**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON, D.C. 20549





**FORM
      10-QSB**





**x** **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





For
      the
      quarterly period ended: October 31, 2007





OR





**o** **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





*Commission
      file number: 0-15284*





**NATIONAL
      LAMPOON, INC.**


(Exact
      name of registrant as specified in its charter)





Delaware
              (State
                or other jurisdiction of
              Incorporation
                or organization)
            95-4053296
              (I.R.S.
                Employer
              Identification
                No.)8228
                Sunset Boulevard
              Los
                Angeles, CA 90046
              (Address
                of principal executive offices)
              (Zip
                Code)
              
              (310)
                474-5252
              (Registrant's
                telephone number including area code)








(Former
      name, former address and former fiscal year, if changed since last report)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No o





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





**APPLICABLE
      ONLY TO CORPORATE ISSUERS**





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date: The registrant had 8,334,664 shares of common
      stock, $0.0001 par value, issued and outstanding as of December 10, 2007.





Transitional
      Small Business Disclosure Format (Check one): Yes o No x











**FORWARD
      LOOKING STATEMENTS**





This
      Quarterly Report on Form 10-QSB contains “forward-looking
      statements” within
      the meaning of the Private Securities Litigation Reform Act of 1995 as codified
      in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
      Exchange Act of 1934 .
      Forward-looking statements discuss future events and developments, including
      our
      future business strategy and our ability to generate revenue, income and cash
      flow. In some cases, you can identify forward-looking statements by words or
      phrases such as "may," "could," "should," "expects," "plans," "anticipates,"
      "believes," "estimates," "predicts," "potential," "continue," "the Company's
      future success depends," "seeks to continue," or the negative of these words
      or
      phrases, or comparable words or phrases. These statements are only predictions
      that are based, in part, on assumptions involving judgments about future
      economic, competitive and market conditions and future business decisions,
      all
      of which are difficult or impossible to predict accurately. Actual events or
      results may differ materially. Some of the factors that could cause our actual
      results to vary from the forward-looking statements include:





·
            a
                decline in the general state of the economy, which impacts the amount
                of
                money spent by consumers for entertainment products,





·
            whether
                we will be able to raise capital or debt for film financing as we
                need it,





·
            whether
                the entertainment products we produce or to which we license our
                brand
                will generate significant sales,





·
            whether
                our subsidiary, National Lampoon Networks, Inc., will be able to
                continue
                its relationships with its current advertisers and continue to attract
                new
                advertisers,





·
            our
                overall ability to successfully compete in our market and our industry,





·
            whether
                we will continue to receive the services of our executive officers
                and
                directors, particularly our Chief Executive Officer, Daniel S. Laikin,





·
            unanticipated
                increases in development, production or marketing expenses related
                to our
                various business activities,





and
      other
      factors, some of which will be outside of our control. In evaluating
      forward-looking statements, you should consider the factors identified above
      as
      well as those risks outlined in the section of this quarterly report titled
      "Management's Discussion and Analysis or Plan of Operation". Although the
      Company believes that the expectations reflected in the forward-looking
      statements are reasonable, it cannot guarantee future results, levels of
      activity, performance or achievements. You are cautioned not to place undue
      reliance on these forward-looking statements, which speak only as of the date
      on
      which they are made. The Company does not undertake to update any of the
      forward-looking statements to conform these statements to actual results. You
      should carefully review the risk factors included in the Company's Annual Report
      on Form 10-KSB and in other documents it files from time to time with the
      Securities and Exchange Commission.





2


**PART
      I - FINANCIAL INFORMATION**





**Item
      1 - Condensed Consolidated Financial Statements**




**NATIONAL
                LAMPOON, INC. AND SUBSIDIARIES**CONDENSED
                CONSOLIDATED BALANCE SHEET(UNAUDITED)




As
                ofASSETS
            
            October
                31, 2007CURRENT
                ASSETSCash
            
            $
            24,223Accounts
                receivable, net of reserves of $274,929
            
            
            410,438Prepaid
                expenses and other current assets
            
            
            42,694Total
                current assets
            
            
            477,355Fixed
                assets, net of accumulated depreciation of $181,727
            
            
            36,108Capitalized
                production costs, net of $4,355,640 of amortization
            
            
            5,891,121Capitalized
                publishing costs, net of $384,000 of amortization
            
            
            131,854Intangible
                assets, net of accumulated amortization of $4,532,951
            
            
            1,547,334Total
                non-current assets
            
            
            7,606,417TOTAL
                ASSETS
            
            $
            8,083,772LIABILITIES
                AND SHAREHOLDERS' DEFICITCURRENT
                LIABILITIESAccounts
                payable
            
            $
            1,078,345Accrued
                expenses
            
            
            638,301Notes
                payable - related party, including interest of $62,471
            
            
            1,558,807Production
                loans - related party, including interest of $180,629
            
            
            3,867,545Deferred
                income
            
            
            1,335,788TOTAL
                CURRENT LIABILITIES
            
            
            8,478,786COMMITMENTS
                AND CONTINGENCIESAccrued
                dividends payable in common stock
            
            
            3,730,434SHAREHOLDERS'
                DEFICITSeries
                B Convertible Preferred Stock, par value $.0001 per share, 68,406
                shares
                authorized, 63,607 shares issued and outstanding
            
            
            6Series
                C Convertible Preferred Stock, par value $.0001 per share, 250,000
                shares
                authorized, 190,947 shares issued and outstanding
            
            
            18Common
                Stock, par value $.0001 per share, 60,000,000 shares authorized,
                8,287,794
                shares issued and outstanding
            
            
            829Additional
                paid-in capital
            
            
            38,296,315Accumulated
                deficit
            
            
            (42,422,616
            )TOTAL
                SHAREHOLDERS' DEFICIT
            
            
            (4,125,448
            )TOTAL
                LIABILITIES AND SHAREHOLDERS' DEFICIT
            
            $
            8,083,772




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




3




**NATIONAL
                  LAMPOON, INC. AND SUBSIDIARIES**CONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
  Three
                  months endedOctober
                  31,2007
              
              2006REVENUESProduction
              
              $
              -
              
              $
              39,000Licensing
              
              
              245,542
              
              
              3,109,795Advertising
                  & Promotion
              
              
              449,633
              
              
              842,730Publishing
              
              
              112,451
              
              
              138,248Total
                  revenues
              
              
              807,626
              
              
              4,129,773COSTS
                  AND EXPENSESCosts
                  related to production revenue
              
              
              12,775
              
              
              3,000Costs
                  related to licensing revenue
              
              
              17,915
              
              
              61,196Costs
                  related to publishing revenues
              
              
              43,434
              
              
              -Costs
                  related to advertising and promotion revenues
              
              
              202,297
              
              
              715,467Amortization
                  of capitalized television production costs
              
              
              -
              
              
              14,372Amortization
                  of intangible assets
              
              
              61,165
              
              
              61,140Selling,
                  general and administrative expenses
              
              
              1,631,465
              
              
              1,527,358Total
                  costs and expenses
              
              
              1,969,051
              
              
              2,382,533OPERATING
                  LOSS
              
              
              (1,161,425
              )
              
              1,747,240OTHER
                  INCOME (EXPENSE)Interest
                  expense
              
              
              (19,813
              )
              
              (13,912
              )Other
                  income/(expense)
              
              
              15,906
              
              
              -Total
                  other expense
              
              
              (3,907
              )
              
              (13,912
              )NET
                  LOSS
              
              
              (1,165,332
              )
              
              1,733,328Preferred
                  stock dividends
              
              
              (297,771
              )
              
              (320,975
              )Net
                  loss attributable to common shareholders
              
              $
              (1,463,103
              )
              $
              1,412,353Net
                  loss per share attributable to common shareholder - basic
              
              $
              (0.18
              )
              $
              0.20Net
                  loss per share attributable to common shareholder -
                  diluted
              
              $
              (0.18
              )
              $
              0.09Weighted
                  average number of common shares - basic
              
              
              8,232,946
              
              
              7,151,513Weighted
                  average number of common shares - diluted
              
              
              8,232,946
              
              
              15,230,224


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




4




**NATIONAL
                  LAMPOON, INC. AND SUBSIDIARIES**CONSOLIDATED
                  STATEMENTS OF CASH FLOWS(UNAUDITED)
  Three
                  months endedOctober
                  31,2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  income (loss)
              
              $
              (1,165,332
              )
              $
              1,733,328Adjustments
                  to reconcile net income (loss) to net cash used in operating
                  activities:Depreciation
              
              
              4,217
              
              
              2,939Amortization
                  of intangible assets
              
              
              61,165
              
              
              61,140Fair
                  value of shares issued for services
              
              
              182,384
              
              
              364,066Fair
                  value of vested stock options and warrants
              
              
              592,572
              
              
              61,304Amortization
                  of capitalized production costs
              
              
              -
              
              
              8,622Provision
                  for doubtful accounts
              
              
              
              
              
              174,625Increase
                  in accounts receivable
              
              
              (52,096
              )
              
              (2,858,476
              )Decrease
                  in prepaid expenses and other assets
              
              
              22,488
              
              
              38,092Increase/decrease
                  in publishing costs
              
              
              (69,675
              )
              
              38,446Increase
                  in production costs
              
              
              (407,613
              )
              
              (156,575
              )Increase
                  in accounts payable
              
              
              148,739
              
              
              20,890Increase/(decrease)
                  in accrued expenses
              
              
              85,602
              
              
              (11,791
              )Increase
                  in deferred revenues
              
              
              100,015
              
              
              -Decrease
                  in payroll accrual
              
              
              -
              
              
              (91,496
              )NET
                  CASH USED IN OPERATING ACTIVITIES
              
              
              (497,534
              )
              
              (614,886
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of fixed assets
              
              
              (2,894
              )
              
              (7,413
              )Purchase
                  of intangible assets
              
              
              -
              
              
              (3,652
              )Investments
                  in equity securities
              
              
              -
              
              
              (800
              )NET
                  CASH USED IN INVESTING ACTIVITIES
              
              
              (2,894
              )
              
              (11,865
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Payments
                  on production loans
              
              
              (51,219
              )
              
              -Borrowings
                  of production
              
              
              190,219
              
              
              5,034Payments
                  of notes payable, related party
              
              
              (43,085
              )
              
              (54,143
              )Proceeds
                  from notes payable, related party
              
              
              343,030
              
              
              724,411NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              438,945
              
              
              675,302NET
                  INCREASE/(DECREASE) IN CASH
              
              
              (61,483
              )
              
              48,551CASH
                  AT BEGINNING OF PERIOD
              
              
              85,706
              
              
              74,601CASH
                  AT END OF PERIOD
              
              $
              24,223
              
              $
              123,152Supplemental
                  disclosures of cash flow information:Cash
                  paid for:Taxes
              
              $
              -
              
              $
              4,100Interest
              
              $
              794
              
              $
              -Non-cash
                  investing and financing activities:Stock
                  and options issued for services and debt issuance costs
              
              $
              -
              
              $
              425,370Accrued
                  dividends converted to common stock
              
              $
              -
              
              $
              -Accrued
                  dividends on preferred stock payable in common shares
              
              $
              297,771
              
              $
              320,975


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




5


**NATIONAL
      LAMPOON, INC. AND SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDING OCTOBER 31, 2007 AND 2006**


**(UNAUDITED)**




**NOTE
      A - BUSINESS ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**




***Basis
      of Presentation*** **.** The
      interim condensed consolidated financial statements are unaudited, but in the
      opinion of management of the Company, contain all adjustments, which include
      normal recurring adjustments, necessary to present fairly the financial position
      at October 31, 2007 and the results of operations for the three months ended
      October 31, 2007 and 2006 and cash flow for the three months ended October
      31,
      2007 and 2006.




Certain
      information and footnote disclosures normally included in financial statements
      that have been presented in accordance with generally accepted accounting
      principles have been condensed or omitted pursuant to the rules and regulations
      of the Securities and Exchange Commission with respect to interim financial
      statements, although management of the Company believes that the disclosures
      contained in these financial statements are adequate to make the information
      presented therein not misleading.  For further information, refer to
      the consolidated financial statements and notes thereto included in the
      Company’s Annual Report on Form 10-KSB for the fiscal year ended July 31, 2007,
      as filed with the Securities and Exchange Commission.




The
      Company’s results of operations for the three months ended October 31, 2007 are
      not necessarily indicative of the results of operations to be expected for
      the
      full fiscal year ending July 31, 2008.




The
      condensed consolidated financial statements of
      the
      Company include the accounts of National Lampoon, Inc., its wholly owned
      subsidiaries, National Lampoon Networks, Inc. and National Lampoon Tours, Inc.
      along with its 50% ownership in National Lampoon Clubhouse, Inc., and its 100%
      ownership in Bagboy, LLC and Ratko, LLC. During the 2007 fiscal year, the
      Company disposed of its interest in Totally Baked, LLC pursuant to a settlement
      agreement with Laughter Heals, Inc. The Company has the full and exclusive
      control of the management and operation of the business of each subsidiary
      and
      participates in 100% of the revenues and losses of its subsidiaries. The Company
      participates in 50% of the revenues and net losses of National Lampoon
      Clubhouse, Inc. Inter-company balances and transactions have been eliminated
      in
      consolidation.





***Organization.*** **** The
      Company was formed in California in 1986 and was primarily engaged in the
      acquisition, production and distribution of videocassette programs for retail
      sale. During the 1991 fiscal year, the Company acquired all of the outstanding
      shares of National Lampoon, Inc. (NLI). NLI was incorporated in 1967 and was
      primarily engaged in publishing National Lampoon Magazine and related
      activities. Subsequent to the Company's acquisition of NLI, it de-emphasized
      its
      videocassette business and publishing operations and began to focus primarily
      on
      exploitation of the National LampoonTM trademark. The Company reincorporated in
      Delaware under the name National Lampoon, Inc. in November 2002.




On
      May
      17, 2002 a group of investors gained voting control of the Company through
      the
      acquisition of its Series B Convertible Preferred Stock and warrants to purchase
      its common stock (the "Reorganization Transaction"). Since the Reorganization
      Transaction, the Company's business has expanded to include operations other
      than licensing. On September 3, 2002, the Company's subsidiary, National Lampoon
      Networks, Inc., acquired Burly Bear Network, Inc. to gain access to campus
      television stations. The division has since expanded to the internet and now
      sells advertising space on a number of National Lampoon websites. The vast
      majority of our programming is developed for both the college network and the
      internet. Aside from providing programming to the college stations and the
      internet, National Lampoon Networks, Inc. provides an integrated marketing
      approach to retailers who wish to target the college market. The Company has
      also entered the feature film and home entertainment market, producing original
      motion pictures. In 2004, the Company began to offer travel services during
      spring break through its subsidiary, National Lampoon Tours, Inc. The Company
      has discontinued these services, however, National Lampoon Tours may continue
      to
      maintain a significant presence at Spring Break events so that we may offer
      advertising, distribute promotional material and hold live events for our
      advertisers and other customers. In 2006 the Company began publishing its own
      books and has also expanded its licensing activities by licensing its name
      to
      other books, content displayed over wireless communications devices and
      electronic games.




***Going
      Concern*** .
      The
      accompanying condensed consolidated financial statements have been prepared
      assuming the Company will continue as a going concern. The Company's current
      quarter net loss of $1,165,332 along with the prior two years net losses of
      $2,504,170 and $6,859,085 as well as negative working capital of $8,001,431
      and
      accumulated deficit of $42,422,616 at October 31, 2007, raises substantial
      doubt
      about its ability to continue as a going concern. We are currently devoting
      efforts to raising additional capital and achieving profitable operations.
      Our
      ability to continue as a going concern is dependent upon our ability to develop
      additional sources of capital and revenue. The accompanying financial statements
      do not include any adjustments that might result from the outcome of this
      uncertainty. As of December 10, 2007, we had cash on hand of approximately
      $83,557 and receivables totaling $1,337,690. We also have $1,297,016 in minimum
      guarantee payments due from domestic and foreign distributors including Comedy
      Central (U.S), Equinoxe (Canada) and Beta (Germany), of which $897,016 is based
      on receipt of €620,000 at an exchange rate of $1.4468 on October 31, 2007. We
      are currently delivering two films for which the minimum guarantee payments
      are
      due upon notice of delivery and we expect payments to be received by the second
      quarter of fiscal 2008.




Our
      principal source of funds used for operations and working capital has been
      loans
      received from Daniel S. Laikin, our Chief Executive Officer, and Timothy Durham,
      a director. The aggregate amount of the loans and accrued interest owed to
      Mr.
      Laikin and Mr. Durham at October 31, 2007 is $1,541,636 up from $1,241,937
      at
      July 31, 2007. These two individuals have expressed their continued support
      to
      provide loans to us to meet any immediate working capital
      requirements.


6


***Revenue
      Recognition.*** Royalty
      income from film contracts is derived from the sale of DVDs or from the
      licensing of film rights to third parties. A significant portion of royalty
      income is paid to the Company based on the timetable associated with royalty
      statements generated by third party processors, and is not typically known
      by
      the Company on a timely basis. This revenue is consequently not recognized
      until
      the amount is either known or reasonably estimable or until receipt of the
      statements from the third parties. The Company contracts with various agencies
      to facilitate collection of royalty income. When the Company is entitled to
      royalties based on gross receipts, revenue is recognized before deduction of
      agency fees, which are included as a component of cost of revenue.




The
      Company recognizes revenue from television and film productions pursuant to
      American Institute of Certified Public Accountants Statement of Position 00-2,
      “Accounting by Producers or Distributors of Films” (“SOP 00-2”). The following
      conditions must be met in order to recognize revenue under SOP 00-2:
      (i) persuasive evidence of a sale or licensing arrangement exists;
      (ii) the program is complete and has been delivered or is available for
      immediate and unconditional delivery; (iii) the license period of the
      arrangement has begun and the customer can begin its exploitation, exhibition
      or
      sale; (iv) the arrangement fee is fixed or determinable; and
      (v) collection of the arrangement fee is reasonably assured. Advance
      payments of $1,335,788 that have been received as of October 31, 2007 from
      buyers or licensees are included in the financial statements as a component
      of
      deferred revenue.




***Film
      Costs*** *.* Investment in film costs includes the capitalization of costs incurred to
      produce the film content including direct negative costs, production overhead,
      interest and development. These costs are recognized as operating expenses
      on an
      individual film basis in the ratio that the current year’s gross revenues bear
      to management’s estimate of total ultimate gross revenues from all sources to be
      earned over a seven-year period. Capitalized production costs are stated at
      the
      lower of unamortized cost or estimated fair value on an individual film basis.
      Revenue forecasts, based primarily on historical sales statistics, are
      continually reviewed by management and revised when warranted by changing
      conditions. When estimates of total revenues and other events or changes in
      circumstances indicate that a film has a fair value that is less than its
      unamortized cost, an impairment loss is recognized in the current period for
      the
      amount by which the unamortized cost exceeds the film’s fair value.




***Use
      of Estimates.*** The
      preparation of condensed consolidated financial statements in conformity with
      generally accepted accounting principles requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent assets and liabilities at the date of the condensed
      consolidated financial statements and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from those
      estimates. Management makes estimates that effect reserves for allowance for
      doubtful accounts, estimated useful life of property and equipment, accrued
      expenses, fair value of equity instruments, reserves for any commitments or
      contingencies, debt issue costs, capitalized film costs, calculation of
      impairment, amortization expense and deferred income taxes.




***Concentrations.***  The
      Company maintains its cash balances at financial institutions that are federally
      insured; however, at times such balances may exceed federally insured limits.
      The Company has not experienced any losses in such accounts. The Company’s cash
      balances on deposit with banks are guaranteed by the Federal Deposit Insurance
      Corporation up to $100,000. The Company may be exposed to risk for the amounts
      of funds held in bank accounts in excess of the insurance limit. In assessing
      the risk, the Company’s policy is to maintain cash balances with high quality
      financial institutions. The Company had cash balances in excess of the $100,000
      guarantee during the three months ended October 31, 2007.





During
      the three months ended October 31, 2007 four customers accounted for $198,500
      (25%), $150,000 (19%), $112,451 (14%) and $88,026 (11%) of total revenue. During
      the three months ended October 31, 2006 one customer accounted for 70% of total
      revenue.





As
      of
      October 31, 2007, the Company had $97,005 (14%), $88,026 (13%) and $69,192
      (10%) of gross accounts receivable due from its largest
      customers.





The
      Company currently does not rely on a single vendor for a majority of its
      productions. The Company has different vendors that can be replaced if the
      need
      arises. A change in vendors would not cause a significant delay in the
      production process that would ultimately affect operating results. ****





***Fair
      Value of Financial Instruments.*** The
      carrying amount of the Company’s financial instruments including cash, accounts
      receivable, accounts payable, and accrued expenses approximate their fair value
      as of October 31, 2007 due to their short maturities. The carrying amounts
      of production loans and notes payable approximate fair value because the related
      effective interest rates on these instruments approximate the rates currently
      available to the Company.





***Intangible
      Assets.*** Intangible assets consist primarily of the National Lampoon trademark which
      is
      being amortized on a straight-line basis over twenty-five years. The Company
      continually evaluates whether events or circumstances have occurred that
      indicate the remaining estimated useful life of intangible assets should be
      revised or the remaining balance of intangible assets may not be recoverable.
      Factors that would indicate the occurrence of such events or circumstances
      include current period operating or cash flow losses, a projection or forecast
      of future operating or cash flow losses, or the inability of the Company to
      identify and pursue trademark licensing opportunities on terms favorable to
      the
      Company. Gross intangibles were approximately $6,080,000 with accumulated
      amortization of approximately $4,532,951 at October 31, 2007, which includes
      approximately $61,165 of amortization being expensed during the quarter ended
      October 31, 2007. The estimated aggregate amortization expense for each of
      the
      six succeeding fiscal years is $243,000 per year, which primarily represents
      the
      original acquired intangible relating to the National Lampoon trademark,
      amortized over twenty-five years.


7


As
      of
      October 31, 2007, the Company has determined and tested for impairment in
      accordance with SFAS 141, paragraphs 16-21, and concluded that the expected
      future cash flows relating to its intangible assets will result in the recovery
      of the carrying value of such asset. The continued realization of these
      intangible assets, however, is dependent upon the continued exploitation of
      the
      National Lampoon trademark for use in motion pictures, television, the Internet,
      merchandising and other appropriate opportunities. If these and other ventures
      that the Company may enter into do not result in sufficient revenues to recover
      the associated intangible assets, the Company's future results of operations
      may
      be adversely affected by adjustments to the carrying values of such
      intangible.





***Recently
      Adopted Accounting Pronouncements.*** Effective
      August 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
      Accounting for Income Taxes” (“FIN 48”). FIN 48 addresses the determination of
      whether tax benefits claimed or expected to be claimed on a tax return should
      be
      recorded in the financial statements. Under FIN 48, the Company may recognize
      the tax benefit from an uncertain tax position only if it is more likely than
      not that the tax position will be sustained on examination by the taxing
      authorities, based on the technical merits of the position. The tax benefits
      recognized in the financial statements from such a position should be measured
      based on the largest benefit that has a greater than fifty percent likelihood
      of
      being realized upon ultimate settlement. FIN 48 also provides guidance on
      derecognition, classification, interest and penalties on income taxes,
      accounting in interim periods and requires increased disclosures. At the date
      of
      adoption, and as of October 31, 2007, the Company does not have a liability
      for
      unrecognized tax benefits, and no adjustment was required at adoption.





The
      Company files income tax returns in the U.S. federal jurisdiction and various
      states. The Company is subject to U.S. federal or state income tax examinations
      by tax authorities for years after 2002. During the periods open to examination,
      the Company has net operating loss and tax credit carry-forwards for U.S.
      federal and state tax purposes that have attributes from closed periods. Since
      these net operating loss and tax credit carry-forwards may be utilized in future
      periods, they remain subject to examination.





The
      Company’s policy is to record interest and penalties on uncertain tax provisions
      as income tax expense. As of October 31, 2007, the Company has no accrued
      interest or penalties related to uncertain tax positions. Additionally, tax
      years 2003 through 2007 remain open to examination by the major taxing
      jurisdictions to which the Company is subject.




***Recent
      Accounting Pronouncements.*** In
      February 2007, the Financial Accounting Standards Board (FASB) issued FASB
      Statement No. 159, “The Fair Value Option for Financial Assets and
      Financial Liabilities — including an amendment of FASB Statement
      No. 115” (FAS 159). ** FAS 159,
      which becomes effective for the Company on January 1, 2008, permits
      companies to choose to measure many financial instruments and certain other
      items at fair value and report unrealized gains and losses in earnings. Such
      accounting is optional and is generally to be applied instrument by instrument.
      The Company does not anticipate that election, if any, of this fair-value option
      will have a material effect on its consolidated financial condition, results
      of
      operations, cash flows or disclosures.




In
      September 2006, the FASB issued FAS No. 157 (“FAS 157”), “Fair
      Value Measurements,” which establishes a framework for measuring fair value in
      accordance with GAAP and expands disclosures about fair value measurements.
      FAS
      157 does not require any new fair value measurements but rather eliminates
      inconsistencies in guidance found in various prior accounting pronouncements.
      FAS 157 is effective for fiscal years beginning after November 15, 2007.
      The Company is currently evaluating the impact this standard will have on its
      consolidated ** financial condition, results of operations, cash flows or
      disclosures.





***Net
      Income or Loss per Share.*** Diluted
      earnings per share amounts are calculated using the treasury method and are
      based upon the weighted average number of common and common equivalent shares
      outstanding during the period. The basic and diluted loss per share was $(0.18)
      for the three months ended October 31, 2007 and the basic income per share
      was
      $0.20 and the diluted income per share was $0.09 for the three months ended
      October 31, 2006. Basic and diluted loss per share are the same at October
      31,
      2007, as common equivalent shares have been excluded from the computation due
      to
      the fact that they are anti-dilutive. Options and warrants to purchase 6,597,337
      common shares during the three months ended October 31, 2007 are not included
      in
      the calculation of diluted earnings per share because their inclusion would
      be
      anti-dilutive. 7,402,431shares
      that would be issuable upon conversion of the convertible preferred stock are
      not included in the calculation of diluted earnings per share during the three
      months ended October 31, 2007, because their inclusion would also be
      anti-dilutive.




***Stock
      Based Compensation*** **.** In December
      2004, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards 123R, “Share-Based Payment” (“SFAS
      123R”).  This statement requires that the cost resulting from all
      share-based payment transactions be recognized in the financial statements.
      This
      statement establishes fair value as the measurement objective in accounting
      for
      share-based payment arrangements and requires all entities to apply a fair-value
      based measurement method in accounting for share-based payment transactions
      with
      employees except for equity instruments held by employee share ownership plans.
      Effective January 1, 2006, the Company adopted the fair value recognition
      provisions of SFAS 123R, using the modified prospective method. Under this
      method, the provisions of SFAS 123R apply to all awards granted or modified
      after the date of adoption and all previously granted awards not yet vested
      as
      of the date of adoption.




The
      fair
      value of options was estimated on the date of grant using the Black-Scholes
      option pricing model with the following weighted-average assumptions for the
      three months ended October 31, 2007 and 2006:




8





October
                31
            
            October
                312007
            
            2006Dividend
                yield
            
            
            —
            
            
            —Risk-free
                interest rate
            
            
            5.5
            %
            
            5.5
            %Expected
                volatility
            
            
            55.6
            %
            
            72.1
            %Expected
                life of options
            
            
            7
            
            
            6
                - 10





**NOTE
      B - CAPITALIZED PRODUCTION COSTS**




The
      following table summarizes the net capitalized film and television costs in
      various stages of production at October 31, 2007:





October
                31, 2007Development-television
            
            $
            9,031Development-theatrical
            
            
            5,725,007Completed-theatrical
            
            
            157,083Total
                film and television costs
            
            $
            5,891,121




The
      Company expects to amortize within three years 90% of capitalized film costs
      based on the estimated costs and ultimate revenue projected. The portion of
      the
      costs of the Company's films that are expected to be amortized during the
      upcoming 12 months is approximately $2,534,000.





**NOTE
      C - FIXED ASSETS**





Fixed
      assets comprise the following as of October 31, 2007:





October
                31, 2007Computer
                equipment
            
            $
            173,749Camera
                and lighting equipment
            
            
            39,869Furniture
                and office equipment
            
            
            4,217217,835Accumulated
                depreciation
            
            
            (181,727
            )$
            36,108





Depreciation
      expense for the three months ended October 31, 2007 and 2006 was $4,217 and
      $2,939, respectively.





**NOTE
      D - NOTES PAYABLE TO RELATED PARTIES AND ACCRUED INTEREST**




Notes
      payable to related parties and accrued interest consist of the following at
      October 31, 2007:




October
                31, 2007(A)
                Payable to Daniel Laikin
            
            $
            996,079(B)
                Payable to Timothy Durham
            
            
            473,407(C)
                Payable to Christopher Williams
            
            
            89,321$
            1,558,807





(A)
      As of
      October 31, 2007, the Company owed Daniel Laikin, the Company's Chief Executive
      Officer, $947,209 in principal and $48,870 in interest. The loans bear interest
      at the rate of 6% per annum. The obligation to Mr. Laikin is unsecured and
      payable on demand. During the three months ending October 31, 2007, $43,009
      of
      principal and $75 in interest had been paid to Mr. Laikin.





(B)
      As of
      October 31, 2007, the Company owed Timothy Durham, a director, $465,794 in
      principal and $7,613 in interest. The loans bear interest at the rate of 6%
      per
      annum. The obligation to Mr. Durham is unsecured and payable on demand. During
      the three months ending October 31, 2007, no principal and no interest had
      been
      paid to Mr. Durham.





(C)
      As of
      October 31, 2007, the Company owed Christopher R. Williams, a shareholder,
      $83,333 in principal and $5,988 in interest. The loans bear interest at the
      rate
      of 6% per annum. The obligation to Mr. Williams is payable on demand. During
      the
      three months ending October 31, 2007, no principal and no interest had been
      paid
      to Mr. Williams.




9


**NOTE
      E - PRODUCTION LOANS FROM RELATED PARTIES AND ACCRUED
      INTEREST**




Outstanding
      production loans from related parties and accrued interest consist of the
      following as of October 31, 2007:





October
                31, 2007(A) Red
                Rock Productions, Inc. - Bag Boy Productions, Inc.
            
            $
            1,737,202(B)
                Red Rock Productions, Inc. - Ratko Productions, Inc.
            
            
            2,058,193(C)
                Dan Laikin
            
            
            72,150$
            3,867,545





(A)
            On
                October 26, 2006, the Company entered into a financing agreement
                with Red
                Rock Productions Inc. (Red Rock) regarding the financing of the theatrical
                motion picture Bag Boy. Red Rock Pictures Holdings, Inc. is a publicly
                traded company and related party (See Note G). In accordance with
                the
                agreement, Red Rock agreed to loan the Company up to $2,000,000 (unless
                otherwise agreed to by both parties) to fund this film, with payments
                to
                be made according to an approved production cash flow as provided
                by the
                Company. Red Rock will be entitled to recoup its investment plus
                interest
                at 10% accruing on the average daily balance from the date the loan
                is
                provided to the Company. Red Rock will also be entitled to contingent
                participation of 25% of all net contingent proceeds from the picture.
                Red
                Rock has a security interest in the film to the extent of the actual
                amount of the funding as long as there is an unpaid balance on the
                loan.
                As of October 31, 2007, advances to the Company totaled $1,737,202,
                under
                this financing agreement.





(B)
            On
                October 26, 2007, the Company entered into a financing agreement
                with Red
                Rock regarding the financing of the theatrical motion picture Ratko.
                In
                accordance with the agreement, Red Rock agreed to loan the Company
                up to
                $2,000,000 to fund this film, with payments to be made according
                to an
                approved production cash flow as provided by the Company. Red Rock
                will be
                entitled to recoup its investment plus interest at 10% accruing on
                the
                average daily balance from the date the loan is provided to the Company.
                Red Rock will also be entitled to contingent participation of 25%
                of all
                net contingent proceeds from the picture. Red Rock has a security
                interest
                in the film to the extent of the actual amount of the funding as
                long as
                there is an unpaid balance on the loan. As of October 31, 2007, advances
                to the Company totaled $2,058,193 under this financing
                agreement.





(C)
            Mr.
                Laikin, the Company's Chief Executive Officer, has made various loans
                to
                us for film financing. As of October 31, 2007, he was owed $67,000
                in
                principal and $5,150 in interest for these production loans. The
                loans
                bear interest at the rate of 6% per annum.







**NOTE
      F - ACCRUED SERIES B AND C DIVIDENDS**





Dividends
      accrue on the Company's Series B and Series C Convertible Preferred Stock.
      The
      Company accrued dividends on a daily basis and will continue to do so until
      the
      date at which the Series B or Series C Convertible Preferred Stock is converted,
      until a liquidation event occurs, or, in the case of the Series C Convertible
      Preferred Stock, until the redemption date (although the redemption date is
      not
      defined and there is no right of redemption as to the Series C Convertible
      Preferred Stock). Dividends accrue at the rate of 9% per annum on the sum of
      the
      original purchase price of the Series B or Series C Convertible Preferred Stock
      plus all accumulated and unpaid dividends thereon (compounding annually).
      Dividends that accrue on the Company's Series B and Series C Convertible
      Preferred Stock must be paid with our common stock. During the three-month
      periods ended October 31, 2007 and 2006, the Company accrued $297,771 and
      $320,975, respectively, of Series B and Series C dividends.





At
      October 31, 2007, the Company had accrued $3,730,434 representing the total
      value of the dividends for Series B and Series C convertible preferred stock
      dividends.




On
      conversion of the Series B and Series C Convertible Preferred Stock, the Company
      becomes liable to pay dividends. Conversion of dividends on the Series B and
      Series C Convertible Preferred Stock are computed using the closing price of
      the
      common stock, as reported by the exchange or regulated quotation service on
      which the Company's common stock is traded, on the trading date immediately
      preceding the date that the Company becomes liable to pay the dividend. If
      no
      trades were made on that date, then the number of shares to be issued is
      computed using the closing price of the last date on which trades were made
      and
      reported.




**NOTE
      G - INVESTMENT IN RED ROCK**





In
      October 2006, the Company invested $800 in Red Rock Pictures Holdings, Inc.,
      (“Red Rock”) which was then merged into a publicly traded entity. The investment
      represents 11,769,236 shares or approximately 19.5% of the total outstanding
      shares of Red Rock. Three members of National Lampoon’s board of directors,
      Robert Levy, Tim Durham and Daniel Laikin, also own stock in Red Rock. The
      Company recorded the transaction under the equity method due to the
      determination it had significant influence, and recognized its proportionate
      share of the investee’s losses not to exceed the $800 investment. In addition,
      the Company’s investment had been determined to not be a variable interest
      entity in accordance with FIN46(R) since Red Rock was not formed for the primary
      benefit of the Company, and the Company does not have an obligation to absorb
      the losses, nor receive any return. The fair market value of each share of
      Red
      Rock is $0.11 as of October 31, 2007. Included in the accompanying balance
      sheet
      as of October 31, 2007 are notes payable to Red Rock of $3,795,395. In September
      2006, Red Rock entered into a sub lease agreement with National Lampoon, Inc.
      for office space at $2,000 per month. In August 2007 Red Rock hired a consultant
      who is also a shareholder of National Lampoon, to provide marketing services.
      The consultant hired National Lampoon to provide marketing services for a total
      of $198,500, which is included in revenue for the three months ended October
      31,
      2007.





10


**NOTE
      H - ISSUANCE OF COMMON STOCK**





During
      the three months ended October 31, 2007, 34,833 shares of restricted stock
      were
      issued at a market price of $2.52 with a total value of $87,779 to various
      consultants of the Company for services rendered. In addition, 41,601 shares
      of
      registered stock were issued at market prices ranging from $1.65 to $2.55 with
      a
      total value of $85,635 to various consultants of the Company for services
      rendered. Furthermore, 4,171 shares of registered stock were issued at a market
      price of $2.15, having a total value of $8,969, for fees owed to the Board
      of Directors.





**NOTE
      I - COMMITMENTS AND CONTINGENCIES**





*Film
      Financing Commitments*




As
      of
      October 31, 2007, the Company had obtained $3,795,395 of funding under finance
      agreements with Red Rock for its motion picture projects, *Bag
      Boy* and *Ratko:
      The Dictator’s Son* .
      The
      terms of the financing provide for the investor to recoup its contribution
      plus
      interest from the first proceeds of these films. After all costs are
      recouped by the Company, the investor is entitled to 25% of the net profits
      paid to the Company, but the investor does not have any ownership rights in
      the
      film (See Note E).




The
      Company has also entered into various distribution agreements for the marketing
      and distribution of certain films listed below. The Company will receive varying
      distribution fees ranging from 20% to 25% relating to the exploitation and
      distribution of these films. These films will require the Company to contribute
      certain production and print and advertising costs for the completion and
      distribution of these films as follows:




Funding
                CommitmentsPrints
                & Advertising
            
            TotalFilm
            
            Production
            
            Lower
            
            Upper
            
            Lower
            
            UpperHomo
                Erectus
            
            $
            90,000
            
            $
            200,000
            
            $
            400,000
            
            $
            290,000
            
            $
            490,000Beach
                Party at the Threshold of Hell
            
            
            50,000
            
            
            300,000
            
            
            500,000
            
            
            350,000
            
            
            550,000Electric
                Apricot - The Quest for Festaroo
            
            
            -
            
            
            300,000
            
            
            300,000
            
            
            300,000
            
            
            300,000One,
                Two, Many
            
            
            105,000
            
            
            300,000
            
            
            300,000
            
            
            405,000
            
            
            405,000$
            245,000
            
            $
            1,100,000
            
            $
            1,500,000
            
            $
            1,345,000
            
            $
            1,745,000





*Litigation*





National
      Lampoon, Inc. v. Alma Investments (d/b/a Bahia Mar Hotel) (Los Angeles Superior
      Court Case No. BC 356118). The Company filed this complaint on July 27, 2006.
      The action arises from an agreement the Company had with Bahia Mar Hotel
      pursuant to which we were to provide to Bahia Mar Hotel an entertainment package
      for the 2006 spring break. We have alleged that Bahia Mar Hotel failed to
      support the program, and, in fact, diverted some of the business to our
      competitors. In our complaint, we have alleged causes of action for fraud,
      breach of contract, promissory estoppel, quantum meruit and breach of the
      covenant of good faith and fair dealing. We believe that our damages are in
      excess of $500,000. On September 22, 2006 Bahia Mar Hotel filed a motion to
      quash service of summons, which the Court denied on October 25, 2006. Both
      parties are continuing to engage in discovery and prepare for trial which is
      scheduled for March 2008. On or about December 12, 2007 a request for a
      60-day extension to respond to discovery was filed by National
      Lampoon, Inc. If the parties fail to settle through mediation there is a hearing
      scheduled for March 2008.





Cinergy
      Creative, Inc. and Leslie Allen v. National Lampoon Clubhouse, Inc., National
      Lampoon, Inc., Majestic Entertainment, Inc. and Lorenzo Doumani (Los Angeles
      Superior Court Case No. SC091496). This complaint was filed on October 20,
      2006.
      The plaintiffs allege causes of action for alter ego, breach of written
      contract, breach of oral contract, breach of the implied covenant of good faith
      and fair dealing, quantum meruit, fraud and deceit based on promises made
      without intention to perform, intentional misrepresentation, slander per se,
      libel per se, breach of confidence, declaratory relief, conversion, untrue
      or
      misleading advertising, unfair competition and negligence. Specifically, the
      plaintiffs allege that we and our co-defendants induced them to set aside other
      projects so that they would spend their time working on projects for the benefit
      of us and our co-defendants. The plaintiffs also allege that they were promised
      a share of profits from the projects and/or a "partnership" interest in them.
      The plaintiffs allege that their damages are in excess of $2,000,000. The
      Company entered into a settlement agreement with the plaintiffs dated November
      5, 2007. The plaintiffs agreed to dismiss the complaint against the Company
      in
      exchange for a payment of $50,000 to be made within 90 days from the execution
      of the settlement agreement. The remaining defendants have reached settlements
      as well.





Screen
      Actor’s Guild v. National Lampoon Clubhouse, Inc. During late 2006, the Screen
      Actor’s Guild (“SAG”) filed claims against National Lampoon Clubhouse, Inc.
      (“Clubhouse”) for unpaid wages and pension, health and welfare benefits incurred
      for the filming of “Monster House” aka “Trick or Treat”. SAG alleges that
      certain actors were not paid in full and are owed more compensation, expenses
      and benefit payments under the SAG agreement. Clubhouse disputes these claims
      and intends to vigorously defend this action. An arbitration with SAG is
      scheduled for February 2008.




American
      Cinema Distribution Corporation v. National Lampoon, Inc. In August 2007, the
      American Cinema Distribution Corporation (“ACDC”) filed claims against National
      Lampoon, Inc. for costs incurred on the release of “National Lampoon’s Pucked”.
      ACDC alleges that the Company did not perform distribution services as agreed
      and that ACDC should be reimbursed for distribution costs it incurred estimated
      at $65,000. ACDC also alleges that it does not owe distribution fees to the
      Company for marketing, publicity, promotional and advertising services the
      Company provided which services the Company alleges have a value in excess
      of
      $290,000. The Company disputes these claims and has filed a demand for
      arbitration against ACDC as the agreement calls for and intends to vigorously
      defend this action.


11


**NOTE
      J - STOCK OPTIONS AND WARRANTS**





On
      January 30, 2002, the Company adopted the Amended and Restated 1999 Stock
      Option, Deferred Stock and Restricted Stock Plan (the "1999 Plan"), which was
      thereafter adopted by the Company's shareholders at its annual meeting on April
      25, 2002. The options may be granted from time to time by the Compensation
      Committee. Individuals eligible to receive options include employees of the
      Company, consultants to the Company and directors of the Company. The
      options must have a fixed price, which may not be less than 100% of
      the fair market value per share on the grant date. The total number
      of shares of common stock reserved for awards is 6,500,000.





At
      October 31, 2007 options outstanding are as follows:





Number
                of
              options
            
            Weighted
                average
              exercise
                price
            
            Aggregate
              intrinsic
                value (1)Balance
                at August 1, 2007
            
            
            5,369,606
            
            $
            2.55Granted
            
            
            620,000
            
            
            2.15Exercised
            
            
            (5,000
            )
            
            1.60Cancelled
            
            
            (125,000
            )
            
            2.50Balance
                at October 31, 2007
            
            
            5,859,606
            
            $
            2.53
            
            $
            2,088,433





(1)
      The
      aggregate intrinsic value was calculated as the difference between the market
      price and the exercise price of the Company’s stock for the 3,563,606 options
      outstanding which were in-the-money.





Additional
      information regarding options outstanding as of October 31, 2007 is as
      follows:




Options
                outstanding
            
            Options
                exercisableExercise
                price
            
            Number
              outstanding
            
            Weighted
              average
              remaining
              contractual
              life
                (years)
            
            Weighted
              average
              exercise
                price
            
            Number
              exercisable
            
            Weighted
              average
              exercise
                price$1
                to $2
            
            
            2,051,606
            
            
            3.79
            
            $
            1.74
            
            
            2,051,606
            
            $
            1.74$2
                to $3
            
            
            2,086,000
            
            
            6.62
            
            
            2.32
            
            
            1,076,668
            
            
            2.37$3
                to $4
            
            
            1,368,000
            
            
            2.48
            
            
            3.19
            
            
            1,339,999
            
            
            3.2$4
                to $5
            
            
            152,000
            
            
            4.23
            
            
            4.18
            
            
            118,667
            
            
            4.18$5
                to $6
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -$6
                to $7
            
            
            102,000
            
            
            3.26
            
            
            6.41
            
            
            102,000
            
            
            6.41$7
                to $8
            
            
            100,000
            
            
            2.16
            
            
            7.38
            
            
            100,000
            
            
            7.38**Total**
            
            
            5,859,606
            
            
            4.47
            
            $
            2.53
            
            
            4,788,940
            
            $
            2.57




At
      October 31, 2007 warrants outstanding are as follows:





Number
                of
              warrants
            
            Weighted
              average
              exercise
                price
            
            Aggregate
              intrinsic
                value (1)Balance
                at August 1, 2007
            
            
            1,286,731
            
            $
            3.59Granted
            
            
            40,000
            
            
            1.75Cancelled
            
            
            (589,000
            )
            
            4.07Balance
                at October 31, 2007
            
            
            737,731
            
            $
            3.10
            
            $
            29,600





(1)
      The
      aggregate intrinsic value was calculated as the difference between the market
      price and the exercise price of the Company’s stock for the 40,000 warrants
      outstanding which were in-the-money.





Additional
      information regarding warrants outstanding as of October 31, 2007 is as
      follows:





Warrants
                outstanding
            
            Warrants
                exercisableExercise
                price
            
            Number
              outstanding
            
            Weighted
              average
              remaining
              contractual
              life
                (years)
            
            Weighted
              average
              exercise
                price
            
            Number
              exercisable
            
            Weighted
              average
              exercise
                price$1
                to $2
            
            
            40,000
            
            
            1.89
            
            $
            1.75
            
            
            10,000
            
            $
            1.75$2
                to $3
            
            
            185,004
            
            
            7.46
            
            
            2.58
            
            
            185,004
            
            
            2.58$3
                to $4
            
            
            512,727
            
            
            2.35
            
            
            3.40
            
            
            446,060
            
            
            3.46**Total**
            
            
            737,731
            
            
            3.61
            
            $
            3.10
            
            
            641,064
            
            $
            3.18




Stock
        based compensation expense related to the vesting of stock options and
        warrants of $592,572 and $61,304 was recognized during the three
        months ended October 31, 2007 and 2006, respectively. As of October 31, 2007,
        the unamortized value of these option and warrants awards was $1,138,857,
        which
        will be amortized as a stock based compensation cost over the average of
        approximately three years as the options and warrants vest.


12




**NOTE
      K - SEGMENT INFORMATION**




Segment
      Reporting - SFAS No. 131, “Disclosures About Segments of an Enterprise and
      Related Information” results in the use of a management approach in identifying
      segments of an enterprise. The Company operates in four business segments:
      (i)
      licensing and exploitation of the National LampoonTM trademark and related
      properties including the sale of products to consumers; (ii) advertising and
      promotion through field marketing, live events and the distribution of
      television programming on college campuses; (iii) production of television
      and
      DVD products; and (iv) production of motion pictures through National Lampoon
      Clubhouse, Inc. Segment operating income/(loss) excludes the amortization of
      intangible assets, interest expense, interest income, and income taxes. Selling,
      general and administrative expenses not specifically attributable to any segment
      have been prorated based on revenue among the four segments.





Summarized
      financial information for the three months ended October 31, 2007 and 2006
      concerning the Company's segments is as follows:




Licensing
                &
              Publishing
            
            Advertising
                &
              Promotion
            
            Production
            
            Clubhouse
            
            TotalThree
                Months Ended October 31, 2007Segment
                revenue
            
            $
            357,993
            
            $
            449,633
            
            $
            -
            
            $
            -
            
            $
            807,626Segment
                operating (loss)
            
            $
            (426,529
            )
            $
            (660,956
            )
            $
            (12,775
            )
            $
            -
            
            $
            (1,100,260
            )Depreciation
                expense
            
            $
            3,326
            
            $
            891
            
            $
            -
            
            $
            -
            
            $
            4,217Three
                Months Ended October 31, 2006Segment
                revenue
            
            $
            3,248,043
            
            $
            842,730
            
            $
            39,000
            
            $
            -
            
            $
            4,129,773Segment
                operating income (loss)
            
            $
            1,985,589
            
            $
            (198,786
            )
            $
            21,576
            
            $
            -
            
            $
            1,808,379Depreciation
                expense
            
            $
            1,363
            
            $
            1,576
            
            $
            -
            
            $
            -
            
            $
            2,939





**NOTE
      L - SUBSEQUENT EVENTS**





On
      November 8, 2007, 5,000 shares of the Company’s common stock were purchased
      through the exercise of stock options that resulted in cash proceeds to the
      Company of $8,000. In addition 41,870 shares of common stock were issued
      subsequent to October 31, 2007 at a market price of $ 101,058 to
      various consultants of the Company for services rendered.




On
        November 21, 2007, the Company filed a Form 8-K announcing the Notice of
        Delisting or Failure to Satisfy a Continued Listing Rule or Standard from
        the
        American Stock Exchange. As of this filing the Company has not received further
        notice from the American Stock Exchange.




**Item
      2 - Management's Discussion and Analysis or Plan of Operation**





Management's
      Discussion and Analysis or Plan of Operation discusses the Company's
      consolidated financial statements, which have been prepared in accordance with
      accounting principles generally accepted in the United States. The preparation
      of these financial statements requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      the
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. On an on-going basis, management evaluates its estimates
      and
      judgments. Management bases its estimates and judgments on historical experience
      and on various other factors that are believed to be reasonable under the
      circumstances, the results of which form the basis for making judgments about
      the carrying value of assets and liabilities that are not readily apparent
      from
      other sources. Actual results may differ from these estimates under different
      assumptions or conditions.





**Overview**





We
      are a
      media and entertainment company that creates and distributes comedic content.
      The National LampoonTM brand was initially developed in 1970 through publication
      of *National
      Lampoon Magazine* and
      later
      through the use of our name on motion pictures, including *National
      Lampoon's Animal House* and *National
      Lampoon's Vacation* .
      Our
      plan is to expand the use of our brand in order to increase the revenues we
      generate through license fees, advertising and other sources. We are pursuing
      this plan as follows:





*Motion
      Picture Production and Distribution*





We
      produce feature films. We have an interest in National Lampoon Clubhouse, Inc.,
      a production entity, which produced the film *Monster
      Night* aka *Trick
      or Treat* . *Monster
      Night* was
      released in the fall of 2006. We also own 19% of Red Rock Picture Holdings,
      Inc.
      (sometimes referred to in this report as “Red Rock”), a development-stage
      company formed in August 2006. Red Rock was formed for the purpose of providing
      financing and consulting services relating to the production and exploitation
      of
      motion pictures. We entered into a non-exclusive agreement with Red Rock whereby
      it provides financing for National Lampoon motion picture productions.





We
      are
      now in post production on a feature film currently titled *National
      Lampoon’s Bag Boy* which
      was financed by National Lampoon and Red Rock and is expected to be released
      during the first half of the fiscal year. We are also in post production on
      the
      film *National
      Lampoon’s Ratko: The Dictator’s Son* which is
      expected to be released during the second half of the 2008 fiscal year. We
      have
      also acquired distribution rights for third-party films including *National
      Lampoon’s Jake’s Booty Call* , *National
      Lampoon’s Homo Erectus* and *National
      Lampoon’s Beach Party at the Threshold of Hell* for
      which we earn licensing and distribution fees for television, video and foreign
      distribution.




13


During
      the three months ended October 31, 2007, revenues derived from distribution
      fees
      totaled approximately $150,000 or 19% of all the revenues we earned during
      this
      period.





Historically,
      with the exception of the film produced by National Lampoon Clubhouse, Inc.,
      motion pictures that carry our brand have been produced and financed by third
      parties. Thirty motion pictures have been released using the National LampoonTM
name and approximately seven additional motion pictures are planned for release
      during the 2008 fiscal year, of which three will be distributed by the Company.
      Additionally, three of the films will be financed and produced directly by
      us.
      We decided to produce and finance motion pictures under the National Lampoon
      name in order to control both the creative process and the distribution of
      the
      film, to build a film library, and to expand our brand awareness.





During
      the 2006 and 2007 fiscal years, we provided creative services, such as writing,
      and production services to develop projects for which we received a fee. For
      the
      three months ended October 31, 2007, we earned $0 from providing production
      and
      creative services.





*Licensing*





We
      have
      derived a substantial portion of our revenues from license fees relating to
      the
      use of our name on new motion pictures and from royalties from previously
      released motion pictures bearing our brand, including movies such as *National
      Lampoon's Animal House* and *National
      Lampoon's Vacation* .
      Releasing a film with our brand enhances its ability to find distribution
      outlets. Once a film is released with our brand, we earn revenues from foreign
      sales, theatrical release, home video and DVD sales and rentals and
      pay-per-view. With the exception of two films in production as of October 31,
      2007 and a film produced by National Lampoon Clubhouse, Inc., motion pictures
      that carry our brand have historically been produced and financed by third
      parties. We have licensed the National LampoonTM brand, as well as content from
      our library, for use in a wide variety of products including movies, television
      programming, live events, radio broadcasts, recordings, electronic games, and
      other consumer products. We anticipate granting fewer new licenses as we begin
      increasing the number of our own productions in the future.





For
      the
      three months ended October 31, 2007, revenues derived from our licensing and
      royalties (exclusive of revenues derived from our publishing activities) totaled
      approximately $245,542, or approximately 30% of the revenues we earned during
      the period. A significant portion of this revenue was realized from distribution
      licenses of recent National Lampoon films.





*National
      Lampoon Networks*





National
      Lampoon Networks, Inc. (sometimes referred to in this report as "NLN") includes
      our internet, television and field marketing activities. We believe that we
      provide an appealing platform to advertisers who want their commercial messages
      to reach the college age market.





For
      those
      businesses targeting the college market, NLN provides an integrated marketing
      platform that includes internet advertisers, on-air advertising, and field
      marketing.




NLN’s
      internet properties are comprised of several internet destination sites with
      the
      names NationalLampoon.com, DrunkUniversity.com, TOGATV.com,
      NationalLampoonSplog.com and KnuckleheadVideo.com. These destination sites
      are
      also part of the National Lampoon Humor Network, an aggregated network of more
      than forty of the most popular humor destinations on the internet. We sell
      advertising space on these sites in the form of video streamed advertisements, full
      page
      takeover advertisements and banner advertisements.





We
      recently announced the launch of the National Lampoon Video Network where we
      entered into content distribution agreements and launched branded channels
      with
      several internet video portals including: AOL, Joost, Veoh, Yahoo!, YouTube
      and
      others. These partners will sell advertising space, including video streaming,
      and we will receive a portion of the revenues earned. We expect to begin earning
      revenues from these partners in the first half of the 2008 fiscal
      year.





NLN’s
      television activities include delivering programming during the standard
      academic school year to more than 200 affiliated college and other television
      stations, reaching nearly 2 million college students in their dormitories and
      other places of residence.





Aside
      from providing an outlet for advertisers targeting the college market, NLN
      develops, produces and distributes comedic internet and television programming
      to audiences through its network.





For
      the
      three month period ended October 31, 2007, revenues derived from National
      Lampoon Networks, exclusive of licensing revenues, totaled approximately
      $250,025, or approximately 31% of all the revenues we earned during this period.





*Publishing*





In
      October 2002, we entered into an agreement with Rugged Land, LLC to publish
      six
      National Lampoon books over a three-year period based on new and established
      National Lampoon comedic content. We have released four books under this
      agreement, including *1964
      High School Reunion Year Book* , *National
      Lampoon's Book of Love* , *National
      Lampoon's Big Book of True Facts* and *National
      Lampoon's Encyclopedia of Humor.* During
      the 2007 fiscal year the Company and Rugged Land agreed to terminate this
      agreement and no additional books are expected to be released pursuant to
      it.





14


During
      the 2006 fiscal year we began publishing our books. As of October 31, 2007,
      we
      have released twelve books including *National
      Lampoon's Saddam Dump[Saddam Hussein's Trial Blog]* , *National
      Lampoon's Magazine Rack* , *National
      Lampoon's Jokes Jokes Jokes* , *National
      Lampoon’s Not Fit For Print* , *National
      Lampoon’s Favorite Cartoons of the 21* *st* *Century, National Lampoon’s Van Wilder Guide to Graduating College In Eight
      Years or More,* *National
      Lampoon’s Road Trip* , *National Lampoon’s Animal House, National Lampoon’s Help!, National Lampoon’s
      Jokes Jokes Jokes 2, National Lampoon’s Balls!* and *National
      Lampoon’s Pimp it Yourself* .





For
      the
      three months ending October 31, 2007, revenues derived from our publishing
      activities totaled approximately $112,451, or approximately 14% of all the
      revenues we earned during these periods.





*Radio*




In
      March
      2005, NL Radio, LLC was formed. We hold a 25% interest in this entity. In
      October 2006, NL Radio, LLC launched an entertainment radio format under our
      brand. We have licensed the content of our radio library, as well as certain
      domain names, URLs and websites to NL Radio, LLC for this purpose. NL Radio,
      LLC
      used samples of the programming, called "pilot programming," to introduce the
      format and content to radio networks and local stations. If the programming
      is
      sold to a network it may be syndicated, meaning that it would be distributed
      to
      stations affiliated with the network. Purchasers of the programming may
      broadcast segments of the programming at their discretion, such as during "drive
      time" or as late night programming. Programming was launched on XM radio during
      the fiscal year ended July 31, 2007. Our radio library includes approximately
      80
      hours of National Lampoon radio programming consisting primarily of one to
      two
      minute short comedy routines and one hour comedy sketches and parodies. Revenue
      will be earned from ad sales, direct response advertising and product promotion
      arrangements. We receive a licensing fee equal to 8% of the gross receipts
      received by NL Radio, LLC from all sources in connection with any use of our
      brand.





For
      the
      three months ending October 31, 2007, revenues derived from NL Radio totaled
      approximately $237, or less than 0.1% of all the revenues we earned during
      these
      periods.





*Library*





Our
      library includes 247 issues of *National
      Lampoon Magazine* ,
      which
      we continue to use to generate new content for movies, television programming
      and other licensing opportunities. Our library also consists of television
      programming, including more than 300 hours of footage produced for National
      Lampoon Networks, radio programming, recordings and other materials.




**Business
      Objective**





We
      intend
      to provide National LampoonTM comedic content to as many consumers as possible by
      expanding the use of our brand. The following describes the ways in which we
      plan to achieve this goal.





·
            We
                plan to continue to expand National Lampoon Networks by adding new
                internet sites and driving traffic to these sites. We will concentrate
                our
                efforts on measured marketing and sell available advertising and
                marketing
                space on our expanding network. We will continue to create, produce
                and
                acquire programming for all of our web sites as well as our college
                television network and capitalize on our expertise in the college
                and
                young adult market to continue to grow revenue in these areas.





·
            We
                intend to expand our film library by increasing the number of film
                products we produce internally. We currently have two films in production
                and are actively developing several new projects and have finalized
                domestic and international distribution arrangements. The domestic
                distribution arrangement includes a number of home video distributors
                and
                retailers and a domestic cable provider. In some cases we are guaranteed
                a
                minimum payment upon delivery of the film to the respective broadcaster
                or
                distributor.





·
            We
                plan to capitalize on our reputation and relationships with independent
                studios and other multimedia companies to expand the use of the National
                LampoonTM brand.





·
            We
                plan to create new licensing opportunities in markets outside of
                publishing, film and television, such as games, records, radio programming
                and live events.





·
            National
                Lampoon Networks continues tomaintain
                a presence at third-party events and providefield
                marketing campaigns for various advertisers.However,
                we no longer produce our own
                events.





·
            We
                began publishing and distributing books we created to continue
                capitalizing on the National Lampoon brand.During
                the 2007 fiscal year we published eight books and during the three
                months
                ended October 31, 2007 we published three more books, however, going
                forward we plan to release only four books per
                year.





·
            During
                the 2007 fiscal year, NL Radio, LLC launched an entertainment radio
                format
                using our brand with a 24 hour/7 day-a-week channel on XM Satellite
                Radio.
                We own a 25% interest in NL Radio,
                LLC.





15





**Critical
      Accounting Policies**





Management
      believes the following critical accounting policies, among others, affect its
      more significant judgments and estimates used in the preparation of our
      condensed consolidated financial statements.





***Revenue
      Recognition.*** Royalty
      income from film contracts is derived from the sale of DVDs or from the
      licensing of film rights to third parties. Because a significant portion of
      royalty income is based on the timetable associated with royalty statements
      generated by third party processors, we do not typically know on a timely basis
      when royalties may be paid or the amount of payment. This revenue is
      consequently not recognized until the amount is either known or reasonably
      estimable or until receipt of the statements from the third parties. We contract
      with various agencies to facilitate collection of royalty income. When we are
      entitled to royalties based on gross receipts, revenue is recognized before
      deduction of agency fees, which are included as a component of cost of
      revenue.




We
      recognize revenue from television and film productions pursuant to American
      Institute of Certified Public Accountants Statement of Position 00-2,
“Accounting by Producers or Distributors of Films” (“SOP 00-2”). The following
      conditions must be met in order to recognize revenue under SOP 00-2:
      (i) persuasive evidence of a sale or licensing arrangement exists;
      (ii) the program is complete and has been delivered or is available for
      immediate and unconditional delivery; (iii) the license period of the
      arrangement has begun and the customer can begin its exploitation, exhibition
      or
      sale; (iv) the arrangement fee is fixed or determinable; and
      (v) collection of the arrangement fee is reasonably assured. Advance
      payments received from buyers or licensees are included in the financial
      statements as a component of deferred revenue.




***Film
      Costs*** *.* Investment in film costs includes the capitalization of costs incurred to
      produce the film content including direct negative costs, production overhead,
      interest and development. These costs are recognized as operating expenses
      on an
      individual film basis in the ratio that the current year’s gross revenues bear
      to management’s estimate of total ultimate gross revenues from all sources to be
      earned over a seven year period. Capitalized production costs are stated at
      the
      lower of unamortized cost or estimated fair value on an individual film basis.
      Revenue forecasts, based primarily on historical sales statistics, are
      continually reviewed by management and revised when warranted by changing
      conditions. When estimates of total revenues and other events or changes in
      circumstances indicate that a film has a fair value that is less than its
      unamortized cost, an impairment loss is recognized in the current period for
      the
      amount by which the unamortized cost exceeds the film’s fair value.




**Reorganization
      Transaction**




In
      the
      discussion below, we sometimes refer to the “Reorganization Transaction”. The
      Reorganization Transaction occurred on May 17, 2002, when a group of investors
      that we refer to as “the NLAG Group” completed the acquisition of our Series B
      Convertible Preferred Stock and warrants to purchase our common stock, thereby
      gaining voting control of our company.





**Results
      of Operations**





We
      operate in four business segments, namely,





·
            licensing
                and exploitation of the National LampoonTM trademark and related properties
                including the sale of products to consumers;





·
            advertising
                and promotion on our internet websites, field marketing, live events
                and
                the distribution of television programming on college campuses;





·
            production
                and distribution of motion pictures, television and DVD products;




·
            production
                of motion pictures through National Lampoon Clubhouse,
                Inc.





**Three
      months ended October 31, 2007 as compared to the three months ended October
      31,
      2006**




16


**Licensing
      and Publishing Revenues**





Licensing
      and publishing revenues for the three months ended October 31, 2007 were
      $357,993 compared to $3,248,043 for the three months ended October 31, 2006,
      representing a decrease of $2,890,050 or approximately 88%. During the three
      months ended October 31, 2006, we received a one-time payment of approximately
      $2.9 million in settlement of a royalty dispute. No such payment occurred during
      the three months ended October 31, 2007. The decrease in licensing and
      publishing revenues was also due to a minor reduction in publishing revenues
      of
      $25,797.





Costs
      related to licensing revenues were $17,915 during the three months ended October
      31, 2007 compared to $61,196 for the three months ended October 31, 2006. This
      represents a decrease of $43,281 or approximately 70%. The decrease for the
      three month period ended October 31, 2007 was primarily due to the payment
      of
      fewer commissions than during the quarter ended October 31, 2006 because of
      a
      decrease in sales staff and a restructuring of commission payments.





**Advertising
      and Promotion Revenues**





During
      the three months ended October 31, 2007, advertising and promotion revenues
      were
      $449,633 compared to $842,730 for the three months ended October 31, 2006.
      This
      represents a decrease of $393,097 or 46%. The decrease was the result of a
      decrease of $399,662 in promotion revenues mainly due to a reduction in the
      number of field promotion events we produced. Revenues from Internet advertising
      on our new websites decreased by $191,935 due to a reduction in our New York
      sales force as well as the reduction in advertising related to field promotions.
      These reductions were partially offset by marketing revenues of $198,500 earned
      during the three months ended October 31, 2007 from Red Rock Picture Holdings
      Inc.





We
      continue to expand and improve our digital distribution and entertainment
      capabilities which we expect to result in increased revenue from our network
      and
      affiliate network of internet websites. We intend to hire additional sales
      representatives to increase our internet advertising revenues. Going forward,
      we
      expect to focus our resources on increasing revenues generated from our internet
      websites and from product placement. While we intend to continue providing
      field
      promotion services at events held by third parties, we no longer produce field
      promotion events.





Costs
      related to advertising revenues include bandwidth usage fees, website
      development costs, and content conversion costs along with some amortization
      of
      capitalized television production costs. We incur costs related to promotion
      revenues based on direct costs of live events and promotion of third-party
      feature films, which are expensed as they are incurred. Cost of advertising
      and
      promotion revenue was $202,297 during the three months ended October 31, 2007
      compared to $715,468 for the three months ended October 31, 2006, representing
      a
      decrease of $513,170 or 71%. Costs of live events decreased by $370,294 due
      to a
      reduced number of live events that we produced. Although we produced fewer
      live
      events we continue to provide sponsorship opportunities at live events organized
      by third parties. Costs associated with our internet operations increased by
      $139,296. This is due to increased service fees as we improve our internet
      capabilities and due to an increase in royalties paid to affiliate websites
      under the Humor Network. Commissions decreased by $24,344 due to a reduction
      of
      our New York sales force however this also resulted in lower internet
      revenues.





**Production
      Revenues**





For
      the
      three months ended October 31, 2007, there were no production revenues as
      compared to $39,000 for the three months ended October 31, 2006. We
      traditionally do not produce product unless we have a presale, minimum guarantee
      or co-production agreement in place. This reduces our risk as productions tend
      to be capital intensive. However, we are expanding our productions and we have
      negotiated an output arrangement with a domestic cable provider which guarantees
      us a cable distribution outlet for our new product along with a minimum return
      on each new motion picture release. The output arrangement provides for a
      pre-negotiated minimum guarantee or sales price for the licensing of a specific
      media and territory. We have also negotiated home video distribution with a
      number of domestic retailers and distributors and have licensed international
      rights in several territories with minimum guarantees. For the video
      distribution, there is no minimum price guarantee but the arrangement provides
      us with a video distribution outlet for our new product. In addition, we are
      negotiating with Red Rock to provide production financing. As these output
      and
      financing arrangements are signed, we will allocate additional internal
      resources to this segment of our business. For the three months ended October
      31, 2007, production revenues from production services to third parties
      decreased due to the allocation of internal personnel to the production of
      two
      feature films.





Costs
      related to production revenue during the three months ended October 31, 2007
      increased $9,775 to $12,775 from $3,000, for the three months ended October
      31,
      2006. The increase was primarily due to materials related to delivery of TV
      programming to college networks. Amortization of capitalized television
      production costs for the three months ended October 31, 2006 was $14,372
      compared to none for the three month period ended October 31, 2007. No further
      write-down of capitalized television production costs was required during the
      latest quarter.





**Other
      Costs and Expenses**





Amortization
      of intangible assets, which consists of the costs of our acquisition and
      protection of the "National LampoonTM" trademark, was approximately $61,165 and
      $61,140 during the three months ended October 31, 2007 and 2006, respectively.





Selling,
      general and administrative costs increased by $104,107 or 6.8% to $1,631,465
      during the three months ended October 31, 2007 from $1,527,358 for the three
      months ended October 31, 2006. Selling, general and administrative costs for
      the
      three months ended October 31, 2007 and 2006 include stock issued for services
      in the amount of $182,384 and $102,819, respectively, and the vesting of options
      and warrants issued for services in the amount of $592,572 and $322,545,
      respectively, which are discussed in the paragraph below. For the three
      month period ended October 31, 2007, the decrease resulted from decreases in
      payroll and related payroll taxes due to a reduction in our employee count,
      marketing and promotion costs, internal technology consultant expenses and
      investor relations services. This was partially offset by increased rent
      expenses at our Los Angeles office as we increased our rented office space.





17


During
        the three months ended October 31, 2007, expenses totaling $592,572 were
        incurred from grants of options and warrants issued to employees, advisors
        and
        consultants as compared to expenses totaling $322,545 attributable to grants
        of
        options and warrants issued during the three months ended October 31, 2006.
        The
        increase is primarily due to the implementation of SFAS No. 123R and grants
        of
        320,000 options to members of our board of directors and consultants conveying
        the right to purchase 320,000 shares of our common stock.
 
 During
        the three months ended October 31, 2007, expenses totaling $182,384 were
        incurred from shares of common stock issued for services to advisors and
        consultants as compared to expenses totaling $102,819 attributable to shares
        of
        common stock issued during the three months ended October 31, 2006. The increase
        is primarily due to shares of common stock issued to new consultants hired
        for
        investor relations and internet services.


There
      was
      no provision for doubtful accounts for the three months ended October 31, 2007
      compared to $34,000 for the three months ended October 31, 2006. The provision
      for the three months ended October 31, 2006 is primarily attributable to
      accounts we deemed to be uncollectible.





For
      the
      three months ended October 31, 2007, we had a net loss of $1,165,332, as
      compared to a net income of $1,733,328 for the three months ended October 31,
      2006. This represents a decrease in net income of $2,898,660 for the three
      months ended October 31, 2007. The decrease in net income for the three months
      ended October 31, 2007 resulted primarily from the significant increase in
      revenue we received during the three months ended October 31, 2006 which
      was associated with the settlement of disputed license fees. Aside from the
      settlement, other license fees increased while decreases occurred in revenues
      for field marketing and live event advertising and promotion, production and
      publishing. The decrease in costs and expenses for the three months ended
      October 31, 2007 was a result of decreases in advertising and promotion costs
      and selling, general and administrative costs which was partially offset by
      an
      increase in the issuance of stock, warrants and options as compensation.





During
      the three months ended October 31, 2007 and 2006, we had no provision for income
      taxes due to the significant net operating losses incurred in prior periods
      and
      carried forward into the current period. We also accrued dividends for preferred
      shareholders of $297,771 during the three months ended October 31, 2007 and
      $320,975 during the same period in 2006. The addition of the accrued dividend
      resulted in a net loss attributable to common shareholders of $1,463,103 or
      $0.18 per basic and fully diluted share for the three months ended October
      31,
      2007, compared to net income attributable to common shareholders of $1,412,353
      or $0.09 per fully diluted share for the three months ended October 31, 2006.





**Liquidity
      and Capital Resources**





With
      the
      exception of the first quarter of the fiscal year ended July 31, 2007, we have
      not generated positive cash flows from operations over the past few years.
      Our
      principal sources of working capital during the three months ended October
      31,
      2007 consisted of loans from our officers and directors and production loans
      from Red Rock Pictures Holdings, Inc.





Net
      cash
      used in operating activities was approximately $497,534 for the three months
      ended October 31, 2007, as compared to approximately $614,886 for the three
      months ended October 31, 2006. The decrease in cash flow used in operations
      was
      primarily attributable to the collection of license fees from a settlement,
      offset by an increase in production costs and deferred revenues. Cash provided
      by financing activities was approximately $438,945 for the three months ended
      October 31, 2007, as compared to approximately $675,302 for the three months
      ended October 31, 2006. The funds for the current period were obtained from
      officers and directors and Red Rock Pictures Holdings, Inc. and were partially
      offset by repayments to each of them.





As
      of
      December 10, 2007, we had cash on hand of approximately $83,557. We believe
      these funds, along with revenues we earn and additional loans from our Chief
      Executive Officer and one member of our board of directors, will be adequate
      to
      fund our ongoing operations and capital requirements for the next twelve months.
      However, we have no commitment for these loans and our Chief Executive Officer
      and director are not required to make additional loans to us. If we do not
      receive these loans and if alternate sources of financing cannot be found,
      then
      we may not be able to continue to operate as a going concern.





Historically,
      our principal source of funds used for operations and working capital has been
      loans received from Daniel S. Laikin, our Chief Executive Officer, and Timothy
      Durham, a director, and a shareholder. The aggregate amount of the loans and
      accrued interest owed to these individuals at October 31, 2007 is approximately
      $1,630,957. These obligations are payable on demand. We plan to satisfy and
      pay
      these obligations from future revenues. In addition, Red Rock Picture Holdings,
      Inc. has provided the Company with funds for movie production. The aggregate
      amount of the loans and accrued interest owed to Red Rock at October 31, 2007
      is
      approximately $3,795,395.





Our
      financial statements for the fiscal year ended July 31, 2007 contained an
      explanatory paragraph as to our ability to continue as a "going concern." This
      qualification may impact our ability to obtain future financing.





18


**Commitments
      for Capital Expenditures**





As
      of
      October 31, 2007, our capital expenditures are projected to be $100,000 for
      the
      2008 fiscal year. These expenditures will relate to the purchase of fixed assets
      such as equipment and furniture.





**Off-Balance
      Sheet Arrangements**





We
      do not
      have any off-balance sheet transactions such as guarantees, commitments, lease
      and debt agreements or other agreements that could trigger an adverse change
      in
      our credit rating, earnings, cash flows or stock price, including requirements
      to perform under standby agreements.




**Contractual
      Obligations**




The
      table
      below sets forth our contractual obligations as of October 31,
      2007.




Payments
                  Due by PeriodLess
                  than
              
              1
                  -
                  3
              
              3
                  -
                  5
              
              More
                  thanTotal
              
              1
                  year
              
              years
              
              years
              
              5
                  yearsProduction
                  loan, related party
              
              $
              3,867,545
              
              $
              3,867,545
              
              $
              --
              
              $
              --
              
              $
              --Notes
                  Payable, related party
              
              $
              1,558,807
              
              $
              1,558,807
              
              $
              --
              
              $
              --
              
              $
              --




**Recent
      Accounting Pronouncements**





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FIN 48,
      "Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
      No. 109," which seeks to reduce the diversity in practice associated with the
      accounting and reporting for uncertainty in income tax positions. This
      Interpretation prescribes a comprehensive model for the financial statement
      recognition, measurement, presentation and disclosure of uncertain tax positions
      taken or expected to be taken in an income tax return. FIN 48 presents a
      two-step process for evaluating a tax position. The first step is to determine
      whether it is more-likely-than-not that a tax position will be sustained upon
      examination, based on the technical merits of the position. The second step
      is
      to measure the benefit to be recorded from tax positions that meet the
      more-likely-than-not recognition threshold, by determining the largest amount
      of
      tax benefit that is greater than 50 percent likely of being realized upon
      ultimate settlement, and recognizing that amount in the financial statements.
      FIN 48 is effective for fiscal years beginning after December 15, 2006.
      Management believes the adoption of FIN 48 will not have a material impact
      on
      the Company’s results of operations, financial position or cash
      flow.




In
      February 2007, the Financial
      Accounting Standards Board (FASB) issued
      FASB Statement No. 159, “The Fair Value Option for Financial Assets and
      Financial Liabilities — including an amendment of FASB Statement
      No. 115” (FAS 159). ** FAS 159,
      which becomes effective for the Company on January 1, 2008, permits
      companies to choose to measure many financial instruments and certain other
      items at fair value and report unrealized gains and losses in earnings. Such
      accounting is optional and is generally to be applied instrument by instrument.
      The Company does not anticipate that election, if any, of this fair-value option
      will have a material effect on its consolidated ** financial
      condition, results of operations, cash flows or disclosures.





In
      September 2006, the FASB issued FAS No. 157 (“FAS 157”), “Fair
      Value Measurements,” which establishes a framework for measuring fair value in
      accordance with GAAP and expands disclosures about fair value measurements.
      FAS
      157 does not require any new fair value measurements but rather eliminates
      inconsistencies in guidance found in various prior accounting pronouncements.
      FAS 157 is effective for fiscal years beginning after November 15, 2007.
      The Company is currently evaluating the impact this standard will have on its
      consolidated ** financial
      condition, results of operations, cash flows or disclosures.




**Item
      3 - Controls and Procedures**





We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our Chief Executive Officer and our interim Chief
      Financial Officer of the effectiveness of the design and operation of our
      disclosure controls and procedures as of the end of the period covered by this
      report. The evaluation was undertaken in consultation with our accounting
      personnel. Based on the evaluation, the interim Chief Financial Officer and
      the
      Chief Executive Officer concluded that our disclosure controls and procedures
      are not effective to ensure that information required to be disclosed by us
      in
      the reports that we file or submit under the Securities Exchange Act of 1934
      is
      recorded, processed, summarized and reported within the time periods specified
      in the Securities and Exchange Commission’s rules and forms.





Specifically,
      due in part to the departure of our former Chief Financial Officer and due
      to
      our limited accounting staff, we have a material weakness in our financial
      statement closing process. We have addressed this weakness by initiating a
      more
      formal closing process and by hiring an interim Chief Financial Officer and
      continuing to search for a permanent replacement and we also intend to hire
      an
      additional accounting consultant.





Other
      than as described above, there were no changes in our internal controls or
      in
      other factors that could significantly affect internal controls subsequent
      to
      the date of their evaluation.





19


**PART
      II - OTHER INFORMATION**





**Item
      1 - Legal Proceedings**





*National
      Lampoon, Inc. v. Alma Investments* (d/b/a
      Bahia Mar Hotel) (Los Angeles Superior Court Case No. BC 356118). We filed
      this
      complaint on July 27, 2006. The action arises from an agreement we had with
      Bahia Mar Hotel pursuant to which we were to provide to Bahia Mar Hotel an
      entertainment package for the 2006 spring break. We alleged that Bahia Mar
      Hotel
      failed to support the program and that Bahia Mar Hotel diverted some of the
      business to our competitors. In our complaint, we have alleged causes of action
      for fraud, breach of contract, promissory estoppel, quantum meruit and breach
      of
      the covenant of good faith and fair dealing. We believe that our damages are
      in
      excess of $500,000. On September 22, 2006 Bahia Mar Hotel filed a motion to
      quash service of summons, which the Court denied on October 25, 2006. Both
      parties are continuing to engage in discovery and prepare for trial that is
      scheduled for March 2008. On
      or
      about December 12, 2007 a 60-day extension to answer the discovery was filed.





*Cinergy
      Creative, Inc. and Leslie Allen v. National Lampoon Clubhouse, Inc., National
      Lampoon, Inc., Majestic Entertainment, Inc. and Lorenzo Doumani* (Los
      Angeles Superior Court Case No. SC091496). This complaint was filed on October
      20, 2006. The plaintiffs allege causes of action for breach of written contract,
      breach of oral contract, breach of the implied covenant of good faith and fair
      dealing, quantum meruit, fraud and deceit based on promises made without
      intention to perform, intentional misrepresentation, slander per se, libel
      per
      se, breach of confidence, declaratory relief, conversion, untrue or misleading
      advertising, unfair competition and negligence. Specifically, the plaintiffs
      allege that we and our co-defendants induced them to set aside other projects
      so
      that they would spend their time working on projects for the benefit of us
      and
      our co-defendants. The plaintiffs also allege that they were promised a share
      of
      profits from the projects and/or a "partnership" interest in them. The
      plaintiffs allege that their damages are in excess of $2,000,000. The Company
      entered into a settlement agreement with the plaintiffs dated November 5, 2007.
      The plaintiffs agreed to dismiss the complaint against the Company in exchange
      for a payment of $50,000 to be made within 90 days from the execution of the
      settlement agreement. The action is continuing against the remaining
      defendants.





Screen
      Actor’s Guild v. National Lampoon Clubhouse, Inc. During late 2006, the Screen
      Actor’s Guild (“SAG”) filed claims against National Lampoon Clubhouse, Inc.
      (“Clubhouse”) for unpaid wages and pension, health and welfare benefits incurred
      for the filming of “Monster House” aka “Trick or Treat”. SAG alleges that
      certain actors were not paid in full and are owed more compensation, expenses
      and benefit payments under the SAG agreement. Clubhouse disputes these claims
      and intends to vigorously defend this action. An arbitration with SAG is
      scheduled for February 2008.





American
      Cinema Distribution Corporation v. National Lampoon, Inc. In August 2007, the
      American Cinema Distribution Corporation (“ACDC”) filed claims against National
      Lampoon, Inc. for costs incurred on the release of “National Lampoon’s Pucked”.
      ACDC alleges that the Company did not perform distribution services as agreed
      and that ACDC should be reimbursed for distribution costs it incurred estimated
      at $65,000. ACDC also alleges that it does not owe distribution fees to the
      Company for marketing, publicity, promotional and advertising services the
      Company provided which services the Company alleges have a value in excess
      of
      $290,000. The Company disputes these claims, has filed for arbitration against
      ACDC as the agreement calls for and intends to vigorously defend this
      action.




**Item
      2 - Unregistered Sales of Equity Securities and Use of Proceeds**





In
      March
      2007 we entered into an agreement with Sam Elhag to provide consulting services
      to us. In exchange for his services, we will issue 10,000 shares of restricted
      common stock to the consultant during the service period. During the three
      months ended October 31, 2007 we issued a total of 5,833 shares of restricted
      common stock having a total value of $14,699.





In
      September 2007 we entered into an agreement with UPP Group to provide consulting
      services to us. In exchange for their services, we are to issue 9,000 shares
      of
      restricted common stock to the consultant during the service period. During
      the
      three months ended October 31, 2007 we issued a total of 9,000 shares of
      restricted common stock having a total value of $22,680. Additional warrants
      are
      to be issued to the consultant upon meeting certain levels of performance.




In
      September 2007 we entered into an agreement with American Capital Ventures
      to
      provide consulting services to us. In exchange for their services, we will
      issue
      60,000 shares of restricted common stock to the consultant during the twelve
      month service period. The consultant received 20,000 restricted common shares
      upon execution of the agreement with the balance being issued monthly at the
      rate of 3,636 shares per month. During the three months ended October 31, 2007
      we issued a total of 20,000 shares of restricted common stock having a total
      value of $50,400. The consultant will also be paid a fee of $3,500 per month
      over the twelve month service period. In addition, the consultant will be issued
      warrants to purchase 40,000 shares of restricted common stock over the twelve
      month service period.





Unless
      otherwise noted, we relied on section 4(2) of the Securities Act of 1933 to
      issue the securities inasmuch as the common stock was issued without any form
      of
      general solicitation or general advertising and the acquirers were accredited
      investors .





**Item
      3 - Defaults Upon Senior Securities**





None.





**Item
      4 - Submission of Matters to a Vote of Security Holders**





None.


20


**Item
      5 - Other Information**





In
      September 2007 we entered into an agreement with American Capital Ventures
      to
      provide consulting services to us. In exchange for their services, we will
      issue
      60,000 shares of restricted common stock to the consultant during the
      twelve-month service period. The consultant received 20,000 restricted common
      shares upon execution of the agreement with the balance being issued monthly
      at
      the rate of 3,636 shares per month. The consultant is not a related party and
      the compensation was negotiated at arm’s length. During the three months ended
      October 31, 2007 we issued a total of 20,000 shares of restricted common stock
      having a total value of $50,400. The consultant will also be paid a fee of
      $3,500 per month over the twelve-month service period. In addition, the
      consultant will be issued warrants to purchase 40,000 shares of restricted
      common stock over the twelve-month service period.





**Item
      6 - Exhibits**





3.1
            Certificate
                of Incorporation of National Lampoon, Inc. (1)





3.2
            Bylaws
                of National Lampoon, Inc. adopted August 27, 2002 (1)





3.3
            First
                Amendment of Certificate of Incorporation of National Lampoon, Inc.
                (2)





4.1
            Certificate
                of Designations, Preferences, Rights and Limitations of Series C
                Convertible Preferred Stock of National Lampoon, Inc. (2)





4.2
            NLAG
                Registration Rights Agreement dated May 17, 2002 among the Registrant
                and
                members of the NLAG Group and GTH Capital, Inc. (3)





4.3
            Jimirro
                Registration Rights Agreement dated May 17, 2002 (3)





4.4
            Piggyback
                Registration Rights Agreement dated September 3, 2002 between the
                Registrant and Constellation Venture Capital, L.P. as agent for certain
                individuals. (4)





4.5
            Piggyback
                Registration Rights Agreement entered into among the Registrant and
                the
                purchasers of Series C Convertible Preferred Stock (5)





4.6
            J2
                Communications Voting Agreement dated May 17, 2002 among members
                of the
                NLAG Group and James P. Jimirro (3)





4.7
            First
                Amendment to Voting Agreement dated June 7, 2002





4.8
            Series
                C Voting Agreement entered into among the Registrant and purchasers
                of
                Series C Convertible Preferred Stock (5)





10.1
            Agreement
                entered into between National Lampoon, Inc. and American Capital
                Ventures
                dated September 1, 2007*





31.1
            Certification
                by Chief Executive Officer pursuant to section 302 of the Sarbanes
                Oxley
                Act of 2002*





31.2
            Certification
                by Interim Chief Financial Officer pursuant to section 302 of
                the Sarbanes Oxley Act of 2002*





32
            Certification
                by Chief Executive Officer and Interim Chief Financial Officer pursuant
                to
                section 906 of the Sarbanes Oxley Act of 2002*





*Filed
      herewith.





(1)
            Incorporated
                by reference from the Registrant's Form 10-K/A for the fiscal year
                ended
                July 31, 2003 filed with the Securities and Exchange Commission on
                December 19, 2003.





(2)
            Incorporated
                by reference from the Registrant's Form 10-K for the fiscal year
                ended
                July 31, 2005 filed with the Securities and Exchange Commission on
                October
                29, 2005.





(3)
            Incorporated
                by reference from the Registrant's Form 8-K filed with the Securities
                and
                Exchange Commission on May 31, 2002.





(4)
            Incorporated
                by reference from the Registrant's Form 8-K filed with the Securities
                and
                Exchange Commission on September 9, 2002.





(5)
            Incorporated
                by reference from the Registrant's Form 10-QSB filed with the Securities
                and Exchange Commission on December 22, 2006.








21


**SIGNATURES**





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




NATIONAL
                LAMPOON, INC.December
                19, 2007
            By:
            /s/ Daniel
                S. LaikinDaniel
                S. Laikin,
              Chief
                Executive Officer





December
                19, 2007
            By:
            /s/ Lorraine
                EvanoffLorraine
                Evanoff,
              Interim
                Chief Financial Officer







22