**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**





(Mark
      One)




**x**
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**




For
      the
      quarterly period ended June 30, 2007




** ̈**
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                OF**




For
      the
      transition period from  to




COMMISSION
      FILE NUMBER 000-27915




**GENIUS
      PRODUCTS, INC.**


**(Exact
      name of registrant as specified in its charter)**





**DELAWARE**
            **33-0852923****(State
                or other jurisdiction**
              **of
                incorporation or organization)**
            **(IRS
                Employer**
              **Identification
                No.)**




**2230
      BROADWAY**


**SANTA
      MONICA, CA 90404**


**(Address
      of principal executive offices)**




**(310)
      453-1222**


**(Registrant's
      telephone number)**





**(Former
      name, former address and former fiscal year,**


**if
      changed since last report)**




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Exchange Act 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 ý No  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.




Large
                accelerated filer  ̈
            an
                accelerated filer  ̈
            or
                a non-accelerated filer x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.): Yes  ̈ No
x




There
      were 66,652,263 shares outstanding of the issuer's Common Stock as of July
      31,
      2007.









**GENIUS
      PRODUCTS, INC. AND SUBSIDIARIES**




**INDEX**







**PAGE****PART I**
            **FINANCIAL
                INFORMATION**Item 1
            Financial
                StatementsCondensed
                Consolidated Balance Sheets at June 30, 2007 (unaudited) and December
                31,
                2006 (audited)
            4Condensed
                Consolidated Statements of Operations for the Three and Six Months
                Ended
                June 30, 2007(unaudited)
                and 2006 (unaudited)
            5Condensed
                Consolidated Statements of Cash Flow for the Six Months Ended June
                30,
                2007 (unaudited) and 2006(unaudited)
            6Notes
                to Condensed Consolidated Financial Statements (unaudited)
            7Item 2
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            15Item 3
            Quantitative
                and Qualitative Disclosures About Market Risk
            18Item 4
            Controls
                and Procedures
            18**PART II**
            **OTHER
                INFORMATION**Item 1
            Legal
                Proceedings
            20Item 1A
            Risk
                Factors
            20Item 2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            21Item 3
            Defaults
                Upon Senior Securities
            21Item 4
            Submission
                of Matters to a Vote of Security Holders
            21Item 5
            Other
                Information
            21Item 6
            Exhibits
            21**SIGNATURES**
            22




2




**NOTICE
      ABOUT FORWARD-LOOKING STATEMENTS**




This
      Quarterly Report on Form 10-Q includes “forward-looking statements”. To the
      extent that the information presented in this Quarterly Report discusses
      financial projections, information or expectations about our business plans,
      results of operations, products or markets, or otherwise makes statements about
      future events, such statements are forward-looking. Such forward-looking
      statements can be identified by the use of words such as “intends”,
“anticipates”, “believes”, “estimates”, “projects”, “forecasts”, “expects”,
“plans” and “proposes”.




Although
      we believe that the expectations reflected in these forward-looking statements
      are based on reasonable assumptions, there are a number of risks and
      uncertainties that could cause actual results to differ materially from such
      forward-looking statements. These include, among others, the cautionary
      statements in the “Risk Factors” and “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” sections of this Quarterly
      Report. These cautionary statements identify important factors that could cause
      actual results to differ materially from those described in the forward-looking
      statements.




When
      considering forward-looking statements in this Quarterly Report, you should
      keep
      in mind the cautionary statements in the “Risk Factors” and “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations”
sections, and other sections of this Quarterly Report. Except as required by
      law, we do not intend to update our forward-looking statements, whether written
      or oral, to reflect events or circumstances after the date of this Quarterly
      Report.




3




**PART
      I - FINANCIAL INFORMATION**





**ITEM 1.**   **FINANCIAL
      STATEMENTS**





**GENIUS
        PRODUCTS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(IN
        THOUSANDS, EXCEPT SHARE AND PAR VALUE INFORMATION)**
   June
                  30,
              
              December
                  31,2007
              
              2006(Unaudited)
              
              (Note
                  2)**ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              7,210
              
              $
              3,745Prepaid
                  expenses and other current assets
              
              
              110
              
              
              110Amounts
                  receivable from affiliate
              
              
              694
              
              
              777Total
                  current assets
              
              
              8,014
              
              
              4,632Investment
                  in Distributor
              
              
              82,283
              
              
              84,796Total
                  assets
              
              $
              90,297
              
              $
              89,428**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable
              
              
              -
              
              
              59Accrued
                  expenses
              
              
              898
              
              
              865Total
                  current liabilities
              
              
              898
              
              
              924Deferred
                  tax liability
              
              
              12,860
              
              
              13,021Total
                  liabilities
              
              
              13,758
              
              
              13,945Commitments
                  and contingenciesStockholders'
                  equity:Preferred
                  stock, $.0001 par value; 10,000,000 shares authorized; no shares
                  outstanding
              
              
              -
              
              
              -Series
                  W preferred stock, $.0001 par value; 100 shares authorized and
                  outstanding
              
              
              -
              
              
              -Common
                  stock, $.0001 par value; 300,000,000 shares authorized;66,504,263
                  and 63,305,195 shares outstanding, respectively
              
              
              7
              
              
              6Additional
                  paid-in capital
              
              
              110,514
              
              
              105,375Accumulated
                  deficit
              
              
              (33,982
              )
              
              (29,898
              )Total
                  stockholders' equity
              
              
              76,539
              
              
              75,483Total
                  liabilities and stockholders' equity
              
              $
              90,297
              
              $
              89,428


See
        accompanying notes to condensed unaudited interim financial
        statements.




4




**GENIUS
        PRODUCTS, INC. AND SUBSIDIARIES**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(IN
            THOUSANDS, EXCEPT PER SHARE INFORMATION)**
 **(UNAUDITED)**
  Three
                  Months Ended June 30,
              
              Six
                  Months Ended June 30,2007
              
              2006
              
              2007
              
              2006(Restated)
              
              
              
              (Restated)Revenues,
                    net of sales returns, discounts and allowances of $28,102 and
                    $36,945 for
                    the three andsix months ended June 30, 2006
              
              $
              -
              
              $
              76,084
              
              $
              -
              
              $
              103,997Total
                  cost of revenues
              
              
              -
              
              
              86,755
              
              
              -
              
              
              115,553Gross
                  loss
              
              
              -
              
              
              (10,671
              )
              
              -
              
              
              (11,556
              )Operating
                  expenses (income):Selling,
                  general and administrative
              
              
              655
              
              
              8,772
              
              
              1,111
              
              
              14,455Gain
                  on sale, related party
              
              
              -
              
              
              (23
              )
              
              -
              
              
              (63
              )Equity
                  in net loss from Distributor
              
              
              1,021
              
              
              -
              
              
              3,249
              
              
              -Total
                  operating expenses
              
              
              1,676
              
              
              8,749
              
              
              4,360
              
              
              14,392Loss
                  from operations
              
              
              (1,676
              )
              
              (19,420
              )
              
              (4,360
              )
              
              (25,948
              )Interest
                  and other income (expense), net
              
              
              67
              
              
              272
              
              
              117
              
              
              34Loss
                  before provision for income taxes
              
              
              (1,609
              )
              
              (19,148
              )
              
              (4,243
              )
              
              (25,914
              )Benefit
                  for income taxes
              
              
              (294
              )
              
              (1,227
              )
              
              (160
              )
              
              (1,273
              )Net
                  loss
              
              $
              (1,315
              )
              $
              (17,921
              )
              $
              (4,083
              )
              $
              (24,641
              )**Basic
                  and diluted EPS**Net
                  loss per share
              
              $
              (0.02
              )
              $
              (0.29
              )
              $
              (0.06
              )
              $
              (0.41
              )Basic
                  and diluted weighted average shares
              
              
              66,069,255
              
              
              60,829,229
              
              
              65,136,522
              
              
              60,647,509




See
        accompanying notes to condensed unaudited interim financial
        statements.
  5
  **GENIUS
        PRODUCTS, INC. AND SUBSIDIARIES**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(IN
            THOUSANDS, EXCEPT WARRANT INFORMATION)**
 **(UNAUDITED)**
  Six
                  Months Ended June 30,2007
              
              2006(Restated)Cash
                  flows from operating activities:Net
                  loss
              
              $
              (4,083
              )
              $
              (24,641
              )Adjustments
                  to reconcile net loss to net cash provided by operating
                  activitiesDepreciation
                  and amortization
              
              
              -
              
              
              106Equity
                  in net loss from Distributor
              
              
              3,249
              
              
              -Amortization
                  and impairment of film library
              
              
              -
              
              
              12,442Change
                  in allowance for doubtful accounts and provision for
                  returns
              
              
              -
              
              
              13,988Operating
                  expenses paid by Distributor
              
              
              609
              
              
              -Change
                  in provision for obsolete inventory
              
              
              -
              
              
              3,921Common
                  stock issued for services
              
              
              -
              
              
              19Stock
                  compensation expense
              
              
              551
              
              
              2,048Deferred
                  tax liability
              
              
              (161
              )
              
              (1,380
              )Changes
                  in assets and liabilities:Increase
                  in accounts receivable
              
              
              -
              
              
              (62,301
              )Increase
                  in inventories
              
              
              -
              
              
              (12,121
              )Decrease
                  in prepaid expenses, notes receivable and deposits
              
              
              83
              
              
              958Increase
                  in royalty advances
              
              
              -
              
              
              (1,118
              )Increase
                  in film library
              
              
              -
              
              
              (695
              )Decrease
                  in accounts payable
              
              
              (59
              )
              
              (1,651
              )Increase
                  in accrued expenses and other
              
              
              32
              
              
              17,553Increase
                  in deferred revenue
              
              
              -
              
              
              10,549Increase
                  in remittance to licensors
              
              
              -
              
              
              60,569Increase
                  in deferred gain, related party
              
              
              -
              
              
              38Net
                  cash provided by operating activities
              
              
              221
              
              
              18,284Cash
                  flows from investing activities:Restricted
                  cash
              
              
              -
              
              
              (303
              )Purchase
                  of property and equipment
              
              
              -
              
              
              (446
              )Net
                  cash used in investing activities
              
              
              -
              
              
              (749
              )Cash
                  flows from financing activities:Net
                  borrowings (payments) on notes payable and debentures
              
              
              -
              
              
              (5,230
              )Proceeds
                  from exercise of options
              
              
              1,411
              
              
              325Proceeds
                  from exercise of warrants
              
              
              1,833
              
              
              159Net
                  cash provided by (used in) financing activities
              
              
              3,244
              
              
              (4,746
              )Net
                  increase in cash and cash equivalents
              
              
              3,465
              
              
              12,789Cash
                  and cash equivalents at beginning of period
              
              
              3,745
              
              
              30,597Cash
                  and cash equivalents at end of period
              
              $
              7,210
              
              $
              43,386Supplemental
                  disclosure of cash flow informationInterest
                  paid
              
              $
              -
              
              $
              74Noncash
                  transactionsReclassification
                  of redeemable common stock
              
              $
              -
              
              $
              414Warrant
                  holders cashless exercised 254,151 warrants, pursuant to which
                  67,070
                  shares were issued during the quarter ended June 30, 2007.




See
        accompanying notes to condensed unaudited interim financial
        statements.




6





**GENIUS
      PRODUCTS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**






**NOTE
      1.** **NATURE
      OF BUSINESS, THE WEINSTEIN COMPANY TRANSACTION, AND INVESTMENT IN
      DISTRIBUTOR**




NATURE
      OF
      BUSINESS




Genius
      Products, Inc. (OTC BB:GNPI) ("we" "our" or the "Company"), along with The
      Weinstein Company Holdings LLC (“TWC Holdings”) and its first-tier subsidiary,
      W-G Holding Corp., (“W-G Holdings”) own Genius Products, LLC (the
      "Distributor"), a leading entertainment products company that distributes,
      licenses, acquires and produces an expanding library of feature films,
      television programming, family, lifestyle and trend entertainment on digital
      versatile discs (“DVD”), as well as the new high-definition DVD formats and all
      other hard carrier devices and on emerging digital distribution technologies,
      such as mobile electronic devices and the Internet. The Distributor primarily
      focuses on four core branded content areas: major theatrical/independent film,
      sports, lifestyle and family/faith based content. The Distributor handles the
      distribution, marketing and sales for many brands including The Weinstein
      Company®, Dimension FilmsTM, Independent Film Channel (IFC)®, WellspringTM, RHI
      EntertainmentTM, ImaginAsian Entertainment, Dragon DynastyTM, Peace Arch
      Entertainment, Laugh Factory, ESPN®, World Wrestling Entertainment, Inc.®
(“WWE”), Animal Planet, The Learning Channel, Classic Media, Entertainment
      Rights, Sesame Workshop®, Plaza Sesamo®, Discovery KidsTM and Impact
      Entertainment, amongst others. We are the managing member of the Distributor,
      in
      which we hold a 30% equity interest.




The
      Distributor uses third-party distribution facilities located throughout the
      United States and ships and sells its products directly to retailers, rentailers
      and to wholesale distribution companies. The Distributor distributes to over
      25,000 retail locations. The Distributor sells to mass retail stores including
      Target, Wal-Mart, Kmart, Meijers, ShopKo, Costco and Sam’s Club; children’s toy
      stores including Toys R Us; electronics stores including Best Buy, Fry’s and
      Circuit City; bookstores including Borders and Barnes & Noble; music
      retailers including Trans World Entertainment and Virgin; internet retailers
      including Amazon, Netflix and iTunes; rental outlets including Blockbuster,
      Movie Gallery and Hollywood Video; direct marketing companies including QVC
      and
      Columbia House; as well as other non-traditional outlets. The Distributor also
      distributes to wholesale distribution companies including Alliance
      Entertainment, Ingram, VPD and Baker & Taylor.




THE
      WEINSTEIN COMPANY (“TWC”) TRANSACTION


On
      July
      21, 2006 (the “Closing Date”), we completed a transaction (the “TWC
      Transaction”) with TWC Holdings and W-G Holdings (two subsidiaries of TWC)
      pursuant to which we launched the Distributor to exploit the exclusive U.S.
      home
      video distribution rights to feature film and direct-to-video releases owned
      or
      controlled by TWC. On the Closing Date, the Company contributed substantially
      all of its assets (except for $1 million in cash and certain liabilities),
      its
      employees, and its existing businesses to the Distributor.




As
      a
      result, the Distributor is owned 70% by TWC Holdings and W-G Holdings and 30%
      by
      us. This 70% interest in the Distributor consists of Class W Units and is
      redeemable, at TWC Holdings’ and W-G Holdings’ option commencing at any time
      from one year after the Closing Date, for up to 70% of our outstanding common
      stock, or with TWC Holdings’ and W-G Holdings’ approval, cash. Our 30%
      membership interest in the Distributor consists of the Distributor’s Class G
      Units (see Investment in Distributor section below).




In
      addition to granting TWC Holdings and W-G Holdings a 70% interest in the
      Distributor consisting of the Distributor’s Class W Units, we issued an
      aggregate of 100 shares of the Company’s Series W Preferred Stock to TWC
      Holdings and W-G Holdings to accomplish the TWC Transaction. The Series W
      Preferred Stock provides the holders thereof with (a) the right to elect
      five of the seven directors on our Board of Directors, of which two are
      currently TWC executives, (b) majority voting power over other actions
      requiring approval of our stockholders, and (c) the right to approve
      certain specified actions. The Series W Preferred Stock has no rights to receive
      dividends and minimal liquidation value.




On
      the
      Closing Date, we entered into a Registration Rights Agreement with TWC Holdings
      and W-G Holdings pursuant to which we agreed to register for resale the shares
      of our common stock issuable upon redemption of Class W Units in the Distributor
      currently held by TWC Holdings and W-G Holdings. In addition, the Company and/or
      the Distributor entered into the following agreements on the Closing Date:
      (i)
      Amended and Restated Limited Liability Company Agreement, (ii) Video
      Distribution Agreement, (iii) Services Agreement, and (iv) Assignment and
      Assumption Agreement.




From
      December 5, 2005 through the Closing Date, we operated under an interim
      distribution agreement with TWC and recorded the results from titles we released
      for TWC on our financial statements. After the Closing Date, substantially
      all
      of the operating activities we previously conducted, as well as the results
      from
      releasing TWC product, are reflected in the financial statements of the
      Distributor. A summary of the financial results of the Distributor is in Note
      3
      to our condensed consolidated financial statements.




7




INVESTMENT
      IN DISTRIBUTOR


The
      accompanying condensed consolidated financial statements account for our
      investment in the Distributor (30% membership interest represented by the
      Distributor’s Class G units) using the equity method of accounting. On our
      consolidated statement of operations subsequent to the Closing Date, we recorded
      our 30% share of the Distributor’s profit or loss as equity in net loss from
      Distributor, adjusted for non-cash basis differences (see Note 3) and costs
      incurred by the Distributor on behalf of the Company. Pursuant to Accounting
      Principles Board Opinion No. 18, “The Equity Method of Accounting for
      Investments in Common Stock”, we will periodically assess whether a decrease in
      value of the investment has occurred which is other than temporary and which
      should be recognized immediately resulting in an impairment loss.




Under
      the
      equity method of accounting, only our investment in and amounts due to and
      from
      the Distributor have been included as an asset in our condensed consolidated
      balance sheet. The TWC Transaction represented a non-monetary exchange of a
      business controlled by the Company for a non-controlling interest in the
      Distributor. Accordingly, the amount recorded for the Company’s investment in
      the Distributor was partially based on the Company’s fair value as determined by
      reference to the quoted market prices of the Company’s shares at the close of
      the market on the Closing Date and partially based on the historical basis
      of
      the net assets surrendered in the TWC Transaction. The Distributor is treated
      as
      a partnership for U.S. federal income tax purposes.




**NOTE
      2.** **BASIS
      OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**




The
      following accounting policies are applicable to the Company and to the
      Distributor, where noted.




BASIS
      OF
      PRESENTATION


The
      accompanying unaudited condensed consolidated financial statements of the
      Company have been prepared in accordance with United States generally accepted
      accounting principles for interim financial statements and with the instructions
      to Form 10-Q and Article 10 of Regulation S-X, promulgated by the Securities
      and
      Exchange Commission (the “SEC”). Accordingly, they do not include all of the
      information and disclosures required by United States generally accepted
      accounting principles for complete financial statements. In the opinion of
      management, all adjustments (consisting of normal recurring adjustments)
      considered necessary for a fair presentation have been included. The results
      of
      operations for interim periods are not necessarily indicative of the results
      that may be expected for the fiscal year. The condensed consolidated financial
      statements should be read in conjunction with the Company’s December 31, 2006
      consolidated financial statements and accompanying notes included in the
      Company’s Annual Report on Form 10-K (the “Annual Report”). All terms used but
      not defined elsewhere herein have the meanings ascribed to them in the Annual
      Report.




The
      condensed consolidated balance sheet at December 31, 2006 has been derived
      from
      the audited financial statements at that date but does not include all the
      information and footnotes required by United States generally accepted
      accounting principles for complete financial statements.




PRINCIPLES
      OF CONSOLIDATION


The
      condensed consolidated financial statements include the accounts of Genius
      Products, Inc. The Distributor’s consolidated financial statements include (i)
      the Distributor’s wholly owned subsidiary American Vantage Media, LLC (“AVM”),
      (ii) Wellspring Media, LLC (“Wellspring Media”), a wholly owned subsidiary of
      AVM and (iii) Castalian DC, LLC, Castalian Music L.L.C., The Thirteen-Thirty-One
      LLC, Abacus Media L.L.C. and Marathon Media, LLC, subsidiaries of the
      Distributor (collectively, “Castalian”). AVM and Wellspring Media were acquired
      on March 21, 2005 and Castalian was acquired on April 1, 2007. In addition,
      Sanuk Corporation, American Vantage/Hypnotic, Inc. and Wellspring Productions,
      LLC are all inactive. See additional discussion of the Castalian purchase at
      Note 4. All significant inter-company transactions and accounts have been
      eliminated in consolidation.




ALLOWANCE
      FOR SALES RETURNS AND DOUBTFUL ACCOUNTS


The
      Distributor’s allowance for doubtful accounts and provision for sales returns
      includes management's estimate of the amount expected to be uncollectible or
      returned on specific accounts and losses or returns on other accounts as yet
      to
      be identified included in accounts receivable. The Distributor provides for
      future returns of home video product at the time the products are sold. The
      Distributor calculates an estimate of future returns of product by analyzing
      a
      combination of historical returns, current economic trends, projections of
      consumer demand for its product and point-of-sale data available from certain
      retailers. Based on this information, a percentage of each sale is reserved.
      The
      Distributor also analyzes other factors, including historical experience with
      similar types of sales, information the Distributor receives from retailers
      and
      its assessment of the product's appeal based on domestic box office success
      and
      other research. Actual returns are charged against the reserve.  The
      amounts the Distributor will ultimately realize could differ materially in
      the
      near term from the amounts estimated in arriving at the allowance for doubtful
      accounts and provision for sales returns in the accompanying financial
      statements.




INVENTORIES


The
      Distributor’s inventories consist of raw materials and finished goods and are
      valued at the lower of cost or market. Cost is determined on a
      first-in-first-out method of valuation. Shipping and handling costs are recorded
      as expenses in the period in which they are incurred. The Distributor regularly
      monitors inventory for excess or obsolete items and makes any valuation
      corrections when such adjustments are needed.




8




ROYALTY
      AND DISTRIBUTION FEE ADVANCES


The
      Distributor’s royalty and distribution fee advances represent fixed minimum
      payments made to program suppliers for exclusive content distribution rights.
      A
      program supplier’s share of exclusive program distribution revenues is retained
      by the Distributor until the share equals the advance(s) paid to the
      program supplier. Thereafter, any excess is paid to the program supplier in
      accordance with deal terms. The Distributor records as a cost of sales an amount
      equal to the program supplier’s share of the net distribution revenues. Revenue
      and cost forecasts are continually reviewed by management and revised when
      warranted by changing conditions. When estimates of total revenues and costs
      indicate that an individual title or group of cross-collateralized titles
      (titles grouped together so that the profits and losses of each are pooled
      for
      an aggregate net profit or loss) which we exploit via home entertainment formats
      will result in an ultimate loss, an impairment charge is recognized to the
      extent that capitalized advance royalties exceed estimated fair value, based
      on
      projected cash flows, in the period when estimated.




FILM
      COSTS


The
      Distributor capitalizes the costs of production and acquisition of film
      libraries. Costs of production include costs of film and tape conversion to
      digital linear tape (“DLT”) master format, menu design, authoring and
      compression. These costs are amortized to cost of revenues in accordance with
      Statement of Position (“SOP”) 00-2, “Accounting by Producers or Distributors of
      Films”, using the individual film forecast method over a period of ten years or
      less. Costs are stated at the lower of unamortized film costs or estimated
      fair
      value. For acquired film libraries, ultimate revenue includes estimates over
      a
      period not to exceed ten years. Management regularly reviews and revises when
      necessary its ultimate revenue and cost estimates, which may result in a change
      in the rate of amortization of film costs and/or a write-down of all or a
      portion of unamortized film costs or library to estimated fair value.




STOCK-BASED
      COMPENSATION


Under
      Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based
      Payment”, which was adopted by the Company beginning on January 1, 2006,
      share-based compensation cost is measured at the grant date based on the
      estimated fair value of the award and is recognized as expense over the
      employee's requisite service period using a modified prospective application.
      The valuation provisions apply to new awards and to awards that were outstanding
      on the effective date and subsequently modified or cancelled. Share-based
      compensation expense relates to share-based awards granted subsequent to January
      1, 2006 and share-based awards granted prior to, but not yet vested as of
      January 1, 2006, all based on the grant date fair value.




Subsequent
      to the Closing Date of the TWC Transaction, the Company’s stock-based
      compensation expense consists of expense associated with stock options held
      by
      and subsequently granted to independent members of the Company’s Board of
      Directors.




The
      Distributor records stock-based compensation expense associated with Company
      stock options held by and subsequently granted to the Distributor’s employees
      (the former employees of the Company before the TWC Transaction) in accordance
      with Emerging Issues Task Force (‘EITF’) Issue No. 00-12, “Accounting by an
      Investor for Stock-Based Compensation Granted to Employees of an Equity Method
      Investee”, (“EITF 00-12”).  EITF 00-12 requires that the Distributor
      recognize the costs of stock-based compensation incurred by an investor on
      its
      behalf.




INCOME
      TAXES


The
      Company files a consolidated corporate tax return and accounts for income taxes
      under SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). This
      statement requires the recognition of deferred tax assets and liabilities for
      the future consequences of events that have been recognized in the Company’s
      consolidated financial statements or tax returns. The measurement of the
      deferred items is based on enacted tax laws. In the event the future
      consequences of differences between financial reporting bases and the tax bases
      of the Company’s assets and liabilities result in a deferred tax asset, SFAS
      No. 109 requires an evaluation of the probability of being able to realize
      the future benefits indicated by such asset. A valuation allowance related
      to a
      deferred tax asset is recorded when some portion or all of the deferred tax
      asset will not be realized on a more likely than not basis. Based on the
      Company’s assessment of all available evidence, the Company has concluded that
      its deferred tax assets are not more likely than not to be realized. This
      conclusion is based primarily on our history of net operating losses, annual
      net
      operating loss limitations under Internal Revenue Code (“IRC”) Section 382,
      and the need to generate significant amounts of taxable income in future periods
      on a consistent and prolonged basis in order to utilize the deferred tax assets.
      Accordingly, the Company has recorded a full valuation allowance on its deferred
      tax assets and has recorded a net deferred tax liability related to its
      investment in the Distributor. The deferred tax liability related to the
      Distributor is not offset against the deferred tax assets as the reversal period
      for this amount is not considered to be determinable on a more likely than
      not
      basis.




We
      adopted the provisions of FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109”
(“FIN 48”), on January 1, 2007. FIN 48 clarifies the accounting for
      uncertainty in income taxes recognized in an enterprise’s financial statements
      in accordance with FASB Statement 109, “Accounting for Income Taxes”, and
      prescribes a recognition threshold and measurement process for financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. We have no material unrecognized tax benefits at
      January 1, 2007 or at June 30, 2007.




9




REVENUE
      RECOGNITION


Revenue
      from the sale or licensing of films is recognized by the Distributor upon
      meeting all recognition requirements of SOP 00-2 and Staff Accounting Bulletin
      (“SAB”) No. 104, “Revenue Recognition”, which requires that there is a
      contract with the buyer, delivery or “Street Date” (when it is available for
      sale by the Distributor’s customer) has occurred, the price is determinable, and
      collectibility is reasonably assured. The Distributor records revenue upon
      the
      receipt of goods by the customer. Under revenue sharing arrangements, rental
      revenue is recognized on or after the Street Date and when the Distributor
      is
      entitled to receipts and such receipts are determinable. Costs of sales and
      an
      allowance for returns are recorded at the time of revenue recognition. Revenues
      from royalties are recognized when received. Revenues from licensing are
      recognized when the title is available to the licensee and all other SOP 00-2
      requirements are met. Direct sales to consumers are recognized with an
      appropriate provision for sales returns when consumers’ credit cards are charged
      and CDs and/or DVDs are shipped. Cash payments received are recorded as deferred
      revenue until all the conditions of revenue recognition have been
      met.




RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS


In
      September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior
      Year Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (“SAB No. 108”). SAB No. 108 provides guidance on the consideration
      of the effects of prior year misstatements in quantifying current year
      misstatements for the purpose of a materiality assessment. SAB No. 108
      establishes an approach that requires quantification of financial statement
      errors based on the effects on each of the Company’s balance sheet and statement
      of operations financial statements and the related financial statement
      disclosures. The SAB permits existing public companies to record the cumulative
      effect of initially applying this approach in the first year ending after
      November 15, 2006 by recording the necessary correcting adjustments to the
      carrying values of assets and liabilities as of the beginning of that year
      with
      the offsetting adjustment recorded to the opening balance of retained earnings.
      Additionally, the use of the cumulative effect transition method requires
      detailed disclosure of the nature and amount of each individual error being
      corrected through the cumulative adjustment and how and when it arose. We have
      determined that there is no impact from SAB No. 108 on our consolidated balance
      sheet, results of operations and cash flows.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
      permits entities to choose to measure many financial instruments and certain
      other items at “fair value”. The objective is to improve financial reporting by
      providing entities with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently without
      having to apply complex hedge accounting provisions. SFAS No. 159 is expected
      to
      expand the use of fair value measurement, which is consistent with the FASB’s
      long-term measurement objectives for accounting for financial instruments.
      SFAS
      No. 159 is effective for the first fiscal year that begins after November 15,
      2007. We do not believe the impact SFAS No. 159 will be material to our
      condensed consolidated financial statements.




**NOTE
      3.** **INVESTMENT
      IN DISTRIBUTOR (GENIUS PRODUCTS, LLC)**




Summaries
      of the statements of operations, balance sheet and the computations of the
      Company’s equity in net loss of the Distributor are shown below.




GENIUS
        PRODUCTS, LLC
 CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR
        THE
        THREE AND SIX MONTHS ENDED JUNE 30, 2007
 (IN
        THOUSANDS)


Three
                  Months
                Ended
                June
                  30, 2007
              
              Six
                  Months
                Ended
                June
                  30, 2007Revenues,
                  net of sales returns, discounts and allowances of $32,411 and
                  $64,083
              
              $
              112,653
              
              $
              195,770Total
                  cost of revenues
              
              
              99,891
              
              
              176,046Gross
                  profit
              
              
              12,762
              
              
              19,724Total
                  operating expenses
              
              
              10,385
              
              
              19,483Income
                  from operations
              
              
              2,377
              
              
              241Interest,
                  net
              
              
              (264
              )
              
              (527
              )Net
                  income (loss)
              
              $
              2,113
              
              $
              (286
              )




10





GENIUS
      PRODUCTS, LLC


CONDENSED
      CONSOLIDATED BALANCE SHEET


AS
      OF
      JUNE 30, 2007


(IN
      THOUSANDS)




ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            6,168Accounts
                receivable, net of allowance for doubtful accounts and sales returns
                of
                $52,025
            
            
            97,590Inventories,
                net of reserves for obsolescence of $8,539
            
            
            11,739Prepaid
                expenses and other current assets
            
            
            754Total
                current assets
            
            
            116,251Restricted
                cash
            
            
            315Property
                and equipment, net of accumulated depreciation of $236
            
            
            994Royalty
                advances
            
            
            42,102Film
                library, net of accumulated amortization of $1,090
            
            
            7,592Goodwill
            
            
            86,932Other
                intangible assets, net of accumulated amortization of
                $5,297
            
            
            16,089Deposits
                and other
            
            
            223Deferred
                financing fees
            
            
            366Total
                assets
            
            $
            270,864LIABILITIES
                AND MEMBERS' EQUITYCurrent
                liabilities:Accounts
                payable
            
            
            24,983Remittance
                to licensors, including related party
            
            
            97,604Accrued
                advertising and marketing
            
            
            14,148Accrued
                royalties
            
            
            22,248Other
                accrued expenses
            
            
            8,755Deferred
                revenue
            
            
            3,881Deferred
                royalty income
            
            
            2,000Notes
                payable
            
            
            220Total
                current liabilities
            
            
            173,839Total
                members' equity
            
            
            97,025Total
                liabilities and members' equity
            
            $
            270,864




Our equity
      in net loss of the Distributor is adjusted each period for non-cash basis
      differences between the investment and the underlying equity in the Distributor
      and for the impact of certain costs incurred by the Distributor on behalf of
      the
      Company.




For
                  the six months ended June 30, 2007Genius
                  Products, Inc. 30% share of net loss from the Distributor
              
              $
              86Adjustments
                  for basis differences
              
              
              2,221Charge
                  for stock compensation for Distributor employees
              
              
              942Equity
                  in net loss from Distributor
              
              $
              3,249





**NOTE
      4.** **CASTALIAN
      MUSIC L.L.C. PURCHASE**




On
      April
      1, 2007, the Distributor acquired all of the membership interest of (a) The
      Thirteen-Thirty-One LLC, the sole member of Castalian Music L.L.C. (which,
      in
      turn, is the sole member of each of Abacus Media L.L.C. and Marathon Media,
      LLC)
      and (b) Castalian DC, LLC, a fully integrated direct response TV marketing
      and
      fulfillment service for the music and video entertainment industry, from EMI
      North America for $3.5 million in cash.  In addition, approximately
      $183,000 in various costs including legal, appraisal, and commissions were
      incurred and capitalized in connection with the acquisition.  The
      transaction has been accounted for as a purchase in the second quarter of
      2007.




11




The
      Distributor’s consolidated condensed interim financial statements (see Note 3)
      include the results of operations for Castalian and its subsidiaries from the
      date of acquisition through June 30, 2007.  Pro forma information is not
      presented herein as the amounts are not significant to the results of the
      Distributor or the Company.




**NOTE
      5.** **UNAUDITED
      RESTATEMENT OF**  **QUARTER
      ENDED JUNE 30, 2006**




On
      April
      12, 2007, the Audit Committee of the Board of Directors of the Company
      determined that it was necessary to restate the Company’s unaudited consolidated
      financial statements and other financial information at and for the fiscal
      quarter ended June 30, 2006. The majority of the restatement adjustments relate
      to non-cash items. The restatements relate to the correction of the following
      errors in the Company’s financial statements at and for this date:




1.
      The
      Company revised the computation of its stock option non-cash compensation
      expense under the provisions of FAS 123(R) Accounting for Stock Based
      Compensation and EITF 96-18 Accounting for Equity Instruments That Are Issued
      to
      Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
      Services (“Stock Option Compensation Expense”), for the fiscal quarters ended
      March 31 and June 30, 2006. The revised computation changed Stock Option
      Compensation Expense in the above-mentioned fiscal quarter. For the three and
      six months ended June 30, 2006, the Company increased Stock Option Compensation
      Expense by $0.4 and $0.3 million, respectively.




2.
      The
      Company revised its reported net revenue amounts for the fiscal quarter ended
      June 30, 2006 to properly reflect net revenue in the appropriate period. The
      need for these corrections resulted from cut-offs due to the closing of the
      TWC
      Transaction on July 21, 2006 as opposed to a month-end cut-off date at June
      30
      and errors in the timing of recognition of invoices and expenses. For the three
      and six months ended June 30, 2006, the Company increased its revenue in the
      amount of $2.3 million. In addition, the Company identified errors in the
      treatment of revenue from revenue-sharing agreements and revised its reported
      net revenue to comply with the provisions of EITF 01-09 Accounting for
      Consideration Given by a Vendor to a Customer. The total non-cash adjustments
      required to decrease revenue for the three and six months ended June 30, 2006
      were $1.2 and $1.9 million, respectively.




3.
      The
      Company revised its advertising and marketing expense to properly expense
      advertising and marketing related items as incurred and revised participations
      expense to comply with the provisions of SOP 00-2, Accounting
      by Producers or Distributors of Films .
      The
      Company decreased advertising and marketing expense by $1.6 million for the
      three months ended June 30, 2006 and increased advertising and marketing expense
      by $1.0 million for the six months ended June 30, 2006. For the three and six
      months ended June 30, 2006, the Company increased participation expense by
      $0.4
      million and decreased participation expense by $1.1 million,
      respectively.




4.
      The
      Company revised its operating results for the fiscal quarter ended June 30,
      2006
      to account for the impairment of its film library, advances made to participants
      and physical inventory based upon the Company’s shift in its business from
      value-priced product to branded content. These non-cash adjustments were
      necessary to properly reflect the realizability of such assets as of June 30,
      2006. The total non-cash adjustments required to decrease film library, advances
      made to participants and physical inventory for the three and six months ended
      June 30, 2006 were $11.6 million, $2.2 million and $4.6 million,
      respectively.




5.
      The
      Company revised its tax provision amounts for the fiscal quarter ended June
      30,
      2006 to properly reflect  its
      tax
      provision for the period.  The need for these corrections resulted from the
      liability recognized in purchase accounting in connection with the Wellspring
      acquisition and the TWC Transaction.
      For the three and six months ended June 30, the Company decreased its tax
      provision by $1.3 million.




6.
      The
      Company revised the presentation of its advertising and marketing expenses
      and
      bad debt expense for the fiscal quarter ended June 30, 2006 to reclassify these
      amounts from operating expenses to cost of sales.




The
      effects of the restatements on net revenues, cost of revenues, gross profit
      (loss), general and administrative costs, net income (loss), basic and diluted
      loss and income per common share, accounts receivable, film library, accrued
      expenses, and stockholders’ equity as of and for the quarter ended June 30, 2006
      are set forth in Note 9 in the Company’s Annual Report on Form
      10-K.




**NOTE
      6.** **COMMITMENTS
      AND CONTINGENCIES**




As
      of
      June 30, 2007, we did not have any future minimum annual rental commitments
      under existing non-cancelable operating leases since at the Closing Date of
      the
      TWC Transaction we transferred all of our lease obligations to the Distributor.




12




We
      may be
      subject to penalties associated with the late filing of our Quarterly Report
      on
      Form 10-Q which has prevented us from maintaining current registration
      statements related to several equity issuances. However, we have conducted
      additional research and obtained waivers from certain investors of prior equity
      issuances for which in prior reports we noted the potential for a significant
      liability existed.  To date we have been successful in obtaining waivers
      related to the late filings such that the potential liability is now less than
      $40,000 at June 30, 2007.




We
      are
      not a party to any legal or administrative proceedings, other than routine
      litigation incidental to our business that we do not believe, individually
      or in
      the aggregate, would be likely to have a material adverse effect on our
      financial condition or results of operations.




**NOTE
      7.** **STOCKHOLDERS'
      EQUITY**




COMMON
      STOCK


During
      the six months ended June 30, 2007, we issued 2,368,573 common shares related
      to
      the exercise of warrants (some of which were cashless exercises) for proceeds
      of
      $1.8 million. Additionally, during the six months ended June 30, 2007, we issued
      830,495 common shares related to the exercise of options for proceeds of $1.4
      million.




During
      the six months ended June 30, 2006, we issued 289,472 common shares related
      to
      the exercise of warrants for proceeds of $0.2 million. Additionally, during
      the
      six months ended June 30, 2006, we issued 275,000 common shares related to
      the
      exercise of options for proceeds of $0.3 million.




During
      the six months ended June 30, 2006, we issued 10,000 common shares for services
      rendered.




SERIES
      W
      PREFERRED STOCK


In
      connection with the closing of the TWC Transaction, we issued 100 shares of
      Series W Preferred Stock to TWC Holdings and its first-tier subsidiary, W-G
      Holdings (collectively, the “TWC Holders”). The Series W Preferred Stock
      provides the holders with significant rights, preferences and powers as
      described in Note 1.




NON-EMPLOYEE
      WARRANTS


We
      did
      not issue any warrants during the six months ended June 30, 2007.




A
      summary
      of warrant activity follows:




WeightedAverage
              
              AggregateWarrants
              
              Exercise
              
              IntrinsicOutstanding
              
              Price
              
              ValueDecember
                  31, 2006
              
              
              14,786,054
              
              $
              2.21Exercised
              
              
              (3,503,599
              )
              
              1.56
              
              $
              5,340,526June
                  30, 2007
              
              
              11,282,455
              
              $
              2.41
              
              $
              27,214,833Warrants
                  exercisable, June 30, 2007
              
              
              11,282,455
              
              $
              2.41
              
              $
              27,214,833




The
      following information applies to warrants outstanding at June 30,
      2007:




Weighted
              
              
              
              Weightedaverage
              
              
              
              averageexercise
                  price of
              
              
              
              exercise
                  price ofWarrants
              
              Average
              
              warrants
              
              Warrants
              
              warrantsoutstanding
              
              remaining
                  life
              
              outstanding
              
              exercisable
              
              exercisableUnder
                  $1.50
              
              
              1,420,507
              
              
              0.94
              
              $
              1.40
              
              
              1,420,507
              
              $
              1.40$1.50
                  - $1.99
              
              
              170,723
              
              
              3.27
              
              
              1.88
              
              
              170,723
              
              
              1.88$2.00
                  - $2.99
              
              
              8,044,225
              
              
              3.08
              
              
              2.48
              
              
              8,044,225
              
              
              2.48$3.00
                  - $3.99
              
              
              1,647,000
              
              
              1.76
              
              
              3.00
              
              
              1,647,000
              
              
              3.0011,282,455
              
              
              2.62
              
              $
              2.41
              
              
              11,282,455
              
              $
              2.41




**NOTE
      8.** **STOCK-BASED
      COMPENSATION**




We
      have
      adopted several stock option plans, all of which have been approved by our
      stockholders, that authorize the granting of options to purchase our common
      shares subject to certain conditions. At June 30, 2007, we had reserved 27
      million of our common shares for issuance of share-based compensation awards
      under our stock option plans. At June 30, 2007, we had also reserved 7,394,213
      of our common shares for issuance of share-based compensation awards granted
      outside of our stock option plans. Options are granted at the fair value of
      the
      shares underlying the options at the date of the grant and generally become
      exercisable over periods ranging from three to five years and expire in ten
      years.




13




Total
      share-based compensation expense recognized for the three and six months ended
      June 30, 2007 was $0.4 million and $0.6 million, respectively. No income tax
      benefit was recognized in the statement of operations for share-based
      compensation arrangements for either the Company or the Distributor.




A
      total
      of $0.8 million and $1.3 million of share-based compensation expense related
      to
      options issued by the Company to employees of the Distributor was recorded
      as
      compensation expense in the statement of operations for the Distributor for
      the
      three and six months ended June 30, 2007, respectively.




We
      did
      not grant options during the first or second quarter of 2007. We estimated
      share-based compensation expense for options issued during the three and six
      months ended June 30, 2006 using the Black-Scholes model with the following
      weighted average assumptions:


Three
                  Months Ended June 30,
              
              Six
                  Months Ended June 30,2007
              2006
              
              2007
              2006Expected
                  lives, in years
              none
                  issued
              5.91
              
              none
                  issued
              5.78Estimated
                  volatility
              none
                  issued
              57.9%
              
              none
                  issued
              58.7%Dividend
                  yield
              none
                  issued
              -
              
              none
                  issued
              -Risk
                  free interest rate
              none
                  issued
              5.1%
              
              none
                  issued
              4.9%


A
      summary
      of option activity follows:




WeightedAverage
              
              AggregateOptions
              
              Exercise
              
              IntrinsicOutstanding
              
              Price
              
              ValueDecember
                  31, 2006
              
              
              19,316,588
              
              $
              1.84Exercised
              
              
              (830,494
              )
              
              1.70
              
              $
              1,047,519Canceled
              
              
              (296,386
              )
              
              3.56June
                  30, 2007
              
              
              18,189,708
              
              $
              1.82
              
              $
              33,120,356Options
                  exercisable, June 30, 2007
              
              
              14,244,317
              
              $
              1.78
              
              $
              25,322,317




The
      following information applies to options outstanding at June 30,
      2007:


Weighted
              
              
              
              Weightedaverage
              
              
              
              averageexercise
                  price of
              
              
              
              exercise
                  price ofOptions
              
              Average
              
              options
              
              Options
              
              optionsoutstanding
              
              remaining
                  life
              
              outstanding
              
              exercisable
              
              exercisableUnder
                  $1.50
              
              
              2,042,752
              
              
              4.60
              
              $
              0.67
              
              
              2,042,752
              
              $
              0.67$1.50
                  - $1.99
              
              
              10,993,706
              
              
              7.49
              
              
              1.72
              
              
              8,167,982
              
              
              1.67$2.00
                  - $2.99
              
              
              3,998,500
              
              
              7.54
              
              
              2.16
              
              
              2,878,833
              
              
              2.11$3.00
                  - $3.99
              
              
              793,750
              
              
              6.58
              
              
              3.00
              
              
              793,750
              
              
              3.00$4.00
                  + over
              
              
              361,000
              
              
              5.09
              
              
              5.07
              
              
              361,000
              
              
              5.0718,189,708
              
              
              7.09
              
              $
              1.82
              
              
              14,244,317
              
              $
              1.78




**NOTE
      9.** **INCOME
      TAXES**




The
      Company recorded a federal and state tax benefit of $0.2 million for the first
      six months ended June 30, 2007. The tax benefit resulted from the net decrease
      in the deferred tax liability related to our investment in the Distributor.
      As
      noted above, the Company currently has a full valuation allowance on its
      deferred tax assets and has recorded a net deferred tax liability relating
      to
      its investment in Distributor.




14




**NOTE
      10.S** **UBSEQUENT
      EVENTS**




On
      August
      10, the Distributor entered into a credit facility with Société Générale. The
      three-year, senior secured revolving credit facility provides for an initial
      commitment of $30 million and up to a total of $70 million based upon expected
      incremental commitments, to be provided from a consortium of banks including
      Société Générale.  At August 10, the Distributor had $22.5  million
      outstanding under the credit facility. The credit facility expires June 30,
      2010  and
      bears
      interest at 2.5% - 3.0% over LIBOR or 1.5% - 2.0% over the greater of the U.S.
      Prime Rate or the Federal Funds Rate plus 0.5%.  The
      availability of funds under the credit facility is limited by the borrowing
      base, defined as certain accounts receivables and the Distributor’s film
      library.  The Distributor is required to pay a monthly commitment fee of
      0.50% per annum on the total unused portion of the credit facility of $30
      million.  Right, title and interest in and to all personal property of the
      Distributor and Genius Products, Inc. is being pledged as security for the
      credit facility.  The credit facility contains various covenants, including
      limitations on indebtedness, dividends, capital expenditures and maintenance
      of
      certain financial ratios.




**ITEM 2.** **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




The
      following discussion of our financial condition and results of operations should
      be read in conjunction with the financial statements and notes thereto contained
      in this report. The discussion contains forward-looking statements that relate
      to future events or our future financial performance that involve known and
      unknown risks, uncertainties and other factors that may cause our actual
      results, levels of activity, performance or achievements to be materially
      different from those expressed or implied by the forward-looking statements.
      For
      additional information concerning these factors, see the information under
      the
      caption “Risk Factors” in our Annual Report on Form 10-K for the year ended
      December 31, 2006.




**NATURE
      OF BUSINESS**




The
      Company, along with TWC Holdings and its first-tier subsidiary, W-G Holdings,
      own the Distributor, a leading entertainment products company that distributes,
      licenses, acquires and produces an expanding library of feature films,
      television programming, family, lifestyle and trend entertainment on digital
      distribution technologies and on videogram, which encompasses videocassettes,
      videodiscs, videotapes, DVDs, other emerging platforms such as the new
      high-definition DVD formats, Universal Media Disc, CD-ROM, DVD-ROM and all
      other
      hard carrier devices.




The
      Distributor primarily focuses on the following four core branded content areas,
      which we frequently refer to as “Content Verticals”:




·
            Theatrical/Independent
                Films(includes Independent Film Channel (IFC)®, RHI EntertainmentTM (Hallmark
                library), The Weinstein Company® and
                WellspringTM)


·
            Sports(includes ESPN® and World Wrestling Entertainment®
                (“WWE”))


·
            Lifestyle(includes Animal Planet, The Learning Channel (TLCTM) and WellspringTM)


·
            Family/Faith(includes Classic Media, Discovery KidsTM, Entertainment Rights and Sesame
                Workshop®)





The
      Distributor’s agreements with TWC, ESPN®, Classic Media, Sesame Workshop®, World
      Wrestling Entertainment, Inc. ® and Discovery Communications, in combination
      with our acquisition of the Wellspring library in 2005, gives the Distributor
      a
      substantial library of high quality content comprising approximately 3,500
      feature films and documentaries and 4,000 **** hours
      of
      television programming. We believe that the Distributor’s catalog of titles is
      integral to a well-balanced content portfolio that can generate substantial
      revenues with a diverse group of retailers and wholesalers.




The
      Distributor’s business strategy is to leverage its growing market share and
      retail sales volumes from its relationships with TWC and other key content
      providers to add additional content partners, engage in profitable production
      and licensing of new content, and expand into related businesses such as
      interactive software (video games), mobile devices and licensing of our
      proprietary brands and content. The Distributor intends to continue to acquire
      rights to film and television libraries and enter into distribution agreements
      with new branded content suppliers.




The
      Distributor currently has the exclusive U.S. home video distribution rights
      to
      feature film and direct-to-video releases owned or controlled by TWC, a film
      company created by Robert and Harvey Weinstein. The Distributor has released
      over 50 TWC titles on DVD, including the following recent or forthcoming
      titles:




·
            *Bobby*,
                starring Anthony Hopkins, Sharon Stone, Lawrence Fishburne, Demi
                Moore,
                William H. Macy, Lindsay Lohan, and Elijah
                Wood;


·
            *Arthur
                and the Invisibles*,
                starring Freddie Highmore;


·
            *Hannibal
                Rising*,
                starring Gong Li and Dominic West;


·
            *Factory
                Girl*,
                starring Sienna Miller and Jimmy
                Fallon;


·
            *Miss
                Potter,*starringRenee
                Zellweger and Ewan McGregor;·
            *1408*,
                based on a short story by Steven King and starring John Cusack and
                Samuel
                L. Jackson;·
            *Sicko,*starring Michael Moore, director of Fahrenheit 9/11;·
            *Halloween,*directed
                by Rob Zombie;·
            *Death
                Proof,*directed by Quentin Tarantino and starring Kurt Russell, Rosario
                Dawson
                and Rose McGowan; and·
            *Planet
                Terror,*directed by Robert Rodriguez.




15




The
      Distributor maintains in perpetuity distribution rights for TWC content released
      during the term of the Distributor’s distribution agreement with TWC (the “TWC
      Distribution Agreement”), subject to certain buy-back rights of the TWC content
      by TWC.




Under
      the
      TWC Distribution Agreement, TWC granted a license to the Distributor to
      manufacture, promote and sell in the U.S. and its territories and possessions,
      through December 31, 2010 (or December 31, 2013 if TWC extends the term), DVDs,
      videocassettes and other forms of pre-recorded home video of feature films
      and
      direct-to-video releases which TWC has the right to distribute on home video.
      These releases include films produced by TWC as well as films which TWC acquires
      or obtains the right to distribute on home video. The TWC Distribution Agreement
      provides that the Distributor will earn a fee on net sales of these home video
      products, depending on the level of these sales compared to theatrical box
      office revenues for the same films. The Distributor collects the proceeds from
      sales of home video products and remits these proceeds to TWC, minus the
      Distributor’s distribution fee, cost of goods sold (including manufacturing
      expenses) and certain marketing expenses.




The
      TWC
      Distribution Agreement contains complex provisions relating to payments,
      permitted expenses and other adjustments, and the foregoing discussion is
      intended only as a summary. For further information, the full text of the TWC
      Distribution Agreement is included as an exhibit to the Company’s Annual Report
      on Form 10-K.




**RESULTS
      OF OPERATIONS OF GENIUS PRODUCTS, INC.**




All
      of
      the operations of the Company relate to the activity of the Distributor. The
      Company accounts for our investment in the Distributor using the equity method
      of accounting. On our consolidated statement of operations subsequent to the
      Closing Date of the TWC Transaction, we recorded our 30% share of the
      Distributor’s profit or loss as equity in net earnings (loss) from Distributor,
      adjusted for basis differences and costs incurred by the Distributor on behalf
      of the Company. Pursuant to Accounting Principles Board Opinion No. 18, “The
      Equity Method of Accounting for Investments in Common Stock”, we will
      periodically assess whether a decrease in value of the investment has occurred
      which is other than temporary and which should be recognized immediately
      resulting in an impairment loss. Under the equity method of accounting, only
      our
      investment in and amounts due to and from the Distributor have been included
      as
      an asset in our consolidated balance sheet.




We
      did
      not compare the results of operations for the three months ended June 30, 2007
      and 2006 due to the fact that the results of operations would not be comparable.
      The discussion below includes a description of the results of the Company and
      the Distributor for the quarter ended June 30, 2007.




*Revenues*




The
      Company had no revenue for the three and six months ended June 30, 2007. All
      of
      the revenue is reflected in the results of operations of the
      Distributor.




The
      Distributor generated revenues of $112.7 million and $195.8 million, net of
      sales returns, discounts and allowances of $32.4 million and $64.1 million
      for
      the three and six months ended June 30, 2007, respectively. Revenues for the
      three months ended June 30, 2007 were primarily composed of sales of TWC
      titles, *Black Christmas, Bobby, Arthur and the Invisibles, Hannibal Rising, and Miss
      Potter* and sales of
      branded content including Discovery Kids, Sesame Street, ESPN and
      WWE.




Consistent
      with other retail product distributors, the Company has experienced some degree
      of sales seasonality; however, subsequent to the July 21, 2006 completion of
      the
      TWC Transaction, sales seasonality is reflected in the revenues and operations
      of the Distributor directly, and in the Company’s results of operations
      indirectly, through its equity interest in the Distributor. However, we have
      historically experienced higher sales during the last two quarters than during
      the first two quarters and expect this trend to continue with the
      Distributor.




We
      have
      also historically experienced higher returns during the first two quarters
      than
      during the last two quarters. However, historic changes in revenues may not
      be
      indicative of future trends and may not track industry seasonality norms.




16




*Costs
      and expenses*




*Cost
      of Revenues*




Cost
      of
      revenues consists primarily of the raw material and manufacturing costs of
      products sold to customers, packaging and shipping costs, advertising and
      marketing, amortization of the film library, and participations and royalties.
      Participation expenses related to TWC’s distribution agreement are accrued in
      the proportion that current year’s revenues for a title bear to management’s
      estimate of the ultimate revenue expected to be recognized for that
      title.




The
      Company had no cost of revenues for the three and six months ended June 30,
      2007. All of the cost of revenues is reflected in the results of operations
      of
      the Distributor.




The
      Distributor’s cost of revenues for the three months ended June 30, 2007 include
      the following:




Manufacturing
      and distribution expenses were $18.1 million and $47.2 million for the three
      and
      six months ended June 30, 2007, respectively. Manufacturing and distribution
      expenses are primarily due to the video release of TWC’s titles during such
      period.




Advertising
      and marketing expenses were $12.5 million and $21.3 million during the three
      and
      six months ended June 30, 2007, respectively. Advertising and marketing is
      primarily attributable to the advertising campaigns for the video release of
      TWC’s *Hannibal
      Rising, Black Christmas, Bobby, and Arthur and the Invisibles.* Advertising
      and marketing expenses are recorded in the period in which these expenses are
      incurred.




Amortization
      and participation expenses were $69.3 million and $107.5 million for the three
      and six months ended June 30, 2007, respectively. Amortization and participation
      expenses include amortization of film library and participation expenses related
      to TWC and other licensors.




*Operating
      Expenses*




The
      Company had general and administrative expenses of $0.7 million and $1.1 million
      for the three and six months ended June 30, 2007, respectively. The general
      and
      administrative expenses reflect an allocation of the public company costs borne
      by the Distributor on behalf of the Company.




The
      Distributors’ general and administrative expenses were $10.4 million and $19.5
      million for the three and six months ended June 30, 2007, respectively, and
      amounted to 9% and 10% of net revenues, respectively. The large increase in
      general and administrative expenses during the second quarter is largely due
      to
      increased audit fees and the ramp up of the platform.




During
      the three and six months ended June 30, 2007, the Company’s 30% equity in the
      net income (loss) of the Distributor was $0.6 million and $(0.1) million,
      respectively.




*Other
      Income and Expense*




The
      Company had interest income of $0.07 million and $0.12 million during the three
      and six months ended June 30, 2007, respectively. Interest income relates to
      interest earned on outstanding cash balances. The Company had non-cash income
      tax expense of $0.3 million and $0.2 million for the three and six months ended
      June 30, 2007, respectively. As result of the foregoing, the Company’s net loss
      was $1.3 million and $4.1 million for the three and six months ended June 30,
      2007.




The
      Distributor had interest income of $0.1 million and $0.4 million and interest
      expense of $0.4 million and $0.9 million during the three and six months ended
      June 30, 2007, respectively. Interest income relates to interest earned on
      outstanding cash balances. Interest expense relates to interest on outstanding
      balances due to licensors. As result of the foregoing, the Distributor’s net
      income (loss) was $2.1 million and $(0.3) million for the three and six months
      ended June 30, 2007, respectively.




**LIQUIDITY
      AND CAPITAL RESOURCES**




Net
      cash
      provided by operations during the six months ended June 30, 2007 was $0.2
      million, primarily due to equity in net losses for Distributor, stock
      compensation expense, and increases in accrued expenses and other.




Cash
      provided by financing activities for six months ended June 30, 2007 was $3.2
      million, due to proceeds from the exercise of warrants and options.




At
      June
      30, 2007, the Company had cash balances of $7.2 million and the Distributor
      had
      cash balances of $6.2 million.




On
      August
      10, the Distributor entered into a credit facility with Société Générale. The
      three-year, senior secured revolving credit facility provides for an initial
      commitment of $30 million and up to a total of $70 million based upon expected
      incremental commitments, to be provided from a consortium of banks including
      Société Générale. At August 10, the Distributor had $22.5  million
      outstanding under the credit facility. We
      may
      consider additional issuance of equity and/or debt financing to fund future
      growth opportunities. Although we believe that the Distributor’s expanded
      product line offers us the opportunity for significantly improved operating
      results in future quarters, no assurance can be given that we will operate
      on a
      profitable basis in 2007, or ever, as such performance is subject to numerous
      variables and uncertainties, many of which are out of our control. Although
      we
      own 30% of the Distributor, we only have access to the cash on the Distributor’s
      balance sheet to the extent that we agree with our partner, TWC, to make a
      distribution to us.




17




**ITEM 3.** **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




As
      of
      June 30, 2007, the Distributor’s cash and cash equivalents were invested with
      financial institutions with investment grade credit ratings. Due to the short
      duration of the Distributor’s investment portfolio and the high quality of the
      Distributor’s investments, an immediate 10% change in interest rates would not
      have a material effect on the fair market value of the Distributor’s portfolio.
      Therefore, we would not expect the Distributor’s operating results or cash flows
      to be affected to any significant degree by the effect of a sudden change in
      market interest rates on the Distributor’s investment portfolio.




Neither
      we nor the Distributor enter into hedging or derivative instrument
      arrangements.




**ITEM 4.****CONTROLS
      AND PROCEDURES**




**Disclosure
      Controls and Procedures**




Disclosure
      controls and procedures (as defined in Rule 13a-15(e) under the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”)) are controls and other
      procedures that are designed to provide reasonable assurance that the
      information that we are required to disclose in the reports that we file or
      submit under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the SEC’s rules and forms, and that such
      information is accumulated and communicated to our management, including our
      Chief Executive Officer and Chief Financial Officer, as appropriate to allow
      timely decisions regarding required disclosure.




In
      connection with the preparation of this Quarterly Report, our management, with
      the participation of our Chief Executive Officer and our Chief Financial
      Officer, carried out an evaluation of the effectiveness of the design and
      operation of our disclosure controls and procedures as of June 30, 2007. In
      making this evaluation, our management considered the matters relating to the
      restatement of our financial statements for the quarters ended March 31,
      June 30 and September 30, 2006, and the material weaknesses discussed
      below. Based on this evaluation, our Chief Executive Officer and Chief Financial
      Officer concluded that our disclosure controls and procedures were effective
      at
      the reasonable assurance level as of June 30, 2007.




In
      light
      of the material weakness described below, we performed additional analyses
      and
      other procedures to ensure that our consolidated financial statements included
      in this Quarterly Report were prepared in accordance with generally accepted
      accounting principles (“GAAP”). These measures included, among other things,
      expansion of our end-of-quarter closing procedures, including the expanded
      review and analysis of the accounting between the Company and the Distributor,
      and dedication of significant internal resources and external consultants to
      scrutinize account analyses, reserve estimates, asset valuations, proper
      accounting treatment for revenues and expenses and account reconciliations
      at a
      detailed level. As a result of these and other expanded procedures, we concluded
      that the consolidated financial statements included in this Quarterly Report
      present fairly, in all material respects, our financial position, results of
      operations and cash flows for the periods presented in conformity with
      GAAP.




Our
      management, under the supervision of our Chief Executive Officer and Chief
      Financial Officer, is responsible for establishing and maintaining adequate
      internal control over financial reporting. Internal control over financial
      reporting is a process designed to provide reasonable assurance regarding the
      reliability of financial reporting and the preparation of financial statements
      for external purposes in accordance with GAAP. Internal control over financial
      reporting includes policies and procedures that (i) pertain to the maintenance
      of records that, in reasonable detail, accurately and fairly reflect the
      transactions and dispositions of the assets of the Company, (ii) provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with GAAP, and that receipts
      and expenditures of the Company are being made only in accordance with
      authorizations of management and directors of the Company, and (iii) provide
      reasonable assurance regarding prevention or timely detection of unauthorized
      acquisition, use, or disposition of the Company’s assets that could have a
      material effect on the financial statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with existing policies or procedures may deteriorate. Further, because of
      changes in conditions, effectiveness of internal controls over financial
      reporting may vary over time.




A
      material weakness is a control deficiency, or combination of control
      deficiencies (within the meaning of PCAOB Auditing Standard No. 2), that results
      in there being more than a remote likelihood that a material misstatement of
      the
      annual or interim financial statements will not be prevented or detected on
      a
      timely basis by employees in the normal course of their assigned functions.
      Management identified certain material weaknesses in our internal control over
      financial reporting as of December 31, 2006 (disclosed in our Annual Report
      on
      Form 10-K for that year).




18




As
      of
      June 30, 2007, we have successfully remediated the lack of controls over the
      following items disclosed at March 31, 2007: (i) detailed documentation and
      analysis to support certain reserve estimates; and (ii) timely assessment of
      accounts for realizability or impairment. Therefore, the items described above
      were no longer material weaknesses.




As
      of
      June 30, 2007, we continued to have ineffective controls over the following
      items: (i) timely and routine process for reconciling certain accounts to the
      general ledger; (ii) proper application of stock compensation expense and
      incomplete record keeping related to stock option grants; (iii) proper control
      of sales cut-off and measurement at the end of accounting periods; and (iv)
      formal process over changes, access and controls and procedures related to
      our
      information technology systems.




While
      we
      have taken actions in the second quarter to remediate these items, there has
      not
      been sufficient time to evaluate the effectiveness of our remediation as of
      June
      30, 2007. Such continuing control deficiencies related primarily to the fact
      that our internal accounting personnel did not yet have sufficient depth, skills
      and experience to recognize errors and deficiencies in accounting policies
      and
      procedures required to properly account for the items described in the preceding
      paragraph.




As
      a
      result of the material weakness described above and the fact that sufficient
      time has not elapsed to fully evaluate the effectiveness of the actions we
      have
      taken to correct it, our management concluded that as of June 30, 2007, we
      did
      not maintain effective internal control over financial reporting.




The
      foregoing control deficiencies caused certain errors in our financial statement
      accounts during 2006 and required adjustments of our financial statements.
      These
      errors were discovered by senior management and Ernst & Young LLP in
      connection with work on the audit for fiscal 2006. We intend to file amendments
      to our Quarterly Reports on Form 10-Q for the periods ending March 31,
      June 30 and September 30, 2006 reflecting these adjustments.
      Adjustments related to the period ended June 30, 2006 are discussed under Note
      5
      to our condensed consolidated financial statements included in this Form
      10-Q.




In
      response to the continuing identified material weakness, we have taken action
      to
      remediate the specific accounting policies and procedures which led to the
      errors requiring restatement. We have established additional policies and
      enhanced the procedures that we will follow and have addressed these items
      as
      follows: (i) the Company has added additional accounting and financial personnel
      with industry experience, is implementing a formal closing process, has employed
      an experienced financial executive to oversee internal controls and procedures
      implementation, and engaged experienced outside consultants to assist the
      Company in complying with the requirements of Sarbanes Oxley by December 31,
      2007; (ii) the Company has engaged the services of an independent stock
      administration firm to assist with transactions, recordkeeping and the
      computation of compensation expense related to its stock options, hired
      additional personnel and retained outside consultants to oversee the
      administration of stock options and performed a review of stock option grants
      to
      ensure accuracy of the information; (iii) the Company has hired an information
      technology professional and is currently in the process of hiring an additional
      professional to ensure formal processes are implemented with respect to changes,
      controls, access and standardized procedures. Additionally, the Company has
      engaged a major information technology infrastructure provider, that is SAS
      70
      compliant, to assist with hosting the Company’s financial systems; (iv) the
      Company has implemented additional procedures to control access to it
      information technology systems and; (v) the Company has implemented additional
      procedures and training of its accounting staff with respect to proper sales
      cut-off procedures at the end of accounting periods. As a result of these
      changes, we do not expect that the type of adjustments discussed in Note 5
      to the condensed consolidated financial statements of the Company will recur.
      As
      a result of these changes, we do not expect that the aforementioned material
      weakness will recur.




We
      intend
      to further expand our internal accounting personnel, information technology
      systems and personnel and compliance capabilities by attracting additional
      talent, enhancing training and implementing system and process improvements
      in
      our accounting and record keeping. These ongoing efforts are focused on
      implementing process changes to strengthen our internal control and monitoring
      activities.




**Changes
      in Internal Control over Financial Reporting**




Other
      than as described above, there were no changes in our internal control over
      financial reporting during the quarter ended June 30, 2007, that materially
      affected, or are reasonably likely to affect, our internal control over
      financial reporting.




19




**PART
      II - OTHER INFORMATION**





**ITEM 1.** **LEGAL
      PROCEEDINGS**




Except
      as
      described below and in our Form 10-K filed on May 4, 2007, neither we nor the
      Distributor are a party to any legal or administrative proceedings, other than
      routine litigation incidental to our business and that of the Distributor that
      we do not believe, individually or in the aggregate, would be likely to have
      a
      material adverse effect on our, or the Distributor’s, financial condition or
      results of operations.




**NEBG
      MATTER**




We
      disclosed in our Annual Report on Form 10-K for the year ended December 31,
      2006
      a complaint filed against the Company, the Distributor and TWC Holdings
      (collectively, “Defendants”) by NEBG, LLC, Nolan Anaya dba Captain Video and
      Todd Zaganiacz dba Video Zone (collectively, “Plaintiffs”) in the Superior Court
      of Massachusetts (the “Court”). On May 18, 2007, the Court dismissed all of
      Plaintiffs’ claims against Defendants and this case is now closed.




**WELLSPRING/WINSTAR
      MATTER**




We
      have
      disclosed in prior reports filed with the Securities and Exchange Commission
      a
      complaint filed against Wellspring Media, Inc. (“Wellspring”) in U.S. Bankruptcy
      Court for the District of Delaware by the Chapter 7 Trustee of the Winstar
      Communications, Inc. Estate (the “Trustee”). On May 8, 2007, Wellspring entered
      into a Settlement Agreement with the Trustee pursuant to which the Trustee
      released Wellspring and the Company, among others, from all claims relating
      to
      the dispute in exchange for Wellspring’s agreement to pay to the Trustee a cash
      settlement amount of $563,700. The former indirect owners of Wellspring have
      paid the settlement amount in satisfaction of their indemnification obligations
      to Wellspring.




**FALCON
      PICTURE GROUP MATTER**




We
      have
      disclosed in prior reports filed with the Securities and Exchange Commission
      a
      complaint filed against the Company in the Circuit Court of Cook County,
      Illinois by Falcon Picture Group, LLC (“Falcon”), and the related counterclaim
      filed by the Company against Falcon and its owner, Carl Amari. On or about
      July
      2007, Falcon was granted leave to file an amended complaint alleging that the
      Company interfered with Falcon’s current and potential business relationships
      and that it breached its license agreement with Falcon by failing to remit
      all
      royalties allegedly due. Falcon seeks damages resulting from the interference
      claim of approximately $350,000 as well as $753,967 relating to the claim for
      breach of the license agreement. The court’s decision to grant leave to amend is
      not indicative of the merits of such amended claims as leave to amend
      proceedings in the early stages of litigation are routine procedural matters.
      Although the Company has not yet responded to the amended complaint, the Company
      is contemplating filing a motion to strike portions thereof. The Company plans
      to vigorously defend against the allegations of the amended complaint and to
      assert various affirmative defenses thereto including, among other things,
      that
      the allegations thereof are unfounded, and that the damages asserted by the
      Company pursuant to its own claim will substantially exceed the damages sought
      by Falcon. The Company seeks actual damages from Falcon and Carl Amari of
      approximately $1.5 million, exclusive of any award of attorneys’ fees, costs of
      suit and punitive damages to which the Company may also be entitled to recover.
      For a complete description of the facts and circumstances surrounding this
      litigation, please see the disclosure in our Annual Report on Form 10-K for
      the
      year ended December 31, 2006 under “Item 3. Legal Proceedings”, which is
      incorporated herein by reference.




**ENTERTAINMENT
      RESOURCE MATTER**




In
      June
      2007, Larry S. Hyman, as assignee for Entertainment Resource, Inc. (“ERI”),
      commenced litigation against the Company in the Circuit Court of Broward County,
      Florida, Case No. 06-012249 CACE 05, based upon allegations, among other things,
      that the Company owes ERI for products delivered and sold to the Company by
      ERI
      between September 2005 and January 2006. ERI seeks an award of $947,500. The
      Company plans to vigorously defend against ERI’s allegations and is in the
      process of responding to ERI’s complaint. Among other defenses, the Company
      plans to provide evidence that ERI owes to the Company approximately $1 million
      for products sold and delivered by the Company to ERI, which amount should
      be
      set-off against any amounts owing by the Company to ERI.




**ITEM 1A.** **RISK
      FACTORS**




In
      addition to the other information set forth in this Quarterly Report, you should
      carefully consider the factors discussed in Part I, Item 1A. “Risk Factors”
in our Annual Report on Form Form 10-K for our fiscal year ended December
      31, 2006.  The risks discussed in our Annual Report on Form 10-K could
      materially affect our business, financial condition and future results. The
      risks described in our Annual Report on Form 10-K are not the only risks facing
      us. Additional risks and uncertainties not currently known to us or that we
      currently deem to be insignificant also may materially and adversely affect
      our
      business, financial condition or operating results.




20






**ITEM 2.****UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**




None.





**ITEM 3.** **DEFAULTS
      UPON SENIOR SECURITIES**




None.





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





None.




**ITEM 5.** **OTHER
      INFORMATION**




None.





**ITEM 6.** **EXHIBITS**





31.1
            Certification
                of Chief Executive Officer pursuant to Section 302(a) of the
                Sarbanes-Oxley Act.*31.2
            Certification
                of Chief Financial Officer pursuant to Section 302(a) of the
                Sarbanes-Oxley Act.*32.1
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act.*32.2
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act.*





*  Filed
      herewith.





21




**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.





Dated:
                August 13, 2007
            
            GENIUS
                PRODUCTS, INC.,
              a
                Delaware CorporationBy:
            /s/
                Trevor DrinkwaterTrevor
                Drinkwater
              President
                and Chief Executive Officer
              (Principal
                Executive Officer)Dated:
                August 13, 2007
            
            By:
            /s/
                John MuellerJohn
                Mueller
              Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)








22