**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: April 30, 2007
 
 OR
 
 **o** **TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**
 **EXCHANGE
        ACT OF 1934**
 
 *Commission
        file number: 0-15284*
 
 **NATIONAL
        LAMPOON, INC.**
 (Exact
        name of registrant as specified in its charter)
 
 Delaware
                (State
                  or other jurisdiction of
                Incorporation
                  or organization)
              95-4053296
                (I.R.S.
                  Employer
                Identification
                  No.)8228
                  Sunset Boulevard
                Los
                  Angeles, CA 90046
                (Address
                  of principal executive offices)
                (Zip
                  Code)
                
                (310)
                  474-5252
                (Registrant's
                  telephone number including area code)
  
 (Former
        name, former address and former fiscal year, if changed since last report)
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days. Yes x No o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes o  No x
 
 **APPLICABLE
        ONLY TO CORPORATE ISSUERS**
 
 State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the latest practicable date: The registrant had 8,149,826 shares of
        common
        stock, $0.0001 par value, issued and outstanding as of June 5,
        2007.
 
 Transitional
        Small Business Disclosure Format (Check one):
 Yes
o  No
x
  
 
 **FORWARD
        LOOKING STATEMENTS**
 
 Some
        of
        the statements made in this quarterly report on Form 10QSB discuss future
        events
        and developments, including our future business strategy and our ability
        to
        generate revenue, income and cash flow. In some cases, you can identify
        forward-looking statements by words or phrases such as "may," "could," "should,"
        "expects," "plans," "anticipates," "believes," "estimates," "predicts,"
        "potential," "continue," "the Company's future success depends," "seeks to
        continue," or the negative of these words or phrases, or comparable words
        or
        phrases. These statements are only predictions that are based, in part, on
        assumptions involving judgments about future economic, competitive and market
        conditions and future business decisions, all of which are difficult or
        impossible to predict accurately. Actual events or results may differ
        materially. Some of the factors that could cause our actual results to vary
        from
        the forward-looking statements include:
 
 ·
              a
                  decline in the general state of the economy, which impacts the
                  amount of
                  money spent by consumers for entertainment products,
 
 ·
              whether
                  we will be able to raise capital or debt for film financing as
                  we need it,
 
 ·
              whether
                  the entertainment products we produce or to which we license our
                  brand
                  will generate significant sales,
 
 ·
              whether
                  our subsidiary, National Lampoon Networks, Inc., will be able to
                  continue
                  its relationships with its current advertisers and continue to
                  attract new
                  advertisers,
 
 ·
              whether
                  we will continue to receive the services of our executive officers
                  and
                  directors, particularly our Chief Executive Officer, Daniel S.
                  Laikin,
 
 ·
              unanticipated
                  increases in development, production or marketing expenses related
                  to our
                  various business activities, and other factors which will be outside
                  of
                  our control.
 
 In
        evaluating forward-looking statements, you should consider the factors
        identified above as well as those risks outlined in the section of this
        quarterly report titled "Management's Discussion and Analysis or Plan of
        Operation". Although the Company believes that the expectations reflected
        in the
        forward-looking statements are reasonable, it cannot guarantee future results,
        levels of activity, performance or achievements. You are cautioned not to
        place
        undue reliance on these forward-looking statements, which speak only as of
        the
        date on which they are made. The Company does not undertake to update any
        of the
        forward-looking statements to conform these statements to actual results.
        You
        should carefully review the risk factors included in the Company's Annual
        Report
        on Form 10-KSB and in other documents it files from time to time with the
        Securities and Exchange Commission.
  2
  **PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1 - Consolidated Financial Statements**
  **NATIONAL
                  LAMPOON, INC. AND SUBSIDIARIES**CONSOLIDATED
                  BALANCE SHEET(UNAUDITED)As
                  ofASSETS
              
              April
                  30, 2007CURRENT
                  ASSETSCash
              
              $
              555,812Accounts
                  receivable, net of reserves of $176,355
              
              
              435,863Prepaid
                  expenses and other current assets
              
              
              89,301Total
                  current assets
              
              
              1,080,976NON-CURRENT
                  ASSETSFixed
                  assets, net of accumulated depreciation
              
              
              35,320Capitalized
                  production costs, net of $4,353,921 of amortization (Note
                  B)
              
              
              2,906,778Capitalized
                  publishing costs, net of $270,061 of amortization
              
              
              85,601Investment
                  in equity securities (Note L)
              
              
              -Intangible
                  assets, net of accumulated amortization of $4,410,621
              
              
              1,669,664Total
                  non-current assets
              
              
              4,697,363TOTAL
                  ASSETS
              
              $
              5,778,339LIABILITIES
                  AND SHAREHOLDERS' DEFICITCURRENT
                  LIABILITIESAccounts
                  payable
              
              $
              906,504Accrued
                  expenses
              
              
              56,177Payroll
                  accrual
              
              
              19,791Accrued
                  royalties
              
              
              406,781Accrued
                  dividends (Note H)
              
              
              3,146,400Notes
                  payable (Note I ) - related party, including interest of
                  $47,607
              
              
              2,528,363Deferred
                  income
              
              
              799,910TOTAL
                  CURRENT LIABILITIES
              
              
              7,863,926COMMITMENTS
                  AND CONTINGENCIES (Note M)MINORITY
                  INTERESTSHAREHOLDERS'
                  DEFICITSeries
                  B Convertible Preferred Stock, par value $.0001 per share, 68,406
                  shares
                  authorized,63,607
                  shares issued and outstanding
              
              
              6Series
                  C Convertible Preferred Stock, par value $.0001 per share, 250,000
                  shares
                  authorized,192,347
                  shares issued and outstanding
              
              
              19Common
                  Stock, par value $.0001 per share, 60,000,000 shares
                  authorized,8,135,270
                  shares issued and outstanding
              
              
              814Additional
                  paid-in capital
              
              
              37,837,354Accumulated
                  deficit
              
              
              (39,923,780
              )TOTAL
                  SHAREHOLDERS' DEFICIT
              
              
              (2,085,587
              )TOTAL
                  LIABILITIES AND SHAREHOLDERS' DEFICIT
              
              $
              5,778,339The
                  accompanying notes are an integral part of these consolidated financial
                  statements.
  3
 
 **NATIONAL
                  LAMPOON, INC. AND SUBSIDIARIES**CONSOLIDATED
                  STATEMENTS OF OPERATIONS
  
  Three
                  Months
              
              Nine
                  MonthsEnded
                  April 30,
              
              Ended
                  April 30,2007
              
              2006
              
              2007
              
              2006(UNAUDITED)
              
              (UNAUDITED)
              
              (UNAUDITED)
              
              (UNAUDITED)REVENUEProduction
              
              $
              -
              
              $
              20,000
              
              $
              44,500
              
              $
              163,583Licensing
              
              
              329,736
              
              
              393,095
              
              
              3,751,373
              
              
              883,733Advertising
                  & Promotion
              
              
              319,389
              
              
              928,506
              
              
              1,800,211
              
              
              1,949,936Tours
              
              
              -
              
              
              194,713
              
              
              -
              
              
              197,247Publishing
              
              
              164,792
              
              
              1,492
              
              
              334,994
              
              
              6,135Total
                  revenue
              
              
              813,917
              
              
              1,537,806
              
              
              5,931,078
              
              
              3,200,634COSTS
                  AND EXPENSESCosts
                  related to production revenue
              
              
              1,056
              
              
              9,150
              
              
              4,056
              
              
              32,060Costs
                  related to licensing revenue
              
              
              14,360
              
              
              82,834
              
              
              172,176
              
              
              167,522Costs
                  related to tours revenue
              
              
              -
              
              
              576,995
              
              
              -
              
              
              677,166Costs
                  related to advertising and promotion revenue
              
              
              572,329
              
              
              645,248
              
              
              1,789,329
              
              
              1,792,244Amortization
                  of capitalized production costs
              
              
              42,313
              
              
              121,762
              
              
              462,582
              
              
              274,257Amortization
                  of intangible assets
              
              
              60,197
              
              
              60,000
              
              
              181,337
              
              
              180,000Amortization
                  debt issuance costs
              
              
              -
              
              
              -
              
              
              -
              
              
              313,000Provision
                  for doubtful accounts
              
              
              (78,000
              )
              
              50,980
              
              
              78,075
              
              
              127,325Selling,
                  general and administrative expenses
              
              
              1,222,535
              
              
              1,383,755
              
              
              3,547,083
              
              
              3,975,840Stock,
                  warrants & options issued for services
              
              
              136,250
              
              
              9,573
              
              
              859,190
              
              
              114,413Total
                  costs and expenses
              
              
              1,971,040
              
              
              2,940,297
              
              
              7,093,828
              
              
              7,653,827OPERATING
                  LOSS
              
              
              (1,157,123
              )
              
              (1,402,491
              )
              
              (1,162,750
              )
              
              (4,453,193
              )OTHER
                  INCOME (EXPENSE)Interest
                  income
              
              
              1,045
              
              
              6,329
              
              
              5,546
              
              
              75,291Interest
                  expense
              
              
              (9,752
              )
              
              (4,867
              )
              
              (38,590
              )
              
              (30,300
              )Equity
                  in investee loss
              
              
              -
              
              
              -
              
              
              (800
              )
              
              -Other
                  income
              
              
              4,515
              
              
              425
              
              
              25,927
              
              
              8,097Total
                  other income (loss)
              
              
              (4,192
              )
              
              1,887
              
              
              (7,917
              )
              
              53,088NET
                  LOSS BEFORE MINORITY INTEREST
              
              $
              (1,161,315
              )
              $
              (1,400,604
              )
              $
              (1,170,667
              )
              $
              (4,400,105
              )MINORITY
                  INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARY
              
              
              -
              
              
              6,002
              
              
              -
              
              
              78,566LOSS
                  BEFORE INCOME TAXES
              
              $
              (1,161,315
              )
              $
              (1,394,602
              )
              $
              (1,170,667
              )
              $
              (4,321,539
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -NET
                  LOSS
              
              
              (1,161,315
              )
              
              (1,394,602
              )
              
              (1,170,667
              )
              
              (4,321,539
              )Accrued
                  dividends (Note H)
              
              
              (289,817
              )
              
              (320,454
              )
              
              (932,832
              )
              
              (976,754
              )Net
                  loss attributable to common shareholders
              
              $
              (1,451,132
              )
              $
              (1,715,056
              )
              $
              (2,103,499
              )
              $
              (5,298,293
              )Net
                  loss per share attributable to common shareholder-
                  basic and diluted
              
              $
              (0.18
              )
              $
              (0.25
              )
              $
              (0.28
              )
              $
              (0.79
              )Weighted
                  average number of common shares-
                  basic and diluted
              
              
              8,093,585
              
              
              6,856,000
              
              
              7,527,688
              
              
              6,704,600The
                  accompanying notes are an integral part of these consolidated financial
                  statements.
 
 4
  **NATIONAL
                  LAMPOON, INC. AND SUBSIDIARIES**CONSOLIDATED
                  STATEMENTS OF CASH FLOWS(UNAUDITED)Nine
                  Months EndedApril
                  30,2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  Loss
              
              $
              (1,170,667
              )
              $
              (4,321,539
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
              
              
              9,491
              
              
              10,601Amortization
                  of intangible assets
              
              
              181,337
              
              
              180,000Amortization
                  of debt issuance costs
              
              
              -
              
              
              313,000Amortization
                  of capitalized production costs
              
              
              -
              
              
              274,257Stock,
                  options and warrants issued for services
              
              
              859,190
              
              
              114,420Provision
                  for losses on accounts receivable
              
              
              149,566
              
              
              76,345Undistributed
                  loss of equity investment
              
              
              800
              
              
              -Changes
                  in assets and liabilities:Decrease/(increase)
                  in accounts receivable
              
              
              164,981
              
              
              (805,410
              )Increase/(decrease)
                  in prepaid expenses and other assets
              
              
              (30,480
              )
              
              90,143Decrease/(increase)
                  in publishing costs
              
              
              251
              
              
              (31,259
              )Increase
                  in production costs
              
              
              (1,939,972
              )
              
              (1,104,208
              )(Decrease)/increase
                  in accounts payable
              
              
              (44,455
              )
              
              525,650Increase/(decrease)
                  in accrued expenses
              
              
              87,726
              
              
              (263,144
              )Increase
                  in deferred revenues
              
              
              543,642
              
              
              250,018Decrease
                  in common stock owed
              
              
              -
              
              
              (168,500
              )NET
                  CASH USED IN OPERATING ACTIVITIES
              
              
              (1,188,590
              )
              
              (4,859,626
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of fixed assets
              
              
              (27,240
              )
              
              (15,281
              )Purchase
                  of intangible assets
              
              
              (73,652
              )
              
              (40,100
              )Investment
                  in equity securities
              
              
              (800
              )
              
              -NET
                  CASH USED IN INVESTING ACTIVITIES
              
              
              (101,692
              )
              
              (55,381
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Film
                  financing
              
              
              (272,963
              )
              
              449,250Minority
                  interest
              
              
              -
              
              
              (78,566
              )Proceeds
                  from issuance of common stock
              
              
              -
              
              
              9,600,000Payments
                  related to the issuance of common stock
              
              
              -
              
              
              (1,279,341
              )Payments
                  of notes payable (Note I)
              
              
              (711,573
              )
              
              (3,402,550
              )Proceeds
                  from the exercise of stock options
              
              
              131,810
              
              
              20,983Proceeds
                  from the exercise of warrants
              
              
              9,000
              
              
              -Proceeds
                  from notes payable
              
              
              2,615,219
              
              
              -NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              1,771,493
              
              
              5,309,776NET
                  INCREASE IN CASH
              
              
              481,211
              
              
              394,769CASH
                  AT BEGINNING OF PERIOD
              
              
              74,601
              
              
              110,694CASH
                  AT END OF PERIOD
              
              
              555,812
              
              
              505,463Supplemental
                  disclosures of cash flow information:Cash
                  paid for Taxes
              
              $
              10,290
              
              $
              -Interest
                  paid
              
              $
              62,794
              
              $
              111,847Stock
                  and options issued for services and debt issuance costs
              
              $
              1,155,384
              
              $
              114,420Supplemental
                  schedule of noncash investing and financing activities:Conversion
                  of accrued dividends on Series C Convertible Preferred Stock to
                  common
                  stock
              
              $
              227,475
              
              $
              -The
                  accompanying notes are an integral part of these consolidated financial
                  statements.
 
 5
  **NATIONAL
        LAMPOON, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
        A - BASIS OF PRESENTATION AND GOING CONCERN**
 
 The
        accompanying unaudited consolidated financial statements of National Lampoon,
        Inc. (the "Company") have been prepared in accordance with the rules and
        regulations of the Securities and Exchange Commission for interim consolidated
        financial statements. Accordingly, they do not include all of the information
        and disclosures required for annual financial statements. In the opinion
        of the
        Company's management, all adjustments (consisting of normal recurring accruals)
        necessary to present fairly the Company's financial position as of April
        30,
        2007, and the results of operations and cash flows for the three and nine
        month
        periods ended April 30, 2007 and 2006 have been included. The results of
        operations for the nine month period ended April 30, 2007 are not necessarily
        indicative of the results to be expected for the full fiscal year. These
        consolidated financial statements should be read in conjunction with the
        financial statements and related footnotes for the year ended July 31, 2006
        included in the Company's Annual Report on Form 10-KSB for that period.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        the
        Company will continue as a going concern. The Company's net loss of $6,859,085
        and $8,669,170 in the prior two fiscal years, accumulated deficit of
        $39,923,780, net loss of $1,170,667, and negative working capital of $6,782,950
        in the current period ended raise substantial doubt about our ability to
        continue as a going concern and our independent auditors have included a
        going
        concern explanatory paragraph in their report on our financial statements
        for
        the year ended July 31, 2006. We are currently devoting efforts to achieving
        profitable operations which includes arranging film financing. Our ability
        to
        continue as a going concern is dependent upon our ability to develop additional
        sources of capital and revenue. The accompanying financial statements do
        not
        include any adjustments that might result from the outcome of these
        uncertainties. As of April 30, 2007 we had cash on hand of approximately
        $555,812. In order to satisfy future capital requirements, management is
        actively pursuing and has entered into discussions with Red Rock Pictures
        Holdings, Inc. (Note L) regarding additional financing for film production
        costs.
 
 **NOTE
        B - CAPITALIZED PRODUCTION COSTS**
 
 The
        Company capitalized all production costs.
 
 Using
        SOP
        00-2, the Company amortizes such capitalized production costs in accordance
        with
        the provisions included in paragraphs 34 through 37 by the film forecast
        method,
        revising the estimates of ultimates each period as necessary to reflect the
        most
        current information available. The Company evaluates such costs for impairment
        in accordance with paragraph 44 if any events or circumstances, such as those
        set forth in paragraph 43 indicate that the fair value of the project may
        be
        less than the unamortized amounts remaining on the Company's books.
 
 The
        portion of the costs of the Company's completed films that are expected to
        be
        amortized during the upcoming 12 months is $2,471,011.
 
 Production
        costs on theatrical films in production and development were $2,870,671 at
        April
        30, 2007 and production costs for the Company's other products was $36,107
        at
        April 30, 2007. Production costs are recorded net of $611,784 of production
        funding at April 30, 2007.
 
 The
        Company expects to amortize, within three years, 90% of unamortized film
        costs
        for released films.
 
 **NOTE
        C - CONTROLLED COMPANY STATUS**
 
 The
        Company is a “controlled company” as that term is defined in Section 801(a) of
        the Rules of the American Stock Exchange. Three of its directors, Daniel
        S.
        Laikin, Timothy S. Durham and Paul Skjodt, control over 50% of the voting
        power
        of National Lampoon, Inc. As a controlled company, the Company is not subject
        to
        Section 804 of the Rules of the American Stock Exchange. Section 804 requires
        that nominees to the Board of Directors be made by either a nominating committee
        comprised solely of independent directors or by a majority of the independent
        directors. Instead, nominees to the Board of Directors are nominated in
        accordance with the terms of that certain Voting Agreement entered into on
        May
        17, 2002 among Daniel S. Laikin, Paul Skjodt, Timothy S. Durham, Ronald Holzer,
        DC Investment, LLC, NL Acquisition Group LLC, Samerian LLP, Diamond Investments,
        LLC, Christopher R. Williams, Helen C. Williams, DW Leasing Company, LLC,
        Judy
        B. Laikin (all of whom are collectively referred to in this discussion as
        the
        "NLAG Stockholders") and James P. Jimirro. The Voting Agreement was entered
        into
        in conjunction with the reorganization transaction that took place on May
        17,
        2002. According to the terms of the Voting Agreement, the NLAG Stockholders
        agree to vote for Mr. Jimirro and two directors nominated by Mr. Jimirro
        and,
        conversely, Mr. Jimirro agrees to vote for three directors nominated by the
        NLAG
        Stockholders. Since the termination of Mr. Jimirro's employment agreement
        and
        payment of all amounts due him, the NLAG Stockholders can now nominate and
        vote
        for a seventh director. The Voting Agreement will terminate on the date as
        of
        which Mr. Jimirro personally ceases to own beneficially (whether by reason
        of
        his death or otherwise) at least 100,000 shares of common stock. Mr. Jimirro
        owned 145,049 shares of the Company's common stock as of April 30, 2007.
        The
        Voting Agreement prevents the Company from having a policy with regard to
        the
        consideration of any director candidates recommended by security holders
        (other
        than the NLAG Stockholders and Mr. Jimirro) or an independent committee whose
        purpose is to nominate director candidates.
  6
 
 Note
        I -
        Notes Payable and Accrued Interest, provides additional information regarding
        notes payable from Daniel Laikin, Timothy Durham and Chris
        Williams.
 
 **NOTE
        D - IMPAIRMENT**
 
 The
        Company tests for impairment of the National Lampoon(TM) trademark in accordance
        with SFAS 142 and 144 paragraphs 16 to 21, estimating the future cash flows
        from
        the trademark to test the recoverability of the intangible assets. The valuation
        of the trademark includes estimates of cash flows over the remaining expected
        life based on prior revenue generated from the film library using the trademark
        and trademark licensing fees.
 
 The
        Company evaluates film costs for impairment in accordance with paragraphs
        43 and
        44 of SOP 00-2. The Company determines if any event has occurred that would
        indicate that the fair value of the film costs is less than the carrying
        value
        of the project, using estimated ultimate revenue based on historical data.
 
 The
        Company determined that there was no impairment of the National Lampoon(TM)
        trademark as of April 30, 2007. During the nine months ending April 30, 2007,
        one film was released that did not perform as expected. As such, the total
        amount of amortization of capitalized production costs in the accompanying
        statement of operations of $3,000 for the three months and $408,897 for the
        nine
        months ending April 30, 2007 represents a write down of unamortized production
        costs to reflect the current estimate of its future revenue. The revised
        net
        book value as of April 30, 2007 of this film is $97,000 and is included in
        capitalized production costs in the accompanying balance sheet.
 
 **NOTE
        E - STOCK OPTIONS**
 
 As
        of
        April 30, 2007, the Company had two stock option and long-term incentive
        plans
        that permit the grant of stock options and other equity awards to certain
        employees, officers and non-employee directors, and consultants which are
        described more fully below. Prior to August 1, 2006, the Company accounted
        for
        stock-based compensation under the intrinsic value method prescribed in
        Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
        to
        Employees" (APB Opinion No. 25), and related Interpretations, as permitted
        under
        SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). The
        intrinsic value method requires recognition of compensation expense over
        the
        applicable vesting period for the difference between the exercise price of
        the
        stock option and the fair value of the underlying stock on the date of grant.
        Since the exercise price of our stock options is equal to the fair value
        of the
        underlying stock at the date of grant, the Company has not historically
        recognized compensation costs associated with share based awards, with the
        exception of some restricted share units.
 
 Effective
        August 1, 2006, the Company adopted the fair value recognition provisions
        of
        SFAS No. 123(R), "Share-Based Payment" (SFAS No. 123 (R)), using the
        modified-prospective transition method. Under such transition method,
        compensation cost recognized in the three months and nine months ended April
        30,
        2007 includes: (a) compensation cost for all stock options granted prior
        to, but
        not yet vested as of, August 1, 2006, based on the grant-date fair value
        estimated in accordance with the original provisions of SFAS No. 123, and
        (b)
        compensation cost for all share-based payments granted on or after August
        1,
        2006, based on the grant-date fair value estimated in accordance with the
        provisions of SFAS No. 123(R). Results for prior periods have not been restated.
        As a result of adopting SFAS No. 123(R) on August 1, 2006, the Company's
        net
        income from operations before income taxes and net loss for the three and
        nine
        months ended April 30, 2007 is approximately $151,079 lower and $273,687
        lower,
        respectively than if the Company had continued to account for share-based
        compensation under APB Opinion No. 25. The $151,079 charge for the three
        months
        ended April 30, 2007 and the $273,687 charge for the nine months ended April
        30,
        2007 consisted of the recognition of compensation expense of $273,687 associated
        with stock options granted in previous years. The Company's basic and diluted
        earnings per share for the three and nine months ended April 30, 2007 would
        have
        been $0.02 and $0.04 higher, respectively than if the Company had not adopted
        SFAS No. 123(R).
  7
 
 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 and nine months ended April 30, 2007. Prior
        to the
        adoption of SFAS No. 123(R) and upon issuance of the restricted share units
        pursuant to the agreements, an unamortized compensation expense equivalent
        to
        the market value of the shares on the date of grant was charged to stockholders'
        equity as unearned compensation and amortized over the applicable vested
        periods. As a result of adopting SFAS No. 123(R) on August 1, 2006, the Company
        transferred the remaining unearned compensation balance in its stockholders'
        equity to additional paid in capital.
 
 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
        and nine months ended April 30, 2007, the calculation of forfeitures did
        not
        have a material effect on the Company's results of operations, financial
        position or cash flows.
 
 The
        fair
        value of each option award is estimated on the date of grant using a closed-form
        option valuation model (Black-Scholes) based on the assumptions noted in
        the
        following table. The expected term of options granted represents the period
        of
        time that options granted are expected to be outstanding. The following table
        represents the assumptions used in the Black-Scholes option-pricing model
        for
        options granted during the nine months ended April 30, 2007:
 
 Nine
                  Months EndedApril
                  302007
              
              2006Risk-free
                  interest rate
              
              5.5%
              
              5.5%Expected
                  option lives (in years)
              
              7
                  to 10
              
              6
                  to 10Expected
                  volatility for options
              
              58.5%
                  to 72.9%
              
              95.7%
                  to 103.5%Expected
                  dividend yield
              
              None
              
              None
  The
        following table illustrates the effect on net loss and loss per common share
        if
        the Company had applied the fair value recognition provisions of SFAS No.
        123 to
        stock options issued and modified under the Company's stock option plans
        for the
        three and nine months ended April 30, 2006. For purposes of this pro forma
        disclosure, the value of the options is estimated using a Black-Scholes
        option-pricing model and amortized to expense over the options' vesting periods.
 
 Three
                  Months Ended
              
              Nine
                  Months EndedApril
                  30, 2006
              
              April
                  30, 2006Net
                  loss attributable to common shareholders - as reported
              
              $
              (1,715,056
              )
              $
              (5,298,293
              )APB
                  25 expense recognized
              
              $
              -
              
              $
              -Stock
                  option compensation under-fair value method
              
              $
              (59,213
              )
              $
              (192,859
              )Net
                  loss attributable to common shareholders-pro forma
              
              $
              (1,774,269
              )
              $
              (5,491,152
              )Basic
                  and diluted loss per share-as reported
              
              $
              (0.25
              )
              $
              (0.79
              )Basic
                  and diluted loss per share-pro forma
              
              $
              (0.26
              )
              $
              (0.82
              )
  8
  On
        January 30, 2002 our Board of Directors approved the J2 Communications Amended
        and Restated 1999 Stock Option, Deferred Stock and Restricted Stock Plan
        (the
        "Equity Incentive Plan"). The Equity Incentive Plan was approved by our
        stockholders on April 25, 2002.The Equity Incentive Plan has a term of 10
        years
        and is currently administered by our Board of Directors, which shall be referred
        to in this discussion as the "Administrator". Pursuant to the Equity Incentive
        Plan, the Administrator may grant to eligible persons, which include employees,
        officers, directors, consultants and advisors, awards of options (which may
        be
        qualified or non-qualified, depending upon whether or not the eligible person
        is
        an employee), stock appreciation rights (commonly known as "SARs") or deferred
        common stock or restricted common stock. 1,500,000 shares of our common stock
        were originally set aside for grants made under the Equity Incentive Plan.
        The
        number of shares of common stock set aside for grants was increased to 2,500,000
        in the 2004 fiscal year. In September 2004 our Board of Directors authorized
        a
        two-for-one stock split, making 5,000,000 shares of common stock available
        for
        grants.
 
 On
        October 27, 2005 our Board of Directors adopted the National Lampoon, Inc.
        2005
        Consultant Plan (the "2005 Plan"). We obtained shareholder approval of the
        2005
        Plan on January 18, 2006. The purpose of the 2005 Plan is to allow us to
        use our
        securities to obtain and retain the consulting services of persons upon whose
        judgment, initiative, efforts and/or services we rely. We have set aside
        250,000
        shares of our common stock for awards to be made from the 2005 Plan. Officers,
        directors and employees of our company are not eligible to receive awards
        from
        the 2005 Plan. The term of the 2005 Plan is 10 years.
 
 The
        2005
        Plan is administered and interpreted by a committee consisting of two or
        more
        members of the Board but if no committee is appointed, then the Board
        administers and interprets the 2005 Plan. The committee has the authority
        to
        designate the persons eligible to receive awards, grant awards, impose
        limitations, restrictions and conditions upon any award, interpret and
        administer the 2005 Plan and delegate all or a portion of its authority to
        take
        these actions to one or more of our executive officers who are also directors.
        Awards consist of grants of shares of our common stock, either as a bonus
        or as
        compensation for services rendered and options. The committee may subject
        shares
        of common stock granted as awards to vesting conditions. If vesting conditions
        are not satisfied, we may require the award recipient to forfeit the unvested
        shares. Option grants may also be subject to vesting conditions. The exercise
        price of any option may not be less than 85% of the fair market value of
        the
        common stock on the date of grant. Options may only be exercised for cash.
 
 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 had a recovery of expense of
        $14,829 due to a revision of the vesting period of a stock option award and
        an expense of $9,573 during the three month period ended April 30, 2007 and
        2006, respectively and $585,503 and $114,413 during the nine month period
        ended
        April 30, 2007 and 2006, respectively for services rendered by non-employees
        utilizing the guidance for share based payment transactions with parties
        other
        than employees provided in statement 123 as originally issued and EITF No.
        96-18, "Accounting for Equity Instruments That Are Issued to Other Than
        Employees for Acquiring, or in Conjunction with Selling, Goods and Services".
 
 **NOTE
        F - FILM FINANCING**
 
 The
        Company has formed entities with third parties where it does not own the
        majority of the entity, but will license the use of the name “National Lampoon”
to the entity. However, because of the importance of the National Lampoon(TM)
        name to the Company, the Company will exercise day-to-day operational control
        over the entity. This control will include locating operations on the Company's
        premises, and utilizing both the staff and property of the Company. The Company
        integrates these entities operations with its operations and makes all the
        decisions necessary to carry out their business activities. The Company provides
        all the accounting functions, including making all accounting policy decisions,
        determining any estimates affecting the carrying amounts of assets and
        liabilities, and maintaining all accounting records. The Company also
        establishes credit with vendors or uses its vendors to provide services to
        the
        entities. Additionally, the entities use the post-production equipment and
        other
        post-production facilities on the Company's premises. Based on the foregoing,
        the Company has determined that although it does not exercise control by
        a
        majority of the voting rights, it has more than a significant influence and
        accordingly the Company consolidates these entities financial results with
        the
        Company's.
  9
 
 The
        Company seeks to utilize third party financing to produce its films, thereby
        reducing the financial risk associated with motion picture production. In
        order
        to maintain and improve its brand name, the Company maintains control of
        all
        business and creative elements associated with film production and distribution.
        In contrast, when the Company licenses its name to a film, it has little
        or no
        operational or creative control. For both produced and licensed films, the
        Company may also distribute and/or sell the distribution rights throughout
        the
        world wide exhibition market.  If we determine that we have significant
        control of a film project throughout the production, finance or distribution,
        we
        account for the transactions of the film at gross on its financial statements.
        Accordingly, for those projects that it has significant control, the Company
        reports all transactions at gross amounts relating to the production and
        sale in
        its consolidated financial statements.
 
 During
        the three months ending April 30, 2007, the Company and other members of
        Totally
        Baked, LLC, which produced the film titled “Totally Baked” agreed to dissolve
        its business relationship whereby the Company relinquished its rights in
        the
        film in exchange for a release of obligations. The dissolution did not require
        any exchange of cash and the film will also not have any rights to use our
        brand. The remaining unamortized production costs at April 30, 2007 were
        amortized resulting in a net expense of $17,777 during the three months ended
        April 30, 2007.
 
 Daniel
        Laikin, the Company's Chief Executive Officer, has made various loans to
        us for
        film financing. As of April 30, 2007 he was owed $67,000 in principal and
        $3,124
        in interest for production loans. The loans bear interest at the rate of
        6% per
        annum.
 
 Red
        Rock
        Pictures Holdings, Inc., a publicly traded company and related party, has
        made
        various loans to us. As of April 30, 2007 we owed Red Rock $1,706,384 in
        principal and $36,818 in interest for production loans. The loans bear interest
        at the rate of 10% per annum.
 
 **NOTE
        G - NET INCOME OR LOSS PER SHARE**
 
 Diluted
        earnings per share amounts are calculated using the treasury method and are
        based upon the weighted average number of common and common equivalent shares
        outstanding during the period. Basic and diluted loss per share is $0.18
        and
        $0.28 for the three and nine months ended April 30, 2007, respectively. Basic
        and diluted loss per share is $0.25 and $0.79 for the three and nine months
        ended April 30, 2006, respectively. Basic and diluted loss per share are
        the
        same at April 30, 2007 and 2006, as common equivalent shares have been excluded
        from the computation due to the fact that they are anti-dilutive. Options
        and
        warrants to purchase 8,682,027 and 10,157,687 common shares during the three
        months ended April 30, 2007 and 2006 respectively, and options and warrants
        to
        purchase 8,430,035 and 9,959,198 common shares during the nine months ended
        April 30, 2007 and 2006 respectively, are not included in the calculation
        of
        diluted earnings per share because their inclusion would be anti-dilutive.
        7,430,431 and 8,078,711 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 nine months ended April 30, 2007 and 2006,
        respectively, because their inclusion would be anti-dilutive.
 
 At
        April
        30, 2007, there are 63,607 Series B Convertible Preferred Shares and 192,347
        Series C Convertible Preferred Shares. Upon conversion of the 63,607 Series
        B
        Convertible Preferred Shares, 3,583,491common shares would be issuable. Upon
        conversion of the 192,347 Series C Convertible Preferred Shares, 3,846,940
        common shares would be issuable. This would result in a diluted weighted
        average
        number of shares of 15,524,016 for the three months ended April 30, 2007
        and
        14,958,119 for the nine months ended April 30, 2007.
 
 Each
        Series B Convertible Preferred Share is convertible into 56.338 common shares.
        Each Series C Convertible Preferred Share is convertible into 20 common shares.
        Warrants attached to the Series B and Series C Convertible Preferred Stock
        are
        not included in the calculation of diluted earnings per share during the
        three
        and nine months ended April 30, 2007 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 and
        nine
        month periods ended April 30, 2007, the Company accrued $289,817 and $932,832,
        respectively of Series B and Series C dividends. Upon conversion of 1,000
        shares
        of Series C Convertible Preferred Stock, accrued dividends were reduced by
        $7,370. At April 30, 2007, the Company had accrued $3,146,400 representing
        the
        total value of the dividends for Series B and Series C dividends.
  10
 
 On
        conversion of the Series B and Series C Convertible Preferred Stock, the
        company
        becomes liable to pay dividends. Conversion of dividends on the Series B
        and
        Series C Convertible Preferred Stock are computed using the closing price
        of the
        common stock, as reported by the exchange or regulated quotation service
        on
        which the Company's common stock is traded, on the trading date immediately
        preceding the date that the Company becomes liable to pay the dividend. If
        no
        trades were made on that date, then the number of shares to be issued is
        computed using the closing price of the last date on which trades were made
        and
        reported.
 
 **NOTE
        I - NOTES PAYABLE AND ACCRUED INTEREST**
 
 As
        of
        April 30, 2007, the Company owed Daniel Laikin, the Company's Chief Executive
        Officer, approximately $596,637 in principal and $30,980 in interest. The
        outstanding amount includes loans made to us for film financing as discussed
        in
        Note F. The loans bear interest at the rate of 6% per annum. The obligation
        to
        Mr. Laikin is payable on demand. During the nine months ending April 30,
        2007,
        $181,699 of principal and no interest had been paid to Mr. Laikin.
 
 As
        of
        April 30, 2007, the Company owed Timothy Durham, a director, approximately
        $54,460 in principal and $16,284 in interest. The loans bear interest at
        the
        rate of 6% per annum. The obligation to Mr. Durham is payable on demand.
        During
        the nine months ending April 30, 2007, $441,706 of principal and $45,294
        interest had been paid to Mr. Durham.
 
 The
        loans
        from Mr. Laikin and Mr. Durham are unsecured.
 
 As
        of
        April 30, 2007, the Company owed Christopher R. Williams, a shareholder,
        approximately $83,333 in principal and $3,467 in interest. The loans bear
        interest at the rate of 6% per annum. The obligation to Mr. Williams is payable
        on demand. During the nine months ending April 30, 2007, no principal and
        no
        interest had been paid to Mr. Williams.
 
 Red
        Rock
        Pictures Holdings, Inc., a publicly traded company and related party, has
        made
        various loans to us. The outstanding amount includes loans made to us for
        film
        financing as discussed in Note F. As of April 30, 2007 they were owed $1,706,384
        in principal and $36,818 in interest. The loans bear interest at the rate
        of 10%
        per annum.
 
 **NOTE
        J - SHAREHOLDERS’ DEFICIT**
 
 On
        May 1,
        2006, the Company commenced issuing 3,500 common shares to a consultant for
        each
        month of service during the engagement period. During the nine month period
        ended April 30, 2007, the Company issued 31,500 common shares and expensed
        $56,245, which was equivalent to the trading value of the shares on their
        date
        of issuance.
 
 On
        August
        1, 2006, the Company entered into a monthly consulting arrangement whereby
        a
        consultant would receive 5,000 common shares per month through November 2006.
        Commencing December 1, 2006, the consultant would receive 3,000 common shares
        per month. During the nine month period ended April 30, 2007, the Company
        issued
        35,000 common shares and expensed $60,990, which was equivalent to the trading
        value of the shares on their 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 $41,321, which
        was
        equivalent to the fair market value on the date of issuance.
  11
 
 On
        November 1, 2006, the Company commenced compensating a consultant $10,000
        in
        common shares for each month of service during the engagement period. During
        the
        nine month period ended April 30, 2007, the Company issued 30,637 common
        shares
        and expensed $60,000, which was equivalent to the trading value of the shares
        on
        their date of issuance.
 
 On
        November 9, 2006, the Company compensated two consultants $2,000 each in
        common
        shares for consulting services rendered. The Company issued 2,116 common
        shares
        in total and expensed $4,000, which was at the agreed upon price of $1.89
        per
        share.
 
 On
        November 29, 2006, the Company commenced issuing 2,000 common shares to a
        consultant for each month of service during the engagement period. During
        the
        three month period ended April 30, 2007, the Company issued 4,932 common
        shares
        and expensed $10,000, which was equivalent to the trading value of the shares
        on
        their date of issuance.
 
 On
        April
        24, 2007, the Company compensated a professional services firm for their
        services in common shares. The Company issued 22,727 common shares and expensed
        $49,999, which was equivalent to the value of the services provided.
  During
        the nine months ended April 30, 2007, 82,100 shares of the Company’s common
        stock were purchased through the exercise of stock options that resulted
        in cash
        proceeds to the Company of approximately $131,810.
 
 During
        the nine months ended April 30, 2007, 5,055 shares of the Company’s common stock
        were issued upon exercise of warrants attached to the Company's Series B
        Convertible Preferred Stock that resulted in cash proceeds to the Company
        of
        approximately $9,000.
 
 In
        addition, 32,414 shares of the Company's Series C Convertible Preferred Stock
        and the related accrued dividends of $227,475 were converted to 753,268 shares
        of the Company’s common stock. Each Series C Convertible Preferred Share is
        convertible into 20 common shares. The accrued dividends were converted into
        the
        Company’s common stock based on the trading value of the Company’s common stock
        on the conversion date.
 
 Furthermore,
        6,200 shares of the Company’s common stock, with a trading value of $13,640 on
        their date of issuance, were issued to employees as a bonus.
 
 **NOTE
        K - SEGMENT INFORMATION**
 
 Segment
        Reporting - SFAS No. 131, Disclosures About Segments of an Enterprise and
        Related Information results in the use of a management approach in identifying
        segments of an enterprise. The Company operates in five business segments:
        licensing and exploitation of the National Lampoon(TM) trademark and related
        properties including the sale of products to consumers; advertising and
        promotions on its websites, field marketing, live events and the distribution
        of
        television programming on college campuses; production of television, and
        DVD
        products; the sale of sponsorships and advertising at "Spring Break" events;
        and
        production of motion pictures through National Lampoon Clubhouse, Inc. Segment
        operating income/(loss) excludes the amortization of intangible assets, interest
        income, and income taxes. Selling, general and administrative expenses not
        specifically attributable to any segment have been prorated based on revenue
        among the five segments. Summarized financial information for the three and
        nine
        months ended April 30, 2007 and April 30, 2006 concerning the Company's segments
        is as follows:
  Licensing
                  & Publishing
              
              Advertising
                  & Promotion
              
              Production
              
              Travel
                  Services
              
              Clubhouse
              
              TotalThree
                  Months Ended April 30, 2007Segment
                  revenue
              
              $
              494,528
              
              $
              319,389
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              813,917Segment
                  operating income (loss)
              
              $
              (298,025
              )
              $
              (755,532
              )
              $
              (43,369
              )
              $
              -
              
              $
              -
              
              $
              (1,096,926
              )Depreciation
                  expense
              
              $
              1,923
              
              $
              1,240
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              3,163Three
                  Months Ended April 30, 2006Segment
                  revenue
              
              $
              394,587
              
              $
              928,506
              
              $
              20,000
              
              $
              194,713
              
              $
              -
              
              $
              1,537,806Segment
                  operating (loss)
              
              $
              (610,148
              )
              $
              (293,887
              )
              $
              (36,255
              )
              $
              (399,001
              )
              $
              (3,199
              )
              $
              (1,342,490
              )Depreciation
                  expense
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Nine
                  Months Ended April 30, 2007Segment
                  revenue
              
              $
              4,086,367
              
              $
              1,800,211
              
              $
              44,500
              
              $
              -
              
              $
              -
              
              $
              5,931,078Segment
                  operating income (loss)
              
              $
              1,351,106
              
              $
              (1,900,992
              )
              $
              (431,527
              )
              $
              -
              
              $
              -
              
              $
              (981,413
              )Depreciation
                  expense
              
              $
              5,052
              
              $
              4,439
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              9,491Nine
                  Months Ended April 30, 2006Segment
                  revenue
              
              $
              889,868
              
              $
              1,949,936
              
              $
              163,583
              
              $
              197,247
              
              $
              -
              
              $
              3,200,634Segment
                  operating (loss)
              
              $
              (1,833,037
              )
              $
              (1,343,610
              )
              $
              (500,351
              )
              $
              (552,367
              )
              $
              (43,828
              )
              $
              (4,273,193
              )Depreciation
                  expense
              
              $
              -
              
              $
              9,000
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              9,000
 
 12
  A
        reconciliation of segment operating income (loss) to net loss before minority
        interest and income taxes for the three and nine month periods ended April
        30,
        2007 and 2006 is as follows:
  FOR
                  THE THREE MONTHS ENDED
              
              FOR
                  THE NINE MONTHS ENDED30-Apr-07
              
              30-Apr-06
              
              30-Apr-07
              
              30-Apr-06Total
                  segment operating income (loss)
              
              $
              (1,096,926
              )
              $
              (1,342,490
              )
              $
              (981,413
              )
              $
              (4,273,193
              )Amortization
                  of intangible assets
              
              $
              (60,197
              )
              $
              (60,000
              )
              $
              (181,337
              )
              $
              (180,000
              )Interest
                  Income
              
              $
              1,045
              
              $
              6,329
              
              $
              5,546
              
              $
              75,291Interest
                  expense
              
              $
              (9,752
              )
              $
              (4,867
              )
              $
              (38,590
              )
              $
              (30,300
              )Equity
                  in investee loss
              
              $
              -
              
              $
              -
              
              $
              (800
              )
              $
              -Other
                  income
              
              $
              4,515
              
              $
              424
              
              $
              25,927
              
              $
              8,097Net
                  loss before minority interest and income taxes
              
              $
              (1,161,315
              )
              $
              (1,400,604
              )
              $
              (1,170,667
              )
              $
              (4,400,105
              )
 
 A
        reconciliation of reportable segment assets to consolidated total assets
        as of
        April 30, 2007 and 2006 is as follows:
 
 AS
                  OF30-Apr-07
              
              30-Apr-06Total
                  assets for reportable segments
              
              $
              2,170,537
              
              $
              2,756,607Intangible
                  assets not allocated to segments
              
              $
              1,669,664
              
              $
              1,836,254Cash
              
              $
              555,812
              
              $
              505,463Other
                  unallocated amounts
              
              $
              -
              
              $
              20,154Total
                  assets
              
              $
              4,396,013
              
              $
              5,118,478
  13
 **NOTE
        L - RELATED PARTY TRANSACTIONS**
 
 In
        October 2006, the Company invested $800 in Red Rock Pictures Holdings, Inc.,
        (“Red Rock”) which was then merged into a publicly traded entity classified as a
        development stage company. The investment represents approximately 11,769,236
        shares or 19.5% of the total outstanding shares of Red Rock Pictures Holdings,
        Inc. Three members of National Lampoon’s board of directors, Robert Levy,
        Tim Durham and Daniel Laikin, also own stock in Red Rock Pictures Holdings,
        Inc.
        The Company recorded the transaction under the equity method due to the
        determination they had significant influence, and recognized its proportionate
        share of the investee’s losses not to exceed the $800 investment. In addition,
        the Company’s investment had been determined to not be a variable interest
        entity in accordance with FIN46(R) since Red Rock Pictures Holdings, Inc.
        was
        not formed for the primary benefit of the Company, and the Company does not
        have
        an obligation to absorb the losses, nor receive any return. The fair market
        value of each share of Red Rock Pictures Holdings, Inc. is $3.04 as of April
        30,
        2007. Included in the accompanying balance sheet as of April 30, 2007 are
        notes
        payable to Red Rock Pictures Holdings, Inc of $1,743,202. In September 2006,
        Red
        Rock entered into a sub lease agreement with National Lampoon, Inc. for office
        space at $2,000 per month.
 
 **NOTE
        M - COMMITMENTS AND CONTINGENCIES**
 
 Cinergy
        Creative, Inc. (“Cinergy”) and Leslie Allen (“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 that their damages are
        in
        excess of $2,000,000. Defendants demurred and moved to strike portions of
        the
        initial complaint. National Lampoon Clubhouse cross-complained against Cinergy,
        Allen and Elizabeth Lough (“Lough”). The cross-compliant, filed on December 7,
        2006, contains causes of action for breach of contract, fraud and negligence.
        A
        Status and Trial Setting Conference occurred May 14, 2007. The Court determined
        that it was too early to set any specific deadlines and decided to continue
        the
        conference to June 12, 2007 where
        the
        court ordered the parties to mediate by February 15, 2008 or go to trial
        by
        April 21, 2008. The Defendants are vigorously defending against the
        lawsuit and believe Cinergy’s and Allen’s claims have no merit.
 
 During
        late 2006, the Screen Actor’s Guild (“SAG”) filed claims against National
        Lampoon Clubhouse, Inc. ("Clubhouse") for unpaid wages and pension, health
        and
        welfare benefits incurred for the filming of “Monster House” aka “Trick or
        Treat”.  SAG alleges that certain actors were not paid in full and are owed
        more compensation, expenses and benefits under the SAG agreement.
 Clubhouse disputes these claims and intends to vigorously defend this
        action. An arbitration with SAG is scheduled for the fall of 2007.
 
 The
        Company also settled a lawsuit during the three months ended April 30, 2007
        for
        an immaterial amount.
 
 **NOTE
        N - SUBSEQUENT EVENTS**
 
 In
        May
        2007, the Company started production of a motion picture, “Ratko, the dictator’s
        son” in Vancouver, Canada. On June 4, 2007, the Company received $500,000
        pursuant to an output agreement with a domestic cable provider. As of May
        31,
        2007, the Company borrowed from Red Rock Pictures Holdings $971,758 to finance
        production of the film pursuant to the film financing agreement. The loan
        bears
        interest at the rate of 10% per annum.
 
 On
        May 8,
        2007, we announced the acquisition of the Internet portal Drunk University.
        In
        accordance with Rule 11-01 of Regulation S-X promulgated under the Securities
        Act of 1933, as amended and the instructions to Form 8-K, we determined that
        the
        acquisition cost of $70,000 for Drunk University is not significant and thus
        does not require the preparation of audited financial statements. Drunk
        University is one of the Internet's leading college humor sites. Users can
        submit and browse photo galleries, post videos, chat in the Drunk University
        forum, read stories, and search for advice and drink recipes. In addition,
        the
        site's moderators are all current or former college comedy newspaper writers,
        and post original online editorial content. Prior to the acquisition, Drunk
        University had been part of the National Lampoon Humor Network. The National
        Lampoon Humor Network is an aggregated network of more than forty of the
        most
        popular humor destinations on the Internet.
  14
 
 On
        May
        17, 2007, we announced the formation of the National Lampoon Video Network,
        a
        broadband network that premiers with many of the Internet's leading content
        platforms. Initial distribution partners for the National Lampoon Video Network
        are Veoh, Joost, Handheld Entertainment, GoFish, Lycos, BiggyTV and YouTube.
        These relationships have been formed in addition to the online distribution
        partnerships National Lampoon already has in place with AOL Video and
        Brightcove, and will supplement National Lampoon's own video portals. Our
        partners will sell advertising space, including video streaming, on their
        service, and NLN will participate in revenues generated, in the form of a
        revenue share.
 
 In
        May
        2007, Mr. Laikin loaned an additional $75,000 to the Company. The loan bears
        interest at the rate of 6% per annum. There are no terms for repayment for
        the
        loan.
 
 On
        May
        24, 2007, 1,400 shares of the Company's Series C Convertible Preferred Stock
        and
        the related accrued dividends of $11,801 were converted to 34,146 shares
        of the
        Company’s common stock. Each Series C Convertible Preferred Share is convertible
        into 20 common shares. The accrued dividends were converted into the Company’s
        common stock based on the closing price of the common stock, as reported
        by the
        American Stock Exchange on the trading date immediately preceding the date
        that
        the Company became liable to pay the dividend. The stock transfer agent has
        yet
        to issue these shares.
  15
  **Item
        2 - Management's Discussion and Analysis or Plan of Operation**
 
 Management's
        Discussion and Analysis or Plan of Operation discusses the Company's
        consolidated financial statements, which have been prepared in accordance
        with
        accounting principles generally accepted in the United States. The preparation
        of these financial statements requires management to make estimates and
        assumptions that affect the reported amounts of assets and liabilities and
        the
        disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the
        reporting period. On an on-going basis, management evaluates its estimates
        and
        judgments. Management bases its estimates and judgments on historical experience
        and on various other factors that are believed to be reasonable under the
        circumstances, the results of which form the basis for making judgments about
        the carrying value of assets and liabilities that are not readily apparent
        from
        other sources. Actual results may differ from these estimates under different
        assumptions or conditions.
 
 **Overview**
 
 We
        are a
        media and entertainment company that creates and distributes comedic content.
        The National Lampoon(TM) brand was initially developed in 1970 through
        publication of *National
        Lampoon Magazine* and
        later through the use of our name on motion pictures, including *National
        Lampoon's Animal House* and *National
        Lampoon's Vacation* .
        Our
        plan is to expand the use of our brand in order to increase the revenues
        we
        generate through license fees, advertising and other sources. We are pursuing
        this plan as follows:
 
 *Motion
        Picture Production and Distribution*
 
 We
        produce feature films. We have an interest in National Lampoon Clubhouse,
        Inc.,
        a production entity, which produced the film “Monster Night” aka “Trick or
        Treat”. “Monster Night” was released in the fall of 2006. We are now in
        production on a feature film currently titled “Bag Boy” which was financed by
        National Lampoon and Red Rock Picture Holdings, Inc. and is expected to be
        released during the second half of 2007. We are also in production for the
        film
“Ratko, The Dictator’s Son” which commenced production in May 2007. We also earn
        revenues from providing producer/manager services for films that do not carry
        our brand.
 
 We
        own
        19% of Red Rock Picture Holdings, Inc. (sometimes referred to in this report
        as
“Red Rock”), a development stage company formed in August 2006. Red Rock was
        formed for the purpose of providing financing and consulting services to
        the
        production and exploitation of motion pictures. It is our intention to enter
        into a non-exclusive agreement with Red Rock whereby it will provide financing
        for National Lampoon motion picture productions.
 
 During
        the three months ending April 30, 2007, we hired 2 new consultants to perform
        the services required to distribute motion pictures produced by both National
        Lampoon and unrelated third parties. We expect the first films to be distributed
        in the first or second quarter of our next fiscal year.
 
 During
        the three and nine months ended April 30, 2007, revenues derived from producer,
        management and distribution fees totaled approximately none and $45,000,
        respectively, or less than 1% of all the revenues we earned during these
        periods.
 
 *Licensing*
 
 We
        derive
        a substantial portion of our revenues from license fees relating to the use
        of
        our name on new motion pictures and from royalties from previously released
        motion pictures bearing our brand, including movies such as *National
        Lampoon's Animal House* and *National
        Lampoon's Vacation* .
        Releasing a film with our brand enhances its ability to find distribution
        outlets. Once a film is released with our brand, we earn revenues from foreign
        sales, theatrical release, home video and DVD sales and rentals and
        pay-per-view. With the exception of two films in production as of April 30,
        2007
        and a film produced by National Lampoon Clubhouse, Inc., motion pictures
        that
        carry our brand have been produced and financed by third parties. We license
        the
        National Lampoon(TM) brand, as well as content from our library, for use
        in a
        wide variety of products including movies, television programming, live events,
        radio broadcasts, recordings, electronic games, and other consumer products.
        We
        anticipate granting fewer new licenses as we begin increasing the number
        of our
        own productions in the future.
 
 For
        the
        three and nine months ended April 30, 2007, revenues derived from our licensing
        and royalties (exclusive of revenues derived from our publishing activities)
        totaled approximately $330,000 and $3,751,000, respectively, or approximately
        41% and 63% of the revenues we earned during the period. A significant portion
        of this revenue was realized from a settlement relating to royalties earned
        during periods prior to September 30, 2004 for a National Lampoon licensed
        film,
        therefore this revenue will not recur in future periods.
 
 *National
        Lampoon Networks*
 
 National
        Lampoon Networks, Inc. (sometimes referred to in this report as "NLN") includes
        our internet, television and field marketing activities. We believe that
        we
        provide an appealing platform to advertisers who want their commercial messages
        to reach the college age market.
 
 For
        those
        businesses targeting the college market, NLN provides an integrated marketing
        platform that includes internet advertisers, on-air advertising, and field
        marketing.
  16
 
 NLN’s
        internet properties are comprised of three internet destination sites with
        the
        names NationalLampoon.com, TOGATV.com, and KnuckleheadVideo.com. These
        destination sites are also part of the National Lampoon Humor Network, an
        aggregated network of more than forty of the most popular humor destinations
        on
        the Internet. We sell advertising space on these sites in the form of video
        streamed advertisements, media advertisements and banner advertisements.
 
 We
        recently entered into a content distribution agreement with AOL whereby we
        launched the National Lampoon Video Channel on the AOL video service. AOL
        will
        sell advertising space, including video streaming, on AOL's service and we
        will
        receive a portion of the revenues earned.
 
 NLN’s
        television activities include delivering programming during the standard
        academic school year to more than 200 affiliated college and other television
        stations, reaching nearly 2 million college students in their dormitories
        and
        other places of residence.
 
 Aside
        from providing an outlet for advertisers targeting the college market, NLN
        develops, produces and distributes comedic internet and television programming
        to audiences through its network.
  For
        the
        three and nine month periods ended April 30, 2007, revenues derived from
        National Lampoon Networks, exclusive of licensing revenues, totaled
        approximately $319,000 and $1,800,000, respectively, or approximately 39%
        and
        30% of all the revenues we earned during these periods.
 
 *Travel
        Services*
 
 During
        the academic year we may market, advertise and promote products for corporate
        customers at major spring break locations utilizing our market expertise
        in the
        college and young adult market.
 
 No
        revenue was earned from travel services during the three and nine month periods
        ending April 30, 2007.
 
 *Publishing*
 
 In
        October 2002, we entered into an agreement with Rugged Land LLC to publish
        six
        National Lampoon books over a three-year period based on new and established
        National Lampoon comedic content. We have released four books under this
        agreement, including *1964
        High School Reunion Year Book* , *National
        Lampoon's Book of Love* , *National
        Lampoon's Big Book of True Facts* and *National
        Lampoon's Encyclopedia of
        Humor* .
        The
        Company and Rugged Land LLC mutually agreed to terminate the agreement and
        no
        additional books were published.
 
 During
        the 2006 fiscal year we began publishing our books. As of April 30, 2007,
        we
        have released six books including *National
        Lampoon's Saddam Dump[Saddam Hussein's Trial Blog]* , *National
        Lampoon's Magazine Rack* , *National
        Lampoon's Jokes Jokes Jokes* , *National
        Lampoon’s Not Fit For Print* , *National
        Lampoon’s Favorite Cartoons of the 21st* ** *Century* and, *National
        Lampoon’s Van Wilder Guide to Graduating College In Eight Years or
        More* .
        Eleven
        other books are currently in various stages of development for future release.
 
 For
        the
        three and nine months ending April 30, 2007, revenues derived from our
        publishing activities totaled approximately $165,000 and $335,000, respectively,
        or approximately 20% and 6% of all the revenues we earned during these periods.
  17
 
 *Radio*
 
 In
        March
        2005, NL Radio, LLC was formed. We hold a 25% interest in this entity. In
        October 2006, NL Radio, LLC launched an entertainment radio format under
        our
        brand. We have licensed the content of our radio library, as well as certain
        domain names, URLs and websites to NL Radio, LLC for this purpose. NL Radio,
        LLC
        used samples of the programming, called "pilot programming," to introduce
        the
        format and content to radio networks and local stations. If the programming
        is
        sold to a network it may be syndicated, meaning that it would be distributed
        to
        stations affiliated with the network. Purchasers of the programming may
        broadcast segments of the programming at their discretion, such as during
        "drive
        time" or as late night programming. Programming was launched on XM radio
        during
        this fiscal year. Our radio library includes approximately 80 hours of National
        Lampoon radio programming consisting primarily of one to two minute short
        comedy
        routines and one hour comedy sketches and parodies. Revenue will be earned
        from
        ad sales, direct response advertising and product promotion arrangements.
        We
        will receive a licensing fee equal to 8% of the gross receipts received by
        NL
        Radio, LLC from all sources in connection with any use of our brand. No revenue
        has been realized from NL Radio, LLC.
 
 *Library*
 
 Our
        library includes 247 issues of *National
        Lampoon Magazine* ,
        which
        we continue to use to generate new content for movies, television programming
        and other licensing opportunities. Our library also consists of television
        programming, including more than 300 hours of footage produced for National
        Lampoon Networks, radio programming, recordings and other materials.
  18





**Business
      Objective**





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





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





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





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





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





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





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





·
            On
                October 1, 2006, NL Radio, LLC launched 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.




19





*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 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,





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





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





·
            production
                television and DVD products;





·
            sale
                of corporate sponsorships at spring break events; and





·
            production
                and distribution of motion pictures.





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


20




Licensing
                & Publishing
            
            Advertising
                & Promotion
            
            Production
            
            Travel
                Services
            
            Clubhouse
            
            TotalThree
                Months Ended April 30, 2007Segment
                revenue
            
            $
            494,528
            
            $
            319,389
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            813,917Segment
                operating income (loss)
            
            $
            (298,025
            )
            $
            (755,532
            )
            $
            (43,369
            )
            $
            -
            
            $
            -
            
            $
            (1,096,926
            )Three
                Months Ended April 30, 2006Segment
                revenue
            
            $
            394,587
            
            $
            928,506
            
            $
            20,000
            
            $
            194,713
            
            $
            -
            
            $
            1,537,806Segment
                operating (loss)
            
            $
            (610,148
            )
            $
            (293,887
            )
            $
            (36,255
            )
            $
            (399,001
            )
            $
            (3,199
            )
            $
            (1,342,490
            )Nine
                Months Ended April 30, 2007Segment
                revenue
            
            $
            4,086,367
            
            $
            1,800,211
            
            $
            44,500
            
            $
            -
            
            $
            -
            
            $
            5,931,078Segment
                operating income (loss)
            
            $
            1,351,106
            
            $
            (1,900,992
            )
            $
            (431,527
            )
            $
            -
            
            $
            -
            
            $
            (981,413
            )Nine
                Months Ended April 30, 2006Segment
                revenue
            
            $
            889,868
            
            $
            1,949,936
            
            $
            163,583
            
            $
            197,247
            
            $
            -
            
            $
            3,200,634Segment
                operating (loss)
            
            $
            (1,833,037
            )
            $
            (1,343,610
            )
            $
            (500,351
            )
            $
            (552,367
            )
            $
            (43,828
            )
            $
            (4,273,193
            )





**Three
      and Nine Months Ended April 30, 2007 as compared to the Three and Nine Months
      Ended April 30, 2006**





**Licensing
      and Publishing Revenues**





Licensing
      and publishing revenues for the three and nine months ended April 30, 2007
      were
      $494,528 and $4,086,367 compared to $394,587 and $889,868 for the three and
      nine
      months ended April 30, 2006, representing an increase of 25% and 359%,
      respectively. The increase for the nine month period was primarily attributable
      to a settlement of outstanding royalties in the amount of $2.9 million which
      will not recur in future periods. We also realized $164,792 and $334,994 in
      revenue in the three and nine months ended April 30, 2007, respectively, from
      the publication of our books. There was no comparative publishing revenue in
      the
      three and nine months ended April 30, 2006 because the initial books were
      released during the fourth quarter of the 2006 fiscal year.





Costs
      related to licensing revenues were $14,360 and $172,176 during the three and
      nine months ended April 30, 2007 compared to $82,834 and $167,522 for the three
      and nine months ended April 30, 2006. This represents a decrease of 83% and
      an
      increase of 3%, respectively. The decrease for the three month period ended
      April 30, 2007 is primarily due a reduction in the estimate of license fees
      we
      expect to pay for a book released in a prior period. For the nine months ended
      April 30, 2007, the increase is primarily due to royalties owed to artists
      from
      the $2.9 million settlement of outstanding royalties due to us, which was
      partially offset by the reduction in the estimate of license fees due on a
      title
      released in a prior period.





**Advertising
      and Promotion Revenues**





During
      the three and nine months ended April 30, 2007, National Lampoon Network's
      combined advertising and promotion revenues were $319,389 and $1,800,211
      compared to $928,506 and $1,949,936 for the three and nine months ended April
      30, 2006. This represents a decrease of 66% and 8%, respectively. The decrease
      in revenue for both the three months and nine months ended April 30, 2007 was
      a
      result of decreased promotion revenues partially offset by increased advertising
      revenue on internet websites.





Costs
      related to advertising revenues include bandwidth usage fees, website
      development costs, and content conversion costs along with some amortization
      of
      capitalized television production costs. We incur costs related to promotion
      revenues based on direct costs of live events and promotion of third-party
      feature films, which are expensed as they are incurred. Cost of advertising
      and
      promotion revenue was $572,329 and $1,789,329 during the three and nine months
      ended April 30, 2007 compared to $645,248 and $1,792,244 for the three and
      nine
      months ended April 30, 2006, representing a decrease of 11% and under 1%,
      respectively. This decrease in costs is the result of lower costs associated
      with advertising revenue mostly offset by costs associated with promotional
      revenue.





21





**Production
      Revenues**





For
      the
      three and nine months ended April 30, 2007, production revenues were
      approximately $0 and $44,500 as compared to $20,000 and $163,583 for the three
      and nine months ended April 30, 2006 or a decrease of 100% and 73%,
      respectively. We traditionally do not produce product unless we have a presale,
      minimum guarantee or co-production agreement in place. This reduces our risk
      as
      productions tend to be capital intensive. However, we are planning on expanding
      our productions and we have negotiated an output arrangement with a domestic
      cable provider which guarantees us a cable distribution outlet for our new
      product along with a minimum return on each new motion picture release. The
      output arrangement provides for a pre-negotiated minimum guarantee or sales
      price for the licensing of a specific media and territory. We have also
      negotiated home video distribution with a number of domestic retailers and
      distributors and have licensed international rights in several territories
      with
      minimum guarantees. For the video distribution, there is no minimum price
      guarantee but the arrangement provides us a video distribution outlet for our
      new product. In addition, we are negotiating with Red Rock to provide production
      financing. As these output and financing arrangements are signed, we will
      allocate additional internal resources to this segment of our business. For
      the
      three months and nine months ended April 30, 2007, production revenues decreased
      due to the allocation of internal resources directed to the production of two
      feature films.





Amortization
      of capitalized film production costs for the three and nine months ended April
      30, 2007 was $42,313 and $462,582, respectively. For the nine month period
      ended
      April 30, 2007, this represents the write-down during the three months ended
      April 30, 2007 of “Trick or Treat” aka “Monster Night”, a film produced in the
      prior year. The write-down reflects our estimate of lower ultimate revenues.
      These lower revised ultimates are based on the results realized during the
      film’s domestic release during the period and unsuccessful marketing efforts to
      international territories. The net book value and revised ultimates for “Trick
      or Treat” aka “Monster Night” is approximately $97,000.





**Travel
      Services Revenues**





We
      earned
      no revenue from this segment of our business during the three months and nine
      months ended April 30, 2007. During the nine months ended April 30, 2007, we
      did
      not organize any tours or travel related products. Instead, we generated revenue
      from sponsors by providing advertising and promotion services to spring break
      events promoted by third parties.





**Other
      Costs and Expenses**





Amortization
      of intangible assets, which consists of the costs of our acquisition and
      protection of the "National LampoonTM" trademark, was approximately $60,000 and
      $181,000 during the three months and nine months ended April 30, 2007 and 2006,
      respectively.





Selling,
      general and administrative costs decreased by 12% and 11%, respectively, or
      $161,220 and $428,757 to $1,222,535 and $3,547,083 during the three months
      and
      nine months ended April 30, 2007 from $1,383,755 and $3,975,840 for the three
      months and nine months ended April 30, 2006. For the nine month period ended
      April 30, 2007, the decrease resulted from lower rent, a result of the move
      of
      our corporate headquarters in May 2006 to a building with lower occupancy costs,
      and the closing of our New York office. For the three month period ended April
      30, 2007, the savings were realized from lower occupancy costs as a result
      of
      moving our corporate headquarters, a reduction in personnel and the closing
      of
      our New York office.





The
      provision for doubtful accounts for the three months and nine months ended
      April
      30, 2007 totaled $108,712 and $176,355, compared to $50,980 and $127,325 for
      the
      three months and nine months ended April 30, 2006. The provision for the nine
      months ended April 30, 2007 is primarily attributable to the uncollectability
      of
      advertising and promotion sales and for producer fees recognized in the prior
      year for “Trick or Treat” aka “Monster Night”. The recovery for the three months
      ended April 30, 2007 represent collections on sales previously deemed
      uncollectible.




22





During
      the three months and nine months ended April 30, 2007, expenses totaling
      $136,250 and $859,190 were incurred from grants of options and warrants to
      employees, advisors and consultants as compared to expenses totaling $9,573
      and
      $114,413 attributable to grants of options and warrants that were incurred
      during the three months and nine months ended April 30, 2006. The increase
      is
      primarily due to the implementation of SFAS No. 123R and grants of options
      to
      our chief executive officer pursuant to his employment contract, our former
      president pursuant to his severance and consulting agreement, new employees
      including an interim chief financial officer and directors.





Interest
      income earned during the three months and nine months ended April 30, 2007
      totaled $1,045 and $5,546 compared to interest income of $6,329 and $75,291
      during the three months and nine months ended April 30, 2006. Interest income
      was realized in the prior period due to our increased cash position during
      the
      three months and nine months ended April 30, 2006 as a result of the public
      offering completed on August 8, 2005. No similar capital infusion occurred
      during the period ended April 30, 2007.





For
      the
      three months and nine months ended April 30, 2007, we had a net loss of
      $(1,161,315) and $(1,170,667), respectively, as compared to a net loss of
      $(1,394,602) and $(4,321,539) for the three months and nine months ended April
      30, 2006. This represents a decrease in net loss of $233,287 and $3,150,872,
      respectively, for the three months and nine months ended April 30, 2007. The
      decrease in net loss for the nine month period resulted primarily from the
      significant increase in revenue associated with license fees from a settlement
      along with the increase in internet related advertising revenue. The decrease
      in
      net loss for the three months ended April 30, 2007 was a result of increased
      sales from publishing and decreased costs of tour revenue and selling, general
      and administrative costs, partially offset by the issuance of stock, warrants
      and options and a decrease in sales.





During
      the three months and nine months ended April 30, 2007 and 2006, we had no
      provision for income taxes due to the significant net operating losses incurred
      in prior periods and related carry forward to the current period. We also
      accrued dividends for preferred shareholders of $289,817 and $932,832 during
      the
      three months and nine months ended April 30, 2007 and $320,454 and $976,754
      during the same period in 2006. The addition of the accrued dividend resulted
      in
      a net loss attributable to common shareholders of $(1,451,132) and $(2,103,499)
      or $(0.18) and $(0.28) per basic and fully diluted share for the three months
      and nine months ended April 30, 2007, versus a net loss attributable to common
      shareholders of $(1,715,056) and $(5,298,293) or $(0.25) and $(0.79) per basic
      and fully diluted share for the three months and nine months ended April 30,
      2006.





**Liquidity
      and Capital Resources**





With
      the
      exception of the first quarter of the fiscal year ended July 31, 2007, we have
      not generated positive cash flow from operations over the past few years. Our
      principal sources of working capital during the nine months ended April 30,
      2007
      consisted of loans from our officers and directors and a settlement of $2.9
      million related to unpaid royalties.





Net
        cash
        used in operating activities was approximately $1,189,000 for the nine months
        ended April 30, 2007, as compared to approximately $4,860,000 for the nine
        months ended April 30, 2006. The decrease in cash flow usage from operations
        was
        primarily attributable to the increase in revenue partially offset by an
        increase in cash used for operations. Cash provided by financing activities
        was
        approximately $1,771,000 for the nine months ended April 30, 2007, as compared
        to approximately $5,310,000 for the nine months ended April 30, 2006. The
        funds
        for the current period were obtained from officers and directors and a related
        party and were partially offset by repayment of loans from officers and
        directors.





As
      of
      April 30, 2007, we had cash on hand of approximately $556,000, which includes
      the payment of the settlement for unpaid royalties. We believe these funds,
      along with additional loans from our Chief Executive Officer and one member
      of
      our board of directors, will be adequate to fund our ongoing operations and
      capital requirements for the next twelve months. However, we have no commitment
      for these loans and our Chief Executive Officer and director are not required
      to
      make additional loans to us. If we do not receive these loans and if alternate
      sources of financing cannot be found, then we may not be able to continue to
      operate as a going concern.





Historically,
      our principal source of funds used for operations and working capital has been
      loans received from Daniel S. Laikin, our Chief Executive Officer, and Timothy
      Durham, a director, and a shareholder. The aggregate amount of the loans and
      accrued interest owed to these individuals at April 30, 2007 is approximately
      $698,000. These obligations are payable on demand. We plan to pay these
      obligations from future revenues. In addition, Red Rock Picture Holdings, Inc.
      has provided the Company with funds for movie production. The aggregate amount
      of the loans and accrued interest owed to Red Rock at April 30, 2007 is
      approximately $1,743,000.




23





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
      April 30, 2007, our capital expenditures are projected to be $100,000 for the
      2007 fiscal year. These expenditures will relate to the purchase of fixed assets
      such as equipment and furniture.





**Off-Balance
      Sheet Arrangements**





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





**Item
      3 - Controls and Procedures**





We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our Chief Executive Officer and our Interim Chief
      Financial Officer of the effectiveness of the design and operation of our
      disclosure controls and procedures as of the end of the period covered by this
      report. The evaluation was undertaken in consultation with our accounting
      personnel. Based on that evaluation, the Interim 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 changes in our internal controls or in other factors that could
      significantly affect internal controls subsequent to the date of their
      evaluation.


24





**PART
      II - OTHER INFORMATION**





**Item
      1 - Legal Proceedings**





Cinergy
      Creative, Inc. (“Cinergy”) and Leslie Allen (“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 that their damages are
      in
      excess of $2,000,000. Defendants demurred and moved to strike portions of the
      initial complaint. National Lampoon Clubhouse cross-complained against Cinergy,
      Allen and Elizabeth Lough. The cross-compliant, filed on December 7, 2006
      contains causes of action for breach of contract, fraud and negligence. A Status
      and Trial Setting Conference occurred May 14, 2007. The Court determined that
      it
      was too early to set any specific deadlines and decided to continue the
      conference to June 12, 2007. The defendants are vigorously defending against
      the
      lawsuit and believe Cinergy’s and Allen’s claims have no merit.





During
      late 2006, the Screen Actor’s Guild (“SAG”) filed claims against National
      Lampoon Clubhouse, Inc. ("Clubhouse") for unpaid wages and pension, health
      and
      welfare benefits incurred for the filming of “Monster House” aka “Trick or
      Treat”.  SAG alleges that certain actors were not paid in full and are owed
      more compensation, expenses and benefits under the SAG agreement.
 Clubhouse disputes these claims and intends to vigorously defend this
      action. A SAG arbitration is scheduled for the fall of 2007.





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





On
      April
      24, 2007, the Company compensated a professional services firm for its services
      by issuing 22,727 shares of common having a value of $49,999 or $2.19 per share.
      The Company also agreed to issue, although it has not yet done so, a warrant
      for
      the purchase of 22,727 shares of common stock. The warrant will have an exercise
      price of $3.00 per share. The
      Company relied on section 4(2) of the Securities Act of 1933 to issue the
      securities inasmuch as the securities were issued without any form of general
      solicitation or general advertising and the acquirer was an accredited
      investor.





During
      the quarter ended April 30, 2007, 1,000 shares of the Company's Series C
      Convertible Preferred Stock and the related accrued dividends of $7,370 were
      converted to 23,595 shares of the Company’s common stock. Each Series C
      Convertible Preferred Share is convertible into 20 common shares. The accrued
      dividends were converted into the Company’s common stock at the rate of $2.05
      per share. The Company relied on section 4(2) of the Securities Act of 1933
      to
      issue the securities inasmuch as the common stock was issued without any form
      of
      general solicitation or general advertising and the acquirer was an accredited
      investor.





On
      May
      24, 2007, 1,400 shares of the Company's Series C Convertible Preferred Stock
      and
      the related accrued dividends of $11,801 were converted to 34,146 shares of
      the
      Company’s common stock. Each Series C Convertible Preferred Share is convertible
      into 20 common shares. The accrued dividends were converted into the Company’s
      common stock at the rate of $1.92 per share. The stock transfer agent has not
      yet issued these shares. The Company relied on section 4(2) of the Securities
      Act of 1933 to issue the securities inasmuch as the common stock was issued
      without any form of general solicitation or general advertising and the acquirer
      was an accredited investor.





**Item
      3 - Defaults Upon Senior Securities**





None.





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





None.





**Item
      5 - Other Information**





None.




25





**Item
      6 - Exhibits**





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





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





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





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





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





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





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





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





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





4.7
            First
                Amendment to Voting Agreement dated June 7, 2002





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




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





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




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




*Filed
      herewith.





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





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





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





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





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





26




**SIGNATURES**





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


NATIONAL
                LAMPOON, INC.June
                14, 2007
            By:
            /s/ Daniel
                S. LaikinDaniel
                S. Laikin,
              Chief
                Executive Officer


June
              14,
              2007
            By:
            /s/ David
                M. KaneDavid
                M. Kane,
              Interim
                Chief Financial Officer




27