SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 2000

                                       or

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

                        Commission file number 000-27915

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


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

             11250 EL CAMINO REAL #100, SAN DIEGO, CALIFORNIA 92130
              (Address of principal executive offices) (Zip Code)

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

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


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

               NONE                                         NONE

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

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

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

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

         Revenues for fiscal year 2000 were $1,344,016.

           The aggregate market value of voting stock held by non-affiliates of
the registrant was $5,960,855 as of April 10, 2001 (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 4,513,018 shares outstanding of the registrant's Common
Stock as of April 10, 2001.

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



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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

      We are a producer, publisher and distributor of classical, instrumental
and vocal compact disks ("CDs"), cassettes and videos for children under the
Baby Genius brand name, which sell at retail outlets nationwide, and at numerous
e-commerce retail web sites on the Internet. We currently produce 24 CD and
cassette titles, and three video titles. The trademark Baby Genius is
registered, allowed or pending in the United States across a wide range of baby
and child product categories. We publish the Baby Genius 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.

      Our corporate mission is to develop Baby Genius, Kid Genius and other
"Genius" names into premiere brand names across a broad range of baby and child
product categories. We plan to develop and publish additional music and other
educational and entertaining CDs, cassettes and videos under the Baby Genius
name. We also plan to publish CD-ROMs, DVDs and other interactive media for
babies and children under these brand names. We have licensed the Baby Genius
name to a number of third-party companies that will produce toys, books, apparel
and other products which are scheduled for release at various times from July
2001 through the second quarter of 2002. We intend to continue to seek
manufacturers of top quality baby and child products who are interested in
licensing the Baby Genius and Kid Genius names. We intend to develop our web
site into a premiere 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 further 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.

      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.

      We were incorporated in the State of Nevada on January 6, 1996, under the
name Salutations, Inc. ("Salutations"). In September 1997, Salutations acquired
all of the outstanding shares of a company called International Trade and
Manufacturing Corporation ("ITM"), a Nevada corporation founded in 1992 by Klaus
Moeller, our current Chairman and Chief Executive Officer, and Gerald Edick. At
the time of the acquisition, Salutations was a public company with shares quoted
on the Over the Counter ("OTC") Bulletin Board. Immediately after the
acquisition, Salutations assumed all of the operations and businesses of ITM and
changed its name to International Trading and Manufacturing Corporation
("ITMC"). In October 1999, we changed our name again from International Trading
and Manufacturing Corporation to Genius Products, Inc., to reflect our new
business.

      The original business of ITM/ITMC involved the design, development and
distribution of semi-precious and precious gemstone and costume jewelry. Since
1997, however, the jewelry business has experienced increased competition,
erosion of profit margins and a decline in sales. While we continue to sell our
jewelry products, jewelry sales in 2000 represented less than 40% of our
revenues and contributed a gross margin of 13%. We have, as a result, shifted
our focus and resources to lines of business involving the Baby Genius product
line discussed below, which we believe have greater potential for profitability.


BABY GENIUS PRODUCTS

      In September 1998, we commenced development of a line of classical music
CDs and cassettes for children under the Baby Genius brand name. This was
inspired by a proclamation by the Governor of Georgia, Zell Miller, which stated
that all newborn children should receive a free classical CD or cassette as a
gift from the state, to enhance the child's intellectual development and
well-being. This was inspired by certain published reports indicating that

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classical music could play an important role in a child's mental development. We
were also attracted by the gross margins associated with CDs, cassettes and
videos. We now publish, distribute and license a line of musical CDs, cassettes
and videos for children under the Baby Genius brand name, and publish a 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 five titles in the Instrumental Series are Lulla-Drive for the Car,
Nature Experience, Sweet Dreams Lullabies, Sleepytime and one sampler title. The
three titles in the Vocal Series are Children's Songs, Favorite Nursery Rhymes,
and Sing, Dance, Play. Two Christmas titles were released in December 1999,
Classical Christmas and Christmas Sleighride.

      We produce three Baby Genius videos: Mozart & Friends and Mozart & Friends
Sleepytime which are currently being produced and Baby Genius The Four Seasons,
scheduled for release in late April 2001. The videos contain real-life and
animated images accompanied by classical music.

      We are currently negotiating with the San Diego Zoo and San Diego Wild
Animal Park to produce a series of Baby Genius videos, which introduce infants
and children to animals from around the globe. The negotiations contemplate that
a major portion of the videos will be filmed at and feature parts of the San
Diego Zoo and San Diego Wild Animal Park. Approximately 5 million people visit
the parks each year, and the San Diego Zoo distributes its Zoo-News publication
to approximately 250,000 households monthly. While we are actively pursuing this
agreement, there can be no assurances that will we succeed on favorable terms or
at all.

      In November 2000, we entered into a production agreement to produce a
non-classical range of music including a Kid Genius "Hip Hop" series. These CDs
are currently in production, and we anticipate release beginning in the third
quarter of this year.

OTHER PRODUCTS

      We also have 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.

      We continue to produce a line of Jade Jewelry that is sold over the Home
Shopping Network under our Sanuk brand. We plan to sell the jewelry business
during the year 2001.

ENDORSEMENTS AND AWARDS

      The Baby Genius product line was endorsed by Public Radio Music Source and
Minnesota Public Radio ("MPR"), a subsidiary of Minnesota Communications Group
("MCG"). MCG funded a portion of the Baby Genius development costs and has been
instrumental in assisting us to obtain classical music licenses. MPR and MCG are
both shareholders of the Company.

      The quality of our products 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. All
three videos have won the Film Advisory Board's Award of Excellence. The video
titles Mozart & Friends and Mozart & Friends Sleepytime are approved by Kid
First! for the Coalition for Quality Children's Media. The titles Favorite
Nursery Rhymes and Night Night Classics received a Parents' Choice Award
from the Parents' Choice Foundation.

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DISTRIBUTION

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

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

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


MARKETS, MARKETING AND SALES

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

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

      In 2000, we retained a design consultant, Melanie Paykos Designs, to
redesign the Baby Genius image and establish Baby Genius as a national brand.
The design work has resulted in the production of a style guide, which includes
our logo, a range of Baby Genius characters and updated CD and video sleeves.

      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 and position Baby Genius products
on 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 include the Juvenile Products Manufacturers
Association in Dallas, the California Gift Show in Los Angeles, the
International Toy Fair in New York City, the Video Software Dealers Association
("VSDA") in Las Vegas and the Book Expo Association ("BEA") in Chicago.


THIRD PARTY LICENSES

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

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<PAGE>

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 9, 2001, the status of our applications for Baby
Genius and Kid Genius are as listed below.

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

Baby Genius         Music           Baby food
                    Clothing        Bed clothing
                    Toys            Cartoon characters
                    Books           Infant cradles and
                                    furniture
                                    Potties and baths
                                    School book bags
                                    Childrens' car seats
                                    Baby bottles

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

Little Genius       Books
                    Clothing
                    Music
                    Toys

Parent Genius                                             Books
                                                          Clothing
                                                          Toys

Got Baby                                                  Advertising

Genius Gear                                               Clothing

Pet Tunes                                                 Music

Motor City Music                                          Music

Genius Products                                           Services
                                                          General Merchandise

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

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

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LICENSEE                 PRODUCT        ROYALTY     EXPIRATION   TERRITORY
                                           %          DATE

Jakks Pacific, Inc       Master Toy        7          6/30/04   Worldwide
                                       escalating

Catton Apparel Group     Apparel           6-8        5/31/04   North America

J.Wasson & Associates    Diaper Bags       8          12/31/03  North America

      In addition, we have signed a letter of intent for a license agreement
with Penguin/Putnam to publish a series of twelve Baby Genius books over a
three-year period, with American Marketing Enterprises for the manufacture of
sleepwear, and with NYCE Kids for infant care products. While we will actively
pursue these agreements, no assurance can be made that we will succeed on
favorable terms or at all.

      We intend to exhibit the Baby Genius brand with Global Icons, LLC at the
Licensing International 2001 show in New York City in June 2001.


SUPPLIERS AND COMPLIANCE WITH ENVIRONMENTAL LAWS

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

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


OTHER PRODUCTS

      Our original business involved distributing and marketing semi-precious
and precious gemstone and costume jewelry. Due to a decline in jewelry sales
towards the end of 1998 and the beginning of 1999, and as a result
of the growth in the Baby Genius product line, we believe it will be in our best
interests to phase out or sell the jewelry business. Although we continue to
receive and fulfill orders for our line of Burmese Jade Jewelry from our sole
jewelry retailer, 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 2001. No formal plan, however, to divest or wind up the jewelry
business has yet been adopted by management.


INTERNET BUSINESS

      In March 2000, we reformatted and re-launched our 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. In addition visitors can purchase the full range of Baby
Genius products and select co-branded grocery coupons. 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. 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.

      In addition to generating Internet revenues from sales of our own
products, we intend to generate sales from the receipt of referral fees from the
recommendations of third-party products, the receipt of commissions from
procuring sales of third party products and the sale of banner ads and other
web-based advertising. Since inception of our web site, in September 1999, we
have generated over $240,000 in Internet sales of our products.

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      Our current web site customer database holds over 71,000 names, addresses,
e-mail addresses and credit card numbers of the visitors who responded to our TV
promotional offers or who bought Baby Genius products from our web site.


COMPETITION

      The retail and Internet markets for baby development, educational and
entertainment products, including CDs, cassettes and videos, are highly
competitive. We face significant competition with respect to the number of
products currently available, as well as in securing distribution and retail
outlets. The costs of entry into the retail and Internet markets for products
competitive to our Baby Genius products are low, and there are no significant
barriers to entry. There are many companies who could introduce directly
competitive products in the short term that have established brand names, are
better funded, have established distribution channels, and have greater
resources than us. These established companies include Disney, Fox, Paramount,
Sony and Time-Warner.

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

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


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

      -       Baby, It's You:  Giggles & Gurgles by Sony
      -       Baby Sounds by various artists
      -       Baby Tunes series
      -       Teletubbies series
      -       KidRhino series
      -       Music for Little People series

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

      -       The Baby Einstein series by Baby Einstein
      -       So Smart

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

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

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

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

RISKS RELATED TO OUR BUSINESS

      FORWARD-LOOKING STATEMENTS. Some of the information in this 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:

      -      discuss our future expectations;
      -      contain projections of our future results of operations or of our
             financial condition; and
      -      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.

      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 our
common stock for cash or in consideration of services rendered. Failure to
obtain financing will have a material adverse effect on our business, operations
and financial condition and could jeopardize our ability to continue operations.

      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.

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

      DEPENDENCE ON KEY PERSONNEL. We are dependent on our executive officers,
the loss of any one of whom would have an adverse effect on us. While we have
employment agreements with our executive officers, unforeseen circumstances
could cause these persons to no longer be able to render their services to us.
We are currently negotiating the extension of the employment agreements of our
senior executives.

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      CHANGE OF CONTROL PAYMENTS. We have entered into Change of Control
Executive Employment Agreements ("Change of Control Agreements") with several 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 Agreements. These potential expenditures could
adversely affect our financial results and potentially discourage any hostile
buyer from making an unsolicited offer to purchase the Company. We are currently
negotiating the extension of the Change of Control Agreements of our senior
executives.

      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 need to offer to repurchase all such shares
from investors who originally acquired them from us, who were residents in those
states at the time of purchase, and who continue to hold such shares at the time
the offer is made. We will have to pay to each shareholder who accepts the offer
the price per share they originally paid, plus interest, where applicable,
accrued from the date of initial purchase to the date of repurchase. The total
number of shares subject to repurchase is 76,888 (adjusted for reverse stock
split of April 10, 2001), and the potential cost to us is approximately
$420,323, plus accrued interest of approximately $53,537, as of December 31,
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 our operations and financial condition if we are
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.
Additionally, such investors may file complaints with the applicable security
regulatory body of these states and such governmental bodies could take various
actions against us requiring us to conduct these repurchase offers. In addition,
interest would continue to accrue on the outstanding amounts owed to
shareholders in Pennsylvania and Washington at annual rates of 6% and 8%,
respectively. If, at the time a repurchase offer is made, the market price of
our 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 we 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 proceedings between the Company and the state's
Department of Financial Institutions, Securities Division, regarding the State's
request for us to cease and desist from violations of RCW 21.20.140, 21.20.040,
and 21.20.010 of the Securities Act of Washington have been concluded. These
alleged violations include the offer to sell shares that were not registered in
the state or otherwise qualified for an exemption from registration. 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 being prepared by us. 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. We believe that because the price of our common
stock is significantly lower than this price, affected shareholders would be
more likely than not to accept repurchase offers. Our 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. If we were forced to make repurchase offers at this time and a
significant number of shareholders requested repurchase, we would not be able to
complete such repurchases and our ability to continue our operations would be
jeopardized.

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      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.

      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 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.

      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. To date, we have not received significant revenue from our Internet
sales.

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

      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.

      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

                                       10


<PAGE>

business or financial condition. In addition, it has come to our attention that
certain third parties may be infringing upon the Baby Genius trademarks in
certain product categories. We are consulting with our counsel and will defend
as we deem necessary any such infringements. Defending our intellectual property
rights may be costly in terms of legal fees and management time. Expenditure of
significant legal fees could have a material adverse effect on our financial
condition and no assurance can be made that we would prevail in any litigation
defending our intellectual property rights. Failure to take necessary defensive
legal action for lack of cash could result in compromising our rights to our
intellectual property, which would have a material adverse effect on our
business, our financial position and the value of our intellectual property.

      INABILITY TO UTILIZE NET OPERATING LOSS. In 1997, 1998, 1999 and 2000, we
incurred losses resulting in a net operating loss carryforward as of December
31, 2000, of $6,943,000 and $3,472,000 for federal and state income tax
purposes, respectively. The federal and state net operating losses begin to
expire in 2012 and 2002 respectively. Because we anticipate significant
expenditures with respect to implementing our business plan, including our
Internet e-commerce business, there is a risk that we will be unable to make
enough profits, if any, during the net operating loss 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.

      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 set forth by the Securities and Exchange Commission
relating to the penny stock market must be delivered to the purchaser of such
penny stock. This disclosure must include the amount of commissions payable to
both the broker-dealer and the registered representative and current price
quotations for the common stock. The regulations also require that monthly
statements be sent to holders of penny stock which disclose recent price
information for the penny stock and information of the limited market for penny
stocks. These requirements adversely affect the market liquidity of our common
stock.

                                       11


<PAGE>

      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.

      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.


EMPLOYEES

      We currently have nine full-time employees and one part-time employee.
None of our employees are represented by an organized labor union. We believe
our relationship with our employees is 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

      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. We believe that these facilities are adequate for the
immediate future.

                                       12


<PAGE>

ITEM 3. LEGAL PROCEEDINGS

      On September 23, 1999, the Securities Administrator of the State of
Washington filed a Summary Order to Cease and Desist with the State of
Washington Department of Financial Institutions Securities Division against us,
the Martin Consulting Group, Martin H. Engelman, their employees and agents. The
relief sought is that the respondents cease and desist from violations of RCW
21.20.140, 21.20.040, and 21.20.010 of the Securities Act of Washington. The
Summary Order alleges, among other things, that Engelman and the Company offered
to sell shares of the Company that were not registered in the state or otherwise
qualified for an exemption from registration. Engelman was hired by us to
represent us at the Third Annual Seattle Money Show and provide information to
interested parties about the Company and its products. We are in discussions
with the Securities Administrator regarding entering into an administrative
order and although no terms of an order have yet been proposed by the Securities
Administrator, the purpose of entering an order would be to resolve all claims
based on the allegations set forth in the Summary Order to Cease and Desist. A
total of approximately $251,240 of our securities were sold in Washington, and
we anticipate that any resolution of this matter with the Securities
Administrator would include the repurchase of these securities that amount, plus
interest thereon from the date of purchase. Until we receive a draft order from
the Securities Administrator, we are unable to determine the ultimate effects or
consequences of such an order. We have been requested to provide the Securities
Administrator with certain information before a draft order will be prepared,
and we are compiling such information. If we determine that the terms of a
proposed order are not acceptable, we would likely contest the Summary Order at
a hearing. The potential costs of a hearing and the uncertainty of the outcome
leads us to believe, however, that entering into an administrative order on
acceptable terms is in our best interests. Entering into an administrative order
may affect our business or our ability to raise capital in the State of
Washington and those states where having an outstanding administrative order may
result in the loss of certain available exemptions from registration of
securities.

      All sales of our shares in the State of Washington were made pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act").

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


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

      There were no matters submitted to a vote of security holders during the
fourth quarter of 2000.


                                     PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

                                       13


<PAGE>

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

       Fiscal Year 1999                   First Quarter       18.000      6.000
                                          Second Quarter      17.500      8.000
                                          Third Quarter       25.000      7.000
                                          Fourth Quarter       6.500      2.248

       Fiscal Year 2000                   First Quarter       12.248      2.248
                                          Second Quarter       5.248      1.500
                                          Third Quarter        4.248      1.500
                                          Fourth Quarter       1.872      0.624

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

      As of April 10, 2001, we had approximately 4,513,018 shares of common
stock issued and outstanding which were held by approximately 960 shareholders
of record, including the holders that have their shares held in a depository
trust in "street" name. The transfer agent for our common stock is Interwest
Transfer Company, 1981 East 4800 South, Salt Lake City, Utah 84117.

DIVIDEND POLICY

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

SALES OF UNREGISTERED SECURITIES

      Reference is made to information contained under the heading "Recent Sales
of Unregistered Securities" in our Form 10-SB, Amendment No. 2, filed with the
Securities and Exchange Commission on January 14, 2000 and Form 10-KSB,
Amendment No.2, filed with the Securities and Exchange Commission on May 1,
2000, which information is incorporated herein. The number of shares and share
prices disclosed below reflect the reverse stock split which occurred on April
10, 2001.

      In May 2000, we completed a private placement of shares of our common
stock pursuant to Section 506 of Regulation D under the Securities Act. Pursuant
to the offering, we issued 435,000 shares at a price of $2.00 per share, and
raised cash proceeds of $815,100, net of legal costs and shares issued in
payment of a company loan of $52,400 owed to an investor in the private
placement. In addition we issued 36,667 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 Securities Act.

      In October 2000, we commenced a private placement of shares of our common
stock pursuant to Section 506 of Regulation D under the Securities Act. Pursuant
to the offering, between October 1, 2000, and March 6, 2001, we issued 319,200
shares at a price of $1.00 per share and raised cash proceeds of $298,050.

      Between January 1, 2000, and March 6, 2001, we issued an aggregate of
168,469 unregistered shares pursuant to a number of agreements with third-party
consultants and service providers. All such shares were issued under Section
4(2) of the Securities Act. During this same time period, we also issued 185,625
S-8 shares for the exercise of options and received $350,250. Additionally,
744,803 shares were issued for the conversion of short-term debt and related
interest of $699,526.

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

                                       14


<PAGE>

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


RESULTS OF OPERATIONS 2000 COMPARED TO 1999

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

      Total revenues decreased by 42% ($957,999) to $1,344,016 for the twelve
months ended December 31, 2000 from $2,302,015 for the twelve months ended
December 31, 1999.

      Music sales decreased by 37% ($454,485) to $766,971 for the twelve months
ended December 31, 2000 from $1,221,456 for the twelve months ended December 31,
1999. At December 31, 1999, our provision for sales returns was based on a
percentage of related receivables at that date. During 2000, we received a
return of $127,000 from a customer for sales paid for in 1999 and not provided
for in our 1999 provision. Adjusting for this item, music sales decreased by 18%
($200,485) to $893,971 for the twelve months ended December 31,2000 from
$1,094,456 for the twelve months ended December 31, 2000. In addition to
returns, the decrease is a result of reduced marketing effort due to a shortage
of funds. Sales from our web site increased by 26% ($28,248) to $135,644 for the
twelve months ended December 31, 2000 from $107,396 for the twelve months ended
December 31, 1999. These sales were primarily a result of promotional activities
in the third quarter of 1999 and first and second quarters of 2000. In the
twelve months ended December 31, 2000 the company recognized licensing revenues
of $40,984 relating to the granting of a master toy license and foreign licenses
under our Baby Genius licensing program.

                                       15


<PAGE>

      Jewelry and other sales decreased 50% ($544,498) to $536,061 for the
twelve months ended December 31, 2000 from $1,080,559 for the twelve months
ended December 31, 1999. The reduction in sales was a result of reduced
marketing efforts as management focused on developing the music business.

      Cost of sales consists primarily of the cost of products sold to
customers, packaging and shipping costs, commissions relating to licensing
revenues and provisions for obsolescence of inventory. Cost of sales for music
products was 43% of music sales ($328,993) for the twelve months ended December
31, 2000 compared to 24% for the same period in 1999. The resulting decrease in
profit margin to 57% for the twelve months ended December 31, 2000 from 76% for
the twelve months ended December 31, 1999, was due to special promotional offers
to customers purchasing from our web site and the lowering of our retail sales
price in September, which affected seasonal fourth quarter sales. Cost of sales
for jewelry products and other sales was 87% ($467,613) of related sales
compared to 93% ($1,008,902) for the same period in 1999. For the twelve months
ended December 31, 2000, we made provision for inventory obsolescence of
$235,000. Of this provision, $207,000 relates to the Wunder Boner product line
and $28,000 to Baby Genius products made obsolete by the introduction of new
packaging graphics.

      Sales and marketing expenses consist of costs for consultants, marketing
personnel and promotional activities. Sales and marketing expenses decreased by
47% ($503,140) to $566,805 for the twelve months ended December 31, 2000 from
$1,069,945 for the twelve months ended December 31, 1999. These decreases are as
a result of our declining to renew our contract with our spokesperson, and in
addition conserving funds by not retaining consultants engaged in prior periods.

      Infomercial expenses of $53,750 incurred in the twelve months ended
December 31, 1999 related to costs for the Astrology Network product line. In
March 1999, management decided not to develop this product line.

      Product and web development expenses consist of personnel, consultants and
services in the development of the Baby Genius web site and product line.
Product and web development costs increased by 118% ($282,749) to $522,804 for
the twelve months ended December 31, 2000 from $240,055 for the twelve months
ended December 31, 1999. The increase was primarily due to expenses in the
development of the Baby Genius web site and product line costs including the
introduction of new packaging graphics.

      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 10%
($163,728) to $1,818,083 for the twelve months ended December 31, 2000 from
$1,654,355 for the twelve months ended December 31, 1999. This increase was due
to a rise in personnel costs and audit, accounting, legal and professional fees
related to audited financial statements for 1999, preparation and filing of our
Forms 10-SB, 10-KSB and other filings with the Securities and Exchange
Commission, and services related to fund raising activities. The cost of these
expenses was partially offset by our conserving funds in the area of
office administrative and other general corporate expenses.

      Interest expense consists of costs related to debentures, short-term loans
and stock subject to rescission. Interest expense decreased by 60% ($38,245) to
$25,230 for the twelve months ended December 31, 2000 from $63,475 for the
twelve months ended December 31, 1999. This decrease reflects a reduction in
loans in 2000 compared with the prior year. In addition $14,750 of interest
expense was accrued in 2000 in respect of redeemable common stock compared with
$38,787 in 1999.

      Our net loss increased $553,894 to $2,633,292 in 2000 from $2,079,398 in
1999. As a result of this loss and the losses incurred since 1997, we accrued a
net operating loss carryforward as of December 31, 2000, of $6,943,000 and
$3,472,000 for federal and state income tax purposes, respectively. The federal
and state net operating losses begin to expire in 2012 and 2002, respectively.
Because we anticipate significant expenditures with respect to implementing our
business plan, including our Internet e-commerce business, it is uncertain that
we will be sufficiently profitable, if at all, during the net operating loss
carryforward period to realize the deferred income tax asset. These factors,
among others as discussed in Note 10 to the financial statements, raise
substantial doubt about our ability to continue as a going concern.

                                       16


<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      Since 1997, we have incurred significant losses. Our primary source of
cash is the sale of shares of our common stock. We 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 the Securities Act, which reduces their liquidity and accordingly their
value as compared to freely-trading shares on the open market). The number of
shares and share prices disclosed below reflect the reverse stock split which
occurred on April 10, 2001.

      In 2000, we received cash from accredited investors in two private
placement offerings under Regulation D of the Securities Act. These funds were
used for accounts payable and other working capital requirements. In May 2000,
we completed a private placement under which we issued 471,667 shares at a price
of $2.00 per share, and raised $815,100 net of finders' fees, legal costs and
shares issued in payment of a Company loan of $52,400 owed to an investor in the
private placement. In October 2000, we commenced a private placement offering
under which we issued 304,200 shares at a price of $1.00 per share and raised
$304,200 net of finders' fees and legal costs. In addition, we received $191,250
from the issuance of convertible debentures, $211,600 net from loans from
officers and shareholders and $174,250 from the exercise of options net of costs
and subscriptions receivable. 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 on an adjusted basis we will be cash-flow positive
from operations in the fourth quarter of 2001. Such projections do not, however,
take into account the possible repayment of the $420,323 plus accrued interest
of $53,537, that we may be obligated to pay in connection with certain
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.

      In March 2001, we commenced a private placement of shares under Regulation
D of the Securities Act and raised net proceeds of $283,500 to provide
financing for the production of new video and music products and other
working capital requirements. We have also retained a consultant 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 consultant will succeed in
raising further 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 potential source of short-term financing which we are exploring
is the selling of our accounts receivable (factoring) although the costs of
such financing are expensive.

      In March 1999, we entered into an Investment Agreement with MCG which
grants MCG the right to purchase up to 375,000 shares of our common stock at a
purchase price of $4.00 per share, of which 150,000 shares had been purchased by
MCG by April 1999. In December 2000, we terminated the Investment Agreements
with MCG, in consideration of which we issued MCG 6,250 shares of common stock.

      Net cash used in operating activities was $1,613,656 and $1,570,056 for
the twelve months ended December 31, 2000 and December 31, 1999 respectively.
Net operating cash flows for the twelve months ended December 31, 2000 were
primarily attributable to operating losses of $2,633,292 partially offset by a
decrease in accounts receivable of $238,124, increases in accounts payable of
$114,358 and accrued expenses of $103,781, and non-cash charges for depreciation
and amortization and stock and options issued for services. Net operating cash
flows for the twelve months ended December 31, 1999 were primarily attributable
to operating losses of $2,079,398 and an increase in accounts receivable of
$319,442 partially offset by non-cash charges for stock issued for services.

      Net cash used in investing activities was $94,599 and $444,893 for the
twelve months ended December 31, 2000 and December 31, 1999 respectively. Net
cash used in investing activities for the twelve months ended December 31, 2000
was attributable to the development of production masters ($88,205) and the
purchase of property and equipment ($6,394). Net cash used in investing
activities for the twelve months ended December 31, 1999 of $350,502 was
attributable to 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 was $1,717,550 and $1,929,425
for the twelve months ended December 31, 2000 and December 31, 1999
respectively. For both periods cash provided by financing activities was
primarily attributable to proceeds from the issuance of common stock through
private placement offerings and was used in product development and marketing of
the Baby Genius product line and to provide additional working capital.


ITEM 7. FINANCIAL STATEMENTS

                       GENIUS PRODUCTS, INC. AND SUBSIDIARIES

                             INDEX TO FINANCIAL STATEMENTS

                                                                        Page
                                                                        Number
                                                                      ---------

Report of Independent Auditors                                          II-1

Consolidated Balance Sheet                                              II-2

Consolidated Statements of Operations                                   II-3

Consolidated Statements of Stockholders' Deficit                        II-4

Consolidated Statements of Cash Flows                                   II-5

Notes to Consolidated Financial Statements                              II-6



                                       17


<PAGE>

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Genius Products, Inc.

We have audited the accompanying consolidated balance sheet of Genius Products,
Inc. and Subsidiaries as of December 31, 2000 and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
years in the two-year period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Genius Products,
Inc. and Subsidiaries as of December 31, 2000, and the results of their
operations and cash flows for each of the years in the two-year period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 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
March 20, 2001

                                      II-1

<PAGE>
<TABLE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

<CAPTION>
                                                                       December 31, 2000
                                                                       -----------------
<S>                                                                    <C>
                                ASSETS

Current assets:

  Cash and equivalents                                                 $         54,928
  Accounts receivable, net of allowance for
      doubtful accounts and sales returns of $217,237                           334,269
  Inventories                                                                   118,869
                                                                       -----------------

   Total current assets                                                         508,066

Property and equipment, net                                                      86,241
Production masters, net of accumulated amortization of $203,641                 235,066
Patents and trademarks, net of accumulated
     amortization of $7,598                                                      26,706
Deposits and other                                                               60,929
                                                                       -----------------

                                                                       $        917,008
                                                                       =================

                LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

  Convertible debentures                                               $        191,250
  Accounts payable                                                              668,860
  Accrued payroll and related expenses                                           85,270
  Other accrued expenses                                                        146,314
  Loans from shareholders                                                        46,667
                                                                       -----------------

    Total current liabilities                                                 1,138,361

Redeemable common stock                                                         473,860

Commitments and contingencies                                                         -

Stockholders' deficit:
  Common stock, $.001 par value; 25,000,000 shares
  authorized; 3,979,444 shares outstanding                                        3,979
  Additional paid-in capital                                                  6,980,211
  Stock subscription receivable                                                (106,000)
  Accumulated deficit                                                        (7,573,403)
                                                                       -----------------

    Total stockholders' deficit                                                (695,213)
                                                                       -----------------

                                                                       $        917,008
                                                                       =================
</TABLE>

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

                                      II-2

<PAGE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                      Year Ended December 31,
                                                   -----------------------------
                                                       2000             1999
                                                   ------------     ------------


Revenues:
   Music                                           $   766,971      $ 1,221,456
   Jewelry                                             536,061        1,080,559
   Licensing                                            40,984                -
                                                   ------------     ------------
  Total revenues                                     1,344,016        2,302,015
                                                   ------------     ------------

Costs and expenses:
  Cost of sales:
     Music                                             328,993          290,131
     Jewelry                                           467,613        1,008,902
     Licensing                                          11,250                -
     Inventory writedown                               235,000                -
  Sales and marketing                                  566,805        1,069,945
  Infomercial                                                -           53,750
  Product and Web development                          522,804          240,055
  General and administrative                         1,818,083        1,654,355
                                                   ------------     ------------

  Total costs and expenses                           3,950,548        4,317,138
                                                   ------------     ------------

  Loss from operations                              (2,606,532)      (2,015,123)

Interest expense                                       (25,160)         (63,475)
                                                   ------------     ------------

  Loss before provision for income taxes            (2,631,692)      (2,078,598)

Provision for income taxes                              (1,600)            (800)
                                                   ------------     ------------

  Net loss                                         $(2,633,292)     $(2,079,398)
                                                   ============     ============

Basic and diluted loss per common share:

  Net loss per share                               $     (0.80)     $     (0.88)
                                                   ============     ============

Basic and diluted weighted average shares            3,304,868        2,382,800
                                                   ============     ============


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


                                      II-3
<PAGE>
<TABLE>

                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

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

<S>                                  <C>           <C>         <C>           <C>             <C>                <C>
Balance, December 31, 1998           2,077,266     $ 2,077     $ 2,705,641   $          -    $ (2,860,713)      $ (152,995)

  Shares issued under
    investment agreement               150,000         150         599,850              -               -          600,000
  Shares issued in private
    placement, net of offering costs   128,475         128         551,600              -               -          551,728
  Shares issued in private
    placement, net of offering costs   138,029         138         677,492              -               -          677,630
  Less proceeds from sale of
    shares subject to redemption             -           -        (261,323)             -               -         (261,323)
  Shares issued for services            93,761          94         493,711              -               -          493,805
  Shares issued upon conversion
     of debentures                     100,000         100         199,900              -               -          200,000
  Net loss                                   -           -               -              -      (2,079,398)      (2,079,398)
                                   ------------  ----------  --------------  -------------  -------------- ----------------
Balance, December 31, 1999           2,687,531       2,687       4,966,871              -      (4,940,111)          29,447

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



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



                                      II-4
<PAGE>
<TABLE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

                                                             Year Ended December 31,
                                                          ---------------------------
                                                             2000            1999
                                                          ------------   ------------
<S>                                                       <C>            <C>
Cash flows from operating activities:
  Net loss                                                $(2,633,292)   $(2,079,398)
  Adjustments to reconcile net loss to
    net cash used by operating activities:
    Depreciation and amortization                             166,992         87,819
    Interest expense on redeemable stock                       14,750         38,787
    Bad debt expense                                           13,179         75,004
    Common stock issued for services                          160,908        493,805
    Stock options granted to non-employees for services       119,174              -
  Changes in assets and liabilities:
    (Increase) decrease in:
      Accounts receivable                                     224,945       (319,442)
      Inventories                                              56,278        (38,251)
      Other assets                                              8,390         42,747
    Increase (decrease) in:
      Accounts payable                                        114,358         44,319
      Accrued expenses                                        103,781         94,889
                                                          ------------   ------------
    Net cash used by operating activities                  (1,650,537)    (1,559,721)
                                                          ------------   ------------

Cash flows from investing activities:
  Development of production masters                           (88,205)      (350,502)
  Additions to patents and trademarks                         (11,969)       (10,335)
  Purchase of property and equipment                           (6,394)       (94,391)
                                                          ------------   ------------
    Net cash used in investing activities                    (106,568)      (455,228)
                                                          ------------   ------------

Cash flows from financing activities:
  Proceeds from issuance of convertible debentures            191,250              -
  Loans from shareholders                                     265,000        100,067
  Proceeds from exercise of options                           244,250              -
  Proceeds from issuance of common stock                    1,119,300      1,829,358
  Repayment of loans from shareholders                        (53,400)             -
                                                          ------------   ------------
    Net cash provided by financing activities               1,766,400      1,929,425
                                                          ------------   ------------

Net increase (decrease) in cash and equivalents                 9,295        (85,524)

Cash and equivalents, beginning of year                        45,633        131,157
                                                          ------------   ------------

Cash and equivalents, end of year                         $    54,928    $    45,633
                                                          ============   ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid                                             $     4,345    $         -
Income taxes paid                                         $       800    $       800
Debentures converted into common stock                    $   265,000    $   200,000

</TABLE>


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

                                      II-5

<PAGE>


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

                                DECEMBER 31, 2000

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

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

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

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

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      ------------------------------------------

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

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

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

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

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

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

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

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


                                      II-6
<PAGE>
                     GENIUS PRODUCTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

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

      In 2000, the largest jewelry and music customer accounted for 93% and 29%
      of jewelry and music sales, respectively. In 1999, the largest jewelry and
      music customer accounted for 65% and 34% of jewelry and music sales,
      respectively. At December 31, 2000, these two customers accounted for 72%
      of accounts receivable.

      Financial instruments that potentially subject the Company to
      concentration of credit risk consist primarily of temporary cash
      investments and trade receivables. The Company restricts investment of
      temporary cash investments to financial institutions with investment grade
      credit ratings. 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. In 2000,
      the Company recorded inventory writedowns of $235,000; $207,000 related to
      the Wunder Boner product line which the Company decided not to pursue, and
      $28,000 related to obsolete Baby Genius packaging.

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

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

      Production masters are stated at cost net of accumulated amortization.
      Costs incurred for production masters, including licenses to use certain
      classical compositions, royalties, recording and design costs, are
      capitalized and amortized over a three year period from the time a title
      is initially released, consistent with the estimated timing of revenue for
      a title. Amortization expense was $136,066 in 2000 and $ 67,575 in 1999.

      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 $5,560 in 2000 and $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,
      convertible debentures, loans from shareholders, accounts payable, and
      accrued expenses approximate fair value.

                                      II-7

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


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

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

      The Company has elected to adopt the disclosure provisions only of SFAS
      123 and continues to measure compensation cost related to stock and stock
      options issued to employees using the intrinsic method of accounting
      prescribed by Accounting Principles Board Opinion No. 25 ("APB25"),
      "Accounting for Stock Issued to Employees," and related interpretations.

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

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

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

      Advertising costs including infomercial costs are expensed as incurred.
      Advertising costs were $80,034 and $103,920, in 2000 and 1999,
      respectively.

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

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

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

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

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

      Certain items in the 1999 financial statements have been reclassified to
      conform with the 2000 presentation.

                                      II-8

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

<TABLE>

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

                                                                2000          Useful lives
                                                         -------------    ------------------
     <S>                                                  <C>              <C>
     Computers and equipment                              $     89,406        3 - 5 years
     Furniture and fixtures                                     27,961        3 - 7 years
     Leasehold improvements                                     25,134     Lesser of lease term
                                                          -------------      or useful life.

                                                               142,501
     Accumulated depreciation and amortization                 (56,260)
                                                          -------------

                                                          $     86,241
                                                          =============
</TABLE>


      Depreciation expense was $25,366 in 2000 and $18,206 in 1999.

3.    DEBT
----------

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

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

      During 1998, the Company issued two convertible debentures to individual
      investors totaling $200,000. The debentures were converted into 100,000
      shares of the Company's common stock on December 31, 1999, at a conversion
      price of $2.00 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
      -----------------------

      During 2000, the Company borrowed $265,000 from two shareholders and
      converted the debt into 265,000 shares of common stock.

      In the fourth quarter of 1999, the Company borrowed a total of $100,067
      from two of its shareholders. The notes are due on demand and accrue
      interest at a rate of 7% per year. The accrued interest is not due until
      demand for payment is made by the shareholders. One note totaling $53,400
      was repaid, and the other note of $46,667 remains outstanding at December
      31, 2000. Interest expense in 2000 was $3,294 and in 1999 was $850.


                                      II-9

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



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

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

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

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

      During 2000, $265,000 of debt was converted into 265,000 common shares.

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

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

      During 1999, the Company sold 128,475 shares of its common stock at $5.00,
      pursuant to a private placement, less commissions and offering costs, for
      net proceeds of $551,728.

      During 1999, the Company sold 138,029 shares of its common stock at $5.80,
      pursuant to a private placement, less commissions and offering costs, for
      net proceeds of $677,630.

      During 1999, the Company issued 93,761 shares of common stock for services
      valued at $493,805.

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

      During 1999, the Company reviewed certain aspects of its issuances of
      common stock and determined that during 1997, 1998 and through September
      1999, it sold common stock in private placement transactions which may be
      subject to redemption. The total number of shares subject to redemption at
      December 31, 2000 was 76,888. Accordingly, additional paid in capital has
      been reduced by $420,323 to reflect the cumulative amounts subject to
      redemption. In addition, accrued interest of $53,537 is included in the
      caption redeemable common stock in the accompanying balance sheet.

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

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


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


5.    STOCK OPTIONS
-------------------

      Employees
      ---------

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

      During 1999, the Company granted options to its employees to purchase a
      total of 357,500 shares of its common stock at exercise prices of $9.00 to
      $10.52 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:

                                         2000              1999
                                     -------------    -------------
      Net loss
        As reported                  $ (2,633,292)    $ (2,079,398)
        Pro forma                    $ (3,664,292)    $ (3,835,398)

      Basic and diluted loss
       per share:
        As reported                  $      (0.80)    $      (0.88)
        Pro forma                    $      (1.12)    $      (1.60)


      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 2000 and 1999,
      respectively: expected volatility of 50% and 150%, respectively, and
      risk-free interest of 6.50% and 6.50%, respectively, expected life of 1 to
      10 years and no expected dividends for both years. The estimated
      weighted-average fair value of stock options granted in 2000 and 1999 was
      $.22 and $1.28, respectively.

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

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

      During 1999, the Company granted options to five individuals, for services
      rendered, to purchase a total of 3,750 shares of its common stock at an
      exercise price between $9.00 and $10.00 per share.


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



5.    STOCK OPTIONS (CONTINUED)
-------------------------------
<TABLE>

      A summary of stock option activity follows:
<CAPTION>
                                              Weighted                          Weighted
                                              Average                           Average
                               Number      Exercise price    Exercisable     Exercise price
                           -------------   --------------   --------------   --------------
<S>                             <C>             <C>           <C>               <C>
December 31, 1998               631,250         $5.52            37,500         $13.60

Granted                         361,250         $9.60
Exercised                             -             -
Canceled                              -             -
                           -------------   --------------   --------------   --------------

December 31, 1999               992,500         $7.04           672,375         $5.80

Granted                       1,186,885         $2.24
Exercised                      (148,125)        $2.08
Canceled                              -             -
                           -------------   --------------   --------------   --------------

December 31, 2000             2,031,260         $3.48         1,916,260         $3.44
                           =============   ==============   ==============   ==============
</TABLE>

<TABLE>

      The following information applies to all options outstanding at December
      31, 2000:
<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>
      $.80 - 1.28                 498,750         1              $ 0.84           498,750           $ 0.84
      $2.16 - 2.44                488,760         9              $ 2.16           476,260           $ 2.16
      $3.92 - 4.36                 23,750         3              $ 4.12            23,750           $ 4.12
      $5.00                       958,750         9              $ 5.00           856,250           $ 5.00
      $9.00 - 10.52                23,750         9              $ 9.80            23,750           $ 9.80
      $13.60                       37,500         8              $13.60            37,500           $13.60
                          ----------------                                   ------------
                                2,031,260                                       1,916,260
                          ================                                   ============

</TABLE>

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

                                     II-12

<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 2000 and 1999 was $155,248 and
      $149,335, respectively.

      As of December 31, 2000, the future minimum rental commitments required
      under existing noncancelable operating leases are as follows:

         2001                            $ 126,000
         2002                              121,000
         2003                              118,000
         2004                                    -
                                     --------------
                                         $ 365,000
                                     ==============

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

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

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

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

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

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

                                     II-13

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



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

      Included in deposits and other assets is $21,555 of advances made to two
      officers of the Company.

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

      The provision for income taxes in 2000 and 1999 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:

      The Company has net operating loss (NOL) carryforwards that can be
      utilized to offset future taxable income. At December 31, 2000, federal
      NOL carryforwards totaled approximately $6,943,000. The federal
      carryforwards expire in various years ending September 30 as follows:

         2011                           $      238,000
         2012                                  435,000
         2018                                1,558,000
         2019                                2,079,000
         2020                                2,633,000
                                        --------------

                                        $    6,943,000
                                        ==============



      In addition the Company has approximately $3,472,000 of state NOL
      carryforwards that expire in various years through 2005.

      Deferred income taxes at December 31, 2000 and 1999 relate to net
      operating losses and allowance accounts. A valuation allowance has been
      established to reduce deferred tax assets to amounts which management
      believes are more likely than not to be realized.

                                                    2000                1999
                                                 ------------       ------------

      NOL carryforwards                          $ 2,360,000        $ 1,465,000
      Allowance accounts                            (154,000)           (74,000)
                                                 ------------       ------------
      Deferred tax assets                          2,206,000          1,391,000
      Less valuation allowance                    (2,206,000)        (1,391,000)
                                                 ------------       ------------
      Net deferred tax asset                     $         -        $         -
                                                 ============       ============


      The valuation allowance increased by $815,000 in 2000 and $560,000 in
      1999.


                                     II-14

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



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

                                                        2000            1999
                                                    -------------   ------------
Numerator
---------
    Net loss                                        $ (2,633,292)   $(2,079,398)
                                                    =============   ============

Denominator
-----------
    Basic and diluted weighted average number of
    common shares outstanding during the period        3,304,868      2,382,800
                                                    =============   ============

Basic and diluted net loss per share                $      (0.80)   $     (0.88)
                                                    =============   ============

      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                           1,901,875        951,250
      Non-employee stock options                         129,385         41,250
      Convertible debentures                             191,250              -


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

      The Company has incurred significant losses from operations in each of the
      last three years, and needs substantial capital to implement its business
      plan. In addition, as discussed in Note 4, 76,888 shares of common stock
      issued in private placements is subject to redemption and the Company may
      be obligated to pay cash of up to $473,860 to these investors.

      The Company has retained a consultant to help raise funds through private
      placements of common shares on a "best efforts" basis, as well as to
      provide investor relations services. In March 2001, the Company commenced
      a private placement of shares under Regulation D of the 1933 Securities
      Act, to provide financing for the production of new video and music
      products and other working capital requirements. 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. Failure to obtain
      financing will have a material adverse effect on operations and financial
      condition.


                                     II-15
<PAGE>

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

        None.


                                    PART III

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

EXECUTIVE OFFICERS

       The executive officers who are not also directors of the Company are as
       follows:
       NAME                       AGE              POSITION
       ----                       ---              --------
       Klaus Moeller              41               Chairman of the Board and
                                                     Chief Executive Officer
       Deborah L. Cross           46               Director
       Michael Meader             36               Executive Vice President
       Larry Balaban              38               Senior Vice President
       Howard Balaban             41               Senior Vice President
       Alison Elliott             44               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.

         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.


                                       18


<PAGE>

         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, 2000, 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, 2000, 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, 2000, certain written representations and shareholders who,
to the best of our knowledge, hold 10% or more of Company shares.


ITEM 10. EXECUTIVE COMPENSATION

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

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

DIRECTOR COMPENSATION*

         Directors receive no cash compensation for their services to the
Company as directors, but are reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors. On March 14, 2000,
Deborah Cross was granted 7,500 options to purchase shares of our
common stock at an exercise price of $4.40. The market price of our
shares on the date of grant was $3.50. The rights to exercise the options vest
in full on July 14, 2000, and the options expire as of March 14, 2010.

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

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.


                                     19


<PAGE>
<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>
Klaus Moeller            2000         150,000/(1)/     0              0           0        137,500             0             0
CEO                      1999         146,000          0              0           0              0             0             0
                         1998         102,000          0              0           0              0             0             0

Dorian Lowell            2000         150,000          0              0           0         87,500             0             0
President                1999          63,249          0              0           0        187,500             0             0
                         1998               0          0              0           0              0             0             0

Michael Meader           2000         150,000/(1)/     0              0           0        137,500             0             0
Executive VP             1999         146,000          0              0           0              0             0             0
                         1998         102,000          0              0           0              0             0             0

Larry Balaban            2000         110,000          0              0           0        237,500             0             0
Senior VP                1999         107,874          0              0           0         75,000             0             0
                         1998               0          0              0           0         12,500             0             0

Howard Balaban           2000         110,000          0              0           0        237,500             0             0
Senior VP                1999         113,892          0              0           0         75,000             0             0
                         1998               0          0              0           0         12,500             0             0

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

(1)     During 2000, in response to the Company's limited cash flow, Mr.
Moeller and Mr. Meader each agreed to accept approximately $12,000 of their
salaries in the form of shares of common stock based upon the closing price of
the common stock as of January 2, 2001, which was $0.80. Pursuant to these
agreements, each of Mr. Moeller and Mr. Meader shall be issued 14,583 shares of
common stock.

         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, 2000.

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                (INCLUDES OPTIONS REPRICED IN LAST FISCAL YEAR)*

                                INDIVIDUAL GRANTS
--------------------------------------------------------------------------------
                     NUMBER OF      PERCENT OF TOTAL
                     SECURITIES       OPTIONS/SARS
                     UNDERLYING        GRANTED TO      EXERCISE OR
                    OPTIONS/SARS      EMPLOYEES IN      BASE PRICE    EXPIRATION
        NAME        GRANTED (#)      FISCAL YEAR(%)       ($/SH)         DATE
--------------------------------------------------------------------------------

Klaus Moeller         87,500(1)         10%               0.80      05/25/10
                      50,000             5%               0.80      11/18/10

Dorian Lowell         87,500(1)         10%               0.80      05/25/10

Michael Meader        87,500(1)         10%               0.80      05/25/10
                      50,000             5%               0.80      11/18/10

Larry Balaban         87,500(1)         10%               0.80      05/25/10
                     150,000            16%               0.80      11/18/10

Howard Balaban        87,500(1)         10%               0.80      05/25/10
                     150,000            16%               0.80      11/18/10

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

(1)      Repriced on November 30, 2000, from an original exercise price of
         $2.16.


                                          20



<PAGE>
<TABLE>

         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, 2000, and the value of all
exercisable and unexercisable options at December 31, 2000.

             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>
Klaus Moeller            338          994             324,375              0            0              0
Dorian Lowell            338          994             275,800              0            0              0
Michael Meader           338          994             324,375              0            0              0
Larry Balaban            338          994             324,375              0            0              0
Howard Balaban           338          994             324,375              0            0              0

</TABLE>

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

(1)      Based on the closing price for our common stock at the close of market
         on December 31, 2000. On December 31, 1999, the price of our common
         stock was $0.80. The lowest exercise price of any outstanding option
         was $0.80.

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

1.       reprice 12,500 options previously granted to Larry Balaban on December
         1, 1998, from an original exercise price of $10.00 to $5.00;

2.       reprice 75,000 options previously granted to Larry Balaban on January
         6, 1999, from an original exercise price of $10.00 to $5.00;

3.       reprice 12,500 options previously granted to Howard Balaban on December
         1, 1998, from an original exercise price of $10.00 to $5.00;

4.       reprice 75,000 options previously granted to Howard Balaban on January
         6, 1999, from an original exercise price of $10.00 to $5.00;

5.       reprice 37,500 options previously granted to Dorian Lowell on August
         24, 1999, from an original exercise price of $10.52 to $5.00, 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 37,500 options previously granted to Dorian Lowell on August
         24, 1999, from an original exercise price of $10.52 to $5.00, 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 112,500 options previously granted to Dorian Lowell on
         September 30, 1999, from an original exercise price of $9.00 to $5.00.

         On October 16, 2000, by a unanimous consent of the board of directors
and the committee appointed by the board to manage our non-qualified stock
option plan, the board resolved to:

1.       reprice 187,500 options granted to Klaus Moeller in previous years from
         a price of $5.00 to $2.75;

2.       reprice 187,500 options granted to Michael Meader in previous years
         from a price of $5.00 to $2.75;

3.       reprice 187,500 options granted to Dorian Lowell in previous years from
         a price of $5.00 to $2.75;

4.       reprice 87,500 options granted to Larry Balaban in previous years from
         a price of $5.00 to $2.75; and


                                          21



<PAGE>

5.       reprice 87,500 options granted to Howard Balaban in previous years
         from a price of $5.00 to $2.75.

         On November 30, 2000, by a unanimous consent of the board of directors
and the committee appointed by the board to manage our non-qualified
stock option plan, the board resolved to:

1.       reprice 187,500 options granted to Klaus Moeller in previous years from
         a price of $2.75 to $0.80;

2.       reprice 187,500 options granted to Michael Meader in previous years
         from a price of $2.75 to $0.80;

3.       reprice 187,500 options granted to Dorian Lowell in previous years from
         a price of $2.75 to $0.80;

4.       reprice 87,500 options granted to Larry Balaban in previous years from
         a price of $2.75 to $0.80; and

5.       reprice 87,500 options granted to Howard Balaban in previous years
         from a price of $2.75 to $0.80.

         The closing price of the shares of our common stock on April 5,
2001 was $0.6248 (adjusted for the reverse stock split of April 10, 2001).
Since the original dates of grant, the price of our shares steadily declined.
We believe that we will only retain executives of caliber and
experience if they are offered competitive compensation packages.
Because we 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 our executives have made significant
contributions 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 our business operations and prospects.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT*

         The following table sets forth certain information known to the Company
with respect to the beneficial ownership of common stock as of
April 6, 2001 by (i) each person who is known by the Company to own beneficially
more than 5% of common stock, (ii) each of the Company's directors
and executive officers, and (iii) all officers and directors of the Company as a
group. Except as otherwise listed below, the address of each person is c/o
Genius Products, Inc. 11250 El Camino Real, #100, San Diego, California 92130.

<TABLE>
<CAPTION>

  NAME AND ADDRESS OF OWNER                            SHARES BENEFICIALLY OWNED(1)
  -------------------------                              -------------------------
                                                      Number                  Percent(2)
                                                      ------                  ----------
<S>                                                  <C>                      <C>
Klaus Moeller, Director                                369,375                6.01%(3)(4)(5)
Deborah L. Cross, Director                                   0                   0%
Dorian Lowell, President                               275,800                4.49%
Michael Meader, Executive Vice President               411,875                6.70%(6)
Larry Balaban, Senior Vice President                   326,313                5.31%
Howard Balaban, Senior Vice President                  326,250                5.31%
Alison Elliott, Treasurer and Controller                28,750                0.47%

All officers and directors as a group (7 persons)    1,738,363               28.29%

</TABLE>
--------------------
*       The number of shares and share prices reflect the reverse stock split
which occurred on April 10, 2001.


                                           22


<PAGE>

(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 9, 2001 are deemed
         outstanding for computing the percentage of the person holding such
         option or warrant but are not deemed outstanding for computing the
         percentage of any other person. Except as pursuant to applicable
         community property laws, the persons named in the table have sole
         voting and investment power with respect to all shares of Common Stock
         beneficially owned.

(2)      Does not include 12,500 shares of Common Stock issuable upon exercise
         of outstanding warrants.


(3)      Includes 90,000 shares held by Shelly Moeller (as her sole property),
         who is the wife of Klaus Moeller. Mr. Moeller disclaims all beneficial
         ownership of such shares, including all voting, transfer and investment
         powers relating thereto.

(4)      Includes 37,500 shares held by Dorian Lowell as custodian for Tia
         Moeller, who is the daughter of Klaus Moeller. Mr. Moeller disclaims
         all beneficial ownership of such shares, including all voting, transfer
         and investment powers relating thereto.

(5)      Includes 37,500 shares held by Dorian Lowell as custodian for Hayden
         Moeller, who is the son of Klaus Moeller. Mr. Moeller disclaims all
         beneficial ownership of such shares, including all voting, transfer and
         investment powers relating thereto.

(6)      Includes 25,000 shares held by Suzanne Meader, who is the wife of
         Michael Meader.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

         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 187,500 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. Mr. Edick will, however, retain his options to purchase
187,500 shares of our common stock as set forth in the severance
letter. Under the Consulting Agreement, Mr. Edick was to be paid $14,500 per
month from March 1 through September 30, 2000, in consideration for investor
relations and fundraising services to be performed by Mr. Edick.

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

         We currently have employment and change of control agreements in effect
for our senior executives. We are presently negotiating extensions of these
Agreements.


                                      23


<PAGE>


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

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

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

2.1             Agreement and Plan of Reorganization with Salutations, Inc., and
                related exhibits and consents*
3.1             Articles of Incorporation, as amended*
3.2.1           Bylaws, as amended*
3.2.2           Bylaws, as amended on April 20, 2000****
4.2             Shareholders Agreement with Minnesota Communications Group, and
                related exhibits and schedules*
4.3             Convertible Debenture with Russ Karlen*
4.4             Convertible Debenture with Steve Livingston*
4.5             Option Agreement to Purchase Common Stock with Kevin Harrington
                Enterprises, Inc.*
4.6             Option agreement to Purchase Common Stock with Tim Harrington*
4.7             Form of Stock Option Agreement with Employees*
4.8             Specimen Certificate for Common Stock***
10.1            License Agreement with Minnesota Communications Group*
10.2            License Agreement with Minnesota Public Radio*
10.3            Spokesperson Agreement for Deidre Hall with Panache, Inc., and
                related exhibits and addendum thereto*
10.4            Sublease with Torrey Hills Corporate Center, 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 of Executive Employment Agreement with Dorian
                Lowell*
10.13           Senior Executive Employment Agreement with Michael Meader*
10.14           Change of Control of Executive Employment Agreement with Michael
                Meader*
10.15           Executive Employment Agreement with Larry Balaban*
10.16           Change of Control of Executive Employment Agreement with Larry
                Balaban*
10.17           Executive Employment Agreement with Howard Balaban*
10.18           Change of Control of Executive Employment Agreement with Howard
                Balaban*
10.19           Executive Employment Agreement with Vinko Kovac*
10.20           Change of Control of 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/*
10.26           Service(s) Agreement with Cost Care, Inc. (dba Unicare Managed
                Care Services)**



<PAGE>

10.27           Executive Employment Agreement with Alison Elliott***
10.28           Change of Control Agreement with Alison Elliott***
10.29           Consulting Agreement with Gerald Edick***
10.30           Production Agreement with Richard Perry*****
10.31           Representation Agreement with Global Icons*****
10.32           Consulting Agreement with Johnny Drummond+
10.33           Stock Option Agreement with Klaus Moeller+
10.34           Stock Option Agreement with Dorian Lowell+
10.35           Stock Option Agreement with Michael Meader+
10.36           Stock Option Agreement with Larry Balaban+
10.37           Stock Option Agreement with Howard Balaban+
10.38           Stock Option Agreement with Alison Elliott+
10.39           License Agreement with Jakks Pacific, Inc.
10.40           License Agreement with Catton Apparel Group
10.41           License Agreement with J. Wasson Enterprises, Inc.
10.42           Settlement Agreement (Investment Agreement) with American Public
                Media Group(formerly known as Minnesota Communications Group)
10.43           Settlement Agreement (Shareholders Agreement) with American
                Public Media Group(formerly known as Minnesota Communications
                Group)
10.44           Production Agreement with James Sommers
23.1             Consent of independent auditors

------------------
*        Incorporated by reference from the exhibits included with the Company's
         Registration Statement (No. 000-27915) on Form 10-SB filed with the SEC
         on November 2, 1999.
**       Incorporated by reference from the exhibits included with the Company's
         Registration Statement (No. 000-27915), Amendment No. 1, on Form 10-SB
         filed with the SEC on December 17, 1999.
***      Incorporated by reference from the exhibits included with the Company's
         Form 10-KSB (No. 000-27915) filed with the SEC on April 14, 2000.
****     Incorporated by reference from the exhibits included with the Company's
         Form 10-KSB (No. 000-27915), Amendment No. 1, filed with the SEC on May
         1, 2000.
*****    Incorporated by reference from the exhibits included with the Company's
         Form 10-QSB (No. 000-27915), Amendment No. 1, filed with the SEC on May
         18, 2000.
+        Incorporated by reference from the exhibits included with the Company's
         Form 10-QSB (No. 000-27915), filed with the SEC on August 14, 2000.

         (b)      REPORTS ON FORM 8-K

         No reports on Form 8-K were filed by the Company during the last
quarter of fiscal 2000.



<PAGE>

                                   SIGNATURES

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

                                         GENIUS PRODUCTS, INC.,
                                         a Nevada Corporation


April 17, 2001                        By: /s/ Klaus Moeller
                                         ---------------------------------------
                                         Klaus Moeller, Chief Executive Officer,
                                         Chairman of the Board and Interim CFO


         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.


 /s/ Klaus Moeller        Chief Executive Officer, Chairman of    April 17, 2001
----------------------    the Board and Interim CFO
 Klaus Moeller


 /s/ Deborah L. Cross     Director                                April 17, 2001
----------------------
 Deborah L. Cross