SB-2

As filed with the Securities and Exchange Commission on March__, 2005

Registration No. 333-_____

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________

FORM SB-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

___________

NATIONAL LAMPOON, INC.

(Name of Small Business Issuer in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)   7812 (Primary Standard Industrial Classification Code Number)   95-4053296 (I.R.S. Employer Identification No.)  

10850 Wilshire Boulevard, Suite 1000

Los Angeles, California 90024

Telephone (310) 474-5252 Facsimile: (310) 474-1219

(Address and Telephone Number

of Principal Executive Offices)

Daniel S. Laikin

Chief Executive Officer

Douglas S. Bennett

President

10850 Wilshire Boulevard, Suite 1000

Los Angeles, California 90024

Telephone: (310) 474-5252 Facsimile: (310) 474-1219

(Name, Address and Telephone Number of Agent for Service)

Copies of communications to:

Mary Ann Sapone, Esq. Richardson & Patel LLP 10900 Wilshire Boulevard, Suite 500 Los Angeles, California 90024 Telephone: (310) 208-1182 Facsimile (310) 208-1154 James Martin Kaplan, Esq. Blank Rome LLP 405 Lexington Avenue New York, New York 10174 Telephone: (212) 885-5371 Facsimile (212) 885-5047

_________________

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)		Amount of Registration Fee
Common stock, par value $0.0001 per share (2)	$	11,500,000	$	1,353.55
Underwriters' warrants to purchase common stock, par value $0.001 per share	$	100		----
Common stock, par value $0.0001 per share, underlying underwriters’ warrants	$	920,000	$	108.28
TOTAL	$	10,320,100	$	1,461.83

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2) Includes ________ shares of common stock which may be purchased by the underwriters to cover over-allotments, if any, and 200,000 shares that are offered by the selling stockholder.

(3) Pursuant to Rule 416 of the Securities Act of 1933, this registration statement also covers such indeterminable number of additional shares of common stock as may be issuable as a result of any future anti-dilution adjustments made in accordance with the terms of the underwriters' warrants.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholder may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion

Dated March _____, 2005

PRELIMINARY PROSPECTUS

 

___________ Shares of Common Stock

This is a public offering of ________ shares of our common stock, $0.0001 par value per share. Of the ________ shares of common stock being sold, _______ shares are being sold by us and 200,000 shares are being sold by the selling stockholder described on page 48 of this prospectus. We will not receive any of the proceeds from the sale of shares by the selling stockholder.

Our common stock is currently traded on the Over-The-Counter Bulletin Board under the symbol “NLPN”. The last reported sale price on March ____, 2005 was $______ per share. We have applied to list our common stock on the American Stock Exchange (“AMEX”) and on the Pacific Stock Exchange (“PSE”) and plan to be so listed concurrently on one of these exchanges with the effectiveness of this offering.

An investment in our securities involves a high degree of risk. You should purchase our securities only if you can afford a complete loss of your investment. See “Risk Factors” beginning at page 8.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Per Share	Total
Public Offering Price (1)	$	$
Underwriting Discounts	$	$
Proceeds to National Lampoon, Inc.(2)	$	$
Proceeds to selling stockholder	$	$

(1) The offering price to the public will be determined by negotiation between National Lampoon, Inc. and The Shemano Group, Inc., the underwriters’ representative.

(2) This figure does not include a non-accountable expense allowance in the amount of 3% of the gross proceeds of this offering and before deducting expenses of this offering which are estimated to be $_____________.

We have granted the underwriters a 45 day option to purchase up to an additional ________ shares of common stock from us to cover over-allotments. The underwriters are offering the shares on a firm commitment basis. The underwriters expect to deliver the shares to purchasers on or about ________________, 2005.

THE SHEMANO GROUP, INC.

 

S.W. BACH & COMPANY

Prospectus dated _________, 2005.

Inside Front Cover

Neither we nor the selling stockholder have authorized anyone to provide you with information different from that contained in this prospectus. These securities may be sold only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the effective date of this offering, regardless of the time of delivery of this prospectus or of any sale of the securities. You must not consider that the delivery of this prospectus or any sale of the securities covered by this prospectus implies that there has been no change in our affairs since the effective date of this offering or that the information contained in this prospectus is current or complete as of any time after the effective date of this offering.

We are not, and the underwriters and the selling stockholder are not, making an offer to sell the securities in any jurisdiction where the offer or sale is not permitted. No action is being taken in any jurisdiction outside the United States to permit a public offering of our securities or the possession or distribution of this prospectus in any such jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside of the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable in that jurisdiction.

PROSPECTUS SUMMARY

This summary highlights information from this prospectus and may not contain all of the information that is important to you. For a more complete understanding of this offering, we encourage you to read this entire prospectus, including our financial statements and the notes to those statements. All references in this prospectus to “National Lampoon”, “we”, “us” or “our” refer to National Lampoon, Inc. and its subsidiaries, National Lampoon Networks, Inc. and National Lampoon Tours, Inc., unless the context otherwise indicates.

NATIONAL LAMPOON, INC.

We are a media and entertainment company that creates and distributes comedic content. The National Lampoon® brand was initially developed in 1970 through publication of National Lampoon Magazine and later through the production of motion pictures, including National Lampoon’s Animal House and National Lampoon’s Vacation. We believe that the National Lampoon® brand is one of the strongest brands in media. Our primary business areas are comprised of:

National Lampoon Networks

National Lampoon Networks develops, produces and distributes comedic television programming. National Lampoon Networks reaches nearly 4.8 million college students in their dormitories and other places of residence through a network of 603 affiliated college and other television stations. For advertisers targeting the young adult audience, National Lampoon Networks sells commercial and field marketing services, such as product sampling and live promotional events hosted on college and university campuses.

Motion Picture and Television Programming

We develop and produce motion pictures and made for television movies and programs. In recent years, we have derived the bulk of our revenues from license fees relating to the production of new motion pictures and from contingent compensation for motion pictures previously produced by us including such movies as National Lampoon’s Animal House and National Lampoon’s Vacation. We do not finance the production or distribution of any National Lampoon® motion pictures. Instead, we rely on third parties to provide motion picture financing and distribution. To date, 20 motion pictures have been released using the National Lampoon® name and three additional motion pictures are planned for release during 2005.

We are involved in the production of television programs for broadcast networks, cable channels, pay-per-view or the syndicated marketplace. We anticipate that television production will continue to be part of our business plan, as we create new comedic content and promote the National Lampoon® trademark.

Licensing

In addition to motion picture and television programming and publishing, we license the National Lampoon® brand and content from our library for use in a wide variety of products including radio broadcasts, recordings, electronic games, videos and live events.

Home Entertainment

We are aggressively expanding into the home entertainment market by repackaging existing material and developing and producing original material for DVD and VHS distribution. We have partnered with unrelated third parties to produce and distribute several new titles in 2005. These products may include shows for broadcast on National Lampoon Networks as well as original National Lampoon® productions.

Publishing

We intend to publish six National Lampoon® books over a three year period. To date, we have released three of these books, 1964 High School Reunion Year Book, National Lampoon’s Book of Love, and National Lampoon’s Big Book of True Facts. We intend to publish the remaining three books by September 2005.

Internet

We use our Internet operations as an integral part of our business to attract fresh comedic content from unrelated writers and contributors. We use this content in the development of stories, characters and animation that will be converted into other media. We also operate a webstore through which consumers can purchase branded items directly from us.

National Lampoon Tours

We recently began to offer group travel and entertainment packages. We intend to achieve a market position in selected high volume, high margin travel destinations that appeal to college students. We initially prepared packages for Cabo San Lucas, Mexico and Las Vegas. The packages include professional entertainment, theme parties and other attractions for young adults. We market these travel packages directly through National Lampoon Networks, our website and third party agents.

Our Revenue Sources

The sources of revenue from our business areas include:

·   NATIONAL LAMPOON NETWORKS. We earn revenues from the sale of on-air advertising and from marketing fees earned through product sampling, promotional events and other live events.

·   MOTION PICTURE AND TELEVISION PROGRAMMING. We earn revenues based on gross revenue, profit participation and licensing fees, which vary from project to project.

·   LICENSING. We earn revenues based on royalties generated from licensing the National Lampoon® brand.

·   HOME ENTERTAINMENT. We earn revenues based on royalties from the sale and rental of our branded comedic content on DVD and VHS videotape.

·   PUBLISHING. We earn revenues based on royalties generated from the sale of our print products.

·   INTERNET. We generate revenues from our website from the sale of banner ads, e-commerce, sponsorships, syndication of content originally developed for our website and the sale of branded merchandise.

·   NATIONAL LAMPOON TOURS. We anticipate that we will earn revenues from the sale of travel packages which are oriented to young adults and marketed on college campuses and through our website.

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Strategic Objectives

We seek to continue to provide National Lampoon® comedic content and products to as many consumers as possible by

·   continuing to expand National Lampoon Networks by adding new college and university affiliate stations, increasing advertising and marketing revenue and producing new television shows;

·   expanding our video and DVD library by increasing the number of products we produce and have distributed for home entertainment;

·   capitalizing on our reputation and relationships with major studios and other multimedia companies to expand the use of the National Lampoon® brand;

·   creating new licensing opportunities in markets outside of publishing, film and television, such as games, records, radio programming and live events;

·   expanding the number of college students purchasing travel packages created by National Lampoon Tours, and

·   capitalizing on opportunities provided by the Internet to merchandise our home entertainment and other products.

Corporate Information

We maintain our principal offices at 10850 Wilshire Boulevard, Suite 1000, Los Angeles, California 90024. Our telephone number at that address is (310) 474-5252 and our facsimile number is (310) 474-1219. Our web address is nationallampoon.com. Information included on our website is not part of this prospectus.

Information Related to Stock Split

On September 15, 2004 we effected a 2-for-1 split of our common stock. Unless otherwise indicated, all discussions included in this prospectus relating to the outstanding shares of our common stock, including common stock to be issued upon the conversion of our Series B and Series C Convertible Preferred Stock and upon the exercise of outstanding warrants and options, refer to post-split shares.

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THE OFFERING

Common stock offered by us	_______ shares
Common stock offered by the selling stockholder	200,000 shares
Common stock outstanding before the offering	3,343,311 shares
Common stock outstanding after the offering	________ shares. This number of shares does not include: ________ shares of common stock reserved for issuance upon the exercise by the underwriters of the over-allotment option, 3,583,491 shares of common stock issuable upon conversion of our Series B Convertible Preferred Stock, 3,583,491 shares of common stock underlying currently outstanding warrants issued in connection with the sale of our Series B Convertible Preferred Stock, 4,595,220 shares of common stock issuable upon conversion of our Series C Convertible Preferred Stock, 2,297,610 shares of common stock underlying currently outstanding warrants issued in connection with the sale of our Series C Convertible Preferred Stock, 822,002 shares of common stock reserved for issuance upon exercise of warrants, 3,713,206 shares of common stock that may be issued upon the exercise of options granted from the J2 Communications Amended and Restated 1999 Stock Option, Deferred Stock and Restricted Stock Plan, from a total 5,000,000 shares reserved for issuance, of which 179,599 shares have been issued and are outstanding, and 1,000,000 shares of common stock reserved for issuance from the National Lampoon, Inc. 2004 Consultant Stock Plan. No shares have been issued from this plan.

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We currently intend to use the net proceeds of this offering for:	payment of a loan plus accrued interest; National Lampoon Networks television programming; expansion of sales and marketing; upgrades of capital equipment; and working capital. You should read the discussion under the heading “Use of Proceeds” for more information about the way the proceeds of this offering will be used. We will not receive any of the proceeds from the sale of shares by the selling stockholder.
Risk factors	See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.
Proposed American Stock Exchange or Pacific Stock Exchange Symbol	[ ]

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SUMMARY FINANCIAL INFORMATION

In the table below, we provide you with historical selected consolidated financial data for the two years ended July 31, 2004 and 2003, derived from our audited consolidated financial statements included elsewhere in this prospectus. We also provide the below financial data for, and as of the end of, the first fiscal quarters of 2005 and 2004, derived from our unaudited financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of the results that may be expected for any future period. When you read this historical selected financial data, it is important that you read along with it the historical consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

Our pro forma, unaudited balance sheet data for the quarter ended October 31, 2004 gives effect to delete the sale and issuance of units consisting of our Series C Convertible Preferred Stock and warrants for our common stock. This offering was completed in December 2004. Between November 1, 2004 and December 9, 2004 we issued 96,593 units of Series C Convertible Preferred Stock with warrants attached which resulted in the following:

·   the receipt of $427,056 in cash;

·   conversion of debt plus accrued interest in the amount of $2,660,275; and

·   accrued salaries and expenses totaling $271,548.

The summary unaudited pro forma financial data is not necessarily indicative of the results that would have occurred had these transactions been consummated as of the beginning of the period presented.

	Fiscal Year Ended July 31, (audited)						Three Months Ended October 31, (unaudited)
	2004			2003			2004			2003
Statements of Operations Data:
Revenues	$	1,921,564		$	1,007,884		$	666,935		$	272,929
Costs and Expenses		7,051,576			7,068,550			2,556,940			1,623,587
Operating Loss		(5,130,012	)		(6,060,666	)		(1,890,005	)		(1,350,658	)
Other Income (Expense)		5,762			39,254			1,440			1,440
Minority Interest		--			99,000			--			--
Loss Before Income Taxes		(5,124,250	)		(5,922,412	)		(1,888,565	)		(1,349,218	)
Net Loss	$	(5,127,107	)	$	(5,924,836	)	$	(1,894,734	)	$	(1,351,618	)
Per Common Share Data:
Loss per share basic and diluted	$	(1.67	)	$	(2.01	)	$	(1.05	)	$	(0.44	)
Weighted Average Number of Common Shares Basic and Diluted		3,063,674			2,950,312			3,072,284			3,054,190

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	July 31, 2004			October 31, 2004 (unaudited)
				Actual(1)			Pro Forma(1)
Balance Sheet Data:
Current Assets	$	77,284		$	1,685,954		$	2,113,010
Total Assets		2,505,698			3,977,646			4,404,702
Current Liabilities		6,861,256			4,561,598			1,629,773
Total Liabilities		6,861,256			4,561,598			1,629,773
Stockholder (Deficit) Equity		(4,355,558	)		(583,952	)		2,774,927
Accumulated Deficit		(20,943,951	)		(24,176,491	)		(24,176,491	)

(1) The pro forma information does not give effect to:

·   bonus compensation in the amount of $220,000 paid with units of Series C Convertible Preferred Stock;

·   a loan in the amount of $2,700,000 received from N. Williams Family Investments, L.P. on January 28, 2005; and

·   the payment on January 28, 2005 of a cash severance benefit in the amount of $2,523,800 to James P. Jimirro.

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RISK FACTORS

This offering involves a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus, including our financial statements and the notes to those statements, before you purchase our common stock. The risks and uncertainties described below are those that we currently believe may materially affect our company. Additional risks and uncertainties may also impair our business operations. If the following risks actually occur, our business, financial condition and results of operations could be seriously harmed, the trading price of our common stock could decline and you could lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS OPERATIONS

We have incurred losses in the past and losses may continue, which could result in a decline in the value of our securities and a loss of your investment.

We sustained a net loss of $5,127,107 for the fiscal year ended July 31, 2004 and a net loss attributable to common stockholders of $3,232,543 for the three months ended October 31, 2004. We cannot assure you that we will achieve operating profits in the future.

We may be unable to meet our future capital requirements. If we are unable to raise capital as we need it, we may have to curtail our operations.

Our capital requirements have been and will continue to be significant. In order to fund shortages of capital during the past two fiscal years, we have borrowed money from our major stockholders and sold our securities. We anticipate that the proceeds from this offering, together with our currently available cash and our anticipated cash flow from operations, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least 24 months following this offering. However, if opportunities permit us to expand more rapidly than we have planned or if our working capital needs or our capital expenditures exceed our current expectations, we will be required to raise additional capital.

If we need money in the future and we are unsuccessful in finding financing, we may be required to severely curtail our operations, which would have a material, adverse affect on our business.

We may be unable to continue as a going concern in which case our securities will have little or no value.

Our independent auditor has noted in its report concerning our financial statements as of July 31, 2004 that we have incurred substantial losses for the last four years and our current liabilities exceeded our current assets, which raised substantial doubt about our ability to continue as a going concern. In the event we are not able to continue operations you will likely suffer a complete loss of your investment in our securities. See the auditors’ report on our consolidated financial statements elsewhere in this prospectus.

Our revenues and results of operations vary from quarter to quarter. If we fail to project accurately and experience significant revenue shortfalls, we could be forced to discontinue a portion or all of our operations.

Our revenues and results of operations depend to a significant degree upon the timing and receipt of revenue from licensing, production fees and distribution of motion pictures and television programming. While most of our licensing fees are paid immediately upon entering into the license agreements, some are deferred until the licensor’s production costs are recouped. Production fees are not earned until the production is begun and expenses related to the production are incurred. Furthermore, motion pictures often have long production cycles, making it difficult to predict when they will be completed and released for distribution. All of these factors make it difficult to predict with certainty when revenues might be received. Results in any particular quarter may not be indicative of results in subsequent periods. If, because of the variance in our quarterly operating results, we fail to plan or project accurately, we could be subject to unexpected revenue shortfalls. If we were unable to find financing to cover the revenue shortfalls, we could have to discontinue a portion or all of our operations for some period of time or even indefinitely.

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We enter into agreements to develop ideas and properties, however, we may decide to abandon a project rather than to complete the development of it..

We pursue the acquisition of ideas and properties for original production from a number of sources. For example, we may develop internally a new property based on an existing public domain property or create or acquire an entirely new idea. Oftentimes, we enter into agreements with third parties to develop these ideas and properties. After we start development, we may determine that the project is too costly to develop or not suited to our purposes, in which case we may abandon the project. We cannot assure you that we will develop every project we acquire.

Competition in the entertainment industry is intense for many reasons, including the fact that the industry is dominated by multi-national, multi-media conglomerates. Because of our lack of money and other resources, we may not be able to compete successfully with other producers of entertainment.

The entertainment industry is intensely competitive and is 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. Virtually all of these competitors are substantially larger than we are, have been in business longer than we have and have more resources, including money, contacts and personnel, at their disposal. These competitors have numerous advantages over us, including the ability to acquire financing for their projects and attract superior properties, personnel, actors and/or celebrity hosts.

In spite of the strength of our brand, we may not be able to compete successfully in the entertainment industry because of our lack of resources. If we cannot compete successfully, our business and operating results will be adversely affected.

We depend on the National Lampoon® trademark and related properties for a significant portion of our revenues. Any erosion of our brand could have a material adverse effect on our business.

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 material 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 in 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.

In recent years, there has been significant litigation in the United States involving intellectual property rights. We may become a party to litigation in the future to protect our intellectual property rights or as a result of the alleged infringement of someone else’s 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 requiring us 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 management’s attention from our business and materially adversely affect our financial condition and results of operations

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We depend on the services of Daniel S. Laikin and Douglas S. Bennett. If we were to lose the services of either of these individuals, it could have a material, adverse effect on our business.

We are dependent upon the services of Daniel S. Laikin and Douglas S. Bennett. The loss of their services could have a material adverse effect on our business, results of operations and financial position. We do not carry key-person life insurance on these individuals. Upon the completion of this offering, we intend to purchase key person life insurance to insure us against the loss from death of either of these individuals. The amount of the insurance will be $1,000,000 for each individual.

We depend on a small number of relationships for most of our revenues. If we were to lose these relationships, it could have a material adverse effect on our business and results of operations.

We depend on a limited number of relationships to generate a significant portion of our revenues. Revenues from our three most significant relationships, Warner Bros., The Trouble With Frank and AMC Entertainment Inc., accounted for approximately $773,000 in revenues earned during the fiscal year ended July 31, 2004, representing 16%, 14%, and 10%, respectively, of total revenues. The remaining 60% of revenues was derived from a number of other relationships, none of which accounted for more than 10% of total revenues. For the fiscal year ended July 31, 2003, Warner Bros., Universal, and Gary Hoffman Productions collectively accounted for approximately $695,000 in revenues earned, representing 44%, 13% and 12% of total revenues. We expect to continue to be dependent upon a relatively small number of relationships for a majority of our revenue in the near term. If we are not successful in maintaining these relationships, or in finding other relationships like these, our business and results of operations will suffer.

Termination of our agreement with The Harvard Lampoon, Inc. would adversely affect our business and results of operations.

We license the use of the name “National Lampoon®” from Harvard Lampoon, Inc. pursuant to an agreement we originally entered into on October 8, 1969. Pursuant to this agreement, as it was amended and restated on October 1, 1998, we would lose our right to use the mark if, for a period of 12 consecutive months, we failed to be actively engaged in good faith efforts to produce or to market our products and services. Loss of the use of the mark would have a material adverse effect on our business and results of operations.

Dependence on a limited number of projects.

A portion of our revenues are generated from a limited number of films, television programs, and other projects that change from period to period. Projects vary from period to period due to the opportunities available to us and to audience response, both of which are unpredictable and subject to change. The loss or failure of a major project, unless replaced by other projects, could have a material adverse effect on our results of operations and financial condition as well as on the market price of our securities. There is no assurance that any project we release will be successful.

Failure to attract and retain qualified personnel may adversely affect our business.

We believe that our performance and future success will depend in large part upon our ability to attract and retain additional highly skilled creative, technical, sales, marketing and financial personnel, especially those with experience in the television industry. If we do not succeed in attracting skilled personnel or in retaining our current personnel, our business could be adversely affected. Competition for such individuals, especially creative and technical talent, is intense. We have in the past experienced, and expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications.

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RISKS RELATED TO NATIONAL LAMPOON NETWORKS, INC.

If National Lampoon Networks, Inc. is not successful in increasing its advertising revenues, it may not be able to operate profitably.

Our fiscal year ends on July 31st. During the first quarter of the 2005 fiscal year, which ended on October 31, 2004, advertising and promotion revenues earned by our subsidiary, National Lampoon Networks, Inc., accounted for approximately 67% of all the revenues we earned. National Lampoon Networks, Inc. earns advertising revenues through on-air advertising during its programming as well as through live promotional events and field marketing, such as product sampling. Our plan is to increase our revenues by increasing National Lampoon Networks’ programming and expanding its network. If National Lampoon Networks, Inc. is unable to increase its programming and expand its broadcasting network as planned, it may not be able to operate profitably.

National Lampoon Networks, Inc. depends on a limited number of advertisers. The loss of a significant portion of these advertisers could adversely affect its advertising revenues.

We anticipate that National Lampoon Networks’ operating results will continue to depend to a significant extent upon revenues from a small number of advertisers. There may be little or no continuity in advertisers from period to period because few advertisers are contractually obligated to renew their advertising contracts or to purchase set amounts of advertising in the future. As a result, the failure of National Lampoon Networks, Inc. to renew advertising contracts, to replace advertisers who do not choose to continue advertising on the network or to sell its expected minimum number of advertisements could adversely affect our advertising revenues.

Sales cycles vary for advertising and may cause our revenues for one or more quarterly periods to be adversely affected.

Advertisers have their own budgetary cycles that, very often, do not coincide with National Lampoon Networks’ schedule. The advertisers' sales cycles for advertising may vary significantly. The time between the date of initial contact with a potential advertiser or sponsor and receipt of a purchase order may range from as little as six weeks to up to nine months. In addition, during these sales cycles, we may expend substantial funds and management resources but not generate advertising revenues. Therefore, if these sales are delayed or do not occur, our revenues for one or more quarterly periods may be adversely affected.

Aside from budgetary cycles, our receipt of advertising revenues may be delayed due to things over which we have little or no control, including the following:

·   advertisers’ budgetary constraints;

·   the timing of completion of advertisements by advertisers; and

·   the possibility of cancellation or delay of projects by advertisers or sponsors.

Tracking and measurement standards for advertising are evolving and create uncertainty with advertisers, which may lead to a decrease in advertising revenues.

The absence or insufficiency of advertising measurement standards could adversely impact our ability to attract and retain advertisers. There are currently few well-established advertising measurement standards, and the industry may need to standardize these measurements. We cannot assure you that standardization will occur.

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It is important to our advertisers that we accurately measure the demographics of our user base and the delivery of advertisements on our network. We depend on third parties to provide certain of these measurement services. If they are unable to provide these services in the future, we would need to perform them ourselves or obtain them from another provider, if available. This could cause us to incur additional costs or cause interruptions in our business during the time we are replacing these services. Companies may choose to not advertise on our network or may pay less for advertising if they do not perceive our measurements or measurements made by third parties to be reliable.

In order to be successful, National Lampoon Networks must manage its growth. If growth is not managed successfully, it could have a material adverse effect on our operations.

We are planning to expand National Lampoon Networks’ operations by expanding its broadcast network. If we are successful in expanding National Lampoon Networks’ business, it will be exposed to greater overhead, marketing and support costs and other risks associated with expansion. To manage its growth effectively, National Lampoon Networks must improve and expand its general operations and hire and manage additional personnel. We cannot assure you that National Lampoon Networks, Inc. will be able to effectively do this. If growth is not effectively managed, our business and operations may be materially adversely affected.

Failure to continue to develop content that attracts National Lampoon Networks’ targeted audience or a decline in the strength of the National Lampoon® brand could cause a decrease in the size of the audience or it could change the demographics of the audience, resulting in a loss of advertising revenues.

The future success of National Lampoon Networks depends on its ability to continue to develop or license content that is interesting and engaging to its targeted audience, which is primarily comprised of young adults. In addition, the success of its business will depend, to a large extent, upon the continued brand strength of the National Lampoon® trademarks and associated logos. The strength of these brands will depend, among other things, upon continued promotion of the brands by National Lampoon Networks. If the young adult audience determines that National Lampoon Networks’ content does not reflect its tastes, or if the tastes of the young adult audience change and we do not react to those changes effectively or in a timely manner, or if our brands become less appealing to young adults, then audience size could decrease or the demographic characteristics of the audience could change. Any such occurrence would adversely affect the ability of National Lampoon Networks to attract advertisers and may also negatively impact our revenues.

If a significant amount of comedic content developed by third parties is not available to us on favorable terms or at all, it could adversely affect our business.

Because much of National Lampoon Networks’ content is provided by third parties at minimal or no charge, we depend on our good relations with our content providers to offer content that we believe appeals to National Lampoon Networks’ audience. Some of our content providers are also competitors, and in the future may decide to limit our access to content or change prices or demand terms that are unfavorable or discriminatory. Neither we nor National Lampoon Networks have long-term contracts with our content providers, and we cannot assure you that they will continue to make their content available to us on reasonable terms or at all. If content providers charge significant fees for their content or otherwise alter or discontinue their relationships with us or with National Lampoon Networks, it would adversely affect our business and competitive position.

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RISKS RELATED TO NATIONAL LAMPOON TOURS, INC.

National Lampoon Tour faces considerable competition in the travel services market and may be unable to gain a competitive position in that market.

The travel services market is highly competitive and has relatively low barriers to entry. National Lampoon Tours competes primarily with other vacation providers, online travel reservation services, travel agencies and other distributors of travel products and services. Many of its competitors have competitive advantages such as greater brand recognition, longer operating histories, larger customer bases, greater financial, marketing and other resources and the ability to secure products and services from travel suppliers with greater discounts and on more favorable terms than we can.

Some travel providers have a strong presence in particular geographic areas, which may make it difficult for us to attract customers in those areas. If National Lampoon Tours cannot compete successfully, its business and operating results will be adversely affected.

National Lampoon Tours will be affected by a number of factors, any of which could have a material adverse effect on its business, financial condition and results of operations.

National Lampoon Tours’ results of operations will be dependent upon factors generally affecting the travel industry, such as political instability, armed hostilities, international terrorism, extreme weather conditions, a rise in fuel prices, labor disturbances, excessive inflation, a general weakening in economic activity and reduced employment in the United States. These types of events could have a material adverse effect on the business, financial condition and results of operations of National Lampoon Tours.

National Lampoon Tours may not have enough insurance to cover all of the risks it faces.

In accordance with customary industry practices, National Lampoon Tours maintains insurance coverage against potential losses incurred by travel participants. However, National Lampoon Tours may not be adequately insured against such claims. The occurrence of an event not fully covered by insurance could have a material adverse effect on National Lampoon Tours’ financial condition and results of operations.

INVESTMENT RISKS

Certain events could result in a dilution of your ownership of our common stock.

We have the equivalent of 21,938,331 shares of common stock outstanding, consisting of 3,343,311 shares of common stock, 3,583,491 shares issuable upon conversion of outstanding shares of Series B Convertible Preferred Stock, 3,583,491 shares issuable upon exercise of warrants issued in conjunction with the sale of our Series B Convertible Preferred Stock, 4,595,220 shares issuable upon conversion of outstanding shares of Series C Convertible Preferred Stock, 2,297,610 shares issuable upon exercise of warrants issued in conjunction with the sale of our Series C Convertible Preferred Stock and 4,535,208 shares of common stock issuable upon exercise of outstanding warrants and options.

Furthermore, dividends accrue on our Series B and Series C Preferred Stock at the rate of 9% per annum and will be paid with our common stock. Dividends accrue on each share of the Series B and Series C Convertible Preferred Stock until the earlier of the date that the Series B or Series C Convertible Preferred Stock is redeemed, the date of a liquidation event, or the date on which such share of Series B or Series C Convertible Preferred Stock is converted. The number of shares of common stock to be issued is computed using the closing price of the common stock, as reported by the exchange or regulated quotation service on which our common stock is traded, on the trading date immediately preceding the date that we become liable to pay the dividend. If no trades were made on that date, then the number of shares to be issued will be computed using the closing price of the last date on which trades were made and reported. As of February 2, 2005, dividends totaling $463,251 had accrued on our Series B and Series C Convertible Preferred Stock which, if payable as of that date, would have required us to issue 110,298 shares of common stock, based on a closing price of $4.20 per share on February 1, 2005 as reported by Yahoo! Finance. We also currently have 56,656,689 shares of common stock that are authorized but unissued, however, of that amount 8,178,711 shares are reserved for issuance upon the conversion of our Series B and Series C Convertible Preferred Stock, 5,881,101 shares are reserved for issuance upon the exercise of the warrants granted in conjunction with the sale of our Series B and Series C Convertible Preferred Stock and 4,535,208 shares are reserved for issuance upon the exercise of outstanding warrants and options. We may issue additional shares of common stock in private or public transactions to raise funds for working capital or other purposes. If we issue additional common stock (including for the payment of dividends) or if outstanding warrants or options are exercised, the number of outstanding shares of our common stock would increase and dilute your percentage ownership of our common stock.

13

You will experience immediate and substantial dilution in the net tangible book value of the shares of common stock you purchase in this offering.

The per share price of our common stock will be substantially higher than the pro forma net tangible book value of the common stock as of October 31, 2004. Therefore, if you purchase shares in this offering, you will suffer immediate and substantial dilution. If the underwriters exercise their over-allotment option, or if outstanding options or warrants to purchase our common stock are exercised, you will experience additional dilution. See “Dilution” on page 21 for more information.

We have the ability to issue additional shares of our common stock and shares of Preferred Stock without asking for stockholder approval, which could cause your investment to be diluted.

Our Articles of Incorporation currently authorize the Board of Directors to issue up to 60,000,000 shares of common stock and up to 2,000,000 shares of Preferred Stock. The power of the Board of Directors to issue shares of common stock, Preferred Stock or warrants or options to purchase shares of common stock or Preferred Stock is generally not subject to stockholder approval. Accordingly, any additional issuance of our common stock, or Preferred Stock that may be convertible into common stock, may have the effect of diluting your investment.

By issuing Preferred Stock, we may be able to delay, defer or prevent a change of control.

Our Certificate of Incorporation permits us to issue, without approval from our stockholders, a total of 2,000,000 shares of Preferred Stock. To date, we have issued 63,607 shares of Series B Convertible Preferred Stock and 229,761 shares of Series C Convertible Preferred Stock. The holders of our Series B and Series C Convertible Preferred Stock are entitled to vote with the holders of our common stock on all matters submitted to the stockholders for approval. However, the holders of the Series B and Series C Convertible Preferred Stock vote on an “as converted” basis, which means that they vote as if their Preferred Stock had been converted into common stock. If all the Series B and Series C Convertible Preferred Stock outstanding was converted into common stock, it would represent 8,178,711 shares of common stock. As of the date of this prospectus, the holders of our Preferred Stock represent a majority of our voting stock and can determine the outcome of matters submitted to our stockholders for approval.

Our Board of Directors can also determine the rights, preferences, privileges and restrictions granted to, or imposed upon, the remaining shares of Preferred Stock and to fix the number of shares constituting any series and the designation of such series.It is possible that our Board of Directors, in determining the rights, preferences and privileges to be granted when the Preferred Stock is issued, may include provisions that have the effect of delaying, deferring or preventing a change in control, discouraging bids for our common stock at a premium over the market price, or that adversely affect the market price of and the voting and other rights of the holders of our common stock.

Our officers and directors have voting control. Together, they could make decisions that benefit themselves, but that do not benefit other stockholders.

Our officers and directors, together, beneficially own approximately 60.92% of our outstanding common stock (which includes options and warrants that may be exercised for common stock and Series B and Series C Convertible Preferred Stock that may be converted to common stock). As a result these persons, acting together, will have the ability to control substantially all matters submitted to our stockholders for approval (including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets) and to control our management and affairs. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, impeding a merger, consolidation, takeover or other business combination involving us or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, even if it would be in the best interests of the remaining stockholders.

14

Stockholders having voting control are parties to a Voting Agreement that establishes the method by which directors are nominated to serve. During the term of the Voting Agreement, directors will be nominated only in accordance with its terms.

On May 17, 2002, holders of our Series B Convertible Preferred Stock and James P. Jimirro, our former Chief Executive Officer and President and a current member of our Board of Directors, entered into a Voting Agreement. The Voting Agreement will terminate 13 months following the date of Mr. Jimirro’s separation from service, which occurred on January 28, 2005. During the term of the Voting Agreement, Mr. Jimirro is entitled to nominate three directors to the Board of Directors and Daniel S. Laikin, our Chief Executive Officer, is entitled to nominate three directors. The seventh member of our Board of Directors must be mutually nominated by Mr. Jimirro and Mr. Laikin. The parties to the Voting Agreement, who collectively have voting control, have agreed to vote for those persons nominated by Mr. Jimirro and Mr. Laikin.

Our stock price is volatile.

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:

·   our developing business;

·   a continued negative cash flow;

·   relatively low price per share;

·   relatively low public float;

·   variations in quarterly operating results;

·   general trends in the industries in which we do business;

·   the number of holders of our common stock; and

·   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.

15

We have not paid cash dividends and it is unlikely that we will pay cash dividends in the foreseeable future.

We plan to use all of our earnings, if any, to fund our operations. We do not plan to pay any cash dividends in the foreseeable future. We cannot guarantee that we will, at any time, generate sufficient surplus cash that would be available for distribution as a dividend to the holders of our common stock. You should not expect to receive cash dividends on our common stock.

Management will have broad discretion in allocating the proceeds received from this offering. You may not approve of the ways in which management allocates those proceeds. If management fails to effectively use the proceeds from this offering, it could have a material adverse effect on our business and financial condition.

We expect to use the net proceeds of this offering primarily to develop our business and to sustain our general operations, as discussed in this prospectus. However, the description of how we may allocate the proceeds from this offering is only an estimate. Management is retaining broad discretion as to the allocation of the proceeds we receive from this offering. You may not approve of the uses to which management allocates the proceeds. Management’s failure to effectively use the proceeds could have a material adverse effect on our business and financial condition. See the discussion in this prospectus titled, “Use of Proceeds”.

We are subject to the penny stock rules and these rules may adversely affect trading in our common stock.

Our common stock is a “low-priced” security under rules promulgated under the Securities Exchange Act of 1934. In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock, the customer’s rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions probably decreases the willingness of broker-dealers to make a market in our common stock, decreases liquidity of our common stock and increases transaction costs for sales and purchases of our common stock as compared to other securities.

An active trading market for our securities may not be developed or sustained which could limit the liquidity of an investment in our securities.

There is a limited trading market for our common stock. Since March 24, 2002, our common stock has been traded on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities. During the 30 trading days ended February 14, 2005, the average daily trading volume of our common stock was 2,040 shares. As of the date of this prospectus, we had approximately 700 holders of our common stock. We have submitted an application to list the common stock offered by this prospectus, together with the common stock currently trading on the OTC Bulletin Board, on the American Stock Exchange and the Pacific Stock Exchange as of the effective date of this offering. However, there can be no assurance that our securities will be accepted for listing on the American Stock Exchange or the Pacific Stock Exchange. There is no assurance that, in the event the securities offered by this prospectus are listed for trading on the American Stock Exchange or the Pacific Stock Exchange, we will be able to continue to meet the listing requirements or that our securities will remain listed on the American Stock Exchange or the Pacific Stock Exchange. If we are delisted from the American Stock Exchange or the Pacific Stock Exchange, our common stock would likely be subject to the penny stock rules of the SEC, which generally have the effect of reducing the level of trading activity for stock. An investor could find it more difficult to dispose of, or to obtain accurate quotation as to the market value of, our securities and it may be difficult for us to qualify our securities for sale in various states, impairing you ability to sell your securities. Regardless of which exchange our securities may trade on, an active and liquid trading market may not develop or, if developed, may not be sustained, which could limit the ability of our security holders to sell our securities at a desired price.

16

The representative has limited experience as a managing underwriter, which may adversely affect the size of any trading market for our securities and adversely affect their price.

Although certain officers of the representative of the underwriters have experience working on public offerings and other corporate finance matters, the representative has limited experience serving as a managing underwriter. The Shemano Group, Inc. began to underwrite firm commitment offerings in October 2003 and has completed 3 public offerings prior to this offering. Since the representative's experience in underwriting a firm commitment public offering is limited, there can be no assurance that the lack of experience will not adversely affect the trading market for our securities.

A large number of our shares of common stock may be sold in the market following this offering which could cause the prices of our securities to decline.

Sales of a substantial number of shares of our common stock in the public markets, or the perception that these sales may occur, could cause the market price of our common stock to decline. After this offering, we will have ________ shares of our common stock outstanding (excluding shares of our common stock issuable upon conversion of any of the Series B and Series C Convertible Preferred Stock, exercise of the warrants attached thereto, payment of the dividends accrued thereon, and the exercise of any other options or warrants outstanding), or ________ shares if the underwriter’s over-allotment is exercised in full. We anticipate ________ of the shares will be eligible for public trading. These shares will be freely tradeable without restriction or further registration under the federal securities laws unless purchased by our affiliates.

Assuming that no common stock is issued for the payment of dividends and that there is no exercise of options or warrants that are outstanding as of the effective date of this offering, ________ shares are subject to contractual lockup agreements with the representative of the underwriters pursuant to which the holders of the shares have agreed not to sell their shares for one year after the completion of this offering. Of these shares, unless held by “affiliates,” ________ will be freely tradable after ________.

17

CAUTIONARY STATEMENT REGARDING

FORWARD LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements are not historical facts, but rather are based on our current expectations, estimates and projections about our industry, our beliefs and assumptions. Words including “may,” “could,” “would,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “seeks,” “estimates” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which remain beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties are described in “Risk Factors” and elsewhere in this prospectus. We caution you not to place undue reliance on these forward-looking statements, which reflect our management’s view only as of the date of this prospectus. We are not obligated to update these statements or publicly release the results of any revisions to them to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events.

18

USE OF PROCEEDS

Assuming a price per unit of $_____, the gross proceeds of this offering will be approximately $8,000,000. After deducting the estimated underwriting discount of $_____________, a non-accountable expense allowance of $________, and other estimated offering expenses payable by us of $___________, the net proceeds to us from this offering will be approximately $7,050,000. If the underwriters exercise the over-allotment option in full, we estimate the net proceeds to us will be $___________.

We currently intend to use the net proceeds as follows:

Use	Amount		Percentage
Payment of loan plus accrued interest	$	2,747,000		39	%
National Lampoon Networks television programming	$	500,000		7	%
Expansion of sales and marketing	$	350,000		5	%
Upgrades of capital equipment	$	100,000		1	%
Working capital	$	3,353,000		48	%

On January 28, 2005 we borrowed the sum of $2,700,000, which accrues interest at the rate of 7% per year. The maturity date of the loan is the earlier of January 28, 2006 or the date we close an offering in which the gross cash proceeds to us equal or exceed $2,700,000. (We are required to prepay the loan to the extent of any proceeds we receive from any equity offering raising less than $2.7 million.) The lender may also demand that the loan be immediately repaid if we default in our obligations under the promissory note. The amount of $2,523,800 from the loan proceeds was used to pay severance benefits to James P. Jimirro, the Chairman of our Board of Directors and our former Chief Executive Officer and President. The remaining proceeds were used for working capital.

We intend to expand the television programming we offer on National Lampoon Networks from four hours per week to eight hours per week. In conjunction with the expansion of National Lampoon Networks’ television programming, we intend to increase our sales and marketing personnel to recruit additional advertisers.

We frequently evaluate acquisition or joint venture opportunities and, at any given time, may be in various stages of due diligence or preliminary discussions with respect to a potential transaction. From time to time, we may enter into non-binding letters of intent, but we are not currently subject to any definitive agreement with respect to any transaction. However, if we enter into an acquisition or joint venture transaction in the future, it may reduce the amount of funds available for working capital.

We anticipate that our existing cash and the net proceeds of this offering will be sufficient to fund our operations and capital requirements for at least 24 months following this offering. We cannot assure you, however, that such funds will not be expended earlier due to circumstances that we cannot foresee. In the event our plans change or our assumptions change or prove to be inaccurate, we could be required to seek additional financing sooner than currently anticipated.

Pending final use, we may invest the net proceeds of this offering in short-term, investment grade, interest-bearing securities or guaranteed obligations of the United States or its agencies.

The above information represents our best estimate of the use of proceeds from this offering, based upon the current status of our business. We cannot specify with certainty all of the particular uses for the net proceeds that we may receive upon completion of this offering, as the actual allocation will depend upon the licensing or other business opportunities that arise, the amount of our future revenues, any change or inaccuracy in our assumptions about our business or future operations and other factors, some of which are described in the section of this prospectus titled “Risk Factors”. With the exception of the loan payment discussed above, management retains the right to use the net proceeds of this offering differently than as set forth herein.

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CAPITALIZATION

The following table sets forth capitalization as of October 31, 2004:

·   on an actual basis;

·   on a pro forma basis after giving effect to the issuance, between November 1, 2004 and December 9, 2004, of 96,593 units of Series C Convertible Preferred Stock with warrants attached which resulted in the following: (i) the receipt of $427,056 in cash, (ii) conversion of debt plus accrued interest in the amount of $2,660,275, and (iii) payment of accrued salaries and expenses totaling $271,548; and

·   on a pro forma basis as adjusted basis after giving effect to (i) the completion of this offering with a sale of ________ shares of common stock and net proceeds of $7,050,000 and (ii) the payment of all principal and accrued interest owed to N. Williams Family Investments, L.P.

Pro forma and pro forma as adjusted information does not give effect to the issuance of 6,197 units of Series C Convertible Preferred Stock with warrants attached having a value of $220,000 that were issued as bonus compensation to employees on December 9, 2004 and the cash severance payment made to James P. Jimirro on January 28, 2005 in the amount of $2,523,800.

No assumption has been made regarding the number of shares of common stock sold as part of this offering. This table should be read in conjunction with our audited and unaudited consolidated financial statements included elsewhere in this registration statement.

	October 31, 2004
	As Reported (unaudited)			Pro Forma (unaudited)			As Adjusted Pro Forma (unaudited)
Cash and cash equivalents	$	1,400,925		$	1,827,981		$	6,177,981
Total liabilities		4,561,598			1,629,773			1,629,773
Series B Convertible Preferred Stock, par value $0.0001, 68,406 shares authorized, 63,607 shares issued and outstanding		6			6			6
Series C Convertible Preferred Stock, par value $0.0001, 250,000 shares authorized, 126,971 shares issued and outstanding and 223,564 shares pro forma		12			23			23
Common stock, par value $0.0001, 60,000,000 shares authorized, 3,091,183 shares issued and outstanding as reported		309			309			309
Additional paid in capital		24,257,673			27,616,552			34,666,552
Note receivable on common stock		(164,420	)		(164,420	)		(164,420	)
Deferred compensation		(501,041	)		(501,041	)		(501,041	)
Accumulated deficit		(24,176,491	)		(24,176,491	)		(24,176,491	)
Total capitalization (deficit)	$	(583,952	)	$	2,774,927		$	9,824,927

.

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DILUTION

Purchasers of common stock in this offering will experience immediate and substantial dilution in the net tangible book value of the common stock from the public offering price. Net tangible book value per share represents the amount of our tangible assets reduced by the amount of our total liabilities, divided by the number of shares of common stock outstanding.

As of October 31, 2004, our pro forma net tangible book value (unaudited) was $618,774 or approximately $0.20 per share based upon 3,091,183 shares of common stock then outstanding. As of October 31, 2004, our pro forma net tangible book value (unaudited), as adjusted for the sale of ________ shares of common stock in this offering and application of the net proceeds of $7,050,000 (at an assumed public offering price of $________ per share and after deducting the underwriting discounts and commissions and estimated offering expenses), would have been approximately $________ per share.

This represents an immediate increase in net tangible book value of $________ per share to existing stockholders and an immediate and substantial dilution of $________ per share or approximately ________% to new investors purchasing common stock in this offering.

The following table illustrates this per share dilution:

	Per Share of common stock
Assumed public offering price per share of common stock	$	________
Pro forma net tangible book value (unaudited) as of October 31, 2004	$	________
Increase attributable to new investors	$	________
Pro forma net tangible book value (unaudited) after this offering	$	________
Dilution of net tangible book value to investors in this offering	$	________

The foregoing table excludes 18,595,020 shares of common stock that is issuable upon the conversion of our Series B and Series C Convertible Preferred Stock and pursuant to currently exercisable outstanding options and warrants, as follows: 3,583,491 shares of common stock reserved for issuance upon conversion of our Series B Convertible Preferred Stock, 4,595,220 shares of common stock reserved for issuance upon conversion of our Series C Convertible Preferred Stock, 3,583,491 shares of common stock represented by warrants attached to our Series B Convertible Preferred Stock, 2,297,610 shares of common stock represented by warrants attached to our Series C Convertible Preferred Stock and 4,535,208 shares of common stock represented by outstanding options and warrants. The pro forma net tangible book value per share at October 31, 2004, after giving effect to this offering, would have been ________ and the dilution to new investors would be _________. This excludes shares of common stock issuable upon the exercise of all options and warrants, the conversion of all preferred shares, and all dividends.

The table below shows the pro forma net tangible book value if all Series B and Series C Convertible Preferred Stock outstanding as of October 31, 2004 was converted into 8,178,711 shares of common stock. The pro forma net tangible book value per share at October 31, 2004, after giving effect to this offering, would have been ________ and the dilution to new investors would be ________. This includes all common stock and the conversion of the Series B and Series C Convertible Preferred Stock outstanding as of October 31, 2004 but excludes shares of common stock issuable upon the exercise of all options and warrants and the payment of dividends.

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The following table illustrates this per share dilution:

	Per Share of common stock
Assumed public offering price per share of common stock	$	________
Pro forma net tangible book value (unaudited) as of October 31, 2004	$	________
Increase attributable to new investors	$	________
Pro forma net tangible book value (unaudited) after this offering	$	________
Dilution of net tangible book value to investors in this offering	$	________

The following table summarizes on a pro forma basis, as of October 31, 2004 (i) the number of shares of common stock from us, (ii) the total consideration paid for such shares and (iii) the average price per share paid by existing holders of our common stock, and investors in this offering, assuming the sale of all ________ shares offered by this prospectus of common stock at the price indicated above and before deducting any underwriting discounts and offering expenses payable by us.

	Shares			Total Consideration
	Number		Percent	Amount		Percent	Average Price per Share
Existing stockholders		3,091,183			13,099,328		$	4.24
Existing holders of Series B and Series C Convertible Preferred Stock, as converted		8,178,711			14,517,212		$	1.775
New investors
Total

The above discussion and tables assume a per share price of $________ and exclude:

·   ________ shares of common stock issuable upon exercise of the underwriter’s over-allotment option;

·   5,881,102 shares of common stock issuable upon the exercise of warrants issued in conjunction with our Series B and Series C Convertible Preferred Stock at an exercise price of $1.775 per shares;

·   ________ shares of common stock issued upon exercise of the representative’s warrant; and

·   4,635,208 shares of common stock reserved for issuance upon exercise of outstanding warrants and stock options with an average exercise price of $________ per share.

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MARKET FOR COMMON EQUITY

Until March 24, 2002, when we were delisted from the Nasdaq Small Cap Market for failing to meet certain listing requirements, 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. On October 25, 2002, our common stock symbol changed to NLPN and our common stock continues to trade under that symbol. The table below sets forth the range of high and low bids of our common stock for each quarter for the last two fiscal years, the first and second quarters of the current fiscal year and the third quater of the current fiscal year through March 8, 2005 as reported by the OTC Bulletin Board. The prices represent inter-dealer quotations, without adjustments for retail mark-ups, markdowns or commissions and may not necessarily represent actual transactions. The closing sales prices have been adjusted to reflect the two-for-one stock split that was effective on September 15, 2004.

	High	Low
First Quarter of Current Fiscal Year
Ended October 31, 2004
Second Quarter of Current
Fiscal Year Ended January 31, 2005
Third Quarter of Current Fiscal
Year Through March 8, 2005
Fiscal Year Ended July 31, 2004
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended July 31, 2003
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

On March 8, 2005, the last day prior to the date of this prospectus for which information was practicably available, the closing price for our common stock was $3,50 per share. As of February 2, 2005, we had approximately 700 stockholders.

Dividend Policy

We have not declared or paid any dividends and do not intend to pay any dividends in the foreseeable future to the holders of our common stock. We intend to retain future earnings, if any, for use in the operation and expansion of our business. Any future decision to pay dividends on common stock will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors our Board of Directors may deem relevant.

Both our Series B Convertible Preferred Stock and our Series C Convertible Preferred Stock accrue a dividend annually at the rate of 9%. The dividends accrue based upon the original purchase price plus all accumulated and unpaid dividends, which are compounded annually. The original purchase price for the Series B Convertible Preferred Stock was $100 per unit, with each unit consisting of one share of Series B Convertible Preferred Stock plus a warrant to purchase 56.338 shares of our common stock. The original purchase price for the Series C Convertible Preferred Stock was $35.50 per unit, with each unit consisting of one share of Series C Convertible Preferred Stock plus a warrant to purchase 20 shares of common stock. All dividends accrued and unpaid on the Series B and Series C Convertible Preferred Stock must be paid prior to the payment of dividends to the holders of common stock upon the conversion of the Series B or Series C Convertible Preferred Stock to common stock, or upon liquidation. Dividends payable on Series B and Series C Convertible Preferred Stock must be paid in common stock. Dividends accrue on each share of the Series B and Series C Convertible Preferred Stock until the earlier of the date that the Series B or Series C Convertible Preferred Stock is redeemed, the date of a liquidation event, or the date on which such share of Series B or Series C Convertible Preferred Stock is converted. The number of shares of common stock to be issued in payment of dividends is computed using the closing price of the common stock, as reported by the exchange or regulated quotation service on which our common stock is traded, on the trading date immediately preceding the date that we become liable for the dividend payment. If no trades were made on that date, then the number of shares to be issued will be computed using the closing price of the last date on which trades were made and reported. As of February 2, 2005, dividends totaling $463,251 had accrued on our Series B and Series C Convertible Preferred Stock which, if payable as of that date, would have required us to issue 110,298 shares of common stock, based on a closing price of $4.20 per share on February 1, 2005 as reported by Yahoo! Finance.

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SELECTED FINANCIAL DATA

In the table below, we provide you with historical selected consolidated financial data for the two years ended July 31, 2003 and 2004, derived from our audited consolidated financial statements included elsewhere in this prospectus. We also provide below financial data for, and as of the end of, our first fiscal quarter of 2005, derived from our unaudited financial statements included elsewhere in this prospectus on an actual basis and on an as adjusted basis. As adjusted data assume the receipt of $7,050,000 in net proceeds from this offering. Historical results are not necessarily indicative of the results that may be expected for any future period or for a full year. When you read this historical selected financial data, it is important that you read along with it the historical consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

	For the Year Ended July 31, 2003			For the Year Ended July 31, 2004			For the Three Months Ended October 31,
							2003			2004 Actual			2004 Pro Forma
							(unaudited)						(unaudited)
Statements of Operations Data:
Revenues	$	1,007,884		$	1,921,564		$	272,929		$	666,935		$	666,935
Costs and Expenses		7,068,550			7,051,576			1,623,587			2,556,940			2, 556,940
Operating Loss		(6,060,666	)		(5,130,012	)		(1,350,658	)		(1,890,005	)		(1,890,005	)
Other Income/(Expense)		39,254			5,762			1,440			1,440			1,440
Minority Interest		99,000			--			--			--			--
Loss Before Income Taxes		(5,922,412	)		(5,124,250	)		(1,349,218	)		(1,888,565	)		(1,888,565	)
Net Loss	$	(5,924,836	)	$	(5,127,107	)	$	(1,351,618	)	$	(1,894,734	)	$	(1,894,734	)
Net Loss attributable to Common Shareholders										$	(3,232,543	)	$	(3,232,543	)

	July 31, 2004			October 31, 2004
				Actual (unaudited)			Pro Forma(1) (unaudited)
Balance Sheet Data:
Current Assets	$	77,284		$	1,685,954		$	2,113,010
Total Assets		2,505,698			3,977,646			4,404,700
Current Liabilities		6,861,256			4,561,598			1,629,773
Total Liabilities		6,861,256			4,561,598			1,629,773
Stockholder (Deficit) Equity		(4,355,558	)		(583,952	)		2,774,927
Accumulated (Deficit)		(20,943,51	)		(24,176,491	)		(24, 176,491	)

(1) Pro forma information does not give effect to the $2,700,000 loan from N. Williams Family Investments, L.P., the cash severance payment made to James P. Jimirro in the amount of $2,523,800 or the issuance of Series C Convertible Preferred Stock units for bonus compensation in the amount of $220,000.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Overview

We are a media and entertainment company that creates and distributes comedic content. The National Lampoon® brand was initially developed in 1970 through publication of National Lampoon Magazine and later through the production of motion pictures, including National Lampoon’s Animal House and National Lampoon’s Vacation. We believe that the National Lampoon® brand is one of the strongest brands in media.

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

National Lampoon Networks

Our subsidiary, National Lampoon Networks, Inc. (referred to in this discussion as NLN), through its network of 603 affiliated college and other television stations, reaches nearly 4.8 million college students in their dormitories and other places of residence. According to Marketing to the Campus Crowd by David A. Morrison, there are approximately 15.6 million college students in the United States that, each year, spend approximately $128 billion on discretionary items such as vacation travel, fashion, CDs, DVDs, video games and movies. For those manufacturers targeting the college market, NLN provides an integrated marketing approach that includes advertising during the airing of our programming, field marketing such as product sampling, live events hosted on college and university campuses throughout the United States, and Internet promotions.

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

Motion Picture and Television Programming

We continue to develop and produce motion pictures and made for television movies and programs. We rely on third parties, primarily major motion picture studios, to provide a picture’s financing and distribution. Besides licensing revenues, we now earn revenues derived from participation in the profits of motion pictures, which varies from project to project, and from license fees for our television programming, which is produced for broadcast networks, cable channels and the syndicated marketplace. Depending on our agreement with the motion picture studio and distributor, motion picture profit participation may be “first dollar gross” participation, meaning that we receive a percentage of whatever money is received by the distributor from the distribution of the motion picture in any form of media, to participation solely in net profits.

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Licensing

We license the National Lampoon® brand, as well as content from our library, for use in a wide variety of products including movies, television programming, radio broadcasts, recordings, electronic games, and live events.

Home Entertainment

According to an Associated Press article written by Gary Gentile and posted on the Video Software Dealers Association website, consumers spent a record $24.5 billion on home video rentals and purchases in 2004. We provide branded National Lampoon® comedic content, including television programming, motion pictures and live comedic events, for DVD and VHS distribution. This segment of our business generates revenues primarily from royalty fees from the sale of these products and the use of our content. We also use NLN to promote the release of these products.

Publishing

We have been publishing books since 1972 and, to date, we have published over 28 titles including our three most recent publications, 1964 High School Reunion Year Book, National Lampoon’s Book of Love and National Lampoon’s Big Book of True Facts. We plan to continue to publish approximately three books each year.

Library

Our library includes 247 issues of National Lampoon Magazine, which we continue to use to generate new content for movies, television programming and other licensing opportunities.

Internet

Our Internet operations do not generate significant revenue and we do not anticipate that will change soon. We use our Internet operations for the development of stories, characters and animation that will be spun off into other media. We earn revenue from our website and other Internet activities from banner and sponsorship advertising, e-commerce and the syndication of content originally developed and exploited on the website. We also operate a webstore through which consumers can purchase branded items directly from us.

National Lampoon Tours

We are now offering group travel and entertainment packages through our subsidiary, National Lampoon Tours, Inc. The destinations of our first two travel packages, timed to coincide with most college and university spring breaks, will be Las Vegas and Cabo San Lucas, Mexico. The packages include professional entertainment, theme parties and other attractions for young adults.

Business Objective

We intend to provide National Lampoon comedic content to as many consumers as possible by expanding the use of the National Lampoon® brand by

·   continuing to expand National Lampoon Networks by adding new affiliates, increasing advertising and marketing revenue and producing new shows;

·   expanding our video and DVD library by increasing the number of products we produce and have distributed for home entertainment;

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·   capitalizing on our reputation and relationships with major studios and multimedia companies to expand the use of the National Lampoon® brand;

·   creating new licensing opportunities in markets outside of publishing, film and television, such as games, records, radio programming and live events;

·   expanding our brand awareness among young adults through National Lampoon Tours; and

·   capitalizing on opportunities provided by the Internet to merchandise our home entertainment and other products.

Critical Accounting Policies

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

Revenue Recognition. Our 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 sales are reported to us by the distributor. 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 advertisement has been broadcast and the collection of such revenues are reasonably assured.

Production Costs. As provided by SOP 00-2, television 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 limited advertising agreements in place for particular programs, the production costs incurred by our network operations are capitalized only to the extent of the revenues generated by those agreements. The balance of the production costs are expensed during the period.

Reorganization Transaction

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

Results of Operations

We operate in three business segments, namely, the production of motion picture, television, and VHS/DVD products; the licensing and exploitation of the National Lampoon® trademark and related properties including the sale of products to consumers; and television production and distribution to college campuses from which advertising and promotional revenues are derived. Segment operating income/(loss) excludes the amortization of intangible assets, interest income, and income taxes. Selling, general and administrative expenses not specifically attributable to any segment have been allocated equally among the three segments. Summarized financial information for the three month periods ended October 31, 2004 and 2003 for our segments is as follows:

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	Production			Licensing			Television			Total
Three months ended October 31, 2004
Segment revenue	$	101,000		$	118,000		$	448,000		$	667,000
Segment operating (loss)		($633,000	)		($576,000	)		($627,000	)		($1,836,000	)
Three months ended October 31, 2003
Segment revenue		--		$	57,000		$	216,000		$	273,000
Segment operating(loss)		--			($556,000	)		($737,000	)		($1,293,000	)

Three Months Ended October 31, 2004 compared to the Three Months Ended October 31, 2003

For the quarter ended October 31, 2004, revenues from production, licensing and advertising and promotion totaled $666,935 as compared to $272,929 for the quarter ended October 31, 2003, an increase of 144%. Production revenues were $101,000 for the quarter ended October 31, 2004 as compared to no production revenues for the same period of the 2004 fiscal year. Of this amount, $51,000 was earned from the creation of a pilot for AMC and $50,000 was earned as part of a production arrangement for a DVD with Genius Productions. Revenues earned from the licensing of our trademark totaled $117,689 during the quarter ended October 31, 2004, representing an increase of $61,010 or 108% over the $56,679 in licensing revenues we earned during the quarter ended October 31, 2003. This increase resulted primarily from a $50,000 licensing transaction with a division of Walt Disney Company that allowed it to offer the National Lampoon® brand and content in connection with wireless devices and the payment of $35,000 by Activision for the use of the National Lampoon® name on one of its video games. In the prior year, our trademark revenues included $25,000 paid by a third party for the publication of a National Lampoon book and $25,000 paid to us by TBS for the use of the name in a television special. NLN television revenues from advertising and promotion totaling $448,246 represents an increase of $231,996 or 107% from advertising and promotion revenues totaling $216,250 for the quarter ended October 31, 2003. For the quarter ended October 31, 2004, approximately $395,000 of these revenues were earned from advertising, including $200,000 for advertisements promoting the release of the feature film National Lampoon’s Gold Diggers, and $53,000 from the promotion of various products and services. During the quarter ended October 31, 2003, of the $216,250 in NLN’s revenues, approximately $124,000 was payment for advertising spots on NLN programming, and approximately $92,000 was for activities performed by NLN to promote third party motion pictures.

Costs related to the production segment for the quarter ended October 31, 2004 increased by $35,114 or 43% to $117,104 from $81,990 in production costs incurred during the quarter ended October 31, 2003. Production costs associated with revenues paid by AMC accounted for this increase. Costs related to trademark revenues decreased by 13% or $12,908 during the quarter ended October 31, 2004, to $87,467 from $100,375 during the quarter ended October 31, 2003. Reduced personnel costs related to the trademark segment accounted for this decrease. Production costs of $239,367 in the quarter ended October 31, 2004 represent a decrease of $139,357 or 37% from costs of $378,724 during same period in the 2004 fiscal year. NLN reduced production costs in the current fiscal year and relied more on repeat programming than in the prior fiscal year.

Amortization of intangible assets, the costs of our acquisition of the National Lampoon® trademark, was $60,000 during each of the quarters ended October 31, 2004 and 2003. Selling, general, and administrative costs increased by $148,454 or 18% to $980,601 during the quarter ended October 31, 2004 from $832,147 during the quarter ended October 31, 2003. This increase resulted primarily from an increase in interest costs of approximately $29,000 due to an increase in loans from the NLAG Group, an increase in investor public relations fees of approximately $54,000 resulting from the employment of public relations firms, and an increase in legal and accounting fees of approximately $52,000 due to increased corporate activity.

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Expense related to stock, warrants, and options issued for services decreased by $2,847 to $167,504 during the quarter ended October 31, 2004 from $170,351 during the quarter ended October 31, 2003, representing a decrease of 2%. The costs associated with a number of the grants made in prior years had been fully amortized by the end of the 2004 fiscal year. Expense associated with the modification of warrants was approximately $904,897 in the 2005 fiscal year as compared to no such expense in the 2004 fiscal year. Series B warrants, initially issued in conjunction with the Reorganization Transaction in May of 2002 were modified to be identical in price and term with the Series C warrants issued in October 2004. The excess of the value of the modified warrants as compared to the original warrants was calculated according to paragraph 188 of FAS 123. The excess amount, which included the right to purchase 3,583,491 shares of our common stock, totaled $904,897 and was recognized as a charge to operations.

Interest income was $1,440 during the quarters ended October 31, 2004 and 2003.

For the quarter ended October 31, 2004, we had a net loss of $1,894,734 or $0.62 per share versus a loss of $1,351,618, or $0.44 per share for the quarter ended October 31, 2003, representing an increase in the loss of approximately $543,000 or 40%. This increase in loss resulted primarily from the recognition of expense associated with the modification of the Series B warrants discussed above. The increase in expense was offset by an increase in revenues of approximately $394,000. Total costs increased by $933,000 to $2,557,000 during the quarter ended October 31, 2004 from $1,623,587 during the same period in the prior fiscal year, leaving a net increase (after taking into account the increase in revenues) of approximately $543,000.

A beneficial conversion feature that was treated as a preferred dividend in the amount of $1,337,809 was reported for the quarter ended October 31, 2004 as compared to none in the prior year. This amount reflects the discount attributable to the beneficial conversion feature of the Series C Convertible Preferred Stock issued in October 2004. The addition of this discount results in a net loss attributable to holders of common stock of $3,232,543 or $1.05 per share for the quarter.

For the quarter ended October 31, 2004, our net cash flow used in operating activities was $878,425 as compared to $1,534,380 of net cash used in operating activities during the quarter ended October 31, 2003. This decrease in the use of cash resulted primarily from increased revenues and a decrease in the production costs of NLN. At October 31, 2004, we had cash and cash equivalents of $1,400,925 as compared to $484 at July 31, 2004.

The Year Ended July 31, 2004 Compared To The Year Ended July 31, 2003

For the year ended July 31, 2004, total revenues increased by approximately 91% to $1,921,564 from $1,007,884 for the year ended July 31, 2003. This increase resulted from an increase of royalties received of approximately $133,000 or 38%, from National Lampoon’s Animal House and the three National Lampoon Vacation feature films to $483,000 in fiscal 2004 as compared to $350,000 in fiscal 2003, and an increase of approximately $467,000 for advertising and promotional revenues from NLN which were $558,640 in fiscal 2004 as compared to $92,063 for the prior year. Royalties from made for television and video productions increased by $308,000 in fiscal 2004. Consumer product revenue of $76,111 in fiscal 2004 increased by approximately $64,000 or 557% from $11,577 in fiscal 2003. In addition to merchandise sold via the Internet in both years, in fiscal 2004 there was Internet advertising of approximately $24,000 and video game royalties from Activision of $40,000.

Revenues from Warner Bros., The Trouble With Frank, and AMC accounted for approximately $773,000 representing 16%, 14%, and 10% of total revenues for the fiscal year ended July 31, 2004. The remaining 60% of total revenues for the fiscal year ended July 31, 2004 was derived from a number of other relationships, none of which accounted for more than 10% of total revenues. For the fiscal year ended July 31, 2003, Warner Bros., Universal, and Gary Hoffman Productions collectively accounted for approximately $695,000 representing 44%, 13% and 12% of total revenues.

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Costs related to trademark revenue increased by approximately 46% to $417,071 for the year ended July 31, 2004 from $285,174 for the year ended July 31, 2003. The increase in costs resulted primarily from the costs associated with the projects we did for AMC and Image Entertainment Inc. that totaled approximately $303,000. Royalties accrued to Harvard Lampoon, William Morris, and Guber-Peters Entertainment Company totaled approximately $232,000 during the 2003 year as compared to approximately $67,000 during the 2004 fiscal year. In the 2003 fiscal year the multiple episode sale of “Funny Money” triggered a cost of approximately $185,000 due to Guber-Peters Entertainment Company, capping the amount owed to it. Therefore no cost was accrued for Guber-Peters Entertainment Company in the 2004 fiscal year. Lastly, in the 2004 fiscal year, there was $33,000 in costs associated with live events, with no corresponding cost in the prior fiscal year. Costs related to consumer products revenues were $50,170 for the year ended July 31, 2004 as compared to $23,374 for the 2003 fiscal year, which represents an increase of 115%. 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).

Production costs totaling $1,181,039 in the 2004 fiscal year represent an increase of 35% over fiscal 2003 production costs of $872,868. These costs were primarily associated with the production of programming for NLN. NLN began operations with our acquisition of the assets of Burly Bear Network, Inc. in September 2002. New show productions did not begin until the end of calendar 2002. Therefore, the 2004 fiscal year saw a large increase in revenues and production costs.

Amortization of intangible assets, included the costs of our acquisition of the National Lampoon® trademark was $240,000 in the 2004 and 2003 fiscal years. In the 2003 fiscal year, we wrote-off the Burly Bear trademark. The Burly Bear trademark was fully written off by the end of the 2003 fiscal year based upon SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, because we recognized the impairment of the value of the Burly Bear trademark when virtually all aspects of the network operated more successfully utilizing the National Lampoon® name rather than the Burly Bear name. Write off of the Burly Bear intangible asset totaled $541,000 during the 2003 fiscal year, and was zero in the 2004 fiscal year.

Selling, general and administrative expenses for the 2004 fiscal year increased to approximately $4,521,000 as compared to $4,159,000 for the 2003 fiscal year. This increase of $362,000 or 9% resulted primarily from increases in personnel costs of approximately $512,000 to $2,813,000 from $2,301,000, an increase in interest expense of $144,000 from approximately $40,000 in the 2003 fiscal year to $184,000 in the 2004 fiscal year, and an increase of approximately $58,000 in health insurance costs from $56,000 in the 2003 fiscal year to approximately $114,000 in the 2004 fiscal year. These increases were offset somewhat by a decrease in legal and accounting fees of approximately $343,000 to $300,000 in the 2004 fiscal year from approximately $643,000 in the 2003 fiscal year. The 2003 fiscal year had increased legal and accounting fees due to costs associated with the Reorganization Transaction in May of 2002 and the acquisition of Burly Bear Network, Inc. in September of 2002.

Stock, warrants, and options issued for services of $641,878 in the 2004 fiscal year represents a decrease of $305,162 or 32% from the $947,040 issued in the 2003 fiscal year. Fewer stock, warrants, and options were issued in the 2004 fiscal year than were issued in the prior fiscal year.

Interest income during the 2004 fiscal year decreased to $5,762 as compared to $7,040 for the same period of the prior fiscal year. This decrease results from lower cash balances held during the 2004 fiscal year as compared to the 2003 fiscal year. During the 2003 fiscal year, we benefited from an insurance reimbursement in the amount of $32,000 for stolen equipment made to NLN and from the allocation of $99,000 of losses incurred by NLN to the minority interest holders. There were no comparable benefits in the 2004 fiscal year.

For the year ended July 31, 2004, we recorded a net loss of $5,127,107 as compared to a net loss of $5,924,836 for the year ended July 31, 2003. This represents a decrease in the net loss of approximately $798,000 or 13%. The increase in revenues of approximately $914,000 in the 2004 fiscal year along with the full write-off of the Burly Bear intangible of $541,000 in the 2003 fiscal year are the main factors accounting for this difference.

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For the 2004 fiscal year, net cash flows used in our operating activities was $4,003,355, as compared to $3,848,306 of net cash flows used in our operating activities during the 2003 fiscal year. This increase in cash flows used in operating activities is primarily attributable to the fact that our net loss in the 2003 fiscal year included over $1.84 million in amortization and warrants granted for service, non cash costs, as compared to $879,000 for non cash costs in the 2004 fiscal year. An increase in production costs of $59,000 in the 2004 fiscal year, to $127,000 from $68,000 in the 2003 fiscal year, and a decrease in deferred income of $41,000 in the 2004 fiscal year as compared to an increase of $161,000 in the 2003 fiscal year, representing a reduction of cash of $202,000, accounts for this increase in cash used in operating activities during the 2004 fiscal year.

Liquidity And Capital Resources

Our principal sources of working capital include limited trademark income, advertising and sponsorship revenues and loans received from the NLAG Group, which includes three of our directors, in the aggregate amount of $4.4 million. During the quarter ended October 31, 2004, we received an additional $3.0 million in cash proceeds from the offering of units composed of our Series C Convertible Preferred Stock and warrants to purchase our common stock and we issued additional units of these securities to pay loans and expenses owed to Daniel Laikin, our Chief Executive Officer and a director and to Timothy Durham, a director, in the amount of $4.6 million and $502,000, respectively. On January 28, 2005 we received a loan in the amount of $2.7 million from N. Williams Family Investments, L.P. The proceeds of this loan were primarily used to pay certain severance benefits to James P. Jimirro, our former Chief Executive Officer and President. The loan accrues interest at the rate of 7% and is due to be repaid on the earlier of January 28, 2006 or the date we close an offering in which the gross cash proceeds to us equal or exceed $2,700,000. (We are required to prepay the loan to the extent of any proceeds we receive from an equity offering raising less than $2.7 million.) The loan is secured by a lien against all of our assets. We intend to repay this loan with the proceeds from this offering. We believe that our cash on hand, along with the proceeds of this offering and our cash flow from operations, will provide us with adequate cash to fund our ongoing operations for a period of 24 months.

On May 17, 2003, two notes payable totaling approximately $442,000 at April 30, 2002 were due to be paid in full. The notes represented money owed to legal firms relating to work done in connection with the Reorganization Transaction. Timothy Durham, a director, has paid one of these notes in full and the liability is now owed to him. As of October 31, 2004, approximately $340,000 in principal remained unpaid. The obligation to Mr. Durham is payable on demand. To date, no demand has been made. We plan to pay this obligation with revenues earned by our operations. During December 2004 a settlement was reached with the remaining noteholder and the obligation, as re-negotiated, was paid in full.

In recent years, our operations have been characterized by ongoing capital shortages caused by expenditures related to the initiation of several new business activities. We have met these capital shortages by borrowing money from members of the NLAG Group, which includes three of our directors, and by selling our securities.

Our financial statements for the fiscal year ended July 31, 2004 contain an explanatory paragraph as to our ability to continue as a “going concern.” This qualification may impact our ability to obtain future financing.

Off-Balance Sheet Arrangements

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

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Contractual Obligations

	Payments Due by Period
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	$	184,513	$	151,300	$	33,213		--		--
Purchasing Obligations		--
Other Long-Term Liabilities		--
	$	184,513	$	151,300	$	33,213

New Accounting Pronouncements

In December 2003, the FASB issued Summary of Statement No. 132 (revised 2003), “Employer’s Disclosures about Pensions and Other Post Retirement Benefits - an amendment to FASB Statements No. 87, 88, and 106.” This statement revises employers’ disclosures about pension plans and other postretirement benefit plans. However, it does not change the measurement or recognition of those plans as required by FASB Statements No. 87, “Employers’ Accounting for Pensions”, No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”, and No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” This statement requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost. This statement also calls for certain information to be disclosed in financial statements for interim period. The disclosures required by this statement are effective for fiscal year ending after December 15, 2003. We do not expect the adoption of this pronouncement to have a material effect on our consolidated financial position or results of operations.

In December 2003, the FASB issued Interpretation No. 46 (Revised 2003), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). This interpretation explains how to identify variable interest entities and how an enterprise assesses its interest in a variable interest entity to decide whether to consolidate that entity. This interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Variable interest entities that effectively disperse risks will not be consolidated unless a single party holds an interest or combination of interest that effectively recombines risks that were previously dispersed. This interpretation is effective no later than the end of the first reporting period that ends after March 15, 2004. This interpretation did not have a material effect on our financial position or results of operations.

In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” (“SFAS 150”) This statement establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material effect on our financial position or results of operations.

In April 2003, the FASB issued statement No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” (“SFAS 149”) which is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. SFAS 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative as discussed in FASB Statement No. 133, clarifies when a derivative contains a financing component, amends the definition of an “underlying” to conform it to the language used in FASB Interpretation No. 45, “Guarantor Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” and amends certain other existing pronouncements. All provisions of SFAS 149 should be applied prospectively. The adoption of SFAS 149 did not have a material effect on our financial position or results of operations.

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In May 2003, the Emerging Issues Task Force (“EITF”) released Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF 00-21 addresses revenue recognition for arrangements involving more than one deliverable and the determination of whether an arrangement contains more than one unit of accounting. EITF 00-21 also addresses the measurement of the varying components of an arrangement and the manner in which the revenue should be allocated to the separate units of accounting. During December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition,” which incorporated the requirements of EITF 00-21. The adoption of EITF 00-21 and SAB 104 did not have a material effect on our results of operations or financial condition.

In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.” SAB 104 supersedes SAB 101, “Revenue Recognition in Financial Statements.” SAB No. 104, which was effective upon issuance, rescinded certain guidance contained in SAB No. 101 related to multiple element revenue arrangements, and replaced such guidance with that contained in EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Additionally, SAB No. 104 rescinded the Commission’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers issued with SAB No. 101. The revenue recognition principles of SAB No. 101 remain largely unchanged by the issuance of SAB No. 104, and therefore the adoption of SAB No. 104 did not have a material effect on our results of operations or financial condition.

In November 2004, the FASB issued SFAS No. 151 “Inventory Costs, an amendment of ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. We have evaluated the impact of the adoption of SFAS 151, and we do not believe the impact will be significant to our overall results of operations or financial position.

In December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67” (“SFAS 152). The amendments made by Statement 152 This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for incidental operations and costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005, with earlier application encouraged. We have evaluated the impact of the adoption of SFAS 152, and we do not believe the impact will be significant to the overall results of our operations or financial position.

In December 2004, the FASB issued SFAS No.153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” The amendments made by Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. Opinion 29 provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. The Financial Accounting Standards Board believes that exception required that some nonmonetary exchanges, although commercially substantive, be recorded on a carryover basis. By focusing the exception on exchanges that lack commercial substance, the Financial Accounting Standards Board believes this Statement produces financial reporting that more faithfully represents the economics of the transactions. The Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of this Statement shall be applied prospectively. We have evaluated the impact of the adoption of SFAS 152, and we do not believe the impact will be significant to our overall results of operations or financial position.

In December 2004, the FASB issued SFAS No.123 (revised 2004), “Share-Based Payment”. Statement 123(R) will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. Statement 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Public entities (other than those filing as small business issuers) will be required to apply Statement 123(R) as of the first interim or annual reporting period that begins after June 15, 2005. We have evaluated the impact of the adoption of SFAS 123(R) and, although we have not yet finished our estimates to enable us to quantify the impact, based on contractual obligations, recurring customary grants such as those to the Board of Directors, and vested options in place, we believe the impact will be significant to our overall results of operations and financial position.

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BUSINESS

History

We were incorporated in California in 1986 under the name J2 Communications, Inc. We reincorporated in Delaware under the name National Lampoon, Inc. in November 2002. We acquired National Lampoon, Inc., referred to in this prospectus as “NLI”, in late 1990. NLI was incorporated in 1967. NLI was primarily engaged in publishing National Lampoon Magazine. Its other activities included radio, stage shows and the development and production of motion pictures. Prior to our acquisition of NLI, we had been engaged in the acquisition, production and distribution of videocassette programs for retail sale. With the acquisition of NLI, we shifted our focus from the videocassette business to the exploitation of the National Lampoon trademark.

In May 2002, a group led by our Chief Executive Officer, Daniel S. Laikin, acquired control of our company and our business focus expanded from passive income through trademark licenses to the creation, production, programming and licensing of comedy across a broad range of media.

Our Business

We develop, produce and distribute National Lampoon® branded comedic content through a broad range of media platforms including:

·   National Lampoon Networks, our network of 603 affiliated college and other television stations, reaching nearly 4.8 million college students in their dormitories and other places of residence;

·   motion pictures and made for television movies and programs that we develop and produce in conjunction with independent third parties;

·   branded National Lampoon® comedic content on DVD and VHS, including television programming, motion pictures and live comedic events, that is distributed in the home entertainment market;

·   the publication of National Lampoon® books;

·   licensing both our name and comedic content from our library for a wide variety of uses, including movies, television programming, radio broadcasts, recordings, electronic games, and live events;

·   providing group travel and entertainment package offerings marketed under the National Lampoon® brand.

National Lampoon Networks, Inc.

In August 2002 we acquired substantially all of the assets of Burly Bear Network, Inc., a business engaged in producing and distributing entertainment through a network of affiliated college and other television stations. We renamed the business “National Lampoon Networks, Inc.” (referred to as “NLN” in this discussion) and expanded the affiliate network. The affiliate network is the collection of stations, primarily on college and university campuses, that air our programming and advertising. As of July 31, 2004, the end of our last fiscal year, NLN was available to 4.8 million students at 603 college campuses. When we acquired Burly Bear Network, Inc., we acquired 750 hours of original programming that we still use. In 2003 we commenced production of original television programs solely for distribution on NLN and in the fiscal year ended July 31, 2004 we delivered eight half-hour original television programs. We generally produce 10 episodes per show from July through October for the fall season.

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We believe that National Lampoon Networks provides an appealing platform to those advertisers who want their commercial messages to reach college students specifically. For those businesses targeting the college market, which is estimated to be worth approximately $128 billion according to Marketing to the Campus Crowd by David A. Morrison, NLN provides an integrated marketing platform that includes

·   on-air advertising,

·   field marketing , and

·   Internet promotions.

NLN obtains the commercial airtime it sells to advertisers from television affiliates in exchange for the programming it provides to them. In some cases it purchases time slots to air programming in certain geographic areas to expand its advertising reach.

Our field marketing includes activities such as product sampling and live events (like a concert or a contest) that take place on college and university campuses throughout the United States and that reinforce and increase awareness of a brand among the students. Advertisers whose brands NLN promotes include Frank’s Red Hot Sauce, JBL, Liz Claiborne, NBC, Universal, Red Bull and TalentMatch.com. Field marketing is the use of trained people (in our case, college students) to conduct brand-building activities on behalf of businesses.

We have generated limited advertising and promotional revenues from NLN during the 2004 fiscal year. Based on existing advertising arrangements for the network, we anticipate continuing to generate limited advertising and promotional revenues in the near term.

Motion Picture and Feature Film

In recent years we derived a significant portion of our revenues from license fees relating to the production of new motion pictures and from contingent compensation for motion pictures previously produced by us. We generally license our National Lampoon trademark for use in the titles of the films. We receive a fee at the time of production of the motion picture for producing services and for providing the National Lampoon trademark. Depending on our agreement with the motion picture studio and distributor, we also may participate in profits generated by the motion picture. Some of our agreements provide us with “first dollar gross” participation, meaning that we receive a percentage of whatever money is received by the distributor from the distribution of the motion picture in any type of media, while other agreements provide for participation solely in net profits.

Depending on the film, we may develop, produce, distribute and/or market the final product. However, 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 the film’s financing and distribution. We intend to continue this model, since it allows us to derive revenues from the films without incurring the risks associated with their financing.

In 2003 and 2004, two new independently produced and distributed branded feature films, National Lampoon Presents Dorm Daze and National Lampoon’s Gold Diggers, were released and principal photography was completed on two additional motion pictures, National Lampoon’s Pledge This! starring Paris Hilton; and National Lampoon’s The Trouble with Frank, starring Jon Bon Jovi and directed by Academy Award winner Arthur Hiller. We expect these films to be released in 2005.

We also have agreements with independent third parties to distribute to theaters and to market two limited platform theatrical releases in 2005, National Lampoon’s Blackball, starring Vince Vaughn and James Cromwell, and National Lampoon’s Going the Distance. A “platform theatrical release” is when we release the motion picture in a small number of theaters in order to promote the rental and sale on videotape and DVD.

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The following is a list of the 20 motion pictures bearing our brand:

Title	Year Released		Financier/Distributor
National Lampoon’s Animal House		1979		Universal Studios
National Lampoon Goes to the Movies		1981		United Artists
National Lampoon’s Class Reunion		1982		ABC/Disney
National Lampoon’s Vacation		1983		Warner Bros.
National Lampoon’s European Vacation		1985		Warner Bros.
National Lampoon’s Class of ‘86		1986		Paramount
National Lampoon’s Christmas Vacation		1989		Warner Bros.
National Lampoon’s Loaded Weapon I		1993		New Line Cinema
National Lampoon’s Last Resort		1994		Trimark Studios
National Lampoon’s Attack of the 52 Women		1994		Showtime
National Lampoon’s Senior Trip		1995		New Line Cinema
National Lampoon’s Favorite Deadly Sins		1995		Showtime
National Lampoon’s Dad’s Week Off		1997		Paramount
National Lampoon’s The Don’s Analyst		1997		Paramount
National Lampoon’s Men in White		1998		Fox
National Lampoon’s Golf Punks		1998		Fox
National Lampoon’s Van Wilder		2001		Artisan
National Lampoon Presents Dorm Daze		2003		Independent
National Lampoon’s Gold Diggers		2004		Lady P&A LLC
National Lampoon’s Blackball		2005		First Look Entertainment

Television Production

In late 2004 we entered into a “first-look” agreement with Viacom Productions. Viacom Productions was subsequently reorganized and our agreement was transferred to Paramount Network Television, its parent. We currently have projects in development pursuant to this agreement. Additionally, we are actively engaged in developing a range of other television properties for cable, network and syndication, serving as production company, executive producer or some combination of the two. In October 2004 we concluded an agreement to enter the first-run syndication business as a production partner with Atlas Worldwide, an independent distributor of television programming. That series, to be called An Eye for An Eye, will move from a weekly to a daily or strip series beginning in the fall of 2005.

Home Entertainment DVD and VHS

We have focused significant efforts and resources in the home entertainment market, including repackaging existing material and developing and producing original materials for DVD and VHS distribution. These efforts include the “Lost Reality” series with Studioworks and Ventura Distribution and “National Lampoon Live”, a stand-up comedy series with Image Entertainment Inc. Additionally we have established a National Lampoon brand imprint for DVDs with Genius Products and its Branded Distribution Network, and may release as many as 24 titles over the next 12 months.

National Lampoon’s Blackball, starring Vince Vaughn and James Cromwell, was released on DVD in February 2005 and National Lampoon’s Going The Distance is scheduled to be released later in 2005.

Publishing

In 2003 we entered into an agreement with Rugged Land LLC to publish 6 National Lampoon books over a three year period based on new and established National Lampoon comedic content. We have released three books under this agreement, including 1964 High School Reunion Year Book, National Lampoon’s Book of Love, and National Lampoon’s Big Book of True Facts.

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Licensing

We license the National Lampoon name to generate revenues. Aside from our film, television and book publishing, our current licensing projects include

·   the development of a National Lampoon branded video lottery terminal machines through a strategic partnership with Multimedia Games, Inc., and

·   the development of video games with Activision, and selected merchandising arrangements for various consumer products.

We also are currently in discussion with certain companies in the recording industry regarding the production of National Lampoon records. In September 2004, we released “It’s About Time,” a greatest-hits collection from the new National Lampoon Radio Hour, through a distribution agreement with Uproar Entertainment, a company that also has licensed rights to distribute parts of the original Radio Hour archive materials.

Internet

Our Internet operations do not generate significant revenue and we do not anticipate that will change soon. We use our Internet operations for the development of stories, characters and animation that will be spun off into other media. In the future, we may earn revenue from our website and other Internet activities from banner and sponsorship advertising, e-commerce and the syndication of content originally developed and exploited on the website. We also operate a webstore through which consumers can purchase items directly from us.

National Lampoon Tours

In October 2004 we entered into the travel and tourism business through our wholly-owned subsidiary, National Lampoon Tours, Inc., referred to in this discussion as NL Tours. NL Tours negotiates packages with vendors, such as hotels and airlines, and creates branded vacation tours which are marketed primarily to young adults between the ages of 18 and 30. Aside from transportation and lodgings, the tours may include daily activities such as parties and “happy hours”, contests and other entertainment. We will market to college students utilizing campus promotions, website marketing and keyword Internet search buys.

The first tours will take place in March 2005 during the four peak weeks of college spring break. Destinations include Las Vegas, Nevada and Cabo San Lucas, Mexico.

The Las Vegas tours will include an optional flight package, four nights all-inclusive hotel accommodations and an itinerary of daily and nightly events and theme parties. The Las Vegas tours are restricted to ages 21 and older.

The Cabo San Lucas tours will include roundtrip airfare, four to seven nights hotel accommodations, ground transportation, a discount booklet, trip wristband and itinerary of daily and nightly events and theme parties.

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Competition

Entertainment

The entertainment industry in general, and the motion picture and television industry specifically, are highly competitive. The most important competitive factors include quality, variety of product and marketing. Most of our competitors have significantly greater financial and other resources (such as personnel and contacts) than we have. All of our competitors in the entertainment industry compete for motion picture and television projects and talent and are producing products that compete with ours for exhibition time in theaters, on television, and on home video.

Our success is highly dependent upon such unpredictable factors as the viewing public’s taste. Public taste changes, and a shift in demand could cause our products to lose their appeal. Therefore, acceptance of our products, no matter what the medium, cannot be assured.

We do not represent a significant presence in the entertainment industry.

Travel

The travel services market is highly competitive and has relatively low barriers to entry. We compete primarily with other vacation providers, online travel reservation services, travel agencies and other distributors of travel products and services. Many of our competitors have competitive advantages due to various factors, which include greater brand recognition, longer operating histories, larger customer bases, significantly greater financial, marketing and other resources, and the ability to secure products and services from travel suppliers with greater discounts and on more favorable terms than we can. Furthermore, some travel providers have a strong presence in particular geographic areas, which may make it difficult for us to attract customers in those areas.

We do not represent a significant presence in the travel services industry.

Advertising

NLN competes for advertisers with many other forms of advertising targeting the young adult market. These competing forms of advertising media include other television advertising, radio, print, direct mail and billboard. NLN currently has only a small number of advertisers who are not contractually obligated to renew their advertising contracts or to purchase set amounts of advertising in the future. While it is our plan to increase NLN’s advertising and promotion activities, NLN does not represent a significant presence in the advertising industry at this time.

Intellectual Property

Our primary mark, “National Lampoon®,” is registered with the United States Patent and Trademark Office. We do not own any other trademarks. We license the use of the name “National Lampoon®” from Harvard Lampoon, Inc. pursuant to an agreement we originally entered into on October 8, 1969 and which was amended and restated on October 1, 1998. We would lose our right to use the mark if, for a period of 12 consecutive months, we failed to be actively engaged in good faith efforts to produce or to market our products and services. We routinely register our screen plays, comedy sketches and other written or sound materials with the United States Copyright Office. 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.

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Employees

As of January 1, 2005 we employed 18 full-time employees and NLN employed 9 full time employees. We consider our employee relations to be satisfactory at the present time.

Property

We lease approximately 3,912 square feet of office space in Los Angeles, California under a lease expiring in September 2005. During 2005, our rent obligation will total $139,306. The lease agreement provides for rent adjustments based upon the lessor’s operating costs and increases in the Consumer Price Index. Management considers our office space generally suitable and adequate for its current needs.

National Lampoon Networks, Inc. leases, on a month-to-month basis space in New York City. The monthly rent is $4,500 per month.

Legal Proceedings

From time to time, claims are made against us in the ordinary course of our business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties or injunctions prohibiting us from selling one or more products or engaging in other activities. The occurrence of an unfavorable outcome in any specific period could have a material adverse effect on our results of operations for that period or future periods.

On February 17, 2004, plaintiff Trustin Howard filed a lawsuit against defendants In-finn-ity Productions, Inc., Budd Friedman, National Lampoon Productions and Game Show Network, LLC in the United States District Court for the Central District of California. The plaintiff alleges that we, along with other defendants, stole his idea for the show “Funny Money” and seeks an injunction as well as damages in an amount to be proved at trial for copyright infringement, unfair competition and breach of fiduciary duty. The parties are currently in settlement discussions and we anticipate that a settlement will be reached. No portion of the proceeds from this offering will be used to pay the costs or expenses of any settlement we enter into with Mr. Howard.

On October 27, 2004 Far Horizon Sales and Leasing LLC filed a complaint against our subsidiary, National Lampoon Networks, Inc., in the Superior Court for the County of Los Angeles. The plaintiff alleges that it suffered damages for breach of contract, negligence and trespass to chattel related to the rental of a coach bus and damage thereto. The plaintiff alleges damages in excess of $79,000. If the action is not settled, the trial is scheduled for September 26, 2005.

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MANAGEMENT

The number of directors required by our bylaws is seven. There are no family relationships among our executive officers and directors.

The following table sets forth certain information regarding our directors and executive officers.

Name	Age		Position
Daniel S. Laikin		42		Chief Executive Officer, Director
Douglas S. Bennett		45		President
James Toll		51		Chief Financial Officer
James P. Jimirro		66		Chairman
Timothy S. Durham		42		Director
Paul Skjodt		46		Director
Joshua A. Finkenberg		30		Director
Richard Irvine		63		Director
Ron Berger		56		Director

None of our directors or executive officers has, during the past five years,

·   had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time,

·   been convicted in a criminal proceeding and none of our directors or executive officers is subject to a pending criminal proceeding,

·   been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities, or

·   been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Election of Directors

On May 17, 2002 a Voting Agreement was entered into among James P. Jimirro and the members of the NLAG Group. The Voting Agreement will terminate 13 months following the date of Mr. Jimirro’s separation from service, which occurred on January 28, 2005. During the term of the Voting Agreement, Mr. Jimirro is entitled to nominate three directors to the Board of Directors and Daniel S. Laikin, our Chief Executive Officer, is entitled to nominate three directors. The seventh member of our Board of Directors must be mutually nominated by Mr. Jimirro and Mr. Laikin. The parties to the Voting Agreement, who collectively have voting control, have agreed to vote for those persons nominated by Mr. Jimirro and Mr. Laikin.

Once the Voting Agreement terminates, directors will be elected annually and will serve until successors are elected and qualified or until a director’s earlier death, resignation or removal.

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Committees of the Board of Directors

Our Board of Directors has two committees, an audit committee and a compensation committee. The audit committee is made up of Timothy Durham and Joshua Finkenberg. The Compensation Committee is made up of Timothy Durham, Joshua Finkenberg and Daniel S. Laikin.

Business Experience

DANIEL S. LAIKIN has been a director since 2000 and was employed as our Chief Operating Officer from May 17, 2002 until February 1, 2005 when he became our Chief Executive Officer. 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. (OTCBB:OBDE).

DOUGLAS S. BENNETT provided services to us as a consultant beginning in June 2002, then joined us as our Executive Vice President in October 2002 and became our President on February 1, 2005. Mr. Bennett has over 22 years of experience in managing businesses in publishing and software. Prior to joining us, Mr. Bennett 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 Mr. Bennett was the Chairman and Chief Executive Officer 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 Macmillan’s business and eventually became the President of the entire Macmillan Publishing business. Prior to his employment with Macmillan, 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.

JAMES TOLL has been employed as our Chief Financial Officer since August 2001. Mr. Toll has worked in the financial area for 22 years, including as a Senior Financial Analyst for CBS Television Network in Los Angeles, California and Warner/Electra/Atlantic International (WEA International) Records in Burbank, California. Mr. Toll spent three years as head of the accounting department for the non-profit company, WQED-West, and during this time was involved with the production of the Emmy award winning seven part series, “The Planet Earth” and the production of National Geographic Specials. From 1996 to 1999 Mr. Toll wsa employed as the Chief Financial Officer of Keller Entertainment Group, an international television production and distribution company. Mr. Toll also worked for us from May 1987 through March 1993 as our Chief Financial Officer. Mr. Toll received his Bachelor of Arts degree from the University of California, Berkeley with Distinction and Honors in his major and a Master of Business Administration (Finance and Accounting) from the University of Southern California in 1979.

JAMES P. JIMIRRO has been a director since 1986 and was employed as our President and Chief Executive Officer from 1990 until January 2005. 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 Walt Disney Company through July 1986. From 1973 to 1980, he served as Director of International Sales and then as Executive Vice President of Walt Disney Educational Media Company, a subsidiary of 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.

TIMOTHY S. DURHAM has served as a director since 2002. He is the Chief Executive Officer and Chairman of the Board of Directors of Obsidian Enterprises, Inc. (formerly Danzer Corporation) and has held these positions since June 2001. Since April 2000, he has served as a Managing Member and the Chief Executive Officer of Obsidian Capital Company LLC, which is the general partner of Obsidian Capital Partners LP. Mr. Durham founded in 1998, and since then has 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. (OTCBB:OBDE).

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PAUL SKJODT has been a director since 2002.  He is actively involved in a variety of companies including managing member of Four Leaf & Associates. Four Leaf is a venture fund that provides seed money to a host of technology companies.  Mr. Skjodt also is President of Oakfield Development a land development company based of Indianapolis and owner of the Indiana Ice, an ice hockey team in the United States Hockey League. Mr. Skjodt is also involved in numerous philanthropic endeavors in Indiana.

JOSHUA A. FINKENBERG has been a director since 2002. He 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.

RICHARD IRVINE joined our Board in 2004. He is Senior Vice President of Sales for Bally Gaming and Systems (NYSE:AGI). Mr. Irvine is responsible for guiding the North American sales operations of Bally Gaming, encompassing both the United States and Canada. Prior to joining Bally Gaming and Systems, Mr. Irvine served as Vice President of Sales for AC Coin & Slot, a gaming-device distributor based in Atlantic City, N.J. He has also served as Chief Operating Officer of GameTech, a supplier of electronic bingo equipment, and as President and Chief Operating Officer of Mikohn Gaming Corporation. Previously, Mr. Irvine held the positions of Senior Vice President, Marketing and Entertainment for Boomtown, Inc., a Reno, Nevada-based owner and operator of casino properties in Nevada, Mississippi and Louisiana, Vice President of Marketing for Walt Disney Attractions, and President and Chief Operating Officer of Straight Arrow Publishing, publishers of Rolling Stone Magazine. Mr. Irvine was co-founder of Aurora Productions, a producer of major motion pictures. He also served as Executive Vice President of Unicorn/Sovaminco, a U.S.-U.S.S.R. joint venture company. Mr. Irvine began his gaming-industry career as Executive Vice President, Worldwide Sales and Marketing, for International Game Technology.

RON BERGER also joined us as a director in 2004. Mr. Berger is Chairman and Chief Executive Officer of Figaro’s Italian Pizza, Inc., a chain of retail pizza shops in 17 states. From 1989 through 2000, Mr. Berger served as Chairman and Chief Executive Officer of Rentrak Corporation (NASDAQ: RENT) a publicly traded information and payment processor in the home video industry. Mr. Berger conceived of the Rentrak concept - a method of sharing revenues between video rental shops and the Hollywood motion picture studios and other program suppliers. Under his leadership, the business grew from $6 million in revenues in 1989 to $113 million in year 2000. Prior to building Rentrak, Mr. Berger founded and took public National Video, the world’s largest specialty video retail chain prior to Blockbuster. He has also twice served as a member of the board of directors of the International Franchise Association and served as a member of the board of directors of the Video Software Dealers Association.

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Executive Compensation

The following tables and discussion set forth information with respect to all compensation awarded to, earned by or paid to our Chief Executive Officer and up to four of our executive officers whose annual salary and bonus exceeded $100,000 during our last three completed fiscal years (collectively referred to in this discussion as the “named executive officers”). The officer designation indicates positions held as of July 31, 2004, the end of our last fiscal year. Since that date, Mr. Jimirro retired although he still acts as Chairman of our Board of Directors and Mr. Laikin and Mr. Bennett have assumed new responsibilities as our Chief Executive Officer and President, respectively.

	Long Term
	Annual Compensation							Compensation
Name and Position	Year		Salary ($)			Other Annual Compensation ($)		SARs (Shares)		Stock Options (Shares)			All Other Compensation ($)(5)
Daniel Laikin		2004		200,000(1	)		--		--		0			13,200
Chief Operating Officer		2003		200,000(2	)						0			13,200
		2002		0			--		--		202,666			2,200
Douglas S. Bennett		2004		175,000			--		--		0			--
Executive Vice President		2003		131,667			--		--		380,000			21,300
		2002		0			--		--		0			--
James Toll		2004		149,550							0			--
Chief Financial Officer		2003		132,737			--		--		30,000			--
		2002		36,364			--		--		30,000			--
James P. Jimirro		2004		500,000			--		--		120,000			11,994
Chairman, President and		2003		500,000			--		--		70,000(4	)		11,994
Chief Executive Officer		2002		1,471,146(3	)		--		25,000		608,335(4	)		1,049

(1) Represents one year of salary paid to Mr. Laikin that was paid with 7,649 units of Series C Preferred Stock, with each unit consisting of one share of Series C Convertible Preferred Stock and a warrant to purchase 10 shares of common stock at a price of $1.775 per share.

(2) Represents one year of salary paid to Mr. Laikin that was paid with 2,000 units of Series B Preferred Stock, with each unit consisting of one share of Series B Convertible Preferred Stock and a warrant to purchase 56.338 shares of common stock at a price of $1.775 per share.

(3) Includes $1,215,069 received through the Reorganization Transaction.

(4) Includes options to acquire 900,000 shares of common stock granted during the fiscal year ended December 31, 2002, plus 316,670 stock options that were converted from SARs as part of the Reorganization Transaction.

(5) Automobile allowance.

On December 9, 2004, we granted a bonus to Daniel S. Laikin for exceptional services and issued to him 5,634 units of Series C Convertible Preferred Stock having a value of $35.50 per unit. Each unit included one share of Series C Convertible Preferred Stock and a warrant to purchase ten post-split shares of common stock at a price of $1.775 per share.

The following table sets forth certain information concerning the grant of stock options (no SARs were granted) during the last completed fiscal year by each of the named executive officers, and the fiscal year-end value of unexercised options on an aggregated basis:

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Name	Options/SARs Granted			% of Total Options/SARs Granted to Employees in Fiscal Year			Exercise or Base Price ($/Sh)(2)		Expiration Date
James P. Jimirro		10,000 (1	)		.80	%	$	2.25		8/31/13
James P. Jimirro		10,000 (1	)		.80	%	$	2.76		9/30/13
James P. Jimirro		10,000 (1	)		.80	%	$	2.38		10/31/13
James P. Jimirro		10,000 (1	)		.80	%	$	2.38		11/30/13
James P. Jimirro		10,000 (1	)		.80	%	$	1.88		12/31/13
James P. Jimirro		10,000 (1	)		.80	%	$	1.63		1/31/14
James P. Jimirro		10,000 (1	)		.80	%	$	1.88		2/28/14
James P. Jimirro		10,000 (1	)		.80	%	$	2.00		3/31/14
James P. Jimirro		10,000 (1	)		.80	%	$	1.75		4/30/14
James P. Jimirro		10,000 (1	)		.80	%	$	1.88		5/31/14
James P. Jimirro		162,040 (1	)		13.01	%	$	1.76		6/14/09
James P. Jimirro		15,000 (1	)		1.20	%	$	1.60		6/14/14
James P. Jimirro		10,000 (1	)		.80	%	$	1.65		6/30/14
James P. Jimirro		10,000 (1	)		.80	%	$	3.50		7/31/14
Daniel Laikin		15,000 (1	)		1.20	%	$	1.60		6/14/14
Daniel Laikin		400,000 (1	)		32	%	$	1.76		6/17/09
Douglas S. Bennett		200,000			16.06	%	$	1.60		6/17/11
Douglas S. Bennett		100,000			8.03	%	$	1.60		6/17/11
James Toll		30,000			2	%	$	1.60		6/17/11

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

(2) The exercise or base price has been adjusted for the 2-for-1 stock split that was effective on September 15, 2004.

Shown below is information with respect to the exercise of stock options by named executive officers and their values as of July 31, 2004, our last completed fiscal year:

Name	Shares Acquired on Exercise		Value Realized ($)		Number of securities underlying unexercised options/SARs at FY-end (#) Exercisable/Unexercisable		Value of unexercised in-the-money options/SARs at FY-end ($) Exercisable/Unexercisable
James P. Jimirro		--		--		1,356,668/0	$	1,845,195/0
Daniel Laikin		--		--		204,666/0	$	4,346/0
Douglas S. Bennett		--		--		184,861/195,139	$	102,331/$122,069
James Toll		--		--		27,000/20,000	$	39,010/$22,600

Director Compensation

We do not have a plan pursuant to which members of our Board of Directors are compensated and members of the Board of Directors do not receive cash compensation. Members have been, on occasion, granted immediately exercisable options to purchase up to 15,000 shares of our common stock at the market price on the date of grant in exchange for their services to us. This includes Mr. Jimirro and Mr. Laikin.

Employment Agreements

Daniel S. Laikin, Chief Executive Officer

On January31, 2005 we entered into an Employment Agreement with Daniel S. Laikin. The employment agreement was adopted and approved by our Board of Directors on February 1, 2005. The employment agreement has a term of three years, but is automatically extended for successive three-year terms unless designated members of the Board of Directors notify Mr. Laikin that the Board does not intend to renew the employment agreement or unless the employment agreement has been terminated according to its terms.

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Pursuant to the employment agreement, Mr. Laikin receives an annual salary of $250,000. He is also granted an option to purchase 100,000 shares of our common stock on each anniversary of the effective date of the employment agreement. The exercise price for the options will be equal to the average of the last reported sale price for one share of common stock during the five business days preceding the date of grant or, if this method of valuing the common stock is not available, the Board shall determine, in good faith, the value of one share of common stock. The term of each option shall be 10 years. The options shall be granted in accordance with the J2 Communications Amended and Restated 1999 Stock Option, Deferred Stock and Restricted Stock Plan. Mr. Laikin is to meet annually with the Board of Directors to set certain performance milestones that must be met bi-annually. If those milestones are met, Mr. Laikin will receive a bonus of $50,000. If the milestones are exceeded, Mr. Laikin will receive additional compensation that will be paid one-half in cash and one-half in stock.

Mr. Laikin’s employment agreement may be terminated voluntarily by us at any time during its term for Cause. Cause is defined as (i) the willful and continued failure by Mr. Laikin to substantially perform his duties to us in good faith (other than a failure resulting from his incapacity due to physical or mental illness), or (ii) the willful engaging in conduct which is demonstrably and materially injurious to us. In order 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. If Mr. Laikin’s employment is terminated by us for Cause, in addition to any benefits mandated by law, we shall pay to 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.

Mr. Laikin’s employment may be terminated by Mr. Laikin at any time, and will terminate automatically upon his death or disability. Upon such termination, in addition to any benefits mandated by law, we shall pay to 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.

On signing the Employment Agreement, we also agreed to enter into a separate indemnity agreement with Mr. Laikin. The indemnity agreement has not been entered into as of the date of this prospectus.

Douglas S. Bennett, President

On January 31, 2005 we entered into an agreement with Douglas S. Bennett to employ him as our President. The employment agreement was adopted and approved by our Board of Directors on February 1, 2005. The agreement will expire on January 31, 2008.

Pursuant to the term of the agreement, we will pay Mr. Bennett a base salary of $250,000. Mr. Bennett is also entitled to receive four weeks paid vacation and we have agreed to pay 100% of the costs of his group health plan premiums, so long as we continue to offer a group health plan. Mr. Bennett is entitled to participate in any other benefits offered generally to our employees and executives.

Mr. Bennett is to meet annually with the Chief Executive Officer and the Board of Directors to set certain performance milestones that must be met bi-annually. If those milestones are met, Mr. Bennett will receive a bonus of $50,000. If the milestones are exceeded, Mr. Bennett will receive additional compensation that will be paid one-half in cash and one-half in stock.

On January 31, 2006, January 31, 2007 and January 31, 2008, Mr. Bennett will receive an option to purchase 100,000 shares of our common stock through the J2 Communications 1999 Amended and Restated Stock Option, Deferred Stock and Restricted Stock Plan. These options will be fully vested on the date of grant.

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Mr. Bennett is currently commuting from his home in Northern California. If we require that he relocate to the Los Angeles area, and he agrees to do so, we will be required to pay him certain relocation expenses, including expenses (including costs of transportation, meals and lodging) of no more than three trips to Southern California for the purpose of locating a suitable place to live and the expenses incurred in moving his household furniture and furnishings to his home in Southern California

We may terminate Mr. Bennett’s employment for cause at any time. “Cause” is defined as a good faith termination by a majority of the Board of Directors because he (i) engages in acts in violation of the law, (ii) breaches his fiduciary duty to us or his duties of loyalty or care to us, or (iii) intentionally and persistently disobeys the good faith, lawful, substantive policies or instructions of the Board of Directors after being given 30 days written notice and failing to cure such circumstances, or, if such circumstances are not susceptible of cure during such 30 day period, failing to initiate and diligently pursue actions reasonably calculated to achieve and cure such circumstances as soon as reasonably practicable thereafter.

If we terminate Mr. Bennett’s employment without cause, or if he is constructively terminated, or if Mr. Bennett dies or is disabled, he will be entitled to receive the following severance benefits:

·   his base salary will be continued for a period of six months or for the remaining term, whichever is longer, following the date that his termination becomes effective;

·   his employee benefits will be continued as long as his base salary is continued; and

·   any unvested stock options will continue to vest for a period of six months or for the remaining term of his employment as set forth in the agreement, whichever is longer, following the date on which his termination becomes effective.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Bruce P. Vann, was a director until February 2004. Mr. Vann was a partner at the law firm Kelly Lytton &Vann LLP. We retained the services of Kelly Lytton & Vann LLP for various legal matters. Legal expenses of approximately $32,000, $108,000, and $119,000 were incurred with respect to work performed for us by Kelly Lytton & Vann LLP during the fiscal years ended July 31, 2004, 2003 and 2002.

On July 14, 1986, James P. Jimirro, our Chairman and former 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 for approximately $58,000. The note bore 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, 2004 was approximately $164,000. The note was forgiven in its entirety as part of the termination of Mr. Jimirro’s employment on January 28, 2005. We also paid cash severance compensation to Mr. Jimirro in the amount of $2,523,800 and we paid off the lease to his automobile.

On May 17, 2002 we and National Lampoon Acquisition Group (the “NLAG Group”) entered into a Preferred Stock and Warrant Purchase Agreement pursuant to which we sold to members of the NLAG Group 35,244 units, each unit consisting of one share of Series B Convertible Preferred Stock and a warrant to purchase 56.338 shares of our common stock at a purchase price of $1.775 per share. The warrants have a term of five years. The per unit purchase price was $100. Our Chief Executive Officer and director, Daniel S. Laikin, and our directors, Timothy Durham and Paul Skjodt, purchased units in this offering.

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Effective August 17, 2002 we issued to Douglas S. Bennett 426 units of our Series B Convertible Preferred Stock as payment for services rendered to us as a consultant. Each unit had a value of $100. The units consisted of 426 shares of Series B Convertible Preferred Stock and warrants to purchase a total of 24,000 shares of our common stock. The warrant exercise price is $1.775 per share and the warrant term is five years.

Beginning in March 2003, after the closing of the Series B Convertible Preferred Stock offering, Daniel S. Laikin, our Chief Operating Officer and a director, and Timothy Durham, a director loaned us money in order to fund our operations. The total amount loaned to us by Mr. Laikin, including accrued interest, was approximately $2,509,000, and the total amount loaned to us by Mr. Durham, including accrued interest, was approximately $2,137,000. Mr. Laikin and Mr. Durham have converted their loans to units of our Series C Convertible Preferred Stock at a rate of $35.50 per unit. Mr. Laikin also converted $220,000 in compensation owed to him to our Series C Convertible Preferred Stock at the rate of $35.50 per unit.

Leagre Chandler & Millard, our former attorneys, assigned to Mr. Timothy Durham a promissory note we had signed in favor of Leagre Chandler & Millard for legal services incurred in relation to the Reorganization Transaction. The original amount of the promissory note was $165,000. As of February 2, 2005, the outstanding balance, with interest, totaled approximately $144,000. The loan bears interest at the rate of 6.75% per annum. We have made one payment of $50,000 toward this promissory note.

On January 28, 2005 we borrowed $2,700,000 from N. Williams Family Investments, L.P. Christopher R. Williams, an owner of more than 5% of our common stock, is a partner in this limited partnership. The loan accrues interest at the rate of 7% per annum and is due to be repaid upon the earlier of the closing of this offering or January 28, 2006. We have granted N. Williams Family Investments, L.P. a lien against all of our assets as security for the repayment of this loan. We also issued a total of 100,000 shares of our common stock to N. Williams Family Investments, L.P. and Christopher R. Williams as consideration for this loan.

In conjunction with our receipt of the loan from N. Williams Family Investments, L.P., Mr. Daniel S. Laikin, our Chief Executive Officer and a director, and Mr. Timothy Durham, a director, agreed to guarantee certain obligations relating to the security provided for the loan. In exchange for these guarantees, Mr. Laikin and Mr. Durham each received 50,000 shares of our common stock.

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SELLING STOCKHOLDER

The table below sets forth information as of February 2, 2005 to reflect the sale of shares being offered by the Selling Stockholder. James P. Jimirro is a director and Chairman of the Board of Directors.

Selling Stockholder	Shares of Common Stock Beneficially Owned Prior to Offering					Number of Shares of Common Stock to be Sold in the Offering		Shares of Common Stock Beneficially Owned After the Offering
	Number		Percent					Number		Percent
James P. Jimirro, Director		2,011,042		8.56	%		200,000		1,811,042		**

(1) Based on 3,343,311 shares of common stock outstanding on February 2, 2005 and ________ shares of common stock outstanding after the completion of this offering.

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SECURITY OWNERSHIP OF

CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of February 2, 2005 as to each person or group who is known to us to be the beneficial owner of more than 5% of our outstanding voting securities and as to the security and percentage ownership of each of our executive officers and directors and of all of our officers and directors as a group.

Beneficial ownership is determined under the rules of the Securities and Exchange Commission and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder.

Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of February 2, 2005 are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

Title of Class	Name, Address(1) and Position Of Beneficial Owners		Security Ownership Amount and Nature Of Beneficial Ownership(2)(3)			Percentage Of Class
Common stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock(4)		Daniel S. Laikin, CEO and Director		7,075,314(4	)		28.10	%
Common stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock		Douglas S. Bennett, President		441,766(5	)		1.98	%
Common stock		James Toll, CFO		32,497(6	)		*
Common stock		James P. Jimirro, Chairman of the Board of Directors		2,011,042(7	)		8.56	%
Common stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock		Timothy Durham, Director		4,058,854(8	)		17.36	%
Common stock		Joshua Finkenberg, Director		45,000(9	)		*
Common stock and Series B Convertible Preferred Stock		Paul Skjodt, Director		1,099,494(10	)		4.92	%
Common stock		Richard Irvine, Director		0			*
Common stock		Ron Berger, Director		16,000(11	)		*
Common stock and Series B Convertible Preferred Stock		Christopher R. Williams (12)		239,998(12	)		1.08	%
Series B Convertible Preferred Stock		All holders of our Series B Convertible Preferred Stock as a group (13)		7,166,982			32.67	%
Series C Convertible Preferred Stock		All holders of our Series C Convertible Preferred Stock as a group (13)		6,892,810			31.42	%
Officers and Directors as a group (9 persons)				14,779,967			60.92	%

* Less than 1%.

(1) The address for each of the above-named persons is 10850 Wilshire Boulevard, Suite 1000, Los Angeles, California 90024.

(2) Based on a total of 21,938,331 shares outstanding including 3,343,311 shares of common stock outstanding on February 2, 2005, 65,607 shares of Series B Convertible Preferred Stock that may be converted into 3,583,491 shares of common stock, 3,583,491 shares issuable upon exercise of warrants attached to our Series B Convertible Preferred Stock, 229,761 shares of Series C Convertible Preferred Stock that may be converted into 4,595,220 shares of common stock, 2,297,610 shares of common stock issuable upon exercise of warrants attached to our Series C Convertible Preferred Stock and 4,535,208 shares of common stock issuable upon the exercise of outstanding warrants and options. The Series B Convertible Preferred Stock votes on an “as converted” basis, with each share representing 56.338 shares of our common stock. The Series C Convertible Preferred Stock votes on an “as converted” basis, with each share representing 20 shares of common stock. The common stock purchase warrants attached to the Series B Convertible Preferred Stock grant each Series B Convertible Preferred stockholder the right to purchase 56.338 shares of common stock for each share of Series B Convertible Preferred Stock owned. The common stock purchase warrants attached to the Series C Convertible Preferred Stock grant each Series C Convertible Preferred stockholder the right to purchase 10 shares of common stock for each share of Series C Convertible Preferred Stock owned. For this table, we have computed the number of shares owned by each individual as though the Series B and the Series C Convertible Preferred Stock, including the common stock represented by the Series B and Series C Convertible Preferred Stock warrants and all vested options, were converted into common stock.

(3) Calculated pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934. Under Rule 13d-3(d)(1), shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but not deemed outstanding for the purpose of calculating the percentage owned by each other person listed.

(4) This number includes the following: 386,300 shares of common stock, 31,726 shares of Series B Convertible Preferred Stock that may be converted into 1,787,379 shares of common stock, options to purchase 619,666 shares of common stock, a warrant to purchase 1,787,379 shares of common stock attached to the Series B Convertible Preferred Stock, 83,153 shares of Series C Convertible Preferred Stock that may be converted into 1,663,060 shares of common stock and a warrant to purchase an additional 831,530 shares of common stock attached to the Series C Convertible Preferred Stock.

(5) This number includes the following: 3,000 shares of common stock, 426 shares of Series B Preferred Stock that may be converted into 24,000 shares of common stock, a warrant to purchase 24,000 shares of common stock attached to the Series B Convertible Preferred Stock, 1,090 shares of Series C Convertible Preferred Stock that may be converted into 21,800 shares of common stock, a warrant to purchase an additional 10,900 shares of common stock attached to the Series C Convertible Preferred Stock and the right to purchase a total of 358,066 shares of common stock from a total of 680,000 options granted to Mr. Bennett.

(6) Mr. Toll is the holder of options that enable him to purchase a total of 75,000 shares of our common stock. Of this amount, options representing 32,497 shares may be exercised within 60 days of February 2, 2005.

(7) This number includes 1,560,374 shares of common stock that may be issued upon the exercise of options.

(8) This number includes the following: 415,898 shares of common stock owned by Mr. Durham or by an entity controlled by him, 17,648 shares of Series B Convertible Preferred Stock owned by Mr. Durham or an entity controlled by him that may be converted into 994,253 shares of common stock, an option to purchase 45,000 shares of common stock, a warrant to purchase 974,253 shares of common stock attached to the Series B Convertible Preferred Stock, 17,648 shares of Series C Convertible Preferred Stock that may be converted into 1,206,300 shares of common stock and a warrant to purchase an additional 603,150 shares of common stock attached to the Series C Convertible Preferred Stock.

(9) This number is made up of options granted to Mr. Finkenberg as compensation for his service as a director.

(10) This number includes the following: 322,100 shares of common stock, 6,500 shares of Series B Convertible Preferred Stock that may be converted into 366,197 shares of common stock, an option to purchase 45,000 shares of common stock and a warrant to purchase 366,197 shares of common stock attached to the Series B Convertible Preferred Stock

(11) This number is made up of 15,000 options granted to Mr. Berger as compensation for his service as a director and 1,000 shares of common stock owned by the Ron A. Berger Irrevocable Trust.

(12) Includes 20,000 shares of common stock, a warrant to purchase 3,550 shares of Series B Convertible Preferred Stock that may be converted into 200,000 shares of common stock and the right to purchase 19,998 shares of common stock from a total of 40,000 options granted to Mr. Williams on September 17, 2003. The information included in this footnote is from our records and a Schedule 13G filed by Mr. Williams with the Securities and Exchange Commission on January 17, 2003. According to the Schedule 13G, Mr. Williams’ address is 31755 South Coast Highway, Unit 407, Laguna Beach, California 92651. Mr. Williams was granted 20,000 shares of common stock in exchange for the loan in the amount of $2.7 million made to us by N. Williams Family Investments, L.P.

(13) The number of shares of common stock shown includes the shares of common stock that may be acquired by Mr. Laikin, Mr. Durham, Mr. Skjodt, Mr. Bennett and Mr. Williams.

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DESCRIPTION OF OUR SECURITIES

Common Stock

We are authorized by our Articles of Incorporation to issue 60,000,000 shares of common stock, $0.0001 par value. Our common stock is traded on the Over-the-Counter Bulletin Board under the symbol “NLPN”.

As of February 2, 2005 we had issued and outstanding 3,343,311 shares of common stock. Holders of our common stock are entitled to one vote per share on all matters subject to shareholder vote. If the Board of Directors were to declare a dividend out of funds legally available therefore, all of the outstanding shares of common stock would be entitled to receive such dividend ratably, subject to the rights of the holders of our Series B Convertible Preferred Stock and our Series C Convertible Preferred Stock. We have never declared dividends and we do not intend to declare dividends in the foreseeable future. If our business was liquidated or dissolved, holders of shares of common stock would be entitled to share ratably in assets remaining after satisfaction of our liabilities, subject to the rights of the holders of our Series B Convertible Preferred Stock and our Series C Convertible Preferred Stock.

Holders of common stock do not have cumulative voting rights.

Preferred Stock

Our Certificate of Incorporation permits us to issue up to 2,000,000 shares of Preferred Stock, par value $0.0001 per share. The Preferred Stock may be issued in any number of series, as determined by the Board of Directors, the Board may by resolution fix the designation and number of shares of any such series of Preferred Stock and may determine, alter or revoke the rights, preferences, privileges and restrictions pertaining to any wholly unissued series and the Board may increase or decrease the number of shares of any such series (but not below the number of shares of that series then outstanding.)

Our Board of Directors has designated a Series B Convertible Preferred Stock, referred to herein as the “Series B Preferred Stock” and a Series C Convertible Preferred Stock, referred to herein as the “Series C Preferred Stock”.

Series B Convertible Preferred Stock

The Board of Directors has authorized a total of 68,406 shares of Series B Preferred Stock, $0.001 par value. We currently have 63,607 shares of Series B Preferred Stock issued and outstanding. Holders of our Series B Preferred Stock may, at their option, convert each share into 56.338 shares of our common stock. Each holder of Series B Preferred Stock also received a warrant to purchase the number of shares of common stock equal to the number of shares of common stock into which the holder’s Series B Preferred Stock may be converted. The warrant exercise price is $1.775 per share. The term of the warrants is five years.

The holders of Series B Preferred Stock have the right to participate, pro-rata and together with the holders of our common stock, in any dividend or distribution made by National Lampoon to the holders of common stock. The holders of the Series B Preferred Stock receive the dividend or distribution based on the number of shares of common stock into which the shares of Series B Preferred Stock may be converted.

The holders of Series B Preferred Stock vote, or act by written consent, as a single class with the holders of our common stock, and not as a separate class. They are entitled to the same voting rights, privileges and number of votes as if they were holders of the number of shares of common stock into which their shares of Series B Preferred Stock could be converted.

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Upon any liquidation, dissolution or winding up of National Lampoon, payment is made to holders of the Series B Preferred Stock after payment is made to the holders of any senior security but before payment is made to the holders of our common stock.

In order to induce the holders of our Series B Preferred Stock to approve the creation and issuance of a Series C Preferred Stock, we agreed to amend our Certificate of Incorporation to permit the payment of a dividend computed as 9% of the original purchase price of the Series B Preferred Stock units, which was $100 per unit. Dividends on the Series B Preferred Stock began to accrue as of July 19, 2004. The number of shares of common stock to be issued in payment of dividends is computed using the closing price, as reported by the exchange or regulated quotation service on which our common stock is traded, of the common stock on the trading date immediately preceding the date that we become liable to pay the dividend. If no trades were made on that date, then the number of shares to be issued will be computed using the closing price of the last date on which trades were made and reported.

Series C Convertible Preferred Stock

On June 17, 2004 our Board of Directors adopted, and on June 28, 2004 our majority stockholders and the holders of our Series B Preferred Stock approved, the creation of the Series C Preferred Stock. We reserved 250,000 shares of our preferred stock, $0.0001 par value per share, to be designated as Series C Preferred Stock and we currently have 229,761 shares issued. Holders of our Series C Preferred Stock may, at their option, convert each share into 20 shares of our common stock.

The Series C Preferred Stock ranks senior to all of our other securities. The Series C Preferred Stock votes together with the common stock as a single class on all actions to be taken by our stockholders. They are entitled to the same voting rights, privileges and number of votes as if they were holders of the number of shares of common stock into which their shares of Series C Preferred Stock could be converted.

For so long as at least 100,000 shares of Series C Preferred Stock are outstanding, the holders of the Series C Preferred Stock are entitled to elect one director to serve on our Board of Directors.

The holders of at least a majority of the Series C Preferred Stock must vote in favor of the declaration or payment of any dividends or distributions on our common stock and of the redemption, purchase or other acquisition of our securities from our stockholders (with the exception of repurchases from employees and other service providers upon termination of employment or other services).

No dividends (other than those paid in common stock) or distributions of cash or other assets may be issued until after the retirement or separation from services of our former Chief Executive Officer, James P. Jimirro, which occurred on January 28, 2005. Furthermore, preferential dividends must be paid to the holders of the Series C Preferred Stock if declared and issued prior to certain events. Irrespective of the foregoing, dividends at the rate of 9% per annum on the original purchase price of the Series C Preferred Stock units, which was $35.50, and all accrued and unpaid dividends will accrue from the date that we issued the Series C Preferred Stock until the date that National Lampoon is liquidated or the Series C Preferred Stock is converted. The number of shares of common stock to be issued in payment of dividends is computed using the closing price, as reported by the exchange or regulated quotation service on which our common stock is traded, of the common stock on the trading date immediately preceding the date that we become liable to pay the dividend. If no trades were made on that date, then the number of shares to be issued will be computed using the closing price of the last date on which trades were made and reported.

The holders of the Series C Preferred Stock will be entitled to be paid an amount that is 1.5 times the original purchase price (plus any accrued dividends) of the Series C Preferred Stock in the event of a liquidation of National Lampoon. If our assets are insufficient to permit payment of these amounts to the holders of the Series C Preferred Stock, then all the assets of National Lampoon shall be distributed to the holders of the Series C Preferred Stock. The holders of the Series C Preferred Stock are entitled to be paid before any payment is made to the holders of our common stock or our Series B Preferred Stock.

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Each holder of Series C Preferred Stock also received a warrant to purchase 10 shares of our common stock for each share of Series C Preferred Stock held. The warrant exercise price is $1.775 per share. The term of the warrants is four years.

Registration Rights

The NLAG Group (which, for purposes of this discussion only, includes GTH Capital, Inc.), James P. Jimirro, the holders of our Series C Preferred Stock and Constellation Venture Capital, L.P. have registration rights, as described below.

NLAG Group Registration Rights

A majority of the NLAG Group may demand, on two separate occasions, that we register part or all of their registrable securities. The term “registrable securities” is defined as any common stock issued or issuable upon conversion of the Series B Preferred Stock, any common stock issued in respect of securities issued pursuant to the conversion of the Series B Preferred Stock upon any stock split, stock dividend, recapitalization or similar event, and any common stock issued or issuable upon exercise of the warrants to purchase common stock issued to the holders of Series B Preferred Stock.

The NLAG Group also has piggyback registration rights. Whenever we propose to register for distribution by prospectus any of our securities (with certain exceptions for business combinations or employee equity plans) and the registration form or prospectus to be filed may be used for the registration of registrable securities, whether or not for sale for our account, we must give prompt written notice to the NLAG Group of our intention to effect the registration or file the prospectus and we must include in the registration or qualification all registrable securities with respect to which we have received written requests for inclusion therein.

However, if a piggyback registration is an underwritten distribution by prospectus and if the managing underwriters advise us in writing that in their opinion the number of securities requested to be included in the registration or prospectus exceeds the number which can be sold in an offering without adversely affecting the marketability of the offering, we are then required to include in the registration or prospectus only the securities we propose to sell, then the registrable securities requested to be included in the registration and any securities requested by James P. Jimirro to be included in the registration, pro rata among the holders of those securities.

Jimirro Registration Rights

Mr. Jimirro’s registration rights relate to his registrable securities, which are defined as his shares of common stock. Otherwise, the terms of his registration rights are identical to those of the NLAG Group.

Registration Rights of Series C Preferred Stock

Holders of Series C Preferred Stock have piggyback registration rights only as to their registrable securities, which are defined as any common stock issued or issuable upon conversion of the Series C Preferred Stock, any common stock issued or issuable upon exercise of the warrants received by the holders of Series C Preferred Stock and common stock issued in respect of any stock split, stock dividend, recapitalization or similar event.

However, if a piggyback registration is an underwritten distribution by prospectus and if the managing underwriters advise us in writing that in their opinion the number of securities requested to be included in the registration or prospectus exceeds the number which can be sold in an offering without adversely affecting the marketability of the offering, we are then required to include in the registration or prospectus only the securities we propose to sell, then the registrable securities held by the NLAG Group and Mr. Jimirro and then the registrable securities held by the holders of Series C Preferred Stock and requested to be included in the registration, pro rata among the holders of the Series C Preferred Stock.

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Constellation Venture Capital, L.P Registration Rights.

Constellation Venture Capital, L.P. has piggyback registration rights as to the common stock issued or issuable to Constellation Venture Capital, L.P. in conjunction with our purchase of the assets of Burly Bear Network.

However, if a piggyback registration is an underwritten distribution by prospectus and if the managing underwriters advise us in writing that in their opinion the number of securities requested to be included in the registration or prospectus exceeds the number which can be sold in an offering without adversely affecting the marketability of the offering, we are then required to include in the registration or prospectus only the securities we propose to sell, then the registrable securities held by the NLAG Group, Mr. Jimirro and the holders of Series C Preferred Stock and then the registrable securities held by Constellation Venture Capital, L.P.

Change of Control Provisions

While there are no specific provisions in our Certificate of Incorporation or bylaws that would delay, defer or prevent a change of control, the ownership of our Series B Preferred Stock gives the NLAG Group voting control, which allows the NLAG Group to prevent a change of control. Furthermore, on May 17, 2002 a Voting Agreement was entered into among James P. Jimirro and the members of the NLAG Group. The Voting Agreement will terminate 13 months following the date of Mr. Jimirro’s separation from service, which occurred on January 28, 2005. During the term of the Voting Agreement, Mr. Jimirro is entitled to nominate three directors to the Board of Directors and Daniel S. Laikin, our Chief Executive Officer, is entitled to nominate three directors. The seventh member of our Board of Directors must be mutually nominated by Mr. Jimirro and Mr. Laikin. The parties to the Voting Agreement, who collectively have voting control, have agreed to vote for those persons nominated by Mr. Jimirro and Mr. Laikin.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION

FOR SECURITIES ACT LIABILITIES

As permitted by Section 102(b)(7) of the Delaware General Corporation Law, our Certificate of Incorporation includes a provision that eliminates the personal liability of each of our directors for monetary damages for breach of such director’s fiduciary duty as a director, except for liability: (i) for any breach of the director’s duty of loyalty to us or our stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit.

In addition, our Certificate of Incorporation provides that we must, to the fullest extent permitted by the Delaware General Corporation Law, indemnify any person who is made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his personal representative or his heirs, is or was a director or officer of National Lampoon or any predecessor of National Lampoon, or serves or served at any other enterprise as a director or officer at the request of National Lampoon or any predecessor of National Lampoon.

Our bylaws require us to provide indemnity to the fullest extent allowed by law to each of our officers and directors against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that such person is or was our agent. The bylaws allow us to provide this same indemnity to employees and agents (other than directors and officers). Our bylaws also permit us to advance expenses incurred by officers, directors, employees and agents in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amounts if it is determined that the indemnified party is not entitled to be indemnified. The indemnification provided by our bylaws is not exclusive.

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Prior to our merger with National Lampoon, Inc., we entered into indemnification agreements with each of our directors that attempt to provide the maximum indemnification allowed under the California law, our domicile prior to completion of the merger. The indemnification agreements make mandatory indemnification which is permitted by California law in situations in which the indemnitee would otherwise be entitled to indemnification only if the Board of Directors, the shareholders, independent legal counsel retained by us or a court in which an action was or is pending made a discretionary determination in a specific case to award such indemnification.

We also carry directors’ and officers’ liability insurance covering our directors and officers against liability asserted against or incurred by the person arising out of his or her capacity as an officer or director, including any liability for violations of the Securities Act of 1933 or the Securities Exchange Act of 1934, subject to some exclusions and coverage limitations.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us for expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether our indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of the issue by the court.

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UNDERWRITING

The Shemano Group, Inc. is acting as the representative of the underwriters. We, the selling stockholder and the underwriters named below have entered into an underwriting agreement with respect to the common stock being offered by this prospectus. In connection with this offering and subject to certain conditions, each of the underwriters named below has severally agreed to purchase, and we and the selling stockholder have agreed to sell, the number of shares of common stock set forth opposite the name of each underwriter.

Underwriters	Number of Shares of Common Stock
The Shemano Group, Inc.
S.W. Bach & Company

The underwriting agreement is subject to a number of terms and conditions and provides that the underwriters must buy all of the common stock if they buy any of it.

The representative has advised us that the underwriters propose to offer the common stock to the public at the public offering price indicated on the cover page of this prospectus, which includes the indicated underwriting discount, and that they will initially allow concessions not in excess of $________ per share, of which not in excess of $________ per share may be reallowed to other dealers who are members of the National Association of Securities Dealers, Inc. (“NASD”). After the public offering, concessions to dealer terms may be changed by the underwriters.

The underwriters have advised us that they do not intend to confirm sales of the common stock to any account over which they exercise discretionary authority in an aggregate amount in excess of 5% of the total securities offered by this prospectus.

We have granted to the underwriters an option which expires 45 days after the effective date of this offering, exercisable as provided in the underwriting agreement, to purchase up to an additional ________ shares of common stock at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. This option may be exercised only for the purpose of covering over-allotments, if any. If the underwriters exercise the over-allotment in full, the total price to the public would be $________, the total underwriting discounts and commissions would be $________, and the total proceeds (before payment of expenses of this offering) would be $________.

The underwriting agreement provides that we will reimburse the representative for its expenses on a non-accountable basis in the amount equal to 3% of the aggregate public offering price of the offered common stock not including any over-allotment, of which $50,000 has been paid to date, and the balance of which will be paid on the closing of this offering.

Subject to the approval of the NASD, at the closing of this offering, we will sell to the representative or its designees at an aggregate purchase price of $100, underwriters’ warrants to purchase ________ shares of common stock at an exercise price of 120% of the public offering price. The warrants are exercisable during the four-year period beginning six months from the effective date of this offering. The underwriters' warrants are not transferable for a period of six months following the effective date of this offering, except to officers or partners (but not directors) of the underwriter, and members of the selling group and/or their officers or partners. The underwriters' warrants contains provisions that protect the holders against dilution by adjustment of the exercise price and number of shares of common stock issuable upon exercise on the occurrence of specific events, including stock dividends or other changes in the number of our outstanding shares, on the same terms as the warrants and provisions for cashless exercise. No holders of the underwriters' warrants will possess any rights as a stockholder unless the warrants are exercised. During the exercise period, the holders of the underwriters' warrants will have the opportunity to profit from a rise in the market price of the common stock. Any profit realized by the representative on the sale of the underwriters' warrants or the underlying shares of common stock may be deemed additional underwriting compensation.

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We have agreed that, upon the request of the representative, we will, at our expense, on one occasion during a four-year period commencing six months after the effective date of this registration statement, register securities underlying the underwriters' warrants under the Securities Act. We agreed to maintain the effectiveness of such registration statement during the entire exercise term of the underwriters’ warrants. The holders of the underwriters’ warrant may request such registration of the underlying securities without exercising the underwriters’ warrants. We have also agreed to include the underwriters' warrants, shares of common stock underlying the underwriters' warrants in any appropriate registration statement which is filed by us under the Securities Act during the seven years following the effective date of this registration statement. We have agreed to give the representative of the underwriters the right to designate one member to our board of directors for a year after the effective date of this offering. The representative has not yet identified a designee to serve in such capacity if it elects to exercise this right in the future. The director, if designated by the representative, would receive the same compensation as other non management directors and would be reimbursed for the director’s reasonable expenses.

Until the distribution of the shares offered by this prospectus is completed, rules of the SEC may limit the ability of the underwriters to bid for and to purchase shares. As an exception to these rules, the underwriters may engage in transactions that stabilize the price of the shares. The Shemano Group, Inc., on behalf of the underwriters and selling group members, if any, and their affiliates, may engage in over-allotment sales, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934.

·   Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position.

·   Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

·   Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. The underwriters may also elect to reduce any short position by exercising all or part of the over-allotment option to purchase additional shares as described above.

·   Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the shares originally sold by the syndicate member are purchased in a syndicate covering transaction to cover syndicate short positions.

Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering. Covered short sales are sales made in an amount not greater than the representative's over-allotment option to purchase additional shares in this offering. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through the over-allotment option. Naked short sales are sales in excess of the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in this offering.

In general, the purchase of a security to stabilize or to reduce a short position could cause the price of the security to be higher than it might be otherwise. Neither we nor the underwriters can predict the direction or magnitude of any effect that the transactions described above may have on the price of the shares. In addition, neither we nor the underwriters can represent that the underwriters will engage in these types of transactions or that these types of transactions, once commenced, will not be discontinued without notice.

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The underwriting agreement provides that we and the selling stockholder will indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933. We have been advised that, in the opinion of the SEC, indemnification for liabilities under the Securities Act is against public policy as expressed in the Securities Act and is therefore unenforceable.

With the exceptions stated herein, our officers, directors and stockholders owning in the aggregate 5% or more shares of our common stock (or securities exchangeable or convertible into or exercisable for such number of shares) as of the date of this prospectus, have agreed that for a period of 12 months from the effective date of this offering that they will not sell, contract to sell, grant any option for the sale or otherwise dispose of any of our equity securities, or any securities convertible into or exercisable or exchangeable for our equity securities, other than through intra-family transfers or transfers to trusts for estate planning purposes, without the consent of The Shemano Group, Inc., as the representative of the underwriters, which consent will not be unreasonably withheld. James P. Jimirro, our former Chief Executive Officer and President has agreed to a similar lockup, except that Mr. Jimirro will be entitled to sell up 200,000 shares of common stock in this offering and he will be permitted, every 90 days following completion of this offering, to sell an additional 39,334 shares of common stock for a period of one year following the effective date of the registration statement of which this prospectus is a part. James Toll, our Chief Financial Officer, intends to sign a lockup agreement that will permit him to sell his shares of common stock if his employment is terminated.

The initial public offering price of the common stock offered by this prospectus was determined by negotiation between us and the representative of the underwriters. Among the factors considered in determining the initial public offering price of the common stock were:

·   the market price of our common stock;

·   our history and our prospects;

·   the industry in which we operate;

·   the status and development prospects for our proposed products and services;

·   our past and present operating results;

·   the previous experience of our executive officers; and

·   the general condition of the securities markets at the time of this offering.

The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of the common stock. That price is subject to change as a result of market conditions and other factors, and we cannot assure you that the common stock can be resold at or above the initial public offering price. There are no plans by The Shemano Group, Inc. or us to use any forms of prospectus other than printed prospectuses.

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WHERE YOU CAN FIND FURTHER INFORMATION ABOUT US

We filed with the Securities and Exchange Commission a registration statement on Form SB-2 under the Securities Act with respect to the shares being offered in this offering. This prospectus does not contain all of the information set forth in the registration statement, certain items of which are omitted in accordance with the rules and regulations of the Commission. The omitted information may be inspected and copied, at prescribed rates, at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. Statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are not necessarily complete, and in each instance where reference is made to the copy of the document filed as an exhibit to the registration statement, each such statement is qualified in all respects by such reference. For further information with respect to our company and the securities being offered in this offering, reference is hereby made to the registration statement, including the exhibits thereto and the financial statements, notes, and schedules filed as a part thereof.

EXPERTS

Stonefield Josephson, Inc. audited our financial statements at July 31, 2004 and July 31, 2003, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statements in reliance on the report of Stonefield Josephson, Inc., given on their authority as experts in accounting and auditing.

LEGAL MATTERS

Richardson & Patel LLP has given us an opinion relating to the due issuance of the common stock being registered. The law firm of Richardson & Patel, LLP, or its various principals, collectively own 44,536 shares of our common stock and a warrant for an additional 8,400 shares. Certain legal matters will be passed upon for the representative of the underwriters by Blank Rome LLP, New York, New York.

TRANSFER AGENT

Our transfer agent and registrar is US Stock Transfer Corporation located in Glendale, California.

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INDEX TO CONSOLICATED FINANCIAL STATEMENTS

Consolidated Balance Sheets at October 31, 2004 (Unaudited)	F-1
Consolidated Statements of Operations (Unaudited) for the Three Months Ended October 31, 2004 and 2003	F-2
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended October 31, 2004 and 2003	F-3
Notes to Quarterly Consolidated Financial Statements (Unaudited)	F-4
Report Of Independent Registered Public Accounting Firm	F-8
Consolidated Balance Sheets as of July 31, 2004 and 2003	F-9
Consolidated Statements of Operations for the Years Ended July 31, 2004, 2003 and 2002	F-10
Consolidated Statements of Shareholders’ (Deficit) Equity for  the Years Ended July 31, 2004, 2003 and 2002	F-11
Consolidated Statements of Cash Flows for the Years Ended July 31, 2004, 2003 and 2002	F-12
Notes to Annual Consolidated Financial Statements	F-13

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	AS OF
	OCT. 31, 2004
	(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents	$	1,400,925
Accounts receivable		210,558
Prepaid expenses and other current assets		74,471
Total current assets		1,685,954
NON-CURRENT ASSETS
Capitalized production costs		90,593
Fixed assets, net of accumulated depreciation		44,945
Intangible assets		5,964,732
Accumulated amortization of intangible assets		(3,808,578	)
Total non-current assets		2,291,692
TOTAL ASSETS	$	3,977,646
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable		256,725
Accrued expenses		1,076,487
Notes payable including $2,832,579 due to shareholders		3,110,886
Deferred income		117,500
TOTAL LIABILITIES		4,561,598
SHAREHOLDERS’ EQUITY (DEFICIT)
Series B Convertible Preferred Stock, par value $.0001,  68,406 shares authorized, 63,607 issued.		6
Series C Convertible Preferred Stock, par value $.0001, 250,000 shares authorized, 115,385 shares issued
And outstanding.		12
Common Stock, par value $.0001, 30,000,000 shares authorized, 3,091,183 issued.		309
Additional paid in capital		24,257,673
Less: Note receivable on common stock		(164,420	)
Deferred compensation		(501,041	)
Accumulated deficit		(24,176,491	)
TOTAL SHAREHOLDERS’ EQUITY (DEFICIT)		(583,952	)
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)	$	3,977,646

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

F-1

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	THREE MONTHS
	ENDED OCT. 31,
	2004			2003
REVENUES
Production	$	101,000			--
Licensing		117,689		$	56,679
Advertising and promotion revenues		448,246			216,250
Total revenue	$	666,935		$	272,929
COSTS AND EXPENSES
Costs related to production revenue		117,104			81,990
Costs related to licensing revenues		87,467			100,375
Production Costs		239,367			378,724
Amortization of intangible assets		60,000			60,000
Selling, general & administrative expenses		980,601			832,147
Stock, warrants& options issued for services		167,504			170,351
Expense associated with modification of warrants		904,897			--
Total costs and expenses		2,556,940			1,623,587
OPERATING LOSS		(1,890,005	)		(1,350,658	)
OTHER INCOME
Interest income		1,440			1,440
Total other income		1,440			1,440

LOSS BEFORE INCOME TAXES		(1,888,565	)		(1,349,218	)
Provision for income taxes		6,169			2,400
NET LOSS	$	(1,894,734	)	$	(1,351,618	)
Beneficial conversion feature treated as preferred dividend		(1,337,809	)		--
Net loss attributable to common shareholders	$	(3,232,543	)	$	(1,351,618	)
Net loss per share - basic and diluted	$	(1.05	)	$	(0.44	)
Weighted average number of common shares - basic and diluted		3,072,284			3,054,190

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

F-2

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	FOR THE THREE MONTHS ENDED OCTOBER 31
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,894,734	)	$	(1,351,618	)
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Depreciation and amortization		68,067			67,051
Stock, warrants and options issued for services		247,053			170,351
Expense associated with modification of warrants		904,897			--
Changes in assets and liabilities:
(Increase) in accounts receivable		(158,219	)		(78,310	)
(Increase) in prepaid expenses and other
current assets, and other assets		(46,333	)		(19,575	)
(Decrease) in accounts payable		(146,413	)		(48,258	)
Increase/(decrease) in accrued expenses		86,202			(70,064	)
Decrease/(increase) in capitalized production costs		63,555			(384,498	)
(Decrease)/increase in deferred revenues		(2,500	)		181,981
NET CASH AND CASH EQUIVALENTS USED IN OPERATING ACTIVITIES		(878,425	)		(1,534,380	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		--			(28,193	)
NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES		--			(28,193	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Series C Convertible Preferred Stock issuance		2,270,699			--
Exercise of stock options		8,167			--
Increase in notes payable		--			1,510,874
NET CASH AND CASH EQUIVALENTS PROVIDED BY FINANCING ACTIVITIES		2,278,866			1,510,874
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,400,441			(51,699	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		484			140,255
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,400,925		$	88,556
Non cash investing and financing activities:
Shares and options issued for services	$	247,066		$	170,351
Conversion of loans to Series C Convertible Preferred Shares	$	2,236,951		$	--

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

F-3

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ABASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements. Accordingly, they do not include all of the information and disclosures required for annual financial statements. In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of October 31, 2004, and the results of operations and cash flows for the three month periods ended October 31, 2004 and 2003, have been included. These financial statements should be read in conjunction with the financial statements and related footnotes for the year ended July 31, 2004 included in the National Lampoon, Inc. (“Company” or “Registrant”) annual report on Form 10-K for that period. The results of operations for the three month period ended October 31, 2004 are not necessarily indicative of the results to be expected for the full fiscal year. For further information, refer to the financial statements and related footnotes included in the Company’s annual report on Form 10-K for the year ended July 31, 2004.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company’s net losses of $1,894,734 during the last fiscal quarter and net losses of $5,127,107, $5,924,836 in the last two years, negative working capital of $2,875,644 and accumulated deficit of $24,176,491 at October 31, 2004, raise substantial doubt about the Company’s ability to continue as a going concern. Since the consummation of the Reorganization Transactions disclosed in detail in the Company’s annual report on Form 10-K for the year ended July 31, 2002, the Company has initiated a number of new business activities, and significantly increased our overhead by the hiring of new employees and consultants. To date, these operations have provided limited operating revenue, and the Company has been relying on funding received from a group headed by Daniel S. Laikin, Paul Skjodt and Timothy S. Durham (the “NLAG Group”) in the form of securities purchased in connection with the Reorganization Transactions, and subsequent investments by Messrs. Laikin and Durham (NLAG Group) in the form of loans, to fund operations. Since the consummation of the Reorganization Transactions, in which the Company received $2.1 million, subsequent convertible preferred stock purchases provided the Company with approximately $2.8 million. In addition the Company has received approximately $4.6 million from the NLAG Group in the form of loans. On December 9, 2004 we completed the sale of units consisting of a new series of convertible preferred stock, Series C, and warrants to purchase our Common Stock. Through this offering, the Company received approximately $3.0 million in cash and approximately $5.2 million from the conversion of debt owed to the NLAG Group, salary and accrued expenses owed to Daniel Laikin, a director, for a total of approximately $8.2 million.

On October 14, 2004 the Company signed a non-binding letter of intent for a firm commitment underwritten offering of approximately 1,750,000 shares of our Common Stock at a price to be negotiated. The Company anticipates that the offering will occur during the first six months of the 2005 fiscal year, although there is no guarantee that the offering will take place during this period or at all. The foregoing information does not constitute an offer of any securities for sale.

The Company’s financial statements for the fiscal year ended July 31, 2004 contain an explanatory paragraph as to its ability to continue as a going concern. This explanatory paragraph may impact its ability to obtain future financing.

NOTE BEARNINGS PER SHARE

Net loss attributable to common shareholders has been increased by the beneficial conversion feature on the preferred stock, which is accounted for as a preferred dividend. Diluted earnings per share amounts are calculated using the treasury method and are based upon the weighted average number of common and common equivalent shares outstanding during the period. Basic and diluted earnings per share are the same as common equivalent shares have been excluded from the computation, as they would have an anti-dilutive effect. Options and warrants to purchase 4,556,603 and 203,612 common shares and 10,972,542 and 7,166,982 shares that would be issuable upon conversion of the convertible preferred stock are not included in the calculation of diluted earnings per share during the three months ended October 31, 2004 and 2003 of respectively because their inclusion would be anti-dilutive.

F-4

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE BEARNINGS PER SHARE (CONTINUED)

Diluted earnings per share amounts are calculated using the treasury method and are based upon the weighted average number of common and common equivalent shares outstanding during the period. Basic and diluted earnings per share are the same as common equivalent shares have been excluded from the computation, as they would have an anti-dilutive effect. Options and warrants to purchase 4,556,603 and 203,612 common shares are not included in the calculation of diluted earnings per share during the three months ended October 31, 2004 and 2003 respectively because their inclusion would be anti-dilutive.

NOTE CSTOCK OPTIONS

The Company has adopted SFAS No. 123, “Accounting for Stock Based Compensation”, issued in October 1995. In accordance with SFAS No. 123, the Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock issued to Employees”, and related interpretation in accounting for its employee stock options. Under APB Opinion No. 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. If the Company 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:

	FOR THE THREE MONTHS ENDED
	OCTOBER 31, 2004			OCTOBER 31, 2003
Net loss attributable to common shareholders-as reported	$	(3,232,543	)	$	(1,351,618	)
APB 25 expense recognized		--			--
Stock option compensation under-fair value method		(184,578	)		(85,203	)
Net income/(loss)-pro forma		(3,417,121	)		(1,436,821	)
Basic & diluted earnings/(loss) per share-as reported	$	(1.05	)	$	(0.44	)
Basic & diluted earnings/(loss) per share-pro forma	$	(1.11	)	$	(0.47	)

NOTE DSTOCKHOLDER EQUITY

On September 15, 2004 the Company’s Board of Directors and stockholders holding a majority of the Company’s Common Stock approved a two for one split of the Common Stock. The effect of this stock split has been reflected in all reported periods. On December 9, 2004 the Company closed an offering of units consisting of Series C Convertible Preferred Stock and warrants to purchase the Company’s Common Stock. During the first quarter of fiscal 2005, the Company received approximately $4.5 million for the Series C Convertible Preferred Stock in the form of cash and conversion of debt. After the end of the first fiscal quarter the Company issued another approximately $3.6 million in Series C Convertible Preferred Stock in exchange for the receipt of cash and the conversion of debt, salaries and accrued expenses. According to the Series C Preferred Stock and Warrant Purchase Agreement, each Unit of the Series C Preferred Stock was priced at $40.00 per share (pre-split) or the average share price (pre-split) of the Company’s Common Stock in the public market during the 30 day period prior to the purchase, multiplied by twenty, whichever is lower, but in no case could the price per share of Series C Preferred Stock be less than $35.50. At the commitment date, all Series C Convertible Preferred shares were purchased for $35.50 per Unit. Further, Series C holders earn a dividend of 9% per annum for the term in which they hold the Preferred Stock, with the interest payable in the form of the Company’s Common Stock upon conversion of the Series C Preferred Stock to Common Stock. Included in each Series C Unit is a Warrant to purchase ten shares of the Company’s Common Stock. The Warrants have a four year term and an exercise price of $1.775 on a post split basis.

F-5

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE DSTOCKHOLDER EQUITY (CONTINUED)

As part of the Series C Convertible Preferred Stock offering, the terms of the warrants granted to the holders of Series B Convertible Preferred Stock were made identical to the terms of the Series C warrants. Therefore, the term of the Series B warrant was modified to four years from the issuance of the Series C shares, and the exercise price was changed to $1.775 from $2.50. The excess of the value of the modified options as compared to the original options was calculated according to paragraph 188 of FAS 123. The excess amount, which included the right to purchase 3,583,491 shares of the Company’s Common Stock, totaled $904,897, which has been recognized as a charge to operations. Shares of Series C Convertible Preferred Stock are convertible at the option of the holder and the Series C Units sold include a warrant to purchase ten shares of the Company’s Common Stock. The value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: average risk-free interest of 5.50%; dividend yield of 0%; average volatility factor of the expected market price of the Company’s Common Stock of 135.9%; and a term of 4 years. The value of the warrants plus the value of the conversion feature exceeded the proceeds of the offering. Therefore pursuant to EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or contingently Adjustable Conversion Ratios”, the discount attributable to the beneficial conversion feature, approximately $1,337,809 was expensed immediately in a manner similar to a dividend at the date of issuance and is included in the Statement of Operations as a preferred dividend.

NOTE ESEGMENT INFORMATION

The Company operates in three business segments: the production of motion picture, television, and video/DVD products; the licensing and exploitation of the “National Lampoon” trademark and related properties including the sale of products to consumers; and television production and distribution to college campuses from which advertising and promotions revenues are derived. Segment operating income/(loss) excludes the amortization of intangible assets, interest income, and income taxes. Selling, general and administrative expenses not specifically attributable to any segment have been allocated equally among the three segments. Summarized financial information for the three month periods ended October 31, 2004 and 2003 concerning the Company’s segments is as follows:

	Production			Licensing			Television			Total
Three Months Ended October 31, 2004
Segment revenue	$	101,000		$	118,000		$	448,000		$	667,000
Segment operating (loss)	$	(633,000	)	$	(576,000	)	$	(627,000	)	$	(1,836,000	)
Three Months Ended October 31, 2003
Segment revenue		--		$	57,000		$	216,000		$	273,000
Segment operating (loss)		--		$	(556,000	)	$	(737,000	)		($1,293,000	)

A reconciliation of segment operating loss to net income before income taxes for the three month periods ended October 31, 2004 and 2003 is as follows:

	FOR THE THREE MONTHS ENDED
	OCT. 31, 2004			OCT. 31, 2003
Total segment operating (loss)	$	(1,836,000	)	$	(1,293,000	)
Amortization of intangible assets		60,000			60,000
Interest income		(1,000	)		(1,000	)
Net loss before income taxes	$	(1,895,000	)	$	(1,352,000	)

F-6

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE FLITIGATION

On February 17, 2004, plaintiff Trustin Howard filed a lawsuit against defendants In-finn-ity Productions, Bud Friedman, National Lampoon Productions, and Game Show Network LLC in the United States District Court for the Central District of California. The plaintiff alleges that the Company, along with other defendants, stole his idea for the show Funny Money and also alleges, among other things, copyright infringement. He seeks damages and injunctive relief. The Company believes that it has a valid defenses to this action and intends to vigorously contest this matter

NOTE GSUBSEQUENT EVENTS

In November 2004, 17,500 Common Stock options were exercised. On December 9, 2004 the Company closed a private offering of its securities, see Note D above. The Company sold a total of 229,761 Units at a price of $35.50 per unit. Each unit included one share of Series C Preferred Stock convertible into twenty shares of the Company’s Common Stock, and a warrant to purchase ten post-split shares of the Company’s Common Stock at a price of $1.77 per share. The warrants have a term of four years. As a result of the completion of the offering, the Company received a total of $3 million in cash and $5.2 million from the conversion of debt, salary, and accrued expenses for a total of $8.2 million. On January 28, 2005 the Company borrowed the sum of $2,700,000 from N. Williams Family Investments, L.P. The loan accrues interest at the rate of 7% per year. The maturity date of the loan is the earlier of January 28, 2006 or the date the Company closes an offering in which the gross cash proceeds to the Company equals or exceeds $2,700,000. The lender may also demand that the loan be immediately repaid if there is a default in the Company’s obligations under the promissory note. The amount of $2,523,800 from the loan proceeds was used to pay severance benefits to James P. Jimirro, the Company’s former Chief Executive Officer and President. The remaining proceeds were used for working capital. The Company signed a non-binding letter of intent on October 14, 2004 with an underwriter for a secondary public offering of up to 1.75 million shares of the Company’s Common Stock. The Company anticipates that the offering will occur during the first six months of the 2005 fiscal year, although there is no guarantee that the offering will take place during this period or at all. The foregoing information does not constitute an offer of any securities for sale.

F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2004, and 2003, and the related consolidated statements of operations, shareholders (deficit) equity and cash flows for each of the three years in the period ended July 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (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, 2004 and the results of their consolidated operations and their consolidated cash flows for each of the three years in the period ended July 31, 2004 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 $5,127,107, $5,924,836, and $1,613,334 in the last three years, negative working capital of $6,783,972 and accumulated deficit of $20,943,951 at July 31, 2004 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, 2004

F-8

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of July 31,
	2004			2003
CURRENT ASSETS
Cash and cash equivalents	$	484		$	140,255
Accounts receivable, net		52,339			18,390
Prepaid expenses and other current assets		24,461			15,636
Total current assets		77,284			174,281
NON-CURRENT ASSETS
Fixed assets, net of accumulated depreciation		53,013			42,859
Film library, net of amortization		154,147			27,000
Intangible assets		5,964,732			5,964,732
Accumulated amortization of intangible assets		(3,748,578	)		(3,508,578	)
Other assets		5,100			4,500
Total non-current assets		2,428,414			2,530,513
TOTAL ASSETS		2,505,698			2,704,794
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	403,138		$	183,485
Accrued expenses		990,281			781,023
Notes payable including $4,429,298 due to shareholders		5,347,837			1,443,856
Deferred income		120,000			161,000
Total current liabilities		6,861,256			2,569,364
TOTAL LIABILITIES		6,861,256			2,569,364
SHAREHOLDERS’ (DEFICIT) EQUITY
Preferred Stock, 2,000,000 shares authorized, no shares issued and outstanding (cancelled, see Note F)		--			--
Series B Convertible Preferred Stock, par value $0.0001, 68,406 shares authorized, 63,067 and 63,067 shares issued and outstanding respectively		6			4,921,618
Common Stock, par value $0.0001, 30,000,000 shares authorized, 3,066,836 and 3,053,590 shares issued, respectively		153			12,188,942
Additional paid in capital		17,265,985			--
Less: Note receivable on common stock		(162,980	)		(157,220	)
Deferred compensation		(514,771	)		(1,001,066	)
Accumulated Deficit		(20,943,951	)		(15,816,844	)
TOTAL SHAREHOLDERS’ (DEFICIT) EQUITY		(4,355,558	)		135,430
TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY	$	2,505,698		$	2,704,794

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

F-9

NATIONAL LAMPOON INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	As of July 31,
	2004			2003			2002
REVENUES
Trademark	$	1,286,813		$	904,244		$	913,491
Consumer products		76,111			11,577			29,996
Advertising and promotion revenues		558,640			92,063			--
Total revenue		1,921,564			1,007,884			943,487
COSTS AND EXPENSES
Costs related to trademark revenue		417,071			285,174			88,155
Costs related to consumer products		50,170			23,374			33,432
Production costs		1,181,039			872,868			--
Amortization of intangible assets		240,000			240,000			240,000
Write-off of intangible asset		--			541,000			--
Proxy solicitation		--			--			545,887
Selling, general and administrative expenses		4,521,418			4,159,094			2,538,282
Stock, warrants and options issued for services		641,878			947,040			--
Stock appreciation rights (benefit)		--			--			(843,096	)
Conversion of stock appreciation rights to stock options		--			--			140,894
Total costs and expenses		7,051,576			7,068,550			2,743,554
OPERATING LOSS		(5,130,012	)		(6,060,666	)		(1,800,067	)
OTHER INCOME/(EXPENSE)
Interest		5,762			7,040			12,849
Reduction of deferred payroll		--			--			175,484
Other income		--			32,214			--
Total other income		5,762			39,254			188,333
MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARY		--			99,000			--
LOSS BEFORE INCOME TAXES		(5,124,250	)		(5,922,412	)		(1,611,734	)
Provision for income taxes		2,857			2,424			1,600
NET LOSS	$	(5,127,107	)	$	(5,924,836	)	$	(1,613,334	)
Loss per share basic and diluted	$	(1.67	)	$	(2.01	)	$	(0.58	)
Weighted average number of common shares basic and diluted		3,063,674			2,950,312			2,761,194

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

F-10

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

	Preferred Stock Shares		Preferred Stock Amount			Common Stock Shares		Common Stock Amount			Note Receivable on Common Stock			Paid in Capital		Deferred Compensation Amount			Accumulated Deficit			Total Shareholders’ (Deficit) Equity
Balance at July 31, 2001							2,742,232	$	9,616,667		$	(145,700	)						$	(8,278,674	)	$	1,192, 293
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							28,734		83,101														83,101
Warrants issued for Services									146,100														146,100
Conversion of SARs									140,894														140,894
Net loss		--		--			--		--			--			--		--			(1,613,334	)		(1,613,334	)
																				(9,892,008	)		2,528,612
Balance at July 31, 2002		40,244		2,585,318			2,770,966		9,986,762			(151,460	)
Interest on note receivable												(5,760	)										(5,760	)
Preferred stock issued for cash		21,150		2,115,000																			2,115,000
Preferred stock issued for services		2,213		221,300																			221,300
Exercise of stock options							106,822		75,374														75,374
Warrants/options issued for services							28,200		1,726,806														1,726,806
Common stock issued in connection with Burly Bear acquisition							147,602		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			3,053,590		12,188,942			(157,220	)				(1,001,066	)		(15,816,844	)		135,430
Interest of note receivable												(5,760	)										(5,760	)
Common Stock issued							13,246		33,115														33,115
Warrants/options issued for services									122,468														122,468
Non-vested portion of stock issued for services																	486,296						486,296
Adjustment for change in par value of common stock				(4,921,612	)				(12,344,372	)					17,265,984
Net Loss																				(5,127,107	)		(5,127,107	)
Balance at July 31, 2004		63,607	$	6			3,066,836	$	153		$	(162,980	)	$	17,265,984	$	(514,770	)	$	(20,943,951	)	$	(4,355,558	)

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

F-11

NATIONAL LAMPOON INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	As of July 31,
	2004			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(5,127,107	)	$	(5,924,836	)	$	(1,613,334	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		270,246			900,140			248,451
Stock appreciation rights (benefit)/expense		--			--			(843,096	)
Conversion of stock appreciation rights to stock options		--			--			140,894
Other		(5,760	)		(5,760	)		(5,760	)
Stock issued for services		33,115			--			--
Warrants/options granted for services		608,763			947,040			146,000
Changes in assets and liabilities:
(Increase) in accounts receivable		(33,950	)		--			--
(Increase)/decrease in prepaid expenses and other current assets		(8,826	)		(16,704	)		15,362
(Increase) in capitalized production costs		(127,148	)		(68,000	)		--
(Increase) in other assets		(600	)		(4,500	)		--
Increase/(decrease) in accounts payable		219,654			(127,467	)		68,500
Increase/(decrease) in accrued expenses		209,258			290,781			(130,461	)
(Decrease)/increase in deferred revenues		(41,000	)		161,000			--
(Decrease)/increase settlement payable		--			--			(203,117	)
(Decrease) in extension payments		--			--			(200,000	)
NET CASH AND CASH EQUIVALENTS USED IN OPERATING ACTIVITIES		(4,003,355	)		(3,848,306	)		(2,376,561	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Burly Bear Networks		--			(200,000	)		--
Purchase of fixed assets		(40,398	)		(54,876	)		(7,123	)
NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES		(40,398	)		(254,876	)		(7,123	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options		--			75,374			83,101
Purchase of Series B preferred shares		--			2,115,000			2,585,318
Increase in notes payable		3,903,982			1,028,856			415,000
NET CASH AND CASH EQUIVALENTS PROVIDED BY FINANCING ACTIVITIES		3,903,982			3,219,230			3,083,419
NET DECREASE IN CASH AND CASH EQUIVALENTS		(139,771	)		(883,952	)		699,735
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		140,255			1,024,207			324,472
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	484		$	140,255		$	1,024,207
Cash paid for taxes	$	2,857		$	2,424		$	1,643
Supplemental disclosure: shares/options/warrants issued for services	$	641,878		$	947,040		$	0

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

F-12

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

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. The Company reincorporated into Delaware under the name National Lampoon, Inc. in November 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 $5,127,107 and $5,924,836 in the last two years, negative working capital of $6,783,972 and an accumulated deficit of $20,943,951 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 Company is issuing shares of Series C Preferred stock and may be issuing shares of common 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. The Company has entered into agreements with, AFG Entertainment, Golden International Group, Tim Durham and Daniel Laikin, and others which are anticipated to close in November 2004, in connection with the Company’s Series C Convertible Preferred Stock financing. If the Company were to sell all of the 250,000 shares of Series C Preferred Stock, it would raise gross proceeds of $8,875,000, which includes the conversion of a $4.5 million loan into shares of Series C Preferred Stock. The Company is negotiating an underwritten secondary offering of up to 1.75 million shares of its common stock at a share price to be mutually agreed upon, subject to board approval. If it completes such secondary offering, it would raise gross proceeds of up to $8 million.

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 advertisement has been broadcast and the collection of such revenues are reasonably assured.

F-13

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

NOTE A (CONTINUED)

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”. Gross intangibles were $5,964,732 with accumulated amortization of $3,748,578 at July 31, 2004 and $5,964,732 with accumulated amortization of 3,508,578 at July 31, 2003, which includes $240,000 of amortization being expensed in both years. The estimated aggregate amortization expense for each of the five succeeding fiscal years is $240,000 per year, which represents the original acquired intangible relating to the National Lampoon trademark, amortized over twenty five years.

As of July 31, 2004, 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.

New Accounting Pronouncements:

In December 2003, the FASB issued Summary of Statement No. 132 (revised 2003), “Employer’s Disclosures about Pensions and Other Post Retirement Benefits - an amendment to FASB Statements No. 87, 88, and 106.” This statement revises employers’ disclosures about pension plans and other postretirement benefit plans. However, it does not change the measurement or recognition of those plans as required by FASB Statements No. 87, “Employers’ Accounting for Pensions”, No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”, and No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” This statement requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost. This statement also calls for certain information to be disclosed in financial statements for interim period. The disclosures required by this statement are effective for fiscal year ending after December 15, 2003. The Company does not expect the adoption of this pronouncement to have a material impact on its consolidated financial position or results of operations.

F-14

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

NOTE A (CONTINUED)

In December 2003, the FASB issued Interpretation No. 46 (Revised 2003), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). This interpretation explains how to identify variable interest entities and how an enterprise assesses its interest in a variable interest entity to decide whether to consolidate that entity. This interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Variable interest entities that effectively disperse risks will not be consolidated unless a single party holds an interest or combination of interest that effectively recombines risks that were previously dispersed. This interpretation is effective no later than the end of the first reporting period that ends after March 15, 2004. This interpretation did not have an impact on the Company’s financial position or results of operations.

In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” (“SFAS 150”). This statement establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have an impact on the Company’s financial position or results of operations.

In April 2003, the FASB issued statement No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” “SFAS 149” which is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. SFAS 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative as discussed in FASB Statement No. 133, clarifies when a derivative contains a financing component, amends the definition of an “underlying” to conform it to the language used in FASB Interpretation No. 45, “Guarantor Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” and amends certain other existing pronouncements. All provisions of SFAS 149 should be applied prospectively. The adoption of SFAS 149 did not have an impact on the Company’s financial position or results of operations.

In May 2003, the Emerging Issues Task Force (EITF) released Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF 00-21 addresses revenue recognition for arrangements involving more than one deliverable and the determination of whether an arrangement contains more than one unit of accounting. EITF 00-21 also addresses the measurement of the varying components of an arrangement and the manner in which the revenue should be allocated to the separate units of accounting. During December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) 104, “Revenue Recognition,” which incorporated the requirements of EITF 00-21. The adoption of EITF 00-21 and SAB 104 did not have a material effect on the Company’s results of operations or financial condition.

In December 2003, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.” SAB 104 supersedes SAB 101, “Revenue Recognition in Financial Statements.” SAB No. 104, which was effective upon issuance, rescinded certain guidance contained in SAB No. 101 related to multiple element revenue arrangements, and replaced such guidance with that contained in EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Additionally, SAB No. 104 rescinded the SEC’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers issued with SAB No. 101. The revenue recognition principles of SAB No. 101 remain largely unchanged by the issuance of SAB No. 104, and therefore the adoption of SAB No. 104 did not have a material effect on the Company’s results of operations or financial condition.

F-15

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

NOTE A (CONTINUED)

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. Convertible Preferred Stock is included on an as converted basis if the effect is dilutive.

Options to purchase 231,242, 1,148,131, and 296,996 shares of common shares, 12,448, 1,133,633, and 0 warrants, and 3,583,491, 3,583,491, and 2,267,266 common shares upon conversion of the Series B Convertible Preferred stock are not included in the calculation of diluted EPS in the fiscal year ended July 31, 2004, 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:

	Number of Options			Option Exercise Price Range		Weighted Average Exercise Price
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	)	$	3.50-$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
Options Granted		622,520		$	3.20-$7.00	$	3.68
Options Canceled		(152,300	)	$	2.07-$16.125	$	5.75
Options Exercised		--			--		--
Balance, July 31, 2004		1,844,353		$	2.075-$16.13	$	5.03

Of the exercisable options outstanding at July 31, 2004, 2003 and 2002, 1,844,353, 1,078,464, and 1,118,131, respectively, the weighted average exercise prices were $5.03, $5.82, $5.65, and $11.29. The weighted average remaining life of the options outstanding at July 31, 2004 was 6.80 years.

F-16

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

NOTE A (CONTINUED)

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:

	For the Fiscal Year Ended
	July 31, 2004			July 31, 2003			July 31, 2002
Net loss as reported	$	(5,127,107	)	$	(5,924,836	)	$	(1,613,334	)
Compensation - calculated under fair value method	$	(1,469,114	)	$	(1,475,115	)	$	(2,274,491	)
Net loss pro form	$	(6,596,221	)	$	(7,399,941	)	$	(3,887,825	)
Basic and diluted loss per share as reported	$	(1.67	)	$	(2.01	)	$	(0.58	)
Basic and diluted loss per share pro form	$	(2.15	)	$	(2.51	)	$	(1.41	)

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, 2004			July 31, 2003			July 31, 2002
Expected dividend yield		00	%		00	%		00	%
Expected stock price volatility		123.7 - 170	%		87.5 - 129.2	%		77.2	%
Risk free interest rate		5.5	%		5.5	%		4.0	%
Expected life of option (in years)		7.00 - 10.00			3.00 - 7.00			7.00

The weighted average fair value of the options granted during the fiscal years ended July 31, 2004, 2003 and 2002 was $3.61, $5.41, and $4.42 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.

F-17

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

NOTE BACCRUED EXPENSES

Accrued expenses consist of:

	As of July 31, 2004		As of July 31, 2003
Accrued legal fees	$	91,810	$	150,000
Accrued accounting fees		20,114		27,500
Accrued payroll and related items		368,638		115,254
Accrued video royalties		15,000		15,000
Accrued television and other royalties		426,524		412,574
Deferred payroll officers/shareholders		6,695		6,695
Other		61,500		54,000
	$	990,281	$	781,023

NOTE CCOMMITMENTS 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 lessor’s operating costs and increases in the Consumer Price Index.

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

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

Year	Office Space		Auto/Equipment		Total
2005	$	139,306	$	11,994	$	151,300
2006		23,218		9,995		33,213
	$	162,524	$	21,989	$	184,513

The Company’s aggregate lease payments were approximately $206,292, $141,872, and $139,166, for the years ended July 31, 2004, 2003 and 2002, 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 $23,000, $11,000, and $16,000, for the years ended July 31, 2004, 2003 and 2002, 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 NLI’s 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 NLI’s obligations under the

F-18

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

NOTE CCOMMITMENTS AND CONTINGENCIES (CONTINUED)

Termination Agreement and is the successor-in-interest to NLI as a result of its acquisition of NLI. As of July 31, 2004, the Company has recorded royalty expense of approximately $500,000 relating to the Termination Agreement including approximately $0, $195,000, and $35,000 during the years ended July 31, 2004, 2003, and 2002, 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 minimum 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 replaced all Contingent Notes totaling $3,224,482 in exchange for an immediate payment of $1,100,000, and future contingent amounts due upon raising of additional capital. The Agreement can be cancelled after December 31, 2002 without cause upon raising additional financing, at which time the Company must pay the new contingent amounts due 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. The employment contract calls for a base salary for the Initial Term beginning January 1, 2002 and ending December 31, 2007 of $500,000 per year, and a cancellation provision. 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. 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 day’s 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 thereafter unless and until the Board of Directors elects not to renew the agreement.

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 calendar quarterly bonuses of $31,250, which bonuses are payable in the month subsequent to the end of calendar quarter to which they were granted. Concurrent with the signing of the Bennett Employment Agreement, Mr. Bennett was granted options to purchase 135,0000 shares of common stock at the then current market price of $6.00 per share, 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 December 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.

F-19

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

NOTE CCOMMITMENTS AND CONTINGENCIES (CONTINUED)

On August 18, 2003, a lawsuit was filed against us by Duncan Murray in Los Angeles Superior Court, case number BC300908. Mr. Murray claimed that he was unjustly terminated and was owed severance. The matter was sent to arbitration on February 17, 2004 and was settled on that date. According to the terms of the Settlement and General Release Agreement, the Company paid to Mr. Murray and his lawyer a total of approximately $42,500.

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 Rights holders was less than $1.00, a letter was sent to all Rights holders requesting they contact the Company in order for them to receive the amount they were owed. As of October 15, 2003 none of the Rights holders have requested payment.

NOTE DNOTE 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, 2004 and 2003 was approximately $162,980 and $157, 220 respectively.

NOTE EMAJOR CUSTOMERS

During the year ended July 31, 2004, the Company earned revenue from three significant customers of approximately $773,000 representing 16%, 14%, and 10% of revenues. 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.

NOTE FSTOCKHOLDER 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. On September 15, 2004 the Company’s Board of Directors and stockholders holding a majority of the Company’s Common Stock approved a two for one split of the Common Stock. The effect of this stock split has been reflected in all reported periods.

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. Each share of Series B Preferred is convertible into 28.169 shares of common stock. The Series B Preferred Stock vote on an as converted basis as a class with the shares of Common Stock. The holders of Series B Preferred Stock shall have a right to participate in dividends and distributions (including, without limitation, share dividends or distributions) to the extent that the holders of Common Stock participate, and the holders of Series B Preferred Stock shall receive a like dividend or distribution, pro rata and pari passu with the holders of Common Stock, with all holders of Series B Preferred Stock being treated as if they were holders of the number of shares of Common Stock into which their shares of Series B

F-20

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

NOTE FSTOCKHOLDER EQUITY (CONTINUED)

Preferred Stock could be converted, further, that no dividend or distribution shall be paid unless such dividends or distributions are sufficient to pay in full all amounts due to the holders of the Series B Preferred Stock and the holders of the Common Stock Upon any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, the assets of the Corporation legally available for distribution, if any, shall be distributed ratably to the holders of the Common Stock and the Series B Preferred Stock, with all holders of Series B Preferred Stock being treated as if they were holders of the number of shares of Common Stock into which their shares of Series B Preferred stock could be converted.

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 in fiscal 2003 and has been accrued and is to be paid in the form of Series C Preferred stock for fiscal 2004 and 2005.

NOTE HINCOME TAXES

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

	For the Fiscal Year Ended
	July 31, 2004		July 31, 2003		July 31, 2002
Federal income taxes	$	0	$	0	$	0
State income taxes		2,857		2,424		1,600
Provision for income taxes	$	2,857	$	2,424	$	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, 2004			July 31, 2003			July 31, 2002
Statutory federal income tax rate		(34	%)		(34	%)		(34	%)
State income taxes Amortization of intangible assets		5	%		5	%		5	%
Other, increase in valuation allowances		29	%		29	%		29	%
Effective tax rate		0	%		0	%		0	%

For federal and state income tax purposes, as of July 31, 2004 & 2003 the Company has available net operating loss carry forwards of approximately $15,413,000 and $11,320,000 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 carry forwards which give rise to deferred tax assets are as follows:

F-21

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

NOTE HINCOME TAXES (CONTINUED)

	As of July 31, 2004			As of July 31, 2003
Net operating loss carry forwards		6,165,000			4,528,000
Accrued liabilities		390,000			110,000
Royalty reserves		6,000			19,000
		6,561,000			4,657,000
Valuation allowance		(6,561,000	)		(4,657,000	)

Valuation allowances of $6,561,000 and $4,657,000 were recorded at July 31, 2004 and 2003, respectively, to offset the net deferred tax assets due to the uncertainty of realizing the benefits of the tax assets in the future.

NOTE ISEGMENT 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, 2004, 2003, and 2002 concerning the Company’s segments is as follows:

	Trademark			Consumer Prod.			Television			Total
Year Ended July 31, 2004
Segment revenue	$	1,299,000		$	64,000		$	559,000		$	1,922,000
Segment operating loss		(469,000	)		(1,584,000	)		(2,840,000	)		(4,893,000	)
Identifiable assets
Capital expenditures								40,000			40,000
Depreciation expenses		2,000						28,000			30,000
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	)		(1,912,000	)		(5,183,300	)
Identifiable assets		5,000			38,000						43,000
Capital expenditures								6,000			6,000
Depreciation expenses		2,000						17,000			19,000
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 expenses					8,000						8,000

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:

F-22

NATIONAL LAMPOON, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

NOTE ISEGMENT INFORMATION

	For the Fiscal Year Ended
	July 31, 2004			July 31, 2003			July 31, 2002
Segment operating loss	$	(4,893,000	)	$	(5,183,000	)	$	(1,717,000	)
Amortization of intangible assets		(240,000	)		(781,000	)		(240,000	)
Stock appreciation rights - benefits (expense)		--			--			843,000
Conversion of SARs to stock options		--			--			(140,000	)
Other income		--			32,000			175,000
Interest income		6,000			7,000			13,000
Corporate expenses incurred related to the change in control of the Company					--			(546,000	)
Net income (loss) before income taxes	$	(5,127,000	)	$	(5,925,000	)	$	(1,612,000	)

A reconciliation of reportable segment assets to consolidated total assets as of July 31, 2004 and 2003 is as follows:

	For the Fiscal Year Ended
	July 31, 2004		July 31, 2003
Total assets for reportable segments	$	154,000	$	30,000
Intangible asset not allocated to segments		2,216,000		2,456,000
Cash and cash equivalents		--		140,000
Short-term investments		--		--
Other unallocated amounts		136,000		66,000
Total assets	$	2,506,000	$	2,692,000

NOTE JJOINT 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 partner’s interest in the proceeds from the Joint Venture. The revenue received by the joint venture relating to the Film was $0 for the fiscal years ended July 31, 2004, 2003 and 2002.

NOTE KRELATED PARTY TRANSACTIONS

Bruce P. Vann, one of the Company’s directors until February of 2004, was a partner of the law firm Kelly Lytton &Vann LLP retained by the Company for various legal matters. Legal expenses of approximately $32,000, $108,000, and $119,000 were incurred with respect to work performed by Mr. Vann’s firm for the Company during the fiscal years ended July 31, 2004, 2003 and 2002.

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 LSUBSEQUENT EVENTS

The Company is in the midst of receiving funding from various parties as part of the Series C Preferred stock offering. As of the record date we have received funding totaling $1,159,900 from Golden International Group, Robert Levy, AFG Entertainment, and various others. These parties will invest approximately $8,000,000 (which includes approximately $4.5 million already loaned to us) in a new series of convertible preferred stock. Further, we have signed a Letter of Intent with a third party in an effort to sell up to an additional 1.75 million shares of common stock as part of a secondary common stock offering, at a price to be mutually agreed upon, subject to board approval. 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.

F-23

STATEMENT OF OPERATIONS BY QUARTER

NATIONAL LAMPOON, INC.

UNAUDITED

	July 31, 2004			April 30, 2004			Jan. 31, 2004			Oct. 31, 2004			July 31, 2003			April 30, 2003			Jan. 31, 2003			Oct. 31, 2003
Net Sales	$	433,735		$	500,768		$	714,132		$	272,929		$	460,453		$	344,914		$	128,329		$	74,189
Gross (Loss)		(948,705	)		(1,385,426	)		(1,445,223	)		(1,350,658	)		(1,880,953	)		(1,159,966	)		(1,401,106	)		(1,618,640	)
Income (Loss)		(947,630	)		(1,383,986	)		(1,443,783	)		(1,351,618	)		(1,879,507	)		(1,158,520	)		(1,305,723	)		(1,580,280	)
Net Income (Loss)	$	(947,630	)	$	(1,383,986	)	$	(1,443,783	)	$	(1,351,618	)	$	(1,879,507	)	$	(1,159,320	)	$	(1,305,723	)	$	(1,580,280	)
(Loss)/Earnings per Share	$	(0.31	)	$	(0.45	)	$	(0.47	)	$	(0.45	)	$	(0.62	)	$	(0.39	)	$	(0.45	)	$	(0.55	)

No person is authorized to give any information or
to make any representations not contained or incorporated
by reference in this prospectus, and any information or
representations no contained or incorporated by reference
herein must not be relied upon as having been authorized
by National Lampoon, Inc., the selling stockholder or any
underwriter. This prospectus does not constitute an offer of		____________________ Shares
any securities other than the registered securities to which it
relates or an offer to any person in any jurisdiction where
such an offer would be unlawful. Neither the delivery
of this prospectus nor any sales made hereunder shall, under
any circumstances, create any implication that there has been
no change in the affairs of National Lampoon, Inc. or its
subsidiaries since the date hereof.
TABLE OF CONTENTS		Common Stock
Prospectus Summary	1
Risk Factors	8
Cautionary Statement Regarding Forward
Looking Statements	18
Use of Proceeds	19	PROSPECTUS
Capitalization	20
Dilution	21
Market for Common Equity	23
Selected Financial Data	24
Managements Discussion and Analysis of
Financial Condition and Results of
Operation	25
Business	34	THE SHEMANO GROUP, INC.
Management	40
Certain Relationships and Related Party		S.W. BACH & COMPANY
Transactions	46
Selling Stockholder	48
Security Ownership of Certain Beneficial
Owners and Management	49
Description of our Securities	50
Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities	53
Underwriting	55
Where You Can Find Further Information	58
Experts	58
Legal Matters	58
Transfer Agent	58

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24.Indemnification Of Directors And Officers

As permitted by Section 102(b)(7) of the Delaware General Corporation Law, the Registrant’s Certificate of Incorporation includes a provision that eliminates the personal liability of each of its directors for monetary damages for breach of such director’s fiduciary duty as a director, except for liability: (i) for any breach of the director’s duty of loyalty to the Registrant or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit.

In addition, the Registrant’s Certificate of Incorporation provides that it must, to the fullest extent permitted by the Delaware General Corporation Law, indemnify any person who is made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his personal representative or his heirs, is or was a director or officer of the Registrant or any predecessor of the Registrant, or serves or served at any other enterprise as a director or officer at the request of the Registrant or any predecessor of the Registrant.

The Registrant’s bylaws require it to provide indemnity to the fullest extent allowed by law to each of its officers and directors against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that such person is or was the Registrant’s agent. The bylaws allow the Registrant to provide this same indemnity to employees and agents (other than directors and officers). The Registrant’s bylaws also permit it to advance expenses incurred by officers, directors, employees and agents in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amounts if it is determined that the indemnified party is not entitled to be indemnified. The indemnification provided by the Registrant’s bylaws is not exclusive.

Prior to its merger with National Lampoon, Inc., the Registrant entered into indemnification agreements with each of its directors that attempt to provide the maximum indemnification allowed under the California law, the Registrant’s domicile prior to completion of the merger. The indemnification agreements make mandatory indemnification which is permitted by California law in situations in which the indemnitee would otherwise be entitled to indemnification only if the Board of Directors, the shareholders, independent legal counsel retained by the Registrant or a court in which an action was or is pending made a discretionary determination in a specific case to award such indemnification.

The Registrant carries directors’ and officers’ liability insurance covering its directors and officers against liability asserted against or incurred by the person arising out of his or her capacity as an officer or director, including any liability for violations of the Securities Act of 1933 or the Securities Exchange Act of 1934, subject to some exclusions and coverage limitations.

II-1

Item 25.Other Expenses of Issuance and Distribution.

The estimated expenses of the offering, all of which are to be borne by the Registrant, are as follows:

SEC Filing Fee	$	1.462
Printing Expenses*	$	50,000
Accounting Fees and Expenses*	$	35,000
Legal Fees and Expenses*	$	60,000
Blue Sky Fees and Expenses*
Registrar and Transfer Agent Fee*	$	3,500
Miscellaneous*
Total*	$	149,962

* Estimated

Item 26.Recent Sales of Unregistered Securities

The following discussion reflects a 2-for-1 common stock split that was effective on September 15, 2004, even though the transaction may have occurred prior to that date.

On May 17, 2002 the Registrant and National Lampoon Acquisition Group (the “NLAG Group”) entered into a Preferred Stock and Warrant Purchase Agreement, pursuant to which the Registrant sold to members of the NLAG Group 35,244 units, each unit consisting of one share of Series B Convertible Preferred Stock and a warrant to purchase 56.338 shares of the Registrant’s common stock at a purchase price of $1.77 per share. The warrants have a term of five years. The per unit purchase price was $100. The Registrant relied on section 506 of the Securities Act of 1933 to issue the securities, inasmuch as the units were sold without any form of general solicitation or general advertising and sales were made only to accredited investors.

On May 17, 2002 the Registrant issued a warrant to GTH Capital, Inc. The warrant allows the holder to purchase 1,243 shares of the Registrant’s Series B Convertible Preferred Stock for a purchase price of $197.29 per share. The warrant expires on May 16, 2007. The warrant was issued in conjunction with the NLAG Group transaction. The Registrant relied on section 4(2) of the Securities Act of 1933 to issue the securities inasmuch as the warrant was issued without any form of general solicitation or general advertising and the acquirer was an accredited investor.

On August 7, 2002 the Registrant issued two warrants to Zelnick Media Corporation. The warrants were issued for consulting services that were rendered to the Registrant. Each warrant represents the right to purchase 279,000 shares of the Registrant’s common stock. The warrants may be exercised at the price of $3.25 and $5, respectively. The warrants will expire on August 7, 2007. The right to purchase one-third of the warrant shares vested on the date of grant, while the remaining two-thirds began to vest on August 7, 2003, and since that date vest equally over 24 months. The Registrant relied on section 4(2) of the Securities Act of 1933 to issue the securities inasmuch as the warrant was issued without any form of general solicitation or general advertising and the acquirer was an accredited investor.

On August 7, 2002 the Registrant issued two warrants to Scott Siegler. The warrants were issued for consulting services that were rendered to the Registrant. Each warrant represents the right to purchase 21,000 shares of the Registrant’s common stock. The warrants may be exercised at the price of $3.25 and $5, respectively. The warrants will expire on August 7, 2007. The right to purchase one-third of the warrant shares vested on the date of grant, while the remaining two-thirds began to vest on August 7, 2003, and since that date vest equally over 24 months. The Registrant relied on section 4(2) of the Securities Act of 1933 to issue the securities inasmuch as the warrant was issued without any form of general solicitation or general advertising and the acquirer was an accredited investor.

Effective August 17, 2002 the Registrant issued to 426 units of Series B Convertible Preferred Stock and warrants to Douglas S. Bennett in exchange for consulting services that were rendered to the Registrant. Each unit consisted of one share of Series B Convertible Preferred Stock and a warrant to purchase 56.338 shares of the Registrant’s common stock at a purchase price of $1.77 per share. The warrants have a term of five years. The value of each unit was $100. The Registrant relied on section 4(2) of the Securities Act of 1933 to issue the securities inasmuch as the Registrant did not engage in general solicitation or advertising in making this offering and the offeree occupied an insider status relative to the Registrant that afforded him effective access to the information registration would otherwise provide.

II-2

On April 9, 2003 the Registrant issued warrants to Larry Gershman and David Jablin. The warrants were issued for consulting services that were rendered to the Registrant. Each warrant represents the right to purchase 10,000 shares of the Registrant’s common stock. The warrants may be exercised at a price of $2.55. The warrants will expire on April 9, 2008. The right to purchase the warrant shares vested equally over a period of 36 months from the date of grant. The Registrant relied on section 4(2) of the Securities Act of 1933 to issue the securities inasmuch as the warrants were issued without any form of general solicitation or general advertising and the acquirers were accredited investors.

On October 28, 2003, the Registrant issued an aggregate 14,000 shares of its common stock to the following individuals as compensation for services rendered: Dan Sarnoff (6,000), Sara Rutenberg (6,000) and Sally Stewart (2,000). These transactions were exempt from registration requirements in reliance on Section 4(2) of the Securities Act of 1933. The Registrant did not engage in general solicitation or advertising in making this offering and each acquirer occupied an insider status relative to the Registrant that afforded to him or her effective access to the information registration would otherwise provide.

On May 13, 2003, the Registrant issued 1,335 shares of its common stock to Todd Stuart in exchange for services rendered. This transaction was exempt from the registration requirements in reliance on Section 4(2) of the Securities Act of 1933. The Registrant relied on section 4(2) of the Securities Act of 1933 to issue the securities inasmuch as the warrant was issued without any form of general solicitation or general advertising and the acquirer was an accredited investor.

On October 14, 2004 the Registrant issued 5,115 shares of our common stock to its attorneys, Richardson & Patel LLP in exchange for legal services rendered in connection with capital raising transactions. These legal services had a value of $18,601.81. The Registrant issued these securities in reliance on Section 4(2) of the Securities Act of 1933. There was no form of general solicitation or general advertising undertaken and, as the Registrant’s legal counsel, the acquirer occupies a status that affords it effective access to the information registration would otherwise provide.

On December 9, 2004 the Registrant closed a private offering of its securities, issuing 229,761 units of Series C Convertible Preferred Stock at a price of $35.50 per unit. Each unit included one share of Series C Convertible Preferred Stock and a warrant to purchase ten post-split shares of common stock at a price of $1.77 per share. The warrants have a term of four years. As a result of the offering, the Registrant received $3 million in cash and $5.2 million from the conversion of debt, salary and accrued expenses for a total of $8.2 million. The Registrant relied on section 506 of the Securities Act of 1933 to issue the securities, inasmuch as the units were sold without any form of general solicitation or general advertising and sales were made only to accredited investors.

On December 14, 2004, the Registrant issued a warrant to APS Financial. The warrant was issued for consulting services that were rendered to the Registrant. The warrant represents the right to purchase 15,000 shares of the Registrant’s common stock. The warrant may be exercised at a price of $3.20. The warrant will expire on December 14, 2011. The right to purchase the warrant shares vest equally over a period of 36 months from the date of grant. The Registrant relied on section 4(2) of the Securities Act of 1933 to issue the securities inasmuch as the warrant was issued without any form of general solicitation or general advertising and the acquirer was an accredited investor.

II-3

On December 14, 2004, the Registrant issued a warrant to Jonathan Schultz. The warrant was issued for consulting services that were rendered to the Registrant. The warrant represents the right to purchase 15,000 shares of the Registrant’s common stock. The warrant may be exercised at a price of $3.20. The warrant will expire on December 14, 2011. The right to purchase the warrant shares vest equally over a period of 36 months from the date of grant. The Registrant relied on section 4(2) of the Securities Act of 1933 to issue the securities inasmuch as the warrant was issued without any form of general solicitation or general advertising and the acquirer was an accredited investor.

On January 24, 2005, the Registrant issued to Porter, LeVay & Rose 9,104 shares of common stock and issued to Regal Growth Funding, Inc. 3,666 shares of common stock. The common stock was issued for consulting services that were rendered to the Registrant. The value of the common stock on the date of grant was $3.20. The Registrant relied on section 4(2) of the Securities Act of 1933 to issue the securities inasmuch as the common stock was issued without any form of general solicitation or general advertising and the acquirers were accredited investors.

On January 28, 2005 the Registrant issued 80,000 shares of its common stock to N. Williams Family Investments, L. P. and 20,000 shares of its common stock to Christopher R. Williams as consideration for a loan in the amount of $2,700,000. The per share value of the common stock on the date of grant was $2.90. The Registrant issued these securities in reliance on Section 4(2) of the Securities Act of 1933. There was no form of general solicitation or general advertising undertaken and the investors are accredited.

On January 28, 2005 the Registrant issued 50,000 shares of its common stock to Daniel S. Laikin and 50,000 shares of its common stock to Timothy Durham, both of whom are directors, in exchange for their agreement to guarantee certain matters relating to a loan received from N. Williams Family Investments, L.P. The per share value of the common stock on the date of grant was $2.90. The Registrant relied on section 4(2) of the Securities Act of 1933 to issue the securities inasmuch as the Registrant did not engage in general solicitation or advertising in making this offering and the offerees occupy an insider status relative to the Registrant that affords them effective access to the information registration would otherwise provide.

On February 3, 2005 the Registrant issued to its attorneys, Richardson & Patel LLP, in exchange for legal services rendered in connection with capital raising transactions a warrant to purchase 8,400 shares of our common stock. The warrant is exercisable through May 3, 2006 and the exercise price is $4.09 as to 1,638 shares, $3.26 as to 4,377 shares and $2.95 as to 2,385 shares. The Registrant issued these securities in reliance on Section 4(2) of the Securities Act of 1933. There was no form of general solicitation or general advertising undertaken and, as the Registrant’s legal counsel, the acquirer occupies a status that affords it effective access to the information registration would otherwise provide.

II-4

Item 27.Exhibits.

a.The following Exhibits are filed as part of this Registration Statement pursuant to Item 601 of Regulation S-B:

Exhibit No.	Title
1.	Underwriting Agreement**
3.1	Certificate of Incorporation of National Lampoon, Inc. (1)
3.2	Bylaws of National Lampoon, Inc. adopted August 27, 2002 (1)
3.3	First Amendment of Certificate of Incorporation of National Lampoon, Inc. (2)
4.1	Certificate of Designations, Preferences, Rights and Limitations of Series C Convertible Preferred Stock of National Lampoon, Inc. (2)
4.2	NLAG Registration Rights Agreement dated May 17, 2002 among the Registrant and members of the NLAG Group and GTH Capital, Inc. (3)
4.3	Jimirro Registration Rights Agreement dated May 17, 2002 (3)
4.4	Piggyback Registration Rights Agreement dated September 3, 2002 between the Registrant and Constellation Venture Capital, L.P. as agent for certain individuals. (4)
4.5	Piggyback Registration Rights Agreement entered into among the Registrant and the purchasers of Series C Convertible Preferred Stock (5)
4.6	J2 Communications Voting Agreement dated May 17, 2002 among members of the NLAG Group and James P. Jimirro (3)
4.7	First Amendment to Voting Agreement dated June 7, 2002 *
4.8	Series C Voting Agreement entered into among the Registrant and purchasers of Series C Convertible Preferred Stock (5)
4.9	Lock Up Agreement executed by James P. Jimirro *
4.10	Lock Up Agreement executed by James Toll *
4.11	Form of Lock Up Agreement executed by Officers and Directors *
5.	Legal opinion of Richardson & Patel LLP**
10.1	2005 Employment Agreement between National Lampoon, Inc. and Daniel Laikin *
10.2	Employment Agreement between National Lampoon, Inc. and Douglas S. Bennett *
10.3	Secured Promissory Note dated January 28, 2005 executed by National Lampoon, Inc. in favor of N. Williams Family Investments, L.P. *
10.4	Security Agreement dated January 28, 2005 by and among National Lampoon, Inc., National Lampoon Networks, Inc. and National Lampoon Tours, Inc. and N. Williams Family Investments, L.P. *
10.5	Repayment Guaranty dated January 28, 2005 executed by National Lampoon Networks, Inc. and National Lampoon Tours, Inc. in favor of N. Williams Family Investments, L.P. *
10.6	Guaranty dated January 28, 2005 executed by Daniel S. Laikin and Timothy Durham in favor of N. Williams Family Investments, L.P. *
10.7	Subordination Agreement dated January 28, 2005 executed by National Lampoon, Inc. and National Lampoon Networks, Inc. in favor of N. Williams Family Investments, L.P. *
10.8	Termination of Security Agreement dated January 28, 2005 between National Lampoon, Inc. and James P. Jimirro *
10.9	Indemnification Agreement dated May 17, 2002 between National Lampoon, Inc. and Daniel S. Laikin
10.10	Agreement between J2 Communications and Harvard Lampoon, Inc. dated October 1, 1998 *
10.11	First Amendment to Office Lease between National Lampoon, Inc. and Avco Center Corporation dated April 21, 2000
10.12	J2 Communications Amended and Restated 1999 Stock Option, Restricted Stock and Deferred Stock Plan *
10.13	Non-Qualified Stock Option Agreement dated May 17, 2002 between J2 Communications and Daniel S. Laikin (3)
10.14	Indemnification Agreement dated May 17, 2002 between J2 Communications and Daniel S. Laikin (3)
10.15	Indemnification Agreement dated May 17, 2002 between J2 Communications and James P. Jimirro (3)
10.16	Common Stock Warrant for Series B Preferred Stockholders (3)
10.17	Series C Preferred Stock and Warrant Purchase Agreement (5)
10.18	Piggyback Registration Rights Agreement for Series C Preferred Stockholders (5)
10.19	Common Stock Purchase Warrant for Series C Preferred Stockholders (5)
21.	Subsidiaries of National Lampoon, Inc.*
23.	Consent of Stonefield Josephson, Inc.*

* Filed herewith.

**  To be filed. 

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

(2) Incorporated by reference from the Registrant’s Form 10-K for the fiscal year ended July 31, 2004 filed with the Securities and Exchange Commission on October 29, 2004.

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

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

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

II-5

Item 28.Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel that the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes:

1.To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement;

(iii) To include any additional or changed material information on the plan of distribution.

2.For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

3.That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

4.To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

5.Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly caused this Registration Statement on Form SB-2 to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Los Angeles, State of California on the 9th day of March 2005.

NATIONAL LAMPOON, INC. a Delaware Corporation
By:	/s/ Daniel S. Laikin
	Daniel S. Laikin, Chief Executive Officer

By:	/s/ James Toll
	James Toll, Chief Financial Officer

II-7

Pursuant to the requirements of the Securities Act of 1933, this SB-2 Registration Statement has been signed by the following persons in the capacities with National Lampoon, Inc. and on the dates indicated.

Dated: March 9, 2005	/s/Daniel Laikin
	Daniel Laikin, Chief Executive Officer, Chief Operating Officer and Director
Dated: March 9, 2005	/s/Douglas S. Bennett
	Douglas S. Bennett, President
Dated: March 9, 2005	/s/James Toll
	James Toll, Chief Financial Officer and Secretary
Dated: March 9, 2005
	James P. Jimirro, Chairman of the Board of Directors
Dated: March 9, 2005	/s/Timothy Durham
	Timothy Durham, Director
Dated: March 9, 2005	/s/Paul Skjodt
	Paul Skjodt, Director
Dated: March 9, 2005	/s/Joshua Finkenberg
	Joshua Finkenberg, Director
Dated: March 9, 2005	/s/Richard Irvine
	Richard Irvine, Director
Dated: March 9, 2005	/s/Ron Berger
	Ron Berger, Director

II-8

EX-4.9

                                                                     Exhibit 4.9


                                                      January 28, 2005

The Shemano Group, Inc.
601 California Street, Suite 1150
San Francisco, California 94108

Dear Sirs:

         The undersigned is a holder of shares of common stock, and/or options,
warrants, or other rights to acquire common stock, of National Lampoon, Inc., a
Delaware corporation (the "Company"). The undersigned understands that The
Shemano Group, Inc. (the "Underwriter") proposes to enter into an Underwriting
Agreement (the "Underwriting Agreement") providing for the public offering (the
"Public Offering") of the Company's common stock (the "Offered Common Stock") by
the Underwriter and any other underwriters that may participate in the Public
Offering pursuant to a registration statement to be filed with the Securities
and Exchange Commission (the "SEC") (such registration statement, as may be
amended, is referred to herein as the "Registration Statement"). To induce the
Underwriter and any other underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees as follows:

         (i) Except as set forth in subsections (v) and (vi) below, during the
period commencing on the date hereof and ending on the date which is 12 months
from the date the Registration Statement is first declared effective (such
period herein referred to as the "Lock-Up Period"), the undersigned will not,
directly or indirectly, through an "affiliate" or "associate" (as such terms are
defined in the General Rules and Regulations under the Securities Act of 1933,
as amended (the "Securities Act")), a family member or otherwise, offer, sell,
pledge, hypothecate, grant an option for sale, or otherwise dispose of, or
transfer or grant any rights with respect thereto in any manner (either
privately or publicly pursuant to Rule 144 of the General Rules and Regulations
under the Securities Act, or otherwise) any shares of common stock of the
Company or any other securities of the Company, including but not limited to any
securities convertible or exchangeable into shares of common stock of the
Company or options, warrants or other rights to acquire common stock of the
Company directly or indirectly owned or controlled by the undersigned on the
date hereof or hereafter acquired by the undersigned pursuant to a stock split,
stock dividend, recapitalization or similar transaction or otherwise acquired by
the undersigned in a private transaction (the "Securities"), or enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Securities, whether any such swap or transaction is to be settled by delivery of
common stock or other securities, in cash or otherwise, during the Lock-Up
Period, without the Underwriter's prior written consent; provided, however, that
(a) such Securities may be sold or otherwise transferred in a private
transaction during the Lock-Up Period so long as the acquirer of the Securities,
by written agreement with the Underwriter entered into at the time of
acquisition and delivered to the Underwriter prior to the consummation of such
acquisition, agrees to be bound by the restrictions set forth in this letter
agreement and (b) the undersigned may transfer any or all of the Securities
either during his lifetime or upon death, by gift, will or intestacy, to his
immediate family or to a trust or limited partnership, the beneficiaries or
members of which are exclusively the undersigned and/or a member or members of
his immediate family; provided, however, that it shall be a condition to such



The Shemano Group, Inc.
January 28, 2005
Page 2

transfer that the transferee execute a written agreement that the transferee is
receiving and holding the Securities subject to the provision of this letter
agreement, and there shall be no further transfer of such Securities except in
accordance with this letter agreement. For purposes hereof, "immediate family"
shall mean a spouse, lineal descendant, father, mother, brother or sister of the
undersigned.

         (ii) Except with respect to the undersigned's participation in the
public offering as set forth in subsection (vi) below, if at any time during the
one-year period commencing on the date that the Registration Statement is first
declared effective, the undersigned proposes to sell any Securities, including
pursuant to subsection (v) below, including publicly under Rule 144 or
otherwise, the undersigned shall sell such Securities through the Underwriter,
so long as the price and terms of execution offered by such Underwriter are at
least as favorable as may be obtained from other brokerage firms, provided
further that the Underwriter notify the undersigned within three (3) business
days of the proposed transaction of the price and terms of execution for such
proposed transaction.

         (iii) During the Lock-up Period, the undersigned agrees not to make any
demand for, exercise any right, or file (or participate in the filing of) a
registration statement with respect to the registration of any Securities
without the prior written consent of the Underwriter.

         (iv) The undersigned agrees to furnish such information as may be
required (whether orally or in writing) and otherwise to cooperate under the
securities or blue sky laws of such states as the Underwriter may designate or
any regulatory or other authority (including the American Stock Exchange) as a
condition to registration of the Public Offering in such state, if requested by
the Underwriter.

         (v) During each 90 day period of the one-year period following the date
that the Registration Statement is first declared effective, the undersigned
shall be entitled to sell up to 39,334 shares of the Company's common stock. In
the event that the number of outstanding shares of the Company's common stock is
changed by a stock dividend, recapitalization, stock split, reverse stock split,
subdivision, combination, reclassification or similar change in the capital
structure of the Company without consideration, then the number of shares of
common stock that the undersigned may sell during any 90 day period shall be
proportionately adjusted, subject to any required action by the Company's Board
of Directors or its stockholders and compliance with applicable securities laws.
If not exercised during a 90 day period, the right to sell as to that 90 day
period shall expire and the undersigned shall not be entitled to include such
shares in sales made during subsequent 90 day periods.

         (vi) The undersigned shall be entitled to include up to a total of
400,000 shares of common stock in the Public Offering and to sell such shares
through the Underwriter (the "Selling Security Holder's Shares"). The
undersigned shall notify the Underwriter no later than 5:00 p.m. Pacific time on
February 4, 2005 of the number of Selling Security Holder's Shares, if any, he
will include in the Public Offering. The undersigned shall enter into such
customary agreements (including the Underwriting Agreement) and deliver such
other documents (including a legal opinion, if necessary) as may be reasonably



The Shemano Group, Inc.
January 28, 2005
Page 3

required by the Underwriter and/or the Company in connection with such offering
of the Selling Security Holder's Shares.

         This letter agreement shall terminate in the event (a) the Public
Offering does not close on or before May 31, 2005 or (b) the gross proceeds
received by the Company upon the closing of the Public Offering do not equal at
least $8 million.

         Subject to the foregoing, the undersigned hereby agrees to the
placement of a legend on the certificates representing the Securities to
indicate the restrictions on resale of the Securities imposed by this agreement
and/or the entry of stop transfer orders with the transfer agent and the
registrar of the Company's securities against the transfer of the Securities
except in compliance with this letter agreement. In the case of any Securities
for which the undersigned is the beneficial but not the record holder, the
undersigned agrees to cause the record holder to authorize the Company to cause
the transfer agent to decline to transfer and/or to note stop transfer
restrictions on its books and records with respect to such Securities.

         To the extent that the undersigned has any rights with respect to the
registration of any Securities pursuant to any agreement with the Company, and
to the extent that such agreement and the rights conferred thereunder may be
inconsistent with the terms of this letter agreement, the undersigned agrees
that the terms herein shall govern.

         The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this letter agreement. To the best of the
undersigned's knowledge, all of the Securities held by him are listed on the
attached Annex 1. All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and any obligations of the
undersigned shall be binding upon the heirs, personal representatives,
successors, and assigns of the undersigned.

         Any right of the undersigned to sell any portion of the Securities, as
discussed in subsection (v) above, is subject at all times to compliance with
all applicable state and federal securities laws, rules and regulations.

         This letter agreement represents the entire understanding between the
parties with respect to the subject matter hereof, and supersedes all prior
agreements, negotiations, understandings, letters of intent, representations,
statements and writings between the parties relating thereto. No modification,
alteration, waiver or change in any of the terms of this letter agreement shall
be valid or binding upon the parties hereto unless made in writing and duly
executed on behalf of the party to be charged therewith.

          The undersigned understands that the Underwriter and any other
underwriters that may participate in the Public Offering are relying upon this
letter agreement in proceeding toward consummation of the Public Offering.

          Any Public Offering will only be made pursuant to an Underwriting
Agreement, the terms of which are subject to negotiation between the Company and
the Underwriter. If this letter agreement is acceptable to the Underwriter,
please sign the form of acceptance below and deliver one of the counterparts



The Shemano Group, Inc.
January 28, 2005
Page 4

hereof to me, such counterparts to constitute one and the same agreement. This
will become a binding agreement between us upon execution by each of the parties
hereto.


                                             Very truly yours,


                                             -----------------------------------
                                             (Signature)

                                             James P. Jimirro
                                             -----------------------------------
                                             (Print Name)


AGREED to and ACCEPTED this _____ day of
January 2005

THE SHEMANO GROUP, INC.


By:
   -------------------------------------



The Shemano Group, Inc.
January 28, 2005
Page 5


                                     ANNEX 1

                             LIST OF SECURITIES HELD

EX-4.10

                                                                    Exhibit 4.10


                                                          January 28, 2005

The Shemano Group, Inc.
601 California Street, Suite 1150
San Francisco, California 94108

Dear Sirs:

         The undersigned is a holder of shares of common stock, and/or options,
warrants, or other rights to acquire common stock, of National Lampoon, Inc., a
Delaware corporation (the "Company"). The undersigned understands that The
Shemano Group, Inc. (the "Underwriter") proposes to enter into an Underwriting
Agreement (the "Underwriting Agreement") providing for the public offering (the
"Public Offering") of the Company's common stock (the "Offered Common Stock") by
the Underwriter and any other underwriters that may participate in the Public
Offering pursuant to a registration statement to be filed with the Securities
and Exchange Commission (the "SEC") (such registration statement, as may be
amended, is referred to herein as the "Registration Statement"). To induce the
Underwriter and any other underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees as follows:

         (i) During the period commencing on the date hereof and ending on the
date which is 12 months from the date the Registration Statement is first
declared effective (such period herein referred to as the "Lock-Up Period"), the
undersigned will not, directly or indirectly, through an "affiliate" or
"associate" (as such terms are defined in the General Rules and Regulations
under the Securities Act of 1933, as amended (the "Securities Act")), a family
member or otherwise, offer, sell, pledge, hypothecate, grant an option for sale,
or otherwise dispose of, or transfer or grant any rights with respect thereto in
any manner (either privately or publicly pursuant to Rule 144 of the General
Rules and Regulations under the Securities Act, or otherwise) any shares of
common stock of the Company or any other securities of the Company, including
but not limited to any securities convertible or exchangeable into shares of
common stock of the Company or options, warrants or other rights to acquire
common stock of the Company directly or indirectly owned or controlled by the
undersigned on the date hereof or hereafter acquired by the undersigned pursuant
to a stock split, stock dividend, recapitalization or similar transaction or
otherwise acquired by the undersigned in a private transaction (the
"Securities"), or enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Securities, whether any such swap or transaction
is to be settled by delivery of common stock or other securities, in cash or
otherwise, during the Lock-Up Period, without the Underwriter's prior written
consent; provided, however, that (a) such Securities may be sold or otherwise
transferred in a private transaction during the Lock-Up Period so long as the
acquirer of the Securities, by written agreement with the Underwriter entered
into at the time of acquisition and delivered to the Underwriter prior to the
consummation of such acquisition, agrees to be bound by the restrictions set
forth in this letter agreement and (b) the undersigned may transfer any or all
of the Securities either during his lifetime or upon death, by gift, will or
intestacy, to his immediate family or to a trust or limited partnership, the
beneficiaries or members of which are exclusively the undersigned and/or a
member or members of his immediate family; provided, however, that it shall be a



The Shemano Group, Inc.
January 28, 2005
Page 2

condition to such transfer that the transferee execute a written agreement that
the transferee is receiving and holding the Securities subject to the provision
of this letter agreement, and there shall be no further transfer of such
Securities except in accordance with this letter agreement. For purposes hereof,
"immediate family" shall mean a spouse, lineal descendant, father, mother,
brother or sister of the undersigned.

         (ii) If at any time during the one-year period commencing on the date
that the Registration Statement is first declared effective, the undersigned
proposes to sell any Securities, including publicly under Rule 144 or otherwise,
the undersigned shall sell such Securities through the Underwriter, so long as
the price and terms of execution offered by such Underwriter are at least as
favorable as may be obtained from other brokerage firms, provided further that
the Underwriter notify the undersigned within three (3) business days of the
proposed transaction of the price and terms of execution for such proposed
transaction.

         (iii) During the Lock-up Period, the undersigned agrees not to make any
demand for, exercise any right, or file (or participate in the filing of) a
registration statement with respect to the registration of any Securities
without the prior written consent of the Underwriter.

         (iv) The undersigned agrees to furnish such information as may be
required (whether orally or in writing) and otherwise to cooperate under the
securities or blue sky laws of such states as the Underwriter may designate or
any regulatory or other authority (including the American Stock Exchange) as a
condition to registration of the Public Offering in such state, if requested by
the Underwriter.

         This letter agreement shall terminate in the event (a) the Public
Offering does not close on or before May 31, 2005 or (b) the gross proceeds
received by the Company upon the closing of the Public Offering do not equal at
least $8 million.

         Subject to the foregoing, the undersigned hereby agrees to the
placement of a legend on the certificates representing the Securities to
indicate the restrictions on resale of the Securities imposed by this agreement
and/or the entry of stop transfer orders with the transfer agent and the
registrar of the Company's securities against the transfer of the Securities
except in compliance with this letter agreement. In the case of any Securities
for which the undersigned is the beneficial but not the record holder, the
undersigned agrees to cause the record holder to authorize the Company to cause
the transfer agent to decline to transfer and/or to note stop transfer
restrictions on its books and records with respect to such Securities.

         To the extent that the undersigned has any rights with respect to the
registration of any Securities pursuant to any agreement with the Company, and
to the extent that such agreement and the rights conferred thereunder may be
inconsistent with the terms of this letter agreement, the undersigned agrees
that the terms herein shall govern.

         The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this letter agreement. To the best of the
undersigned's knowledge, all of the Securities held by him are listed on the
attached Annex 1. All authority herein conferred or agreed to be conferred shall



The Shemano Group, Inc.
January 28, 2005
Page 3

survive the death or incapacity of the undersigned and any obligations of the
undersigned shall be binding upon the heirs, personal representatives,
successors, and assigns of the undersigned.

         Any right of the undersigned to sell any portion of the Securities, as
discussed in subsection (ii) above, is subject at all times to compliance with
all applicable state and federal securities laws, rules and regulations.

         This letter agreement represents the entire understanding between the
parties with respect to the subject matter hereof, and supersedes all prior
agreements, negotiations, understandings, letters of intent, representations,
statements and writings between the parties relating thereto. No modification,
alteration, waiver or change in any of the terms of this letter agreement shall
be valid or binding upon the parties hereto unless made in writing and duly
executed on behalf of the party to be charged therewith.

          The undersigned understands that the Underwriter and any other
underwriters that may participate in the Public Offering are relying upon this
letter agreement in proceeding toward consummation of the Public Offering.

          Any Public Offering will only be made pursuant to an Underwriting
Agreement, the terms of which are subject to negotiation between the Company and
the Underwriter. If this letter agreement is acceptable to the Underwriter,
please sign the form of acceptance below and deliver one of the counterparts
hereof to me, such counterparts to constitute one and the same agreement. This
will become a binding agreement between us upon execution by each of the parties
hereto.

                                             Very truly yours,


                                             --------------------------------
                                             (Signature)


                                             --------------------------------
                                             (Print Name)

AGREED to and ACCEPTED this _____ day of
January 2005

THE SHEMANO GROUP, INC.



By:
   -------------------------------------



The Shemano Group, Inc.
January 28, 2005
Page 4


                                     ANNEX 1

                             LIST OF SECURITIES HELD

EX-10.1

                                                                    Exhibit 10.1

                            2005 EMPLOYMENT AGREEMENT
                         BETWEEN NATIONAL LAMPOON, INC.
                                       AND
                                DANIEL S. LAIKIN

         This 2005 EMPLOYMENT  AGREEMENT (the  "Agreement"),  is entered into by
and between National  Lampoon,  Inc., a California  Corporation (the "Company"),
and Daniel S. Laikin ("Executive").

A G R E E M E N T

         NOW,  THEREFORE,  in  consideration  of the  foregoing  and the  mutual
covenants herein contained, the parties hereto agree as follows:

         1. EMPLOYMENT

         (a) Executive  Employment.  The Company hereby employs  Executive,  and
Executive hereby agrees to perform services for the Company for and
during the term  hereof,  and to serve as CEO of the  Company.  Executive  shall
perform  such  duties  and have  such  responsibilities  as are set forth in the
Bylaws of the Company and as may from time to time be assigned to  Executive  by
the Board.  The Executive  shall report solely to the Board and shall be subject
to direction  solely from the Board in the performance of his duties  hereunder.
For  purposes  of  this  Agreement,   unless  the  context  otherwise  requires,
references  to the  business  of  "the  Company"  shall  include  any  successor
corporation or corporations  which may be the eventual  successor to the present
or future business and/or assets of the Company.

         (b) Duties. Throughout the period that the Executive is employed by the
Company hereunder (the "Employment  Term"),  Executive shall devote  substantial
time,  energy and skill during normal business hours to the business and affairs
of  the  Company,  except  for  vacation  periods  and  periods  of  illness  or
incapacity, but nothing in this Agreement shall preclude Executive from devoting
reasonable  amounts of time to serve as a director or member of a  committee  of
any organization involving no material and substantial conflict of interest with
the Company or from pursuing personal  investments  provided that Employee shall
not,  directly  or  indirectly,  as  employee,   consultant,   agent,  investor,
principal,  partner,  stockholder  (except  as a holder  of less  that 1% of the
issued and outstanding stock or debt of a publicly held  corporation),  officer,
director or otherwise,  engage or participate  in any business  similar to or in
competition  in any manner  whatsoever  with the  business  as now or  hereafter
conducted.

         (c) Place of  Employment.  The Company shall not change the location of
the principal office of the Company or Executive's principal place of employment
during the Employment Term of this Agreement  without the prior written approval
of Executive.  The Executive shall not be required to travel from Los Angeles on



business  for  unreasonable  periods  of time or on an  unreasonable  number  of
business trips.

         2.  COMPENSATION.  The Company  shall  provide to Executive and pay the
following forms of compensation:

         (a) Base Salary.

                  (i) During the Employment Term, the Company shall pay to
Executive an annual  salary (the "Base  Salary") for the services to be rendered
by him  hereunder,  including  all  services  to be  rendered  as an  officer or
employee  of the Company or any of its direct or  indirect  subsidiaries,  which
shall be Two Hundred,  Fifty Thousand  Dollars  ($250,000) per year. Such salary
shall be payable in cash in  semi-monthly  payments  on the 1st and 15th days of
each month.  Executive's Base Salary as in effect from time to time shall not be
subject to reduction without Executive's prior written consent.

                  (ii)  Adjustments to Base Salary.  Executive's Base Salary may
         be increased (but not decreased) by the Board in its sole discretion.

         (b) Stock  Options.  On each  anniversary of the effective date of this
Agreement,  the Board  (acting  solely by  "outside  directors"  as such term is
defined  in the  regulations  regarding  performance  based  compensation  under
Section 162(m) of the Internal Revenue Code of 1986, as amended,  shall grant to
Executive  options to purchase  100,000 shares of the Company's Common Stock, no
par value (the "Common Stock") on the following terms and conditions:

                  (i) The  options  shall be granted  under and  pursuant to the
Company's Amended and Restated 1999 Stock Option,  Deferred Stock and Restricted
Stock Plan (the "Plan").

                  (ii) The  exercise  price of each option shall be equal to (A)
the average of the last reported sale price for one share of Common Stock during
the five (5) business days preceding the date of grant as reported on the NASDAQ
Automated  Quotation  System;  or (B) if (A) is not  applicable,  then  the fair
market value of one share of the Common  Stock,  as  determined in good faith by
the Board.

                  (iii) All stock options granted to Executive  pursuant to this
Section  2(b):  (A) shall be  immediately  exercisable;  (B) shall expire to the
extent not  exercised  prior to the close of  business on the day ten (10) years
from the date of grant;  and (C) shall be governed by the Plan and an  agreement
substantially  in the form of the agreement  attached hereto as Exhibit A, or as
otherwise agreed upon by the parties.  The Company shall use its best efforts to
assure that all options are granted to  Executive  under the Plan,  or a similar
plan later adopted by the Company,  which satisfies the conditions of Rule 16b-3
of the Securities and Exchange Commission or any successor thereto.



                  (iv) In the event of a change in the  number of the  Company's
shares of Common Stock  outstanding  caused by an event listed in Section 3.3 of
the Plan, the number of shares subject to options granted after the date of such
event shall be adjusted in  accordance  with the  procedures  contained  in such
Section  and the number of options to be granted to  Executive  pursuant to this
Section 2(b) shall be correspondingly adjusted.

                  (v) Notwithstanding the foregoing,  if and to the extent that,
in the opinion of  counsel,  the  Company is unable to grant the  Executive  any
stock  options due  Executive  pursuant to this  Section 2(b) because such grant
would  violate  any  state or  federal  securities  law,  regulation,  permit or
approval  obtained by the  Company,  then the Company  shall to the extent it is
able to do so without violation of the foregoing, at the time such stock options
would otherwise be granted to Executive hereunder; agree with the Executive on a
reasonably equivalent,  alternative form of compensation,  with the agreement of
neither party to be unreasonably withheld.

                  (vi) The Board may grant additional stock options to Executive
in its sole discretion.

         (c) Vacation.  During the Employment Term,  Executive shall be entitled
to four (4) weeks annual paid vacation to be taken at such times as are mutually
satisfactory to Executive and to the Company.

         (d) Other  Benefits.  During the  Employment  Term,  the Company  shall
provide  Executive with benefits  substantially  similar to those enjoyed by the
former  CEO under  any of the  Company's  vacation,  pension,  retirement,  life
insurance,  medical,  health and accident,  or  disability  plans or policies in
which the former CEO was participating and the Company shall not take any action
which would  directly or  indirectly  materially  reduce any of such benefits or
deprive  Executive of any material fringe benefit enjoyed by the CEO immediately
prior to the date of this Agreement. During the Employment Term, Executive shall
also  be  entitled  to  participate  in or  receive  benefits  under  all of the
Company's  employee benefit plans,  policies,  practices and  arrangements  made
available by the Company in the future to its executive employees subject to and
on a basis consistent with the terms,  conditions and overall  administration of
such  benefit  plans  and the  terms of this  Agreement.  Without  limiting  the
foregoing,  during the Employment Term, the Company shall provide Executive with
support  services  comparable  to those  provided to the former  CEO,  including
without  limitation the exclusive use of an appropriate  office and the services
of a  secretary  of his  choice.  At its  discretion,  the  Board  may  grant to
Executive  benefits  under the  Company's  existing  employee  benefit  plans in
addition to those presently enjoyed by Executive or specified herein, based upon
Executive's contributions to the success of the Company.

         (e) Bonus Program.  Compensation for position will also include a bonus
program.



                  (i) The bonus program will be 50% paid in cash and 50% paid in
stock.

                  (ii) The bonus program will be paid out on a bi-annual  basis.
The targets for the program will be mutually agreed upon between Bennett and the
Compensation  Committee of the Board of Directors.  The following  chart depicts
term, amount of payout and timing of payment.

                 --------------------------------------------------
                     Period          Amount         Payout
                 --------------------------------------------------
                   Aug - Jan        $50,000          Feb
                 --------------------------------------------------
                   Feb - Jul        $50,000          Aug
                 --------------------------------------------------

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

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

                  (iii) The bonus  program  will also  include a  provision  for
performance  that exceeds  expectations.  For performance in meeting each target
above 100% the  company  will pay out the same  percentage  as a  percentage  of
target amount ie 150% achievement  equates to a payment of $75,000 split equally
between cash and stock.

         3. EXPENSES.  Executive  shall be reimbursed for expenses  incurred for
business  purposes  by  the  Company  upon  presenting   satisfactory   vouchers
evidencing such expenses. Executive shall be provided with and the Company shall
pay all insurance,  maintenance,  license, registration and operational expenses
for an automobile of his choice (luxury class).

4.       TERMINATION.

         (a)  Term.  This  Agreement  shall be in  effect  from the date  hereof
through  a  period  ending  three  years  after  the  date  hereof,   and  shall
automatically be extended for successive three year terms thereafter  unless and
until the Board of Directors  elects not to renew this  Agreement  and cause the
Company to so notify Executive in writing of such nonrenewal at least sixty (90)
days prior to the end of the  then-current  three-year term of this Agreement or
unless  earlier  terminated in accordance  with this Section 4 (the  "Employment
Term");  provided,  however,  for purposes of deciding not to renew  Executive's
employment  for an  additional  term  hereunder a majority  of the  "Independent
Director" (as defined in the Voting  Agreement) and the "Series B Directors" (as
defined in the Voting  Agreement),  acting as a group,  shall make that decision
for the Board of Directors, and the remaining Directors shall not participate in
such decision, notwithstanding any provision of the Bylaws of the Company to the
contrary, and the Board of Directors shall abide by, and act in accordance with,
the decision of such group.

         (b) Notice of Termination.  "Notice of Termination"  shall be a written
notice  terminating  Executive's  employment  hereunder which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth



in reasonable detail the facts and circumstances  claimed to provide a basis for
termination of employment under the provision so indicated.

         (c) Death.  This Agreement shall be terminated  automatically  upon the
death of Executive.

         (d) Disability.  This Agreement shall be terminated  automatically upon
the  permanent  disability  of  Executive.  For  purposes of this  Agreement,  a
permanent disability shall be deemed to have occurred if (i) Executive is unable
to perform his material duties hereunder for a period of ninety (90) consecutive
days,  or one hundred  eighty (180) days in any one (1) year,  on account of any
physical  or mental  disability;  or (ii) a licensed  physician  selected by the
Company and  approved by  Executive  (or his closest  relative if  Executive  is
unable to act),  which  approval  shall not be  unreasonably  withheld,  makes a
medical  determination  of  physical  or medical  disability  or  incapacity  of
Executive.

         (e)  Termination  by the  Company  For  Cause.  This  Agreement  may be
terminated  voluntarily  by the Company  immediately at any time during its term
for "Cause" which shall mean (i) the willful and continued  failure by Executive
to  substantially  perform his duties with the Company in good faith (other than
any such  failure  resulting  from his  incapacity  due to  physical  or  mental
illness),  after a demand for substantial performance is delivered to him by the
Board which specifically  identifies the manner in which the Board believes that
Executive has not substantially  performed his duties in good faith; or (ii) the
willful  engaging by Executive in conduct which is  demonstrably  and materially
injurious to the Company,  monetarily or otherwise. For purposes of this Section
4(e),  no act, or failure to act, on the  Executive's  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 the best  interest of the
Company.  Notwithstanding  the foregoing,  Executive shall not be deemed to have
been  terminated  for cause unless and until there shall have been  delivered to
him a Notice of  Termination  and a copy of a  resolution  duly  adopted  by the
affirmative  vote of at least  five of the six  members  of the Board  excluding
Executive  at a meeting  of the Board  called and held for such  purpose  (after
reasonable written notice to Executive,  not less than 10 days prior to the date
of such  meeting,  detailing the alleged  basis for such  determination;  and an
opportunity  for Executive,  together with his counsel,  to be heard before such
meeting),  finding that in the good faith  opinion of the Board,  Executive  was
guilty of conduct set forth above in clause (i) or (ii) of the first sentence of
this Section 4(e) and specifying the particulars  thereof in detail. Any dispute
concerning  a  determination  of  "Cause"  pursuant  hereto  shall be subject to
arbitration pursuant to Section 9(c) hereof.

         (f) Date of Termination. Subject to Section 4(g), "Date of Termination"
means (i) if employment is terminated  upon the death of Executive,  the date of
such death;  (ii) if employment is terminated  upon the permanent  disability of
Executive as provided for in Section 4(d), on the date  permanent  disability is
first established pursuant to that Section; or (iii) if employment is terminated
pursuant to Section 4(e),  the date  specified in the second to last sentence of
Section 4(e).



         (g)  Notice  of  Dispute.  Within  fifteen  (15) days  after  Notice of
Termination is given  pursuant to Section 4(e), the party  receiving such Notice
of Termination  may notify the other party that a dispute exists  concerning the
termination ("Notice of Dispute"), and the Date of Termination shall be the date
on which the dispute is finally resolved,  either by mutual written agreement of
the parties,  by a binding  arbitration award, or by a final judgment,  order or
decree  of a court of  competent  jurisdiction  (the time for  appeal  therefrom
having expired and no appeal having been perfected); and provided, however, that
the Date of  Termination  shall be extended  by a Notice of Dispute  only if the
party  delivering  such  notice  pursues the  resolution  of such  dispute  with
reasonable  diligence.  Notwithstanding the pendency of a Notice of Dispute, the
Company will continue to pay Executive his full  compensation in effect when the
notice giving rise to the dispute was given and continue him as a participant in
all  compensation,   bonus,   benefit  and  insurance  plans  in  which  he  was
participating  when the notice  giving rise to the dispute was given,  until the
dispute is finally resolved.  Notwithstanding  anything  expressed or implied to
the  contrary in this Section  4(i),  the failure of a party to give a Notice of
Dispute or to pursue a dispute with reasonable diligence shall not foreclose the
party from disputing such termination or otherwise pursing any rights to damages
or other remedies to which the party may be entitled at law.

         5.  COMPENSATION  AND BENEFITS  UPON  CERTAIN  EARLY  TERMINATIONS.  If
Executive's  employment  shall be  terminated  by the Company  for Cause,  or by
Executive,  or upon the death or  disability  of  Executive,  in addition to any
benefits  mandated by law, the Company  shall pay Executive his full Base 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.

         6. SUCCESSORS.  The Company will require any successor  (whether direct
or  indirect,  by  purchase,  merger,  consolidation  or  otherwise)  to  all or
substantially  all of the  business  and/or  assets of the Company to  expressly
assume and agree to perform  this  Agreement  in the same manner and to the same
extent  that the Company  would be required to perform it if no such  succession
had taken place.

         7. REGISTRATION RIGHTS.

                  (a) The  Company  shall  register  all  options  of  Executive
(regardless  of whether such options have been granted  under this  Agreement or
otherwise),  and the  Common  Stock  with  respect  to which  such  options  are
exercisable,  as soon as practicable after issuance on Form S-8 or any successor
form  thereto  pursuant  to the  rules and  regulations  of the  Securities  and
Exchange Commission.

         8. INDEMNITY.  Concurrently  with the execution of this Agreement,  the
Company and the  Executive  shall execute and deliver to each other an Indemnity
Agreement  in the form  attached  as Exhibit "B"  hereto.  The  delivery of such



agreement by the Company is in consideration for the performance by Executive of
his obligations under this Agreement.

         9.       MISCELLANEOUS.

         (a)  Severability.  The provisions of this Agreement shall be severable
and if any provision hereof shall be judged to be invalid, such invalidity shall
not affect any other portion of this Agreement, which can be given effect.

         (b) Notices.  All notices,  requests,  demands and other communications
hereunder shall be in writing and shall be duly given if actually received or if
duly mailed,  registered or certified mail,  return receipt  requested,  postage
prepaid:

                  If to the Company, to:
                  National Lampoon, Inc.
                  10850 Wilshire Blvd., Suite 1000
                  Los Angeles, CA 90024

                  If to Executive, to:
                  Daniel S. Laikin
                  9920 Towne Road
                  Carmel, IN 46032

or to such other  address as either  party may  furnish to the other in writing,
making specific reference to this Section 9(b).

         (c) Arbitration. In the event that there shall be a dispute between the
parties hereto  concerning the meaning,  application or  interpretation  of this
Agreement or of the legal  relations  connected  therewith,  or  concerning  any
alleged  breach  hereof,  or to enforce the terms  hereof or to seek  damages in
respect of a breach hereof or otherwise relating hereto, then such dispute shall
be referred to the American  Arbitration  Association for  arbitration  before a
single  arbitration  in Los Angeles,  California,  according to the rules of the
arbitrator  appointed by said Association;  and the decision of such Association
shall be final and binding on the parties hereto.

         (d) Rights to Work Product.  Executive grants to the Company all rights
of every kind whatsoever,  exclusively and  perpetually,  in and to all services
performed  by him for the Company  hereunder,  during the term  hereof,  and the
results and  proceeds  thereof,  including  all of  Executive's  creative  works
including without  limitation ideas,  concepts,  formats,  themes,  screenplays,
and/or  adaptations  of the  foregoing,  whether or not reduced to writing,  and
whether or not  otherwise  protected by  copyrights,  or rights  thereto,  or at
common law or otherwise during the term hereof. Executive agrees that all films,
film rights,  videotapes,  distribution rights,  literary material,  photoplays,
music rights, ideas for photoplays,  scripts and similar rights,  presentations,
ideas, formats and all other material  (collectively  referred to as "Material")
submitted to him by third parties  during the term of his  employment  hereunder



shall be deemed to be submitted to the Company and upon the  termination  of his
employment  hereunder Executive shall forthwith deliver all such Material in his
possession, if any, to the Company.

         (e)  Confidentiality.  Without the express prior written consent of the
Company,  Executive  shall not,  except in the ordinary course of performing his
duties  for the  Company,  disclose  or make  available  to anyone  outside  the
Company,  any  confidential  or  proprietary  information  of  the  Company  its
subsidiaries,   or  affiliated  corporations  or  entities  including,   without
limitation,  trade secrets, customer lists, financial data, programming plans or
other  information  not generally  known to any  competitor of the Company,  its
subsidiaries  or affiliated  corporations or entities.  Upon  termination of his
employment,  Executive  shall  deliver  to  the  Company  all  documents  in his
possession   containing  any  such  confidential  or  proprietary   information;
provided, however, that Employee shall be entitled to retain a copy (but not the
original) of his personal  correspondence  file. The agreements of Executive set
forth in this Section 9(e) shall survive the end of the Employment Term.


         (f) Attorneys' Fees. In the event of any dispute  hereunder,  or in the
event of any action to enforce the terms and provisions of this  Agreement,  the
prevailing  party  shall be entitled  to recover  from the other his  reasonable
attorneys'  fees and  disbursements  and  other  costs  incurred  in  connection
therewith.

         (g) Assignment.  Neither this Agreement nor any right or interest under
this Agreement  shall be assignable by Executive.  This  Agreement  shall not be
assignable by the Company without the prior written consent of Executive.

         (h)   Entire   Agreement.   This   Agreement   sets  forth  the  entire
understanding   and  agreement  of  the  parties  with  respect  to  Executive's
employment by the Company on and after the date hereof.  Said Agreement shall be
binding upon the heirs,  administrators,  successors  and assigns of the parties
hereto.  There  are  no  oral  agreements,  modifications,   representations  or
understandings  relating to  Executive's  employment by the Company on and after
the date hereof which are not  specifically  set forth herein.  All negotiations
regarding Executive's employment by the Company on and after the date hereof are
merged into this Agreement.

         (i) Governing Law. This Agreement and each of the provisions  hereunder
shall be interpreted according to and governed by the internal laws of the State
of California regardless of the principles of choice of law of that or any other
jurisdiction.  The parties  hereto submit to the  jurisdiction  of the state and
federal courts of the State of California.

         (j) No  Mitigation  of  Damages.  Executive  shall not be  required  to
mitigate  the amount of any payment  provided  for in Sections 2 or 3 by seeking
other  employment or  otherwise,  nor shall the amount of any payment or benefit
provided for in Sections 2 or 3 be reduced by any compensation  earned by him as
the result of employment by another employer,  or by retirement benefits,  after
the Date of  Termination.  The  Company  shall not be  entitled to any rights to
offset, mitigate or otherwise reduce the amounts owing to Executive by virtue of
Sections 2 or 3 with respect to any rights,  claims or damages which the Company
may have against Executive.



IN WITNESS WHEREOF,  the Company has caused this Agreement to be executed by its
officer thereunto duly authorized,  and Executive has executed this Agreement as
of the day and year first above written.


"The Company"
NATIONAL LAMPOON, INC.


By:
    ----------------------------
    James P. Jimirro, Chairman



"Executive"

DANIEL S. LAIKIN


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

EX-10.2

                                                                    Exhibit 10.2


                                January 31, 2005


Mr. Douglas S. Bennett
c/o National Lampoon, Inc.
10900 Wilshire Boulevard, Suite 1000
Los Angeles, California 90024

Dear Doug:

         The purpose of this letter is to set forth the terms of your employment
with National Lampoon, Inc. (the "Company").

         The Company will employ you as its President for a term of three years,
beginning on February 1, 2005 and ending on January 31, 2008. You will report to
the Company's Chief Executive Officer and to its Board of Directors.

         Your base salary will be $250,000. You will be entitled to participate
in any and all employment benefits that are in effect from time to time for
employees and executive officers of the Company generally. Such participation
shall be subject to the terms of the applicable plan documents and generally
applicable policies of the Company. During the term of this agreement, you will
continue to have at least four weeks paid vacation per year and 100% of the
premiums for your health insurance (so long as the Company continues to offer a
group health insurance plan to employees) will be paid by the Company. The
Company will reimburse your for all reasonable business expenses, including
travel expenses, incurred by you during your employment to the extent that the
expenses are in compliance with the Company's business expense reimbursement
policies and you provide such documentation and records as the Company will from
time to time require.

         As soon as practical after your acceptance of employment in accordance
with the terms of this letter, and thereafter annually for the term of this
agreement, you will meet with the Company's Chief Executive Officer and the
Board of Directors to agree on certain performance milestones that will allow
you to earn a bonus. The bonus will be paid bi-annually, based on performance
during the periods from February through July and from August through January.
The bonus, if earned, will be paid during the month following the conclusion of
each six month period, namely August and February. If all the performance
milestones are met during a bi-annual period, the minimum bonus to be paid will



Mr. Douglas S. Bennett
January 31, 2005
Page 2

be $50,000. If the Company exceeds a particular performance milestone, then you
will receive an additional bonus amount computed on the excess. For example, if
your bonus is based solely on the Company earning x in revenues, and the Company
earns x plus 50% more than x, you would receive an additional bonus computed as
one-half of $50,000, or $25,000, which would be paid one-half in cash and
one-half in common stock. The common stock issued in payment of your bonus will
be issued from the J2 Communications Amended and Restated 1999 Stock Option,
Deferred Stock and Restricted Stock Plan, referred to in this letter agreement
as the "Plan".

         On January 31, 2006, January 31, 2007 and January 31, 2008, you will
receive an option to purchase 100,000 shares of the Company's common stock. The
options will be granted from the Plan. The exercise price of the options will
not exceed the fair market value of the common stock on the date on which the
option is granted. The options granted pursuant to this letter agreement will
vest immediately on the date of grant.

         Currently, you and the Company anticipate that you will continue to
commute to Los Angeles, California from your home in Northern California and the
Company will continue to pay your commuting expenses as it has in the past. If
the Company requires you to re-locate to Southern California, and you mutually
agree, you agree to do so subject to the condition set forth below, so long as
the Company provides you with relocation expenses which shall be defined as
approved expenses (including costs of transportation) of no more than three
trips to Southern California for the purpose of locating a suitable place to
live, the payment of reasonable closing costs relating to the purchase of a home
in Southern California and the expenses incurred in moving your household
furniture and furnishings to your home in Southern California. The requirement
that you relocate to Southern California is conditioned upon the sale of your
principal residence in Northern California.

         The Company may terminate your employment for cause at any time.
"Cause" is defined as a good faith termination by a majority of the Board of
Directors because you have (i) engaged in acts in violation of the law, (ii)
breached your fiduciary duty to the Company or your duties of loyalty or care to
the Company, or (iii) intentionally and persistently disobeyed the good faith,
lawful, substantive policies or instructions of the Board of Directors after
being given 30 days written notice and failing to cure such circumstances, or,
if such circumstances are not susceptible of cure during such 30 day period,
failing to initiate and diligently pursue actions reasonably calculated to
achieve and cure such circumstances as soon as reasonably practicable
thereafter.



Mr. Douglas S. Bennett
January 31, 2005
Page 3

         If the Company terminates your employment without cause, or if you are
constructively terminated, or if you die or are disabled, you will be entitled
to receive the following severance benefits:

         (i) your base salary will be continued for a period of six months or
for the remaining term set forth in this letter agreement, whichever is longer,
following the date your termination becomes effective;

         (ii) your employee benefits will be continued as long as your base
salary is continued; and

         (iii) any unvested stock options you hold will continue to vest for a
period of six months or for the remaining term of your employment as set forth
in this letter agreement, whichever is longer, following the date on which your
termination becomes effective.

         The term "disabled" means your inability, during a single period of 60
days or for a total of 120 days during any 12 month period, by reason of injury,
illness or other similar cause, to perform a major part of your duties and
responsibilities in connection with the conduct of the business and affairs of
the Company, as determined reasonably and in good faith by the Company.

         You will be deemed to be "constructively terminated" if your duties are
materially diminished or if your title changes without your consent, your
reporting relationship changes without your consent, your pay is reduced without
your consent, or if there is any other involuntary change in the material terms
or conditions of your employment without your consent.

         By executing this letter, you agree that it is the entire agreement
between you and the Company with respect to the subject matter hereof and that
it supersedes all prior agreements between you and the Company with respect to
any related subject matter.

         No waiver of any provision of this letter agreement shall be effective
unless made in writing and signed by the waiving party. The failure of any party
to require the performance of any term or obligation of this letter agreement,
or the waiver by any party of any breach of this letter agreement, shall not
prevent any subsequent enforcement of such term or obligation or be deemed a
waiver of any subsequent breach.

         The terms of this letter agreement may be modified only in a writing
signed by the Chief Executive Officer and approved by the Company's Board of
Directors.



Mr. Douglas S. Bennett
January 31, 2005
Page 4

         If the terms of this letter correctly set forth your agreement with the
Company, please countersign it at the space below and deliver it to Mr. Daniel
Laikin, Chief Executive Officer, no later than the close of business on January
31, 2005.



                                            Very truly yours,

                                            National Lampoon, Inc.



                                            By:
                                                --------------------------------
                                            Daniel S. Laikin



January 31, 2005

         I have read the above letter and agree to its terms.



                                            ------------------------------------
                                            Douglas S. Bennett

EX-10.3

                                                                    Exhibit 10.3

                             SECURED PROMISSORY NOTE

                              Due January 28, 2006

                             NATIONAL LAMPOON, INC.

Issued:  January 28, 2005                                             $2,700,000

         FOR VALUE RECEIVED, the undersigned, National Lampoon, Inc.
(hereinafter, together with any successor, referred to as the "COMPANY"), hereby
promises to pay to N. Williams Family Investments, L.P. (hereinafter, together
with any successor or assign, referred to as the "HOLDER"), the principal sum of
Two Million Seven Hundred Thousand Dollars ($2,700,000) together with interest
thereon from the date hereof, payable on the terms set forth below.

         1.       PAYMENTS

                  1.1 Interest Rate.  Interest on the unpaid  principal  balance
outstanding from time to time shall accrue at the rate of seven percent (7%) per
annum;  provided,  however,  if any interest or principal owing hereunder is not
paid  when  due  (whether  upon  acceleration,  as  a  mandatory  prepayment  or
otherwise),  any accrued and unpaid  interest owing  hereunder shall be added to
the principal  indebtedness  and interest on all principal owing hereunder shall
thereafter  accrue at the rate of fifteen  percent (15%) per annum (the "DEFAULT
RATE")  until  all  principal  and  interest  are  paid  in  full.  The  Company
acknowledges  that the effect of this Default Rate  provision  could  operate to
compound  some of the interest  obligations  due, and Company  hereby  expressly
assents  to such  compounding  should it occur.  Notwithstanding  any  provision
contained herein to the contrary,  the interest rate hereunder shall include the
applicable interest rate described herein plus any additional charges, costs and
fees incident to the loan hereunder to the extent they are deemed to be interest
under  applicable  California law. Should the interest rate as calculated  under
this Secured Note at any time exceed that allowed by law, the interest rate will
be the maximum rate of interest allowed by applicable California law.

                  1.2 Interest  Payment.  Interest shall be paid on the Maturity
Date.

                  1.3 Maturity. The entire unpaid principal balance, all accrued
and unpaid interest,  and any other amounts payable hereunder and unpaid at such
time,  shall be paid in full on the earlier of the  following  dates  ("MATURITY
DATE"):  (A)  January  28,  2006 or (B) the date of the  closing  of any  Equity
Offering  consummated  after the date hereof in which the gross cash proceeds to
the Company equal or exceed $2,700,000 in the aggregate or (C) upon acceleration
of the Maturity  Date as provided in Section 6.2 of this Secured  Note.  As used
herein,  the term "EQUITY OFFERING" means an offering for cash by the Company of
its capital stock or convertible securities or options,  warrants or rights with
respect to its capital stock or convertible  securities,  other than pursuant to
the  exercise of stock  options  granted to  employees  in the normal  course of
business.



                  1.4  Mandatory  Prepayment.  On the closing date of any Equity
Offering  consummated  after the date hereof in which the gross cash proceeds to
the Company are less than  $2,700,000,  the Company  shall be required to make a
mandatory prepayment under this Secured Note equal to the lesser of (i) the cash
proceeds of such Equity  Offering,  net of  underwriters'  or placement  agents'
fees, discounts or commissions and (ii) the entire unpaid principal balance, all
accrued and unpaid interest,  and any other amounts payable hereunder and unpaid
at such time.

                  1.5 Place of Payment.  The  Company  shall pay  principal  and
interest  in United  States  dollars to the Holder at the  Holder's  address for
notices or such other address at the Holder may designate in writing.

         2.       SUCCESSOR CORPORATION

                  2.1 When  Company  May Merge,  Etc.  The Company may not, in a
single transaction or through a series of related transactions, consolidate with
or merge with or into any other person, or, directly or indirectly, sell, lease,
assign, transfer or convey (by way of liquidation,  dissolution,  winding up, or
otherwise) all or substantially  all of its properties and assets as an entirety
or  substantially as an entirety  (computed on a consolidated  basis) to another
person  or  group  or  affiliated  persons,  unless  the  Company  shall  be the
continuing  person,  or the person (if other  than the  Company)  formed by such
consolidation  or  into  which  the  Company  is  merged  or  to  which  all  or
substantially all of the properties and assets of the Company are transferred as
an entirety or  substantially  as an entirety  (the Company or such other person
being  hereinafter  referred to as the  "SURVIVING  PERSON")  shall be an entity
organized and validly  existing under the laws of the United  States,  any State
thereof or the  District of Columbia and shall  expressly  assume in writing all
the obligations of the Company under this Secured Note; provided,  however, that
as a condition  to any such  transfer to a Surviving  Person,  the  consolidated
tangible net worth of such Surviving Person immediately following such transfer,
determined on a pro forma basis in accordance with generally accepted accounting
principles ("GAAP"), must equal or exceed the consolidated tangible net worth of
the Company immediately prior to such transfer.

                  2.2 Successor Corporation Substituted.  Upon any consolidation
or merger,  or any  transfer  of assets in  accordance  with  Section  2.1,  the
Surviving  Person  formed by such  consolidation  or into  which the  Company is
merged or to which such  transfer is made shall  succeed to, and be  substituted
for, and may exercise  every right and power of, the Company  under this Secured
Note with the same  effect as if such  Surviving  Person  had been  named as the
Company herein.

         3. SECURITY AND GUARANTY.  This Secured Note is secured by that certain
Security Agreement of even date herewith (the "SECURITY AGREEMENT")  encumbering
certain  "Collateral"  of the  "Grantors",  as such  terms  are  defined  in the
Security Agreement. This Secured Note is guaranteed by (i) that certain Guaranty
of even date  herewith  (the  "GUARANTY")  wherein  Daniel S. Laikin and Timothy
Durham are  guarantors,  and (ii) that certain  Repayment  Guaranty of even date
herewith (the "REPAYMENT  GUARANTY") wherein National Lampoon Networks,  Inc., a
Delaware   corporation,   and  National   Lampoon  Tours,   Inc.,  a  California
corporation,  are  guarantors.  This Secured  Note,  together  with the Security
Agreement,  the Guaranty,  the Repayment Guaranty, the Termination Agreement (as


                                      -2-


defined below) and any other  documents,  agreements or instruments  relating to
the loan  evidenced by this Secured  Note, or securing this Secured Note and the
Collateral, shall be collectively referred to herein as the "OBLIGATIONS".

         4. REPRESENTATIONS AND WARRANTIES.  The Company represents and warrants
that the following statements are true and correct:

                  4.1 Each of the  Grantors is a  corporation  duly and properly
incorporated,  validly  existing  and in good  standing  under  the  laws of its
jurisdiction  of  incorporation  and has all requisite  authority to conduct its
business in each  jurisdiction in which its business is conducted,  except where
the failure to be so  qualified  does not and would not have a material  adverse
effect on the business, properties or assets of the Grantors.

                  4.2 Each of the Grantors has the power and authority and legal
right to  execute  and  deliver  the  Obligations  to which it is a party and to
perform its obligations  thereunder.  The execution and delivery by each Grantor
of the Obligations to which it is a party and the performance of its obligations
hereunder and thereunder  have been duly authorized by proper  proceedings,  and
the  Obligations to which each Grantor is a party  constitute  legal,  valid and
binding  obligations  of each such Grantor  enforceable  against each of them in
accordance  with their  terms,  except as  enforceability  may be limited by (i)
bankruptcy,  insolvency, fraudulent conveyances,  reorganization or similar laws
relating to or affecting the enforcement of creditors'  rights  generally;  (ii)
general equitable principles (whether considered in a proceeding in equity or at
law); and (iii) requirements of reasonableness, good faith and fair dealing.

                  4.3  The  July  31,  2004   audited   consolidated   financial
statements and the October 31, 2004 unaudited  consolidated financial statements
of the  Company and its  subsidiaries  heretofore  delivered  to the Holder were
prepared  in  accordance  with GAAP in effect on the date such  statements  were
prepared and fairly present the consolidated  financial condition and operations
of the Company and its Subsidiaries at such date and the consolidated results of
their operations for the period then ended (subject to normal recurring year-end
adjustments in the cause of the unaudited financial statements). The Company and
its  subsidiaries  have no material  contingent  obligations not provided for or
disclosed in the financial statements referred to above.

                  4.4 The  Company  and its  subsidiaries  have filed all United
States  federal tax returns and all other tax returns  which are  required to be
filed and have paid all taxes due  pursuant  to said  returns or pursuant to any
assessment received by the Company or any of its Subsidiaries, except in respect
of such  taxes,  if any,  as are being  contested  in good faith and as to which
adequate reserves have been provided in accordance with GAAP. No liens have been
filed and no claims are being asserted with respect to such taxes.  The charges,
accruals  and  reserves  on the books of the  Company  and its  subsidiaries  in
respect of any taxes or other governmental charges are adequate.


                                      -3-


                  4.5  There  is  no   litigation,   arbitration,   governmental
investigation,  proceeding  or inquiry  pending or, to the  knowledge  of any of
their  officers,  threatened  against  or  affecting  the  Company or any of its
subsidiaries  which could  reasonably  be  expected  to have a material  adverse
effect on the  Company or any of its  subsidiaries  or which  seeks to  prevent,
enjoin or delay the making of the loan hereunder.

                  4.6 The shares of Common Stock that are being issued to Holder
hereunder,  when issued, sold and delivered in accordance with the terms of this
Secured Note in consideration of the loan being made hereunder, will be duly and
validly issued, fully paid, and nonassessable, and will be free and clear of all
liens,  encumbrances,  adverse  claims or  restrictions  on transfer  other than
restrictions on transfer under applicable state and federal securities laws.

                  4.7  Assuming  the  filing  of (i)  UCC  financing  statements
covering  the  Collateral  in the Office of the  Secretary  of State of Delaware
(and, in the case of National  Lampoon Tours,  Inc., the Office of the Secretary
of State of California) and (ii) the Notice of Security  Interest in Patents and
Trademarks  and the Notice of Security  Interest in  Copyrights  with the United
State Patent and Trademark  Office and the United States  Copyright  Office,  as
applicable,  the Security  Agreement creates a valid security interest in all of
the  Collateral  of the Grantors and secures the  Company's  performance  of the
Obligations;  and no other  action is  necessary  to  perfect  or  maintain  the
perfection  of such  security  interest  in favor of the  Holder  except for the
periodic filing of such UCC continuation statements as may be required by law.

                  4.8 No  authorization,  approval  or other  action  by, and no
notice  to or  filing  with,  any  governmental  authority  or  regulatory  body
(including,  without  limitation,  any  court)  is  required,  except  (i)  such
authorization  or approval as has already  been  obtained and (ii) the filing of
the UCC financing  statements and notices described in Section 4.7 above, either
for the grant by the Grantors of the security  interest  granted by the Security
Agreement or for the execution,  delivery or performance of this Secured Note by
the Company (including,  without limitation, the issuance of the Common Stock to
Holder  pursuant  hereto),  or for the  perfection  of, or the  exercise by, the
Holder of its rights and remedies hereunder.

                  4.9 Neither the  execution and delivery by the Grantors of the
Obligations  to which  such  person  is a  party,  nor the  consummation  of the
transactions herein or therein contemplated,  nor compliance with the provisions
hereof or thereof  will  violate (i) any law,  rule,  regulation,  order,  writ,
judgment,  injunction,  decree  or award  binding  on the  Grantors  or (ii) any
Grantor's articles or certificate of incorporation, by-laws, or other management
agreement or governing document,  as the case may be, or (iii) the provisions of
any  indenture,  instrument  or  agreement to which any Grantor is a party or is
subject, or by which it, or its property or assets, are bound, or conflict with,
or constitute a default  thereunder,  or result in, or require,  the creation or
imposition  of any lien in,  of or on the  property  or  assets  of any  Grantor
pursuant to the terms of, any such indenture, instrument or agreement.

                  4.10 The  execution  and  delivery of this Secured  Note,  the
filing of the  financing  statements  provided  for herein and the taking of any
other action required or contemplated  hereby shall not cause a default or event
of default  under any other  agreement or commitment to which the Company or any
other Grantor is a party or by which it is bound.

         5.       COVENANTS.

                  5.1 The Company will, and will cause each of its  subsidiaries
to,  carry on and conduct its business in  substantially  the same manner and in
substantially the same fields of enterprise as it is presently  conducted and do
all things necessary to remain duly incorporated or organized,  validly existing
and (to the extent such concept  applies to such  entity) in good  standing as a

                                      -4-


domestic   corporation,   partnership  or  limited   liability  company  in  its
jurisdiction of incorporation or organization,  as the case may be, as in effect
on the date hereof, and maintain all requisite authority to conduct its business
in each  jurisdiction  in which its business is conducted,  except to the extent
that the  failure to  maintain  any of the  foregoing  would not  reasonably  be
expected to have a material  adverse  effect on the Company or the rights of the
Holder under the Obligations.

                  5.2 The Company will, and will cause each of its  subsidiaries
to,  timely file  complete  and correct  United  States  federal and  applicable
foreign, state and local tax returns required by law and pay when due all taxes,
assessments and governmental  charges and levies upon it or its income,  profits
or property, except those which are being contested in good faith by appropriate
proceedings  and with respect to which adequate  reserves have been set aside in
accordance with generally accepted accounting principles.

                  5.3 The Company will, and will cause each of its  subsidiaries
to, comply in all material respects with all laws, rules,  regulations,  orders,
writs, judgments, injunctions, decrees or awards to which it may be subject.

                  5.4 The Company shall,  at its expense,  promptly  execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable,  or that Holder may reasonably  request, in order
to perfect,  protect and/or maintain the security  interest granted or purported
to be granted  herein in the  Collateral or to enable the Holder to exercise and
enforce  its rights  and  remedies  hereunder  with  respect to any  Collateral,
including, without limitation,  executing, delivering and/or filing, as the case
may be, and  obtaining  the  execution  and  delivery  by third  parties of, UCC
financing  or  continuation   statements  or  amendments   thereto,   and  other
agreements, instruments, bulk sales or other notices.

                  5.5 The  Company  shall,  at its  expense,  perform  all  acts
necessary to maintain,  preserve,  and protect the Collateral,  and not encumber
the Collateral in any way or grant any security interest or Lien thereon,  other
than (a) Liens for current taxes not delinquent or taxes being contested in good
faith and by  appropriate  proceedings  and as to which such  reserves  or other
appropriate  provisions  as may be  required by GAAP are being  maintained;  (b)
carriers',  warehousemen's,  mechanics',  materialmen's,  repairmen's, and other
like  statutory  Liens  arising  in the  ordinary  course of  business  securing
obligations which are not overdue or which are being contested in good faith and
by appropriate  proceedings  and as to which such reserves or other  appropriate
provisions  as may be  required  by GAAP are being  maintained;  (c)  pledges or
deposits in connection with workers'  compensation,  unemployment  insurance and
other social security legislation;  (d) Liens in connection with the acquisition
of property in the ordinary  course of business  after the date hereof by way of
purchase money mortgage,  conditional  sale or other title retention  agreement,
capitalized lease or other deferred payment contract,  and attaching only to the
property being acquired, if the indebtedness secured thereby does not exceed the
purchase  price of the  property  financed;  (e) Liens in favor of  Holder.  The
Company and its subsidiaries shall not incur any indebtedness for borrowed money
(including  any  guaranty)  that  ranks  senior to or pari  passu  with the loan
pursuant to this Secured Note (other than purchase money indebtedness arising in
the  ordinary  course of  business  that,  when  incurred,  does not  exceed the
purchase price of the asset(s) financed).  As used herein, the term "LIEN" means
any mortgage,  pledge,  hypothecation,  judgment lien or similar legal  process,

                                      -6-


title  retention  lien,  or  other  lien,   encumbrance  or  security  interest,
including,  without  limitation,  the interest of a vendor under any conditional
sale or other title  retention  agreement and the interest of a lessor under any
capitalized lease.

                  5.6  Immediately  upon  receipt  of the  proceeds  of the loan
hereunder,  the Company shall issue to James P. Jimirro a Notice of  Termination
in accordance with Section 4(f) of that certain 2002 Employment  Agreement dated
as of May 17, 2002 between J2 Communications  and James P. Jimirro and shall pay
the full  amount of the  "Required  Payment"  (as such term is  defined  in that
certain   Termination   of  Security   Agreement  of  even  date  herewith  (the
"TERMINATION AGREEMENT") between the Company and James P. Jimirro).

         6.       EVENTS OF DEFAULT AND REMEDIES

                  6.1  Events of  Default.  "EVENT OF  DEFAULT,"  wherever  used
herein,  means any one of the  following  events  (whatever  the reason for such
Event of Default and whether it shall be caused  voluntarily or involuntarily or
effected,  without limitation,  by operation of law or pursuant to any judgment,
decree  or  order  of  any  court  of  any  order,  rule  or  regulation  of any
administrative or governmental body):

                           6.1.1  default  in the  payment of any  principal  or
interest upon this Secured Note as and when the same becomes due and payable;

                           6.1.2  default  by  the  Company  under  any  of  its
covenants  under this Secured Note,  which  default is not cured within  fifteen
(15) days after  receipt  of written  notice of such  default  delivered  to the
Company by the Holder;

                           6.1.3 any event of  default  occurs  under any of the
Obligations;

                           6.1.4  the   Company   commences   a  case  or  other
proceeding,  or if an involuntary  case or other  proceeding  shall be commenced
against Company seeking liquidation, reorganization or other relief with respect
to its debts under any bankruptcy, insolvency or other similar debtor relief law
now or hereafter in effect or seeking the  appointment  of a trustee,  receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property,  and any such  involuntary  case or other  proceeding shall remain
undismissed and unstayed for a period of sixty (60) days;

                           6.1.5 the Company  shall make an  assignment  for the
benefit  of  creditors,  or admit in  writing  its  inability  to pay its  debts
generally as they become due;

                           6.1.6 a notice of lien,  levy or  assessment is filed
of record or given to Company with respect to all or any of the Company's assets
by any  federal,  state,  local  department  or agency,  and such lien,  levy or
assessment is not released or paid within a reasonable  period of time but in no
event longer than twenty (20) days from the date such lien,  levy or  assessment
is filed,  or such longer  period of time as is  appropriate  in the case of any
such  lien,  levy or  assessment  that is being  contested  in good faith and by
appropriate proceedings;

                           6.1.7 Holder, in good faith, believes the prospect of
payment  or  performance  by  Company  under  this  Secured  Note  or any  other
Obligations  is  impaired  and if  Company  is unable or  unwilling  to  provide

                                      -6-


adequate written assurances to Holder of its ability to fully perform under this
Secured Note within thirty (30) days following delivery of written notice; or

                           6.1.8 Any  representation  or  warranty of Company in
the Obligations is not materially true, correct and complete, or if any material
statement,  report or certificate  made or delivered by Company or its officers,
employees or agents is not true, correct and complete when made.

                  6.2  Acceleration of Maturity Date;  Rescission and Annulment.
If an Event of  Default  (other  than an Event of Default  specified  in Section
6.1.5 or 6.1.6) occurs and is continuing,  then, and in every such case,  unless
the  principal of this  Secured Note shall have already  become due and payable,
the Holder by a notice in writing to the Company (an "ACCELERATION NOTICE"), may
declare  all of the  principal  of this  Secured  Note,  together  with  accrued
interest  thereon,  to be due and  payable  immediately.  If an Event of Default
specified  in  Section  6.1.5 or 6.1.6  occurs,  all  principal  of and  accrued
interest on this Secured Note ipso facto shall become and be immediately due and
payable without any declaration or other act on the part of the Holder.

                  6.3  Rights  and  Remedies  Cumulative.  Except  as  otherwise
provided with respect to the  replacement  or payment of  mutilated,  destroyed,
lost or stolen note, no right or remedy herein conferred upon or reserved to the
Holder is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent  permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter  existing at
law or in equity or  otherwise.  The  assertion  or  employment  of any right or
remedy hereunder,  or otherwise,  shall not prevent the concurrent  assertion or
employment of any other appropriate right or remedy.

                  6.4 Waiver. No delay or omission by the Holder to exercise any
right or remedy  arising upon any Event of Default  shall impair the exercise of
any such right or remedy or  constitute  a waiver of any such Event of  Default.
Every  right and remedy  given by this  Section 6 or by law to the Holder may be
exercised  from time to time,  and as often as may be deemed  expedient,  by the
Holder. No provision of this Secured Note may be waived unless in writing signed
by the Holder, and waiver of any one provision of this Secured Note shall not be
deemed to be a waiver of any other provision.

         7. REPLACEMENT  NOTE. If this Secured Note is mutilated and surrendered
to the  Company  or if the  Holder  claims and  submits  an  affidavit  or other
evidence,  satisfactory  to the Company to the effect that this Secured Note has
been lost,  destroyed or wrongfully taken, the Company shall issue a replacement
note if the Company's reasonable requirements are met, including, if required by
the Company, provision by the Holder of indemnity, sufficient in the judgment of
the  Company,  to protect the Company  from any loss which it may suffer if this
Secured Note is replaced.

         8. ISSUANCE OF COMMON STOCK.  As a further  inducement to the Holder to
make the loan  evidenced by this Secured  Note,  upon receipt of the proceeds of
the loan  hereunder,  the Company shall  transfer to the Holder Eighty  Thousand
(80,000)  shares of the  Company's  Common  Stock,  $0.001  par  value  ("COMMON
STOCK"),  free and clear of any liens, . The Holder  understands that the Common

                                      -7-


Stock shall not be registered or qualified under any federal or state securities
laws and shall bear the following legend:

         These securities have not been registered with the Securities and
         Exchange Commission or the securities commission of any state in
         reliance upon an exemption from registration under the Securities Act
         of 1933, as amended (the "Securities Act"), and, accordingly, may not
         be offered or sold except pursuant to an effective registration
         statement under the Securities Act or pursuant to an available
         exemption from, or in a transaction not subject to, the registration
         requirements of the Securities Act and in accordance with applicable
         state securities laws as evidenced by a legal opinion of counsel to the
         transferor to such effect, the substance of which shall be reasonably
         acceptable to the Company.

         9.       MISCELLANEOUS

                  9.1 Successors.  The terms and conditions of this Secured Note
shall be binding  upon and inure to the benefit of the  parties to this  Secured
Note and their respective successors, heirs and personal representatives.

                  9.2 Assignment.  The Company may not assign this Secured Note,
and any  attempted or purported  assignment  or any  delegation of its duties or
obligations  arising under this Secured Note to any person shall be deemed to be
null and void,  and shall  constitute  a material  breach by the  Company of its
duties and obligations under this Secured Note.

                  9.3 Governing Law. This Secured Note has been made and entered
into in the State of California  and shall be construed in  accordance  with the
laws of the State of  California  without  giving  effect to the  principles  of
conflicts of law thereof.

                  9.4  Captions.  The various  captions of this Secured Note are
for  reference  only and shall not be  considered  or referred  to in  resolving
questions of interpretation of this Secured Note.

                  9.5  Notices.  Any  notice,  authorization,  request or demand
required or  permitted  to be given  hereunder  shall be in writing and shall be
deemed to have been duly given when received by an overnight delivery service or
when sent by facsimile addressed as follows:

                           To the Company:

                           National Lampoon, Inc.
                           10850 Wilshire Boulevard, Suite 1000
                           Los Angeles, California 90024
                           Fax:
                           Attn:  Douglas S. Bennett, President

                           To the Holder:

                           N. Williams Family Investments, L.P.
                           c/o Lake City Bank
                           P. O. Box 11053
                           Fort Wayne, Indiana 46855
                           Fax:
                           Attn: Keith Davis, Trust Officer

                                      -8-


                  9.6  Severability.  Whenever  possible each  provision of this
Secured Note shall be  interpreted  in such manner as to be effective  and valid
under  applicable  law,  but if any  provision  of this Secured Note shall be or
become  prohibited or invalid under  applicable  law,  such  provision  shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the  remainder of such  provision or the  remaining  provisions  of this Secured
Note.

                  9.7  Attorneys'  Fees.  In the event the Holder  utilizes  the
services of an attorney in attempting to collect the amounts due hereunder or to
enforce the terms hereof or of any agreements  related to this  indebtedness  or
any other  Obligation,  or if any holder  hereof (or any trustee or affiliate of
any holder  hereof)  becomes party  plaintiff or defendant in any action,  suit,
arbitration  or other  proceeding  in relation to the property  described in any
instrument  securing  this Secured Note or for the recovery or protection of the
indebtedness evidenced hereby or that otherwise arises out of or relates to this
Secured Note or the transactions  contemplated hereby,  Borrower, its successors
and  assigns,  shall  repay to such  holder  hereof,  on  demand,  all costs and
expenses so incurred,  including those costs, expenses and reasonable attorneys'
fees  incurred in any and all appeals or petitions  from any such action,  suit,
arbitration  or other  proceeding or incurred after the filing by or against the
Borrower or any other Grantor of any proceeding under any chapter of the federal
bankruptcy  code, or similar federal or state statute,  and whether  incurred in
connection with the involvement of the Holder as creditor in such proceedings or
otherwise.  As used in this Section,  reasonable attorneys' fees shall be deemed
to mean the full and actual costs of any legal  services  actually  performed in
connection  with the matters  involved  calculated on the basis of the usual fee
charged by the attorney performing such services.

                  9.8  Noncircumvention.  The Company  will not, by amendment of
its charter or through reorganization,  consolidation, merger, dissolution, sale
of assets or any other voluntary  action,  avoid or seek to avoid the observance
or  performance  of any of the terms of this Secured Note, but will at all times
in good faith  assist in the carrying out of all such terms and in the taking of
all such  action as may be  necessary  or  appropriate  in order to protect  the
rights of the Holder of this Secured Note against impairment.

                  9.9 Prepayment. The Company shall have the right to prepay any
portion of the principal without prepayment penalty or premium or discount.  Any
optional  prepayment  pursuant  to  this  Section  9.9 or  mandatory  prepayment
pursuant to Section 1.4 shall be applied  first to accrued  interest and then to
principal.

                         [SIGNATURES ON FOLLOWING PAGE]


                                      -9-


         IN WITNESS WHEREOF, the Company has caused this Secured Note to be
executed and issued on its behalf by the officer thereto duly authorized.

                                        NATIONAL LAMPOON, INC.



                                        By:
                                            --------------------------------
                                            Name:
                                            Title:

Accepted and Agreed:

N. WILLIAMS FAMILY INVESTMENTS, L.P.



By:
    --------------------------------
    Name:
    Title:



                                      -10-

EX-10.4

                                                                    Exhibit 10.4

                               SECURITY AGREEMENT

         THIS SECURITY AGREEMENT (as amended, restated or otherwise modified
from time to time, the "Security Agreement") is entered into as of January 28,
2005, by and among National Lampoon, Inc., a Delaware corporation, National
Lampoon Networks, Inc., a Delaware corporation and National Lampoon Tours, Inc.,
a California corporation, (collectively "Grantors"), and N. Williams family
Investment, L.P. (together with any successor, or assign, "Secured Party").

                              W I T N E S S E T H:

         WHEREAS, simultaneously herewith, Secured Party and Grantors are
entering into that Secured Promissory Note dated as of January 28, 2005 (as
amended, restated, supplemented or otherwise modified, the "Secured Promissory
Note").

         WHEREAS, the Secured Party has required the Grantors to execute and
deliver this Security Agreement and grant to Secured Party a perfected first
priority continuing Lien in the Collateral (as hereinafter defined) in order to
secure the prompt and complete payment, observance and performance of all of the
Obligations (as hereinafter defined), and as a condition precedent to the making
of any loans, advances and any other financial accommodations by the Secured
Party.

         NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

         1. Defined Terms. All capitalized terms used but not otherwise defined
herein have the meanings given to them in Annex A attached hereto. All other
terms contained in this Security Agreement, unless the context indicates
otherwise, have the meanings provided for by the Code to the extent the same are
used or defined therein.

         2. Grant of Lien.

                  (a) To secure the prompt and complete payment, performance and
observance of all of the Obligations, Grantors hereby grant, assign, convey,
mortgage, pledge, hypothecate and transfer to Secured Party a Lien upon all of
Grantors' right, title and interest in, to and under all personal property and
other assets, whether now owned by or owing to, or hereafter acquired by or
arising in favor of Grantors (including under any trade names, styles or
derivations thereof), and whether owned or consigned by or to, or leased from or
to, Grantors, and regardless of where located (all of which being hereinafter
collectively referred to as the "Collateral"), including:

                           (i) all Accounts;

                           (ii) all Chattel Paper;



                           (iii) all Documents;

                           (iv) all General Intangibles (including all Products,
Contracts, Intellectual Property, and payment intangibles);

                           (v) all Goods (including Inventory, Equipment and
Fixtures);

                           (vi) all Instruments;

                           (vii) all Investment Property;

                           (viii) all Deposit Accounts and all other bank
accounts and all deposits therein;

                           (ix) all money, cash or cash equivalents of Grantors;

                           (x) all Supporting Obligations and Letter-of-Credit
Rights of Grantors; and

                           (xi) to the extent not otherwise included, all
Proceeds, tort claims insurance claims and other rights to payments not
otherwise included in the foregoing and products of the foregoing and all
accessions to, substitutions and replacements for, and rents and profits of,
each of the foregoing.

                  (b) In addition, to secure the prompt and complete payment,
performance and observance of the Obligations and in order to induce Secured
Party as aforesaid, Grantors hereby grant to Secured Party a right of set-off
against the property of Grantors held by Secured Party, consisting of property
described above in Section 2(a) now or hereafter in the possession or custody of
or in transit to Secured Party, for any purpose, including safekeeping,
collection or pledge, for the account of Grantors, or as to which Grantors may
have any right or power.

         3. Secured Party's Rights, Limitations on Secured Party's Obligations.

                  (a) It is expressly agreed by Grantors that, anything herein
to the contrary notwithstanding, Grantors shall remain liable under each of
their Contracts and each of their Licenses to observe and perform all the
conditions and obligations to be observed and performed by them thereunder.
Secured Party shall not have any obligation or liability under any Contract or
License by reason of or arising out of this Security Agreement or the granting
herein of a Lien thereon or the receipt by Secured Party of any payment relating
to any Contract or License pursuant hereto. Secured Party shall not be required
or obligated in any manner to perform or fulfill any of the obligations of
Grantors under or pursuant to any Contract or License, or to make any payment,
or to make any inquiry as to the nature or the sufficiency of any payment
received by it or the sufficiency of any performance by any party under any
Contract or License, or to present or file any claims, or to take any action to
collect or enforce any performance or the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.


                                       2


                  (b) Secured Party may at any time after an Event of Default
involving nonpayment of money owed to Secured Party by the Grantors has occurred
and be continuing, without prior notice to Grantors, notify Account Debtors and
other Persons obligated on the Collateral that Secured Party has a security
interest therein, and that payments shall be made directly to Secured Party.
Upon the request of Secured Party, Grantors shall so notify Account Debtors and
other Persons obligated on Collateral. Once any such notice has been given to
any Account Debtor or other Person obligated on the Collateral, Grantors shall
not give any contrary instructions to such Account Debtor or other Person
without Secured Party's prior written consent.

                  (c) Secured Party may at any time after an Event of Default
has occurred and be continuing, in Secured Party's own name, in the name of a
nominee of Secured Party or in the name of Grantors communicate (by mail,
telephone, facsimile or otherwise) with Account Debtors, parties to Contracts
and obligors in respect of Instruments to verify with such Persons, to Secured
Party's satisfaction, the existence, amount, terms of, and any other matter
relating to, any Product, Accounts, General Intangibles (including all Products,
Contracts, Intellectual Property, and payment intangibles), Instruments or
Chattel Paper.

         4. Representations and Warranties. Grantors represent and warrant that:

                  (a) Grantors have rights in and the power to transfer each
item of the Collateral upon which they purport to grant a Lien hereunder free
and clear of any and all Liens other than Permitted Encumbrances.

                  (b) No effective security agreement, financing statement,
equivalent security or Lien instrument or continuation statement covering all or
any part of the Collateral is on file or of record in any public office, except
such as may have been filed (i) by Grantors in favor of Secured Party pursuant
to this Security Agreement, and (ii) in connection with any other Permitted
Encumbrances.

                  (c) This Security Agreement is effective to create a valid and
continuing Lien on and, upon the filing of the appropriate financing statements
listed on Schedule I hereto, a perfected Lien in favor of Secured Party on the
Collateral with respect to which a Lien may be perfected by filing pursuant to
the Code. Such Lien is prior to all other Liens, except Permitted Encumbrances
that would be prior to Liens in favor of Secured Party as a matter of law, and
upon recordation will be enforceable as such as against any and all creditors of
and purchasers from Grantors (other than purchasers and lessees of Inventory in
the ordinary course of business). All action by Grantors necessary or desirable
to protect and perfect such Lien on each item of the Collateral has been duly
taken.

                  (d) Schedule II hereto lists all Instruments, Letter-of-Credit
Rights and Chattel Paper of Grantor. All action by Grantors necessary or
desirable to protect and perfect the Lien of Secured Party on each item set
forth on Schedule II (including the delivery of all originals thereof to Secured
Party and the legending of all Chattel Paper as required by Section 5(b) hereof)
has been duly taken. The Lien of Secured Party on the Collateral listed on
Schedule II hereto is prior to all other Liens, except Permitted Encumbrances
that would be prior to the Liens in favor of Secured Party as a matter of law,


                                       3


and is enforceable as such against any and all creditors of and purchasers from
Grantors.

                  (e) Grantors' names as they appear in official filings in the
state(s) of their incorporation, the types of entities of Grantors,
organizational identification numbers issued by Grantors' state(s) of
incorporation or statement(s) that no such number has been issued, Grantors'
state(s) of incorporation, the location(s) of Grantors' chief executive
office(s), principal place(s) of business, offices, all warehouses and premises
where Collateral is stored or located, and the locations of their books and
records concerning the Collateral are set forth on Schedule III hereto.

                  (f) With respect to any Inventory of Grantors, (i) no
Inventory is now, or shall at any time or times hereafter be stored at any
location other than as set forth on Schedule III hereto without Secured Party's
prior consent, and if Secured Party gives such consent, Grantors will
concurrently therewith obtain bailee, landlord or mortgagee agreements, in each
case, satisfactory to Secured Party in its sole discretion, (ii) Grantors have
good, indefeasible and merchantable title to such Inventory and such Inventory
is not subject to any Lien or security interest or document whatsoever except
for the Lien granted to Secured Party and except for Permitted Encumbrances,
(iii) such Inventory is not subject to any licensing, patent, royalty,
trademark, trade name or copyright agreements with any third parties which would
require any consent of any third party upon sale or disposition of that
Inventory or the payment of any monies to any third party as a precondition of
such sale or other disposition, and (iv) the completion of manufacture, sale or
other disposition of such Inventory by Secured Party following an Event of
Default shall not require the consent of any Person and shall not constitute a
breach or default under any contract or agreement to which Grantors are parties
or to which such property is subject.

                  (g) Upon the filing of a UCC financing statement and the
Notice of Security Interest in Patents and Trademarks and the Notice of Security
Interest in Copyrights with the United State Patent and Trademark Office and the
United States Copyright Office, as applicable, the Liens granted hereunder with
respect to the Grantors' interest in their Intellectual Property are enforceable
as such as against any and all creditors of and purchasers from Grantors.

                  (h) Grantors (i) are corporations duly organized, validly
existing and in good standing under the laws of the State of Delaware and
California, as applicable; (ii) are duly qualified to conduct business and are
in good standing in each other jurisdiction where their ownership or lease of
property or the conduct of their business requires such qualification except
where the failure to be so qualified does not and would not have a material
adverse effect on the business, properties or assets of the Grantors; (iii) have
the requisite power and authority and the legal right to own, pledge, mortgage
or otherwise encumber and operate their properties, to lease the property they
operate under lease and to conduct their businesses as now, heretofore and
proposed to be conducted; (iv) have all material licenses, permits, consents or
approvals from or by, and have made all material filings with, and have given
all material notices to, all Governmental Authorities having jurisdiction, to
the extent required for such ownership, operation and conduct; and (v) are in
compliance with their charter, bylaws, and all applicable provisions of law,
except where the failure to comply, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect upon Grantors.


                                       4


                  (i) The execution, delivery and performance by Grantors of
this Security Agreement, the Notice of Security Interest in Patents and
Trademarks, and the Notice of Security Interest in Copyrights and the creation
of all Liens provided for herein or therein: (i) are within Grantors' powers;
(ii) have been duly authorized by all necessary corporate action; (iii) do not
contravene any provision of Grantors' charters or bylaws; (iv) do not violate
any law or regulation, or any order or decree of any court or Governmental
Authority; (v) do not conflict with or result in the breach or termination of,
constitute a default under or accelerate or permit the acceleration of any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which such Person is a party or by which such
Person or any of its property is bound; (vi) do not result in the creation or
imposition of any Lien upon any of the property of such Person other than those
in favor of Secured Party pursuant to this Security Agreement; and (vii) do not
require the consent or approval of any Governmental Authority or any other
Person except to the extent any such consent was obtained prior to the date
hereof. This Security Agreement, the Notice of Security Interest in Patents and
Trademarks and the Notice of Security Interest in Copyrights executed
contemporaneously herewith have been duly executed and delivered by Grantors.
This Security Agreement, each Notice of Security Interest in Patents and
Trademarks, and each Notice of Security Interest in Copyrights executed
contemporaneously herewith shall constitute a legal, valid and binding
obligation of Grantors enforceable against them in accordance with its terms.

                  (j) No Fraudulent Transfers. No transfer of property is being
made by Grantors and no obligation is being incurred by Grantors in connection
with the transactions contemplated by this Security Agreement with the intent to
hinder, delay, or defraud either present or future creditors of Grantors.

5. Covenants. Grantors covenant and agree with Secured Party that from and after
the date of this Security Agreement and until the Termination Date:

                  (a) Further Assurances; Pledge of Instruments; Chattel Paper.

                           (i) At any time and from time to time, upon the
written request of Secured Party and at the sole expense of Grantors, Grantors
shall promptly and duly execute and deliver any and all such further instruments
and documents and take such further actions as Secured Party may deem desirable
to obtain the full benefits of this Security Agreement and of the rights and
powers herein granted, including (A) using best efforts to secure all consents
and approvals necessary or appropriate for the assignment to or for the benefit
of Secured Party of any License or Contract held by Grantors and to enforce the
security interests granted hereunder, and (B) filing any financing or
continuation statements under the Code with respect to the Liens granted
hereunder.

                           (ii) Unless Secured Party shall otherwise consent in
writing (which consent may be revoked), Grantors shall deliver to Secured Party
all Collateral consisting of negotiable Documents, certificated securities,
Chattel Paper and Instruments (in each case, accompanied by stock powers,
allonges or other instruments of transfer executed in blank) promptly after
Grantors receive the same.


                                       5


                           (iii) Grantors shall obtain or use best efforts to
obtain waivers or subordinations of Liens from landlords and mortgagees, and
Grantors shall in all instances obtain signed acknowledgements of Secured
Party's Liens from bailees having possession of Grantors' Goods that they hold
for the benefit of Secured Party.

                           (iv) If requested by Secured Party, Grantors shall
obtain authenticated Control Letters from each issuer of uncertificated
securities, securities intermediary, or commodities intermediary issuing or
holding any financial assets or commodities to or for Grantors.

                           (v) If Grantors are or become the beneficiary(ies) of
a letter of credit Grantors shall promptly, and in any event within two (2)
Business Days after becoming beneficiary(ies), notify Secured Party thereof and,
if requested by Secured Party, enter into a tri-party agreement with Secured
Party and the issuer and/or confirmation bank with respect to Letter-of-Credit
Rights assigning such Letter-of-Credit Rights to Secured Party and directing all
payments thereunder upon and during the continuance of a Default or Event of
Default to be made to an account identified by Secured Party, all in form and
substance reasonably satisfactory to Secured Party.

                           (vi) Grantors shall take all steps necessary to grant
the Secured Party control of all electronic chattel paper in accordance with the
Code and all "transferable records" as defined in each of the Uniform Electronic
Transactions Act and the Electronic Signatures in Global and National Commerce
Act.

                           (vii) Grantors hereby irrevocably authorize the
Secured Party at any time and from time to time to file in any filing office in
any Uniform Commercial Code jurisdiction any initial financing statements and
amendments thereto that (a) indicate the Collateral (i) as all assets of
Grantors or words of similar effect, regardless of whether any particular asset
comprised in the Collateral falls within the scope of Article 9 of the Code or
such jurisdiction, or (ii) as being of an equal or lesser scope or with greater
detail, and (b) contain any other information required by the Code for the
sufficiency or filing office acceptance of any financing statement or amendment,
including (i) whether Grantors are organizations, the types of organizations and
any organization identification number issued to such Grantors, and (ii) in the
case of a financing statement filed as a fixture filing or indicating Collateral
as as-extracted collateral or timber to be cut, a sufficient description of real
property to which the Collateral relates. Grantors agree to furnish any such
information to the Secured Party promptly upon request. Grantors also ratify
their authorization for the Secured Party to have filed in any Uniform
Commercial Code jurisdiction any initial financing statements or amendments
thereto if filed prior to the date hereof.

                           (viii) Grantors shall as soon as commercially
practicable after the same is acquired by it, notify Secured Party of any
commercial tort claim (as defined in the Code) acquired by it and unless
otherwise consented by Secured Party, Grantors shall enter into a supplement to
this Security Agreement, granting to Secured Party a Lien in such commercial
tort claim.


                                       6


                           (ix) Grantors shall as soon as commercially
practicable after forming or investing in any Wholly-Owned Subsidiary, or any
Subsidiary in which any Affiliate owns any Equity Security, cause such
Subsidiary to grant to Secured Party a first priority lien in all assets of such
Subsidiary pursuant to a security agreement in substantially the same form as
this Agreement. Grantors shall be under no obligation to cause any such
Subsidiary to grant any lien in their assets so long as the sole owners of
Equity Securities of such Subsidiary consist of Grantors and Persons who are not
Affiliates; provided, however, that if an Affiliate after the formation of any
such Subsidiary becomes an owner of any Equity Security in such Subsidiary, then
Grantors shall as soon as commercially practicable thereafter cause such
Subsidiary to grant to Secured Party a first priority lien in all assets of such
Subsidiary pursuant to a security agreement in substantially the same form as
this Agreement. Grantors will on demand pay any reasonable attorneys fees
incurred by Secured Party relating to or in connection with the granting of a
lien to Secured Party by any Subsidiary pursuant to this Section 5(a)(ix).

                  (b) Maintenance of Records. Grantors shall keep and maintain,
at their own cost and expense, satisfactory and complete records of the
Collateral, including a record of any and all payments received and any and all
credits granted with respect to the Collateral and all other dealings with the
Collateral. Grantors shall mark their books and records pertaining to the
Collateral to evidence this Security Agreement and the Liens granted hereby. If
Grantors retain possession of any Chattel Paper or Instruments with Secured
Party's consent, such Chattel Paper and Instruments shall be marked with the
following legend: "This writing and the obligations evidenced or secured hereby
are subject to the security interest of N. Williams family Investment, L.P., as
Secured Party."

                  (c) Covenants Regarding Patent, Trademark and Copyright
Collateral.

                           (i) Grantors shall provide reasonable notice to
Secured Party of any material change to any application or registration relating
to any Patent, Trademark or Copyright (now or hereafter existing), including
information that such application or registration is or may become abandoned,
finally refused or expired or dedicated, or of any adverse determination or
development (including the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office,
the United States Copyright Office or any court) regarding Grantors' ownership
of any Patent, Trademark or Copyright, right to register the same, or to keep
and exclusively maintain the same.

                           (ii) In no event shall Grantors, either directly or
through any agent, employee, licensee or designee, file an application for the
registration of any Patent, Trademark or Copyright with the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency without giving Secured Party prior written notice thereof, and, upon
request of Secured Party, Grantors shall execute and deliver any and all
applicable Notices of Security Interests in Patents and Trademarks and Notices
of Security Interests in Copyrights as Secured Party may request to evidence
Secured Party's Lien on such Patent, Trademark or Copyright, and the General
Intangibles of Grantors relating thereto or represented thereby.

                           (iii) Grantors shall take all actions necessary or
requested by Secured Party to maintain and pursue each application, to obtain
the relevant registration and to maintain the registration of each of the


                                       7


Patents, Trademarks and Copyrights (now or hereafter existing), including the
filing of applications for renewal, affidavits of continued use, affidavits of
incontestability and opposition and interference and cancellation proceedings,
unless Grantors reasonably shall determine that such Patent, Trademark or
Copyright is not material to the conduct of their business.

                           (iv) In the event that any of the Patent, Trademark
or Copyright Collateral is infringed upon, or misappropriated or diluted by a
third party, Grantors shall comply with Section 5(a)(viii) of this Security
Agreement. Grantors shall, unless they shall reasonably determine that such
Patent, Trademark or Copyright Collateral is not material to the conduct of
their business or operations, promptly sue for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and shall take such other actions as Secured Party
shall deem appropriate under the circumstances to protect such Patent, Trademark
or Copyright Collateral.

                           (v) Concurrently herewith, Grantors shall deliver to
Secured Party: (A) a written notice in the form of Exhibit 5(c)(v)(A) (a "Notice
of Security Interest in Patents and Trademarks") in respect of all Patents and
Trademarks in which such Grantors have interest (including by way of exclusive
license), for filing with the United States Patent and Trademark Office, (B) a
written notice in the form of Exhibit 5(c)(v)(B) (a "Notice of Security Interest
in Copyrights") in respect of all Copyrights in which such Grantors has an
interest (including by way of an exclusive license), for filing with the United
States Copyright Office, and (C) all other supplemental documentation necessary
to perfect the security interest granted hereby with respect to all Intellectual
Property for filing in the appropriate governmental office, including any
foreign office in which any such Intellectual Property may be registered or
otherwise on file, in each case, duly completed and executed.

                  (d) Indemnification. In any suit, proceeding or action brought
by Secured Party relating to any Collateral for any sum owing with respect
thereto or to enforce any rights or claims with respect thereto, Grantors will
save, indemnify and keep Secured Party harmless from and against all expense
(including reasonable attorneys' fees and expenses), loss or damage suffered by
reason of any defense, setoff, counterclaim, recoupment or reduction of
liability whatsoever of the Account Debtor or other Person obligated on the
Collateral, arising out of a breach by Grantors of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at any time owing
to, or in favor of, such obligor or successors from Grantors, except in the case
of Secured Party, to the extent such expense, loss, or damage is attributable
solely to the gross negligence or willful misconduct of Secured Party as finally
determined by a court of competent jurisdiction. All such obligations of
Grantors shall be and remain enforceable against and only against Grantors and
shall not be enforceable against Secured Party.

                  (e) Compliance with Terms of Accounts, etc. In all material
respects, Grantors will perform and comply with all obligations in respect of
the Collateral and all other agreements to which they are parties or by which
they are bound relating to the Collateral.

                  (f) Limitation on Liens on Collateral. Grantors will not
create, permit or suffer to exist, and will defend the Collateral against, and
take such other action as is necessary to remove, any Lien on the Collateral


                                       8


except Permitted Encumbrances and Permitted Junior Liens, and will defend the
right, title and interest of Secured Party in and to any of Grantors' rights
under the Collateral against the claims and demands of all Persons whomsoever.

                  (g) Limitations on Disposition. Grantors will not sell, lease,
license, transfer or otherwise dispose of any of the Collateral (including
without limitation any such transfer or disposition by way of capital or equity
contribution to another Person), or attempt or contract to do so except for (i)
sales, exchanges, trade-ins or other dispositions of Equipment that is
substantially worn, damaged, or obsolete in the ordinary course of business,
(ii) sales of Inventory to buyers in the ordinary course of business, and (iii)
licenses by Grantors of Patents, Trademarks, Copyrights, and other intellectual
property rights in the ordinary course of business, and not in a transaction or
as part of a series of related transactions whereby substantially all of the
Grantors' assets are transferred to one or more Persons, to (x) a Person that is
not an Affiliate or (y) if such transaction has been approved in advance by
Grantors' respective board of directors, a Person that is a Subsidiary;
provided, that a license shall be deemed to be not in the ordinary course of
business for purposes of this subsection if it is an exclusive license, unless
either (I) such license has been approved in advance by Grantors' board of
directors, or (II) such license relates only to a single product. The rights of
the transferee or licensee with respect to any transfer or license as authorized
in this subsection will be free and clear of the security interest of Secured
Party hereunder; provided, however, that such security interest shall in the
event of any such transfer or license continue to attach to all rights of
Grantors pursuant to such transfer or license and the proceeds of such transfer
or license as provided elsewhere herein.

                  (h) Further Identification of Collateral. Grantors will, if so
requested by Secured Party, furnish to Secured Party, as often as Secured Party
requests, statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as Secured
Party may reasonably request, all in such detail as Secured Party may specify.

                  (i) Notices. Grantors will advise Secured Party promptly, in
reasonable detail, (i) of any Lien (other than Permitted Encumbrances) or claim
made or asserted against any of the Collateral, and (ii) of the occurrence of
any other event which would have a material adverse effect on the aggregate
value of the Collateral or on the Liens created hereunder.

                  (j) No Reincorporation; No Non-Ordinary Course Transactions.
Grantors shall not reincorporate or reorganize under the laws of any
jurisdiction other than the jurisdiction in which they were incorporated as of
the date hereof without the prior written consent of Secured Party. Grantors
shall not consummate or commit to consummate any non-ordinary course
transaction.

                  (k) Terminations; Amendments Not Authorized. Other than the
filing of financing statements in connection with the perfection of Permitted
Encumbrances or a Permitted Junior Lien, Grantors acknowledge that they are not
authorized to file any financing statement or amendment or termination statement
with respect to any financing statement without the prior written consent of
Secured Party and agree not do so without the prior written consent of Secured
Party, subject to such Grantors' rights under Section 9-509(d)(2) of the Code.


                                       9


                  (l) Limitation on Dividends and other Distributions. Grantors
shall not declare or pay any dividend, repurchase or redeem any shares of
capital stock, or make any other "distribution to shareholders" (as such term is
defined in Section 166 of the California Corporations Code) without the prior
written consent of Secured Party.

         6. Secured Party's Appointment as Attorney-in-Fact. Contemporaneously
herewith, Grantors shall execute and deliver to Secured Party a power of
attorney (the "Power of Attorney") substantially in the form attached hereto as
Exhibit A. The power of attorney granted pursuant to the Power of Attorney is a
power coupled with an interest and shall be irrevocable until the Termination
Date. The powers conferred on Secured Party under the Power of Attorney are
solely to protect Secured Party's interests in the Collateral and shall not
impose any duty upon Secured Party to exercise any such powers. Secured Party
agrees that (a) except for the powers granted in clause (h) of the Power of
Attorney, it shall not exercise any power or authority granted under the Power
of Attorney unless an Event of Default has occurred and is continuing, and (b)
Secured Party shall account for any monies received by Secured Party in respect
of any foreclosure on or disposition of Collateral pursuant to the Power of
Attorney, provided that Secured Party shall have no duty as to any Collateral,
and Secured Party shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers. NONE OF SECURED PARTY OR
ITS AFFILIATES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO GRANTORS FOR
ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN
RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR
ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

         7. Remedies, Rights Upon Default.

                  (a) In addition to all other rights and remedies granted to it
under this Security Agreement and under any other instrument or agreement
securing, evidencing or relating to any of the Obligations, if any Event of
Default shall have occurred and be continuing, Secured Party may exercise all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, Grantors expressly agree that in any such event
Secured Party, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon Grantors or any other Person (all and each of
which demands, advertisements and notices are hereby expressly waived to the
maximum extent permitted by the Code and other applicable law), may forthwith
enter upon the premises of Grantors where any Collateral is located through
self-help, without judicial process, without first obtaining a final judgment or
giving Grantors or any other Person notice and opportunity for a hearing on
Secured Party's claim or action, and may collect, receive, assemble, process,
appropriate and realize upon the Collateral, or any part thereof, and may
forthwith sell, lease, license, assign, give an option or options to purchase,
or sell or otherwise dispose of and deliver said Collateral (or contract to do
so), or any part thereof, in one or more parcels at a public or private sale or
sales, at any exchange at such prices as it may deem acceptable, for cash or on
credit or for future delivery without assumption of any credit risk. Secured
Party shall have the right upon any such public sale or sales and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of said Collateral so sold, free of any right or equity of redemption,


                                       10


which equity of redemption Grantors hereby release. Such sales may be adjourned
and continued from time to time with or without notice. Secured Party shall have
the right to conduct such sales on Grantors' premises or elsewhere and shall
have the right to use Grantors' premises without charge for such time or times
as Secured Party deems necessary or advisable. If any Event of Default shall
have occurred and be continuing, Grantors further agree, at Secured Party's
request, to assemble the Collateral and make it available to Secured Party at a
place or places designated by Secured Party which are reasonably convenient to
Secured Party and Grantors, whether at Grantors' premises or elsewhere. Until
Secured Party is able to effect a sale, lease, license or other disposition of
Collateral, Secured Party shall have the right to hold or use Collateral, or any
part thereof, to the extent that it deems appropriate for the purpose of
preserving Collateral or its value or for any other purpose deemed appropriate
by Secured Party. Secured Party shall have no obligation to Grantors to maintain
or preserve the rights of Grantors as against third parties with respect to
Collateral while Collateral is in the possession of Secured Party. Secured Party
may, if it so elects, seek the appointment of a receiver or keeper to take
possession of Collateral and to enforce any of Secured Party's remedies with
respect to such appointment without prior notice or hearing as to such
appointment. Secured Party shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale to the Obligations as
Secured Party shall determine in its sole discretion, and only after so paying
over such net proceeds, and after the payment by Secured Party of any other
amount required by any provision of law, need Secured Party account for the
surplus, if any, to Grantors. To the maximum extent permitted by applicable law,
Grantors waive all claims, damages, and demands against Secured Party arising
out of the repossession, retention or sale of the Collateral except such as
arise solely out of the gross negligence or willful misconduct of Secured Party
as finally determined by a court of competent jurisdiction. Grantors agree that
ten (10) days prior notice by Secured Party of the time and place of any public
sale or of the time after which a private sale may take place is reasonable
notification of such matters. Grantors shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are insufficient to
pay all Obligations, including any attorneys' fees and other expenses incurred
by Secured Party to collect such deficiency.

                  (b) Except as otherwise specifically provided herein, Grantors
hereby waive presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Security
Agreement or any Collateral.

                  (c) To the extent that applicable law imposes duties on the
Secured Party to exercise remedies in a commercially reasonable manner, Grantors
acknowledge and agree that it is not commercially unreasonable for the Secured
Party (i) to fail to incur expenses reasonably deemed significant by the Secured
Party to prepare Collateral for disposition or otherwise to complete raw
material or work in process into finished goods or other finished products for
disposition, (ii) to fail to obtain third party consents for access to
Collateral to be disposed of, or to obtain or, if not required by other law, to
fail to obtain governmental or third party consents for the collection or
disposition of Collateral to be collected or disposed of, (iii) to fail to
exercise collection remedies against Account Debtors or other Persons obligated
on Collateral or to remove Liens on or any adverse claims against Collateral,
(iv) to exercise collection remedies against Account Debtors and other Persons
obligated on Collateral directly or through the use of collection agencies and
other collection specialists, (v) to advertise dispositions of Collateral


                                       11


through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (vi) to contact other Persons, whether or
not in the same business as the Grantors, for expressions of interest in
acquiring all or any portion of such Collateral, (vii) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the Collateral is of a specialized nature, (viii) to dispose of Collateral
by utilizing internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capacity of doing so, or
that match buyers and sellers of assets, (ix) to dispose of assets in wholesale
rather than retail markets, (x) to disclaim disposition warranties, such as
title, possession or quiet enjoyment, or (xi) to the extent deemed appropriate
by the Secured Party, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist the Secured Party in the
collection or disposition of any of the Collateral. Grantors acknowledge that
the purpose of this Section 7(c) is to provide non-exhaustive indications of
what actions or omissions by the Secured Party would not be commercially
unreasonable in the Secured Party's exercise of remedies against the Collateral
and that other actions or omissions by the Secured Party shall not be deemed
commercially unreasonable solely on account of not being indicated in this
Section 7(c). Without limitation upon the foregoing, nothing contained in this
Section 7(c) shall be construed to grant any rights to Grantors or to impose any
duties on Secured Party that would not have been granted or imposed by this
Security Agreement or by applicable law in the absence of this Section 7(c).

                  (d) Secured Party shall not be required to make any demand
upon, or pursue or exhaust any of their rights or remedies against, Grantors,
any other obligor, guarantor, pledgor or any other Person with respect to the
payment of the Obligations or to pursue or exhaust any of their rights or
remedies with respect to any Collateral therefor or any direct or indirect
guarantee thereof. Secured Party shall not be required to marshal the Collateral
or any guarantee of the Obligations or to resort to the Collateral or any such
guarantee in any particular order, and all of its and their rights hereunder
shall be cumulative. To the extent they may lawfully do so, Grantors absolutely
and irrevocably waive and relinquish the benefit and advantage of, and covenant
not to assert against Secured Party, any valuation, stay, appraisement,
extension, redemption or similar laws and any and all rights or defense they may
have as a sureties now or hereafter existing which, but for this provision,
might be applicable to the sale of any Collateral made under the judgment, order
or decree of any court, or privately under the power of sale conferred by this
Security Agreement, or otherwise.

         8. Grant of License to use Intellectual Property. For the sole purpose
of enabling Secured Party to exercise rights and remedies under Section 7 hereof
(including, without limiting the terms of Section 7 hereof, in order to take
possession of, hold, preserve, process, assemble, prepare for sale, market for
sale, sell or otherwise dispose of Collateral) at such time as Secured Party
shall be lawfully entitled to exercise such rights and remedies, Grantors hereby
grant to Secured Party an irrevocable, nonexclusive license (exercisable without
payment of royalty or other compensation to Grantors) to use, license or
sublicense any Intellectual Property now owned or hereafter acquired by
Grantors, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer software and programs used for the compilation or printout
thereof.

         9. Limitation on Secured Party's Duties in Respect of Collateral.
Secured Party shall use reasonable care with respect to the Collateral in its
possession or under its control. Secured Party shall not have any other duty as


                                       12


to any Collateral in its possession or control or in the possession or control
of any agent or nominee of Secured Party, or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto.

         10. Reinstatement. This Security Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against Grantors for liquidation or reorganization, should Grantors become
insolvent or make an assignment for the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of
Grantors' assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Obligations,
whether as a "voidable preference," "fraudulent conveyance," or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.

         11. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give and
serve upon any other party any communication with respect to this Security
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be given (a) if to Grantors,
to Grantors' address(es) set forth below the names on the signature page hereof,
and (b) if to Secured Party, to Secured Party's address set forth below its name
on the signature page hereof, with a copy to John Dorris, Snell & Wilmer, LLP,
One Arizona Center, 400 East Van Buren Street, Phoenix, Arizona 85004-2202, or
to such other address as either party may furnish to the others in writing,
making specific reference to this Section 11.

         12. Severability. Whenever possible, each provision of this Security
Agreement shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision of this Security Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Security
Agreement. This Security Agreement sets forth the complete understanding and
agreement of Secured Party and Grantors with respect to the matters referred to
herein.

         13. No Waiver, Cumulative Remedies. Secured Party shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Secured Party and then only to the extent therein set forth. A waiver by Secured
Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Secured Party would otherwise
have had on any future occasion. No failure to exercise nor any delay in
exercising on the part of Secured Party, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies


                                       13


provided by law. None of the terms or provisions of this Security Agreement may
be waived, altered, modified or amended except by an instrument in writing, duly
executed by Secured Party and Grantors.

         14. Limitation by Law. All rights, remedies and powers provided in this
Security Agreement may be exercised only to the extent that the exercise thereof
does not violate any applicable provision of law, and all the provisions of this
Security Agreement are intended to be subject to all applicable mandatory
provisions of law that may be controlling and to be limited to the extent
necessary so that they shall not render this Security Agreement invalid,
unenforceable, in whole or in part, or not entitled to be recorded, registered
or filed under the provisions of any applicable law.

         15. Termination of this Security Agreement. Subject to Section 10
hereof, this Security Agreement shall terminate upon the Termination Date.

         16. Successors and Assigns. This Security Agreement and all obligations
of Grantors hereunder shall be binding upon the successors and assigns of
Grantors (including any debtor-in-possession on behalf of Grantors) and shall,
together with the rights and remedies of Secured Party hereunder, inure to the
benefit of Secured Party, all future holders of any instrument evidencing any of
the Obligations and their respective successors and assigns. No sales of
participations, other sales, assignments, transfers or other dispositions of any
agreement governing or instrument evidencing the Obligations or any portion
thereof or interest therein shall in any manner affect the Lien granted to
Secured Party hereunder. Grantors may not assign, sell, hypothecate or otherwise
transfer any interest in or obligation under this Security Agreement and any
unconsented transfer shall be void ab initio.

         17. Counterparts. This Security Agreement may be authenticated in any
number of separate counterparts, each of which shall collectively and separately
constitute one and the same agreement. This Security Agreement may be
authenticated by manual signature, facsimile, or if approved in writing by
Secured Party, electronic means, all of which shall be equally valid.

         18. Governing Law. IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ARIZONA, APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. GRANTORS HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS
LOCATED IN MARICOPA COUNTY, PHOENIX, ARIZONA, SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN GRANTORS AND SECURED PARTY
PERTAINING TO THIS SECURITY AGREEMENT OR TO ANY MATTER ARISING OUT OF OR
RELATING TO THIS SECURITY AGREEMENT, PROVIDED, THAT SECURED PARTY AND GRANTORS
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF MARICOPA COUNTY, AND, PROVIDED, FURTHER, NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE SECURED PARTY FROM BRINGING
SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE


                                       14


COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER IN FAVOR OF SECURED PARTY. GRANTORS EXPRESSLY SUBMIT AND
CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND GRANTORS HEREBY WAIVE ANY OBJECTION WHICH THEY MAY HAVE BASED
UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. GRANTORS HEREBY WAIVE PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE
THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTORS AT THE ADDRESS SET FORTH ON
THE SIGNATURE PAGES HERETO AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN
THE U.S. MAILS, PROPER POSTAGE PREPAID.

         19. Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES
ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN SECURED PARTY AND
GRANTOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR THE
TRANSACTIONS RELATED HERETO OR THERETO.

         20. Section Titles. The Section titles contained in this Security
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.

         21. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Security Agreement. In the event
an ambiguity or question of intent or interpretation arises, this Security
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Security Agreement.

         22. Advice of Counsel. Each of the parties represents to each other
party hereto that it has discussed this Security Agreement and, specifically,
the provisions of Section 18 and Section 19, with its counsel.


                                       15


         23. Integration. This Security Agreement, together with the other
agreements, documents, and instruments executed in connection with the
foregoing, reflect the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.




                                       16


            IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
as of the date first set forth above.

                                           NATIONAL LAMPOON, INC.,
                                           As Grantor

                                           By:
                                               ---------------------------------
                                           Name:
                                                 -------------------------------
                                           Title:
                                                  ------------------------------

                                           (ADDRESS) ___________________________

                                           _____________________________________

                                           Attention:  _________________________

                                           Facsimile No.:  _____________________


                                           NATIONAL LAMPOON NETWORKS, INC.,
                                           As Grantor

                                           By:
                                               ---------------------------------
                                           Name:
                                                 -------------------------------
                                           Title:
                                                  ------------------------------

                                           (ADDRESS) ___________________________

                                           _____________________________________

                                           Attention:  _________________________

                                           Facsimile No.:  _____________________


                                           NATIONAL LAMPOON TOURS, INC.,
                                           As Grantor

                                           By:
                                               ---------------------------------
                                           Name:
                                                 -------------------------------
                                           Title:
                                                  ------------------------------

                                           (ADDRESS) ___________________________

                                           _____________________________________

                                           Attention:  _________________________

                                           Facsimile No.:  _____________________


                                       17


                                           Accepted and agreed to as of the
                                           day and year first above written.



                                           N. WILLIAMS FAMILY INVESTMENTS, L.P.
                                           As Secured Party


                                           By:
                                               ---------------------------------
                                           Name:
                                           Title:



                                       18


                                     ANNEX A
                                       TO
                               SECURITY AGREEMENT

                                   DEFINITIONS

          Capitalized terms used in the Security Agreement shall have the
following respective meanings, and all references to Sections, Exhibits,
Schedules or Annexes in the following definitions shall refer to Sections,
Exhibits, Schedules or Annexes of or to the Security Agreement:

          "Account Debtor" means any Person who is or may become obligated to
Grantors under, with respect to, or on account of, an Account, Chattel Paper or
General Intangibles (including a payment intangible).

          "Accounts" means all "accounts," as such term is defined in the Code,
now owned or hereafter acquired by Grantors, including (a) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper or Instruments) (including
any such obligations that may be characterized as an account or contract right
under the Code), (b) all of Grantors' rights in, to and under all purchase
orders or receipts for goods or services, (c) all of Grantors' rights to any
goods represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), (d) all rights to payment due to
Grantors for property sold, leased, licensed, assigned or otherwise disposed of,
for a policy of insurance issued or to be issued, for a secondary obligation
incurred or to be incurred, for energy provided or to be provided, for the use
or hire of a vessel under a charter or other contract, arising out of the use of
a credit card or charge card, or for services rendered or to be rendered by
Grantors or in connection with any other transaction (whether or not yet earned
by performance on the part of Grantors), (e) all health care insurance
receivables and (f) all collateral security of any kind, given by any Account
Debtor or any other Person with respect to any of the foregoing.

          "Affiliate" means (a) any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with Grantors, (b) any
employee or director of Grantors or any Person specified in clauses (a) or (b),
(c) any member of the immediate family (as that term is defined in Item 404(a)
of Regulation S-K promulgated by the Securities and Exchange Commission) of any
Person specified in clauses (a) or (b), (d) a Person in which one or more
Persons described in (a), (b) or (c) have a direct or indirect beneficial
interest (except an interest not exceeding 5% of a Person whose shares are
publicly traded) and (e) any associate (as such term is defined in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, as amended) of any Person
specified in clauses (a), (b), (c) or (d). For the purposes of this definition,
"control," when used with respect to any specified person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.


                                       19


          "Bankruptcy Code" means the provisions of Title 11 of the United
States Code, 11 U.S.C. Sections 101 et seq. "Business Day" means any day that is
not a Saturday, a Sunday or a day on which banks are required or permitted to be
closed in the State of California;

          "Charges" means all federal, state, county, city, municipal, local,
foreign or other governmental taxes, levies, assessments, charges, liens, claims
or encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c)
the employees, payroll, income or gross receipts of Grantors, (d) Grantors'
ownership or use of any properties or other assets, or (e) any other aspect of
Grantors' business.

          "Chattel Paper" means any "chattel paper," as such term is defined in
the Code, including electronic chattel paper, now owned or hereafter acquired by
Grantors.

          "Code" means the Uniform Commercial Code as the same may, from time to
time, be enacted and in effect in the State of Delaware; provided, that to the
extent that the Code is used to define any term herein and such term is defined
differently in different Articles of the Code, the definition of such term
contained in Article 9 shall govern; provided further, that in the event that,
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of, or remedies with respect to, Secured Party' Lien on
any Collateral is governed by the Uniform Commercial Code as enacted and in
effect in a jurisdiction other than the State of Delaware, the term "Code" shall
mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority or remedies and for purposes of definitions
related to such provisions.

          "Collateral" has the meaning ascribed to it in Section 2(a).

          "Contracts" means all "contracts," as such term is defined in the
Code, now owned or hereafter acquired by Grantors, in any event, including all
contracts, undertakings, or agreements (other than rights evidenced by Chattel
Paper, Documents or Instruments) in or under which Grantors may now or hereafter
have any right, title or interest, including any agreement relating to the terms
of payment or the terms of performance of any Product.

          "Control Letter" means a letter agreement between Secured Party and
(i) the issuer of uncertificated securities with respect to uncertificated
securities in the name of Grantors, (ii) a securities intermediary with respect
to securities, whether certificated or uncertificated, securities entitlements
and other financial assets held in a securities account in the name of Grantors,
(iii) a futures commission merchant or clearing house, as applicable, with
respect to commodity accounts and commodity contracts held by Grantors, whereby,
among other things, the issuer, securities intermediary or futures commission
merchant disclaims any security interest in the applicable financial assets,
acknowledges the Lien of Secured Party on such financial assets, and agrees to
follow the instructions or entitlement orders of Secured Party without further
consent by Grantors.

          "Copyright License" means any and all rights now owned or hereafter
acquired by Grantors under any written agreement granting any right to use any
Copyright or Copyright registration.


                                       20


          "Copyright" means all of the following now owned or hereafter adopted
or acquired by Grantors: (a) all copyrights, all Product, and General
Intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office or in any similar office or agency of the United
States, any state or territory thereof, or any other country or any political
subdivision thereof, and (b) all reissues, extensions or renewals thereof.

          "Default" means any event that, with the passage of time or notice or
both, would, unless cured or waived, become an Event of Default.

          "Deposit Accounts" means all "deposit accounts" as such term is
defined in the Code, nor or hereafter held in the name of Grantors.

          "Designated Breach" shall mean any breach by the Grantors of Sections
5(a)(ii), 5(a)(v), 5(a)(viii), 5(c)(i), 5(c)(ii), 5(f), 5(g), 5(i), 5(j), 5(k),
or 16 of this Agreement.

          "Documents" means all "documents," as such term is defined in the
Code, now owned or hereafter acquired by Grantors, wherever located.

          "Dollars" or "$" means lawful currency of the United States of
America.

          "Equipment" means all "equipment," as such term is defined in the
Code, now owned or hereafter acquired by Grantors, wherever located and, in any
event, including all Grantors' machinery and equipment, including processing
equipment, conveyors, machine tools, data processing and computer equipment,
including embedded software and peripheral equipment and all engineering,
processing and manufacturing equipment, office machinery, furniture, materials
handling equipment, tools, attachments, accessories, automotive equipment,
trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock
and other equipment of every kind and nature, trade fixtures and fixtures not
forming a part of real property, together with all additions and accessions
thereto, replacements therefor, all parts therefor, all substitutes for any of
the foregoing, fuel therefor, and all manuals, drawings, instructions,
warranties and rights with respect thereto, and all products and proceeds
thereof and condemnation awards and insurance proceeds with respect thereto.

          "Equity Security" means (a) in the case of a corporation, corporate
stock, (b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (c) in the case of a partnership, partnership interests
(whether general or limited), (d) in the case of a limited liability company,
limited liability company interests, (e) any other interest or participation
that confers on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person and (f) any stock or
security that is directly or indirectly convertible into, exercisable for, or
exchangeable for any of the securities described in clauses (a), (b), (c), (d)
and (e) above, including without limitation any option, warrant or exchangeable
debt security.

          "Event of Default" means (a) the failure by Grantors to pay any
amounts when due to Secured Party under the Secured Promissory Note or the
occurrence of any other event of default thereunder; (b) any material breach of


                                       21


any obligation of Grantors pursuant to this Agreement not constituting a payment
obligation, or (c) the bankruptcy, insolvency, or liquidation of any Grantor.

          "Event of Default Designated Breach" means any breach by Grantors of
Sections 5(a)(ii) (as it relates to a pledge of Grantors' equity interests with
respect to any Subsidiary), 5(a)(ix), 5(f), 5(g), 5(i), 5(j), 5(k), 5(l) or 16
of this Agreement and any breach by Grantors of any obligation of Grantors under
the Secured Promissory Note not constituting a payment obligation.

          "Fixtures" means all "fixtures" as such term is defined in the Code,
now owned or hereafter acquired by Grantors.

          "GAAP" means generally accepted accounting principles in the United
States of America consistently applied.

          "General Intangibles" means all "general intangibles," as such term is
defined in the Code, now owned or hereafter acquired by Grantors, including all
right, title and interest that Grantors may now or hereafter have in or under
any Contract, all payment intangibles, customer lists, Licenses, Copyrights,
Trademarks, Patents, and all applications therefor and reissues, extensions or
renewals thereof, rights in Intellectual Property (including any collateral,
allied, subsidiary or merchandising rights appurtenant or related to any Product
or rights to distribute, sell, rent, license the exhibition of, and otherwise
exploit and turn to account any Product), interests in partnerships, joint
ventures and other business associations, licenses, permits, copyrights, trade
secrets, proprietary or confidential information, inventions (whether or not
patented or patentable), technical information, procedures, designs, knowledge,
know-how, software, data bases, data, skill, expertise, experience, processes,
models, drawings, materials and records, goodwill (including the goodwill
associated with any Trademark or Trademark License), all rights and claims in or
under insurance policies (including insurance for fire, damage, loss and
casualty, whether covering personal property, real property, tangible rights or
intangible rights, all liability, life, key man and business interruption
insurance, and all unearned premiums), uncertificated securities, choses in
action, deposit, checking and other bank accounts, rights to receive tax refunds
and other payments, rights to receive dividends, distributions, cash,
Instruments and other property in respect of or in exchange for pledged Stock
and Investment Property, rights of indemnification, all books and records,
correspondence, credit files, invoices and other papers, including without
limitation all tapes, cards, computer runs and other papers and documents in the
possession or under the control of Grantors or any computer bureau or service
company from time to time acting for Grantors.

          "Goods" means all "goods" as defined in the Code, now owned or
hereafter acquired by Grantors, wherever located, including embedded software to
the extent included in "goods" as defined in the Code.

          "Instruments" means all "instruments," as such term is defined in the
Code, now owned or hereafter acquired by Grantors, wherever located, and, in any
event, including all certificated securities, all certificates of deposit, and
all promissory notes and other evidences of indebtedness, other than instruments
that constitute, or are a part of a group of writings that constitute, Chattel
Paper.


                                       22


          "Intellectual Property" means any and all Licenses, Patents,
Copyrights, Trademarks, and the goodwill associated with such Trademarks.

          "Inventory" means all "inventory," as such term is defined in the
Code, now owned or hereafter acquired by Grantors, wherever located, and in any
event including inventory, merchandise, goods and other personal property that
are held by or on behalf of Grantors for sale or lease or are furnished or are
to be furnished under a contract of service, or that constitute raw materials,
work in process, finished goods, returned goods, or materials or supplies of any
kind, nature or description used or consumed or to be used or consumed in
Grantors' business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including all supplies and embedded software.

          "Investment Property" means all "investment property" as such term is
defined in the Code now owned or hereafter acquired by Grantors, wherever
located, including (i) all securities, whether certificated or uncertificated,
including stocks, bonds, interests in limited liability companies, partnership
interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all
securities entitlements of Grantors, including the rights of Grantors to any
securities account and the financial assets held by a securities intermediary in
such securities account and any free credit balance or other money owing by any
securities intermediary with respect to that account; (iii) all securities
accounts of Grantors; (iv) all commodity contracts of Grantors; and (v) all
commodity accounts held by Grantors.

          "Letter-of-Credit Rights" means "letter-of-credit rights" as such term
is defined in the Code, now owned or hereafter acquired by Grantors, including
rights to payment or performance under a letter of credit, whether or not
Grantors, as beneficiary, has demanded or is entitled to demand payment or
performance.

          "License" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Grantors.

          "Lien" means any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any lease
or title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement perfecting a security interest under the Code or
comparable law of any jurisdiction).

          "Notice of Security Interest in Copyrights" and "Notice of Security
Interest in Patents and Trademarks" are each defined in Section 5(c)(v).

          "Obligations" means all loans, advances, debts, liabilities and
obligations for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by Grantors to
Secured Party, and all covenants and duties regarding such amounts, of any kind
or nature, present or future, whether or not evidenced by any note, agreement or
other instrument, arising under the Secured Promissory Note, this Security
Agreement or any other agreement executed in connection with the foregoing. This


                                       23


term includes all principal, interest (including all interest that accrues after
the commencement of any case or proceeding by or against Grantors in bankruptcy,
whether or not allowed in such case or proceeding), Charges, expenses,
attorneys' fees and any other sum chargeable to Grantors under the Secured
Promissory Note, this Security Agreement or any other agreement heretofore or
hereafter executed by Grantors in favor of Secured Party.

          "Patent License" means rights under any written agreement now owned or
hereafter acquired by Grantors granting any right with respect to any invention
on which a Patent is in existence.

          "Patents" means all of the following in which Grantors now holds or
hereafter acquires any interest: (a) all letters patent of the United States or
of any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or of any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State, or any other country, and (b) all reissues, continuations,
continuations-in-part or extensions thereof.

          "Permitted Encumbrances" means the following encumbrances: (a) Liens
for taxes or assessments or other governmental Charges not yet due and payable
or which are being contested in good faith by Grantors; (b) pledges or deposits
of money securing statutory obligations under workmen's compensation,
unemployment insurance, social security or public liability laws or similar
legislation; (c) pledges or deposits of money securing bids, tenders, contracts
(other than contracts for the payment of money) or leases to which Grantors is a
party as lessee made in the ordinary course of business; (d) inchoate and
unperfected guild, workers', mechanics' or similar liens arising in the ordinary
course of business; (e) carriers', warehousemen's, suppliers' or other similar
possessory liens arising in the ordinary course of business and securing
liabilities in an outstanding aggregate amount not in excess of $25,000 at any
time, so long as such Liens attach only to Inventory; (f) deposits securing, or
in lieu of, surety, appeal or customs bonds in proceedings to which Grantors are
parties; (g) presently existing or hereafter created Liens in favor of Secured
Party; and (h) presently existing Liens in favor of National Lampoon, Inc.
pursuant to that certain General Security Agreement dated August, 2002, but
solely to the extent the same remain subordinated to the Liens granted hereunder
in accordance with the terms of that certain Subordination Agreement of even
date herewith between National Lampoon, Inc. and National Lampoon Networks, Inc.

          "Permitted Junior Lien" means a lien or encumbrance on the Collateral
(a) that is in all respects junior in priority to the Liens granted to Secured
Party pursuant hereto and (b) that is granted to a financial institution as part
of a financing transaction in which the Grantors incurs funded indebtedness.

          "Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, other entity or
government (whether federal, state, county, city, municipal, local, foreign, or
otherwise, including any instrumentality, division, agency, body or department
thereof).


                                       24


          "Proceeds" means "proceeds," as such term is defined in the Code,
including (a) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to Grantors from time to time with respect to any of the
Collateral, (b) any and all payments (in any form whatsoever) made or due and
payable to Grantors from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any Governmental Authority (or any Person acting under color of
governmental authority), (c) any claim of Grantors against third parties (i) for
past, present or future infringement of any Patent or Patent License, or (ii)
for past, present or future infringement or dilution of any Copyright, Copyright
License, Trademark or Trademark License, or for injury to the goodwill
associated with any Trademark or Trademark License, (d) any recoveries by
Grantors against third parties with respect to any litigation or dispute
concerning any of the Collateral including claims arising out of the loss or
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, Collateral, (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock, and (f) any and all other amounts, rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of Collateral.

          "Product" means, without limitation, the cinematographic film
photoplay and sound records thereof, as well as trailers and clips thereof,
produced by means of any photographic, electronic, mechanical or other processes
or devises now or hereafter known, invented, used or contemplated, by which
photographs, films, drawings, images or other visual reproductions or
representations are or may be printed, imprinted, recorded or otherwise
preserved on film, tape or any other material of any description (whether
translucent or not) for later projection, exhibition or transmission by any
means or media now known or hereafter devised, in such manner that the same are
or appear to be in motion or in sequence on a screen, mirror, tube or other
medium or device, whether or not accompanied by sound record, relating to assets
owned by Grantors.

          "Security Agreement" means the Security Agreement of even date
herewith by and between Grantors and Secured Party, as the same may be amended,
supplemented, restated or otherwise modified from time to time.

          "Software" means all "software" as such term is defined in the Code,
now owned or hereafter acquired by Grantors, other than software embedded in any
category of Goods, including all computer programs and all supporting
information provided in connection with a transaction related to any program.

          "Solvent" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a


                                       25


transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.

          "Stock" means all shares, options, warrants, general or limited
partnership interests, membership interests or other equivalents (regardless of
how designated) of or in a corporation, partnership, limited liability company
or equivalent entity whether voting or nonvoting, including common stock,
preferred stock or any other "equity security" (as such term is defined in Rule
3a11-1 of the General Rules and Regulations promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934).

          "Subsidiary" means any Person of which equity securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions is owned or
controlled, directly or indirectly, by Grantors, one or more Subsidiaries of
Grantors, or any combination thereof.

          "Supporting Obligations" means all "supporting obligations" as such
term is defined in the Code, including letters of credit and guaranties issued
in support of Accounts, Chattel Paper, Documents, General Intangibles,
Instruments, or Investment Property.

          "Trademark License" means rights under any written agreement now owned
or hereafter acquired by Grantors granting any right to use any Trademark.

          "Trademarks" means all of the following now owned or hereafter
existing or adopted or acquired by Grantors: (a) all trademarks, trade names,
corporate names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature (whether
registered or unregistered), all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country or any political subdivision thereof; (b) all reissues, extensions
or renewals thereof; and (c) all goodwill associated with or symbolized by any
of the foregoing.

          "Wholly-Owned Subsidiary" means any Subsidiary of which one hundred
percent (100%) of the voting stock, membership interests, or other equity
interests having ordinary voting power to elect directors or other persons
performing similar functions is owned or controlled, directly or indirectly, by
Grantors or one ore more Wholly-Owned Subsidiaries of Grantors.

          All undefined terms contained herein shall, unless the context
indicates otherwise, have the meanings provided for by the Code to the extent
the same are used or defined therein; in the event that any term is defined
differently in different Articles of the Code, the definition contained in
Article 9 shall control. Unless otherwise specified, references in the Security


                                       26


Agreement to a Section, subsection section or clause refer to such Section,
subsection section or clause as contained in the Security Agreement. The words
"herein," "hereof" and "hereunder" and other words of similar import refer to
the Security Agreement as a whole, including all Annexes, Exhibits and
Schedules, as the same may from time to time be amended, restated, modified or
supplemented, and not to any particular section, subsection section or clause
contained in the Security Agreement or any such Annex, Exhibit or Schedule.

          Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation"; the
word "or" is not exclusive; references to Persons include their respective
successors and assigns or, in the case of governmental Persons, Persons
succeeding to the relevant functions of such Persons; and all references to
statutes and related regulations shall include any amendments of the same and
any successor statutes and regulations. Whenever any provision in this Security
Agreement refers to the knowledge (or an analogous phrase) of Grantors, such
words are intended to signify that Grantors has actual knowledge or awareness of
a particular fact or circumstance or that Grantors, if it had exercised
reasonable diligence, would have known or been aware of such fact or
circumstance.



                                       27



                                       TO
                               SECURITY AGREEMENT

                              FILING JURISDICTIONS





                                       28


                                   SCHEDULE II
                                       TO
                               SECURITY AGREEMENT

             INSTRUMENTS, CHATTEL PAPER, AND LETTER-OF-CREDIT RIGHTS


                                     [None]



                                       29


                                  SCHEDULE III
                                       TO
                               SECURITY AGREEMENT

                SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL AND
                          RECORDS CONCERNING COLLATERAL


I.       Grantors' official names: National Lampoon, Inc., National Lampoon
         Networks, Inc., and National Lampoon Tours, Inc.

II.      Type of entity (e.g., corporation, partnership, business trust, limited
         partnership, limited liability company): Corporation

III.     Organizational identification numbers issued by Grantors' state of
         incorporation or organization or a statement that no such number has
         been issued:

         (a) National Lampoon, Inc., (Delaware) 3562246

         (b) National Lampoon Networks, Inc., (Delaware) 35557653

         (c) National Lampoon Tours, Inc., (California) C2464187

IV.      State(s) of Incorporation of Grantors:

         (a) National Lampoon, Inc., - Delaware

         (b) National Lampoon Networks, Inc., - Delaware

         (c) National Lampoon Tours, Inc., - California


V.       Chief Executive Office(s) and principal place(s) of business of
         Grantors:

            ---------------------------
            10900 Wilshire Boulevard, Suite 1000
            Los Angeles, California 90024

VI.      Corporate Offices of Grantors:

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

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

VII.     Warehouses: None

VIII.    Other Premises at which Collateral is Stored or Located: None


                                       30


IX.      Locations of Records Concerning Collateral:

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

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



                                       31


                                    EXHIBIT A

                                POWER OF ATTORNEY


          This Power of Attorney is executed and delivered by National Lampoon,
Inc., National Lampoon Networks, Inc., and National Lampoon Tours, Inc.,
("Grantors")to N. Williams Family Investment, L.P. (hereinafter referred to as
"Attorney"), as Secured Party, under a Security Agreement, dated as of January
28, 2005, and other related documents (the "Loan Documents"). No person to whom
this Power of Attorney is presented, as authority for Attorney to take any
action or actions contemplated hereby, shall be required to inquire into or seek
confirmation from Grantors as to the authority of Attorney to take any action
described below, or as to the existence of or fulfillment of any condition to
this Power of Attorney, which is intended to grant to Attorney unconditionally
the authority to take and perform the actions contemplated herein, and Grantors
irrevocable waive any right to commence any suit or action, in law or equity,
against any person or entity which acts in reliance upon or acknowledges the
authority granted under this Power of Attorney. The power of attorney granted
hereby is coupled with an interest, and may not be revoked or canceled by
Grantors without Attorney's written consent.

          Grantors hereby irrevocably constitute and appoint Attorney (and all
officers, employees or agents designated by Attorney), with full power of
substitution, as Grantors' true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantors and in the
names of Grantors or in its own name, from time to time in Attorney's
discretion, to take any and all appropriate action and to execute and deliver
any and all documents and instruments which may be necessary or desirable to
accomplish the purposes of the Security Agreement and, without limiting the
generality of the foregoing, Grantors hereby grant to Attorney the power and
right, on behalf of Grantors, without notice to or assent by Grantors, and at
any time, to do the following: (a) change the mailing address of Grantors, open
a post office box on behalf of Grantors, open mail for Grantors, and ask,
demand, collect, give acquaintances and receipts for, take possession of,
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications, and
notices in connection with any property of Grantors; (b) effect any repairs to
any asset of Grantors, or continue or obtain any insurance and pay all or any
part of the premiums therefor and costs thereof, and make, settle and adjust all
claims under such policies of insurance, and make all determinations and
decisions with respect to such policies; (c) pay or discharge any taxes, liens,
security interests, or other encumbrances levied or placed on or threatened
against Grantors or their property; (d) defend any suit, action or proceeding
brought against Grantors if Grantors do not defend such suit, action or
proceeding or if Attorney believes that Grantors are not pursuing such defense
in a manner that will maximize the recovery to Attorney, and settle, compromise
or adjust any suit, action, or proceeding described above and, in connection
therewith, give such discharges or releases as Attorney may deem appropriate;
(e) file or prosecute any claim, litigation, suit or proceeding in any court of
competent jurisdiction or before any arbitrator, or take any other action
otherwise deemed appropriate by Attorney for the purpose of collecting any and
all such moneys due to Grantors whenever payable and to enforce any other right
in respect of Grantors' property; (f) cause the certified public accountants
then engaged by Grantors to prepare and deliver to Attorney at any time and from
time to time, promptly upon Attorney's request, the following reports: (1) a
reconciliation of all accounts, (2) an aging of all accounts, (3) trial


                                       32


balances, (4) test verifications of such accounts as Attorney may request, and
(5) the results of each physical verification of inventory; (g) communicate in
its own name with any party to any Contract with regard to the assignment of the
right, title and interest of such Grantors in and under the Contracts and other
matters relating thereto; (h) to file such financing statements with respect to
the Security Agreement, with or without Grantors' signature, or to file a
photocopy of the Security Agreement in substitution for a financing statement,
as Secured Party may deem appropriate and to execute in each Grantor's name such
financing statements and amendments thereto and continuation statements which
may require such Grantor's signature; and (i) execute any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral and to otherwise direct such sale or resale, all as though Attorney
were the absolute owner of the property of Grantors for all purposes, and to do,
at Attorney's option and Grantors' expense, at any time or from time to time,
all acts and other things that Attorney reasonably deems necessary to perfect,
preserve, or realize upon Grantors' property or assets and Attorney's Liens
thereon, all as fully and effectively as Grantors might do. Grantors hereby
ratify, to the extent permitted by law, all that said Attorney shall lawfully do
or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, this Power of Attorney is executed by Grantors,
and Grantors have caused the seals to be affixed pursuant to the authority of
the board of directors this 28th day of January, 2005.


                                             GRANTORS:

                                             NATIONAL LAMPOON, INC.,


                                             By:
                                                 -------------------------------
                                             Name:
                                                   -----------------------------
                                             Title:
                                                    ----------------------------



                                             NATIONAL LAMPOON NETWORKS, INC.,


                                             By:
                                                 -------------------------------
                                             Name:
                                                   -----------------------------
                                             Title:
                                                    ----------------------------



                                       33


                                             NATIONAL LAMPOON TOURS, INC.,


                                             By:
                                                 -------------------------------
                                             Name:
                                                   -----------------------------
                                             Title:
                                                    ----------------------------



                                       34


                                             NOTARY PUBLIC CERTIFICATE


          On this 28th day of January, 2005, ____________________ who is
personally known to me appeared before me in his/her capacity as the
___________________ of _________ ("Grantor") and executed on behalf of Grantor
the Power of Attorney in favor of _____________ to which this Certificate is
attached.


                                        ------------------------------------
                                        Notary Public



                                       35


                               EXHIBIT 5(c)(v)(A)

                                     FORM OF
                     NOTICE OF SECURITY INTEREST IN PATENTS
                                 AND TRADEMARKS


          NOTICE IS HEREBY GIVEN that National Lampoon, Inc., a Delaware
corporation, National Lampoon Networks, Inc., a Delaware corporation and
National Lampoon Tours, Inc., a California corporation, (collectively
"Grantors") with office located at 10900 Wilshire Boulevard, Suite 1000, Los
Angeles, California 90024, and N. Williams Family Investments, L.P. (the
"Secured Party") with an address at c/o Lake City Bank, P.O. Box 11053, Fort
Wayne, Indiana 46855, Attn: Keith Davis, Trust Officer, have entered into a
Security Agreement dated as of January 28, 2005 (the "Security Agreement").

          Pursuant to the Security Agreement, the Grantors have conveyed,
pledged, assigned and transferred to the Secured Party, and have granted to the
Secured Party, a security interest in, (a) the registered patents, applications
for registration of patents, and licenses of registered patents listed in
Schedule A hereto, (b) the registered trademarks and service marks, applications
for registration of trademarks and service marks, and licenses of registered
trademarks and service marks listed in Schedule B hereto, together with the
goodwill of the business symbolized thereby, (c) all actions for infringement
concerning the foregoing, and (d) all receivables arising out of the foregoing,
to secure the payment, performance and observance of the Obligations as defined
in the Security Agreement.

          The Commissioner of Patents and Trademarks is requested to record this
notice in its records.

Dated: January 28, 2005


                                              NATIONAL LAMPOON, INC.,


                                              By:
                                                  ------------------------------
                                              Name:
                                                   -----------------------------
                                              Title:
                                                     ---------------------------


                                              NATIONAL LAMPOON NETWORKS, INC.,


                                              By:
                                                  ------------------------------
                                              Name:
                                                   -----------------------------
                                              Title:
                                                     ---------------------------


                                       1


                                              NATIONAL LAMPOON TOURS, INC.,


                                              By:
                                                  ------------------------------
                                              Name:
                                                   -----------------------------
                                              Title:
                                                     ---------------------------



                                       2


                               EXHIBIT 5(c)(v)(B)

                                     FORM OF
                         NOTICE OF SECURITY INTEREST IN
                     AND COLLATERAL ASSIGNMENT OF COPYRIGHTS


          NOTICE IS HEREBY GIVEN that National Lampoon, Inc., a Delaware
corporation, National Lampoon Networks, Inc., a Delaware corporation and
National Lampoon Tours, Inc., a California corporation, (collectively
"Grantors"), with office located at 10900 Wilshire Boulevard, Suite 1000, Los
Angeles, California 90024, and N. Williams Family Investments, L.P. (the
"Secured Party") with an address at c/o Lake City Bank, P.O. Box 11053, Fort
Wayne, Indiana 46855, Attn: Keith Davis, Trust Officer, have entered into a
Security Agreement dated as of January 28, 2005 (the "Security Agreement").

          To secure the Obligations described in the Security Agreement,
Grantors grant and pledge to Secured Party a security interest in all of
Grantors' right, title and interest in, to and under all Copyrights, whether now
owned by or owing to, or hereafter acquired by or arising in favor of Grantors
including without limitation all Copyrights listed on Schedule A, all Products
related thereto, and including without limitation all proceeds thereof (such as,
by way of example but not by way of limitation, license royalties and proceeds
of infringement suits), the right to sue for past, present and future
infringements, all rights corresponding thereto throughout the world and all
re-issues, divisions continuations, renewals, extensions and
continuations-in-part thereof.

          This security interest is granted in conjunction with the security
interest granted to Secured Party under the Security Agreement. The rights and
remedies of Secured Party with respect to the security interest granted hereby
are in addition to those set forth in the Security Agreement, and those which
are now or hereafter available to Secured Party as a matter of law or equity.

          Each right, power and remedy of Secured Party provided for herein or
in the Security Agreement, or now or hereafter existing at law or in equity
shall be cumulative and concurrent and shall be in addition to every right,
power or remedy provided for herein and the exercise by Secured Party of any one
or more of the rights, powers or remedies provided for in this Intellectual
Property Security Agreement or the Security Agreement, or now or hereafter
existing at law or in equity, shall not preclude the simultaneous or later
exercise by any person, including Secured Party, of any or all other rights,
powers or remedies.

Dated: January 28, 2005


                                       3


                                               NATIONAL LAMPOON, INC.,


                                               By:
                                                   -----------------------------
                                               Name:
                                                    ----------------------------
                                               Title:
                                                      --------------------------



                                               NATIONAL LAMPOON NETWORKS, INC.,


                                               By:
                                                   -----------------------------
                                               Name:
                                                    ----------------------------
                                               Title:
                                                      --------------------------



                                               NATIONAL LAMPOON TOURS, INC.,


                                               By:
                                                   -----------------------------
                                               Name:
                                                    ----------------------------
                                               Title:
                                                      --------------------------




                                       4



                                   SCHEDULE A

                              INTELLECTUAL PROPERTY

                             NATIONAL LAMPOON, INC.
               SCHEDULE OF REGISTERED INTELLECTUAL PROPERTY RIGHTS

1.       Federal Patent Registrations and Applications: None.

2.       Federal Copyright Registrations:



- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
Heidi Miller's body          Video Cassette       National Lampoon, Inc.                   PA-386-058         08/15/1988
sculpting
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
How to have a moneymaking    Video Cassette       National Lampoon, Inc.                   PA-387-814         08/15/1988
garage sale
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Smart cookies don't crumble  Video Cassette       National Lampoon, Inc.                   PA-388-027         08/15/1988
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Chef Paul Prudhomme's        Video Cassette       National Lampoon, Inc.                   PA-388-030         08/15/1988
Louisiana kitchen
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Franco Columbu's Superset    Video Cassette       National Lampoon, Inc.                   PA-388-031         08/15/1988
shape-up
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Tracy Scoggins' Tough stuff  Video Cassette       National Lampoon, Inc.                   PA-410-491         08/15/1988
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Teen Steam                   Video Cassette       National Lampoon, Inc.                   PA-411-068         08/15/1988
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Ball talk:  baseball's       Video Cassette       National Lampoon, Inc.                   PA-418-830         04/25/1989
voices of summer
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Stand-up Reagan              Video Cassette       National Lampoon, Inc.                   PA-418-867         04/25/1989
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Debby Boone's Hug-a-long     Video Cassette       National Lampoon, Inc.                   PA-455-172         02/19/1989
songs
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Cybercops:  episode 1.       Website              National Lampoon, Inc.                  PA-1-000-987        08/02/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Gunnerville High.            Website              National Lampoon, Inc.                  PA-1-003-663        08/02/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       5




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
Ain't no time.               Sound Cassette and   National Lampoon, Inc.                 PAu-1-742-811        02/25/1993
                             Lyrical Sheet
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Rainbow TV: the              Sound Cassette       National Lampoon, Inc.                   SR-276-732         01/20/2000
all-inclusive network.
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Gunnerville High School.     Sound Cassette       National Lampoon, Inc.                   SR-276-734         01/20/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Editor's rant.               Sound Cassette       National Lampoon, Inc.                   SR-276-735         01/20/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Apocalyptic Al.              Sound Cassette       National Lampoon, Inc.                   SR-276-746         01/20/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Or we'll shoot this dog.     Sound Cassette       National Lampoon, Inc.                   SR-276-747         01/20/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Jenni.cam                    Sound Cassette       National Lampoon, Inc.                   SR-276-748         01/20/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
NLBS. Sound Cassette National Lampoon, Inc. SR-276-750 01/20/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Fantasy loser's league.      Sound Cassette       National Lampoon, Inc.                   SR-276-751         01/20/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon totally     Book                 National Lampoon, Inc.                  TX-3-984-295        12/12/1994
true facts:  a brand-new
collection of absurd
but-true real-life funny
stuff
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon's truly     Book                 National Lampoon, Inc.                  TX-4-051-392        11/02/1995
twisted cartoons:  if it's
tasteless, it's in here
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       6




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
National Lampoon presents    Book                 National Lampoon, Inc.                  TX-4-171-211        12/22/1995
true facts:  the big
book:  the complete,
unexpurgated assembly of
amazing ads, stupefying
signs, weird wedding
announcements, and other
absurd-but-true samples of
real -life funny stuff
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon's white     Book                 National Lampoon, Inc.                  TX-4-254-012        10/17/1995
bread snaps.
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National lampoon virtual     Printout             National Lampoon, Inc.                  TX-5-054-405        02/10/2000
candidate 2000.
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Trash tattoo.                Page                 National Lampoon, Inc.                  TX-5-067-799        02/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Smash & grab.                Website              National Lampoon, Inc.                  TX-5-357-156        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Jenni.cam. Website National Lampoon, Inc. TX-5-357-157 01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
News on the march.           Website              National Lampoon, Inc.                  TX-5-357-158        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Virtual candidate 2000.      Artwork for Website  National Lampoon, Inc.                  VA-1-021-500        02/10/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Enter this site or we'll     Photoprint           National Lampoon, Inc.                  VA-1-058-221        01/28/2000
shoot this dog
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Gunnerville High School.     Photoprint           National Lampoon, Inc.                  VA-1-058-222        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Flashbacks. Computer Graphics National Lampoon, Inc. VA-1-058-223 01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Editor's rant.               Photoprint           National Lampoon, Inc.                  VA-1-058-224        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       7




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
Apocalyptic Al               Computer Graphics    National Lampoon, Inc.                  VA-1-058-225        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Adelphian Lodge.             Computer Graphics    National Lampoon, Inc.                  VA-1-058-226        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Stick it to em.              Computer Graphics    National Lampoon, Inc.                  VA-1-058-227        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Jenni.cam                    Photoprint           National Lampoon, Inc.                  VA-1-058-228        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Rainbow TV - the             Photoprint and       National Lampoon, Inc.                  VA-1-058-229        01/28/2000
all-inclusive network.       Computer Graphics
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Worldwide waste of time.     Computer Graphics    National Lampoon, Inc.                  VA-1-058-230        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Voyercam. Computer Graphics National Lampoon, Inc. VA-1-058-231 01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Trash tattoo.                Computer Graphics    National Lampoon, Inc.                  VA-1-058-232        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Cybercops. Computer Graphics National Lampoon, Inc. VA-1-058-233 01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Gunnerville High School.     Computer Graphics    National Lampoon, Inc.                  VA-1-058-234        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
NLBS. Computer Graphics National Lampoon, Inc. VA-1-058-235 01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Fantasy Loser's League.      Computer Graphics    National Lampoon, Inc.                  VA-1-058-236        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Smash & grab.                Computer Graphics    National Lampoon, Inc.                  VA-1-058-237        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
The dregs                    Website              National Lampoon, Inc.                  TX 5-092-744        01/28/2000
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                   B: 578989
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 581764
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 594460
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 596546
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 606623
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       8




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
National Lampoon                                  National Lampoon, Inc.                    B 611489
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 624921
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 618430
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 633959
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 633958
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 639914
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 668972
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 668973
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 668974
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 668975
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 674274
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 688090
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 688714
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 697369
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 709177
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 711551
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 717768
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 725263
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 735998
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 740465
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 745276
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 757418
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       9




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
National Lampoon                                  National Lampoon, Inc.                    B 758587
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 767782
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 773307
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 782489
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 785901
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 801588
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 803007
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 809087
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 818221
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 825730
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 834403
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 837511
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 848924
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 855812
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 860635
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 871008
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 874933
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 884387
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 891302
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 902787
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 918610
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 918611
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       10




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
National Lampoon                                  National Lampoon, Inc.                    B 925057
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 935241
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 937733
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 958315
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 958316
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 971823
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 973535
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 984166
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 988340
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 996475
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                     B 4297
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 12808
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 21720
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 25065
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 33125
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 40529
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 48703
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 57325
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 64185
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 74832
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 81754
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 85384
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       11




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
National Lampoon                                  National Lampoon, Inc.                    B 137088
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 156295
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 152103
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 156296
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 164353
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 170216
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 177760
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 233599
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 248569
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 248570
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 265694
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 273054
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                    B 281437
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon.  The                            National Lampoon, Inc.                    B 907480
Best of Number 4
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
The Best of National                              National Lampoon, Inc.                    A 336334
Lampoon No. 1
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
The Best of National                              National Lampoon, Inc.                    A 423189
Lampoon No. 3
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Letters From the Editor of                        National Lampoon, Inc.                    A 420415
National lampoon
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       12




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
National Lampoon:  This                           National Lampoon, Inc.                    A 532080
Side of Parodies
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Would You By a Used Car                           National Lampoon, Inc.                    A 317995
From This Man?
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon:  a Dirty                        National Lampoon, Inc.                    A 728026
Book
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Art Poster Book                                   National Lampoon, Inc.                    A 694476
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon:  The                            National Lampoon, Inc.                    A 764189
Best of No. 6
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon Presents                         National Lampoon, Inc.                    A 854544
the Naked and the Nude
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon, the                             National Lampoon, Inc.                    A 578840
Paperback Conspiracy
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon:  the                            National Lampoon, Inc.                    A 529031
Best of Number 4, Vol. 1,
No. 5
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon:  The                            National Lampoon, Inc.                    A 681033
Gentleman's Bathroom
Companion
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
The 199th Birthday Book                           National Lampoon, Inc.                    A 741350
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
The Job of Sex:  A                                National Lampoon, Inc.                    A 550712
Workingman's Guide to
Productive Lovemaking
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       13




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
Missing White House Tapes;                        National Lampoon, Inc.                    DU 89349          01/30/1974
Impeachment Day Ceremonies
Script
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon 1964 High                        National Lampoon, Inc.                    A 541513
School Yearbook Parody
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon Presents                         National Lampoon, Inc.                    A 828588
the Up Yourself Book
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
The Breast of National                            National Lampoon, Inc.                    A 377706
Lampoon; a Collection of
Sexual Humor
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon Comics                           National Lampoon, Inc.                    A 572874
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
The National Lampoon                              National Lampoon, Inc.                    A 479368
Encyclopedia of Humor
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon comedy                           National Lampoon, Inc.                 PAu-1-434-923        09/20/1990
playoffs.
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon, another                         National Lampoon, Inc.                   TX-232-406         03/29/1979
dirty book
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon Sunday                           National Lampoon, Inc.                   TX-347-662         08/31/1979
newspaper parody
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       14




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
National Lampoon, slightly                        National Lampoon, Inc.                   TX-365-426         11/07/1979
higher in Canada:  an
unassuming anthology of
Canadian-type material
from the pages of the
National Lampoon
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
The Iron on book:  sixteen                        National Lampoon, Inc.                   TX-379-403         08/31/1979
original designs for your
chest
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
The National Lampoon's                            National Lampoon, Inc.                   TX-384-974         11/19/1979
Animal house book
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon's                                National Lampoon, Inc.                   TX-396-473         11/05/1979
Cartoons even we wouldn't
dare print:  a collection
of thoroughly
reprehensible cartoons
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Jeff Greenfield's Book of                         National Lampoon, Inc.                   TX-402-260         11/16/1979
books
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon's tenth                          National Lampoon, Inc.                   TX-540-642         03/25/1980
anniversary anthology
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon foto                             National Lampoon, Inc.                   TX-544-611         07/08/1980
funnies
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon true facts                       National Lampoon, Inc.                   TX-808-981         12/03/1981
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       15




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
Hitler's favorite cartoons                        National Lampoon, Inc.                   TX-907-682         04/21/1982
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon peekers                          National Lampoon, Inc.                   TX-945-741         06/23/1982
and other true facts
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon son of                           National Lampoon, Inc.                  TX-1-622-171        07/25/1985
cartoons even we wouldn't
dare print II:  a sequel
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon dirty                            National Lampoon, Inc.                  TX-1-797-519        04/15/1986
joke book
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon true                             National Lampoon, Inc.                  TX-2-906-982        08/07/1990
facts 1991 calendar
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon presents                         National Lampoon, Inc.                  TX-3-159-281        04/26/1991
true facts:  the book
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon true                             National Lampoon, Inc.                  TX-3-223-950        09/12/1991
facts 1992 calendar
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon presents                         National Lampoon, Inc.                  TX-3-273-518        03/17/1992
More true facts:  an
all-new collection of
absurd-but-true real-life
funny stuff
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon's Truly                          National Lampoon, Inc.                  TX-3-462-011        10/23/1992
tasteless cartoons:  the
best of the worst
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       16




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
That's sick:  The National                        National Lampoon, Inc.                  TX-3-799-435        04/14/1994
lampoon's rudest and
crudest cartoons
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                   TX 244-608         03/14/1979
                             -------------------- ------------------------------------ ------------------- -----------------
                                                                                           TX 244-607         03/14/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 244-606         03/14/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 244-605         03/14/1979
                             -------------------- ------------------------------------ ------------------- -----------------
                                                                                           TX 244-604         03/14/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 244-603         03/14/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 244-600         03/14/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 244-601         03/14/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 244-602         03/14/1979
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                   TX 347-663         03/14/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 347-668         03/14/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 347-672         03/14/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 347-669         05/03/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 347-667         05/03/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 347-666         05/01/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 347-673         05/01/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 347-674         05/01/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 347-664         09/04/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 347-665         09/04/1979
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       17




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
                                                                                           TX 347-670         09/05/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 347-671         09/05/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 360-828         10/19/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 360-829         10/19/1979
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                   TX 418-860         12/14/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 418-861         02/21/1980
                             -------------------- ------------------------------------ ------------------- -----------------
                                                                                           TX 418-862         02/21/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 424-859         02/21/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 483-274         03/24/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 486-569         05/29/1980
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                   TX 509-660         04/21/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 521-123         07/07/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 518-472         07/28/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 537-416         09/08/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 592-060         12/05/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 581-606         11/10/1980
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                   TX 644-795         12/01/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 644-828         01/05/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 675-911         04/23/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 644-829         01/26/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 671-101         03/03/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 675-910         03/30/1981
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------




                                       18




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
                                                                                           TX 689-192         05/01/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 706-321         05/22/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 718-965         06/25/1981
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                   TX 740-533         07/27/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 750-923         08/24/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 775-880         09/28/1981
                             -------------------- ------------------------------------ ------------------- -----------------
                                                                                           TX 789-928         10/23/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 823-506         12/30/1981
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                   TX 871-131         01/21/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 854-039         02/26/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 879-048         03/31/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 895-622         04/21/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 916-440         05/24/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 923-569         06/23/1982
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                   TX 808-982         11/27/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 938-965         07/26/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 973-106         08/25/1982
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-004-476        09/27/1982
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-004-477        10/25/1982
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-011-809        11/26/1982
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 1-054-013        12/27/1982
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-053-080        01/28/1983
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       19




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
                                                                                          TX 1-062-587        03/01/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-089-298        04/05/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-106-578        04/25/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-119-853        05/27/1983
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 1-190-353        06/24/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-194-913        07/25/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-193-077        08/25/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-204-103        10/03/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-230-792        10/31/1983
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 1-251-409        12/09/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-272-725        01/06/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-275-407        01/30/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-303-745        03/05/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-326-005        03/29/1984
                             --------------------                                      ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 1-349-455        04/26/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-352-688        05/29/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-383-533        06/28/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-394-294        07/26/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-408-020        08/24/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-425-928        09/26/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-456-819        10/29/1984
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 1-476-774        11/26/1984
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       20




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
                                                                                          TX 1-497-995        01/14/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-515-582        01/29/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-527-380        03/12/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-553-740        04/03/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-566-445        05/02/1985
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 1-582-633        05/29/1985
                             -------------------- ------------------------------------ ------------------- -----------------
                                                                                          TX 1-617-807        06/25/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-634-940        07/29/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-658-436        08/28/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-662-714        09/20/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-688-882        10/28/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-702-932        12/02/1985
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 1-723-939        12/23/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-744-842        01/27/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-791-363        02/26/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-794-559        04/07/1986
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 1-858-428        05/27/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-841-564        06/09/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-885-884        08/13/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-890-213        08/13/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-919-800        09/22/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-936-540        10/20/1986
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       21




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
National Lampoon                                  National Lampoon, Inc.                  TX 2-001-853        12/30/1986
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 2-142-606        09/21/1987
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-165-789        10/07/1987
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-171-738        10/28/1987
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 2-280-402        04/11/1988
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-280-401        04/11/1988
                             -------------------- ------------------------------------ ------------------- -----------------
                                                                                          TX 2-215-857        12/21/1987
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-218-600        12/24/1987
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-246-544        02/18/1988
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-299-669        04/18/1988
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 2-368-614        03/25/1988
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-368-620        03/25/1988
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-336-235        06/13/1988
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-376-066        08/22/1988
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 2-502-608        02/24/1989
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-526-863        11/02/1988
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-466-526        12/23/1988
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-465-327        12/23/1988
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-499-560        02/23/1989
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-528-082        04/14/1989
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 2-579-005        06/14/1989
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-620-993        08/18/1989
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       22




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
                                                                                          TX 2-670-005        10/27/1989
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 2-708-426        12/29/1989
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-811-501        04/23/1990
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-811-500        04/23/1990
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 2-858-033        07/17/1990
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-878-499        08/24/1990
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-924-929        10/30/1990
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 3-032-465        04/03/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-032-466        04/03/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-034-811        04/03/1991
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon                                  National Lampoon, Inc.                  TX 3-097-183        05/01/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-128-004        08/27/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-132-814        08/21/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-136-111        08/28/1991
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon best of                          National Lampoon, Inc.                   TX 347-661         08/31/1979
number . . .
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon best of                          National Lampoon, Inc.                   TX 418-992         08/31/1979
number . . .
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon best of                          National Lampoon, Inc.                   TX 810-136         12/10/1981
number . . .
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Gentleman's bathroom                              National Lampoon, Inc.                   TX 418-991         08/31/1979
companion . . .
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon . . .                            National Lampoon, Inc.                   TX 521-124         06/19/1980
anniversary anthology
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       23




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
                                                                                           TX 580-087         11/06/1980
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
National Lampoon All-new                          National Lampoon, Inc.                  TX 1-937-589        10/21/1986
true facts . . .
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
The National Lampoon                              National Lampoon, Inc.                  TX 3-243-157        02/12/1992
Treasury of Humor
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
That's sick:  The National                        National Lampoon, Inc.                  TX 3-799-435        04/14/1994
Lampoon's rudest and
crudest cartoons
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                   TX 141-752         03/10/1978
                             --------------------                                      ------------------- -----------------
                                                                                           TX 141-751         03/10/1978
                             --------------------                                      ------------------- -----------------
                                                                                           TX 141-750         03/10/1978
                             --------------------                                      ------------------- -----------------
                                                                                           TX 113-307         08/01/1978
                             --------------------                                      ------------------- -----------------
                                                                                           TX 117-728         09/28/1978
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                   TX 230-188         07/03/1978
                             --------------------                                      ------------------- -----------------
                                                                                           TX 230-189         07/03/1978
                             --------------------                                      ------------------- -----------------
                                                                                           TX 230-190         07/03/1978
                             --------------------                                      ------------------- -----------------
                                                                                           TX 230-191         07/03/1978
                             --------------------                                      ------------------- -----------------
                                                                                           TX 212-254         08/30/1978
                             --------------------                                      ------------------- -----------------
                                                                                           TX-212-253         11/15/1978
                             --------------------                                      ------------------- -----------------
                                                                                           TX-240-977         05/04/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 263-685         02/01/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX-254-991         02/08/1979
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       24




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
                                                                                           TX 277-479         07/03/1979
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                   TX 307-041         05/04/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 330-366         09/14/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 288-211         05/15/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 342-498         10/05/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 342-499         10/05/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 315-700         08/15/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 321-276         09/04/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 345-419         10/05/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 362-170         11/05/1979
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                   TX 461-212         11/19/1979
                             --------------------                                      ------------------- -----------------
                                                                                           TX 403-640         01/10/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 444-814         03/25/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 461-213         03/24/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 444-813         03/25/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 463-862         04/21/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 474-389         05/19/1980
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                   TX 510-133         06/19/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX-529-905         08/11/1980
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                   TX 628-621         10/31/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 628-620         10/31/1980
                             --------------------                                      ------------------- -----------------
                                                                                           TX 628-619         10/31/1980
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       25




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
                                                                                           TX 716-913         04/03/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 716-914         04/03/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 716-912         04/03/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 705-631         04/01/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 720-512         06/19/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 718-850         06/18/1981
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                   TX 744-974         04/01/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 752-833         07/28/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 760-062         09/08/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 772-506         09/28/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 808-343         11/23/1981
                             --------------------                                      ------------------- -----------------
                                                                                           TX 803-073         11/23/1981
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                   TX 826-660         12/17/1981
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                           TX 844-264         01/27/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 853-885         02/16/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 888-162         04/12/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 905-724         05/13/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 921-984         06/17/1982
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                   TX 956-852         08/09/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 965-368         09/08/1982
                             --------------------                                      ------------------- -----------------
                                                                                           TX 961-553         08/26/1982
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       26




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
                                                                                           TX 980-776         09/23/1982
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                  TX 1-074-929        10/15/1982
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-116-447        05/19/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-051-494        01/21/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-124-575        05/19/1983
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                  TX 1-136-605        11/16/1982
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-143-785        02/14/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-133-247        04/25/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-133-248        04/25/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-167-089        07/19/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-162-199        07/18/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-203-083        09/23/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-203-088        09/23/1983
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                  TX 1-256-837        12/07/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-249-255        12/05/1983
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-281-944        02/03/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-284-550        02/03/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-299-064        02/03/1984
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                  TX 1-395-577        05/21/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-352-273        05/21/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-352-250        05/21/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-392-501        07/20/1984
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       27




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
                                                                                          TX 1-433-721        09/24/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-398-583        07/20/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-451-520        10/12/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-446-273        10/12/1984
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-451-513        10/15/1984
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                  TX 1-560-747        04/25/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-571-973        04/25/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-566-298        04/25/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-566-297        04/25/1985
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-562-352        04/25/1985
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                  TX 1-624-872        07/12/1985
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                  TX 1-948-492        11/28/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-948-493        11/28/1986
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                  TX 1-954-688        12/03/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-954-653        12/03/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-986-533        12/03/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-986-532        12/03/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-954-150        12/01/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-954-149        12/01/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-964-852        12/15/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-964-855        12/16/1986
                             --------------------                                      ------------------- -----------------
                                                                                          TX 1-964-853        12/15/1986
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       28




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
Heavy Metal                                       National Lampoon, Inc.                  TX 2-130-268        08/19/1987
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-136-702        08/19/1987
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-134-966        08/19/1987
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                  TX 2-879-177        08/06/1990
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-882-592        08/06/1990
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-879-582        08/06/1990
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-938-906        09/26/1990
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                   TX 19-219          03/09/1978
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-020-452        01/23/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-988-990        01/23/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-041-468        01/23/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-041-467        01/23/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-003-884        01/23/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 2-995-258        01/23/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-020-454        01/23/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-020-453        01/23/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-055-982        02/12/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-003-108        02/12/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-064-954        05/20/1991
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Heavy Metal                                       National Lampoon, Inc.                  TX 3-087-955        06/05/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-137-047        09/05/1991
                             --------------------                                      ------------------- -----------------
                                                                                          TX 3-162-297        09/30/1991
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------



                                       29




- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
           TITLE                 DESCRIPTION                   CLAIMANT                     REG. NO.          REG. DATE
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
                                                                                                  
The Best Of Heavy Metal                           National Lampoon, Inc.                  TX 2-134-970        08/19/1987
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
My bod is for God                                 National Lampoon, Inc.                  PAu-424-054         07/29/1982
- ---------------------------- -------------------- ------------------------------------ ------------------- -----------------
Apocalypso now                                    National Lampoon, Inc.                  PAu-424-055         07/29/1982

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




                                       30


3.       Federal Trademark and Service Mark Registrations:



- ----------------------------- ---------------- ------------------------ ----------------------- ----------------------
     TRADEMARK/SERVICE          REGISTRANT         DESCRIPTION OF          REGISTRATION NO.       REGISTRATION DATE
            MARK                                   GOODS/SERVICES
- ----------------------------- ---------------- ------------------------ ----------------------- ----------------------
                                                                                         
NATIONAL LAMPOON              National         Magazine in                     907,211               02/02/1971
                              Lampoon, Inc.    International Class 16

                              National
                              Lampoon, Inc.

NATIONAL                                       Burly Bear and
LAMPOON                                        National Lampoon
                                               Networks shows
- ----------------------------- ---------------- ------------------------ ----------------------- ----------------------
HALF BAKED                    National         Entertainment, namely          2,183,937              08/25/1998
                              Lampoon          a continuing comedy
                              Networks, Inc.   show distributed over
                              (by assignment   television, satellite,
                              from Burly       audio an video media
                              Bear Networks,
                              Inc., on
                              9/30/2002)
- ----------------------------- ---------------- ------------------------ ----------------------- ----------------------



                                       31




- ----------------------------- ---------------- ------------------------ ----------------------- ----------------------
     TRADEMARK/SERVICE          REGISTRANT         DESCRIPTION OF          REGISTRATION NO.       REGISTRATION DATE
            MARK                                   GOODS/SERVICES
- ----------------------------- ---------------- ------------------------ ----------------------- ----------------------
                                                                                         
BURLYVISION                   National         Entertainment services         2,417,408              01/02/2001
                              Lampoon          in the nature of a
                              Networks, Inc.   television show
                              (by assignment   featuring the best in
                              from Burly       student and
                              Bear Networks,   independent film work
                              Inc., on         distributed over
                              9/30/2002)       television, satellite,
                                               audio and video media,
                                               and via the global
                                               computer network
- ----------------------------- ---------------- ------------------------ ----------------------- ----------------------
STRIPPED DOWN                 National         Entertainment, namely,         2,418,998              01/09/2001
                              Lampoon          a continuing talk show
                              Networks, Inc.   in the field of drug
                              (by assignment   abuse, abortion and
                              from Burly       youth issues,
                              Bear Networks,   targeting college
                              Inc., on         students, distributed
                              9/30/2002)       over television,
                                               satellite, audio and
                                               video media, and via a
                                               global computer network
- ------------------------------ ------------------ ----------------------- --------------------- ----------------------



                                       32




- ----------------------------- ---------------- ------------------------ ----------------------- ----------------------
     TRADEMARK/SERVICE          REGISTRANT         DESCRIPTION OF          REGISTRATION NO.       REGISTRATION DATE
            MARK                                   GOODS/SERVICES
- ----------------------------- ---------------- ------------------------ ----------------------- ----------------------
                                                                                         
PRESS JUNKY                    National Lampoon   Entertainment                2,419,086             01/09/2001
                               Networks, Inc.     services in the
                               (by assignment     nature of a show
                               from Burly Bear    featuring interviews
                               Networks, Inc.,    and promotion movies
                               on 9/30/2002)      distributed over
                                                  television,
                              satellite, audio and
                              video media, and via
                               the global computer
                                                  network.
- ------------------------------ ------------------ ----------------------- --------------------- ----------------------
LAARR'S LOUNGE                 National Lampoon   Entertainment                2,421,040             01/16/2001
                               Networks, Inc.     services in the
                               (by assignment     nature of a
                               from Burly Bear    television show
                               Networks, Inc.,    featuring the best in
                               on 9/30/2002)      student and
                                                  independent film work
                                                  distributed over television,
                                                  satellite, audio and video
                                                  media , and via the global
                                                  computer network.
- ------------------------------ ------------------ ----------------------- --------------------- ----------------------



                                       33




- ----------------------------- ---------------- ------------------------ ----------------------- ----------------------
     TRADEMARK/SERVICE          REGISTRANT         DESCRIPTION OF          REGISTRATION NO.       REGISTRATION DATE
            MARK                                   GOODS/SERVICES
- ----------------------------- ---------------- ------------------------ ----------------------- ----------------------
                                                                                         
BURLYTV                        National Lampoon   Entertainment                2,560,466             04/09/2002
                               Networks, Inc.     services, namely,
                               (by assignment     television
                               from Burly Bear    production,
                               Networks, Inc.,    programming, and
                               on 9/30/2002)      distribution services
- ------------------------------ ------------------ ----------------------- --------------------- ----------------------
BURLY BEAR NETWORK PRESENTS    National Lampoon   Entertainment in the         2,618,289             09/10/2002
CELEBRITY HIGHWAY (and         Networks, Inc.     nature of an animated
design)                        (by assignment     television comedy
                               from Burly Bear    series
                               Networks, Inc.,
                               on 9/30/2002)
- ------------------------------ ------------------ ----------------------- --------------------- ----------------------


4.       Internet domain name registrations:
         nationallampoon.com -- registered by J2 Communications
         nationalampoon.com -- registered by J2 Communications


                                       34

EX-10.5

                                                                    Exhibit 10.5

                               REPAYMENT GUARANTY

         THIS  REPAYMENT  GUARANTY  (the  "Guaranty")  is made as of January 27,
2005, by National Lampoon Networks,  Inc., a Delaware corporation,  and National
Lampoon Tours, Inc., a California corporation (collectively, jointly, severally,
and jointly  and  severally,  the  "Guarantor"),  whose  address is set forth in
Paragraph 9 hereof, in favor of N. WILLIAMS FAMILY INVESTMENTS, L.P., an Arizona
limited  partnership  ("Lender"),  whose address is c/o Lake City Bank, P.O. Box
11053, Fort Wayne, Indiana 46855.

         1. Except as otherwise provided in this Guaranty,  all terms defined in
that certain  Security  Agreement of even date herewith by and between  National
Lampoon, Inc., a Delaware corporation ("Borrower"), Guarantor, and Lender (as it
may be amended and modified from time to time) (the "Security  Agreement") shall
have the same meaning when used in this Guaranty. Such defined terms are denoted
in the Security Agreement and in this Guaranty by initial capital letters.

         2. In order to induce Lender to loan to Borrower the sum of Two Million
Seven Hundred Thousand and No/100 Dollars  ($2,700,000.00)  (the "Loan"),  to be
evidenced  by that  certain  Secured  Promissory  Note (the "Note") of even date
herewith,  executed  by Borrower  and payable to the order of Lender,  Guarantor
hereby  unconditionally  and irrevocably,  jointly and severally,  guarantees to
Lender and to its  successors,  endorsees  and/or  assigns,  the full and prompt
payment of the principal sum of the Note in accordance  with its terms when due,
by acceleration or otherwise,  together with all interest accrued  thereon,  the
full and prompt  payment of all other sums,  together with all interest  accrued
thereon,  when due  under  the  terms  of the  Note,  and in any deed of  trust,
security  agreement,  and  other  assignment  or  agreement  referred  to in the
Security  Agreement and/or now or hereafter  securing the Note, or setting forth
obligations of Borrower in connection with the Loan (which  documents,  together
with the Note and the Security Agreement, are collectively referred to herein as
the "Loan Documents").  The obligations  guaranteed pursuant to this Paragraph 2
are hereinafter referred to as the "Guaranteed Obligations".  All payments under
this  Guaranty  shall be made to Lender in lawful money of the United  States of
America at the address of Lender at the beginning of this Guaranty or such other
location as Lender may  designate  in  writing.  Any amount  payable  under this
Guaranty  not paid when due and any  judgment  for such an amount  and  interest
thereon  shall bear  interest at the default rate set forth in the Note from the
due date or such  judgment  date,  respectively,  until such amount and interest
thereon are paid in full.  Guarantor agrees to pay such interest on demand.  All
Guaranteed   Obligations  will  be  paid  and  performed  by  Guarantor  without
counterclaim, deduction, defense, deferment, reduction or set-off.

         3. Each Guarantor agrees, represents and warrants to Lender as follows:

                  (a) Guarantor  shall continue to be liable under this Guaranty
and the provisions hereof shall remain in full force and effect  notwithstanding
(i) any modification,  agreement or stipulation  between Borrower and Lender, or
their respective  successors and assigns,  with respect to the Loan Documents or
the  obligations  encompassed  thereby,   including,   without  limitation,  the
Guaranteed Obligations; (ii) Lender's waiver of or failure to enforce any of the



terms,  covenants  or  conditions  contained  in the  Loan  Documents  or in any
modification thereof;  (iii) any release of Borrower or any other guarantor from
any liability with respect to the Guaranteed Obligations; or (iv) any release or
subordination  of any real or personal  property then held by Lender as security
for the performance of the Guaranteed Obligations.

                  (b)  Guarantor's  liability under this Guaranty shall continue
until  all sums due  under  the  Note  have  been  paid in full  and  until  all
Guaranteed Obligations of Borrower to Lender have been satisfied,  and shall not
be reduced by virtue of any payment by Borrower of any amount due under the Note
or under any of the Loan Documents or by Lender's  recourse to any collateral or
security,  except  to the  extent  that  such  payment  or  collateral  has been
indefeasibly  paid to or obtained by Lender,  and applied against the Guaranteed
Obligations of Borrower.  Each Guarantor  acknowledges that Lender may apply any
payment made by Borrower to Lender to any obligation of Borrower to Lender under
the terms of any Loan  Documents  in such  amounts and such manner as Lender may
elect,  regardless of whether such application  complies with any instruction or
designation  given or made by Borrower  with  respect to such payment and agrees
that  any  such  application  shall  not in any  manner  reduce,  extinguish  or
otherwise affect the liability of the Guarantor or any one of them hereunder.

                  (c)  Guarantor  warrants and  represents to Lender that it now
has  and  will  continue  to  have  full  and  complete  access  to any  and all
information  concerning the  transactions  contemplated by the Loan Documents or
referred  to  therein,  the  value  of the  assets  owned or to be  acquired  by
Borrower,  Borrower's  financial  status and its  ability to pay and perform the
Guaranteed Obligations owed to Lender. Guarantor further warrants and represents
that it has approved  copies of the Loan  Documents and is fully informed of the
remedies Lender may pursue, with or without notice to Borrower,  in the event of
default under the Note or other Loan Documents. So long as any of the Guaranteed
Obligations remains unsatisfied or owing to Lender,  Guarantor shall keep itself
fully  informed  as to all aspects of  Borrower's  financial  condition  and the
performance of the Guaranteed Obligations.

                  (d)  Guarantor has filed or caused to be filed all tax returns
(federal,  state,  or local)  required to be filed by Guarantor and has paid all
taxes and other amounts shown thereon to be due (including,  without limitation,
any interest or penalties).

                  (e) Guarantor understands the Obligations of Borrower pursuant
to the Loan  Documents  and the  Guaranteed  Obligations  and has had  access to
information  about the  financial  condition  of  Borrower  and the  ability  of
Borrower to perform the Obligations of Borrower pursuant to the Loan Documents.

                  (f)  Guarantor  is providing  this  Guaranty at the request of
Borrower   in  order  to  induce   Lender  to  extend  or   continue   financial
accommodations to Borrower.

         4. The  liability  of  Guarantor  under this  Guaranty is a guaranty of
payment and not of collectability, and is not conditioned or contingent upon the
genuineness,  validity,  regularity or  enforceability  of the Loan Documents or
other  instruments  relating to the creation or  performance  of the  Guaranteed

                                       2


Obligations  or the  pursuit by Lender of any  remedies  which it now has or may
hereafter have with respect thereto under the Loan Documents,  at law, in equity
or otherwise.

         5.  Guarantor  hereby  waives to the extent  permitted  by law: (i) all
notices to Guarantor,  to Borrower, or to any other person,  including,  but not
limited  to,  notices  of the  acceptance  of this  Guaranty,  or the  creation,
renewal, extension, modification or accrual of any of the Guaranteed Obligations
owed to Lender  and,  except to the  extent  set  forth in  Paragraph  7 hereof,
enforcement of any right or remedy with respect thereto, and notice of any other
matters  relating  thereto;  (ii) diligence and demand of payment,  presentment,
protest,  dishonor  and notice of  dishonor;  (iii) any  statute of  limitations
affecting  Guarantor's  liability hereunder or the enforcement thereof; and (iv)
all  principles  or  provisions  of law  which  conflict  with the terms of this
Guaranty.  Guarantor  further  agrees that Lender may enforce this Guaranty upon
the occurrence and during the continuation of an Event of Default under the Note
or the Loan Documents (as Event of Default is defined therein),  notwithstanding
the  existence  of any dispute  between  Borrower and Lender with respect to the
existence of the default or  performance  of the  Guaranteed  Obligations or any
counterclaim,  set-off or other claim which  Borrower may allege  against Lender
with respect thereto. Moreover,  Guarantor agrees that its obligations shall not
be affected by any circumstances which constitute a legal or equitable discharge
of a guarantor or surety.

         6. Guarantor  agrees that Lender may enforce this Guaranty  without the
necessity of resorting to or exhausting  any security or collateral  and without
the necessity of enforcing any other guaranty or proceeding  against Borrower or
any other guarantor,  including  without  limitation,  any other Guarantor named
herein.  Guarantor  hereby waives the right to require Lender to proceed against
Borrower,  to proceed against any other guarantor,  including without limitation
any other Guarantor named herein,  to foreclose any lien on any real or personal
property,  to exercise any right or remedy under the Loan  Documents,  to pursue
any other remedy or to enforce any other right.

         7. (a) Guarantor  further  agrees that nothing  contained  herein shall
prevent Lender from suing on the Note or from exercising any rights available to
it thereunder or under any of the Loan Documents and that the exercise of any of
the aforesaid rights shall not constitute a legal or equitable  discharge of any
Guarantor.  Guarantor  hereby fully and completely  waives and  relinquishes any
right of  subrogation  against  Borrower  and  that  Guarantor  understands  and
acknowledges   that  Guarantor  may  therefore  incur  a  partially  or  totally
non-reimbursable liability hereunder; nevertheless,  Guarantor hereby authorizes
and  empowers  Lender  to  exercise,  in its sole  discretion,  any  rights  and
remedies,  or any  combination  thereof,  which may then be available to Lender,
since it is the intent and purpose of Guarantor that the  obligations  hereunder
shall  be   absolute,   independent   and   unconditional   under  any  and  all
circumstances.   For  example,  but  without  limiting  the  generality  of  the
foregoing,  under current California law (Section 580d of the California Code of
Civil  Procedure  ("CCP")  as  interpreted  in Union  Bank v.  Gradsky,  265 ---
Cal.App.2d  40  (1968)),  Guarantor  may be  entitled  to  assert a  defense  to
liability under this Guaranty if Lender  forecloses  nonjudicially  against real
property  security for the Loan.  By executing  this  Guaranty,  Guarantor:  (1)
waives and  relinquishes  that defense;  (2) agrees that it will not assert that

                                       3


defense in any action or  proceeding  which  Lender may commence to enforce this
Guaranty;  and (3) acknowledges and agrees that Lender is relying on this waiver
in making the Loan, and that this waiver is a material part of the consideration
which Lender is receiving for making the Loan.

                  (b)  Without   limiting  the   generality  of  the  foregoing,
Guarantor  waives all rights and defenses arising out of an election of remedies
by  Lender,  even  though  that  election  of  remedies,  such as a  nonjudicial
foreclosure with respect to security for a Guaranteed Obligation,  has destroyed
the Guarantor's rights of subrogation and reimbursement  against the Borrower by
the operation of Section 580d of the Code of Civil Procedure or otherwise.

                  (c)  Without   limiting  the   generality  of  the  foregoing,
Guarantor  hereby  expressly  waives any and all  benefits  and  defenses  under
California  Civil Code ("CC") Sections 2809,  2810, 2819, 2845, 2847, 2848, 2849
and 2850  including,  without  limitation,  the right to  require  Lender to (i)
proceed against Borrower or any other guarantor or pledgor, (ii) proceed against
or exhaust any security or collateral Lender may hold, or (iii) pursue any other
right or remedy for the benefit of Guarantor.  Guarantor  also hereby  expressly
waives any and all benefits and defenses  under (x) CCP Section 580a which would
otherwise limit  Guarantor's  liability after a nonjudicial  foreclosure sale to
the difference  between the  obligations  guaranteed  herein and the fair market
value of the property or interests sold at such  nonjudicial  foreclosure  sale,
(y) CCP Sections 580b and 580d,  which would  otherwise  limit Lender's right to
recover a deficiency  judgment with respect to purchase  money  obligations  and
after a  nonjudicial  foreclosure  sale,  respectively,  and (z) CCP Section 726
which, among other things,  would otherwise require Lender to exhaust all of its
security  before a personal  judgment may be obtained for a deficiency and would
limit Guarantor's  liability after a judicial foreclosure sale to the difference
between  the  obligations  guaranteed  herein and the fair  market  value of the
property or interests sold at such judicial  foreclosure  sale.  Notwithstanding
any  foreclosure  of the lien of any deed of trust or  security  agreement  with
respect to any or all of any real or personal property secured thereby,  whether
by the  exercise  of the  power of sale  contained  therein,  by an  action  for
judicial  foreclosure or by an acceptance of a deed in lieu of foreclosure,  and
notwithstanding  any  enforcement of any other  guaranty  executed in accordance
with the Loan, Guarantor shall remain bound under this Guaranty.

                  (d)   Guarantor   agrees  that  it  shall  have  no  right  of
subrogation,  reimbursement  or  contribution  against  Borrower  or against any
collateral  or  security  provided  for in the Loan  Documents  for  payment  or
performance of any right of subrogation,  reimbursement or contribution  against
Borrower now or in the future in  connection  with the  Guaranteed  Obligations.
Guarantor hereby forever waives and  relinquishes any and all such  subrogation,
reimbursement,   and  contribution   rights,   whether  or  not  the  Guaranteed
Obligations have been fully satisfied,  all obligations owed to Lender under the
Loan Documents have been fully performed and Lender has released, transferred or
disposed of all of its right, title and interest in such collateral or security.
Guarantor  further  agrees  that to the  extent  the  waiver  of its  rights  of
subrogation, reimbursement and/or contribution as set forth herein is found by a
court of  competent  jurisdiction  to be void or voidable  for any  reason,  any

                                       4


rights of  subrogation,  reimbursement  and/or  contribution  Guarantor may have
against  Borrower or against  any  collateral  or  security  shall be junior and
subordinate  to any rights  Lender may have  against  Borrower and to all right,
title and interest  Lender may have in such  collateral or security.  Lender may
use,  sell or  dispose  of any item of  collateral  or  security  as it sees fit
without regard to any subrogation, reimbursement and/or contribution rights that
Guarantor may have pursuant to the immediately preceding sentence,  and upon any
disposition  or sale,  any such  rights  of  subrogation,  reimbursement  and/or
contribution that Guarantor may have shall terminate. Guarantor understands that
it may record a Request for Notice of Default  pursuant to California Civil Code
ss. 2924b and thereby  receive  notice of any proposed  foreclosure  of any real
property  collateral  then securing the  Borrower's  obligations  under the Loan
Documents.  With  respect to the  foreclosure  of any  security  interest in any
personal property  collateral then securing the Guaranteed  Obligations,  Lender
agrees to give Guarantor ten (10) days' prior written notice,  in the manner set
forth in Paragraph 9 hereof,  of any sale or  disposition  of any such  personal
property  collateral,  other than collateral  which is perishable,  threatens to
decline speedily in value, is of a type customarily sold on a recognized market,
or is cash, cash equivalents, certificates of deposit or the like.

                  (e)   Guarantor's   sole  right  with   respect  to  any  such
foreclosure of real or personal property collateral shall be to bid at such sale
in accordance with applicable law. Guarantor acknowledges and agrees that Lender
may also bid at any such sale and in the event such collateral is sold to Lender
in whole or partial  satisfaction of the obligations  owed to Lender,  Guarantor
shall  not  have  any  further   right  or  interest   with   respect   thereto.
Notwithstanding  anything to the contrary contained herein, no provision of this
Guaranty  shall be deemed  to limit,  decrease,  or in any way to  diminish  any
rights of set-off  Lender may have with respect to any cash,  cash  equivalents,
certificates of deposit,  notes or the like which may now or hereafter be put on
deposit with Lender by Borrower or by Guarantor.

                  (f) To the extent any  dispute  exists at any time  between or
among any  guarantors  as to  Guarantor's  right to  contribution  or otherwise,
Guarantor  agrees to  indemnify,  defend and hold Lender  harmless for, from and
against any loss, damage,  claim, demand, cost or any other liability (including
reasonable  attorneys'  fees and  costs)  Lender  may suffer as a result of such
dispute.

                  (g) If from time to time Borrower  shall have  liabilities  or
obligations  to Guarantor,  such  liabilities  and  obligations  and any and all
assignments as security, grants in trust, liens, mortgages,  security interests,
other encumbrances, and other interests and rights securing such liabilities and
obligations  shall  at all  times  be  fully  subordinate  with  respect  to (i)
assignment as security, grant in trust, lien, mortgage, security interest, other
encumbrance,  and other  interest  and  right  (if any),  (ii) time and right of
payment and  performance,  and (iii) rights against any collateral  therefor (if
any), to payment and  performance in full of the Guaranteed  Obligations and the
right of  Lender  to  realize  upon any or all  security  for such  obligations.
Guarantor  agrees that such liabilities and obligations of Borrower to Guarantor
shall not be  secured  by any  assignment  as  security,  grant in trust,  lien,
mortgage, security interest, other encumbrance or other interest or right in any

                                       5


property,  interests  in  property,  or rights to property of Borrower  and that
Borrower shall not pay, and Guarantor shall not receive,  payments of any or all
liabilities  or  obligations  of Borrower to Guarantor  until after  payment and
performance of the  Guaranteed  Obligations  in full.  If,  notwithstanding  the
foregoing,  Guarantor receives any payment from Borrower,  such payment shall be
held in trust by Guarantor for the benefit of Lender,  shall be segregated  from
the other funds of Guarantor, and shall forthwith be paid by Guarantor to Lender
and applied to payment of the Guaranteed  Obligations,  whether or not then due.
To secure  the  Guaranteed  Obligations,  Guarantor  grants to Lender a lien and
security  interest in all  liabilities and obligations of Borrower to Guarantor,
in any  assignments as security,  grants in trust,  liens,  mortgages,  security
interests,   other  encumbrances,   other  interests  or  rights  securing  such
liabilities  and  obligations,  and in  all of  Guarantor's  right,  title,  and
interest in and to any payments,  property,  interests in property, or rights to
property  acquired  or  received by  Guarantor  from  Borrower in respect of any
liabilities or obligations of Borrower to Guarantor.

         8. (a) Guarantor warrants and represents that any financial  statements
of Guarantor heretofore delivered to Lender are true and correct in all material
respects.

                  (b)  Guarantor  covenants  and  agrees to  immediately  notify
Lender of any material adverse change in Guarantor's financial status.

         9. All  notices,  requests  and  demands  to be made  hereunder  to the
parties  hereto shall be in writing and shall be  delivered by hand,  or sent by
registered or certified mail, postage prepaid,  through the United States Postal
Service to the addresses  shown below or such other  addresses which the parties
may provide to one another in accordance  herewith.  Such notices,  requests and
demands,  if sent by mail,  shall be deemed given two (2) days after  deposit in
the United  States  mail,  and if  delivered  by hand shall be deemed given when
delivered.

                 To Guarantor:  National Lampoon Networks, Inc.,
                                10850 Wilshire Boulevard, Suite 1000
                                Los Angeles, California 90024
                                Attn:  President

                                National Lampoon Tours, Inc.,
                                10850 Wilshire Boulevard, Suite 1000
                                Los Angeles, California 90024
                                Attn:  President

                 To Lender:     N. Williams Family Investments, L.P.
                                c/o Lake City Bank
                                P.O. Box 11053
                                Fort Wayne, Indiana 46855
                                Attn:  Keith Davis, Trust Officer

         10. This  Guaranty  shall be binding  upon  Guarantor,  its  respective
successors  and  assigns  and  shall  inure  to  the  benefit  of and  shall  be
enforceable by Lender,  its successors,  endorsees and assigns.  As used herein,

                                       6


the singular  shall  include the plural,  and the  masculine  shall  include the
feminine and neuter and vice versa, if the context so requires.

         11. If any or all of the Guaranteed  Obligations are not paid when due,
Guarantor  agrees to pay all costs of enforcement and collection and preparation
therefore (including, without limitation, reasonable attorneys' fees) whether or
not any action or proceeding is brought (including, without limitation, all such
costs incurred in connection with any bankruptcy,  receivership,  or other court
proceedings (whether at the trial or appellate level)).

         12. THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF  CALIFORNIA,  WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES.

         13. This Guaranty is solely for the benefit of Lender,  its successors,
endorsees  and assigns,  and is not intended to nor shall it be deemed to be for
the benefit of any third party, including Borrower.

         14.  If  any   provision  of  this  Guaranty  is   unenforceable,   the
enforceability  of the other  provisions  shall not be  affected  and they shall
remain in full force and effect.

         15.  This  Guaranty  may be  executed  in  counterparts,  all of  which
executed counterparts shall together constitute a single document.

         16.  GUARANTOR,   AND,  BY  ACCEPTING  THIS  GUARANTY,   LENDER  HEREBY
VOLUNTARILY,  KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE  (WHETHER BASED UPON CONTRACT,  TORT
OR OTHERWISE)  BETWEEN OR AMONG THE  UNDERSIGNED AND LENDER ARISING OUT OF OR IN
ANY WAY RELATED TO THIS GUARANTY OR ANY OTHER RELATED  DOCUMENT.  THIS PROVISION
IS A MATERIAL  INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN OR
IN THE OTHER LOAN DOCUMENTS.



                         [SIGNATURES ON FOLLOWING PAGE]



                                       7


         IN WITNESS WHEREOF,  Guarantor has executed this Guaranty as of the day
and year first above written.


                                         NATIONAL LAMPOON NETWORKS, INC., A
                                         Delaware corporation



                                         By:
                                             -----------------------------------
                                         Name:
                                               ---------------------------------
                                         Title:
                                                --------------------------------


                                         NATIONAL LAMPOON TOURS, INC., A
                                         California corporation



                                         By:
                                             -----------------------------------
                                         Name:
                                               ---------------------------------
                                         Title:
                                                --------------------------------




                                       8

EX-10.6

                                                                    Exhibit 10.6

                                    GUARANTY

         In order to induce N. Williams Family Investments, L.P., an Arizona
limited partnership (hereinafter the "Holder"), to extend credit to National
Lampoon, Inc., a Delaware corporation (hereinafter the "Borrower"), pursuant to
the terms of that certain Secured Promissory Note of even date herewith for the
principal amount of Two Million Seven Hundred Thousand Dollars ($2,700,000)
executed by the Borrower in favor of the Holder (the "Note"), Daniel S. Laikin
and Timothy Durham (hereinafter referred to collectively as the "Guarantor"),
hereby absolutely, irrevocably, jointly and severally and unconditionally
guarantees to the Holder, its successors, endorsees, or assigns (i) the full and
complete performance of all of the obligations of the Borrower under Section 5.5
of the Note (the "Section 5.5 Obligations"), and (ii) upon the occurrence of any
default in the complete performance of any Section 5.5 Obligations, the full and
prompt payment of the principal sum of the Note in accordance with its terms
when due, by acceleration or otherwise, together with all interest accrued
thereon, all other sums when due under the terms of the Note, and all costs of
enforcement and collection and preparation therefor whether or not any action or
proceeding is brought. The Guarantor also agrees as follows:

         1. Default by Borrower. In the event of a default of Section 5.5 of the
Note by the Borrower, the Guarantor waives (a) any right to require the Holder
to bring any action against the Borrower or any other person, or (b) any
requirement that the Holder enforce, attempt to enforce or exhaust any of the
Holder's rights, benefits or privileges under the Note, by law or otherwise. The
Guarantor waives any requirement that a judgment first be sought or rendered
against the Borrower or that the Holder pursue any other remedy in the Holder's
power whatsoever.

         2. Duration of Guaranty. This Guaranty will take effect when received
by the Holder and will continue in full force until such time as all obligations
of the Borrower to the Holder under the Note are fully satisfied. Guarantor
agrees that nothing contained herein shall prevent Holder from suing on the Note
or from exercising any rights available to it thereunder and that the exercise
of any of the aforesaid rights shall not constitute a legal or equitable
discharge of any Guarantor.

         3. Guarantor's Liability Not Affected. The Guarantor's covenants,
agreements and obligations under this Guaranty shall in no way be released,
diminished, reduced, impaired or otherwise affected by reason of the happening
from time to time of any of the following things, for any reason, whether by
voluntary act, operation of law or order of any competent governmental authority
and whether or not the Guarantor is given any notice or is asked for or gives
any further consent: (a) the alteration, compromise, renewal, extension,
acceleration, or other change in the terms of the Note or any part thereof; (b)
the exchange, waiver, and/or release of any Collateral (as defined in the Note),
with or without the substitution of new collateral; (c) the release or waiver of
any obligation or duty to perform or observe any express or implied agreement,
covenant, term or condition imposed on the Borrower in the Note or by applicable
law; (d) the failure, omission, delay or refusal by the Holder to assert,
enforce, give notice of intent to exercise, or any other notice with respect to,
or exercise any right, privilege, power or remedy conferred on the Holder in the
Note or by law or action on the part of the Holder granting forbearance or
extension of any kind to the Borrower (this section does not waive the
requirement that the Holder give notice to the Borrower pursuant to the terms of
the Note); (e) failure by the Holder to notify, or timely notify, the Guarantor

                                       1


of any default or event of default (however denominated) under the Note; and (f)
release or substitution of any one or more of any other guarantors, including
any Guarantor named in this Guaranty.

         4. Acceptance by Guarantor. The Guarantor warrants that this Guaranty
has been accepted by the Guarantor.

         5. Guarantor's Waivers. The Guarantor waives any right to require the
Holder to: (a) give notice of acceptance of this Guaranty; (b) proceed directly
or at once against any person, including the Borrower, in the event of a breach
of Section 5.5 of the Note; (c) proceed directly against any other guarantor
(including any Guarantor named in this Guaranty) or any other person or (d)
pursue any other remedy in the Holder's power. In addition, the Guarantor
waives: (i) any statute of limitations affecting Guarantor's liability hereunder
or the enforcement hereof, (ii) all defenses and claims based upon the
principles of suretyship and/or guaranty, or (iii) any and all rights of
reimbursement, contribution, and subrogation, which Guarantor may now or
hereafter have against Borrower. Guarantor further agrees that, to the extent
the waiver of its rights of subrogation as set forth herein is found by a court
of competent jurisdiction to be void or voidable for any reason, any rights of
subrogation Guarantor may have against Borrower or against any Collateral shall
be junior and subordinate to any right Holder may have against Borrower and to
all right, title and interest Holder may have in any Collateral. Holder may use,
sell or dispose of any item of Collateral as it sees fit without regard to any
subrogation right Guarantor may have, and upon disposition or sale, any right of
subrogation Guarantor may have shall terminate.

         6. Guarantor's Understanding With Respect to Waivers. The Guarantor
warrants and agrees that each of the waivers set forth herein is made with the
Guarantor's full knowledge of its significance and consequences, and that under
the circumstances, including, without limitation, the fact that the intent and
purpose of the Guarantor in entering into the Guaranty is to absolutely,
irrevocably, unconditionally and jointly and severally guaranty (i) the
performance of Section 5.5 of the Note, and (ii) upon the occurrence of any
default of the Section 5.5 Obligations, the payment of all sums due under the
Note, the waivers are reasonable and not contrary to public policy or law. If
any of such waivers is determined to be contrary to any applicable law or public
policy, such waiver shall be effective only to the extent permitted by law.

         7. Joint and Several Liability if More than One Guarantor. If there is
more than one Guarantor under this Guaranty, all obligations herein contained
shall be deemed to be the joint and several obligations of each Guarantor.

         8. Guaranty of Payment. The liability of the Guarantor under this
Guaranty is a guaranty of payment and not of collectability, and is not
conditioned or contingent upon the genuineness, validity, regularity or
enforceability of the Note or other instruments relating to the creation or
performance of the obligations guaranteed hereby or the pursuit by Holder of any
remedies which it now has or may hereafter have with respect thereto under the
Note, at law, in equity or otherwise.

         9. Subordination. If from time to time Borrower shall have liabilities
or obligations to Guarantor, such liabilities and obligations and any and all
assignments as security, grants in trust, liens, mortgages, security interests,
other encumbrances, and other interests and rights securing such liabilities and

                                       2


obligations shall at all times be fully subordinate with respect to (i)
assignment as security, grant in trust, lien, mortgage, security interest, other
encumbrance, and other interest and right (if any), (ii) time and right of
payment and performance, and (iii) rights against any collateral therefor (if
any), to payment and performance in full of the obligations guaranteed hereby
and the right of Holder to realize upon any or all security for such
obligations.

         10. Notices. All notices, requests, instructions, consents and other
communications to be given pursuant to this Guaranty shall be in writing and
shall be deemed received (i) on the same day if delivered in person, by same-day
courier or by facsimile transmission so long as confirmation of such
transmission is received; (ii) on the next day if delivered by over-night mail
or courier; or (iii) on the date indicated on the return receipt, or if there is
no such receipt, on the third calendar day (excluding Saturdays and Sundays), if
delivered by certified or registered mail, postage prepaid, to the party for
whom intended to the following address;

         If to Holder:            N. Williams Family Investments, L.P.
                                  c/o Lake City Bank
                                  P. O. Box 11053
                                  Fort Wayne, Indiana
                                  46855 Attn: Keith Davis, Trust
                                  Officer

         If to Guarantor:         Daniel S. Laikin/Timothy Durham
                                  c/o National Lampoon, Inc.
                                  10850 Wilshire Boulevard, Suite 1000
                                  Los Angeles, California 90024
                                  Attn:  President

         Any party may, by written notice given to the other in accordance with
this Guaranty, change the address or facsimile number to which notices to such
party are to be sent.

         11. California Law Applicable. This Guaranty is governed by and
construed in accordance with the laws of the state of California, and any legal
or equitable actions shall be heard and in the courts of law of the State of
California. Every provision of this Guaranty is intended to be severable. In the
event any term or provision hereof is declared to be illegal or invalid, for any
reason whatsoever, by a court of competent jurisdiction, such illegality or
invalidity shall not affect the balance of the terms and provisions hereof,
which terms and provisions shall remain binding and enforceable.

         12. Successors and Assigns/Community Property. This Guaranty shall be
binding upon Guarantor, its successors and assigns and shall inure to the
benefit of and shall be enforceable by Holder, its successors, endorsees and
assigns. Any married person executing this Guaranty agrees that recourse may be
had against community assets and against his or her separate property for the
satisfaction of all obligations herein guaranteed.

         13. Intended Benefit. This Guaranty is solely for the benefit of
Holder, its successors, endorsees and assigns, and is not intended to nor shall
it be deemed to be for the benefit of any third party, including Borrower.

                                       3


         14. Time of Essence. Time is of the essence under this Guaranty and any
amendment, modification, or revision of this Guaranty.

         15. Complete Agreement/No Waivers Except in Writing. This writing is
intended by the parties to be an integrated and final expression of this
Guaranty and also is intended to be a complete and exclusive statement of the
terms of their agreement. No course of prior dealing between the parties, no
usage of trade, and no parole or extrinsic evidence of any nature shall be used
to supplement, modify or vary any of the terms hereof. There are no conditions
to the full effectiveness of this Guaranty. No provisions of this Guaranty or
rights of the Holder under this Guaranty can be waived, nor can the Guarantor be
released from its obligations under this Guaranty, except by a writing duly
executed by Holder.

         16. Counterparts. This Guaranty may be executed in counterparts, all of
which executed counterparts shall together constitute a single document.

         The Guarantor has executed this Guaranty on the 28th day of January
2005.


                                                     ---------------------------
                                                     Daniel S. Laikin


                                                     ---------------------------
                                                     Timothy Durham

         DO NOT DESTROY THIS GUARANTY; WHEN THE NOTE IS PAID, THIS GUARANTY MUST
         BE IMMEDIATELY SURRENDERED TO THE GUARANTOR FOR CANCELLATION.


                                       4

EX-10.7

                                                                    Exhibit 10.7

                             SUBORDINATION AGREEMENT

         This SUBORDINATION AGREEMENT ("Subordination  Agreement") is made as of
January 28, 2005, by NATIONAL LAMPOON, INC., a Delaware corporation (hereinafter
called "Borrower"),  and NATIONAL LAMPOON NETWORKS, INC., a Delaware corporation
(hereinafter called "Debtor"), in favor of N. WILLIAMS FAMILY INVESTMENTS, L.P.,
an Arizona limited partnership (hereinafter called "Lender").

                                    RECITALS

         A.  Debtor  is  indebted  to  Borrower,  as  successor  by merger to J2
Communications, Inc., a California corporation, pursuant to that certain General
Security  Agreement dated August,  2002 (the "Subordinate  Security  Agreement")
between  Borrower and Debtor,  as  evidenced by that certain  Demand Note in the
original   principal   amount  of  Two  Hundred   Thousand  and  No/100  Dollars
($200,000.00),  made by Debtor payable to the order of Borrower, as successor by
merger to J2  Communications,  Inc., a California  corporation (the "Subordinate
Note").

         B. Lender has agreed to extend  credit  (the  "Loan") to Borrower to be
evidenced by that certain  Secured  Promissory Note of even date herewith in the
principal  amount of Two  Million  Seven  Hundred  Thousand  and No/100  Dollars
($2,700,000.00), by Borrower payable to the order of Lender (the "Senior Note"),
and secured by that  certain  Security  Agreement  of even date  herewith by and
between  Borrower,  Debtor,  and  National  Lampoon  Tours,  Inc.,  a California
corporation,  as Grantors,  and Lender,  as Secured Party (the "Senior  Security
Agreement").

         C. It is a  condition  to the  making of the Loan,  that  Borrower  and
Debtor enter into this Subordination Agreement.

         D. In  order  to  induce  Lender  to enter  into  the  Senior  Security
Agreement, and to from time this time, or from time to time, at its option, make
loans or extend credit or other accommodations or benefits to or for the account
of Borrower,  with or without security, or to purchase or extend credit upon any
instrument  or writing in  respect  of which the  Borrower  may be liable in any
capacity in such manner and amount and upon terms and  conditions  as the Lender
may deem advisable,  and in consideration of any such loan, renewal or extension
of  credit  which  the  Lender  may  make,   the  Borrower  does  hereby  wholly
subordinate,   as  hereinafter   provided,   any  and  all  present  and  future
indebtedness of Debtor to Borrower,  absolute or contingent, and any instrument,
negotiable  or  otherwise,  evidencing  any such  indebtedness,  and all claims,
rights and remedies therefor,  including,  without  limitation,  the Subordinate
Security Agreement and the Subordinate Note (sometimes  hereinafter  referred to
as  "Subordinated  Indebtedness"),  to any and all  indebtedness  of Borrower to
Lender, whether now existing or hereafter arising, direct or indirect,  absolute
or  contingent,  joint  and  several,  secured  or  unsecured,  due or  not  due
(including,  without  limitation,  all  amounts due under the Senior  Note,  the
Senior Security Agreement, and any other documents,  instruments, and agreements
executed in connection therewith), and whether arising directly between Borrower
and Lender, or acquired outright,  conditionally or as collateral  security from
another by the Lender,  and any renewals,  modifications or extensions  thereof,
and any interest thereon, and all costs of collecting the same,  including,  but



not  limited  to  attorneys'  fees  incurred  by Lender  (sometimes  hereinafter
referred to as "Superior Indebtedness").

         NOW THEREFORE,  so long as Borrower is indebted to Lender on account of
Superior Indebtedness, the parties hereto undertake and agree as follows:

         1.       Subordinated  Indebtedness  shall,  at  all  times  and in all
                  respects,  be wholly  subordinate  and  inferior  in claim and
                  right to the Superior Indebtedness, and all claims, rights and
                  remedies therefor are hereby  subordinated and made subsequent
                  and  inferior  to the  Superior  Indebtedness  and any claims,
                  rights  and  remedies   arising  out  of,  or  in   connection
                  therewith.

         2.       So long as no Event of Default (as defined in the Senior Note)
                  or event  which  with  notice  or lapse of time or both  would
                  become an Event of Default  has  occurred  and is  continuing,
                  regularly  scheduled payments of principal and interest on the
                  Subordinated  Indebtedness  may be made by Debtor and accepted
                  by Borrower as such payments become due.

         3.       During any period that an Event of Default,  or an event which
                  with notice or lapse of time or both would  become an Event of
                  Default, has occurred and is continuing, Debtor shall not make
                  and Borrower shall not accept any payments with respect to the
                  Subordinated Indebtedness.

         4.       In the event of any  distribution,  division,  or application,
                  partial or complete, voluntary or involuntary, by operation of
                  law or otherwise,  of all or any part of the assets of Debtor,
                  or the proceeds thereof,  to creditors of Debtor, by reason of
                  the liquidation,  dissolution, or other winding up of Debtor's
                  business,   or  in  the  event  of  any  sale,   receivership,
                  insolvency or bankruptcy  proceedings by or against Debtor, or
                  assignment for the benefit of creditors, or of any proceedings
                  by or against  Debtor for any relief under any  bankruptcy  or
                  insolvency  laws,  or  relating  to  the  relief  of  debtors,
                  readjustment of indebtedness,  reorganizations,  arrangements,
                  compositions  or extensions,  or of any other event whereby it
                  becomes  necessary  or  desirable  to file or  present  claims
                  against Debtor for the purpose of receiving  payment  thereof,
                  or on account thereof, then and in any such event, any payment
                  or  distribution  of any kind or character,  either in cash or
                  other  property,  which shall be made or shall be payable with
                  respect to any Subordinated Indebtedness shall be paid over to
                  Lender  for   application  to  the  payment  of  the  Superior
                  Indebtedness, whether due or not due, and no payments shall be
                  made upon or in respect of  Subordinated  Indebtedness  unless
                  and until the Superior  Indebtedness  shall have been paid and
                  satisfied in full. In any such event, all claims of the Lender
                  and all  claims of the  Borrower  shall,  at the option of the
                  Lender,  forthwith  become due and payable  without  demand or
                  notice.

         5.       In order to protect  and enable  Lender to enforce  its rights
                  hereunder, or otherwise, Borrower hereby assigns to Lender all
                  of the  Subordinated  Indebtedness,  and all of the  claims of
                  Borrower against Debtor subordinated hereby, together with any
                  security   interest  of  Borrower   securing  the  payment  of

                                       2


                  Subordinated Indebtedness.  Lender shall not be under any duty
                  to take any action in connection with any of said  instruments
                  delivered or claims or security  therefor  assigned to it, and
                  shall  not  be   responsible  in  any  respect  in  connection
                  therewith  for action it may take or refrain from  taking,  or
                  otherwise, except for willful malfeasance.

         6.       Borrower  irrevocably  authorizes and empowers Lender,  or any
                  person Lender may  designate,  to act as attorney for Borrower
                  with full  power and  authority  in the name of  Borrower,  or
                  otherwise, to make and present such claims or proofs of claims
                  against Debtor on account of the Subordinated  Indebtedness as
                  Lender,  or its appointee,  may deem expedient and proper and,
                  if necessary,  to vote such claims in any  proceedings  and to
                  receive and collect any and all  dividends  or other  payments
                  and  disbursements  made thereon in whatever  form they may be
                  paid or issued, and to give acquittance  therefor and to apply
                  same to the Superior Indebtedness, and Borrower hereby agrees,
                  from  time to time and upon  request,  to  make,  execute  and
                  deliver  to  Lender  such  powers  of  attorney,  assignments,
                  endorsements,  proofs  of  claim,  pleadings,   verifications,
                  affidavits,  consents,  agreements or other instruments as may
                  be  requested  by  Lender  in order to  enable  the  Lender to
                  enforce  any and all  claims  upon,  or with  respect  to, the
                  Subordinated Indebtedness,  and to collect and receive any and
                  all  payments  or  distributions   which  may  be  payable  or
                  deliverable   at  any  time  upon  or  with   respect  to  the
                  Subordinated Indebtedness.

         7.       Should any  payment or  distribution  or  security or proceeds
                  thereof,  other than the  payments of  principal  and interest
                  permitted  pursuant  to  Paragraph  2 hereof,  be  received by
                  Borrower upon or with respect to the Subordinated Indebtedness
                  prior  to  the  satisfaction  of  the  Superior  Indebtedness,
                  Borrower  will  forthwith   deliver  the  same  to  Lender  in
                  precisely the form as received  except for the  endorsement or
                  assignment of Borrower where  necessary for application on the
                  Superior  Indebtedness,  whether due or not due,  and until so
                  delivered  the same  shall be held in  trust  by  Borrower  as
                  property  of the  Lender.  In the  event  of  the  failure  of
                  Borrower  to make  any such  endorsement  or  assignment,  the
                  Lender, or any of its officers or employees,  on behalf of the
                  Lender, is hereby irrevocably authorized to make the same.

         8.       No renewal,  modification  or  extension of time of payment of
                  the Superior Indebtedness,  and no release or surrender of any
                  security for the Superior Indebtedness,  or the obligations of
                  any endorsers, sureties or guarantors thereof, or release from
                  the terms of this or any other subordination  agreement of any
                  claims  subordinated,  and no delay or omission in  exercising
                  any right or power on  account  of or in  connection  with the
                  Superior Indebtedness,  or under this Subordination Agreement,
                  shall,  in any manner,  impair or affect the rights and duties
                  of Lender,  Debtor, and Borrower.  Lender, in its uncontrolled
                  discretion,  may waive or  release  any right or option  under
                  this  Subordination  Agreement without the consent of Borrower
                  or Debtor,  and without  otherwise  in any way  affecting  the
                  obligations  of Borrower and Debtor  hereunder.  Debtor hereby
                  waives  notice  of  the  creation,   existence,   renewal,  or
                  modification  or  extension  of the  time of  payment,  of the
                  Superior Indebtedness.

                                       3


         9.       The Debtor and  Borrower  agree to make and  maintain in their
                  books of  account  notations  satisfactory  to  Lender  of the
                  rights and  priorities of Lender  hereunder,  and from time to
                  time,   upon  request,   to  furnish   Lender  with  financial
                  statements  certified by the chief financial  officer.  Lender
                  may  inspect  the  books of  account  and any  records  of the
                  Borrower and Debtor at any time during  business  hours.  Upon
                  the request of Lender,  Borrower and Debtor agree to cause all
                  Subordinated Indebtedness to be evidenced by the note or notes
                  of  Borrower  with such  maturity  date or dates as Lender may
                  request.  Such note or  notes,  together  with any  previously
                  existing notes or other  instruments  evidencing  Subordinated
                  Indebtedness,  shall be delivered to Lender and, at the option
                  of  Lender,  may be held by Lender  or  returned  to  Borrower
                  marked with a specific statement that the indebtedness thereby
                  evidenced is subject to the  provisions of this  Subordination
                  Agreement.

         10.      This Subordination  Agreement shall be a continuing  agreement
                  and Lender may continue, without notice to Borrower or Debtor,
                  to lend monies, extend credit and make other accommodations to
                  or for the account of Borrower on the faith hereof and until a
                  written revocation, signed by Borrower, is received by Lender.
                  Such revocation,  however, shall not affect this Subordination
                  Agreement  with respect to any  obligations  or liabilities of
                  Borrower   then   existing   in   connection   with   Superior
                  Indebtedness and, as to such obligations and liabilities, such
                  revocation  shall not become  effective  unless and until such
                  obligations  and  liabilities of Borrower to Lender shall have
                  been paid in full. If Debtor or Borrower is a partnership,  no
                  change in the  respective  partnership  shall affect the terms
                  hereof.

         11.      Borrower and Debtor  agree that  Lender,  at any time and from
                  time to time,  either  before  or after  any  such  notice  of
                  revocation,  may enter into such agreement or agreements  with
                  Borrower,  as Lender may deem  proper,  extending  the time of
                  payment or renewing or otherwise  altering the terms of all or
                  any of the obligations of Borrower to Lender, or affecting any
                  security  underlying  any or all of such  obligations,  or may
                  exchange,  sell or surrender  or otherwise  deal with any such
                  security, or may release any balance of funds of Borrower with
                  Lender,  without  notice to  Borrower or Debtor and without in
                  any way impairing or affecting this Subordination Agreement.

         12.      Borrower  and  Debtor  consent  and  agree  that all  Superior
                  Indebtedness  shall be deemed to have been made or incurred at
                  the request of Borrower  and Debtor and in reliance  upon this
                  Subordination Agreement.

         13.      No  waiver  shall be deemed to be made by Lender of any of its
                  rights hereunder unless the same shall be in writing signed on
                  behalf of the Lender, and each such waiver, if any, shall be a
                  waiver only with respect to the specific  matter or matters to
                  which the waiver relates and shall in no way impair the rights
                  of the  Lender or the  obligations  of  Borrower  or Debtor to
                  Lender in any other respect at any other time.

                                       4


         14.      This  Subordination  Agreement  shall  inure to the benefit of
                  Lender and the  successors  and  assigns  of  Lender,  and any
                  financing  institution  joining  in  making  said  loan(s)  or
                  extending said line(s) of credit, or committing itself to make
                  any  advances in  connection  therewith,  or which may now, or
                  hereafter,  participate therein.  Notice of acceptance of this
                  Subordination    Agreement   is   hereby   waived   and   this
                  Subordination Agreement shall be binding upon the Borrower and
                  Debtor,  their  respective  heirs,  personal  representatives,
                  successors  and  assigns,   as  the  case  may  be,  it  being
                  understood,  however,  that no assignment of the  Subordinated
                  Indebtedness  due Borrower  from Debtor,  or any part thereof,
                  shall be made to one not a party  hereto  without  the written
                  consent of the Lender first had and obtained,  as  hereinabove
                  provided.

         15.      Borrower  agrees  not to  commence  or  join  with  any  other
                  creditor   of   Debtor   in   commencing    any    bankruptcy,
                  reorganization or insolvency proceedings against Debtor.

         16.      This  Subordination  Agreement  shall be  deemed  to have been
                  executed, delivered and performed in California, and construed
                  according to the laws of the State of  California.  Debtor and
                  Borrower  waive  notice  of  acceptance  hereof  and all other
                  notices or demands whatsoever.

         17.      In the event of a breach of any  covenant  or  agreement  made
                  herein  by either  Debtor  or  Borrower,  Lender  may,  at its
                  option,  declare  all  of  the  Superior  Indebtedness  and/or
                  Subordinated Indebtedness immediately due and payable.

         18.      The words "Debtor" and "Borrower" as herein used shall include
                  the plural as well as the singular  and, if Debtor or Borrower
                  includes two (2) or more,  they shall be jointly and severally
                  bound hereby.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



                                       5


         IN WITNESS WHEREOF, this Subordination Agreement has been duly executed
as of the date first written above.

                                         NATIONAL LAMPOON, INC., a Delaware
                                         corporation



                                         By:
                                            -----------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------

                                                                     "Borrower"



                                         NATIONAL LAMPOON NETWORKS, INC., a
                                         Delaware corporation



                                         By:
                                            -----------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------

                                                                       "Debtor"




                                       6

EX-10.8

                                                                    Exhibit 10.8

                        TERMINATION OF SECURITY AGREEMENT

         This  Termination  of Security  Agreement is made and entered into this
28th day of January,  2005, by National  Lampoon,  Inc., a Delaware  corporation
(the "Company"), and James P. Jimirro ("Jimirro").

                                    RECITALS:

         WHEREAS,  Jimirro and the Company are parties to that certain  Security
Agreement dated May 17, 2002 (the "Security  Agreement"),  pursuant to which the
Company granted a security interest in its assets and property to secure,  among
other things,  the performance of the Company's  obligations to Jimirro pursuant
to that  certain  Employment  Agreement  dated  May 17,  2002  (the  "Employment
Agreement") between the Company and Jimirro;

         WHEREAS,  pursuant to Section  4(f) of the  Employment  Agreement,  the
Company has exercised its right to terminate the  Employment  Agreement and will
make a cash  payment to Jimirro in an amount  equal to Two Million  Five Hundred
Twenty-Three  Thousand  Eight Hundred  Dollars  ($2,523,800.00)  (the  "Required
Payment").

         WHEREAS,  pursuant to that certain Secured Promissory Note of even date
herewith,  issued by the Company to N. Williams  Family  Investments,  L.P. (the
"Lender"),  the Lender  has  provided  a loan,  secured by all of the  Company's
assets,  in the principal  amount of Two Million Seven Hundred  Thousand Dollars
($2,700,000.00) (the "Loan"), the proceeds from which will be used, in principal
part, to fund the Required Payment;

         WHEREAS,  as a  condition  to the  making of the Loan,  the  Lender has
required that the Security  Agreement be terminated and that Jimirro's  security
interest thereunder be released;

         NOW, THEREFORE,  the parties hereto agree as follows,  for the explicit
benefit of the Lender:

         1.  Termination and Release.  Notwithstanding  anything to the contrary
contained in the Security Agreement or otherwise,  subject to receipt by Jimirro
of the Required  Payment,  the  Security  Agreement  and any  security  interest
granted  thereunder are hereby terminated and released.  Each of the Company and
Jimirro shall  execute and file (and Jimirro  hereby  authorizes  the Company to
execute  and file on his  behalf)  such UCC  termination  statements  and  other
notices  or  instruments  and take  such  further  action  as may be  reasonably
requested  by Lender to reflect  the  termination  and  release of the  Security
Agreement and related  security  interest  pursuant hereto  (including,  without
limitation,  such  notices as may be required  to be filed in the United  States
Patent and  Trademark  Office or United States  Copyright  Office to reflect the
release of Jimirro's security interest in intellectual property of the Company).

         2. No Other Conditions. The foregoing termination and release shall not
be subject to or conditioned  upon the  performance or payment by the Company of
any existing or future  obligation  owed by the Company,  its  affiliates or any
other  person  to  Jimirro  or  his  assigns  (whether  constituting  a  secured
obligation under the Security Agreement or otherwise), other than the payment of
the Required Payment,  which shall be payable in immediately  available funds to
an account  designated by Jimirro in writing to the Company,  with a copy to the
Lender.



         IN WITNESS  WHEREOF,  the parties have  executed  this  Termination  of
Security Agreement as of the date first set forth above.

                                            NATIONAL LAMPOON, Inc., a Delaware
                                            corporation


                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------
                                            Title:
                                                  ------------------------------



                                            ------------------------------------
                                            James P. Jimirro



ACCEPTED AND AGREED:

N. Williams Family Investments, L.P.


By:
    --------------------------------
Name:
     -------------------------------
Title:
      ------------------------------



                                       2

EX-21

                                                                                EXHIBIT 21.

                           SUBSIDIARIES OF NATIONAL LAMPOON, INC.

- ------------------------------- ------------------------- ---------------------------------
       Name of Subsidiary          State of Incorporation              Business Name
- ------------------------------- ------------------------- ---------------------------------
                                                    
National Lampoon Networks, Inc.           Delaware               National Lampoon Networks
- ------------------------------- ------------------------- ---------------------------------
  National Lampoon Tours, Inc.           California                National Lampoon Tours
- ------------------------------- ------------------------- ---------------------------------

EX-23.1

To the Board of Directors
National Lampoon Inc. and Subsidiaries

Consent of Independent Registered Public Accountants

We consent to the  Incorporation  in this  Registration  Statement  of  National
Lampoon Inc. and  Subsidiaries,  on Form SB-2 to be filed with the Commission on
or about March 9, 2005 of our Independent  Registered  Public  Accounting Firm's
Report dated October 7, 2004 covering the consolidated  financial  statements of
National  Lampoon Inc. and  Subsidiaries for each of the two years in the period
ended July 31, 2004.

We also consent to the reference to us as experts in matters of  accounting  and
auditing in this registration statement.




CERTIFIED PUBLIC ACCOUNTS

/s/ Stonefield Josephson, Inc.

Santa Monica, California
March 9, 2005