UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

     |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                For the quarterly period ended: October 31, 2006

                                       OR

     |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                         Commission file number: 0-15284

                             NATIONAL LAMPOON, INC.
             (Exact name of registrant as specified in its charter)

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

                              8228 Sunset Boulevard
                              Los Angeles, CA 90046
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (310) 474-5252
               (Registrant's telephone number including area code)

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

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The registrant had 7,214,220 shares
of common stock, $0.0001 par value, issued and outstanding as of December 12,
2006.

Transitional Small Business Disclosure Format (Check one):
Yes |_| No |X|

<PAGE>

                           FORWARD LOOKING STATEMENTS

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

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

      o     whether we will be able to raise capital as we need it,

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

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

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

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

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

<PAGE>

PART I - FINANCIAL INFORMATION

Item 1 - Consolidated Financial Statements

                     NATIONAL LAMPOON, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                                     ASSETS
<TABLE>
<CAPTION>
                                                                        As of
                                                                       10/31/06
                                                                     ------------

<S>                                                                  <C>
CURRENT ASSETS
  Cash                                                               $    123,153
  Accounts receivable, Net of reserves of $220,832                      3,434,261
  Prepaid expenses and other current assets                                21,530
                                                                     ------------
    Total current assets                                                3,578,944
                                                                     ------------
NON-CURRENT ASSETS
  Fixed assets, net of accumulated depreciation $102,499                   22,047
  Capitalized television production costs, net of $889,784 in
  film financing and $1,229,051 of amortization (Note B)                  836,758
  Capitalized publishing costs, net of $141,983 of amortization            47,406
  Intangible assets, net of accumulated amortization of $4,290,424      1,719,861
                                                                     ------------
    Total non-current assets                                            2,626,072
                                                                     ------------
TOTAL ASSETS
                                                                        6,205,016
                                                                     ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                                   $    971,849
  Accrued expenses                                                        110,802
  Payroll accrual                                                          37,460
  Accrued royalties                                                       439,667
  Accrued dividends (Note H)                                            2,762,018
  Notes payable (Note  I ) - related party, including
    interest of $53,817                                                 1,294,986
  Deferred income                                                         256,268
                                                                     ------------
    TOTAL CURRENT LIABILITIES                                           5,873,050
                                                                     ------------

COMMITMENTS AND CONTINGENCIES (Note M)

SHAREHOLDERS' EQUITY
   Series B Convertible Preferred Stock, par value $.0001 per
     share, 68,406 shares authorized, 63,607 shares issued                      6
   Series C Convertible Preferred Stock, par value $.0001 per
     share, 250,000 shares authorized, 224,761 shares issued                   22
   Common Stock, par value $.0001 per share, 60,000,000 shares
     authorized and 7,196,256 shares issued                                   720
   Additional paid-in capital                                          37,351,003
   Accumulated deficit                                                (37,019,785)
                                                                     ------------
     TOTAL SHAREHOLDERS' EQUITY                                           331,966
                                                                     ------------
TOTAL LIABILITIES AND SHARESHOLDERS' EQUITY
                                                                        6,205,016
                                                                     ============
</TABLE>


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

<PAGE>

                     NATIONAL LAMPOON, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                     Three Month Period Ended
                                                                            October 31,
                                                                       2006             2005
                                                                   ------------    ------------

<S>                                                                <C>             <C>
REVENUES
  Production                                                       $     39,000    $     51,333
  Licensing                                                           3,109,795         190,320
  Tours                                                                      --           2,534
  Advertising & Promotion                                               842,730         594,001
  Publishing                                                            138,248           4,643
                                                                   ------------    ------------
    Total revenues                                                    4,129,773         842,831
                                                                   ------------    ------------

COSTS AND EXPENSES
  Costs related to production revenue                                     3,000
  Costs related to licensing revenue                                     61,196          86,440
  Costs related to tours revenue                                             --          34,864
  Costs related to advertising and promotion revenue                    715,467         661,165
  Amortization of capitalized television production costs                14,372          95,350
  Amortization of intangible assets                                      61,140          60,000
  Amortization debt issuance costs                                           --         313,000
  Provision for doubtful accounts                                        34,000          76,345
  Selling, general and administrative expenses                        1,170,813       1,416,111
  Stock options issued for services                                     322,545          68,735
                                                                   ------------    ------------
    Total costs and expenses                                          2,382,533       2,812,010
                                                                   ------------    ------------
OPERATING INCOME (LOSS)                                               1,747,240      (1,969,179)
                                                                   ------------    ------------
OTHER INCOME (EXPENSE)
  Interest income                                                            --          33,671
  Interest expense                                                      (13,912)
  Other income                                                               --           4,220
                                                                   ------------    ------------
    Total other income                                                  (13,912)         37,891
                                                                   ------------    ------------
NET INCOME (LOSS) BEFORE MINORITY INTEREST                         $  1,733,328    $ (1,931,288)
                                                                   ------------    ------------
Minority Interest In Income of Consolidated Subsidiary                       --          52,250
LOSS BEFORE INCOME TAXES                                           $  1,733,328    $ (1,879,038)
                                                                   ------------    ------------
  Provision for income taxes                                                 --              --
                                                                   ------------    ------------
NET INCOME (LOSS)                                                     1,733,328      (1,879,038)
                                                                   ------------    ------------
  Accrued dividends (Note H)                                           (320,975)       (328,150)
                                                                   ------------    ------------
  Net Income (loss) attributable to common shareholders            $  1,412,353    $ (2,207,188)
                                                                   ============    ============

Net Income (loss) per share attributable to common shareholder -
                                                                   ------------    ------------
Basic                                                              $       0.20    $      (0.34)
                                                                   ============    ============
Net Income (loss) per share attributable to common shareholder -
                                                                   ------------    ------------
Fully diluted                                                      $       0.09    $      (0.34)
                                                                   ============    ============

Weighted average number of common shares - Basic                      7,151,513       6,479,708
Weighted average number of common shares - Fully diluted             15,230,224       6,479,708
</TABLE>


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

<PAGE>

                     NATIONAL LAMPOON, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                              October 31,
                                                      --------------------------
                                                         2006           2005
                                                      -----------    -----------

<S>                                                   <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income (Loss)                                   $ 1,733,328    $(1,879,038)
  Adjustments to reconcile net income (loss) to net
  cash used in operating activities:
    Depreciation                                            2,939          4,440
    Amortization of intangible assets                      61,140         60,000
    Amortization of debt issuance costs                        --        313,000
    Amortization of capitalized production costs            8,622         95,350
    Stock, options and warrants issued for services       425,370         68,739
    Provision for doubtful accounts                       174,625         76,345
  Changes in assets and liabilities:
    Increase in accounts receivable                    (2,858,476)      (174,762)
    Decrease in prepaid expenses and other assets          38,092        143,777
    Decrease in publishing costs                           38,446             --
    Increase in production costs                         (156,575)      (752,690)
    Increase in accounts payable                           20,890        131,163
    Decrease in accrued expenses                          (11,791)      (453,051)
    Decrease in payroll accrual                           (91,496)       (59,964)
    Increase in deferred revenues                              --        370,000
                                                      -----------    -----------
  NET CASH USED IN OPERATING ACTIVITIES                  (614,886)    (2,056,691)
                                                      -----------    -----------

  CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of fixed assets                               (7,413)        (4,988)
    Purchase of intangible assets                          (3,652)            --
    Investments (Note M)                                     (800)            --
                                                      -----------    -----------
NET CASH USED IN INVESTING ACTIVITIES                     (11,865)        (4,988)
                                                      -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Film financing                                            5,034        444,250
  Minority interest                                            --        (52,250)
  Proceeds from issuance of common stock                       --      9,600,000
  Payments related to the issuance of common stock             --     (1,279,341)
  Payments of notes payable                               (54,143)    (3,412,383)
  Proceeds from the exercise of stock options                  --          2,208
  Proceeds from notes payable                             724,411             --
                                                      -----------    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                 675,302      5,302,484
                                                      -----------    -----------
NET INCREASE IN CASH                                       48,551      3,240,805
CASH AT BEGINNING OF PERIOD                                74,601        110,695
                                                      -----------    -----------
CASH AT END OF PERIOD                                     123,152      3,351,500
                                                      ===========    ===========
Supplemental disclosures of cash flow information:
  Cash paid for Taxes                                 $     4,100    $        --
                                                      ===========    ===========
  Interest paid                                       $        --    $   111,847
                                                      ===========    ===========
  Stock and options issued for services               $   425,370    $    68,739
                                                      ===========    ===========
</TABLE>

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


<PAGE>

NOTE A -- BASIS OF PRESENTATION AND GOING CONCERN

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

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company's net loss of
$6,859,085 and $8,669,170 in the prior two fiscal years, accumulated deficit of
$37,019,785 at October 31, 2006, net income of $1,733,328 which arose from the
settlement of a participation audit with Universal Studios and negative working
capital of $2,294,106 raises substantial doubt about our ability to continue as
a going concern and our independent auditors have included a going concern
explanatory paragraph in their report on our financial statements for the year
ended July 31, 2006. We are currently devoting efforts to raising additional
capital and achieving profitable operations. Our ability to continue as a going
concern is dependent upon our ability to develop additional sources of capital
and revenue. The accompanying financial statements do not include any
adjustments that might result from the outcome of these uncertainties. As of
December 12, 2006, we had cash on hand of approximately $1.1 million and
receivables totaling approximately $1.1 million. In order to satisfy future
capital requirements, management is actively pursuing and has entered into
discussions with Red Rock Pictures Holdings, Inc. (Note L) regarding additional
financing for film cost productions.

NOTE B - CAPITALIZED PRODUCTION COSTS

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

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

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

The portion of the costs of the Company's completed films that are expected to
be amortized during the upcoming 12 months is $505,554.

Production costs on theatrical films in production and development were $300,820
at October 31, 2006 and production costs for the Company's National Lampoon
Network product were $30,384 at October 31, 2006.

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

NOTE C - CONTROLLED COMPANY STATUS

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

<PAGE>

As of October 31, 2006, the Company owed Timothy Durham, a director,
approximately $477,500 in principal and $44,753 in interest. The obligation to
Mr. Durham is payable on demand. $471,076 of the principal and interest had been
paid to Mr. Durham as of December 5, 2006.

As of October 31, 2006, the Company owed Dan Laikin, the Company's Chief
Executive Officer, approximately $674,000 in principal and $7,909 in interest.

NOTE D - IMPAIRMENT

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

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

The Company determined that there was no impairment of the National Lampoon(TM)
trademark and there was no impairment of film costs during the quarter ended
October 31, 2006.

NOTE E - STOCK OPTIONS

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

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

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

<PAGE>

Beginning August 1, 2006, the Company records forfeitures in accordance with
SFAS No. 123(R) by estimating the forfeiture rates for share-based awards
upfront and recording a true-up adjustment for the actual forfeitures. In the
three months ended October 31, 2006, the calculation of forfeitures did not have
a material effect on the Company's results of operations, financial position or
cash flows.


     The fair value of each option award is estimated on the date of grant using
a closed-form option valuation model (Black-Scholes) based on the assumptions
noted in the following table. The expected term of options granted represents
the period of time that options granted are expected to be outstanding. The
following table represents the assumptions used in the Black-Scholes
option-pricing model for options granted during the three months ended October
31, 2006:

                                                           Three Months Ended
                                                             October 31
                                                       ------------------------
                                                           2006          2005
                                                       ----------    ----------

risk-free interest rate                                       5.5%          5.5%
expected option lives (in years)                                6             6
expected volatility for options                              72.1%        127.3%
expected dividend yield                                      None          None


     The following table illustrates the effect on net loss and loss per common
share if the Company had applied the fair value recognition provisions of SFAS
No. 123 to stock options issued and modified under the Company's stock option
plans for the three months ended October 31, 2005. For purposes of this pro
forma disclosure, the value of the options is estimated using a Black-Scholes
option-pricing model and amortized to expense over the options' vesting periods.


<TABLE>
<CAPTION>
                                                                     Three Months Ended
                                                                         October 31,
                                                                            2005

<S>                                                                <C>
Net loss attributable to common shareholders - as reported         $        (2,138,453)
APB 25 expense recognized                                                           --
Stock option compensation under-fair value method                             (359,651)
Net loss attributable to common shareholders-pro forma             $        (2,566,749)
Basic and diluted earnings/(loss) per share-as reported            $              (.34)
Basic and diluted earnings/(loss) per share-pro forma              $              (.40)
</TABLE>

      On January 30, 2002 our Board of Directors approved the J2 Communications
Amended and Restated 1999 Stock Option, Deferred Stock and Restricted Stock Plan
(the "Equity Incentive Plan"). The Equity Incentive Plan was approved by our
stockholders on April 25, 2002.The Equity Incentive Plan has a term of 10 years
and is currently administered by our Board of Directors, which shall be referred
to in this discussion as the "Administrator". Pursuant to the Equity Incentive
Plan, the Administrator may grant to eligible persons, which include employees,
officers, directors, consultants and advisors, awards of options (which may be
qualified or non-qualified, depending upon whether or not the eligible person is
an employee), stock appreciation rights (commonly known as "SARs") or deferred
common stock or restricted common stock. 1,500,000 shares of our common stock
were originally set aside for grants made under the Equity Incentive Plan. The
number of shares of common stock set aside for grants was increased to 2,500,000
in the 2004 fiscal year. In September 2004 our Board of Directors authorized a
two-for-one stock split, making 5,000,000 shares of common stock available for
grants.

On October 27, 2005 our Board of Directors adopted the National Lampoon, Inc.
2005 Consultant Plan (the "2005 Plan"). We obtained shareholder approval of the
2005 Plan on January 18, 2006. The purpose of the 2005 Plan is to allow us to
use our securities to obtain and retain the consulting services of persons upon
whose judgment, initiative, efforts and/or services we rely. We have set aside
250,000 shares of our common stock for awards to be made from the 2005 Plan.
Officers, directors and employees of our company are not eligible to receive
awards from the 2005 Plan. The term of the 2005 Plan is 10 years.

<PAGE>

The 2005 Plan is administered and interpreted by a committee consisting of two
or more members of the Board but if no committee is appointed, then the Board
administers and interprets the 2005 Plan. The committee has the authority to
designate the persons eligible to receive awards, grant awards, impose
limitations, restrictions and conditions upon any award, interpret and
administer the 2005 Plan and delegate all or a portion of its authority to take
these actions to one or more of our executive officers who are also directors.
Awards consist of grants of shares of our common stock, either as a bonus or as
compensation for services rendered and options. The committee may subject shares
of common stock granted as awards to vesting conditions. If vesting conditions
are not satisfied, we may require the award recipient to forfeit the unvested
shares. Option grants may also be subject to vesting conditions. The exercise
price of any option may not be less than 85% of the fair market value of the
common stock on the date of grant. Options may only be exercised for cash.

The Board has the authority, without shareholder approval, to amend the 2005
Plan to increase the number of shares to be reserved and issued under it.

         Under the Equity Incentive Plan and the 2005 Plan, we expensed $261,241
and $68,735 during the three month periods ended October 31, 2006 and 2005,
respectively, for services rendered by non-employees utilizing the guidance for
share based payment transactions with parties other than employees provided in
statement 123 as originally issued and EITF No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods and Services.

     The fair value of each option award is estimated on the date of grant using
the Black-Scholes option valuation model based on the assumptions noted in the
following table. The expected term of options granted represents the period of
time that options granted are expected to be outstanding. The following table
represents the assumptions used in the Black-Scholes option-pricing model for
options granted during the three months ended October 31, 2006:


                                                         Three Months Ended
                                                             October 31
                                                       ------------------------
                                                          2006          2005
                                                       ----------    ----------

risk-free interest rate                                       5.5%          5.5%
expected option lives (in years)                                6             6
expected volatility for options                              72.1%        127.3%
expected dividend yield                                      None          None


NOTE F - FILM FINANCING

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

On May 6, 2005, the Company signed a Deal Memorandum with Laughter Heals
Productions, Inc. and Newco (an entity to be formed) with respect to the
financing, development and production of a film tentatively titled "Totally
Baked." On August 5, 2005 the parties formed Totally Baked LLC, through which
the film will be made. Pursuant to the Deal Memorandum, Newco will provide the
funds for the production.

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

<PAGE>

Furthermore, the Company seeks to utilize third party financing to produce its
product thereby reducing the financial risk associated with motion picture
production. In order to maintain and improve its brand name, the Company
maintains control of all business and creative elements associated with film
production and distribution. In contrast, when the Company licenses its name to
a film, it has little or no operational or creative control. In the case of
Totally Baked LLC the entity was created for the sole purpose of producing the
motion picture titled "Totally Baked". The motion picture is now completed and
during the development and production period the Company maintained and
continues to maintain control over all aspects of the film irrespective of the
contractual terms. The Company will distribute and/or sell the distribution
rights throughout the world wide exhibition market which gives the Company
complete control going forward. The Company will control all cash receipts
during the exploitation phase of the motion picture as it controlled all cash
disbursements during the production phase.

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

The production financing was recorded against capitalized production costs.

NOTE G - NET INCOME OR LOSS PER SHARE

Diluted earnings per share amounts are calculated using the treasury method and
are based upon the weighted average number of common and common equivalent
shares outstanding during the period. Basic earnings per share is $.20 and fully
diluted earnings per share is $.09 at October 31, 2006. Basic and diluted
earnings per share are the same at October 31, 2005 as common equivalent shares
have been excluded from the computation due to the fact they are anti-dilutive.
Options and warrants to purchase 10,004,139 common shares during the three
months ended October 31, 2005 are not included in the calculation of diluted
earnings per share because their inclusion would be anti-dilutive. 8,178,711
shares that would be issuable upon conversion of the convertible preferred stock
are not included in the calculation of diluted earnings per share during the
three months ended October 31, 2005 because their inclusion would be
anti-dilutive.

At October 31, 2006, there are 63,607 Series B Convertible Preferred Shares and
224,761 Series C Convertible Preferred Shares. Upon conversion of the 63,607
Series B Convertible Preferred Shares, 3,583,491 common shares would be
issuable. Upon conversion of the 224,761 Series C Convertible Preferred Shares,
4,495,220 common shares would be issuable. This would result in a diluted
weighted average number of shares of 15,230,224 at October 31, 2006.

Each Series B Convertible Preferred Share is convertible into 56.338 common
shares. Each Series C Convertible Preferred Share is convertible into 20 common
shares. Warrants attached to the Series B and Series C Convertible Preferred
Stock are not included in the calculation of diluted earnings per share during
the three months ended October 31, 2006 because their inclusion would be
anti-dilutive.

Options and warrants to purchase 11,524,109 common shares during the three
months ended October 31, 2006 are not included in the calculation of diluted
earnings per share because their inclusion would be anti-dilutive.

NOTE H - ACCRUED SERIES B AND C DIVIDENDS

Dividends accrue on the Company's Series B and Series C Convertible Preferred
Stock. The Company accrued dividends on a daily basis and will continue to do so
until the date at which the Series B or Series C Convertible Preferred Stock is
converted, until a liquidation event occurs, or, in the case of the Series C
Convertible Preferred Stock, until the redemption date (although the redemption
date is not defined and there is no right of redemption as to the Series C
Convertible Preferred Stock). Dividends accrue at the rate of 9% per annum on
the sum of the original purchase price of the Series B or Series C Convertible
Preferred Stock plus all accumulated and unpaid dividends thereon (compounding
annually). Dividends that accrue on the Company's Series B and Series C
Convertible Preferred Stock must be paid with our common stock. During the three
month period ended October 31, 2006, the Company accrued $325,002 of Series B
and Series C dividends. At October 31, 2006, the Company had accrued $2,762,018
representing the total value of the dividends for Series B and Series C
dividends.

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

<PAGE>

NOTE I - NOTES PAYABLE AND ACCRUED INTEREST

Timothy Durham, a director, was owed approximately $477,500 in principal and
$30,278 in interest at October 31, 2006. A repayment of approximately $187,000
was made to Mr. Durham on or about December 1, 2006.


Dan Laikin, the Company's Chief Executive Officer, was owed approximately
$674,193 in principal and $7,910 in interest at October 31, 2006.

Christopher R. Williams, a shareholder, was owed approximately $75,000 in
principal and $1,155 in interest at October 31, 2006.

Approximately $14,475 in interest was owed at October 31, 2006 for the financing
of Totally Baked.

NOTE J - STOCKHOLDER EQUITY

On August 1, 2006, the Company entered into a monthly consulting arrangement
whereby the consultant would receive 5,000 common shares per month during the
engagement period. During the three month period ended October 31, 2006, the
Company issued 15,000 shares and expensed $20,050 which was equivalent to the
fair market value when the shares were issued.

On October 26, 2006, the Company issued 5,495 common shares to a consultant for
services rendered. The Company expensed $10,000 which was equivalent to the fair
market value on the date of issuance.

On October 3, 2006 the Company issued 27,547 common shares to a consultant for
production services on one of our films. The Company expensed $52,339 which was
equivalent to the fair market value on the date of issuance.

NOTE K - SEGMENT INFORMATION

Segment Reporting - SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information results in the use of a management approach in
identifying segments of an enterprise. The Company operates in five business
segments: licensing and exploitation of the National Lampoon(TM) trademark and
related properties including the sale of products to consumers; advertising and
promotions on its websites, field marketing, live events and the distribution of
television programming on college campuses; production of television, and DVD
products; the sale of sponsorships and advertising at "Spring Break" events; and
production of motion pictures through National Lampoon Clubhouse, Inc. Segment
operating income/(loss) excludes the amortization of intangible assets, interest
income, and income taxes. Selling, general and administrative expenses not
specifically attributable to any segment have been prorated based on revenue
among the five segments. Summarized financial information for the three months
ended October 31, 2006 and October 31, 2005 concerning the Company's segments is
as follows:

<TABLE>
<CAPTION>
                                      Licensing &    Advertising &
                                      Publishing       Promotion      Production     Travel Services     Clubhouse       Total
                                      -----------    -------------    -----------    ---------------    -----------   -----------


<S>                                   <C>            <C>              <C>            <C>                <C>           <C>
Three Months Ended October 31, 2006
  Segment revenue                     $ 3,248,043    $     842,730    $    39,000    $            --    $        --   $ 4,129,773
  Segment operating income (loss)     $ 1,985,589    $    (198,786)   $    21,576    $            --    $        --   $ 1,808,379
  Depreciation expense                $     1,363    $       1,576    $        --    $            --    $        --   $     2,939

Three Months Ended October 31, 2005
  Segment revenue                     $   195,000    $     594,000    $    51,000    $         2,500    $        --   $   842,500
  Segment operating (loss)            $  (905,000)   $    (598,000)   $  (343,000)   $       (63,000)   $        --   $(1,909,000)
  Depreciation expense                $     2,375    $      31,828    $        --    $            --    $        --   $    34,203
</TABLE>

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

<TABLE>
<CAPTION>
                                                              FOR THE THREE MONTHS ENDED
                                                               31-Oct-06      31-Oct-05
                                                              -----------    -----------

<S>                                                           <C>            <C>
Total segment operating income (loss)                         $ 1,808,379    $(1,909,000)

Amortization of intangible assets                             $   (61,140)   $   (60,000)

Interest expense                                              $   (13,911)   $        --

Interest Income                                               $        --    $    38,000

                                                              -----------    -----------
Net income (loss) before minority interest and income taxes   $ 1,733,328    $(1,931,000)
                                                              ===========    ===========
</TABLE>


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

<TABLE>
<CAPTION>
                                                                        AS OF
                                                               31-Oct-06     31-Oct-05
                                                              -----------   -----------

<S>                                                           <C>           <C>
Total assets for reportable segments                          $ 4,362,003   $ 1,606,496

Intangible assets not allocated to segments                   $ 1,719,861   $ 1,777,348

Cash                                                          $   123,153   $    74,601

                                                              -----------   -----------

Total assets                                                  $ 6,205,016   $ 3,458,446
                                                              ===========   ===========
</TABLE>


NOTE L - RELATED PARTY TRANSACTIONS

In October 2006 the Company invested $800 in Red Rock Pictures Holdings, Inc.
which is a publicly traded entity classified as a development stage company. The
investment represents approximately 19.5% of the total outstanding shares of Red
Rock Pictures Holdings, Inc. At August 31, 2006, which represents the most
recent financial information provided to National Lampoon, Red Rock Pictures
Holdings, Inc had approximately $1,900 in total assets. The Company recorded the
transaction under the cost method. In September 2006 Red Rock entered into a sub
lease agreement with National Lampoon, Inc. for office space at $2,000 per
month. Two members of National Lampoon's board of directors, Robert Levy and
Daniel Laikin, also own stock in Red Rock Pictures Holdings, Inc.

NOTE M - COMMITMENTS AND CONTINGENCIES


National Lampoon, Inc. v. Alma Investments (d/b/a Bahia Mar Hotel) (Los Angeles
Superior Court Case No. BC 356118). The Company filed this complaint on July 27,
2006. The action arises from an agreement we had with Bahia Mar Hotel pursuant
to which we were to provide to Bahia Mar Hotel an entertainment package for the
2006 spring break. Bahia Mar Hotel failed to support the program, and, in fact,
diverted some of the business to our competitors. In our complaint, we have
alleged causes of action for fraud, breach of contract, promissory estoppel,
quantum meruit and breach of the covenant of good faith and fair dealing. We
believe that our damages are in excess of $500,000. On September 22, 2006 Bahia
Mar Hotel filed a motion to quash service of summons, which the Court denied on
October 25, 2006. On November 14, 2006 Bahia Mar Hotel filed a demurrer only to
our cause of action for fraud and a motion to strike our claim for punitive
damages in connection with the same cause of action for fraud. The hearing on
Bahia Mar Hotel's motion is set for January 10, 2007. We have decided that we
will simply amend our complaint in response to Bahia Mar Hotel's demurrer and
motion to strike.

<PAGE>

Walter Briggs v. National Lampoon, Inc. (Los Angeles Superior Court Case No.
BC360336). This complaint was filed on October 16, 2006. Mr. Briggs alleges a
cause of action for breach of contract, specifically claiming that we failed to
make scheduled payments pursuant to a written agreement with him. The complaint
specifically alleges that the amount due and owing from us to Mr. Briggs is at
least $16,500. We intend to vigorously defend this action as we believe that it
is without merit.

Cinergy Creative, Inc. and Leslie Allen v. National Lampoon Clubhouse, Inc.,
National Lampoon, Inc., Majestic Entertainment, Inc. and Lorenzo Doumani (Los
Angeles Superior Court Case No. SC091496). This complaint was filed on October
20, 2006. The plaintiffs allege causes of action for alter ego, breach of
written contract, breach of oral contract, breach of the implied covenant of
good faith and fair dealing, quantum merit, fraud and deceit based on promises
made without intention to perform, intentional misrepresentation, slander per
se, libel per se, breach of confidence, declaratory relief, conversion, untrue
or misleading advertising, unfair competition and negligence. Specifically, the
plaintiffs allege that we and our co-defendants induced them to set aside other
projects so that they would spend their time working on projects for the benefit
of us and our co-defendants. The plaintiffs also allege that they were promised
a share of profits from the projects and/or a "partnership" interest in them.
The plaintiffs allege that their damages are in excess of $2,000,000. We intend
to vigorously defend this action as we believe that it is without merit.

Hinchy v. Collison, Lovett, National Lampoon, etc. (San Bernardino Superior
Court Case No. RCV098387). The Complaint was filed on October 5, 2006. The
Company was served with the Complaint in November 2006. The Company filed an
answer on December 11, 2006. The plaintiff alleges a claim for negligence,
namely causing property damage to a recreational vehicle. The Company disputes
the claim and intends to vigorously defend this action.

NOTE N - SUBSEQUENT EVENTS

On November 29, 2006, the board of directors of the Company granted the
following stock options under the Equity Incentive Plan as compensation to
various individuals that had rendered services to the Corporation:

<TABLE>
<CAPTION>
Number of  Options   Stock Option Price      Vesting Period              Expiration
------------------   ------------------      --------------              ----------

<S>                        <C>            <C>
225,000                    $2.50          1/3 over 3 years from grant date of 7 years from grant date
</TABLE>


Also on November 29, 2006, the board of directors of the Company granted 2,000
common shares per month to a consultant during the term for services performed
by the consultant on behalf of the Company. The board also granted the
consultant 100,000 warrants at a $2.50 exercise price vesting over three years
with an expiration of 7 years from the date of grant.

Between November 15, 2006 and December 4, 2006 the Company re-paid loans of
approximately $469,000 in principal and interest to Timothy Durham, a director.

On December 8, 2006, Jeff Gonzalez the Company's acting Chief Financial Officer
resigned from the Company, effective December 15, 2006.

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

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

Overview

      We are a media and entertainment company that creates and distributes
comedic content. The National Lampoon(TM) brand was initially developed in 1970
through publication of National Lampoon Magazine and later through the use of
our name on motion pictures, including National Lampoon's Animal House and
National Lampoon's Vacation.

<PAGE>

      Our plan is to expand the use of our brand in order to increase the
revenues we generate through license fees, advertising and other sources. We are
pursuing this plan as follows:

Motion Picture Production

      We produce feature films. We have interests in two entities, National
Lampoon Clubhouse, Inc., which is producing the film Monster Night AKA Trick or
Treat, and Totally Baked, LLC, which is producing the film currently titled
Totally Baked. Both motion pictures are expected to be released during the 2007
fiscal year. The Company is also currently in production on a feature film
titled Bag Boy which was wholly financed by National Lampoon and is expected to
be released during the second half of 2007. We also earn revenues from providing
producer/manager services for films that do not carry our brand.

      During the three months ended October 31, 2006, revenues derived from
producer and management fees totaled $39,000 or 1% of all the revenues we earned
during the period.

Licensing

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

      For the three months ended October 31, 2006, revenues derived from our
licensing and royalties (exclusive of revenues derived from our publishing
activities) totaled $3,109,795 or approximately 75% of the revenues we earned
during the period. Approximately $2.9 million of this revenue was realized from
a settlement relating to royalties earned during periods prior to September 30,
2004 for the film National Lampoon's Animal House.

National Lampoon Networks

      National Lampoon Networks, Inc. (sometimes referred to in this report as
"NLN") includes the National Lampoon Network, which is made up of four internet
destination sites with the names National Lampoon.com, TOGA TV, the National
Lampoon Humor Network and Knucklehead video. We sell advertising space on these
sites in the form of video streamed commercials along with banner
advertisements. We believe that we provide an appealing platform to those
advertisers who want their commercial messages to reach the college age market.
For those businesses targeting the college market, NLN provides an integrated
marketing platform that includes internet advertisers, on-air advertising, and
field marketing.

      We recently entered into a content distribution agreement with AOL whereby
we launched the National Lampoon Video Channel on the AOL video service. We sell
advertising space, including video streaming, on AOL's service.

      NLN also has more than 200 affiliated college and other television
stations, reaching nearly 2 million college students in their dormitories and
other places of residence.

      Aside from providing an outlet for advertisers targeting the college
market, NLN develops, produces and distributes comedic television programming to
college audiences through its network. AV Squad, Greek Games, College Town and
Master Debaters are among some of the television and internet programming that
we developed and produced and are now distributing in the retail market.

      For the three month period ended October 31, 2006, revenues derived from
National Lampoon Networks, exclusive of licensing revenues, totaled $842,730 or
approximately 20.4% of all the revenues we earned during this period.

Travel Services

      During the academic year we will market, advertise and promote products
for corporate customers at major spring break locations utilizing our market
expertise in the college and young adult market.

      Since spring break activities begin in the third quarter of the fiscal
year, no revenue was earned during this period.

<PAGE>

Publishing

      In October 2002, we entered into an agreement with Rugged Land LLC to
publish six National Lampoon books over a three-year period based on new and
established National Lampoon comedic content. We have released four books under
this agreement, including 1964 High School Reunion Year Book, National Lampoon's
Book of Love, National Lampoon's Big Book of True Facts and National Lampoon's
Encyclopedia of Humor.

      During the 2006 fiscal year we began publishing our books. As of October
31, 2006, we have released three books including National Lampoon's Saddam
Dump[Saddam Hussein's Trial Blog], National Lampoon's Magazine Rack, and
National Lampoon's Jokes Jokes Jokes. Two other books are due out in the second
quarter of 2007, National Lampoon's Favorite Cartoons of the 21st Century and
National Lampoon's Not Fit for Print.

      For the quarter ended October 31, 2006, revenues derived from our
publishing activities totaled $138,248, or approximately 3.3 % of all the
revenues we earned during this period.

Radio

      In March 2005, NL Radio, LLC was formed. We hold a 25% interest in this
entity. NL Radio, LLC launched an entertainment radio format under our brand. We
have licensed the content of our radio library, as well as certain domain names,
URL's and websites, to NL Radio, LLC for this purpose. NL Radio, LLC used
samples of the programming, called "pilot programming," to introduce the format
and content to radio networks and local stations. If the programming is sold to
a network it may be syndicated, meaning that it would be distributed to stations
affiliated with the network. Purchasers of the programming may broadcast
segments of the programming at their discretion, such as during "drive time" or
as late night programming. Programming was launched on XM radio in fiscal 2007.
Our radio library includes approximately 80 hours of National Lampoon radio
programming consisting primarily of one to two minute short comedy routines and
one hour comedy sketches and parodies. Revenue will be earned from ad sales,
direct response advertising and product promotion arrangements. We will receive
a licensing fee equal to 8% of the gross receipts received by NL Radio, LLC from
all sources in connection with any use of our brand. No revenue was realized
from NL Radio, LLC during this period.

Library

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

Business Objective

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

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

      o     We intend to expand our film library by increasing the number of
            film products we produce internally. We currently have one film in
            production and are actively developing three new projects and have
            finalized distribution arrangements with Comedy Central and a number
            of home video distributors and retailers. In some cases we are
            guaranteed a minimum payment upon delivery of the film to the
            respective broadcaster or distributor.

      o     We plan to capitalize on our reputation and relationships with
            independent studios and other multimedia companies to expand the use
            of the National Lampoon(TM) brand.

      o     We plan to create new licensing opportunities in markets outside of
            publishing, film and television, such as games, records, radio
            programming and live events. We have hired a person to work on
            product placement and licensing.

      o     National Lampoon Networks continues to provide field marketing
            campaigns for various advertisers.

      o     We started publishing and distributing books we created to continue
            capitalizing on the National Lampoon brand.

<PAGE>

      o     NL Radio, LLC plans to launch an entertainment radio format using
            our brand. We own a 25% interest in NL Radio, LLC.

Critical Accounting Policies

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

Production Costs

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

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

Revenue Recognition

      Our revenue from National Lampoon Networks and film distribution is
derived from broadcast licensing agreements, royalties, distribution fees, the
sale of distribution rights and the sale of home videos. Revenue is recognized
in accordance with the requirements of SOP 00-2. Revenue from broadcast
licensing agreements, together with related costs, are recognized once the
licensing periods have commenced, the programs are delivered and collection is
reasonably assured. Revenue from internet advertising sales is recognized once
the flight or advertisement campaign is completed based on the terms of the
contract. We have not engaged in any barter transactions. Revenue from royalties
and distribution fees is recognized when received. Revenue from the sale of
distribution rights is recognized when the film or television programs are
substantially complete, the investors have irrevocably committed to acquire
distribution rights and there is reasonable assurance of collecting the
proceeds.

Impairment

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

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

Reorganization Transaction

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

Results of Operations

      We operate in five business segments, namely,

      o     licensing and exploitation of the National Lampoon(TM) trademark and
            related properties including the sale of products to consumers;

<PAGE>

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

      o     production television and DVD products;

      o     sale of corporate sponsorships at spring break events; and

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

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

<TABLE>
<CAPTION>
                                      Licensing &    Advertising &
                                      Publishing      Promotion       Production     Travel Services     Clubhouse        Total
                                      -----------    -------------    -----------    ---------------    -----------   -----------
<S>                                   <C>            <C>              <C>            <C>                <C>           <C>
Three Months Ended October 31, 2006
  Segment revenue                     $ 3,248,043    $     842,730    $    39,000    $            --    $        --   $ 4,129,773
  Segment operating income  (loss)    $ 1,985,589    $    (198,786)   $    21,576    $            --    $        --   $ 1,808,379

Three Months Ended October 31, 2005
  Segment revenue                     $   195,000    $     594,000    $    51,000    $         2,500    $        --   $   842,500
  Segment operating (loss)            $  (905,000)   $    (598,000)   $  (343,000)   $       (63,000)   $        --   $(1,909,000)
</TABLE>


Three Months Comparative Analysis for the Three Month Period ending October 31,
2006.

Licensing and Publishing Revenues

         Licensing and publishing revenues for the three months ended October
31, 2006 were $3,248,043 compared to $195,000 for the three months ended October
31, 2005, representing an increase of 1,593%. This increase was primarily
attributable a $2.9 million settlement of outstanding royalties due to us from
Universal City Studios, LLP for the film National Lampoon's Animal House. We
also realized $138,000 in revenue from the publication of our books. There was
no comparative publishing revenue in the prior year period because the initial
books were released during the fourth quarter of the 2006 fiscal year.

         Operating income increased $2,890,589 from the prior year primarily
from the royalty settlement with Universal City Studios, LLP as there were very
low segment costs attributed to this revenue.

Advertising and Promotion Revenues

         During the three months ended October 31, 2006, National Lampoon
Network's combined advertising and promotion revenues increased to $842,730 from
$594,000 for the three months ended October 31, 2005, representing an increase
of 41%. The increase in revenue was primarily as a result of advertising revenue
realized from our internet destination sites. During the three months ended
October 31, 2005, we had one internet site as compared to four sites for the
three months ended October 31, 2006.

         Costs related to advertising revenues include bandwidth usage fees,
website development costs, and content conversion costs along with some
amortization of capitalized television production costs. We incur costs related
to promotion revenues based on direct costs of live events and promotion of
third-party feature films, which are expensed as they are incurred. Amortization
of capitalized production costs was approximately $14,000 during the three
months ended October 31, 2006, as compared to approximately $95,000 during the
three months ended October 31, 2005. Costs related to internet advertising and
promotion revenues for the three months ended October 31, 2006 were
approximately $729,840 as compared to approximately $661,000 during the three
months ending October 31, 2005.

         Costs related to advertising and promotion revenue increased
approximately $68,840 or 10% during the three months ended October 31, 2006 as
compared to the same period in 2005. The increase in costs for the three month
period ended October 31, 2006 was a direct result of the 41% increase in
revenue. We realize significantly higher profit margins on internet based
advertising as compared to promotional revenue. Thus, the increase in revenue
resulted in a proportionately small increase in costs.

<PAGE>

Production Revenues

      For the three months ended October 31, 2006, production revenues were
approximately $39,000 as compared to $51,000 for the three months ended October
31, 2005. We traditionally do not produce product unless we have a presale,
minimum guarantee or co-production agreement in place. This reduces our risk as
productions tend to be capital intensive. However, we are planning on expanding
our productions and we have negotiated an output arrangement with Comedy Central
which guarantees us a cable distribution outlet for our new product along with a
minimum return on each new motion picture release. The output arrangement
provides for a pre-negotiated minimum guarantee or sales price for the licensing
of a specific media and territory. We have also negotiated home video
distribution with a number of retailers and distributors. There is no minimum
price guarantee but the arrangement provides us a video distribution outlet for
our new product. As these output arrangements are signed, we will allocate
additional internal resources to this segment of our business.

      The segment operating income increased $364,576 or 106% as a larger
percentage of indirect costs were allocated to other revenue segments because of
the significant increase in overall revenue during the three months ended
October 31, 2006 as compared to the three months ended October 31, 2005. We
anticipate that revenue and its related cost from film production will increase
in future periods as we concentrate more resources on this segment of our
overall business.

Travel Services Revenues

      We earned no revenue from this segment of our business during the quarter
ended October 31, 2006 as sponsorship and advertising revenues for travel
related services are typically earned during spring break, which generally
occurs in the third quarter of our fiscal year.

Other Costs and Expenses

      Amortization of intangible assets, which consists of the costs of our
acquisition of the "National Lampoon(TM)" trademark, was approximately $60,000
during the three months ended October 31, 2006 and 2005.

      Selling, general and administrative costs decreased by $245,298 or 17%, to
$1,170,813 during the three months ended October 31, 2006 from $1,416,111 for
the three months ended October 31, 2005. The decrease resulted from a $100,000
decrease in overhead costs associated with National Lampoon Clubhouse as there
was no active development or production by National Lampoon Clubhouse during the
current period. In contrast, National Lampoon Clubhouse was in active production
with the film "Trick or Treat" in the prior period. Costs at National Lampoon
Networks decreased by $75,000 during the period ended October 31, 2006 as
compared to the same period in the prior year as we closed our New York office
and eliminated three sales positions. We have also made an effort to reduce
selling, general, and administrative costs resulting in a further reduction in
other costs.

      During the three months ended October 31, 2006, expenses totaling $322,545
were incurred from grants of options and warrants to employees, advisors and
consultants as compared to expenses totaling $68,735 attributable to grants of
options and warrants that were incurred during the three months ended October
31, 2005. The increase is primarily due to the implementation of SFAS No. 123R.

      Interest income of $0 was earned during the three months ended October 31,
2006 compared to interest income of $33,671 during the three months ended
October 31, 2005. Interest income was realized in the prior period due to our
increased cash position during the three month period ended October 31, 2005 as
a result of the public offering completed on August 8, 2005. No similar capital
infusion occurred during the three month period ended October 31, 2006.

      For the three month period ended October 31, 2006, we had net income of
$1,733,328 as compared to a net loss of $1,879,038 for the three month period
ended October 31, 2005, representing an increase in net income of $3,612,366 or
192%. The increase in net income resulted primarily from the significant
increase in revenue associated with license fees from the settlement with
Universal City Studios, LLP along with the increase in internet related
advertising revenue. The decrease in selling, general and administrative costs
along with a $313,000 decrease in debt issuance costs from the prior year also
contributed to the increase in net income. No debt issuance costs were incurred
during the three month period ended October 31, 2006.

      During the three months ended October 31, 2006 and 2005, we had no
provision for income taxes due to the significant net operating losses incurred
in prior periods and related carry forward to the current period. We also
accrued dividends of $320,975 during the three month period ended October 31,
2006 and $328,150 during the same period in 2005. The addition of the accrued
dividend resulted in net income attributable to common shareholders of
$1,412,353 or $.09 per fully diluted share for the three month period ended
October 31, 2006, versus a net loss attributable to common shareholders of
$2,207,188 or $.34 per basic and fully diluted share for the three month period
ended October 31, 2005.

<PAGE>

Liquidity and Capital Resources

      We have not generated positive cash flow from operations over the past few
years. With the possible exception of the second quarter of the 2007 fiscal
year, we do not expect positive cash flow from operations for at least 12
months. Our principal sources of working capital during the three month period
ended October 31, 2006 consisted of loans from our officers and directors.

      For the three month period ended October 31, 2006, our net cash flow used
in operating activities was $614,886 as compared to $2,056,691 of net cash flow
used in operating activities during the period ended October 31, 2005. The
decrease in cash flow usage from operations was primarily attributable to the
increase in revenue and related collections along with the $596,111 decrease in
production costs. Cash provided by financing activities was $675,302 for the
three month period ended October 31, 2006, as compared to $5,302,484 for the
three months ended October 31, 2005. The funds for the current period were
obtained from loans provided by officers and directors. The funds for the period
ended October 31, 2005 were primarily obtained from the offering of our common
stock in August 2005 offset by the partial payment of notes payable to officers
and directors and offering costs.

      As of December 12, 2006, we had cash on hand of approximately $1.1 million
which includes the payment of the settlement from Universal City Studios,LLP and
receivables totaling approximately $1.1 million. We believe this along with some
debt financing provided by our Chief Executive Officer and one member of our
board of directors will be adequate to fund our ongoing operations and capital
requirements for the next twelve months.

      Our principal source of funds used for operations and working capital
during the quarter ended October 31, 2006 has been loans received from Daniel S.
Laikin, our Chief Executive Officer, Timothy Durham, a director, and a
shareholder. The aggregate amount of the loans and accrued interest owed to
these individuals at October 31, 2006, is approximately $1,226,693.

      Our financial statements for the fiscal year ended July 31, 2006 contained
an explanatory paragraph as to our ability to continue as a "going concern."
This qualification may impact our ability to obtain future financing.

Commitments for Capital Expenditures

      As of October 31, 2006, our capital expenditures are projected to be
$100,000 for the 2007 fiscal year. These expenditures will relate to the
purchase of fixed assets such as equipment and furniture.

Off-Balance Sheet Arrangements

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

Item 3 - Controls and Procedures

      We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and our
Interim Chief Financial Officer of the effectiveness of the design and operation
of our disclosure controls and procedures as of the end of the period covered by
this report. The evaluation was undertaken in consultation with our accounting
personnel. Based on that evaluation, the Chief Financial Officer and Chief
Executive Officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.

      There were no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of their evaluation.

      Our interim Chief Financial Officer resigned effective December 15, 2006
and the change in our accounting personnel resulted in our failure to file this
report timely. We are in the process of contracting with an outside consultant
to serve as our new interim Chief Financial Officer.

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings


National Lampoon, Inc. v. Alma Investments (d/b/a Bahia Mar Hotel) (Los Angeles
Superior Court Case No. BC 356118). We filed this complaint on July 27, 2006.
The action arises from an agreement we had with Bahia Mar Hotel pursuant to
which we were to provide to Bahia Mar Hotel an entertainment package for the
2006 spring break. Bahia Mar Hotel failed to support the program, and, in fact,
diverted some of the business to our competitors. In our complaint, we have
alleged causes of action for fraud, breach of contract, promissory estoppel,
quantum meruit and breach of the covenant of good faith and fair dealing. We
believe that our damages are in excess of $500,000. On September 22, 2006 Bahia
Mar Hotel filed a motion to quash service of summons, which the Court denied on
October 25, 2006. On November 14, 2006 Bahia Mar Hotel filed a demurrer only to
our cause of action for fraud and a motion to strike our claim for punitive
damages in connection with the same cause of action for fraud. The hearing on
Bahia Mar Hotel's motion is set for January 10, 2007. We have decided that we
will amend our complaint in response to Bahia Mar Hotel's demurrer and motion to
strike.

<PAGE>

Walter Briggs v. National Lampoon, Inc. (Los Angeles Superior Court Case No.
BC360336). Information relating to this action was included in our Form 10-KSB
which was filed with the Securities and Exchange Commission on November 14,
2006. There have been no significant developments relating to this action during
the three months ended October 31, 2006.


Cinergy Creative, Inc. and Leslie Allen v. National Lampoon Clubhouse, Inc.,
National Lampoon, Inc., Majestic Entertainment, Inc. and Lorenzo Doumani (Los
Angeles Superior Court Case No. SC091496). Information relating to this action
was included in our Form 10-KSB which was filed with the Securities and Exchange
Commission on November 14, 2006. There have been no significant developments
relating to this action during the three months ended October 31, 2006.

Hinchy v. Collison, Lovett, National Lampoon, etc. (San Bernardino Superior
Court Case No. RCV098387). The Complaint was filed on October 5, 2006. We were
served with the Complaint in November 2006. We filed an answer on December 11,
2006. The plaintiff claims that our negligence caused property damage to a
recreational vehicle he owned. We intend to vigorously defend this action.

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

         None.


Item 3 - Defaults Upon Senior Securities

         None.

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

         None.

Item 5 - Other Information

         None.

Item 6 - Exhibits

3.1   Certificate of Incorporation of National Lampoon, Inc. (1)
3.2   Bylaws of National Lampoon, Inc. adopted August 27, 2002 (1)
3.3   First Amendment of Certificate of Incorporation of National Lampoon, Inc.
      (2)
4.1   Certificate of Designations, Preferences, Rights and Limitations of Series
      C Convertible Preferred Stock of National Lampoon, Inc. (2)
4.2   NLAG Registration Rights Agreement dated May 17, 2002 among the Registrant
      and members of the NLAG Group and GTH Capital, Inc. (3)
4.3   Jimirro Registration Rights Agreement dated May 17, 2002 (3)
4.4   Piggyback Registration Rights Agreement dated September 3, 2002 between
      the Registrant and Constellation Venture Capital, L.P. as agent for
      certain individuals. (4)
4.5   Piggyback Registration Rights Agreement entered into among the Registrant
      and the purchasers of Series C Convertible Preferred Stock (5)
4.6   J2 Communications Voting Agreement dated May 17, 2002 among members of the
      NLAG Group and James P. Jimirro (3)
4.7   First Amendment to Voting Agreement dated June 7, 2002
4.8   Series C Voting Agreement entered into among the Registrant and purchasers
      of Series C Convertible Preferred Stock (5)

<PAGE>

10.1  Settlement Agreement and Release of Claims between National Lampoon, Inc.
      and Universal City Studios LLLP*

31.1  Certification by Chief Executive Officer pursuant to section 302 of the
      Sarbanes Oxley Act of 2002*
31.2  Certification by President/Chief Financial Officer pursuant to section 302
      of the Sarbanes Oxley Act of 2002*
32    Certification by Chief Executive Officer and President/Chief Financial
      Officer pursuant to section 906 of the Sarbanes Oxley Act of 2002*

*Filed herewith.

(1) Incorporated by reference from the Registrant's Form 10-K/A for the fiscal
year ended July 31, 2003 filed with the Securities and Exchange Commission on
December 19, 2003.
(2) Incorporated by reference from the Registrant's Form 10-K for the fiscal
year ended July 31, 2005 filed with the Securities and Exchange Commission on
October 29, 2005.
(3) Incorporated by reference from the Registrant's Form 8-K filed with the
Securities and Exchange Commission on May 31, 2002.
(4) Incorporated by reference from the Registrant's Form 8-K filed with the
Securities and Exchange Commission on September 9, 2002.
(5) Incorporated by reference from the Registrant's Form 10-QSB filed with the
Securities and Exchange Commission on December 22, 2004.

<PAGE>

                                   SIGNATURES

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


December 27, 2006             NATIONAL LAMPOON, INC.


                              By: /s/ Daniel S. Laikin
                                  -----------------------------------------
                                  Daniel S. Laikin, Chief Executive Officer



December 27, 2006             By: /s/ Jeff Gonzalez
                                  ----------------------------------------------
                                  Jeff Gonzalez, Interim Chief Financial Officer