UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-QSB⌧ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For the quarterly period ended: April 30, 2008OR□ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934Commission file number: 0-15284NATIONAL LAMPOON, INC.(Exact name of registrant as specified in its charter)




Delaware(State or other jurisdiction ofIncorporation or organization)
95-4053296(I.R.S. EmployerIdentification No.)






8228 Sunset BoulevardLos 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 (orfor such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 days. Yes ⌧ No □Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes □ No ⌧

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 had8,654,724 shares of common stock, $0.0001 par value, issued and outstanding as of June 6, 2008.Transitional Small Business Disclosure Format (Check one):  Yes □ No ⌧






FORWARD LOOKING STATEMENTS


This Quarterly Report on Form 10-QSB contains "forward-looking statements" within the meaning of the Private  Securities LitigationReform Act of 1995 as codified in Section 27A of the Securities Act of 1933 and Section 21E of  the Securities Exchange Act of 1934.Forward-looking statements discuss future events and developments, including  our future business strategy and our ability to generaterevenue, 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 successdepends," "seeks to  continue," or the negative of these words or phrases, or comparable words or phrases. These statements are onlypredictions that are based, in part, on assumptions involving judgments about future economic, competitive and market  conditions andfuture business decisions, all of which are difficult or impossible to predict accurately. Actual events or  results may differ materially. Someof the factors that could cause our actual results to vary from the forward-looking  statements include:

•
a decline in the general state of the economy, which impacts the amount of money spent by consumers for entertainment products,•
whether we will be able to raise capital or debt for film financing as we need it,•
whether the entertainment products we produce or to which we license our brand will generate significant sales,•
whether our subsidiary, National Lampoon Networks, Inc., will be able to continue its relationships with its current advertisers and continue to attract new advertisers,•
our overall ability to successfully compete in our market and our industry,•
whether we will continue to receive the services of our executive officers and directors, particularly our Chief Executive Officer, Daniel S. Laikin,•
unanticipated increases in development, production or marketing expenses related to our various business activities,


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

2




PART I - FINANCIAL INFORMATION


Item 1 - Condensed Consolidated Financial Statements

NATIONAL LAMPOON, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEET(UNAUDITED)


As ofASSETS
April 30, 2008CURRENT ASSETSCash
$   14,931Accounts receivable, net of reserves of $283,577
1,561,174Tax credit receivable
223,459Prepaid expenses and other current assets
85,397Total current assets
1,884,961Fixed assets, net of accumulated depreciation of $188,568
34,218Capitalized production costs, net of $5,570,433 of amortization
5,368,448Capitalized publishing costs, net of $493,727 of amortization
98,942Intangible assets, net of accumulated amortization of $4,655,808
1,594,684Fair value of available-for-sale securities
882,692Total non-current assets
7,978,984TOTAL ASSETS
$   9,863,945LIABILITIES AND SHAREHOLDERS' DEFICITCURRENT LIABILITIESAccounts payable
$   1,357,849Accrued expenses
299,352Notes payable secured by tax credit receivable
223,459Notes payable - related party, including interest of $117,218
1,909,160Production loans - related party, including interest of $361,113
3,867,235Deferred income
1,695,309TOTAL CURRENT LIABILITIES
9,352,364COMMITMENTS AND CONTINGENCIESAccrued dividends payable in common stock
4,261,949SHAREHOLDERS' DEFICITSeries B Convertible Preferred Stock, par value $.0001 per share, 68,406 shares authorized, 61,832 shares issued and outstanding
6Series C Convertible Preferred Stock, par value $.0001 per share, 250,000 shares authorized, 190,947 shares issued and outstanding
18Common Stock, par value $.0001 per share, 60,000,000 shares authorized, 8,607,012 shares issued and outstanding
861Additional paid-in capital
38,541,885Accumulated other comprehensive income
882,692Accumulated deficit
(43,175,830)TOTAL SHAREHOLDERS' DEFICIT
(3,750,368)TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT
$   9,863,945


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




2




NATIONAL LAMPOON, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)Three months ended

Nine months endedApril 30,

April 30,2008

2007

2008

2007REVENUESProduction

$   265,828

$   -

$   265,828

$   44,500Licensing

1,717,552

329,736

2,272,968

3,751,373Advertising & Promotion

553,019

319,389

1,159,195

1,800,211Publishing

(55,241)

164,792

(21,091)

334,994Distribution

154,772

-

159,831

-Tours

-

-

110,000

-Total revenues

2,635,930

813,917

3,946,731

5,931,078COSTS AND EXPENSESCosts related to production revenue

21,900

1,056

40,948

4,056Costs related to licensing revenue

41,243

14,360

84,394

172,176Costs related to advertising and promotion revenues
68,893

572,329

404,506

1,789,329Costs related to publishing revenues

76,080

-

124,125

-Costs related to distribution

92,311

-

106,811

-Amortization of capitalized production costs

1,208,416

42,313

1,208,937

462,582Amortization of intangible assets

61,637

60,197

184,021

181,337Selling, general and administrative expenses

938,022

1,280,785

4,058,679

4,484,348Total costs and expenses

2,508,502

1,971,040

6,212,421

7,093,828OPERATING INCOME (LOSS)

127,428

(1,157,123)

(2,265,690)

(1,162,750)OTHER INCOME (EXPENSE)Interest income

-

1,045

-

5,546Interest expense

(29,039)

(9,752)

(74,745)

(38,590)Write off of royalty payable

-

-

396,250

-Equity in investee loss

-

-

-

(800)Other income

(645)

4,515

25,639

25,927Total other income (expense)

(29,684)

(4,192)

347,144

(7,917)NET INCOME (LOSS)

97,744

(1,161,315)

(1,918,546)

(1,170,667)Preferred stock dividends

(292,356)

(289,817)

(887,898)

(932,832)Net loss attributable to common shareholders

$    (194,612)

$    1,451,132)

$   2,806,444)

$   (2,103,499)Net loss per share attributable to common shareholder - basic and diluted

$    (0.02)

$    (0.18)

$    (0.34)

$    (0.29)Weighted average number of common shares - basic and diluted

8,465,847

8,093,585

8,342,931

7,253,967The accompanying notes are an integral part of these condensed consolidated financial statements.




3






NATIONAL LAMPOON, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT(UNAUDITED)


AccumulatedPreferred



Common

Additional

OtherSeries B

Series C

Stock

Common

Stock

Paid-in

Comprehensive

AccumulatedShares

Shares

Amount

Stock

Amount

Capital

Income

Deficit

TotalBalance at August 1, 2007

63,607

190,947

$         24

8,207,189

$        821

$37,819,138

$                -

$(41,257,284)

$  (3,437,301)Stock issued for services

-

-

-

237,676

24

515,144

-

-

515,168Exercise of options for common stock

-

-

-

5,000

-

8,000

-

-

8,000Exercise of warrants for common stock

-

-

-

18,835

2

33,432

-

-

33,434Stock issued in exchange for intangible assets

-

-

-

5,750

1

11,424

-

-

11,425Conversion of Series B shares into common stock

(1,775)

-

-

99,999

10

(10)

-

-

-Conversion accrued dividends on Series B shares into common stock

-

-

-

32,563

3

58,609

-

-

58,612Fair value of options and warrants issued to consultants

-

-

-

-

-

580,993

-

-

580,993Fair value of vesting of employee stock options

-

-

-

-

-

403,053

-

-

403,053Series B dividend accrual

-

-

-

-

-

(460,016)

-

-

(460,016)Series C dividend accrual

-

-

-

-

-

(427,882)

-

-

(427,882)Increase fair value of available-for-sale securities

-

-

-

-

-

-

882,692

-

882,692Net loss for the period

-

-

-

-

-

-

-

(1,918,546)

(1,918,546)Balance at April 30, 2008

61,832

190,947

$          24

8,607,012

$          861

$  38,541,885

$        882,692

$ (43,175,830)

$   (3,750,368)


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




4






NATIONAL LAMPOON, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNINE MONTHS ENDING APRIL 30, 2008 AND 2007(UNAUDITED)


NOTE A - BUSINESS ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation.The interim condensed consolidated financial statements are unaudited, but in the opinion of management of theCompany, contain all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position at April30, 2008 and the results of operations for the three and nine months ended April 30, 2008 and 2007 and cash flows for the nine monthsended April 30, 2008 and 2007.Certain information and footnote disclosures normally included in financial statements that have been presented in accordance withgenerally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities andExchange Commission with respect to interim financial statements, although management of the Company believes that the disclosurescontained in these financial statements are adequate to make the information presented therein not misleading.  For further information,refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscalyear ended July 31, 2007, as filed with the Securities and Exchange Commission.The Company's results of operations for the three and nine months ended April 30, 2008 are not necessarily indicative of the results ofoperations to be expected for the full fiscal year ending July 31, 2008.The condensed consolidated financial statements of the Company include the accounts of National Lampoon, Inc., its wholly ownedsubsidiaries, National Lampoon Networks, Inc. and National Lampoon Tours, Inc. along with its 50% ownership in National LampoonClubhouse, Inc., and its 100% ownership in Bagboy Productions, Inc, Ratko Productions, Inc. and 301 Productions, Inc. During the 2007fiscal year, the Company disposed of its interest in Totally Baked, LLC pursuant to a settlement agreement with Laughter Heals, Inc. TheCompany has the full and exclusive control of the management and operation of the business of each subsidiary and participates in 100% ofthe revenues and losses of its subsidiaries. The Company participates in 50% of the revenues and net losses of National LampoonClubhouse, Inc. Inter-company balances and transactions have been eliminated in consolidation.Organization.The Company was formed in California in 1986 and was primarily engaged in the acquisition, production and distributionof videocassette programs for retail sale. During the 1991 fiscal year, the Company acquired all of the outstanding shares of NationalLampoon, Inc. (NLI). NLI was incorporated in 1967 and was primarily engaged in publishing National Lampoon Magazine and relatedactivities. Subsequent to the Company's acquisition of NLI, it de-emphasized its videocassette business and publishing operations andbegan to focus primarily on exploitation of the National LampoonTM trademark. The Company reincorporated in Delaware under the nameNational Lampoon, Inc. in November 2002.On May 17, 2002 a group of investors gained voting control of the Company through the acquisition of its Series B Convertible PreferredStock and warrants to purchase its common stock (the "Reorganization Transaction"). Since the Reorganization Transaction, theCompany's business has expanded to include operations other than licensing. On September 3, 2002, the Company's subsidiary, NationalLampoon Networks, Inc., acquired Burly Bear Network, Inc. to gain access to campus television stations. The division has since expandedto the Internet and now sells advertising space on a number of National Lampoon websites. A majority of our programming is developedfor both the college network and the Internet. Aside from providing programming to the college stations and the Internet, NationalLampoon Networks, Inc. provides an integrated marketing approach to retailers who wish to target the college market. The Company hasalso entered the feature film and home entertainment market, producing original motion pictures. In 2004, the Company began to offertravel services during spring break through its subsidiary, National Lampoon Tours, Inc. The Company has discontinued these services,however, National Lampoon Tours may continue to maintain a significant presence at Spring Break events so that we may offeradvertising, distribute promotional material and hold live events for our advertisers and other customers. In 2006 the Company beganpublishing its own books and has also expanded its licensing activities by licensing its name to other books, content displayed over wirelesscommunications devices and electronic games.Going Concern. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continueas a going concern. The Company's current net loss of $1,918,546 for the nine months ended April 30, 2008 along with the prior two yearsnet losses of $2,504,170 and $6,859,085 as well as negative working capital of $7,467,403 and shareholders' deficiency of $3,750,368 atApril 30, 2008, raise substantial doubt about its ability to continue as a going concern. We are currently devoting efforts to achievingprofitable operations and generating or raising additional capital. Our ability to continue as a going concern is dependent upon our ability todevelop additional sources of capital and revenue. The accompanying financial statements do not include any adjustments that might resultfrom the outcome of this uncertainty. As of June 6, 2008, we had cash on hand of approximately $67,152 and receivables totaling$1,811,257. We also had $1,036,732 in minimum guarantee and home video payments due from domestic and foreign distributorsincluding $250,000 from Comedy Partners (US), $85,000 from LCT Entertainment (Russia), $63,405 from Pueblo Film Distribution(Australia), $58,000 from Front Row (Middle East), and $580,327 from Beta Cinema (Germany) which is based on €375,410 due at anexchange rate of $1.54585 on June 6, 2008. We are currently delivering seven films for which the minimum guarantee and home videopayments are due upon notice of delivery and we expect payments to be received by the fourth quarter of fiscal 2008. Additionally we havecompleted an audit of Warner Bros. Entertainment, Inc. relating to its exploitation of the films National Lampoon's Vacation, NationalLampoon's European Vacation and National Lampoon's Christmas Vacation. We have submitted the audit reports to Warner Bros and willbegin negotiations immediately. Based on the audit reports we expect a favorable outcome from the negotiations.Our principal sources of funds used for operations and working capital have been revenues and loans received from Daniel S. Laikin, ourChief Executive Officer, and Timothy Durham, a director. The aggregate amount of the loans and accrued interest owed to Mr. Laikin andMr. Durham at April 30, 2008 is $1,891,497 as compared to $1,241,937 at July 31, 2007. These two individuals have expressed theircontinued support to provide loans to us to meet any immediate working capital requirements.Revenue Recognition.Royalty income from film contracts is derived from the sale of DVDs or from the licensing of film rights to thirdparties. A significant portion of royalty income is paid to the Company based on the timetable associated with royalty statements generatedby third party processors, and is not typically known by the Company on a timely basis. This revenue is consequently not recognized untilthe amount is either known or reasonably estimable or until receipt of the statements from the third parties. The Company contracts withvarious agencies to facilitate collection of royalty income. When the Company is entitled to royalties based on gross receipts, revenue isrecognized before deduction of agency fees, which are included as a component of cost of revenue.

5


The Company recognizes revenue from television and film productions pursuant to American Institute of Certified Public AccountantsStatement of Position 00-2, "Accounting by Producers or Distributors of Films" ("SOP 00-2"). The following conditions must be met inorder to recognize revenue under SOP 00-2: (i) persuasive evidence of a sale or licensing arrangement exists; (ii) the program is completeand has been delivered or is available for immediate and unconditional delivery; (iii) the license period of the arrangement has begun andthe customer can begin its exploitation, exhibition or sale; (iv) the arrangement fee is fixed or determinable; and (v) collection of thearrangement fee is reasonably assured. Advance payments of $1,695,309 that have been received as of April 30, 2008 from buyers orlicensees are included in the financial statements as a component of deferred revenue.Film Costs.Investment in film costs includes the capitalization of costs incurred to produce the film content including direct negativecosts, production overhead, interest and development. These costs are recognized as operating expenses on an individual film basis in theratio that the current year's gross revenues bear to management's estimate of total ultimate gross revenues from all sources to be earnedover a seven-year period. Capitalized production costs are stated at the lower of unamortized cost or estimated fair value on an individualfilm basis. Revenue forecasts, based primarily on historical sales statistics, are continually reviewed by management and revised whenwarranted by changing conditions. When estimates of total revenues and other events or changes in circumstances indicate that a film has afair value that is less than its unamortized cost, an impairment loss is recognized in the current period for the amount by which theunamortized cost exceeds the film's fair value.Use of Estimates.The preparation of condensed consolidated financial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosureof contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates. Management makes estimates that effect reserves forallowance for doubtful accounts, estimated useful life of property and equipment, accrued expenses, fair value of equity instruments,reserves for any commitments or contingencies, debt issue costs, capitalized film costs, calculation of impairment, amortization expenseand deferred income taxes.Concentrations.  The Company maintains its cash balances at financial institutions that are federally insured; however, at times suchbalances may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company's cashbalances on deposit with banks are guaranteed by the Federal Deposit Insurance Corporation up to $100,000. The Company may beexposed to risk for the amounts of funds held in bank accounts in excess of the insurance limit. In assessing the risk, the Company's policyis to maintain cash balances with high quality financial institutions. The Company had   cash balances in excess of the $100,000 guaranteeduring the nine months ended April 30, 2008.During the three months ended April 30, 2008 three customers accounted for $750,000 (28%), $485,411 (18%) and $418,911 (16%) oftotal revenue. During the three months ended April 30, 2007, three customers accounted for $169,532 (21%), $90,000 (11%) and $83,576(10%) of total revenue.During the nine months ended April 30, 2008 three customers accounted for $750,000 (19%), $617,411 (16%) and $485,411 (12%) of totalrevenue. During the nine months ended April 30, 2007, one customer accounted for 54% of total revenue.As of April 30, 2008, the Company had $557,146 (32%) and $334,610 (19%) of gross accounts receivable due from its largest customers.The Company currently does not rely on a single vendor for a majority of its productions. The Company has different vendors that can bereplaced if the need arises. A change in vendors would not cause a significant delay in the production process that would ultimately affectoperating results.Fair Value of Financial Instruments.The carrying amount of the Company's financial instruments including cash, accounts receivable,accounts payable, and accrued expenses approximate their fair value as of April 30, 2008 due to their short maturities. The carryingamounts of production loans and notes payable approximate fair value because the related effective interest rates on these instrumentsapproximate the rates currently available to the Company.Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, "Fair ValueMeasurements." This Statement defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value,establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance applies to otheraccounting pronouncements that require or permit fair value measurements. On February 12, 2008, the FASB finalized FASB StaffPosition (FSP) No. 157-2, Effective Date of FASB Statement No. 157. This Staff Position delays the effective date of SFAS No. 157 fornonfinancial assets and liabilities to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years, exceptfor those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoptionof SFAS No. 157 had no effect on the Company's consolidated financial position or results of operations.Comprehensive Income (Loss).SFAS No. 130, "Reporting Comprehensive Income", established rules for the reporting and display ofcomprehensive income and its components. SFAS No. 130 requires unrealized gains or losses on the Company's available-for-salesecurities adjustments to be reported as a separate component (comprehensive income/loss) of shareholders' equity. The components ofcomprehensive income (loss) are as follows:

Three months ended April 30,

Nine months ended April 30,2008

2007

2008

2007Net Income (Loss)

$  97,744

$  (1,161,315)

$(1,918,546)

$(1,170,667)Fair value adjustment onavailable-for-sale securities

882,692

-

882,692

-Comprehensive Income (Loss)

$ 980,436

$  (1,161,315)

$(1,035,854)

$(1,170,667)


Investments. The Company accounts for its investments in equity securities under SFAS 115, "Accounting for Certain Investments in Debtand Equity Securities." The Company has classified its investments as available for sale securities, and such securities are carried at fairvalue. The fair values for marketable equity securities are based on quoted market prices. Unrealized gains or losses, net of tax, areincluded as a component of accumulated other comprehensive income in stockholders' equity. Realized gains and losses and declines invalue considered to be other than temporary on available for sale securities are included in other income (loss).

6


Intangible Assets.Intangible assets consist primarily of the National Lampoon trademark which is being amortized on a straight-line basisover twenty-five years. The Company continually evaluates whether events or circumstances have occurred that indicate the remainingestimated useful life of intangible assets should be revised or the remaining balance of intangible assets may not be recoverable. Factorsthat would indicate the occurrence of such events or circumstances include current period operating or cash flow losses, a projection orforecast of future operating or cash flow losses, or the inability of the Company to identify and pursue trademark licensing opportunities onterms favorable to the Company. Gross intangibles were approximately $6,250,492 with accumulated amortization of approximately$4,655,808 at April 30, 2008, which includes approximately $184,021 of amortization being expensed during the nine months ended April30, 2008. The estimated aggregate amortization expense for each of the six succeeding fiscal years is $245,000 per year, which primarilyrepresents the original acquired intangible relating to the National Lampoon trademark, amortized over twenty-five years.As of April 30, 2008, the Company has determined and tested for impairment in accordance with SFAS 141, paragraphs 16-21, andconcluded that the expected future cash flows relating to its intangible assets will result in the recovery of the carrying value of such asset.The continued realization of these intangible assets, however, is dependent upon the continued exploitation of the National Lampoontrademark for use in motion pictures, television, the Internet, merchandising and other appropriate opportunities. If these and other venturesthat the Company may enter into do not result in sufficient revenues to recover the associated intangible assets, the Company's futureresults of operations may be adversely affected by adjustments to the carrying values of such intangible.Recently Adopted Accounting Pronouncements.Effective August 1, 2007, the Company adopted FASB Interpretation No. 48,"Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes" ("FIN 48").FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in thefinancial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely thannot that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The taxbenefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater thanfifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on de-recognition, classification, interestand penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of April 30,2008, the Company does not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is subject to U.S. federal or stateincome tax examinations by tax authorities for years after 2002. During the periods open to examination, the Company has net operatingloss and tax credit carry-forwards for U.S. federal and state tax purposes that have attributes from closed periods. Since these net operatingloss and tax credit carry-forwards may be utilized in future periods, they remain subject to examination.The Company's policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of April 30, 2008, theCompany has no accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2003 through 2007 remain open toexamination by the major taxing jurisdictions to which the Company is subject.Recent Accounting Pronouncements.In December 2007, the FASB issued FASB Statement No. 141(R), "Business Combinations" (FAS141(R)), which establishes accounting principles and disclosure requirements for all transactions in which a company obtains control overanother business. Statement 141(R) applies prospectively to business combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited.In December 2007, the FASB issued SFAS No. 160,"Non-controlling Interests in Consolidated Financial Statements, an amendment ofARB No. 51". SFAS No. 160 establishes accounting and reporting standards that require that the ownership interests in subsidiaries held byparties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity,but separate from the parent's equity; the amount of consolidated net income attributable to the parent and to the non-controlling interest beclearly identified and presented on the face of the consolidated statement of income; and changes in a parent's ownership interest while theparent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retainednon-controlling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFASNo. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of thenon-controlling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profitorganizations, but will affect only those entities that have an outstanding non-controlling interest in one or more subsidiaries or thatdeconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years beginning on or afterDecember 15, 2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year inwhich it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements areapplied retrospectively for all periods presented. The Company does not have a non-controlling interest in one or more subsidiaries.In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities-an amendment ofFASB Statement No. 133" (SFAS 161). This Statement requires enhanced disclosures about an entity's derivative and hedging activities,including (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted forunder SFAS No. 133,"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), and its related interpretations, and(c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.The Company does not believe that the adoption of the above recent pronouncements will have a material effect on the Company'scondensed consolidated results of operations, financial position, or cash flows.Net Income or Loss per Share.Basic loss per share is calculated by dividing net loss available to common stockholders by the weightedaverage number of common shares outstanding during the period. Diluted loss per share is calculated assuming the issuance of commonshares under the treasury stock method, if dilutive, resulting from the exercise of stock options and warrants. Basic and diluted losses pershare are the same at April 30, 2008 and 2007, as common equivalent shares have been excluded from the computation due to the fact thatthey are anti-dilutive. Options and warrants to purchase 6,358,722 and 8,430,035 common shares during the nine months ended April 30,2008 and 2007, respectively, are not included in the calculation of diluted earnings per share because their inclusion would be anti-dilutive.7,302,431 and 7,430,431 shares that would be issuable upon conversion of the convertible preferred stock are not included in thecalculation of diluted earnings per share during the nine months ended April 30, 2008 and 2007, respectively, because their inclusion wouldbe anti-dilutive.At April 30, 2008, there are 61,832 Series B Convertible Preferred Shares and 190,947 Series C Convertible Preferred Shares outstanding.Upon conversion of the 61,832 Series B Convertible Preferred Shares, 3,483,491 common shares would be issuable. Upon conversion ofthe 190,947 Series C Convertible Preferred Shares, 3,818,940 common shares would be issuable. This would result in a diluted weightedaverage number of shares of 16,917,809 for the nine months ended April 30, 2008.Each Series B Convertible Preferred Share is convertible into 56.338 common shares. Each Series C Convertible Preferred Share isconvertible into 20 common shares. Warrants attached to the Series B and Series C Convertible Preferred Stock are not included in thecalculation of diluted earnings per share during the three and nine months ended April 30, 2008 because their inclusion would be anti-dilutive.

7


Stock Based Compensation.The Company periodically issues stock options and warrants to employees and non-employees in non-capitalraising transactions for goods and services. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123Reffective January 1, 2006 and is using the modified prospective method in which compensation cost is recognized beginning with theeffective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) basedon the requirements of SFAS No. 123R for all awards granted to employees prior to the effective date of SFAS No. 123R that remainedunvested on the effective date. The Company accounts for stock option and warrant grants issued and vesting to non-employees inaccordance with EITF No. 96-18: "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or inConjunction with Selling, Goods or Services" and EITF 00-18 "Accounting Recognition for Certain Transactions involving EquityInstruments Granted to Other Than Employees" whereas the value of the stock compensation is based upon the measurement date asdetermined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance toearn equity instruments is complete.The Company recognizes compensation cost for equity-based compensation for all new modified grants issued after December 31, 2005. Inaddition, commencing January 1, 2006, the Company recognized the unvested portion of the grant date fair value of awards issued prior toadoption of SFAS No. 123R based on the fair values previously calculated for disclosure purposes over the remaining vesting period of theoutstanding stock options and warrants.The fair value of options was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the nine months ended April 30, 2008 and 2007:NOTE B - CAPITALIZED PRODUCTION COSTSThe following table summarizes the net capitalized film and television costs in various stages of production at April 30, 2008:

April 30, 2008In development

$
2,505,610Completed


2,862,838Total film costs

$
5,368,448


The Company expects to amortize within three years 90% of capitalized film costs based on the estimated costs and ultimate revenueprojected. The portion of the costs of the Company's films that was amortized during the three and nine months ended April 30, 2008 was$1,208,416 and $1,208,937, respectively, and during the three and nine months ended April 30, 2007, was $42,313 and $462,582,respectively. The portion of the costs of the Company's films that are expected to be amortized during the upcoming 12 months isapproximately $1,280,614.NOTE C - FIXED ASSETSFixed assets are comprised of the following as of April 30, 2008:

April 30, 2008Computer equipment

$
178,700Camera and lighting equipment


39,869Furniture and office equipment


4,217222,786Accumulated depreciation


(188,568
)$
34,218


Depreciation expense for the nine months ended April 30, 2008 and 2007 was $13,164 and $9,491, respectively.NOTE D - NOTES PAYABLE TO RELATED PARTIES AND ACCRUED INTERESTNotes payable to related parties and accrued interest consist of the following at April 30, 2008:

April 30, 2008(A) Payable to Daniel Laikin

$
951,107(B) Payable to Timothy Durham


866,239(C) Payable to Christopher Williams


91,814$
1,909,160


(A) As of April 30, 2008, the Company owed Daniel Laikin, the Company's Chief Executive Officer, $868,789 in principal and $82,318 ininterest. The loans bear interest at the rate of 6% per annum. The obligation to Mr. Laikin is unsecured and payable on demand. During thenine months ending April 30, 2008, the Company made net payments of $101,211 to Mr. Laikin.(B) As of April 30, 2008, the Company owed Timothy Durham, a director, $839,819 in principal and $26,420 in interest. The loans bearinterest at the rate of 6% per annum. The obligation to Mr. Durham is unsecured and payable on demand. During the nine months endingApril 30, 2008, the Company received advances of $677,025 from Mr. Durham.(C) As of April 30, 2008, the Company owed Christopher R. Williams, a shareholder, $83,333 in principal and $8,481 in interest. The loansbear interest at the rate of 6% per annum. The obligation to Mr. Williams is payable on demand. During the nine months ending April 30,2008, no principal and no interest had been paid to Mr. Williams.

8


NOTE E - PRODUCTION LOANS FROM RELATED PARTIES AND ACCRUED INTERESTOutstanding production loans from related parties and accrued interest consist of the following as of April 30, 2008:

April 30, 2008(A) Red Rock Productions, Inc. - Bag Boy Productions, Inc.

$
1,694,446(B) Red Rock Productions, Inc. - Ratko Productions, Inc.


2,098,637(C) Dan Laikin


74,152$
3,867,235




(A)
On October 26, 2006, the Company entered into a financing agreement with Red Rock Productions Inc. (Red Rock) regarding the financing of the theatrical motion picture Bag Boy. Red Rock Pictures Holdings, Inc., Red Rock's parent, is a publicly traded  company and related party (See Note G). In accordance with the agreement, Red Rock agreed to loan the Company up to  $2,000,000 (unless otherwise agreed to by both parties) to fund this film, with payments to be made according to an approved  production cash flow as provided by the Company. Red Rock will be entitled to recoup its investment plus interest at 10% per  annum accruing on the average daily balance from the date the loan is provided to the Company. Red Rock will also be entitled to  contingent participation of 25% of all net contingent proceeds from the picture. Red Rock has a security interest in the film to the  extent of the actual amount of the funding as long as there is an unpaid balance on the loan. As of April 30, 2008, advances to the  Company totaled $1,518,139, and interest accrued totaled $176,307 under this financing agreement.




(B)
On October 26, 2007, the Company entered into a financing agreement with Red Rock regarding the financing of the theatrical motion picture Ratko. In accordance with the agreement, Red Rock agreed to loan the Company up to $2,000,000 to fund this film, with payments to be made according to an approved production cash flow as provided by the Company. Red Rock will be entitled to recoup its investment plus interest at 10% per annum accruing on the average daily balance from the date the loan is provided to the Company. Red Rock will also be entitled to contingent participation of 25% of all net contingent proceeds from the picture. Red Rock has a security interest in the film to the extent of the actual amount of the funding as long as there is an unpaid balance on the loan. As of April 30, 2008, advances to the Company totaled $1,922,028 and interest accrued totaled $176,609 under this financing agreement.




(C)
Mr. Laikin, the Company's Chief Executive Officer, has made various loans to us for film financing. As of April 30, 2008, he was owed $67,000 in principal and $7,152 in interest for these production loans. The loans bear interest at the rate of 6% per annum.


NOTE F - ACCRUED SERIES B AND C DIVIDENDSDividends accrue on the Company's Series B and Series C Convertible Preferred Stock. The Company accrued dividends on a daily basisand will continue to do so until the date at which the Series B or Series C Convertible Preferred Stock is converted, until a liquidation eventoccurs, or, in the case of the Series C Convertible Preferred Stock, until the redemption date (although the redemption date is not definedand there is no right of redemption as to the Series C Convertible Preferred Stock). Dividends accrue at the rate of 9% per annum on thesum of the original purchase price of the Series B or Series C Convertible Preferred Stock plus all accumulated and unpaid dividendsthereon (compounding annually). Dividends that accrue on the Company's Series B and Series C Convertible Preferred Stock must be paidwith our common stock. During the nine-month periods ended April 30, 2008, the Company had accrued $887,898 of Series B and Series Cdividends.At April 30, 2008, the Company had accrued $4,261,949 representing the total value of the dividends accrued on the Series B and Series CConvertible Preferred Stock.On conversion of the Series B and Series C Convertible Preferred Stock, the Company becomes liable to pay dividends. Conversion ofdividends on the Series B and Series C Convertible Preferred Stock are computed using the closing price of the common stock, as reportedby the exchange or regulated quotation service on which the Company's common stock is traded, on the trading date immediately precedingthe 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 iscomputed using the closing price of the last date on which trades were made and reported.NOTE G - INVESTMENT IN RED ROCKIn October 2006, the Company invested $800 in Red Rock Pictures Holdings, Inc., ("Red Rock") which was then merged into a publiclytraded entity. The investment at the time represented 11,769,236 shares or approximately 18% of the then total outstanding shares of RedRock. Three members of National Lampoon's board of directors, Robert Levy, Timothy Durham and Daniel Laikin, also own stock in RedRock. The Company recorded the transaction under the equity method due to the determination that it had significant influence, andrecognized its proportionate share of the investee's losses not to exceed the $800 investment. In addition, the Company's investment hadbeen determined to not be a variable interest entity in accordance with FIN46(R) since Red Rock was not formed for the primary benefit ofthe Company, and the Company does not have an obligation to absorb the losses, nor receive any return.On or about June 12, 2008, Red Rock announced the Entry into a Material Definitive Agreement for a Stock for Stock Exchange, aCompletion of Acquisition and a Departure of Directors or Certain Officers; Election of Directors; Appointment for Certain Officers; andCompensatory Arrangements of Certain Officers. Pursuant to these agreements, Red Rock has undergone significant changes tomanagement and control. Consequently, the Company's ownership decreased from 18% to 13% and the Company changed the recording ofthe investment in Red Rock from the equity method to the fair value method as defined in FAS 115. The Company determined that itsinvestment in Red Rock shares should be treated as an investment in securities available for sale. The market value of each share of RedRock as of April 30, 2008 was quoted at $0.075 and the fair value of the security was recorded as an adjustment to comprehensive incomein the amount of $882,692 during the three months ended April 30, 2008.

9


Included in the accompanying balance sheet for the period ended April 30, 2008 are notes payable to Red Rock of $3,793,083. InSeptember 2006, Red Rock entered into a sub lease agreement with National Lampoon, Inc. for office space at $2,000 per month. InAugust 2007 the Company entered into an agreement with Red Rock whereby Red Rock agreed to pay the Company for distribution andprints and advertising (P&A) services for certain titles released by the Company at up to $500,000 per title. According to the terms of theagreement, Red Rock will be reimbursed by the film, plus a 20% premium, for the funding from the release of the titles. Also, in mostcases, Red Rock negotiates additional profit participation with the producers of each film. Pursuant to this agreement, the Company hasinvoiced Red Rock a total of $617,411 for distribution and P&A services for two titles, which is included in revenue for the nine monthsended April 30, 2008. The Company is expected to invoice Red Rock for marketing services for two additional titles during the fourthquarter of the fiscal year 2008.NOTE H - ISSUANCE OF COMMON STOCKDuring the nine months ended April 30, 2008, 61,016 shares of restricted stock were issued at market prices ranging from $1.90 to $2.52with a total value of $144,590 to various consultants of the Company for services rendered. In addition, 171,856 shares of registered stockwere issued at market prices ranging from $1.52 to $2.55 with a total value of $361,609 to various consultants and employees of theCompany for services rendered. Furthermore, 4,171 shares of registered stock were issued at a market price of $2.15, having a total valueof $8,969, for fees owed to the Board of Directors.During the nine months ended April 30, 2008, 5,000 shares of restricted stock were issued upon the exercise of options at an exercise priceof $1.60 resulting in proceeds of $8,000. In addition, 18,835 shares of restricted stock were issued upon the exercise of 18,835 warrantsattached to the Series C Convertible Preferred Stock at an exercise price of $1.775 resulting in proceeds of $33,434. Furthermore, 99,999shares of restricted stock were issued upon the conversion of 1,775 Series B Convertible Preferred Stock and 32,563 shares of restrictedstock were issued upon the conversion of the related accrued dividends of $58,612 at a market price of $1.80.During the nine months ended April 30, 2008, 750 restricted shares were issued at a market price of $1.90 with a total value of $1,425, and5,000 restricted shares were issued at a market price of $2.00 with a total value of $10,000 for the purchase of intangible assets.NOTE I - COMMITMENTS AND CONTINGENCIESFilm Financing CommitmentsAs of April 30, 2008, the Company had obtained $3,793,083 of funding under finance agreements with Red Rock for its motion pictureprojects, National Lampoon's Bag Boyand National Lampoon's Ratko: the Dictator's Son. The terms of the financing provide for theinvestor to recoup its contribution plus interest from the first proceeds of these films. After all costs are recouped by the Company, theinvestor is entitled to 25% of the net profits paid to the Company, but the investor does not have any ownership rights in the film (See NoteE).The Company has also entered into various distribution agreements for the marketing and distribution of certain films listed below. TheCompany will receive varying distribution fees ranging from 20% to 25% relating to the exploitation and distribution of these films. Thesefilms will require the Company to contribute certain production and print and advertising costs for the completion and distribution of thesefilms as follows:

Funding CommitmentsPrints & Advertising

TotalFilm

Production

Lower

Upper

Lower

UpperHomo Erectus

$
90,000

$
200,000

$
400,000

$
290,000

$
490,000Beach Party at the Threshold of Hell


50,000


300,000


500,000


350,000


550,000Electric Apricot - The Quest for Festaroo


-


300,000


300,000


300,000


300,000One, Two, Many


105,000


300,000


300,000


405,000


405,000$
245,000

$
1,100,000

$
1,500,000

$
1,345,000

$
1,745,000


LitigationOn or about April 10, 2008, Raleigh Studios, through its attorneys, filed a Complaint styled, RP Holdings, Inc. v. National LampoonClubhouse, Inc. et al, CA No SCO97777, in the Superior Court of Los Angeles County, California, alleging that National Lampoonbreached a contract known as the Raleigh Studios License Agreement ("Master Agreement"), as well as certain additional claims atcommon law and by statute ("Law Suit"). On the 4th day of June, 2008, a Settlement Agreement and Release ("Agreement") was enteredinto between RP Holdings, Inc. dba Raleigh Studios, ("Raleigh"), and National Lampoon Clubhouse, Inc. and National Lampoon, Inc.,(collectively "National Lampoon"). The plaintiffs agreed to dismiss the complaint against the Company in exchange for a payment of$15,000 to be made in four installments starting from the date of full execution of the settlement agreement. The Company's firstinstallment of the payment was made June 6, 2008.On or about March 11, 2008, Brightcove, Inc., through its attorneys, filed a Complaint styled, Brightcove Inc. v. National Lampoon, Inc.,CA No MICV2008-1006 TRIAL COURT CIVIL ACTION 08-1006, in the Superior Court of Middlesex County, Massachusetts, allegingthat National Lampoon breached a contract between Brightcove and National Lampoon, as well as certain intentional tort claims atcommon law and by statute (the "Lawsuit"). On the 23rd day of May, 2008, a Settlement Agreement and Release ("Agreement") betweenBrightcove Inc. ("Brightcove") and National Lampoon, Inc. ("National Lampoon") was entered into. The plaintiffs agreed to dismiss thecomplaint against the Company in exchange for a payment of $84,122 to be made in six installments starting from the date of full executionof the settlement agreement. The Company's first installment of the payment was made on May 23, 2008.National Lampoon, Inc. v. Alma Investments (d/b/a Bahia Mar Hotel) (Los Angeles Superior Court Case No. BC 356118). The Companyfiled this complaint on July 27, 2006. The action arose from an agreement the Company had with Bahia Mar Hotel pursuant to which wewere to provide to Bahia Mar Hotel an entertainment package for the 2006 spring break. We alleged that Bahia Mar Hotel failed to supportthe program, and, in fact, diverted some of the business to our competitors. In our complaint, we alleged causes of action for fraud, breachof contract, promissory estoppel, quantum meruit and breach of the covenant of good faith and fair dealing. On February 4, 2008, theCompany entered into a settlement agreement with Alma Investments. The Company agreed to dismiss the complaint against AlmaInvestments in exchange for a payment of $110,000 to be made upon execution of the settlement agreement. The settlement amount wasrecognized as Tours revenue and applied entirely towards approximately $143,000 in legal fees directly related to the case and theremaining balance was written off by our attorneys.

10


Cinergy Creative, Inc. and Leslie Allen v. National Lampoon Clubhouse, Inc., National Lampoon, Inc., Majestic Entertainment, Inc. andLorenzo Doumani (Los Angeles Superior Court Case No. SC091496). This complaint was filed on October 20, 2006. The plaintiffs allegecauses of action for alter ego, breach of written contract, breach of oral contract, breach of the implied covenant of good faith and fairdealing, quantum meruit, fraud and deceit based on promises made without intention to perform, intentional misrepresentation, slander perse, 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 timeworking on projects for the benefit of us and our co-defendants. The plaintiffs also allege that they were promised a share of profits fromthe projects and/or a "partnership" interest in them. The plaintiffs allege that their damages are in excess of $2,000,000. The Companyentered into a settlement agreement with the plaintiffs dated November 5, 2007. The plaintiffs agreed to dismiss the complaint against theCompany in exchange for a payment of $50,000 to be made within 90 days from the execution of the settlement agreement. TheCompany's portion of the payment was made during February 2008. The remaining defendants have reached settlements as well.Screen Actor's Guild v. National Lampoon Clubhouse, Inc. During late 2006, the Screen Actor's Guild ("SAG") filed claims againstNational 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, expensesand benefit payments under the SAG agreement. Clubhouse disputes these claims and intends to vigorously defend this action. Due torecent changes within SAG the arbitration with SAG is being rescheduled to take place on a date to be determined some time during thefourth quarter of fiscal 2008 or first quarter of fiscal 2009.American Cinema Distribution Corporation v. National Lampoon, Inc. In August 2007, the American Cinema Distribution Corporation("ACDC") filed claims against National Lampoon, Inc. for costs incurred on the release of "National Lampoon's Pucked". ACDC allegesthat the Company did not perform distribution services as agreed and that ACDC should be reimbursed for distribution costs it incurredestimated at $65,000. ACDC also alleges that it does not owe distribution fees to the Company for marketing, publicity, promotional andadvertising services the Company provided which services the Company alleges have a value in excess of $290,000. The Companydisputes these claims and has filed a demand for arbitration against ACDC as the agreement calls for and intends to vigorously defend thisaction.NOTE J - STOCK OPTIONS AND WARRANTSOn January 30, 2002, the Company adopted the Amended and Restated 1999 Stock Option, Deferred Stock and Restricted Stock Plan (the"1999 Plan"), which was thereafter approved by the Company's shareholders at its annual meeting on April 25, 2002. The options may begranted from time to time by the Compensation Committee. Individuals eligible to receive options include employees of the Company,consultants to the Company and directors of the Company. The options must have a fixed price, which may not be less than 100% of thefair market value per share on the grant date. The total number of shares of common stock reserved for awards is 6,500,000.At April 30, 2008 options outstanding are as follows:

Number of

Weightedaverageexercise

Aggregateintrinsicoptions


price


value (1)Balance at August 1, 2007


5,369,606

$
2.55Granted


1,063,389


2.16Exercised


(5,000
)

1.60Forfeited


(710,000
)

2.73Expired


(67,000
)

3.68Balance at April 30, 2008


5,650,995

$
2.45

$
323,906


(1) The aggregate intrinsic value was calculated as the difference between the market price and the exercise price of the Company's stockfor the 2,051,606 options outstanding, which were in-the-money.Additional information regarding options outstanding as of April 30, 2008 is as follows:

Options outstanding

Options exercisableExercise price

Numberoutstanding

Weightedaverageremainingcontractuallife (years)

Weightedaverageexercise price

Numberexercisable

Weightedaverageexercise price$1 to $2


2,201,606


3.73

$
1.75


2,101,606

$
1.75$2 to $3


2,119,389


6.14


2.26


1,218,391


2.29$3 to $4


998,000


2.36


3.26


978,000


3.26$4 to $5


132,000


4.36


4.13


98,667


4.12$5 to $6


-


-


-


-


-$6 to $7


100,000


2.82


6.41


100,000


6.41$7 to $8


100,000


1.66


7.38


100,000


7.38Total


5,650,995


4.35

$
2.45


4,596,664

$
2.49




11


At April 30, 2008 warrants outstanding are as follows:

Number of
warrants

Weighted
averageexercise price

Aggregate
intrinsic value(1)Balance at August 1, 2007


1,286,731

$
3.59Granted


40,000


1.75Cancelled


(619,004
)

4.00Balance at April 30, 2008


707,727

$
3.13

$
6,000


(1) The aggregate intrinsic value was calculated as the difference between the market price and the exercise price of the Company's stockfor the 40,000 warrants outstanding which were in-the-money.Additional information regarding warrants outstanding as of April 30, 2008 is as follows:

Warrants outstanding

Warrants exercisableExercise price

Numberoutstanding

Weightedaverageremainingcontractuallife (years)

Weightedaverageexercise price

Numberexercisable

Weightedaverageexercise price$1 to $2


40,000


1.39

$
1.75


30,000

$
1.75$2 to $3


155,000


8.32


2.59


155,000


2.59$3 to $4


512,727


1.85


3.40


446,060


3.46Total


707,727


3.24

$
3.13


631,060

$
3.16


Stock based compensation expense related to the vesting of stock options and warrants of $984,046 and $444,759 was recognized duringthe nine months ended April 30, 2008 and 2007, respectively. As of April 30, 2008, the unamortized value of these option awards andwarrants was $955,422, which will be amortized as stock based compensation cost over the average of approximately three years as theoptions and warrants vest.NOTE K - SEGMENT INFORMATIONSegment Reporting - SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" results in the use of amanagement approach in identifying segments of an enterprise. The Company operates in five business segments: (i) licensing andexploitation of the National LampoonTM trademark and related properties including the sale of products to consumers; (ii) advertising andpromotion through field marketing, live events and the distribution of television programming on college campuses; (iii) production ofDVD and television products; (iv) travel services; and (v) distribution. Segment operating income/(loss) excludes the amortization ofintangible assets, interest expense, interest income, other income and expenses and income taxes. Selling, general and administrativeexpenses not specifically attributable to any segment have been prorated based on revenue among the five segments.Summarized financial information for the three and nine months ended April 30, 2008 and 2007 concerning the Company's segments is asfollows:

Licensing&Publishing(1)

Advertising&Promotion(2)

Production(3)

Travel Services(4)

Distribution(5)

TotalThree Months Ended April 30,2008Segment revenue

$
1,662,311

$
553,019

$
265,828

$
-

$
154,772

$
2,635,930Segment operating (loss)

$
953,437

$
287,329

$
(1,059,085
)
$
-

$
7,384

$
189,065Depreciation expense

$
3,227

$
1,341

$
-

$
-

$
-

$
4,568Three Months Ended April 30,2007Segment revenue

$
494,528

$
319,389

$
-

$
-

$
-

$
813,917Segment operating (loss)

$
(298,025
)
$
(755,532
)
$
(43,369
)
$
-

$
-

$
(1,096,926
)Depreciation expense

$
1,923

$
1,240

$
-

$
-

$
-

$
3,163Nine months Ended April 30, 2008Segment revenue

$
2,251,877

$
1,159,195

$
265,828

$
110,000

$
159,831

$
3,946,731Segment operating (loss)

$
43,271

$
(813,703
)
$
(1,078,654
)
$
(215,556
)
$
(17,028
)
$
(2,081,670
)Depreciation expense

$
10,056

$
3,108

$
-

$
-

$
-

$
13,164Nine months Ended April 30, 2007Segment revenue

$
4,086,367

$
1,800,211

$
44,500

$
-

$
-

$
5,931,078Segment operating income/(loss)

$
1,351,106

$
(1,900,992
)
$
(431,527
)
$
-

$
-

$
(981,413
)Depreciation expense

$
5,052

$
4,439

$
-

$
-

$
-

$
9,491




12


NOTE L - INCOME TAXESAs of April 30, 2008, the Company has unused net operating loss (NOL) carry forwards totaling $32,097,000 which expire at various datesfrom 2008 to 2028. These NOL's and other timing differences comprise the Company's deferred tax assets. A valuation allowance has beenrecorded for the total deferred tax assets as a result of uncertainties regarding realization of the asset based upon the lack of profitabilityand the uncertainty of future profitability.The tax effects of significant temporary differences representing deferred tax assets are as follows:

April 30, 2008Deferred tax assets:Accrued Royalties

$
21,000Accrued Interest


191,000Accrued Expenses


54,000Net Operating losses


12,839,000Total Deferred Tax Asset


13,105,000Valuation Allowance


(13,105,000
)Net deferred tax asset


A reconciliation between the statutory federal tax rate and the Company's effective tax rate is as follows:

Three months ended April 30,

Nine months ended April 30,2008

2007

2008

2007Statutory Federal Income Tax Rate

36.0%

(36.0%)

(36.0%)

(36.0%)Increase (Decrease) in Valuation Analysis

(36.0%

36.0%

36.0%

36.0%Effective Tax Rate

0.0%

0.0%

0.0%

0.0%


NOTE M - SUBSEQUENT EVENTSSubsequent to April 30, 2008, we issued 53,539 shares of registered stock at market prices ranging from $1.84 to $2.00 with a total value of$100,801 to various consultants of the Company for services rendered.In addition, 14,000 shares of restricted stock were issued upon the conversion of 700 Series C Convertible Preferred Stock and 4,673 sharesof restricted stock were issued upon the payment of the related accrued dividends of $7,945 at a market price of $1.70.On February 27, 2008 we received a letter from the American Stock Exchange which indicated that we do not meet certain of the AmericanStock Exchange's continued listing standards as set forth in Part 10 of the Amex Company Guide.  Specifically, we are not in compliancewith Section 1003(a)(iv) of the Company Guide because we have sustained losses which are substantial in relation to our overall operationsor our existing financial resources, or our financial condition has become so impaired that it appears questionable, in the opinion of theAmerican Stock Exchange, as to whether we will be able to continue our operations and/or meet our obligations as they mature.We had until March 27, 2008 to provide the American Stock Exchange with a specific plan to achieve and sustain compliance with thecontinued listing standards.  Compliance must be achieved no later than August 27, 2008.  If we failed to submit a plan or if we submitted aplan and the staff of the American Stock Exchange determined that it did not adequately address these issues, we would have been subjectto delisting proceedings.  Furthermore, if our plan is accepted but we are not in compliance with the continued listing standards at theconclusion of the plan period or if we do not make progress consistent with the plan during the plan period, the staff of the American StockExchange will initiate delisting proceedings as appropriate.  We may appeal the staff determination to initiate delisting proceedings.We submitted a plan to the American Stock Exchange to regain compliance with the continued listing standards on March 27, 2008.  OnMay 16, 2008 we were notified by the American Stock Exchange that our plan was accepted.

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Item 2 - Management's Discussion and Analysis or Plan of OperationManagement's Discussion and Analysis or Plan of Operation discusses the Company's consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statementsrequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during thereporting period. On an on-going basis, management evaluates its estimates and judgments. Management bases its estimates and judgmentson historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which formthe basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates under different assumptions or conditions.OverviewWe are a media and entertainment company that creates and distributes comedic content. The National LampoonTM brand was initiallydeveloped in 1970 through publication ofNational Lampoon Magazineand later through the use of our name on motion pictures, includingNational Lampoon's Animal Houseand National Lampoon's Vacation. Our plan is to expand the use of our brand in order to increase therevenues we generate through license fees, advertising and other sources. We are pursuing this plan as follows:Motion Picture Production and DistributionWe produce feature films. Historically, motion pictures that carry our brand had been produced and financed by third parties. Thirty fourmotion pictures have been released using the National LampoonTM name.We decided to produce and finance motion pictures under the National Lampoon name in order to control both the creative process and thedistribution of the film, to build a film library, and to expand our brand awareness.Approximately seven motion pictures are planned for release during the 2008 fiscal year, all of which will be distributed by the Company.Additionally, two of the films were financed and produced directly by us. We expect to produce two to four additional titles per year.We are now delivering on a feature film currently titled National Lampoon's Bag Boywhich was financed by National Lampoon and RedRock and was released during the third quarter of the fiscal year. We are in post production on the film National Lampoon's Ratko: theDictator's Sonwhich is expected to be released during the fourth quarter of the 2008 fiscal year or the first quarter of the 2009 fiscal year.We have also acquired distribution rights for five films produced by unrelated third parties including National Lampoon's Jake's BootyCall, National Lampoon's Homo Erectus, National Lampoon Presents Beach Party at the Threshold of Hell, National Lampoon PresentsElectric Apricotand National Lampoon Presents One, Two Many. We earn distribution revenues for all revenue generated from thesefilms, including home video sales and rental, foreign sales, television, and digital distribution. All of the titles are expected to be releasedduring the 2008 fiscal year.We have an interest in National Lampoon Clubhouse, Inc., a production entity, which produced the film Monster Nightaka Trick or Treat.Monster Nightwas released in the fall of 2006. We also own 13% of Red Rock Picture Holdings, Inc. (sometimes referred to in this reportas "Red Rock"), a development-stage company formed in August 2006. Red Rock was formed for the purpose of providing financing andconsulting services relating to the production and exploitation of motion pictures. We entered into a non-exclusive agreement with RedRock whereby it provides financing for National Lampoon motion picture productions.During the three and nine months ended April 30, 2008, revenues derived from distribution fees totaled approximately $154,772 and$159,831, or 6% and 4%, of all the revenues we earned during these periods respectively.We no longer offer production services on third-party films. We may receive producer fees on our own productions. For the three and ninemonths ended April 30, 2008, production revenues from production services were $265,828 for the production of a live show and thesubsequent production and delivery of a video of the show to a distributor.LicensingWe have derived a substantial portion of our revenues from license fees relating to the use of our name on new motion pictures and fromroyalties from previously released motion pictures bearing our brand, including movies such as National Lampoon's Animal HouseandNational Lampoon's Vacation. Releasing a film with our brand enhances its ability to find distribution outlets. Once a film is released withour brand, we earn revenues from foreign sales, theatrical release, home video and DVD sales and rentals and pay-per-view.With the exception of two films that we produced, and a film produced by National Lampoon Clubhouse, Inc., motion pictures that carryour brand have historically been produced and financed by third parties. We have licensed the National LampoonTM brand, as well ascontent 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 numberof our own productions in the future.We have also acquired distribution rights for five third-party films including National Lampoon's Jake's Booty Call, National Lampoon'sHomo Erectus, National Lampoon Presents Beach Party at the Threshold of Hell, National Lampoon Presents Electric ApricotandNational Lampoon Presents One, Two Many. We earn licensing fees for television, video and foreign distribution. All of the titles werereleased during the fiscal year 2008.For the three and nine months ended April 30, 2008, revenues derived from our licensing and royalties (exclusive of revenues derived fromour publishing activities) totaled approximately $1,717,552 and $2,272,968 or approximately 65% and 58% of the revenues we earnedduring the periods, respectively. A significant portion of this revenue was realized from foreign and television distribution licenses ofrecent National Lampoon films.Additionally, we have completed an audit of the records of Warner Bros. Entertainment, Inc. relating to its exploitation of the filmsNational Lampoon's Vacation, National Lampoon's European Vacation and National Lampoon's Christmas Vacation. We have submittedthe audit reports to Warner Bros. and will begin negotiations immediately. Based on the audit reports we expect a favorable outcome fromthe negotiations.

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National Lampoon NetworksNational Lampoon Networks, Inc. (sometimes referred to in this report as "NLN") includes our Internet, television and field marketingactivities. We believe that we provide an appealing platform to advertisers who want their commercial messages to reach the college agemarket.For those businesses targeting the college market, NLN provides an integrated marketing platform that includes Internet advertisers, on-airadvertising, and field marketing.NLN's Internet properties are comprised of several Internet destination sites. These include NationalLampoon.com, DrunkUniversity.com,TOGATV.com, NationalLampoonSplog.com and KnuckleheadVideo.com. We have acquired other websites and we continue making suchacquisitions on a regular basis. We have focused substantial resources toward launching these websites, and we plan to continue doing soon an ongoing basis.  These destination sites are also part of National Lampoon's online networks, which include the National LampoonHumor Network and the Drunk University Network.  These are aggregated online networks of more than fifty of the most popular humorand college lifestyle destination sites on the Internet.We actively sell advertising space on these sites and networks in the form of video streamed advertisements, full-page takeoveradvertisements, and banner advertisements.  We also are actively engaged in creating "branded entertainment" as well as custompromotional content production and distribution.We recently announced the launch of the National Lampoon Video Network where we entered into content distribution agreements andlaunched branded channels with several Internet video portals including Joost, Veoh, Yahoo!, YouTube and others. These partners selladvertising space, including video streaming, and we receive a portion of the revenues earned. During the three and nine months endedApril 30, 2008, we earned $4,439 and $11,683, or less than 1% of the revenues we earned during the periods from these partners.NLN's television activities include delivering programming during the standard academic school year to more than 200 affiliated collegeand other television stations, reaching nearly two million college students in their dormitories and other places of residence.Aside from providing an outlet for advertisers targeting the college market, NLN develops, produces and distributes comedic Internet andtelevision programming to audiences through its network.For the three and nine month periods ended April 30, 2008, revenues derived from National Lampoon Networks, exclusive of licensingrevenues, totaled approximately $335,069 and $741,024 or approximately 13% and 19% of all the revenues we earned during the periods,respectively.PublishingIn October 2002, we entered into an agreement with Rugged Land, LLC to publish six National Lampoon books over a three-year periodbased on new and established National Lampoon comedic content. We have released four books under this agreement, including 1964 HighSchool Reunion Year Book, National Lampoon's Book of Love, National Lampoon's Big Book of True Factsand National Lampoon'sEncyclopedia of Humor.During the 2007 fiscal year the Company and Rugged Land agreed to terminate this agreement and no additionalbooks are expected to be released pursuant to it.During the 2006 fiscal year we began publishing our books. As of April 30, 2008, we have released 12 books includingNationalLampoon's Saddam Dump [Saddam Hussein's Trial Blog], National Lampoon's Magazine Rack, National Lampoon's Jokes Jokes Jokes,National Lampoon's Not Fit For Print, National Lampoon's Favorite Cartoons of the 21 stCentury, National Lampoon's Van Wilder Guideto Graduating College In Eight Years or More, National Lampoon's Road Trip, National Lampoon's Animal House, National Lampoon'sHelp!, National Lampoon's Jokes Jokes Jokes 2, National Lampoon's Balls!and National Lampoon's Pimp it Yourself.For the three and nine months ending April 30, 2008, revenues derived from our publishing activities totaled approximately ($55,241) and($21,091), or approximately (2%) and (1)% of all the revenues we earned during the periods, respectively. The decrease in publishingrevenues was primarily attributable to significant book returns totaling $262,924 that were recorded against publishing revenues during thenine months ended April 30, 2008.RadioIn March 2005, NL Radio, LLC was formed. We hold a 25% interest in this entity. In October 2006, NL Radio, LLC launched anentertainment radio format under our brand. We have licensed the content of our radio library, as well as certain domain names, URLs andwebsites to NL Radio, LLC for this purpose. NL Radio, LLC used samples of the programming, called "pilot programming," to introducethe format and content to radio networks and local stations. If the programming is sold to a network it may be syndicated, meaning that itwould be distributed to stations affiliated with the network. Purchasers of the programming may broadcast segments of the programming attheir discretion, such as during "drive time" or as late night programming. Programming was launched on XM radio during the fiscal yearended July 31, 2007. Our radio library includes approximately 80 hours of National Lampoon radio programming consisting primarily ofone to two minute short comedy routines and one-hour comedy sketches and parodies. Revenue will be earned from ad sales, directresponse advertising and product promotion arrangements. We receive a licensing fee equal to 8% of the gross receipts received by NLRadio, LLC from all sources in connection with any use of our brand.For the three and nine months ending April 30, 2008, revenues derived from NL Radio totaled approximately $342 and $2,381, or less than1% of all the revenues we earned during the periods, respectively.LibraryOur library includes 247 issues of National Lampoon Magazine, which we continue to use to generate new content for movies, televisionprogramming and other licensing opportunities. Our library also consists of television programming, including more than 300 hours offootage produced for National Lampoon Networks, radio programming, recordings and other materials.

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

•
We plan to continue to expand National Lampoon Networks (the Network) by launching additional niche online networks and by growing our existing networks by adding new affiliate Internet sites as well as acquiring Internet sites and driving traffic to these sites. We have over 40 affiliates and have acquired or launched 56 websites to date. We will concentrate our efforts on measured marketing and sell available advertising and marketing space on our expanding Network. We will continue to create, produce and acquire programming for all of our web sites as well as our college television network and capitalize on our expertise in the college and young adult market to continue to grow revenue in these areas.




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




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




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




•
National Lampoon Networks continues to maintain a presence at third-party events and provide field marketing campaigns for various advertisers. However, we no longer produce our own events.




•
We began publishing and distributing books we created to continue capitalizing on the National Lampoon brand. During the 2007 fiscal year we published eight books and during the nine months ended April 30, 2008 we published four more books, however, going forward we plan to release only two books per year.




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


Critical Accounting PoliciesManagement believes the following critical accounting policies, among others, affect its more significant judgments and estimates used inthe preparation of our condensed consolidated financial statements.Revenue Recognition.Royalty income from film contracts is derived from the sale of DVDs or from the licensing of film rights to thirdparties. Because a significant portion of royalty income is based on the timetable associated with royalty statements generated by thirdparty processors, we do not typically know on a timely basis when royalties may be paid or the amount of payment. This revenue isconsequently not recognized until the amount is either known or reasonably estimable or until receipt of the statements from the thirdparties. We contract with various agencies to facilitate collection of royalty income. When we are entitled to royalties based on grossreceipts, revenue is recognized before deduction of agency fees, which are included as a component of cost of revenue.We recognize revenue from television and film productions pursuant to American Institute of Certified Public Accountants Statement ofPosition 00-2, "Accounting by Producers or Distributors of Films" ("SOP 00-2"). The following conditions must be met in order torecognize revenue under SOP 00-2: (i) persuasive evidence of a sale or licensing arrangement exists; (ii) the program is complete and hasbeen delivered or is available for immediate and unconditional delivery; (iii) the license period of the arrangement has begun and thecustomer can begin its exploitation, exhibition or sale; (iv) the arrangement fee is fixed or determinable; and (v) collection of thearrangement fee is reasonably assured. Advance payments received from buyers or licensees are included in the financial statements as acomponent of deferred revenue.Film Costs.Investment in film costs includes the capitalization of costs incurred to produce the film content including direct negativecosts, production overhead, interest and development. These costs are recognized as operating expenses on an individual film basis in theratio that the current year's gross revenues bear to management's estimate of total ultimate gross revenues from all sources to be earnedover a seven year period. Capitalized production costs are stated at the lower of unamortized cost or estimated fair value on an individualfilm basis. Revenue forecasts, based primarily on historical sales statistics, are continually reviewed by management and revised whenwarranted by changing conditions. When estimates of total revenues and other events or changes in circumstances indicate that a film has afair value that is less than its unamortized cost, an impairment loss is recognized in the current period for the amount by which theunamortized cost exceeds the film's fair value.Investments.The Company accounts for its investments in equity securities under SFAS 115, "Accounting for Certain Investments in Debtand Equity Securities." The Company has classified its investments as available for sale securities, and such securities are carried at fairvalue. The fair values for marketable equity securities are based on quoted market prices. Unrealized gains or losses, net of tax, areincluded as a component of accumulated other comprehensive income in stockholders' equity. Realized gains and losses and declines invalue considered to be other than temporary on available for sale securities are included in other income (loss).Reorganization TransactionIn 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 PreferredStock and warrants to purchase our common stock, thereby gaining voting control of our company.

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Results of OperationsWe operate in five business segments, namely,

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




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




•
travel services;




•
production of motion pictures, television and DVD products;




•
distribution of motion pictures, television and DVD products;


Three months ended April 30, 2008 as compared to the three months ended April 30, 2007Licensing and Publishing RevenuesLicensing and publishing revenues for the three months ended April 30, 2008 were $1,662,311 compared to $494,528 for the three monthsended April 30, 2007, representing an increase of $1,167,783 or approximately 236%. The increase in licensing revenues was primarily dueto the recognition of $750,000 earned from licensing the television rights of one of our titles and $690,411 earned from domestic andinternational distributions rights of our movies. The increase was partially offset by a decrease of $220,033 in publishing revenues net ofreturns to ($55,241) during the three months ended April 30, 2008 from $164,792 during the three months ending April 30, 2007.Costs related to licensing revenues were $41,243 during the three months ended April 30, 2008 compared to $14,360 for the three monthsended April 30, 2007. This represents an increase of $26,883 or approximately 187%. The increase was primarily due to increased royaltiesof $49,234 due to the Harvard Lampoon, Inc. whose royalties are computed on a percentage of revenues less related cost of goods sold. Inaddition, $8,757 was paid to Red Rock Pictures Holdings Inc. during the three months ended April 30, 2008 for its participation share fromprints and advertising (P&A) funding for our various titles. The increase in licensing costs was partially offset by the reversal of $34,122 ofparticipation costs accrued during a prior period. The accrual was based on a receivable that was deemed uncollectible therefore the royaltywas no longer payable. Costs related to publishing revenues were $76,080 during the three months ended April 30, 2008 compared to $0during the three months ended April 30, 2007. The increase in costs related to publishing was due to the amortization of capitalized costsfor books that have been released during the three months ended April 30, 2008, whereas the publishing costs were allocated to advertisingand promotion revenues during the three months ended April 30, 2007.There was an increase of $1,166,103 in amortization of capitalized production costs to $1,208,416 for the three months ended April 30,2008 compared to $42,313 for the three month period ended April 30, 2007. Amortization for current productions begins upon theatricaland/or home video release. The increase was primarily due to the amortization of capitalized film production costs of $979,767 due torecognition of domestic and international licensing revenue from the release of National Lampoon's Bagboy and $136,672 due to revenuerecognition for domestic and international licensing of four other film titles.  In addition, we had $91,977 in amortization of productioncosts for producing a video of a live show that was completed during the quarter ended April 30, 2008.Advertising and Promotion RevenuesDuring the three months ended April 30, 2008, advertising and promotion revenues were $553,019 compared to $319,389 for the threemonths ended April 30, 2007. This represents an increase of $233,630 or 73%.The increase was primarily due to an increase of $218,911 ofrevenues earned from Red Rock Pictures Inc. for P&A services related to our movies.  The increase was also due to an increase of$200,000 in Internet advertising revenue earned during the three months ended April 30, 2008 from Red Rock Productions, Inc. Theincrease was offset by a decrease of $90,000 in revenues from Spring Break sponsorship to $0 for the three months ended April 30, 2008from $90,000 during the three months ended April 30, 2007, as well as a decrease of $53,094 in advertising on affiliate websites throughthe Humor Network to $125,294 for the three months ended April 30, 2008 from $178,388 for the three months ended April 30, 2007, dueto decreased sales staff. However during the quarter ended April 30, 2008, we hired new sales staff and we expect that advertising throughthe Humor Network and affiliates should increase during the fourth quarter of the 2008 fiscal year. The increase was further offset by adecrease of $51,000 in product placement revenue to $0 during the three months ended April 30, 2008.Costs of advertising and promotion revenue were $68,893 during the three months ended April 30, 2008 compared to $572,329 for thethree months ended April 30, 2007, representing a decrease of $503,436 or 87%. The decrease in costs of advertising and promotionresulted partially from a decrease to $0 in costs of live events at Spring Break during the three months ended April 30, 2008, from $61,872during the three months ended April 30, 2007. Although we produced fewer live events, we continue to provide sponsorship opportunitiesat live events organized by third parties. The decrease was also due to a decrease of $9,567 in website development to $20,894 during thethree months ended April 30, 2008 from $30,461 during the three months ended April 30, 2007, as well as a decrease of $56,657 incomputer expenses to $(18,432) during the three months ended April 30, 2008 from $38,255 during the three months ended April 30, 2007.The decrease in computer expenses resulted from the allocation of computer consulting expenses in the amount of $58,800 to intangibleassets for websites during the three months ended April 30, 2008, which will be amortized over 25 years. Costs associated with our Internetoperations also decreased by $16,092 to $18,983 during the three months ended April 30, 2008 from $35,075 during the three monthsended April 30, 2007 due to reduced Internet service fees as we improve our Internet capabilities, and royalties paid to affiliate websitesunder the Humor Network decreased by $65,007 to $49,266 during the three months ended April 30, 2008 from $114,273 during the threemonths ended April 30, 2007 due to a reduction in salespeople. The decrease was also attributable to a decrease of $57,088 in theamortization of production costs for web shows to $0 during the three months ended April 30, 2008. The decrease in costs related toadvertising and promotion revenues was further reduced as a result of the allocation of $18,610 in publishing costs, $52,496 in amortizationof publishing costs and $87,296 in amortization of capitalized film costs allocated to the cost of advertising and promotion during the threemonths ended April 30, 2007, whereas those cost were allocated to costs of publishing revenues during the three months ended April 30,2008.

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We continue to expand and improve our digital distribution and entertainment capabilities which we expect to result in increased revenuefrom our network and affiliate network of Internet websites. We intend to hire additional sales representatives to increase our Internetadvertising revenues. Going forward, we expect to focus our resources on increasing revenues generated from our Internet websites andfrom product placement. While we intend to continue providing field promotion services at events held by third parties, we no longerproduce field promotion events.Costs related to advertising revenues include bandwidth usage fees, website development costs, and content conversion costs alongwith amortization of capitalized television production costs. We incur costs related to promotion revenues based on direct costs of liveevents and promotion of third-party feature films, which are expensed as they are incurred.Travel ServicesWe earned no revenue from this segment of our business during the three months ended April 30, 2008 and 2007. The Company hasdiscontinued travel services and no further revenues are expected to be earned.Production and Distribution RevenuesWe no longer offer production services on third-party films. We may receive producer fees on our own productions. We produce our ownfilms for which we have a presale, minimum guarantee or co-production agreement in place, which reduces our risk as productions tend tobe capital intensive. However, we are expanding our productions and we have negotiated an output arrangement with a domestic cableprovider which guarantees us a cable distribution outlet for our new product along with a minimum return on each new motion picturerelease. The output arrangement provides for a pre-negotiated minimum guarantee or sales price for the licensing of a specific media andterritory. We have also negotiated home video distribution with a number of domestic retailers and distributors and have licensedinternational rights in several territories with minimum guarantees. For the video distribution, there is no minimum price guarantee but thearrangement provides us with a video distribution outlet for our new product. In addition, we have an agreement with Red Rock to provideproduction financing. As these output and financing arrangements are signed, we will allocate additional internal resources to this segmentof our business. For the three months ended April 30, 2008, production revenues from production services increased due to the productionof a live show and the subsequent production and delivery of a video of the show to a distributor.For the three months ended April 30, 2008, we earned $265,828 in production revenues as compared to $0 for the three months ended April30, 2007. The increase in production revenues primarily resulted from production services of $250,000 from Capazoo World Corporationfor a video of a live show, as well as $13,900 in revenues from Mania TV and Lemmings. During the three months ended April 30, 2008,revenues derived from distribution fees totaled approximately $154,772 compared to $0 for the three months ended April 30, 2007. Theincrease was primarily due to the release of five titles through home video distributors including $87,600 from Blockbuster, $46,750 fromSpectacle Group and $6,521 from Rentrak.Costs related to production revenue during the three months ended April 30, 2008 increased $20,844 to $21,900 from $1,056, or 1,973%for the three months ended April 30, 2007. The increase was primarily due to movie delivery fees of $7,500 and $6,305 in production costsincurred during the three months ended April 30, 2008. In addition, there was an increase of $8,063 of video tape delivery expenses for theCollege Network during the three months ended April 30, 2008 as compared to the three months ended April 30, 2007. Costs related todistribution revenue during the three months ended April 30, 2008 increased $92,311 from $0 during the three months ended April 30,2007. The increase was primarily due to $61,072 in residuals accrued, shipping costs to Blockbuster of $16,500 and $14,739 in deliverymaterials which were recorded during the three months ended April 30, 2008.Other Costs and ExpensesAmortization of intangible assets, which consists of the costs of acquisition and protection of the "National LampoonTM trademark, was$60,449 during the three months ended April 30, 2008. Amortization of intangible assets was $60,197 during the three months ended April30, 2007.Amortization of intangible assets, which consists of the costs of our acquisition and protection of websites and domain names, was $1,188during the three months ended April 30, 2008 and $0 during the three months ended April 30, 2007.Stock issued for services decreased $179,290, or 67%, to $89,899 during the three months ended April 30, 2008, from $266,189, for thethree months ended April 30, 2007. The decrease is primarily due to a reduced number of shares of common stock issued to consultantshired for investor relations and Internet services.  Compensation expense associated with the vesting of stock, warrants and optionsdecreased by $79,194, or 58%, to $57,056 during the three months ended April 30, 2008, from $136,250 during the three months endedApril 30, 2007. The decrease in compensation cost associated with the vesting of stock, warrants and options was primarily due to adecrease in compensation to consultants paid with options and warrants.There was no provision for doubtful accounts for the three months ended April 30, 2008 compared to a $78,000 bad debt write off for thethree months ended April 30, 2007. The provision for the three months ended April 30, 2007, is primarily attributable to accounts wedeemed to be uncollectible.Other selling, general and administrative costs decreased $313,860, or 28%, to $791,067 during the three months ended April 30, 2008from $1,104,927 for the three months ended April 30, 2007. The decrease in selling, general and administrative costs resulted from adecrease in payroll and related payroll taxes of $363,220 due to a reduction in our employee count, a decrease in office expense of $5,571,a decrease in employee health benefits of $4,986 and a decrease of $63,828 in legal expenses. The decrease in selling, general andadministrative costs was offset by an increase in rent expense of $17,124, an increase in international sales expenses of $68,173, and anincrease in marketing expense of $7,196 and accounting and public company expenses of $72,726.The Company incurred other expenses of $645 during the three months ended April 30, 2008 compared to other income of $4,515 for thethree months ended April 30, 2007.

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For the three months ended April 30, 2008, we had a net income of $97,744, compared to a net loss of $1,161,315 for the three monthsended April 30, 2007. This represents an increase in net income of $1,259,059 for the three months ended April 30, 2008. The increase tonet income for the three months ended April 30, 2008 resulted primarily from an increase of $1,542,588 in licensing and distributionrevenues from the release of National Lampoon's Bagboy and four other titles, as well as an increase in production revenues of $265,828and advertising and promotion revenues of $233,630, offset by a decrease in publishing revenues of $220,033. The increase in net incomewas also due to a decrease of $503,436 in advertising and promotion costs and a decrease of $342,763 in selling, general and administrativecosts. The increase in net income was partially offset by an increase in the amortization of production costs due to the release of NationalLampoon's Bagboy and four other titles of $1,166,103 as well as an increase in publishing costs of $76,080.  The increase in net incomewas further offset by an increase of $19,287 in interest expense to $29,039 during the three months ended April 30, 2008, from $9,752during the three months ended April 30, 2007, which was primarily due to an increase in production loans from related parties.During the three months ended April 30, 2008 and 2007, we had no provision for income taxes due to the significant net operating lossesincurred in prior periods and carried forward into the current period. We also accrued dividends for preferred shareholders of $292,356during the three months ended April 30, 2008 and $289,817 during the same period in 2007. The addition of the accrued dividends resultedin a net loss attributable to common shareholders of $194,612 or $0.02 per basic and fully diluted share for the three months endedApril 30, 2008, compared to net loss attributable to common shareholders of $1,451,132 or $0.18 per basic and fully diluted share for thethree months ended April 30, 2007.Nine months ended April 30, 2008 as compared to the nine months ended April 30, 2007Licensing and Publishing RevenuesLicensing and publishing revenues for the nine months ended April 30, 2008 were $2,251,877 compared to $4,086,367 for the nine monthsended April 30, 2007, representing a decrease of $1,834,490 or approximately 44%. During the nine months ended April 30, 2007, wereceived a one-time payment of approximately $2.9 million in settlement of a royalty dispute. No such payment occurred during the ninemonths ended April 30, 2008. The decrease in licensing and publishing revenues was also due to an overall reduction in publishingrevenues of $356,085 or 106%, to ($21,091) during the nine months ended April 30, 2008, from $334,994 during the nine months endedApril 30, 2007. The decrease in publishing revenues was primarily attributable to book returns totaling $262,924 that we recorded againstpublishing revenues during the nine months ended April 30, 2008,  During the nine months ended April 30, 2007, we recorded book returnstotaling $214,756 to cost of advertising and promotion.  The decrease in licensing and publishing revenues was offset by an increase inlicensing revenues due to the recognition of $750,000 earned from licensing the television rights to one of our titles and $690,411 earnedfrom domestic and international distributions rights of our movies.Costs related to licensing revenues were $84,394 during the nine months ended April 30, 2008 compared to $172,176 for the nine monthsended April 30, 2007. This represents a decrease of $87,782 or approximately 50%. Costs related to publishing revenues were $124,125during the nine months ended April 30, 2008 compared to $0, during the nine months ended April 30, 2007. The decrease in costs related tolicense revenues resulted primarily from a decrease of $80,652 in royalty and commission expense to $57,402 during the nine monthsended April 30, 2008, from $138,054 during the nine months ended April 30, 2007. The decrease was also offset by an increase in licensingcosts of $26,990, which represents costs incurred for the Capazoo licensing program. The increase in costs related to publishing revenuesfor the nine months ended April 30, 2008 resulted from an increase of $124,125 in these costs, consisting of $102,220 in amortizedpublishing costs and $21,905 in direct publishing costs as compared to $0 in costs related to publishing revenues incurred during the ninemonths ended April 30, 2007.There was an increase of $745,834 in amortization of capitalized production costs to $1,208,416 for the nine months ended April 30, 2008compared to $462,582 for the nine months ended April 30, 2007. Amortization for current productions begins upon theatrical and/or homevideo release. The increase was primarily due to the amortization of capitalized film production costs of $979,767 due to recognition ofdomestic and international licensing revenue from the release of National Lampoon's Bagboyand $136,670 due to revenue recognition fordomestic and international licensing of four other film titles. In addition we had $91,977 in amortization of production costs for theproduction and distribution of a video of a live show that was completed during the quarter ended April 30, 2008. The increase inamortization of capitalized production costs was offset by a decrease in amortization of capitalized production costs of $408,897 recordedfor the permanent impairment of National Lampoon's Trick or Treat during the nine months ended April 30, 2007.Advertising and Promotion RevenuesDuring the nine months ended April 30, 2008, advertising and promotion revenues were $1,159,195 compared to $1,800,211 for the ninemonths ended April 30, 2007. This represents a decrease of $641,016 or 36%. The decrease was primarily the result of a decrease of$200,000 in presence marketing revenues for Pledge This!offset by an increase in marketing and promotions revenue from Red Rock of$417,411. The reduction in our New York sales staff also resulted in a decrease of $117,164 in revenues from Network TV advertisingspots to $10,535 for the nine months ending April 30, 2008 from $127,699 during the nine months ended April 30, 2007 and a decrease of$80,823 in Internet advertising to $721,248 during the nine months ended April 30, 2008 from $802,071 during the nine months endedApril 30, 2007. Due to the reduction in the number of live events we produced and a decrease in field events and presence marketing, weearned no revenues from these sources during the nine months ended April 30, 2008, resulting in a decrease in advertising and promotionrevenues of $180,200. Revenues from sponsored production shoots decreased $393,018 to $10,000 during the nine months ended April 30,2008 from $403,018 during the nine months ended April 30, 2007, due to decreased sales staff.Costs of advertising and promotion revenue were $404,506 during the nine months ended April 30, 2008 compared to $1,789,329 for thenine months ended April 30, 2007, representing a decrease of $1,384,823 or 77%. The decrease in costs of advertising and promotionresulted primarily from a decrease of $282,140 in costs of live events to promote College Poker, as well as a decrease of $85,699 due to areduction in the number of live events that we produced. Although we produced fewer live events we continue to provide sponsorshipopportunities at live events organized by third parties. The decrease also resulted from a decrease of $46,126 in costs of advertising andpromotion to $0 during the nine months ending April 30, 2008. Further decreases resulted from a decrease in overall costs due to areduction in the size of the New York office including a decrease of $41,412 in salaries for web development, to $67,580 for the ninemonths ended April 30, 2008 from $108,992 during the nine months ended April 30, 2007, a decrease in sales commission of $143,959 to$189,799 for the nine months ended April 30, 2008 from $333,758 during the nine months ended April 30, 2007, as well as a decrease of$181,872 in video production to $39,876 during the nine months ended April 30, 2008, from $221,748. However, this also resulted in lowerInternet revenues. Costs associated with our Internet operations decreased by $45,322 to $115,642 during the nine months ended April 30,2008 from $160,964 during the nine months ended April 30, 2007 due to reduced Internet service fees as we improve our Internetcapabilities. The decrease in costs related to advertising and promotion revenues was also attributable to the allocation of $214,756 inamortization of publishing costs and $135,312 in direct publishing costs to the cost of advertising and promotion during the nine monthsended April 30, 2007, whereas those costs were allocated to costs of publishing revenues during the nine months ended April 30, 2008.This reduction was offset by an increase of $36,491 in royalties paid to affiliate websites under the Humor Network due to the continuedexpansion of the network.

19


Costs related to amortization of capitalized television production costs during the nine months ended April 30, 2008 decreased $70,939 to$523 in for the nine months ended April 30, 2008 from $71,462 for the nine month period ended April 30, 2007. The decrease is a result ofthe expensing of costs of television shows as they are released immediately on the Network. No further write-down of capitalized televisionproduction costs is expected after the quarter ended April 30, 2008.We continue to expand and improve our digital distribution and entertainment capabilities which we expect to result in increased revenuefrom our network and affiliate network of Internet websites. We intend to hire additional sales representatives to increase our Internetadvertising revenues. Going forward, we expect to focus our resources on increasing revenues generated from our Internet websites andfrom product placement. While we intend to continue providing field promotion services at events held by third parties, we no longerproduce field promotion events.Costs related to advertising revenues include bandwidth usage fees, website development costs, and content conversion costs along withamortization of capitalized television production costs. We incur costs related to promotion revenues based on direct costs of live eventsand promotion of third-party feature films, which are expensed as they are incurred.Travel ServicesDuring the nine months ended April 30, 2008, travel services revenues were $110,000 compared to $0 for the nine months ended April 30,2007. This increase resulted from the settlement of a legal action. We agreed to dismiss the complaint in exchange for a payment of$110,000 to be made upon execution of the settlement agreement. The settlement amount was recognized as revenue. Prior to thesettlement the Company discontinued travel services and no further revenues are expected to be earned from this segment.Production and Distribution RevenuesWe no longer offer production services on third-party films. We may receive producer fees on our own film and video productions. Weproduce our own films and videos for which we have a presale, minimum guarantee or co-production agreement in place. This reduces ourrisk as productions tend to be capital intensive. However, we are expanding our productions and we have negotiated an output arrangementwith a domestic cable provider which guarantees us a cable distribution outlet for our new product along with a minimum return on eachnew motion picture release. The output arrangement provides for a pre-negotiated minimum guarantee or sales price for the licensing of aspecific media and territory. We have also negotiated home video distribution with a number of domestic retailers and distributors and havelicensed international rights in several territories with minimum guarantees. For the video distribution, there is no minimum price guaranteebut the arrangement provides us with a video distribution outlet for our new product. In addition, we are negotiating with Red Rock toprovide production financing. As these output and financing arrangements are signed, we will allocate additional internal resources to thissegment of our business. For the nine months ended April 30, 2008, production revenues from production services to third partiesdecreased due to the allocation of internal personnel to the production of two feature films.For the nine months ended April 30, 2008, there was $265,828 in production revenues as compared to $44,500 for the nine months endedApril 30, 2007. The increase in production services revenues primarily resulted from $250,000 in revenues generated from videoproduction services to a third party distributor. Additional production service revenues totaling $11,500 were earned from another thirdparty distributor for a video of a live show that we are producing. During the nine months ended April 30, 2008, revenues derived fromdistribution fees totaled approximately $159,831. The increase was primarily due to the release of five titles through home videodistributors including $87,600 from Blockbuster, $46,750 from Spectacle Group and $6,521 from Rentrak.Costs related to production revenue during the nine months ended April 30, 2008 increased $36,892 to $40,948 from $4,056, or 910% forthe nine months ended April 30, 2007. The increase was primarily due to production costs related to delivery of video programming to thethird party distributor. Costs related to distribution revenue during the nine months ended April 30, 2008 increased $106,811, from $0during the nine months ended April 30, 2007. The increase was primarily due to $61,072 in residuals accrued, shipping costs toBlockbuster of $16,500 and $19,239 in delivery materials and $10,000 in servicing agent fees during the nine months ended April 30, 2008.Other Costs and ExpensesAmortization of intangible assets, which consists of the costs of protection of the "National LampoonTM" trademark, was $180,662 duringthe nine months ended April 30, 2008. Amortization of intangible assets was $181,337 during the nine months ended April 30, 2007.Amortization of intangible assets, which consists of the costs of our acquisition and protection of websites and domain names, was $3,359during the nine months ended April 30, 2008 and $0 during the nine months ended April 30, 2007.Stock issued for services increased by $70,409, or 16%, to $515,168 during the nine months ended April 30, 2008, from $444,759 for thenine months ended April 30, 2007. The increase is primarily due to shares of common stock issued to new consultants hired for investorrelations, Internet services and to a former officer as severance. Expenses from the vesting of options and warrants issued for servicesincreased $596,615, or 144% to $984,046 during the nine months ended April 30, 2008 from $414,431 for the nine months ended April 30,2007. The increase is primarily due to the implementation of SFAS No. 123R and grants of options to members of our board of directorsand consultants conveying the right to purchase 468,389 shares of our common stock. In comparison, during the nine months ended April30, 2007, grants of options were made to members of our board of directors and consultants conveying the right to purchase 375,000 sharesof our common stock.There was no provision for doubtful accounts for the nine months ended April 30, 2008 compared to $78,075 for the nine months endedApril 30, 2007. The provision for the nine months ended April 30, 2007 is primarily attributable to accounts we deemed to be uncollectible.Other selling, general and administrative costs decreased by $987,618, or 28%, to $2,559,465 during the nine months ended April 30, 2008from $3,547,083 for the nine months ended April 30, 2007. The decrease in selling, general and administrative costs resulted from adecrease in payroll and related payroll taxes of $311,456 due to a reduction in our employee count, a decrease of $36,731 in employeehealth benefits, a decrease in fees to financial consultants and accountants of $91,497, a decrease in office expense of $43,481 and adecrease in travel and entertainment of $44,621. The decrease in selling, general and administrative costs was offset by an increase inmarketing expense of $44,878, an increase in rent expense of $53,914 and an increase in international sales and distribution expenses of$48,469.Other income increased by $395,962 or 1,527% to $421,889 during the nine months ended April 30, 2008 compared to $25,927 for thenine months ended April 30, 2007. The increase for the nine-month period ended April 30, 2008 was primarily due to the write off of astale accrued royalty. In July 1987, NLI granted the right to produce National Lampoon television programming to GPEC. The royalty wasrecognized as an expense in prior years. Approximately $396,250 remained on the books as a liability and was written off during the ninemonths ended April 30, 2008.

20


For the nine months ended April 30, 2008, we had a net loss of $1,918,546, as compared to a net loss of $1,170,667 for the nine monthsended April 30, 2007. This represents an increase in net loss of $747,879, or 63% for the nine months ended April 30, 2008. The increasein net loss for the nine months ended April 30, 2008 resulted primarily from the significant increase in revenue we received during the ninemonths ended April 30, 2007 which was associated with the settlement of disputed license fees. Aside from the settlement, other licensefees increased while decreases occurred in revenues for field marketing and live event advertising and promotion, production andpublishing. The decrease in costs and expenses for the nine months ended April 30, 2008 was a result of decreases in costs related toadvertising and promotion revenue and selling, general and administrative costs which was partially offset by an increase in the issuance ofstock, warrants and options as compensation. The increase in net loss was further offset by an increase of $36,155 in interest expense to$74,745 during the nine months ended April 30, 2008, from $38,590 during the nine months ended April 30, 2007. The increase in interestexpense is primarily due to in increase in production loans from related parties.During the nine months ended April 30, 2008 and 2007, we had no provision for income taxes due to the significant net operating lossesincurred in prior periods and carried forward into the current period. We also accrued dividends for preferred shareholders of $887,898during the nine months ended April 30, 2008 and $932,832 during the same period in 2007. The addition of the accrued dividends resultedin a net loss attributable to common shareholders of $2,806,444 or $0.34 per basic and fully diluted share for the nine months ended April30, 2008, compared to net loss attributable to common shareholders of $2,103,499 or $0.28 per basic and fully diluted share for the ninemonths ended April 30, 2007.Liquidity and Capital ResourcesWith the exception of the first quarter of the fiscal year ended July 31, 2007, we have not generated positive cash flows from operationsover the past few years. Our principal sources of working capital during the nine months ended April 30, 2008 consisted of revenues, loansfrom our officers and directors and production loans from Red Rock Pictures Holdings, Inc.Net cash used in operating activities was $952,779 for the nine months ended April 30, 2008, as compared to $1,188,590 for the ninemonths ended April 30, 2007. The decrease in cash flow used in operations was primarily attributable to an increase in accounts receivable,offset by an increase in accounts payable and an increase in stock, options and warrants issued for services. Cash provided by financingactivities was $1,053,881 for the nine months ended April 30, 2008, as compared to $1,771,493 for the nine months ended April 30, 2007.The funds for the current period were obtained from officers and directors and Red Rock Pictures Holdings, Inc. and were partially offsetby repayments to each of them.As of June 6, 2008, we had cash on hand of approximately $67,152. We believe revenues we earn as well as collections of $1,036,731 ofminimum guarantee and home video sales payments currently due from domestic and foreign distributors including Comedy Partner (US),Pueblo Film Distribution (Australia), LCT Entertainment (Russia), Front Row (Middle East) and Beta Cinema (Germany), and additionalloans from our Chief Executive Officer and one member of our board of directors will be adequate to fund our ongoing operations andcapital requirements for the next twelve months. Our Chief Executive Officer and director have expressed their continued support toprovide loans to us to meet any immediate working capital requirements  If we do not receive these loans and if alternate sources offinancing cannot be found, then we may not be able to continue to operate as a going concern.As noted above, historically our principal source of funds used for operations and working capital has been loans received from Daniel S.Laikin, our Chief Executive Officer, and Timothy Durham, a director, and a shareholder. The aggregate amount of the loans and accruedinterest owed to these individuals at April 30, 2008 is approximately $1,983,312. These obligations are payable on demand. We plan tosatisfy and pay these obligations from future revenues. In addition, Red Rock Picture Holdings, Inc. has provided the Company with fundsfor movie production. The aggregate amount of the loans and accrued interest owed to Red Rock at April 30, 2008 is approximately$3,793,083.Our financial statements for the fiscal year ended July 31, 2007 contained an explanatory paragraph as to our ability to continue as a "goingconcern." This qualification may impact our ability to obtain future financing.Commitments for Capital ExpendituresAs of April 30, 2008, our capital expenditures are projected to be $100,000 for the 2008 fiscal year. These expenditures will relate to thepurchase of fixed assets such as equipment and furniture.Off-Balance Sheet ArrangementsWe do not have any off-balance sheet transactions such as guarantees, commitments, lease and debt agreements or other agreements thatcould trigger an adverse change in our credit rating, earnings, cash flows or stock price, including requirements to perform under standbyagreements.Contractual ObligationsThe table below sets forth our contractual obligations as of April 30, 2008.

Payments Due by PeriodLess than

1 - 3

3 - 5

More thanTotal

1 year

years

years

5 yearsProduction loan, related party

$
3,867,235

$
1,000,000

$
2,867,235

$
--

$
--Notes Payable, related party


1,909,160


1,909,160


--


--


--Notes Payable

$
223,459

$
223,459

$
--

$
--

$
--


Recent Accounting PronouncementsIn December 2007, the FASB issued FASB Statement No. 141(R), "Business Combinations" (FAS 141(R)), which establishes accountingprinciples and disclosure requirements for all transactions in which a company obtains control over another business. Statement 141(R)applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008. Earlier adoption is prohibited.

21


In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements, an amendment ofARB No. 51". SFAS No. 160 establishes accounting and reporting standards that require that the ownership interests in subsidiaries held byparties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity,but separate from the parent's equity; the amount of consolidated net income attributable to the parent and to the non-controlling interest beclearly identified and presented on the face of the consolidated statement of income; and changes in a parent's ownership interest while theparent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retainednon-controlling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFASNo. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of thenon-controlling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profitorganizations, but will affect only those entities that have an outstanding non-controlling interest in one or more subsidiaries or thatdeconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years beginning on or afterDecember 15, 2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year inwhich it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements areapplied retrospectively for all periods presented. The Company does not have a non-controlling interest in one or more subsidiaries.In March 2008, the FASB issued SFAS No. 161,"Disclosures about Derivative Instruments and Hedging Activities-an amendment ofFASB Statement No. 133" (SFAS 161). This Statement requires enhanced disclosures about an entity's derivative and hedging activities,including (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted forunder SFAS No. 133,"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), and its related interpretations, and(c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.The Company does not believe that the adoption of the above recent pronouncements will have a material effect on the Company'scondensed consolidated results of operations, financial position, or cash flows.Item 3 - Controls and ProceduresWe carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officerand our Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures as of the end ofthe period covered by this report. The evaluation was undertaken in consultation with our accounting personnel. Based on the evaluation,the Chief Financial Officer and the Chief Executive Officer concluded that our disclosure controls and procedures are effective to ensurethat 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.As of the end of the period covered by this report, there was no change in our internal control over financial reporting that has materiallyaffected, or is reasonably likely to materially affect, our internal control over financial reporting.PART II - OTHER INFORMATIONItem 1 - Legal ProceedingsOn or about April 10, 2008, Raleigh, through his attorneys, filed a Complaint styled, RP Holdings, Inc. v. National Lampoon Clubhouse,Inc.  et al, CA No SCO97777, in the Superior Court of Los Angeles County, California, alleging that National Lampoon breached acontract known as the Raleigh Studios License Agreement ("Master Agreement"), as well as certain additional claims at common law andby statute ("Law Suit"). On the 4th day of June, 2008, a Settlement Agreement and Release ("Agreement") was entered into between RPHoldings, Inc. dba Raleigh Studios, ("Raleigh"), and National Lampoon Clubhouse, Inc. and National Lampoon, Inc., (collectively"National Lampoon"). The plaintiffs agreed to dismiss the complaint against the Company in exchange for a payment of $15,000 to bemade in four installments starting from the date of full execution of the settlement agreement. The Company's first installment of thepayment was made June 6, 2008.On or about March 11, 2008, Brightcove, through its attorneys, filed a Complaint styled, Brightcove Inc. v. National Lampoon, Inc., CA NoMICV2008-1006 TRIAL COURT CIVIL ACTION 08-1006, in the Superior Court of Middlesex County, Massachusetts, alleging thatNational Lampoon breached a contract between Brightcove and National Lampoon, as well as certain intentional tort claims at commonlaw and by statute (the "Lawsuit"). On the 23rd day of May, 2008, a Settlement Agreement and Release ("Agreement") between BrightcoveInc. ("Brightcove") and National Lampoon, Inc. ("National Lampoon") was entered into. The plaintiffs agreed to dismiss the complaintagainst the Company in exchange for a payment of $84,122 to be made in six installments starting from the date of full execution of thesettlement agreement. The Company's first installment of the payment was made on May 23, 2008.National Lampoon, Inc. v. Alma Investments(d/b/a Bahia Mar Hotel) (Los Angeles Superior Court Case No. BC 356118). We filed thiscomplaint on July 27, 2006. The action arises from an agreement we had with Bahia Mar Hotel pursuant to which we were to provide toBahia Mar Hotel an entertainment package for the 2006 spring break. We alleged that Bahia Mar Hotel failed to support the program andthat Bahia Mar Hotel diverted some of the business to our competitors. On February 4, 2008, the Company entered into a settlementagreement with Alma Investments. The Company agreed to dismiss the complaint against Alma Investments in exchange for a payment of$110,000 to be made upon execution of the settlement agreement. The settlement amount was recognized as Tours revenue and appliedentirely towards approximately $143,000 in legal fees directly related to the case and the remaining balance was written off by ourattorneys.Cinergy Creative, Inc. and Leslie Allen v. National Lampoon Clubhouse, Inc., National Lampoon, Inc., Majestic Entertainment, Inc. andLorenzo Doumani(Los Angeles Superior Court Case No. SC091496). This complaint was filed on October 20, 2006. The plaintiffs allegecauses of action for breach of written contract, breach of oral contract, breach of the implied covenant of good faith and fair dealing,quantum meruit, fraud and deceit based on promises made without intention to perform, intentional misrepresentation, slander per se, libelper 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 timeworking on projects for the benefit of us and our co-defendants. The plaintiffs also allege that they were promised a share of profits fromthe projects and/or a "partnership" interest in them. The plaintiffs allege that their damages are in excess of $2,000,000. The Companyentered into a settlement agreement with the plaintiffs dated November 5, 2007. The plaintiffs agreed to dismiss the complaint against theCompany in exchange for a payment of $50,000 to be made within 90 days from the execution of the settlement agreement. TheCompany's portion of the payment was made during February 2008. The remaining defendants have reached settlements as well.Screen Actor's Guild v. National Lampoon Clubhouse, Inc. During late 2006, the Screen Actor's Guild ("SAG") filed claims againstNational 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 approximately $30,000 more incompensation, expenses and benefit payments under the SAG agreement. Clubhouse disputes these claims and intends to vigorously defendthis action. Due to recent changes within SAG the arbitration with SAG is being rescheduled to take place on a date to be determined sometime during the fourth quarter 2008.

22


American Cinema Distribution Corporation v. National Lampoon, Inc. In August 2007, the American Cinema Distribution Corporation("ACDC") filed claims against National Lampoon, Inc. for costs incurred on the release of "National Lampoon's Pucked". ACDC allegesthat the Company did not perform distribution services as agreed and that ACDC should be reimbursed for distribution costs it incurredwhich are estimated to be approximately $65,000. ACDC also alleges that it does not owe distribution fees to the Company for marketing,publicity, promotional and advertising services the Company provided which services the Company alleges have a value in excess of$290,000. The Company disputes these claims, has filed for arbitration against ACDC as the agreement calls for and intends to vigorouslydefend this action.Item 2 - Unregistered Sales of Equity Securities and Use of ProceedsDuring the three months ended April 30, 2008, 99,999 shares of restricted stock were issued to Daniel Laikin upon the conversion of 1,775Series B Convertible Preferred Stock and 32,563 shares of restricted stock were issued to Daniel Laikin upon the conversion of the relatedaccrued dividends of $58,612 at a market price of $1.80. We relied on section 3(a)(9) of the Securities Act of 1933, as amended, to issuethese securities.During the three months ended April 30, 2008, we entered into an agreement with Rivalfish to issue 5,000 restricted shares at a marketprice of $2.00 with a total value of $10,000 for the purchase of intangible assets.In March 2007 we entered into an agreement with Sam Elhag to provide consulting services to us. In exchange for his services, we willissue 10,000 shares of restricted common stock to the consultant during the service period. During the three months ended April 30, 2008we issued a total of 4,167 shares of restricted common stock to Mr. Elhag having a total value of $8,101.In September 2007 we entered into an agreement with American Capital Ventures to provide consulting services to us. In exchange fortheir services, we will issue 60,000 shares of restricted common stock to the consultant during the twelve month service period. Theconsultant received 20,000 restricted common shares upon execution of the agreement with the balance being issued monthly at the rate of3,636 shares per month. During the three months ended April 30, 2008 we issued a total of 3,636 shares of restricted common stock havinga total value of $7,708. The consultant will also be paid a fee of $3,500 per month over the twelve month service period. In addition, theconsultant will be issued warrants to purchase 40,000 shares of restricted common stock over the twelve month service period.Unless otherwise noted, we relied on section 4(2) of the Securities Act of 1933 to issue the securities inasmuch as the common stock wasissued without any form of general solicitation or general advertising and the acquirers were accredited investors.Item 3 - Defaults Upon Senior SecuritiesNone.Item 4 - Submission of Matters to a Vote of Security HoldersNone.Item 5 - Other InformationNone.

23


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)




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




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




32
Certification by Chief Executive Officer and 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.




24




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 besigned on its behalf by the undersigned, thereunto duly authorized.

NATIONAL LAMPOON, INC.June 16, 2008
By:
/s/ Daniel S. Laikinfinal10qsb00.jpgDaniel S. Laikin,Chief Executive Officer




June 16, 2008
By:
/s/ Lorraine Evanofffinal10qsb00.jpgLorraine Evanoff,Chief Financial Officer




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EXHIBIT 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO RULES 13a-14 AND 15d-14OF THE SECURITIES EXCHANGE ACT OF 1934


I, Daniel S. Laikin, Chief Executive Officer and President of National Lampoon, Inc. (the "registrant"), certify that:I have reviewed this quarterly report on Form 10-QSB of National Lampoon, Inc.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report.Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods, presented in the report.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which the periodic report is being prepared;evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; anddisclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financialreporting; andThe registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and to the audit committee of the board of directors (or persons fulfilling the equivalent function):all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adverselyaffect the registrant's ability to record, process, summarize and report financial information; and(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant'sinternal control over financial reporting.Dated:  June 16, 2008/s/Daniel S. LaikinDaniel S. LaikinChief Executive Officer

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EXHIBIT 31.2CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICERPURSUANT TO RULES 13a-14 AND 15d-14OF THE SECURITIES EXCHANGE ACT OF 1934


I, Lorraine Evanoff, Chief Financial Officer of National Lampoon, Inc. (the "registrant"), certify that:I have reviewed this quarterly report on Form 10-QSB of National Lampoon, Inc.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report.Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods, presented in the report.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which the periodic report is being prepared;evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; anddisclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financialreporting; andThe registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and to the audit committee of the board of directors (or persons fulfilling the equivalent function):all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adverselyaffect the registrant's ability to record, process, summarize and report financial information; and(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant'sinternal control over financial reporting.Dated:  June 16, 2008/s/ Lorraine EvanoffLorraine EvanoffChief Financial Officer

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EXHIBIT 32CERTIFICATION OF OFFICERSOF NATIONAL LAMPOON, INC.PURSUANT TO 18 USC § 1350


Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United StatesCode) each of the undersigned officers of National Lampoon, Inc. (the "Company") does hereby certify, to such officer's knowledge, that:The quarterly report on Form 10-QSB for the period ended April 30, 2008 of the Company fully complies with the requirements of section13(a) or 15(b) of the Securities Exchange Act of 1934; andInformation contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of theCompany.Dated: June 16, 2008/s/Daniel S. LaikinDaniel S. LaikinChief Executive Officer/s/ Lorraine EvanoffLorraine EvanoffChief Financial Officer

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