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

FORM 10-K

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

For the Fiscal Year Ended July 31, 2002
Commission File No. 0-15284

J2 COMMUNICATIONS
(Exact name of registrant as specified in its charter)

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

Registrant’s telephone number: (310) 474-5252

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

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

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

YES [X]    NO [   ]

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

As of October 23, 2002, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the Registrant (based on the closing sales price as reported by the OTC Bulletin Board) was $6,079,624 assuming all officers and directors are deemed affiliates for this purpose).

As of October 28, 2002 the Registrant had 1,465,471 shares of its common stock, no par value, outstanding.

Documents Incorporated by Reference: None

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FORWARD-LOOKING STATEMENTS

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

PART I.

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

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

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

RECENT DEVELOPMENTS

1. REORGANIZATION TRANSACTIONS

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

As part of the Reorganization Transactions, our Articles of Incorporation were amended on May 17, 2002 to designate 68,406 of the previously authorized 2,000,000 shares of Preferred Stock as Series B Convertible Preferred Stock (“Series B Preferred”), with each share of Series B Preferred being convertible into 28.169 shares of Common Stock. The shares of Series B Preferred vote on a converted basis as a class with the shares of Common Stock. Pursuant to the Purchase Agreement, we agreed to sell to designees of NLAG up to 68,406 units (the “Series B Units”), with each unit consisting of one share of Series B Preferred and a warrant to purchase 28.169 shares of Common Stock, At the initial closing we issued 35,244 Series B Units to five members of the NLAG Group for an aggregate purchase price of $3,524,400.

The members of the NLAG Group and Mr. Jimirro entered into a Voting Agreement, dated May 17, 2002, regarding, in addition to certain other matters, the voting of their shares of Common Stock and Series B Preferred for the election of three Jimirro nominees, three NLAG nominees, and one nominee acceptable to both parties. To give effect to the Voting Agreement, Joe De Simio and Gary Cowan resigned as directors of the Company on May 17, 2002, and Messrs. Durham and Skjodt were elected to fill the vacancies created by those resignations. In addition, Joshua A. Finkenberg was elected to fill the vacancy created by an amendment to the Bylaws to increase the size of the Board of Directors from six to seven members.

The Board also has voted unanimously to terminate the Rights Agreement, dated July 15, 1999, as amended March 5, 2001, between

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us and U.S. Stock Transfer Corporation, and to redeem all of the outstanding rights issued thereunder for a cash payment of $.001 per right. In voting to terminate the Rights Agreement and redeem the rights, the Board of Directors made no finding regarding the validity of the Rights Agreement or the rights.

The consummation of the Reorganization Transactions effectively concluded all of the litigation between us, the members of the NLAG Group and Mr. Jimirro. As part of or in connection with the Reorganization Transactions, Mr. Jimirro’s employment arrangement with us was restructured, a prior debt obligation from us to Mr. Jimirro was cancelled, and Mr. Jimirro was granted certain registration rights relative to securities granted to him in connection with the restructuring. To secure future obligations to him, Mr. Jimirro was also granted a security interest in substantially all of our assets, including a pledge of all the outstanding securities of all of our wholly owned subsidiaries. Finally, as part of the Reorganization Transactions, Daniel Laikin became our Chief Operating Officer, and entered into an employment agreement with us with respect thereto.

2. BURLY BEAR NETWORK

Effective on September 3, 2002, National Lampoon Networks, Inc., a Delaware corporation (“NLNI”) a newly formed subsidiary of ours, acquired substantially all of the assets of Burly Bear Network, Inc., a Delaware corporation (“Burly Bear”). Burly Bear, organized by a group including the executive producer of Saturday Night Live, was in the business of producing and distributing entertainment through a network of affiliated college television outlets. The Asset Purchase Agreement provided that Burly Bear was to receive as consideration for the purchase of the assets the following: $200,000 in cash, less certain transaction expenses; shares of our Common Stock having an aggregate value of $400,000 (resulting in the issuance of 73,801 shares of Common Stock); and 150 shares of NLNI Common Stock, representing fifteen percent of NLNI’s issued and outstanding shares of Common Stock. The cash consideration paid in the acquisition was received by the Company on August 29, 2002, from two existing shareholders upon their exercise of an option to acquire 2,000 units, with each unit consisting of one share of our Series B Convertible Preferred Stock and one warrant to purchase 28.169 shares of our Common Stock, for a purchase price of $100 per unit.

Burly Bear incurred substantial losses since the inception of the company in 1994, and had an accumulated deficit of <$24,657,746> as of May 31, 2002. The Company hopes to rationalize the assets which were acquired and effectuate a reorganization of the business with a goal of achieving significant revenue growth during the last two quarters of fiscal 2003 and all of fiscal 2004.

3. WORKING CAPITAL DEFICIENCIES

Since the consummation of the Reorganization Transactions, we have initiated a number of new business activities, including our acquisition of substantially all the assets of Burly Bear, and significantly increased our overhead by the hiring of new employees and consultants. To date, these operations have provided de minimis operating revenue and we have been relying on capital received from NLAG Group in connection with the Series B Units purchased in connections with the Reorganization Transactions and in subsequent purchases pursuant to the Purchase Agreement to fund operations. Since the consummation of the Reorganization Transactions, in which we received $2,085,718, subsequent purchases of Series B Units have provided us with $830,000 through October 15, 2002, of which $200,000 was used for the Burly Bear transaction. Unless our revenues from new business activities significantly increase in the near term, we will need to raise additional capital to continue to fund our planned operations or, in the alternative, significantly reduce or even eliminate certain operations. There can be no assurance that we will be able to raise such capital on reasonable terms, or at all. As of October 18, 2002, we had cash on hand of $ 86,000, an amount which reflects an infusion of $80,000 upon the exercise of certain Series B Warrants owned by NLAF immediately prior to such date, and no significant receivables. This amount is not sufficient to fund current operations, which we estimate to be approximately $475,000 per month. We anticipate that any shortfall will be covered by the additional exercise of the Series B Warrants held by the NLAG Group or other investments by NLAG. If NLAG declines to make additional investments, or should we be unable to secure additional financing, we could be forced to immediately curtail much, if not all, of our current plans. Our financial statements for the fiscal year ended July 31, 2002 contain an explanatory paragraph as to our ability to continue as a “going concern”. This explanatory paragraph may impact our ability to obtain future financing. See “Business- Certain Considerations” and “Management’s Discussion and Final Analysis — Liquidity and Capital Resources”.

4. DELAWARE REDOMESTICATION.

We are in the process, and its shareholders have consented to a corporate reorganization pursuant to which we will be redomesticated as a Delaware corporation. Our new name will be National Lampoon Inc. This transaction is scheduled to be consummated in early November 2002.

BUSINESS

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

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Since the completion of the Reorganization Transactions, we have sought to initiate new business activities on several related fronts. Although there are no assurances that any of the following ventures can be completed, or the business activities described below profitably implemented, we are hopeful that certain of these activities will commence operation during the fiscal year which will end July 31, 2003. The consummation of any of these activities is subject to adequate financing being available for us.

     Motion Picture and Feature Film Licensing. In recent years, we have derived the bulk of our revenue from license fees relating to the production of new motion pictures and from contingent compensation for motion pictures previously produced by us and NLI. We generally licensed our “National Lampoon” trademark for use in the titles of the films. , We generally received a fee at the time of production of the motion picture plus contingent compensation that is dependent on the motion picture’s financial performance for producing services and providing the “National Lampoon” trademark.

To date, we have not financed the production or distribution of any “National Lampoon” motion pictures. Instead, we have relied upon third parties, primarily major motion picture studios, to provide a picture’s financing and distribution. Since the Reorganization Transactions, we have increased our emphasis on developing product across all media and, in particular, are devoting management resources to the development of film projects.

We are in discussions with several studios and other film financing entities regarding the development of new “National Lampoon” feature film projects. We have entered into a one year employment arrangement with Matty Simmons, the founder and former CEO/President of National Lampoon from National Lampoon’s inception through the late 1980’s, to help further the implementation of this process.

As of July 31, 2002, we and/or NLI have been involved in the production of eighteen motion pictures, as follows:

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Television Development; Acquisition of The Burly Bear Network.

We are exploring a number of television production opportunities, primarily in the reality television genre. We are currently actively developing a reality show based on fraternity life tentatively called “The House”, as well as programming which can be derived from the College Bus tour (described below). We have also been involved in the production of television programs and currently have several television projects in development. Other shows may be derived from the programming acquired from the September 2002 acquisition of certain of the assets of the Burly Bear. See Recent Developments-Acquisition of the Burly Bear Network. It is anticipated that Burly Bear, which will be renamed the National Lampoon Network, will be an integral part of future television activities. The Company is currently developing and producing projects for Burly Bear.

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

Of the 400 campuses comprising the Burly Bear Network, approximately 50% are services by broadcast studios, and have their materials physically delivered to them, and the other 50% are reached through local cable affiliates. Because of the financial difficulties associated with prior ownership, many of the leased carriage arrangements were allowed to expire by Burly Bear. We are currently negotiating to reinstate those that we have determined maintain economic viability. The cost of these leased carriage arrangements is anticipated to be $180,000 during the first year of operation. Burly Bear is currently broadcasting to approximately 181 campuses, with approximately 40 broadcasts and 15 cable deals anticipated to be effective by the end of the calendar year on, bringing on line and additional 220 campuses.

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

Pursuant to a July 24, 1987 Rights Agreement, NLI granted the right to produce “National Lampoon” television programming to Guber-Peters Entertainment Company (“GPEC”). NLI reacquired these rights from GPEC pursuant to an October 1, 1990 Termination Agreement for the sum of $1,000,000, of which $500,000 was paid upon execution. The remaining $500,000 is contingent and payable through a 17.5% royalty on NLI’s cash receipts from each television program produced by NLI or any licensee (subject to certain minimum royalties for each program produced). As of July 31, 2002, we have recorded a liability of approximately $201,000 relating to the Termination Agreement.

     College Bus Tour. We are attempting to organize a national comedy bus tour for the fall of 2003 which would include over 51 colleges and provide 6 weeks of bus related television programming. The tour which would actually be comprised of 2 separate bus trips (one east of the Mississippi and one west of the Mississippi), would provide for weekly contests as comedians perform on college campuses all over the country and would attempt to obtain the designation as that week’s funniest comic. We have entered into a relationship with LMNO Productions, Inc., a privately held television production company to work with us regarding a possible television show and other ancillary rights (including video) in connection with the production of the tour. Currently we are seeking to develop sponsorship arrangements to defray 100% of the costs of the tour which are estimated to be between $1.6 and $2 million. Inquiries among national sponsors have recently been disseminated. However, we have not commenced formal negotiations with any sponsor, and accordingly, no assurances can be given that an acceptable sponsorship arrangements will be effectuated.

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

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will be successful in completing an agreement with MGAM.

     Publishing. We have entered into a consulting arrangement with Douglas Bennett pursuant to which Mr. Bennett is seeking to re-establish our publishing operations. We have entered into an agreement with Rugged Land LLC to publish 6 National Lampoon books. The first book contemplated is a 1964 “high school year book” parody.

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

News on the March — articles parody and satirize the news of the day.

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

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

Online Confessional — an interactive video features real people confessing their most bizarre sins: website viewers vote to absolve or condemn.

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

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

OTHER ACTIVITIES

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

COMPETITION

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

REGULATION

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

EMPLOYEES

As of October 15, 2002, we employed 13 full-time employees and 6 part-time employees. We consider our employee relations to be satisfactory at the present time. Since the consummation of the Reorganization Transactions, we have also employed a number of consultants as we have increased our business activities. See Part III- Item 10- Directors And Executive Officers Of The Registrant for a description of certain of these arrangements.

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CERTAIN CONSIDERATIONS

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

ADEQUACY OF CAPITAL RESOURCES

Since the completion of the Reorganization Transactions, our operations have been characterized by ongoing capital shortages caused by expenditures in initiating several new business ventures. We are also actively seeking private sources of financing, establishing bank lines and obtaining additional equity from third party sources. There is no assurance that such financing will be available on commercially acceptable terms, if at all. We are not certain if our existing capital resources are sufficient to fund our activities for the next six to twelve months. Unless our revenues from new business activities significantly increase during that period, we will need to raise additional capital to continue to fund our planned operations or, in the alternative, significantly reduce or even eliminate certain operations. There can be no assurance that we will be able to raise such capital on reasonable terms, or at all. As of October 18, 2002, we had cash on hand of $ 86,000, which reflects an infusion of $80,000 upon the purchase of Series B Units by members of NLAG, and no significant receivables . This amount is not sufficient to fund current operations, which we estimate to be approximately $475,000 per month. We anticipate that any shortfall will be covered by the additional purchase of additional Series B Units by designees of NLAG or other investments by members of NLAG. If they decline to make additional investments, or should we be unable to secure additional financing, we could be forced to immediately curtail much, if not all, of our current plans. Our financial statements for the fiscal year ended July 31, 2002 contain an explanatory paragraph as to our ability to continue as a “going concern”. This qualification may impact our ability to obtain future financing.

SPECULATIVE NATURE OF ACTIVITIES

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

COMPETITION: GENERAL ECONOMIC CONDITIONS

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

PRODUCTION ACTIVITIES

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

VARIANCE IN REVENUE

Our revenues and results of operations are significantly dependent upon the timing and success of implementing the business activities describe above, and the timing and receipt of revenue from licensing and production activities, which cannot be predicted

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with certainty. Revenues for any particular program may not be recognized until the program is produced and available for delivery to the licensee. Production delays may impact the timing of when revenues may be recognized under generally accepted accounting principles. Significant sales of our product take place at the industry’s major selling markets, the most important of which are the Cannes Film Festival, the American Film Market, MIFED, MIP-TV and MIPCOM-TV (the International Film and Program Market for TV, Video, Cable & Satellite) which take place in France in the second, third and fourth quarters, respectively, and NATPE and the American Film Market, which takes place in the United States in January. Finally, production commitments are typically obtained from networks in the spring (second quarter), although production activity and delivery may not occur until later periods. We may experience significant quarterly variations in our operations, and results in any particular quarter may not be indicative of results in subsequent periods. Such variations may lead to significant volatility of our share price.

INTERNET ACTIVITIES

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

STOCK PRICE VOLATILITY

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

	•		our developing business;
	•		a continued negative cash flow;
	•		relatively low price per share;
	•		relatively low public float;
	•		variations in quarterly operating results;
	•		general trends in the television industry;
	•		the number of holders of our common stock; and
	•		the interest of securities dealers in maintaining a market for our common stock.

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

Sale of substantial amounts of our common stock, the issuance of substantial amounts of warrants and options granting the right to receive shares of our common stock or the prospect of such sales or issuances, respectively, could materially adversely affect the market price of our common stock. We have the equivalent of approximately 3.8 million shares of common stock outstanding, consisting of approximately 1.4 million shares of common stock, approximately 1.2 million shares issueable upon conversion of outstanding shares of Series B Preferred and approximately 1.1 million shares of common stock are issuable upon exercise of outstanding warrants and options (exclusive of options which would be issued upon issuance of the Series B Preferred.). Of these shares, approximately 1,680,000 shares are restricted shares under the Securities Act of 1933, as Amended (the “Act”). We have filed a registration statement on Form S-8 under the Act to register the sale of approximately 2,500,000 shares of our common stock reserved for issuance under our Restated 2001 Stock Option, Deferred Stock and Restricted Stock Plan. Shares of our common stock issued upon exercise of options are available for sale in the public market, subject in some cases to volume and other limitations.

On December 21, 2001 we received notification from Nasdaq that we failed to comply with the requirements for continued listing on the Nasdaq SmallCap Market. The notification was made pursuant to Nasdaq Marketplace Rule 4310(c)(2)(B) for failure to meet the quantitative listing requirements contained in such rule and Rules 4350(e) and 4350(g) for failure by us to hold our annual meeting for the year 2000 within the time limits required for such rules and that our securities were subject to delisting. On March 22, 2002 the Nasdaq Listing Qualifications Panel notified us of its delisting determination. We requested the Nasdaq Listing and Hearing Review Council to review the Panel’s delisting determination. On March 25, 2002 our common stock began to trade on the Over The Counter Bulletin Board. On July 2, 2002, the Council notified us that it had affirmed the Panel’s decision and on July 26, 2002 Nasdaq notified us that the NASD Board had declined to call the Council’s decision for review.

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DEPENDENCE ON “NATIONAL LAMPOON” TRADEMARK AND RELATED PROPERTIES

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

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

DEPENDENCE ON KEY PERSONNEL

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

ITEM 2. PROPERTIES

We lease approximately 3,912 square feet of office space in Los Angeles, California under a lease expiring in September 2005. Management considers our office space generally suitable and adequate for its current needs.

ITEM 3. LEGAL PROCEEDINGS

None.

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

1. The following proposals were submitted to shareholders at our Annual Meeting of Shareholders held June 14, 2002. Each of the proposals was approved by a majority of the shares present at the meeting.

1.

To re-elect four directors and elect three new directors to serve for the ensuing year or until their successors are duly elected and qualified.

2.

To ratify the appointment of Stonefield Josephson, Inc., as our independent auditors for the fiscal year 2002. Results of the voting included 2,218,062 shares for, 525 shares against and no shares abstained.

2. On September 27, 2002, 1,890,465 of our outstanding Common Stock consented to reincorporate our company as a Delaware corporation with the name National Lampoon, Inc. This transaction is expected to become effective in early November, 2002.

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PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Until March 24, 2002, our Common Stock traded on the Nasdaq Small Cap Market under the symbol “JTWO.” Beginning on March 25, 2002, our Common Stock began trading on the Over The Counter Bulletin Board under the symbol “JTWO.OB”. The following table sets forth the high and low closing sales prices per share of our Common Stock for the periods indicated.

As of October 25, 2002, we had approximately [212] stockholders of record.

On December 21, 2001 we received notification from Nasdaq that we failed to comply with the requirements for continued listing on the Nasdaq SmallCap Market. The notification was made pursuant to Nasdaq Marketplace Rule 4310(c)(2)(B) for failure to meet the quantitative listing requirements contained in such rule and Rules 4350(e) and 4350(g) for our failure to hold our annual meeting for the year 2000 within the time limits required for such rules and that our securities were subject to delisting. On March 22, 2002 the Nasdaq Listing Qualifications Panel notified us of its delisting determination. We requested the Nasdaq Listing and Hearing Review Council to review the Panel’s delisting determination. On March 25, 2002 our common stock began to trade on the Over The Counter Bulletin Board. On July 2, 2002, the Council notified us that it had affirmed the Panel’s decision and on July 26, 2002 Nasdaq notified us that the NASD Board had declined to call the Council’s decision for review.

The delisting of our Common Stock has decreased its liquidity.

DIVIDEND POLICY

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

SALES OF UNREGISTERED SECURITIES.

	1.		As part of the Reorganization Transactions, our Articles of Incorporation were amended on May 17, 2002 to designate 68,406 of the previously authorized 2,000,000 shares of Preferred Stock as Series B Convertible Preferred Stock (“Series B Preferred”), with each share of Series B Preferred being convertible into 28.169 shares of Common Stock. The shares of Series B Preferred vote on a converted basis as a class with the shares of Common Stock. Pursuant to the Purchase Agreement, we agreed to sell to designees of NLAG up to 68,406 units (the “Series B Units”), with each unit consisting of one share of Series B Preferred and a warrant to purchase 28.169 shares of Common Stock. At the initial closing we issued 35,244 Series B Units to five members of the NLAG Group for an aggregate purchase price of $3,524,400. See Item 1 “Business and Recent Developments.” Since that time, and through October 15, 2002 we have issued and additional 830 Series B Units in connection with the purchases by designees of NLAG under the Purchase Agreement.
	2.		We have agreed to issue, and Batchelder Partners Inc. has agreed to accept, 50,000 shares of Common Stock to satisfy the balance of our obligation to it pursuant to various investment banking agreements signed with such firm. The shares, which have not yet been issued, will be subject to various demand registration rights.
	3.		Since the consummation of the Reorganization Transactions we have issued warrants to the following consultants:

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	a.		We are party to a consulting agreement, approved by our Board of Directors on August 7, 2002, with Zelnick Media Group (‘ZM”), headed by Stauss Zelnick, the former head of 20th Century Fox and Bertlesman, the European media conglomerates. Mr. Zelnick and his affiliates are providing marketing, development, production and branding assistance to us. In particular, Scott Ziegler, a partner of ZM, is assisting directly in certain television activities. ZM is being compensated solely by the issuance to it of 300,000 warrants (the “ZM Warrants”) which have been issued directly to ZM and an affiliate. Two of the ZM Warrants will entitle ZM and an affiliate to purchase up to 150,500 of the shares of our Common Stock at an exercise price of $6.50 per share the other two ZM Warrants will entitle ZM and an affiliate to purchase up to 150,500 of the ZM Warrant Shares at an exercise price of $10.00 per share. The number and exercise price of the ZM Warrants are subject to adjustments customarily contained in warrants of a similar nature. One-third of the ZM Warrant Shares become exercisable upon issuance of the ZM Warrants and the remainder of the ZM Warrants will first become exercisable in monthly installments during the 13th through 36th months following the issuance of the ZM Warrants, provided that no ZM Warrant Shares become exercisable after the termination of the consulting agreement
	b.		Effective as of September 11, 2002, we have entered into a consulting agreement with SBI USA, an affiliate of Softbank (“SBI”), pursuant to which SBI has to introduce us to market makers, institutional investors, and other broker/dealers who will increase the visibility of the Corporation in capital markets. The sole compensation paid to SBI was a warrant to purchase 50,000 shares of our Common Stock at an exercise price of $7.00 per share. The warrant expires nine months from the date of issuance.

	4.		We have issued stock options under our Amended and Restated 1999 Stock Option, Deferred Stock and Restricted Stock Plan to our employees and members of our Corporate Advisory Board and Creative Advisory Board. See “Part III- Item 10. Directors and Executive Officers of the Registrant — Advisory Boards.”
	5.		Effective as of August 17, 2002, we issued to Douglas Bennett, an advisor of the Company (“Bennett”) and now our Vice President, the right to acquire 213 shares of Series B Convertible Preferred Stock of the Company (“Series B Preferred”) and a Warrant to purchase up to 6,000 shares of the Company’s common stock (“Common Stock”), which warrant is exercisable for a period of five years at an exercise price of $3.55 per share of Common Stock during the first two years of the term thereof and at a price of $5.00 per share of Common Stock during the last three years of such term. In connection with such grant, NLAG delivered to us a written waiver (the “NLAG Waiver”) of its right to purchase 213 Series B Units purchasable by NLAG pursuant to the Purchase Agreement, thereby making available for issuance 213 shares of authorized but unissued shares of Series B Preferred that had been reserved for possible future issuance to NLAG upon the exercise of its option to purchase Series B Units under the Purchase Agreement.

EQUITY COMPENSATION PLAN INFORMATION

ITEM 6. SELECTED FINANCIAL DATA

The following table shows selected consolidated financial data for the Company for each of the last five fiscal years. This financial data should be read in conjunction with our consolidated financial statements and related footnotes contained herein for the fiscal year ended July 31, 2002 and for the other periods presented.

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SELECTED FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS

GENERAL

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

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

Burly Bear incurred substantial losses since the inception of the company in 1994, and had an accumulated deficit of <$24,657,746> as of May 31, 2002. We hope to rationalize the assets which were acquired and effectuate a reorganization of the business with a goal of achieving significant revenue growth during the last two quarters of fiscal 2003 and all of fiscal 2004. We are currently exploring a number of new ventures, with a view toward increasing both our operations and the visibility of the National Lampoon brand.

CRITICAL ACCOUNTING POLICIES

Based upon our operating activities there are no significant alternative accounting policies which would have a material affect on our operating results. See Footnote A to the financial statements for a discussion of our significant accounting policies.

RESULTS OF OPERATIONS

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

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

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

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

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

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

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

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

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

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

THE YEAR ENDED JULY 31, 2001 VS. THE YEAR ENDED JULY 31, 2000

For the year ended July 31, 2001, total revenues decreased by approximately 79% to $306,244 from $1,480,215 for the year ended July 31, 2000. This decrease resulted primarily from reduced trademark revenues from motion pictures including; “Animal House”, “National Lampoon’s Vacation,” “National Lampoon’s Dad’s Week Off” and “National Lampoon’s The Don’s Analyst.” Internet revenue of $13,685 while not material in the aggregate, was represented a 37% increase over July 2000 Internet revenues of $9,956. Internet revenue consists primarily of banner and sponsorship advertising. Video revenues of $22,151 in fiscal 2001 increased 38%

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from year 2000 video revenues of $16,020. This increase was due to additional sales of library video product in 2001 versus 2000.

Costs related to trademark revenue, primarily royalties and commissions payable to third parties based on our trademark revenues, decreased by approximately 85% to $22,221 for the year ended July 31, 2001 versus $144,578 during the same period last year. The decline in costs resulted primarily from decreased royalties due to reduced trademark revenues during the fiscal year ended July 31, 2001. Costs related to Internet revenues were approximately $36,040 for the year ended July 31, 2001 versus $283,929 for fiscal 2000, which represents a decline of 87%. Internet costs are direct expenses incurred by us to develop, maintain, and promote our website excluding salaries and other general and administrative expenses incurred in connection with our Internet operations. We developed its website during fiscal 2000, therefore expenditures to develop and promote the website were far more extensive for the year ended July 31, 2000 than they were for fiscal 2001.

During the year ended July 31, 2001, and through November 15, 2001, we made significant expenditures to its lawyers, independent accountants, and investment bankers for advice and preparation of documentation related to the change of control pursued by Mr. Laikin. Proxy solicitation expenses for the year ended July 31, 2001 totaled $1,532,837. There were no equivalent proxy solicitation expenditures made by us during fiscal 2000.

Selling, general and administrative expenses for the fiscal year ended July 31, 2001 increased to $1,221,338 versus $1,101,784 for the fiscal year ended July 31, 2000. This increase of approximately 11% resulted primarily from additional full-time staff in fiscal year 2001, and increases in rent, and insurance costs.

During the year ended July 31, 2001, we recorded an expense of $379,695 related to stock appreciation rights (“SARs”) granted to our Chief Executive Officer. This expense resulted from an increase in our stock price from July 31, 2000 to July 31, 2001 that increased the amount payable by us to the Chief Executive Officer upon exercise of the outstanding SARs, and the granting of additional shares during fiscal 2001. During the year ended July 31, 2000 we recorded a benefit of approximately $1,148,000 related to the SARs that resulted from a significant decrease in our stock price from July 31, 1999 to July 31, 2000. The decrease in stock price decreased the amount payable by us to the Chief Executive Officer upon exercise of the outstanding SARs.

Interest income during the year ended July 31, 2001 decreased to $55,551 versus approximately $87,365 for the same period last year. This decrease results from lower cash balances held during the year ended July 31, 2001 versus the year ended July 31, 2000. There was no minority interest income or expense during fiscal 2001 because during the year ended July 31, 2000 there was a settlement of various claims made by the subsidiary’s minority interest and a new structure was established that permanently separated the subsidiary from National Lampoon, and therefore from us.

For the year ended July 31, 2001, we recorded a net loss of $3,076,516 versus a net income of $826,416 for the year ended July 31, 2000. This substantial decrease resulted primarily from; reduced trademark revenues of nearly $1.2 million, costs of attorneys and others pursuant to the Laikin Group’s desire to change control of the Company of over $1.5 million, and a change from an SAR benefit of over $1.1 million during the year ended July 31, 2000 to an SAR expense of $379.695 for fiscal 2001 which represents an increase in SAR expenses of over $1.5 million from fiscal 2000 to fiscal 2001. For additional explanation of the items just mentioned see above. Some of these increases in costs/decreases in revenues were offset by somewhat lower royalty costs due to lower revenues, and lower development costs for our website during fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of working capital during the fiscal year ended July 31, 2002 included; trademark and other income of approximately $943,487 and $2,585,317 from the Laikin group pursuant to the Reorganization Transactions.

For the twelve months ended July 31, 2002, our net cash flows used in our operating activities was $1,961,561, versus $1,486,834 of net cash flow used in operating activities during the twelve months ended July 31, 2001. This decrease resulted primarily from a decrease in accrued expenses and other liabilities.

Since the completion of the Reorganization Transactions, our operations have been characterized by ongoing capital shortages caused by expenditures in initiating several new business ventures. We are also actively seeking private sources of financing, establishing bank lines and obtaining additional equity from third party sources. There is no assurance that such financing will be available on commercially acceptable terms, if at all. We are not certain if our existing capital resources are sufficient to fund our activities for the next six to twelve months. Unless our revenues from new business activities significantly increase during that period, we will need to raise additional capital to continue to fund our planned operations or, in the alternative, significantly reduce or even eliminate certain operations. There can be no assurance that we will be able to raise such capital on reasonable terms, or at all. As of October 18, 2002, we had cash on hand of $ 86,000, an amount which reflects an infusion of $80,000 upon the purchase of Series B Units by designees of NLAG immediately prior to such date, and no significant receivables. This amount is not sufficient to fund current operations, which we estimate to be approximately $475,000 per month. We anticipate that any shortfall will be covered by the additional exercise of the Series B Warrants held by the NLAG Group or other investments by NLAG. If NLAG declines to make

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additional investments, or should we be unable to secure additional financing, we could be forced to immediately curtail much, if not all, of our current plans. Our financial statements for the fiscal year ended July 31, 2002 contain an explanatory paragraph as to our ability to continue as a “going concern”. This qualification may impact our ability to obtain future financing

FUTURE COMMITMENTS

New Accounting Pronouncements:

In July 2001, the FASB issued SFAS No. 141 “Business Combinations.” SFAS No. 141 supersedes Accounting Principles Board (“APB”) No. 16 and requires that any business combinations initiated after June 30, 2001 be accounted for as a purchase; therefore, eliminating the pooling-of-interest method defined in APB 16. The statement is effective for any business combination initiated after June 30, 2001 and shall apply to all business combinations accounted for by the purchase method for which the date of acquisition is July 1, 2001 or later.

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangibles.” SFAS No. 142 addresses the initial recognition, measurement and amortization of intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) and addresses the amortization provisions for excess cost over fair value of net assets acquired or intangibles acquired in a business combination. The statement is effective for fiscal years beginning after December 15, 2001, and is effective July 1, 2001 for any intangibles acquired in a business combination initiated after June 30, 2001. We are evaluating any accounting effect, if any, arising from the recently issued SFAS No. 142, “Goodwill and Other Intangibles” on our financial position or results of operations.

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

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

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

In June 2002, the FASB issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. We do not expect the adoption to have a material impact on our financial position or results of operations.

ITEM 8. FINANCIAL STATEMENTS

The consolidated financial statements of J2 Communications are listed on the Index to Financial Statements set forth on page F-1.

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

As reported in a Form 8-K filed on August 12, 2001, and amended on August 24, 2001, the Audit Committee of our Board of

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Directors dismissed Arthur Andersen LLP as our independent auditors on July 30, 2001, and on that same date engaged Stonefield Josephson, Inc. as our independent auditors for the fiscal year ending July 31, 2001. During the two most recent fiscal years prior to the change, there had been no reportable events (as defined in Item 304 of Regulation S-K) with Arthur Andersen LLP. We had not consulted with Stonefield Josephson, Inc. regarding the application of accounting principles to a specified transaction or the type of audit opinion that might be rendered on our financial statements during the two most recent fiscal years. We did not believe that there were any disagreements with Arthur Andersen LLP within the meaning of Instruction 4 of Item 304 of Regulation S-K as to any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure in connection with the audits of our financial statements for the fiscal years ended July 31, 2000 and 1999 or for any subsequent interim period, which disagreements if not resolved to its satisfaction would have caused Arthur Andersen LLP to issue an adverse opinion or a disclaimer of opinion, and neither report contained an adverse opinion or disclaimer of opinion or was qualified or modified as to uncertainty, audit scope or accounting principles except uncertainty as to our ability to continue as a going concern in the event certain contingent payments became due to any of our officers contained in Arthur Andersen LLP’s opinion on our financial statements for the fiscal year ended July 31, 2000. A letter of Arthur Andersen LLP addressed to the Securities and Exchange Commission was included as Exhibit 16 to the amendment to the Form 8-K. Such letter stated that such firm agreed with the statements made by us.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

EXECUTIVE OFFICERS AND DIRECTORS

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

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

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

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

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

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

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

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

CONSULTANTS

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

Douglas Bennett has been retained as a consultant to implement a publishing business plan for National Lampoon. As compensation, the NLAG group assigned to Mr. Bennett, with our consent, an option to acquire 213 shares of Series B Preferred Stock which NLAG had retained in connection with the Reorganization Transactions, and a warrant to purchase up to 6,000 shares of our Common Stock during the five year term thereof at an exercise price of $3.55 per share during the first two years of the term thereof at an exercise price of $5.00 per share during the last three years of such term. In October 2002, Mr. Bennett was named our Executive Vice President. Mr. Bennett is currently negotiating the terms of his employment relationship.

Steve Mendelson has been retained as a consultant pursuant to a three month consulting agreement, dated August 5, 2002, which pays him $10,000 per month to assist in television development activities. An extension with Mr. Mendelson is currently being negotiated. He is being assisted in his efforts by Scott Ziegler of Zelnick Media Group, Randi Siegel, who is an employee of ours, and Debbie Goldfarb, who is a member of our Creative Advisory Board. See “Directors and Executive Officer’s of the Registrant — Advisory Board.”

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

Pursuant to the terms of an oral agreement, Errol Gerson has been retained as a consultant responsible for implementing our operations regarding the Burly Bear acquisition. We are paying Mr. Gerson $5,000 per month, and Mr. Gerson began receiving an additional $7,500 per month per month form National Lampoon Networks, Inc. in October.

Our basic licensing agreements are being supervised by Bob Koff, who is party to an oral consulting agreement with us which pays him 10% of funds received by us from these activities. Mr. Koff is being assisted by Mark Roessler, who is a member of our Corporate Advisory Board. See “Directors and Officers of the Registrant — Advisory Board” below.

ADVISORY BOARD.

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

Corporate Advisory Board:

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

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

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

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

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

Each of the members of the Creative Advisory Boards is entitled to receive options to acquire 5,000 shares of our Common Stock at an exercise price determined on the date of grant

Creative Advisory Board:

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

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

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

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

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

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

Dan Pasternack- Mr. Pasternack was formerly an executive for Granada Entertainment, USA, and was a senior vice president of

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drama at studios USA, an affiliate of Universal Pictures.

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

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

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation for each of the last three fiscal years of our Chief Executive Officer and up to four of our executive officers (“Named Officers”) whose annual salary and bonus exceeded $100,000 during the fiscal year ended July 31, 2002.

STOCK OPTION AND STOCK APPRECIATION RIGHTS GRANTS

The following table sets forth the individual grants of stock options and stock appreciation rights made during the fiscal year ended July 31, 2002 to the Named Officers:

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

Shown below is information for the Named Officers with respect to the exercise of stock options and the ownership of stock options and stock appreciation rights and their values as of July 31, 2002.

DIRECTOR COMPENSATION

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

EMPLOYMENT AGREEMENTS

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

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

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

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

     In addition, under the Jimirro Employment Agreement, in the event that Mr. Jimirro incurs an excise tax under the Internal Revenue

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

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

Daniel S. Laikin Employment Agreement

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

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

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership Of Certain Beneficial Owners And Management

The following table sets forth the beneficial ownership of the Common Stock and Series B Preferred for (i) each person known by the Company to be the beneficial owner of more than five percent of the outstanding shares of Common Stock or Series B Preferred; (ii) each director; and (iii) the directors and executive officers as a group. Beneficial ownership information in the table is as of September 26, 2002. In calculating beneficial ownership, shares of Series B Preferred are included as if converted into Common Stock. Unless otherwise indicated, beneficial ownership represents both sole voting and sole investment power.

(a)

Mr. Durham directly owns 73,200 shares of Common Stock, 8,380 shares of Series B Preferred and warrants to acquire 236,056 shares of Common Stock (he has granted an option to Mr. Williams to acquire 2,307 shares of Series B

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			Preferred and warrants for 64,987 shares of Common Stock). He also has the right to acquire 7,500 shares of Common Stock pursuant to stock options. Mr. Durham may be deemed to share voting and dispositive power with respect to the securities listed below for Diamond Investments, LLC and DC Investments, LLC, for both of which Mr. Durham serves as Managing Member, and DW Leasing Company, LLC, in which Mr. Durham has an ownership interest. (The total beneficial ownership for Mr. Durham shown in the table also includes the maximum number of securities that Mr. Durham could acquire if he were named the designee of, and exercised, the option held by National Lampoon Acquisition Group, LLC, described in (j) below.)
	(b)		Mr. Laikin directly owns 167,250 shares of Common Stock, 23,364 shares of Series B Preferred and warrants to acquire 658,141 shares of Common Stock. He also has the right to acquire 102,333 shares of Common Stock pursuant to stock options. He may be deemed to share voting and dispositive power with respect to securities listed below for Judy B. Laikin. (The total beneficial ownership for Mr. Laikin shown in the table also includes the maximum number of securities that Mr. Laikin could acquire if he were named the designee of, and exercised, the option held by National Lampoon Acquisition Group, LLC, described in (j) below.)
	(c)		Mr. Skjodt directly owns 141,050 shares of Common Stock, 3,000 shares of Series B Preferred and warrants to acquire 84,507 shares of Common Stock. He also has the right to acquire 7,500 shares of Common Stock pursuant to stock options. He may be deemed to share voting and dispositive power with respect to the securities listed below for Samerian LLP, in which Mr. Skjodt is a Partner. (The total beneficial ownership for Mr. Skjodt shown in the table also includes the maximum number of securities that Mr. Skjodt could acquire if he were named the designee of, and exercised, the option held by National Lampoon Acquisition Group, LLC, described in (j) below.)
	(d)		Christopher R. Williams directly owns 121,721 shares of Common Stock (he also has been granted an option by Mr. Durham to acquire 2,307 shares of Series B Preferred and warrants for 64,987 shares of Common Stock).
	(e)		Diamond Investments, LLC directly owns 92,399 shares of Common Stock.
	(f)		DC Investments, LLC directly owns 5,000 shares of Series B Preferred and warrants to purchase 140,845 shares of Common Stock.
	(g)		Judy B. Laikin directly owns 26,000 shares of Common Stock.
	(h)		Samerian LLP directly owns 20,000 shares of Common Stock.
	(i)		DW Leasing Company, LLC directly owns 17,350 shares of Common Stock.
	(j)		National Lampoon Acquisition Group, LLC holds an option permitting it, or its designees, to acquire 20,095 shares of Series B Preferred and warrants for 566,056 shares of Common Stock.

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Bruce Vann, one of our directors, is a partner of the law firm Kelly Lytton and Vann LLP and has been retained by us for various legal matters. Legal expenses of approximately $119,000 were incurred with respect to work performed by Mr. Vann’s firm for us during the fiscal year ended July 31, 2002.

On July 14, 1986, James P. Jimirro, our Chairman, President and Chief Executive Officer purchased 192,000 shares of our common stock for approximately $115,000. For such shares, we received the sum of approximately $58,000 and a note (“Note”) for approximately $58,000. The Note bears interest at the rate of 10% per annum and, pursuant to a July 14, 1986 Pledge and Security Agreement, is secured by the shares purchased. The unpaid principal and interest outstanding at July 31, 2001 was approximately $151,000.

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

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

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(b)  FORMS 8-K

     On May 31, 2002 we filed a Report on Form 8-k with respect to the completion of the reorganization transactions previously reported in our Form 8-K filed on April 29, 2002 (the “Reorganization Transactions”), involving a group headed by Daniel S. Laikin, Paul Skjodt and Timothy S. Durham and also including National Lampoon Acquisition Group LLC, a California limited liability company; Samerian, LLP, an Indiana limited liability partnership; Diamond Investments, LLC, an Indiana limited liability company; DW Leasing Company, LLC, an Indiana limited liability company; Christopher R. Williams; Helen C. Williams; Judy B. Laikin; Ronald Holzer; and DC Investments, LLC, an Indiana limited liability company (“DCI”) (collectively, the “NLAG Group”), and James P. Jimirro, the Company’s Chairman of the Board, President and Chief Executive Officer. Certain of the Reorganization Transactions were undertaken pursuant to a Preferred Stock and Warrant Purchase Agreement, dated April 25, 2002, as amended by the First Amendment to Preferred Stock and Warrant Purchase Agreement, dated May 17, 2002 (the “Purchase Agreement”). The amendment added Mr. Holzer and DCI as parties to the Purchase Agreement. As part of the Reorganization Transactions, our Articles of Incorporation were amended on May 17, 2002 to designate 68,406 of the previously authorized 2,000,000 shares of Preferred Stock as Series B Convertible Preferred Stock (“Series B Preferred”), with each share of Series B Preferred being convertible into 28.169 shares of Common Stock. The shares of Series B Preferred vote on a converted basis as a class with the shares of Common Stock. Pursuant to the Purchase Agreement, 35,244 units, with each unit consisting of one share of Series B Preferred and a warrant to purchase 28.169 shares of Common Stock, were issued to five members of the NLAG Group for an aggregate purchase price of $3,524,400.

     On June 2, 2000 we filed a Form 8-K announcing that we raised an additional $500,000 through the sale of additional units of convertible preferred stock and a warrant to purchase shares of the Company’s common stock. The units were sold to Daniel S. Laikin and Timothy Durham, shareholders and members of our board, and members of the group which had earlier purchased units at an initial closing on May 17, 2002.

     On July 30, 2002 we filed a Report on Form 8-K with respect the denial by Nasdaq of our appeal of the delisting of our common stock from the Nasdaq SmallCap Market. Our common stock trades on the Over-the-Counter (OTC) Bulletin Board.

(c)  SEE (a) ABOVE

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SIGNATURES

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

Date: October 29, 2002

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

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Certification by CEO and CFO pursuant to Section 302 of Sarbanes-Oxley

CERTIFICATIONS

     James P. Jimirro, President and Chief Executive Officer and James Toll, Chief Financial Officer, certify that:

	1.		We have reviewed this annual report on Form 10-K of J2 Communications;
	2.		Based on our knowledge, this annual 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 annual report;
	3.		Based on our knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial conditions, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
	4.		The registrant’s other certifying officers and ourselves are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-14 and 15d-14, for the registrant to have:

5.

The registrant’s other certifying officers and ourselves have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

6.

The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: October 28, 2002

/s/ James P. Jimirro James P. Jimirro

/s/ James Toll James Toll

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J2 COMMUNICATIONS AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2002, July 31, 2001 and July 31, 2000

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INDEPENDENT AUDITORS’ REPORT

Board of Directors J2 Communications Los Angeles, California

We have audited the accompanying consolidated balance sheets of J2 Communications and Subsidiaries (the “Company”) as of July 31, 2002, and 2001, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the two years in the period ended July 31, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of J2 Communications as of July 31, 2002 and the results of their consolidated operations and their consolidated cash flows for each of the two years in the period ended July 31, 2002 in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the consolidated financial statements, the Company’s net losses of $1,613,334 and $3,076,516 in the last two years, negative working capital of $174,665 and accumulated deficit of $9,892,008 at July 31, 2002 raise substantial doubt about their ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note A. The financial statements do not include any adjustments to asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

CERTIFIED PUBLIC ACCOUNTANTS

Santa Monica, California
September 23, 2002

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To J2 Communications:

We have audited the accompanying consolidated balance sheet of J2 Communications and Subsidiaries (the “Company”) as of July 31, 2000, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years ended July 31, 2000 and 1999. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

As discussed in Note A to the consolidated financial statements, a significant portion of the Company’s assets is composed of certain intangible assets.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of J2 Communications as of July 31, 2000 and the results of their operations and their cash flows for the two years ended July 31, 2000 and 1999 in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note K to the consolidated financial statements, in August 2000, the Company received notice from a member of the Board of Directors requesting that a special meeting of the Company’s shareholders be called for the purported purpose of nominating a slate of six new directors and replacing all of the Company’s incumbent directors. As of October 24, 2000, the Company is currently engaged in discussions with this Director regarding the notice and related matters. Management cannot predict the outcome of these discussions at this time. As discussed in Note C to the consolidated financial statements, the Company has significant contingent payments due an officer upon a change of control event. If a change of control event results as part of these discussions, the amounts due discussed in Note C would be triggered and result in a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note K. The consolidated financial statements do not include any adjustments to asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

Arthur Andersen LLP
Los Angeles, California

October 24, 2000

EXPLANATORY NOTE REGARDING REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS

     On July 30, 2001, we decided to no longer engage Arthur Andersen LLP (“Andersen”) as our independent public accountants and engaged Stonefield Josephson, Inc. to serve as our independent public accountants for the year ending July 31, 2002. More information regarding our change in independent public accountants is contained in a Current Report on Form 8-K filed with the Securities and Exchange Commission on August 12, 2001 and amended on August 24, 2001.

     We could not obtain permission of Andersen to the inclusion in this Annual Report on Form 10-K of their Report of Independent Public Accountants, above. Accordingly, the above Report of Independent Public Accountants is merely reproduced from our Annual Report on Form 10-K for the year ended July 31, 2002 (although the consolidated balance sheet as of July 31. 2001, and the consolidated statements of operations, shareholders’ equity and cash flows for the year ended July 31, 1999 referred to in that report are not included herein) and does not include the manual signature of Andersen.

Because Andersen has not consented to the inclusion of its report in this Annual Report, it may be more difficult to seek remedies against Andersen and the ability to seek relief against Andersen may be impaired.

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J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

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

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J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

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

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J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY