**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, 2006





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





8228
      Sunset Boulevard


Los
      Angeles, CA 90046


(Address
      of principal executive offices)


(Zip
      Code)





(310)
      474-5252


(Registrant’s
      telephone number including area code)





10850
      Wilshire Boulevard, Suite 1000


Los
      Angeles, California


90024


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





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.


Yes x No o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No x





**APPLICABLE
      ONLY TO CORPORATE ISSUERS**





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: The registrant had 6,929,958 shares of common
      stock, $0.0001 par value, issued and outstanding as of June 5,
      2006.





Transitional
      Small Business Disclosure Format (Check one):


Yes o No x








**FORWARD
      LOOKING STATEMENTS**





Some
      of
      the statements made in this quarterly report on Form 10QSB discuss future events
      and developments, including 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 as we need
                it,





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





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





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





·
            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.








**PART
      I - FINANCIAL INFORMATION**





**Item
      1 - Consolidated Financial Statements**




**NATIONAL
      LAMPOON, INC. AND SUBSIDIARIES**


CONSOLIDATED
      BALANCE SHEETS





As
                    ofASSETS
                
                April
                    30, 2006(UNAUDITED)CURRENT
                    ASSETSCash
                
                $
                505,463Accounts
                    receivable, net of $78,230 of allowance for doubtful
                    accounts
                
                $
                1,051,389Prepaid
                    expenses and other current assets
                
                $
                102,575Total
                    current assets
                
                $
                1,659,427NON-CURRENT
                    ASSETSFixed
                    assets, net of accumulated depreciation
                
                $
                20,154Capitalized
                    film and television production costs, net of $874,750 in film
                    financing
                    and $274,257 of amortization
                
                $
                1,602,643Intangible
                    assets, net of accumulated amortization of $4,168,578
                
                $
                1,836,254Total
                    non-current assets
                
                $
                3,459,051TOTAL
                    ASSETS
                
                $
                5,118,478LIABILITIES
                    AND SHAREHOLDERS' EQUITYCURRENT
                    LIABILITIESAccounts
                    payable
                
                $
                988,295Accrued
                    expenses
                
                $
                174,052Accrued
                    royalties
                
                $
                439,667Accrued
                    dividends
                
                $
                2,090,273Notes
                    payable (Note I) - related party, including interest of
                    $47,449
                
                $
                162,449Deferred
                    income
                
                $
                250,018TOTAL
                    CURRENT LIABILITIES
                
                $
                4,104,754MINORITY
                    INTEREST
                
                $
                171,240SHAREHOLDERS'
                    EQUITYSeries
                    B Convertible Preferred Stock, par value $.0001 per share, 68,406
                    shares
                    authorized, 63,607 shares issued.
                
                $
                6Series
                    C Convertible Preferred Stock, par value $.0001 per share, 250,000
                    shares
                    authorized, 229,761 shares issued.
                
                $
                22Common
                    Stock, par value $.0001 per share, 60,000,000 shares authorized
                    and
                    6,929,958 shares issued.
                
                $
                692Additional
                    paid-in capital
                
                $
                37,085,586Less:
                    Deferred compensation
                
                $
                (28,255
                )Accumulated
                    deficit
                
                $
                (36,215,567
                )TOTAL
                    SHAREHOLDERS' EQUITY
                
                $
                842,484TOTAL
                    LIABILITIES AND SHARESHOLDERS' EQUITY
                
                $
                5,118,478


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







**NATIONAL
        LAMPOON, INC. AND SUBSIDIARIES**


CONSOLIDATED
      STATEMENTS OF OPERATIONS





Three
                Months
            
            Nine
                MonthsEnded
                April 30,
            
            Ended
                April 30,2006
            
            2005
            
            2006
            
            2005(UNAUDITED)
            
            (UNAUDITED)
            
            (UNAUDITED)
            
            (UNAUDITED)REVENUESProduction
            
            $
            20,000
            
            $
            33,333
            
            $
            163,583
            
            $
            181,333Licensing
            
            
            393,095
            
            
            443,443
            
            
            883,733
            
            
            1,614,940Tours
            
            
            194,713
            
            
            83,724
            
            
            197,247
            
            
            83,724Advertising
                & Promotion
            
            
            928,506
            
            
            581,490
            
            
            1,949,936
            
            
            1,259,671Radio
            
            
            -
            
            
            -
            
            
            -
            
            
            -Publishing
            
            
            1,492
            
            
            -
            
            
            6,135
            
            
            -Total
                revenues
            
            
            1,537,806
            
            
            1,141,990
            
            
            3,200,634
            
            
            3,139,668COSTS
                AND EXPENSESCosts
                related to production revenue
            
            
            9,150
            
            
            8,000
            
            
            32,060
            
            
            152,408Costs
                related to licensing revenue
            
            
            82,834
            
            
            88,737
            
            
            167,522
            
            
            109,967Costs
                related to tours revenues
            
            
            576,995
            
            
            296,290
            
            
            677,166
            
            
            296,290Costs
                related to advertising and promotion revenues
            
            
            645,248
            
            
            336,065
            
            
            1,792,244
            
            
            793,726Amortization
                of capitalized television production costs
            
            
            121,762
            
            
            187,882
            
            
            274,257
            
            
            372,451Amortization
                of intangible assets
            
            
            60,000
            
            
            60,000
            
            
            180,000
            
            
            180,000Amortization
                debt issuance costs
            
            
            -
            
            
            160,000
            
            
            313,000
            
            
            167,000Provision
                for doubtful accounts
            
            
            50,980
            
            
            -
            
            
            127,325
            
            
            -Selling,
                general and administrative expenses
            
            
            1,383,755
            
            
            1,217,616
            
            
            3,975,840
            
            
            3,594,021Stock,
                warrants & options issued for services
            
            
            9,573
            
            
            168,505
            
            
            114,413
            
            
            491,038Expense
                associated with modification of warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            1,082,695Severance
                costs
            
            
            -
            
            
            -
            
            
            -
            
            
            2,577,497Total
                costs and expenses
            
            
            2,940,297
            
            
            2,523,095
            
            
            7,653,827
            
            
            9,817,093OPERATING
                LOSS
            
            
            (1,402,491
            )
            
            (1,381,105
            )
            
            (4,453,193
            )
            
            (6,677,425
            )OTHER
                INCOMEInterest
                income
            
            
            6,329
            
            
            1,190
            
            
            75,291
            
            
            5,994Interest
                expense
            
            
            (4,867
            )
            
            (49,191
            )
            
            (30,300
            )
            
            (98,771
            )Other
                expense/(expense)
            
            
            425
            
            
            38
            
            
            8,097
            
            
            (165,783
            )Total
                other income
            
            
            1,887
            
            
            (47,963
            )
            
            53,088
            
            
            (258,560
            )NET
                LOSS BEFORE MINORITY INTEREST
            
            $
            (1,400,604
            )
            $
            (1,429,068
            )
            $
            (4,400,105
            )
            $
            (6,935,985
            )MINORITY
                INTEREST IN INCOME
            
            
            6,002
            
            
            -
            
            
            78,566
            
            
            -LOSS
                BEFORE INCOME TAXES
            
            $
            (1,394,602
            )
            $
            (1,429,068
            )
            $
            (4,321,539
            )
            $
            (6,935,985
            )Provision
                for state income taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            9,138NET
                LOSS
            
            
            (1,394,602
            )
            
            (1,429,068
            )
            
            (4,321,539
            )
            
            (6,945,123
            )Accrued
                dividends (Note H)
            
            
            (320,454
            )
            
            (322,116
            )
            
            (976,754
            )
            
            (801,900
            )Beneficial
                conversion feature treated as preferred dividend (Note F)
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,280,906
            )Net
                loss attributable to common shareholders
            
            $
            (1,715,056
            )
            $
            (1,751,184
            )
            $
            (5,298,293
            )
            $
            (10,027,929
            )Net
                loss per share attributable to common shareholder - basic and
                diluted
            
            $
            (0.25
            )
            $
            (0.52
            )
            $
            (0.79
            )
            $
            (3.14
            )Weighted
                average number of common shares - basic and diluted
            
            
            6,856,000
            
            
            3,389,104
            
            $
            6,704,600
            
            
            3,196,190




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




**NATIONAL
          LAMPOON, INC. AND SUBSIDIARIES**
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
  Nine
                    MonthsEnded
                    April 30,2006
                
                2005(UNAUDITED)
                
                (UNAUDITED)CASH
                    FLOWS FROM OPERATING ACTIVITIESNet
                    Loss
                
                $
                (4,321,539
                )
                $
                (6,945,123
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                
                
                10,601
                
                
                25,357Amortization
                    of intangible assets
                
                
                180,000
                
                
                180,000Amortization
                    of debt issuance costs
                
                
                313,000
                
                
                167,000Amortization
                    of capitalized production costs
                
                
                274,257
                
                
                -Stock,
                    options and warrants issued for services
                
                
                114,420
                
                
                772,453Provision
                    for doubtful accounts
                
                
                76,345
                
                
                -Expense
                    associated with the modification of warrants
                
                
                -
                
                
                1,082,695Other
                
                
                -
                
                
                4,410Changes
                    in assets and liabilities:Increase
                    in accounts receivable
                
                
                (805,410
                )
                
                (341,945
                )decrease/(increase)
                    in prepaid expenses and other assets
                
                
                90,143
                
                
                (167,631
                )Increase
                    in publishing costs
                
                
                (31,259
                )
                
                -Increase
                    in production costs
                
                
                (1,104,208
                )
                
                (225,197
                )Increase/(decrease)
                    in accounts payable
                
                
                525,650
                
                
                (170,947
                )(Decrease)/increase
                    in accrued expenses
                
                
                (263,144
                )
                
                264,677Increase/(decrease)
                    in deferred revenues
                
                
                250,018
                
                
                (110,000
                )Decrease
                    in common stock owed
                
                
                (168,500
                )
                
                -NET
                    CASH USED IN OPERATING ACTIVITIES
                
                
                (4,859,626
                )
                
                (5,464,251
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Purchase
                    of fixed assets
                
                
                (15,281
                )
                
                (1,075
                )Purchase
                    of intangible assets
                
                
                (40,100
                )
                
                -NET
                    CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES
                
                
                (55,381
                )
                
                (1,075
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Film
                    financing
                
                
                449,250
                
                
                -Minority
                    interest in loss of consolidated subsidiary
                
                
                (78,566
                )
                
                -Proceeds
                    from issuance of common stock (Note J)
                
                
                9,600,000
                
                
                -Payments
                    related to the issuance of common stock (Note J)
                
                
                (1,279,341
                )
                
                -Payments
                    of notes payable
                
                
                -
                
                
                (635,124
                )Proceeds
                    from the exercise of stock options
                
                
                20,983
                
                
                90,533Proceeds
                    from Series C convertible preferred stock issuance
                
                
                -
                
                
                3,648,879Elimination
                    of note receivable on common stock
                
                
                -
                
                
                162,980SEC
                    filing fees
                
                
                -
                
                
                (1,200
                )Proceeds
                    from notes payable
                
                
                
                
                
                2,715,000Payment
                    of principal and interest for notes payable
                
                
                (3,402,550
                )NET
                    CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                5,309,776
                
                
                5,981,068NET
                    INCREASE IN CASH
                
                
                394,769
                
                
                515,742CASH
                    AT BEGINNING OF PERIOD
                
                
                110,694
                
                
                484CASH
                    AT END OF PERIOD
                
                
                505,463
                
                
                516,226Supplemental
                    disclosures of cash flow information:Cash
                    paid for Taxes
                
                $
                -
                
                $
                -Interest
                    paid
                
                $
                111,847
                
                $
                -Stock
                    and options issued for services and debt issuance costs
                
                $
                114,420
                
                $
                1,412,453Conversion
                    of loans to Series C Convertible Preferred stock with warrants
                    attached
                
                $
                -
                
                $
                4,649,775
  The
            accompanying notes are an integral part of these 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, 2006, and the results of operations and cash flows for the
      three
      and nine-month periods ended April 30, 2006 and 2005 have been included. The
      results of operations for the nine-month period ended April 30, 2006 are not
      necessarily indicative of the results to be expected for the full fiscal year.
      These consolidated financial statements should be read in conjunction with
      the
      financial statements and related footnotes for the year ended July 31, 2005
      included in the Company’s Annual Report on Form 10-KSB for that
      period.





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. The Company’s net losses of $8,669,170
      and $5,127,107 in the prior two years, net loss of $4,321,539 during the first
      nine months of the 2006 fiscal year, and accumulated deficit of $36,215,567
      at
      April 30, 2006, raise concerns about its ability to continue as a going concern.
      These concerns are addressed by the transactions discussed in the following
      paragraph.





Over
      the
      next year the Company estimates that it will realize revenue in excess of
      $2,000,000 from two of its productions which are over 90% completed.
      Furthermore, with over $1 million in current receivables and based on internal
      projections, management believes that cash on hand plus estimated revenues
      from
      events, promotions and productions as well as other projects that are currently
      planned, combined with an estimated reduction in expenses that typically occurs
      during the summer as a result of the end of the school year (which impacts
      the
      operations of National Lampoon Networks) will be sufficient to support the
      Company’s operations through the next 12 months. In addition to the estimated
      cash as discussed above the Company has a formal commitment from the National
      Lampoon Acquisition Group stating that they are willing to loan money or
      exercise additional equity instruments to meet any cash shortfalls for a period
      of no less than twelve months. Management believes this should alleviate the
      doubt about the Company’s ability to continue as a going concern.




Certain
      amounts from the nine months ended April 30, 2005 have been reclassified to
      correspond to our manner of reporting the results for the nine months ended
      April 30, 2006.





**NOTE
      B - CAPITALIZED PRODUCTION COSTS**





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





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





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





The
      portion of the costs of the Company’s completed films that are expected to be
      amortized during the upcoming 12 months is $1,201,982





Production
      costs for the Company’s theatrical films were $602,931 during the nine months
      ended April 30, 2006 and production costs for the Company’s National Lampoon
      Network television productions were $351,981 during the nine months ended April
      30, 2006.





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





The
      Company expects to pay $20,667 of accrued participation liabilities during
      the
      next 12 months.








**NOTE
      C - CONTROLLED COMPANY STATUS**





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





As
      of
      April 30, 2006, the Company owed Timothy Durham, a director, approximately
      $115,000 in principal and $39,023 in interest. The obligation to Mr. Durham
      is
      payable on demand. To date, no demand has been made.





**NOTE
      D - IMPAIRMENT**





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





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





The
      Company determined that there was no impairment of the National LampoonTM
trademark or film costs at April 30, 2006.





**NOTE
      E - STOCK OPTIONS**





The
      Company has adopted SFAS No. 123, “Accounting for Stock Based Compensation”,
      issued in October 1995. In accordance with SFAS No. 123, the Company has elected
      to follow Accounting Principles Board (APB) Opinion No. 25, “Accounting for
      Stock issued to Employees”, and related interpretation in accounting for its
      employee stock options. Under APB Opinion No. 25, because the exercise price
      of
      the Company’s employee stock options equals the market price of the underlying
      stock on the date of grant, no compensation expense is recognized. There is
      no
      current-period compensation expense to disclose in relation to previously issued
      employee stock options, as required under SFAS 148, and there were 203,000
      stock
      options granted during the nine months ended April 30, 2006. If the Company
      elected to recognize compensation expense based on the fair value of the options
      granted on the grant date as prescribed by SFAS No. 123, the Company’s net loss
      and loss per share would have been reduced to the pro forma amounts as
      follows:




Three
                Months Ended April 30,
            
            Nine
                Months Ended April 30,2006
            
            2005
            
            2006
            
            2005Net
                loss attributable to common shareholders - as reported
            
            $
            (1,715,054
            )
            $
            (1,751,184
            )
            $
            (5,298,294
            )
            $
            (10,027,929
            )APB
                25 expense recognized
            
            
            -
            
            
            -
            
            
            -
            
            
            -Stock
                option compensation under-fair value method
            
            
            (0
            )
            
            (106,468
            )
            
            (171,293
            )
            
            (397,515
            )Net
                loss attributable to common shareholders-pro forma
            
            $
            (1,715,054
            )
            $
            (1,857,652
            )
            $
            (5,469,587
            )
            $
            (10,425,444
            )Basic
                and diluted earnings/(loss) per share-as reported
            
            $
            (0.25
            )
            $
            (.52
            )
            $
            (0.79
            )
            $
            (3.14
            )Basic
                and diluted earnings/(loss) per share-pro forma
            
            $
            (0.25
            )
            $
            (.55
            )
            $
            (0.82
            )
            $
            (3.26
            )








The
      relative fair value of the options was estimated using the Black-Scholes option
      pricing model with the following assumptions: average risk-free interest of
      5.50%; dividend yield of 0%; average volatility factor of the expected market
      price of the Company’s common stock of  95.7%
      to
      103.5%; and a term of six to 10 years for the nine months ended April 30, 2006;
      and average risk-free interest of 5.50%; dividend yield of 0%; average
      volatility factor of the expected market price of the Company’s common stock of
      226.7% to 302.5%; and a term of seven to 10 years for the six
      months ended April 30, 2005.





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





**NOTE
      F - FILM FINANCING**





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





The
      total
      budget for the first film to be made by Clubhouse is $1,800,000, which is to
      be
      funded equally by the Company and Majestic. As of April 30, 2006, Clubhouse
      received $896,750 in funding from Majestic toward the production of the film.
        Of this amount, $725,500 was received during the fiscal year ended
      July 31, 2005 and $171,250 was received during the nine months ended April
      30,
      2006. Each party was to invest $300,000 into Clubhouse, which was recorded
      to
      minority interest. Based on EITF 88-18, because there is no implicit rate of
      return to Majestic and Majestic has contributing participation in the production
      of the film, and because there is no other factor that would require the
      classification of this payment as debt, the Company has recorded the remainder
      of the funding, totaling $596,750, against capitalized production
      costs.





On
      May 6,
      2005, the Company signed a Deal Memorandum with Laughter Heals Productions,
      Inc.
      and Newco (an entity to be formed) with respect to the financing, development
      and production of a film tentatively titled “Totally Baked.” On August 5,
      2005 the parties formed Totally Baked LLC, through which the film will be
      made. Pursuant to the Deal Memorandum, Newco will provide the funds for the
      production. The total budget for the production is currently estimated to be
      $275,000. As of April 30, 2006, Newco had funded $240,000 toward the production.
      The Deal Memorandum provides that gross revenue earned from the project will
      be
      distributed as follows: (i) first, for the payment of distribution and sales
      fees and expenses; (ii) secondly, Newco will recoup the amount of its
      investment, plus 5%; (iii) thirdly, National Lampoon, Inc. will receive a
      trademark fee of 8%; and (iv) Laughter Heals Productions, Inc. will receive
      a
      producer fee of 8%. As of
      April 30, 2006, accrual for Newco’s investment return totaled
      $8,426. Once
      these payments have been made, 50% of any remaining revenues will be distributed
      to Newco and 50% will be distributed first to mutually approved net profit
      participants and, after making such payments, the balance will be distributed
      equally between National Lampoon, Inc. and Newco.





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








Furthermore,
      the Company seeks to utilize third party financing to produce its product
      thereby reducing the financial risk associated with motion picture production.
      In order to maintain and improve its brand name, the Company maintains control
      of all business and creative elements associated with film production and
      distribution. In contrast, when the Company licenses its name to a film, it
      has
      little or no operational or creative control. In the case of Totally Baked
      LLC
      the entity was created for the sole purpose of producing the motion picture
      titled “Totally Baked”. The motion picture is now 90% complete and during the
      development and production period the Company maintained and continues to
      maintain control over all aspects of the film irrespective of the contractual
      terms. After the film is completed, the Company will distribute and/or sell
      the
      distribution rights throughout the world wide exhibition market which gives
      the
      Company complete control going forward. The Company will control all cash
      receipts during the exploitation phase of the motion picture as it controlled
      all cash disbursements during the production phase.





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





The
      production financing was recorded against capitalized production costs.





**NOTE
      G - NET INCOME OR LOSS PER SHARE**





Diluted
      earnings per share amounts are calculated using the treasury method and are
      based upon the weighted average number of common and common equivalent shares
      outstanding during the period. Basic and diluted earnings per share are the
      same, as common equivalent shares have been excluded from the computation due
      to
      the fact they are anti-dilutive. Options and warrants to purchase 10,157,687
      and
      7,487,262 common shares during the three months ended April 30, 2006 and 2005,
      and options and warrants to purchase 9,959,198 and 6,319,425 common shares
      during the nine months ended April 30, 2006 and 2005 respectively, are not
      included in the calculation of diluted earnings per share because their
      inclusion would be anti-dilutive. 8,178,711 shares that would be issued 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,
      2006 and 2005, respectively, because their inclusion would be
      anti-dilutive.





**NOTE
      H - ACCRUED SERIES B AND C DIVIDENDS**





Dividends
      accrue on the Company’s Series B and Series C Convertible Preferred
      Stock. **** The
      Company accrued dividends on a daily basis and will continue to do so until
      the
      date at which the Series B or Series C Convertible Preferred Stock is converted,
      until a liquidation event occurs, or, in the case of the Series C Convertible
      Preferred Stock, until the redemption date (although the redemption date is
      not
      defined and there is no right of redemption as to the Series C Convertible
      Preferred Stock). Dividends accrue at the rate of 9% per annum on the sum of
      the
      original purchase price of the Series B or Series C Convertible Preferred Stock
      plus all accumulated and unpaid dividends thereon (compounding annually).
      Dividends that accrue on the Company’s Series B and Series C Convertible
      Preferred Stock must be paid with our common stock. During the three and nine
      month periods ended April 30, 2006, the Company accrued $320,454 and $976,754,
      respectively and as of April 30, 2006, the Company had accrued $2,090,273 for
      Series B and C Convertible Preferred Stock dividends.





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




**NOTE
        I - NOTES PAYABLE AND ACCRUED INTEREST**





$115,000
      in principal and $47,449 in interest is due to a related party. The obligation
      is payable on demand. To date, no demand has been made. We plan to pay this
      obligation with revenues earned by our operations.





**NOTE
      J - STOCKHOLDER EQUITY**





During
      the nine months ended April 30, 2006, 13,333 shares of the Company’s common
      stock were purchased through the exercise of stock options that resulted in
      cash
      proceeds to the Company of approximately $20,982. During the nine months ended
      April 30, 2006, 20,911 shares of the Company’s common stock were purchased
      through the cashless exercise of stock options. In
      addition approximately 27,600 shares of restricted stock were issued at a market
      price of $80,000 to various consultants of the Company for services rendered.
      Furthermore, 5,000 shares of Series C Convertible Preferred Stock were converted
      to 100,000 shares of the Company’s common stock





On
      August
      26, 2005, the Company issued 40,000 shares of restricted common stock in
      exchange for services. On August 31, 2005, the Company issued 200 shares of
      common stock from the 1999 Employee Stock Option Plan in exchange for services.
      The common stock issued was valued at $170,000 and $520, respectively, which
      was
      the closing price of the common stock on the date the grant was
      approved by the Board of Directors. The relative fair value of the options
      was
      estimated using the Black-Sholes option pricing model with the following
      assumptions: average risk-free interest of 5.5%; dividend yield of 0%; average
      volatility factor of the expected market price of the Company’s common stock of
      95.7% to 103.5%; and a term of 6 to 10 years.







On
      January 27, 2006 the Company granted an option for the purchase of 25,000 shares
      of the Company’s common stock at an exercise price of $3.20.  The
      relative fair value of the options amounted to approximately $34,000 and was
      estimated using the Black-Scholes option pricing model with the following
      assumptions: average risk-free interest of 5.50%; dividend yield of 0%; average
      volatility factor of the expected market price of the Company’s common stock of
      95.7% to 103.5%; and a term of 6 to 10 years. During the three months ended
      April 30, 2006 the Company recognized an expense in the amount of
      $34,301.





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





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





**NOTE
      K - SEGMENT INFORMATION**





The
      Company operates in five business segments: licensing and exploitation of the
      National LampoonTM trademark and related properties including the sale of
      products to consumers; advertising and promotion through field marketing, live
      events and the distribution of television programming on college campuses;
      production of television, and DVD products; the sale of travel packages to
      young
      adults; and production of motion pictures through National Lampoon Clubhouse,
      Inc. Segment operating income/(loss) excludes the amortization of intangible
      assets, interest income, and income taxes. Selling, general and administrative
      expenses not specifically attributable to any segment have been prorated based
      on revenue among the five segments. Summarized financial information for the
      nine months ended April 30, 2006 and 2005 concerning the Company’s segments is
      as follows:







Publishing
                  & Licensing
              
              Advertising
                  & Promotion
              
              Production
              
              Travel
                  Services
              
              Clubhouse
              
              TotalThree
                  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
              )Identifiable
                  AssetsCapital
                  expenditures
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Depreciation
                  expense
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Three
                  Months Ended April 30, 2005Segment
                  revenue
              
              $
              442,940
              
              $
              581,671
              
              $
              33,333
              
              $
              83,724
              
              $
              -
              
              $
              1,141,668Segment
                  operating (loss)
              
              $
              (1,041,000
              )
              $
              (88,740
              )
              $
              (77,063
              )
              $
              (222,768
              )
              $
              -
              
              $
              (1,429,571
              )Identifiable
                  AssetsCapital
                  expenditures
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Depreciation
                  expense/Disposal fixed assets
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -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
              )Identifiable
                  AssetsCapital
                  expenditures
              
              $
              -
              
              $
              4,988
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              4,988Depreciation
                  expense
              
              $
              -
              
              $
              (9,000
              )
              $
              -
              
              $
              -
              
              $
              -
              
              $
              (9,000
              )Nine
                  Months Ended April 30, 2005Segment
                  revenue
              
              $
              1,614,940
              
              $
              1,259,671
              
              $
              181,333
              
              $
              83,724
              
              $
              -
              
              $
              3,139,668Segment
                  operating (loss)
              
              $
              (4,523,438
              )
              $
              (1,204,739
              )
              $
              (994,681
              )
              $
              (222,768
              )
              $
              -
              
              $
              (6,945,626
              )Identifiable
                  AssetsCapital
                  expenditures
              
              $
              -
              
              $
              1,000
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              1,000Depreciation
                  expense/Disposal fixed assets
              
              $
              (1,000
              )
              $
              (19,000
              )
              $
              -
              
              $
              -
              
              $
              -
              
              $
              (20,000
              )




A
      reconciliation of segment operating loss to net income before income taxes
      for
      the three and nine month periods ended April 30, 2006 and 2005 is as
      follows:


FOR
                  THE THREE MONTHS ENDED
              
              FOR
                  THE NINE MONTHS ENDED30-Apr-06
              
              30-Apr-05
              
              30-Apr-06
              
              30-Apr-05Total
                  segment operating (loss)
              
              $
              (1,342,490
              )
              $
              (1,429,571
              )
              $
              (4,273,193
              )
              $
              (6,945,626
              )Amortization
                  of intangible assets
              
              $
              (60,000
              )
              $
              432,451
              
              $
              (180,000
              )
              $
              180,000Interest
                  expense
              
              $
              (4,867
              )
              $
              (49,191
              )
              $
              (30,300
              )
              $
              (98,771
              )Other
                  income/expense
              
              $
              6,753
              
              $
              47,848
              
              $
              83,388
              
              $
              93,280Net
                  loss before minority interest and income taxes
              
              $
              (1,400,604
              )
              $
              (998,463
              )
              $
              (4,400,105
              )
              $
              (6,771,117
              )










A
      reconciliation of reportable segment assets to consolidated total assets as
      of
      April 30, 2006 and 2005 is as follows:


FOR
                  THE SIX MONTHS ENDED30-Apr-06
              
              30-Apr-05Total
                  assets for reportable segments
              
              $
              2,756,607
              
              $
              970,343Intangible
                  assets not allocated to segments
              
              $
              1,836,254
              
              $
              2,036,000Cash
                  and cash equivalents
              
              $
              505,463
              
              $
              517,178Other
                  unallocated amounts
              
              $
              20,154
              
              $
              497,000Total
                  assets
              
              $
              5,118,478
              
              $
              4,020,521





**NOTE
      L - SUBSEQUENT EVENTS**





On
      May
      12, 2006, the board of directors of the Company granted the following stock
      options as compensation to various individuals that had rendered services to
      the
      Corporation:





Number
                of Options
            Stock
                Option Price
            Vesting
                Period
            Expiration199,000
            $2.50
                to $3.00
            1/3
                over 3 years from grant date
            7
                years fromgrant
                date




On
      May
      12, 2006, the board granted warrants to various individuals and companies that
      had rendered services to the Company in lieu of cash compensation as
      follows:





Number
                of Warrants
            Strike
                Price
            Vesting
                Period
            Expiration95,554
            $2.54
                to 2.97
            Date
                of Grant up to 1 year
            None





3,500
      shares of restricted stock per month were also granted on May 12, 2006 to an
      employee for the length of his employment.





On
      or
      about May 30, 2006, the Company received $305,000 of cash which will be
      classified as a non-interest bearing loan from one of its directors.





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





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





**Overview**





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








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





*Motion
      Picture Production*





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





During
      the nine months ended April 30, 2006, revenues derived from producer and
      management fees totaled $163,583 or 5.1% of all the revenues we earned during
      the period.





*Licensing*





We
      derive
      a substantial portion of our revenues from license fees relating to the use
      of
      our name on new motion pictures and from royalties from previously released
      motion pictures bearing our brand, including movies such as *National
      Lampoon’s Animal House* and *National
      Lampoon’s Vacation* .
      Releasing a film with our brand enhances its ability to find distribution
      outlets. Once a film is released with our brand, we earn revenues from foreign
      sales, theatrical release, home video and DVD sales and rentals and
      pay-per-view. With the exception of films produced by National Lampoon
      Clubhouse, Inc., motion pictures that carry our brand have been produced and
      financed by third parties. Twenty-seven motion pictures have been released
      using
      the National LampoonTM name and two additional motion pictures are planned for
      release during the 2006 fiscal year. We license the National LampoonTM brand, as
      well as content from our library, for use in a wide variety of products
      including movies, television programming, live events, radio broadcasts,
      recordings, electronic games, and other consumer products.





For
      the
      nine months ended April 30, 2006, revenues derived from our licensing and
      royalties (exclusive of revenues derived from our home entertainment products,
      which are discussed separately in this report in the section titled “Home
      Entertainment”) totaled $875,562, or approximately 27.4% of all the revenues we
      earned during the period.





*Home
      Entertainment*





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





For
      the
      nine months ended April 30, 2006, revenues derived from our home entertainment
      products totaled $7,667, or approximately 0.5% of all the revenues we earned
      during the period.





*National
      Lampoon Networks*





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





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





For
      the
      nine months ended April 30, 2006, revenues derived from National Lampoon
      Networks (exclusive of licensing revenues and Internet advertising revenues,
      which are discussed separately in this report in the sections titled “Licensing”
and “Internet Advertising”) totaled $1,424,579, or approximately 44.5 % of all
      the revenues we earned during the period.








*Internet
      Advertising*





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





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





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





For
      the
      nine months ended April 30, 2006, Internet advertising revenues totaled
      $525,357, or approximately 16.4% of all the revenues we earned during the
      period.





*Travel
      Services*





We
      offer
      group travel and entertainment packages through our subsidiary, National Lampoon
      Tours, Inc. The packages include professional entertainment, theme parties
      and
      other attractions for young adults and are offered during the spring break
      of
      the academic year. Our travel and entertainment packages for the 2005-2006
      academic year included Las Vegas, Nevada, Cabo San Lucas, Mexico and South
      Padre
      Island, Texas.





For
      the
      nine months ended April 30, 2006, we earned $197,247 from National Lampoon
      Tours, or approximately 6.2% of all the revenues we earned during the
      period.





*Publishing*





We
      have
      been licensing our brand and content for the publication of books since
      1972 and, to date, over 28 titles, including our four most recent publications, *1964
      High School Reunion Year Book, National Lampoon’s Book of Love,*  *National
      Lampoon’s Big Book of True Facts* and *National
      Lampoon’s Encyclopedia of Humor* ,
      have
      been published. The Company has also started publishing its own books the first
      of which is due out the latter part of June 2006.





For
      the
      nine months ended April 30, 2006, revenues derived from our publishing
      activities totaled $6,135, or approximately 0.2% of all the revenues we earned
      during the period.





*Radio*





We
      hold a
      25% interest in NL Radio, LLC, which was formed in March 2005. NL Radio, LLC
      plans to launch an entertainment radio format under our brand. We have licensed
      the content of our radio library, as well as certain domain names, urls and
      websites, to NL Radio, LLC for this purpose and we are continuing to produce
      radio programming for use by NL Radio, LLC. Beginning in the summer of 2005,
      NL
      Radio, LLC used samples of the programming, called “pilot programming,” to
      introduce the format and content to radio networks and local stations.
      Programming sold to a network may be syndicated, meaning that it will be
      distributed to stations affiliated with the network. Purchasers of the
      programming may broadcast segments of the programming at their discretion,
      such
      as during “drive time” or as late night programming. Short form pilot
      programming (for example, three hour segments) is currently being aired on
      satellite and certain FM radio stations. We anticipate that by the end of
      September 2006 NL Radio, LLC will have our programming on the air 24 hours
      a day
      and seven days a week. We earn a licensing fee of 8% of gross revenues generated
      from syndication advertising sales, direct response, network subscription fees,
      satellite, sponsorship and promotion, as well as 25% of net
      revenue.





For
      the
      nine months ended April 30, 2006, we earned no revenues from NL Radio,
      LLC.





*Television
      Programming*





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








For
      the
      nine months ended April 30, 2006, we earned no revenues from motion picture
      and
      television programming.





*Library*





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





**Business
      Objective**





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





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





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





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





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





·
            We started
                publishing our own books the first of which is due out during the
                latter part of June 2006. This allows us to maintain and control all
                rights associated with our own
                publications.





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





·
            NL
                Radio, LLC plans to launch a 24/7 entertainment radio format under
                our
                brand. We own a 25% interest in NL Radio,
                LLC.





**Critical
      Accounting Policies**





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





***Production
      Costs***





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








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





***Revenue
      Recognition***





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





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





***Impairment***





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





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





**Reorganization
      Transaction**





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





**Results
      of Operations**





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





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








Publishing
                  & Licensing
              
              Advertising
                  & Promotion
              
              Production
              
              Travel
                  Services
              
              Clubhouse
              
              TotalThree
                  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
              )Three
                  Months Ended April 30, 2005Segment
                  revenue
              
              $
              442,940
              
              $
              581,671
              
              $
              33,333
              
              $
              83,724
              
              $
              -
              
              $
              1,141,668Segment
                  operating (loss)
              
              $
              (1,041,000
              )
              $
              (88,740
              )
              $
              (77,063
              )
              $
              (222,768
              )
              $
              -
              
              $
              (1,429,571
              )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
              )Nine
                  Months Ended April, 2005Segment
                  revenue
              
              $
              1,614,940
              
              $
              1,259,671
              
              $
              181,333
              
              $
              83,724
              
              $
              -
              
              $
              3,139,668Segment
                  operating (loss)
              
              $
              (4,523,438
              )
              $
              (1,204,739
              )
              $
              (994,681
              )
              $
              (222,768
              )
              $
              -
              
              $
              (6,945,626
              )




**Three
      and Nine Months Comparative Analysis for the periods April 30, 2006 and April
      30, 2005**





**Licensing
      Revenues**





Licensing
      revenues for the three and nine months ended April 30, 2006 were $393,095 and
      $883,733, respectively, compared to $443,443 and $1,614,890 for the three and
      nine months ended April 30, 2005, representing a decrease of 11% and 45%,
      respectively. This decrease was primarily attributable to a decrease in
      licensing of television episodes for DVD release. Although our agreements with
      certain distributors, such as Genius Products, Inc. and Image Entertainment,
      to
      release television episodes are on-going, none of these distributors purchased
      any new television shows for release to DVD during the nine months ended April
      30, 2006. In comparison, during the nine months ended April 30, 2005, television
      licensing fees included $393,000 from Genius Products, Inc., $68,000 from Image
      Entertainment and $80,000 from First Look, Inc. Also contributing to the decline
      in licensing revenues was the decrease in royalties earned by *National
      Lampoon’s Animal House* .
      These
      royalties decreased 43%, to $209,000, during the nine months ended April 30,
      2006 as compared to $365,000 earned during the nine months ended April 30,
      2005.
      The higher revenues earned during the nine months ended April 30, 2005 were
      attributable to the initial release of the film on DVD.





Costs
      related to licensing revenues decreased to $83,000 during the three months
      ended
      April 30, 2006, from $89,000 during the three months ended April 30, 2005,
      representing a decrease of approximately 6% and increased to approximately
      $168,000 during the nine months ended April 30, 2006 from approximately $110,000
      during the nine-months ended April 30, 2005, representing an increase of 52%.
      The increase during the nine month period is due primarily to the payment of
      royalties of approximately $81,000 incurred on revenues earned by *National
      Lampoon’s Strip Poker* during
      2006 which were not incurred in the prior year and partially offset by lower
      commissions as a result of the decrease in license fees. Costs related to
      licensing revenue for the three and nine months ended April 30, 2005, previously
      reported as $224,607 and $397,004, have been decreased to $88,737 and $109,967,
      respectively, to include only commission and royalty payments. The difference
      is
      allocated to costs related to advertising and promotion revenues for the three
      and nine months ended April 30, 2005. These changes were made in order to
      conform our reporting of costs related to advertising and promotion revenues
      for
      the three and nine months ended April 30, 2005 to our manner of reporting costs
      related to advertising and promotion revenues for the three and nine months
      ended April 30, 2006.





**Advertising
      and Promotion Revenues**





During
      the three and nine months ended April 30, 2006, National Lampoon Network’s
      combined advertising and promotion revenues, which includes Internet advertising
      revenues, increased to approximately $929,000 and $1,949,936, respectively,
      from
      approximately $581,000 and $1,260,000 earned during the three and nine months
      ended April 30, 2005, representing an increase of 59% and 54%, respectively.
      The
      increase in revenue during the three month period ending April 30, 2006 was
      primarily as a result of the realization of revenue from the advertising and
      marketing campaigns for two theatrically released films as compared to no such
      revenues in the corresponding prior year period. The 54% increase in revenue
      over the nine month period ending April 30, 2006 was due to the advertising
      and
      marketing campaign for five motion pictures as compared to only one motion
      picture over the same period of the prior year. Furthermore, we started
      realizing advertising revenue for our Internet site TOGA TV which did not exist
      in the prior year.








We
      incur
      costs related to advertising revenues based on amortization of capitalized
      television production costs as well as website development fees related to
      Internet advertising revenues. We incur costs related to promotion revenues
      based on direct costs of live events and promotion of third-party feature films,
      which are expensed as they are incurred. Amortization of capitalized production
      costs was approximately $122,000 and $274,000 during the three and nine months
      ended April 30, 2006, as compared to approximately $188,000 and $372,000 during
      the three and nine months ended April 30, 2005. Costs related to Internet
      advertising and promotion revenues for the three and nine months ended April
      30,
      2006 were approximately $645,000 and $1,792,000, respectively, as compared
      to
      approximately $336,000 and $794,000 during the three and nine months ending
      April 30, 2005. Costs related to advertising and promotion revenue during the
      three and nine months ended April 30, 2005 included costs related to production
      and licensing and were adjusted in order to conform to our reporting of costs
      related to advertising and promotion revenues for the three and nine months
      ended April 30, 2005 to our manner of reporting costs related to advertising
      and
      promotion revenues for the three and nine months ended April 30,
      2006.





Costs
      related to advertising and promotion revenue increased approximately $309,000
      and $999,000 or 92% and 125%, respectively, during the three and nine months
      ended April 30, 2006 as compared to the same period in 2005. The increase in
      costs for the three month period ended April 30, 2006 resulted primarily from
      two motion picture advertising and marketing campaigns as compared to no such
      costs for the same period in the prior year. The increase for the nine month
      period ended April 30, 2006 as compared to 2005 was primarily due to the five
      film marketing and advertising campaigns as compared to one in the same period
      of 2006. Furthermore, we incurred costs associated with our Dis-orientation
      Tour
      of college campuses which did not exist in 2005.





**Production
      Revenues**





For
      the
      three and nine months ended April 30, 2006 production revenues were
      approximately $20,000 and $163,583, respectively, as compared to $33,333 and
      $181,333 for the three and nine months ended April 30, 2005. We anticipate
      that
      revenue from film production will increase in future periods as we concentrate
      more resources to this segment of our business.





**Travel
      Services Revenues**





During
      the three and nine months ended April 30, 2006, National Lampoon Tours
      recognized revenue of $194,713 and $197,247, respectively as compared to $83,274
      for same periods in the prior year. The increase over the prior year was a
      result of adding a third location in 2006 as compared to the 2005 tour which
      had
      only two locations.





Direct
      costs related to National Lampoon Tours’ revenues were approximately $576,995
      and $677,166 during the three and nine months ended April 30, 2006 as compared
      to $296,290 during the three and nine months ended April 30, 2005. The increase
      in costs during the three and nine months ended April 30, 2006 resulted from
      the
      addition of a third venue in South Padre Island, Texas. Due to the losses
      associated with this segment of our business, we are contemplating scaling
      back
      on this segment, but no formal decision has been made by management. .





**Other
      Costs and Expenses**





Amortization
      of intangible assets, which consists of the costs of our acquisition of the
      “National LampoonTM” trademark, was $60,000 and $180,000 during each of the three
      and nine months ended April 30, 2006 and April 30, 2005.





Selling,
      general and administrative costs increased by $166,139 or 13%, to $1,383,755
      during the three months ended April 30, 2006 from $1,217,616 for the three
      months ended April 30, 2005. The increase resulted from the addition of
      employees and consultants for the launch and operation of our TOGA TV and
      National Lampoon Humor Network websites, which did not exist in 2005.





Selling,
      general and administrative costs increased by $381,819 or 10%, to $3,975,840
      for
      the nine months ended April 30, 2006 as compared to $3,594,021 for the three
      months ending April 30, 2005. The increase during the nine month period is
      a
      result of an increase in consulting fees and payroll related to the increase
      in
      employees and consultants and costs of $148,000 related to the operations of
      National Lampoon Clubhouse, which costs did not exist during the same period
      of
      the prior year. These increases were partially offset by decreases in automobile
      expenses, legal fees and office expenses. The selling, general and
      administrative amount for the nine month period ending April 30, 2005 previously
      included interest expense which was reclassified for reporting purposes at
      April
      30, 2006.





During
      the three and nine months ended April 30, 2006, expenses totaling approximately
      $9,573 and $114,413 were incurred from grants of stock, options and warrants
      to
      advisors and consultants as compared to expenses totaling $168,505 and $491,038
      attributable to grants of stock, options and warrants that were incurred during
      the three and nine months ended April 30, 2005. The decrease is primarily due
      to
      a change in payment terms, from payment with stock to payment with cash, to
      a
      provider of legal services.








Interest
      income of $6,329 and $75,291 was earned during the three and nine months ended
      April 30, 2006 compared to interest income of $1,190 and $5,994 earned during
      the three and nine months ended April 30, 2005. The increase in interest income
      is due to the increased cash as a result of the public offering completed on
      August 8, 2005. Other income/(expense) of $425 and $8,097 during the three
      and
      nine months ended April 30, 2006 resulted from the write off of incorrectly
      accrued expenses. Other income/(expense) of $(165,783) reported during the
      nine
      months ended April 30, 2005 resulted from the forgiveness of a note receivable
      that was made in conjunction with the separation from service of our former
      Chief Executive Officer.





For
      the
      three and nine months ended April 30, 2006, we had a net loss of $1,715,054
      and
      $5,298,294, respectively, compared to a net loss of $1,751,184 and $10,027,929
      for the three and nine months ended April 30, 2005.





**Liquidity
      and Capital Resources**





Our
      principal source of working capital during the nine months ended April 30,
      2006
      was proceeds from the public offering of our common stock, which we completed
      on
      August 8, 2005. We raised $9.6 million in gross proceeds from this offering
      of
      our securities. As of June 6, 2006 we had cash on hand of approximately $250,000
      and receivables of over $1,000,000. A significant portion of the proceeds of
      the
      offering were used to fund events, promotions and productions which are
      currently on-going and from which, upon their completion, we will earn revenues.
      Based on internal projections, management believes that cash on hand plus
      estimated revenues from these events, promotions and productions as well as
      other projects that are currently planned, combined with an estimated reduction
      in expenses that typically occurs during the summer as a result of the end
      of
      the school year (which impacts the operations of National Lampoon Network)
      will
      provide us with adequate cash to fund our ongoing operations and capital
      requirements for at least 12 months.





For
      the
      nine months ended April 30, 2006, our net cash flow used in operating activities
      was $ 4,859,625 compared
      to $5,464,251 of net cash flow used in operating activities during the nine
      months ended April 30, 2005. The decrease is primarily attributable to a $1.6
      million decrease in net operating losses offset by a $600,000 increase in the
      change in net production costs from the two films, *Totally
      Baked* and *Trick
      or Treat* ,
      which
      are due out later in 2006. The change in the increase of accounts receivable
      further offset the decrease in net loss; however, there was an $800,000 increase
      in accounts payable which contributed to the reduction in net cash used for
      operating activities. The increase in both accounts receivable and accounts
      payable are primarily attributed to the revenue and costs associated with the
      marketing and advertising campaign of two films during the three months ended
      April 30, 2006.





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





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





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





On
      May
      17, 2003, two notes payable totaling approximately $442,000 at April 30, 2002
      were due to be paid in full. The notes represented money owed to legal firms
      relating to work done in connection with the Reorganization Transaction. We
      reached a settlement with one noteholder in December 2004 and paid that note,
      as
      it was re-negotiated, in full. Timothy S. Durham, a director, paid the amount
      due under the note to the second noteholder in full and the liability is now
      owed to him. As of April 30, 2006, approximately
      $115,000 in principal and $47,449 in interest remained unpaid. The obligation
      to
      Mr. Durham is payable on demand. To date, no demand has been made. We plan
      to pay this obligation with revenues earned by our operations.





**Commitments
      For Capital Expenditures**





As
      of
      April 30, 2006, our capital expenditures are projected to be $100,000 for the
      2006 fiscal year. These expenditures will relate to the purchase of fixed assets
      such as equipment and furniture.








**Off-Balance
      Sheet Arrangements**





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





**Item
      3 - Controls and Procedures**





Management,
      including the Company’s Chief Executive Officer, President and its Chief
      Financial Officer, carried out an evaluation of the effectiveness of the design
      and operation of its disclosure controls and procedures as of the end of the
      period covered by this report. Based on that evaluation, the Chief Executive
      Officer, President and the Chief Financial Officer concluded that the Company’s
      disclosure controls and procedures are not effective to ensure that information
      required to be disclosed in its reports that it files or submits under the
      Securities Exchange Act of 1934 is recorded, processed, summarized and reported
      within the time periods specified in the Securities and Exchange Commission’s
      rules and forms. The Company is seeking to remedy this weakness in its
      disclosure controls and procedures by hiring a person whose primary
      responsibility will be to oversee and manage this process.





The
      Company’s Vice President of Finance and Principal Accounting Officer separated
      from service on March 15, 2006. On or about April 1, 2006 the Company hired
      an
      assistant controller and contracted with an outside consultant to serve as
      its
      principal accounting officer. The Company believes that the addition of these
      two individuals, both of which are certified public accountants, will help
      strengthen its internal controls.





**PART
      II - OTHER INFORMATION**





**Item
      1 - Legal Proceedings**





Not
      applicable.





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





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





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





Payee
            
            Amount
                PaidUnderwriting
                Discount
            
            $
            672,000Underwriter’s
                Non-Accountable Expense
            
            $
            338,000Fees
                paid to Underwriter’s Counsel
            
            $
            12,938Postage
                and Delivery
            
            $
            23,000Fees
                paid to Company’s Counsel
            
            $
            150,011Fees
                paid to Auditor
            
            $
            68,446Fees
                paid to Transfer Agent
            
            $
            22,910State
                and SEC Fees
            
            $
            1,200TOTAL
                EXPENSES
            
            $
            1,288,504





The
      net
      proceeds of the offering after deducting the total expenses described above
      totaled $8,311,495. The following table shows the manner in which the net
      proceeds from the offering were used through April 30, 2006:





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




On
        March
        22, 2006 a holder of our Series C Convertible Preferred Stock converted 5,000
        shares into 100,000 shares of our common stock. We relied on Section 4(2)
        of the
        Securities Act of 1933 to issue the common stock inasmuch as the common stock
        was issued without any form of general solicitation or general advertising
        and
        the acquirer was an accredited investor.
  On
        March 31, 2006 we issued a total of 27,600 shares of
        restricted common stock to four consultants in exchange for services rendered
        to
        us having a combined value of $80,000.  We relied on Section 4(2) of the
        Securities Act of 1933 to issue the common stock inasmuch as the common stock
        was issued without any form of general solicitation or general advertising
        and
        the acquirers were accredited investors.








**Item
      3 - Defaults Upon Senior Securities**





Not
      applicable.





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





Not
      applicable.





**Item
      5 - Other Information**





Not
      applicable.





**Item
      6 - Exhibits**





3.1
            Certificate
                of Incorporation of National Lampoon, Inc. (1)3.2
            Bylaws
                of National Lampoon, Inc. adopted August 27, 2002 (1)3.3
            First
                Amendment of Certificate of Incorporation of National Lampoon, Inc.
                (2)4.1
            Certificate
                of Designations, Preferences, Rights and Limitations of Series C
                Convertible Preferred Stock of National Lampoon, Inc.
                (2)4.2
            NLAG
                Registration Rights Agreement dated May 17, 2002 among the Registrant
                and
                members of the NLAG Group and GTH Capital, Inc. (3)4.3
            Jimirro
                Registration Rights Agreement dated May 17, 2002 (3)4.4
            Piggyback
                Registration Rights Agreement dated September 3, 2002 between the
                Registrant and Constellation Venture Capital, L.P. as agent for certain
                individuals. (4)4.5
            Piggyback
                Registration Rights Agreement entered into among the Registrant and
                the
                purchasers of Series C Convertible Preferred Stock (5)4.6
            J2
                Communications Voting Agreement dated May 17, 2002 among members
                of the
                NLAG Group and James P. Jimirro (3)4.7
            First
                Amendment to Voting Agreement dated June 7, 20024.8
            Series
                C Voting Agreement entered into among the Registrant and purchasers
                of
                Series C Convertible Preferred Stock (5)10.1
            National
                Lampoon, Inc. 2005 Consultant Stock Plan*10.2
            Sublease
                Agreement dated April 21, 2006 between Bauer Martinez entertainment,
                Inc.
                and National Lampoon, Inc.31.1
            Certification
                by Chief Executive Officer pursuant to section 302 of the Sarbanes
                Oxley
                Act of 2002*31.2
            Certification
                by President/Chief Financial Officer pursuant to section 302 of the
                Sarbanes Oxley Act of 2002*31.3
            Certification
                by Principal Accounting Officer pursuant to section 302 of the
                Sarbanes Oxley Act of 2002*32
            Certification
                by Chief Executive Officer and President/Chief Financial Officer
                pursuant
                to section 906 of the Sarbanes Oxley Act of
                2002*


*Filed
      herewith.


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


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


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


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


(5)
      Incorporated by reference from the Registrant’s Form 10-QSB filed with the
      Securities and Exchange Commission on December 22, 2004.








**SIGNATURES**





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




Date:
                June 14, 2006
            NATIONAL
                LAMPOON, INC.By:
            /s/
                Daniel S. LaikinDaniel S. Laikin, Chief Executive Officer


By:
            /s/
                Douglas S. BennettDouglas
                S. Bennett, Chief Financial Officer