate
basis, the results of operations for these two periods reflect fundamentally
different businesses, with different margins and cost structures. Accordingly,
no meaningful comparison can be made between our financial results in 1999 with
those in 1998. Our change in business focus and introduction of the BABY GENIUS
line of products is more fully described in the "Business" section.

RESULTS OF OPERATIONS 1999 COMPARED TO 1998

         Revenues in 1999 of $2,302,015 consisted of $1,221,456 in BABY GENIUS
product sales of which $1,114,060 (48% of total sales) were at retail and
$107,396 (5% of total sales) were via the Internet. Jewelry and other sales
accounted for $1,080,559 (47% of total sales). Revenues are recognized upon
shipment to the customer and are net of return allowances which are determined
by actual returns.

                                       17
<PAGE>

         Revenues for 1999 decreased by 8% ($209,121) to $2,302,015 in 1999 from
$2,511,136 in 1998. There were no BABY GENIUS sales in 1998, and the 58%
decrease in jewelry sales to $1,056,598 in 1999 from $2,511,136 in 1998 was due
to increased competition and the fact that management devoted a substantial
amount of its efforts and resources to developing the BABY GENIUS product line.

         Cost of sales consists primarily of the cost of products sold to
customers and shipping costs. Also included in the cost of sales for the BABY
GENIUS product line is an authorization for the production of original master
recordings and royalties for our licensed classical music sales. Cost of sales
were $1,299,033 (56% of sales) in 1999 and $2,479,032 (99% of sales) in 1998.
All costs of sales in 1998 related to jewelry only. The cost of BABY GENIUS
product sales in 1999 was $290,131 representing 24% of BABY GENIUS product sales
(equal to a gross profit margin of 76% for BABY GENIUS products). Our overall
gross margin increased by $970,878 in 1999 as a result of the higher margins
earned through the BABY GENIUS product line.

         Sales and marketing expenses consist of costs related to consultants,
marketing personnel, promotional activities and the engagement of a national
spokesperson related to the promotion of the BABY GENIUS product line. Sales and
marketing costs increased by 512% ($895,211) to $1,069,945 in 1999 from $174,734
in 1998 as a result of these activities and include the cost of shares issued or
issuable for marketing services valued at $327,629.

         Infomercial costs decreased by 90% ($502,375) to $53,750 in 1999 from
$556,125 in 1998. The decrease is as a result of a cessation in expenditure in
1999 on the Astrology Network product line, a business which we discontinued.

         Product and web development expenses consist of personnel, consultants
and services in the development of the BABY GENIUS web site and product line.
Costs in 1999 were $240,055. There were no expenses in 1998.

         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 38% ($453,554) to $1,654,355 in 1999 from $1,200,811 in 1998. Audit,
accounting and legal fees represent $291,963 of the costs incurred compared to
$87,615 in 1998. This increase is due to professional fees related to private
placements and the preparation and filing of our Form 10-SB registration
statement, and the audited financials for 1997 and 1998. The relocation to new
office premises gave rise to an increase in rental expense of $78,170.

         In addition, on August 23, 1999 the Company entered into a three-year
employment agreement with our new President which has resulted in an increase in
the Company's payroll and general overhead of approximately $16,000 per month.

         Interest expense decreased by 74% ($176,758) to $63,475 in 1999 from
$240,233 in 1998. Costs in 1998 included $200,000 arising from the beneficial
conversion feature relating to convertible debentures issued during the year.
Interest of $38,787 has been accrued in 1999 in respect of redeemable common
stock.

RESULTS OF OPERATIONS 1998 COMPARED TO 1997

         References in this section to results in 1998 and 1997 refer to our
full fiscal (calendar) year, and not to 9-month periods ending on September 30.

         Net sales decreased 31% ($1,128,000) to $2,511,136 in 1998 from
$3,639,468 in 1997. This sales decline was due principally to the decision by
the Home Shopping Network to reduce the volume of gemstone jewelry offered for
sale, and the return of a large order of defective product in late 1998.

         Cost of sales was $2,479,032 (99% of sales) in 1998 and $3,343,693
(92%) of sales in 1997. This increase in cost of sales as a percent of sales
resulted principally from the design costs of new jewelry products in 1998, and
lower gross profit margins on jade jewelry introduced in 1998.

         Personnel costs increased 235% ($502,215) to $716,100 in 1998 from
$213,885 in 1997. We hired additional personnel to develop and launch new
product lines, including Astrology Network products, although we eventually
discontinued The Astrology Network business.

                                       18
<PAGE>

         Advertising and sales costs increased 472% ($603,249) to $730,859 in
1998 from $127,610 in 1997. Most of this increase related to the cost of
producing and airing an Astrology Network infomercial.

         General and administrative expenses increased 37% ($107,129) to
$397,096 in 1998 from $289,967 in 1997, principally as a result of increased
overhead and costs associated with development of The Astrology Network.

         Legal and professional fees increased 204% ($58,795) to $87,615 in 1998
from $28,820 in 1997, which was primarily for legal costs associated with
contracts and copyright activities of new product lines.

         Interest expense increased 122% ($131,906) to $240,233 in 1998 from
$108,327 in 1997, which consisted of $200,000 arising from the beneficial
conversion feature relating to convertible debentures issued during the year and
a $68,000 increase in factoring costs.

         Our net loss increased $1,666,965 to $2,140,599 in 1998 from $473,634
in 1997. The 1998 loss includes the value of options issued at below market
value to employees and non-employees of $51,500 and $258,000, respectively, the
$200,000 beneficial conversion feature described above and $105,000 of stock
sold to employees at less than fair value.

         As a result of this loss and the losses incurred in 1997, the Company
accrued a net operating loss carryforward as of December 31, 1999, of $4,310,317
and $2,155,159 for federal and state income tax purposes, respectively. The
federal and state net operating losses begin to expire in 2012 and 2002,
respectively. Because the Company anticipates significant expenditures with
respect to implementing its business plan, including its Internet e-commerce
business, it is uncertain that the Company will be sufficiently profitable, if
at all, during the net operating loss carryforward period to realize the
deferred income tax asset.

LIQUIDITY AND CAPITAL RESOURCES

         Since 1997, the Company has incurred significant losses. Our primary
source of cash is the sale of shares of our common stock. We hold 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 Rule 144 of the Securities Act of 1933, as amended, which reduces their
liquidity and accordingly their value as compared to freely trading shares on
the open market). In 1999, we received cash from accredited investors in two
private placements totaling $1,229,358. In addition, we received $600,000 under
our Investment Agreement with Minnesota Communications Group. Our liquidity is
further constrained by the fact that $420,323 of proceeds from sales of
securities is subject to possible repayment. We project that we will be
cash-flow positive from operations in the fourth quarter of 2000. Such
projections do not, however, take into account the possible repayment of the
$420,323, plus accrued interest of $38,787, that we may be obligated to pay in
connection with such repurchases, as described in detail in the section under
"Risk Factors" headed "Costs of Repurchasing Certain Shares". 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.

         We have recently obtained financing through a private placement
offering we completed in March 2000. Pursuant to the offering, the Company
issued 1,430,000 shares at a price of $0.50 per share, and raised net cash
proceeds of $715,000. All of the proceeds were immediately spent on accounts
payable and other working capital requirements. In addition, the Company has
retained an investment bank to provide investor relations services and to act as
placement agent to help raise up to $5 million for the Company on a "best
efforts" basis. The investment bank has been retained on a non-exclusive basis
and we are actively seeking to raise cash from other sources. Selling our
accounts receivable (factoring) is an additional source of financing that is
available to us.

                                       19
<PAGE>

         Net cash used in operating activities in 1999 was $1,570,056. In
addition to the net loss incurred during this period of $2,079,398 other
principal uses of cash included an increase in accounts receivable of $319,442.
The increase in accounts receivable in 1999 reflects the growth of the music
business and delays in collection.

         Net cash used in investing activities in 1999 was $444,893. The primary
use of these funds was $350,502 in the production of music masters and other
one-time production costs related to the BABY GENIUS catalogue of twenty music
and two video titles. Additionally $94,391 was utilized in the purchase of
equipment, primarily computer hardware and software.

         Net cash provided by financing activities totaled $1,929,425. Proceeds
of $1,829,358 were from the issuance of common stock in private placements.
Further proceeds of $100,067 were provided from the issuance of notes (of which
$52,400 came from an executive officer and $46,667 came from a significant
stockholder). Overall, cash in 1999 was primarily used in product development
and marketing of the BABY GENIUS product line and to provide additional working
capital.

         For the fiscal year ended December 31, 1998, net cash used in
operations was $1,232,384. In addition to the net loss incurred during this
period of $2,140,599, principal uses of cash included an increase in accounts
receivable of $470,380, an increase in deposits of $36,138, and an increase in
prepaid membership costs of $33,739. Accounts receivable increased as a result
of sales made late in 1998 and collected in 1999. Deposits were made in
connection with the lease of the Company's new offices occupied in early 1999.

         Net cash used in investing activities in 1998 was $30,539, relating to
the purchase of property and equipment.

         Net cash provided by financing activities in 1998 was $1,375,685,
comprised of $200,000 raised by the issuance of two convertible debentures and
$1,175,685 raised by the issuance of common stock, of which $121,500 is subject
to redemption by investors.

                                       20
<PAGE>

ITEM 7.       FINANCIAL STATEMENTS


                          INDEPENDENT AUDITORS' REPORT


Board of Directors
Genius Products, Inc.

We have audited the accompanying consolidated balance sheet of Genius Products,
Inc. and Subsidiaries as of December 31, 1999 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. 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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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, 1999, and the results of their
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the financial statements, the Company has incurred significant net losses the
last three years and requires additional capital to fund its operations. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 10. The consolidated financial statements do not include any adjustments
that may result from the outcome of this uncertainty.



                                       /s/ CACCIAMATTA ACCOUNTANCY CORPORATION

Irvine, California
April 6, 2000

                                      F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Genius Products, Inc. (formerly International Trading and Manufacturing
  Corporation)

We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows for the year ended December 31, 1998 of
Genius Products, Inc. (formerly International Trading and Manufacturing
Corporation) and its subsidiaries. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 statements presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flow of
Genius Products, Inc. (formerly International Trading and Manufacturing
Corporation) and its subsidiaries for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.


Kelly & Company
Newport Beach, California
September 16, 1999

                                      F-2
<PAGE>

<TABLE>

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

                                                                           December 31, 1999
                                                                           -----------------
                                ASSETS
Current assets:

<S>                                                                       <C>
  Cash and equivalents                                                    $       45,633
  Accounts receivable, net of allowance for
      doubtful accounts and sales returns of $218,929                            572,393
  Inventories                                                                    175,147
                                                                          ---------------
   Total current assets                                                          793,173

Property and equipment, net                                                      105,213
Production masters, net of accumulated amortization of $67,575                   282,927
Patents and trademarks, net of accumulated
     amortization of $2,038                                                       20,297
Deposits and other                                                                69,319
                                                                          ---------------
                                                                          $    1,270,929
                                                                          ===============

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

  Loans from shareholders                                                 $      100,067
  Accounts payable                                                               554,502
  Accrued payroll and related expenses                                            73,822
  Accrued other expenses                                                          53,981
                                                                          ---------------

    Total current liabilities                                                    782,372

Redeemable common stock                                                          459,110

Commitments and contingencies                                                        -

Stockholders' equity:
  Common stock, $.001 par value; 25,000,000 shares
  authorized; 10,750,123 shares outstanding                                       10,750
  Additional paid-in capital                                                   4,958,808
  Accumulated deficit                                                         (4,940,111)
                                                                          ---------------
    Total stockholders' equity                                                    29,447
                                                                          ---------------
                                                                          $    1,270,929
                                                                          ===============


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

</TABLE>
                                           F-3
<PAGE>
<TABLE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                            Year Ended December 31,
                                                        ----------------------------
                                                            1999             1998
                                                        -----------      -----------
<CAPTION>

Revenues:
<S>                                                     <C>              <C>
   Music                                                $ 1,221,456      $        -
   Jewelry                                                1,080,559       2,511,136
                                                        ------------     -----------
    Total revenues                                        2,302,015       2,511,136
                                                        ------------     -----------

Costs and expenses:
  Cost of sales:
     Music                                                  290,131               -
     Jewelry                                              1,008,902       2,479,032
  Sales and marketing                                     1,069,945         174,734
  Infomercial                                                53,750         556,125
  Product and Web development                               240,055               -
  General and administrative                              1,654,355       1,200,811
                                                        ------------     -----------

  Total costs and expenses                                4,317,138       4,410,702
                                                        ------------     -----------

  Loss from operations                                   (2,015,123)     (1,899,566)

Interest expense                                            (63,475)       (240,233)
                                                        ------------     -----------

  Loss before provision for income taxes                 (2,078,598)     (2,139,799)

Provision for income taxes                                     (800)           (800)
                                                        ------------     -----------

  Net loss                                              $(2,079,398)    $(2,140,599)
                                                        ============    ============

Basic and diluted loss per common share:

  Net loss per share                                    $     (0.22)    $     (0.29)
                                                        ============    ============

Basic and diluted weighted average shares                 9,531,200       7,299,730
                                                        ============    ============


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                      F-4
<PAGE>
<TABLE>


                                   GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                              FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


                                                                        Additional                          Total
                                             Common stock                 Paid-in         Accumulated    Stockholders'
                                            ---------------
                                           Shares         Amount          Capital           Deficit        Equity
                                        ------------   -------------   -------------   -------------   -------------
<CAPTION>

<S>                                       <C>          <C>             <C>             <C>             <C>
Balance, December 31, 1997                6,708,063    $   6,708       $   835,450     $  (720,114)    $    122,044
  Shares issued in private
    placement, net of offering costs        955,000          955           901,973             -            902,928
  Shares issued in private
    placement, net of offering costs         96,000           96            82,661             -             82,757
  Less proceeds from sale of
    shares subject to redemption                -             -           (121,500)            -           (121,500)
  Shares issued for services                 75,000           75           196,800             -            196,875
  Options to purchase common
     stock, granted to employees                -             -             51,500             -             51,500
  Options to purchase common
     stock, granted to
     non-employees for services                 -             -            258,000             -            258,000
  Value of beneficial conversion
     feature of convertible debt                -             -            200,000             -            200,000
  Shares issued in private
    placement, net of offering costs        475,000          475           189,525             -            190,000
  Value of common stock sold
    to employees at a discount                  -             -            105,000             -            105,000
  Net loss                                      -             -                -         (2,140,599)     (2,140,599)
                                        ------------   -------------   -------------   -------------   -------------
Balance, December 31, 1998                8,309,063        8,309         2,699,409       (2,860,713)       (152,995)

  Shares issued under
    investment agreement                    600,000          600           599,400             -            600,000
  Shares issued in private
    placement, net of offering costs        513,900          514           551,214             -            551,728
  Shares issued in private
    placement, net of offering costs        552,115          552           677,078             -            677,630
  Less proceeds from sale of
    shares subject to redemption                -             -           (261,323)            -           (261,323)
  Shares issued for services                375,045          375           493,430             -            493,805
  Shares issued upon conversion
     of debentures                          400,000          400           199,600             -            200,000
  Net loss                                      -              -               -         (2,079,398)     (2,079,398)
                                        ------------   -------------   -------------   -------------   -------------
Balance, December 31, 1999               10,750,123    $  10,750       $ 4,958,808     $ (4,940,111)   $     29,447
                                        ============   =============   =============   =============   =============

        The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                                  F-5
<PAGE>
<TABLE>

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

                                                                        Year Ended December 31,
                                                                  ----------------------------------
                                                                        1999              1998
                                                                  ---------------    ---------------
<CAPTION>
<S>                                                               <C>                <C>
Cash flows from operating activities:
  Net loss                                                        $   (2,079,398)    $   (2,140,599)
  Adjustments to reconcile net loss to
    net cash used by operating activities:
    Depreciation and amortization                                         87,819              7,246
    Interest expense on redeemable stock                                  38,787                  -
    Sales returns and bad debt expense                                    75,004            143,925
    Common stock issued for services                                     493,805            196,875
    Stock options granted to employees                                         -             51,500
    Stock options granted to non-employees for services                        -            258,000
    Embedded interest on convertible debentures                                -            200,000
    Common stock sold to employees at a discount                               -            105,000
  Changes in assets and liabilities:
    (Increase) decrease in:
      Restricted cash                                                          -             14,195
      Accounts receivable                                               (319,442)          (470,380)
      Inventories                                                        (38,251)           317,422
      Prepaid expenses and other                                               -            (33,739)
      Other assets                                                        42,747            (74,252)
      Patents and trademarks                                             (10,335)           (12,000)
    Increase (decrease) in:
      Accounts payable                                                    44,319            171,509
      Accrued expenses                                                    94,889             32,914
                                                                  ---------------    ---------------
    Net cash used by operating activities                             (1,570,056)        (1,232,384)
                                                                  ---------------    ---------------

Cash flows from investing activities:
  Development of production masters                                     (350,502)                 -
  Purchase of property and equipment                                     (94,391)           (30,539)
                                                                  ---------------    ---------------
    Net cash used in investing activities                               (444,893)           (30,539)
                                                                  ---------------    ---------------

Cash flows from financing activities:
  Proceeds from issuance of convertible debentures                             -            200,000
  Loans from shareholders                                                100,067                  -
  Proceeds from issuance of common stock                               1,829,358          1,175,685
                                                                  ---------------    ---------------
    Net cash provided by financing activities                          1,929,425          1,375,685
                                                                  ---------------    ---------------

Net (decrease) increase in cash and equivalents                          (85,524)           112,762

Cash and equivalents, beginning of year                                  131,157             18,395
                                                                  ---------------    ---------------

Cash and equivalents, end of year                                 $       45,633     $      131,157
                                                                  ===============    ===============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid                                                     $            -     $       39,398
Income taxes paid                                                 $          800     $          800
Debentures converted into common stock                            $      200,000     $            -

        The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                      F-6
<PAGE>

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

                                DECEMBER 31, 1999


1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------------

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

      Genius Products, Inc. and Subsidiaries (the "Company"), has been engaged
      in the business of selling, on a wholesale basis, fine and costume
      jewelry. The Company's major customer is a U.S. television shopping
      network. The Company designs its products and uses independent foreign
      manufacturing facilities to produce them to the Company's specifications.
      In September 1998, the Company developed, and in February 1999 began to
      sell, a collection of music products under the name Baby Genius (TM)
      featuring an assortment of classical, instrumental and relaxation music
      designed for expectant mothers, infants and children. 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.

      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.

                                      F-7
<PAGE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      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.

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

      In 1999, the largest jewelry and music customer accounted for 52% and 34%
      of jewelry and music sales, respectively. At December 31, 1999, these two
      customers accounted for 72% of accounts receivable.

      In 1998, the Company's largest customer accounted for virtually all of the
      Company's sales.

      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. Credit risk on trade receivables is minimized as a result
      of the large and diverse nature of the Company's customer base.

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

      Inventory consists of finished goods and is 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.

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

      Property and equipment
      ----------------------

      Depreciation and amortization of property and equipment are provided over
      the estimated useful lives of the assets using the straight-line method.

      Production masters
      ------------------

      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 $ 67,575 in 1999.

                                      F-8
<PAGE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      Long-lived assets (continued)
      -----------------------------

      Patents and trademarks
      ----------------------

      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 $2,038 in 1999.

      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, loans
      from shareholders, accounts payable, and accrued expenses approximate fair
      value.

      Stock options
      -------------

      During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
      Compensation," which defines a fair value based method of accounting for
      stock-based compensation. However, SFAS No. 123 allows an entity to
      continue 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." Entities electing to remain with the
      accounting method of APB 25 must make pro forma disclosure of net income
      and earnings per share, as if the fair value method of accounting defined
      in SFAS No. 123 had been applied. The Company has elected to account for
      its stock-based compensation to employees under APB 25.

      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 $103,920 and $174,734, in 1999 and 1998,
      respectively.

                                      F-9
<PAGE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


      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.

      Earnings 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.

      Diluted earnings per share is not materially different from basic earnings
      per common share.

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

      Certain items in the 1998 financial statements have been reclassified to
      conform with the 1999 presentation.

      New accounting pronouncements
      -----------------------------

      The following pronouncements became effective for the Company's 1999
      financial statements.

      REPORTING COMPREHENSIVE INCOME
      ------------------------------

      In June 1997, the FASB issued Statement No. 130, "REPORTING COMPREHENSIVE
      INCOME" ("SFAS 130"). SFAS 130 establishes standards for reporting and
      display of comprehensive income and its components in a full set of
      general-purpose consolidated financial statements. It does not address
      issues of recognition or measurement for comprehensive income and its
      components. The Statement requires a company to disclose in the financial
      statements the various components of comprehensive income. Implementation
      of SFAS 130 had no impact on the Company's financial statements.

                                      F-10
<PAGE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      SEGMENT DISCLOSURE
      ------------------

      The FASB has also issued Statement No. 131 "DISCLOSURES ABOUT SEGMENTS OF
      AN ENTERPRISE AND RELATED INFORMATION." Statement No. 131 modifies the
      disclosure requirements for reportable segments. The Company has only one
      operating segment.


2.    PROPERTY AND EQUIPMENT
      ----------------------
<TABLE>
<CAPTION>

                                                            1999              Useful lives
                                                       ---------------      ---------------
<S>                                                    <C>                   <C>
        Computers and equipment                        $       79,862        3 - 5 years
        Furniture and fixtures                                 31,111        3 - 7 years
        Leasehold improvements                                 25,134        Lesser of lease term
                                                       ---------------       or useful life.

                                                              136,107
        Accumulated depreciation and amortization             (30,894)
                                                       ---------------
                                                       $      105,213
                                                       ===============
</TABLE>

      Depreciation expense was $18,206 in 1999 and $7,246 in 1998.

3.    DEBT
      ----

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

      During 1998, the Company issued two convertible debentures to individual
      investors totaling $200,000. The debentures were converted into 400,000
      shares of the Company's common stock on December 31, 1999, at a conversion
      price of $.50 per share. The embedded interest of the conversion feature
      was estimated to be $200,000, and additional paid-in capital and interest
      expense of $200,000 were recorded in 1998. In connection with the issuance
      of these debentures, the Company paid a fee of $20,000 to an individual as
      a commission. The prepaid loan fee was amortized to interest expense using
      the effective interest method and was fully expensed by December 31, 1999.

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

      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. Interest expense in 1999
      was $850.

                                      F-11
<PAGE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.    COMMON STOCK
      ------------

      During 1998, the Company raised net proceeds of $902,928 in a private
      placement offering of 955,000 shares of common stock at $1.25 per share.

      During 1998, the Company sold 96,000 shares of common stock, at $1.25,
      pursuant to a private placement, less commissions and other financing
      costs, for net proceeds of $82,757.

      In October 1998, the Company issued 75,000 shares of common stock valued
      at $196,875 to non-employees for services rendered in connection with the
      creation of an infomercial.

      In December 1998, the Company sold 475,000 shares of its common stock at
      $0.40 per share. These shares were purchased by (i) an associate of a
      holder of more than 10% of the outstanding shares of the Company's common
      stock, (ii) an officer of the Company; and (iii) an employee of the
      Company. Of these shares, 175,000 were issued to employees at a price
      below the then current market price of $1.00. The Company recognized
      $105,000 of expense associated with the sale of these shares.

      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 1.5 million shares of the
      Company's common stock at $1.00 per share. This agreement is effective
      until March 2000. During 1999, MCG purchased 600,000 common shares for net
      proceeds of $600,000.

      During 1999, the Company sold 513,900 shares of its common stock at $1.25,
      pursuant to a private placement, less commissions and offering costs, for
      net proceeds of $551,214.

      During 1999, the Company sold 552,115 shares of its common stock at $1.45,
      pursuant to a private placement, less commissions and offering costs, for
      net proceeds of $677,078.

      During 1999, the Company issued 375,045 shares of common stock for
      services valued at $493,805.

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

      During 1999, the Company and its securities counsel 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, 1999 was 307,550.
      Accordingly, additional paid in capital has been reduced by $420,323 to
      reflect the cumulative amounts subject to redemption. In addition, accrued
      interest of $38,787 is included in the caption, redeemable common stock,
      in the accompanying balance sheet.

                                      F-12
<PAGE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.    STOCK OPTIONS AND WARRANTS
      --------------------------

      During 1998, the Company granted options to three of its employees to
      purchase a total of 100,000 shares of its common stock at an exercise
      price of $1.25. These options were granted at a price below fair market
      value, which resulted in the recognition of $51,500 of compensation
      expense.

      During 1999, the Company granted options to its employees to purchase a
      total of 1,430,000 shares of its common stock at exercise prices of $2.25
      to $2.63 per share, which exceeded fair market value.

      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:

                                               1999                1998
                                         ---------------     ---------------
      Net loss
       As reported                       $   (2,079,398)     $   (2,140,599)
       Pro forma                         $   (3,835,398)     $   (2,932,766)

      Basic and diluted loss
       per share:
       As reported                       $        (0.22)     $        (0.29)
       Pro forma                         $        (0.40)     $        (0.35)

      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 1999 and 1998,
      respectively: expected volatility of 150% and 146%, respectively, and
      risk-free interest of 6.50% and 4.91%, respectively, expected life of 10
      years and no expected dividends for both years. The estimated
      weighted-average fair value of stock options granted in 1999 and 1998 was
      $1.28 and $1.72, respectively.

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

      On October 20, 1998, the Company granted options to two individuals, for
      services rendered, to purchase a total of 150,000 shares of its common
      stock at an exercise price of $3.40 per share, resulting in the
      recognition of $258,000 of expense.

      During 1999, the Company granted options to five individuals, for services
      rendered, to purchase a total of 15,000 shares of its common stock at an
      exercise price between $2.25 and $2.50 per share. No expense was recorded
      due to the exercise price being above market price at the grant date.

                                      F-13
<PAGE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.    STOCK OPTIONS AND WARRANTS (CONTINUED)
--------------------------------------------

      A summary of stock option activity follows:
<TABLE>
                                                         Weighted                               Weighted
                                                         Average                                Average
                                      Number          Exercise price        Exercisable       Exercise price
                                  ---------------     ---------------     ---------------     ---------------
<CAPTION>
<S>                                   <C>             <C>                 <C>                 <C>
      December 31, 1997               2,275,000       $       1.25                 -                      -
                                                                          ===============     ===============

      Granted                           250,000        1.25 - 3.40
      Exercised                               -                  -
      Canceled                                -                  -
                                  ---------------     ---------------

      December 31, 1998               2,525,000              $1.38              150,000       $        3.40
                                                                          ===============     ===============

      Granted                         1,445,000        2.25 - 2.63
      Exercised                               -                  -
      Canceled                                -                  -
                                  ---------------     ---------------

      December 31, 1999               3,970,000        $      1.76            2,689,500         $      1.45
                                  ===============     ===============     ===============     ===============

</TABLE>

      The following information applies to all options outstanding at December
      31, 1999:

<TABLE>
<CAPTION>

                                                   Weighted                         Weighted
                                   Average         average                          average
  Exercise         Options        remaining        exercise        Number           exercise
   Price         Outstanding     life (years)       price        exercisable         price
-------------   -------------   -------------   -------------   -------------   -------------
<S>                <C>               <C>        <C>               <C>           <C>
$       1.25       2,375,000         8          $       1.25      2,375,000     $       1.25
$       2.25         526,000         9          $       2.25          4,500     $       2.25
$       2.50         609,000         9          $       2.50              -     $       2.50
$       2.63         310,000         9          $       2.63        150,000     $       2.63
$       3.40         150,000         8          $       3.40        150,000     $       3.40
                -------------                                   -------------
                   3,970,000                                      2,679,500
                =============                                   =============

</TABLE>

      Subsequent to year end, 1,350,000 employee options with exercise prices
      ranging from $2.25 - $2.63 were re-priced to $1.25, which exceeded the
      then current market price.

                                      F-14
<PAGE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.    COMMITMENTS AND CONTINGENCIES
-----------------------------------

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

      The Company leases certain facilities and automobiles under noncancelable
      operating leases. Rental expense for 1999 and 1998 was $149,335 and
      $68,761, respectively.

      As of December 31, 1999, the future minimum rental commitments required
      under existing noncancelable operating leases are as follows:


                2000                         $ 135,000
                2001                           126,000
                2002                           121,000
                2003                           118,000
                2004                                 -
                                        -------------------
                                        $      500,000
                                        ===================

      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
      will be paid $14,500 per month through September 30, 2000 in consideration
      for investor relations and fund raising services.

      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 expires August 21,
      2000.

7.    RELATED PARTY TRANSACTION
-------------------------------

      Receivables

      Included in other assets is $21,400 of advances made to three officers of
the Company.

                                      F-15
<PAGE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.    INCOME TAXES
------------------

      The provision for income taxes in 1999 and 1998 consists of California
      income taxes of $800.

      Reasons for differences between income tax expense and the amount computed
      by applying the federal statutory income tax rate to income (loss) before
      income taxes are as follows:

                                                      1999             1998
                                                  -------------   -------------
        Tax provision (benefit) calculated at
         federal statutory rate                      (34.0)%         (34.0)%
        Other                                           -              7.5
        Change in valuation allowance                 34.0            26.5
                                                  -------------   -------------
                                                        -               -
                                                  =============   =============

      The Company has net operating loss (NOL) carryforwards that can be
      utilized to offset future taxable income. At December 31, 1999, federal
      NOL carryforwards totaled approximately $4,310,000. The federal
      carryforwards expire in various years ending September 30 as follows:

               2011                            $         238,474
               2012                                      434,796
               2018                                    1,557,649
               2019                                    2,079,398
                                               ------------------

                                               $       4,310,317
                                               ==================

     In addition the Company has approximately $2,150,000 of state NOL
     carryforwards that expire in various years through 2004.

     Deferred income tax assets at December 31, 1999 and 1998 relate to the
     following. A valuation allowance has been established to reduce deferred
     tax assets to amounts which management believes are more likely than not
     to be realized.
                                            1999                  1998
                                       ---------------     ---------------

     NOL carryforwards                 $    1,465,000      $       827,632
     Other                                      -                    2,004
                                       ---------------     ----------------
     Deferred tax assets                    1,465,000              829,636
     Less valuation allowance              (1,465,000)            (829,636)
                                       ---------------     ----------------
     Net deferred tax asset            $        -          $         -
                                       ================    ================


     The valuation allowance increased by $635,364 during 1999.

                                      F-16
<PAGE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

9.   BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
-----------------------------------------------------
<CAPTION>

                                                             1999                 1998
                                                        ---------------     ---------------
     <S>                                                <C>                 <C>
     Numerator
     ---------
       Net loss                                         $   (2,079,398)     $   (2,140,599)
                                                        ===============     ===============

     Denominator
     -----------
       Basic and diluted weighted average number of
       common shares outstanding during the period           9,531,200           7,299,730
                                                        ===============     ===============

     Basic and diluted net loss per share               $        (0.22)     $        (0.29)
                                                        ===============     ===============

     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                                  3,805,000            2,385,000
     Convertible debentures                                        -                400,000
     Non-employee stock options                                165,000              150,000

</TABLE>


10.   MANAGEMENT'S PLANS
------------------------

      The Company has incurred significant losses from operations in each of the
      last three years, expects to have negative cash flows from operations
      until the fourth quarter of 2000 and needs substantial capital to
      implement its business plan. In addition, as discussed in Note 4, 307,550
      shares of common stock issued in private placements is subject to
      redemption and the Company may be obligated to pay cash of up to $459,110
      to these investors.

      Subsequent to year end, the Company raised $715,000 in a private
      placement. The Company has also retained an investment banker to launch an
      investor relations campaign and act as placement agent to raise up to $5
      million. In addition, the Company has the ability to factor its trade
      receivables. No assurance can be made that the Company will succeed in
      raising any funds. If the Company is unable to raise sufficient capital to
      implement its business plan, the Company may need to introduce cost
      cutting measures to reduce overhead and other expenses.

                                      F-17
<PAGE>

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

         The Company has dismissed its former principal accountants, Kelly &
Company of Newport Beach, California and engaged Cacciamatta Accountancy
Corporation of Irvine, California, as its principal accountants. The engagement
was made effective as of March 8, 2000. This dismissal and engagement of our
principal accountant has been approved by our Board of Directors. During our
fiscal years 1997 and 1998, there were no disagreements with the former
accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of the former accountants would have caused
them to make reference in connection with their report to the subject matter of
the disagreements. The reports of the former principal accountants on our
financial statements for either of the past two years contained no adverse
opinion or disclaimer of opinion, nor was either qualified or modified as to
uncertainty, audit scope, or accounting principles.

                                    PART III

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

EXECUTIVE OFFICERS

       The executive officers who are not also directors of the Company are as
       follows:
       NAME                       AGE              POSITION
       ----                       ---              --------

       Klaus Moeller              39               Chairman of the Board and
                                                     Chief Executive Officer
       Deborah L. Cross           45               Director
       Dorian Lowell              40               President
       Michael Meader             35               Executive Vice President
       Larry Balaban              36               Senior Vice President
       Howard Balaban             39               Senior Vice President
       Alison Elliott             43               Treasurer and Controller

         Klaus Moeller has served as the Chief Executive Officer and as a
director of the Company since we acquired ITM in October 1997. 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 was appointed to the Company's board of directors on
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.


       Dorian Lowell was appointed President in October 1999. He previously had
served as our Chief Operating Officer since August 1999. Mr. Lowell is a
corporate attorney specializing in corporate finance, mergers and acquisitions,
bankruptcy law and project finance. Before joining the Company, he served as a
consultant to various businesses. From 1997 to 1999, he was General Counsel for
Caithness Corporation, a private investment firm located in New York City.
Before joining Caithness Corporation, Mr. Lowell practiced law in New York City
for seven years with the international Wall Street law firm Cleary, Gottlieb,
Steen & Hamilton. Mr. Lowell is a member of the New York Bar, and holds law
degrees from Oxford University and Harvard Law School.

                                       21
<PAGE>

       Michael Meader was appointed our Executive Vice President in 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 was appointed Senior Vice President of Marketing and
Production in 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.

       Howard Balaban was 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.

       Alison Elliott was hired as Treasurer and Controller on February 1, 2000.
Prior to her appointment, Ms. Elliott was employed as an accountant for various
companies both in San Diego and the U.K. Her most recent appointment was as CFO
for a subsidiary of The Quarto Group, Inc. in San Diego. While in the U.K., Ms.
Elliott worked for E.F. Hutton, Inc. for three years and Fluor Daniel, Inc. for
four years and qualified as a member of the Chartered Association of Certified
Accountants in 1984.

COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT

       Form 3 filings for Klaus Moeller, Dorian Lowell and Michael Meader due
on January 3, 2000, were filed on March 17, 2000. Minnesota Communications Group
and Gerald Edick have not yet filed a Form 3, due on January 3, 2000. No other
person, who, at any time during the year ended December 31, 1999, 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 filings,
reports required by Section 16(a) of the Exchange Act during the year ended
December 31, 1999, or any prior years ended December 31. The foregoing is based
solely upon a review of Form 3 filings furnished to the Company during the year
ended December 31, 1999, 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.

                                       22
<PAGE>

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. On March 14, 2000,
Deborah Cross was granted 30,000 options to purchase shares of the Company's
common stock at an exercise price of $1.10.  The market price of the Company's
shares on the date of grant was $0.8750.  The rights to exercise the options
will vest in full on July 14, 2000.

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.
<TABLE>
                           SUMMARY COMPENSATION TABLE
<CAPTION>

                                                 Annual Compensation             Long Term Compensation
                                               ------------------------- ----------------------------------------
                                                                                  Awards              Payouts
                                                                         -------------------------- -------------
                                                              Other      Restricted   Securities
                                                             Annual        Stock      Underlying        LTIP       All Other
 Name and Position       Year       Salary       Bonus    Compensation     Awards    Options/SARs     Payouts     Compensation
                                       $           $            $            $             #             $             $
--------------------- ----------- ------------ ---------- -------------- ----------- -------------- ------------- -------------
<S>                      <C>          <C>              <C>            <C>         <C>            <C>           <C>           <C>
Gerald Edick             1999         152,042          0              0           0              0             0             0
(former President)       1998         102,000          0              0           0              0             0             0
                         1997          66,000          0              0           0        750,000             0             0

Klaus Moeller            1999         146,000          0              0           0              0             0             0
CEO                      1998         102,000          0              0           0              0             0             0
                         1997          66,000          0              0           0        750,000             0             0

Dorian Lowell            1999          63,249          0              0           0        750,000             0             0
President                1998               0          0              0           0              0             0             0
                         1997               0          0              0           0              0             0             0

Michael Meader           1999         146,000          0              0           0              0             0             0
Executive VP             1998         102,000          0              0           0              0             0             0
                         1997               0          0              0           0        750,000             0             0

Larry Balaban            1999         107,874          0              0           0        300,000             0             0
Senior VP                1998               0          0              0           0         50,000             0             0
                         1997               0          0              0           0              0             0             0

Howard Balaban           1999         113,892          0              0           0        300,000             0             0
Senior VP                1998               0          0              0           0         50,000             0             0
                         1997               0          0              0           0              0             0             0
</TABLE>


                                       23
<PAGE>

         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, 1999.
<TABLE>

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

                          NUMBER OF      PERCENT OF TOTAL                                  POTENTIAL REALIZABLE
                          SECURITIES       OPTIONS/SARS                                      VALUE AT ASSUMED
                          UNDERLYING        GRANTED TO      EXERCISE OR                    ANNUAL RATES OF STOCK
                         OPTIONS/SARS      EMPLOYEES IN      BASE PRICE    EXPIRATION     PRICE APPRECIATION FOR
        NAME             GRANTED (#)      FISCAL YEAR(%)       ($/SH)         DATE              OPTION TERM
---------------------- ----------------- ------------------ ------------- ------------- ----------------------------
                                                                                           5% ($)*        10% ($)*
                                                                                        ------------- --------------
<S>                       <C>                 <C>                <C>       <C>             <C>        <C>
Dorian Lowell             300,000              7%                1.25      8/24/09         0          156,000
                          450,000             11%                1.25      9/30/09         0          234,000

Larry Balaban             300,000              7%                1.25       1/6/09         0          156,000


Howard Balaban            300,000              7%                1.25       1/6/09         0          156,000

</TABLE>

* Based on the value of the Company's stock at $0.75 on December 31, 1999
appreciating by 5% and 10%, respectively, compounded over the nine years of the
option term, less the cost of exercise.


         In addition, we issued the following options to the persons named in
the "Summary Compensation Table" in the period January 1, 2000 through April 28,
2000:
<TABLE>
<CAPTION>

                                  INDIVIDUAL GRANTS
---------------------------------------------------------------------------------------
                                         PERCENT OF TOTAL
                          NUMBER OF        OPTIONS/SARS
                          SECURITIES        GRANTED TO
                          UNDERLYING       EMPLOYEES IN     EXERCISE OR
                         OPTIONS/SARS     CURRENT PERIOD     BASE PRICE    EXPIRATION
        NAME             GRANTED (#)*           (%)            ($/SH)         DATE
---------------------- ----------------- ------------------ ------------- -------------
<S>                          <C>                <C>             <C>         <C>
Klaus Moeller                550,000            13%             0.75        4/26/03

Dorian Lowell                550,000            13%             0.75        4/26/03

Michael Meader               550,000            13%             0.75        4/26/03

Larry Balaban                400,000            10%             0.75        4/26/03

Howard Balaban
</TABLE>

*  All are immediately exercisable.


                                       24
<PAGE>

         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, 1999 and the value of all
exercisable and unexercisable options at December 31, 1999.

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

                       SHARES                    NUMBER OF SECURITIES UNDERLYING         VALUE OF UNEXERCISED
                     ACQUIRED ON      VALUE       UNEXERCISED OPTIONS AT FY-END          IN-THE-MONEY OPTIONS
NAME                  EXERCISE       REALIZED                  (#)                         AT FY-END ($)(1)
                    -------------- ------------- --------------------------------- ---------------------------------
                         ($)           ($)        Exercisable     Unexercisable     Exercisable     Unexercisable
------------------- -------------- ------------- -------------- ------------------ -------------- ------------------
<S>                 <C>            <C>           <C>            <C>                <C>            <C>
Gerald Edick        0              0             750,000              0            0              0
Klaus Moeller       0              0             750,000              0            0              0
Dorian Lowell       0              0             150,000        600,000(2)         0              0
Michael Meader      0              0             750,000               0           0              0
Larry Balaban       0              0              50,000        300,000(3)         0              0
Howard Balaban      0              0              50,000        300,000(3)         0              0
</TABLE>

(1)      Based on the closing price for the Company's Common Stock at the close
         of market on December 31, 1999. On December 31, 1999, the price of the
         Company's common stock was $0.75. The lowest exercise price of any
         outstanding option was $1.25.

(2)      Exercisable as of January 31, 2000.

(3)      100,000 exercisable as of January 31, 2000.


         On February 28, 2000, by a unanimous consent of the board of directors
and the committee appointed by the board to manage the company's non-qualified
stock option plan, the board resolved to:

1.       reprice 50,000 options previously granted to Larry Balaban on December
         1, 1998, from an original exercise price of $2.50 to $1.25;

2.       reprice 300,000 options previously granted to Larry Balaban on January
         6, 1999, from an original exercise price of $2.50 to $1.25;

3.       reprice 50,000 options previously granted to Howard Balaban on December
         1, 1998, from an original exercise price of $2.50 to $1.25;

4.       reprice 300,000 options previously granted to Howard Balaban on January
         6, 1999, from an original exercise price of $2.50 to $1.25;

5.       reprice 150,000 options previously granted to Dorian Lowell on August
         24, 1999, from an original exercise price of $2.63 to $1.25, and bring
         forward the date on which the rights to exercise such options became
         fully vested from March 1, 2000 to January 31, 2000;

6.       reprice 150,000 options previously granted to Dorian Lowell on August
         24, 1999, from an original exercise price of $2.63 to $1.25, and bring
         forward the date on which the rights to exercise such options became
         fully vested from July 1, 2000 to January 31, 2000; and

7.       reprice 450,000 options previously granted to Dorian Lowell on
         September 30, 1999, from an original exercise price of $2.25 to $1.25.

                                       25
<PAGE>


     The closing price of the shares of the Company's common stock on February
28, 2000 was $0.94. Since the original dates of grant, the price of the
Company's shares steadily declined, notwithstanding our belief that the
Company's prospects had greatly improved since those dates. We believe that the
Company will only retain executives of caliber and experience if they are
offered competitive compensation packages. Because the Company cannot afford to
pay high cash salaries, the granting of options is a critical component of the
overall compensation paid to our officers. We believe it is uncompetitive and a
disincentive to set the exercise price of options at unreasonable premiums over
the market price of the shares on the date of grant. Similarly, a decline in the
price of the shares over a period when both the Company's business operations
and prospects are improving, and our executives have made significant
contributions, but which is not offset by a reduction in the exercise price, is,
we believe, unfair to those executives. A decline in our share price results in
an effective increase in the premium of the exercise price over the market price
which penalizes the executives, and is potentially harmful to the Company if the
executive then takes the view that his or her overall compensation package is
becoming uncompetitive. We will continue to review the exercise prices and
vesting dates of options granted to our employees and may reprice and/or change
vesting dates as we deem appropriate based on the prevailing price of our shares
and the Company's business operations and prospects.



                                       26
<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 the Company's Common Stock as of
April 26, 2000 by (i) each person who is known by the Company to own
beneficially more than 5% of the Company's 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>    <C>
Gerald R. Edick                                                2,351,104                17.93% (3)(8)
1888 Viking Way
La Jolla, CA 92037

Isabel Moeller                                                 1,151,021                9.31%
PO Box # 1289
P 8400 Praia do Carvoiero
Algarve, Portugal

Minnesota Communications Group                                 1,249,626                9.64% (11)(12)
45 East Seventh Street
Saint Paul, MN 55101

Klaus Moeller, Director                                        2,140,000               15.67%(4)(5)(6)(9)
Deborah L. Cross, Director                                             0                   0%
Dorian Lowell, President                                       1,305,700                9.56%(9)
Michael Meader, Executive Vice President                       1,650,000               12.08%(7)(9)
Larry Balaban, Senior Vice President                             550,000                4.26%
Howard Balaban, Senior Vice President                            550,000                4.26%
Alison Elliott, Treasurer and Controller                          50,000                0.40%

All officers and directors as a group (7 persons)              6,245,700               36.00%(10)
--------------------
</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 warrants currently exercisable or convertible, or
         exercisable or convertible within 60 days of April 6, 2000 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 having sole
         voting and investment power with respect to all shares of Common Stock
         beneficially owned.

(2)      Does not include 50,000 shares of Common Stock issuable upon exercise
         of outstanding warrants.

(3)      Includes 761,104 shares held by Gulfstream Capital Holding, Ltd., which
         are owned beneficially by Mr. Edick.

(4)      Includes 360,000 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, including all voting, transfer and investment
         powers relating thereto.

(5)      Includes 150,000 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, including all voting, transfer
         and investment powers relating thereto.

(6)      Includes 150,000 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, including all voting, transfer and
         investment powers relating thereto.

                                       27
<PAGE>

(7)      Includes 100,000 shares held by Suzanne Meader, who is the wife of
         Michael Meader.

(8)      Includes options to purchase 750,000 common shares as they are
         currently exercisable or are exercisable within 60 days.

(9)      Includes options to purchase 1,300,000 common shares as they are
         currently exercisable or are exercisable within 60 days.

(10)     Includes options that are currently exercisable or exercisable within
         the next 60 days by Messrs. Moeller, Meader and Lowell to each acquire
         1,300,000 common shares, respectively.

(11)     Includes 32,126 shares held by MCG's subsidiary MPR, which are owned
         beneficially by MCG.

(12)     Includes 600,000 shares which may be purchased by MCG within the next
         60 days pursuant to our Investment Agreement with MCG.


ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

       In January 1999, we entered into a ten-year License Agreement with
Minnesota Communications Group ("MCG"), the beneficial owner of approximately
8.82% of our common stock. The License Agreement allows us to use certain
trademarks owned by MCG in connection with our promotion, marketing, sale and
distribution of CDs and cassettes. We paid MCG 7,500 shares of our common stock
for the first 500,000 CDs and cassettes we sold under the License Agreement, and
we pay MCG a royalty of $0.024 per each additional CD and cassette sold.

       In January 1999, we also entered into a ten-year License Agreement with
Minnesota Public Radio ("MPR"), a subsidiary of MCG. The License Agreement
allows us to use certain trademarks owned by MPR in connection with our
promotion, marketing, sale and distribution of CDs. We issued MPR 17,500 shares
of our common stock for the first 500,000 CDs and cassettes we sold under the
License Agreement, and we pay MPR a royalty of $0.056 per each additional CD and
cassette sold.

       In March 1999, we entered into an Investment Agreement with MCG which
grants MCG the right to purchase up to 1,500,000 shares of our common stock at a
purchase price of $1.00 per share. This agreement is effective until March 31,
2001. Pursuant to this agreement, MCG purchased 200,000 shares in March 1999 and
400,000 shares in April 1999 for a total cash conversion of $600,000. No
additional shares have been purchased under the agreement. In January 2000, we

                                       28

<PAGE>

restated our audited balance sheet for the period ending December 31, 1998. As a
result of adjustments made in the restatement, the Company may have failed to
satisfy certain funding conditions under the Investment Agreement at the time
MCG purchased shares from the Company. Our auditors accordingly requested that
we obtain from MCG a waiver of any such failures. MCG granted such waiver in
consideration of which we granted MCG, among other things, the right to refuse
future funding requests as a result of any such failures. MCG has indicated to
us that it does not intend to make any additional investments in the Company.

       In March 1999, MCG entered into a Shareholders Agreement with Gerald
Edick, Michael Meader and Klaus Moeller. The Shareholders Agreement provides
that Messrs. Edick, Meader and Moeller will take such actions as reasonably
requested by MCG to ensure the presence on our Board of Directors of one person
designated by MCG. In addition, except in certain circumstances, Mr. Edick, Mr.
Meader and Mr. Moeller may not transfer their shares of our common stock without
MCG's consent, nor may they sell their shares without extending MCG the right to
participate proportionately in the sale.

       In September 1999, Gerald Edick, a co-founder of ITM, left the Company
and resigned as President and as a member of the Company's Board of Directors.
In consideration of his services, we entered into a severance letter agreement
on October 26, 1999 with Mr. Edick under which we agreed to pay him a severance
of $200,000 in equal installments over one year, and continue his medical
benefits until September 30, 2000, unless he independently secured medical
benefits before that date. We also agreed to allow Mr. Edick to retain all of
his options to purchase 750,000 shares of our common stock which were granted to
him on December 7, 1997, and which fully vested on January 1, 1999.

       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, and instead will be paid $14,500 per month from March 1, 2000
through September 30, 2000, in consideration of his rendering investor relations
and fund raising services to the Company during such period. Mr. Edick will,
however, retain his options to purchase 750,000 shares of the Company's common
stock as set forth in the severance letter.

                                       29

<PAGE>

                                     PART IV
<TABLE>

ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K

       (a)    Listing of Exhibits
<CAPTION>

  Exhibit No.                                     Description
  -----------                                     -----------
      <S>        <C>

      2.1        Agreement and Plan of Reorganization with Salutations, Inc., and related
                 exhibits and consents*
      3.1        Articles of Incorporation, as amended*
      3.2.1      Bylaws, as amended*
      3.2.2      Bylaws, as amended on April 20, 2000
      4.1        Investment Agreement with Minnesota Communications Group*
      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 Centre, and related exhibits*
      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*
      10.10      Change of Control Executive Employment Agreement with Klaus Moeller*
      10.11      Senior Executive Employment Agreement with Dorian Lowell*
      10.12      Change of Control Executive Employment Agreement with Dorian Lowell*
      10.13      Senior Executive Employment Agreement with Michael Meader*
      10.14      Change of Control Executive Employment Agreement with Michael Meader*
      10.15      Executive Employment Agreement with Larry Balaban*
      10.16      Change of Control Executive Employment Agreement with Larry Balaban*
      10.17      Executive Employment Agreement with Howard Balaban*
      10.18      Change of Control Executive Employment Agreement with Howard Balaban*
      10.19      Executive Employment Agreement with Vinko Kovac*
      10.20      Change of Control Executive Employment Agreement with Vinko Kovac*
      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.**

                                       30
<PAGE>

      10.26      Service(s) Agreement with Cost Care, Inc. (dba Unicare Managed Care
                 Services)**
      10.27      Executive Employment Agreement with Alison Elliott***
      10.28      Change of Control Agreement with Alison Elliott***
      10.29      Consulting Agreement with Gerald Edick***
      27         Financial Data Schedule***
</TABLE>

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

*     Incorporated by reference from the exhibits included with the Company's
      Registration Statement (No. 000-29715) 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. 000-29715), Amendment No. 1, on Form 10-SB
      filed with the SEC on December 17, 1999.

***   Previously filed.


         (b)      Reports on Form 8-K

         The following is a list of Current Reports on Form 8-K filed by the
Company during or subsequent to the last quarter of the fiscal year ended
December 31, 1999.

         1. Form 8-K dated March 16, 2000, reporting under Item 4, a change in
            the Company's certifying accountant.

         2. Amendment No. 1 to Form 8-K dated March 28, 2000, reporting
            additional information required under Item 4 regarding the change in
            the Company's certifying accountant previously reported in Form 8-K
            dated March 16, 2000.

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:  May 1, 2000          GENIUS PRODUCTS, INC., a Nevada Corporation


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

         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
-------------------------------
Klaus Moeller                               Chief Executive Officer and Chairman of       May 1, 2000
                                            the Board

/s/ Deborah L. Cross
-------------------------------
Deborah L. Cross                            Director                                      May 1, 2000

</TABLE>

                                       31