-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UK+dmbtd7Xe3Bta5XeOHtqOlOxyN65lIQFE4mFtxpyATFc5hNZ3a+/N6kijyvXiC e156CmR9DZr6tk0p3ktRFg== 0001213900-09-002701.txt : 20091002 0001213900-09-002701.hdr.sgml : 20091002 20091002151756 ACCESSION NUMBER: 0001213900-09-002701 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20081031 FILED AS OF DATE: 20091002 DATE AS OF CHANGE: 20091002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL LAMPOON INC CENTRAL INDEX KEY: 0000798078 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 954053296 STATE OF INCORPORATION: CA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32584 FILM NUMBER: 091102116 BUSINESS ADDRESS: STREET 1: 8228 SUNSET BOULEVARD STREET 2: THIRD FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90046 BUSINESS PHONE: 3104745252 MAIL ADDRESS: STREET 1: 8228 SUNSET BOULEVARD STREET 2: THIRD FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90046 FORMER COMPANY: FORMER CONFORMED NAME: J2 COMMUNICATIONS /CA/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: J2 TELECOMMUNICATIONS DATE OF NAME CHANGE: 19890731 FORMER COMPANY: FORMER CONFORMED NAME: J2 COMMUNICATIONS DATE OF NAME CHANGE: 19880308 10-Q 1 f10q1008_natlampoon.htm QUARTERLY REPORT f10q1008_natlampoon.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: October 31, 2008
 
OR
o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________________ to _______________________________
 
Commission file number: 0-15284
 
NATIONAL LAMPOON, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of
Incorporation or organization)
95-4053296
(I.R.S. Employer
Identification No.)
8228 Sunset Boulevard
Los Angeles, CA 90046
(Address of principal executive offices)
(Zip Code)
(310) 474-5252
(Registrant's telephone number including area code)
 
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No [ (The registrant is not subject to this Regulation.)]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer o                                                                                                           Accelerated filer o

Non-accelerated filer   o                                                                                                            Smaller reporting company x
(Do not check if a smaller reporting company)                                                                                                                          

Indicate by check mark whether the registrant is a shell company (as defined in  Rule 12b-2 of the Exchange Act). Yes o No x
 
APPLICABLE ONLY TO CORPORATE ISSUERS
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.  The registrant had 9,499,495 shares of common stock, $0.0001 par value, issued and outstanding as of Sepember 24, 2009.
 
 

 
 
FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements”. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “may,” and other similar expressions identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to the following:

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

·
whether we will be able to raise capital as and when we need it,

·
whether the entertainment products we produce or to which we license our brand will generate significant sales,
 
·
our overall ability to successfully compete in our market and our industry,

·
whether we will continue to receive the services of our executive officers and directors, particularly our Chief Executive Officer, Tim Durham,
   
·
the outcome of various legal actions to which we are currently a party;
   
·
unanticipated increases in development, production or marketing expenses related to our various business activities,

and other factors, some of which will be outside our control. You are cautioned not to place undue reliance on these forward-looking statements, which relate only to events as of the date on which the statements are made.  We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.  You should refer to and carefully review the information in future documents we file with the Securities and Exchange Commission, including our Annual Report on Form 10-K.
 
 
 
 
PART I - FINANCIAL INFORMATION
 
Item 1 - Condensed Consolidated Financial Statements
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
  
   
As of
    
As of
  
   
October 31,
    
July 31,
  
 
  
2008
    
2008
  
   
(UNAUDITED)
        
ASSETS  
             
CURRENT ASSETS
            
Cash
   $ 2,287     $ 2,267  
Accounts receivable, net of reserves of $542,142 and $181,619, respectively
     793,021       1,640,994  
Canadian tax credits receivable
     203,889       226,729  
Prepaid expenses and other current assets
     66,681       78,464  
Total current assets
     1,065,878       1,948,454  
                 
Fixed assets, net of accumulated depreciation of $199,358 and $193,738, respectively
     40,455       39,283  
Capitalized production costs, net of $5,752,411 and $5,709,969 of amortization, respectively
     5,112,050       5,017,567  
Capitalized publishing costs, net of $500,372 and $496,477 of amortization, respectively
     117,158       104,278  
Intangible assets, net of accumulated amortization of $4,837,984 and $4,719,119, respectively
     1,838,005       1,956,871  
Fair value of available-for-sale securities
     235,385       588,461  
Total non-current assets
     7,343,053       7,706,460  
TOTAL ASSETS
   $ 8,408,931     $ 9,654,914  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)  
                 
CURRENT LIABILITIES
                
Accounts payable
   $ 1,810,669     $ 1,340,157  
Accrued expenses
     342,432       310,691  
Notes payable secured by Canadian tax credits receivable
     203,889       226,729  
Deferred income
     1,324,140       1,007,960  
Notes payable - related party, including interest of $85,521 and $64,036, respectively
     1,493,155       1,169,015  
Production loans – including interest of $1,151 and $0, respectively
     151,151       -  
Production loans – related party, including interest of $202,943 and $168,837, respectively
     1,124,029       1,147,763  
Total current liabilities
     6,449,465       5,202,315  
                 
Production loans – including interest of $12,986 and $0, respectively
     912,986       -  
Production loans – related party, including interest of $383,510 and $321,347, respectively
     2,016,684       2,145,204  
TOTAL LIABILITIES
     9,379,135       7,347,519  
                 
COMMITMENTS AND CONTINGENCIES
                
                 
SHAREHOLDERS' EQUITY  (DEFICIENCY)
                
Series B Convertible Preferred Stock, par value $.0001 per share, 68,406 shares authorized, 61,832 and 61,832 shares issued and outstanding, respectively
     6       6  
Series C Convertible Preferred Stock, par value $.0001 per share, 250,000 shares authorized, 190,247 and 190,247 shares issued and outstanding, respectively
     18       18  
Series D Convertible Preferred Stock, par value $.0001 per share, 500,000 shares authorized, 163,261 and 148,247 shares issued and outstanding, respectively
     16       15  
Common Stock, par value $.0001 per share, 60,000,000 shares authorized, 9,456,427 and 9,325,087 shares issued and outstanding, respectively
     946       933  
Common stock issuable, 859,886 and 812,143 shares of common stock, respectively
     1,201,468       1,161,364  
Additional paid-in capital
     43,798,465       43,500,856  
Accumulated Other Comprehensive income
     235,385       588,461  
Accumulated deficit
     (46,206,508 )     (42,944,258 )
TOTAL SHAREHOLDERS' EQUITY  (DEFICIENCY)
     (970,204 )     2,307,395  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  (DEFICIENCY)
   $ 8,408,931     $ 9,654,914  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
  
 
1
 

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  
UNAUDITED
  
   
 
  
   
Three months ended October 31,
  
   
2008
    
2007
  
             
REVENUES
            
Production
   $ 19,460     $ -  
Licensing
     155,998       245,542  
Advertising & Promotion
     755,009       449,633  
Publishing
     (3,292 )     112,451  
Distribution
     149,851       -  
Total revenues
     1,077,026       807,626  
                 
COSTS AND EXPENSES
                
Costs related to production revenue
     51,639       12,775  
Costs related to licensing revenue
     34,970       17,915  
Costs related to advertising and promotion revenues
     151,659       202,297  
Costs related to publishing revenues
     3,270       43,434  
Costs related to distribution revenues
     14,971       -  
Amortization of capitalized production costs
     42,497       -  
Impairment of capitalized film costs
     2,351,575       -  
Amortization of intangible assets
     118,866       61,165  
Selling, general and administrative expenses
     1,517,072       1,631,465  
Total costs and expenses
     4,286,519       1,969,051  
OPERATING LOSS
     (3,209,493 )     (1,161,425 )
                 
OTHER INCOME (EXPENSE)
                
Interest expense
     (67,442 )     (19,813 )
Other income
     14,685       15,906  
Total other income/(expense)
     (52,757 )     (3,907 )
                 
NET LOSS
     (3,262,250 )     (1,165,332 )
Preferred stock dividends
     (292,335 )     (297,771 )
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
   $ (3,554,585 )   $ (1,463,103 )
                 
Net loss per share attributable to common shareholder - basic and diluted
   $ (0.35 )   $ (0.18 )
Weighted average number of common shares - basic and diluted
     10,244,689       8,232,946  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
  
 
2

 
 
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
  
FOR THE THREE MONTHS ENDED OCTOBER 31, 2008
  
(UNAUDITED)
  
                                                                   
                                                   
Accumulated
              
                     
Preferred
          
Common
    
Common
    
Additional
    
Other
              
   
Series B
    
Series C
    
Series D
    
Stock
    
Common
    
Stock
    
Stock
    
Paid-in
    
Comprehensive
    
Accumulated
        
   
Shares
    
Shares
    
Shares
    
Amount
    
Shares
    
Amount
    
Issuable
    
Capital
    
Income
    
Deficit
    
Total
  
Balance at August 1, 2008
     61,832       190,247       148,247     $ 39       9,325,087     $ 933     $ 1,161,364     $ 43,500,856     $ 588,461     $ (42,944,258 )   $ 2,307,395  
Fair value of stock issued for services
     -       -       -       -       46,018       4       -       57,396       -       -       57,400  
Exercise of warrants for common stock
     -       -       -       -       85,322       9       -       151,429       -       -       151,438  
Fair value vesting of options and warrants issued to consultants
     -       -       -       -       -       -       -       10,266       -       -       10,266  
Fair value of vesting of employee stock options
     -       -       -       -       -       -       -       118,623       -       -       118,623  
Preferred stock dividend accrual
     -       -       -       -       -       -       -       (292,335 )     -       -       (292,335 )
Payment of Series B and Series C dividends into Series D Shares
     -       -       15,014       1       -       -       -       252,230       -       -       252,231  
Common stock issuable on conversion of accrued dividends on preferred stock into Common Shares
     -       -       -       -       -       -       40,104       -       -       -       40,104  
Decrease in fair value of available-for-sale securities
     -       -       -       -       -       -       -       -       (353,076 )     -       (353,076 )
Net Loss for the period
     -       -       -       -       -       -       -       -       -       (3,262,250 )     (3,262,250 )
Balance at October 31, 2008
     61,832       190,247       163,261     $ 40       9,456,427     $ 946     $ 1,201,468     $ 43,798,465     $ 235,385     $ (46,206,508 )   $ (970,204 )
                                                                                         
The accompanying notes are an integral part of these condensed consolidated financial statements.
  
 
 
3
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  
UNAUDITED
  
       
   
Three months ended October 31,
  
   
2008
    
2007
  
             
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net Loss
   $ (3,262,250 )   $ (1,165,332 )
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation
     5,620       4,217  
Amortization of intangible assets
     118,866       61,165  
Fair value of shares issued for services
     57,400       182,384  
Fair value of vested stock, options and warrants
     128,889       592,572  
Amortization of capitalized production costs
     42,497       -  
Provision For doubtful accounts
     372,168       -  
Impairment of capitalized film costs
     2,351,575       -  
Changes in assets and liabilities
                
Decrease/(increase) in accounts receivable
     475,805       (52,096 )
Decrease in Canadian tax credits receivable
     22,840       -  
Decrease in prepaid expenses and other assets
     11,783       22,488  
Increase in publishing costs
     (12,880 )     (69,675 )
Increase in production costs
     (2,488,555 )     (407,613 )
Increase in accounts payable
     470,512       148,739  
Increase in accrued expenses
     31,741       85,602  
Increase in deferred revenues
     316,180       100,015  
NET CASH USED IN OPERATING ACTIVITIES
     (1,357,809 )     (497,534 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Purchase of fixed assets
     (6,792 )     (2,894 )
NET CASH USED IN INVESTING ACTIVITIES
     (6,792 )     (2,894 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Borrowings on production loans
     1,064,137       -  
Payments of production loans - related party
     (486,700 )     (51,219 )
Borrowings on production loans - related party
     334,446       190,219  
Payments of notes payable, related party
     (64,767 )     (43,085 )
Proceeds from notes payable, related party
     388,907       343,030  
Payments on notes payable, secured by Canadian tax credits receivable
     (22,840 )     -  
Proceeds from the exercise of warrants
     151,438       -  
NET CASH PROVIDED BY FINANCING ACTIVITIES
     1,364,621       438,945  
                 
NET (DECREASE)/INCREASE IN CASH
     20       (61,483 )
CASH AT BEGINNING OF PERIOD
     2,267       85,706  
CASH AT END OF PERIOD
   $ 2,287     $ 24,223  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                
Cash paid for:
                
Taxes
   $ -     $ -  
Interest
   $ 221     $ 794  
Non-cash investing and financing activities:
                
Accrued dividends on preferred stock payable in common shares and Series D Convertible Preferred Stock
   $ 292,335     $ 297,771  
Decrease in fair value of available-for-sale securities
   $ 353,076     $ -  
Common stock to be issued as payment of accrued dividends on preferred stock
   $ 40,104     $ -  
Series D preferred stock issued as payment for accrued dividends on preferred stock
   $ 252,231     $ -  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
  
 
4
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THREE MONTHS ENDING OCTOBER 31, 2008 AND 2007
(UNAUDITED)

NOTE A - BUSINESS ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation. The interim condensed consolidated financial statements are unaudited, but in the opinion of management of the Company, contain all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position at October 31, 2008 and the results of operations for the three months ended October 31, 2008 and 2007 and cash flows for the three months ended October 31, 2008 and 2007.
 
Certain information and footnote disclosures normally included in financial statements that have been presented in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission with respect to interim financial statements, although management of the Company believes that the disclosures contained in these financial statements are adequate to make the information presented therein not misleading.  For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2008, as filed with the Securities and Exchange Commission.
 
The Company’s results of operations for the three months ended October 31, 2008 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending July 31, 2009.
 
The condensed consolidated financial statements of the Company include the accounts of National Lampoon, Inc., its wholly owned subsidiaries, National Lampoon Networks, Inc. and National Lampoon Tours, Inc. along with its 50% ownership in National Lampoon Clubhouse, Inc., and its 100% ownership in Bagboy Productions, Inc, Ratko Productions, Inc. and 301 Productions, Inc. The Company has the full and exclusive control of the management and operation of the business of each subsidiary and participates in 100% of the revenues and losses of its subsidiaries. The Company participates in 50% of the revenues and net losses of National Lampoon Clubhouse, Inc. Inter-company balances and transactions have been eliminated in consolidation.
 
Going Concern. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company had a net loss of $3,262,250 for the three months ended October 31, 2008, as well as negative working capital of $5,383,587 and a stockholder’s deficiency of $970,204 as of October 31, 2008, along with net losses for the prior two years of $1,686,974 and $2,504,170. Additionally, on December 15, 2008 the United States Securities and Exchange Commission issued a release and the United States Attorney for the Eastern District of Pennsylvania announced that they had charged seven individuals and two corporations with engaging in three separate fraudulent schemes to manipulate the market for publicly traded securities through the payment of prearranged kickbacks. The defendants include National Lampoon, Inc. and Daniel S. Laikin (see Note G). Also on December 15, 2008, the United States Attorney for the Eastern District of Pennsylvania separately announced criminal charges involving the same conduct. Furthermore, on January 9, 2009 our board of directors decided to voluntarily delist our common stock, par value $0.0001 per share, from NYSE Amex Equities. These factors raise substantial doubt about the Company's ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
 
5
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THREE MONTHS ENDING OCTOBER 31, 2008 AND 2007
(UNAUDITED)
 
Historically, our principal sources of funds used for operations and working capital have been revenues and loans received from Daniel S. Laikin, our former Chief Executive Officer, and Timothy Durham, our current Chief Executive Officer. The aggregate amount of the loans and accrued interest owed to Mr. Laikin and Mr. Durham at October 31, 2008 was $1,569,329 as compared to $1,244,178 at July 31, 2008. These two individuals have made no further commitment to provide loans to us to meet any immediate working capital requirements.
 
Our ability to continue as a going concern is dependent upon our ability to develop additional sources of capital and revenue. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our capital requirements for the next 12 months will continue to be significant. We will need to obtain financing to fund our cash needs and continue our operations. Additional financing may not be available, or if available, may be on terms unacceptable to us. Our ability to maintain sufficient liquidity to continue our operations is dependent on our ability to raise additional capital.  We currently have no committed sources of capital.
 
As of October 31, 2008, we had  cash  of  $2,287 and receivables totaling $793,021. As of October 31,2008we have agreements to deliver ten films for which the minimum guarantees, license fees and home video sales revenues are due upon notice of delivery, acceptance of delivery or home video accounts receivables payments received. During the first quarter ended October 31, 2008, we received $155,998 in license fees and we expect additional payments to be received by the end of the 2009 fiscal year.
 
We completed an audit of Warner Bros. Entertainment, Inc. relating to its exploitation of the films National Lampoon’s Vacation, National Lampoon’s European Vacation and National Lampoon’s Christmas Vacation. We are currently reviewing those results to determine how we will proceed. The Company has not recorded an estimate of any amount that may be owed.
 
Revenue Recognition.  Royalty income from film contracts is derived from the sale of DVDs or from the licensing of film rights to third parties. A significant portion of royalty income is paid to the Company based on the timetable associated with royalty statements generated by third party processors, and is not typically known by the Company on a timely basis. Consequently, this revenue is not recognized until the amount is either known or reasonably estimable or until receipt of the statements from the third parties. The Company contracts with various agencies to facilitate collection of royalty income. When the Company is entitled to royalties based on gross receipts, revenue is recognized before deduction of agency fees, which are included as a component of cost of revenue.
 
The Company recognizes revenue from television and film productions pursuant to American Institute of Certified Public Accountants Statement of Position 00-2, "Accounting by Producers or Distributors of Films" ("SOP 00-2"). The following conditions must be met in order to recognize revenue under SOP 00-2: (i) persuasive evidence of a sale or licensing arrangement exists; (ii) the program is complete and has been delivered or is available for immediate and unconditional delivery; (iii) the license period of the arrangement has begun and the customer can begin its exploitation, exhibition or sale; (iv) the arrangement fee is fixed or determinable; and (v) collection of the arrangement fee is reasonably assured. Advance payments received from buyers or licensees are included in the condensed consolidated financial statements as a component of deferred revenue.
 
Film Costs.   Investment in film costs includes the capitalization of costs incurred to produce the film content including direct negative costs, production overhead, interest and development. These costs are recognized as operating expenses on an individual film basis in the ratio that the current year's gross revenues bear to management's estimate of total ultimate gross revenues from all sources to be earned over a seven-year period. Capitalized production costs are stated at the lower of unamortized cost or estimated fair value on an individual film basis. Revenue forecasts, based primarily on historical sales statistics, are continually reviewed by management and revised when warranted by changing conditions. When estimates of total revenues and other events or changes in circumstances indicate that a film has a fair value that is less than its unamortized cost, an impairment loss is recognized in the current period for the amount by which the unamortized cost exceeds the film's fair value.
 
Use of Estimates. The preparation of condensed consolidated 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes estimates that effect reserves for allowance for doubtful accounts, estimated useful life of property and equipment, accrued expenses, fair value of equity instruments, reserves for any commitments or contingencies, debt issue costs, capitalized film costs, calculation of impairment, amortization expense and deferred income taxes.
 
Concentration. 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’s cash balances on deposit with banks are guaranteed by the Federal Deposit Insurance Corporation up to $250,000. The Company may be exposed to risk for the amounts of funds held in bank accounts in excess of the insurance limit. In assessing the risk, the Company’s policy is to maintain cash balances with high quality financial institutions.
 
 
6
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THREE MONTHS ENDING OCTOBER 31, 2008 AND 2007
(UNAUDITED)
 
During the three months ended October 31, 2008 two customers accounted for $449,222, (42%) and $150,000, (14%) of total revenue. During the three months ended October 31, 2007, four customers accounted for $198,500 (25%), $150,000 (19%), $112,451 (14%) and $88,026 (11%) of total revenue.
 
As of October 31, 2008, the Company had $250,000 (32%) of accounts receivable due from its largest customers.
 
The Company currently does not rely on a single vendor for a majority of its productions. The Company has different vendors that can be replaced if the need arises. A change in vendors would not cause a significant delay in the production process that would ultimately affect operating results.  
 
Fair Value of Financial Instruments. The Company partially adopted SFAS 157, “Fair Value of Financial Instruments,” on January 1, 2008, delaying application for non-financial assets and non-financial liabilities as permitted. This statement establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
 
SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
 
Level 1: quoted prices (unadjusted) in active markets for identical asset or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives.
 
Level 2: inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.
 
Level 3: unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds and are measured using present value pricing models.
 
In accordance with SFAS 157, the Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement in its entirety.

The following table represents certain financial instruments of the Company measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy as of October 31, 2008:
 
 
Level 1
  
Level 2
  
Level 3
  
Total
  
Assets:
                        
Available for sale securities at fair value
   $ 235,385     $ —     $ —     $ 235,385  

 
Comprehensive Income (Loss). SFAS No. 130, "Reporting Comprehensive Income", established rules for the reporting and display of comprehensive income and its components. SFAS No. 130 requires unrealized gains or losses on the Company's available-for-sale securities adjustments to be reported as a separate component (comprehensive income/loss) of shareholders' equity. The components of comprehensive income (loss) are as follows:
 
     
Three months ended October 31,
     
2008
  
 
2007
Net Loss
    
$  (3,262,250)
    
$  (1,165,332)
Fair value adjustment on available-for-sale securities
    
       (353,076)
    
                   -
Comprehensive Loss
    
$  (3,615,326)
    
$  (1,165,332)

Recent Accounting Pronouncements. In December 2007, the FASB issued FASB Statement No. 141(R), “Business Combinations” (FAS 141(R)), which establishes accounting principles and disclosure requirements for all transactions in which a company obtains control over another business. Statement 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited.
 
 
7
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THREE MONTHS ENDING OCTOBER 31, 2008 AND 2007
(UNAUDITED)
 
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160 establishes accounting and reporting standards that require that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retained non-controlling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding non-controlling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements are applied retrospectively for all periods presented. The Company does not have a non-controlling interest in one or more subsidiaries.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (SFAS 161). This statement requires enhanced disclosures about an entity’s derivative and hedging activities, including (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting principles in the United States for non-governmental entities. SFAS No. 162 is effective 60 days following approval by the U.S. Securities and Exchange Commission of the Public Company Accounting Oversight Board's amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.”

In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”).  FSP EITF 03-6-1 concludes that unvested share-based payment awards that contain rights to receive non-forfeitable dividends or dividend equivalents are participating securities, and thus, should be included in the two-class method of computing earnings per share (“EPS”).

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosure about Fair Value of Financial Instruments” (FSP 107-1/APB 28-1). FSP 107-1/APB 28-1 requires interim disclosures regarding the fair values of financial instruments that are within the scope of FAS 107, “Disclosures about the Fair Value of Financial Instruments.” Additionally, FSP 107-1/APB 28-1 requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes of the methods and significant assumptions from prior periods. FSP 107-1/APB 28-1 does not change the accounting treatment for these financial instruments   

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP 157-4).  FSP 157-4 provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased.  FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly.  In addition, FSP 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques 

In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162," and approved—the FASB Accounting Standards CodificationTM (Codification) as the single source of authoritative nongovernmental US GAAP. The Codification does not change current US GAAP, but is intended to simplify user access to all authoritative US GAAP by providing all the authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the Codification will be considered non-authoritative. For the Company, the Codification is effective July 1, 2009 and will require future references to authoritative US GAAP to coincide with the appropriate section of the Codification.

In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)," which revised the consolidation guidance for variable-interest entities. The modifications include the elimination of the exemption for qualifying special purpose entities, a new approach for determining who should consolidate a variable-interest entity, and changes to when it is necessary to reassess who should consolidate a variable-interest entity.

The Company does not believe that the adoption of the above recent pronouncements will have a material effect on the Company’s condensed consolidated results of operations, financial position, or cash flows.
 
 
8
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THREE MONTHS ENDING OCTOBER 31, 2008 AND 2007
(UNAUDITED)
 
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
 
Net Income or Loss per Share. Basic loss per share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated assuming the issuance of common shares under the treasury stock method, if dilutive, resulting from the exercise of stock options and warrants. Basic and diluted losses per share are the same at October 31, 2008 and 2007, as common equivalent shares have been excluded from the computation due to the fact that they are anti-dilutive. Options and warrants to purchase 6,508,722 and 6,597,337 common shares during the three months ended October 31, 2008 and 2007, respectively, are not included in the calculation of diluted earnings per share because their inclusion would be anti-dilutive. 7,288,432 and 7,402,431 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, 2008 and 2007, respectively, because their inclusion would be anti-dilutive. Basic earnings per share for the three months ended October 31, 2008 includes 859,886 common shares to be issued.
 
At October 31, 2008, there are 61,832 Series B Convertible Preferred Shares outstanding, 190,247 Series C Convertible Preferred Shares outstanding and 163,261 Series D Convertible Preferred Shares outstanding. Upon conversion of the 61,832 Series B Convertible Preferred Shares, 3,483,491 common shares would be issuable. Upon conversion of the 190,247 Series C Convertible Preferred Shares, 3,804,940 common shares would be issuable. Upon conversion of the 163,261 Series D Convertible Preferred Shares, 3,265,220 common shares would be issuable.
 
Each Series B Convertible Preferred Share is convertible into 56.338 common shares. Each Series C Convertible Preferred Share is convertible into 20 common shares. Warrants attached to the Series B and Series C Convertible Preferred Stock are not included in the calculation of diluted earnings per share during the three months ended October 31, 2008 because their inclusion would be anti-dilutive.
 
NOTE B - CAPITALIZED PRODUCTION COSTS
 
 
   
October 31,
    
July 31,
  
   
2008
    
2008
  
In development - theatrical
  
$
4,200,246
    
$ 
2,677,872
  
Completed - theatrical
    
911,804
      
2,339,695
  
Total film costs
  
$
5,112,050
    
$
5,017,567
  

The Company expects to amortize within three to five years 90% of capitalized film costs based on the estimated costs and ultimate revenue projected. The portion of the costs of the Company's films that was amortized during the three months ended October 31, 2008 and 2007 was $42,497 and $0, respectively. During the three months ended October 31, 2008, the Company also recorded an impairment charge of $2,351,575 based upon a revision of its forecasted film revenues. The portion of the costs of the Company's films that are expected to be amortized during the upcoming 12 months is approximately $1,412,534.
 
NOTE C - NOTES PAYABLE TO RELATED PARTIES AND ACCRUED INTEREST
 
Notes payable to related parties and accrued interest consist of the following at:

   
October 31,
    
July 31,
  
   
2008
    
2008
  
(A) Payable to Daniel Laikin
  
$
560,617
    
$
412,070
  
(B) Payable to Timothy Durham
    
932,538
      
756,945
  
   
$
1,493,155
    
$
1,169,015
  

(A) As of October 31, 2008, the Company owed Daniel Laikin, the Company's former Chief Executive Officer, $510,575 in principal and $50,042 in interest. As of July 31, 2008, the Company owed Mr. Laikin $369,720 in principal and $42,350 in interest. The loans bear interest at the rate of 6% per annum. The obligations to Mr. Laikin are unsecured and payable on demand. During the three months ending October 31, 2008, the Company made payments of $31,567 to Mr. Laikin.

(B) As of October 31, 2008, the Company owed Timothy Durham, who is currently its Chief Executive Officer, $897,059 in principal and $35,479 in interest. As of July 31, 2008, the Company owed Mr. Durham $735,259 in principal and $21,686 in interest. The loans bear interest at the rate of 6% to 6.75% per annum. The obligations to Mr. Durham are unsecured and payable on demand. During the three months ending October 31, 2008, the Company made payments of $33,200 to Mr. Durham.
 
9
NOTE D - PRODUCTION LOANS FROM RELATED PARTIES AND ACCRUED INTEREST

Outstanding production loans from related parties and accrued interest consist of the following as of:

   
October 31,
    
July 31,
  
Related Party
  
2008
    
2008
  
(A)  Red Rock Productions, Inc. - Bag Boy Productions, Inc.
   $ 650,348     $ 1,070,854  
                 
(B) Red Rock Productions, Inc. - Ratko Productions, Inc.
     2,184,218       2,146,950  
                 
(C) Dan Laikin
     76,174       75,163  
                 
(D) Robert Levy
     103,000       -  
                 
(E) Reno Rolle
     126,973       -  
                 
      3,140,713       3,292,967  
Less current portion
     (1,124,029 )     (1,147,763 )
    $ 2,016,684     $ 2,145,204  

 
(A)
On October 26, 2006, the Company entered into a financing agreement with Red Rock Productions Inc. (Red Rock) regarding the financing of the theatrical motion picture National Lampoon's Bag Boy. Red Rock's parent, Red Rock Pictures Holdings, Inc., is a publicly traded company and related party). In accordance with the initial agreement, Red Rock agreed to loan the Company up to $2,000,000 (unless otherwise agreed to by both parties) to fund this film, with payments to be made on an approved cash flow as provided by the Company. Red Rock will be entitled to recoup its investment plus interest at 10% accruing on the average daily balance from the date the loan is provided to the Company. Red Rock will also be entitled to contingent participation of 25% of all net contingent proceeds from the picture. Red Rock has a security interest in the film to the extent of the actual amount of the funding as long as there is an unpaid balance on the loan.  As a result of a modification to this financing agreement that was entered into on October 31, 2008, payment of this loan will now be made no later than March, 14, 2011.  The payments are to be made from the proceeds from the release of the film over an estimated revenue cycle of three years, as follows:  first the Company is to receive a 20% distribution fee; thereafter, the Company is to receive recoupment of all prints and advertising expenses incurred in connection with the distribution of the picture. The remaining gross receipts are to be split equally between the Company and Red Rock until such time as Red Rock has recouped its investment entirely. As of October 31, 2008, the Company had a loan balance of $352,277 in principal and $298,071 in interest under this financing agreement for a total of $650,348.  Under the terms of the agreement and based on the expected cash flows of the film, the loan is expected to be repaid as follows: $216,782 as of October 31, 2009, $278,396 as of October 31, 2010, and $155,170 as of October 31, 2011. As of July 31, 2008, the Company owed $813,756 in principal and $257,098 in interest under this financing agreement. 
 
 
(B)
On October 26, 2006, the Company entered into a financing agreement with Red Rock Productions Inc. (Red Rock) regarding the financing of the theatrical motion picture National Lampoon's Ratko. Red Rock's parent, Red Rock Pictures Holdings, Inc., is a publicly traded company and related party. In accordance with the initial agreement, Red Rock agreed to loan the Company $2,000,000 (unless otherwise agreed to by both parties) to fund this film, with payments to be made on an approved cash flow as provided by the Company. Red Rock will be entitled to recoup its investment plus interest at 10% accruing on the average daily balance from the date the loan is provided to the Company. Red Rock will also be entitled to contingent participation of 25% of all net contingent proceeds from the picture. Red Rock has a security interest in the film to the extent of the actual amount of the funding as long as there is an unpaid balance on the loan. As a result of a modification to this financing agreement that was entered into on October 31, 2008, payment of this loan will now be made no later than January 31, 2012.  The payments are to be made from the proceeds from the release of the film over an estimated revenue cycle of three years, as follows: first the Company is to receive a 20% distribution fee; thereafter, the Company is to receive recoupment of all prints and advertising expenses incurred in connection with the distribution of the picture. The remaining gross receipts are to be split equally between the Company and Red Rock until such time as Red Rock has recouped its investment entirely. As of October 31, 2008, the Company had a loan balance of $1,909,983 in principal and $274,235 in interest under this financing agreement for a total of $2,184,218. Under the terms of the agreement and based on the expected cash flows of the film, the loan is expected to be repaid as follows: $728,073 as of October 31, 2009, $935,005 as of October 31, 2010, and $521,140 as of October 31, 2011.  As of July 31, 2008, the Company owed $1,922,028 in principal and $224,922 in interest under this financing agreement.
 
 
 
10
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THREE MONTHS ENDING OCTOBER 31, 2008 AND 2007
(UNAUDITED)

 
(C)
Mr. Laikin, the Company's former Chief Executive Officer, has made various loans to us for film financing. As of October 31, 2008, he was owed $67,000 in principal and $9,174 in interest for a total of $76,174 in production loans. The loans bear interest at the rate of 6% per annum. As of July 31, 2008, he was owed $67,000 in principal and $8,163 in interest for production loans.

 
(D)
Mr. Levy, a shareholder and board member, made a loan for film financing. The loan is secured by a bond paid to the Screen Actors Guild for National Lampoon’s the Legend of Awesomest Maximus. As of October 31, 2008, he was owed $100,000 in principal and $3,000 in interest for a total of $103,000 in production loans. The loan accrued a one-time premium of 3%. On November 24, 2008 the loan was repaid in full.

 
(E)
Mr. Rolle, an officer and shareholder of Red Rock, made a loan to the Company for the financing of the film National Lampoon’s the Legend of Awesomest Maximus. As of October 31, 2008, he was owed $125,000 in principal and $1,973 in interest for a total of $126,973 in production loans. Under the terms of the agreement the loan bears interest at the rate of 10% per annum and Mr. Rolle will also be entitled to contingent participation of 11.5% of all net contingent proceeds from the picture. Mr. Rolle has a security interest in the film to the extent of the actual amount of the funding as long as there is an unpaid balance on the loan. The loan is to be repaid in full on June 30, 2010.

The aggregate maturities of production loans from related parties and accrued interest for each of the next five years and thereafter are as follows as of October 31, 2008:

 
Amount
  
2009
  
$
1,124,029
  
2010
    
1,340,374
  
2011
    
676,310
  
         
   
$
3,140,713
  
 
NOTE E - PRODUCTION LOANS AND ACCRUED INTEREST
 
Production loans and accrued interest consist of the following at:

   
October 31,
    
July 31,
  
Non-Related Party
  
2008
    
2008
  
(A) Gerald Daigle
   $ 607,671     $ -  
                 
(B) Voodoo Production Services
     456,466       -  
                 
      1,064,137       -  
Less current portion
     (151,151 )     -  
    $ 912,986     $ -  

(A) Mr. Daigle made a loan to the Company for the financing of the film National Lampoon’s the Legend of Awesomest Maximus. As of October 31, 2008, he was owed $600,000 in principal and $7,671 in interest for a total of $607,671 in production loans. Under the terms of the agreement the loans bear interest at the rate of 10% per annum and Mr. Daigle will also be entitled to contingent participation of 11.5% of all net contingent proceeds from the picture. Mr. Daigle has a security interest in the film to the extent of the actual amount of the funding as long as there is an unpaid balance on the loan. The loan is to be repaid as follows: $151,151 as of October 31, 2009 and $456,520 as of October 31, 2010. 

(B) VooDoo Production Services made loans to the Company for the financing of the film National Lampoon’s the Legend of Awesomest Maximus. As of October 31, 2008, VooDoo was owed $450,000 in principal and $6,466 in interest for a total of $456,466 in production loans. Under the terms of the agreement the loans bear interest at the rate of 10% per annum and Voo Doo Production Services will also be entitled to contingent participation of 11.5% of all net contingent proceeds from the picture. Voo Doo Production Services has a security interest in the film to the extent of the actual amount of the funding as long as there is an unpaid balance on the loan. The loan is to be repaid during the 2010 fiscal year. 

The aggregate maturities of production loans from non-related parties and accrued interest for each of the next five years and thereafter are as follows as of October 31, 2008:

Year
  
Amount
  
2009
  
$
151,151
  
2010
    
912,986
  
   
$
1,064,137
  
 
 
11
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THREE MONTHS ENDING OCTOBER 31, 2008 AND 2007
(UNAUDITED)
NOTE F - SHAREHOLDERS’ EQUITY (DEFICIENCY)

Preferred Stock
 
During the three-month periods ended October 31, 2008 and 2007, the Company accrued $292,335 and $297,771, respectively, of Series B Stock and Series C Stock dividends.

During the three months ended October 31, 2008, the Company issued 15,014 shares of Series D Stock, valued at $252,231. In addition 47,743 common shares valued at $40,104 were issuable, in connection with the payment of the Series B Stock and Series C Stock dividends. The shares issued and issuable are as follows:

·  
During the three months ended October 31, 2008, accrued dividends of the Company's Series B Stock of $17,399 were converted to 20,713 shares of the Company’s common stock and accrued dividends of the Company's Series B Stock of $121,722 were converted to 7,246 shares of the Company’s Series D stock. The accrued dividends were converted into the Company’s common stock based on the closing price of the Company’s common stock on the trading day preceding the payment date.

·  
During the three months ended October 31, 2008, accrued dividends of the Company's Series C Stock of $22,705 were converted to 27,030 shares of the Company’s common stock and accrued dividends of the Company's Series C Stock of $130,509 were converted to 7,768 shares of the Company’s Series D stock. The accrued dividends were converted into the Company’s common stock based on the closing price of the Company’s common stock on the trading day preceding the payment date.

During the three months ended October 31, 2008, 64,058 shares of the Company’s common stock were issued upon the exercise of 1,137 warrants that were issued in conjunction with the Company’s sale of its Series B Stock.  The warrants had an exercise price of $1.775 resulting in cash proceeds to the Company of approximately $113,702.

During the three months ended October 31, 2008, 21,264 shares of the Company’s common stock were issued upon the exercise of 2,126 warrants that were issued in conjunction with the Company’s sale of its Series C Stock.  The warrants had an exercise price of $1.775 resulting in cash proceeds to the Company of approximately $37,736.

Common Stock
 

During the three months ended October 31, 2008, 46,018 shares of common stock with a value of $57,400 were issued for services as follows: 31,018 shares of common stock at stock prices ranging from $0.89 to $1.39 per share with a value of $35,800 were issued to various consultants for monthly consulting services and 15,000 shares at a stock prices ranging from $0.92 to $1.70 per share valued at $21,600 were issued to various consultants for one-time consulting fees.
 
NOTE G - COMMITMENTS AND CONTINGENCIES
 
 
United States Securities and Exchange Commission v. National Lampoon, Inc. On December 15, 2008 the United States Securities and Exchange Commission (the "Commission") issued a release stating that it had charged seven individuals and two corporations with engaging in three separate fraudulent schemes to manipulate the market for publicly traded securities through the payment of prearranged kickbacks. The defendants include National Lampoon, Inc. and Daniel S. Laikin, our former Chief Executive Officer, as well as stock promoters, a consultant, and an officer of another company. Also on December 15, 2008, the United States Attorney for the Eastern District of Pennsylvania separately announced criminal charges involving the same conduct.
 
The Commission's complaint alleges that, from at least March 2008 through June 2008, Mr. Laikin and others engaged in a fraudulent scheme to manipulate the market for the Company's common stock. Specifically, the Commission has charged that Mr. Laikin and others paid kickbacks in exchange for generating or causing purchases of the Company's common stock to a stock promoter and others to give the false impression of a steady demand for the stock.
 
 
12
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THREE MONTHS ENDING OCTOBER 31, 2008 AND 2007
(UNAUDITED)
 
The complaint alleges that Mr. Laikin and others paid at least $68,000 to cause the purchase of at least 87,500 shares of the Company's common stock. In addition to paying others to purchase the stock, the complaint alleges that Mr. Laikin shared confidential financial information regarding the Company, non-public news releases, and confidential shareholder lists, and coordinated the release of news with the illegal purchases in the stock. The complaint also alleges that the Company and Mr. Laikin made materially misleading statements in a tender offer.
 
The complaint alleges violations of Section 17(a) of the Securities Act of 1933, Sections 9(a)(2), 10(b) and 13(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13e-4 thereunder. The complaint seeks permanent injunctions against all defendants, disgorgement of ill-gotten gains, together with prejudgment interest and civil penalties from the individual defendants, and an officer and director bar against Mr. Laikin.
 
Trading in the Company's common stock was suspended by the Securities and Exchange Commission through December 29, 2008. Trading in the Company’s common stock resumed on the Pink Sheets on February 5, 2009
 
American Cinema Distribution Corporation v. National Lampoon, Inc. In August 2007, the American Cinema Distribution Corporation ("ACDC") filed claims against the Company for costs incurred on the release of "National Lampoon's Pucked". ACDC alleged that the Company did not perform distribution services as agreed and that ACDC should be reimbursed for distribution costs it incurred estimated at $65,000. ACDC also alleged that it did not owe distribution fees to the Company for marketing, publicity, promotional and advertising services the Company provided which services the Company alleged have a value in excess of $290,000. On September 23, 2008 the Company entered into a settlement agreement with the plaintiffs dated July 16, 2008. The Company agreed to dismiss the complaint against the plaintiffs in exchange for a payment of $20,000 to be made immediately upon the execution of the settlement agreement. Pursuant to the terms of the settlement the Company shall also retain 75% of the receipts after payments to unions and guilds until the Company has been paid the sum of $180,000 in addition to the $20,000.
 
 
Segment Reporting - SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" results in the use of a management approach in identifying segments of an enterprise. The Company operates in four business segments: (i) licensing and exploitation of the National Lampoon™ trademark and related properties including the sale of products to consumers; (ii) advertising and promotion through field marketing, live events and the distribution of television programming on college campuses; (iii) production of DVD and television products; and (iv) distribution. Segment operating income/(loss) excludes the amortization of intangible assets, interest expense, interest income, other income and expenses and income taxes. Selling, general and administrative expenses not specifically attributable to any segment have been prorated based on revenue among the four segments. Amortization of capitalized production costs and impairment of capitalized film costs have been prorated based upon revenue among the licensing and publishing, production and distribution segments.
 
 
 
Licensing
  
Advertising
              
 
&
  
&
              
 
Publishing
  
Promotion
  
Production
  
Distribution
      
  (1)  
(2)
  
(3)
  
(4)
  
Total
  
Three Months Ended October 31, 2008
                    
Segment revenue
   $ 152,706     $ 755,009     $ 19,460     $ 149,851     $ 1,077,026  
Segment operating (loss)
   $ (1,235,942 )   $ (460,138 )   $ (204,267 )   $ (1,190,280 )   $ (3,090,627 )
Depreciation expense
   $ 5,140     $ 480     $ -     $ -     $ 5,620  
                                         
Three Months Ended October 31, 2007
                                        
Segment revenue
   $ 357,993     $ 449,633     $ -     $ -     $ 807,626  
Segment operating (loss)
   $ (426,529 )   $ (660,956 )   $ (12,775 )   $ -     $ (1,100,260 )
Depreciation expense
   $ 3,326     $ 891     $ -     $ -     $ 4,217  
                                         
 
 
Common Stock Issued

Subsequent to October 31, 2008, the Company issued 43,068 shares of the Company’s common stock to various consultants for services rendered during this period.  The Company expensed $36,330 for these services. The shares were priced at the fair market value of the shares on the date of issuance or upon the value determined by an agreement.
 
 
13
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THREE MONTHS ENDING OCTOBER 31, 2008 AND 2007
(UNAUDITED)
Production Loans and Accrued Interest

Subsequent to October 31, 2008, VS Investments B, LLC (“VSIB”) made loans to the Company for the financing of the film National Lampoon’s the Legend of Awesomest Maximus. As of April 30, 2009, VSIB was owed $600,000 in principal and $28,109 in interest for a total of $628,109 in production loans. Under the terms of the agreement the loans bear interest at the rate of 10% per annum and VSIB will also be entitled to contingent participation of 11.5% of all net contingent proceeds from the picture. VSIB has a security interest in the film to the extent of the actual amount of the funding as long as there is an unpaid balance on the loan.
 
Subsequent to October 31, 2008 the following legal actions were filed against the Company:
 
David Weisburd, derivatively on behalf of Nominal Defendant National Lampoon, Inc. v The Board of Directors and National Lampoon, Inc. On or about February 24, 2009, David Weisburd filed a Shareholder Derivative Complaint for Breach of Fiduciary Duty, CA No BC408377, in the Superior Court of the State of California County of Los Angeles, alleging breach of fiduciary duty by the Company’s board of directors (“defendants”) and the Company, which is designated as a “nominal defendant”.  Damages sought include: a finding that the defendants have violated their fiduciary duties to the Company and its shareholders; an Order requiring the Company to comply with applicable rules and regulations regarding management and oversight procedures and/or controls; a finding against the defendants for an amount of damages sustained by the Company as a result of the defendants’ breaches of fiduciary duty in an amount to be determined at trial, together with prejudgment interest; an award to the plaintiff of reasonable attorneys’ fees, expert fees and other reasonable costs and expenses; and an Order granting all such additional and different relief as this Court deems just and proper.

Majestic Entertainment, Lorenzo Doumani and Eleonore Doumani v. National Lampoon, Inc. and Dan Laikin - This case was filed on July 31, 2009 in Los Angeles Superior Court (Case No. SC104240), with causes of action for breach of contract, fraud, negligent misrepresentation, breach of fiduciary duty, unfair business practices and violation of Corporations Code section 25400, involving two different contracts dated in 2004.  One contract involved a joint venture entitled National Lampoon Clubhouse and the other contract involved a preferred stock purchase agreement.
 
Breaking the Rules, LLC v. National Lampoon, Inc. - On or about July 30, 2009, the claimant served a Demand for Arbitration with the Independent Film & Television Alliance, claiming breach of contract and fraud, involving a distribution agreement for a film titled National Lampoon’s One, Two Many.  The claimant seeks the termination of the agreement, unspecified compensatory and exemplary damages, attorneys' fees and costs.

Chermak v. Emmons, et al. – This action is pending in the Los Angeles Superior Court, West District, Beverly Hills Courthouse and bears case number (LASC Case No. 07C02106).  This action was originally filed on May 29, 2007 against Kent Emmons, Emmons Media Group, NL Radio, LLC, Comedy Express Networks, Studio Funny Films, K Tahoe Investments, National Lampoon Networks, Inc. and National Lampoon Radio Networks for failure to pay invoices for legal services allegedly provided.  On or about November 25, 2008, a judgment was entered against all named defendants for the principal sum of $101.298.49.  On or about August 17, 2009, the plaintiff filed a motion seeking to enforce her judgment against National Lampoon, Inc.  .The plaintiff’s motion was granted on September 30, 2009.  We are currently evaluating whether we will appeal this order.
 

 
14
 

 
Item 2 - 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 the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
Overview
 
 
Motion Picture Production and Distribution
 
We produce feature films. Historically, motion pictures that carry our brand had been produced and financed by third parties. We decided to develop, produce and distribute motion pictures under the National Lampoon name in order to control both the creative process and the distribution of the films and also to build a film library and to expand our brand visibility.

As part of our plan to increase the visibility of our brand in the film industry and to expand our film library we also began acquiring and branding third-party films for distribution in the U.S. and internationally.  For third party films we pay finishing and prints and advertising costs that are recouped through U.S. theatrical, home entertainment and international sales.

In October 2006 we invested in Red Rock Pictures Holdings, Inc. (“Red Rock”).  We currently own approximately 14% of Red Rock’s outstanding capital stock.  Red Rock was formed for the purpose of providing financing and consulting services related to the production and exploitation of motion pictures.  We have completed production on two films in partnership with Red Rock, National Lampoon’s Bag Boy and National Lampoon’s Ratko, The Dictator’s Son. National Lampoon’s Bag Boy was delivered during the year ended July 31, 2008 and National Lampoon’s Ratko, The Dictator’s Son is currently expected to be delivered the second quarter of 2010.

We are also in post production on our third title, National Lampoon’s The Legend of Awesomest Maximus.   We expect to deliver this motion picture during the second or third quarter of the 2010 fiscal year.

We acquired distribution rights for seven films produced by unrelated third parties including National Lampoon's Jake's Booty Call , National Lampoon's Homo Erectus , National Lampoon Presents Beach Party at the Threshold of Hell, National Lampoon Presents Electric Apricot, National Lampoon Presents One, Two Many, National Lampoon’s Robodoc and National Lampoon’s Bar Starz. By releasing these films through various media channels, including theatrical, home entertainment, foreign distribution and digital distribution, we earn distribution fees.

During the nine months ended April 30, 2009, we released 2 motion pictures, National Lampoon's “Stoned Aged / Homo Erectus” which is being distributed by Paramount Pictures and “Bag Boy” which is being distributed by National Lampoon and Arts Alliance.

We have an interest in National Lampoon Clubhouse, Inc., a production entity, which produced the film Monster Night aka Trick or Treat. Monster Night was released in the fall of 2006. During the 2007 fiscal year we licensed the domestic and foreign video sales to a sub-distributor and terminated our production agreement with Majestic Entertainment. We will no longer produce films through National Lampoon Clubhouse, Inc.
 
The following is a list of the 11 motion pictures in our library that we either produced or acquired:

   
Year
    
Title
  
Released
  
Financier/Distributor
         
National Lampoon’s Monster Night
  
2006
  
National Lampoon Clubhouse, Inc.
National Lampoon’s Bag Boy
  
2008
  
National Lampoon, Inc.
National Lampoon’s Ratko the Dictator’s Son
  
2009
  
National Lampoon, Inc.
National Lampoon’s Jake’s Booty Call
  
2006
  
The Romp, Inc.
National Lampoon’s Electric Apricot: The Quest for Festaroo
  
2007
  
Bait Productions
National Lampoon’s Beach Party at the Threshold of Hell
  
2008
  
Threshold Productions, LLC
National Lampoon’s Homo Erectus
  
2009
  
Burnt Orange Development, LLC
National Lampoon’s One, Two, Many
  
2008
  
Breaking the Rules, LLC
National Lampoon’s Robodoc
  
2009
  
Robodoc, LLC.
National Lampoon’s Bar Starz
  
2009
  
OBX Productions
National Lampoon’s The Legend of Awesomest Maximus
  
2009
  
National Lampoon, Inc.
 
 
15

 
We also earn revenues from providing production services on our own productions as well as third party productions that we acquire.  Our production services are included in the production budget and are recorded as the production’s capitalized production costs.

We are currently developing for production and/or acquiring approximately four projects per year which will carry the National Lampoon name. We have motion picture output agreements with a domestic home video distributor and a cable television broadcast company.  An output agreement guarantees a negotiated payment or advance for the distribution rights for films in development.  The minimum guarantee or advance may be paid over various points of production of the film or upon full delivery of the finished product.

We have agreements with independent third parties for the limited platform theatrical release and subsequent distribution of our films to home entertainment.   During the three months ended October 31, 2008, we released two films as “platform theatrical releases” which is the release of a motion picture in a small number of theaters in order to promote the home entertainment sales.

For the three months ended October 31, 2008, revenues derived from motion picture production and distribution totaled approximately $169,311 or approximately 16% of all the revenues we earned during the period.
 
Licensing
 
We license our National Lampoon trademark for use in the titles of films.  We receive a license fee at the time we enter into an agreement allowing use of the National Lampoon trademark.  Depending on our agreement with the motion picture studio or distributor, we also may receive royalties.  Some of our agreements provide us with “first dollar gross” participation, meaning that we receive a percentage of all money 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 or in gross profits.  Net profit participation is based upon a negotiated definition of net revenues after deducting certain costs of a film, including distribution fees, financing costs and general corporate expenses, while gross profit participation is based upon gross revenues, before any costs such as distribution fees, financing costs and other corporate costs are deducted.  It may take years for the studio or the distributor to recoup the license fee, minimum guarantee or advance and the expenses, or these costs may never be recovered by the studio.

We currently are a party to 31 feature film branding agreements.  Pursuant to these agreements, once the film is released and begins earning revenues, the studio or distributor is entitled to recoup any licensing fee, minimum guarantee or advance it paid to us under the agreement and, if included in the agreement, interest.  Once this amount is recouped, our participation in the revenues earned by the film may begin.

The following is a list of the 31 motion pictures bearing our brand:

   
Year
    
Title
  
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
  
2005
  
Lady P&A LLC
National Lampoon’s Blackball
  
2005
  
First Look Entertainment
National Lampoon’s Going the Distance
  
2005
  
Think Films
National Lampoon’s Adam & Eve
  
2006
  
MRG Ent.
National Lampoon’s Barely Legal
  
2006
  
Motion Picture Corp./Sony Pic. Rel.
National Lampoon’s Cattle Call
  
2006
  
Cattle Call LLC
National Lampoon’s RepliKate
  
2003
  
Silver Nitrate
National Lampoon’s Pledge This!
  
2006
  
Street Alien/Silver Nitrate
National Lampoon’s Pucked (formerly Trouble with Frank)
  
2006
  
National Lampoon, Inc,
National Lampoon’s Jake’s Booty Call
  
2006
  
National Lampoon, Inc.
National Lampoon’s Dorm Daze II
  
2006
  
Independent
National Lampoon’s Van Wilder II
  
2006
  
Lion’s Gate
National Lampoon’s Van Wilder III: Freshman Year
  
2009
  
Tapestry Films, Inc./Paramount
 
 
16
 
We have derived a substantial portion of our revenues from license fees relating to the use of our name on new motion pictures and from royalties from previously released motion pictures bearing our brand, including movies such as National Lampoon's Animal House and National Lampoon's Vacation. Releasing a film with our brand enhances its ability to find distribution outlets. Once a film is released with our brand, we earn revenues from foreign sales, theatrical release, home video and DVD sales and rentals and pay-per-view.

For the three months ended October 31, 2008, revenues derived from licensing, exclusive of publishing revenues, totaled $155,998 or approximately 14% of all the revenues we earned during the period.

Internet Activities

Our Internet properties comprise several Internet destination sites.  These include NationalLampoon.com, DrunkUniversity.com, TOGATV.com and KnuckleheadVideo.com.  We have acquired other websites and we continue making such acquisitions on a regular basis.  We have focused substantial resources toward launching these websites, and we plan to continue doing so on an ongoing basis.  These destination sites are also part of National Lampoon’s online networks, which include the National Lampoon Humor Network and the Drunk University Network.  These are aggregated online networks of more than 200 of the most popular humor and college lifestyle destination sites on the Internet.  We sell advertising space on our websites and networks in the form of video streamed advertisements, full page takeover advertisements and banner advertisements.  We also are actively engaged in creating “branded entertainment” as well as custom promotional content production and distribution for these Internet destinations.

In May 2007 we announced the launch of the National Lampoon Video Network where we entered into content distribution agreements with several Internet video portals including AOL, Joost, Veoh, Yahoo!, YouTube and others.  These partners sell advertising space including video streaming and we receive a portion of the revenues earned.

For the three months ended October 31, 2008, revenues derived from our Internet activities totaled $405,299 or approximately 38% of all the revenues we earned during the period.
 
Discontinued Operations
 
In the past we also earned revenues from National Lampoon Networks, which delivered college television programming and performed field marketing activities, from publishing books and from NL Radio, LLC.  While we earned some revenues from these operations during the three months ended October 31, 2008, as of various dates from January 2009 to May 2009 we are no longer engaged in any of these activities and we do not expect to re-enter these markets in the future.
 
Trends, Events and Uncertainties
 
We have experienced a number of challenges during the three months ended January 31, 2008.  In December 2008 the Securities and Exchange Commission and the U.S. Department of Justice brought actions against us and Daniel Laikin, our former Chief Executive Officer, for alleged fraudulent schemes to manipulate the market for our securities.  As a result, in December 2008 Mr. Laikin resigned and Timothy Durham was appointed as our Chief Executive Officer. On September 23, 2009 Mr. Laikin pled guilty to a charge of conspiring to violate Title 17, Code of Federal Regulations, Section 240.10b-5.  The defense of these legal actions, as well as other legal actions that have been filed since December 2008, continues to require a significant amount of management’s time and attention.  Mr. Laikin and Mr. Durham were also our primary sources of financing for many of our operations,however, neither Mr. Laikin nor Mr. Durham is required to continue providing funding to us.  Since December 2008 Mr. Laikin has provided no further financing to us. Our operations have also been adversely effected by the global economic recession, which resulted in slower payment of fees owed to us and, in at least 3 cases, the failure to pay fees owed to us at all, as well as fewer distribution arrangements.  We expect these matters to continue to impact our operations for at least the next 12 months.
 
Aside from the legal actions we have disclosed, we have been made a party to the following material legal actions:
 
David Weisburd, derivatively on behalf of Nominal Defendant National Lampoon, Inc. v The Board of Directors and National Lampoon, Inc. On or about February 24, 2009, David Weisburd filed a Shareholder Derivative Complaint for Breach of Fiduciary Duty, CA No BC408377, in the Superior Court of the State of California County of Los Angeles, alleging breach of fiduciary duty by the Board of Directors of National Lampoon (“Defendants”) and National Lampoon, Inc. (“Nominal Defendant”). Damages sought include a finding that the defendants have violated their fiduciary duties to the Company and its shareholders; an order requiring the Company to comply with applicable rules and regulators regarding management and oversight procedures and/or controls; a finding against the defendants for an amount of damages sustained by the Company as a result of the defendants’ breaches of fiduciary duty in an amount to be determined at trial, together with prejudgment interest; an award to the plaintiff of reasonable attorneys’ fees, expert fees and other reasonable costs and expenses; and an order granting all such additional and different relief as this Court deems just and proper.”
 
 
17
 
Majestic Entertainment, Lorenzo Doumani and Eleonore Doumani v. National Lampoon, Inc. and Daniel Laikin. This case was filed on July 31, 2009 in Los Angeles Superior Court (Case No. SC104240), with causes of action for breach of contract, fraud, negligent misrepresentation, breach of fiduciary duty, unfair business practices and violation of Corporations Code section 25400, involving two different contracts dated in 2004.  One contract involved a joint venture entitled National Lampoon Clubhouse and the other contract involved a purchase of preferred stock.

Breaking the Rules, LLC v. National Lampoon, Inc.  On or about July 30, 2009, the claimant served a Demand for Arbitration with the Independent Film & Television Alliance, claiming breach of contract and fraud, involving a distribution agreement for the film titled National Lampoon’s One, Two Many.   The claimant seeks the termination of the agreement, unspecified compensatory and exemplary damages, attorneys' fees and costs.

Chermak v. Emmons, et al.  This action is pending in the Los Angeles Superior Court, West District and bears case number (LASC Case No. 07C02106).  This action was originally filed on May 29, 2007 against Kent Emmons, Emmons Media Group, NL Radio, LLC, Comedy Express Networks, Studio Funny Films, K Tahoe Investments, National Lampoon Networks, Inc. and National Lampoon Radio Networks for failure to pay invoices for legal services allegedly provided.  On or about November 25, 2008, a judgment was entered against all named defendants for the principal sum of $101.298.49.  On or about August 17, 2009, the plaintiff filed a motion seeking to enforce her judgment against National Lampoon, Inc.  The plaintiff’s motion was granted on September 30, 2009.  We are currently evaluating whether we will appeal this order.
 
The defense of these actions will be both costly and time consuming.  We cannot be certain that we will successfully defend or settle any of the actions that have not been resolved.
 
Other trends, events and uncertainties that may impact our operations are included in the discussion of our results of operations.
 
 
Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.
 
Revenue Recognition. Royalty income from film contracts is derived from the sale of DVDs or from the licensing of film rights to third parties. Because a significant portion of royalty income is based on the timetable associated with royalty statements generated by third party processors, we do not typically know on a timely basis when royalties may be paid or the amount of payment. This revenue is consequently not recognized until the amount is either known or reasonably estimable or until receipt of the statements from the third parties. We contract with various agencies to facilitate collection of royalty income. When we are entitled to royalties based on gross receipts, revenue is recognized before deduction of agency fees, which are included as a component of cost of revenue.
 
We recognize revenue from television and film productions pursuant to American Institute of Certified Public Accountants Statement of Position 00-2, "Accounting by Producers or Distributors of Films" ("SOP 00-2"). The following conditions must be met in order to recognize revenue under SOP 00-2: (i) persuasive evidence of a sale or licensing arrangement exists; (ii) the program is complete and has been delivered or is available for immediate and unconditional delivery; (iii) the license period of the arrangement has begun and the customer can begin its exploitation, exhibition or sale; (iv) the arrangement fee is fixed or determinable; and (v) collection of the arrangement fee is reasonably assured. Advance payments received from buyers or licensees are included in the financial statements as a component of deferred revenue.
 
Film Costs.  Investment in film costs includes the capitalization of costs incurred to produce the film content including direct negative costs, production overhead, interest and development. These costs are recognized as operating expenses on an individual film basis in the ratio that the current year's gross revenues bear to management's estimate of total ultimate gross revenues from all sources to be earned over a seven year period. Capitalized production costs are stated at the lower of unamortized cost or estimated fair value on an individual film basis. Revenue forecasts, based primarily on historical sales statistics, are continually reviewed by management and revised when warranted by changing conditions. When estimates of total revenues and other events or changes in circumstances indicate that a film has a fair value that is less than its unamortized cost, an impairment loss is recognized in the current period for the amount by which the unamortized cost exceeds the film's fair value.
 
Investments. We account for our investments in equity securities under SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities.”  We have classified our investments as available for sale securities, and such securities are carried at fair value.  The fair values for marketable equity securities are based on quoted market prices.  Unrealized gains or losses, net of tax, are included as a component of accumulated other comprehensive income in stockholders’ equity.  Realized gains and losses and declines in value considered to be other than temporary on available for sale securities are included in other income (loss).
 
 
We operate in four business segments, namely, licensing and exploitation of the National Lampoon trademark and related properties including the sale of products to consumers and publishing of copyrighted material; advertising and promotion through our Internet websites, field marketing, live events and television programming on college campuses; production of film and television products; and distribution.
 
18
 
Segment operating income (loss) excludes the amortization of intangible assets, interest income, interest expense, other income and expenses, minority interest, equity in investee loss and income taxes.  Selling, general and administrative expenses not specifically attributable to any segment have been prorated among the four segments. Amortization of capitalized production costs and impairment of capitalized film costs have been prorated based upon revenue among the licensing and publishing, production and distribution segments.
 
Three months ended October 31, 2008 as compared to the three months ended October 31, 2007
 
Summarized financial information for the three months ended October 31, 2008 and 2007 for our segments is as follows:

   
Licensing
&
    
Advertising &
                    
   
Publishing
    
Promotion
    
Production
    
Distribution
    
Total
  
Fiscal Year Ended October 31, 2008
                              
Segment revenue
   $ 152,706     $ 755,009     $ 19,460     $ 149,851     $ 1,077,026  
Segment operating loss
   $ (1,235,942 )   $ (460,138 )   $ (204,267 )   $ (1,190,280 )   $ (3,090,627 )
Depreciation expense
   $ 5,140     $ 480     $ -     $ -     $ 5,620  
Fiscal Year Ended October 31, 2007
                                        
Segment revenue
   $ 357,993     $ 449,633     $ -     $ -     $ 807,626  
Segment operating (loss)
   $ (426,529 )     (660,956 )     (12,775 )   $ -     $ (1,100,260 )
Depreciation expense
   $ 3,326     $ 891     $ -     $ -     $ 4,217  
 
In the table above, licensing and publishing revenues include the licensing of our name and sale of our books; advertising and promotion revenues which include online and cable advertising as well as advertising and promotion of the films released; production revenues include films, television and home entertainment; and distribution revenues includes theatrical, home entertainment and digital distribution of our titles.

A reconciliation of segment operating loss to net loss before income taxes for the periods ended October 31, 2008 and 2007 is as follows:  

   
October 31, 2008
    
October 31, 2007
  
Total segment operating (loss)
   $ (3,090,627 )   $ (1,100,260 )
Amortization of intangible assets
     (118,866 )     (61,165 )
Interest expense
     (67,442 )     (19,813 )
Other income/expense
     14,685       15,906  
Net loss
   $ (3,262,250 )   $ (1,165,332 )
 
Licensing and Publishing Revenues
 
Licensing and publishing revenues were $152,706 for the three months ended October 31, 2008, as compared to $357,993 for the three months ended October 31, 2007, representing a decrease of $205,287 or 57%.

The decrease for the three-month period was partly attributable to a decrease in video royalty revenues, which were $0 for the three months ended October 31, 2008, as compared to $48,834 for the three months ended October 31, 2007, representing a decrease of $48,834 or 100%. The video royalties recognized during the three months ended October 31, 2007 related to the films National Lampoon’s Van Wilder and National Lampoon’s Dorm Daze. The decrease was also attributable to a decrease in revenues derived from sales of international distribution licenses for our various titles, which totaled $111,546 during the three months ended October 31, 2008 as compared to $150,000 in such revenues for the three months ended October 31, 2007, representing a decrease of $38,454 or 26%. The decrease was primarily due to losses on foreign exchange and credits applied during the quarter ended October 31, 2008.

Publishing revenues net of reserve for returns were ($3,292) for the three months ended October 31, 2008, as compared to $112,451 for the three months ended October 31, 2007, representing a decrease of $115,743 or 103%. The decrease for the three-month period was due to returns that exceeded publishing revenues.

Costs related to licensing revenues were $34,970 for the three months ended October 31, 2008, as compared to $17,915 for the three months ended October 31, 2007, representing an increase of $17,055 or 95%. The increase in costs related to licensing revenues resulted primarily from an increase to $29,504 in royalties accrued to Harvard Lampoon during the three months ended October 31, 2008, from $0 in royalties accrued during the three months ended October 31, 2007. This was partially offset by a decrease of $12,419 in commission expense incurred during the three months ended October 31, 2008, as compared to the three months ended October 31, 2007.
 
Amortization of capitalized production costs was $42,497 for the three months ended October 31, 2008 compared to $0 for the three months ended October 31, 2007. Amortization for current productions begins upon theatrical and/or home video release. The increase was primarily due to the amortization of capitalized production costs due to revenue recognition for domestic and international licensing of six film titles. The amortization was offset by a decrease in the amount of ($4,496) in the disposal of Totally Baked due to a refund of production costs that was received during the three months ended October 31, 2008. Impairment of capitalized production costs was $2,351,575 for the three months ending October 31, 2008 compared to $0 for the three months ending October 31, 2007. The impairment of capitalized production costs was due to the write down of domestic and international licensing ultimate revenues from the release of National Lampoon’s Bagboy, and was expensed to “impairment of capitalized production costs”. The remaining amount of $459,379 in capitalized production costs for National Lampoon’s Bagboy will be expensed during the 2009 and 2010 fiscal years.
 
 
19

 
Costs related to publishing revenues were $3,270 for the three months ended October 31, 2008, compared to $43,434 for the three months ended October 31, 2007, representing a decrease of $40,164 or 92 %. The decrease in costs related to publishing revenues for the three months ended October 31, 2008, as compared to the three months ended October 31, 2007, consisted of a decrease of $41,343 in direct publishing costs partially offset by an increase of $1,179 in amortized publishing costs. We recorded these costs against sales during the three months ended October 31, 2007.
 
Advertising and Promotion Revenues
 
Advertising and promotion revenues totaled $755,009 during the three months ended October 31, 2008, as compared to $449,633 for the three months ended October 31, 2007, representing an increase of $305,376 or68%. The increase in revenue was the result of a $168,917 increase in promotion revenues mainly due to Internet advertising on our new websites and an increase of $150,722 in prints and advertising revenues charged on the release of our titles. These increases were partially offset by a decrease of $50,000 in sponsored production shoots and field promotion events. We continue to expand and improve our digital distribution and entertainment capabilities resulting in increased revenue from our network and affiliate network of Internet websites. Going forward, we expect to focus our resources on increasing revenues generated from our Internet websites and from product placement. We do not intend to continue providing field promotion services at events held by third parties or to produce field promotion events and we do not expect to re-enter this business activity.

Costs of advertising and promotion revenue were $151,659 during the three months ended October 31, 2008 compared to $202,297 for the three months ended October 31, 2007, representing a decrease of $50,638 or 25%. The decrease in costs of advertising and promotion was the result of a number of factors.  Due to an improvement of our Internet capabilities, web development and Internet service fees decreased by $47,758, to $41,102 for the three months ended October 31, 2008 from $88,860 during the three months ended October 31, 2007.  Sales commissions declined by $4,346 to $5,432 for the three months ended October 31, 2008 from $9,778 during the three months ended October 31, 2007.  
 
 
For the three months ended October 31, 2008, production revenue was $19,460, as compared to $0 for the same period in 2007. Production revenues increased by $19,460 or 100%, primarily due to production revenues of $15,000 earned from live events and $4,460 earned for post production services during the three months ended October 31, 2008. The increase in production revenues from live events was due to a joint production agreement with Mania TV pursuant to which shows made for Mania TV and Capazoo were also used on our Internet network. We traditionally do not produce product unless we have a presale, minimum guarantee or co-production agreement in place. This reduces our financial risk as productions tend to be capital intensive. The output arrangement guarantees a pre-negotiated minimum guarantee or sales price for the licensing of a specific media and territory. As these output arrangements are signed, we will allocate additional internal resources to this segment of our business.
 
Costs related to production revenues were $51,639 during the three months ended October 31, 2008, compared to $12,775 for the three months ended October 31, 2007, for a difference of $38,864. Although there were no production revenues during the three months ended October 31, 2007, there were remaining costs related to television production revenues from prior periods.

Distribution Revenues

For the three months ended October 31, 2008, distribution revenue was $149,851 as compared to $0 for the same period in 2007. Distribution revenues primarily resulted from the DVD release of five of our titles on our distribution network, which includes theatrical, home entertainment and digital distribution, during the three months ended October 31, 2008.

Costs related to distribution revenues in the amount of $14,971 are primarily due to the distribution fees plus the costs of manufacturing, marketing and pick, pack and ship directly related to the DVD release.
 
Other Costs and Expenses
 
Selling, general and administrative expenses during the three months ended October 31, 2008 were $1,517,072 as compared to $1,631,465 for the three months ended October 31, 2007, a decrease of $114,393 or approximately 7%. During the three months ended October 31, 2008, approximately 42% of our selling, general and administrative expenses consisted of salary expense totaling $631,066, as compared to salary expense of approximately $1,054,350, which represented 65% of selling, general and administrative expenses for the three months ended October 31, 2007. The decrease of $423,284, or 40%, in salary expense for the three months ended October 31, 2008 was primarily due to the separation from service of various employees as well as the closure of our New York office. During the three months ended October 31, 2008, selling, general and administrative expenses also included consulting fees of $76,224 as compared to $122,749 during the same period in the prior year for a decrease of $46,525 as we continued to reduce our reliance on consultants. Legal fees increased by $45,864, or 165%, from $27,803 during the three months ended October 31, 2007 to $73,667 for the same period in 2008. Investor and public relations costs decreased by $81,788, or 61%, from $133,250 during the three months ended October 31, 2007 to $51,462 for the same period in 2008.
 
 
20
 
Selling, general and administrative expenses not specifically attributable to any segment have been allocated among the four segments pro-rata according to percent of revenues. Segment operating income (loss) excludes the amortization of intangible assets, interest income and income taxes.

 
During the three months ended October 31, 2008, we recorded expenses of $128,889 associated with the granting of stock options and warrants to employees, advisors and consultants as compared to expenses of $592,572 incurred for the three months ended October 31, 2007, for a decrease of $463,683 or 78%. The decrease is primarily due to a reduced number of grants of options to our directors, employees and consultants.

During the three months ended October 31, 2008, we recorded expenses of $57,400 associated with stock issued for services as compared to expenses of $182,384 incurred for the three months ended October 31, 2007, for a decrease of $124,984 or 69%. The decrease is primarily due to the reduction in the number of consultants and vendors being paid with shares of our common stock.

There was an increase of $47,629 in interest expense to $67,442 during the three months ended October 31, 2008, from $19,813 during the three months ended October 31, 2007. The increase in interest expense is primarily due to an increase in production and prints and advertising loans from related parties.

Other income decreased by $1,221 or 8% to $14,685 during the three months ended October 31, 2008 compared to $15,906 for the three months ended October 31, 2007.

For the three months ended October 31, 2008, we had a net loss of $3,262,250 as compared to a net loss of $1,165,332 for the three months ended October 31, 2007, representing a increase in net loss of $2,096,918 or 180%. The increase in net loss for the three-month period resulted primarily from a significant increase in expenses for the quarter offset by increases in revenues from advertising and promotion along with an increase in distribution revenues. The increase in expenses was a result of increases in costs related to distribution revenues and amortization of intangible assets offset by decreases in the fair value of common stock issued for services, the vesting of stock options and a decrease in publishing costs. The increases in expenses were also due to an increase in the amortization of capitalized production costs of $42,497 and an impairment of capitalized film production costs in the amount of $2,351,575 due to a write down of domestic and international licensing ultimate revenues from the release of National Lampoon’s Bagboy and Ratko.

During the quarters ended October 31, 2008 and 2007, we had no provision for income taxes due to the significant net operating losses incurred in prior periods and related carry forward to the current period. We also accrued dividends of $292,335 during the three months ended October 31, 2008 and $297,771, during the same period in 2007 for a decrease of $5,436 or 2%. The decrease was primarily due to the conversion of our Series B or Series C Preferred Stock to common stock. The addition of the accrued dividend resulted in a net loss attributable to common shareholders of $3,554,585 or $(0.35) per basic and fully diluted share for the three months ended October 31, 2008, as compared to a net loss attributable to common shareholders of $1,463,103 or $(0.18) per basic and fully diluted share for the three months ended October 31, 2007.
 
Liquidity and Capital Resources
 
With the exception of the first quarter of the fiscal year ended July 31, 2007, we have not generated positive cash flows from operations over the past few years. Our principal sources of working capital during the three months ended October 31, 2008 consisted of revenues, loans from our officers and directors and production loans from Red Rock Pictures Holdings, Inc.
 
Net cash used in operating activities was $1,357,809 for the three months ended October 31, 2008, as compared to $497,534 for the three months ended October 31, 2007. The increase in cash flow used in operations was primarily attributable to an increase in production costs, offset by a decrease in accounts receivable, and increases in accounts payable and deferred revenues. Cash provided by financing activities was $1,364,621 for the three months ended October 31, 2008, as compared to $438,945 for the three months ended October 31, 2007. The funds were obtained from officers and directors, Red Rock Pictures Holdings, Inc. and investors and were partially offset by repayments to each of them.
 
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company had a current net loss of $3,262,250 for the three months ended October 31, 2008, as well as negative working capital of $5,383,587 and a stockholder’s deficiency of $970,204 as of October 31, 2008, along with net losses for the prior two years of $1,686,974 and $2,504,170. Additionally, on December 15, 2008 the United States Securities and Exchange Commission issued a release and the United States Attorney for the Eastern District of Pennsylvania announced that they had charged seven individuals and two corporations with engaging in three separate fraudulent schemes to manipulate the market for publicly traded securities through the payment of prearranged kickbacks. The defendants include National Lampoon, Inc. and Daniel S. Laikin (see Subsequent Events). Furthermore, on January 9, 2009 our board of directors decided to voluntarily delist our common stock, par value $0.0001 per share, from NYSE Amex Equities. These factors raise substantial doubt about the Company's ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
 
 
21
 
 
Historically, our principal sources of funds used for operations and working capital have been revenues and loans received from Daniel S. Laikin, our former Chief Executive Officer, and Timothy Durham, our current Chief Executive Officer. The aggregate amount of the loans and accrued interest owed to Mr. Laikin and Mr. Durham at October 31, 2008 was $1,569,329 as compared to $1,244,178 at July 31, 2008. These two individuals have made no further commitment to provide loans to us to meet any immediate working capital requirements.
 
Our ability to continue as a going concern is dependent upon our ability to develop additional sources of capital and revenue. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our capital requirements for the next 12 months have been and will continue to be significant. We will need to obtain financing to fund our cash needs and continue our operations. Additional financing, whether through public or private equity or debt financing or loans from our stockholders or other sources may not be available, or if available, may be on terms unacceptable to us. We do not currently have any committed sources of financing available. Our ability to maintain sufficient liquidity to continue our operations is dependent on our ability to raise additional capital.
 
As of October 31, 2008, we had cash of $2,287 and receivables totaling $793,021. We are currently delivering ten films for which the minimum guarantees, license fees and home video sales revenues are due upon notice of delivery, acceptance of delivery or home video accounts receivables payments received. During the first quarter ended October 31, 2008, we received $155,998 in license fees and we expect additional payments to be received by the end of the 2009 fiscal year.
 
We have completed an audit of Warner Bros. Entertainment, Inc. relating to its exploitation of the films National Lampoon’s Vacation, National Lampoon’s European Vacation and National Lampoon’s Christmas Vacation.  We are currently reviewing those results to determine how we will proceed. The Company has not recorded an estimate of any amount that may be owed.
 
 
 
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160 establishes accounting and reporting standards that require that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retained non-controlling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding non-controlling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements are applied retrospectively for all periods presented. The Company does not have a non-controlling interest in one or more subsidiaries.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (SFAS 161). This Statement requires enhanced disclosures about an entity’s derivative and hedging activities, including (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
 
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting principles in the United States for non-governmental entities. SFAS No. 162 is effective 60 days following approval by the U.S. Securities and Exchange Commission of the Public Company Accounting Oversight Board's amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.”
 
 
22

 
In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”).  FSP EITF 03-6-1 concludes that unvested share-based payment awards that contain rights to receive non-forfeitable dividends or dividend equivalents are participating securities, and thus, should be included in the two-class method of computing earnings per share (“EPS”).

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosure about Fair Value of Financial Instruments” (FSP 107-1/APB 28-1). FSP 107-1/APB 28-1 requires interim disclosures regarding the fair values of financial instruments that are within the scope of FAS 107, “Disclosures about the Fair Value of Financial Instruments.” Additionally, FSP 107-1/APB 28-1 requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes of the methods and significant assumptions from prior periods. FSP 107-1/APB 28-1 does not change the accounting treatment for these financial instruments   

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP 157-4).  FSP 157-4 provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased.  FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly.  In addition, FSP 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques 

In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162," and approved—the FASB Accounting Standards CodificationTM (Codification) as the single source of authoritative nongovernmental US GAAP. The Codification does not change current US GAAP, but is intended to simplify user access to all authoritative US GAAP by providing all the authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the Codification will be considered non-authoritative. For the Company, the Codification is effective July 1, 2009 and will require future references to authoritative US GAAP to coincide with the appropriate section of the Codification.

In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)," which revised the consolidation guidance for variable-interest entities. The modifications include the elimination of the exemption for qualifying special purpose entities, a new approach for determining who should consolidate a variable-interest entity, and changes to when it is necessary to reassess who should consolidate a variable-interest entity.

We do not believe that the adoption of the above recent pronouncements will have a material effect on our condensed consolidated results of operations, financial position, or cash flows.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company we are not required to provide this information.

 
Evaluation of Disclosure Controls and Procedures
 
Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting, and the preparation of financial statements for external purposes in accordance with accounting principles  generally accepted in the United States of America.
 
Our internal controls over financial reporting include those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;
 
Provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and
 
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
 
 
23
 

 
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time. Our system contains self monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. 

Our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in Internal Control. Based on the evaluation, our management concluded that our system of internal control over financial reporting was ineffective as of October 31, 2008.

In October 2008, we engaged an internal controls consultant to assist in our compliance with the Sarbanes-Oxley Act of 2002. Specifically, the consultant was engaged to document our system of internal controls, identify material weaknesses, propose and implement remediation of the weaknesses, develop tests of our key controls, analyze the testing and train our personnel to maintain the system and tests. In October 2008, we received a report from our internal controls consultant that stated we have material weaknesses in our system of internal controls. A material weakness, as defined in standards established by the Public Company Accounting Oversight Board (United States), has been identified. A material weakness is a deficiency in internal control over financial reporting that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Based upon the report of the consultant and management assessment, we have identified the following material weaknesses:

Insufficient disaster recovery or backup of core business functions,

Lack of segregation of duties,

Lack of a purchase order system or procurement process,

Lack of documented and reviewed system of internal controls, and

Management is continuing to work with our internal controls consultant to remediate these material weaknesses in our system of internal controls.

Changes in Internal Control
 
No change in internal control over financial reporting was made during the first quarter of the 2009 fiscal year that materially affected, or is likely to materially affect, the Company's internal control over financial reporting.
 
 
 
Item 1 - Legal Proceedings
 
American Cinema Distribution Corporation v. National Lampoon, Inc. In August 2007, the American Cinema Distribution Corporation (“ACDC”) filed claims against us for costs incurred on the release of “National Lampoon’s Pucked”. ACDC alleged that we did not perform distribution services as agreed and that ACDC should be reimbursed for distribution costs it incurred estimated at $65,000.  ACDC also alleged that it does not owe distribution fees to us for marketing, publicity, promotional and advertising services that we provided.  We alleged that we provided these services and that they have a value in excess of $290,000.  On September 23, 2008 we entered into a settlement agreement with the plaintiffs dated July 16, 2008.  We agreed to dismiss the complaint against the plaintiffs in exchange for a payment of $20,000, which was made to us upon the execution of the settlement agreement, and the right to retain 75% of the receipts after payments to unions and guilds until we have been paid an additional sum of $180,000.
 
 

On September 17, 2008, 5,000 shares of common stock at a price of $0.92 per share with a value of $4,600 were issued to Dennis Haskins, a consultant, for a one-time consulting fee.
 
In September 2007 we entered into an agreement with American Capital Ventures to provide consulting services to us. On September 17, 2008, we issued a total of 7,272 shares of restricted common stock to American Capital Ventures having a total value of $6,690. The consultant was also paid a fee of $3,500 per month during the service period.
 
 
Item 3 - Defaults Upon Senior Securities
 
None.
 
 
24
 
Item 4 - Submission of Matters to a Vote of Security Holders
 
 
Item 5 - Other Information
 
None.
 
Item 6 - Exhibits
 
3.1
Certificate of Incorporation of National Lampoon, Inc. (1)
3.2
Bylaws of National Lampoon, Inc. adopted August 27, 2002 (1)
3.3
First Amendment of Certificate of Incorporation of National Lampoon, Inc. (2)
3.4
Second Amendment to Certificate of Incorporation of National Lampoon, Inc. (6)
3.5
Third Amendment to Certificate of Incorporation of National Lampoon, Inc. (6)
4.1
Certificate of Designations, Preferences, Rights and Limitations of Series C Convertible Preferred Stock of National Lampoon, Inc. (2)
4.2
First Amendment to Certificate of Designations, Preferences, Rights and Limitations of Series C Convertible Preferred Stock of National Lampoon, Inc. (6)
4.3
Second Amendment to Certificate of Designations, Preferences, Rights and Limitations of Series C Convertible Preferred Stock of National Lampoon, Inc. (6)
4.4
Certificate of Designations, Preferences, Rights and Limitations of Series D Convertible Preferred Stock (6)
4.5
NLAG Registration Rights Agreement dated May 17, 2002 among the Registrant and members of the NLAG Group and GTH Capital, Inc. (3)
4.6
Jimirro Registration Rights Agreement dated May 17, 2002 (3)
4.7
Piggyback Registration Rights Agreement dated September 3, 2002 between the Registrant and Constellation Venture Capital, L.P. as agent for certain individuals. (4)
4.8
Piggyback Registration Rights Agreement entered into among the Registrant and the purchasers of Series C Convertible Preferred Stock (5)
4.9
J2 Communications Voting Agreement dated May 17, 2002 among members of the NLAG Group and James P. Jimirro (3)
4.10
First Amendment to Voting Agreement dated June 7, 2002
4.11
Series C Voting Agreement entered into among the Registrant and purchasers of Series C Convertible Preferred Stock (5)
10.1
Employment Agreement dated October 28, 2008 between the registrant and Lorraine Evanoff (7)
10.2
Amendment to Financing Agreement dated October 30, 2008 between Ratko Productions, Inc. and Red Rock Productions, Inc. *
10.3
Amendment to Financing Agreement dated October 30, 2008 between Bag Boy Productions, Inc. and Red Rock Productions, Inc. *
10.4
Notice of Assignment and Direction to Pay dated October 1, 2008 among Flim Flam Films, LLC, NLDM One, LLC, National Lampoon, Inc. and VooDoo Productions Services, LLC*
10.5
Promissory Note in the amount of $150,000 dated October 3, 2008 and executed by National Lampoon, Inc. in favor of Gerald J. Daigle, Jr.*
10.6
Promissory Note in the amount of $100,000 dated August 18, 2008 and executed by National Lampoon, Inc. in favor of Robert Levy*
10.7
Promissory Note in the amount of $150,000 dated August 21, 2008 and executed by National Lampoon, Inc. in favor of Robert Levy*
10.8
Promissory Note in the amount of $100,000 dated September 23, 2008 and executed by National Lampoon, Inc. in favor of Robert Levy*
31.1
Certification by Chief Executive Officer pursuant to section 302 of the Sarbanes Oxley Act of 2002*
31.2
Certification by Chief Financial Officer pursuant to section 302 of the Sarbanes Oxley Act of 2002*
32
Certification by Chief Executive Officer and Chief Financial Officer pursuant to section 906 of the Sarbanes Oxley Act of 2002*
 
*Filed herewith.
 
(1)
Incorporated by reference from the registrant's Annual Report on Form 10-K/A for the fiscal year ended July 31, 2003 filed with the Securities and Exchange Commission on December 19, 2003, file no. 001-32584.
(2)
Incorporated by reference from the registrant's Annual Report on Form 10-K for the fiscal year ended July 31, 2005 filed with the Securities and Exchange Commission on October 29, 2005, file no. 001-32584.
(3)
Incorporated by reference from the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 31, 2002, file no. 001-32584.
(4)
Incorporated by reference from the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 9, 2002, file no. 001-32584.
(5)
Incorporated by reference from the registrant's Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on December 22, 2006, file no. 001-32584.
(6)
Incorporated by reference from the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 10, 2008, file no. 001-32584.
(7) Incorporated by reference from the registrant’s Current Report on Form 8-K filed on October 30, 2008, file no. 001-32584.
 
25
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
     
 
NATIONAL LAMPOON, INC.
     
October 1, 2009
By:  
/s/ Timothy Durham
 
Timothy Durham,
Chief Executive Officer

     
October 1, 2009
By:  
/s/Rick Snow
 
Rick Snow,
Interim Chief Financial Officer
   
 
 
 
 
 
 26
EX-10.2 2 f10q1008ex10ii_natlampoon.htm AMENDMENT TO FINANCING AGREEMENT DATED OCTOBER 30, 2008 BETWEEN RATKO PRODUCTIONS, INC. AND RED ROCK PRODUCTIONS, INC f10q1008ex10ii_natlampoon.htm
EXHIBIT 10.2
AMENDMENT TO FINANCING AGREEMENT

 
This Amendment to Financing Agreement (the "Amendment") is made effective as of October 31, 2006, by and between Ratko Productions, Inc. ("RATKO"), and Red Rock Productions, Inc., a Nevada corporation ("RRP"), with reference to the following facts:
 
"WHEREAS, RATKO and RRP have entered into that certain Financing Agreement dated as of October 31, 2006, (the "Agreement") ") regarding financing arrangements for a theatrical motion pictures ("Picture"). Except as otherwise set forth herein, all defined terms shall have the meanings given to them in the Agreement.
 
WHEREAS, RATKO and RRP desire to amend the Agreement in accordance with the terms and conditions more fully set forth in this Amendment.

NOW THEREFORE, for good and valuable consideration, the parties hereby agree to amend the Agreement in accordance with the following terms and conditions:

1.  Section 2 Recoupment of Investment will be deleted in its entirety and the following paragraph will be added in its place:

 
2. Recoupment of Investment: RRP will be entitled to recoup its investment plus interest at ten percent (10%) with interest accruing on the average daily balance from the date of the loan is provided to RATKO. RATKO will make payments to RRP as the funds are collected based on the following:

a.    First, RATKO will pay to National Lampoon, Inc. ("NL") a distribution fee equal to Twenty percent (20%); and
 
b.    Next, NL will receive recoupment of all P&A expenses incurred in connection with the distribution of the Picture.

The remaining gross receipts shall be split 50/50 between RATKO and RRP until such as times as RRP has recouped its investment in its entirety. RATKO acknowledges that the loan must be repaid to RRP in its entirety on January 31, 2012.
 
2.    Full Force and Effect / Conflicts: Except as specifically provided herein, all other terms and conditions of the Agreement shall remain in full force and effect. In the event of any conflict between this Amendment and the Agreement, this Amendment shall govern.

 
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. The parties hereto by their signature acknowledge that the terms and conditions hereof form a valid, binding and integrated agreement which may not be amended, modified or supplemented except in writing.
 

'RATKO"
 
RATKO PRODUCTIONS INC.
  
"RRP"
 
RED ROCK PRODUCTIONS, INC
 
/s/  Daniel S. Laikin   /s/  Reno Rolle
By:  DANIEL S. LAIKIN   By:  RENO ROLLE
Its:  Authorized Signatory   Its:  Authorized Signatory
Date:  10/30/08   Date:  10/30/08
 
 
 EX-10.3 3 f10q1008ex10iii_natlampoon.htm AMENDMENT TO FINANCING AGREEMENT DATED OCTOBER 30, 2008 BETWEEN BAG BOY PRODUCTIONS, INC. AND RED ROCK PRODUCTIONS, INC f10q1008ex10iii_natlampoon.htm
EXHIBIT 10.3

 
AMENDMENT TO FINANCING AGREEMENT

 
This Amendment to Financing Agreement (the "Amendment") is made effective as of October 31, 2006, by and between Bag Boy Productions, Inc. ("BBP"), and Red Rock Productions, Inc., a Nevada corporation ("RRP"), with reference to the following facts:
 
WHEREAS, BBP and RRP have entered into that certain Financing Agreement dated as of October 31, 2006, (the "Agreement") ") regarding financing arrangements for a theatrical motion pictures ^Picture"). Except as otherwise set forth herein, all defined terms shall have the meanings given to them in the Agreement.

WHEREAS, BBP and RRP desire to amend the Agreement in accordance with the terms and conditions more fully set forth in this Amendment.

NOW THEREFORE, for good and valuable consideration, the parties hereby agree to amend the Agreement in accordance with the following terms and conditions:

1.   Section 2 Recoupment of Investment will be deleted in its entirety and the following language will be added in its place:

2. Recoupment of Investment: RRP will be entitled to recoup its investment plus interest at ten percent (10%) with interest accruing on the average daily balance from the date of the loan is provided to BBP. BBP will make payments to RRP as the funds are collected based on the following:

a.    First, BBP will pay to National Lampoon, Inc. ("NL") a distribution fee equal to Twenty percent (20%); and
 
b.    Next, NL will receive recoupment of all P&A expenses incurred in connection with the distribution of the Picture.

The remaining gross receipts shall be split 50/50 between BBP and RRP until such as times as RRP has recouped its investment in its entirety. BBP acknowledges that the loan must be repaid to RRP in its entirety on March 14, 2011.

 
2.  Full Force and Effect / Conflicts: Except as specifically provided herein, all other terms and conditions of the Agreement shall remain in full force and effect. In the event of any conflict between this Amendment and the Agreement, this Amendment shall govern.

 
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. The parties hereto by their signature acknowledge that the terms and conditions hereof form a valid, binding and integrated agreement which may not be amended, modified or supplemented except in writing.

 
 
 
"BBP"
 
BAG BOY PRODUCTIONS INC.
  
RRP
 
RED ROCKS PRODUCTIONS, INC.
 
  
EX-10.4 4 f10q1008ex10iv_natlampoon.htm NOTICE OF ASSIGNMENT AND DIRECTION TO PAY DATED OCTOBER 1, 2008 AMONG FLIM FLAM FILMS, LLC, NLDM ONE, LLC, NATIONAL LAMPOON, INC. AND VOODOO PRODUCTIONS SERVICES, LLC f10q1008ex10iv_natlampoon.htm
EXHIBIT 10.4
 
NLDM ONE, L.L.C.
FLIM FLAM FILMS, L.L.C.
 VOODOO PRODUCTION SERVICES, L.L.C.


 
NOTICE OF ASSIGNMENT AND DIRECTION TO PAY


Please make reference to the Agreement between NATIONAL LAMPOON, INC. ("NL") and FLIM FLAM FILMS, LLC ("Flim Flam") (together the "Parties") dated as of April 30, 2007 for the distribution of the motion picture "DIRTY MOVIE" or "NATIONAL LAMPOON'S DIRTY MOVIE" (the "Picture") as therein defined ("NL Agreement").
 
Unless defined herein, words and phrases appearing in this Notice of Assignment and Direction to Pay shall have the meaning as defined in the NL Agreement.
 
1. Please take notice that the interest of Flim Flam in the Agreement has been contributed to NLDM ONE, L.L.C. ("NLDM ONE") pursuant to a Contribution Agreement dated as of January 31, 2008 between Flim. Flam and NLDM ONE, and accordingly, the Licensee has assigned its 75% interest in the gross receipts of the Picture (as provided in paragraph 3 of the NL Agreement) to NLDM ONE. Notwithstanding the foregoing, Flim Flam has retained its right of recoupment of Production costs at 120% as provided in the penultimate sentence of paragraph 3 of the NL Agreement, except as provided in paragraph 2 below.
 
2. In light of certain distribution and production services performed for the Picture by Voodoo Production Services, LLC ("Voodoo"), as well as certain other financial considerations, NLDM ONE has agreed to assign an amount equal to 8% of the gross receipts of the Picture to Voodoo. In addition, Flim Flam has agreed to assign Voodoo the first $190,000 that it will be entitled to receive pursuant to its right of recoupment of Production costs as set forth in paragraph. 3 of the NL Agreement.

Accordingly, the Parties hereby agree that paragraph 3 of the NL- Agreement shall be revised to read as follows:
 
"3. DIVISION OF GROSS RECEIPTS: Gross receipts from the Picture shall be divided as follows: First, NL will receive its 8% trademark fee,
Next, NL will receive its distribution fee, which is 20% when distributing directly and a 5% override if being distributed by a third party.
 
Next, Voodoo Production Sendees, LLC ("Voodoo") will receive its 8% distribution/production fee (equal in amount, to NL's 8% trademark fee), provided that payment of Voodoo's 8% distribution/production fee shall be deferred until NL (or it sub-distributor) recoups 120% of P&A and Licensee (or its assignee - including Voodoo) recoups 120% of Production costs. Next, recoupment by NL- (or its sub-distributor) of P&A at 120%. P&A will be a minimum of S .100,000.00 and a maximum of $300,000.00 without the written approval of Licensee. 20-40% of the P&A will be spent on NL platforms and other NL media.
Next, recoupment by Licensee of Production costs at 120%. Production costs will be a minimum of §100,000 and a maximum of 5200,000.00 without the written approval of NL, provided S190,000 of this amount will be paid to Voodoo as specified below.
The balance will be divided 75% to Licensee and 25% to NL, provided that Voodoo's 8%
distribution/production fee shall not be included in the computation of the balance for puiposes of
calculating the 25% due to NL.  
 
 
Any and all payments made by NL with respect to amounts owed to Voodoo as assignee of NLDM ONE and/or Flim Flam, as applicable, shall be paid as and when due and payable to Voodoo Production Services, LLC, if by wire transfer to:
 
Account: Voodoo Production Services, LLC
Bank: The Business Bank of St. Louis
St. Louis, Missouri
Account Number: 12984420
Routing No. 081018998
(or to such other address or account as Voodoo may designate in writing)
 
NL acknowledges that it will pay all funds relating to amounts assigned by NLDM ONE and/or Flim Flam, as applicable, to Voodoo under the NL Agreement to the above account.

All other clauses and conditions set forth in the NL Agreement, not herein amended, for any legal purposes shall remain in full force and effect and bind the parties and are hereby ratified and confirmed.
 
IN WITNESS HEREOF, the parties hereto have agreed and caused this Notice of Assignment and
 
Direction to Pay to be executed by their duly authorized representatives effective as of October 1, 2008.                                                                                               --^
 
 
   
 
 
 
 EX-10.5 5 f10q1008ex10v_natlampoon.htm PROMISSORY NOTE IN THE AMOUNT OF $150,000 DATED OCTOBER 3, 2008 AND EXECUTED BY NATIONAL LAMPOON, INC. IN FAVOR OF GERALD J. DAIGLE, JR f10q1008ex10v_natlampoon.htm
EXHIBIT 10.5

 
 
PROMISSORY NOTE
 
$150,000   October 3,2008
 
 
l.0 Promise to Pav: Initial Interest Rate. FOR VALUE RECEIVED, National Lampoon. Inc. ("Maker"), binds itself to pay to the order of Gerald J. Daigle, Jr. ("Payee"), the principal sum of ONE HUNDRED FIFTY THOUSAND AND NO/100 ($150,000) DOLLARS, together with interest thereon at the rate often percent (10%) per annum from the date hereof through the Maturity Date (as defined below).

2.0 Guaranty, In order to induce Payee to make the loan evidenced by this Note, Daniel S. Laikin ("Guarantor'*) hereby unconditionally and irrevocably, jointly and severally., guarantees to Payee 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, and the full and prompt payment of all other sums, together with all interest accrued thereon, when, due under the terms of the Note.
 
3.0 Payment
 
3.1 Maker shall pay the loan evidenced by this Promissory Note (this t4Note,:) as follows: Maker shall pay the principal balance and all accrued but unpaid interest, and all other remaining unpaid fees and other amounts due hereunder on January 15, 2009, the maturity date of this Note (the "Maturity Date").
 
3.2 Interest on this Note shall be computed on a simple interest basis by applying the annual interest rate to the actual number of days the principal balance is outstanding.
 
3.3 Both the principal and interest under this Note are payable at the offices of Payee at 909 Poydras Street, Suite 2230, New Orleans, Louisiana 70112, or at such other place as Payee may from time to time designate in writing.

4.0 Right to Make Prepayment Maker may prepay all or any portion of the principal amount of this Note prior to the Maturity Date.

5.0 Attorneys* Fees. If this Note is not paid when, due and is referred to an attorney for collection (whether or not litigation is commenced), or for representation of Payee in proceedings under the Bankruptcy Code or other insolvency proceedings, the undersigned promises to pay, and Payee shall be entitled to recover, the reasonable fees and expenses of such attorney in an amount not exceeding twenty-five percent of the unpaid debt then owing under this Note, in addition to the full amount due hereunder.
 
 
6.0 Waivers. Maker, its successors and assigns and any endorser or Guarantor hereof, whether a party hereto or by separate agreement, waive presentment, protest, demand and any notice of protest, demand, dishonor, acceleration, intent to accelerate and nonpayment of this Note, and also all pleas of division and discussion, and expressly agree that this Note, or any payment hereunder, may be extended from time to time without notice, and -without in any way affecting the liability of any Maker, its successors, assigns, and any endorsers, guarantors or sureties hereof. No extension of time for the payment of this Note, or any installment hereof, made by agreement of Payee with any person or entity now or hereafter liable for payment of this Note, shall in any way affect the original liability of any Maker under the terms of this Note, even if such Maker is not a party to any such agreement

7.0 Caption Headings. Caption headings of the sections of this Note are for convenience purposes only and are not to be used to interpret or to define their provisions. In this Note, whenever the context so requires, the singular includes the plural and the plural includes the singular.

8.0 Severability. If any provision of this Note is held to be invalid, illegal or unenforceable by any court, that provision shall be deleted from thi s Note and the balance of this Note shall be interpreted as if the deleted provision never existed.

 
 
MAKER:
 
NATIONAL LAMPOON, INC,
 
 
By:  /s/  Daniel S. Laikin      
     Daniel S. Laikin
 
 
 
GUARANTOR
 
 
/s/  Daniel S. Laikin         
    Daniel S. Laikin, Individually
 
 
 EX-10.6 6 f10q1008ex10vi_natlampoon.htm PROMISSORY NOTE IN THE AMOUNT OF $100,000 DATED AUGUST 18, 2008 AND EXECUTED BY NATIONAL LAMPOON, INC. IN FAVOR OF ROBERT LEVY f10q1008ex10vi_natlampoon.htm
EXHIBIT 10.6
 
 
PROMISSORY NOTE
 
SI 50.000.00
LOS ANGELES, CALIFORNIA
 AUGUST 21.2008
 
 
FOR VALUE RECEIVED, I PROMISE TO PAY TO THE ORDER OF ROBERT LEVY, AT 3550 WILSHIRE BOULEVARD, SUITE 840, LOS ANGELES, CALIFORNIA THE SUM OF ONE HUNDRED FIFTY THOUSAND DOLLARS AND 00/100 ($150,000.00) IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, WITH INTEREST FROM AUGUST 21,2008, AT THE RATE OF 7% PER ANNUM UNTIL PAID. IN THE EVENT THERE IS A SUIT OR ACTION TO ENFORCE PAYMENT OF THIS NOTE OR ANY PORTION THEREOF, I PROMISE TO PAY SUCH ADDITIONAL SUM AS THE COURT MAY ADJUDGE REASONABLE AS ATTORNEY FEES IN SAID ACTION OR SUIT, AND BE MADE A PART OF THE JUDGMENT, OR IF PLACED IN THE HANDS OF ATTORNEYS FOR COLLECTION IF EFFECTUATED WITHOUT SUIT, I PROMISE TO PAY ALL COSTS AND EXPENSES INCLUDING REASONABLE ATTORNEY FEES.

 


 
 
DUE DATE
SEPTEMBER 4,2008
 EX-10.7 7 f10q1008ex10vii_natlampoon.htm PROMISSORY NOTE IN THE AMOUNT OF $150,000 DATED AUGUST 21, 2008 AND EXECUTED BY NATIONAL LAMPOON, INC. IN FAVOR OF ROBERT LEVY f10q1008ex10vii_natlampoon.htm
 
EXHIBIT 10.7
 
PROMISSORY NOTE
 
AUGUST 18.2008
 LOS ANGELES, CALIFORNIA
$100.000.00
 
 
FOR VALUE RECEIVED, I PROMISE TO PAY TO THE ORDER OF ROBERT LEVY, AT 3550 WILSHIRE BOULEVARD, SUITE 840, LOS ANGELES, CALIFORNIA THE SUM OF ONE HUNDRED THOUSAND DOLLARS AND 00/100 ($100,000.00) IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, WITH INTEREST FROM AUGUST 18,2008, AT THE RATE OF 7% PER ANNUM UNTIL PAID. IN THE EVENT THERE IS A SUIT OR ACTION TO ENFORCE PAYMENT OF THIS NOTE OR ANY PORTION THEREOF, I PROMISE TO PAY SUCH ADDITIONAL SUM AS THE COURT MAY ADJUDGE REASONABLE AS ATTORNEY FEES IN SAID ACTION OR SUIT, AND BE MADE A PART OF THE JUDGMENT, OR IF PLACED IN THE HANDS OF ATTORNEYS FOR COLLECTION IF EFFECTUATED WITHOUT SUIT, I PROMISE TO PAY ALL COSTS AND EXPENSES INCLUDING REASONABLE ATTORNEY FEES.

 
 

 
 
DUE DATE
SEPTEMBERS 2008

 EX-10.8 8 f10q1008ex10viii_natlampoon.htm PROMISSORY NOTE IN THE AMOUNT OF $100,000 DATED SEPTEMBER 23, 2008 AND EXECUTED BY NATIONAL LAMPOON, INC. IN FAVOR OF ROBERT LEVY f10q1008ex10viii_natlampoon.htm
EXHIBIT 10.8
 
PROMISSORY NOTE
 
  $ 100,000.00   
LOS ANGELES, CALIFORNIA
SEPTEMBER 23,2008
 
 
For value received, National Lampoon, Inc., promises to pay to the order of Robert Levy, on or before October 6, 2008, at 3550 Wilshire Boulevard, Suite 840, Los Angeles, California, the sum of One Hundred Thousand Dollars and 00/100 ($100,000.00) in lawful money of the United States of America, with interest from September 22, 2008, at the rate of 6% per month until paid. This promissory note is secured by certain collateral consisting of amounts due to the undersigned from the Screen Actors Guild pursuant to that certain Pledge Agreement of even date. In the event there is a suit or action to enforce payment of this note or any portion thereof, the undersigned promises to pay such additional sum as the court may adjudge reasonable as attorney fees in said action or suit, and such amount shall be made a part of the judgment, or if placed in the hands of attorneys for collection and collection is effectuated without suit, the undersigned promises to pay all costs and expenses of collection including reasonable attorney fees.
 
 

DUE DATE:
OCTOBER 6, 2008

 
1
.
 
PLEDGE AGREEMENT
 
AGREEMENT is made as of this 24th day of  September, 2008, by and between NATIONAL LAMPOON, INC., a California corporation (the "Borrower") and ROBERT LEVY, an individual ("Secured Party") with respect to the following:
 
    A.   Borrower conducts a publishing business and motion picture production business.
      
    B. In order to continue its business, Borrower desires to borrow and Secured Party desires to lend the sum of One Hundred Thousand Dollars ($100,000) to Borrower (the "Loan").
   
    C.   Borrower executed a promissory note in favor of Secured Party in the amount of the Loan, bearing interest, of even date herewith (the "Note").
   
    D.    In consideration of and as an additional inducement for Secured Party to enter into the Loan, Borrower agrees to give, and Secured Party agrees to accept, a first-priority security interest in and to Borrower's rights, title, and interests in the Collateral (as hereinafter defined), as collateral security for the full and prompt performance of all indebtedness, liabilities, and obligations of the Borrower to Secured Party in respect of the Note
   
    F Pursuant to the aforesaid security interest granted hereby, the Borrower will forthwith deliver either to Secured Party or to Secured Party's designees such ancillary documents necessary to perfect the pledge or to take such other action as may be appropriate to perfect the pledge
.
ACCORDINGLY, the parties hereby agree as follows:
 
  1. 
 Creation of Security Interest. The Borrower as sole beneficial owner hereby  charges and grants to Secured Party a first-priority security interest in all of the Borrower's right, title, and interest, both legal and equitable, in and to the collateral described in Section 2 hereof  (the "Collateral"), and establishes a pledge on all of the Collateral in order to secure the payment and performance of the obligations described in Section 3 hereof.
 
  2.
Collateral. The Collateral under this Pledge Agreement is:
 
  2.1 
All rights to payments due from the Screen Actors Guild with respect to amounts deposited as a bond for the motion picture "Legend of the Awesomest Maximus"; and
 
  2.2  Any substituted or additional Collateral required to be supplied under the terms of this Agreement.
  
The Collateral shall include any assets described in this Section 2, whether owned by Borrower now or acquired in the future during the term of this Pledge Agreement.
 
2
 
  3. Secured Obligations of the Borrower. The Collateral secures and shall hereafter secure (a) the full and prompt performance of all obligations of the Borrower to Secured Party under, pursuant to or in connection with the Note and (b) the performance of all other obligations and the discharge of all other liabilities of the Borrower to Secured Party of every kind and character, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, joint, several or joint and several, whether created under this Agreement or any other agreement, as such agreement may be amended from time to time, to which the Borrower and Secured Party are parties. All payments and performances by the Borrower shall be in accordance with the terms under which said indebtedness, obligations, and liabilities were or are hereafter incurred or created.
  4
The Borrower's Representations and Warranties. The Borrower represents and warrants that:
 
  4.1
The Borrower is the sole owner of the Collateral;
 
  4.2 
The security interest hereunder in the Collateral is a first, prior, and perfected security interest;
 
  4.3 
There are no security interests, liens or encumbrances upon, or adverse claims of title to, or any other interest whatsoever in, the Collateral or any portion thereof except that created by this Agreement;
 
  4.4  No financing statement covering the Collateral or any portion thereof exists or is on file in any public office; and
 
  4.5 The Borrower has full right, power, and authority to enter into this Agreement and no consent of, or registration or filing with, any person or public authority is require
 
  5.
 Covenants of the Borrower. The Borrower covenants that:
 
  5.1 
The Borrodeliver to Secured Party each item of Collateral hereunder capable of delivery immediately upon the Borrower's acquisition thereof and will take all reasonable actions to defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein.wer will
 
  5.2 
The Borrower will, promptly upon request by Secured Party, procure or execute and deliver any documents, deliver to Secured Party any instruments, give any notices, execute any proxies, execute and file any financing statements or other documents, all in form reasonably satisfactory to Secured Party, and take any other actions which are necessary or, in the reasonable judgment of Secured Party, desirable to perfect or continue the perfection and first priority of Secured Party's security interest in the Collateral, to protect the Collateral against the rights, claims, or interests of third persons or to effect the purposes of this Agreement (including, without limitation, for vesting or enabling Secured Party to vest title in any item of  Collateral in Secured Party or Secured Party's nominees or in any Borrower in accordance with this Agreement), and will pay all costs incurred in connection therewith, including, without limitation, reasonable attorneys' fees.
 
  5.3 
The Borrower will not, without the pri
or written consent of Secured Party, in any way hypothecate or create or permit to exist any lien, security interest, or encumbrance on or other interest in the Collateral, nor will the Borrower sell, transfer, assign, exchange, or otherwise dispose of the Collateral or any interest therein. If any Collateral, or any interest therein, is sold, transferred, assigned, exchanged, or otherwise disposed of in violation of these provisions, the security interest of Secured Party shall continue in such Collateral or part thereof notwithstanding such sale, transfer, assignment, exchange, or other disposition, and the Borrower will hold the proceeds thereof in a separate account for Secured Party's benefit. The Borrower will, at Secured Party's request, transfer such proceeds to Secured Party in kind.
 
 
 
3
 
5.4 The Borrower will pay and discharge all taxes, assessments, and governmental charges or levies against the Collateral prior to delinquency thereof and will keep the Collateral free of all unpaid charges whatsoever.
 
5.5 The Borrower will permit representatives designated by Secured Party to visit and inspect any of its properties and examine, take copies and make abstracts from any of its books and records at all times and within such scope as Secured Party may reasonably request, and the Borrower will reimburse Secured Party for all reasonable costs incurred thereby
 
5.6 Secured Party shall have the right at any time to make any payments and do any other acts Secured Party shall deem reasonably necessary to protect his or its security interest in the Collateral, including, without limitation, the rights to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in the reasonable judgment of Secured Party appears to be prior or superior to the security interest granted hereunder, and appear in and defend any action or proceeding purporting to affect his or its security interest in and/or the value of the Collateral, and in exercising any such powers or authority, the right to pay all expenses incurred in connection therewith, including, without limitation, reasonable attorneys' fees. The Borrower hereby agrees that it shall be bound by any such payment made or act taken by Secured Party hereunder and shall reimburse Secured Party for all reasonable payments made and reasonable expenses incurred, which amounts shall be secured under this Agreement. Secured Party shall have no obligation to make any of the foregoing payments or perform any of the foregoing acts.
 
6.   Defaults and Remedies.

6.1 The occurrence of any one or more of the following events or conditions affecting the Borrower shall constitute an event of default ("Event of Default") under this Agreement with respect to the Borrower:
 
6.1.1    The Borrower fails to perform fully and promptly all obligations of the Borrower to Secured Party under, pursuant to or in connection with the Note, including, without limitation, the full and prompt payment when due of all indebtedness of the Borrower to Secured Party; .
 
4
6.1.2 The Borrower fails to pay any indebtedness, perform any obligation required to be performed by any of them, or discharge any liability to Secured Party in accordance with the terms upon which such indebtedness, obligation, or liability was incurred or created, or otherwise defaults under any agreement to which Secured Party and the Borrower are parties, as such agreements may be amended from time to time, and such failure continues for a period of ten (10) days;
 
6.1.3 The Borrower makes or has made or furnishes or has furnished any warranty, representation, or statement to Secured Party in connection with this Agreement, or any other agreement to which the Borrower and Secured Party are parties, including, without limitation, the Note, as such agreements may be amended from time to time, which is or was false or misleading in any material respect when made or furnished;
 
6.1.4 Any lien (other than for property taxes which are not delinquent) or encumbrance other than that created by this Agreement is placed on or any levy is made on the Collateral or any portion thereof or any assets of the Borrower or any portion thereof, or the Collateral or any portion thereof or any assets of the Borrower or any portion thereof is seized or attached pursuant to legal process, unless such lien, encumbrance, levy, seizure or attachment is removed or released within thirty (30) days from the time such lien or encumbrance was placed thereon or such levy, seizure, or attachment was effected, but in any event not later than five (5) days prior to any date for sale of such property);
 
6.1.5 Any substantial portion of the assets of the Borrower is transferred, or any material obligation is incurred by the Borrower, unless such transfer or obligation is made or incurred in good faith for fair equivalent consideration;
 
6.1.6 The Borrower becomes insolvent as defined in the federal Bankruptcy Code, admits in writing its insolvency or its present or prospective inability to pay its debts generally as they become due, is unable to or does not pay all or any material portion (in number or dollar amount) of its debts as they become due, permits or suffers a judgment to exist against it (unless enforcement thereof is stayed pending appeal), makes or proposes an assignment for the benefit of creditors, convenes or proposes to convene a meeting of its creditors or any class thereof for purposes of effecting a moratorium upon or extension or composition of its debts, proposes any such moratorium, extension or composition, or commences or proposes to commence any bankruptcy, reorganization or insolvency proceeding, or other proceeding under any federal, state or other law for the relief of the Borrower;
 
6.1.7 The Borrower fails to obtain the dismissal, within thirty (30) days after the commencement thereof, of any bankruptcy, reorganization, or insolvency proceeding, or other proceeding under any law for the relief of the Borrower, instituted against it by one or more third parties, fails actively to oppose any such proceeding, or, in any such proceeding, defaults or files an answer admitting the material allegations upon which the proceeding was based or alleges its willingness to have an order for relief entered or its desire to seek liquidation, reorganization or adjustment of any of its debts; or
 
5
6.1.8 Any receiver, trustee, or custodian is appointed to take possession of all or any substantial portion of the assets of the Borrower or any committee of the creditors of the Borrower, or any class thereof, is formed for the purpose of monitoring or investigating the financial affairs of the Borrower or enforcing such creditors' rights.

 
6.2 Upon the occurrence of an Event of Default hereunder, Secured Party may, at Secured Party's option, without notice to or demand upon the Borrower, do any one or more of the following:
 
6.2.1 Declare the Note and all other indebtedness of the Borrower to Secured Party to be immediately due and payable;
 
6.2.2 Take possession of all items of Collateral hereunder not then in his or its possession and require the Borrower or the parties in possession thereof to deliver such Collateral to Secured Party at one or more locations as Secured Party shall designate;
 
6.2.3 Exercise any or all of the rights and remedies provided for by applicable law, including, without limitation, the rights and remedies of a secured party under the Uniform Commercial Code, specifically including, without limitation, the right to recover the reasonable attorneys' fees incurred by Secured Party in the enforcement of this Agreement or in connection with the Borrower's redemption of the Collateral;
 
6.2.4 Sell the Collateral, or any portion thereof, at any public or private sale or on any securities exchange or other recognized market, for cash, upon credit or for future delivery, as Secured Party shall deem appropriate. Secured Party shall be entitled at any such sale, if Secured Party deems it advisable to do so, to restrict the prospective bidders or Borrowers to persons who will provide assurances satisfactory to Secured Party that they may be offered and sold the Collateral to be sold without registration under the Securities Act of 1933 or any other applicable statute, whether such statute be state or federal, and upon the consummation of any such sale, Secured Party shall have the right to assign, transfer and deliver to the Borrower or Borrowers thereof the Collateral so sold. Secured Party may solicit offers to buy the Collateral, or any part of it, from a limited number of investors deemed by Secured Party, in Secured Parry's reasonable judgment, to meet the requirements to purchase securities under Regulation D or its equivalent promulgated under the Securities Act of 1933. If Secured Party solicits such offers from such investors, then the acceptance by Secured Party of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposition of the Collateral. Each Borrower at any such sale shall hold the property sold free from any claim or right on the part of the Borrower, and the Borrower hereby waive, to the full extent permitted by law, all rights of redemption, stay and/or appraisal which the Borrower now or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Secured Party shall give the Borrower at least ten (10) business days' written notice of any public sale or of the date on or after which a private sale may be made. Such notice, in case of a public sale, shall state the time and place fixed for such sale.
 
6
 
Any public sale shall be held at such time or times during ordinary business hours and at such place or places as Secured Party may fix in the notice of such sale. Secured Party may sell all or any portion of the Collateral on any securities exchange or other recognized market without notice to the Borrower. At any private or public sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate lots, as Secured Party shall determine. Secured Party may bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) for and purchase for his or its account the whole or any part of the Collateral at any public sale or sale on any securities exchange or other recognized market. Secured Party shall not be obligated to sell any Collateral if it shall determine not to do so, notwithstanding that notice of sale of Collateral shall have been given. Secured Party may, without notice or publication, adjourn any sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by Secured Party until the sale price is paid by the Borrower or Borrowers thereof, and Secured Party shall not incur any liability in case any such Borrower or Borrowers shall fail to take up and pay for the Collateral purchased. In case of any such failure, such Collateral may be sold again upon like notice. The parties hereto agree that the method, manner and terms of sale or disposition of the Collateral authorized by this subsection are commercially reasonable;
 
6.2.5 Proceed by an action or actions at law or in equity to recover the indebtedness secured hereunder or to foreclose this Agreement and sell the Collateral, or any portion thereof, pursuant to a judgment or decree of a court or courts of competent jurisdiction;
 
6.2.6 Use, manage, operate, and control the Collateral and the business and property of the Borrower to preserve the Collateral or its value, or to pay the indebtedness secured hereunder, including, without limitation, the rights to take possession of all of the premises and property of the Borrower and to exclude the Borrower and any third parties, whether or not claiming under the Borrower, from such premises and property, to operate the Borrower and all of its property until all of the indebtedness secured hereunder is paid to Secured Party;
 
6.2.7 Use, in connection with any assembly, use or disposition of any property of the Borrower any trademark, trade name, trade style, copyright, patent, or other similar right, or technical knowledge or process used or utilized by the Borrower; and
 
6.2.8 Enforce one or more remedies hereunder, successively or concurrently, and such action shall not operate to estop or prevent Secured Party from pursuing any other or further remedy Secured Party may have, and any repossession or retaking or sale of the Collateral pursuant to the terms hereof shall not operate to release the Borrower until full payment of any deficiency has been made in cash. The Borrower shall reimburse Secured Party upon demand for, and Secured Party may apply any proceeds of Collateral to, the costs and expenses, including, without limitation, reasonable attorneys' fees, transfer taxes, and other charges incurred by Secured Party in connection with any sale, disposition or retention of any Collateral hereunder.
 
7
7.  Authority of Secured Party. Secured Party shall have and be entitled to exercise all powers hereunder which are specifically delegated to Secured Party by the terms hereof, together with such powers as are reasonably incident thereto. In connection with such powers, upon the occurrence of an Event of Default hereunder, Secured Party shall be entitled to transfer into street name or the name of a nominee or nominees any certificates or instruments representing or evidencing any of the Collateral hereunder, and to have any such certificates or instruments exchanged for ones of smaller or larger denominations. Secured Party may perform any of his or its duties hereunder or in connection with the Collateral by or through agents or employees and shall be entitled to retain counsel and to act in reliance upon the advice of counsel concerning all such matters. Neither Secured Party nor any director, officer, employee, attorney, or agent of Secured Party shall be liable to the Borrower for any action taken or omitted to be taken by it or them hereunder, except for Secured Party's or their own gross negligence or willful misconduct; nor shall Secured Party be responsible for the validity, effectiveness, or sufficiency hereof or of any document or security furnished pursuant hereto. Secured Party and such other persons shall be entitled to rely on any communication, instrument, or document believed by Secured Party or them to be genuine and correct and to have been signed or sent by the proper person or persons. The Borrower shall indemnify and hold harmless Secured Party and/or any such other person from and against any and all reasonable costs, expenses, including, without limitation, reasonable attorneys' fees, claims, or liability incurred by Secured Party or such person hereunder or in connection herewith, unless such claim or liability shall be due to willful misconduct or gross negligence on the part of Secured Party or such other person, as the case may be.

8.   Miscellaneous Provisions.
 
 8.1 Headings. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof.
 
 8.2 Choice of Law. This Agreement and the respective rights and obligations of the parties hereunder shall be governed and construed in accordance with the laws of the State of California, without reference to its principles of conflict of laws.
 
 8.3 Amendments. This Agreement or any provision hereof may be changed, waived, or terminated only by a statement in writing signed by the party against which such change, waiver or termination is sought to be enforced.
 
 8.4 No Waiver. No delay in enforcing or failure to enforce any right under this Agreement by any party to this Agreement shall constitute a waiver by such party of such right. No waiver by any party of any default hereunder shall be effective unless in writing, nor shall any waiver operate as a waiver of any other default or of the same default on a future occasion.
 
8
 8.5 Time of the Essence. Time is of the essence of each provision of this Agreement of which time is an element.
 
 8.6 Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended as a complete and exclusive statement of the terms and conditions thereof. Acceptance of or acquiescence in a course of performance rendered under this Agreement shall not be relevant to determine the meaning of this Agreement even though the accepting or acquiescing party had knowledge of the nature of the performance and opportunity for objection.
 
 8.7 Expenses of Litigation. In the event of any legal action, equitable suit, arbitration, or other proceeding arising out of or related to this Pledge Agreement or the relationship of the parties created hereby (including, without limitation, any action, suit or other proceeding brought by a party for the enforcement of this Pledge Agreement or collection of any judgment, order, or award issued by any court or tribunal of competent jurisdiction or arbitrator in connection herewith), the successful or prevailing party shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in such proceeding, whether incurred prior to or after commencement of such proceeding, on appeal or otherwise, in addition to any other relief to which such party may be entitled.
 
 8.8 Arbitration. The parties shall make a good faith effort to settle any dispute or claim arising under this Agreement. If the parties fail to resolve such disputes or claims, they shall submit them to binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association then in effect.
 
8.8.1 All proceedings before the arbitrators shall be held in Los Angeles, California.
 
 8.8.2 Discovery shall be allowed pursuant to Section 1283.05 of the California Code of Civil Procedure.
 
 8.8.3 The costs and fees of such arbitration shall be assessed by order of the arbitrators pursuant to Section 8.7 hereof. In order to secure highly qualified arbitrators, the parties agree to compensate the arbitrators at a daily rate generally commensurate with the regular daily compensation of persons of such caliber.
 
 8.8.4 The authority of the arbitrators shall be limited to the specific issue(s) submitted to them by the parties for determination.
 
 8.9   Statute of Limitations. The Borrower hereby waives the right to plead any statute of limitations as a defense to any indebtedness or obligation hereunder or secured hereunder to the full extent permitted by law.
 
9
8.10 Severability. If any provision of this Agreement should be found to be invalid or unenforceable, all of the other provisions shall nonetheless remain in full force and effect to the maximum extent permitted by law.
 
8.11 Survival of Provisions. All representations, warranties, and covenants of the Borrower contained herein shall survive the execution and delivery of this Agreement, and shall terminate only upon the full and final payment and performance by the Borrower of its indebtedness and obligations secured hereunder.
 
8.12 Power of Attorney. The Borrower hereby appoints and constitutes Secured Party and its officers, directors and legal counsel as the Borrower's attorneys-in-fact for purposes of (a) collecting any Collateral; (b) conveying any item of Collateral to any Borrower thereof; (c) making any payments or taking any acts under Section 5.6 hereof; and (d) sealing and delivering and otherwise completing and/or perfecting any deed, assurance, agreement, instrument or act that may be required for the purposes hereof. The authority hereunder shall include, without limitation, the authority to endorse and negotiate, for Secured Party's account, any checks or instruments in the name of the Borrower, to execute or receipt for any document, to transfer title to any item of Collateral, and to take any other actions necessary or incident to the powers granted to Secured Party in this Agreement. This power of attorney is coupled with an interest and is irrevocable by the Borrower.
 
8.13 Setoff. Secured Party shall have the right, at any time, to setoff and apply any indebtedness or obligation of the Borrower to Secured Party against any indebtedness or obligation of Secured Party to the Borrower, without notice to or demand upon the Borrower, any guarantor of any such indebtedness or obligation, or any other person. The indebtedness and obligations which may be setoff hereunder include, without limitation, any deposits held by Secured Party for the benefit or account of the Borrower, and any indebtedness or obligations of any party, whether or not unliquidated, contingent or unmatured at the time of such setoff, and however such indebtedness or obligations were created or incurred. Secured Party's right of setoff hereunder shall be in addition to and not in limitation of any other rights or remedies which may exist in favor of Secured Party.
 
8.14 Notice. All notices and requests hereunder shall be in writing and shall be delivered in person or by certified or registered mail, postage prepaid, or by overnight delivery service such as Federal Express, addressed to:
 
Borrower:                                                      National Lampoon, Inc.
8228 Sunset Blvd.
Los Angeles, CA 90046

 
Secured
Party:                                                              Robert Levy
c/o Harabedian, Hall & Co.
3550 Wilshire Blvd., Suite 840
Los Angeles, CA 90010
 
10
with copy to:                                                Leslie S. Klinger, Esq.
               Kopple & Klinger, LLP
10866 Wilshire Blvd., Suite 1500
Los Angeles, California 90024

 
Such notices and requests shall be deemed delivered on the day on which personally delivered or, if delivered by mail, on the third (3rd) business day after deposit in the United States mail, as evidenced by a post office receipt furnished to the sender. Any party may change its address for receipt of notices and requests hereunder by notice duly given to the other parties in accordance with the provisions of this Section 8.14.
 
8.15 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same agreement.
 
8.16 Duty of Care. Secured Party shall have no duty or obligation to care for the Collateral hereunder or to take any actions to protect the value of the Collateral or any rights or privileges the Borrower might have with respect thereto, except that Secured Party shall exercise reasonable caution in the physical care of the Collateral in Secured Party's possession.
 
8.17 Binding Effect. This Agreement and the respective right and obligations of the parties hereunder shall be binding upon and inure to the benefit of such parties and their respective heirs, personal and legal representatives, successors and assigns.
 
8.18 Termination of Pledge. This Agreement and the security interest and pledge hereunder shall not terminate until the full and final payment and performance of all indebtedness due under the Note and the costs and expenses incurred by Secured Party to enforce this Agreement or any rights hereunder. At such time, Secured Party shall reassign and redeliver to the Borrower all of the Collateral hereunder which has not been sold, disposed of, retained or applied by Secured Party in accordance with the terms hereof. Such reassignment and redelivery shall be without warranty by or recourse to Secured Party, and shall be at the expense of the Borrower. Without limiting the generality of the foregoing, the security interest and pledge hereunder shall not be terminated by the transfer of any of the Collateral hereunder from Secured Party to the Borrower, or any person designated by the Borrower, for the purpose of ultimate sale, exchange, presentation, collection, renewal, or registration of transfer or for any other purpose.
 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
 
 
 
/s/  Daniel Laikin
 
DANIEL LAIKIN
 
_____________________________
ROBERT LEVY
 
 

 EX-31.1 9 f10q1008ex31i_natlampoon.htm CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002 f1021008ex31i_natlampoon.htm
 
Exhibit 31.1
 
Certification by Chief Executive Officer/President pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934
 
 
I, Timothy Durham, certify that:
 
 
 
 
 
 
 
 
 
 
 

 
October 1, 2009

/s/ Timothy Durham                                                                                                                                          
Timothy Durham, Chief Executive Officer and President

 EX-31.2 10 f10q1008ex31ii_natlampoon.htm CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002 f1021008ex31ii_natlampoon.htm
 
Exhibit 32.1
 
Certification by Chief Financial Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934
 
I, Rick Snow, certify that:
 
1.  I have reviewed this Quarterly Report on Form 10-Q of National Lampoon, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

October 1, 2009

/s/ Rick Snow                                                                                                          
Rick Snow, Interim Chief Financial Officer

 EX-32.1 11 f10q1008ex32_natlampoon.htm CERTIFICATION BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 2002 f1021008ex32_natlampoon.htm
 
Exhibit 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. 1350

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) each of the undersigned officers of National Lampoon, Inc. (the “Company”) does hereby certify, to such officer’s knowledge, that:

(a)           The Quarterly Report on Form 10-Q for the period ended October 31, 2008 of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;  and
 
(b)           Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated:  October 1, 2009


/s/ Timothy Durham                                                                                                                                        
Timothy Durham, Chief Executive Officer and President

 
/s/ Rick Snow                                                                                                                                
Rick Snow, Interim Chief Financial Officer



 

 
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