**EXHIBIT
      99.1**




**GENIUS
      PRODUCTS, LLC**


**SUPPLEMENTAL
      BALANCE SHEET**


**(UNAUDITED)**


**(IN
      THOUSANDS)**





September
                30,
              2006
              (Restated)**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            21,445Accounts
                  receivable, net of allowance for doubtful accounts and sales returns
                  of
                  $1,550 and $29,371
            
            
            97,848Inventories,
                net
            
            
            9,669Prepaid
                expenses
            
            
            991Total
                current assets
            
            
            129,953Restricted
                cash
            
            
            306Property
                and equipment, net
            
            
            856Vendor
                advances
            
            
            6,339Film
                library, net of accumulated amortization of $18,090
            
            
            7,779Notes
                receivable, related party
            
            
            1,595Intangible
                Assets
            
            
            17,063Goodwill
            
            
            84,982Deposits
                and other
            
            
            211Total
                assets
            
            $
            249,084**LIABILITIES
                AND MEMBERS' EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            15,827Notes
                payable
            
            
            977Remittance
                to licensor
            
            
            86,048Accrued
                expenses
            
            
            24,405Deferred
                revenue
            
            
            1,974Total
                current liabilities
            
            
            129,231Deferred
                gain, related party, net of current portion
            
            
            1,207Total
                liabilities
            
            
            130,438Member's
                equity
            
            
            118,646Total
                liabilities and members' equity
            
            $
            249,084





1




**GENIUS
      PRODUCTS, LLC**


**SUPPLEMENTAL
      UNAUDITED STATEMENT OF OPERATIONS**


**FOR
      THE PERIOD JULY 22, 2006 THROUGH SEPTEMBER 30, 2006**


**(UNAUDITED)**


**(IN
      THOUSANDS)**





Distributor
              (Restated)Revenues,
                net of sales returns, discounts and allowances of $31,054
            
            $
            80,047Total
                cost of revenues
            
            
            78,843Gross
                profit
            
            
            1,204Operating
                expenses:General
                and administrative
            
            
            218Total
                operating expenses
            
            
            218Income
                from operations
            
            
            986Interest
                expense
            
            
            (2
            )Interest
                income and other
            
            
            165Net
                income
            
            $
            1,149





2




**GENIUS
      PRODUCTS, LLC**


**SUPPLEMENTAL
      UNAUDITED STATEMENT OF MEMBERS' EQUITY**


**FOR
      THE PERIOD JULY 22, 2006 THROUGH SEPTEMBER 30, 2006**


**(UNAUDITED)**


**(IN
      THOUSANDS)**





Genius
                Products, Inc
            
            The
                Weinstein Company Holdings LLC
            
            W-G
                Holding Corp
            
            Total
                Members'Class
                G units
            
            Class
                W Units
            
            Class
                W Units
            
            Equity
              (Restated)Contribution
                of assets, liabilities and businesses of Genius Products,
                Inc.
            
            $
            117,960
            
            $
            -
            
            $
            -
            
            $
            117,960Stock
                compensation expense
            
            
            42
            
            
            97
            
            
            1
            
            
            141Distribution
                to members for costs incurred on behalf of Genius Products,
                Inc.
            
            
            (181
            )
            
            (416
            )
            
            (6
            )
            
            (603
            )Net
                income (loss)
            
            
            345
            
            
            793
            
            
            11
            
            
            1,149Ending
                members' equity at September 30, 2006
            
            $
            118,166
            
            $
            474
            
            $
            7
            
            $
            118,646





3




**GENIUS
      PRODUCTS, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**


**(IN
      THOUSANDS)**





For
                the Period
              July
                22, 2006 to
              September
                30,
              2006
              (Restated)Cash
                flows from operating activities:Net
                income
            
            $
            1,149Adjustments
                to reconcile net loss to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            545Amortization
                of intangible assets
            
            
            2,528Amortization
                of production masters and film library
            
            
            201Change
                in allowance for doubtful accounts and provision for
                returns
            
            
            6,953Change
                in provision for obsolete inventory
            
            
            1,293Stock
                compensation expense
            
            
            141*Changes
                in assets and liabilities:*Increase in
                Accounts receivable
            
            
            (54,485
            )Decrease
                in Inventories
            
            
            3,043Decrease
                in Prepaid expenses, notes receivable and deposits
            
            
            93Increase
                in Vendor advances
            
            
            (3,229
            )Increase in
                Accounts payable
            
            
            10,411Increase in
                Accrued expenses and other
            
            
            2,837Decrease
                in Deferred revenue
            
            
            (782
            )Increase in
                Remittance to licensor
            
            
            36,041Decrease in
                Deferred gain, related party
            
            
            (39
            )Net
                cash provided by operating activities
            
            
            6,701Cash
                flows from investing activities:Restricted
                cash
            
            
            (306
            )Purchase
                of property and equipment
            
            
            (673
            )Net
                cash used in investing activities
            
            
            (979
            )Cash
                flows from financing activities:Members'
                contribution
            
            
            15,724Net
                cash provided by financing activities
            
            
            15,724Net
                increase in cash and cash equivalents
            
            
            21,445Cash
                at beginning of period
            
            
            -Cash
                at end of period
            
            $
            21,445





4




**GENIUS
      PRODUCTS, LLC ("DISTRIBUTOR")**


**NOTES
      TO FINANCIAL STATEMENTS**


**(UNAUDITED)**




**NOTE
      A. NATURE OF BUSINESS** . 
      Genius Products, LLC (the “Distributor”) is a partnership that is jointly owned
      by Genius Products, Inc. and The Weinstein Company. Genius Products, Inc. is
      the
      managing member of Genius Products, LLC, in which it holds a 30% equity
      interest. Post closing of the Transaction, Genius Products, Inc’s entire
      business is conducted by the Distributor. The Distributor produces, licenses,
      and distributes a valuable library of motion pictures, television programming,
      family, lifestyle and trend entertainment on DVD and other emerging platforms
      through its expansive network of retailers throughout the U.S.  The
      Distributor handles the distribution, marketing and sales for such brands as
      Asia Extreme(TM), Baby Genius®, Discovery Communications, Inc., Dragon DynastyTM,
      Dimension Films, ESPN®, IFC®, Imaginasian, NBC News®, Sundance Channel Home
      Entertainment®, WellspringTM, The Weinstein Company® and World Wrestling
      Entertainment, Inc.®




PERSONAL
      ASSETS AND LIABILITIES AND MEMBERS’ SALARIES. In accordance with the generally
      accepted method of presenting partnership financial statements, the Distributor
      financial statements do not include the personal assets and liabilities of
      the
      partners, including their obligation for income taxes on their distributive
      shares of the net income of the partnership.




CONCENTRATIONS
      OF CREDIT RISK. For the 71 days ending September 30, 2006, Wal-Mart and Best
      Buy
      accounted for 39% and 11% of net revenues. At September 30, 2006, Wal-Mart
      and
      Best Buy comprised 38% and 8% of the accounts receivable before
      allowances.




STOCK
      BASED COMPENSATION. Under FAS 123R, Genius Products, Inc. measures share-based
      compensation cost based on the estimated fair value of the award, and charges
      the expense over the employee's requisite service period to the Distributor.
      The
      Distributor includes this cost in compensation expense.




INCOME
      TAXES. The Distributor is a pass-through entity and consistent with its tax
      status as a partnership, does not pay federal income taxes.




REVENUE
      RECOGNITION. Revenue from the sale or licensing of films is recognized upon
      meeting all recognition requirements of SOP 00-2. Revenues are recorded upon
      the
      receipt of goods by the customer for titles that do not have a “street date”
(when it is available for sale by the customer). If a title has a street date,
      the Distributor recognizes the initial shipment as revenue on that date and
      all
      subsequent shipments after street date are recognized as 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. The
      allowance for returns calculation is based upon an analysis of historical
      customer and product returns performance as well as current customer inventory
      data as available. Updates to the returns calculation are performed quarterly.
      Revenues from royalties are recognized when received. Revenues from licensing
      are recognized when the title is available to the licensee. Cash payments
      received are recorded as deferred revenue until all the conditions of revenue
      recognition have been met. Long-term, non-interest bearing receivables are
      discounted to present value.




**NOTE
      B. UNAUDITED RESTATEMENT OF**  **SEVENTY-ONE
      DAY PERIOD ENDED SEPTEMBER 30, 2006**




On
      April
      12, 2007, the Distributor determined that it was necessary to restate its
      unaudited consolidated financial statements and other financial information
      as
      of and for the seventy-one-day period ended September 30, 2006. The
      restatements that the Company made at that time related to the following
      corrections of errors:




1.
      The
      Distributor revised the computation of its stock option non-cash compensation
      expense under the provisions of SFAS No. 123R and Emerging Issues Task Force
      (“EITF”) Issue No. 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 seventy-one-day period
      ended September 30, 2006.




5




Additionally,
      the Distributor revised its computation of Stock Option Compensation Expense
      in
      the seventy-one-day period ended September 30, 2006 to properly reflect the
      accelerated vesting of employee and non-employee awards of stock options which
      occurred upon the closing of the Transaction as of July 21, 2006. This non-cash
      adjustment was necessary as the Stock Option Compensation Expense related to
      the
      accelerated vesting was initially recorded in the records of the Distributor.
      For the seventy-one-day period ended September 30, the Company decreased stock
      compensation expense by $2.8 million.




2.
      The
      Distributor revised its reported net revenue and cost of revenue amounts for
      the
      seventy-one-day period ended September 30, 2006 to properly reflect net revenue
      and cost of revenues in the appropriate period. The need for these corrections
      resulted from cut-offs due to the closing of the Transaction on July 21, 2006
      (as opposed to a month-end cut-off date), cut-offs at June 30 and
      errors in the timing of recognition of invoices and expenses. For the
      seventy-one-day period ended September 30, the Company decreased its net revenue
      in the amount of $0.3 million and increased its cost of revenues by $.6 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 and
      cost of revenue for the seventy-one-day period ended September 30 were $1.1
      million.




3.
      The
      Distributor 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 002. The Company decreased
      advertising and marketing expense by $7.3 million and increased participation
      expense by $8.7 million for the seventy-one-day
      period ended
      September 30.




4.
      The
      Distributor revised its operating results for the seventy-one day period ended
      September 30, 2006 to account for the impairment of its film library of $0.3
      million. These non-cash adjustments were necessary to properly reflect the
      realizability of such assets as of September 30, 2006.




5.
      The
      Distributor decreased by $6.8 million the amount it recorded for expenses for
      the seventy-one day period ended September 30, 2006 to properly allocate certain
      sales and general and administrative costs between the Company and the
      Distributor in the period that they were incurred.




The
      effects of the restatement on net revenues, cost of revenues, gross profit,
      net
      income, accounts receivable, film library, accrued expenses, and stockholders’
equity as of and for the seventy-one
      day period ended
      September 30, 2006 are as follows:





(In
                thousands)
            
            Seventy-one
                day period ended September 30, 2006As
                Originally
              Reported
            
            Restatement
              Adjustments
            
            As
              RestatedNet
                revenues
            
            $
            81,453
            
            $
            (1,406
            )
            $
            80,047Cost
                of revenues
            
            
            80,682
            
            
            (1,838
            )
            
            78,843Gross
                profit (loss)
            
            
            772
            
            
            432
            
            
            1,204Net
                income (loss)
            
            
            (6,375
            )
            
            7,523
            
            
            1,149Accounts
                receivable
            
            
            97,848
            
            
            -
            
            
            97,848Total
                current assets
            
            
            134,815
            
            
            (5,638
            )
            
            129,176Film
                library
            
            
            18,944
            
            
            (11,166
            )
            
            7,779Total
                assets
            
            
            249,031
            
            
            (723
            )
            
            248,307Accrued
                expenses
            
            
            37,872
            
            
            (13,467
            )
            
            24,405Total
                current liabilities
            
            
            132,048
            
            
            (3,594
            )
            
            128,454Stockholders'
                equity
            
            
            115,858
            
            
            2,789
            
            
            118,646





6





**NOTE
      C. RESTRICTED CASH**




Restricted
      cash of $0.3 million at September 30, 2006 represents cash invested in
      certificates of deposit to collateralize a letter of credit issued to a landlord
      for an office lease.




**NOTE
      D. INVENTORY**





Inventories
      consist of raw materials and finished goods and are valued at the lower of
      cost
      or market.




September
                30,
              2006
              (unaudited)
              (in
                thousands)Raw
                materials
            
            $
            876Finished
                goods
            
            
            14,68915,565Less
                Allowance for obsolescence
            
            
            (5,896
            )Inventories,
                net
            
            $
            9,669





**NOTE
      E. PROPERTY AND EQUIPMENT**




Property
      and equipment purchases are recorded at cost and are depreciated and amortized
      over the estimated useful lives of the assets (three to seven years generally)
      using the straight-line method.




September
                30,
              2006
              (unaudited)
              (in
                thousands)
            
            Useful
                livesComputers
                and equipment
            
            $
            1,287
            
            
            3-5
                yearsFurniture
                and fixtures
            
            
            38
            
            
            3-7
                yearsLeasehold
                improvements
            
            
            22
            
            
            Lesser
                of lease term or useful lifeTools
                and dies
            
            
            54
            
            
            3
                years1,401Less
                Accumulated depreciation and amortization
            
            
            (545
            )Property
                and equipment, net
            
            $
            856





Depreciation
      expense for the 71 days ended September 30, 2006 was $0.02
      million.





**NOTE
      F. INVESTMENT IN FILMS AND VIDEO**




Following
      are the components of our Production Masters and Film Library
      balances:





September
                30,
              2006
              (unaudited)Library,
                net of accumulated amortization
            
            $
            7,573Titles
                acquired and not released
            
            
            206Total
                library, net of accumulated amortization
            
            $
            7,779




7




The
      film
      library at September 30, 2006 is composed of the Wellspring library that was
      acquired as part of the acquisition of American Vantage Media (“AVMC”) , a
      subsidiary of American Vantage Companies (“AVC”) and Wellspring Media, Inc. on
      March 21, 2005 and additional titles licensed since the acquisition. The
      film library is amortized over its expected revenue stream for a period of
      ten
      years from the acquisition date. The amortization period on the library which
      includes titles acquired and not released as of September 30, 2006 is
      approximately nine years on unamortized costs of $7.8 million. We estimate
      total
      amortization expense for our film library for the remainder of 2006 to be $0.3
      million which is based upon revenue estimates for our film library for the
      remainder of the year.




We
      expect
      that we will pay accrued participation liabilities of $5.4 million during the
      twelve month period ending December 31, 2006.




**NOTE
      G. PURCHASE PRICE ALLOCATION AND ADJUSTMENT TO GOODWILL**





The
      total
      basis of Genius’ contributed assets and liabilities was allocated to the
      estimated fair value of assets acquired and liabilities assumed as set forth
      in
      the following table:




(In
                thousands)Cash
            
            $
            20,329Accounts
                receivable, net
            
            
            50,315Film
                library
            
            
            11,090Inventory
            
            
            14,006Other
                assets
            
            
            3,144Intangible
                assets
            
            
            19,591Liabilities
                assumed
            
            
            (81,192
            )Goodwill
            
            
            80,677Total
                consideration
            
            $
            117,960




*Goodwill* :
      We
      evaluate the carrying value of goodwill as of December 31 of each year and
      between annual evaluations if events occur or circumstances change that would
      more likely than not reduce the fair value of the reporting unit below its
      carrying amount. Such circumstances could include, but are not limited to:
      (1) a significant adverse change in legal factors or in business climate,
      (2) unanticipated competition, or (3) an adverse action or assessment
      by a regulator. When performing the impairment review, we determine the carrying
      amount of each reporting unit by assigning assets and liabilities, including
      the
      existing goodwill, to those reporting units. A reporting unit is defined as
      an
      operating segment or one level below an operating segment (referred to as a
      component). A component of an operating segment is deemed a reporting unit
      if
      the component constitutes a business for which discrete financial information
      is
      available, and segment management regularly reviews the operating results of
      that component.




To
      evaluate whether goodwill is impaired, we compare the fair value of the
      reporting unit to which the goodwill is assigned to the reporting unit's
      carrying amount, including goodwill. We determine the fair value of each
      reporting unit using the present value of expected future cash flows for that
      reporting unit. If the carrying amount of a reporting unit exceeds its fair
      value, the amount of the impairment loss must be measured. The impairment loss
      would be calculated by comparing the implied fair value of reporting unit
      goodwill to its carrying amount. In calculating the implied fair value of the
      reporting unit goodwill, the fair value of the reporting unit is allocated
      to
      all of the other assets and liabilities of that unit based on their fair values.
      The excess of the fair value of a reporting unit over the amount assigned to
      its
      other assets and liabilities is the implied fair value of goodwill. An
      impairment loss would be recognized when the carrying amount of goodwill exceeds
      its implied fair value.




8




The
      consideration and final goodwill were calculated as follows:





(In
                thousands, except per share amounts)Total
                    Genius Products, Inc shares outstanding as of July 21,
                2006
            
            
            61,005Closing
                share price at July 21, 2006
            
            $
            1.95Equity
                market capitalization
            
            
            118,960Less
                cash retained at Genius Products, Inc.
            
            
            (1,000
            )Total
                consideration
            
            
            117,960Genius
                Products, Inc. - net book value at July 21, 2006
            
            
            18,692Less
                cash retained at Genius Products, Inc.
            
            
            (1,000
            )Adjusted
                net book value
            
            
            17,692Total
                consideration in excess of net book value
            
            
            100,268Amounts
                allocated to identifiable intangible assets
            
            
            (19,591
            )Amounts
                allocated to goodwill
            
            
            80,677Capitalized
                transaction costs
            
            
            4,305Goodwill
            
            $
            84,982





**NOTE
      H. NOTES PAYABLE AND CONVERTIBLE DEBENTURES**




On
      March 21, 2005, Genius Products, Inc. completed its acquisition of American
      Vantage Media (“AVMC”), a subsidiary of American Vantage Companies (“AVC”). As
      part of this acquisition, the Company assumed notes payable to certain
      individuals and entities with a total principal balance of $4.0 million, bearing
      interest at 7%, payable quarterly, and a maturity date of February 3, 2006.
      The Company repaid $3.8 million of these notes on February 7, 2006 and
      withheld payment on the balance as part of its contractual right to reserve
      for
      certain potential liabilities associated with the acquisition.





**NOTE
      I. REMITTANCE TO LICENSOR AND DEFERRED REVENUE**




The
      Distributor records as net revenues the full amount it receives from sales
      of
      home video products (net of reserves and allowances), deducts its distribution
      fee, costs of goods sold (including manufacturing expenses) and certain
      marketing expenses, and remits the balance to TWC. The Remittance to licensor
      of
      $86.0 million at September 30, 2006 primarily related to amounts owed to TWC
      from sales of TWC's titles, *The
      Libertine, The Matador, Scary Movie 4 and Lucky Number Slevin* that
      were released on DVD during the quarter ended September 30, 2006.




The
      deferred revenue of $2.0 million at September 30, 2006 primarily related to
      revenue associated with shipments at the end of the quarter that had not yet
      been received by the customer. In accordance with our revenue recognition
      policy, if a title has a “street date” (the date the product is available for
      retail sale), we recognize the initial shipment as revenue on that date. All
      subsequent shipments after street date are recognized as revenue upon the
      receipt of goods by the customer.




9




**NOTE
      J. ACCRUED EXPENSES**




The
      components of accrued expenses at September 30, 2006:




September
                30, 2006
              (unaudited)
              (in
                thousands)Accrued
                payroll and related items
            
            $
            776Accrued
                commissions
            
            
            123Tax
                payable
            
            
            80Accrued
                royalties
            
            
            4,579Other
                accrued expense1
            
            
            18,847Total
                accrued expenses
            
            $
            24,405




Other
      accrued expense primarily relates to marketing incentives and media costs
      related to The Weinstein Company titles and other items as of September 30,
      2006.




**NOTE
      K. COMMITMENTS AND CONTINGENCIES**




OPERATING
      LEASES




The
      Distributor leases certain facilities and computer equipment under
      non-cancelable operating leases. Rental expense for the period July 22 through
      September 30, 2006 was $0.2 million. For ease of comparison, the pro forma
      consolidated rental expense for the three and nine months ending September
      30,
      2006 were $0.3 million and $0.8 million, respectively compared to rental expense
      for the three and nine months ended September 30, 2005 of $0.2 million and
      $0.5
      million, respectively.




As
      of
      September 30, 2006, the future minimum annual rental commitments required under
      existing non-cancelable operating leases are as follows:




Remainder
              of
                2006
            
            2007
            
            
            2008
            
            
            2009
            
            
            2010
            
            Thereafter
            
            TotalLease
                obligations (in thousands)
            
            $
            536
            
            $
            1,092
            
            
            $
            976
            
            
            $
            729
            
            
            $
            735
            
            $
            185
            
            $
            4,253





Except
      as
      described below, 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
      L. MEMBER’S EQUITY**





*Units
      of Genius Products, LLC*





Genius
      Products, LLC (the
“Distributor”) has outstanding 18,301,538 Class G Units and 42,703,588 Class W
      Units. The terms and conditions of the Class G Units and Class W Units are
      governed by the Amended and Restated Limited Liability Company Agreement of
      the
      Distributor dated July 21, 2006 (the “LLC Agreement”).





Under
      the
      LLC Agreement, Genius Products, Inc. (the “Company”) is obligated to contribute
      to the Distributor, as an additional capital contribution (or loan to the
      Distributor in the case of debt), the net proceeds received from any issuances
      by the Company of stock or securities convertible into or exchangeable for
      common stock, or upon the exercise, conversion or exchange of any convertible
      securities, or the
      sale
      of its property, incurrence of indebtedness, recapitalization or refinancing,
      or
      from any other capital raising transaction. However, the consideration received
      by the Company from the exercise of options, warrants or other convertible
      securities issued and outstanding as of July 21, 2006 (or any property acquired
      solely with such consideration) will not be required to be contributed to the
      Distributor.




10




Under
      the
      LLC Agreement, no holder
      of
      Class G Units or Class W Units will be entitled to demand or receive a return
      of
      any capital contributions or otherwise withdraw from the Distributor without
      the
      consent of all members.




Under
      the
      LLC Agreement, if the
      Distributor, The Weinstein Company Holdings LLC (“TWC Holdings”) or certain
      affiliates of TWC Holdings pays, discharges or otherwise satisfies or assumes
      any liability or obligation for which it is entitled to indemnification from
      Genius Products pursuant to the Master Contribution Agreement dated December
      5,
      2005, the Distributor will redeem from the Company (without any further payment
      to the Company) a number of Class G Units, and issue to the holders of Class
      W
      Units (without any further payment by such holders) a number of additional
      Class
      W Units based on a formula set forth in the LLC Agreement of the Distributor
      (an
“Indemnification Issuance”).





*Repurchase
      of Class W Units*





Under
      the
      Distributor LLC Agreement, if, at any time prior to December 31,
      2009:  (i)
      TWC
      terminates the Distribution Agreement between TWC and the Distributor (the
“TWC
      Distribution Agreement”) because the “Annual Video Ratio” is less than 60% or
      the “Semi-Annual Video Ratio” is less than 60% (as such terms are defined in the
      TWC Distribution Agreement) and the Annual Video Ratio or Semi-Annual Video
      Ratio, as applicable, giving rise to such termination is more than 50%, (as
      calculated pursuant to the terms of the TWC Distribution Agreement); or (ii)
      TWC
      enters bankruptcy and does not (i) continue to substantially perform its
      obligations under the TWC Distribution Agreement, or (ii) provide for TWC’s
      obligations being assumed under the TWC Distribution Agreement by or through
      a
      successor, affiliate or other person; then, in either such case, the Distributor
      may repurchase from TWC Holdings and its first-tier subsidiary, W-G Holding
      Corp., a portion of the Class W Units owned by them as provided in the table
      below. The purchase price to be paid will be an amount equal to 75% of the
      cash
      amount that TWC Holdings and W-GHolding Corp. would receive upon a redemption
      of
      tendered units as described below under “Redemption Rights of Class W Units”,
      where the number of tendered units is equal to the number of Class W Units
      to be
      repurchased. The portion of Class W Units subject to the repurchase right during
      any calendar year will be determined as follows:





Year
                of Term
            
            Portion
                of Units
              Subject
                to Repurchase1/1/06
                - 12/31/06
            
            60%1/1/07
                - 12/31/07
            
            30%1/1/08
                - 12/31/08
            
            20%1/1/09
                - 12/31/09
            
            10%




If
      at any
      time prior to December 31, 2009, TWC terminates the TWC Distribution Agreement
      for the reasons described above and the Annual Video Ratio or Semi-Annual Video
      Ratio, as applicable, giving rise to such termination is less than 50% (as
      calculated pursuant to the terms of the TWC Distribution Agreement), then the
      Distributor will have no right to repurchase any portion of the Class W Units
      then held by TWC Holdings or W-G Holding Corp.





*Redemption
      Rights of Class W Units*





Each
      holder of Class W Units will have the right to require the Distributor to redeem
      all or a portion of the Class W Units held by it and not subject to a repurchase
      right by the Distributor under the provisions described above (the “Tendered
      Units”) in exchange (a “Redemption”) for a number of shares of Genius common
      stock equal to the number of Tendered Units, subject to adjustment for
      dividends, stock splits, reverse stock splits, distributions, Indemnification
      Issuances and certain other issuances by Genius. The Distributor may also
      deliver to the tendering party cash instead of shares, with a value based on
      the
      30-day trailing volume weighted average price of Genius’ common
      stock.




11


*Limitation
      on the Authority of the Managing Member*





Genius
      is
      the managing member of the Distributor. However, Genius’ authority to operate
      the business and affairs of the Distributor is subject to certain limitations.
      For so long as TWC Holdings, W-G Holding Corp. and their transferees
      beneficially own units comprising at least 20% of the outstanding units of
      the
      Distributor, the managing member is not permitted to take certain actions on
      behalf of the Distributor (directly or through a subsidiary) without the prior
      approval of TWC Holdings, including without limitation the following: (i)
      creating or assuming any indebtedness or liability, or providing any indirect
      financial assistance, or assuming any mortgage, charge or other encumbrance
      on
      any property of the Distributor; (ii) selling, leasing, exchanging or disposing
      of, by any means, property or assets of the Distributor having a value in excess
      of $100,000; (iii) entering into or effecting any conversion, consolidation
      or
      merger involving the Distributor; (iv) taking any action to liquidate or
      dissolve the Distributor; (v) entering into, amending or waiving any contract
      with a member or with any party that is not at arm’s length; (vi) engaging,
      removing or replacing the Distributor’s independent auditors; (vii) guaranteeing
      the liabilities or debts of any other person than a subsidiary of the
      Distributor; (viii) requiring any guarantee from any member; (ix) declaring
      or
      making any distribution, including any distribution in-kind of securities or
      other non-cash assets; (x) issuing or granting any Class G Units, Class W Units
      or any other units, membership interests or economic interests in the
      Distributor (other than as provided in the Distributor LLC Agreement); (xi)
      utilizing sub-distributors, or licensees, or outsourcing any functions relating
      to the Distributor’s performance under the Distribution Agreement; (xii)
      appointing or removing the Distributor’s CEO, COO, CFO, or any other executive
      level officer or employee, or any other employee whose compensation is in excess
      of $150,000 per year; (xiii) approving the annual or quarterly budget for the
      Distributor, or varying more than 10% from the amount budgeted for any
      particular line item therein; (xiv) engaging in any debt or equity financing,
      refinancing, recapitalization or other capital raising transaction; (xv)
      approving or entering into any contracts, agreements, understandings or
      arrangements outside the ordinary course or providing for payments by or to
      the
      Distributor or obligations in excess of $100,000 per year; (xvi) commencing
      or
      settling any litigation; (xvii) licensing any item of product outside the
      ordinary course or on terms other than fair market value; (xviii) approving
      or
      adopting any material employee compensation plan or arrangement; (xix) creating
      any subsidiary or taking any of the actions described above with respect to
      any
      subsidiary. In addition, the Distributor generally must follow tax positions
      on
      its tax returns advocated by TWC Holdings.





*Allocation
      of Profits and Losses*





Profits
      and losses are allocated to the partners based upon their relative ownership
      of
      the Distributor.





**NOTE
      M. SUBSEQUENT EVENTS**





On
      October 17, 2006 Genius Products, LLC announced that it had entered into a
      multi-year agreement with World Wrestling Entertainment, Inc. (WWE), to be
      the
      exclusive home entertainment distributor of all WWE DVD titles, effective
      November 1, 2006. Under the terms of the multi-year agreement, Genius will
      be
      the exclusive U.S. distributor for all WWE DVDs. New releases will include
      content from WWE’s 90,000-hour video library, the largest of its kind in the
      world, featuring content from RAW®, SmackDown!® and ECW® (Extreme Championship
      WrestlingTM), pay-per-view events, including WrestleMania, and past and present
      Superstar profiles, among others. Genius assumes distribution for WWE’s titles
      on November 1, 2006. The first title to be distributed features one of WWE’s
      greatest legends, BORN TO CONTROVERSY: THE RODDY PIPERTM STORY (November 14,
      2006, street date). This will be followed by THE SPECTACULAR LEGACY OF THE
      AWA®
(November 21, 2006, street date) and the RAW brand’s pay-per-view, WWE CYBER
      SUNDAYTM 2006 (December 5, 2006, street date). Genius will release a minimum of
      25 new titles in 2007, with additional plans to exploit WWE’s DVD catalog of
      more than 100 titles. In 2006, 10 of WWE’s DVD releases achieved the No. 1
      position on the Sports DVD charts, according to Nielsen VideoScan. WRESTLEMANIA®
22 debuted at No. 5 among all DVD releases in the U.S. and is now the No. 1
      best-selling WWE DVD of all-time. Home entertainment revenue accounted for
      $42
      million, or 10 percent, of WWE’s revenues for fiscal year 2006, more than double
      from the prior fiscal year.





On
      October 18, 2006, Genius Products, LLC announced today that it had entered
      into
      a multi-year agreement with ImaginAsian Entertainment, Inc. to be the exclusive
      home entertainment distributor for ImaginAsian's expanding portfolio of
      Asian-genre motion pictures and television programs. ImaginAsian Entertainment,
      Inc., a multimedia company, through its multiple platforms, seeks to reach
      the
      major sub-segments of the Asian American community with entertainment, news
      and
      information. This community is one of the fastest growing, most economically
      influential ethnic populations in the U.S. Under the five year agreement, Genius
      has acquired the rights to distribute DVDs in North America under the
      ImaginAsian Home Video banner.




12




On
      October 26, 2006, Genius Products, LLC. announced that it had entered into
      an
      agreement with Discovery Communications, Inc. (DCI) to be the exclusive home
      entertainment distributor of Discovery Kids programming. Under the terms of
      the
      multi-year agreement, which marks Discovery Kids’ first ever home entertainment
      distribution agreement, Genius will be the exclusive distributor in the U.S.
      for
      Discovery Kids branded television properties, including content from the Ready
      Set Learn!TM block on TLC and Discovery Kids Channel. Genius plans a rollout of
      the Discovery Kids properties beginning in February 2007, delivering a minimum
      of 16 titles per year. Properties for release on DVD include *Kenny
      the Shark* , *Tutenstein* and *Flight
      29 Down* ,
      as seen
      on the Discovery Kids Channel and *Paz* and *Save-Ums* from
      Ready Set Learn!TM, the preschool block that airs on TLC and Discovery Kids
      Channel. Home video release dates for the Discovery Kids titles will be
      announced on an ongoing basis.




On
      November 15, 2006, Genius Products, LLC announced that it will act as the
      exclusive distributor to TWC in executing and servicing TWC’s strategic alliance
      with Blockbuster. TWC and Blockbuster Inc. (NYSE: BBI, BBI.B) entered into
      a
      four-year exclusive alliance, which provides Blockbuster exclusive rental rights
      to TWC’s theatrical and direct-to-video movies, beginning Jan. 1, 2007. Under
      the terms of the agreement, TWC and Blockbuster will share rental revenues
      from
      TWC’s theatrical and direct-to-video titles.  Genius Products, LLC will
      provide distribution services to TWC in connection with the deal. This deal
      however, does not include the exclusive rights in connection with retail
      sell-thru sales of TWC’s home entertainment product. Through the agreement,
      Blockbuster will carry future theatrical and direct-to-video titles released
      by
      TWC and will have a three-year rental exclusivity for each title released. 
In exchange for exclusivity, Blockbuster will pay TWC a minimum guarantee,
      determined by box office performance, for each theatrical picture, and based
      on
      the acquisition or production costs for each DTV title.  Blockbuster plans
      to showcase the TWC movies in special sections in its stores and online. It
      will
      also offer customers the TWC movies under its in-store guaranteed availability
      program, which guarantees customers that select movies will be in-stock or
      they
      get a “rain-check” free rental coupon for that movie. Blockbuster also plans to
      share general trending information with TWC, such as the types of movies and
      actors the Blockbuster consumer would like to see more of, which could provide
      valuable insights for future film projects.




Recent
      Events





On
      September 19, 2006, Genius Products, LLC (the Distributor) provided earnings
      guidance for 2006 and revenue guidance for 2007, and reaffirmed its 2006 revenue
      guidance.





Genius
      Products, LLC reaffirmed its previously issued pro forma full-year 2006 gross
      revenues guidance of $370 million and net revenues guidance of $300 million,
      and
      also stated that it expects to achieve the following:





·
            Gross
                revenues of $120 million for the 3rdquarter of 2006





·
            Profitability
                on a non-GAAP adjusted net income basis in both the third and fourth
                quarter of 2006





·
            2007
                gross revenues in the range of $650 to $750 million





**RESULTS
      OF OPERATIONS FOR THE DISTRIBUTOR FOR THE PERIOD JULY 22 THROUGH SEPTEMBER
      30,
      2006**





The
      discussions in this section reflect the result of operations for the Distributor
      for the 71 day period from July 22 through September 30 (post Closing). After
      the Closing, substantially all of Genius Products, Inc.’s revenue and expenses
      as well as the results from releasing TWC product are reflected in the financial
      statements of the Distributor.




13


*Revenues:*




Total
      gross revenues for the 71 days ended September 30, 2006 were $111.1
      million.


Revenues
      were primarily composed of sales of The Weinstein Company (“TWC”)
      titles, *Scary Movie 4, Lucky Number Slevin,* sales of
      branded and proprietary products including branded classic movies and television
      shows on DVD as well as non-branded classic movies and television shows on
      DVD,
      and Wellspring titles from AVMC.





Sales
      returns, discounts and allowances were $31.4 million for the 71 days ended
      September 30, 2006. This resulted primarily from sales for the video release
      of
      TWC's *Scary Movie 4* and *Lucky
      Number Slevin* .
      The
      provision for sales returns and allowances is calculated in accordance with
      historical averages and industry changes, but may vary in the future based
      on
      customer and product mix.




Net
      revenues for the 71 days ended September 30, 2006 were $80.0 million *.*




*Costs
      and expense:*




*Cost
      of Sales:*




Cost
      of
      sales consists primarily of the cost of products sold to customers, packaging
      and shipping costs, amortization of production masters and royalties paid on
      sales of licensed products. For analytical purposes we review amortization
      of
      production masters as a stand-alone cost element and discuss the aggregate
      cost
      of producing, packaging, and shipping of the audio, DVD, and royalty, licensing
      and other products. We include remittances to TWC in cost of sales. Under our
      distribution agreement with TWC, we record remittances to TWC based upon net
      revenues we receive from sales of TWC titles released on DVD (net of reserves
      and allowances), deduct our distribution fee, deduct cost of goods sold
      (including manufacturing expenses), deduct certain marketing expenses, and
      record the remaining balance as a remittance to licensor under cost of goods
      sold.




Manufacturing
      and distribution cost of sales were $20.7 million for the 71 days ending
      September 30, 2006. Cost of sales are primarily due to the video release of
      TWC's titles during the 71 days ending September 30, 2006. Cost of sales related
      to TWC's titles include the remittance to The Weinstein Company and the related
      product cost of sales.





Amortization
      and participation costs were $48.6 million for the 71 days ending September
      30,
      2006. Amortization of production masters and film library is primarily the
      result of the acquisition of AVMC.





Advertising
      and marketing expenses were $9.5 million during the 71 days ending September
      30,
      2006. Advertising and marketing is primarily attributable to the advertising
      campaigns for the video release of TWC's *Scary Movie 4* which
      was
      released on August 15, 2006 and *Lucky
      Number Slevin* which
      was released on September 12, 2006.




*Operating
      Expense:*




General
      and administrative expenses were $0.2 million during for the 71 days ending
      September 30, 2006. General and administrative expenses primarily relate to
      payroll, rent, audit and legal fees and warrants and options expense. General
      and administrative expenses were 0.3% of net revenues for the 71 days ending
      September 30, 2006.





On
      December 31, 2005, Genius Products, Inc., sold to Klaus Moeller, our
      founder and former Chief Executive Officer, all of our right, title and interest
      in and to our “Baby Genius”, “Kid Genius”, “Little Tikes” and “Wee Worship”
lines of business for a total purchase price of $3 million.




The
      purchase price was payable as follows:





·
            $250,000
                in cash on signing;





·
            $750,000
                by means of secured promissory note due and payable in full, together
                with
                all accrued interest, on January 30, 2006, bearing interest at the
                rate of 4.5% per annum; and





·
            $2
                million by means of a secured promissory note due and payable in
                full,
                together with all accrued interest, on the fifth anniversary of the
                closing date, bearing interest at a rate of 4.5% per
                annum.




14




In
      conjunction with this transaction Genius Products, Inc., recorded a gain on
      sale
      in the amount of $1.4 million and recorded a note receivable in the amount
      of
      $1.7 million representing the present value of a $2 million secured promissory
      note that we received in this transaction and a deferred gain of $1.2 million.
      Genius Products, Inc., subsequently received payment in full of the secured
      promissory note, due on January 30, 2006, in the amount of $0.8 million,
      plus interest. Genius Products, Inc., and the Distributor will recognize the
      deferred gain based upon the relative percentage of revenue we generate in
      each
      period relative to the total revenue expected to be generated over the term
      of
      the distribution agreement. For the 71-day period ending September 30, 2006,
      the
      Distributor recognized a gain of $0.02 million relating to the deferred gain
      of
      $1.2 million at December 31, 2005.




The
      Distributor had interest income of $0.2 million during the 71 days ending
      September 30, 2006.




As
      result
      of the foregoing, the net income was $1.1during the 71 days ending September
      30,
      2006.




**LIQUIDITY
      AND CAPITAL RESOURCES**




Net
      cash
      provided by operations during the 71 days ending September 30, 2006 was $6.7
      million, primarily due to accrued expenses, accounts payable, remittance to
      licensor, and allowance for doubtful accounts and provision for returns, and
      the
      net income of $1.1 million, offset by increases in accounts receivable. These
      items are primarily related to the release of TWC titles. Accounts receivable
      relates primarily to sales of *Scary Movie 4* and *Lucky
      Number Slevin* during
      the 71 days ending September 30, 2006. Accrued expenses primarily relate to
      invoices received but not paid for the production of inventory and sales and
      marketing expenses *Scary
      Movie 4* and *Lucky
      Number Slevin* .
      The
      remittance to licensor primarily represents the amount owed to TWC after
      deducting the related cost of sales, marketing costs, and our distribution
      fee
      from net sales of TWC titles during the 71 days ending September 30, 2006.
      Under
      the terms of the distribution agreement, the Distributor is required to pay
      TWC
      after collection of receipts, the amount of which is determined by net revenue,
      which as of September 30, 2006 had not been collected. However, since July
      21,
      2006, the Distributor bears the risk of accounts receivable collections.
      Allowance for doubtful accounts and provision for returns increased primarily
      as
      a result of reserves for returns related to the release of ** TWC
      titles.




Net
      cash
      used in investing activities for the 71days ending September 30, 2006, was
      $1.0
      million, primarily attributed to the purchase of property and equipment.




Cash
      provided by financing activities for the 71 days ending September 30, 2006
      was
      $15.7 million, resulting from Members’ cash contribution.





At
      September 30, 2006, the Distributor had cash balances of $21.4 million. We
      feel
      that the Distributor has sufficient liquidity to fund operations through the
      remainder of 2006. However, the Distributor may consider additional issuance
      of
      debt financing to fund future growth opportunities. Although we believe that
      the
      Distributor’s expanded product line offers us and the Distributor the
      opportunity for significantly improved operating results in future quarters,
      no
      assurance can be given that we or the Distributor will operate on a profitable
      basis in 2006, or ever, as such performance is subject to numerous variables
      and
      uncertainties, many of which are out of our control.





The
      table
      below summarizes information as of September 30, 2006 regarding certain future
      minimum contractual obligations and commitments for the next five
      years.


Remainder
                of
                  2006
              
              2007
              
              
              2008
              
              
              2009
              
              
              2010
              
              Thereafter
              
              TotalLease
                  obligations (in thousands)
              
              $
              536
              
              $
              1,092
              
              
              $
              976
              
              
              $
              729
              
              
              $
              735
              
              $
              185
              
              $
              4,253






15