U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                     FOR THE FISCAL YEAR ENDED JULY 31, 2003
                           COMMISSION FILE NO. 0-15284

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


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


                        10850 Wilshire Blvd., Suite 1000
                          Los Angeles, California 90024
                     (Address of principal executive office)

                  Registrants telephone number: (310) 474-5252

       Securities registered under Section 12(b) of the Exchange Act: None

 Securities registered under Section 12(g) of the Exchange Act: Common Stock, no
                                    par value

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

YES X    NO

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. YES X NO

As of November 6, 2003, the aggregate market value of the voting and non-voting
common stock held by non-affiliates of the Registrant (based on the closing
sales price as reported by the OTC Bulletin Board) was $3,948,800 assuming all
officers and directors are deemed affiliates for this purpose).

As of November 6, 2003 the Registrant had 1,533,418 shares of its common stock,
par value $.0001, outstanding.

Documents Incorporated by Reference: None


<PAGE>

<TABLE>
<CAPTION>

<S>                                                                                 <C>
PART I.
    ITEM 1. DESCRIPTION OF BUSINESS ............................................... 3
    ITEM 2. PROPERTIES ............................................................ 8
    ITEM 3. LEGAL PROCEEDINGS ..................................................... 8
    ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................... 9
PART II.
    ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .. 9
    ITEM 6. SELECTED FINANCIAL DATA .............................................. 11
    ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
            RESULTS OF OPERATIONS ................................................ 11
    ITEM 8. FINANCIAL STATEMENTS ................................................. 15
    ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE ................................................. 15
    ITEM 9A.CONTROLS AND PROCEDURES
PART III.
    ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .................. 15
    ITEM 11. EXECUTIVE COMPENSATION .............................................. 18
    ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ...... 20
    ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS ................ 22
    ITEM 14. PRINCIPAL ACCOUTNANT FEES AND SERVICES .............................. 22
PART IV.
    ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. .... 22
</TABLE>


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<PAGE>

FORWARD-LOOKING STATEMENTS

The foregoing discussion, as well as the other sections of this Annual Report on
Form 10-K, contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, that reflect our current view with
respect to future events and financial results. Forward-looking statements
usually include the verbs anticipates, believes, estimates, expects, intends,
plans, projects, understands and other verbs suggesting uncertainty. We remind
shareholders that forward-looking statements are merely predictions and
therefore inherently subject to uncertainties and other factors which could
cause the actual results to differ materially from the forward-looking
statements. Potential factors that could affect forward-looking statements
include, among other things, our ability to identify, produce and complete
projects that are successful in the marketplace, to arrange financing,
distribution and promotion for these projects on favorable terms in various
markets, and to attract and retain qualified personnel.

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

National Lampoon (the Company, we, us or Registrant) was founded in 1986 by its
Chairman of the Board and President, James P. Jimirro, the first President of
both The Disney Channel and Walt Disney Home Video under the name J2
Communications. We were primarily engaged in the acquisition, production and
distribution of videocassette programs for retail sale. In late 1990, we
acquired National Lampoon, Inc. ("NLI"). NLI was incorporated in 1967 and was
primarily engaged in publishing the National Lampoon Magazine and related
activities including the development and production of motion pictures.
Subsequent to our acquisition of NLI, it de-emphasized the videocassette and
publishing segments of its business and has primarily focused its activities on
exploitation of the NATIONAL LAMPOON trademark including the October 1999 launch
of its website, nationallampoon.com.

On May 17, 2002, we completed a series of transactions previously reported in
our Form 8-K filed on April 29, 2002 (collectively, the "Reorganization
Transactions"), involving a group headed by Daniel S. Laikin, Paul Skjodt and
Timothy S. Durham ("NLAG" or the "NLAG Group"). Concurrently with the
consummation of the Reorganization Transactions, the Board of Directors was
reorganized. Messrs. Laikin, Skjodt, Durham and Joshua A. Finkenberg were added
to the Board and Mr. Laikin became Chief Operating Officer. We are currently
exploring a number of new ventures, with a view toward increasing both our
operations and the visibility of the NATIONAL LAMPOON brand.

Since the consummation of the Reorganization Transactions, we have initiated a
number of new business activities, including our August 2002 acquisition of
substantially all the assets of Burly Bear, and significantly increased our
overhead by the hiring of new employees and consultants. To date, these
operations have provided de minimis operating revenue and we have been relying
on capital received from the NLAG Group in connection with the Series B Units
purchased in connections with the Reorganization Transactions and in subsequent
purchases pursuant to the Purchase Agreement to fund operations, as well as
loans made by the NLAG Group. Since the consummation of the Reorganization
Transactions, in which we received $2,085,718, subsequent purchases of Series B
Units have provided us with $2,615,000 through March 31, 2003, their expiration.
In addition the Company has received loans totaling $2,492,840 through November
6, 2003. Unless our revenues from new business activities significantly increase
in the near term, we will need to raise additional capital to continue to fund
our planned operations or, in the alternative, significantly reduce or even
eliminate certain operations. There can be no assurance that we will be able to
raise such capital on reasonable terms, or at all. As of November 6, 2003 we had
cash on hand of $84,948, an amount which reflects an infusion of $175,000 loaned
by the NLAG Group immediately prior to such date, and no significant
receivables. This amount is not sufficient to fund current operations, which we
estimate to be approximately $475,000 per month. We anticipate that any
shortfall will be covered by additional equity and the exercise of warrants held
by the NLAG Group and other investors. If NLAG declines to make additional
investments, or should we be unable to secure additional financing, we could be
forced to immediately curtail much, if not all, of our current plans. Our
financial statements for the fiscal year ended July 31, 2003 contain an
explanatory paragraph as to our ability to continue as a going concern. This
explanatory paragraph may impact our ability to obtain future financing. See
"Business- Certain Considerations and Managements Discussion and Final Analysis
Liquidity and Capital Resources."

We are negotiating a series of agreements with Avalon Equity Partners, Golden
International Group, Tim Durham and Daniel Laikin, which are anticipated to
close by the end of November 2003 (the "November Anticipated Financing
Transaction"). Pursuant to the terms of the November Anticipated Financing
Transaction, Avalon Equity Partners, Golden International Group, Tim Durham and
Daniel Laikin, will invest approximately $8,000,000 (which includes
approximately $2.5 million already loaned to us) in a new series of convertible
preferred stock. The November Anticipated Financing Transaction is subject to
numerous closing conditions and no assurance can be given that the November
Anticipated Financing Transaction will be consummated.

BUSINESS

The following discussion of our business activities should be read in
conjunction with Note I Segment Information contained in our consolidated
financial statements and related notes which summarizes the amounts of revenue,
operating profit or loss and identifiable assets attributable to each of our
operating segments.

Since the completion of the Reorganization Transactions, we have sought to
initiate new business activities on several related fronts. Although there are
no assurances that any of the following ventures can be completed, or the
business activities described below can be profitably implemented, we are
hopeful that certain of these activities will commence operation during the
fiscal year which will end July 31, 2004. The consummation of any of these
activities is subject to adequate financing being available for us.

MOTION PICTURE AND FEATURE FILM LICENSING. In recent years, we have derived the
bulk of our revenue from license fees relating to the production of new motion
pictures and from contingent compensation for motion pictures previously
produced by us and NLI. We generally licensed our National Lampoon trademark for


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<PAGE>

use in the titles of the films. We generally received a fee at the time of
production of the motion picture plus contingent compensation that is dependent
on the motion picture's financial performance for producing services and
providing the National Lampoon trademark.

To date, we have not financed the production or distribution of any National
Lampoon motion pictures. Instead, we have relied upon third parties, primarily
major motion picture studios, to provide a picture's financing and distribution.

We are in discussions with several studios and other film financing entities
regarding the development of new National Lampoon feature film projects.

As of July 31, 2003, we and/or NLI have been involved in the production of
seventeen motion pictures, as follows:

<TABLE>
<CAPTION>
                                                     Year of                Financier/
                   Title                             Release                Distributor
================================================    ==========   =================================
<S>                                                    <C>                <C>
National Lampoons Animal House                         1979               Universal Studios
National Lampoon Goes to the Movies                    1981               United Artists
National Lampoons Class Reunion                        1982               ABC/Disney
National Lampoons Vacation                             1983               Warner Bros.
National Lampoons European Vacation                    1985               Warner Bros.
National Lampoons Class of  86                         1986               Paramount
National Lampoons Christmas Vacation                   1989               Warner Bros.
National Lampoons Loaded Weapon I                      1993               New Line
National Lampoons Last Resort                          1994               Trimark
National Lampoons Attack of the 52 Women               1994               Showtime
National Lampoons Senior Trip                          1995               New Line
National Lampoons Favorite Deadly Sins                 1995               Showtime
National Lampoons Dads Week Off                        1997               Paramount
National Lampoons The Dons Analyst                     1997               Paramount
National Lampoons Men in White                         1998               Fox
National Lampoons Golf Punks                           1998               Fox
National Lampoons Van Wilder                           2001               Artisan
</TABLE>

Since the Reorganization Transactions, we have increased our emphasis on
developing product across all media and, in particular, are devoting management
resources to the development of television and film projects. NATIONAL LAMPOON'S
COUSIN EDDIE'S CHRISTMAS VACATION has completed shooting and is now in the
editing process. We received a license fee relative to this production of
$175,000. It will be shown on NBC, and currently scheduled for airing on
December 20, 2003. The TBS movie, National LAMPOON'S THANKSGIVING REUNION, has
been completed, the airing of which is currently being scheduled. In addition to
our license fee of $125,000, we were able to negotiate an advance against
royalties on the sale of DVDs and videos.

With respect to low budget feature activities, we have a direct to video
production agreement with Image Entertainment where we have licensed our name
for four direct to video productions. These DVDs will be on the market for the
upcoming holiday season. We are also a party to a direct to video deal with
Ventura Distribution, which calls for 4 ninety-minute comedy movies with budgets
of approximately $250,000. Lastly, we have a direct to video project with Street
Alien which is now in pre-production.

Universal Pictures released the 25th Anniversary Edition of ANIMAL HOUSE on
August 26th, 2003. As a marketing strategy, Universal staged a re-enactment of
the ANIMAL HOUSE parade, which was a big success and was covered by multiple
media sources. We covered the parade and are now completing an NL Animal House
Special of our own for the network. The DVD has sold over 2 million units and is
currently the #2 selling DVD behind LORD OF THE RINGS: THE TWIN TOWERS. We will
participate in the revenue from the DVD on a net profits basis. While the
revenue is not expected to be material, we believe that the success of this
product, as well as the 20th Anniversary Edition of the NATIONAL LAMPOON
VACATION DVD which has recently been released by Warner Brothers and is also now
in retail stores, shows the continued vitality of the NATIONAL LAMPOON brand.

AMC (American Movie Classics) has approved production of a pilot of NL PITCH, a
show dealing with movie "pitches". We will receive 10% of the budget as our fee,
which should be approximately $20,000. If the pilot is well received, it could
lead to an initial 12-episode order. Production on the pilot should begin in the
next two weeks.

TELEVISION DEVELOPMENT; ACQUISITION OF THE BURLY BEAR NETWORK.

Burly Bear had been engaged in the business of producing and distributing
entertainment through a network of affiliated colleges and other educational
television stations. Through the 2001-2002 academic year it experienced
significant financing problems as well as generating an operating loss of over
$20 million. We procured the assets of the Burly Bear on a liquidation basis
with a view towards keeping as much of the network intact as possible, and
reusing previous produced programming until such time as revenue can be
generated to produce original content on a more economic basis. We have retained
Errol Gerson, pursuant to the terms of a one year oral consulting agreement
which will expire in August 2004, to manage the operations of the network.
Through this agreement, Mr. Gerson is serving as COO of National Lampoon
Networks, the operating subsidiary. Mr. Gerson is compensated by both us and
National Lampoon Networks, at the rate of $5,000 and $7,500 per month,
respectively. Four advertising sales employees, working on a commission basis,
have been retained to provide sales support. Sales will be largely dependent on
our ability to retain as much as possible of the network, and the ratings which
may be generated when, and if, we initiate ratings tests.


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<PAGE>

We continue to expand the affiliate network and have added 9 new affiliate
(schools) over the past 60 days representing 101,000 new students. National
Lampoon Network is available to 4,699,272 students at 603 universities.

TOTAL UNIVERSITIES REACHED VIA BOTH CABLE AND CAMPUS CABLE: 603

          -Campus Cable reaches 219 of 603 universities

          -Cable reaches 384 of 603 universities*

         *44 schools are reached by both campus cable and cable

TOTAL STUDENTS POTENTIALLY REACHED VIA BOTH CABLE AND CAMPUS CABLE: 4,699,272

         -Students Reached by Campus Cable: 2,219,724

         -Students Reached by Cable: 2,479,548*

         *480,928 students are both reached by campus cable and cable


-------------------------- -------------------------- --------------------------
NLN DISTRIBUTION           SCHOOLS                    ENROLLMENT
-------------------------- -------------------------- --------------------------
CAMPUS CABLE               219                        2,219,724
-------------------------- -------------------------- --------------------------
CABLE                      384                        2,479,548
-------------------------- -------------------------- --------------------------
TOTAL                      603                        4,699,272
-------------------------- -------------------------- --------------------------

-------------------------- -------------------------- --------------------------
CAMPUSES                   SCHOOLS                    ENROLLMENT
-------------------------- -------------------------- --------------------------

-------------------------- -------------------------- --------------------------
Large (>10K)               163                        3,309,363
-------------------------- -------------------------- --------------------------
Medium (5 -10K)            107                        782,029
-------------------------- -------------------------- --------------------------
Small (<5K)                333                        607,880
-------------------------- -------------------------- --------------------------

Our National Lampoon Networks' website has been revamped and now includes the
ability to store the last 3 episodes from each of our shows. Additionally each
show has its own page of information on the hosts or talent and everything you
might want to know about the show. We are also in the process of creating a web
contest to motivate viewers to actively watch our programming each week in order
to get pieces of information to help solve a puzzle and win a prize.

We have negotiated a deal with Broadway Video to provide post-production
services and distribution of our programming for the upcoming year. This new
deal will represent a savings of over $144,000 per year.

In the fiscal year ended July 31, 2003, we only produced new episodes for THE
GLEIB SHOW, GAMERS, AV SQUAD and the MASTER DEBATERS series. We have deferred
the production of other programs or series until advertising revenue increases
or we raise additional equity. We have closed various advertising transactions
for the network, including deals with Liz Claiborne to run advertising
throughout the fall season for $35,000, Sony Entertainment for advertising of a
new movie coming out called GATIKA and with Red Bull for $50,000.

In the event that we are not able to operate the network on a more economic
basis than its prior ownership, we will scale back its operations. If that does
occur, we believe that we may have other uses for the programs that were
acquired in the acquisition.

We are exploring a number of television production opportunities, primarily in
the reality television genre. We are currently actively developing a reality
show based on fraternity life tentatively called THE HOUSE. We have also been
involved in the production of television programs and currently have several
television projects in development. Other shows may be derived from the
programming acquired from Burly Bear. It is anticipated that National Lampoon
Networks will be an integral part of our future television activities.

Pursuant to a July 24, 1987 Rights Agreement, NLI granted the right to produce
National Lampoon television programming to Guber-Peters Entertainment Company
(GPEC). NLI reacquired these rights from GPEC pursuant to an October 1, 1990
Termination Agreement for the sum of $1,000,000, of which $500,000 was paid upon
execution. The remaining $500,000 is contingent and payable through a 17.5%
royalty on NLI's cash receipts from each television program produced by NLI or
any licensee (subject to certain minimum royalties for each program produced).
As of July 31, 2003, the full $500,000 has been recognized as an expense, with
approximately $396,000 remaining on the books as a liability.

     GAMING. On August 21, 2002 we formed National Lampoon Games, Inc. ("NL
Games") to handle all our gaming activities. NL Games is currently in
negotiations with Multi Media Games (Nasdaq: MGAM, a publicly held company which
designs and develops Class II Bingo and Class III video games), to develop and
manufacture up to 3 casino type slot machine games. MGAM is one of the leading
development and manufacturing companies in its industry. It is currently
anticipated that these games will be located in Class II type casinos (public
casinos, such as Indian gaming casinos). MGAM will also have the right to place
the games in Class III casinos (i.e., private gaming casinos) under certain
circumstances. Our gaming activities are being supervised by Daniel Sarnoff, COO
of NL Games. Mr. Sarnoff is also assisting with sales of the National Lampoon
Networks' programing. No assurances can be given that we will be successful in
completing an agreement with MGAM.

     PUBLISHING. We have entered into a consulting arrangement with Douglas
Bennett pursuant to which Mr. Bennett is seeking to re-establish our publishing
operations. We have entered into an agreement with Rugged Land LLC to publish 6
National Lampoon books. Rugged Land released our first National Lampoon book --
1964 HIGH SCHOOL REUNION YEAR BOOK --in late August 2003. NATIONAL LAMPOON'S
BOOK OF LOVE manuscript has been completed and is on schedule for a release in
February 2004.


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<PAGE>

     INTERNET. In October 1999, we launched nationallampoon.com (the "Site"), a
website featuring a wide array of original comedy content as well as classic
articles from National Lampoon Magazine. Some of the Sites features have
included:

News on the March - articles, parody and satir based on the news of the day.

Word of the Week - animated adventures which parody the importance of a
first-rate vocabulary. A dictionary in the National Lampoon style.

NewsFlash - authentic and topical newswire photos come to life in twisted
stories.

Online Confessional - an interactive video featuring real people confessing
their most bizarre sins; with website viewers voting to absolve or condemn the
confessor.

Cybercops - an animation/live action video hybrid which explores the lives of
two policemen on the prowl for Internet bad guys.

Although as of the date hereof, our Internet operations have not yet generated
significant revenue, we anticipate that our Internet operations will be the
incubator for the development of stories, characters and animation that will be
spun off into other media. In the future, we may earn revenue from the Site and
other Internet activities from either banner and sponsorship advertising,
E-Commerce and the syndication of content originally developed and exploited on
the Site.

OTHER ACTIVITIES

We have been and continue to be involved in various other activities to exploit
the National Lampoon trademark including previously publsihed books, audio
entertainment, and other merchandise as well as the distribution of
videocassette programming. In addition, we, and previously NLI, published
National Lampoon Magazine from March 1970 until October 1998 when the magazine
was discontinued. Although in recent years, these activities have not generated
significant amounts of revenue, we believe that such activities reinforce the
National Lampoon trademark and provide cross-promotional opportunities for our
motion picture, television and Internet operations. It is also anticipated that
these activities might be enhanced by the new creative content created by our
Internet operations.

COMPETITION

The entertainment industry in general, and the motion picture and television
industry specifically, are highly competitive. We face intense competition from
motion picture studios and numerous independent production companies, most of
whom have significantly greater financial resources than we do. All of these
companies compete for motion picture and television projects and talent and are
producing products that compete for exhibition time at theaters, on television,
and on home video with products produced by us. Moreover, the growth of ever
larger, vertically integrated media conglomerates such as AOL Time Warner
(owning AOL), Viacom (owing both Paramount, Nickelodeon, and CBS), News
Corporation (owning or controlling Twentieth Century Fox, Fox Searchlight and
Fox 2000, Fox Sports, and the Fox network) and The Walt Disney Company (owning
Disney, ABC, and ESPN) presents significantly more challenges.

REGULATION

Our trademarks and other intellectual properties are granted legal protection
under the trademark or copyright laws of the United States and most foreign
countries, which provide substantial civil and criminal sanctions for
infringement. We take all appropriate and reasonable measures to obtain
agreements from licensees to secure, protect and maintain trademark and
copyright protection for our properties under the laws of all applicable
jurisdictions.

EMPLOYEES

As of November 6, 2003, we employed 24 full-time employees. We consider our
employee relations to be satisfactory at the present time. Since the
consummation of the Reorganization Transactions, we have also employed a number
of consultants as we have increased our business activities. See "Part III- Item
10- Directors And Executive Officers Of The Registrant" for a description of
certain of these arrangements.

CERTAIN CONSIDERATIONS

IN ADDITION TO OTHER INFORMATION IN THIS FORM 10-K, THE FOLLOWING RISK FACTORS
SHOULD BE CAREFULLY CONSIDERED IN EVALUATING OUR BUSINESS BECAUSE SUCH FACTORS
MAY HAVE A SIGNIFICANT IMPACT ON OUR BUSINESS, OPERATING RESULTS AND FINANCIAL
POSITION.

ADEQUACY OF CAPITAL RESOURCES

Since the completion of the Reorganization Transactions, our operations have
been characterized by ongoing capital shortages caused by expenditures in
initiating several new business ventures. We are also actively seeking private
sources of financing, establishing bank lines and obtaining additional equity
from third party sources. While we are in the final stages of negotiating the
November Anticipated Financing Transaction, there is no assurance that such
financing arrangement will be consummatead. We are not certain if our existing
capital resources are sufficient to fund our activities for the next six to
twelve months. Unless our revenues from new business activities significantly
increase during that period, we will need to raise additional capital to
continue to fund our planned operations or, in the alternative, significantly
reduce or even eliminate certain operations. There can be no assurance that we
will be able to raise such capital on reasonable terms, or at all. As of
November 6, 2003 we had cash on hand of $84,948, an amount which reflects an
infusion of $175,000 loaned by the NLAG Group just prior to such date, and no
significant receivables. This amount is not sufficient to fund current
operations, which we estimate to be approximately $475,000 per month. We
anticipate that any shortfall will be covered by the November Anticipated
Financing Transaction and continued investment by the NLAG Group. If the NLAG
Group declines to make additional investments, or should we be unable to secure
additional financing including consumating the November Anticipated Financing


                                       6
<PAGE>

Transaction, we could be forced to immediately curtail much, if not all, of our
current plans. Our financial statements for the fiscal year ended July 31, 2003
contain an explanatory paragraph as to our ability to continue as a going
concern. This qualification may impact our ability to obtain future financing.

SPECULATIVE NATURE OF ACTIVITIES

Historically, substantially all of our revenues were derived from the licensing
of the name National Lampoon in connection with production and distribution of
feature films, television series and made-for-television movies. The
entertainment industry in general, and the development, production and
distribution of feature films and television programs, in particular, is highly
speculative and involves a substantial degree of risk. Since each project is an
individual artistic work and its commercial success is primarily determined by
audience reaction, which is volatile and unpredictable, there can be no
assurance that any entertainment property will make money. Even if a production
is a critical or artistic success, there is no assurance that it will be
profitable. In particular, to the extent that our product caters to the tastes
of television audiences in the United States, our results may be affected by the
inability to attract audiences in our newly addressed markets, especially
Europe. If we are unable to attract productions which compete effectively in the
global marketplace, our financial condition and results of operations could be
materially adversely affected

COMPETITION: GENERAL ECONOMIC CONDITIONS

We are also subject to certain factors affecting the entertainment industry
generally, such as (a) sensitivity to general economic conditions; (b) critical
acceptance of our products; and (c) intense competition. Virtually all of our
competitors are substantially larger than we are, have been in business longer
than we have and have more resources at their disposal. The television industry
is currently evolving into an industry in which certain multi-national,
multi-media entities, because of their control over key film, magazine, and/or
television content, as well as key network and cable outlets, will be able to
dominate certain communications industry activities in the United States and
abroad. These competitors have numerous competitive advantages, including the
ability to acquire financing for their projects and attract superior properties,
personnel, actors and/or celebrity hosts.

PRODUCTION ACTIVITIES

To the extent that we produce new programming for the National Lampoon Networks,
we will be required to be cognizant of the risk of production activities and the
related costs. To the extent that we seek to recoup some of those costs from the
exploitation of product outside the network, there can be no assurance that we
can produce enough episodes so that we can syndicate the series in the United
States. Typically, there needs to be at least 65 episodes of a series produced
in order to strip or syndicate the series in the daily re-run market. Networks
can generally cancel a series at stated intervals and, accordingly, do not
commit in advance to exhibit a series for more than a limited period. If a
series is cancelled before the minimum number of shows necessary to syndicate or
strip have been produced, there is the risk that the production costs of the
project will not be fully recovered. Similar risks apply for a series produced
for a non-network medium.

VARIANCE IN REVENUE

Our revenues and results of operations are significantly dependent upon the
timing and success of implementing the business activities described above, and
the timing and receipt of revenue from licensing and production activities,
which cannot be predicted with certainty. Revenues for any particular program
may not be recognized until the program is produced and available for delivery
to the licensee. Production delays may impact the timing of when revenues may be
recognized under generally accepted accounting principles. We may experience
significant quarterly variations in our operations, and results in any
particular quarter may not be indicative of results in subsequent periods. Such
variations may lead to significant volatility of our share price.

INTERNET ACTIVITIES

Since the Internet and other wide area networks are new and evolving, it is
difficult to predict with any certainty whether the Internet will prove to be a
viable commercial enterprise. Growth in our Internet revenues will be dependent
on the Internet's continued growth and integration into daily commerce, among
other factors. However, the demand for Internet advertising in general has
declined, we have not achieved any significant advertising revenue, there are
currently no reliable standards for the measurement of the effectiveness of
Internet advertising, and the industry may need to develop standard measurements
to support and promote Internet advertising as a significant advertising medium.
If such standards do not develop, existing advertisers may not continue their
levels of Internet advertising. Furthermore, advertisers that have traditionally
relied upon other advertising media may be reluctant to advertise on the
Internet. Our business would be adversely affected if the market for Internet
advertising fails to develop or develops more slowly than expected.

STOCK PRICE VOLATILITY

The trading price of our common stock has been and continues to be subject to
fluctuations. The stock price may fluctuate in response to a number of events
and factors, such as quarterly variations in operating results, changes in
recommendations by security analysts, the operating and stock performance of
other companies that investors may deem as comparable and news reports relating
to trends in the marketplace, among other factors. Significant volatility in the
market price of our common stock may arise due to factors such as:

     o    our developing business;

     o    a continued negative cash flow;

     o    relatively low price per share;

     o    relatively low public float;


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<PAGE>

     o    variations in quarterly operating results;

     o    general trends in the television industry;

     o    the number of holders of our common stock; and

     o    the interest of securities dealers in maintaining a market for our
          common stock.

As long as there is only a limited public market for our common stock, the sale
of a significant number of shares of our common stock at any particular time
could be difficult to achieve at the market prices prevailing immediately before
such shares are offered, and could cause a severe decline in the price of our
common stock.

Sale of substantial amounts of our common stock, the issuance of substantial
amounts of warrants and options granting the right to receive shares of our
common stock or the prospect of such sales or issuances, respectively, could
materially adversely affect the market price of our common stock. We have the
equivalent of approximately 7.7 million shares of common stock outstanding,
consisting of approximately 1.5 million shares of common stock, approximately
3.7 million shares issueable upon conversion of outstanding shares of Series B
Preferred and approximately 2.5 million shares of common stock issuable upon
exercise of outstanding warrants and options (exclusive of options which would
be issued upon issuance of the Series B Preferred). Of these shares,
approximately 1,680,000 shares are restricted shares under the Securities Act of
1933, as Amended (the "Act"). We have filed a registration statement on Form S-8
under the Act to register the sale of approximately 2,500,000 shares of our
common stock reserved for issuance under our Amended and Restated 1999 Stock
Option, Deferred Stock and Restricted Stock Plan. Shares of our common stock
issued upon exercise of options are available for sale in the public market,
subject in some cases to volume and other limitations.

DEPENDENCE ON NATIONAL LAMPOON TRADEMARK AND RELATED PROPERTIES

Our revenues are primarily derived from exploitation of the National Lampoon
trademark. Any erosion of brand recognition of that trademark and its related
properties or our failure to adequately protect our intellectual property could
have a materially adverse effect on our business, results of operations and
financial position. Our business also depends upon the protection of the
intellectual property rights that we have to our entertainment properties.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and exploit our products. Monitoring
unauthorized use of our products is difficult, and we cannot be certain that the
steps we have taken will prevent unauthorized use of our film properties,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States and Europe.

In recent years, there has been significant litigation in the United States
involving intellectual property rights. We may become party to litigation in the
future to protect our intellectual property rights or as a result of the alleged
infringement of some one elses intellectual property. These claims and any
resulting lawsuits could subject us to significant liability and invalidation of
our property rights. Such litigation could also force us to take measures
harmful to our operations, such as to stop selling certain products or to obtain
a license from the owner of infringed intellectual property. Any such
infringement claims, with or without merit, could be time-consuming to defend,
result in costly litigation, divert managements attention and materially
adversely affect our financial condition and results of operations

DEPENDENCE ON KEY PERSONNEL

We are dependent upon the services of James P. Jimirro and Daniel S. Laikin. The
loss of their services could have a materially adverse effect on our business,
results of operations and financial position. We are also subject to a number of
consulting arrangements with individuals and entities are not exclusive to us,
or who are working without cash compensation. No assurance can be given that we
will receive the same level of service and attention than had these services
been handled by full time employees receiving traditional cash compensation.

ITEM 2.  PROPERTIES

We lease approximately 3,912 square feet of office space in Los Angeles,
California under a lease expiring in September 2005. The rent under the lease is
$163,000 per year. Management considers our office space generally suitable and
adequate for its current needs.

We also lease space in New York city for National Lampoon Networks' New York
employees. The lease was entered into as of January 17, 2003, commenced on
August 1, 2003 and continues through January 31, 2004. The rent under the lease
is $4,500 per month. If we remain in the space after the term of the lease, the
cost shall increase to $2,000 per week unless the parties are in negotiations to
extent the lease, although the landlord is under not obligation to enter into
such negotiations.

ITEM 3.  LEGAL PROCEEDINGS

On August 18, 2003, a lawsuit was filed against us by Duncan Murray in Los
Angeles Superior Court, case number BC300908. Mr. Murray is claiming that he was
unjustly terminated and is owed severance. Mr. Murray is alleging 3 causes of
action: (i) breach of his employment agreement; (ii) wrongful termination of
employment and breach of implied contract; and (iii) retaliatory termination of
employment. On September 24, 2003, we filed an answer to the lawsuit. There is
an initial status conference scheduled for December 12, 2003. To date, both
parties have initiated discovery, although no depositions have yet been taken.

We believe the complaint to be totally without merit and intend to vigorously
contest the matter. At this time, the outcome of the matter cannot be determined
with any certainty. We have included $150,000 in accrued expenses in the
accompanying financial statements in estimation of likely future costs.


                                       8
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Until March 24, 2002, our common stock traded on the Nasdaq Small Cap Market
under the symbol JTWO. From March 25, 2002, until October 25, 2002, our common
stock traded on the Over The Counter Bulletin Board under the symbol JTWO.OB. On
October 25, 2002, our common stock symbol changed to NLPN.OB, and continues to
trade under that symbol. The following table sets forth the high and low closing
sales prices per share of our common stock for the periods indicated.


FISCAL YEAR 2002                          HIGH                      LOW

============================    ======================    ======================

First Quarter                           13  47/50                  7 1/5
Second Quarter                          10 1/2                      3 3/20
Third Quarter                             9 2/5                     41/2
Fourth Quarter                             71/4                    5.00


FISCAL YEAR 2003                          HIGH                      LOW

============================    ======================    ======================

First Quarter                            7.25                      3.50
Second Quarter                           7.40                      3.00
Third Quarter                            6.00                      3.00
Fourth Quarter                           5.05                      3.00


As of November 6, 2003, we had approximately 162 stockholders of record.

DIVIDEND POLICY

     We have not paid any dividends on our outstanding common stock since our
inception and do not anticipate doing so in the foreseeable future.

SALES OF UNREGISTERED SECURITIES.

     1.   As part of the Reorganization Transactions, our Certifcate of
          Incorporation were amended on May 17, 2002 to designate 68,406 of the
          previously authorized 2,000,000 shares of preferred stock as Series B
          Convertible Preferred Stock ("Series B Preferred"), with each share of
          Series B Preferred being convertible into 28.169 shares of common
          stock. The shares of Series B Preferred vote on a converted basis as a
          class with the shares of cCommon Sstock. Pursuant to the Purchase
          Agreement, we agreed to sell to designees of NLAG up to 68,406 units
          (the Series B Units), with each unit consisting of one share of Series
          B Preferred and a warrant to purchase 28.169 shares of Ccommon Sstock.
          At the initial closing we issued 35,244 Series B Units to five members
          of the NLAG Group for an aggregate purchase price of $3,524,400. See
          "Item 1-Business and Recent Developments". Since that time, and
          through March 31, 2003 we have issued an additional 28,363 Series B
          Units in connection with the purchases by designees of NLAG under the
          Purchase Agreement.

     2.   On July 15, 2003, we have issued to Batchelder Partners Inc. 12,765
          shares of common stock to satisfy the balance of our obligation to it
          pursuant to various investment banking agreements. The shares are
          subject to various demand registration rights.

     3.   Since the consummation of the Reorganization Transactions we have
          issued warrants to the following consultants: a. We are party to a
          consulting agreement, approved by our Board of Directors on August 7,
          2002, with Zelnick Media Group (ZM), headed by Stauss Zelnick, the
          former head of 20th Century Fox and Bertlesman, the European media
          conglomerates. Mr. Zelnick and his affiliates are providing marketing,
          development, production and branding assistance to us. In particular,
          Scott Ziegler, a partner of ZM, is assisting directly in certain
          television activities. ZM is being compensated solely by the issuance
          to it of 300,000 warrants (the ZM Warrants) which have been issued
          directly to ZM and an affiliate. Two of the ZM Warrants will entitle
          ZM and an affiliate to purchase up to 150,500 of the shares of our
          Common Stock at an exercise price of $6.50 per share the other two ZM
          Warrants will entitle ZM and an affiliate to purchase up to 150,500 of
          the ZM Warrant Shares at an exercise price of $10.00 per share. The
          number and exercise price of the ZM Warrants are subject to
          adjustments customarily contained in warrants of a similar nature.
          One-third of the ZM Warrant Shares become exercisable upon issuance of
          the ZM Warrants and the remainder of the ZM Warrants will first become
          exercisable in monthly installments during the 13th through 36th
          months following the issuance of the ZM Warrants, provided that no ZM
          Warrant Shares become exercisable after the termination of the
          consulting agreement


                                       9
<PAGE>

     b.   Effective as of August 22, 2002, we entered into a one year consulting
          agreement with SBI USA, an affiliate of Softbank (SBI), pursuant to
          which SBI was to introduce us to market makers, institutional
          investors, and other broker/dealers for the purpose of increasing our
          visibility in the capital markets. The sole compensation paid to SBI
          was a warrant to purchase 50,000 shares of our common stock at an
          exercise price of $7.00 per share. The warrant expired in June of
          2003.

     4.   We have issued stock options under our Amended and Restated 1999 Stock
          Option, Deferred Stock and Restricted Stock Plan to our employees and
          members of our Corporate Advisory Board and Creative Advisory Board.
          See "Part III-Item 10. Directors and Executive Officers of the
          Registrant Advisory Boards".

     5.   Effective as of August 17, 2002, we issued to Douglas Bennett, an
          advisor of the Company and now an Executive Vice President, the right
          to acquire 213 shares of Series B Preferred and a warrant to purchase
          up to 6,000 shares of our common stock, which warrant is exercisable
          for a period of five years at an exercise price of $3.55 per share of
          common stock during the first two years of the term thereof and at a
          price of $5.00 per share of common stock during the last three years
          of such term. In connection with such grant, NLAG delivered to us a
          written waiver of its right to purchase 213 Series B Units purchasable
          by NLAG pursuant to the Purchase Agreement, thereby making available
          for issuance 213 shares of authorized but unissued shares of Series B
          Preferred that had been reserved for possible future issuance to NLAG
          upon the exercise of its option to purchase Series B Units under the
          Purchase Agreement.

EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
Plan category                         Number of            Weighted-average     Number of securities
                                      Securities           exercise price of    remaining available
                                      To be issued         outstanding          for future issuance
                                      Upon exercise of     options              under equity
                                      outstanding          warrants and         compensation plans
                                      options              rights               (excluding
                                      warrants and                              securities reflected
                                      rights                                    in column (a))
=================================     =================    ==================   =====================
<S>                                   <C>                  <C>                  <C>
Equity Compensation                   5,304,323(1)         4.37                 59,834(2)
plans approved by
security holders
=================================     =================    ==================   =====================
Equity compensation
plans not approved
by security holders
=================================     =================    ==================   =====================
Total:                                5,304,323(1)         4.37                 59,834(2)
=================================     =================    ==================   =====================
</TABLE>

1)   Includes 63,607 Series B Preferred units authorized. The units include one
     share of Series B Preferred and one warrant. Both the Series B Preferred
     and the warrant can be converted into 28.169 shares of common stock.

2)   The Amended and Restated 1999 Stock Option Plan reserved and made available
     for issuance 1,500,000 shares of our common stock, 1,440,166 options have
     been granted as of November 6, 2003.


ITEM 6.  SELECTED FINANCIAL DATA

The following table shows selected consolidated financial data for the Company
for each of the last five fiscal years. This financial data should be read in
conjunction with our consolidated financial statements and related footnotes
contained herein for the fiscal year ended July 31, 2003 and for the other
periods presented.



                                       10
<PAGE>

                             SELECTED FINANCIAL DATA

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                          For the fiscal years ended July 31,
                                        ========================================================================
                                            2003            2002          2001         2000            1999
                                        =============   ============    =========  =============   =============
<S>                                         <C>             <C>          <C>            <C>         <C>
Revenues                                    $  1,007        $   943      $   306        $ 1,480     $   1,246
Operating income/(loss)                     $ (6,061)       $(1,800)     $(3,130)       $   854     $  (1,765)
Net income/(loss)                           $ (5,925)       $(1,613)     $(3,076        $   826     $ (1,299)
Net income/(loss) per share basic           $  (4.02)       $ (1.17)     $ (2.26)       $  0.64     $   (1.07)
Net income/(loss) per share diluted         $  (4.02)       $ (1.17)     $ (2.26        $  0.62     $   (1.07)
Total assets                                $  2,705        $ 3,745      $ 3,302        $ 5,119     $   5,350)
Long term obligations                       $      0        $     0      $     0        $     0     $   1,717)
</TABLE>

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS

GENERAL

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses National Lampoon'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.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies included adoption of SFAS No. 142, "Goodwill and
Other Intangibles", and SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets". Adoption of these pronouncements resulted in the initial
recognition of the Burly Bear intangible asset and the subsequent write off of
the intangible assets as a result of impairment. For additional discussion see
Footnote A to the financial statements.

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

Revenue Recognition. The Company's trademark licensing revenues are generally
recognized when received or when earned under the terms of the associated
agreement and when the collection of such revenue is reasonably assured.
Revenues from the sale of videocassettes and DVDs, net of estimated provisions
for returns (which are not material for any period presented) are recognized
when the units are shipped. Revenues from Internet operations are recognized
when earned under the terms of the associated agreement and the collection of
such revenue is reasonably assured. Revenues from advertising and promotion are
recognized when earned under the terms of the associated agreement or when the
advertisment has been broadcast and the collection of such revenues are
reasonably assured.

Production Costs. As provided by SOP 00-2, production costs are not capitalized
unless there are advertising agreements in place from which the production will
generate revenues. As a result, since there were no advertising agreements in
place for particular programs, the production costs incurred by National Lampoon
Networks during fiscal 2003 were expensed and not capitalized.

On May 17, 2002, we completed the Reorganization Transactions, involving a group
headed by Daniel S. Laikin, Paul Skjodt and Timothy S. Durham and also including
National Lampoon Acquisition Group LLC, a California limited liability company;
Samerian, LLP, an Indiana limited liability partnership; Diamond Investments,
LLC, an Indiana limited liability company; DW Leasing Company, LLC, an Indiana
limited liability company; Christopher R. Williams; Helen C. Williams; Judy B.
Laikin; and DC Investments, LLC, an Indiana limited liability company ("DCI")
((collectively, the "NLAG Group"), and James P. Jimirro, our Chairman of the
Board, President and Chief Executive Officer. Certain of the Reorganization
Transactions were undertaken pursuant to a Preferred Stock and Warrant Purchase
Agreement, dated April 25, 2002, as amended by the First Amendment to Preferred
Stock and Warrant Purchase Agreement, dated May 17, 2002.

Future results will also be affected by our September 2002 acquisition of all of
the assets of Burly Bear, Inc., a Delaware corporation ("Burly Bear"). Burly
Bear, organized by a group including the executive producer of Saturday Night
Live, was in the business of producing and distributing entertainment through a
network of affiliated college television outlets. The Asset Purchase Agreement
relative to the Burly Bear acquisition provided that Burly Bear received as
consideration for the purchase of the assets the following: $200,000 in cash,
less certain transaction expenses; shares of our common stock having an
aggregate value of $400,000 (resulting in the issuance of 73,801 shares of
common stock); and 150 shares of NLNI common stock, representing fifteen percent
of NLNIs issued and outstanding shares of sommon stock. The cash consideration
paid in the acquisition was received by the Company on August 29, 2002, from two
existing shareholders upon their exercise of an option to acquire 2,000 units,
with each unit consisting of one share of our Series B Convertible Preferred
Stock and one warrant to purchase 28.169 shares of our common stock, for a
purchase price of $100 per unit.

Burly Bear incurred substantial losses since the inception of the company in
1994, and had an accumulated deficit of $24,657,746 as of May 31, 2002. We are
currently exploring a number of new ventures in gaming, publishing, video
production and distribution, other television, and feature films with a view
toward increasing both our operations and the visibility of the NATIONAL LAMPOON
brand.


                                       11
<PAGE>

RESULTS OF OPERATIONS

THE YEAR ENDED JULY 31, 2003 VS. THE YEAR ENDED JULY 31, 2002

For the year ended July 31, 2003, total revenues increased by approximately 7%
to $1,007,884 from $943,487 for the year ended July 31, 2002. This increase
resulted from advertising and promotional revenues from National Lampoon
Networks which were $92,063 in fiscal 2003 versus $0 for the prior year due to
the fact that National Lampoon Networks began operations during fiscal 2003.
Trademark revenues in fiscal 2003 of $904,244 represented a 1% decrease from
2002 trademark revenues of $913,491. Royalties received from Animal House and
the three National Lampoon's Vacation features totalled approximately $350,000
in fiscal 2003 compared with $559,000 in fiscal 2002. Royalties from made for
television productions totaled $496,000 in fiscal 2003, with $225,000
attributable to "Cousin Eddie's Christmas Vacation" and $125,000 attributable to
TBS for a show tentatively entitled "National Lampoon's Thanksgiving Reunion".
Television royalties in fiscal 2002 totaled approximately $202,000, all of which
relate to previously released television product like "Men in White" and "Golf
Punks". Consumer product revenue of $11,577 in fiscal 2003, which consisted
mostly of sales of videocassettes and of product sold via the internet decreased
61% from the prior year's revenues of $29,996 due mostly to reduced video
revenues.

Costs related to trademark revenue, primarily royalties and commissions payable
to third parties based on our trademark revenues, increased by approximately
224% to $285,174 for the year ended July 31, 2003 versus $88,156 during the same
period last year. The increase in costs resulted primarily from royalties
accrued to Guber Peters for the broadcast of the Company's "Funny Money"
television series and other television revenues. Royalties accrued to Guber
Peters totaled approximately $194,000 during fiscal 2003. In addition,
approximately $18,000 was accrued to Harvard Lampoon, and William Morris earned
$19,000 from National Lampoon Vacation revenues earned by the Company in fiscal
2003. Costs related to consumer products revenues were $23,374 for the year
ended July 31, 2002 versus $33,432 for fiscal 2002, which represents a decline
of 30%. Internet costs make up the majority of the costs related to consumer
product revenues, and are direct expenses we incurred to develop, maintain, and
promote our website excluding salaries and other general and administrative
expenses incurred in connection with our Internet operations. Cost declines were
related to the decline in Internet revenues in fiscal 2003 versus fiscal 2002.

Production costs totaling $872,868 were costs primarily associated with the
production of programming for National Lampoon Networks. National Lampoon
Networks began operations in September 2002 with the Company's acquisition of
the assets of Burly Bear. The Burly Bear assets included the tangible assets of
some edit and office equipment and Burly Bear television programs. Among the
assets acquired from Burly Bear was the distribution network comprised of 400
affilated campuses that aired Burly Bear programming. The Company renamed the
Burly Bear Network the National Lampoon Networks and began producing programs to
air on the existing National Lampoon Networks, which over the following 10
months was expanded to 603 affiliated campuses. National Lampoon Networks
expended approximately $729,000 in production costs during fiscal 2003, but was
unable to secure significant advertising commitments for its programming. In
accordance with SOP 00-2, as the Company cannot yet establish estimates of
secondary market revenues, and there are no unearned future contracted revenue
amounts, therefore, the Company has expensed the production costs incurred
during the fiscal year.

Amortization of intangible assets, included the costs of our acquisition of the
National Lampoon trademark and the Burly Bear trademark. Amortization of the
National Lampoon trademark was $240,000 during each of the years ended July 31,
2003 and 2002. The Burly Bear trademark was fully amortized by the end of fiscal
2003 based upon SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, because the Company recognized the impairment of the value of
the Burly Bear trademark when virtually all aspects of the Networks operated
more successfully utilizing the National Lampoon name rather than the Burly Bear
name. Amortization of the Burly Bear intangible asset totalled $541,000 during
fiscal 2003, and was zero in fiscal 2002 because as stated above, the Burly Bear
acquisition was consumated during fiscal 2003.

Selling, general and administrative expenses for the fiscal year ended July 31,
2003 increased to approximately $4,159,000 versus $2,538,000 for the fiscal year
ended July 31, 2002. This increase of $1,621,000 or 64% resulted primarily from
increases in personnel costs of approximately $528,000 to $2,455,000 from
$1,927,000, increases in marketing and advertising costs from nearly zero in
fiscal 2002 to $166,000 in fiscal 2003, travel and entertainment increased to
$148,000 from $17,000 or by $131,000. In addition, legal and public company
related costs increased to approximately $539,000 from $201,000, representing an
increase of $338,000. Increased personnel and general activities including the
addition of National Lampoon Networks, its separate offices and related overhead
costs resulted in increased SG&A costs in most areas including, telephone costs
apprximately $16,000 in fiscal 2002 increased to $54,000 in fiscal 2003
repsenting an increase of $38,000, shipping and postage costs were $45,000 in
2003 versus $3,000 in fiscal 2002 increasing by $42,000, insurance by $50,000,
increasing from $84,000 in fiscal 2002 to $135,000 in fiscal 2003, accounting
costs increased by $64,000 increaseing from approximately $79,000 in fiscal 2002
to $141,000 in fiscal 2003, rent to $182,000 in fiscal 2003 from approximatley
$133,000 in fiscal 2002 or by $50,000, and office expenses increased by $47,000
to $51,000 in fiscal 2003 from approximately $4,000 in fiscal 2002 .

During the year ended July 31, 2002, we recorded a benefit to stock appreciation
rights ("SARs") of $843,096. This credit resulted from a conversion of all SARs
granted to the Chief Executive Officer to common stock options. This conversion
eliminated the liability or the amount payable by us to the Chief Executive
Officer upon exercising the outstanding SARs. The conversion of the SARs to
common stock options resulted in an expense of $140,894 for the fiscal year
ended July 31, 2002. This cost reflects the difference between the exercise
price of the SARs when converted to a stock option and the market price of the
stock on the date of conversion. Other income of $175,484 in fiscal 2002
represents the elimination of liability associated with deferred salaries owed
to the Chief Executive Officer as part of the Preferred Stock and Warrant
Purchase Agreement.

Interest income during the year ended July 31, 2002 decreased to $7,040 versus
$12,849 for the same period last year. This decrease results from lower cash
balances held during the year ended July 31, 2003 versus the year ended July 31,
2002. The Company recorded a benefit of approximately $175,000 as part of the
Reorganization Transaction from the forgiveness of deferred salary owed to Mr.
Jimirro. The Company benefited from it subsidiary's National Lampoon Networks'
insurance reimbursement of $32,000 from stolen equipment, and from allocation of
$99,000 of its losses to the minority interest holders of National Lampoon
Networks.

For the year ended July 31, 2003, we recorded a net loss of $5,924,836 versus a
net loss of $1,613,334 for the year ended July 31, 2002. The substantial
increase in net loss of approximately $4,312,000 resulted in an increase in SG&A
costs of $1.6 million, the writeoff of the Burly Bear intangible asset of
$541,000, stock, warrants, and options issued for services in fiscal 2003 of
$947,000, the expensing of National Lampoon Networks and National Lampoon's
production costs of $873,000, and not receiving in fiscal 2003 the benefits of
SARs adjustment and elimination of deferred payroll liability, which reduced the
loss in the prior year by $1,018,580. Overall, the increase in costs was
accompanied by an increase in revenues of just $64,000 or 7% from the prior
year.


                                       12
<PAGE>

THE YEAR ENDED JULY 31, 2002 VS. THE YEAR ENDED JULY 31, 2001

For the year ended July 31, 2002, total revenues increased by approximately 208%
to $943,487 from $306,244 for the year ended July 31, 2001. This increase
resulted primarily from trademark revenues from motion pictures, which rose to
$913,491 in fiscal 2002 versus $270,408 for the prior year. Revenues from Animal
House increased to $200,448 from $70,715 in the prior year. The three National
Lampoons Vacation features together recorded revenues of $358,996 in fiscal 2002
compared to $124,431 in fiscal 2001. We also received $135,000 for the feature
National Lampoons Van Wilder which was released this year. Revenues from
television increased in fiscal 2002 to approximately $202,000 from $7,500 in the
prior fiscal year. Video revenues of $19,208 in fiscal 2002 decreased 13% from
year 2001 video revenues of $22,151. This decrease was due to fewer sales of
library video product in 2002 versus 2001. Internet revenue of $10,788
represented a 21% decrease over year ended July 2001 Internet revenues of
$13,685. Internet revenue consisted primarily of sale of merchandise.

Costs related to trademark revenue, primarily royalties and commissions payable
to third parties based on our trademark revenues, increased by approximately
297% to $88,155 for the year ended July 31, 2002 versus $22,221 during the same
period last year. The increase in costs resulted primarily from increased
royalties due to greater trademark motion picture and television revenues during
the fiscal year ended July 31, 2002. Costs related to Internet revenues were
$32,256 for the year ended July 31, 2002 versus $36,040 for fiscal 2001, which
represents a decline of 10%. Internet costs are direct expenses we incurred to
develop, maintain, and promote our website excluding salaries and other general
and administrative expenses incurred in connection with our Internet operations.
Cost declines were related to the decline in Internet revenues in fiscal 2002
versus fiscal 2001

Amortization of intangible assets, the costs of our acquisition of the National
Lampoon trademark, was $240,000 during each of the years ended July 31, 2002 and
2001.

During the year ended July 31, 2002 and 2001 we made significant expenditures to
our lawyers, and investment bankers for advice and preparation of documentation
related to the activities which culminated in the Reorganization Transactions.
These expenses for the year ended July 31, 2002 totaled $545,887 and for July
31, 2001, $1,532,837. Costs totaling approximately $865,000, incurred by us from
our lawyers, and investment bankers after the January 30, 2002 letter of intent
with respect to the Purchase Agreement between us and NLAG, were classified as
part of the cost of issuing the Series B Preferred shares and accordingly
decreased the capital raised.

Selling, general and administrative expenses for the fiscal year ended July 31,
2002 increased to $2,538,282 versus $1,221,338 for the fiscal year ended July
31, 2001. This increase of $1,316,944 or 108% resulted primarily from increases
in officer salary costs of approximately $1.1 million granted to the Chief
Executive Officer in consideration of his forgiveness of all contingent notes
and deferred salary due to him, increases in public filing and printing costs of
$38,000 and an increase in corporate expenses of approximately $80,000 related
to the Reorganization Transaction and Purchase Agreement with the NLAG.

During the year ended July 31, 2002, we recorded a benefit to stock appreciation
rights (SARs) of $843,096 versus an expense of $379,695 during the prior year
from SARs granted to our Chief Executive Officer. This credit resulted from a
conversion of all SARs granted to the Chief Executive Officer to common stock
options. This conversion eliminated the liability or the amount payable by us to
the Chief Executive upon exercising the outstanding SARs.

The conversion of the SARs to common stock options resulted in an expense of
$140,894 for the fiscal year ended July 31, 2002. This cost reflects the
difference between the exercise price of the SARs when converted to a stock
option and the market price of the stock on the date of conversion. Other income
of $175,484 in fiscal 2002 represents the elimination of liability associated
with deferred salaries owed to the Chief Executive Officer as part of the
Preferred Stock and Warrant Purchase Agreement.

Interest income during the year ended July 31, 2002 decreased to $12,849 versus
$55,551 for the same period last year. This decrease results from lower cash
balances held during the year ended July 31, 2002 versus the year ended July 31,
2001.

For the year ended July 31, 2002, we recorded a net loss of $1,613,334 versus a
net loss of $3,076,516 for the year ended July 31, 2001. The substantial
decrease in net loss of $1,463,182 resulted primarily from the conversion of
SARs to common stock options, which had an overall benefit of $843,096, along
with the reduction in the expensing of proxy solicitation expenses for the year
ended July 31, 2002. The amounts incurred after the execution of the definitive
letter of credit were capitalized and offset against the offering proceeds in
accordance with generally accepted accounting principles. In addition, revenues
increased by $637,243 in fiscal 2002 over fiscal 2001 levels.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of working capital during the fiscal year ended July 31,
2003 included; trademark and other income of approximately $1,008,000 and
$3,111,000 from the NLAG in the form of Series B Preferred purchased totaling
approximately $2,115,000, and $996,000 in the form of a loan from the NLAG.

For the twelve months ended July 31, 2003, our net cash flows used in our
operating activities was $3,848,306, versus $2,376,561 of net cash flow used in
operating activities during the twelve months ended July 31, 2002. This increase
in cash flows used in operating activities resulted primarily from an increase
in the net loss during fiscal 2003.

Since the completion of the Reorganization Transactions, our operations have
been characterized by ongoing capital shortages caused by expenditures in
initiating several new business ventures. We are also actively seeking private
sources of financing, including the November Anticipated Financing (as discussed
below), establishing bank lines and obtaining additional equity from third party
sources. There is no assurance that such financing will be available on
commercially acceptable terms, if at all. We are not certain if our existing
capital resources are sufficient to fund our activities for the next six to
twelve months. Unless our revenues from new business activities significantly
increase during that period, we will need to raise additional capital to
continue to fund our planned operations or, in the alternative, significantly
reduce or even eliminate certain operations. There can be no assurance that we
will be able to raise such capital on reasonable terms, or at all. As of
November 6, 2003, we had cash on hand of $84,948, an amount which reflects an
infusion of $175,000 as a loan by designees of NLAG immediately prior to such
date, and no significant receivables. This amount is not sufficient to fund
current operations, which we estimate to be approximately $475,000 per month. We


                                       13
<PAGE>

anticipate that any shortfall will be covered by the November Anticipated
Financing Transaction, the NLAG Group and other investors. If the NLAG Group
declines to make additional investments, or should we be unable to secure
additional financing, we could be forced to immediately curtail much, if not
all, of our current plans.

FUTURE COMMITMENTS

We are negotiating a series of agreements with Avalon Equity Partners, Golden
International Group, Tim Durham and Daniel Laikin, which are anticipated to
close by the end of November 2003 (the "November Anticipated Financing
Transaction"). Pursuant to the terms of the November Anticipated Financing
Transaction, Avalon Equity Partners, Golden International Group, Tim Durham and
Daniel Laikin, will invest approximately $8,000,000 (which includes
approximately $2.5 million already loaned to us) in a new series of convertible
preferred stock. The November Anticipated Financing Transaction is subject to
numerous closing conditions, nevertheless, no assurance can be given that the
November Anticipated Financing Transaction will be consummated.

<TABLE>
<CAPTION>
                                                              Payments due by period
---------------------------------- ----------- ---------------------- --------------------- --------------------- ------------------
<S>                                <C>         <C>                    <C>                   <C>                   <C>
CONTRACTUAL OBLIGATIONS               Total      Less than 1 year           1-3 years               3-5 years     More than 5 years
---------------------------------- ----------- ---------------------- --------------------- --------------------- ------------------
Long Term Debt                     --
---------------------------------- ----------- ---------------------- --------------------- --------------------- ------------------
Capital Lease Obligations          --
---------------------------------- ----------- ---------------------- --------------------- --------------------- ------------------
Operating Leases                   350,951     175,132                175,819               --                    --
---------------------------------- ----------- ---------------------- --------------------- --------------------- ------------------
Purchase Obligations               --
---------------------------------- ----------- ---------------------- --------------------- --------------------- ------------------
Other Long-Term Liabailites        --
---------------------------------- ----------- ---------------------- --------------------- --------------------- ------------------
                                   350,951     175,132                175,819
---------------------------------- ----------- ---------------------- --------------------- --------------------- ------------------
</TABLE>

NEW ACCOUNTING PRONOUNCEMENTS:

In October 2001, the FASB recently issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires companies to record the fair value of a
liability for asset retirement obligations in the period in which they are
incurred. The statement applies to a company's legal obligations associated with
the retirement of a tangible long-lived asset that results from the acquisition,
construction, and development or through the normal operation of a long-lived
asset. When a liability is initially recorded, the company would capitalize the
cost, thereby increasing the carrying amount of the related asset. The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded amount or the company
incurs a gain or loss. The statement is effective for fiscal years beginning
after June 30, 2002. The adoption did not have a material impact on the
Company's financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". Statement 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets. The statement
provides a single accounting model for long-lived assets to be disposed of. New
criteria must be met to classify the asset as an asset held-for-sale. This
statement also focuses on reporting the effects of a disposal of a segment of a
business. This statement is effective for fiscal years beginning after December
15, 2001. The adoption did not have a material impact on the Company's financial
position or results of operations.

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. The adoption did not have a material impact on the Company's
financial position or results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which addresses financial accounting and
reporting for costs associated with exit or disposal activities and supersedes
EITF Issue 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as defined in EITF 94-3
was recognized at the date of an entity's commitment to an exit plan. SFAS No.
146 also establishes that the liability should initially be measured and
recorded at fair value. The adoption did not have the material impact to the
Company's financial position or results of operations.

In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions" which provides guidance on the accounting for the
acquisition of a financial institution. SFAS No. 147 removes acquisitions of
financial institutions between one enterprise from the scope of both FASB
Statement No. 72, "Accounting for Certain Acquisitions of Banking or Thrift
Institutions, and FASB Interpretation No. 9, "Apply APB Opinion No. 16 and 17,
"When a Savings and Loan Association or a Similar Institution is Acquired in a
Business Combination Accounted for by the Purchase Method" and requires that
those transactions be account for in accordance with FASB Statements No. 141 and
142. Additionally, SFAS No. 147 amends FASB Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets, to include in its scope
long-term customer-relationship intangible assets of financial institutions. The
adoption did not have a material impact on the Company's financial position or
results of operations.

In November 2002, the FASB issued Interpretation No. (FIN) 45, "Guarantor's
Accounting and Disclosure requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Among other things, the Interpretation
requires guarantors to recognize, at fair value, their obligations to stand
ready to perform under certain guarantees. FIN 45 is effective for guarantees
issued or modified on or after January 1, 2003. The Company does not expect the
adoption of this pronouncement to have a material impact to the Company's
financial position or results of operations.


                                       14
<PAGE>

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. Additionally, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123, regardless of which method of
accounting is chosen, to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
Company has adopted the disclosure requirements and has determined not to
voluntarily change to the fair value based method of accounting for stock based
employee compensation.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." FIN 46's consolidation criteria are based on analysis of risks and
rewards, not control, and represent a significant and complex modification of
previous accounting principles. FIN 46 represents an accounting change, not a
change in the underlying economics of asset sales. The Company does not expect
the adoption of this pronouncement to have a material impact to the Company's
financial position or results of operations.

During April 2003, the FASB issued SFAS 149 - "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", effective for contracts entered
into or modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of this Statement should be applied prospectively. The
provisions of this Statement that relate to Statement 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases
or sales of when issued securities or other securities that do not yet exist,
should be applied to both existing contracts and new contracts entered into
after June 30, 2003. The Company does not participate in such transactions,
however, is evaluating the effect of this new pronouncement, if any, and will
adopt FASB 149 within the prescribed time.

During May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a freestanding financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity.
Some of the provisions of this Statement are consistent with the current
definition of liabilities in FASB Concepts Statement No. 6, Elements of
Financial Statements. The Company is evaluating the effect of this new
pronouncement and will adopt FASB 150 within the prescribed time.

Basic and Fully Diluted Loss Per Share. The Company computes earnings per share
in accordance with the provisions of SFAS No. 128, Earnings Per Share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of an entity that were
outstanding for the period.

ITEM 7A. QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK

NONE

ITEM 8. FINANCIAL STATEMENTS

The consolidated financial statements of National Lampoon, Inc. are listed on
the Index to Financial Statements set forth on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

NONE


ITEM 9A.  CONTROLS AND PROCEDURES

The Company maintains a system of disclosure controls and procedures that is
designed to provide reasonable assurance that information, which is required to
be disclosed by the Company in the reports that it files or submits under the
Securities and Exchange Act of 1934, as amended, is accumulated and communicated
to management in a timely manner. The Company's Chief Executive Officer and
Chief Financial Officer have evaluated this system of disclosure controls and
procedures as of the end of the period covered by this annual report, and
believe that the system is operating effectively to ensure appropriate
disclosure. There have been no changes in the Company's internal control over
financial reporting during the most recent fiscal year that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.


                                    PART III.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information with respect to our directors and
executive officers. Directors are elected at the annual meeting of stockholders
to serve a one-year term and until their successors are elected and qualified.
Officers serve at the request of the Board of Directors. There are no family
relationships among any of the directors or executive officers.


                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                                                  Director
                   Name                       Age             Position                             Since
===========================================  =====  ============================================  ========
<S>                                           <C>   <C>                                             <C>
James P. Jimirro                              65    Director, Chairman, President and               1986
                                                    Chief Executive Officer
James Fellows                                 66    Director                                        1986
Bruce P. Vann                                 47    Director                                        1986
Daniel S. Laikin                              41    Director and Chief Operating Officer            2000
Timothy S. Durham                             41    Director                                        2002
Paul Skjodt                                   45    Director                                        2002
Joshua A. Finkenberg                          29    Director                                        2002
Douglas Bennett                               44    Executive Vice President
</TABLE>

EXECUTIVE OFFICERS AND DIRECTORS

In connection with the consummation of the Reorganization Transactions, Messrs.
Durham, Skjodt and Finkenberg were elected to the Board on May 17, 2002. Messrs.
Durham and Skjodt filled the vacancies created by the resignations on that date
of Messrs. De Simio and Cowan and Mr. Finkenberg was elected to fill the vacancy
created by the expansion of the Board from six to seven members.

     JAMES P. JIMIRRO has been employed as our President and Chief Executive
Officer since its inception. From 1980 to 1985, he was the President of Walt
Disney Telecommunications Company, which included serving as President of Walt
Disney Home Video, a producer and distributor of family home video programming.
While in this position, he also served as Corporate Executive Vice President of
Walt Disney Productions. In addition, from 1983 to 1985, Mr. Jimirro served as
the first President of the Disney Channel, a national cable pay-television
channel, which Mr. Jimirro conceived and implemented. Mr. Jimirro continued in a
consulting capacity for the Walt Disney Company through July 1986. From 1973 to
1980, he served as Director of International Sales and then as Executive Vice
President of the Walt Disney Educational Media Company, a subsidiary of the Walt
Disney Company. Prior to 1973, Mr. Jimirro directed international sales for CBS,
Inc., and later for Viacom International. Mr. Jimirro also served as a member of
the Board of Directors of Rentrak Corporation between January 1990 and September
2000.

     JAMES FELLOWS has been a member of the Board of Directors and the President
of the Central Education Network, Inc., a Chicago, Illinois association of
public television and educational associations, since 1983. From 1962 through
1982, Mr. Fellows worked in a variety of positions for the National Association
of Educational Broadcasters in Washington, D.C., and became its President and
Chief Executive Officer in 1978. Mr. Fellows is a director of numerous nonprofit
corporations, including the Hartford Gunn Institute, a research and planning
service for public telecommunications; the Maryland Public Broadcasting
Foundation, a corporate fund-raiser for public television; and the American
Center for Children and Media, a coalition of organizations committed to
improving media services for children and youth.

     BRUCE P. VANN has been a principal of the law firm of Kelly Lytton Vann LLP
since December 1995. Mr. Vann specializes in corporate and securities matters.
From January 1994 through December 1998, Mr. Vann served, on a non-exclusive
basis, as Senior Vice President, Business and Legal Affairs, of Largo
Entertainment, Inc., a subsidiary of the Victor Company of Japan.

     DANIEL S. LAIKIN has been employed as our Chief Operating Officer since May
17, 2002. Mr. Laikin served as Co-Chairman of Biltmore Homes, Inc., an
Indiana-based home building and real estate development company until 2000. He
also served as a managing partner of Four Leaf Partners, LLC, a closely held
investment company, concentrating on the startup and financing of high tech and
Internet-related companies. He is also on the Board of Directors of Obsidian
Enterprises, Inc.

     TIMOTHY S. DURHAM has served as the Chief Executive and Chairman of the
Board of Directors of Obsidian Enterprises, Inc. (formerly Danzer Corporation)
since June 2001. Since April 2000, he has served as a Managing Member and Chief
Executive Officer of Obsidian Capital Company LLC, which is the general partner
of Obsidian Capital Partners LP. Since 1998, Mr. Durham has founded and
maintained a controlling interest in several investment funds, including Durham
Capital Corporation, Durham Hitchcock Whitesell and Company LLC, and Durham
Whitesell Associates LLC. From 1991 to 1998, Mr. Durham served in various
capacities at Carpenter Industries, Inc., including as Vice Chairman, President
and Chief Executive Officer. Mr. Durham serves as a director of Obsidian
Enterprises, Inc.

     PAUL SKJODT is the Chairman and Chief Executive Officer of Biltmore Homes,
Inc., an Indiana-based home building and real estate development company.

     JOSHUA A. FINKENBERG is the Director of Acquisitions for California
Investment Fund, LLC, a specialized investment company that acquires and invests
in undervalued assets and companies. Previously, Mr. Finkenberg was the Chairman
and President of AF Investments LLC, a holding company focused on acquisitions
of and investments in businesses located in the Southern California area. From
August 2000 through January 2002, Mr. Finkenberg was a Senior Associate with
Batchelder & Partners, a financial advisory firm based in San Diego, California.
From July 1996 through July 2000, Mr. Finkenberg was an Associate in the
Investment Banking Department of SunTrust Equitable Securities Corporation, a
full-service investment bank located in Nashville, Tennessee. Mr. Finkenberg
graduated with highest honors from the Robert C. Goizueta Business School at
Emory University with a dual concentration in Finance and Management Information
Systems/Information Technology.

     DOUGLAS BENNETT has over 22 years of experience in managing businesses in
the publishing, software and Internet space. Prior to his joining the Company he
was the President of iUniverse, Inc., the largest independent publisher in the
United States. iUniverse produced over 5,000 titles a year through the Internet.
Prior to that he was the Chairman & CEO of EoExchange, Inc., an Internet search
engine business. From 1992 until 1999 Mr. Bennett worked for Macmillan
Publishing, the largest computer book and reference publisher in the world. Mr.
Bennett started in the software and Internet division of Macmillian's business
and eventually became the President of the entire Macmillan Publishing business.
Prior to his employment with Macmillian, Mr. Bennett worked for 11 years for CCH
Computax, the largest tax software company in the United States. At CCH
Computax, Mr. Bennett held numerous senior level positions.

CONSULTANTS

We are party to a consulting agreement, approved by our Board of Directors on
August 7, 2002, with Zelnick Media Group (ZM), headed by Stauss Zelnick, the
former head of 20th Century Fox and Bertlesman, the European media
conglomerates. Mr. Zelnick and his affiliates are providing marketing,


                                       16
<PAGE>

development, production and branding assistance to us. In particular, Scott
Ziegler, a partner of ZM, is assisting directly in certain television
activities. ZM is being compensated solely by the issuance to it of 300,000
warrants (the ZM Warrants) which have been issued directly to ZM and an
affiliate. Two of the ZM Warrants will entitle ZM and an affiliate to purchase
up to 150,500 of the shares of our Common Stock at an exercise price of $6.50
per share the other two ZM Warrants will entitle ZM and an affiliate to purchase
up to 150,500 of the ZM Warrant Shares at an exercise price of $10.00 per share.
The number and exercise price of the ZM Warrants are subject to adjustments
customarily contained in warrants of a similar nature. One-third of the ZM
Warrant Shares become exercisable upon issuance of the ZM Warrants and the
remainder of the ZM Warrants will first become exercisable in monthly
installments during the 13th through 36th months following the issuance of the
ZM Warrants, provided that no ZM Warrant Shares become exercisable after the
termination of the consulting agreement.

We are party to a year to year consulting agreement with Mr. Daniel Sarnoff,
originally dated as of September 1, 2002 pursuant to which Mr. Sarnoff serves in
a non-exclusive capacity as the CEO of our newly formed subsidiary NL Games,
Inc. ("NLG"), as well as assisting us in sales of the National Lampoon Networks.
Pursuant to the terms of his agreement with us, Mr. Sarnoff is to receive an
annual compensation of $60,000 per year, and a percentage of revenue from NLG
games. Mr. Sarnoff is also to receive stock options and other bonuses, subject
to approval of the Board of Directors.

Pursuant to the terms of an oral year-to-year (August 2003 to August 2004)
agreement, Errol Gerson has been retained as a consultant responsible for
implementing our operations regarding the Burly Bear acquisition. Mr. Gerson is
being paid $12,500 per month.

ADVISORY BOARD.

We have established a creative advisory board and a corporate advisory board.
The members of these boards have agreed to assist us in identifying business
opportunities, as well as opportunities to leverage our brand and increase our
exposure in the creative community. The composition of these two boards is as
follows:

CORPORATE ADVISORY BOARD:

DOUGLAS BENNETT- Mr. Bennett, who is currently serving as an Executive Vice
President, has more than 20 years of experience in management, sales and
marketing in the publishing industry. Mr. Bennett was formerly president of
Macmillan Digital and Macmillan USA.

STEVE LEHMAN- Mr. Lehman was one of the founders of Premier Radio. He is
currently a partner in Broadstream Capital Partners,

MARK ROESSLER- Mr. Roessler is currently head of CMG Worldwide, an agency
representing over 200 diverse personalities and entities, as well as the estates
of celebrities, in various enterprises.

CHARLES SEGARS- Mr. Segars was formerly an executive at DreamWorks Television,
and is currently an E.W. Scripps cable and television executive.

BRIAN WOOD- Mr. Wood is president of Columbia House, the leading book, record
and DVD club.

Each of the members of the Corporate Advisory Board is entitled to receive
options to acquire 5,000 shares of our common stock at an exercise price
determined on the date of grant

CREATIVE ADVISORY BOARD:

CHARLES FINK- Mr. Fink, formerly a senior executive of AOL Time Warner, is
currently the president of American Greetings.com.

ERROL GERSON- Mr. Gerson is currently a consultant to the Company, and has a
twenty year background in the entertainment. industry. Mr. Gerson, in addition
to acting as design consultant to various internet ventures, formerly was the
Director of New Media for the Creative Artists Agency. For the past two and half
years, Mr. Gerson was the CEO of iNetnow.

DEBBIE GOLDFARB- Ms. Goldfarb is a television agent at Abrams, Rubeloff in Los
Angeles, and was formerly an agent of the Creative Artist Agency.

RICHARD LEWIS- The founder of Ovation Entertainment, Mr. Lewis was one of the
founders of Trilogy Entertainment, the producers of such hits as Robin Hood:
Prince of Thieves and Backdraft.

SCOTT MCCAIN- Mr. McCain is chairman of McCain Performance Group, an association
of companies specializing in trade shows and professional business speaking.

CHRIS MILLER- Mr. Miller was formerly a writer for National Lampoon and one of
the original writers of National Lampoon's Animal House.

DAN PASTERNACK- Mr. Pasternack was formerly an executive for Granada
Entertainment, USA, and was a senior vice president of drama at studios USA, an
affiliate of Universal Pictures.

BRAD YONOVER- Formerly a principal of Greenstreet Productions, he is currently a
consultant focusing of development and production of feature films.

     Each of the members of the Creative Advisory Board is entitled to receive
options to acquire 2,000 shares of our common stock at an exercise price
determined on the date of grant.


                                       17
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation for each of the last three
fiscal years of our Chief Executive Officer and up to four of our executive
officers ("Named Officers") whose annual salary and bonus exceeded $100,000
during the fiscal year ended July 31, 2003.

<TABLE>
<CAPTION>
                                                                                                Long Term
                                                           Annual Compensation                Compensation
                                                  ===================================== =========================
                                                                         Other Annual                 Stock          All Other
                                                                         Compensation     SARs       Options       Compensation
          Name and Position               Year         Salary($)             ($)       (Shares)      (Shares)          ($)
=====================================    ======= ====================== ============== ========= ================ ==============
<S>                                        <C>            <C>                     <C>    <C>          <C>              <C>
James P. Jimirro                           2003             500,000()             0           0        35,000(2)            0
      Chairman, President and              2002           1,471,146(1)            0           0       608,335(2)            0
      Chief Executive Officer              2001             190,750(3)            0      25,000        25,000               0
 Daniel Laikin                             2003             200,000(4)
      Chief Operating Officer
 Douglas Bennett                           2003             131,667                                   190,000          21,300
       Executive Vice President
 James Toll                                2003             132,737                                    15,000
       Chief Financial Officer             2002              36,364                                    15,000
</TABLE>

(1)  Includes 1,215,069 received as apart of the Reorganization Transactions.

(2)  Iincludes options to acquire 450,000 shares of common stock granted during
     the fiscal year ended December 31, 2002, plus 158,335 stock options that
     were converted from SARs as part of the Reorganization Transactions.

(3)  Mr. Jimirro had voluntarily deferred all Base Salary, as defined by the
     applicable employment agreement, in excess of $190,750. Such deferred
     amounts are payable only upon a Change of Control of the Company as defined
     by the applicable employment agreement and are included in All Other
     Compensation hereunder. Under the terms of Mr. Jimirro's Restated
     Employment Agreement the amounts due to him have been forgiven.

(4)  Represents one year of salary to Mr. Laikin that was paid in the form of
     Series B Preferred.

STOCK OPTION AND STOCK APPRECIATION RIGHTS GRANTS

The following table sets forth the individual grants of stock options and stock
appreciation rights made during the fiscal year ended July 31, 2003 to the Named
Officers:

<TABLE>
<CAPTION>
                                                                                                      Potential Realized Value
                                                                                                          at Assumed Annual
                                                       % of Total                                        Rates of Stock Price
                                                      Options/SARs                                          Appreciation
                                                       Granted to     Exercise                             for Option Term
                                     Options/           Employees     Or Base                    ===================================
                                       SARs             in Fiscal   Price($/Sh)   Expiration
            Name                      Granted             Year                       Date              5%($)             10%($)
============================    ===================   ============= ============ =============   =================  ================
<S>                                      <C>                 <C>      <C>            <C>                <C>               <C>
James P. Jimirro                         35,000(1)            9%      $  4.64        05/13/10             285,057           453,905
Douglas Bennett                         190,000              49%      $  5.59        10/14/09           1,336,745         1,851,281
James Toll                               15,000               4%      $  6.00         6/30/10             105,533           146,154
</TABLE>

(1)  The options granted to Mr. Jimirro were immediately exercisable.

STOCK OPTION AND STOCK APPRECIATION RIGHTS EXERCISES AND YEAR-END VALUES

Shown below is information for the Named Officers with respect to the exercise
of stock options and the ownership of stock options and stock appreciation
rights and their values as of July 31, 2003.

                                       18
<PAGE>

<TABLE>
<CAPTION>

                                                                                                       Value of Unexercised
                                                              Number of Unexercised                   In-the-Money Options/
                              Shares                      Options/SARs at July 31, 2003              SARs at July 31, 2003(1)
                             Acquired                ======================================== ======================================
         Name                On            Value         Exercisable           Unexercisable        Exercisable       Unexercisable
                             Exercise   Realized($)        (Shares)               (Shares)              ($)                ($)
=======================      =========  ============ ====================      ============== ======================= ==============
<S>                           <C>           <C>               <C>                       <C>                 <C>               <C>
James P. Jimirro              66,664        180,037           635,001                   0                   52,709            0
</TABLE>

(1)  Based upon the difference between the closing price on July 31, 2003 and
     the option exercise price or stock appreciation rights base price.

DIRECTOR COMPENSATION

At the organization meeting of the Board of Directors following our annual
meeting of shareholders in June 2002, all directors, excluding Mr. Jimirro and
Mr. Laikin, were granted options to purchase up to 7,500 shares of our common
stock at the market price on the date of grant that are immediately exercisable.
Mr. Jimirro's and Mr. Laikin's compensation as directors is pursuant to their
employment agreements described under Employment Agreements.

EMPLOYMENT AGREEMENTS

On May 17, 2002, we entered into a new employment agreement with James P.
Jimirro (the "Jimirro Employment Agreement"). The Jimirro Employment Agreement
will terminate on December 31, 2007; provided, however, that if Mr. Jimirro
remains employed by us on December 31, 2003, the Jimirro Employment Agreement
will automatically be extended for an additional year. As of December 31, 2004
and December 31 of each year thereafter, so long as Mr. Jimirro remains employed
by us on such date, the Jimirro Employment Agreement will again be automatically
extended for an additional year so that at no time will the remaining term under
the Jimirro Employment Agreement be less than five years.

The Jimirro Employment Agreement will provide Mr. Jimirro with an annual salary
of $500,000 and, commencing on January 31, 2003 and continuing on the last day
of each month thereafter during the period that Jimirro is employed by us, will
provide for the monthly grant by the Company to Mr. Jimirro of fully vested
options to purchase 5,000 shares of our common stock. Pursuant to the Jimirro
Employment Agreement, Mr. Jimirro will receive fifty percent of our gross
receipts from the movie National Lampoon's Van Wilder. The Jimirro Employment
Agreement also provides Mr. Jimirro with other benefits, including medical and
life insurance, an automobile and the reimbursement of business expenses.

The Jimirro Employment Agreement is terminable by us without Cause (as defined
below) or for convenience after December 31, 2002 upon written notice to Mr.
Jimirro, payment to Mr. Jimirro of a cash severance payment in the amount of
$1,400,000, and delivery of a promissory note providing for our payment to Mr.
Jimirro of $1,000,000 in twelve equal monthly installments. Prior to December
31, 2002, the Jimirro Employment Agreement will only be terminable by us for
Cause. For us to terminate Mr. Jimirro for Cause under the Jimirro Employment
Agreement, six of the members of the Board of Directors (excluding Mr. Jimirro)
must determine at a meeting called for such purpose, that Mr. Jimirro is guilty
of the conduct triggering the right to terminate him for Cause. Under the
Jimirro Employment Agreement, Cause is defined as (i) the willful and continued
failure by Mr. Jimirro to substantially perform his duties with us in good faith
(other than any such failure resulting from his incapacity due to physical or
mental illness or any such actual or anticipated failure resulting from his
termination by us for convenience (or without Cause)), after a demand for
substantial performance is delivered to him by the Board of Directors that
specifically identifies the manner in which the Board of Directors believes that
Mr. Jimirro has not substantially performed his duties in good faith; or (ii)
the willful engaging by Mr. Jimirro in conduct which is demonstrably and
materially injurious to us, monetarily or otherwise. For purposes of the
definition of Cause under the Jimirro Employment Agreement, no act, or failure
to act, on Mr. Jimirros part shall be considered willful unless done, or omitted
to be done, by him in bad faith and without reasonable belief that his action or
omission was in our best interest.

The Jimirro Employment Agreement is terminable by Mr. Jimirro upon the
occurrence of certain events, with Mr. Jimirro being entitled to receive the
same severance benefits, including the $1,400,000 cash severance payment and
$1,000,000 promissory note (detailed above), as if Mr. Jimirro had been
terminated by us without Cause or for convenience.

In addition, under the Jimirro Employment Agreement, in the event that Mr.
Jimirro incurs an excise tax under the Internal Revenue Code of 1986, as amended
(the "Code"), because he receives any compensation or payments from us that
constitute excess parachute payments under Section 280G of the Code, we will
reimburse Mr. Jimirro for that excise tax, and for the income and excise taxes
on such reimbursement on a fully grossed up basis if either (i) Mr. Jimirros
employment with us is terminated by us at any time before the first anniversary
of the date on which the Reorganization Transactions are consummated, or (ii)
after the effectiveness of the Jimirro Employment Agreement a transaction
(excluding the Reorganization Transactions, if applicable) involving us occurs
that results in Mr. Jimirro incurring such an excise tax.

All of our obligations to Mr. Jimirro under the Jimirro Employment Agreement, as
well as under an indemnification agreement and a registration rights agreement,
are secured by a first priority lien on all of our assets, pursuant to a
security agreement between Mr. Jimirro and us, executed in connection with the
Reorganization Transactions.


                                       19
<PAGE>

DANIEL S. LAIKIN EMPLOYMENT AGREEMENT

On May 17, 2002, we entered into an Employment Agreement with Daniel S. Laikin
(the "Laikin Employment Agreement") effective for a period of one year and
subject to automatic extension for successive one-year terms thereafter unless
and until the Board of Directors elects not to renew the Laikin Employment
Agreement and notifies Mr. Laikin within sixty days prior to the end of the
then-current one-year term of the Employment Agreement or unless the Laikin
Employment Agreement has been terminated according to its terms and conditions.

Pursuant to the Laikin Employment Agreement, Mr. Laikin receives an annual
salary of $200,000. He also was granted options to purchase 100,000 shares of
our common stock as of the effective date of the Laikin Employment Agreement,
which options were immediately exercisable and will expire, to the extent not
exercised, prior to the close of business on the day ten years from the date of
grant. The Laikin Employment Agreement also provides Mr. Laikin with other
benefits, including vacation, pension, retirement, medical and life insurance
and reimbursement of business expenses. Mr. Laikin has agreed to receive his
entire salary in SeriesB Units.

The Laikin Employment Agreement may be terminated voluntarily by us at any time
during its term for Cause (which is defined as in the Jimirro Employment
Agreement described above). For us to terminate Mr. Laikin for Cause, five of
the members of the Board of Directors (not including Mr. Laikin) must determine
at a meeting held for such purpose that Mr. Laikin is guilty of the conduct
triggering the right to terminate him for Cause. If Mr. Laikins employment is
terminated by us for Cause, or by Mr. Laikin, in addition to any benefits
mandated by law, we shall pay Mr. Laikin his full annual salary in effect at the
date of termination and other benefits to which he is entitled through the date
of termination at the rate in effect at the time notice of termination is given.

DOUGLAS BENNETT EMPLOYMENT AGREEMENT

We entered into an at-will employment agreement with Douglas Bennett, effective
October 14, 2002 (the "Bennett Employment Agreement"). As there is no specified
term, Mr. Bennett is free to resign at any time and we are free to terminate the
Bennett Employment Agreement at any time, with or without cause.

Mr. Bennett receives a base salary of $175,000 per year, effective December 1,
2002. Mr. Bennett's title is initially Executive Vice President, but will
succeed to the title of President when that title becomes available. Mr. Bennett
is entitled to calender quarterly bonuses of $31,250, which bonuses are payable
in the month subsequent to the end of calender quarter to which they were
granted. Concurrent with the signing of the Bennett Employment Agrement, Mr.
Bennett was granted options to purchase 135,0000 shares of common stock at the
then current market price, which options vest ratably over a 3 year period. Mr.
Bennett is also entitled to an option grant of 50,000 shares of common stock for
the period January 3, 2003 through June 3, 2003 and an option grant of 50,000
shares of common stock for the period July 3, 2003 through Decemmber 3, 2003.
These options shall also vest ratably over three year periods and are to be
issued at then current market prices. Upon a change in control of the Company,
all unvested options are to vest immediately.

Mr. Bennett is entitled to communte to Los Angeles from his home in the San
Francisco area. By December 31 2003, Mr. Bennett, the Chief Executive Officer
and the Board of Directors have agreed to decide whether Mr. Bennett should
relocate to the Los Angeles area.

If Mr. Bennett is "Terminated without Cause" (as such term is defined in the
Bennett Employemnt Agreement), or in the event of "Constructive Termination" (as
such term is defined in the Bennett Employemnt Agreement), if dies or is
disablited, he shall be entitled to: (a) continue his base salary for 6 months;
(b) continue his employee beneifts for 6 months; and (c) continue vesting of any
outstanding and unvested stock options for 6 months.

           COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Employment Agreements with Messrs. Jimirro and Laikin were negotiated as
part of the Reorganization Transactions involving Mr. Jimirro and the NLAG Group
and were approved by our entire Board of Directors (other than Messrs. Jimirro
and Laikin who excused themselves from the meetings during the Boards
consideration of the Employment Agreements) at special meetings of the Board of
Directors held on April 25, 2002 and May 17, 2002.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of the shares of common
stock and Series B Preferred for (i) each person known by the Company to be the
beneficial owner of more than five percent of the outstanding shares of common
stock or Series B Preferred; (ii) each director; (iii) the Chief Executive
Officer and each of the Company's other executive officers named in the Summary
Compensation Table; and (iv) the directors and executive officers as a group.
Beneficial ownership information in the table is as of November 1, 2003. Unless
otherwise indicated, beneficial ownership represents both sole voting and sole
investment power.


                                       20
<PAGE>

<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER                 COMMON STOCK**                            SERIES B PREFERRED STOCK
------------------------                 --------------                            ------------------------
                           Number of Shares of   Percentage of Shares    Number of Shares of    Percentage of Shares
                           Beneficially Owned    Beneficially Owned      Beneficially Owned     Beneficially Owned
                           ------------------    --------------------    -------------------    --------------------
<S>                               <C>                    <C>                    <C>                     <C>
DIRECTOR AND EXECUTIVE
OFFICER S: (1)
James P. Jimirro,                   876,887 (2)          40.4%                      --                   --
Chairman of the Board,
President and Chief
Executive Officer
James A. Fellows,                    30,833 (3)           2.0%                      --                   --
Director
Bruce P. Vann, Director              20,331 (3)          1.3%*                      --                   --
Daniel S. Laikin, Chief           1,945,186 (4)          58.9%                  29,796                  48.4%
Operating Officer and
Director
Timothy S. Durham,                1,192,203 (4)           47%                   17,148                  27.9%
Director
Paul Skjodt, Director               542,247 (4)          28.4%                   6,500                  10.6%
Joshua A. Finkenberg,                15,000 (3)           1.0%                      --                   --
Director
Douglas Bennett,                     67,069 (5)           4.2%                     426                    *
Executive Vice
President
James Toll, Chief                    15,000 (3)           1.0%                      --                   --
Financial Officer
All Executive Officers
and Directors as a
group (consisting of  9
members)                              4,710,756          85.9%                  53,587                  87.3%
OTHER 5% OWNERS:
NLAG Group (1), (5)               3,957,329 (4)          82.0 %                 56,394                  91.9%
Ronald Holzer                       321,790 (6)          17.8%                   5,000                  _8.1%

</TABLE>

*    Less than one percent.

**   The number of shares of common stock includes the shares of Series B
     Preferred Stock converted to common stock equivalents.

(1)  The address for Messrs. Jimirro, Laikin, Fellows and Vann is 10850 Wilshire
     Blvd., Suite 1000, Los Angeles, California 90024. The address for Mr.
     Durham and the NLAG Group is 111 Monument Circle, Suite 4800, Indianapolis,
     Indiana 46204. The address for Mr. Skjodt is 9910 Towne Road, Carmel,
     Indiana 46032. The address for Mr. Finkenberg is 4080 Front Street, Suite
     105, San Diego, California 92123. The address for Mr. Holzer is 600 Central
     Avenue, Suite 240, Highland Park, Illinois 60035.

(2)  Includes options to purchase 645,001 shares of common stock.

(3)  Consists of options to purchase shares of common stock.

(4)  Includes options to purchase 12,831 shares of common stock.

(5)  The following individuals and entities are referred to collectively as the
     NLAG Group: Daniel Laikin; Paul Skjodt; Timothy S. Durham; Diamond
     Investments, LLC; DC Investments, LLC; Judy B. Laikin; Betty A. Morgan;
     Samerian LLP; and DW Leasing Company, LLC. Each member of the NLAG Group
     may be deemed to beneficially own all of the shares of common stock that
     are deemed to be beneficially owned collectively by the NLAG Group, which
     includes shares of common stock that the members could acquire upon the
     conversion of shares of Series B Preferred and pursuant to warrants and
     options. As of October 1, 2003, the individual members of the NLAG Group
     have the following holdings:

     (a)  Mr. Durham directly owns 73,200 shares of common stock, 12,648 shares
          of Series B Preferred and warrants to acquire 356,282 shares of common
          stock. He also has the right to acquire 15,000 shares of common stock
          pursuant to stock options. Mr. Durham may be deemed to share voting
          and dispositive power with respect to the securities listed below for
          Diamond Investments, LLC and DC Investments, LLC, for both of which
          Mr. Durham serves as Managing Member, and DW Leasing Company, LLC, in
          which Mr. Durham has an ownership interest.

     (b)  Mr. Laikin directly owns 168,150 shares of common stock, 29,726 shares
          of Series B Preferred and warrants to acquire 837,352 shares of common
          stock. He also has the right to acquire 102,333 shares of common stock
          pursuant to stock options. He may be deemed to share voting and
          dispositive power with respect to securities listed below for Judy B.
          Laikin.

     (c)  Mr. Skjodt directly owns 141,050 shares of Common Stock, 6,500 shares
          of Series B Preferred and warrants to acquire 183,099 shares of common
          stock. He also has the right to acquire 15,000 shares of common stock
          pursuant to stock options. He may be deemed to share voting and
          dispositive power with respect to the securities listed below for
          Samerian LLP, in which Mr. Skjodt is a Partner.

     (d)  Diamond Investments, LLC directly owns 92,399 shares of common stock.
          (e) DC Investments, LLC directly owns 5,000 shares of Series B
          Preferred and warrants to purchase 140,845 shares of common stock.

     (f)  Judy B. Laikin directly owns 26,000 shares of common stock.


                                       21
<PAGE>

     (g)  Betty A. Morgan owns 121,721 shares of common stock, 2,307 shares of
          Series B Preferred and warrants for 64,986 shares of common stock.

     (h)  Samerian LLP directly owns 20,000 shares of common stock.

     (i)  DW Leasing Company, LLC directly owns 17,350 shares of common stock.

Each member of the NLAG Group disclaims beneficial ownership of the securities
held by the other members of the NLAG Group.

(6)  Consists of options to acqurie 55,069 shares of common stock, 213 shares of
     Series of Series B Preferred and warrants to acquire 6,000 shares of common
     stock.

(7)  Includes 5,000 shares of Series B Preferred and warrants to purchase
     140,845 shares of common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Bruce Vann, one of our directors, is a partner of the law firm Kelly Lytton and
Vann LLP and has been retained by us for various legal matters. Legal expenses
of approximately $107,500 were incurred with respect to work performed by Mr.
Vann's firm for us during the fiscal year ended July 31, 2003.

On July 14, 1986, James P. Jimirro, our Chairman, President and Chief Executive
Officer purchased 192,000 shares of our common stock for approximately $115,000.
For such shares, we received the sum of approximately $58,000 and a note (Note)
for approximately $58,000. The Note bears interest at the rate of 10% per annum
and, pursuant to a July 14, 1986 Pledge and Security Agreement, is secured by
the shares purchased. The unpaid principal and interest outstanding at July 31,
2003 was approximately $157,000.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

NOT YET APPLICABLE.

                                    PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(A)  EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)

3.1      Company's Second Amended and Restated Certificate of Incorporation (1)

3.2      Company's Amended and Restated Bylaws (1)

4.1      NLAG Registration Rights Agreement, dated May 17, 2002, among the
         Company, the members of the NLAG Group, and GTH Capital, Inc. (1)

4.2      Jimirro Registration Rights Agreement, dated May 17, 2002, between the
         Company and James P. Jimirro (1)

4.3      Amended and Restated 1999 Stock Option, Deferred Stock and Restricted
         Stock Plan (2)

4.4      Piggyback Registration Rights Agreement, dated September 3, 2002 (5)

10.1     First Amendment to Preferred Stock and Warrant Purchase Agreement,
         dated as of May 17, 2002 (1)

10.2     2002 Employment Agreement Between J2 Communications and James P.
         Jimirro, dated May 17, 2002 (1)

10.3     Note Termination Agreement, dated May 17, 2002, between the Company and
         James P. Jimirro (1)

10.4     Security Agreement, dated May 17, 2002, between the Company and James
         P. Jimirro (1)

10.5     Absolute Assignment, dated May 17, 2002, between the Company and James
         P. Jimirro (1)

10.6     Termination of Stock Appreciation Rights Agreement, dated May 17, 2002,
         between the Company and James P. Jimirro (1)

10.7     Mutual Release, dated May 17, 2002, among the Company, James P. Jimirro
         and the members of the NLAG Group (1)

10.8     Restated Indemnification Agreement, dated May 17, 2002, between the
         Company and James P. Jimirro (1)

10.9     2002 Employment Agreement Between J2 Communications and Daniel S.
         Laikin, dated May 17, 2002 (1)

10.10    Non-Qualified Stock Option Agreement, dated May 17, 2002, between the
         Company and Daniel S. Laikin (1)

10.11    Indemnification Agreement, dated May 17, 2002, between the Company and
         Daniel S. Laikin. (2)

10.12    Letter, dated May 17, 2002, regarding Termination of Surviving
         Provisions of Letter Agreement, from the Company to Daniel S. Laikin
         and Paul Skjodt (1) 10.13 Warrant Agreement, dated May 17, 2002,
         between the Company and GTH Capital, Inc (1)

10.14    Voting Agreement, dated May 17, 2002, among each of the members of the
         NLAG Group and James P. Jimirro (1)

10.15    Promissory Notes issued May 17, 2002, by the Company to law firms (1)


                                       22
<PAGE>

10.16    Form of Common Stock Warrant (including Schedule identifying material
         terms (1)

10.17    Agreement between Registrant and Harvard Lampoon, Inc. dated October 1,
         1998 (3)

10.18    First Amendment to Office Lease between Registrant and Avco Center
         Corporation dated April 21, 2000 (4)

10.19    Letter Agreement between Registrant and Batchelder Partners, Inc.,
         dated August 16, 2000 (4)

10.20    Amendment to Letter Agreement between Registrant and Batchelder
         Partners, Inc. dated August 16, 2000 (4)

10.21    Warrant Issued by Registrant to George Vandemann dated August 18, 2000
         (4)

10.22    Asset Purchase Agreement dated August 30, 2002 between National Lampoon
         Networks, Inc., Burly Bear Network, Inc., Constellation Venture
         Capital, L.P. and J2 Communications (5)

10.23    Consulting Agreement with Zelnick Media and related Warrant Agreements
         (6)

10.24    Advisory Agreement with SBI USA and related Warrant Agreement (6)

10.25    Lease for New York office space (7)

10.26    2003 Employment Agreement between the Company and Douglas Bennett (7)

21       Subsidiaries of Registrant (7)

31.1     Certification pursuant to Section 302 of Sarbanes-Oxley - James P.
         Jimirro

31.2     Certification pursuant to Section 302 of Sarbanes-Oxley - James Toll

32       Certification pursuant to Section 906 of Sarbanes-Oxley

(1)  Incorporated by reference to Form 8-K filed on May 31, 2002.

(2)  Incorporated by reference to Form S-8 filed on June 26, 2002.

(3)  Incorporated by reference to Form 10-Q for the period ended October 31,
     1998

(4)  Incorporated by reference to Form 10-K for the fiscal year ended July 31,
     1999.

(5)  Incorporated by referenced to Form 8-K filed on September 9, 2002.

(6)  Incorporated by reference to Form 10-K for the fiscal year ended July 31,
     2002.

(7)  Filed herewith.

     (b)  FORMS 8-K

          NONE

     (c)  SEE (a) ABOVE


                                       23


<PAGE>


                                   SIGNATURES

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

Date: November 13, 2003


                                        By: /s/ James P. Jimirro
                                            -----------------------------------
                                            James P. Jimirro,
                                            Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


<TABLE>
               SIGNATURE                                            TITLE                                             DATE
=======================================      ==========================================================       ======================
<S>                                          <C>                                                             <C>

/s/                                          Director, Chairman of the Board of                               November 13, 2003
                                             Directors and Chief Executive
=======================================      Officer (Principal Executive
James P. Jimirro                             Officer)

/s/                                          Chief Financial Officer                                          November 13, 2003
=======================================
James Toll


/s/                                          Director                                                         November 13, 2003
=======================================
James Fellows

/s/                                          Director                                                         November 13, 2003
=======================================
Bruce P. Vann


/s/                                          Director, Chief Operating Officer                                November 13, 2003
=======================================
Daniel S. Laikin


/s/                                          Director                                                         November 13, 2003
=======================================
Timothy S. Durham


/s/                                          Director                                                         November 13, 2003
=======================================
Paul Skjodt


/s/                                          Director                                                         November 13, 2003
=======================================
Joshua A. Finkenberg
</TABLE>


                                       24
<PAGE>


                     NATIONAL LAMPOON, INC. AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
       FOR THE YEARS ENDED JULY 31, 2003, JULY 31, 2002 AND JULY 31, 2001


<TABLE>
<S>                                                                                                                         <C>
Independent Auditors Report                                                                                               F-2

Consolidated Balance Sheets as of July 31, 2003 and 2002                                                                  F-3

Consolidated Statements of Operations for the Years Ended July 31, 2003, 2002 and 2001                                    F-4

Consolidated Statements of Shareholders Equity for the Years Ended July 31, 2003, 2002 and 2001                           F-5

Consolidated Statements of Cash Flows for the Years Ended July 31, 2003, 2002 and 2001                                    F-6

Notes to Consolidated Financial Statements                                                                                F-7
</TABLE>


<PAGE>

INDEPENDENT AUDITORS REPORT

Board of Directors National Lampoon, Inc., Los Angeles, California

We have audited the accompanying consolidated balance sheets of National
Lampoon, Inc. and Subsidiaries (the Company) as of July 31, 2003, and 2002, and
the related consolidated statements of operations, shareholders equity and cash
flows for each of the three years in the period ended July 31, 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National Lampoon, Inc. as of July 31, 2003 and the results of their consolidated
operations and their consolidated cash flows for each of the three years in the
period ended July 31, 2003 in conformity with accounting principles generally
accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
consolidated financial statements, the Company's net losses of $5,924,836,
$1,613,334 and $3,076,516 in the last three years, negative working capital of
$2,395,053 and accumulated deficit of $15,816,844 at July 31, 2003 raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note A. The
financial statements do not include any adjustments to asset carrying amounts or
the amount and classification of liabilities that might result from the outcome
of this uncertainty.



/s/ Stonefield Josephson, Inc.
------------------------------
CERTIFIED PUBLIC ACCOUNTANTS

Santa Monica, California
October 7, 2003



                                       F-2
<PAGE>

                     NATIONAL LAMPOON, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                        AS OF JULY 31,
                                                                                              ----------------------------------
                                                                                                  2003                  2002
                                                                                              ------------          ------------
CURRENT ASSETS
<S>                                                                                           <C>                   <C>
    Cash and cash equivalents                                                                 $    140,255          $  1,024,207
    Prepaid expenses and other current assets                                                       34,026                17,323
                                                                                              ------------          ------------
                Total current assets                                                               174,281             1,041,530
                                                                                              ------------          ------------

NON-CURRENT ASSETS
    Fixed assets, net of accumulated depreciation                                                   42,859                 7,123
    Film library, net of amortization                                                               27,000
    Intangible assets                                                                            6,505,732             5,964,732
    Accumulated amortization of intangible assets                                               (4,049,578)           (3,268,578)
    Other assets                                                                                     4,500
                                                                                              ------------          ------------
                Total non-current assets                                                         2,530,513             2,703,277
                                                                                              ------------          ------------

TOTAL ASSETS                                                                                  $  2,704,794          $  3,744,807
                                                                                              ============          ============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
    Accounts payable                                                                          $    183,485          $    310,951
    Accrued expenses                                                                               781,023               490,244
    Notes payable including $996,250 due to shareholders                                         1,443,856               415,000
    Deferred income                                                                                161,000
                                                                                              ------------          ------------

                Total current liabilities                                                        2,569,364             1,216,195
                                                                                              ------------          ------------

        TOTAL LIABILITIES                                                                        2,569,364             1,216,195
                                                                                              ------------          ------------

SHAREHOLDERS' EQUITY
    Preferred Stock, no par value, 2,000,000 shares authorized, no shares issued and
    outstanding (cancelled, see Note F)                                                                 --                    --
    Series B Preferred Stock, no par value, 68,406 shares authorized, 63,607 shares
    issued and outstanding                                                                       4,921,618             2,585,318
    Common Stock, no par value, 15,000,000 shares authorized, 1,526,795 and 1,385,483
    shares issued, respectively                                                                 12,188,942             9,986,762
    Less: Note receivable on common stock                                                         (157,220)             (151,460)
    Deferred compensation                                                                       (1,001,066)                   --
    Accumulated Deficit                                                                        (15,816,844)           (9,892,008)
                                                                                              ------------          ------------

        TOTAL SHAREHOLDERS' EQUITY                                                                 135,430             2,528,612
                                                                                              ------------          ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                    $  2,704,794          $  3,744,807
                                                                                              ============          ============
</TABLE>

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



                                       F-3
<PAGE>


                     NATIONAL LAMPOON INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                 FOR THE YEARS ENDED JULY 31,
                                                                     -----------------------------------------------------
                                                                        2003                 2002                 2001
                                                                     -----------          -----------          -----------
REVENUES
<S>                                                                  <C>                  <C>                  <C>
    Trademark                                                        $   904,244          $   913,491          $   270,408
    Consumer products                                                     11,577               29,996               35,836
    Advertising and promotion revenues                                    92,063                   --                   --
                                                                     -----------          -----------          -----------
        Total revenue                                                  1,007,884              943,487              306,244
COSTS AND EXPENSES
    Costs related to trademark revenue                                   285,174               88,155               22,221
    Costs related to consumer products                                    23,374               33,432               40,620
    Production costs                                                     872,868                   --                   --
    Amortization of intangible assets                                    781,000              240,000              240,000
    Proxy solicitation                                                        --              545,887            1,532,837
    Selling, general administrative expenses                           4,159,094            2,538,282            1,221,338
    Stock, warrants, and options issued for services                     947,040                   --                   --
    Stock appreciation rights (benefit)/expense                               --             (843,096)             379,695
    Conversion of stock appreciation rights to stock options                  --              140,894                   --
                                                                     -----------          -----------          -----------

        Total costs and expenses                                       7,068,550            2,743,554            3,436,711
                                                                     -----------          -----------          -----------

    OPERATING LOSS                                                    (6,060,666)          (1,800,067)          (3,130,467)
OTHER INCOME/(EXPENSE)
    Interest income                                                        7,040               12,849               55,551
    Reduction of deferred payroll                                             --              175,484                   --
    Other income                                                          32,214
                                                                     -----------          -----------          -----------
        Total other income                                                39,254              188,333               55,551
                                                                     -----------          -----------          -----------

MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARY                    99,000
                                                                     -----------          -----------          -----------

    LOSS BEFORE INCOME TAXES                                          (5,922,412)          (1,611,734)          (3,074,916)
Provision for income taxes                                                 2,424                1,600                1,600
                                                                     -----------          -----------          -----------

NET LOSS                                                             $(5,924,836)         $(1,613,334)         $(3,076,516)
                                                                     ===========          ===========          ===========

Loss per share basic & diluted                                       $     (4.02)         $     (1.17)         $     (2.26)
                                                                     ===========          ===========          ===========

Weighted average number of common shares  basic & diluted              1,475,156            1,380,597            1,358,342
                                                                     ===========          ===========          ===========
</TABLE>

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




                                       F-4
<PAGE>

                     NATIONAL LAMPOON, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                         Note
                        Preferred Preferred    Common         Common  Receivable              Deferred                      Total
                          Stock     Stock       Stock          Stock      on       Treasury Compensation   Accumulated Shareholders'
                         Shares    Amount      Shares         Amount Common Stock   Stock       Amount       Deficit       Equity
                         ------ ------------ ----------- ------------ ----------  -------- ------------  --------------  ----------
<S>                      <C>       <C>        <C>        <C>            <C>                <C>           <C>                 <C>
Balance at July 31, 2000                      $1,337,046  $  9,024,778 $ (139,940) $ (1,603)              $ (5,202,159)  $3,681,076
      Interest on note
        receivable                                                        (5,760)                                            (5,760)
      Cancel Treasury
        Stock                                     (1,166)      (1,603)               1,603
      Common stock
        issued for
        services                                  23,214      271,263                                                       271,263
      Options granted
        for services                             287,000                                                       287,000

      Exercise of stock
        options                                   12,022       35,329                                                        35,329
      Net loss                                                                                              (3,076,516)  (3,076,516)
                         ------ ------------ ----------- ------------ ----------  -------- ------------  --------------  ----------
Balance at July 31, 2001                      1,371,116     9,616,767   (145,700)                           (8,278,674)  $1,192,393
      Interest on note
        receivable                                                        (5,760)                               (5,760)
      Preferred stock
        issued in NLAG
        transaction, net
        of costs         40,244    2,585,318                                                                              2,585,318
      Exercise of stock
        options                                   14,367       83,101                                                        83,101
      Warrants issued
        for services                                          146,000                                                       146,000
      Conversion of SARs             140,894                                                    140,894
      Net loss                                                                                              (1,613,334)  (1,613,334)
                         ------ ------------ ----------- ------------ ----------  -------- ------------  --------------  ----------
Balance at July 31, 2002 40,244    2,585,318   1,385,483    9,986,762   (151,460)                           (9,892,008)   2,528,612
   Interest on note
     receivable                                                           (5,760)                                            (5,760)
   Preferred stock
     issued for
     cash                21,500    2,115,000                                                                              2,115,000
   Preferred stock
   issued for             2,213      221,300                                                                                221,300
   services
   Exercise of stock
     options                                      53,411       75,374                                                        75,374
   Warrants/options
     issued for                                   14,100    1,726,806                                                     1,726,806
     services
   Common stock issued
     in connection with
     Burly Bear
     acquisition                                  73,801      400,000                                                       400,000
   Non vested portion of
     stock issued
     for services                                                                            (1,001,066)                 (1,001,066)
        Net loss                                                                                            (5,924,836)  (5,924,836)
                         ------ ------------ ----------- ------------ ----------  -------- ------------  --------------  ----------
Balance at July 31, 2003 63,607    4,921,618   1,526,795 $ 12,188,942   (157,220)          $ (1,001,066) $ (15,816,844)      135,430
                         ====== ============ =========== ============ ==========  ======== ============  ==============  ==========
</TABLE>


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


                                       F-5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                        FOR THE YEARS ENDED JULY 31,
                                                                                -----------------------------------------
                                                                                   2003            2002           2001
                                                                                -----------    -----------    -----------
<S>                                                                             <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net loss                                                                $(5,924,836)   $(1,613,334)   $(3,076,516)
        Adjustments to reconcile net loss to net cash used in operating
          activities:
  Depreciation and amortization                                                     900,140        248,451        253,720
                Stock appreciation rights (benefit)/expense                              --       (843,096)       379,695
                Conversion of stock appreciation rights to stock options                 --        140,894
                Other                                                                (5,760)        (5,760)        (5,760)
                Stock issued for services                                                               --        271,263
                Warrants/options granted for services                               947,040        146,000        287,000
        Changes in assets and liabilities:
                Decrease(increase) in accounts receivable                                --             --          6,580
                Decrease/(increase) in prepaid expenses and other current           (16,704)        15,362        (10,472)
                assets
                Decrease/(increase) in capitalized production costs                 (68,000)
                Decrease/(increase) in other assets                                  (4,500)            --         10,758
                (Decrease)/increase in accounts payable                            (127,467)        68,500        (49,115)
                (Decrease)/increase in accrued expenses                             290,781       (130,461)       246,013
                Increase in deferred revenues                                       161,000
                (Decrease) in settlement payable                                         --       (203,117)
                (Decrease)/increase in extension payments                                         (200,000)       200,000
                                                                                -----------    -----------    -----------
    NET CASH AND CASH EQUIVALENTS USED IN OPERATING ACTIVITIES                   (3,848,306)    (2,376,561)    (1,486,834)

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

CASH FLOWS FROM INVESTING ACTIVITIES:

        Acquisition of Burly Bear Networks                                         (200,000)
        Purchase of fixed assets                                                    (54,876)        (7,123)       (2,354)

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

     NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES                    (254,876)        (7,123)       (2,354)
                                                                                -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Exercise of stock options                                                    75,374         83,101         35,329
        Exercise of Stock Appreciation Rights shares                                                             (105,419)
        Purchase of Series B preferred shares                                     2,115,000
                                                                                                 2,585,318
        Increase in notes payable                                                 1,028,856        415,000
                                                                                -----------    -----------    -----------

     NET CASH AND CASH EQUIVALENTS PROVIDED BY USED IN FINANCING
       ACTIVITIES                                                                 3,219,230      3,083,419        (70,090)
                                                                                -----------    -----------    -----------

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                               (883,952)       699,735     (1,559,278)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    1,024,207        324,472      1,883,750
                                                                                -----------    -----------    -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                        $   140,255    $ 1,024,207    $   324,472

            Cash paid for:Taxes                                                 $     2,424    $     1,643    $     5,401
                                                                                ===========    ===========    ===========
Supplemental disclosure: shares/options/warrants issued for services            $   947,040    $         0    $         0
</TABLE>


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


                                      F-6
<PAGE>

NOTE A

Organization and Principles of Consolidation. The consolidated financial
statements include the accounts of National Lampoon, Inc. and its subsidiaries
(Company) after elimination of all inter-company items and transactions. The
Company, a California corporation, was formed in 1986 and was primarily engaged
in the acquisition, production and distribution of videocassette programs for
retail sale. During fiscal year 1991, the Company acquired all of the
outstanding shares of National Lampoon, Inc. (NLI). NLI was incorporated in 1967
and was primarily engaged in publishing the National Lampoon Magazine and
related activities. Subsequent to the Company's acquisition of NLI, it has
de-emphasized its videocassette business and publishing operations and has
focused primarily on exploitation of the National Lampoon trademark including
the October 1999 launch of the Company's website, nationallampoon.com. The
Company formally changed its name to National Lampoon, Inc. in September of
2002.

On May 17, 2002, the Company, James P. Jimirro, the Chairman of the Board,
President and Chief Executive Officer , and a group of investors known
collectively as the National Lampoon Acquisition Group (NLAG) completed a
Preferred Stock and Warrant Purchase Agreement, (the Purchase Agreement). The
Purchase Agreement called for, among other items, the purchase of 35,244 units,
consisting of one share of Series B Preferred Stock and a warrant to purchase
28.169 shares of the Company common stock, at $100 a unit. The Series B
Preferred Stock votes on an as converted basis as a class with the shares of
Common Stock. As part of the transaction entered into related to the Purchase
Agreement, one member of NLAG became Chief Operating Officer of the Company, and
entered into an employment agreement with the Company, and a voting agreement
was entered into providing for the election of three Jimirro nominees, three
NLAG nominees, and one nominee acceptable to both parties The consummation of
the Reorganization Transactions effectively concluded all of the litigation
between the Company, the members of the NLAG Group and Mr. Jimirro.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's net losses of $5,924,836
and $1,613,334 in the last two years, negative working capital of $2,395,053 and
an accumulated deficit of $15,816,844 raise substantial doubt about its ability
to continue as a going concern. The financial statements do not include any
adjustments to asset carrying amounts or the amount and classification of
liabilities that might result from the outcome of this uncertainty.

Management recognizes that the Company must generate additional resources to
enable it to continue operations. The Purchase Agreement with NLAG authorized
the purchase of 29,256 additional Series B units at $100 each. At July 31, 2002
there were 24,256 unissued Series B units authorized remaining to be purchased
by the NLAG. If purchased, that would result in $2,425,600 of additional capital
to the Company. However no assurance can be given that NLAG or any other party
will purchase the 24,256 Series B units authorized, but not issued, at July 31,
2002. The Company may also issue shares of common stock or other series of
preferred stock to investors as a means of raising capital. In addition, the
Company is very active in increasing operations through acquisitions and forming
new divisions in an effort to increase cash flow and profitability. If
management is unable to raise additional capital and cannot increase cash flow
through operations, the Company will not be able to meet its obligations and may
have to cease operations.

We have entered into a series of agreements with Avalon Equity Partners, Golden
International Group, Tim Durham and Daniel Laikin, which are anticipated to
close by the end of November 2003 (the "November Anticipated Financial
Transaction"). Pursuant to the terms of the November Anticipated Financial
Transaction, Avalon Equity Partners, Golden International Group, Tim Durham and
Daniel Laikin, will invest approximately $8,000,000 (which incudes approximately
$2.5 million already loaned to us) in a new series of convertible preferred
stock. The transaction is subject to numerous closing conditions, neverthless,
no assurance can be given that the November Anticipated Financing Transaction
will be consummated.

Revenue Recognition. The Company's trademark licensing revenues are generally
recognized when received or when earned under the terms of the associated
agreement and when the collection of such revenue is reasonably assured.
Revenues from the sale of videocassettes and DVDs, net of estimated provisions
for returns (which are not material for any period presented) are recognized
when the units are shipped. Revenues from Internet operations are recognized
when earned under the terms of the associated agreement and the collection of
such revenue is reasonably assured. Revenues from advertising and promotion are
recognized when earned under the terms of the associated agreement or when the
advertisment has been broadcast and the collection of such revenues are
reasonably assured.

Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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. Actual results could differ from those estimates.

Depreciation. Depreciation of fixed assets is computed by the straight-line
method over the estimated useful lives of the assets ranging from three to five
years.

Cash Concentration and Cash Equivalents. The Company maintains its cash balances
at financial institutions that are federally insured, however, at times such
balances may exceed federally insured limits. The Company has not experienced
any losses in such accounts. The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.

Intangible Assets. Intangible Assets consists primarily of the National Lampoon
trademark and is being amortized on a straight-line basis over twenty-five
years. The Company continually evaluates whether events or circumstances have
occurred that indicate the remaining estimated useful life of intangible assets
should be revised or the remaining balance of intangible assets may not be
recoverable. Factors that would indicate the occurrence of such events or
circumstances include current period operating or cash flow losses, a projection
or forecast of future operating or cash flow losses, or the inability of the
Company to identify and pursue trademark licensing opportunities on terms
favorable to the Company. The intangible asset acquired through the acquisition
of Burly Bear, Inc. have been written off based upon the provisions of SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets".

As of July 31, 2003, the Company has determined that expected future cash flows
relating to its intangible assets will result in the recovery of the carrying
value of such asset. The continued realization of these intangible assets,
however, is dependent upon the continued exploitation of the National Lampoon
trademark for use in motion pictures, television, the Internet, merchandising
and other appropriate opportunities. If these and other ventures that the
Company may enter into do not result in sufficient revenues to recover the
associated intangible assets, the Company's future results of operations may be
adversely affected by adjustments to the carrying values of such intangible
assets.


                                      F-7
<PAGE>

New Accounting Pronouncements:

In October 2001, the FASB recently issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires companies to record the fair value of a
liability for asset retirement obligations in the period in which they are
incurred. The statement applies to a company's legal obligations associated with
the retirement of a tangible long-lived asset that results from the acquisition,
construction, and development or through the normal operation of a long-lived
asset. When a liability is initially recorded, the company would capitalize the
cost, thereby increasing the carrying amount of the related asset. The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded amount or the company
incurs a gain or loss. The statement is effective for fiscal years beginning
after June 30, 2002. The adoption did not have a material impact on the
Company's financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". Statement 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets. The statement
provides a single accounting model for long-lived assets to be disposed of. New
criteria must be met to classify the asset as an asset held-for-sale. This
statement also focuses on reporting the effects of a disposal of a segment of a
business. This statement is effective for fiscal years beginning after December
15, 2001. The adoption did not have a material impact on the Company's financial
position or results of operations.

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. The adoption did not have a material impact on the Company's
financial position or results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which addresses financial accounting and
reporting for costs associated with exit or disposal activities and supersedes
EITF Issue 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as defined in EITF 94-3
was recognized at the date of an entity's commitment to an exit plan. SFAS No.
146 also establishes that the liability should initially be measured and
recorded at fair value. The adoption did not have a material impact on the
Company's financial position or results of operations.

In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions" which provides guidance on the accounting for the
acquisition of a financial institution. SFAS No. 147 removes acquisitions of
financial institutions between one enterprise from the scope of both FASB
Statement No. 72, "Accounting for Certain Acquisitions of Banking or Thrift
Institutions, and FASB Interpretation No. 9, "Apply APB Opinion No. 16 and 17,
"When a Savings and Loan Association or a Similar Institution is Acquired in a
Business Combination Accounted for by the Purchase Method" and requires that
those transactions be account for in accordance with FASB Statements No. 141 and
142. Additionally, SFAS No. 147 amends FASB Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets, to include in its scope
long-term customer-relationship intangible assets of financial institutions. The
adoption of this pronouncement did not have a material impact on the Company's
financial position or results of operations

In November 2002, the FASB issued Interpretation No. (FIN) 45, "Guarantor's
Accounting and Disclosure requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Among other things, the Interpretation
requires guarantors to recognize, at fair value, their obligations to stand
ready to perform under certain guarantees. FIN 45 is effective for guarantees
issued or modified on or after January 1, 2003. The Company does not expect the
adoption of this pronouncement to have a material impact to the Company's
financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. Additionally, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123, regardless of which method of
accounting is chosen, to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
Company has adopted the disclosure requirements and has determined not to
voluntarily change to the fair value based method of accounting for stock based
employee compensation.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." FIN 46's consolidation criteria are based on analysis of risks and
rewards, not control, and represent a significant and complex modification of
previous accounting principles. FIN 46 represents an accounting change, not a
change in the underlying economics of asset sales. The Company does not expect
the adoption of this pronouncement to have a material impact to the Company's
financial position or results of operations.

During April 2003, the FASB issued SFAS 149 - "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", effective for contracts entered
into or modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of this Statement should be applied prospectively. The
provisions of this Statement that relate to Statement 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases
or sales of when issued securities or other securities that do not yet exist,
should be applied to both existing contracts and new contracts entered into
after June 30, 2003. The Company does not participate in such transactions,
however, is evaluating the effect of this new pronouncement, if any, and will
adopt FASB 149 within the prescribed time.

During May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a freestanding financial


                                      F-8
<PAGE>

instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity.
Some of the provisions of this Statement are consistent with the current
definition of liabilities in FASB Concepts Statement No. 6, Elements of
Financial Statements. The Company is evaluating the effect of this new
pronouncement and will adopt FASB 150 within the prescribed time

Basic and Fully Diluted Loss Per Share. The Company computes earnings per share
in accordance with the provisions of SFAS No. 128, Earnings Per Share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of an entity that were
outstanding for the period.

Options to purchase 231,242, 1,148,131, and 296,996 shares of common shares and
12,448, 1,133,633, and 0 warrants are not included in the calculation of diluted
EPS in the fiscal year ended July 31, 2003 and 2002, respectively, because their
inclusion would be anti-dilutive.


STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

The Company periodically grants stock options to its employees and directors as
financial incentives directly linked to increases in shareholder value. Such
grants are subject to the Company's Amended and Restated 1999 Stock Option,
Deferred Stock and Restricted Stock Plan (the "1999 Plan"), as adopted by the
Company's shareholders at its annual meeting on January 13, 2000. All stock
options granted under prior stock option plans were converted to stock option
grants under the 1999 Plan. A summary of stock options outstanding is as
follows:

<TABLE>
<CAPTION>
                                                             Option                Weighted
                                     Number of              Exercise               Average
                                      Options              Price Range          Exercise Price
                                 ================        ================       ================
<S>                                   <C>               <C>                     <C>
Balance, July 31, 2000                  197,665         $  1.53-$17.50          $      9.09
       Options granted                  128,000            9.63-$14.00                11.29
       Options canceled                 (16,667)            4.43-$4.43                 4.43
       Options exercised                (12,002)            1.69-$8.25                 2.94

                                 ==============          ===============         ==========

Balance, July 31, 2001                  296,996         $  1.69-$14.00          $     10.55
       Options granted                  893,670           3.50-$8.00                   3.96
       Options canceled                 (28,168)          3.19-$16.13                  7.70
       Options exercised                (14,367)          1.88-$8.00                   5.78

                                 ==============          ===============         ==========

Balance, July 31, 2002                1,148,131         $     1.88-16.13        $     10.55
       Options granted                  390,500              3.50-$6.00                5.41
       Options canceled                 (70,165)             3.5-$13.63                7.07
       Options exercised                (94,333)            $3.25-$4.11                3.63

                                 ==============          ===============         ==========

Balance, July 31, 2003                1,374,133         $    1.94-$16.13        $      5.77

                                 ==============          ===============         ==========
</TABLE>

Of the exercisable options outstanding at July 31, 2003, 2002 and
2001,1,078,464, 1,118,131, and 128,000, respectively, the weighted average
exercise prices were$5.82, $5.65, and $11.29. The weighted average remaining
life of the options outstanding at July 31, 2003 was 7.15 years.

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 interpretations 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. If the Company had
elected to recognize compensation expense based on the fair value of the options
granted on their grant date as prescribed by SFAS No. 123, the Company's net
income/(loss) and earnings/(loss) per share would have been reduced to the pro
forma amounts as follows:


                                      F-9
<PAGE>

<TABLE>
<CAPTION>
                                                                     For the Fiscal Year Ended
                                                   =============================================================
                                                      July 31, 2003          July 31, 2002        July 31, 2001
                                                   ===================   ====================  =================
<S>                                                       <C>                   <C>             <C>
Net income/(loss) as reported                             $(5,924,826)          $ (1,613,334)   $(3,076,516
Net income/(loss) pro forma                               $(7,399,941)          $ (3,887,825)   $(3,426,802
Basic earnings/(loss) per share as reported               $     (4.03)          $      (1.17)   $     (2.26)
Basic earnings/(loss) per share pro forma                 $     (5.02)          $      (2.82)   $     (2.52)
Diluted Earnings/(Loss) Per Share as reported             $     (4.03)          $      (1.17)   $
                                                                                                     (2.26)
Diluted Earnings/(Loss) Per Share pro forma               $     (5.02)          $      (2.82)   $     (2.52)
</TABLE>

The fair value of each option grant on its date of grant was estimated using the
Black-Scholes option pricing model using the following assumptions:

                                                 For the Fiscal Year Ended
                                       =========================================
                                        July 31,       July 31,       July 31,
                                          2003            2002           2001
                                       ===========     ==========     ==========
Expected dividend yield                        00%            00%          0.00%
Expected stock price volatility        87.5-129.2%          77.2%         89.48%
Risk free interest rate                       5.5%           4.0%           5.5%
Expected life of option (in years)      3.00-7.00           7.00           4.00

The weighted average fair value of the options granted during the fiscal years
ended July 31, 2003, 2002 and 2001 was $5.41, $4.42 and $11.29, respectively.

The Company's Chairman, President and Chief Executive Officer had stock
appreciation rights that entitle him to receive, upon demand, a cash payment
equal to the difference between the fair market value and the appreciation base
of the rights when they are exercised. At December 28, 2001 the stock
appreciation rights (SARs) were converted into common stock options having the
same terms as the original SARs. An expense of $140,894 was recorded in relation
to this conversion, as well as a benefit of $843,096 arising from the
elimination of the liability relating to the SARs. As of July 31, 2001,
appreciation in these rights was approximately $843,000, and is reflected under
stock appreciation rights payable in the accompanying consolidated balance
sheets.


                     NATIONAL LAMPOON, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B ACCRUED EXPENSES

Accrued expenses consist of:

                                                  As of              As of
                                              July 31, 2003      July 31, 2002
                                            =================   ================
Accrued legal fees                              $    150,000        $    65,000
Accrued accounting fees                               27,500             12,552
Accrued payroll and related items                    115,254            111,124
Accrued video royalties                               15,000             15,000
Accrued television and other royalties               412,574            212,274
Deferred payroll officers/shareholders                 6,695             13,362
Other                                                 54,000             60,932
                                                 ===========         ==========
                                                $    781,023        $   490,244
                                                 ===========         ==========


                                      F-10
<PAGE>

NOTE C COMMITMENTS AND CONTINGENCIES

Leases. The Company is obligated under an operating lease expiring on September
30, 2005 for approximately 3,912 square feet of office space in Los Angeles,
California. The lease agreement includes certain provisions for rent adjustments
based upon the lessors operating costs and increases in the Consumer Price
Index. We also lease space in New York city for National Lampoon Networks' New
York employees. The lease is for a six month period beginning August 1, 2003 and
ending on January 31, 2004.

The Company is obligated under an operating lease expiring in May of 2006 for an
automobile provided by the Company to it chairman, President and Chief Executive
Officer.

The Company's minimum future lease payments for the fiscal years indicated are
as follows:


               Office             Auto/
Year            Space           Equipment          Total
              ========          =========         ========

2003          $129,878          $ 11,994          $141,872
2004           163,138            11,994           175,132
2005           136,138            11,994           148,132
2006            22,690             4,997            27,687
2007
              ========          ========          ========
              $451,844          $ 40,979          $492,823
              ========          ========          ========

The Company's aggregate lease payments were approximately $141,872, $139,166,
and $142,433 and for the years ended July 31, 2003, 2002 and 2001, respectively.

Harvard Lampoon Agreement. Pursuant to an agreement between the Company and The
Harvard Lampoon, Inc. ("HLI"), as restated October 1, 1998, the Company is
obligated to pay HLI a royalty of from 1.5% to 2% on the Company's net receipts
from exploitation of the National Lampoon trademark. Royalty payments under this
agreement were approximately $11,000, $16,000, and $3,000 and for the years
ended July 31, 2003, 2002 and 2001, respectively.

Guber-Peters Agreement. Pursuant to a July 24, 1987 Rights Agreement, NLI
granted the right to produce National Lampoon television programming to
Guber-Peters Entertainment Company (GPEC). NLI reacquired these rights from GPEC
pursuant to an October 1, 1990 Termination Agreement ("Termination Agreement")
for the sum of $1,000,000, of which $500,000 was paid upon execution. The
remaining $500,000 is contingent on and payable through a 17.5% royalty on NLIs
cash receipts from each program produced by NLI or any licensee (subject to
certain minimum royalties for each program produced). The Company guaranteed all
of NLIs obligations under the Termination Agreement and is the
successor-in-interest to NLI as a result of its acquisition of NLI. As of July
31, 2003, the Company has recorded royalty expense of approximately $500,000
relating to the Termination Agreement including approximately $195,000, $35,000,
and $9,000 during the years ended July 31, 2003, 2002, and 2001, respectively.
The increased royalty expense during fiscal 2003 was primarily due to the airing
of 65 episodes of the Company's "Funny Money" on one of the cable networks.
According to the Guber-Peters agreements, there is a minimun fee of $5,000 for
every television episode that airs. The 65 episodes would result in a royalty of
$325,000, except that the Company has a maximum due Guber-Peters of $396,250 of
which the Company had already accrued $210,687. With this accrual, the Company
has recognized the full potential balance due Guber-Peters and therefore will
not make any further accruals to them.

Employment Agreements. The Company has entered into a 2002 Employment Agreement
dated May 17, 2002 with James P. Jimirro, its Chairman, President and Chief
Executive Officer. The 2002 agreement terminated the 1999 Agreement and in
exchange for consideration of $1,100,00, Mr. Jimirro forgave the principal
balance and all interest accrued on all Contingent Notes and deferred salaries
totaling $3,224,482. Base salary for the Initial Term beginning January 1, 2002
and ending December 31, 2007 is $500,000 per year. If Mr. Jimirro remains
employed by the Company on December 31, 2003, the Jimirro Employment Agreement
will automatically be extended for an additional year. As of December 31, 2004
and December 31 of each year thereafter, so long as Mr. Jimirro remains employed
by the Company on such date, the Jimirro Employment Agreement will again be
automatically extended for an additional year so that at no time will the
remaining term under the Jimirro Employment Agreement be less than five years.
The Agreement can be cancelled after December 31, 2002 without cause upon
payment to Mr. Jimirro of a cash severance payment in the amount of $1,400,000
and delivery of a promissory note providing for the Company's payment to Mr.
Jimirro of $1,000,000 in twelve equal monthly installments. To secure future
obligations to him, Mr. Jimirro was also granted a security interest in
substantially all of the Company's assets, including a pledge of all the
outstanding securities of all of their subsidiaries. In addition, Mr. Jimirro
will receive 50 percent of the amount the Company receives from exploitation of
the movie National Lampoons Van Wilder. The Agreement also provides for the
Company to grant Mr. Jimirro 5,000 shares of the Company's common stock at that
days fair market value on the last day of each month of the Employment Term
beginning January 31, 2003.

The Company has entered into a 2002 Employment Agreement dated May 17, 2002 with
Daniel Laikin, a Director and its Chief Operating Officer. The agreement grants
to Mr. Laikin compensation of $200,000 per year, which for the Agreement year
ended May 17, 2003 was paid in the form of Series B Preferred stock. According
to the Agreement, the Chief Operating Officer shall have general operational
control of the business and affairs of the Company and reports directly to the
Board of Directors. Mr. Laikin was also granted 100,000 common stock options at
fair market value at date of grant, as part of the Agreement. The employment
agreement has an initial term of one year, but it automatically extends for
successive one year terms threafter unless and until the Board of Directors
elects not to renew the agreement.


                                      F-11
<PAGE>

The Company has entered into an at-will employment agreement with Douglas
Bennett, effective October 14, 2002. Mr. Bennett receives a base salary of
$175,000 per year, effective December 1, 2002. Mr. Bennett is entitled to
calender quarterly bonuses of $31,250, which bonuses are payable in the month
subsequent to the end of calender quarter to which they were granted. Concurrent
with the signing of the Bennett Employment Agrement, Mr. Bennett was granted
options to purchase 135,0000 shares of common stock at the then current market
price, which options vest ratably over a 3 year period. Mr. Bennett is also
entitled to an option grant of 50,000 shares of common stock for the period
January 3, 2003 through June 3, 2003 and an option grant of 50,000 shares of
common stock for the period July 3, 2003 through Decemmber 3, 2003. These
options shall also vest ratably over three year periods and are to be issued at
then current market prices. Upon a change in control of the Company, all
unvested options are to vest immediately.

Litigation. The Company and certain of it officers and directors became
defendants in a lawsuit filed by a former employee. According to the lawsuit,
the former employee is seeking severance of approximately $150,000. The
defendant has named several officers and directors to be deposed, and has
requested materials from the Company as part of discovery. If the lawsuit is
settled quickly the total cost as estimated by the Company's litigators should
be between $100,000 and $150,000. However, if the lawsuit goes to trial, the
likelihood of which can not be determined at this time, the potential cost
according to the Company's litigators may be in the neighborhood of $200,000 to
$250,000 or greater. $150,000 has been included in accrued expenses in relation
to this lawsuit.

Shareholder Rights Plan. On July 15, 1999, the Company's Board of Directors
adopted a Shareholder Rights Plan (the "Rights Plan"). The Rights Plan was
designed to assure that all of the Company's shareholders receive fair and equal
treatment in the event of any proposed takeover of the Company and to guard
against partial tender offers, open market accumulations and other abusive
tactics to gain control of the Company without paying all shareholders a
premium. In connection with such adoption, a dividend was declared of one
preferred share purchase right ("Purchase Right") for each outstanding share of
common stock outstanding on August 5, 1999. Subject to certain exceptions, each
share of common stock issued by the Company subsequent to such date also carried
a Purchase Right.

The Purchase Rights became redeemable upon the Acquisition on May 17,2002.
Subject to certain exceptions, the Purchase Rights were redeemable at a price of
$0.001 per right. Since the amount owed most Rightsholders was less than $1.00,
a letter was sent to all Rightsholders requesting they contact the Company in
order for them to receive the amount they were owed. As of October 15, 2003 none
of the Rightsholders have requested payment.

NOTE D NOTE RECEIVABLE ON COMMON STOCK

On July 14, 1986, James P. Jimirro, the Company's Chairman, President and Chief
Executive Officer purchased 192,000 shares of the Company's common stock for
approximately $115,000. For such shares, the Company received the sum of
approximately $58,000 and a note for approximately $58,000. The Note bears
interest at the rate of 10% per annum and, pursuant to a July 14, 1986 Pledge
and Security Agreement, is secured by the shares purchased. The unpaid principal
and interest outstanding at July 31, 2003 and 2002 was approximately $157,000
and $151,000, respectively.

NOTE E MAJOR CUSTOMERS

During the year ended July 31, 2003, the Company earned revenue from three
significant customers of approximately $695,000 representing 44%, 13%, and 12%
of revenues. During the year ended July 31, 2002, the Company earned revenue
from three significant customers of approximately $694,000 representing 21%,
15%, and 38% of revenues. During the year ended July 31, 2001, the Company
earned revenue from three significant customers of approximately $245,000
representing 41%, 23% and 16% of revenues.

NOTE F STOCKHOLDER EQUITY

On May 17, 2002 the Company and the National Lampoon Acquisition Group (the
"NLAG Group") entered into a Preferred Stock and Warrant Purchase Agreement,
pursuant to which we agreed to sell certain members of the NLAG Group 35,244
units, each such unit consisting of one share of Series B Preferred and a
warrant to purchase 28,169 shares of the Company's common stock at a purchase
price of $3.55 per share prior to the second anniversary of the date of issuance
of the warrant and $5.00 per share thereafter. The 35,244 units sold were valued
at $100 each, with the total amount due to the Company of $3,524,400, reduced by
$450,000 that had been previously paid to the Company in the form of extensions
of a prior letter agreement, and $574,000 which was in the form of an offset for
expenses previously paid by the NLAG that the Company has agreed to pay pursuant
to the Purchase Agreement.

Further as part of the May 17, 2002 Purchase Agreement, the Company amended and
restated the Restated Certificate of Incorporation, as amended, to effect among
other things, the designation of 68,406 shares of the previously authorized
2,000,000 shares of Preferred Stock as Series B convertible Preferred Stock, and
the elimination of Series A Preferred shares as an authorized series of
preferred stock.

During the year ended July 31, 2003, the Company sold an additional 21,500 units
to the NLAG group, under the same terms of the Purchase Agreement, for total
proceeds of $2,115,000.

As discussed in Note C, Mr. Laikin's compensation of $200,000 per year was paid
in the form of Series B Preferred stock.

                                      F-12
<PAGE>

                     NATIONAL LAMPOON, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H INCOME TAXES

The Company's provision for income taxes is as follows:

                                           For the Fiscal Year Ended
                                ================================================
                                July 31, 2003    July 31, 2002     July 31, 2001
                                =============    =============     =============
Federal income taxes                $    0            $    0           $     0
State income taxes                   2,424             1,600             1,600
                                     =====             =====            ======
Provision for income taxes          $2,424            $1,600           $ 1,600
                                     =====             =====            ======


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

                                           For the Fiscal Year Ended
                                ================================================
                                July 31, 2003    July 31, 2002     July 31, 2001
                                =============    =============     =============
Statutory federal income
  tax rate                          (34%)            (34%)             (34%)
State income taxes
Amortization of intangible
  assets                              5%               5%                7%
Other, primarily utilization
  of valuation allowances            29%              29%               27%
                                =============    =============     =============
Effective tax rate                    0%               0%                0%
                                =============    =============     =============


The Company's effective tax rate is lower than the statutory rate due to the
utilization of prior years operating losses not previously benefited.

For federal and state income tax purposes, as of July 31, 2003 the Company has
available net operating loss carryforwards of approximately $6,295,430 and
$4,295,430 respectively (expiring between 2008 and 2016) to potentially offset
future income tax liabilities.

Deferred tax assets result from temporary differences between financial and tax
accounting in the recognition of revenue and expenses. Temporary differences and
carryforwards which give rise to deferred tax assets are as follows:

                                          As of                    As of
                                      July 31, 2003            July 31, 2002
                                  ======================   =====================
Net operating loss carryforwards             4,984,711                2,518,172
Accrued liabilities                            108,740                   75,794
Royalty reserves                                 6,000                    6,000
                                            ==========              ===========
                                             4,984,711                2,599,966
Valuation allowance                         (4,984,711)              (2,599,966)
                                            ==========              ===========
Net deferred tax assets                             --                       --
                                            ==========              ===========

Valuation allowances of $4,984,711 and $2,599,966 were recorded at July 31, 2003
and 2002, respectively, to offset the net deferred tax assets due to the
uncertainty of realizing the benefits of the tax assets in the future.

NOTE I SEGMENT INFORMATION

The Company has adopted SFAS No. 131, Disclosure About Segments of an Enterprise
and Related Information, during the fiscal year ended July 31, 1999 which
changed the way the Company reports information about its operating segments.
The Company operates in three business segments: licensing and exploitation of
the National Lampoon trademark and related properties, operation of the
nationallampoon.com website and video distribution. Segment operating
income/(loss) excludes the amortization of intangible assets, stock appreciation
rights costs, interest income and income taxes. Selling, general and
administrative expenses not specifically attributable to any segment have been
allocated equally between the trademark and Internet segments. Summarized
financial information for the fiscal years ended July 31, 2003, 2002 and 2001
concerning the Company's segments is as follows:


                                      F-13
<PAGE>

<TABLE>
<CAPTION>
                                    Trademark         Consumer Prod      Television         Total
                               ===================  =================   ============ ====================
<S>                                  <C>                 <C>            <C>                  <C>
Year Ended July 31, 2003
    Segment revenue                  $   904,000         $   12,000     $   92,000           $ 1,008,000
    Segment operating loss            (1,239,000)        (2,032,000)     (1,912,00)           (5,183,000)
    Identifiable assets                    5,000             38,000                               43,000
    Capital expenditures
                                                                         6,000                6,000
    Depreciation expense                                                                          19,000
                                      2,000                              17,000
Year Ended July 31, 2002
    Segment revenue                  $   913,000         $   30,000     $                    $   943,000
    Segment operating loss              (940,000)          (776,000)                          (1,716,000)
    Identifiable assets                    7,000                                                   7,000
    Capital expenditures
    Depreciation expense                                      8,000                                8,000
Year Ended July 31, 2001
    Segment revenue                  $   270,000         $   36,000     $                    $   306,000
    Segment operating loss              (210,000)          (769,000)                            (979,000)
    Identifiable assets                                      20,000                               20,000
    Capital expenditures
    Depreciation expense                                      7,000                                7,000
</TABLE>


A reconciliation of segment operating income/(loss) to net income/(loss) before
income taxes for the fiscal years ended July 31, 2003, 2002 and 2001 is as
follows:

<TABLE>
<CAPTION>
                                                                   For the Fiscal Year Ended
                                                    ========================================================
                                                       July 31, 2003        July 31, 2002     July 31, 2001
                                                    ===================  ===================  ==============
<S>                                                        <C>                  <C>             <C>
Segment operating loss                                     $(5,183,000)         $(1,717,000)    $ (979,000)
Amortization of intangible assets                             (781,000)            (240,000)      (240,000)
Stock appreciation rights benefit/(expense)                          -              843,000       (380,000)
Conversion of SARs to stock options                                  -             (140,000)
                                                                                                 -
Other income                                                    32,000              175,000
                                                                                                 -
Interest income                                                  7,000               13,000         56,000
Corporate expenses incurred related to the
change in control of the Company                                     -             (546,000)     (1,533,00
                                                            ==========           ==========      =========
Net income/(loss) before income taxes                      $(5,925,000)         $(1,612,000)    $(3,076,00)
                                                            ==========           ==========      =========
</TABLE>

NOTE I SEGMENT INFORMATION (CONTINUED)

A reconciliation of reportable segment assets to consolidated total assets as of
July 31, 2003 and 2002 is as follows:

<TABLE>
<CAPTION>
                                                          For the Fiscal Year Ended
                                                 ===========================================
                                                   July 31, 2003            July 31, 2002
                                                 ==================       ==================
<S>                                                     <C>                      <C>
Total assets for reportable segments                    $   43,000               $    7,000
Intangible asset not allocated to segments               2,456,000                2,696,000
Cash and cash equivalents                                  140,000                1,024,000
Short-term investments
Other unallocated amounts                                   66,000                   18,000
                                                         =========                =========
Total assets                                            $2,705,000               $3,745,000
</TABLE>


                                      F-14
<PAGE>

NOTE J JOINT VENTURE

The Company is the successor to a 75% interest in a joint venture ("Joint
Venture") established in 1975 for the development and production of the film
National Lampoon's Animal House ("Film"). The current operations of the Joint
Venture consist solely of collecting certain proceeds from the distribution and
exploitation of the Film by the copyright owner. For financial statement
purposes, the Joint Venture has been consolidated and an expense recorded
corresponding to the minority partners interest in the proceeds from the Joint
Venture. The revenue received by the joint venture relating to the Film was
approximately $0, $0, and $71,000 and for the fiscal years ended July 31, 2003,
2002 and 2001, respectively.

NOTE K RELATED PARTY TRANSACTIONS

Bruce P. Vann, one of the Company's directors, is a partner of the law firm
Kelly Lytton &Vann LLP retained by the Company for various legal matters. Legal
expenses of approximately $108,000, $119,000, and $46,000 were incurred with
respect to work performed by Mr. Vann's firm for the Company during the fiscal
years ended July 31, 2003, 2002 and 2001.

See Notes C, D and G to these consolidated financial statements for information
concerning certain transactions between the Company and the Company's Chairman,
President and Chief Executive Officer.

NOTE L SUBSEQUENT EVENTS

We are negotiating a series of agreements with Avalon Equity Partners, Golden
International Group, Tim Durham and Daniel Laikin, which are anticipated to
close by the end of November 2003 (the "November Anticipated Financing
Transaction"). Pursuant to the terms of the November Anticipated Financing
Transaction, Avalon Equity Partners, Golden International Group, Tim Durham and
Daniel Laikin, will invest approximately $8,000,000 (which includes
approximately $2.5 million already loaned to us) in a new series of convertible
preferred stock. The November Anticipated Financing Transaction is subject to
numerous closing conditions, nevertheless, no assurance can be given that the
November Anticipated Financing Transaction will be consummated. Upon receipt of
funding, approximately $1.5 million will be paid to James P. Jimirro as part of
the Reorganization Transaction of May 17, 2002. Upon Mr. Jimirro's receiving
payment he will vacate his offices with the Company, and resign as president.
Mr. Jimirro will retain his position as Chairman of the Board and the
composition of the board will not change until he is paid another $1 million, to
be paid out over the subsequent 12 month period.


                       STATEMENT OF OPERATIONS BY QUARTER
                             NATIONAL LAMPOON, INC.
                                    UNAUDITED

<TABLE>
<CAPTION>
                  July 31,      April 30,    January 31,    October 31,   July 31,      April 30,    January 31,     October 31,
                    2003           2003         2003          2002         2002          2002          2002             2001
                 ============   ===========  ===========    ==========   ===========     =========    ==========    ===============
<S>              <C>            <C>         <C>            <C>         <C>             <C>          <C>           <C>
Net Sales
Gross                460,453       344,914      128,329        74,189       124,519       443,447       222,774            152,747
(Loss)/Profit     (1,880,953)   (1,159,966)  (1,401,106)    (1,618,64)   (1,706,592)     (103,536)      235,119           (225,058)
                 ============   ===========  ===========    ==========   ===========     =========    ==========    ===============
Income (loss)     (1,879,507)   (1,158,520)  (1,305,723)    (1,580,28)   (1,527,232)     (101,726)      238,485           (222,861)
                 ============   ===========  ===========    ==========   ===========     =========    ==========    ===============
Net income
(loss)           $ (1,879,507)  $(1,159,320) $(1,305,723)   $(1,580,28)  $(1,527,232)    $(101,726)   $  238,485    $      (222,861)
                 ============   ===========  ===========    ==========   ===========     =========    ==========    ===============
(Loss)/Earnings
per share        $     (1.24)   $    (0.77) $   (0.90)     $   (1.10)  $     (1.11)    $   (0.07)   $     0.17    $         (0.16)
                 ============   ===========  ===========    ==========   ===========     =========    ==========    ===============
</TABLE>