**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 SECURITIESEXCHANGE
                ACT OF 1934





For
      the
      quarterly period ended: January 31, 2006





OR





o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
                ACT OF 1934





Commission
      file number: 0-15284




**NATIONAL
        LAMPOON, INC.**


(Exact
      name of registrant as specified in its charter)





Delaware
            95-4053296(State
                or other jurisdiction of
            (I.R.S.
                EmployerIncorporation
                or organization)
            Identification
                No.)





10850
      Wilshire Boulevard, Suite 1000


Los
      Angeles, California


90024


(Address
      of principal executive offices)


(Zip
      Code)





(310)
      474-5252


(Registrant’s
      telephone number including area code)





N/A


(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 6,801,568 shares of common
      stock, $0.0001 par value, issued and outstanding as of March 6,
      2006.





Transitional
      Small Business Disclosure Format (Check one):


Yes
o No x










**FORWARD
      LOOKING STATEMENTS**




Some
      of
      the statements made in this quarterly report on Form 10QSB discuss future events
      and developments, including the Company’s future business strategy and its
      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 the Company’s 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 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,





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





·
            unanticipated
                increases in development, production or marketing expenses related
                to the
                Company’s various business activities, and
                other factors which will be outside of the Company’s
                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 - Consolidated Financial Statements**





**NATIONAL
                LAMPOON, INC. AND SUBSIDIARIES**CONDENSED
                CONSOLIDATED BALANCE SHEETS____________As
                ofASSETS
            
            31-Jan-06(UNAUDITED)CURRENT
                ASSETSCash
            
            $
            1,907,999Accounts
                receivable, net of $103,595 of allowance for doubtful
                accounts
            
            
            162,468Prepaid
                expenses and other current assets
            
            
            278,997Total
                current assets
            
            
            2,349,464NON-CURRENT
                ASSETSFixed
                assets, net of accumulated depreciation
            
            
            11,583Capitalized
                television production costs, net of $869,750 in film financing and
                $152,495 amortization
            
            
            1,472,829Intangible
                assets, net of accumulated amortization of $4,108,578
            
            
            1,856,154Total
                non-current assets
            
            
            3,340,566TOTAL
                ASSETS
            
            
            5,690,030





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




-3-




LIABILITIES
                AND SHAREHOLDERS' EQUITYCURRENT
                LIABILITIESAccounts
                payable
            
            $
            508,708Accrued
                expenses
            
            
            214,733Accrued
                royalties
            
            
            396,250Accrued
                dividends
            
            
            1,769,820Notes
                payable - related party, including interest of $42,582
            
            
            157,582Deferred
                income
            
            
            8,774TOTAL
                CURRENT LIABILITIES
            
            
            3,055,867MINORITY
                INTEREST
            
            
            177,241SHAREHOLDERS'
                EQUITYSeries
                B Convertible Preferred Stock, par value $.0001 per share, 68,406
                shares
                authorized, 63,607 shares issued.
            
            
            6Series
                C Convertible Preferred Stock, par value $.0001 per share, 250,000
                shares
                authorized, 229,761 shares issued.
            
            
            23Common
                Stock, par value $.0001 per share, 60,000,000 shares authorized and
                6,799,568 shares issued.
            
            
            678Additional
                paid-in capital
            
            
            37,315,009Less:
                Deferred compensation
            
            
            (37,828
            )Accumulated
                deficit
            
            
            (34,820,966
            )TOTAL
                SHAREHOLDERS' EQUITY
            
            
            2,456,922TOTAL
                LIABILITIES AND SHARESHOLDERS' EQUITY
            
            $
            5,690,030





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




-4-




**NATIONAL
                LAMPOON, INC. AND SUBSIDIARIES**CONDENSED
                CONSOLIDATED STATEMENTS OF OPERATIONS____________Three
                Months
            
            Six
                MonthsEnded
                January 31,
            
            Ended
                January 31,2006
            
            2005
            
            2006
            
            2005(UNAUDITED)
            
            (UNAUDITED)
            
            (UNAUDITED)
            
            (UNAUDITED)REVENUESProduction
            
            $
            92,250
            
            $
            47,000
            
            $
            143,583
            
            $
            148,000Licensing
            
            
            300,318
            
            
            1,053,809
            
            
            490,637
            
            
            1,171,497Advertising
                & Promotion
            
            
            427,429
            
            
            229,935
            
            
            1,021,430
            
            
            678,181Tours
            
            
            —
            
            
            —
            
            
            2,534
            
            
            —Other
            
            
            —
            
            
            —
            
            
            4,643
            
            
            —Total
                revenues
            
            
            819,997
            
            
            1,330,744
            
            
            1,662,827
            
            
            1,997,678COSTS
                AND EXPENSESCosts
                related to production revenue
            
            
            22,910
            
            
            27,304
            
            
            22,910
            
            
            144,408Costs
                related to licensing revenue
            
            
            (1,752
            )
            
            16,718
            
            
            84,688
            
            
            21,230Costs
                related to tours revenues
            
            
            65,307
            
            
            —
            
            
            100,171
            
            
            —Costs
                related to advertising and promotion revenues
            
            
            485,832
            
            
            205,339
            
            
            1,146,997
            
            
            457,661Amortization
                of capitalized television production costs
            
            
            57,145
            
            
            114,569
            
            
            152,495
            
            
            184,569Amortization
                of intangible assets
            
            
            60,000
            
            
            60,000
            
            
            120,000
            
            
            120,000Amortization
                debt issuance costs
            
            
            —
            
            
            —
            
            
            313,000
            
            
            —Provision
                for doubtful accounts
            
            
            —
            
            
            —
            
            
            76,345
            
            
            —Selling,
                general and administrative expenses
            
            
            1,175,974
            
            
            1,469,091
            
            
            2,592,085
            
            
            2,296,846Stock,
                warrants & options issued for services
            
            
            36,105
            
            
            155,029
            
            
            104,840
            
            
            402,092Expense
                associated with modification of warrants
            
            
            —
            
            
            177,798
            
            
            —
            
            
            1,082,695Severance
                costs
            
            
            —
            
            
            2,577,497
            
            
            —
            
            
            2,577,497Total
                costs and expenses
            
            
            1,901,521
            
            
            4,803,345
            
            
            4,713,531
            
            
            7,286,998OPERATING
                LOSS
            
            
            (1,081,524
            )
            
            (3,472,601
            )
            
            (3,050,704
            )
            
            (5,289,320
            )OTHER
                INCOMEInterest
                income
            
            
            35,291
            
            
            3,364
            
            
            68,962
            
            
            4,804Interest
                expense
            
            
            (22,958
            )
            
            23,705
            
            
            (25,433
            )
            
            (49,580
            )Other
                expense
            
            
            977
            
            
            (172,822
            )
            
            7,672
            
            
            (172,822
            )Total
                other income
            
            
            13,310
            
            
            (145,752
            )
            
            51,201
            
            
            (217,598
            )NET
                LOSS BEFORE MINORITY INTEREST
            
            $
            (1,068,214
            )
            $
            (3,618,354
            )
            $
            (2,999,503
            )
            $
            (5,506,918
            )MINORITY
                INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARY
            
            
            20,315
            
            
            —
            
            
            72,564
            
            
            —LOSS
                BEFORE INCOME TAXES
            
            $
            (1,047,899
            )
            $
            (3,618,354
            )
            $
            (2,926,939
            )
            $
            (5,506,918
            )Provision
                for state income taxes
            
            
            —
            
            
            2,969
            
            
            —
            
            
            9,138




NET
                LOSS
            
            
            (1,047,899
            )
            
            (3,621,323
            )
            
            (2,926,939
            )
            
            (5,516,056
            )Accrued
                dividends (Note E)
            
            
            (328,150
            )
            
            —
            
            
            (656,301
            )
            
            —Beneficial
                conversion feature treated as preferred dividend (Note )
            
            
            —
            
            
            (943,097
            )
            
            —
            
            
            (2,280,906
            )Net
                loss attributable to common shareholders
            
            $
            (1,376,049
            )
            $
            (4,564,420
            )
            $
            (3,583,240
            )
            $
            (7,796,962
            )Net
                loss per share attributable to common shareholder - basic and
                diluted
            
            $
            (0.20
            )
            $
            (1.46
            )
            $
            (0.54
            )
            $
            (2.51
            )Weighted
                average number of common shares - basic and diluted
            
            
            6,775,812
            
            
            3,133,473
            
            
            6,630,941
            
            
            3,102,878





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




-5-




**NATIONAL
                LAMPOON, INC. AND SUBSIDIARIES**CONDENSED
                CONSOLIDATED STATEMENTS OF CASH FLOWS____________Six
                MonthsEnded
                January 31,2006
            
            2005(UNAUDITED)
            
            (UNAUDITED)CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                Loss
            
            $
            (2,926,939
            )
            $
            (5,516,056
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            8,879
            
            
            18,948Amortization
                of intangible assets
            
            
            120,000
            
            
            120,000Amortization
                of debt issuance costs
            
            
            313,000
            
            
            7,000Amortization
                of capitalized production costs
            
            
            152,499
            
            
            —Stock,
                options and warrants issued for services
            
            
            104,840
            
            
            402,092Provision
                for doubtful accounts
            
            
            76,345
            
            
            —Expense
                associated with the modification of warrants
            
            
            —
            
            
            1,082,695Other
            
            
            —
            
            
            5,115Changes
                in assets and liabilities:(Increase)/decrease
                in accounts receivable
            
            
            83,510
            
            
            (384,442
            )(Increase)/decrease
                in prepaid expenses and other assets
            
            
            (86,279
            )
            
            (148,116
            )(Increase)/decrease
                in production costs
            
            
            (878,890
            )
            
            (1,396
            )Increase/(decrease)
                in accounts payable
            
            
            46,063
            
            
            (67,859
            )Increase/(decrease)
                in accrued expenses
            
            
            (514,379
            )
            
            188,826Increase/(decrease)
                in deferred revenues
            
            
            8,774
            
            
            140,000NET
                CASH USED IN OPERATING ACTIVITIES
            
            
            (3,492,577
            )
            
            (4,153,193
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of fixed assets
            
            
            (4,988
            )
            
            —NET
                CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES
            
            
            (4,988
            )
            
            —CASH
                FLOWS FROM FINANCING ACTIVITIES:Film
                financing
            
            
            444,250
            
            
            —Minority
                interest in income/(loss) of consolidated subsidiary
            
            
            (72,565
            )
            
            —Proceeds
                from issuance of common stock (Note G)
            
            
            9,600,000
            
            
            —Payments
                related to the issuance of common stock (Note G)
            
            
            (1,288,505
            )
            
            —Payments
                of notes payable
            
            
            (3,407,418
            )
            
            (472,188
            )Proceeds
                from the exercise of stock options
            
            
            19,107
            
            
            74,083Proceeds
                from Series C convertible preferred stock issuance
            
            
            —
            
            
            3,435,543Elimination
                of note receivable on common stock
            
            
            —
            
            
            162,980Proceeds
                from notes payable
            
            
            —
            
            
            2,715,000


NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            5,294,869
            
            
            5,915,418NET
                INCREASE IN CASH
            
            
            1,797,304
            
            
            1,762,225CASH
                AT BEGINNING OF PERIOD
            
            
            110,695
            
            
            484CASH
                AT END OF PERIOD
            
            
            1,907,999
            
            
            1,762,709Supplemental
                disclosures of cash flow information:Cash
                paid for Taxes
            
            $
            —
            
            $
            —Interest
                paid
            
            $
            111,847
            
            $
            —Stock
                and options issued for services and debt issuance costs
            
            $
            104,840
            
            $
            —




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




-6-





**NOTE
      A — BASIS OF PRESENTATION AND GOING CONCERN**





The
      accompanying unaudited consolidated financial statements of National Lampoon,
      Inc. (the “Company”) have been prepared in accordance with the rules and
      regulations of the Securities and Exchange Commission for interim
      consolidated financial statements. Accordingly, they do not include all of
      the
      information and disclosures required for annual financial statements. In the
      opinion of the Company’s management, all adjustments (consisting of normal
      recurring accruals) necessary to present fairly the Company’s financial position
      as of January 31, 2006, and the results of operations and cash flows for the
      three and six-month periods ended January 31, 2006 and 2005 have been included.
      The results of operations for the six-month period ended January 31, 2006 are
      not necessarily indicative of the results to be expected for the full fiscal
      year. These consolidated financial statements should be read in conjunction
      with
      the financial statements and related footnotes for the year ended July 31,
      2005
      included in the Company’s Annual Report on Form 10-KSB for that
      period.





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. The Company’s net losses of $8,669,170
      and $5,127,107 in the prior two years, net loss of $2,926,939 during the first
      six months of the 2006 fiscal year, and accumulated deficit of $34,820,966
      at
      January 31, 2006, raise concerns, which are addressed in the following
      paragraph, about its ability to continue as a going concern.





On
      March
      10, 2005 the Company filed a registration statement for a public offering of
      3,200,000 shares of common stock. The registration statement was declared
      effective on August 1, 2005. Net proceeds from the offering, after repayment
      of
      the loan from N. Williams Family Investments, LP in the amount of approximately
      $2,812,000, were approximately $5,508,659.   A significant portion of the
      proceeds of the offering were used to fund events, promotions and productions
      which are currently on-going and from which, upon their completion, we will
      earn
      revenues. Based on internal projections, management believes that cash on hand
      plus estimated revenues from these events, promotions and productions as well
      as
      other projects that are currently planned, combined with an estimated reduction
      in expenses that typically occurs during the summer as a result of the end
      of
      the school year (which impacts the operations of National Lampoon Network)
      will
      be sufficient to support the Company’s operations through the next 12 months.
      Management believes this should alleviate the doubt about the Company’s ability
      to continue as a going concern.




Certain
      amounts from the six months ended January 31, 2005 have been reclassified to
      correspond to our manner of reporting the results for the six months
      ended January 31, 2006.





**NOTE
      B - CAPITALIZED PRODUCTION COSTS**





The
      Company capitalized all television production costs. In accordance with the
      guidance set forth in SOP 00-2 paragraphs 33 and 39(b) for episodic television
      series, ultimate revenue can include estimates for the secondary markets once
      the Company can demonstrate through its history or through industry norms that
      the number of episodes produced, plus those for which a firm commitment exists,
      can be licensed in the secondary market.





In
      the
      2005 fiscal year the Company determined, in accordance with the guidelines
      of
      paragraph 39(b), that it had produced enough episodes to allow it to license
      the
      series in a secondary market. The Company made this determination based on
      historical sales for similar projects, with a similar number of episodes
      produced and management estimates the ultimate revenues using this
      data.





The
      Company began to capitalize production costs in accordance with SOP 00-2
      paragraphs 38 to 40, based on the ultimate revenues it estimated using
      historical data that would be generated from the initial and secondary markets
      by each episodic television series for produced episodes. Using SOP 00-2, the
      Company amortizes such capitalized production costs in accordance with the
      provisions included in paragraphs 34 through 37 by the film forecast method,
      revising the estimates of ultimates each period as necessary to reflect the
      most
      current information available. The Company evaluates such costs for impairment
      in accordance with paragraph 44 if any events or circumstances, such as those
      set forth in paragraph 43, indicate that the fair value of the project may
      be
      less than the unamortized amounts remaining on the Company’s books.





The
      portion of the costs of the Company’s completed films that are expected to be
      amortized during the upcoming 12 months is $997,792.





Production
      costs for the Company’s theatrical films were $552,931 during the six months
      ended January 31, 2006 and production costs for the Company’s National Lampoon
      Network television productions were $200,959 during the six months ended January
      31, 2006.





The
      Company expects to amortize within three years 90% of unamortized film costs
      for
      released films.





The
      Company expects to pay $46,667 of accrued participation liabilities during
      the
      next 12 months.




-7-





**NOTE
      C - CONTROLLED COMPANY STATUS**





The
      Company is a “controlled company” as that term is defined in Section 801(a) of
      the Rules of the American Stock Exchange. Three of its directors, Daniel S.
      Laikin, Timothy S. Durham and Paul Skjodt, control over 50% of the voting power
      of National Lampoon, Inc. As a controlled company, the Company is not subject
      to
      Section 804 of the Rules of the American Stock Exchange. Section 804 requires
      that nominees to the Board of Directors be made by either a nominating committee
      comprised solely of independent directors or by a majority of the independent
      directors. Instead, nominees to the Board of Directors are nominated in
      accordance with the terms of that certain Voting Agreement entered into on
      May
      17, 2002 among Daniel S. Laikin, Paul Skjodt, Timothy S. Durham, Ronald Holzer,
      DC Investment, LLC, NL Acquisition Group LLC, Samerian LLP, Diamond Investments,
      LLC, Christopher R. Williams, Helen C. Williams, DW Leasing Company, LLC, Judy
      B. Laikin (all of whom are collectively referred to in this discussion as the
      “NLAG Stockholders”) and James P. Jimirro. The Voting Agreement was entered into
      in conjunction with the reorganization transaction that took place on May 17,
      2002. According to the terms of the Voting Agreement, the NLAG Stockholders
      agree to vote for Mr. Jimirro and two directors nominated by Mr. Jimirro and,
      conversely, Mr. Jimirro agrees to vote for three directors nominated by the
      NLAG
      Stockholders. Mr. Jimirro and the NLAG Stockholders agree to jointly nominate
      and vote for a seventh director. The Voting Agreement will not terminate until
      the later of the termination of Mr. Jimirro’s employment agreement and the
      payment of all amounts due to him thereunder or the date as of which Mr. Jimirro
      personally ceases to own beneficially (whether by reason of his death or
      otherwise) at least 100,000 shares of common stock. Mr. Jimirro currently owns
      432,245 shares of the Company’s common stock. The Voting Agreement prevents the
      Company from having a policy with regard to the consideration of any director
      candidates recommended by security holders (other than the NLAG Stockholders
      and
      Mr. Jimirro) or an independent committee whose purpose is to nominate director
      candidates.





As
      of January 31, 2006, the Company owed Timothy Durham, a director, approximately
      $115,000 in principal and $37,082 in interest. The obligation to Mr. Durham
      is
      payable on demand. To date, no demand has been made.





**NOTE
      D - IMPAIRMENT**





The
      Company tests for impairment of the National LampoonTM trademark in accordance
      with SFAS 142 and 144 paragraphs 16 to 21, estimating the future cash flows
      from
      the trademark to test the recoverability of the intangible asset. The valuation
      of the trademark includes estimates of cash flows over the remaining expected
      life based on prior revenues generated from the film library using the trademark
      and trademark licensing fees.





The
      Company evaluates film costs for impairment in accordance with paragraphs 43
      and
      44 of SOP 00-2. The Company determines if any event has occurred that would
      indicate that the fair value of the film costs is less than the carrying value
      of the project, using estimated ultimate revenue based on historical
      data.





The
      Company determined that there was no impairment of the National LampoonTM
trademark or film costs at January 31, 2006.





**NOTE
      E - STOCK OPTIONS**





The
      Company has adopted SFAS No. 123, “Accounting for Stock Based Compensation”,
      issued in October 1995. In accordance with SFAS No. 123, the Company has elected
      to follow Accounting Principles Board (APB) Opinion No. 25, “Accounting for
      Stock issued to Employees”, and related interpretation in accounting for its
      employee stock options. Under APB Opinion No. 25, because the exercise price
      of
      the Company’s employee stock options equals the market price of the underlying
      stock on the date of grant, no compensation expense is recognized. There is
      no
      current-period compensation expense to disclose in relation to previously issued
      employee stock options, as required under SFAS 148, and there were 203,000
      stock
      options granted during the six months ended January 31, 2006. If the Company
      elected to recognize compensation expense based on the fair value of the options
      granted on the grant date as prescribed by SFAS No. 123, the Company’s net loss
      and loss per share would have been reduced to the pro forma amounts as
      follows:




Three
                Months Ended January 31,
            
            Six
                Months Ended January 31,2006
            
            2005
            
            2006
            
            2005Net
                loss attributable to common shareholders - as reported
            
            $
            (1,376,049
            )
            $
            (4,564,420
            )
            $
            (3,583,240
            )
            $
            (7,796,962
            )APB
                25 expense recognized
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                option compensation under-fair value method
            
            
            (103,267
            )
            
            (106,468
            )
            
            (171,293
            )
            
            (291,047
            )Net
                loss attributable to common shareholders-pro forma
            
            $
            (1,479,316
            )
            $
            (4,670,888
            )
            $
            (3,754,533
            )
            $
            (8,088,009
            )Basic
                and diluted earnings/(loss) per share-as reported
            
            $
            (0.20
            )
            $
            (1.46
            )
            $
            (0.54
            )
            $
            (2.51
            )Basic
                and diluted earnings/(loss) per share-pro forma
            
            $
            (0.22
            )
            $
            (1.49
            )
            $
            (0.57
            )
            $
            (2.61
            )






-8-




The
      relative fair value of the options was estimated using the Black-Scholes option
      pricing model with the following assumptions: average risk-free interest of
      5.50%; dividend yield of 0%; average volatility factor of the expected market
      price of the Company’s common stock of  95.7%
      to
      103.5%; and a term of six to 10 years for the six months ended January 31,
      2006;
      and average risk-free interest of 5.50%; dividend yield of 0%; average
      volatility factor of the expected market price of the Company’s common stock of
      226.7% to 302.5%; and a term of seven to 10 years for the six
      months ended January 31, 2005.





On
      October 1, 2006, the Company will adopt SFAS 123(R) which will require that
      employee stock option expense be recognized under the fair value method rather
      than the intrinsic value method. We have evaluated the impact of the adoption
      of
      SFAS 123(R) and, although we have not yet finished our estimates to enable
      us to
      quantify the impact, based on contractual obligations, recurring customary
      grants such as those to the Board of Directors, and vested options in place,
      we
      believe the impact will be significant to our overall results of operations
      and
      financial position.





**NOTE
      F - FILM FINANCING**





Pursuant
      to an agreement entered into between the Company and Majestic Entertainment,
      Inc. (“Majestic”) in December 2004, the parties formed National Lampoon
      Clubhouse, Inc. (“Clubhouse”). The entity is owned equally by the Company and
      Majestic. Clubhouse is an attempt to create another brand using the National
      LampoonTM name. Because of the importance of the National LampoonTM name to the
      Company, the Company exercises day-to-day operational control over Clubhouse.
      Clubhouse operates out of the Company’s premises, and utilizes both the staff
      and property of the Company. The Company integrated
      Clubhouse’s operations with its operations, making all the decisions necessary
      to carry out the current business activities. The
      Company provides all the accounting functions for Clubhouse, including making
      all accounting policy decisions, determining any estimates affecting the
      carrying amounts of assets and liabilities, and maintaining all accounting
      records. The
      Company also established credit with vendors for use by Clubhouse or used its
      vendors to provide services to Clubhouse. Additionally, Clubhouse uses the
      post-production equipment and other post-production facilities on the Company’s
      premises. Based on the foregoing, the Company has determined that although
      it
      does not exercise control by a majority of the voting rights in Clubhouse,
      it
      has more than a significant influence on Clubhouse and accordingly the Company
      consolidates Clubhouse’s financial results with the Company’s.





The
      total
      budget for the first film to be made by Clubhouse is $1,800,000, which is to
      be
      funded equally by the Company and Majestic. As of January 31, 2006, Clubhouse
      received $891,750 in funding from Majestic toward the production of the film.
        Of this amount, $725,500 was received during the fiscal year ended
      July 31, 2005 and $166,250 was received during the six months ended January
      31,
      2006. Each party was to invest $300,000 into Clubhouse, which was recorded
      to
      minority interest. Based on EITF 88-18, because there is no implicit rate of
      return to Majestic and Majestic has contributing participation in the production
      of the film, and because there is no other factor that would require the
      classification of this payment as debt, the Company has recorded the remainder
      of the funding, totaling $591,750, against capitalized production
      costs.





On
      May 6,
      2005, the Company signed a Deal Memorandum with Laughter Heals Productions,
      Inc.
      and Newco (an entity to be formed) with respect to the financing, development
      and production of a film tentatively titled “Totally Baked.” On August 5,
      2005 the parties formed Totally Baked LLC through which the film will be
      made. Pursuant to the Deal Memorandum, Newco will provide the funds for the
      production. The total budget for the production is currently estimated to be
      $275,000. As of January 31, 2006, Newco had funded $240,000 toward the
      production. The Deal Memorandum provides that gross revenue earned from the
      project will be distributed as follows: (i) first, for the payment of
      distribution and sales fees and expenses; (ii) secondly, Newco will recoup
      the
      amount of its investment, plus 5%; (iii) thirdly, National Lampoon, Inc. will
      receive a trademark fee of 8%; and (iv) Laughter Heals Productions, Inc. will
      receive a producer fee of 8%. As of
      January 31, 2006, accrual for Newco’s investment return totaled
      $5,500. Once
      these payments have been made, 50% of any remaining revenues will be distributed
      to Newco and 50% will be distributed first to mutually approved net profit
      participants and, after making such payments, the balance will be distributed
      equally between National Lampoon, Inc. and Newco.





The
      Company has been in control of this production. The Company’s employees provide
      all support services to the production, or it obtains contract services from
      third parties. The Company has creative control over the script and provided
      the
      writers. The Company has produced the film *National
      Lampoon’s Totally Baked* in the
      same manner that it produces, and has produced, other films that bear the
      National Lampoon name. Furthermore, in accordance with EITF 99-19, “Reporting
      Revenue Gross as a Principal versus Net as an Agent”, the Company determined
      that it acts, in substance, as a principal providing services directly to the
      fulfillment of the contract. The Company, rather than Totally Baked LLC, bears
      the burden of producing the film and finding a distribution outlet for it.
      The
      Company is also responsible for providing much of the manpower and equipment
      (pre-production, production and post-production) to make the film, either
      through its employees or its vendors. The Company has discretion in choosing
      the
      vendors and the Company exercises primary creative control over the project.
      Third parties working on or providing services for this film see the Company
      as
      the producer of the film, because their contacts and agreements have been with
      and from the Company, not with or from Totally Baked LLC.




-9-





The
      Company believes that these factors require it to account for this transaction
      at gross on its financial statements, and accordingly, reports all transactions
      at gross amounts relating to the production and sale of the film *National
      Lampoon’s Totally Baked* in its
      consolidated financial statements.





The
      production financing was recorded against capitalized production costs.





**NOTE
      G - 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. Basic and diluted earnings per share are the
      same, as common equivalent shares have been excluded from the computation due
      to
      the fact they are anti-dilutive. Options and warrants to purchase 9,715,768
      and
      6,914,412 common shares during the three months ended January 31, 2006 and
      2005,
      and options and warrants to purchase 9,859,954 and 5,735,507 common shares
      during the six months ended January 31, 2006 and 2005 respectively, are not
      included in the calculation of diluted earnings per share because their
      inclusion would be anti-dilutive. 8,178,711 shares that would be issuable upon
      conversion of the convertible preferred stock are not included in the
      calculation of diluted earnings per share during the six months ended January
      31, 2006 and 2005, respectively, because their inclusion would be
      anti-dilutive.





**NOTE
      H - 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. At January
      31,
      2006, the Company had accrued $1,769,820 for Series B and C Convertible
      Preferred Stock dividends.





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 will be computed using the closing price of the last date on which trades
      were made and reported.





**NOTE
      I - STOCKHOLDER EQUITY**





During
      the six months ended January 31, 2006, 11,333 shares of the Company’s common
      stock were purchased through the exercise of stock options that resulted in
      cash
      proceeds to the Company of approximately $19,107. During the six months ended
      January 31, 2006, 20,911 shares of the Company’s common stock were purchased
      through the cashless exercise of stock options.





On
      August
      26, 2005, the Company issued 20,000 shares of restricted common stock each
      to
      George Vandeman and Stephan Latieyre. On August 31, 2005, the Company issued
      200
      shares of common stock from the 1999 Employee Stock Option Plan to Traci Adler,
      in exchange for services. The common stock issued was valued at $85,000, $85,000
      and $520, respectively, which was the closing price of the common
      stock on the dates the grants were approved by the Board of Directors.




On
      January 27, 2006 the Company granted an option to Lorenzo Doumani for the
      purchase of 25,000 shares of the Company’s common stock at an exercise price of
      $3.20.  The
      relative fair value of the options was estimated using the Black-Scholes option
      pricing model with the following assumptions: average risk-free interest of
      5.50%; dividend yield of 0%; average volatility factor of the expected market
      price of the Company’s common stock of 95.7% to 103.5%; and a term of six to 10
      years. During the three months ended January 31, 2006 the Company recognized
      an
      expense in the amount of $34,301.





On
      January 31, 2006, in accordance with the terms of their employment agreements,
      Mr. Daniel S. Laikin, the Company’s Chief Executive Officer, and Mr. Douglas S.
      Bennett, the Company’s President and Chief Financial Officer, each received an
      option to purchase 100,000 shares of the Company’s common stock at an exercise
      price of $2.98, which was the market value of the common stock on the date
      of
      grant. Accordingly no expense was recognized under the intrinsic value
      method.




-10-





On
      March
      10, 2005 the Company filed a registration statement for a public offering of
      3,200,000 shares of common stock. The registration statement was declared
      effective on August 1, 2005. The Company raised $9.6 million in gross proceeds
      in this offering. Net proceeds from the offering, after the payment of expenses
      totaling $1,288,505, were $8,311,495.





**NOTE
      J - SEGMENT INFORMATION**





The
      Company operates in five business segments: licensing and exploitation of the
      National LampoonTM trademark and related properties including the sale of
      products to consumers; advertising and promotion through field marketing, live
      events and the distribution of television programming on college campuses;
      production of television, and DVD products; the sale of travel packages to
      young
      adults; and production of motion pictures through National Lampoon Clubhouse,
      Inc. Segment operating income/(loss) excludes the amortization of intangible
      assets, interest income, and income taxes. Selling, general and administrative
      expenses not specifically attributable to any segment have been allocated
      equally among the five segments. Summarized financial information for the six
      months ended January 31, 2006 and 2005 concerning the Company’s segments is as
      follows:


Licensing
              
              Advertising
                  & Promotion
              
              Production
              
              Travel
                  Services
              
              Clubhouse
              
              TotalThree
                  Months Ended January 31, 2006Segment
                  revenue
              
              $
              300,000
              
              $
              428,000
              
              $
              92,000
              
              $
              —
              
              $
              —
              
              $
              820,000Segment
                  operating (loss)
              
              $
              (318,000
              )
              $
              (451,000
              )
              $
              (121,000
              )
              $
              (90,000
              )
              $
              (41,000
              )
              $
              (1,021,000
              )Identifiable
                  AssetsCapital
                  expenditures
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Depreciation
                  expense
              
              $
              —
              
              $
              (4,000
              )
              $
              —
              
              $
              —
              
              $
              —
              
              $
              (4,000
              )Three
                  Months Ended January 31, 2005Segment
                  revenue
              
              $
              1,054,000
              
              $
              230,000
              
              $
              47,000
              
              $
              —
              
              $
              —
              
              $
              1,331,000Segment
                  operating (loss)
              
              $
              (1,137,000
              )
              $
              (294,000
              )
              $
              (2,154,000
              )
              $
              —
              
              $
              —
              
              $
              (3,585,000
              )Identifiable
                  AssetsCapital
                  expenditures
              
              $
              —
              
              $
              1,000
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              1,000Depreciation
                  expense/Disposal fixed assets
              
              $
              (1,000
              )
              $
              (11,000
              )
              $
              —
              
              $
              —
              
              $
              —
              
              $
              (12,000
              )Six
                  Months Ended January 31, 2006Segment
                  revenue
              
              $
              495,000
              
              $
              1,021,000
              
              $
              144,000
              
              $
              2,500
              
              $
              —
              
              $
              1,662,500Segment
                  operating (loss)
              
              $
              (1,223,000
              )
              $
              (1,049,000
              )
              $
              (464,000
              )
              $
              (153,000
              )
              $
              (41,000
              )
              $
              (2,930,000
              )Identifiable
                  AssetsCapital
                  expenditures
              
              $
              —
              
              $
              5,000
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              5,000Depreciation
                  expense
              
              $
              —
              
              $
              (9,000
              )
              $
              —
              
              $
              —
              
              $
              —
              
              $
              (9,000
              )Six
                  Months Ended January 31, 2005Segment
                  revenue
              
              $
              1,172,000
              
              $
              678,000
              
              $
              148,000
              
              $
              —
              
              $
              —
              
              $
              1,998,000Segment
                  operating (loss)
              
              $
              (1,637,000
              )
              $
              (990,000
              )
              $
              (2,715,000
              )
              $
              —
              
              $
              —
              
              $
              (5,342,000
              )Identifiable
                  AssetsCapital
                  expenditures
              
              $
              —
              
              $
              1,000
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              (1,000
              )Depreciation
                  expense/Disposal fixed assets
              
              $
              (1,000
              )
              $
              (19,000
              )
              $
              —
              
              $
              —
              
              $
              —
              
              $
              (20,000
              )






-11-


A
      reconciliation of segment operating loss to net income before income taxes
      for
      the three-month periods ended January 31, 2006 and 2005 is as
      follows:




FOR
                THE THREE MONTHS ENDED
            
            FOR
                THE SIX MONTHS ENDED31-Jan-06
            
            31-Jan-05
            
            31-Jan-06
            
            31-Jan-05Total
                segment operating (loss)
            
            $
            (1,021,000
            )
            $
            (3,585,000
            )
            $
            (2,930,000
            )
            $
            (5,342,000
            )Amortization
                of intangible assets
            
            $
            (60,000
            )
            $
            (60,000
            )
            $
            (120,000
            )
            $
            (120,000
            )Interest
                expense
            
            $
            (23,000
            )
            $
            23,705
            
            $
            (25,000
            )
            $
            (50,000
            )Other
                income/expense
            
            $
            36,000
            
            $
            3,000
            
            $
            77,000
            
            $
            5,000Net
                loss before minority interest and income taxes
            
            $
            (1,068,000
            )
            $
            (3,618,000
            )
            $
            (2,999,000
            )
            $
            (5,507,000
            )





A
      reconciliation of reportable segment assets to consolidated total assets as
      of
      January 31, 2006 and 2005 is as follows:




FOR
                THE SIX MONTHS ENDED31-Jan-06
            
            31-Jan-05Total
                assets for reportable segments
            
            $
            1,473,000
            
            $
            156,000Intangible
                assets not allocated to segments
            
            $
            1,856,000
            
            $
            2,096,000Cash
                and cash equivalents
            
            $
            2,070,000
            
            $
            2,199,000Short-term
                investments
            
            $
            —
            
            $
            —Other
                unallocated amounts
            
            $
            291,000
            
            $
            840,000Total
                assets
            
            $
            5,690,000
            
            $
            5,291,000




**NOTE
      K - LITIGATION**





On
      May
      12, 2005 All Comedy Networks, Inc. filed a complaint in the Superior Court
      for
      the State of California, County of Los Angeles, against eight defendants,
      including National Lampoon Radio Networks and National Lampoon Networks. The
      complaint alleges that one of the defendants, Kent Emmons, was a founder,
      shareholder, promoter and fiduciary of All Comedy Networks, Inc. The complaint
      alleges that Mr. Emmons negotiated an agreement with National Lampoon Networks
      to use the Company’s trademark in competition with All Comedy Networks, Inc. All
      Comedy Networks, Inc. seeks actual damages in an amount to be proved at trial,
      punitive damages, and an injunction to prohibit any of the defendants from
      contacting its employees, investors and advertisers. The Company believes this
      was brought as a nuisance action against National Lampoon Radio Networks and
      National Lampoon Networks and the Company intends to vigorously defend any
      attempt by All Comedy Networks, Inc. to prosecute the action against those
      entities. As of January 31, 2006, there were no new developments regarding
      this
      claim.




-12-





**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*





We
      produce feature films. We have interests in two entities, National Lampoon
      Clubhouse, Inc., which is producing the film *Trick
      or Treat* , and
      Totally Baked, LLC, which is producing the film currently titled *Totally
      Baked* .
      Both
      motion pictures are expected to be released in the second half of the 2006
      fiscal year. We also earn revenues from providing producer/manager services
      for
      films that do not carry our brand.





During
      the six months ended January 31, 2006, revenues derived from producer and
      management fees totaled $143,583 or 8.6% of all the revenues we earned during
      the period.





*Licensing*





We
      derive
      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 films produced by National Lampoon
      Clubhouse, Inc., motion pictures that carry our brand have been produced and
      financed by third parties. Twenty-five motion pictures have been released using
      the National LampoonTM name and four additional motion pictures are planned for
      release during the 2006 fiscal year. As of January 31, 2006 one of the four
      additional motion pictures had been released and a second was released in
      February 2006.  We
      license 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.





For
      the
      six months ended January 31, 2006, revenues derived from our licensing and
      royalties (exclusive of revenues derived from our home entertainment products,
      which are discussed separately in this report in the section titled “Home
      Entertainment”) totaled $482,970, or approximately 29% of all the revenues we
      earned during the period.





*Home
      Entertainment*





We
      provide branded National LampoonTM comedic content, including television
      programming, motion pictures and live comedic events, for the home entertainment
      market. This segment of our business generates revenues primarily from royalty
      fees from the sale of DVDs and the use of our content. We also use National
      Lampoon Networks to promote the release of these products.





For
      the
      six months ended January 31, 2006, revenues derived from our home entertainment
      products totaled $7,667, or approximately 0.5% of all the revenues we earned
      during the period.




-13-





*National
      Lampoon Networks*





Our
      subsidiary, National Lampoon Networks, Inc., through its network of 618
      affiliated college and other television stations, reaches nearly 4.8 million
      college students in their dormitories and other places of residence. For those
      retailers targeting the college market, National Lampoon Networks provides
      an
      integrated marketing approach that includes advertising during the airing of
      our
      television programming, field marketing such as product sampling, live events
      hosted on college and university campuses throughout the United States, and
      Internet promotions.





Aside
      from providing an outlet for advertisers targeting the college market, National
      Lampoon Networks develops, produces and distributes comedic television
      programming to college audiences through its network. *Tooned
      Up, Greek Games, College Town* and *Master
      Debaters* are
      among
      the television programming that we developed and produced and that we are now
      distributing in the retail market.





For
      the
      six months ended January 31, 2006, revenues derived from National Lampoon
      Networks (exclusive of licensing revenues and Internet advertising revenues,
      which are discussed separately in this report in the sections titled “Licensing”
and “Internet Advertising”) totaled $949,995, or approximately 57.1 % of all the
      revenues we earned during the period.





*Internet
      Advertising*





Aside
      from providing entertainment and information about us, our website allows
      writers who are unrelated to us to submit comedic content to us. We may use
      this
      content in the development of stories, characters and animation that may be
      the
      basis for films, television programming or other products we develop or brand.
      We earn revenues from our website from banner advertising and from the sale
      of
      our branded merchandise.





In
      an
      effort to increase revenues from our Internet operations, we have developed
      and
      soft launched the National Lampoon Humor Network website, an advertiser-driven
      affiliate network of comedy websites with National Lampoon branding. The
      National Lampoon Humor Network aggregates other humor sites with ours. We
      believe this aggregation of comedy websites will increase traffic to each site
      through links from one site to the other. Our goal in increasing website traffic
      is to attract larger advertisers, thereby increasing our advertising revenues
      and those of the linked sites.





In
      order
      to expand opportunities for our young adult audience to view our television
      programming, we have also launched Toga TV, a broadband, advertiser-supported
      website that provides our college programming on demand.





For
      the
      six months ended January 31, 2006, Internet advertising revenues totaled
      $71,435, or approximately 4.3% of all the revenues we earned during the
      period.





*Travel
      Services*





We
      offer
      group travel and entertainment packages through our subsidiary, National Lampoon
      Tours, Inc. The destinations of our first two travel packages, timed to coincide
      with most college and university spring breaks, were Las Vegas and Cabo San
      Lucas, Mexico. The packages included professional entertainment, theme parties
      and other attractions for young adults. We are currently promoting our travel
      and entertainment packages for the 2005-2006 academic year. Besides the Las
      Vegas and Cabo San Lucas destinations, we are also offering a trip to the South
      Padre Island, Texas.





For
      the
      six months ended January 31, 2006, we earned $2,534 from National Lampoon Tours,
      or approximately 0.2% of all the revenues we earned during the
      period.





*Publishing*





We
      have
      been licensing our brand and content for the publication of books since
      1972 and, to date, over 28 titles, including our four most recent publications, *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* ,
      have
      been published.





For
      the
      six months ended January 31, 2006, revenues derived from our publishing
      activities totaled $4,643, or approximately 0.3% of all the revenues we earned
      during the period.




-14-





*Radio*





We
      hold a
      25% interest in NL Radio, LLC, which was formed in March 2005. NL Radio, LLC
      plans to launch 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 and we are continuing to produce
      radio programming for use by NL Radio, LLC. Beginning in the summer of 2005,
      NL
      Radio, LLC used samples of the programming, called “pilot programming,” to
      introduce the format and content to radio networks and local stations.
      Programming sold to a network may be syndicated, meaning that it will 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. Short form pilot
      programming (for example, three hour segments) is currently being aired on
      satellite and certain FM radio stations. We anticipate that by the end of
      September 2006 NL Radio, LLC will have our programming on the air 24 hours
      a day
      and seven days a week. We earn a licensing fee of 8% of gross revenues generated
      from syndication advertising sales, direct response, network subscription fees,
      satellite, sponsorship and promotion, as well as 25% of net
      revenue.





For
      the
      six months ended January 31, 2006, we earned no revenues from NL Radio,
      LLC.





*Television
      Programming*





We
      are
      developing programming for television although, to date, none of our programming
      has been acquired by any distributor or broadcaster of television programming.
      We had a “first-look” agreement with CBS Paramount International Television,
      referred to in this discussion as Paramount Television, for television
      programming. While Paramount Television exercised its right to develop and
      produce four of the treatments covered by the first-look agreement, it has
      not
      done so and its right to do so has now expired. We intend to continue to develop
      programming for television broadcast.





For
      the
      six months ended January 31, 2006, we earned no revenues from motion picture
      and
      television programming.





*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
                college
                and university affiliate stations, increasing advertising and marketing
                revenue and producing new television shows. We continually market
                to
                college and university affiliate stations to carry our programming
                and we
                intend to continue this practice for the foreseeable future. As we
                add new
                stations, we expect our advertising and marketing revenue to increase.
                However, we do not have long-term agreements with college and university
                affiliate stations, and these stations may terminate their relationships
                with us at any time.





·
            We
                intend to expand our DVD library by increasing the number of products
                we
                produce and have distributed for home entertainment. Our distributors
                pay
                us to provide the creative content for designated projects. We have
                distribution agreements with three distributors, Genius Products,
                Inc.,
                Image Entertainment and Studioworks/Ventura Distribution, although
                we are
                not providing content for any of these distributors currently. Once
                the
                project is completed, the distributor is not required to work with
                us on
                additional projects, therefore management is continually seeking
                to build
                relationships with additional
                distributors.





·
            We
                continue 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.





·
            We
                intend to attract an increased number of college students purchasing
                travel packages created by National Lampoon Tours. Our organizing
                activities are now complete, and we are fully promoting the travel
                packages we will offer during the 2005-2006 spring break. We do this
                by
                advertising on our website, hosting a self-service travel website
                and
                through field marketing.





·
            We
                plan to capitalize on opportunities provided by the Internet to
                merchandise our home entertainment and other products and to sell
                advertising, as we have done with the National Lampoon Humor Network
                and
                Toga TV.





·
            NL
                Radio, LLC plans to launch a 24/7 entertainment radio format under
                our
                brand. 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
      consolidated financial statements.





***Production
      Costs***





We
      capitalize all television production costs. In accordance with the guidance
      set
      forth in SOP 00-2 paragraphs 33 and 39(b) for episodic television series,
      ultimate revenue can include estimates for the secondary markets once we can
      demonstrate through our history or through industry norms that the number of
      episodes produced, plus those for which a firm commitment exists, can be
      licensed in the secondary market. In the 2005 fiscal year we determined, in
      accordance with the guidelines of paragraph 39(b), that we had produced enough
      episodes to allow us to license the series in a secondary market. We made this
      determination based on historical sales for similar projects, with a similar
      number of episodes produced and management estimates the ultimate revenues
      using
      this data.





We
      began
      to capitalize production costs in accordance with SOP 00-2 paragraphs 38 to
      40,
      based on the ultimate revenues we estimated using historical data that would
      be
      generated from the initial and secondary markets by each episodic television
      series for produced episodes. Using SOP 00-2, we amortize such capitalized
      production costs in accordance with the provisions included in paragraphs 34
      through 37 by the film forecast method, revising the estimates of ultimates
      each
      period as necessary to reflect the most current information available. We
      evaluate such costs for impairment in accordance with paragraph 44 if any events
      or circumstances, such as those set forth in paragraph 43, indicate that the
      fair value of the project may be less than the unamortized amounts remaining
      on
      the our books.





***Revenue
      Recognition***





Our
      revenues from National Lampoon Networks and film distribution is derived from
      broadcast licensing agreements, royalties, distribution fees, the sale of
      distribution rights and the sale of home videos. All revenue is recognized
      upon
      meeting all recognition requirements of SOP 00-2. Revenue from broadcast
      licensing agreements, together with related costs, are recognized once the
      licensing periods have commenced, the programs are delivered and collection
      is
      reasonably assured. Revenue from royalties and distribution fees is recognized
      when received. Revenue from the sale of distribution rights is recognized when
      the film or television programs are substantially complete, the investors have
      irrevocably committed to acquire distribution rights and there is reasonable
      assurance of collectibility of proceeds.




As
      we
      execute our business strategy, we expect that revenue will increase primarily
      from expanded operations.





***Impairment***





We
      test
      our trademark for impairment in accordance with SFAS 142 and 144 paragraphs
      16
      to 21, by estimating the future cash flows from the trademark to test the
      recoverability of the intangible asset. The valuation of the trademark includes
      estimates of cash flows over the remaining expected life based on prior revenues
      generated from the film library using the trademark and trademark licensing
      fees.





We
      evaluate capitalized production costs for impairment in accordance with
      paragraph 44 of SOP 00-2 if any events or circumstances, such as those set
      forth
      in paragraph 43 of SOP 00-2 indicate that the fair value of the project may
      be
      less than the unamortized amounts remaining on our books.





**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.




-16-




**Results
      of Operations**





We
      operate in five business segments, namely, licensing and exploitation of the
      National LampoonTM trademark and related properties including the sale of
      products to consumers; advertising and promotion through field marketing, live
      events and the distribution of television programming on college campuses;
      production television, and DVD products; the sale of travel packages to young
      adults; and production of motion pictures through National Lampoon Clubhouse,
      Inc..





Segment
      operating income/(loss) excludes the amortization of intangible assets, interest
      income, and income taxes. Selling, general and administrative expenses not
      specifically attributable to any segment have been allocated equally among
      the
      five segments.


Licensing
            
            Advertising
                & Promotion
            
            Production
            
            Travel
                Services
            
            Clubhouse
            
            TotalThree
                Months Ended January 31, 2006Segment
                revenue
            
            $
            300,000
            
            $
            428,000
            
            $
            92,000
            
            $
            —
            
            $
            —
            
            $
            820,000Segment
                operating (loss)
            
            $
            (318,000
            )
            $
            (451,000
            )
            $
            (121,000
            )
            $
            (90,000
            )
            $
            (41,000
            )
            $
            (1,021,000
            )Three
                Months Ended January 31, 2005Segment
                revenue
            
            $
            1,054,000
            
            $
            230,000
            
            $
            47,000
            
            $
            —
            
            $
            —
            
            $
            1,331,000Segment
                operating (loss)
            
            $
            (1,137,000
            )
            $
            (294,000
            )
            $
            (2,154,000
            )
            $
            —
            
            $
            —
            
            $
            (3,585,000
            )Six
                Months Ended January 31, 2006Segment
                revenue
            
            $
            495,000
            
            $
            1,021,000
            
            $
            144,000
            
            $
            2,500
            
            $
            —
            
            $
            1,662,500Segment
                operating (loss)
            
            $
            (1,223,000
            )
            $
            (1,049,000
            )
            $
            (464,000
            )
            $
            (153,000
            )
            $
            (41,000
            )
            $
            (2,930,000
            )Six
                Months Ended January 31, 2005Segment
                revenue
            
            $
            1,172,000
            
            $
            678,000
            
            $
            148,000
            
            $
            —
            
            $
            —
            
            $
            1,998,000Segment
                operating (loss)
            
            $
            (1,637,000
            )
            $
            (990,000
            )
            $
            (2,715,000
            )
            $
            —
            
            $
            —
            
            $
            (5,342,000
            )


**Three
      and Six Months Ended January 31, 2006 as compared to the Three and Six Months
      Ended January 31, 2005**





**Licensing
      Revenues**





Licensing
      revenues for the three and six months ended January 31, 2006 were approximately
      $300,000 and $495,000, respectively, compared to $1,054,000 and $1,172,000
      for
      the three and six months ended January 31, 2005, representing a decrease of
      73%
      and 58%. This decrease was primarily attributable to a decrease in licensing
      of
      television episodes for DVD release. Although our agreements with certain
      distributors, such as Genius Products, Inc. and Image Entertainment, to release
      television episodes are on-going, none of these distributors purchased any
      new
      television shows for release to DVD during the six months ended January 31,
      2006. In comparison, during the six months ended January 31, 2005, television
      licensing fees included $393,000 from Genius Products, Inc., $68,000 from Image
      Entertainment and $30,000 from Fox Sports. Also contributing to the decline
      in
      licensing revenues was the decrease in royalties earned by *National
      Lampoon’s Animal House* .
      These
      royalties decreased 43%, to $209,000, during the six months ended January 31,
      2006 as compared to $365,000 earned during the six months ended January 31,
      2005. The higher revenues earned during the six months ended January 31, 2005
      were attributable to the initial release of the film on DVD.





Trademark
      licensing revenues for use of the National LampoonTM brand and royalties
      decreased during the three and six months ended January 31, 2006 to $80,000
      and
      $282,000, respectively as compared to trademark licensing revenues of $88,000
      and $386,000 for the three and six months ended January 31, 2005. Trademark
      licensing revenues were higher for the six months ended January 31, 2005 because
      we received an advance payment of $100,000 from Buena Vista Internet Group
      for
      wireless distribution of our content.





Costs
      related to licensing revenues increased to $92,000 during the three months
      ended
      January 31, 2006, from $17,000 during the three months ended January 31, 2005,
      representing an increase of approximately 541% and increased to approximately
      $85,000 during the six months ended January 31, 2006 from approximately $21,000
      during the six-months ended January 31, 2005, representing an increase of 305%.
      The increase is due primarily to the payment of a royalty of approximately
      $39,000 incurred on revenues earned by *National
      Lampoon’s Strip Poker* as
      well
      as to an increase in the percentage used to calculate commissions on sales
      revenue generated by our sales staff. Costs related to licensing revenue for
      the
      three and six months ended January 31, 2005, previously reported as $85,000
      and
      $172,000, have been decreased to $17,000 and $21,000, respectively, to include
      only commission and royalty payments. $68,000 and $151,000 in website
      development and live event fees previously allocated to costs related to
      licensing revenues are now allocated to costs related to advertising and
      promotion revenues for the three and six months ended January 31, 2005. These
      changes were made in order to conform our reporting of costs related to
      advertising and promotion revenues for the three and six months ended January
      31, 2005 to our manner of reporting costs related to advertising and promotion
      revenues for the three and six months ended January 31, 2006.




-17-





**Advertising
      and Promotion Revenues**





During
      the three and six months ended January 31, 2006, National Lampoon Network’s
      combined advertising and promotion revenues, which includes Internet advertising
      revenues, increased to approximately $428,000 and $1,021,000, respectively,
      from
      approximately $230,000 and $678,000 earned during the three and six months
      ended
      January 31, 2005, representing an increase of 86% and 51%, respectively.
      National Lampoon Network’s advertising revenues totaled approximately $132,000
      and $256,000 during the three and six months ended January 31, 2006 compared
      to
      $113,000 and $308,000 in advertising revenues earned during the three and six
      months ended January 31, 2005. Promotion and sponsorship revenues totaled
      approximately $296,000 and $765,000 during the three and six months ended
      January 31, 2006 as compared to promotion and sponsorship revenues of
      approximately $117,000 and $370,000 earned during the three and six months
      ended
      January 31, 2005. The decrease in advertising revenues and the increase in
      promotion revenues for the six months ended January 31, 2006 resulted primarily
      from our decision to redirect the efforts of our sales personnel from selling
      advertising to generating promotion revenues, which totaled approximately
      $255,000, related to the Dis-Orientation Tour, a nationwide campus event that
      took place during the first quarter of the 2006 fiscal year. We also earned
      approximately $290,000 and $321,000 during the three and six months ended
      January 31, 2006 for providing media buying services and other types of
      promotional services for films. We anticipate that advertising revenues will
      increase during the third quarter of the 2006 fiscal year as a result of the
      launch of the National Lampoon Humor Network.





We
      incur
      costs related to advertising revenues based on amortization of capitalized
      television production costs as well as website development fees related to
      Internet advertising revenues. 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. Amortization of capitalized production
      costs was $57,000 and $152,000 during the three and six months ended January
      31,
      2006, as compared to $115,000 and $185,000 during the three and six months
      ended
      January 31, 2005. Costs related to Internet advertising and promotion revenues
      for the three and six months ended January 31, 2006 were $486,000 and
      $1,147,000, respectively, as compared to $205,000 and $515,000 during the three
      and six months ending January 31, 2005. Costs related to advertising and
      promotion revenue during the three and six months ended January 31, 2005 were
      previously reported as $137,000 and $306,000, respectively. The costs for these
      periods were increased by $68,000 for the three months ended January 31, 2005
      and $151,000 for the six months ended January 31, 2005 as a result of the
      reclassification of website development and live event fees from costs related
      to licensing revenues. For the six months ended January 31, 2005 we also
      reclassified $69,000 in costs previously allocated to costs related to
      production revenues to costs related to advertising and promotion revenues.
      These adjustments were offset by a reclassification of approximately $11,000
      in
      website consulting fees for the six months ended January 31, 2005, from costs
      related to advertising and promotion revenues to selling, general and
      administrative expense. The website consulting fees were incurred for the
      purpose of generating Internet advertising revenues. These changes were made
      in
      order to conform our reporting of costs related to advertising and promotion
      revenues for the three and six months ended January 31, 2005 to our manner
      of
      reporting costs related to advertising and promotion revenues for the three
      and
      six months ended January 31, 2006.





Costs
      related to advertising and promotion revenue increased to $192,000 and $243,000
      during the three and six months ended January 31, 2006 as compared to $95,000
      and $190,000 for the three and six months ended January 31, 2005. The increase
      in costs related to advertising and promotion revenue during the three and
      six
      months ended January 31, 2006 is primarily due to an increase in video and
      DVD
      reproduction costs and leased carriage cable fees. During the three and six
      month periods ended January 31, 2006, we also incurred $71,000 and $419,000
      in
      costs for the “Dis-Orientation Tour”, an event that took place at 24 colleges
      and universities around the country, as compared to no such costs for the three
      and six months ended January 31, 2005, and marketing and promotion expense
      of
      $165,000 and $288,000 for the promotion of films as compared to $97,000 and
      $165,000 in such costs incurred during the three and six months ended January
      31, 2005. We also spent $38,000 in website development fees for the National
      Lampoon Humor Network during the six months ended January 31, 2006. The increase
      in amortization of capitalized production costs during the six months ended
      January 31, 2006 resulted in a change in accounting for amortization of
      television production costs based on ultimate revenues earned during the fiscal
      year ended July 31, 2005.





**Production
      Revenues**





For
      the
      three and six months ended January 31, 2006 production revenues were
      approximately $92,000 and $144,000, respectively, as compared to $47,000 and
      $148,000 for the three and six months ended January 31, 2005. During the three
      months ended January 31, 2006, aside from production revenues earned for
      branding films produced by independent studios, we earned revenues from an
      agreement with Half Shell Entertainment Films, LLC, pursuant to which we will
      provide access to properties in our library for possible development by Half
      Shell, and we provided management services for an independent film that did
      not
      carry our brand.




-18-





**Travel
      Services Revenues**





During
      the six months ended January 31, 2006, National Lampoon Tours recognized
      revenues of $2,500. National Lampoon Tours provides tour packages to young
      adults during the academic year spring break, therefore, we expect to recognize
      revenue from this segment of our business in the third quarter.





Direct
      costs related to National Lampoon Tours’ revenues were approximately $65,000 and
      $100,000 during the three and six months ended January 31, 2006 as compared
      to
      $0 costs during the three and six months ended January 31, 2005. These costs
      included advertising, web development and start-up costs for the 2006 spring
      break travel season.





**Other
      Costs and Expenses**





Amortization
      of intangible assets, which consists of the costs of our acquisition of the
      “National LampoonTM” trademark, was $60,000 and $120,000 during each of the three
      and six months ended January 31, 2006 and January 31, 2005.





Selling,
      general and administrative costs decreased to $1,176,000 during the three months
      ended January 31, 2006 from $1,469,000 during the three months ended January
      31,
      2005. Selling, general and administrative expense for the three months ended
      January 31, 2005 was previously reported as $1,445,000 and has been adjusted
      due
      to the reclassification of $24,000 from costs related to promotion and
      advertising revenues. The decrease of approximately $293,000 or 20% resulted
      primarily from a decrease in automobile expense due to the payment of a lease
      in
      conjunction with the separation from service of James P. Jimirro, our former
      President and Chief Executive Officer, a decrease in professional fees, a
      decrease in the cost of business insurance, a decrease in officers’ salaries,
      again as a result of the separation from service of James P. Jimirro, and the
      reversal of certain bonus accruals for our Chief Executive Officer and
      President. The bonus accruals were based on estimated performance targets that
      were not met. These decreases were offset by costs related to listing our common
      stock on the American Stock Exchange, recruiting expenses, accounting fees,
      fees
      paid to directors, an increase in consulting fees, an increase in payroll
      expense attributable to an increase in sales and marketing staff, a reversal
      of
      an incorrectly accrued interest expense from the second quarter of 2005 and
      the
      payment of fees related to National Lampoon Clubhouse, Inc.





Selling,
      general and administrative costs increased to $2,592,000 during the six months
      ended January 31, 2006 from $2,309,000 during the six months ended January
      31,
      2005. Selling, general and administrative expense for the six months ended
      January 31, 2005 was previously reported as $2,297,000 and has been adjusted
      due
      to the reclassification of $11,000 from costs related to promotion and
      advertising revenues. The increase of approximately $283,000 or 13% resulted
      primarily from an increase in professional fees and fees for investor relations
      services, an increase in salary expense due to increased sales and marketing
      staff, an increase in vacation pay, an increase in marketing consulting fees,
      the payment of fees to the board of directors, an increase in health insurance
      costs and an increase in travel and entertainment expenses. Selling, general
      and
      administrative costs also increased as a result of expense increases related
      to
      the operations of National Lampoon Clubhouse, Inc., including advertising and
      marketing costs and producer and manager fees. These increases were offset
      by
      decreases in automobile expense that resulted from the separation from service
      of James P. Jimirro, a decrease in legal fees, a decrease in interest expense
      and decreases in general and office expenses.





During
      the three and six months ended January 31, 2006, expenses totaling approximately
      $36,000 and $105,000 were incurred from grants of stock, options and warrants
      to
      advisors and consultants as compared to expenses totaling $155,000 and $402,000
      attributable to grants of stock, options and warrants that were incurred during
      the three and six months ended January 31, 2005. The decrease is primarily
      due
      to a change in payment terms, from payment with stock to payment with cash,
      to a
      provider of legal services.





Interest
      income of $35,000 and $69,000 was earned during the three and six months ended
      January 31, 2006 compared to interest income of $3,000 and $5,000 earned during
      the three and six months ended January 31, 2005. The increase in interest income
      is due to the increased cash as a result of the public offering completed on
      August 8, 2005. Other income/(expense) of $1,000 and $8,000 during the three
      and
      six months ended January 31, 2006 resulted from the write off of incorrectly
      accrued expenses. Other income/(expense) of $(172,822) reported during the
      three
      and six months ended January 31, 2005 resulted from the forgiveness of a note
      receivable that was made in conjunction with the separation of service of James
      P. Jimirro. Due to payment in full of the loan from N. Williams Family
      Investments, L.P., the remaining balance of $313,000 of capitalized debt
      issuance costs was amortized during the six months ended January 31, 2006.





For
      the
      three and six months ended January 31, 2006, we had a net loss of $1,047,899
      and
      $2,926,393, respectively, compared to a net loss of $3,621,322 and $5,516,056
      for the three and six months ended January 31, 2005.




-19-





**Liquidity
      and Capital Resources**





Our
      principal source of working capital during the six months ended January 31,
      2006
      was proceeds from the public offering of our common stock, which we completed
      on
      August 8, 2005. We raised $9.6 million in gross proceeds from this offering
      of
      our securities. As of March 6, 2006 we had cash on hand of approximately
      $1,006,000 and receivables totaling $324,000. A significant portion of the
      proceeds of the offering were used to fund events, promotions and productions
      which are currently on-going and from which, upon their completion, we will
      earn
      revenues. Based on internal projections, management believes that cash on hand
      plus estimated revenues from these events, promotions and productions as well
      as
      other projects that are currently planned, combined with an estimated reduction
      in expenses that typically occurs during the summer as a result of the end
      of
      the school year (which impacts the operations of National Lampoon Network)
      will
      provide us with adequate cash to fund our ongoing operations and capital
      requirements for at least 12 months.





For
      the
      six months ended January 31, 2006, our net cash flow used in operating
      activities was $ 3,492,577 compared
      to $4,153,193 of net cash flow used in operating activities during the six
      months ended January 31, 2005. The decrease is primarily attributable to an
      decrease in severance and salary costs. We had cash and cash equivalents of
      $1,907,999 at January 31, 2006 compared to cash and cash equivalents of
      $1,762,709 at January 31, 2005. The increase in cash is primarily due to the
      public offering of our common stock, which resulted in an infusion of
      approximately $8 million in cash offset by cash outflows to repay loans and
      for
      production costs and costs related to revenues.





Prior
      to
      the offering we completed on August 8, 2005, our principal source of working
      capital was loans received from Daniel S. Laikin, our Chief Executive Officer
      and a director, and Timothy S. Durham, a director. The aggregate amount of
      the
      loans owed to Mr. Laikin and Mr. Durham totaled $4.6 million in December 2004.
      These loans were paid with Series C Convertible Preferred units on December
      9,
      2004.





During
      the year ended July 31, 2005, we received $3.6 million in cash proceeds from
      the
      offering of units composed of our Series C Convertible Preferred Stock and
      warrants to purchase our common stock and we issued additional units of these
      securities to pay the loans discussed above and expenses owed to Mr.
      Laikin.





On
      January 28, 2005 we received a loan in the amount of $2.7 million from N.
      Williams Family Investments, L.P. The proceeds of this loan were primarily
      used
      to pay certain benefits to James P. Jimirro, our former Chief Executive Officer
      and President, upon his separation from service. The loan accrued interest
      at
      the rate of 7% and was due to be repaid on the earlier of January 28, 2006
      or
      the date we closed an offering in which the gross cash proceeds to us equal
      or
      exceed $2,700,000. The loan was secured by a lien against all of our assets.
      On
      August 31, 2005 the loan and all accrued interest was paid in full.





On
      May
      17, 2003, two notes payable totaling approximately $442,000 at April 30, 2002
      were due to be paid in full. The notes represented money owed to legal firms
      relating to work done in connection with the Reorganization Transaction. We
      reached a settlement with one noteholder in December 2004 and paid that note,
      as
      it was re-negotiated, in full. Timothy S. Durham, a director, paid the amount
      due under the note to the second noteholder in full and the liability is now
      owed to him. As of January 31, 2006, approximately
      $115,000 in principal and $37,082 in interest remained unpaid. The obligation
      to
      Mr. Durham is payable on demand. To date, no demand has been made. We plan
      to pay this obligation with revenues earned by our operations.





**Commitments
      For Capital Expenditures**





As
      of
      January 31, 2006, our capital expenditures are projected to be $150,000 for
      the
      2006 fiscal year. These expenditures will relate to the purchase of fixed assets
      such as equipment and furniture.





**Off-Balance
      Sheet Arrangements**





The
      Company does 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 its credit rating, earnings, cash flows or stock price,
      including requirements to perform under standby agreements.





**Item
      3 - Controls and Procedures**





Management,
      including the Company’s Chief Executive Officer, President and its Chief
      Financial Officer, carried out an evaluation of the effectiveness of the design
      and operation of its disclosure controls and procedures as of the end of the
      period covered by this report. Based on that evaluation, the Chief Executive
      Officer, President and the Chief Financial Officer concluded that the Company’s
      disclosure controls and procedures are not effective to ensure that information
      required to be disclosed in its reports that it files or submits 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. The Company is seeking to remedy this weakness in its
      disclosure controls and procedures by hiring a person whose primary
      responsibility will be to oversee and manage this process.




-20-





The
      Company’s Vice President of Finance and Principal Accounting Officer separated
      from service on March 15, 2006. The loss of this individual could significantly
      affect internal controls in the future. As noted above, the Company is actively
      recruiting a qualified individual to assume these responsibilities.





**PART
      II - OTHER INFORMATION**





**Item
      1 - Legal Proceedings**





Not
      applicable.





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





On
      August
      1, 2005 our registration statement, number 333-123238, was declared effective
      by
      the Securities and Exchange Commission.





We
      paid
      the following expenses in connection with the issuance and distribution of
      the
      common stock:


Payee
            
            Amount
                  PaidUnderwriting
                Discount
            
            $
            672,000Underwriter’s
                Non-Accountable Expense
            
            $
            338,000Fees
                paid to Underwriter’s Counsel
            
            $
            12,938Postage
                and Delivery
            
            $
            23,000Fees
                paid to Company’s Counsel
            
            $
            150,011Fees
                paid to Auditor
            
            $
            68,446Fees
                paid to Transfer Agent
            
            $
            22,910State
                and SEC Fees
            
            $
            1,200TOTAL
                EXPENSES
            
            $
            1,288,505





The
      net
      proceeds of the offering after deducting the total expenses described above
      totaled $8,311,495. The following table shows the manner in which the net
      proceeds from the offering were used through January 31, 2006:





Payee
            
            Amount
                PaidRepayment
                of Loan to N. Williams Family Partnership
            
            $
            2,811,847Film
                Production Funding
            
            $
            878,890Fees
                paid to Company’s Counsel
            
            $
            315,894American
                Stock Exchange
            
            $
            35,000National
                Lampoon television programming
            
            $
            974,448Sales
                and Marketing
            
            
            325,289Printer
                fees
            
            $
            81,516TOTAL
                PAYMENTS
            
            $
            5,422,885





On
      January 27, 2006 the Company issued a warrant to Lorenzo Doumani for the
      purchase of 25,000 shares of the Company’s common stock at an exercise price of
      $3.20. The warrant will expire on January 27, 2016. The warrant was issued
      in
      exchange for services. The Company relied on section 4(2) of the Securities
      Act
      of 1933 to issue the securities inasmuch as the warrant was issued without
      any
      form of general solicitation or general advertising and the acquirer was an
      accredited investor.




-21-





**Item
      3 - Defaults Upon Senior Securities**





Not
      applicable.





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





We
      held
      an annual meeting of our stockholders on January 18, 2006. The purpose of the
      meeting was to elect the following seven directors:





James
      P.
      Jimirro


Daniel
      S.
      Laikin


Timothy
      S. Durham


Paul
      Skjodt


Joshua
      Finkenberg


Richard
      Irvine


Ron
      Berger





Aside
      from electing directors, the stockholders were asked to approve the
      following:





·
            the
                ratification of Stonefield Josephson, Inc. as our auditors for the
                fiscal
                year ending July 31, 2006;





·
            the
                approval of an increase in the number of shares of common stock included
                in the J2 Communications Amended and Restated 1999 Stock Option,
                Deferred
                Stock and Restricted Stock Plan;
                and





·
            the
                approval of an increase in the number of shares of common stock included
                in the National Lampoon, Inc. 2006 Consultants Stock
                Plan.





The
      votes
      cast for, against or withheld as to each director and each other matter is
      as
      follows:





Election
      of Directors:





Name
                of Director
            
            Votes
              cast
                “For”
            
            Votes
                cast “Against”
            
            Votes
                “Withheld”James
                P. Jimirro
            
            
            9,973,928
            
            
            511,302
            
            
            923,217Daniel
                S. Laikin
            
            
            10,227,097
            
            
            —
            
            
            1,181,350Timothy
                S. Durham
            
            
            10,990,388
            
            
            —
            
            
            418,059Paul
                Skjodt
            
            
            10,970,342
            
            
            —
            
            
            438,105Joshua
                Finkenberg
            
            
            10,578,886
            
            
            263,902
            
            
            565,659Richard
                Irvine
            
            
            10,705,605
            
            
            263,902
            
            
            438,940Ron
                Berger
            
            
            10,705,651
            
            
            263,902
            
            
            438,894





Ratification
      of Stonefield Josephson, Inc.


“For”
            “Against”
            “Withheld”11,236,477
            171,258
            712





-22-


Approval
      of an increase in the number of shares of common stock included in the J2
      Communications Amended and Restated 1999 Stock Option, Deferred Stock and
      Restricted Stock Plan


“For”
            “Against”
            “Withheld”8,436,073
            1,370
            1,117


Approval
      of an increase in the number of shares of common stock included in the National
      Lampoon, Inc. 2004 Consultants Stock Plan


“For”
            “Against”
            “Withheld”6,989,979
            1,447,745
            836





Shares
      which abstained from voting, and shares held in “street name” by brokers or
      nominees who indicated on their proxies that they did not have discretionary
      authority to vote such shares (“broker non-votes”), were not counted as votes in
      favor of the above matters. For purposes of determining whether the affirmative
      vote of a majority of the shares present at the meeting and entitled to vote
      on
      a proposal had been obtained, abstentions were included in, and broker non-votes
      were excluded from, the number of shares present and entitled to vote.
      Accordingly, abstentions had the effect of a vote “against” the matter and
      broker non-votes had the effect of reducing the number of affirmative votes
      required to achieve the majority vote.





**Item
      5 - Other Information**





Not
      applicable.





**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, 20024.8
            
            Series
                C Voting Agreement entered into among the Registrant and purchasers
                of
                Series C Convertible Preferred Stock (5)10.1
            
            National
                Lampoon, Inc. 2005 Consultant Stock Plan*31.1
            
            Certification
                by Chief Executive Officer pursuant to section 302 of the Sarbanes
                Oxley
                Act of 2002*31.2
            
            Certification
                by President/Chief Financial Officer pursuant to section 302 of the
                Sarbanes Oxley Act of 2002*32
            
            Certification
                by Chief Executive Officer and President/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,
                2004.








-23-





**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.


Date: 
                March 22, 2006
            **NATIONAL
                LAMPOON, INC.**By:
            /s/
                Daniel S. LaikinDaniel
                S. Laikin, Chief Executive Officer





Date: 
                March 22, 2006
            By:
            /s/
                Douglas S. BennettDouglas
                S. Bennett, Chief Financial Officer






-24-