**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549




**FORM
      10-QSB**




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


**EXCHANGE
      ACT OF 1934**




For
      the
      quarterly period ended: January 31, 2007




OR




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


**EXCHANGE
      ACT OF 1934**




*Commission
      file number: 0-15284*




**NATIONAL
      LAMPOON, INC.**


(Exact
      name of registrant as specified in its charter)




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






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




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




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




**APPLICABLE
      ONLY TO CORPORATE ISSUERS**




State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date: The registrant had 8,099,521 shares of common
      stock, $0.0001 par value, issued and outstanding as of March 8,
      2007.




Transitional
      Small Business Disclosure Format (Check one):


Yes
      |_|
      No |X|


Page
          1


**FORWARD
      LOOKING STATEMENTS**




Some
      of
      the statements made in this quarterly report on Form 10QSB discuss future events
      and developments, including our future business strategy and our ability to
      generate revenue, income and cash flow. In some cases, you can identify
      forward-looking statements by words or phrases such as "may," "could," "should,"
      "expects," "plans," "anticipates," "believes," "estimates," "predicts,"
      "potential," "continue," "the Company's future success depends," "seeks to
      continue," or the negative of these words or phrases, or comparable words or
      phrases. These statements are only predictions that are based, in part, on
      assumptions involving judgments about future economic, competitive and market
      conditions and future business decisions, all of which are difficult or
      impossible to predict accurately. Actual events or results may differ
      materially. Some of the factors that could cause our actual results to vary
      from
      the forward-looking statements include:




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




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




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




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




·
            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, Bruce Long,




·
            unanticipated
                increases in development, production or marketing expenses related
                to our
                various business activities, and other factors which will be outside
                of
                our control.




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


Page
          2


**PART
      I - FINANCIAL INFORMATION**




**Item
      1 - Consolidated Financial Statements**





**NATIONAL
                LAMPOON, INC. AND SUBSIDIARIES**CONSOLIDATED
                BALANCE SHEET(UNAUDITED)____________As
                ofASSETS
            
            January
                31, 2007CURRENT
                ASSETSCash
            
            $
            645,123Accounts
                receivable, net of reserves of $285,067
            
            
            645,270Prepaid
                expenses and other current assets
            
            
            37,782Total
                current assets
            
            
            1,328,175NON-CURRENT
                ASSETSFixed
                assets, net of accumulated depreciation
            
            
            21,945Capitalized
                production costs, net of $3,763,734 of amortization (Note
                B)
            
            
            2,595,460Capitalized
                publishing costs, net of $217,564 of amortization
            
            
            31,900Investment
                in equity securities (Note L)
            
            
            -Intangible
                assets, net of accumulated amortization of $4,350,424
            
            
            1,659,861Total
                non-current assets
            
            
            4,309,166TOTAL
                ASSETS
            
            $
            5,637,341LIABILITIES
                AND SHAREHOLDERS' DEFICITCURRENT
                LIABILITIESAccounts
                payable
            
            $
            818,929Accrued
                expenses
            
            
            237,963Payroll
                accrual
            
            
            37,625Accrued
                royalties
            
            
            477,636Accrued
                dividends (Note H)
            
            
            2,863,970Notes
                payable (Note I ) - related party, including interest of
                $20,425
            
            
            1,596,924Deferred
                income
            
            
            500,000TOTAL
                CURRENT LIABILITIES
            
            
            6,533,047COMMITMENTS
                AND CONTINGENCIES (Note M)MINORITY
                INTERESTSHAREHOLDERS'
                DEFICITSeries
                B Convertible Preferred Stock, par value $.0001 per share, 68,406
                shares
                authorized,63,607
                shares issued and outstanding
            
            
            6Series
                C Convertible Preferred Stock, par value $.0001 per share, 250,000
                shares
                authorized,193,347
                shares issued and outstanding
            
            
            19Common
                Stock, par value $.0001 per share, 60,000,000 shares
                authorized,8,053,363
                shares issued and outstanding
            
            
            805Additional
                paid-in capital
            
            
            37,865,929Accumulated
                deficit
            
            
            (38,762,465
            )TOTAL
                SHAREHOLDERS' DEFICIT
            
            
            (895,706
            )TOTAL
                LIABILITIES AND SHAREHOLDERS' DEFICIT
            
            $
            5,637,341The
                accompanying notes are an integral part of these consolidated financial
                statements.


Page
          3




**NATIONAL
                LAMPOON, INC. AND SUBSIDIARIES**CONSOLIDATED
                STATEMENTS OF OPERATIONS____________Three
                Months
            
            Six
                MonthsEnded
                January 31,
            
            Ended
                January 31,2007
            
            2006
            
            2007
            
            2006(UNAUDITED)
            
            (UNAUDITED)
            
            (UNAUDITED)
            
            (UNAUDITED)REVENUEProduction
            
            $
            5,500
            
            $
            92,250
            
            $
            44,500
            
            $
            143,583Licensing
            
            
            311,842
            
            
            300,318
            
            
            3,421,637
            
            
            490,637Advertising
                & Promotion
            
            
            638,092
            
            
            427,429
            
            
            1,480,822
            
            
            1,021,430Tours
            
            
            -
            
            
            -
            
            
            -
            
            
            2,534Publishing
            
            
            31,954
            
            
            -
            
            
            170,202
            
            
            4,643Total
                revenue
            
            
            987,388
            
            
            819,997
            
            
            5,117,161
            
            
            1,662,827COSTS
                AND EXPENSESCosts
                related to production revenue
            
            
            -
            
            
            22,910
            
            
            3,000
            
            
            22,910Costs
                related to licensing revenue
            
            
            96,621
            
            
            (1,752
            )
            
            157,816
            
            
            84,688Costs
                related to tours revenue
            
            
            -
            
            
            65,307
            
            
            -
            
            
            100,171Costs
                related to advertising and promotion revenue
            
            
            501,532
            
            
            485,832
            
            
            1,217,000
            
            
            1,146,997Amortization
                of capitalized production costs
            
            
            405,897
            
            
            57,145
            
            
            420,269
            
            
            152,495Amortization
                of intangible assets
            
            
            60,000
            
            
            60,000
            
            
            121,140
            
            
            120,000Amortization
                debt issuance costs
            
            
            -
            
            
            -
            
            
            -
            
            
            313,000Provision
                for doubtful accounts
            
            
            122,075
            
            
            -
            
            
            156,075
            
            
            76,345Selling,
                general and administrative expenses
            
            
            1,153,734
            
            
            1,175,974
            
            
            2,324,547
            
            
            2,592,085Stock,
                warrants & options issued for services
            
            
            400,395
            
            
            36,105
            
            
            722,940
            
            
            104,840Total
                costs and expenses
            
            
            2,740,254
            
            
            1,901,521
            
            
            5,122,787
            
            
            4,713,531OPERATING
                LOSS
            
            
            (1,752,866
            )
            
            (1,081,524
            )
            
            (5,626
            )
            
            (3,050,704
            )OTHER
                INCOME (EXPENSE)Interest
                income
            
            
            4,501
            
            
            35,291
            
            
            4,501
            
            
            68,962Interest
                expense
            
            
            (14,926
            )
            
            (22,958
            )
            
            (28,838
            )
            
            (25,433
            )Equity
                in investee loss
            
            
            (800
            )
            
            -
            
            
            (800
            )
            
            -Other
                income
            
            
            21,412
            
            
            977
            
            
            21,412
            
            
            7,672Total
                other income (loss)
            
            
            10,187
            
            
            13,310
            
            
            (3,725
            )
            
            51,201NET
                LOSS BEFORE MINORITY INTEREST
            
            $
            (1,742,679
            )
            $
            (1,068,214
            )
            $
            (9,351
            )
            $
            (2,999,503
            )MINORITY
                INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARY
            
            20,315
            
            
            -
            
            
            72,564LOSS
                BEFORE INCOME TAXES
            
            $
            (1,742,679
            )
            $
            (1,047,899
            )
            $
            (9,351
            )
            $
            (2,926,939
            )Provision
                for income taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -NET
                LOSS
            
            
            (1,742,679
            )
            
            (1,047,899
            )
            
            (9,351
            )
            
            (2,926,939
            )Accrued
                dividends (Note H)
            
            
            (322,040
            )
            
            (328,150
            )
            
            (643,015
            )
            
            (656,301
            )Net
                loss attributable to common shareholders
            
            $
            (2,064,719
            )
            $
            (1,376,049
            )
            $
            (652,366
            )
            $
            (3,583,240
            )Net
                loss per share attributable to common shareholder-
                basic and diluted
            
            $
            (0.28
            )
            $
            (0.20
            )
            $
            (0.09
            )
            $
            (0.54
            )Weighted
                average number of common shares-
                basic and diluted
            
            
            7,356,420
            
            
            6,775,812
            
            
            7,253,967
            
            
            6,630,941The
                accompanying notes are an integral part of these consolidated financial
                statements.




Page
          4




**NATIONAL
                LAMPOON, INC. AND SUBSIDIARIES**CONSOLIDATED
                STATEMENTS OF CASH FLOWS(UNAUDITED)____________Six
                Months EndedJanuary
                31,2007
            
            2006CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                Loss
            
            $
            (9,351
            )
            $
            (2,926,939
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            6,328
            
            
            8,879Amortization
                of intangible assets
            
            
            121,140
            
            
            120,000Amortization
                of debt issuance costs
            
            
            -
            
            
            313,000Amortization
                of capitalized production costs
            
            
            424,519
            
            
            152,499Stock,
                options and warrants issued for services
            
            
            901,565
            
            
            104,840Provision
                for losses on accounts receivable
            
            
            149,566
            
            
            76,345Undistributed
                loss of equity investment
            
            
            800
            
            
            -Changes
                in assets and liabilities:(Increase)/decrease
                in accounts receivable
            
            
            (44,426
            )
            
            83,510Decrease/(increase)
                in prepaid expenses and other assets
            
            
            21,041
            
            
            (86,279
            )Decrease
                in publishing costs
            
            
            53,952
            
            
            -Increase
                in production costs
            
            
            (2,331,174
            )
            
            (878,890
            )(Decrease)/Increase
                in accounts payable
            
            
            (132,031
            )
            
            46,063Increase/(Decrease)
                in accrued expenses
            
            
            62,008
            
            
            (514,379
            )Increase
                in deferred revenues
            
            
            243,732
            
            
            8,774NET
                CASH USED IN OPERATING ACTIVITIES
            
            
            (532,331
            )
            
            (3,492,577
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of fixed assets
            
            
            (10,702
            )
            
            (4,988
            )Purchase
                of intangible assets
            
            
            (3,652
            )
            
            -Investment
                in equity securities
            
            
            (800
            )
            
            -NET
                CASH USED IN INVESTING ACTIVITIES
            
            
            (15,154
            )
            
            (4,988
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Film
                financing
            
            
            5,034
            
            
            444,250Minority
                interest
            
            
            -
            
            
            (72,565
            )Proceeds
                from issuance of common stock
            
            
            -
            
            
            9,600,000Payments
                related to the issuance of common stock
            
            
            -
            
            
            (1,288,505
            )Payments
                of notes payable (Note I)
            
            
            (623,933
            )
            
            (3,407,418
            )Proceeds
                from the exercise of stock options
            
            
            131,810
            
            
            19,107Proceeds
                from the exercise of warrants
            
            
            9,000
            
            
            -Proceeds
                from notes payable
            
            
            1,596,096
            
            
            -NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            1,118,007
            
            
            5,294,869NET
                INCREASE IN CASH
            
            
            570,522
            
            
            1,797,304CASH
                AT BEGINNING OF PERIOD
            
            
            74,601
            
            
            110,695CASH
                AT END OF PERIOD
            
            
            645,123
            
            
            1,907,999Supplemental
                disclosures of cash flow information:Cash
                paid for Taxes
            
            $
            6,850
            
            $
            -Interest
                paid
            
            $
            45,294
            
            $
            111,847Stock
                and options issued for services and debt issuance costs
            
            $
            901,565
            
            $
            104,840Supplemental
                schedule of noncash investing and financing activities:Conversion
                of accrued dividends on Series C Convertible Preferred Stock to
                common stock
            
            $
            220,104
            
            $
            -The
                accompanying notes are an integral part of these consolidated financial
                statements.


Page
          5





**NATIONAL
      LAMPOON, INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**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,
      2007, and the results of operations and cash flows for the three and six month
      periods ended January 31, 2007 and 2006 have been included. The results of
      operations for the six month period ended January 31, 2007 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, 2006
      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 loss of $6,859,085
      and $8,669,170 in the prior two fiscal years, accumulated deficit of
      $38,762,465, net loss of $9,351, and negative working capital of $5,204,872
      raise substantial doubt about our ability to continue as a going concern and
      our
      independent auditors have included a going concern explanatory paragraph in
      their report on our financial statements for the year ended July 31, 2006.
      We
      are currently devoting efforts to achieving profitable operations which includes
      arranging film financing. Our ability to continue as a going concern is
      dependent upon our ability to develop additional sources of capital and revenue.
      The accompanying financial statements do not include any adjustments that might
      result from the outcome of these uncertainties. As of January 31, 2007 we had
      cash on hand of approximately $645,123. In order to satisfy future capital
      requirements, management is actively pursuing and has entered into discussions
      with Red Rock Pictures Holdings, Inc. (Note L) regarding additional financing
      for film production costs.




**NOTE
      B - CAPITALIZED PRODUCTION COSTS**




The
      Company capitalized all 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 $2,040,849.




Production
      costs on theatrical films in production and development were $2,412,069 at
      January 31, 2007 and production costs for the Company's National Lampoon Network
      product were $51,017 at January 31, 2007.




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




**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. Since the termination of Mr. Jimirro's employment agreement and
      payment of all amounts due him, the NLAG Stockholders can now nominate and
      vote
      for a seventh director. The Voting Agreement will terminate on 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
      owned 202,245 shares of the Company's common stock as of January 31, 2007.
      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.


Page
          6


As
      of
      January 31, 2007, the Company owed Timothy Durham, a director, approximately
      $60,794 in principal and $1,791 in interest. The obligation to Mr. Durham is
      payable on demand. During the six months ending January 31, 2007, $441,706
      of
      principal and $45,294 interest had been paid to Mr. Durham.




As
      of
      January 31, 2007, the Company owed Dan Laikin, the Company's Chief Executive
      Officer, approximately $599,447 in principal and $16,345 in interest. The
      obligation to Mr. Laikin is payable on demand. During the six months ending
      January 31, 2007, $111,888 of principal and no interest had been paid to Mr.
      Laikin.




**NOTE
      D - IMPAIRMENT**




The
      Company tests for impairment of the National Lampoon(TM) 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 assets. The valuation
      of the trademark includes estimates of cash flows over the remaining expected
      life based on prior revenue 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 Lampoon(TM)
      as
      of January 31, 2007. During the six months ending January 31, 2007, one film
      was
      released that did not perform as expected. As such, the total amount of
      amortization of capitalized production costs in the accompanying statement
      of
      operations of $405,897 for the three months and $420,269 for the six months
      ending January 31, 2007 represents a write down of unamortized production costs
      to reflect the current estimate of its future revenue. The revised net book
      value as of January 31, 2007 of this film is $97,000 and is included in
      capitalized production costs in the accompanying balance sheet.




**NOTE
      E - STOCK OPTIONS**




As
      of
      January 31, 2007, the Company had two stock option and long-term incentive
      plans
      that permit the grant of stock options and other equity awards to certain
      employees, officers and non-employee directors, and consultants which are
      described more fully below. Prior to August 1, 2006, the Company accounted
      for
      stock-based compensation under the intrinsic value method prescribed in
      Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
      Employees" (APB Opinion No. 25), and related Interpretations, as permitted
      under
      SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). The
      intrinsic value method requires recognition of compensation expense over the
      applicable vesting period for the difference between the exercise price of
      the
      stock option and the fair value of the underlying stock on the date of grant.
      Since the exercise price of our stock options is equal to the fair value of
      the
      underlying stock at the date of grant, the Company has not historically
      recognized compensation costs associated with share based awards, with the
      exception of some restricted share units.




Effective
      August 1, 2006, the Company adopted the fair value recognition provisions of
      SFAS No. 123(R), "Share-Based Payment" (SFAS No. 123 (R)), using the
      modified-prospective transition method. Under such transition method,
      compensation cost recognized in the three months ended January 31, 2007
      includes: (a) compensation cost for all stock options granted prior to, but
      not
      yet vested as of, August 1, 2006, based on the grant-date fair value estimated
      in accordance with the original provisions of SFAS No. 123, and (b) compensation
      cost for all share-based payments granted on or after August 1, 2006, based
      on
      the grant-date fair value estimated in accordance with the provisions of SFAS
      No. 123(R). Results for prior periods have not been restated. As a result of
      adopting SFAS No. 123(R) on August 1, 2006, the Company's net income from
      operations before income taxes and net loss for the three and six months ended
      January 31, 2007 is approximately $61,304 lower and $122,608 lower, respectively
      than if the Company had continued to account for share-based compensation under
      APB Opinion No. 25. The $61,304 charge for the three months ended January 31,
      2007 and the $122,608 charge for the six months ended January 31, 2007 consisted
      of the recognition of compensation expense of $122,608 associated with stock
      options granted in previous years. The Company's basic and diluted earnings
      per
      share for the three and six months ended January 31, 2007 would have been
      $0.01and $0.02 higher, respectively than if the Company had not adopted SFAS
      No.
      123(R).







SFAS
      No.
      123(R) requires the cash flows resulting from the tax benefits from tax
      deductions in excess of the compensation cost recognized for those options
      (excess tax benefits) to be classified as financing cash flows. There were
      no
      tax benefits realized from the deduction of amounts related to share based
      payments in the three months ended January 31, 2007. Prior to the adoption
      of
      SFAS No. 123(R) and upon issuance of the restricted share units pursuant to
      the
      agreements, an unamortized compensation expense equivalent to the market value
      of the shares on the date of grant was charged to stockholders' equity as
      unearned compensation and amortized over the applicable vested periods. As
      a
      result of adopting SFAS No. 123(R) on August 1, 2006, the Company transferred
      the remaining unearned compensation balance in its stockholders' equity to
      additional paid in capital.




Page
          7


Beginning
        August 1, 2006, the Company records forfeitures in accordance with SFAS No.
        123(R) by estimating the forfeiture rates for share-based awards upfront
        and
        recording a true-up adjustment for the actual forfeitures. In the three months
        ended January 31, 2007, the calculation of forfeitures did not have a material
        effect on the Company's results of operations, financial position or cash
        flows.
  The
        fair
        value of each option award is estimated on the date of grant using a closed-form
        option valuation model (Black-Scholes) based on the assumptions noted in
        the
        following table. The expected term of options granted represents the period
        of
        time that options granted are expected to be outstanding. The following table
        represents the assumptions used in the Black-Scholes option-pricing model
        for
        options granted during the six months ended January 31, 2007:
 
 Six
                  Months EndedJanuary
                  312007
              
              2006Risk-free
                  interest rate
              
              
              5.5
              %
              
              5.5
              %Expected
                  option lives (in years)
              
              
              6
              
              
              6Expected
                  volatility for options
              
              
              68.4
              %
              
              95.7
              %Expected
                  dividend yield
              
              
              None
              
              
              None
  The
        following table illustrates the effect on net loss and loss per common share
        if
        the Company had applied the fair value recognition provisions of SFAS No.
        123 to
        stock options issued and modified under the Company's stock option plans
        for the
        three and six months ended January 31, 2006. For purposes of this pro forma
        disclosure, the value of the options is estimated using a Black-Scholes
        option-pricing model and amortized to expense over the options' vesting
        periods.
  Three
                  Months Ended
              
              Six
                  Months EndedJanuary
                  31, 2006
              
              January
                  31, 2006Net
                  loss attributable to common shareholders - as reported
              
              $
              (1,376,049
              )
              $
              (3,583,240
              )APB
                  25 expense recognized
              
              $
              -
              
              $
              -Stock
                  option compensation under-fair value method
              
              $
              (103,267
              )
              $
              (171,293
              )Net
                  loss attributable to common shareholders-pro forma
              
              $
              (1,479,316
              )
              $
              (3,754,533
              )Basic
                  and diluted loss per share-as reported
              
              $
              (0.20
              )
              $
              (0.54
              )Basic
                  and diluted loss per share-pro forma
              
              $
              (0.22
              )
              $
              (0.57
              )
  On
        January 30, 2002 our Board of Directors approved the J2 Communications Amended
        and Restated 1999 Stock Option, Deferred Stock and Restricted Stock Plan
        (the
        "Equity Incentive Plan"). The Equity Incentive Plan was approved by our
        stockholders on April 25, 2002.The Equity Incentive Plan has a term of 10
        years
        and is currently administered by our Board of Directors, which shall be referred
        to in this discussion as the "Administrator". Pursuant to the Equity Incentive
        Plan, the Administrator may grant to eligible persons, which include employees,
        officers, directors, consultants and advisors, awards of options (which may
        be
        qualified or non-qualified, depending upon whether or not the eligible person
        is
        an employee), stock appreciation rights (commonly known as "SARs") or deferred
        common stock or restricted common stock. 1,500,000 shares of our common stock
        were originally set aside for grants made under the Equity Incentive Plan.
        The
        number of shares of common stock set aside for grants was increased to 2,500,000
        in the 2004 fiscal year. In September 2004 our Board of Directors authorized
        a
        two-for-one stock split, making 5,000,000 shares of common stock available
        for
        grants.
  On
        October 27, 2005 our Board of Directors adopted the National Lampoon, Inc.
        2005
        Consultant Plan (the "2005 Plan"). We obtained shareholder approval of the
        2005
        Plan on January 18, 2006. The purpose of the 2005 Plan is to allow us to
        use our
        securities to obtain and retain the consulting services of persons upon whose
        judgment, initiative, efforts and/or services we rely. We have set aside
        250,000
        shares of our common stock for awards to be made from the 2005 Plan. Officers,
        directors and employees of our company are not eligible to receive awards
        from
        the 2005 Plan. The term of the 2005 Plan is 10 years.
  The
        2005
        Plan is administered and interpreted by a committee consisting of two or
        more
        members of the Board but if no committee is appointed, then the Board
        administers and interprets the 2005 Plan. The committee has the authority
        to
        designate the persons eligible to receive awards, grant awards, impose
        limitations, restrictions and conditions upon any award, interpret and
        administer the 2005 Plan and delegate all or a portion of its authority to
        take
        these actions to one or more of our executive officers who are also directors.
        Awards consist of grants of shares of our common stock, either as a bonus
        or as
        compensation for services rendered and options. The committee may subject
        shares
        of common stock granted as awards to vesting conditions. If vesting conditions
        are not satisfied, we may require the award recipient to forfeit the unvested
        shares. Option grants may also be subject to vesting conditions. The exercise
        price of any option may not be less than 85% of the fair market value of
        the
        common stock on the date of grant. Options may only be exercised for
        cash.
  Page
            8
 The
        Board
        has the authority, without shareholder approval, to amend the 2005 Plan to
        increase the number of shares to be reserved and issued under it.
  Under
        the
        Equity Incentive Plan and the 2005 Plan, we expensed $339,091 and $36,105
        during
        the three month period ended January 31, 2007 and 2006, respectively and
        $600,332 and $104,840 during the six month period ended January 31, 2007
        and
        2006, respectively for services rendered by non-employees utilizing the guidance
        for share based payment transactions with parties other than employees provided
        in statement 123 as originally issued and EITF No. 96-18, "Accounting for
        Equity
        Instruments That Are Issued to Other Than Employees for Acquiring, or in
        Conjunction with Selling, Goods and Services".
  **NOTE
        F - FILM FINANCING**
  The
        Company has formed entities with third parties where it does not own the
        majority of the entity, but will license the use of the name “National Lampoon”
to the entity. However, because of the importance of the National Lampoon(TM)
        name to the Company, the Company will exercise day-to-day operational control
        over the entity. This control will include locating operations on the Company's
        premises, and utilizing both the staff and property of the Company. The Company
        integrates these entities operations with its operations and makes all the
        decisions necessary to carry out their business activities. The Company provides
        all the accounting functions, 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
        establishes credit with vendors or uses its vendors to provide services to
        the
        entities. Additionally, the entities use 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, it has more than a significant influence and
        accordingly the Company consolidates these entities financial results with
        the
        Company's.
  The
        Company seeks to utilize third party financing to produce its films, thereby
        reducing the financial risk associated with motion picture production. In
        order
        to maintain and improve its brand name, the Company maintains control of
        all
        business and creative elements associated with film production and distribution.
        In contrast, when the Company licenses its name to a film, it has little
        or no
        operational or creative control. For both produced and licensed films, the
        Company may also distribute and/or sell the distribution rights throughout
        the
        world wide exhibition market.  If we determine that we have significant
        control of a film project throughout the production, finance or distribution,
        we
        account for the transactions of the film at gross on its financial statements.
        Accordingly, for those projects that it has significant control, the Company
        reports all transactions at gross amounts relating to the production and
        sale 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 loss per share is $0.28
        and
        $0.09 for the three and six months ended January 31, 2007, respectively.
        Basic
        and diluted loss per share is $0.20 and $0.54 for the three and six months
        ended
        January 31, 2006, respectively. Basic and diluted loss per share are the
        same at
        January 31, 2007 and 2006, as common equivalent shares have been excluded
        from
        the computation due to the fact that they are anti-dilutive. Options and
        warrants to purchase 9,411,822 and 9,715,768 common shares during the three
        months ended January 31, 2007 and 2006 respectively, and options and warrants
        to
        purchase 8,304,039 and 9,859,954 common shares during the six months ended
        January 31, 2007 and 2006 respectively, are not included in the calculation
        of
        diluted earnings per share because their inclusion would be anti-dilutive.
        7,450,431 and 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, 2007 and 2006,
        respectively, because their inclusion would be anti-dilutive.
  At
        January 31, 2007, there are 63,607 Series B Convertible Preferred Shares
        and
        193,347 Series C Convertible Preferred Shares. Upon conversion of the 63,607
        Series B Convertible Preferred Shares, 3,583,491common shares would be issuable.
        Upon conversion of the 193,347 Series C Convertible Preferred Shares, 3,866,940
        common shares would be issuable. This would result in a diluted weighted
        average
        number of shares of 14,806,851 for the three months ended January 31, 2007
        and
        14,704,398 for the six months ended January 31, 2007.
  Each
        Series B Convertible Preferred Share is convertible into 56.338 common shares.
        Each Series C Convertible Preferred Share is convertible into 20 common shares.
        Warrants attached to the Series B and Series C Convertible Preferred Stock
        are
        not included in the calculation of diluted earnings per share during the
        three
        and six months ended January 31, 2007 because their inclusion would be
        anti-dilutive.
  Page
            9
  **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. During the three and
        six
        month periods ended January 31, 2007, the Company accrued $318,029 and $643,031,
        respectively of Series B and Series C dividends. Upon conversion of 31,414
        shares of Series C Convertible Preferred Stock, accrued dividends were reduced
        by $220,104. At January 31, 2007, the Company had accrued $2,863,970
        representing the total value of the dividends for Series B and Series C
        dividends.
  On
        conversion of the Series B and Series C Convertible Preferred Stock, the
        company
        becomes liable to pay dividends. Conversion of dividends on the Series B
        and
        Series C Convertible Preferred Stock are computed using the closing price
        of the
        common stock, as reported by the exchange or regulated quotation service
        on
        which the Company's common stock is traded, on the trading date immediately
        preceding the date that the Company becomes liable to pay the dividend. If
        no
        trades were made on that date, then the number of shares to be issued is
        computed using the closing price of the last date on which trades were made
        and
        reported.
  **NOTE
        I - NOTES PAYABLE AND ACCRUED INTEREST**
  Timothy
        Durham, a director, was owed approximately $60,794 in principal and $1,791
        in
        interest at January 31, 2007.
  Dan
        Laikin, the Company's Chief Executive Officer, was owed approximately $599,447
        in principal and $16,345 in interest at January 31, 2007.
  Christopher
        R. Williams, a shareholder, was owed approximately $75,000 in principal and
        $2,289 in interest at January 31, 2007.
  Approximately
        $17,500 in interest was owed to an investor at January 31, 2007 for the
        financing of Totally Baked.
  Approximately
        $781,758 was owed at January 31, 2007 to Red Rock Pictures Holdings, Inc.
        for
        the funding of various films. No interest expense was recorded due to the
        short
        term nature of these loans.
  **NOTE
        J - SHAREHOLDERS’ DEFICIT**
 
 During
        the three months ended January 31, 2007, 82,100 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 $131,810.
 
 During
        the three months ended January 31, 2007, 5,055 shares of the Company’s common
        stock were issued upon exercise of warrants attached to the Company's Series
        B
        Convertible Preferred Stock that resulted in cash proceeds to the Company
        of
        approximately $9,000.
 
 In
        addition, 31,414 shares of the Company's Series C Convertible Preferred Stock
        and the related accrued dividends of $220,104 were converted to 729,646 shares
        of the Company’s common stock. Each Series C Convertible Preferred Share is
        convertible into 20 common shares. The accrued dividends were converted into
        the
        Company’s common stock based on the trading value of the Company’s common stock
        on the conversion date.
 
 Furthermore,
        6,200 shares of the Company’s common stock, with a trading value of $13,640 on
        their date of issuance, were issued to employees as a bonus.
 
 On
        August
        1, 2006, the Company entered into a monthly consulting arrangement whereby
        the
        consultant would receive 5,000 common shares per month through November 2006.
        Commencing December 1, 2006, the consultant received 3,000 common shares
        per
        month. During the three month period ended January 31, 2007, the Company
        issued
        11,000 common shares and expensed $23,600, which was equivalent to the trading
        value of the shares on their date of issuance.
 
 On
        May 1,
        2006, the Company commenced issuing 3,500 common shares to a consultant for
        each
        month of service during the engagement period. During the three month period
        ended January 31, 2007, the Company issued 7,000 common shares and expensed
        $15,470, which was equivalent to the trading value of the shares on their
        date
        of issuance.
 
 On
        November 1, 2006, the Company commenced compensating a consultant $10,000
        in
        common shares for each month of service during the engagement period. During
        the
        three month period ended January 31, 2007, the Company issued 13,964 common
        shares and expensed $30,000, which was equivalent to the trading value of
        the
        shares on their date of issuance.
 
 On
        November 9, 2006, the Company compensated two consultants $2,000 each in
        common
        shares for consulting services rendered. The Company issued 2,116 common
        shares
        in total and expensed $4,000, which was at the agreed upon price of $1.89
        per
        share.
  On
        November 29, 2006, the board of directors of the Company granted 2,000 common
        shares per month to a consultant during the term for services performed by
        the
        consultant on behalf of the Company. The board also granted the consultant
        100,000 warrants at a $2.50 exercise price vesting over three years with
        an
        expiration of 7 years from the date of grant.
 Page
              10
  **NOTE
        K - SEGMENT INFORMATION**
  Segment
        Reporting - SFAS No. 131, Disclosures About Segments of an Enterprise and
        Related Information results in the use of a management approach in identifying
        segments of an enterprise. The Company operates in five business segments:
        licensing and exploitation of the National Lampoon(TM) trademark and related
        properties including the sale of products to consumers; advertising and
        promotions on its websites, field marketing, live events and the distribution
        of
        television programming on college campuses; production of television, and
        DVD
        products; the sale of sponsorships and advertising at "Spring Break" events;
        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 prorated based on revenue
        among the five segments. Summarized financial information for the three and
        six
        months ended January 31, 2007 and January 31, 2006 concerning the Company's
        segments is as follows:
  Licensing
                  & Publishing
              
              
              Advertising
                  & Promotion
              
              
              Production
              
              
              Travel
                  Services
              
              
              Clubhouse
              
              
              TotalThree
                  Months Ended January 31, 2007Segment
                  revenue
              
              $
              343,796
              
              $
              638,092
              
              $
              5,500
              
              $
              -
              
              $
              -
              
              $
              987,388Segment
                  operating income (loss)
              
              $
              (336,457
              )
              $
              (946,675
              )
              $
              (409,734
              )
              $
              -
              
              $
              -
              
              $
              (1,692,866
              )Depreciation
                  expense
              
              $
              1,767
              
              $
              1,623
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              3,390Three
                  Months Ended January 31, 2006Segment
                  revenue
              
              $
              300,318
              
              $
              427,429
              
              $
              92,250
              
              $
              -
              
              $
              -
              
              $
              819,997Segment
                  operating (loss)
              
              $
              (317,889
              )
              $
              (451,723
              )
              $
              (121,096
              )
              $
              (90,366
              )
              $
              (40,629
              )
              $
              (1,021,703
              )Depreciation
                  expense
              
              $
              -
              
              $
              4,440
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              4,440Six
                  Months Ended January 31, 2007Segment
                  revenue
              
              $
              3,591,839
              
              $
              1,480,822
              
              $
              44,500
              
              $
              -
              
              $
              -
              
              $
              5,117,161Segment
                  operating income (loss)
              
              $
              1,649,131
              
              $
              (1,145,460
              )
              $
              (388,158
              )
              $
              -
              
              $
              -
              
              $
              115,513Depreciation
                  expense
              
              $
              3,129
              
              $
              3,199
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              6,328Six
                  Months Ended January 31, 2006Segment
                  revenue
              
              $
              495,318
              
              $
              1,021,429
              
              $
              143,250
              
              $
              2,500
              
              $
              -
              
              $
              1,662,497Segment
                  operating (loss)
              
              $
              (1,222,889
              )
              $
              (1,049,723
              )
              $
              (464,096
              )
              $
              (153,366
              )
              $
              (40,629
              )
              $
              (2,930,703
              )Depreciation
                  expense
              
              $
              -
              
              $
              8,879
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              8,879
  A
        reconciliation of segment operating income (loss) to net loss before minority
        interest and income taxes for the three and six month periods ended January
        31,
        2007 and 2006 is as follows:
 
 FOR
                  THE THREE MONTHS ENDED
              
              FOR
                  THE SIX MONTHS ENDED31-Jan-07
              
              31-Jan-06
              
              31-Jan-07
              
              31-Jan-06Total
                  segment operating income (loss)
              
              $
              (1,692,866
              )
              $
              (1,021,524
              )
              $
              115,513
              
              $
              (2,930,704
              )Amortization
                  of intangible assets
              
              $
              (60,000
              )
              $
              (60,000
              )
              $
              (121,140
              )
              $
              (120,000
              )Interest
                  Income
              
              $
              4,501
              
              $
              35,291
              
              $
              4,501
              
              $
              68,962Interest
                  expense
              
              $
              (14,926
              )
              $
              (22,958
              )
              $
              (28,838
              )
              $
              (25,433
              )Equity
                  in investee loss
              
              $
              (800
              )
              $
              -
              
              $
              (800
              )
              $
              -Other
                  income/expense
              
              $
              21,412
              
              $
              977
              
              $
              21,413
              
              $
              7,672Net
                  loss before minority interest and income taxes
              
              $
              (1,742,679
              )
              $
              (1,068,214
              )
              $
              (9,351
              )
              $
              (2,999,503
              )
  Page
            11
  A
        reconciliation of reportable segment assets to consolidated total assets
        as of
        January 31, 2007 and 2006 is as follows:
  AS
                  OF31-Jan-07
              
              31-Jan-06Total
                  assets for reportable segments
              
              $
              3,332,357
              
              $
              1,472,829Intangible
                  assets not allocated to segments
              
              $
              1,659,861
              
              $
              1,856,154Cash
              
              $
              645,123
              
              $
              1,907,999Other
                  unallocated amounts
              
              $
              -
              
              $
              453,048Total
                  assets
              
              $
              5,637,341
              
              $
              5,690,030
 
 **NOTE
        L - RELATED PARTY TRANSACTIONS**
  In
        October 2006, the Company invested $800 in Red Rock Pictures Holdings, Inc.,
        (“Red Rock”) which was then merged into a publicly traded entity classified as a
        development stage company. The investment represents approximately 11,769,236
        shares or 19.5% of the total outstanding shares of Red Rock Pictures Holdings,
        Inc. Three members of National Lampoon’s board of directors, Robert Levy,
        Tim Durham and Daniel Laikin, also own stock in Red Rock Pictures Holdings, Inc.
        The Company recorded the transaction under the equity method due to the
        determination they had significant influence, and recognized its proportionate
        share of the investee’s losses not to exceed the $800 investment. In addition,
        the Company’s investment had been determined to not be a variable interest
        entity in accordance with FIN46(R) since Red Rock Pictures Holdings, Inc.
        was
        not formed for the primary benefit of the Company, and the Company does not
        have
        an obligation to absorb the losses, nor receive any return. The fair market
        value of each share of Red Rock Pictures Holdings, Inc. is $2.53 as of January
        31, 2007. Included in the accompanying balance sheet as of January 31, 2007
        are
        notes payable to Red Rock Pictures Holdings, Inc. of $781,758. In September
        2006, Red Rock entered into a sub lease agreement with National Lampoon,
        Inc.
        for office space at $2,000 per month.
  **NOTE
        M - COMMITMENTS AND CONTINGENCIES**
  Hinchy
        v.
        Collison, Lovett, National Lampoon, etc. (San Bernardino Superior Court Case
        No.
        RCV098387). The Complaint was filed on October 5, 2006. We were served with
        the
        Complaint in November 2006. We filed an answer on December 11, 2006. The
        plaintiff claims that our negligence caused property damage to a recreational
        vehicle he owned. The matter is presently in the discovery stage and no trial
        date has been set. We strongly dispute the claims asserted and are vigorously
        defending this action.
  Cinergy
        Creative, Inc. and Leslie Allen v. National Lampoon Clubhouse, Inc., National
        Lampoon, Inc., Majestic Entertainment, Inc. and Lorenzo Doumani (Los Angeles
        Superior Court Case No. SC091496). This complaint was filed on October 20,
        2006.
        The plaintiffs allege causes of action for alter ego, breach of written
        contract, breach of oral contract, breach of the implied covenant of good
        faith
        and fair dealing, quantum merit, fraud and deceit based on promises made
        without
        intention to perform, intentional misrepresentation, slander per se, libel
        per
        se, breach of confidence, declaratory relief, conversion, untrue or misleading
        advertising, unfair competition and negligence. Specifically, the plaintiffs
        allege that we and our co-defendants induced them to set aside other projects
        so
        that they would spend their time working on projects for the benefit of us
        and
        our co-defendants. The plaintiffs also allege that they were promised a share
        of
        profits from the projects and/or a "partnership" interest in them. The
        plaintiffs allege that their damages are in excess of $2,000,000. A mandatory
        settlement conference is scheduled for March 2007 where we intend to vigorously
        defend this action as we believe that it is without merit.
   The
        Screen Actor’s Guild (“SAG”) has filed claims against National Lampoon
        Clubhouse, Inc. ("Clubhouse") for unpaid wages and pension, health and welfare
        benefits incurred for the filming of “Monster House” aka “Trick or Treat”. 
SAG alleges that certain actors were not paid in full and are owed more
        compensation, expenses and benefits under the SAG agreement.  Clubhouse
        disputes these claims and intends to vigorously defend this
        action.
  Page
            12
  **NOTE
        N - SUBSEQUENT EVENTS**
  On
        February 28, 2007, the board of directors of the Company granted 360,000
        stock
        options at a $2.00 exercise price vesting over three years with an expiration
        of
        7 years from the date of grant to various individuals that had rendered services
        to the Company.
  Page
            13
  **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 Lampoon(TM) 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 production related two entities,
        National Lampoon Clubhouse, Inc., which produced the film “Monster Night” aka
“Trick or Treat”, and Totally Baked, LLC, which is producing the film currently
        titled “Totally Baked”. “Monster Night” was released in the fall of 2006 and
“Totally Baked” is expected to be released in April 2007. The Company is also
        currently in production on a feature film currently titled “Bag Boy” which was
        financed by National Lampoon and Red Rock Picture Holdings, Inc. and is expected
        to be released during the second half of 2007. We are in preproduction for
        the
        film “Ratko, The Dictator’s Son” and are expected to commence production in May
        2007. We also earn revenues from providing producer/manager services for
        films
        that do not carry our brand.
  We
        also
        own 19% of Red Rock Picture Holdings, Inc. (sometimes referred to in this
        report
        as “Red Rock”), a development stage company formed in August 2006. Red Rock was
        formed for the purpose of providing financing and consulting services to
        the
        production and exploitation of motion pictures. It is our intention to enter
        into a non-exclusive agreement whereby Red Rock will provide financing for
        National Lampoon motion picture productions.
  During
        the three and six months ended January 31, 2007, respectively revenues derived
        from producer and management fees totaled approximately $6,000 and $45,000
        or
        less than 1% of all the revenues we earned during the respective
        periods.
  *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 one film
        in
        production as of January 31, 2007 and a film produced by National Lampoon
        Clubhouse, Inc., motion pictures that carry our brand have been produced
        and
        financed by third parties. We license the National Lampoon(TM) brand, as
        well as
        content from our library, for use in a wide variety of products including
        movies, television programming, live events, radio broadcasts, recordings,
        electronic games, and other consumer products. We anticipate granting fewer
        new
        licenses as we begin increasing the number of our own productions in the
        future.
  For
        the
        three and six months ended January 31, 2007, revenues derived from our licensing
        and royalties (exclusive of revenues derived from our publishing activities)
        totaled approximately $312,000 and $3,422,000 or approximately 32% and 67%
        of
        the revenues we earned during the period. A significant portion of this revenue
        was realized from a settlement relating to royalties earned during periods
        prior
        to September 30, 2004 for a National Lampoon licensed film.
  *National
        Lampoon Networks*
  National
        Lampoon Networks, Inc. (sometimes referred to in this report as "NLN") includes
        the National Lampoon Network, which is made up of four internet destination
        sites with the names National Lampoon.com, TOGA TV, the National Lampoon
        Humor
        Network and Knucklehead video. We sell advertising space on these sites in
        the
        form of video streamed commercials along with banner advertisements. We believe
        that we provide an appealing platform to those advertisers who want their
        commercial messages to reach the college age market. For those businesses
        targeting the college market, NLN provides an integrated marketing platform
        that
        includes internet advertisers, on-air advertising, and field
        marketing.
  We
        recently entered into a content distribution agreement with AOL whereby we
        launched the National Lampoon Video Channel on the AOL video service. We
        sell
        advertising space, including video streaming, on AOL's service.
  Page
            14
  NLN
        also
        has more than 200 affiliated college and other television stations, reaching
        nearly 2 million college students in their dormitories and other places of
        residence.
  Aside
        from providing an outlet for advertisers targeting the college market, NLN
        develops, produces and distributes comedic television programming to college
        audiences through its network. AV Squad, Greek Games, College Town and Master
        Debaters are among some of the television and internet programming that we
        developed and produced and are now distributing in the retail
        market.
  For
        the
        three and six month period ended January 31, 2007, revenues derived from
        National Lampoon Networks, exclusive of licensing revenues, totaled
        approximately $638,000 and $1,481,000 or approximately 65% and 29% of all
        the
        revenues we earned during the respective periods.
  *Travel
        Services*
  During
        the academic year we may market, advertise and promote products for corporate
        customers at major spring break locations utilizing our market expertise
        in the
        college and young adult market.
  Since
        spring break activities begin in the third quarter of our 2006 fiscal year,
        no
        revenue was earned during this three or six month period ending January 31,
        2007.
  *Publishing*
  In
        October 2002, we entered into an agreement with Rugged Land LLC to publish
        six
        National Lampoon books over a three-year period based on new and established
        National Lampoon comedic content. We have released four books under this
        agreement, including 1964 High School Reunion Year Book, National Lampoon's
        Book
        of Love, National Lampoon's Big Book of True Facts and National Lampoon's
        Encyclopedia of Humor.
  During
        the 2006 fiscal year we began publishing our books. As of January 31, 2007,
        we
        have released five books including National Lampoon's Saddam Dump[Saddam
        Hussein's Trial Blog], National Lampoon's Magazine Rack, National Lampoon's
        Jokes Jokes Jokes, National Lampoon’s Not Fit For Print and National Lampoon
        Favorite Cartoons of the 21 st Century.
        Eight other books are currently in development for future release.
  For
        the
        three and six months ending January 31, 2007, revenues derived from our
        publishing activities totaled approximately $32,000 and $170,000, respectively,
        or approximately 3% of all the revenues we earned during the respective
        periods.
  *Radio*
  In
        March
        2005, NL Radio, LLC was formed. We hold a 25% interest in this entity. NL
        Radio,
        LLC launched an entertainment radio format under our brand. We have licensed
        the
        content of our radio library, as well as certain domain names, URL's and
        websites, to NL Radio, LLC for this purpose. NL Radio, LLC used samples of
        the
        programming, called "pilot programming," to introduce the format and content
        to
        radio networks and local stations. If the programming is sold to a network
        it
        may be syndicated, meaning that it would be distributed to stations affiliated
        with the network. Purchasers of the programming may broadcast segments of
        the
        programming at their discretion, such as during "drive time" or as late night
        programming. Programming was launched on XM radio in fiscal 2007. Our radio
        library includes approximately 80 hours of National Lampoon radio programming
        consisting primarily of one to two minute short comedy routines and one hour
        comedy sketches and parodies. Revenue will be earned from ad sales, direct
        response advertising and product promotion arrangements. We will receive
        a
        licensing fee equal to 8% of the gross receipts received by NL Radio, LLC
        from
        all sources in connection with any use of our brand. No revenue has been
        realized from NL Radio, LLC.
  *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.
  Page
            15
  **Business
        Objective**
  We
        intend
        to provide National Lampoon(TM) comedic content to as many consumers as possible
        by expanding the use of our brand. The following describes the ways in which
        we
        plan to achieve this goal.
  ·
            We
                plan to continue to expand National Lampoon Networks by adding new
                internet sites and driving traffic to these sites. We will concentrate
                our
                efforts on measured marketing and sell available advertising and
                marketing
                space on our expanding network. We will continue to create, produce
                and
                acquire programming for all of our web sites as well as our college
                network and capitalize on our expertise in the college and young
                adult
                market to continue to grow revenue in these
                areas.  ·
            We
                intend to expand our film library by increasing the number of film
                products we produce internally. We currently have one film in production
                and are actively developing three new projects and have finalized
                domestic
                and international distribution arrangements. The domestic distribution
                arrangement includes a number of home video distributors and retailers
                and
                a domestic cable provider. In some cases we are guaranteed a minimum
                payment upon delivery of the film to the respective broadcaster or
                distributor.  ·
            We
                plan to capitalize on our reputation and relationships with independent
                studios and other multimedia companies to expand the use of the National
                Lampoon(TM) brand.  ·
            We
                plan to create new licensing opportunities in markets outside of
                publishing, film and television, such as games, records, radio programming
                and live events.  ·
            National
                Lampoon Networks continues to provide field marketing campaigns for
                various advertisers.  ·
            We
                started publishing and distributing books we created to continue
                capitalizing on the National Lampoon
                brand.  ·
            NL
                Radio, LLC plans to launch an entertainment radio format using our
                brand.
                We own a 25% interest in NL Radio,
                LLC.  Page
            16
  **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 books.
  *Revenue
        Recognition*
  Our
        revenue 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. Revenue is recognized in
        accordance with the 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 internet advertising sales is recognized once the flight
        or advertisement campaign is completed based on the terms of the contract.
        We
        have not engaged in any barter transactions. 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 collecting the
        proceeds.
  *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.
  Page
            17
  **Results
        of Operations**
  We
        operate in five business segments, namely,
  ·
            licensing
                and exploitation of the National Lampoon(TM) trademark and related
                properties including the sale of products to
                consumers;  ·
            advertising
                and promotion on our internet websites, field marketing, live events
                and
                the distribution of television programming on college
                campuses;  ·
            production
                television and DVD products;  ·
            sale
                of corporate sponsorships at spring break events;
                and  ·
            production
                of motion pictures.  Segment
        operating loss excludes the amortization of intangible assets, interest income,
        minority interest and income taxes. Selling, general and administrative expenses
        not specifically attributable to any segment have been prorated among the
        five
        segments.
  Licensing
                  & Publishing
              
              
              Advertising
                  & Promotion
              
              
              Production
              
              
              Travel
                  Services
              
              
              Clubhouse
              
              
              TotalThree
                  Months Ended January 31, 2007Segment
                  revenue
              
              $
              343,796
              
              $
              638,092
              
              $
              5,500
              
              $
              -
              
              $
              -
              
              $
              987,388Segment
                  operating loss
              
              $
              (336,457
              )
              $
              (946,675
              )
              $
              (409,734
              )
              $
              -
              
              $
              -
              
              $
              (1,692,866
              )Three
                  Months Ended January 31, 2006Segment
                  revenue
              
              $
              300,318
              
              $
              427,429
              
              $
              92,250
              
              $
              -
              
              $
              -
              
              $
              819,997Segment
                  operating loss
              
              $
              (317,889
              )
              $
              (451,723
              )
              $
              (121,096
              )
              $
              (90,366
              )
              $
              (40,629
              )
              $
              (1,021,703
              )
 
 
 **Three
        and Six Months Ended January 31, 2007 as compared to the Three and Six Months
        Ended January 31, 2006**
  **Licensing
        and Publishing Revenues**
  Licensing
        and publishing revenues for the three and six months ended January 31, 2007
        were
        approximately $344,000 and $3,592,000 compared to $300,000 and $495,000 for
        the
        three and six months ended January 31, 2006, representing an increase of
        15% and
        626%, respectively. The increase for the three month period ending January
        31,
        2007 was primarily attributable to increased royalties. The increase for
        the six
        month period was primarily attributable to a settlement of outstanding
        royalties. We also realized $5,000 and $45,000 in revenue in the three and
        six
        months ending January 31, 2007, respectively from the publication of our
        books.
        There was no comparative publishing revenue in the three and six months ending
        January 31, 2006 because the initial books were released during the fourth
        quarter of the 2006 fiscal year.
  Costs
        related to licensing revenues increased to $97,000 and $158,000 during the
        three
        and six months ending January 31, 2007 compared to ($2,000) and $85,000 for
        the
        three and six months ended January 31, 2006. This represents an increase
        of
        4,950% and 86%, respectively. The increase for the three month period ending
        January 31, 2007 is in line with the increase in licensing revenue. For the
        six
        months ending January 31, 2007, the increase is primarily due to royalties
        we
        owe to artists from the $2.9 million settlement of outstanding royalties
        due to
        us.
  **Advertising
        and Promotion Revenues**
  During
        the three and six months ended January 31, 2007, National Lampoon Network's
        combined advertising and promotion revenues were $638,000 and $1,481,000
        compared to $478,000 and $1,021,000 for the three and six months ended January
        31, 2006. This represents an increase of 49% and 45%, respectively. The increase
        in revenue for both the three and six month periods ending January 31, 2006
        was
        a result of increased advertising revenue on internet websites, partially
        offset
        by a decrease in promotion revenues.
  Costs
        related to advertising revenues include bandwidth usage fees, website
        development costs, and content conversion costs along with some amortization
        of
        capitalized television production costs. We incur costs related to promotion
        revenues based on direct costs of live events and promotion of third-party
        feature films, which are expensed as they are incurred. Cost of advertising
        and
        promotion revenue was approximately $502,000 and $1,217,000 during the three
        and
        six month period ending January 31, 2007 compared to $486,000 and $1,147,000
        for
        the three and six month period ending January 31, 2006, representing an increase
        of 3% and 6%, respectively. This increase in costs is the result of lower
        costs
        associated with advertising revenue mostly offset by costs associated with
        promotional revenue.
  Page
            18
  **Production
        Revenues**
  For
        the
        three and six months ended January 31, 2007, production revenues were
        approximately $6,000 and $45,000 as compared to $92,000 and $144,000 for
        the
        three and six months ended January 31, 2006 or a decrease of 93% and 69%,
        respectively. We traditionally do not produce product unless we have a presale,
        minimum guarantee or co-production agreement in place. This reduces our risk
        as
        productions tend to be capital intensive. However, we are planning on expanding
        our productions and we have negotiated an output arrangement with a domestic
        cable provider which guarantees us a cable distribution outlet for our new
        product along with a minimum return on each new motion picture release. The
        output arrangement provides for a pre-negotiated minimum guarantee or sales
        price for the licensing of a specific media and territory. We have also
        negotiated home video distribution with a number of domestic retailers and
        distributors and have licensed international rights in several territories
        with
        minimum guarantees. For the video distribution, there is no minimum price
        guarantee but the arrangement provides us a video distribution outlet for
        our
        new product. In addition, we are negotiating with Red Rock to provide production
        financing. As these output and financing arrangements are signed, we will
        allocate additional internal resources to this segment of our business. For
        the
        three months and six months ending January 31, 2007, production revenues
        decreased due to the allocation of internal resources directed to the production
        of a feature film.
  Amortization
        of capitalized film production costs for the three and six months ending
        January
        31, 2007 was approximately $406,000 and $420,000, respectively. This represents
        the write-down during the three months ending January 31, 2007 of a “Trick or
        Treat” aka “Monster Night”, a film produced in the prior year. The write-down
        reflects our estimate of a revised and lower ultimate revenues. These lower
        revised ultimates are based on the results realized during film’s domestic
        release during the period and unsuccessful marketing efforts to international
        territories. Amortization of capitalized television production costs was
        approximately $0 and $14,000 during the three and six months ended January
        31,
        2007, as compared to approximately $57,000 and $152,000 during the three
        and six
        months ended January 31, 2006. The net book value and revised ultimates for
        “Trick or Treat” aka “Monster Night” is approximately $100,000.
  **Travel
        Services Revenues**
  We
        earned
        no revenue from this segment of our business during the six months and quarter
        ended January 31, 2007 as sponsorship and advertising revenues for travel
        related services are typically earned during spring break, which generally
        occurs in the third quarter of our fiscal year.
  **Other
        Costs and Expenses**
  Amortization
        of intangible assets, which consists of the costs of our acquisition of the
        "National Lampoon(TM)" trademark, was approximately $60,000 and $120,000
        during
        the three and six months ended January 31, 2007 and 2006,
        respectively.
  Selling,
        general and administrative costs decreased by $22,000 and $267,000 or 2%
        and 10%
        to $1,154,000 and $2,325,000 during the three and six months ended January
        31,
        2007 from $1,176,000 and $2,592,000 for the three and six months ended January
        31, 2006. For the six month period ending January 31, 2007, the decrease
        resulted from a $313,000 decrease in the amortized of debt issuance costs
        which
        were fully amortized in the prior year, from lower rent, a result of the
        move of
        our Corporate headquarters in May 2006 to a building with lower occupancy
        costs and the closing of a New York office. For the three month period ending
        January 31, 2007, the savings realized from lower occupancy costs and headcount
        were partially offset by the higher information technology costs incurred
        as a
        result setting up our technology needs after our recent move of our corporate
        headquarters.
  The
        provision for doubtful accounts for the three and six months ending January
        31,
        2007 totaled $122,000 and $156,000, compared to no provision and $76,000
        for the
        three and six months ending January 31, 2006. The increase is primarily
        attributable to the uncollectability of advertising and promotion sales and
        for
        producer fees recognized in the prior year for “Trick or Treat” aka “Monster
        Night”.
  During
        the three and six months ended January 31, 2007, expenses totaling $400,000
        and
        $723,000 were incurred from grants of options and warrants to employees,
        advisors and consultants as compared to expenses totaling $36,000 and $105,000
        attributable to grants of options and warrants that were incurred during
        the
        three and months ended January 31, 2006. The increase is primarily due to
        the
        implementation of SFAS No. 123R and grants of options to our chief executive
        officer pursuant to his employment contract and our former president pursuant
        to
        his severance and consulting agreement.
  Interest
        income earned during the three and six months ended January 31, 2007 totaled
        $5,000 compared to interest income of $35,000 and $69,000 during the three
        and
        six months ended January 31, 2006. Interest income was realized in the prior
        period due to our increased cash position during the three and six month
        period
        ended January 31, 2006 as a result of the public offering completed on August
        8,
        2005. No similar capital infusion occurred during the period ended January
        31,
        2007.
  For
        the
        three and six month periods ended January 31, 2007, we had net loss of
        $1,743,000 and $9,000 as compared to a net loss of $1,048,000 and $2,927,000
        for
        the three and six month period ended January 31, 2006. This represents an
        increase in net loss of $695,000 or 66% for the three months ending January
        31,
        2007 and a decrease in net loss of 2,918,000 or 100% for the six months ending
        January 31, 2007. The decrease in net loss for the six month period resulted
        primarily from the significant increase in revenue associated with license
        fees
        from a settlement along with the increase in internet related advertising
        revenue. The increase in net loss for the three months ending January 31,
        2007
        was a result of increased costs for the issuance of stock, warrants and options,
        the write down of unamortized production costs and increased costs related
        licensing partially offset by an increase in advertising and promotion
        revenue.
  Page
            19
  During
        the three and six months ended January 31, 2007 and 2006, we had no provision
        for income taxes due to the significant net operating losses incurred in
        prior
        periods and related carry forward to the current period. We also accrued
        dividends for preferred shareholders of $322,000 and $643,000 during the
        three
        and six month period ended January 31, 2007 and $328,000 and $656,000 during
        the
        same period in 2006. The addition of the accrued dividend resulted in a net
        loss
        attributable to common shareholders of $2,065,000 and $652,000 or $0.28 and
        $0.09 per basic and fully diluted share for the three and six month period
        ended
        January 31, 2007, versus a net loss attributable to common shareholders of
        $1,376,000 and $3,583,000 or $0.20 and $0.54 per basic and fully diluted
        share
        for the three and six month period ended January 31, 2006.
  **Liquidity
        and Capital Resources**
  With
        the
        exception of the first quarter of the fiscal year ending July 31, 2007, we
        have
        not generated positive cash flow from operations over the past few years.
        Our
        principal sources of working capital during the six month period ended January
        31, 2007 consisted of loans from our officers and directors.
  For
        the
        six month period ended January 31, 2007, our net cash used in operating
        activities was $532,000 as compared to $3,493,000 during the period ended
        January 31, 2006. The decrease in cash flow usage from operations was primarily
        attributable to the increase in revenue partially offset by an increase in
        cash
        used for operations. Cash provided by financing activities was $1,118,000
        for
        the six month period ended January 31, 2007, as compared to $5,295,000 for
        the
        six months ended January 31, 2006. The funds for the current period were
        obtained from officers and directors and a related party for film financing
        partially offset by loan repayments for loans from officers and directors.
        The
        funds for the period ended January 31, 2006 were primarily obtained from
        a note
        offering offset by the partial payment of notes payable to officers and
        directors.
  As
        of
        January 31, 2007, we had cash on hand of approximately $645,000, which includes
        the payment of a settlement. We believe these funds along with additional
        loans
        from our Chief Executive Officer and one member of our board of directors
        will
        be adequate to fund our ongoing operations and capital requirements for the
        next
        twelve months. We have no commitment for said funds. If no funds are made
        available, then we may not be able to continue to operate as a going concern.
  Historically,
        our principal source of funds used for operations and working capital has
        been
        loans received from Daniel S. Laikin, our Chief Executive Officer, and Timothy
        Durham, a director, and a shareholder. During the six months ended January
        31,
        2007 our principal source of funds used for operations and working capital
        has
        been the payment of a settlement. The aggregate amount of the loans and accrued
        interest owed to these individuals at January 31, 2007, is approximately
        $678,000. These obligations are payable on demand; we plan to pay these
        obligations from future revenues.
  Our
        financial statements for the fiscal year ended July 31, 2006 contained an
        explanatory paragraph as to our ability to continue as a "going concern."
        This
        qualification may impact our ability to obtain future financing.
  **Commitments
        for Capital Expenditures**
  As
        of
        January 31, 2007, our capital expenditures are projected to be $100,000 for
        the
        2007 fiscal year. These expenditures will relate to the purchase of fixed
        assets
        such as equipment and furniture.
  **Off-Balance
        Sheet Arrangements**
  We
        do not
        have any off-balance sheet transactions such as guarantees, commitments,
        lease
        and debt agreements or other agreements that could trigger an adverse change
        in
        our credit rating, earnings, cash flows or stock price, including requirements
        to perform under standby agreements.
  **Item
        3 - Controls and Procedures**
  We
        carried out an evaluation, under the supervision and with the participation
        of
        our management, including our Chief Executive Officer and our Interim Chief
        Financial Officer of the effectiveness of the design and operation of our
        disclosure controls and procedures as of the end of the period covered by
        this
        report. The evaluation was undertaken in consultation with our accounting
        personnel. Based on that evaluation, the Chief Financial Officer and Chief
        Executive Officer concluded that our disclosure controls and procedures are
        effective to ensure that information required to be disclosed by us in the
        reports that we file or submit under the Securities Exchange Act of 1934
        is
        recorded, processed, summarized and reported within the time periods specified
        in the Securities and Exchange Commission's rules and forms.
  There
        were no significant changes in our internal controls or in other factors
        that
        could significantly affect internal controls subsequent to the date of their
        evaluation.
  Our
        previous interim Chief Financial Officer resigned effective December 15,
        2006.
        In January 2007, we contracted with another consultant to serve as our new
        interim Chief Financial Officer.
  Page
            20
  **PART
        II - OTHER INFORMATION**
  **Item
        1 - Legal Proceedings**
  Hinchy
        v.
        Collison, Lovett, National Lampoon, etc. (San Bernardino Superior Court Case
        No.
        RCV098387). The Complaint was filed on October 5, 2006. We were served with the
        Complaint in November 2006. We filed an answer on December 11, 2006. The
        plaintiff claims that our negligence caused property damage to a recreational
        vehicle he owned. The matter is presently in the discovery stage and no trial
        date has been set. We strongly dispute the claims asserted and are vigorously
        defending this action.
  Page
            21
  **Item
        2 - Unregistered Sales of Equity Securities and Use of
        Proceeds**
  During
        the three months ended January 31, 2007, the Company issued 34,080 common
        shares
        to consultants for services with a fair value of $73,069. The Company also
        entered into an agreement to issue 2,000 common shares per month beginning
        November 2006 to a consultant for services performed by the consultant on
        behalf
        of the Company. As of Janaury 31, 2007 no shares had been issued to this
        consultant. These issuance were exempt from federal securities registration
        due
        to the use of an exemption under Section 4(2) of the Securities Act of
        1933.
  **Item
        3 - Defaults Upon Senior Securities**
  None.
  **Item
        4 - Submission of Matters to a Vote of Security Holders**
  None.
  **Item
        5 - Other Information**
  None.
  **Item
        6 - Exhibits**
  3.1
        Certificate of Incorporation of National Lampoon, Inc. (1)
  3.2
        Bylaws of National Lampoon, Inc. adopted August 27, 2002 (1)
  3.3
        First
        Amendment of Certificate of Incorporation of National Lampoon, Inc. (2)
  4.1
        Certificate of Designations, Preferences, Rights and Limitations of Series
        C
        Convertible Preferred Stock of National Lampoon, Inc. (2)
  4.2
        NLAG
        Registration Rights Agreement dated May 17, 2002 among the Registrant and
        members of the NLAG Group and GTH Capital, Inc. (3)
  4.3
        Jimirro Registration Rights Agreement dated May 17, 2002 (3)
  4.4
        Piggyback Registration Rights Agreement dated September 3, 2002 between the
        Registrant and Constellation Venture Capital, L.P. as agent for certain
        individuals. (4)
  4.5
        Piggyback Registration Rights Agreement entered into among the Registrant
        and
        the purchasers of Series C Convertible Preferred Stock (5)
  4.6
        J2
        Communications Voting Agreement dated May 17, 2002 among members of the NLAG
        Group and James P. Jimirro (3)
  4.7
        First
        Amendment to Voting Agreement dated June 7, 2002
  4.8
        Series C Voting Agreement entered into among the Registrant and purchasers
        of
        Series C Convertible Preferred Stock (5)
  Page
            22
 
 31.1
              Certification
                  by Chief Executive Officer pursuant to section 302 of the Sarbanes
                  Oxley
                  Act of 2002*31.2
              Certification
                by
                President pursuant to section 302 of the Sarbanes Oxley Act of
                2002*31.3
              Certification
                by Interim 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, 2006.
  Page
            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.
 NATIONAL
                LAMPOON,
                INC.March
                  15, 2007
              By:
              /s/ Daniel
                S.
                LaikinDaniel
                S. Laikin, Chief Executive Officer
 March
                  15,
                  2007
              By:
              /s/ Bruce
                K.
                LongBruce
                K. Long, President March
                  15,
                  2007
              By:
              /s/ David
                M.
                KaneDavid
                  M. Kane, Interim Chief Financial Officer  Page
              24