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

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                                   FORM 10-KSB

|X|  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

     For the fiscal year ended December 31, 2004

                                       OR

|_|  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

                        Commission file number: 000-31182


                            The Neptune Society, Inc.
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             (Exact name of registrant as specified in its charter)
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              Florida                                   59-2492929
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     (State or other jurisdiction          (I.R.S. Employer Identification No.)
             organization)

   4312 Woodman Avenue, Third Floor
       Sherman Oaks, California                           91423
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(Address of principal executive offices)                (Zip Code)
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       Registrant's telephone number, including area code: (818) 953-9995
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                     Securities to be registered pursuant to
                           Section 12(b) of the Act:
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              None                                          None
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Title of each class to be so registered     Name of each exchange on which each
                                                class is to be registered

           Securities to be registered under Section 12(g) of the Act:

                  Common Shares, Par Value of $0.001 per Share
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                                (Title of Class)

                                 Not Applicable
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                                (Title of Class)
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     Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days.

     Yes  X     No
        ------     -----


<PAGE>


     Check if there is no disclosure of delinquent  filers  pursuant to Item 405
of  Regulation  S-B is not  contained in this form,  and no  disclosure  will be
contained,  to the best of the  registrant's  knowledge,  in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ______

     State issuer's revenues for its most recent fiscal year: $23,620,121

     State the aggregate market value of the voting and non-voting common equity
held by  non-affiliates  computed by  reference to the price at which the common
equity was last sold, or the average bid and asked price of such common  equity,
as of a specified date within the past 60 days: $4,397,912.

     State  the  number  of shares  of each of the  issuer's  classes  of common
equity, as of the latest practicable date: Shares of Common Stock outstanding as
of March 15, 2005 was 6,540,105.


DOCUMENTS INCORPORATED BY REFERENCE

Not Applicable

Transition Small Business Disclosure Format (Check One)

         Yes             No   X
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<PAGE>



                                TABLE OF CONTENTS

ITEM 1.   DESCRIPTION OF BUSINESS..............................................2

ITEM 2.   DESCRIPTION OF PROPERTIES...........................................12

ITEM 3.   LEGAL PROCEEDINGS...................................................12

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................12

ITEM 5.   MARKET FOR COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
          SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES................13

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...........14

ITEM 7.   FINANCIAL STATEMENTS................................................21

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE............................................47

ITEM 8A.  CONTROLS AND PROCEDURES ............................................47

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; SECTION 16(a)
          COMPLIANCE..........................................................47

ITEM 10.  EXECUTIVE COMPENSATION..............................................51

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT AND RELATED STOCKHOLDER MATTERS..........................56

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................60

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K....................................63

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................65

SIGNATURES ...................................................................66





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FORWARD-LOOKING STATEMENTS

     We use words like "expects," "believes," "intends," "anticipates," "plans,"
"targets,"  "projects" or "estimates" in this annual  report.  When used,  these
words and other,  similar words and phrases or statements that an event,  action
or result "will,"  "may,"  "could," or "should"  occur,  be taken or be achieved
identify "forward-looking"  statements.  Such forward-looking statements reflect
our  current  views  with  respect to future  events and are  subject to certain
risks, uncertainties and assumptions, including, but not limited to:

     o    our  ability  to manage an  increasing  number  of sales  offices  and
          crematories,

     o    our  ability to retain key  management  personnel  and to  continue to
          attract and retain skilled crematory management personnel,

     o    the  effect of state and  federal  regulations  on the death  care and
          pre-need cremation service industry,

     o    changes  in the  death  rate  or  deceleration  of the  trend  towards
          cremation,

     o    availability  and cost of capital  to finance  our growth and meet our
          capital requirements,

     o    general  economic  conditions  that affect the death care and pre-need
          cremation service industry,

     o    risk related to a control position held by a single shareholder of our
          stock, and

     o    our ability to satisfy our debt obligations as they become due.

     Should one or more of these risks or uncertainties  materialize,  or should
underlying assumptions prove incorrect,  actual results may vary materially from
those anticipated, believed, estimated or expected.

     Our  management  has  included  projections  and  estimates  in this annual
report,  which are based primarily on  management's  experience in the industry,
assessments  of our results of operations,  discussions  and  negotiations  with
third  parties and a review of  information  filed by our  competitors  with the
Securities and Exchange Commission or otherwise publicly available.

     We caution readers not to place undue reliance on any such  forward-looking
statements,  which speak only as of the date made.  We disclaim  any  obligation
subsequently  to revise any  forward-looking  statements  to  reflect  events or
circumstances  after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.

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

     "The  Neptune  Society",  "Neptune  Society"  and  "Trident  Society" are a
registered trademarks of The Neptune Society, Inc. in the United States.


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ITEM 1. DESCRIPTION OF BUSINESS

Summary of Our Business

     We, The Neptune  Society,  Inc.,  are the  holding  company for the Neptune
Society of America, Inc., a California corporation.  Neptune Society of America,
Inc. is the holding company for Neptune Management Corp., Heritage Alternatives,
Inc. and Trident Society, Inc., which are engaged in marketing and administering
Pre-Need  and  At-Need  cremation  services in  Arizona,  California,  Colorado,
Florida,  Illinois,  Missouri,  New York, Oregon, Texas and Washington.  We also
operate   crematories  and  licensed   holding   facilities  in  California  and
Washington.  We  provide  cremation  services  in  the  areas  in  which  we own
crematories. We use the services of licensed third-party crematories and holding
facilities in locations in which we do not own facilities.

     Our service programs include:

     o    Pre-need  programs  that allow our clients to pre-plan and pre-pay for
          cremation services; and

     o    At-need programs in which we arrange cremation services at the time of
          need.

     We  compete in the  cremation  services  sector of the death  care  service
industry.  Our primary  business  focus is on marketing  our pre-need  cremation
services  using an integrated  promotion and  professional  sales  strategy.  We
operate our locations under branded names,  "The Neptune  Society," "The Trident
Society,"  "Neptune  Cremation  Services,"  and "Neptune  Society,  A For Profit
Corporation,"  and  offer  only  services  and  products  related  to  cremation
services.  We do not offer  traditional  funeral  services  and we do not own or
operate  cemeteries.  We do not  intend to  evolve  into a  traditional  funeral
services  company  and do  not  intend  to  compete  directly  with  the  larger
competitors that provide traditional funeral and burial services.

Corporate Information

     Our principal  corporate and executive  offices are located at 4312 Woodman
Avenue,  Third Floor,  Sherman Oaks,  California  91423. Our telephone number is
(818)    953-9995.    We   maintain    websites    at    www.neptunesociety.com,
www.tridentsociety.com   and    www.neptunecremationservices.com.    Information
contained on our websites is not part of this annual report.

Overview

     We were  incorporated  in the State of Florida on January 4, 1985 under the
name "L R Associates, Inc.", which subsequently changed its name to "Lari Corp."
on August 3, 1998. On March 31, 1999, Lari Corp., paid $1,000,000 cash, $310,000
in  transaction  costs,  125,000 shares of common stock valued at $5,000,000 and
$21,000,000 of promissory notes valued at $19,968,529  (for total  consideration
of  $26,278,529),  to acquire a group of privately  held  companies  and limited
partnerships  (collectively,  referred  to as the  "Neptune  Group")  that  were
engaged in the business of marketing and administering  Pre-Need and At-Need (at
the time of death)  cremation  services under various brand names.  See "Neptune
Society  Acquisitions."  On April  26,  1999,  Lari  Corp.  changed  its name to
"Neptune Society, Inc."

Neptune Society Services

     Our primary  business is marketing and  administering  Pre-Need and At-Need
cremation  services in the states of  Arizona,  California,  Colorado,  Florida,
Illinois, Missouri, New York, Oregon, Texas and Washington.

Our Pre-Need Program

     Our Pre-Need  program is designed to eliminate  some of the  emotional  and
financial burdens  associated with death by allowing  individuals to pre-arrange
cremation  services at a guaranteed fixed price. We offer similar Pre-Need Plans
in all the states that we conduct business.

Our Pre-Need Plan consists of the following:

     o    Merchandise:  At the time of sale, we deliver an  information  book, a
          personalized  registration  portfolio,  membership  card and specially
          designed urn (where permitted by law).


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     o    Administrative Services: At the time of sale, we also provide services
          related  to  the  administration  of  the  Pre-Need  Plan,   including
          registering  the  member  on our  permanent  database  and  processing
          documents related to third party administration, accounting and record
          delivery.

     o    Cremation  Services:  At the  time of  death,  we  provide  the  basic
          professional  services  of a funeral  director  and staff,  removal of
          deceased from place of death, use of a licensed holding facility,  the
          cremation and related items required for the cremation.

     The Pre-Need Plan is a guaranteed price plan, which means we guarantee that
we will  provide  services at the time of need  without  additional  payment for
contracted  services.  The purchase price of a Pre-Need Plan may be allocated to
Merchandise,  Cremation  Services  and  Administrative  Services  based  on  the
regulatory  requirements and market conditions of the states in which we conduct
business. See "Industry Regulation."

Our At-Need Program
-------------------

     We also provide cremation  services on an immediate need basis (at the time
of death).  We provide a full range of cremation  services and  merchandise  and
care  for  all  aspects  of the  deceased's  cremation  needs  according  to the
decisions  and  plans  of the  decedent's  heirs,  including  service  planning,
optional  services  for  scattering  remains,  and  delivery  of ashes to family
members.  These  services are  typically  far less  expensive  than  traditional
funeral and burial services.

Pricing

     We define our pricing  strategy as a simple and  economical  alternative to
traditionally more expensive and elaborate funerals and burials. Our strategy is
to maintain a simple pricing structure for our products.

     The  price of our  basic  Pre-Need  Plan  ranges  by  market.  We price our
Pre-Need  Plans to enable us to  provide  the  purchaser  a future  fixed  price
guarantee at our level of service,  based on our assessment of market conditions
in each geographic  area that we serve.  Our standard  Pre-Need  service program
includes  services such as burial at sea, rose garden  scattering or delivery of
ashes to family  members.  Our cremation  services are typically  less expensive
than traditional funeral services.

     We also offer an International  Emergency  Assistance plan, through a third
party, to Pre-Need  members which  guarantees  service  coverage  throughout the
world, if the member dies while traveling more than 75 miles away from home.

Installment Payment Plans

     We offer two  installment  payment  programs,  which  allow  purchasers  to
finance the purchase of a Pre-Need Plan with a down payment and monthly payments
together with interest. We charge interest of between 0% and 13.75% per annum on
balances  due under our  installment  payment  programs  in those  States  where
permitted by State law.

Existing Facilities

     Our  strategy  is to  maintain  offices  within or near major  metropolitan
geographic  areas.  This  strategy is  designed to allow us to cost  effectively
market our products using  integrated  marketing  programs and to reduce general
expenses by  centralizing  administrative  functions  for multiple  offices in a
particular  metropolitan  area.  We  currently  have  locations in the states of
Arizona,  California,  Colorado, Florida, Illinois,  Missouri, New York, Oregon,
Texas and Washington.

Expansion and Growth Strategy

     Our  present  growth   strategy  is  to  expand  our   operations   through
establishing  new start-up  offices in major  metropolitan  market areas that we
believe provide opportunities based on demographic and other characteristics. In
addition,  we may acquire existing  cremation service providers with established
market  presence in certain  geographic  areas,  subject to the  availability of
financing.  Since March 31, 1999, we have acquired  existing  cremation  service
providers or established  new start-up  offices in Arizona,  Colorado,  Florida,


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Illinois,  Missouri,  Oregon,  Texas and Washington.  We are currently exploring
opportunities in California, Florida, Nevada, Texas and Washington.

     Our strategy is to enter new geographic  market areas with large population
centers where  existing  cremation  rates are 15% to 50%, with  projected  rates
increasing over the next 10 years. We evaluate opportunities for expansion using
a number of factors, including:

     o    population demographics;

     o    death and cremation rates for the area;

     o    competition in the market;

     o    forecasted growth in cremation rates for the area; and

     o    operating regulatory requirements.

     We cannot assure you that we will  successfully  implement new start-ups or
acquire  any  additional  cremation  service  providers  or  that  start-ups  or
acquisitions,  if any,  will  result  in  increased  operating  efficiencies  or
revenues to us.

     We may also  acquire  or  construct  additional  crematories  and  licensed
holding  facilities if we determine that the demand for cremation  services in a
particular geographic region warrants expansion. We anticipate that our existing
crematories  and third party service  providers have the capacity to service our
present cremation service needs.

Marketing

     We market our  services  in all our  locations  under  various  brand names
including "The Neptune Society" and "Trident Society." Our marketing strategy is
focused on maintaining and further developing the strength of our brand name and
creating consumer awareness of our services and products.

     We promote our Pre-Need  Plans and At-Need  Services using a combination of
Direct Mail, Television,  our Telephone Appointment Center, our Website, and the
Yellow Pages.

     We use  commissioned  independent  contractors to provide  services as area
sales  representatives  to sell our Pre-Need  Plans. As of March 1, 2005, we had
approximately   162  sales   representatives.   We   provide   our  area   sales
representatives with leads generated from our marketing campaigns, and our sales
representatives  meet with  potential  clients  individually  to  determine  the
service  needs  of the  individual.  Our  sales  representatives  are  paid on a
commission  basis.  Each of our Pre-Need  sales  offices has a sales manager who
recruits,  trains and engages  commissioned  independent  contractors to provide
services as sales representatives to sell our Pre-Need Plans.

Death Care Industry

     It is estimated that four publicly traded companies hold  approximately 20%
of the domestic death care market. The public companies are Service  Corporation
International, Stewart Enterprises, Alderwoods Group, and Carriage Services.

     There are estimated to be approximately  22,000 funeral homes in the United
States.

     There were approximately  2,400,000 deaths in the United States in the year
2000, or 8.7 deaths per thousand population. (National Vital Statistics Reports,
Vol.  50,  No15).  The rate of increase in deaths in the United  States has been
nearly 1% annually  since  1980,  based on National  Vital  Statistics  Reports.
Johnson Rice & Company estimate the number of deaths will increase by 0.70% over
the years 2000 to 2010,  taking into account current  mortality rates.  Industry
wide it is  estimated  that  approximately  30% of all  funerals  are  currently
prearranged. (Johnson Rice & Company).


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     We believe that the popularity  and  acceptance of cremation  services will
increase  in  the  future  as a  result  of the  differences  in  costs  between
traditional  burial  funerals and cremations and as a result of a consumer shift
in attitude  towards  cremation  and  perception  of value.  According to a 2002
survey of statistics compiled by the Cremation Association of North America:

          o    The popularity of cremation varies by geographic  location in the
               United States, ranging from a low of 4.92% in Tennessee to a high
               of 60.87% in Hawaii;

          o    In 2001,  cremation services were chosen for approximately 27.12%
               of total deaths in the United States,  representing approximately
               653,350 cremations;

          o    The  demand  for  cremation  services  as a  percentage  of death
               services  grew on average  approximately  4.6%  annually over the
               last ten years from 1989 to 1999 and approximately  3.8% over the
               last five years from 1995 to 1999;

          o    Cremation  services as a percentage  of death  services grew from
               21.20% in 1996 to 26.19% in 2000; and

          o    Cremation  services  are  expected to account  for  approximately
               39.24% of all death services in 2010 and 47.98% in 2025.

     We cannot assure you that the trend towards cremation will continue or that
we will  benefit  from the growth  demand for  cremation  services,  if any. Our
business  strategy is to provide  Pre-Need  and At-Need  cremation  services.  A
decline in the demand for such  services may have a material  adverse  affect on
our business and our results of operations.

Competition

     The death care industry as a whole is highly  fragmented.  Neptune operates
only in the cremation  segment of the death care industry.  We estimate that the
Company  performed  approximately  1% of all  cremations in the United States in
2004, while we operated in only 10 states.  Approximately  70% of our cremations
in 2004 were prearranged.

     Our  competitors  range from large  nation-wide  publicly held companies to
regional  independently  owned  chains  of  death  care  providers,   and  local
family-owned businesses.  The large public companies have much greater financial
resources and have by past consolidation  strategies  achieved greater economies
of scale in operations  and, to a lesser  degree,  marketing  than we have.  The
local  family-owned  death care providers have  competitive  advantages based on
established  local  reputations,  local  ownership and  management  and existing
capital  facilities.  Full-service  death care  providers  of all sizes  offer a
broader range of traditional funeral and burial products and services, including
traditional  burial services,  embalming,  caskets,  cremation,  urns,  cemetery
space,  burial vaults,  cemetery  markers and memorials,  plaques,  and pre-need
arrangements.  These  traditional  competitors  have a cost  structure  designed
around  traditional  funeral  services and  products.  Their  financial  success
depends on stopping or slowing the increasing popularity of cremation. We intend
to complete by focusing on the pre-need simple cremation niche of the death care
industry. We believe that we can effectively market simple cremation services on
a pre-need  basis by offering a lower cost  alternative  to  traditional  burial
funerals,  which have higher  prices due to the cost  structure  of  traditional
funeral home establishments.

     We cannot  assure you that we will  effectively  compete  against  existing
local death care service  providers or  corporate  consolidators.  Many of these
competitors  offer a full  range of death  care  services,  including  cremation
services and Pre-Need  service  plans.  Several of these  competitors  also have
significantly  greater  financial  and  other  resources  than us and have  long
established reputations in the markets they serve.


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Industry Regulation

Licensing and Regulation

     The funeral  service  industry is regulated  primarily on a  state-by-state
basis with all jurisdictions  requiring licensing and supervision of individuals
who provide funeral-related services. Generally, our operations must be licensed
in each state in which we provide  services  or sell our  products.  To maintain
these licenses we are required to comply with the rules and  regulations of each
state,  which are usually  administered by a state  regulatory  board or funeral
board. Most states require us to pay annual licensing fees and renew our license
annually.

     When we acquired the Neptune  Group in 1999,  the Neptune Group was subject
to a Stipulation and Settlement and Decision in California. On April 9, 1999, in
connection  with our  acquisition  of the  Neptune  Group,  we  entered  into an
agreement  with the State of  California  and applied for an  assignment  of the
Neptune Group licenses. California approved the assignment,  subject to amending
the Neptune  Group's  Stipulation  and  Settlement and Decision to incorporate a
requirement  for us to complete audits of the Pre-Need trust funds in accordance
with the  California  Business  and  Profession  Code,  to comply with all other
requirements  for licensure,  and to be placed on probation  until June 2000. We
complied with the terms and  conditions of the  Stipulation  and  Settlement and
Decision  and the  Neptune  Group  licenses  were  assigned  to us in the fourth
quarter  of 2000.  As a  condition  of the  assignment,  we  agreed to remain on
probation  for a  period  of one  year,  until  June  2001,  or as  long  as Mr.
Weintraub, the controlling shareholder of the acquired business, continues to be
a shareholder of our company. Under the terms of our probation, we must continue
to comply  with the  California  regulatory  requirements  related  to  licensed
funeral  establishments  applicable  to  our  business  of  providing  cremation
services and  marketing  pre-need  cremation  services.  In the event we fail to
comply with these requirements,  our California funeral  establishment  licenses
may be revoked. As of March 15, 2005, we are not aware of any stock ownership by
Mr. Weintraub.

Regulation of prepaid services under pre-need contracts

     All   jurisdictions   regulate  the  sale  of  Pre-Need  services  and  the
administration of any resulting trust funds or insurance contracts.  Most states
require  pre-approval of Pre-Need  contracts entered into in connection with the
sale of Pre-Need Plans. Our Pre-Need Plans consist of a contract for the sale of
cremation services at the time of death,  administrative services at the time of
sale  and for  merchandise  delivered  at the  time of  sale.  When we  refer to
"prepaid services" we refer to the portion of the Pre-Need contract allocated to
cover the cost of the cremation services at the time of death.

     All  states in which we  currently  operate  require  us to involve a third
party  fiduciary with respect to funds received for prepaid  services.  In every
State in which we sell pre-need arrangements, we maintain a master trust account
with a financial  institution  to secure these funds received from our customers
in that State.

     In all of the states that we currently sell our Pre-Need Plans,  except for
Florida and Illinois, funds received for merchandise and administrative services
delivered  and  provided  to the  customer  at the  time  of the  sale  are  not
considered  prepaid  services.  The rules  related  to  merchandise  stored  for
customers  in  connection  with  Pre-Need  Plans  differs  from  state-to-state.
Effective  January 1, 2003, we began delivering  merchandise to our customers at
the time of sale in states where permitted.

     In addition,  all states in which we currently sell our Pre-Need Plans have
rules  and  regulations   governing  the  cancellation  of  pre-need   services.
Generally,  a client has the right to cancel a Pre-Need  Plan  within 30 days of
the initial  purchase and receive a full refund.  After this initial  period,  a
Pre-Need contract may be cancelled by the purchaser with proper notice to us and
any refunds would be made subject to individual state regulations.

Other Regulations

     Our  operations  must also comply with federal  legislation,  including the
laws  administered by the  Occupational  Safety and Health  Administration,  the
Americans  with  Disabilities  Act  and the  Federal  Trade  Commission  ("FTC")
regulations.  The FTC administers the Trade  Regulation Rule on Funeral Industry
Practices,  the  purpose  of which is to  prevent  unfair or  deceptive  acts or
practices in connection with the provision of funeral goods or services.


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<PAGE>


     In  addition,  concerns  regarding  lack  of  competition  have  led  a few
jurisdictions  to  enact  legislation  designed  to  encourage   competition  by
restricting  the common  ownership  of funeral  homes,  cemeteries  and  related
operations within a specific geographic region.

Prepaid Services Fiduciary Funds Administration

     We administer our Pre-Need trust funds in accordance with applicable  state
regulations. Generally, the funds related to each Pre-Need contract are released
to us when we perform the crematory service.

     Approximately  124,000  individuals  have  become  members of our  Pre-Need
programs since 1988, some of whom have since died or cancelled their membership.
Since  1988,  the  cancellation  rate of  active  Pre-Need  Contracts  has  been
approximately  2/10 of 1% on an annual basis.  At December 31, 2004, the balance
of pre-need services funded was approximately $53 million.

Personnel

     At December 31, 2004, we employed 30 counselors and 25 mortuary  personnel,
17 telemarketers, and 45 administrative and sales personnel. In addition, we had
contracts  with 162  independent  contractors  to serve  as  commissioned  sales
representatives.

Neptune Society Acquisitions

Iowa Acquisition and Disposition

     On March 15,  2000,  we acquired all of the issued and  outstanding  common
stock of  Cremation  Society  of  Iowa,  Inc.  in  Ankeny,  Iowa in a series  of
transactions  described  under the heading "Item 1.  Business - Neptune  Society
Acquisitions - Iowa  Acquisition" in our annual report on Form 10-K for the year
ended  December 31, 2001 filed with the  Securities  and Exchange  Commission on
April 1, 2002. As of December 31, 2003, we have no further  payment  obligations
in connection with our acquisition of Cremation Society of Iowa, Inc.

     On April 15, 2004 we disposed of our Iowa assets for  $180,000  cash.  This
action was based on our decision to focus our attention in areas that better fit
our  strategic  model as more fully  described in Item 1,  Expansion  and Growth
Strategy.

Risk Factors

     We have included  information in this annual report that contains  "forward
looking  statements."  Our  actual  results  may  materially  differ  from those
projected  in  the  forward  looking   statements  as  a  result  of  risks  and
uncertainties.  Although we believe that the assumptions  made and  expectations
reflected in the forward looking statements are reasonable, we cannot assure you
that the  underlying  assumptions  will,  in fact,  prove to be  correct or that
actual future results will not be different from the  expectations  expressed in
this report.  An  investment  in our  securities  is  speculative  in nature and
involves  a high  degree of risk.  You should  read this  Report  carefully  and
consider the following risk factors.

We have a history of losses and we may experience losses in the future.

     Since our  acquisition  of the Neptune  group of  companies,  we have had a
history of losses.  We incurred  losses of $6,706,000 and $33,000  respectively,
during the years ended December 31, 2002 and 2003. We had an accumulated deficit
of $27,619,000 at December 31, 2003. As a result of a number of factors, we were
able to achieve  Net  Income of  $2,733,000  in 2004 and  reduce the  deficit at
December  31, 2004 to  $24,886,000.  We may incur losses in the future if we are
unable to  sustain  current  sales  levels.  See  "Management's  Discussion  and
Analysis."  Failure to  maintain  profitability  could  have a material  adverse
effect on our business, results of operations and financial condition.

We have a limited operating  history as a stand-alone  company in the death care
industry.

     Although our  predecessors,  the Neptune Group of companies,  have operated
Pre-Need and At-Need cremation businesses,  we have operated the Neptune Society
only since April 1999. See "History of our Company." Prior to our acquisition of
the Neptune Group of companies,  we had no operating business.  Accordingly,  we


                                       7


<PAGE>


have only a limited  operating  history upon which an evaluation of our business
and its prospects  may be based.  Although we have  experienced  revenue and net
income growth in recent  periods,  there can be no assurance that our operations
will be  profitable  in the  future  or  that  we  will be able to  successfully
implement our operating and growth strategy.  Failure to successfully  implement
our operating and growth  strategy  could have a material  adverse effect on our
net revenue and earnings. See "Management's Discussion and Analysis."

We may not be  able  to  execute  our  business  strategy  to  acquire  existing
crematory service providers unless we obtain additional financing.

     Our  business  strategy  is to grow  through  the opening of new offices or
start-ups and selective acquisitions of existing cremation service providers and
to  increase  the  performance  of our  existing  operations.  To date,  we have
financed  acquisitions  through a combination of cash, common stock and debt. We
may finance future  acquisitions  through debt,  cash from  operations,  issuing
common stock or other securities, or any combination of these. In the event that
our common  stock does not  maintain a  sufficient  market  value,  or potential
acquisition  candidates  are  otherwise  unwilling to accept our common stock or
other securities as part of the  consideration for the sale of their businesses,
we may be required to use more of our cash resources or incur  substantial  debt
in order to  finance  future  acquisitions.  If we do not have  sufficient  cash
resources,  our  ability  to open  new  offices  (start-ups)  or make  selective
acquisitions  could be limited unless we are able to obtain  additional  capital
through debt or equity financings.  We cannot assure you that we will be able to
obtain the financing we will need in the future on terms we deem acceptable,  if
at all.

We may not be able to execute our business strategy to open new start-up offices
or selectively  acquire existing  crematory service providers unless we are able
to effectively  target new geographic market areas for start-ups or acquisitions
in a competing environment.

     We cannot  assure  you that our  current  management,  personnel  and other
corporate infrastructure will be adequate to effectively target acquisitions and
then integrate them into our business without substantial costs, delays or other
operational or financial problems. In connection with certain  acquisitions,  we
may need certain  licenses and approvals.  Obtaining such licenses and approvals
could delay the closing of an acquisition.

     Even though  several major death care  companies have reduced their ongoing
acquisition  activities,  we may be competing  with several  publicly held North
American death care  companies,  including  Service  Corporation  International,
Stewart  Enterprises,  Inc.,  Alderwoods  Group and Carriage  Services,  Inc. to
selectively  acquire cremation service providers.  Each of these other companies
has greater  financial  and other  resources  than we have and has, in the past,
actively  engaged in  acquiring  death  care  service  providers  in a number of
markets.  Because we are seeking to acquire only cremation service providers, we
limit  the  number  of  potential   acquisition  targets  available  to  us  and
consequently may not be able to execute our business acquisition strategy.

     The  success of our  start-up or  selective  acquisition  plans  depends on
several factors, including:

               o    our  ability to  identify  suitable  start-up  or  selective
                    acquisition opportunities;

               o    our  ability  to  obtain a  license  to open a  start-up  or
                    operate the target acquisition;

               o    the level of competition  for a start-up  geographic area or
                    selective acquisition target;

               o    the   start-up   cost  or  purchase   price  for   selective
                    acquisitions;

               o    the financial  performance  of facilities  after start-up or
                    acquisition; and

               o    our  ability  to  effectively   integrate  the  start-up  or
                    acquired facilities' operations.

     If we fail to achieve our  start-up or  selective  acquisition  plans or to
operate start-up or acquired  facilities and integrate them into our operations,
such failure  could  materially  and adversely  affect our  business,  financial
condition and results of operations.


                                       8


<PAGE>


We may not sustain our profitable business unless we are able to fully integrate
our   start-ups   or   selective   business   acquisitions   into  our  existing
infrastructure.

     Assuming  that we are  successful  in  completing  start-ups  or  selective
acquisitions, we may not be able to effectively integrate them into our business
due to the  geographic  disparity  of  management  personnel  and  the  cost  of
centralizing  operations in our California head office. Part of our start-up and
acquisition  strategy  will  be to  recruit  and  retain  key  employees  at new
start-ups or locations acquired and our failure to do so may result in a decline
in the  performance  of the  continuing  operations  at those  newly  opened  or
acquired locations. We may also experience increased costs related to the hiring
and training of new personnel, which may adversely affect our ability to operate
our newly opened start-ups or acquired locations on a cost-effective basis.

A decline in death rates may impair our ability to maintain profitability in the
future.

     As we continue to see  improvements  in  technology  related to health care
that may prolong life expectancy,  we may experience a decline in expected death
rates.  Such a decline,  coupled  with our current  business  strategy to expand
through acquisitions and increased  performance of our existing operations,  may
result in a decrease  in the demand for our  cremation  services  and  adversely
affect our  ability  to become  profitable.  A decline  in demand  and  revenues
together with  increased  costs  resulting from our  acquisitions  may result in
losses and we may not be able to remain profitable.

A decline in the choice of cremation  rather than burial services may impair our
ability to maintain profitability in the future.

     Our  business  strategy is premised on the current  trend in the death care
industry  where  consumers  are  selecting  cremation  services  over  the  more
traditional  burial  services.  We may be unable to  achieve  the  growth in our
revenues  necessary  to  operate  profitably  as we expand  our  operations  and
increase our marketing and sales efforts.  Our acquisition  strategy is expected
to increase  our costs of  operations  and a decline in the number of  cremation
services  may result in a decrease in our  revenues,  which may result in losses
and decrease the likelihood we will maintain profitability.

Our ability to execute our business  plan is predicated on our ability to retain
key personnel with experience in the death care industry.

     We depend to a large extent upon the  abilities  and  continued  efforts of
Jerry Norman,  our President and Chief Executive Officer,  and Dan Solberg,  our
Chief Financial  Officer,  to provide  overall  direction and decision making in
developing and  implementing  our business  strategy and identifying and opening
new start-ups and selectively acquiring existing cremation service providers. We
may incur  additional  costs and delays in our  expected  growth  should we lose
these key  personnel.  In addition,  our success is also  determined by offering
quality  Pre-Need and At-Need  cremation  services,  which are supervised by our
senior  management  team.  The loss of the  services  of the key  members of our
senior  management could have a material adverse effect on our continued ability
to compete in the death care industry  through  delivery of quality  services to
consumers.

New legislative  restrictions impacting telemarketing  activities may reduce the
number of sales leads.

     Currently we have an  appointment  (PDS)  center in Arizona that  schedules
more than 1,000  appointments  per month for our sales  force.  This  represents
approximately 17% of the monthly leads currently  obtained by us;  specifically,
the remainder are generated from direct mail, web site and advertising. On March
11, 2003, President Bush signed into law a national "Do Not Call" list. A number
of states have  implemented  similar  initiatives.  The popular  response to the
initiatives has made it a more difficult environment in which to operate, and to
maintain  our flow of  quality  leads  from our PDS  activities.  Unless  we can
develop other cost effective sources of leads, or improve our rate of success on
a reduced  number of leads such that our  overall  sales are not  affected,  the
restrictions on telemarketing could indirectly have a material adverse effect on
our results of operations.

In the event  that we are not able to comply  with the  substantial  regulations
under which we operate, we may be subject to business operation closures,  fines
and penalties.

     The death care industry is subject to regulation, supervision and licensing
under  numerous  federal,  state and local  laws,  ordinances  and  regulations,
including  extensive  regulations  concerning  prepaid services (trust funds and


                                       9


<PAGE>


insurance), pre-need sales of cremation products and services, and various other
aspects of our business.  The impact of such regulations varies depending on the
location  of our  offices  and  facilities  and  failure  to  comply  with  such
regulations may result in business closures,  fines and penalties,  all of which
may affect the profitability of our business.

     From time to time, states and other regulatory agencies have considered and
may enact additional legislation or regulations that could affect the death care
industry and in  particular  our ability to be  profitable.  For  example,  some
states and regulatory  agencies have considered or are  considering  regulations
that could require more liberal  refund and  cancellation  policies for Pre-Need
sales of products and services,  prohibit door-to-door or telephone solicitation
of potential  customers,  increase  trust  requirements  and prohibit the common
ownership of funeral homes and  crematoriums  in the same market.  If adopted in
the states in which we operate,  these and other possible proposals could have a
material adverse effect on our profitability.

Your  investment  in our  shares  may be  diluted  in the  event  that we may be
required  to sell  additional  common  stock,  or parties  exercise  options and
warrants, or convertible debentures are converted.

     As of December 31, 2004, we had the following  warrants,  options and other
share acquisition rights outstanding:

          o    options exercisable to acquire up to 305,000 shares of our common
               stock at  prices  ranging  from  $0.65 to $0.70  per share and an
               average  price per share of $0.68  granted to our  employees  and
               officers;

          o    options to acquire a further  100,000  shares at a price of $0.70
               are to be granted pursuant to an existing employment agreement;

          o    warrants  exercisable  to  acquire  up to  331,502  shares of our
               common  stock at $0.79 per share  issued to  investors in private
               placement  transactions  and  debt  holders  holding  pre-emptive
               rights;

          o    warrants for the issue of up to 1,724,167  shares of our stock at
               the price of $3.00 per share granted in connection with debenture
               debt issuances and refinancing; and

          o    convertible  debentures  in the  aggregate  principal  amount  of
               $6,000,000  convertible to acquire up to 3,636,364  shares of our
               common stock under the terms of 11% Debenture Financing Agreement
               of June 18, 2004.

     Holders of the options and  warrants are likely to exercise  them when,  in
all likelihood,  we could obtain additional capital on terms more favorable than
those provided by the options. This will increase the supply of common stock and
dilute your  investment in our shares.  However,  we cannot make assurances that
such options will be exercised.  Further, while the options are outstanding, our
ability to obtain  additional  financing  on  favorable  terms may be  adversely
affected as investors may not invest given the  possibility of dilution  through
exercise of options.

We have substantial debt obligations that may affect our future profitability

     We had approximately  $6.3 million of debt outstanding,  at an average cost
of 11% per annum at December 31, 2004 and $9.4 million in outstanding debt at an
average  cost of $13 % per annum at March 31,  2005.  Of our total debt at March
31, 2005, approximately $120,000 becomes due in the upcoming 12 months, $240,000
becomes due in the next 13 to 36 months,  $3.0  million  becomes due in the year
2010 and $6.0  million  becomes  due in the year 2014.  During  the years  ended
December  31,  2003 and  2004,  our  total  interest  and  finance  expense  was
approximately  $1,864,000  and  $1,548,000,  respectively.  Total  interest  and
finance expenses are estimated to be approximately $1.2 million in 2005.

     Our  debt  may  increase  if  we  acquire  additional  death  care  service
operations  or open new  offices.  In the future,  we may also issue  additional
notes or convertible debentures. There can be no assurance that we will generate
sufficient   cash  flow  or  obtain   sufficient   financing  to  satisfy  these
obligations.  If we are unable to satisfy these  obligations as they become due,
there  can be no  assurance  that we will be able to  obtain  extensions  on the
maturity dates of the notes or of the convertible debenture.


                                       10


<PAGE>


     We granted a  security  interest  in our  assets to secure our  obligations
under a $6,000,000 11% convertible debenture due June 18, 2014, and a $3,000,000
13.5% secured  note,  due February 2, 2010,  each of which could be  immediately
payable upon an event of default,  including  failing to make payments when due;
failing  to  comply  with  certain   covenants;   an   insolvency,   bankruptcy,
receivership  or similar  event;  a entry of a judgment in excess of $500,000 in
any one instance or in the aggregate  during any consecutive  12-month period or
has any  attachment  or levy made to or against any of its property or asset;  a
default with respect to any evidence of  indebtedness  or liability for borrowed
money in excess of $250,000;  a tax lien in excess of $250,000 and other events.
If we default on either the 11%  convertible  debenture due June 18, 2014, and a
$3,000,000  secured note,  due February 2, 2010, the lender may foreclose on our
assets.

Cancellations of existing Pre-Need  contracts may have a material adverse effect
on our future profitability.

     We  anticipate  that a significant  portion of our future  revenues will be
derived when we perform services under our Pre-Need  contracts.  We are required
to place a  percentage  of the funds we  receive  from the sale of our  Pre-Need
programs in trust until we perform the cremation service. On fulfillment we earn
revenue  to the  extent  we  receive  funds  from  the  maturity  of  the  trust
arrangement.  Currently,  we manage approximately $53 million in trust funds for
the  benefit  of our  members.  Although  each  state has  different  regulatory
requirements  regarding  the trust funds,  all of the states in which we conduct
business  require us to refund all or a portion of trust  monies to our  members
that cancel their Pre-Need contracts. See "Government Regulation." Historically,
our  cancellation  rate is  approximately  2/10 of 1% on an  annual  basis.  Any
substantial  increase in cancellations may have a material adverse effect on our
future revenues and results of operations.

One shareholder has acquired a controlling  interest in our common stock and can
control the outcome of stockholder voting.

     On  February  17,  2005,  BG Capital  Group  Ltd.,  Brooklyn  Holdings,  an
affiliate of BG Capital Group, and Bobby Genovese (the "BG Capital Group") filed
an amended  Schedule 13G with the Securities and Exchange  Commission  reporting
that it beneficially owned 5,360,589 shares of our common stock or approximately
82.14% of our issued and outstanding  voting stock based on the number of shares
of Common Stock  (6,525,820  shares) we reported as  outstanding on November 12,
2004 in our Quarterly  Report on Form 10-QSB for the period ended  September 30,
2004 less 538,817 shares of our common stock that were repurchased and cancelled
in connection  with a Separation and Release  Agreement  dated February 2, 2005.
According to information  disclosed in the amended  Schedule 13G, the BG Capital
Group  acquired  751,120 shares of our Common Stock and 238,615 shares of Common
Stock in separate  transactions.  The BG Capital Group further disclosed that it
is considering  whether to make a proposal to acquire  substantially  all of our
assets;  that the  terms of such  proposal  have  not  been  determined  and are
dependent on various factors,  including  income taxes,  which have not yet been
fully  analyzed;  and  that it  currently  does  not  intend  to  cause us to be
liquidated following such transaction, if such transaction is consummated.

     This  concentration  of  control  could  be  disadvantageous  to our  other
stockholders  with interests  different  from those of the BG Capital Group.  As
long as the BG Capital  Group has a controlling  interest,  they will be able to
elect our entire board of  directors  and  generally  be able to  determine  the
outcome of all corporate actions requiring  stockholder  approval.  As a result,
the  BG  Capital  Group  will  be in a  position  to  continue  to  control  all
fundamental  matters affecting Neptune Society,  including any merger involving,
sale of  substantially  all of the  assets of,  change in  control  of, or going
private transaction involving, Neptune Society.

     The BG Capital Group's ability to control Neptune Society may result in our
common stock  trading at a price lower than the price at which it would trade if
this group did not have a controlling  interest in us. This control may deter or
prevent a third party from acquiring us which could adversely  affect the market
price of our common stock.

Broker-dealers  may be  discouraged  from effecting  transactions  in our shares
because  they are  considered  penny  stocks and are  subject to the penny stock
rules

     Rules 15g-1 through 15g-9 promulgated under the Securities  Exchange Act of
1934, as amended,  impose sales  practice and  disclosure  requirements  on NASD
brokers-dealers  who make a market in "a penny  stock." A penny stock  generally
includes any  non-NASDAQ  equity  security  that has a market price of less than
$5.00 per share and stock quoted on the NASD OTCBB. Our shares are quoted on the
NASD OTCBB,  and the price of our shares ranged from $0.84 (low) to $1.95 (high)
during the year ended  December  31,  2004.  The closing  price of our shares on


                                       11


<PAGE>


March 15,  2005 was  $3.98.  Purchases  and sales of our  shares  are  generally
facilitated by NASD  broker-dealers who act as market makers for our shares. The
additional  sales  practice  and  disclosure  requirements  imposed upon brokers
dealers may discourage broker-dealers from effecting transactions in our shares,
which could  severely  limit the market  liquidity  of the shares and impede the
sale of our shares in the secondary market.

     Under the penny stock regulations,  a broker-dealer  selling penny stock to
anyone other than an established customer or "accredited  investor"  (generally,
an  individual  with net  worth in  excess of  $1,000,000  or an  annual  income
exceeding  $200,000,  or $300,000  together  with his or her spouse) must make a
special  suitability  determination  for the  purchaser  and  must  receive  the
purchaser's  written  consent  to the  transaction  prior  to sale,  unless  the
broker-dealer or the transaction is otherwise exempt.

     In  addition,  the penny stock  regulations  require the  broker-dealer  to
deliver, prior to any transaction involving a penny stock, a disclosure schedule
prepared by the SEC relating to the penny stock market, unless the broker-dealer
or the  transaction is otherwise  exempt.  A  broker-dealer  is also required to
disclose   commissions   payable  to  the   broker-dealer   and  the  registered
representative   and  current   quotations  for  the  securities.   Finally,   a
broker-dealer  is required to send monthly  statements  disclosing  recent price
information  with  respect to the penny stock held in a  customer's  account and
information with respect to the limited market in penny stocks.

Trading  on the OTC  Bulletin  Board may be  sporadic  because it is not a stock
exchange, and stockholders may have difficulty reselling their shares.

     Our  common  stock is quoted on the OTC  Bulletin  Board.  Trading in stock
quoted  on the OTC  Bulletin  Board is  often  thin  and  characterized  by wide
fluctuations in trading  prices,  due to many factors that may have little to do
with the company's  operations or business prospects.  For example, the reported
trading  volume for our common stock during the year ended December 31, 2004 was
a total of  289,949  shares.  Moreover,  the OTC  Bulletin  Board is not a stock
exchange,  and trading of  securities  on the OTC  Bulletin  Board is often more
sporadic than the trading of securities listed on a quotation system like Nasdaq
or a stock  exchange  like NYSE or AMEX.  Accordingly,  you may have  difficulty
reselling any of the shares you purchase from the selling stockholders.

Our ability to be profitable  is premised on our ability to compete  effectively
in a highly competitive industry.

     The death care  service  industry  is  intensely  competitive  and  rapidly
evolving with the  consolidation  efforts of our  competitors.  Unless we can be
competitive,  we will lose revenue to our competitors and will not be able to be
profitable.  Our competitors are small  independent death care service providers
and large publicly  traded  companies.  These  competitors  also offer cremation
services that compete  directly with our services and products.  We also compete
on a local basis to provide services in communities with service  providers that
have established reputations and long histories of operations.

ITEM 2. DESCRIPTION OF PROPERTIES

     We lease properties in eighteen locations in Arizona, California, Colorado,
Florida, Illinois,  Missouri, New York, Oregon, Texas and Washington. All of our
leases are on standard terms and conditions, and we do not rely on any one lease
for our continuing  operations.  We do not currently maintain any investments in
real estate,  real estate mortgages or persons  primarily engaged in real estate
activities, nor do we expect to do so in the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

     There are no material  litigation  proceedings  currently  pending,  and no
material litigation  proceedings were terminated during the fourth quarter ended
December 31, 2004.

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

     No matters were  submitted to a vote of our  securities  holders during the
fourth quarter ended December 31, 2004.


                                       12


<PAGE>


ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
        ISSUER PURCHASES OF EQUITY SECURITIES

     On August 26, 1998, our shares of common stock were listed under our former
name Lari Corp. on the NASD OTC Bulletin Board under the symbol  "LREE".  On May
3, 1999, Lari Corp.  changed its name to the Neptune Society and on May 4, 1999,
the symbol was changed to "NPTN". In March, 2000, our common stock was de-listed
from the NASD OTCBB, and began quotation on the National Quotation Bureau's pink
sheets.  On May 19, 2000,  after affecting a reverse stock split, the symbol for
our common  stock was  changed to "NTUN".  On August 2, 2001,  our common  stock
began quotation on the OTCBB. On March 22, 2002, we effected a 4:1 reverse stock
split and the symbol for our common stock was changed to "NPTI".

     The  high  and low bid  quotations  of our  common  stock  on the  NASD OTC
Bulletin Board as reported by the NASD and the National  Quotation Bureau's pink
sheets were as follows:

        Period                     High                   Low
        ------                     ----                   ---

        2004
        First Quarter              $1.40                  $0.84
        Second Quarter             $1.26                  $1.10
        Third Quarter              $1.47                  $1.12
        Fourth Quarter             $1.95                  $1.32

        2003
        First Quarter              $1.01                  $0.68
        Second Quarter             $0.80                  $0.52
        Third Quarter              $2.25                  $0.79
        Fourth Quarter             $1.50                  $0.70

     The above quotations reflect inter-dealer  prices,  without retail mark-up,
markdown or commission and may not necessarily represent actual transactions.

     As of March 28, 2005,  the closing bid  quotation for our common shares was
$3.90 per share as quoted  by the NASD  OTCBB.  The high and low bid  quotations
during the period  from  January 1, 2005 to March 28, 2005 were $4.75 and $1.47,
respectively.

     As of March 28, 2005,  we had  6,540,105  shares of common stock issued and
outstanding, held by 548 registered shareholders.

     The  declaration of dividends on our shares is within the discretion of our
board of directors and will depend upon the  assessment of, among other factors,
earnings,  capital  requirements  and the operating  and financial  condition of
Neptune Society.  The Board has never declared a dividend.  At the present time,
we anticipate that all available funds will be invested to finance the growth of
our business.

     Recent Sales of Unregistered Securities

     During the quarter  ended  December  31,  2004,  we issued no  unregistered
securities.

     Subsequent  to December  31,  2004,  we issued the  following  unregistered
securities:

     On January 21, 2005 we issued 14,286 shares to CapEx, L.P., under the terms
of their warrant.  The securities were issued in a private transaction  pursuant
to an exemption from the registration  requirements available under Section 4(2)
of the Securities Act of 1933, as amended.

     On February 2, 2005, we issued a Secured  Promissory  Note in the principal
amount of  $3,000,000  to  Brooklyn  Holdings  LLC,  a Nevis  limited  liability
company.  The note was issued in a private transaction  pursuant to Section 4(2)
of the Securities Act of 1933, as amended.


                                       13


<PAGE>


     Purchases of Equity Securities by the Small Business Issuer and Affiliates

     The following  table sets forth  purchases of equity  securities by Neptune
Society on February 2, 2005.

<TABLE>
-------------------------------------------------------------------------------------------------------------------
Period                Total Number of       Average Purchase     Total Number of Shares      Maximum Number of
                      Shares Purchased      Price Paid Per       Purchased as Part of        Shares that May Yet be
                                            Share                Publicly Announced Plans    Purchased Under the
                                                                 or Programs                 Plans or Programs
-------------------------------------------------------------------------------------------------------------------
<S>                         <C>                     <C>
February 2, 2005            538,817(1)              $3.00                     nil                        nil
-------------------------------------------------------------------------------------------------------------------
</TABLE>

     (1)  On February 2, 2005, Neptune Society and its subsidiaries entered into
          a separation and release  agreement  effective as of February 2, 2005,
          with Marco Markin, our former Chief Executive Officer,  Chairman and a
          member of the Board of Directors of Neptune Society ("Markin");  Karla
          Markin,  spouse of Marco  Markin;  and  570421  B.C.  Ltd.,  a British
          Columbia  corporation  ("B.C.  Limited").   Under  the  terms  of  the
          Separation Agreement, Neptune Society agreed to purchase the following
          securities of Neptune  Society  beneficially  owned by each of Markin,
          Karla Markin and B.C.  Limited:  Markin and Karla Markin  beneficially
          own 231,125  common shares of The Neptune  Society Inc.;  Markin holds
          options  exercisable to acquire an additional 150,000 shares of common
          stock of The  Neptune  Society  Inc.  at  $0.65  per  share;  and B.C.
          Limited, a British Columbia corporation, owns 307,692 shares of common
          stock of The Neptune Society Inc. and warrants  exercisable to acquire
          an additional  307,692  shares of common stock of The Neptune  Society
          Inc. at $0.79 per share  (collectively,  the "Purchased  Securities").
          The  parties  agreed  that (a)  Neptune  Society  would  purchase  the
          Purchased  Securities and (b) the parties would mutually  release each
          other from any and all claims arising out of or in connection with the
          Purchased  Securities.  Neptune  Society  paid  (i)  Markin a total of
          $675,750 for shares and options delivered on the Separation Date, (ii)
          Karla  Marking  a  total  of  $323,250  for  shares  delivered  on the
          Separation  Date,  and (iii) B.C.  Limited a total of  $1,603,076  for
          shares and warrants  delivered on the  Separation  Date.  Neptune also
          agreed to pay Markin  $46,875  upon the  delivery of one or more share
          certificates evidencing 15,625 shares within ten (10) business days of
          the Separation  Date.  Each of Markin,  Karla Markin and B.C.  Limited
          provided to Neptune  Society  general  releases from claims related to
          the Purchased Securities.  Markin also provided to Neptune Society and
          the Neptune  Subsidiaries  general releases from claims related to the
          Employment Agreement.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     The following discussion and analysis is provided to increase understanding
of,  and  should  be  read  in  conjunction  with,  the  consolidated  financial
statements and accompanying notes.

Overview

     We are in the  business of  providing  pre-arranged  and at-need  cremation
services  in ten  States.  Approximately  70% of the  cremations  we perform are
pre-arranged.  There is approximately  $53 million in trust funds to satisfy our
pre-arrangement service obligations.  These assets are held by independent third
party financial  institutions until the time of need, which we estimate to be on
average a 10-12 years for our  pre-arrangements.  The trust assets are in excess
of our service  obligations,  and are not included in our  financial  statements
until they are released to us over the anticipated 10-12 year period.

Critical Accounting Policies:

Revenue Recognition
-------------------

     Pre-need cremation arrangements - From January 1, 2000 to December 31, 2002
(with the  exception of a four month period in the second and third  quarters of
2001), our pre-need  merchandise  delivery and handling  procedures in virtually


                                       14


<PAGE>


all  locations  did not meet the test for  revenue  recognition  at the point of
sale.  Rather,   revenue  related  to  the  merchandise  component  of  pre-need
arrangements was generally  recorded as deferred pre-need  revenue.  Commissions
paid with respect to obtaining  pre-need  arrangements were also deferred.  Both
the revenue  received and costs paid by us during the life of the contract  were
accordingly  not taken into account until the  cremation  services were actually
performed.  At that point, these deferred amounts,  together with the previously
trusted funds for the cremation service, were matched and recorded in operations
in accordance  with  generally  accepted  accounting  principles.  Over the next
estimated  12  years  we  expect  to  bring  into  income  deferred  revenue  of
approximately  $18.3  million and  deferred  expenses of $6.0  (without any cash
receipts or disbursements)  related to prearrangements  made during this period,
over and  above  trust  funds or  insurance  policy  proceeds  (cash)  on actual
provision of the cremation services, as discussed above.

     Effective  January 1, 2003,  we  implemented  a full  merchandise  delivery
policy for new pre-need arrangement  contracts sold in all locations,  except in
the states of Florida,  Illinois and New York.  In all states,  except  Florida,
Illinois and New York, we now  irrevocably  deliver to the purchaser at the time
of sale all the  merchandise  purchased in  connection  with the  contract.  The
effect  of this  revised  business  practice  is that the  selling  price of all
merchandise   sold  in  connection  with  pre-need   contracts,   together  with
administrative  charges for set-up of the contract, are recognized as revenue in
accordance with generally accepted  accounting policies at the time the contract
is entered into and the  merchandise is delivered.  Also, all sales  commissions
paid relating to the obtaining of such  contracts are recognized as expense when
the  revenue  associated  with such  contract is  recognized,  rather than being
deferred until fulfillment (the time the cremation services are performed).

     The portion of the pre-need contract relating to the cremation  services to
be  performed  in the future  continues  to be paid into  trust to  support  our
obligations in accordance with applicable  state  regulations and is released to
the Company once the cremation  services are  performed.  These receipts are not
recognized in income until earned through the provision of the actual cremation.

     For the majority of prearrangements  made by our customers after January 1,
2003,  there is no element of  deferred  revenue  or  expenses  to be taken into
income.  Accordingly,  over the next  10-12  years as the  pre-January  1,  2003
arrangements  are  serviced,  the  amount of  revenue  recognized  (but not cash
received) for at-need services on fulfillment will decrease steadily as more and
more of our cremations are derived from the post January 1, 2003 pool. For these
customers,  the revenue  related to  merchandise  delivered  and  administrative
services  provided will already have been  recognized at the time of sale,  with
only the cash received from  trust/insurance to be recognized at the time of the
cremation  services.  The cash expected to be received from  trust/insurance  is
expected  to be  sufficient  to meet our costs of the  services,  as well as our
existing profit margin.

At-need cremation  services - all merchandise and services revenue is recognized
at the time services are provided.

Installment sales - we recognize an account  receivable for the unpaid amount of
the  pre-need  arrangement  at the time of sale,  to the extent the  installment
payments will not be required to be trusted.

Travel plan sales - we recognize  revenue related to the sale of travel plans at
the time of sale. We also  concurrently  recognize the premium cost to the third
party carrier obligated to provide the services if required.

Trust placement fees - the company has earned revenue of approximately  $706,000
during  2004 in  exchange  for  transfer  of  certain  of its trust  assets to a
different  asset  manager.  Management  considered  the  accounting for the fees
received  from  this  transfer  and  concluded  that  revenue  recognition  upon
completion  of the  transfer,  as  opposed  to  deferral  and  recognition  upon
performance  of the cremation  service,  was  appropriate.  The fees were not in
exchange for any future  services to be performed by the company,  their payment
did not represent a sacrifice of future economic benefits to be derived from the
trusts,  reserves  for  cancellations  were  practicably  determinable,  and the
transfer  represented a culmination of an earnings process.  Accordingly Neptune
has met the revenue  recognition  criteria of Statement on Financial  Accounting
Concepts No. 5 Recognition and  Measurement in Financial  Statements of Business
Enterprises, and the SEC Staff Accounting Bulletin No. 104, Revenue Recognition.

     The  company  also  earns  marketing  allowances  on the  purchase  of life
insurance  policies by our trustees and when acquired by our customers  directly
as a replacement  of their trust assets.  Such  marketing  allowances are earned


                                       15


<PAGE>


upon the  sale,  will  continue  to be  earned  in the  future,  augmenting  the
management fees which Neptune has earned in the past.

Recent Accounting Pronouncements

Goodwill (Names and Reputations)
--------------------------------

     In July 2001 the Financial  Accounting Standards Board issued Statement No.
142,  "Goodwill and other Intangible  Assets",  which requires that goodwill and
intangible  assets with  indefinite  useful  lives no longer be  amortized,  but
instead tested for impairment at least  annually.  We adopted FASB 142 effective
January 1, 2002.  The asset  "Names and  Reputations"  meets the  definition  of
goodwill under FASB 142.

     On implementation of FASB 142, management determined that the fair value of
the Company as a single  reporting  unit under FASB 142  exceeded  the  carrying
value of the net assets,  including  goodwill.  We completed the required annual
evaluation  of the  implied  value of our  goodwill on December  31,  2003,  and
determined that there was no impairment in value.

     The carrying  value of goodwill  (Names and  Reputations)  constitutes  the
single most significant asset of the company.  At December 31, 2004 the carrying
value of the  asset was  $23,693,000  (2003:  $24,406,000).  The  difference  of
$713,000 represents contingent consideration paid in 2004 on one of our previous
acquisitions,  and the write-off of the amount  associated  with the sale of our
Iowa  property.  No  amount of  amortization  was  required  in the  opinion  of
management for either 2004 or 2003 as the implied value of goodwill exceeded its
carrying value.

     For the 2001 and  prior  fiscal  years,  the  Company  amortized  Names and
Reputations  over  a  period  of  20  years  from   acquisition,   resulting  in
amortization  expense  of  approximately  $  1,500,000  annually.  There  was no
amortization  recorded in 2004 as the implied  value of  goodwill  exceeded  its
carrying value.

     With the requirement to adopt FASB 142, the Company will no longer amortize
its acquired  goodwill on a systematic  basis.  Rather it will test the value of
Goodwill  annually,  and if it is  determined  that  goodwill is  impaired,  the
carrying  value of Names and  Reputations  will be written  down to its  implied
value by a charge to operations in the year that such determination is made.

Results of Operations

Year Ended December 31, 2004 Compared with the Year Ended December 31, 2003

     The following  discussion  compares our results of operations  for the year
ended December 31, 2004 ("2004") to our results of operations for the year ended
December 31, 2003 (" 2003").

Revenue

     Total revenue was $23,620,000 for 2004 compared with  $20,471,000 for 2003,
an increase of $3,149,000.

     Revenue  from the sale of Pre-Need  contracts  increased by  $3,111,000  to
$16,112,000 in 2004 compared with $13,001,000 in 2003.  Pre-Need  contract sales
increased by 27% from 12,654  contracts sold in 2003 to 16,070 contracts sold in
2004. This increase was driven  primarily by improvements in our lead generation
programs and new sales initiatives.

     Revenue from  cremation  services,  representing  both funds  released from
trust  for  services  on  pre-arranged  cases  and  amounts  paid at the time of
services  for  new  clients  without  pre-arrangements  was  $6,478,000  in 2004
compared with $6,598,000 in 2003.  Actual case volume increased by 6% from 7,071
cases in 2003 to 7,513 cases in 2004. The average revenue per case declined from
$933 in 2003 to $862 in 2004. This decrease was driven  primarily by competition
in the death care industry.

     Management  and finance fee income  improved by $158,000  from  $872,000 in
2003 to  $1,030,000 in 2004.  This increase was driven by improved  sales volume
and current period marketing allowances received when our trustees acquired life
insurance policies.


                                       16


<PAGE>


Costs and expenses and Gross Profit

     Direct  costs  and  expenses   relate  to  the  providing  of  at-need  and
fulfillment cremation services,  the cost of travel plan premiums,  and the cost
of  merchandise  delivered.  Total direct costs and expenses were  approximately
$4,711,000  in 2003 compared to $4,631,000 in 2004, a decrease of $80,000 or 2%.
The decrease is due to various cost-saving  measures  implemented by the company
in 2004.

Selling and obtaining costs

     Selling and costs of obtaining pre-need arrangement  contracts increased by
$2,543,000 to $8,118,000 for 2004 from $5,575,000 for 2003.

     Commission expenses increased by $1,133,000 to $4,432,000 in 2004. This 34%
increase  from 2003 is  primarily  attributed  to the 27%  increase  in Pre-Need
contract sales volume.

     Marketing and other  obtaining  costs increased by $1,410,000 to $3,686,000
in 2004. About half of this increase is associated with marketing initiatives in
2004 designed to increase the effectiveness of our lead generation programs. The
remainder is associated with increased Pre-Need contract sales volume.

Operating expenses

     Salaries and payroll costs were nearly flat at $4,301,000 for 2004 compared
with $4,334,000 for 2003.

     Stock based compensation decreased by $263,000 in 2004. We issued shares as
a signing bonus  ($28,000) in 2004.  In 2003 we issued  shares for  compensation
totaling $118,000 and incurred $172,000 in compensation expense related to stock
option expense related to options granted to our former Chief Financial  Officer
(as described in Item 10, Executive Compensation, Bagley Settlement Agreement in
our Form 10-KSB for the year ended December 31, 2003).

     Premises rent and utilities expense was  approximately  $1,037,000 for 2004
compared with $932,000 for 2003,  for an increase of $105,000.  This increase is
primarily due to our adding 3 new locations in 2004.

     Insurance costs increased by  approximately  $110,000 in 2004 over 2003 due
to an increase in risk premiums charged by our insurance  carriers.  We continue
to face increased insurance costs as existing policies come up for renewal.

     Other  operating  services and supplies  increased by $127,000 (7%) in 2004
compared with 2003. This was a result of overall growth.

     Professional fees were reduced approximately $47,000 for 2004 compared with
2003,  as a result of our  continued  efforts to reduce our  reliance on outside
professionals by undertaking more administrative duties in-house.

     Employee   settlements   expense  was   $306,000   in  2003  (2004:   Nil).
Substantially all of this amount relates to the terms of a separation  agreement
with our former Chief Financial Officer under which his employment agreement was
cancelled (as described in Item 10, Executive  Compensation,  Bagley  Settlement
Agreement in our Form 10-KSB for the year ended December 31, 2003).

     Total  operating  expenses were  $8,936,000 for the year 2004 compared with
$9,315,000 for 2003. The net decrease in operating  expenses of $379,000 relates
to the reasons described above.

Operating profit (loss)

     Operating  profit was  $1,935,000 for 2003 compared with $870,000 for 2003,
an increase of $1,065,000.  This increase was a result of increased sales volume
and improved operating efficiencies.


                                       17


<PAGE>


Other revenue and expenses

     We had a loss on assets held for  disposal in 2004 (2003:  Nil).  This loss
represents an adjustment of $177,000 in the carrying value of assets of our Iowa
location.  We elected to cease business  operations in Iowa in the first quarter
of 2004 as part of our strategic  planning  process to concentrate our resources
on larger markets.

     We received  insurance  marketing  allowances of $1,901,000 in 2004,  which
represents the gross amount received,  net of provision for estimated  allowance
refunds,  in connection  with the purchase of life insurance  coverage for fully
paid  members of our  California  pre-need  trusts.  This  compares  to $240,000
received  during 2003 as the result of the  conversion  of certain  pre-arranged
trust funds to insurance products. Both are one-time events.

     We received trust  placement fees of $706,000 in 2004 as  consideration  of
our entering into an agreement to retain a new trustee in certain  states.  This
compares with $721,000 received in 2003 as a result of a similar  transaction in
certain states. This is not anticipated to be an ongoing source of income.

     Interest  and  finance  expense  was  $1,548,000  for  2004  compared  with
$1,864,000 for 2003, a decrease of $316,000.  We restructured our long term debt
in 2004, resulting in reduced interest charges.

     During the first quarter of 2005, we entered into a Loan Agreement pursuant
to which we borrowed Three Million Dollars ($3,000,000).  We issued the lender a
secured  promissory note in the Principal Amount due February 2, 2010. We agreed
to pay simple  interest on the Principal  Amount at the rate of thirteen and one
half percent (13.5%) per annum, without penalty for pre-payment.  We also agreed
to pay lender a loan fee equal to three and one-half  percent  (3.5%) per annum,
calculated,  as simple interest,  on the unpaid balance of the principal amount.
The loan fee is payable in arrears upon the payment of the  principal  amount in
full and bears no interest  on the accrued  amount.  We estimate  that  interest
expenses will be approximately $468,000 in 2005.

Income Tax Expense - Current

     We  recorded  an income  tax  provision  of  $85,000  in 2004  (2003:  Nil)
representing  estimated  tax payable on our net income,  after  recognizing  the
benefit of previously unclaimed net operating losses of prior years.

Net Income (Loss)

     Net income for 2004 was $2,733,000  ($0.41 per share)  compared with a loss
of $33,000  ($0.01 per share) for 2003. The increase of $2,766,000 in profit for
the year relates to the reasons described above.

Liquidity and Capital Resources

     At December 31, 2004,  we had current  assets of  approximately  $5,986,000
offset by  current  liabilities  of  $2,748,000  for a net  working  capital  of
approximately  $3,238,000.  This  compares to a working  capital  deficiency  of
$1,665,000 at December 31, 2003. Cash and cash equivalents totaled $3,422,000 at
December  31,  2004,  up from  $538,000 at  December  31,  2003,  an increase of
$2,884,000.

     We generated $4,068,000 in net cash from operating activities. This section
should  be  read in  conjunction  with  our  consolidated  financial  statements
included under Item 1. Financial  Statements and in particular the  Consolidated
Statements of Cash Flows.  The section  titled Cash Flows  Provided By (Used In)
Operating  Activities  for the year ended  December 31, 2004  reconciles the net
income of $2,733,000  for 2004 to the net cash provided by operating  activities
for the same period of $4,068,000.

     We used $48,000 in investing activities. We received $180,000 from the sale
of our Iowa operations offset by $30,000 used to complete the acquisition of our
Spokane operations and $198,000 used to acquire property and equipment.

     We used $1,136,000 in financing  activities.  In the first quarter of 2004,
we  entered  into an  agreement  with  holders of our 13%  Debentures  to prepay
$1,160,000 in principal and to restructure  certain of our payment  obligations.
The 13% Debentures  required us to make monthly principal  payments based on our
excess cash flows and a minimum  monthly payment  amount.  In addition,  we were
required to make monthly interest payments.

     During the second  quarter of 2004, we completed a $6,000,000 11% debenture
financing for purposes of  restructuring  our  long-term  debt  obligations  and
reducing our interest  expense.  Approximately  $5,600,000  of the proceeds were


                                       18


<PAGE>


used to pay off the outstanding  principal and interest under our 13% Debentures
and the remainder of the proceeds were used to increase working  capital.  Under
the  terms of the 11%  debentures,  we are  required  to make  monthly  interest
payments on the principal  and the principal  amount is due on June 18, 2014. We
have the right to convert all or a portion of the principal amount due under the
convertible debenture into shares of common stock at any time during the term at
the conversion price of $1.65 per share. The holder has the right to convert all
or a portion of the principal  amount due under the  convertible  debenture into
shares of common  stock at the  conversion  price of $1.65 per share at any time
after  June 18,  2009,  subject to our right to repay,  in full or in part,  the
convertible   debenture  within  30  days  of  receiving  written  notice  of  a
conversion.  We  granted  a  security  interest  in our  assets  to  secure  our
obligations under the debenture.

     On February 2, 2005, we entered into a Loan Agreement  pursuant to which we
borrowed  Three  Million  Dollars  ($3,000,000)  form  the  holder  of  the  11%
debentures,  Brooklyn Holdings. We issued Brooklyn Holdings a secured promissory
note in the  Principal  Amount due  February  2,  2010.  We agreed to pay simple
interest on the  Principal  Amount at the rate of thirteen  and one half percent
(13.5%) per annum, without penalty for pre-payment. We also agreed to pay lender
a loan fee equal to three and one-half percent (3.5%) per annum, calculated,  as
simple interest,  on the unpaid balance of the principal amount. The loan fee is
payable in arrears upon the payment of the principal amount in full and bears no
interest on the accrued  amount.  The proceeds of the $3,000,000  loan were used
for  general  working  capital  and/or to make  payments  under  the  Separation
Agreement we entered into with Marco Markin, our former Chief Executive Officer.

     Brooklyn  Holdings agreed to subordinate its liens on the assets of Neptune
Society and its subsidiaries,  granted under to secure payment of the $6,000,000
11%  debentures or the  $3,000,000  secured note, in connection  with any monies
which Neptune  Society may borrow to repay the $6,000,000 11% debentures  and/or
the $3,000,000  secured note;  provided,  however,  that Brooklyn  Holdings will
subordinate  no more  than  $5,000,000  of any and all  monies  owing  under the
$6,000,000 11% debentures or the $3,000,000  secured note. We provided  Brooklyn
Holdings with certain covenants related to our assets,  business and maintaining
the security interest granted to Brooklyn Holdings.

     As a result of our  indebtedness  under the $6,000,000 11% debentures,  the
$3,000,000  secured note and our  commitments  under the loan fees,  we estimate
that  interest  and  finance  expenses  will  increase  to $98,000 per month and
$1,170,000  annually.  As of March 31, 2005, we had approximately  $9,240,000 of
debt  outstanding,  at an average  cost of 13% per  annum.  Of our total debt at
March 31, 2005,  approximately $90,000 becomes due in 2005, $120,000 becomes due
in  2006,  $30,000  becomes  due in  2007,  $3,000,000  becomes  due in 2010 and
$6,000,000  becomes due in the year 2014.  We  anticipate  that we will  satisfy
these debt  obligations  with cash flows from our  operations  and/or by issuing
equity securities under the terms of the debt instruments.

     As of December 31, 2004, we had the following  contractual  obligations and
commercial commitments:

<TABLE>
        ----------------------- --------------------------------------------------------------------------------
             Contractual                                    Payments Due by Period
             Obligations
        ----------------------- --------------------------------------------------------------------------------
                                     Total        Less Than One      1-3 Years     4-5 Years     After 5 Years
                                                       Year
        ----------------------- ---------------- ----------------- -------------- ------------- ----------------
<S>                              <C>                <C>             <C>             <C>           <C>
            Long-Term Debt        $6,270,000         $120,000         $150,000        Nil        $6,000,000(1)
             Obligations
        ----------------------- ---------------- ----------------- -------------- ------------- ----------------
            Capital Lease             Nil              Nil              Nil           Nil             Nil
             Obligations
        ----------------------- ---------------- ----------------- -------------- ------------- ----------------
           Operating Leases       $2,860,801         $868,259       $1,738,523      $254,019          Nil

        ----------------------- ---------------- ----------------- -------------- ------------- ----------------
         Employment Contracts     $2,877,825        $1,356,100      $1,521,725        Nil             Nil
        ----------------------- ---------------- ----------------- -------------- ------------- ----------------
          Total Contractual      $12,008,626        $2,344,359      $3,410,248      $254,019      $6,000,000
             Obligations
        ----------------------- ---------------- ----------------- -------------- ------------- ----------------
</TABLE>


                                       19


<PAGE>


     (1)  Under the terms of the $6,000,000 11%  debentures,  due June 18, 2014,
          we have the right to convert all or a portion of the principal  amount
          due under the convertible debenture into shares of common stock at any
          time during the term at the conversion  price of $1.65 per share.  The
          holder  has the right to  convert  all or a portion  of the  principal
          amount due under the convertible debenture into shares of common stock
          at the conversion  price of $1.65 per share at any time after June 18,
          2009,  subject  to our  right  to  repay,  in  full  or in  part,  the
          convertible  debenture within 30 days of receiving written notice of a
          conversion.

     As of March 31, 2005,  we had the  following  contractual  obligations  and
commercial commitments:

<TABLE>
        ----------------------- ------------------------------------------------------------------------------
             Contractual                                   Payments Due by Period
             Obligations
        ----------------------- ------------------------------------------------------------------------------
                                     Total        Less Than One      1-3 Years     4-5 Years    After 5 Years
                                                       Year
        ----------------------- ---------------- ----------------- -------------- ------------- --------------
<S>                              <C>                <C>             <C>             <C>          <C>
            Long-Term Debt        $9,240,000         $120,000         $120,000        Nil        $9,000,000
             Obligations
        ----------------------- ---------------- ----------------- -------------- ------------- --------------
            Capital Lease             Nil              Nil              Nil           Nil            Nil
             Obligations
        ----------------------- ---------------- ----------------- -------------- ------------- --------------
           Operating Leases       $2,592,094         $812,403       $1,614,802      $164,889         Nil

        ----------------------- ---------------- ----------------- -------------- ------------- --------------
         Employment Contracts     $2,568,650        $1,151,983      $1,416,667        Nil            Nil
        ----------------------- ---------------- ----------------- -------------- ------------- --------------
          Total Contractual      $14,400,744        $2,084,386      $3,151,469      $164,889     $9,000,000
             Obligations
        ----------------------- ---------------- ----------------- -------------- ------------- --------------
</TABLE>

     We intend to finance any  acquisitions or start ups from  operational  cash
flow, or a combination of operational cash flow and vendor financing. We have no
material commitments for capital expenditures at this time.

     We do not anticipate that we will have to raise new capital during the next
12 months.  In the event that  operating cash flow is  insufficient  to meet our
contractual obligations, we will be required to raise new financing to cover the
shortfall  through the issue of debt or equity.  There can be no assurance  such
new financing will be available or accessible on reasonable terms.

Inflation

     We do not  believe  that  inflation  has had a  significant  impact  on our
consolidated results of operations or financial condition.

Off Balance Sheet Arrangements

     We have no off  balance  sheet  arrangements  that  have or are  reasonably
likely to have a current or future effect on our business,  financial condition,
changes in financial  condition,  revenues or expenses,  results of  operations,
liquidity,  capital  expenditures  or  capital  resources  that is  material  to
investors.


                                       20


<PAGE>


ITEM 7. FINANCIAL STATEMENTS

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003


                                    CONTENTS


                                                                            Page
                                                                            ----

Report of Independent Registered Public Accounting Firm ......................21

Consolidated Financial Statements:
     Consolidated Balance Sheets .............................................22
     Consolidated Statements of Operations ...................................23
     Consolidated Statements of Cash Flows ...................................24
     Consolidated Statement of Stockholders' Equity ..........................26
     Notes to Consolidated Financial Statements ..............................27





<PAGE>




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors
The Neptune Society, Inc. and Subsidiaries
Sherman Oaks, California


We have  audited  the  accompanying  consolidated  balance  sheet of The Neptune
Society,  Inc.  and  subsidiaries  as of  December  31,  2004,  and the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
the two years then ended. Our  responsibility  is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the 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 financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position  of The Neptune
Society,  Inc. and  subsidiaries as of December 31, 2004, and the results of its
operations and its cash flows for the two years then ended,  in conformity  with
accounting principles generally accepted in the United States of America.


/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS


Santa Monica, California
March 18, 2005




                                       21

<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                                                              December 31, 2004
                                                              -----------------

                                     ASSETS
Current assets:
  Cash                                                        $       3,422,310
  Accounts receivable, net of allowance of $250,000                   2,458,646
  Prepaid expenses and other current assets                             105,323
                                                              ------------------

     Total current assets                                             5,986,279
                                                              ------------------

Accounts receivable, net - non current                                  357,339
Property and equipment, net                                             318,051
Names and reputations                                                23,692,795
Deferred financing costs                                                284,514
Deferred charges and other assets                                     6,165,787
                                                              ------------------

      Total assets                                            $      36,804,765
                                                              ==================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities                    $       2,486,389
  Income tax payable                                                     85,000
  Current portion of deferred sales tax payable                          56,385
  Current portion of long-term debt                                     120,000
                                                              ------------------

       Total current liabilities                                      2,747,774
                                                              ------------------

Notes payable                                                         6,270,000
Deferred sales tax                                                      621,158
Deferred pre-need revenues                                           18,301,594
                                                              ------------------

       Total liabilities                                             27,940,526
                                                              ------------------

Stockholders' equity:
  Preferred stock, $.001 par value, 10,000,000 shares
   authorized, none issued or outstanding                                     -
  Common stock, $.001 par value, 75,000,000 shares
   authorized, 7,064,637 shares issued and outstanding
   at December 31, 2004                                                   7,065
  Additional paid-in capital                                         33,742,952
  Accumulated deficit                                               (24,885,778)
                                                              ------------------

        Total stockholders' equity                                    8,864,239
                                                              ------------------

        Total liabilities and stockholders' equity            $      36,804,765
                                                              ==================

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


                                       22


<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                         YEAR ENDED
                                          December 31, 2004    December 31, 2003

Revenue

   Services and merchandise                     $22,590,315    $     19,598,889
   Management and finance fees                    1,029,806             872,438
                                                --------------------------------

     Total revenue                               23,620,121          20,471,327
                                                --------------------------------

Costs and expenses                                4,630,535           4,711,096
                                                --------------------------------

Gross profit                                     18,989,586          15,760,231
                                                --------------------------------

Sales commissions and obtaining  costs            8,118,136           5,574,750
                                                --------------------------------

Operating Expenses

   Salaries and payroll costs                     4,300,952           4,333,702
   Compensation - stock based                        28,000             290,877
   Premises rent and utilities                    1,037,139             931,726
   Insurance                                        566,685             456,780
   Communications                                   453,227             494,630
   Other operating services and supplies          1,955,815           1,828,652
   Amortization and depreciation                    192,996             224,301
   Professional fees                                401,349             448,452
   Employee settlements                                   -             306,378
                                                --------------------------------

     Total operating expenses                     8,936,163           9,315,498
                                                --------------------------------

Operating profit                                  1,935,287             869,983

Other income (expense)
   Loss on assets held for disposal                (176,803)                  -
   Insurance marketing allowances                 1,901,107             239,862
   Trust placement fees                             706,174             720,915
   Interest and finance expense                  (1,547,798)         (1,863,961)
                                                --------------------------------

Net income (loss), before income tax              2,817,967             (33,201)

Income tax expense-current
   Income tax expense                                85,000                   -
                                                --------------------------------

Net income (loss) for the year                  $ 2,732,967    $        (33,201)
                                                ================================

Net income (loss) per share (basic)             $      0.41    $          (0.01)

Net income (loss) per share (diluted)           $      0.40    $          (0.01)

Weighted average numbers of shares (basic)        6,744,152           5,233,747

Weighted average numbers of shares (diluted)      6,856,853           5,233,747

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

                                       23


<PAGE>



                            THE NEPTUNE SOCIETY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
                                                                         YEAR ENDED
                                                             December 31, 2004      December 31, 2003

<S>                                                          <C>                    <C>
Cash flows provided by (used in)

Operating Activities
Net income (loss) for the period                             $       2,732,967      $         (33,201)
Adjustments to reconcile net income (loss) to
     net cash provided by operating activities:
          Depreciation and amortization                                192,996                224,301
          Accretion of discount on notes payable                        31,090                174,568
          Non-cash interest and amortization of deferred
             finance costs                                             795,539                698,000
          Loss on assets held for disposal                             175,303                      -
          Stock compensation                                            76,125                290,877
          Forgiveness of debt                                          (70,000)                     -
          Compensation expense to be settled by stock                 (140,076)                     -
          Compensation expense deferred                                      -                155,338
          Deferred sales tax                                           677,543                      -
      Changes in operating assets and liabilities:
          Accounts receivable                                         (442,005)              (373,148)
          Prepaid expenses and other current assets                     19,491                (18,172)
          Income tax payable                                            85,000                      -
          Deferred charges and other assets                            208,297                165,764
          Accounts payable and accrued liabilities                      61,882               (161,152)
          Deferred pre-need revenues                                  (336,540)              (156,264)
                                                                     ---------------------------------

            Net cash provided by operating activities                4,067,612                966,911
                                                                     ---------------------------------

Investing activities
     Proceeds from assets held for disposal                            180,000                      -
     Purchase of names and reputations                                 (30,019)                     -
     Purchase of property and equipment                               (197,758)               (52,811)
                                                                     ----------------------------------
            Net cash used in investing activities                      (47,777)               (52,811)
                                                                     ----------------------------------

Financing activities
     Proceeds of common stock issued                                    53,452                200,000
     Payments on notes payable                                      (7,150,954)            (1,352,069)
     Proceeds from issuance of debt, net                             5,961,980                      -
                                                                     ----------------------------------
             Net cash used in financing activities                  (1,135,522)            (1,152,069)
                                                                     ----------------------------------

(Decrease) increase in cash during the year                          2,884,313               (237,969)
                                                                     -----------------------------------

Cash, beginning of year                                                537,997                775,966
                                                                     ------------------------------------
Cash, end of year                                                  $ 3,422,310        $       537,997
                                                                     ====================================
</TABLE>


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

                                       24


<PAGE>

<TABLE>
Supplemental disclosure of cash flow information

<S>                                                                    <C>                    <C>
   Cash paid during the year for interest                              720,971                955,393

Supplemental disclosure of non-cash investing and financing
 activities

   Stock issued on conversion of debentures                          1,071,653
   Stock and stock purchase warrants issued as refinancing fees        280,000                436,667
   Acquisition debt refinanced with other long term debt                                    1,500,000
   Other long-term liability settled by note payable                                          389,662
   Stock issued to settle deferred compensation                                             1,202,450
   Stock issued in payment of accrued interest on notes payable                                41,230
   Stock issued in settlement of accounts payable                                             102,402
</TABLE>


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


                                       25


<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
                                         Common Stock            Additional
                                 --------------------------                                            Total
                                    Shares         Amount      Paid-In Capital      Accumulated     Stockholders'
                                                                                      Deficit          Equity
                                 ---------------------------------------------------------------------------------
<S>                                  <C>            <C>            <C>              <C>               <C>
 Balance at December 31, 2002        4,280,423      4,280          31,072,881       (27,585,544)      3,491,617
 Net Loss                                                                               (33,201)        (33,201)
 Shares issued for:
   Cash                                307,692        307             199,693                           200,000
   Settlement of liabilities           339,540        340             222,512                           222,852
   Settlement of debenture
     interest                           63,432         64              41,166                            41,230
   Compensation-shares
    issued                             182,118        182             118,195                           118,377
   Refinancing fee                     600,000        600             419,400                           420,000
   Compensation related to
    stock options                                                     172,500                           172,500
   Refinancing fees related to
    warrants                                                           16,667                            16,667
                                 --------------------------------------------------------------------------------
 Balance at December 31, 2003        5,773,205      5,773          32,263,014       (27,618,745)      4,650,042

 Net Income                                                                           2,732,967      2,732,967
 Shares issued for:
   Cash                                 28,388         28              18,424                           18,452
   Conversion of debentures            893,044        894           1,070,759                        1,071,653
   Compensation-shares
    issued                             120,000        120              83,880                           84,000
   Refinancing fee                     250,000        250             279,750                          280,000
   Compensation related to
    stock options                                                      27,125                           27,125
                                 --------------------------------------------------------------------------------
 Balance at December 31, 2004        7,064,637      7,065          33,742,952       (24,885,778)     8,864,239
                                 ================================================================================
</TABLE>


                                       26


<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(1)  Nature of the Business, Basis of Presentation and Liquidity:

          The  Neptune  Society,  Inc.,  a Florida  Corporation,  is the holding
          company  for  Neptune   Society  of  America,   Inc.,   a   California
          Corporation. Neptune Management Corporation and Heritage Alternatives,
          Inc. are wholly owned subsidiaries of Neptune Society of America, Inc.
          Trident  Society,  Inc.  is a  wholly  owned  subsidiary  of  Heritage
          Alternatives, Inc.

          Neptune  Management  Corporation,   Heritage  Alternatives,  Inc.  and
          Trident Society,  Inc. engage in marketing and administering  pre-need
          and/or at-need cremation  services in Arizona,  California,  Colorado,
          Florida,  Illinois,  Missouri, New York, Oregon, Texas and Washington.
          The Neptune  Society,  Inc.  operates  crematories  in California  and
          Washington.

(2)  Summary of Significant Accounting Policies:

     Principles of Consolidation:

          The consolidated  financial statements as of December 31, 2004 and for
          the two years then ended  present  the  consolidated  accounts  of The
          Neptune Society, Inc. and subsidiaries.  All significant  intercompany
          balances and transactions have been eliminated in consolidation.

     Revenue Recognition

          The  Company   derives  revenue  from  the  sale  of  merchandise  and
          administrative services and travel plans (pre-arrangements), cremation
          services (at-need services), management fees for trust administration,
          marketing  allowances for the purchase of group insurance coverage for
          pre-arrangements, and consumer financing.

          Pre-arrangements revenue recognition

          On January 1, 2003 the Company implemented a full merchandise delivery
          policy for new  pre-need  contracts  sold in all  locations  except in
          three States where  merchandise  delivery under pre-need  contracts is
          not permitted.  The effect of this revised  business  practice is that
          the portion of the  pre-arrangement  revenue  allocable to merchandise
          sold,  travel  contracts  placed and  administrative  fees  charged is
          recognized as revenue at the time the pre-need  contracts are sold and
          the  merchandise  delivered  in all  locations  except in those  three
          States.


                                       27


<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(2)  Summary of Significant Accounting Policies, Continued:

     Revenue Recognition, Continued:

          Pre-arrangements revenue recognition, continued

          For the  year  ended  December  31,  2002  and  prior,  the  Company's
          merchandise sales policy did not meet the revenue recognition criteria
          under  generally  accepted  accounting  principles,   and  accordingly
          merchandise sales revenue was deferred until the cremation service was
          provided  and the at need revenue was  recognized.  The same policy is
          followed  in those  three  States  where we do not  currently  deliver
          merchandise due to regulatory restrictions.

          Cremation Services Revenue

          Cremation  Services  revenue is earned  both from the  fulfillment  of
          pre-arranged services, and from services performed on an at-need basis
          for non-members.

          Revenue related to  fulfillments  for  pre-arrangements  comprises the
          amount of money  received  from trust funds  allocated  to the member.
          At-need services performed for non-members,  where no pre-arrangements
          nor  trusting is involved,  are  recognized  at the time  services are
          performed.

          Installment sales

          The  paid  and  receivable   portion  for   merchandise,   travel  and
          administrative  services  are  recorded  at the time the  contract  is
          signed and the merchandise is delivered,  and recognized in accordance
          with the Company's revenue recognition policy for pre-arrangements.

          Sales commissions and obtaining costs

          These costs are expensed in the period incurred commencing January, 1,
          2003 except for sales  commissions  incurred and  directly  related to
          pre-arrangements in the three States where merchandise delivery is not
          allowed.  In  these  States,  the  sales  commissions  continue  to be
          deferred.

          Sales  commissions  and  obtaining  costs for the 2002 and prior years
          included  sales  commissions  only to the  extent  they were  directly
          related to  pre-arrangements  fulfilled in the year. Sales commissions
          for all  pre-arrangements  still in effect were deferred.  Accordingly
          for 2003 and subsequent years, sales commissions  expense for the year
          includes commissions on new pre-arrangements as well as 2002 and prior
          contracts fulfilled.


                                       28



<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(2)  Summary of Significant Accounting Policies, Continued:

     Revenue Recognition, Continued:

          Management fees, financing income and marketing allowances

          Fees derived from the management, administration and investment of its
          trust funds,  and interest  charged on  pre-arrangement  financing are
          recognized as income in the year earned.

     Trust Funds:

          In all States in which it sells pre-need arrangements,  the Company is
          required  to  place  in  trust  the  costs  of  providing  fulfillment
          cremation  services ("Trust  Funds").  The trustors of such trusts are
          the purchasers of the pre-need arrangements. The Company does not have
          title  to  nor  control  of the  trust  fund  or  escrow  corpus  and,
          therefore,   such  amounts  are  not  reflected  in  the  accompanying
          consolidated  financial  statements.  Earnings  on the trust funds and
          escrow deposits generally accumulate in the trust fund or escrow until
          the  cremation  service is performed and the funds are released to the
          Company.  The  earnings on the trust funds are provided to the Company
          to  offset  inflation  in costs to  provide  the  cremation  services.
          Accordingly,  the  Company  recognizes  such  earnings  as  additional
          revenue at the time the  cremation  service is performed and the funds
          are   released   to  the   Company.   However,   California   and  one
          "grandfathered"   Florida   trust   allow  the   Company  to  withdraw
          nonrefundable  fees from the trust on an annual basis in consideration
          for administering the trust funds.  California allows a maximum fee of
          four percent of beginning year trust fund corpus, subject to the trust
          fund's annual  performance.  The Florida trust fund allows the Company
          to  withdraw  the  annual  earnings  of the fund as a fee,  subject to
          meeting  certain  funding  requirements.   Such  fees  are  recognized
          currently  as  management  fees  in  the   accompanying   consolidated
          statements of operations.

          The fair value of pre-need trust funds and the face value of insurance
          policies are approximately $53 million at December 31, 2004. All trust
          funds are invested in accordance with individual state regulations.

     Cash and Cash Equivalents:

          The Company  considers all highly liquid  investments with an original
          maturity of three months or less to be cash equivalents.



                                       29



<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(2)  Summary of Significant Accounting Policies, Continued:

     Property and Equipment:

          Property  and  equipment  are  stated at cost.  The costs of  ordinary
          maintenance  and repairs are charged to operations as incurred,  while
          renewals and betterments are capitalized. Depreciation of property and
          equipment  is  computed  based on the  straight-line  method  over the
          following estimated useful lives of the assets:

          Leasehold improvements            Useful life or remaining lease
                                            term, whichever is shorter
          Furniture and fixtures            5 to 7 years
          Equipment                         5 years
          Automobiles                       5 years

     Names and Reputations:

          In July 2001 the Financial Accounting Standards Board issued Statement
          No. 142, "Goodwill and other Intangible  Assets",  which requires that
          goodwill and intangible  assets with indefinite useful lives no longer
          be amortized, but instead tested for impairment at least annually. The
          Company adopted FASB 142 effective January 1, 2002. The classification
          "Names and  Reputations"  meets the  definition of goodwill under FASB
          142. For the 2001 and prior fiscal years, the Company  amortized Names
          and Reputations over a period of 20 years from acquisition.

     Advertising:

          Costs of advertising are expensed as incurred. Advertising expense was
          $3,686,017  and  $2,275,919  for the years ended December 31, 2004 and
          2003, respectively.

     Income Taxes:

          Income taxes are accounted  for under the asset and liability  method.
          Deferred  tax assets and  liabilities  are  recognized  for future tax
          consequences  and  attributable  to differences  between the financial
          statement  carrying  amounts of existing  assets and  liabilities  and
          their   respective  tax  basis,   operating   losses  and  tax  credit
          carryforwards.  Deferred tax assets and liabilities are measured using
          enacted tax rates  expected to apply to taxable income in the years in
          which those  temporary  differences  are  expected to be  recovered or
          settled. The effect on deferred tax assets and liabilities of a change
          in tax rates is  recognized  in income in the period that includes the
          enactment  date. A valuation  allowance is recorded to reduce deferred
          tax assets to their estimated net realizable value.


                                       30


<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(2)  Summary of Significant Accounting Policies, Continued:

     Income Taxes, Continued:

          As a result of the Company's  accumulated net operating  losses during
          the years ended  December 31, 2003 and prior,  the Company  recorded a
          valuation allowance of 100%.

     Stock Based Compensation:

          SFAS No. 123, "Accounting for Stock-Based  Compensation,"  establishes
          and  encourages  the use of the fair value based method of  accounting
          for stock-based  compensation  arrangements  under which  compensation
          cost is determined  using the fair value of  stock-based  compensation
          determined as of the date of grant and is recognized  over the periods
          in which  related  services are rendered.  The statement  also permits
          companies  to elect to  continue  using the  current  intrinsic  value
          accounting  method  specified in Accounting  Principles  Board ("APB")
          Opinion No. 25,  "Accounting for Stock Issued to Employees" to account
          for  stock-based  compensation.  The  Company  has  elected to use the
          intrinsic value based method and has disclosed the pro forma effect of
          using the fair  value  based  method to  account  for its  stock-based
          compensation  issued  to  employees.   For  non-employee  stock  based
          compensation the Company recognizes an expense in accordance with SFAS
          No. 123 and values  the equity  securities  based on the fair value of
          the security on the date of grant.

          If the  Company  had elected to  recognize  compensation  cost for its
          stock options and warrants based on the fair value at the grant dates,
          in accordance with SFAS 123, net earnings and earnings per share would
          have been as follows:

<TABLE>
                                                               2004                    2003

<S>                                                 <C>                     <C>
          Net income (loss) as reported             $            2,732,967  $              (33,201)
          Compensation cost measured by fair
          value method                              $             (35,657)  $              (10,783)
                                                        -------------------     --------------------

           Pro forma net income (loss)              $            2,697,310  $              (43,984)
                                                        ===================     ====================

          Basic income (loss) per common share:
               As reported                          $                 0.41  $                (0.01)
                                                        ===================     ====================
               Pro forma                            $                 0.40  $                (0.01)
                                                        ===================     ====================
          Diluted income (loss) per common share:
               As reported                          $                 0.39  $                (0.01)
                                                        ===================     ====================
               Pro forma                            $                 0.39  $                (0.01)
                                                        ===================     ====================
</TABLE>


                                       31




<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(2)  Summary of Significant Accounting Policies, Continued:

     Stock Based Compensation, Continued:

          The fair value of each option is  estimated on the date of grant using
          the Black-Scholes option pricing model. The following weighted-average
          assumptions  were  used  in the  Black-Scholes  option-pricing  model;
          dividend yield nil,  expected  volatility 21%, risk free interest rate
          6.0%, and expected life of 1-3 years.

          The  weighted-average  fair value of options  granted during the years
          ended December 31, 2004 and 2003 were $0.09 and $0.10, respectively.

     Deferred Revenue:

          For the 2002 and prior years,  the Company deferred all of the revenue
          allocated to the merchandise and administrative services components of
          pre-arranged  contracts  sold. For 2003 and future years,  deferral is
          only made in those  States where the  delivery of  merchandise  is not
          permitted.

     Deferred Charges:

          Deferred  charges  include  sales  commissions  paid that are directly
          related to pre-arrangement revenue deferred.  These deferred costs are
          to be charged to operations in the same period as the fulfillments are
          performed and the deferred revenue is recognized.

     Deferred Financing Costs:

          Costs  incurred  with  respect to  financing  and  refinancing  of the
          Company's  long-term  debt are  deferred  and expensed as interest and
          finance cost over the life of the respective debt instrument.

     Computation of Income (Loss) Per Common Share:

          Basic and diluted  gain  (loss) per share is computed by dividing  net
          income  (loss)  by  the  weighted  average  number  of  common  shares
          outstanding  during the year.  For the year ended  December  31, 2003,
          options to purchase 1,029,035 shares of common stock at prices ranging
          from $0.65 to $10.00 per share were not included in the computation of
          diluted loss per share because the effect would be  anti-dilutive.  No
          options were excluded from the computation for the year ended December
          31, 2004.

          Additionally, warrants and conversion rights to purchase 5,655,669 and
          2,950,294  shares at  December  31,  2004 and 2003,  respectively,  at
          prices  ranging from $0.72 to $3.00 per share were not included in the
          computation  of diluted  loss per share  because  the effect  would be
          anti-dilutive.


                                       32



<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(2)  Summary of Significant Accounting Policies, Continued:

     Fair Value of Financial Instruments:

          The carrying amounts of cash,  current  receivables,  accounts payable
          and  accrued  liabilities  approximate  their  fair  value  due to the
          short-term  nature  of  these  instruments.  The  fair  value  of  the
          Company's  long-term  fixed rate debt is  estimated  using future cash
          flows discounted at rates for similar types of borrowing  arrangements
          and approximates its carrying value.

     Use of Estimates:

          The preparation of financial  statements in conformity with accounting
          principles generally accepted in the United States of America requires
          management to make estimates and assumptions  that affect the reported
          amounts of assets and liabilities and disclosure of contingent  assets
          and liabilities at the date of the consolidated  financial  statements
          and the reported amounts of revenues and expenses during the reporting
          period. Actual results could differ from those estimates.

     Comprehensive Income (Loss):

          The Company does not have any  transactions  or other economic  events
          that enter into other  comprehensive  income or loss  during the years
          presented.

     Recent Accounting Pronouncements:

          In December 2003, the FASB issued a revised SFAS No. 132,  "Employers'
          Disclosures  about Pensions and Other  Postretirement  Benefits" which
          replaces  the  previously  issued  Statement.  The  revised  Statement
          increases the existing  disclosures  for defined benefit pension plans
          and other defined benefit  postretirement  plans. However, it does not
          change the  measurement  or  recognition of those plans required under
          SFAS No.  87,  "Employers'  Accounting  for  Pensions,"  SFAS No.  88,
          "Employers'  Accounting for  Settlements  and  Curtailments of Defined
          Benefit Pension Plans and for Termination Benefits," and SFAS No. 106,
          "Employers'   Accounting  for   Postretirement   Benefits  Other  Than
          Pensions."  Specifically,  the revised Statement requires companies to
          provide  additional  disclosures  about  pension plan assets,  benefit
          obligations,  cash flows, and benefit costs of defined benefit pension
          plans and other defined benefit  postretirement plans. Also, companies
          are required to provide a breakdown  of plan assets by category,  such
          as debt, equity and real estate, and to provide certain expected rates
          of  return  and  target   allocation   percentages   for  these  asset
          categories.  The Company has implemented  this  pronouncement  and has
          concluded  that the adoption has no material  impact to the  financial
          statements.


                                       33



<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(2)  Summary of Significant Accounting Policies, Continued:

     Recent Accounting Pronouncements, Continued:

          In January 2003, the FASB issued interpretation No. 46, "Consolidation
          of Variable Interest Entities." Interpretation 46 changes the criteria
          by which one  company  includes  another  entity  in its  consolidated
          financial statements.  Previously,  the criteria were based on control
          through  voting  interest.   Interpretation  46  requires  a  variable
          interest  entity to be  consolidated  by a company if that  company is
          subject to a majority of the risk of loss from the  variable  interest
          entity's  activities or entitled to receive a majority of the entity's
          residual  returns  or both.  A company  that  consolidates  a variable
          interest entity is called the primary beneficiary of that entity.

          On December 20, 2003,  the FASB issued FIN 46R. For all entities  that
          were previously considered special purpose entities,  FIN 46 should be
          applied in periods  ending after  December 15, 2003.  Otherwise FIN 46
          was to be applied for  registrants  who file under  Regulation  S-X in
          periods  ending after March 15,  2004,  and for  registrants  who file
          under  Regulation  SB, in periods  ending after December 15, 2003. The
          adoption  did not have a material  impact on the  Company's  financial
          position or results of operations.

          In April, 2003 the FASB issued SFAS No.149 "Amendment of Statement 133
          on Derivative Instruments and Hedging Activities. FASB 149 amended and
          clarified   financial   accounting   and  reporting   for   derivative
          instruments,   including  derivative  instruments  embedded  in  other
          contracts and for hedging  activities  under FASB 133. The adoption of
          this  pronouncement  did not have a material  impact on the  Company's
          financial position or results of operations.

          In May,  2003 the FASB  issued  SFAS No. 150  "Accounting  for Certain
          Financial  Instruments  with  Characteristics  of both Liabilities and
          Equity."  This  Statement  established  standards  for  how an  issuer
          classifies   and   measures   certain   financial   instruments   with
          characteristics  of both  liabilities and equity.  It required that an
          issuer  classify a financial  instrument that is within its scope as a
          liability  (or  an  asset  in  some  circumstances).   Many  of  these
          instruments  were previously  classified as equity.  The provisions of
          this Statement were effective for financial  instruments  entered into
          or modified  after May 31, 2003, and otherwise at the beginning of the
          first interim  period  beginning  after June 15, 2003. The adoption of
          this  pronouncement  did not have a material  impact to the  Company's
          financial position or results of operations.


                                       34



<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(2)  Summary of Significant Accounting Policies, Continued:

     Recent Accounting Pronouncements, Continued:

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

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


                                       35


<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(2)  Summary of Significant Accounting Policies, Continued:

     Recent Accounting Pronouncements, Continued:

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

          In December 2004 the Financial  Accounting  Standards Board issued two
          FASB Staff Positions--FSP FAS 109-1, Application of FASB Statement 109
          "Accounting  for  Income  Taxes"  to the Tax  Deduction  of  Qualified
          Production  Activities  Provided by the American  Jobs Creation Act of
          2004, and FSP FAS 109-2  "Accounting  and Disclosure  Guidance for the
          Foreign  Earnings  Repatriation  Provision  within the  American  Jobs
          Creation  Act of 2004."  Neither of these  affected  the Company as it
          does not participate in the related activities.

(3)  Changes in Accounting Principles:

     Goodwill (Names and Reputations):

          In  July,  2001,  the  Financial  Accounting  Standards  Board  issued
          Statement  No. 142,  "Goodwill  and Other  Intangible  Assets",  which
          requires that goodwill and intangible  assets with  indefinite  useful
          lives no longer be  amortized,  but instead  tested for  impairment at
          least  annually.  The Company  adopted FASB 142  effective  January 1,
          2002.  The asset  "Names  and  Reputations"  meets the  definition  of
          goodwill under FASB 142.


                                       36



<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(3)  Changes in Accounting Principles, Continued:

     Goodwill (Names and Reputations), Continued:

          On  implementation  of FASB 142,  management  determined that the fair
          value  of the  Company  as a  single  reporting  unit  under  FASB 142
          exceeded the carrying value of the net assets, including goodwill. The
          Company  has  subsequently  completed  the annual  evaluations  of the
          implied  value  of its  goodwill,  and  determined  that  there  is no
          impairment in value at December 31, 2004 and 2003.

          For 2001 and prior  fiscal  years,  the  Company  amortized  Names and
          Reputations over a period of 20 years from  acquisition,  resulting in
          amortization expense of approximately  $1,500,000 annually.  There was
          no amortization  recorded in 2004 and 2003 due to the adoption of SFAS
          No. 142.

          With the  requirement  to adopt FASB 142,  the Company  will no longer
          amortize its acquired goodwill on a systematic  basis.  Rather it will
          test the value of goodwill annually,  and if it is determined that the
          goodwill is impaired,  the carrying value will be adjusted by a charge
          to operations in the year that such determination is made.

          An  analysis  of the  historical  carrying  value  of  goodwill  is as
          follows:

                                                                    2004
                                                                    ----
          Cost
              Names and Reputations recorded on acquisition
              of predecessor companies and businesses          $  27,653,694

          Less:
              Accumulated amortization (1999 to 2001)             (3,960,899)
                                                                  -----------

                  Net Book Value                               $  23,692,795
                                                                  ===========


(4)  Property and Equipment

     Property and equipment is summarized as follows:

                                                          2004
                                                          ----

          Furniture and fixtures                         266,773
          Automobiles                                    129,284
          Equipment                                      555,195
          Leasehold improvements                         201,452
                                                       ---------
          Total property and equipment                 1,152,704
          Less accumulated depreciation and
            amortization                                (834,653)
                                                       ---------
          Property and equipment, net                 $  318,051
                                                       ==========


                                       37


<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(5)  Notes Payable:

<TABLE>
                                                                                     2004       2003
                                                                                     ----       ----
<S>                                                                          <C>           <C>
     11% Convertible Debentures
     Interest only payable monthly. See (a) below.                           $ 6,000,000   $         -

     13% Debentures
     Amortizing at $125,000 per month principal and interest with scheduled
     balloon payments to July 31, 2007. Secured by a first trust deed on
     substantially all assets of the Company See (b) below.                            -     6,952,743

     13.75% Mandatory Convertible Debentures
     Interest only payable monthly.  See (c) below.                                    -     1,040,563

     Professional Services Debt
     Notes payable,  non-interest  bearing,  payable in monthly
     installments  of  $15,000,  due  February  2004.  See  (d)
     below.                                                                            -       148,211

     Employee Settlement Note
     Payable in monthly installments of $10,000. See (e) below                   390,000       510,000
                                                                           ------------- -------------

                                                                               6,390,000     8,651,517

     Less current portion                                                       (120,000)   (1,950,582)
                                                                           ------------- -------------

                                                                             $ 6,270,000   $ 6,700,935
                                                                             =============  =============
</TABLE>

     (a) 11.0% Convertible Debentures

     The Company entered into an Agreement dated June 18, 2004 pursuant to which
     it issued  Brooklyn  Holdings LLC a $6,000,000 11% debenture,  due June 18,
     2014.  The Debenture  provides for monthly  interest only payments  through
     June 18, 2014 and the full payment of the $6,000,000  principal due on June
     18,  2014.  The  Company  has  the  right  to  convert  any  or  all of the
     outstanding  principal  into shares of common  stock at a rate of $1.65 per
     share at anytime  until June 18,  2014.  Beginning  on June 18,  2009,  the
     debenture  holder also has a right to convert any or all of the outstanding
     principal  into common shares at $1.65 per share,  subject to the Company's
     right to pre-pay the  Debenture  within 30 days of  receiving  the holder's
     conversion  notice. The Company issued Brooklyn Holdings LLC 250,000 shares
     of common stock as a commitment fee in connection  with the financing.  The
     Company granted Brooklyn  Holdings LLC  registration  rights related to the
     shares of common  stock  issued as the  commitment  fee and  issuable  upon
     conversion of the Debenture.

     Under the terms of the Agreement,  the Company is restricted  from entering
     into any  encumbrances in excess of $100,000 or purchase money mortgages in
     excess of $500,000.  In addition,  the lender has a first  priority lien on
     all assets of the Company.



                                       38



<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(5)  Notes Payable, Continued:

     The Company used approximately  $5,600,000 of the $6,000,000 in proceeds to
     pay off the outstanding  principal and interest of its 13% debentures,  due
     July 31, 2007.  The remainder of the proceeds was used to increase  working
     capital.

     (b) 13% Convertible Debentures

     Under the terms of the  debentures,  interest at the rate of 6.5% per annum
     was  deferred as to payment  until May 31, 2003.  Commencing  June 1, 2003,
     monthly  interest  payments  increased to 13% per annum,  accrued  interest
     representing  the 6.5% per annum  interest  deferred in prior years  became
     payable commencing on June 1, 2003 at the rate of $15,000 per month.

     During 2002, the note holders  exercised their pre-emptive right to acquire
     the amount of $71,563 of 13.75%  convertible  debentures,  which debentures
     are  automatically  convertible  into  common  shares at $1.20 per share on
     March 31, 2004. The note holders also exercised their pre-emptive rights to
     acquire 107,440 common shares at a cost of $116,035.

     In 2003 the note  holders  exercised  their  pre-emptive  right to  acquire
     63,432 common shares at a cost of $41,230.  The  acquisition  of the shares
     was in reduction of accrued interest owing to them.

     By an  agreement  dated  July  31,  2003 the  Company  borrowed  a  further
     $1,500,000  for the purpose of making the final  payment of $1.8 million in
     acquisition  debt  related  to its 1999  purchase  of the  Neptune  Society
     business.  In  connection  with  the  debt  financing,   the  Company  also
     restructured its obligations under the 13% Debentures.

     This  restructuring  favorably  amended the previous fixed charge  coverage
     ratio obligation and cured certain possible conditions of default under the
     debentures.  The  restructured  debentures were repayable by July 31, 2007,
     with the  Company  holding the right to prepay the  debentures  at any time
     without penalty.

     The  Company  issued  600,000  shares  of its  stock  to the  lenders  as a
     refinancing  fee.  A term of the  refinancing  was the  replacement  of the
     conversion  rights of the original  debentures  (whereby the lenders  could
     convert  the debt into stock at a price of $3.00 per share  until  February
     24,  2005) into  detached  warrants  for the purchase of the same number of
     shares at the same  price for a period of 5 years.  The value of the shares
     and warrants  issued  ($420,000 and $16,667  respectively)  were charged to
     deferred  financing  costs and were being  amortized to operations over the
     extended maturity of the financing.

     The Company by an Agreement  dated  February 18, 2004 made a prepayment  of
     $1,160,000  in reduction of  principal.  As a term of the  prepayment,  the
     Company was not required to make any further scheduled lump sum payments or
     payments  based on excess  cash flow  until  July  2005.  This  transaction
     limited the required  payments  under the  Debentures to $125,000 per month
     until July 2005.


                                       39


<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(5)  Notes Payable, Continued:

     In June 2004 the Company  refinanced these 13% convertible  debentures with
     the  11%  debenture  described  in (a)  above.  The  remaining  unamortized
     deferred  financing  costs of $659,822 were charged to interest and finance
     expense in 2004.

     (c) 13.75% Mandatory Convertible Debenture

     In 2002,  the Company  issued face value  $1,071,653 of 13.75%  convertible
     debentures  in  consideration  for  cash  (including   satisfaction  of  an
     outstanding  note payable of  $800,000) of  $1,000,000  and  settlement  of
     $71,653 of accrued  interest  payable to a debenture holder holding certain
     pre-emptive rights to all corporate financings.

     On March 31, 2004 the debentures  were  automatically  converted to 893,044
     common shares at $1.20 per share under the original terms of the agreement.

     (d) Professional Services Debt

     In November 2001, the Company issued non-interest  bearing notes payable of
     $360,000 and $70,000, due November 2003 and February 2004, respectively, in
     payment of  professional  fees due. The  $360,000  note was  amortizing  at
     $15,000 per month.  The Company also issued 25,000 shares valued at $72,000
     in connection with the debt settlement.  The notes were discounted  $65,000
     to their  approximate  fair market  value.  The value of the shares and the
     discount was amortized to interest expense over the respective lives of the
     notes.  Under the terms of the notes, the note holder agreed to forgive the
     remaining $70,000 obligation in March 2004.

     (e) Employee Settlement Liability

     The Company in 2003  entered into a  separation  agreement  with its former
     Chief  Financial  Officer,   under  which  his  employment   agreement  was
     cancelled.  The  agreement  requires  the payment of a total of $600,000 in
     equal monthly  payments over a five year period  beginning  April 2003. The
     Company had previously made provision for deferred compensation and related
     costs totaling approximately $ 390,000 with respect to the former officer's
     services.  The separation  agreement also provides for a final  conditional
     payment of $100,000 if the Company has net free cash of at least $1,000,000
     after all normal  operating  expenses for the final year of the  agreement.
     There is also  provision for the  acceleration  of payments in the event of
     certain specified events, such as change of control of the Company, sale of
     substantially  all of  our  assets,  sale  of a  location,  or  payment  of
     dividends to stockholders.


                                       40



<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(5)  Notes Payable, Continued:

    (f) The aggregate  maturities of long-term debt at December 31, 2004 are as
    follows:


     Year Ending December 31, 2005                      $        120,000
          2006                                                   120,000
          2007                                                   120,000
          2008                                                    30,000
          2009-2013                                                  Nil
          2014                                                 6,000,000
                                                           -------------
                                                        $      6,390,000
                                                           =============

(6)  Stockholders' Equity:

     Common Stock
     ------------

     In February 2003, the Company issued 307,962 Units, each Unit consisting of
     one share of common stock and one warrant for the purchase of an additional
     one share,  exercisable  at the price of $0.72 per share until February 19,
     2004, and $0.79 per share  exercisable to February 19, 2005. The Units were
     issued to a  private  company  controlled  by the  family  of an  executive
     officer and director.

     Liabilities To Be Settled By Issue of Shares
     --------------------------------------------

                                December 31, 2004     December 31, 2003
                                 Number               Number
                               of Shares   Amount    of Shares   Amount
                               ---------   ------    ---------   ------
     Deferred compensation to
     executives                     Nil      $Nil      215,500  $140,076
                              ==========   ======    =========  ========

     Employee Stock Option Plan
     --------------------------

     In 1999,  the Board of  Directors  of the  Company  adopted  the 1999 Stock
     Incentive  Plan (Stock  Option Plan) for the grant of  qualified  incentive
     stock  options  (ISO),  non-qualified  stock  options,  deferred  stock and
     restricted stock. The exercise price for any option granted may not be less
     than fair value (110% of fair value for ISOs granted to certain employees).
     Under the Stock Option Plan, 225,000 shares are reserved for issuance.

     Effective April 12, 2002, the Board of Directors of the Company adopted the
     2002 Stock Incentive Plan (2002 Plan) for the grant of qualified  incentive
     stock  options  (ISO),  non-qualified  stock  options,  deferred  stock and
     restricted stock. The exercise price for any option granted may not be less
     than fair value (110% of fair value for ISOs granted to certain employees).
     Under the 2002 Plan, 750,000 shares are reserved for issuance.


                                       41



<PAGE>

                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(6)  Stockholders' Equity, Continued:

     Executive Stock Options
     -----------------------

     Under the terms of a three year employment agreement commencing February 1,
     2003, one Executive Officer was granted options to acquire 30,000 shares of
     common stock at a price of $0.70, vesting on February 1, 2004. In addition,
     under the terms of a three year employment  agreement  commencing  March 1,
     2003,  one Officer was granted  options to acquire  20,000 shares of common
     stock at a price of $0.70, vesting on March 1, 2004.

     Under the terms of a three year employment agreement commencing February 1,
     2004, one Executive  Officer was granted  options to acquire 150,000 shares
     of common stock at a price of $0.70,  vesting at the rate of 50,000  shares
     on each of the first, second and third anniversaries of the agreement.

     The Company granted an additional 25,000 options to purchase stock at $0.70
     to an Executive  Officer under the terms of an employment  agreement  dated
     June 1, 2004.

     Stock Options
     -------------

     The following table is a summary of the Company's stock options outstanding
     as of  December  31,  2004 and 2003 and the  changes  during the years then
     ended.

                                            2004                  2003
                                            ----                  ----
                                                Average               Average
                                                Exercise              Exercise
                                     Number      Price      Number     Price
                                     -------------------------------------------
     Outstanding, beginning of year  730,171    $   3.50    608,728   $   7.19
     Granted                         205,000    $    .70    460,682   $   1.73
     Cancelled and expired         (530,171)    $      -  (339,239)   $      -
                                     -------------------------------------------
     Outstanding, end of year        405,000    $    .68    730,171   $   3.50
                                     ===========================================
     Exercisable, end of year        305,000    $    .68    430,171   $   5.31
                                     ===========================================

     The  following   table  further   describes  the  Company's  stock  options
     outstanding as of December 31, 2004:

            Number of        Weighted average      Weighted
              Options     remaining life (years)    average             Number
           Outstanding                           exercise price      exercisable
           -----------    ---------------------  --------------      -----------

               30,000                   .92    $         0.70             30,000
               25,000                   0.4    $         0.70             25,000
              150,000                   1.1    $         0.70             50,000
               50,000                   1.2    $         0.70             50,000
              150,000                   1.2    $         0.65            150,000
         --------------                                              -----------

              405,000                                                    305,000
         ==============                                              ===========


                                       42

<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(6)  Stockholders' Equity, Continued:

     Warrants and conversion rights outstanding
     ------------------------------------------

     The following stock purchase warrants are outstanding at December 31, 2004:

                                                               Number of shares
                                                                   subject to
                                     Expiration Date    Price     warrants and
                                                               conversion rights
     Granted in connection with:

     13.0% Debentures                July 31, 2007       $3.00      1,716,667

     12.0% Convertible Debenture     December 21, 2005   $3.00          7,500

     Unit offering of Common Stock   February 19, 2005   $0.79        331,502
                                                                  --------------
                                                                    2,055,669
                                                                  ==============

(7)  Commitments and Contingencies:

     Employment and Consultant Agreements
     ------------------------------------

     The Company has entered into Employment and Consulting Agreements extending
     for periods in excess of one year with the following:

     Chief Executive  Officer - Agreement for a five year period ending December
     31, 2005 at an annual base salary of  $200,000,  a minimum  annual bonus of
     $100,000,  stock  options to  purchase  150,000  shares at a price of $0.65
     annually, automobile, business and entertainment allowances of a minimum of
     $24,000 annually,  and a housing allowance totaling  approximately  $83,000
     annually.  In the event of termination by the Company  without cause, or by
     the executive with cause, the agreements  provide for a lump sum payment to
     the executive equal to three times the annual base salary, plus the greater
     of $500,000 or three times the highest annual bonus paid. The agreement was
     amended in February 2005 as detailed in Note 9-Subsequent Events.

     President and Chief  Marketing  Officer - Agreement for a three year period
     ending  January 31, 2007 at an annual base salary of $200,000,  a potential
     annual bonus of $60,000, options to purchase 150,000 shares of common stock
     at a price of $0.70, and an expense allowance of $24,000  annually.  In the
     event of termination by the Company without cause,  the agreement  provides
     for a  lump  sum  payment  equal  to 6,  7 or 8  months  base  compensation
     depending on the years remaining on the contract.

     One  officer  and one  executive  officer  are  retained  under  employment
     agreements,  cancelable upon six months notice.  The agreements provide for
     compensation and expenses  allowances totaling  approximately  $392,000 and
     $65,000 for 2005 and 2006 respectively.  The agreements expire in the first
     quarter of 2006.


                                       43


<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(7)  Commitments and Contingencies, Continued:

     Leases
     ------

     The Company leases  facilities  under operating lease  agreements  expiring
     through  July  2009.  The  Company  also  leases   certain   equipment  and
     automobiles under operating lease agreements expiring at various dates.

     Future   minimum   lease   payments  for  the  upcoming  four  years  under
     non-cancelable operating leases in effect December 31, 2004 are as follows:

         Year ending December 31,

                  2005                               $        868,259
                  2006                                        785,405
                  2007                                        556,937
                  2008                                        396,181
                                                     ------------------
                                                     $      2,606,782

     Litigation
     ----------

     The Company is from time to time subject to routine  litigation  arising in
     the  normal  course  of  business.  Management,  with the  advice  of legal
     counsel,  believes that the results of any such routine litigation or other
     pending legal proceedings will not have a material effect on the Company.

(8)  Income Taxes:

     Income tax expense (benefit) differs from the expected  statutory amount as
     follows:


                                                         2004         2003
                                                         ----         ----

     Expected income tax provision (benefit)         $ 929,000     $ (5,000)
     State income tax, net of federal benefit          178,000       (1,000)
     Utilization of Federal and State net operating
      loss carryforwards                            (1,081,000)           -
     Change in valuation allowance                                    6,000
     Other                                              59,000            -
                                                    ------------  --------------
     Income tax expense per financial statements     $  85,000     $      -
                                                    ============  ==============


                                       44


<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(8)  Income Taxes, Continued:

     The tax  effects of  temporary  differences  that give rise to  significant
     portions of deferred tax assets and deferred tax  liabilities  is presented
     below:

                                             2004                  2003
                                             ----                  ----

     Deferred tax assets:
          Deferred revenue               $  6,405,000           $  6,841,000
          Net operating loss                1,787,000              2,663,000
          Other                                64,000                 64,000
                                         -------------          ----------------

     Total gross deferred tax assets        8,256,000              9,568,000
     Valuation allowance                   (6,148,000)            (7,237,000)
                                         -------------          ----------------

          Net deferred tax assets           2,108,000              2,331,000

     Deferred tax liability -
        deferred commissions               (2,108,000)            (2,331,000)
                                         -------------          ----------------

          Net deferred taxes             $          -           $          -
                                         =============          ================

     The  Company's  deferred  tax  asset is offset  by a  valuation  allowance.
     Management  will  continue  to assess the  valuation  allowance  and to the
     extent it is determined that such allowance is no longer required,  the tax
     benefit of the  remaining net deferred tax assets will be recognized in the
     future.

     The net operating  loss  carryforwards  for federal  income tax purposes of
     approximately $7,858,000 start to expire in the year 2019. State income tax
     loss carryforwards of approximately  $6,170,000 start to expire in the year
     2006.

(9)  Subsequent Events:

     $3 Million Secured Note
     -----------------------

     On February 2, 2005 the Company  entered  into a loan  agreement  to borrow
     $3,000,000.  The loan agreement provides for monthly interest only payments
     at 13.5%  simple  interest,  with an annual  loan fee of 3.5% on the unpaid
     principal  balance.  The loan fee is payable in arrears upon the payment of
     the  principal  amount  in full.  The  proceeds  of the loan  were used for
     general  working  capital and to make  payments  under the  Separation  and
     Release Agreement below.


                                       45


<PAGE>


                   THE NEPTUNE SOCIETY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

(9)  Subsequent Events, Continued:

     Separation and Release Agreement
     --------------------------------

     On February  2, 2005 the  Company  entered  into a  separation  and release
     agreement with its Chief Executive Officer ("CEO").  Under the terms of the
     agreement,  the  CEO  received  a lump  sum  payment  of  $221,049  as sole
     consideration  for termination of the Employment  Agreement and for general
     release of claims. During a six month transition period, the CEO will serve
     as a  consultant  to the Company and will be entitled to  compensation  and
     benefits at the level paid  immediately  prior to the separation date, with
     the exception of the right to participate in any stock option or securities
     purchase plan.

     In addition,  under the terms of the  agreement,  554,442  shares of common
     stock,  stock options for 150,000  shares at $0.65 per share,  and warrants
     for  307,692  shares at $0.79 that were  beneficially  owned by the CEO and
     related  parties were purchased  from the various  parties at a fair market
     value  totalling  $2,649,000.  No  gain  or  loss  was  recognized  on this
     transaction.

     Amended Employment Agreement-President and Chief Marketing Officer
     ------------------------------------------------------------------

     On  February  7, 2005 the Company  and its  President  and Chief  Marketing
     Officer  ("President") entered into an amended employment agreement whereby
     the President agreed to serve as President and Chief Executive Officer.
















                                       46

<PAGE>

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     We had no changes in or  disagreements  with  accountants on accounting and
financial disclosure during the two most recently completed fiscal years.

ITEM 8A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
------------------------------------------------

Under the supervision and with the  participation  of our management,  including
our Chief  Executive  Officer and Chief  Financial  Officer,  we  evaluated  the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures  (as defined in Rule  13a-15(e)  or  15d-15(e)  under the  Securities
Exchange Act of 1934 (the  "Exchange  Act")).  Based upon that  evaluation,  the
Chief Executive  Officer and Chief Financial  Officer  concluded that, as of the
end of the period covered by this report, our disclosure controls and procedures
were adequately designed to ensure that information  required to be disclosed by
us in the  reports  we  file or  submit  under  the  Exchange  Act is  recorded,
processed,  summarized  and  reported  within  the  time  periods  specified  in
applicable rules and forms.

The  Company's  management,  including  the Chief  Executive  Officer  and Chief
Financial Officer,  does not expect that its disclosure  controls and procedures
will  prevent  all error and all  fraud.  A control  system,  no matter how well
conceived and operated,  can provide only  reasonable,  not absolute,  assurance
that the  objectives  of the control  system are met.  Further,  the design of a
control  system must reflect the fact that there are resource  constraints,  and
the benefits of controls must be considered relative to their costs.  Because of
the inherent  limitations in all control systems,  no evaluation of controls can
provide  absolute  assurance that all control issues and instances of fraud,  if
any, within the Company have been detected.  These inherent  limitations include
the  realities  that  judgments  in  decision-making  can be  faulty,  and  that
breakdowns can occur because of simple error or mistake. Additionally,  controls
can be circumvented by the individual acts of some persons,  by collusion of two
or more people,  or by  management  override of the  control.  The design of any
system of  controls  also is based in part upon  certain  assumptions  about the
likelihood of future events,  and there can be no assurance that any design will
succeed in achieving  its stated goals under all  potential  future  conditions;
over time,  control may become inadequate  because of changes in conditions,  or
the degree of  compliance  with the  policies  or  procedures  may  deteriorate.
Because  of  the  inherent  limitations  in  a  cost-effective  control  system,
misstatements due to error or fraud may occur and not be detected.

Changes in internal control over financial reporting
----------------------------------------------------

During the most recent fiscal quarter ended December 31, 2004, there has been no
change in our internal  control  over  financial  reporting  (as defined in Rule
13a-15(f) or 15d-15(f) under the Exchange Act) that has materially affected,  or
is reasonably likely to materially  affect,  our internal control over financial
reporting.

ITEM 9.  DIRECTORS,  EXECUTIVE  OFFICERS  AND  CONTROL  PERSONS;  SECTION  16(a)
         COMPLIANCE

     The  following  table sets forth  certain  information  with respect to our
current  directors,  executive  officers  and key  employees.  The term for each
director  expires at our next annual  meeting or until his or her  successor  is
appointed.  The ages of the directors,  executive officers and key employees are
shown as of December 31, 2004.


                                       47


<PAGE>


<TABLE>
------------------------------------- ---------------------------------------------- ---------------------- ----------
                                                                                     Director/              Age
Name                                  Position                                       Officer Since
------------------------------------- ---------------------------------------------- ---------------------- ----------

<S>                                                                                        <C>                 <C>
Marco P. Markin                       CEO and Director of each of Neptune Society,   June, 1999(1)             40
                                      Neptune of America, Neptune Management, and
                                      Trident Society, Inc.
------------------------------------- ---------------------------------------------- ---------------------- ----------
Jerry A. Norman                       President and Chief Executive Officer of all   February, 2004(2)         54
                                      Neptune Group companies.
------------------------------------- ---------------------------------------------- ---------------------- ----------
Daniel M. Solberg                     Chief Financial Officer, Corporate Secretary   June, 2004                51
                                      and Treasurer, Neptune Group
------------------------------------- ---------------------------------------------- ---------------------- ----------
Brent Lokash                          Director of Neptune Society                    May, 2003                 36
------------------------------------- ---------------------------------------------- ---------------------- ----------
Bernard C. Darre                      Director of Neptune Society                    June, 20043               35
------------------------------------- ---------------------------------------------- ---------------------- ----------
Cameron Strang                        Director of Neptune Society                    May, 2004                 38
------------------------------------- ---------------------------------------------- ---------------------- ----------
Gary I. Harris                        National Sales Manager, Neptune Group          March, 2002               63
------------------------------------- ---------------------------------------------- ---------------------- ----------
Barry Maynes                          Senior Vice President - Corporate              March, 20034              51
                                      Development, Neptune Group
------------------------------------- ---------------------------------------------- ---------------------- ----------
</TABLE>

     (1)  Mr. Marco Markin  resigned as CEO and Chairman  effective  February 2,
          2005.

     (2)  Mr. Jerry Norman was named CEO effective February 7, 2005.


     (3)  Mr. Bernard Darre resigned as a member of the Board effective February
          15, 2005.

     (4)  Mr. Barry Maynes was named Senior VP-Corporate  Development  effective
          February 2, 2005.

     Marco P.  Markin - Mr.  Markin  joined  Neptune  Society  full  time as our
Chairman of the Board and Chief Executive Officer in September 1999. He resigned
as  Chairman  and  Chief  Executive  Officer  in  February,  2005 but  remains a
Director.  From  November 1994 to September  1999,  Mr. Markin was the Executive
Vice President of TPP Management Inc., a private  investment  company,  having a
diverse portfolio  consisting of  residential/commercial  real estate,  merchant
banking,  and  securities.  His expertise  included  corporate  management,  and
corporate  development,  research and  marketing.  From January 1991 to November
1995,  Mr. Markin was the founder and CEO of a commercial  real estate  company,
which secured and managed a portfolio of 400,000 square feet of real estate.  He
was also the  co-founder  of one of the largest  direct  marketing  companies in
Canada, which was subsequently sold to the Financial Post. From 1985 - 1990, Mr.
Markin  was  the  founder  and  CEO  of  Markin  Development  Group,  a  growing
development company focusing on construction of multi-family apartment buildings
and commercial offices.  Mr. Markin graduated from Bishop College in Montreal in
1982. He also attended the University of British Columbia's Science Program.

     Jerry A. Norman - Mr. Norman was appointed as President on February 1, 2004
and Chief  Executive  Officer on February 7, 2005.  Mr. Norman has over 30 years
experience in business  management  and marketing.  Prior to his  appointment at
Neptune,  he worked as a  Private  Marketing  Consultant  providing  death  care
industry and final expense life insurance marketing and sales to clients such as
Service  Corporation  International  (SCI), Fortis  U.S./American  Memorial Life
Insurance  Co., and Farmer's Life Insurance to name a few. From  1998-2002,  Mr.
Norman was the Managing  Director of Marketing  and  Corporate  Alliances at SCI
where he managed all forms of marketing and all Life Insurance company relations
for both Europe and the United States. He also served as chairman of MeM.com, an
internet memorial company. From 1986-1998,  Mr. Norman was Sr. Vice President of
American Memorial Life Insurance.

     Daniel M. Solberg - Mr. Solberg was appointed as Chief  Financial  Officer,
Treasurer and Secretary on June 1, 2004. He has over 30 years  experience in the
financial services industry.  Prior to joining Neptune,  Mr. Solberg worked with
Olympic Health  Management for ten years,  holding  positions as Chief Financial
Officer  and  Chief  Operating  Officer.  Prior to  Olympic,  Mr.  Solberg  held
positions  with  SAFECO  Insurance  Company,   serving  as  Accounting  Manager,
responsible for financial reporting, and at Seafirst Bank, where he directed the


                                       48


<PAGE>


successful  start-up of Leasco of Washington as its  Controller  and  Operations
Manager.  In 1985,  he  joined  Purple  Cross  Insurance  Company  as its  first
Controller and later became Chief Operating  Officer of the PreNeed  Division of
Prairie States Life Insurance Company. In this capacity,  he directed activities
for an  organization  with more than 250,000  policyholders  and $600 million in
assets. Mr. Solberg earned the Charted Property and Casualty  Underwriter (CPCU)
designation in 1982,  became a CPA in 1987 and joined the Fellow Life Management
Institute (FLMI) in 1989. He is a member of the American  Institute of Certified
Public Accountants.

     Gary I.  Harris - Mr.  Harris is the  National  Sales  Manager  of  Neptune
Society.  Prior to joining  Neptune  Society in March 2000,  Mr.  Harris was the
Senior   Vice-President  in  charge  of  the  print  division  at  T.V.  Fanfare
Publication,  an international  advertising company, where he worked since 1985.
He attended both the University of Toledo and New York University.

     Barry Maynes - Mr. Maynes was appointed as Chief Information  Officer (CIO)
of Neptune  Society on March 1, 2003.  On February  2, 2005 he was named  Senior
Vice President - Corporate Development. Mr. Maynes joined Neptune in March, 2002
as Vice  President-Technical  Services  and  Administration.  Prior  to  joining
Neptune,  Mr. Maynes was employed by Bowne Global  Solutions as Central Services
Manager,  Americas, where his responsibilities  included all aspects of Finance,
Information Technology, Human Resources and Administration. From 1975 to 1997 he
was employed by the Origin Group, the consulting arm of Phillips Industries,  in
progressively responsible positions to Technical Support Manager.

     Brent  Lokash - Mr.  Lokash was  appointed to the Board of Directors of the
Company on May 30,  2003 and was named  Chairman  of the Board on March 2, 2005.
Since being called to the Bar of British  Columbia in 1995,  Mr. Lokash has been
and remains a current  practicing member of the Law Society of British Columbia.
From 1996 to 1998 Mr. Lokash  practiced  municipal and  administrative  law with
Jonathan  Baker & Associates  in Canada.  Since 1998 to present,  Mr. Lokash has
been practicing  administrative  and commercial  law, as a sole  practitioner in
Vancouver, British Columbia.

     Cameron  Strang - Mr. Strang was appointed to the Board of Directors of the
Company in May, 2004. A graduate of the University of British  Columbia  Schools
of Commerce  and Law,  Mr.  Strang was called to the Bar in British  Columbia in
1992.  He is  currently  a  practicing  member in good  standing  of the British
Columbia Bar and Canadian Bar  Association.  From 1992 through 1994,  Mr. Strang
practiced law for the Firm of Anderson & Galati in Vancouver. In 1995/1996,  Mr.
Strang  founded New West Records,  LLC, of which he is currently the President &
Managing Partner.  In 2002 Mr. Strang founded DMZ Records,  a joint venture with
Columbia  Records  with  partners T Bone  Burnett,  Joel and Ethan Coen and John
Grady where he was the Co-President for first year of Operations.

     Bernard C. Darre - Mr. Darre is a co-founder of Bow River Capital Partners,
the General Partner of two private opportunity funds based in Denver,  Colorado,
which invests in lower middle market operating  companies and special  situation
real estate and oil and gas entities in the United  States and Canada.  Prior to
Bow River Capital Partners,  Mr. Darre served as an active partner in CapEx, LP,
a $60  million  mezzanine  fund,  where  he  was  responsible  for  originating,
structuring,  and  executing  buyout,   recapitalization,   and  growth  capital
transactions.  In aggregate, Mr. Darre has been involved in over 20 lower middle
market investments with total transaction values of over $300 million. Mr. Darre
serves on the  Board of  Directors  of  American  Energy  Assets,  Compass  Bank
(Colorado) and the Juvenile Diabetes Research Foundation-Rocky Mountain Chapter.
Mr. Darre received his B.A. in Political  Science from Miami  University  (Ohio)
and his MBA with  emphasis  in  Finance  and  Real  Estate  from The Ohio  State
University. Mr. Darre resigned as a Director effective February 15, 2005.

     Appointments subsequent to December 31, 2004

     James Ford - Mr. Ford joined Neptune in July, 2004 as the Eastern  Division
Sales  Manager and was  promoted  to Senior  Vice  President  of  Operations  in
September,  2004. Mr. Ford was appointed Chief  Operations  Officer in February,
2005. He has over 30 years experience in the Funeral Industry. From 1987 - 2003,
Mr. Ford served in various  capacities with Service  Corporation  International,
with the most recent  assignment  having been that of Regional  President of the
Midwest  Region  in  Indianapolis,  Indiana.  Prior to that he  served  as Chief
Operations Officer of SCI-Australia,  where he managed all facets of the Pacific
Rim operations.


                                       49


<PAGE>


     None of our  executive  officers  or key  employees  are  related by blood,
marriage or adoption to any director or other executive officer.

Board and Committee Meetings

     During the year ended  December 31, 2004,  our Board of Directors  met four
times  including  meetings by  telephone  conference,  and  approved  actions by
written consent 11 times.

     To our knowledge,  there are no arrangements or understandings  between any
of our executive  officers and any other person  pursuant to which the executive
officer was selected to serve as an executive officer.

Nomination of Board Members by Security Holders

     We have made no material  changes to our  shareholder  nominee  process for
member of our board of directors.

Audit Committee Financial Expert

     We do not have a formal audit committee. Our Board of Directors appoint our
independent  accountants to audit our financial statements,  discusses the scope
and results of the audit with the independent  accountants,  reviews our interim
and year-end  operating results with our executive  officers and our independent
accountants,  considers  the  adequacy  of  the  internal  accounting  controls,
considers our audit  procedures and reviews and approves the non-audit  services
to be  performed  by the  independent  accountants.  The members of our Board of
Directors  are:  Marco  Markin,  Brent Lokash and Cameron  Strang.  The Board of
Directors  has  determined  that none of the  members of its Board of  Directors
satisfies the criteria of an audit committee financial expert within the meaning
of the SEC's rules.  Given our size and risks  associated with serving as member
of a Board of  Directors of a public  company,  we have been unable to appoint a
member to our Board of Directors and audit  committee that meets the criteria of
an audit committee  financial  expert.  Brent Lokash and Cameron Strang are each
independent directors,  as independence is currently defined in the AMEX listing
standards.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a) of the  Securities  and  Exchange  Act of 1934  requires any
person who is our director or executive  officer or who beneficially  holds more
than 10% of any class of our  securities  which  have been  registered  with the
Securities  and Exchange  Commission,  to file reports of initial  ownership and
changes in ownership with the Securities and Exchange Commission.  These persons
are  also  required  under  the  regulations  of  the  Securities  and  Exchange
Commission to furnish us with copies of all Section 16(a) reports they file.

     To our  knowledge,  based solely on our review of the copies of the Section
16(a) reports furnished to us, all Section 16(a) filing requirements  applicable
to our directors,  executive  officers and holders of more than 10% of any class
of our  registered  securities  were timely  complied with during the year ended
December 31, 2004, except:

<TABLE>
---------------------- ------------------------------- ----------------- ---------------- -----------------
           Name                   Reporting Person       Form 3/# of       Form 4/# of       Form5/# of
                                                         transactions     transactions      transactions
---------------------- ------------------------------- ----------------- ---------------- -----------------
<S>                                                              <C>
Brent Lokash           Director                             Late/1             --                --
---------------------- ------------------------------- ----------------- ---------------- -----------------
Bernard C. Darre       Director (1)                         Late/1             --                --
---------------------- ------------------------------- ----------------- ---------------- -----------------
Cameron Strang         Director                             Late/1             --                --
---------------------- ------------------------------- ----------------- ---------------- -----------------
Jerry A. Norman        President                            Late/1             --                --
---------------------- ------------------------------- ----------------- ---------------- -----------------
Daniel M. Solberg      Chief Financial Officer              Late/1             --                --
---------------------- ------------------------------- ----------------- ---------------- -----------------
Robert Genovese        10% Shareholder                      Late/1           Late/1              --
---------------------- ------------------------------- ----------------- ---------------- -----------------
</TABLE>

     (1)  Mr.  Darre  resigned as a Director of The  Neptune  Society  effective
          February 15, 2005.




                                       50


<PAGE>


Code of Conduct

     We are in the  process of  adopting a Code of Conduct  that  applies to our
principal executive officer,  principal financial officer,  principal accounting
officer, controller or persons performing similar functions (including our Chief
Executive Officer, Chief Financial Officer and Corporate Controller). We did not
adopt a Code  of  Conduct  during  2004  because  our  Board  of  Directors  are
considering  the  appropriate  provisions  of such  code  given  the size of our
organization and our business.  We intend to satisfy the disclosure  requirement
under  Item 10 of Form  8-K  relating  to  amendments  to or  waivers  from  any
provision  of our Code of Conduct  applicable  to our Chief  Executive  Officer,
Chief Financial Officer and Corporate  Controller by posting this information on
our Web site located at www.neptunesociety.com.

     The  information  on our Web site is not,  and shall not be deemed to be, a
part of this report or incorporated into any other filings we make with the SEC.


ITEM 10. EXECUTIVE COMPENSATION

Summary Compensation Table

     The following table sets forth compensation paid to each of the individuals
who served as our Chief Executive Officer and our executive officers with annual
compensation exceeding $100,000 (the "named executives officers") for the fiscal
years ended  December 31, 2002,  2003 and 2004.  The  determination  as to which
executive  officers were most highly  compensated was made with reference to the
amounts  required to be disclosed  under the "Salary" and "Bonus" columns in the
table.



<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
                           SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------------------------------
                                         ANNUAL COMPENSATION                               LONG-TERM COMPENSATION
                                --------------------------------------               ------------------------------------
                                                                                               AWARDS
                                                                                     ------------ ---------------           All
                                                            Other                    Restricted     Securities             Other
        Name &                                             Annual        Deferred       Stock       Underlying             Compen
      Principal                   Salary      Bonus     Compensation   Compensation   Awards(s)   Options/SAR's    LTIP    sation
       Position          Year      ($)         ($)           ($)           ($)           ($)           (#)        Payouts   ($)
----------------------- ------- ----------- ----------- -------------- ------------- ------------ --------------- ------- ---------
<S>                      <C>     <C>         <C>           <C>           <C>           <C>          <C>
   Marco Markin (1)      2004    208,247     100,000       109,317
       CEO and
 Director of Neptune
       Society
                         2003    200,000                   107,400       100,000                     280,682
                         2002    174,616                   105,750       125,384                     130,682
----------------------- ------- ----------- ----------- -------------- ------------- ------------ --------------- ------- ---------
   Jerry Norman(2)
     President of
   Neptune Society       2004    180,769      69,412                                   28,000        150,000
                         2003     37,075

----------------------- ------- ----------- ----------- -------------- ------------- ------------ --------------- ------- ---------
   Dan Solberg (3)       2004    102,452      29,750                                                  25,000
   Chief Financial
  Officer, Secretary
   and Treasurer of
   Neptune Society

----------------------- ------- ----------- ----------- -------------- ------------- ------------ --------------- ------- ---------
Douglas J. Irving (4)    2004     85,008                   10,000         19,250
   Chief Operating
       Officer
  of Neptune Society
                         2003    146,000                   43,500         36,500                      50,000
                         2002     74,160                     --           26,125                        --
----------------------- ------- ----------- ----------- -------------- ------------- ------------ --------------- ------- ---------
     Gary Harris         2004     75,000      19,970      147,132         25,658
National Sales Manager
  Neptune Management
                         2003     75,000                  170,750         20,225                      30,000
                         2002     75,000                  140,769         15,000                      11,250
----------------------- ------- ----------- ----------- -------------- ------------- ------------ --------------- ------- ---------
     Barry Maynes
Senior Vice President
 - Corp. Development
  of Neptune Society     2004    105,904      15,450
                         2003     98,000                   21,750         14,700                      20,000
                         2002     70,615                     --             --                          --
----------------------- ------- ----------- ----------- -------------- ------------- ------------ --------------- ------- ---------
</TABLE>


                                       51


<PAGE>


     (1)  Mr. Markin was appointed as an Officer and Director of our  subsidiary
          companies  in  April  1999.  He was  appointed  as  Neptune  Society's
          President and CEO in October 1999. Other compensation represents lease
          payments on Mr.  Markin's home and for personal use of an  automobile.
          The  services of Mr.  Markin were  provided  directly  and through his
          private  company,   Spiral  Marketing,   Inc.,  in  2003.   Securities
          underlying  Options  for 2003  include  his annual  options  under his
          employment  agreement plus 150,000 options under the 2002 Stock Option
          Plan  granted  February,  2003.  Mr.  Markin was resigned as President
          effective  January 31, 2004. Mr. Markin resigned as CEO on February 2,
          2005.

     (2)  Mr. Norman was contracted as a consultant to the Company commencing in
          October , 2003. Effective February 1, 2004, he was appointed President
          and Chief  Marketing  Officer.  Effective  February  7,  2005,  he was
          appointed Chief Executive Officer.

     (3)  Mr.  Solberg  was  contracted  as a  Consultant  on  May 1,  2004  and
          appointed Chief Financial Officer,  Secretary and Treasurer on June 1,
          2004.

     (4)  Mr. Irving resigned as Chief  Operating  Officer on June 30, 2004, and
          continues to provide  services  through DSI Holdings  Ltd, his private
          company,  under the terms of a Consulting  Agreement that expires June
          30, 2005.

Subsequent to December 31, 2004 we appointed  James Ford as our Chief  Operating
Officer  at an annual  salary  of  $170,000.  Mr.  Ford  previously  served as a
Regional Manager and as Senior Vice President, Operations.

Director and Officer Stock Option/Stock Appreciation Rights ("SARs") Grants

     The following table sets forth information regarding stock option grants to
our named  executive  officers and directors  during the year ended December 31,
2004:

<TABLE>
                                                                                                Potential Realized
                                                                                                 Value at Assumed
                                                                                               Annual Rates of Stock
                                                                                              Price Appreciation for
Individual Grants                                                                                   Option Term
--------------------------------------------------------------------------------------------- ------------------------
            (a)                    (b)            (c)           (d)              (e)              (f)         (g)
                                Number of
                                Securities
                                Underlying    % of Total    Exercise or
                                 Options        Options     Base Price
            Name               Granted (#)      Granted       ($/Sh)       Expiration Date      5% ($)      10% ($)
----------------------------- --------------- ------------ -------------- ------------------- ------------ -----------
<S>                              <C>            <C>           <C>                                 <C>         <C>
Jerry Norman                     150,000        73.17%        $0.70         Jan. 31, 2007         $16,551     $34,755
Daniel M. Solberg                 25,000        12.20%        $0.70          May 31, 2005            $365        $729
</TABLE>

The potential  realizable  value in the tables above is calculated  based on the
assumption  that  the  common  stock  appreciates  at  the  annual  rate  shown,
compounded annually,  from the date of grant until the expiry of the term of the
option.  These  numbers  are  calculated  based on SEC  requirements  and do not
reflect  our  projection  or estimate of future  stock price  growth.  Potential
realizable values are computed by:

     o    multiplying  the number of shares of common  stock  subject to a given
          option by the exercise price;

     o    assuming that the aggregate stock value derived from that  calculation
          compounds  at the  annual  5% or 10% rate  shown in the  table for the
          entire term of the option; and

     o    subtracting from that result the aggregate option exercise price.


                                       52


<PAGE>


Aggregated  Option/SAR  Exercises  in Last  Fiscal  Year-  and  Fiscal  Year-End
Option/SAR Values

The table below sets forth  information on the aggregated  option/SAR  exercises
during our fiscal year ended December 31, 2004 and option/SAR  values related to
options/SARS outstanding as of December 31, 2004.



<PAGE>


<TABLE>
----------------------------------- --------------- -------------- -------------------------- -------------------------------
                                                                      Unexercised Options      Value of Unexercised in the
                                      Securities      Aggregate          At FY-End (#)           Money-Options at FY-End
                                     Acquired on        Value            Exercisable/                ($) Exercisable/
               Name                  Exercise (#)   Realized ($)         Unexercisable                Unexercisable
----------------------------------- --------------- -------------- -------------------------- -------------------------------
<S>                                                                <C>                        <C>
Marco Markin                        Nil             Nil            150,000 (exercisable)      $123,000 (exercisable)
                                                                   nil (unexercisable)        nil (unexercisable)
----------------------------------- --------------- -------------- -------------------------- -------------------------------
Jerry Norman                        Nil             Nil            50,000  (exercisable)      $38,500 (exercisable)
                                                                   100,000 (unexercisable)    $77,000 (unexercisable)
----------------------------------- --------------- -------------- -------------------------- -------------------------------
Daniel M. Solberg                   Nil             Nil            25,000 (exercisable)       $19,250 (exercisable)
                                                                   nil  (unexercisable)       nil (unexercisable)
----------------------------------- --------------- -------------- -------------------------- -------------------------------
Gary Harris                         Nil             Nil            30,000 (exercisable)       $23,100 (exercisable)
                                                                   nil  (unexercisable)       nil (unexercisable)
----------------------------------- --------------- -------------- -------------------------- -------------------------------
Barry Maynes                        Nil             Nil            20,000  (exercisable)      $15,400 (exercisable)
                                                                   nil (unexercisable)        nil (unexercisable)
----------------------------------- --------------- -------------- -------------------------- -------------------------------
Douglas Irving                      50,000          $37,500        nil (exercisable)          nil (exercisable)
                                                                   nil (unexercisable)        nil (unexercisable)
----------------------------------- --------------- -------------- -------------------------- -------------------------------
</TABLE>

Long Term Incentive Plans

     No long-term incentive awards have been made by us to date.

Defined Benefit or Actuarial Plan Disclosure

     We do not provide retirement benefits for the directors or officers.

Compensation of Directors

     None of our directors received  compensation for their service as directors
during the fiscal  year ended  December  31,  2004,  except for our  independent
directors.  Mr. Lokash , an independent  director received $10,000 for directors
fees.

     Mr. Lokash also received $19,000 for legal fees in 2004.

Employment  Contracts  and  Termination  of  Employment  and   Change-In-Control
Arrangements

Marco Markin Employment Agreement

     On June 6, 2001,  we entered into an  employment  agreement  with Mr. Marco
Markin,  the Chairman of the Board and Chief Executive  Officer,  for employment
through December 31, 2005.

     Under the terms of the Agreement, Mr. Markin receives an annual base salary
of $200,000,  a minimum of 130,682 share options  annually  exercisable at $4.40
per share,  vesting over the  employment  period,  and a minimum annual bonus of
$100,000, and automobile,  business and entertainment allowances of a minimum of
$24,000 annually.  The Agreement  provides that if the officer resigns with good
reason or if we terminate their  employment  other than for cause or disability,
then they will be entitled  to receive an  immediate  lump sum cash  payment and
certain installment payments equal to the sum of:

     *accrued, but unpaid, base salary or other payment and vacation through the
     date of termination  *two or three times their base salary,  depending upon
     period of service, and
     *the higher of $500,000  or three times the highest  annual  bonus paid for
     any fiscal year during the employment period


                                       53


<PAGE>


     Mr.  Markin will also  receive  continued  benefits for the longer of three
years or the remainder of the employment period. If his employment is terminated
due to  disability,  or in the event of death,  he or his  estate  will  receive
continued payments of the base salary for the remainder of the scheduled term of
the  Agreement  less any  disability  benefits.  If Mr.  Markin's  employment is
terminated for any other reason, he will be entitled to receive his accrued, but
unpaid,  base  salary  and  other  payments  and  vacation  through  the date of
termination.

     We issued a signing bonus of up to 17,000 options to purchase shares of our
common stock at a discount.

     In  February,  2003,  our board of  directors  approved  amendments  to Mr.
Markin's employment  agreement that extended his employment through December 31,
2007. In addition, the board of directors approved a plan under which Mr. Markin
could elect to convert past deferred compensation into shares of common stock at
a price equal to fair market value less 10%. The Company also granted Mr. Markin
additional options to acquire 150,000 shares for a three year period.

     On February 2, 2005,  the Company  entered  into a  separation  and release
agreement  effective  February 2, 2005 with Mr.  Markin.  Under the terms of the
agreement, the parties agreed as follows:

     Termination of Employment  Agreement:  Neptune Society and Markin agreed to
terminate  and release each other from all claims under the Amended and Restated
Employment  Agreement  dated March 12, 2004 between  Neptune  Society and Markin
(the "Employment Agreement").  Markin remains subject to certain confidentiality
and non-competition  provisions under the Employment Agreement.  Neptune Society
remains  subject to certain  indemnification  obligations  under the  Employment
Agreement.  The  termination  of the  Employment  Agreement  terminates  Neptune
Society's  obligation (i) to pay Markin minimum annual  compensation of $406,000
per year,  increasing  annually,  plus certain  benefits through the term ending
December  31,  2007,  with  three  automatic  one-year  extensions,  and (ii) to
purchase  securities  held by Markin,  Karla  Markin or her  assignee,  and B.C.
Limited for compensation based on 13% of the appraised value of Neptune Society,
in  the  event  the   Employment   Agreement   was   terminated   under  certain
circumstances.  Markin  resigned  as Chief  Executive  Officer  and  Chairman of
Neptune Society effective  February 2, 2005 (the "Separation  Date"), and agreed
to serve as a consultant to the Neptune  Society  during a six month  transition
period (the "Transition  Period").  During the Transition Period, Markin will be
entitled  to  compensation  and  benefits,  with the  exception  of the right to
participate  in any stock option plan or securities  purchase plan, at the level
paid to Markin  immediately prior to the Separation Date. Markin shall devote no
more than 50% of the time that Markin devoted to his duties immediately prior to
the  Separation  Date,  and  Markin  may  pursue  and  engage in other  business
interests and employment during the Transition  Period.  Markin agreed to resign
as  Chairman  but remains as a member of the Board of  Directors  of the Neptune
Society, and each of the Neptune Subsidiaries  effective upon termination of the
Transition  Period.  Neptune  Society agrees to pay Markin a lump sum payment of
$221,049 as the sole  consideration  for Markin's  agreement  to  terminate  the
Employment Agreement and for his general release of claims.

     Purchase of  Securities:  Neptune  Society agreed to purchase the following
securities of Neptune Society beneficially owned by each of Markin, Karla Markin
and B.C. Limited: Markin and Karla Markin beneficially own 231,125 common shares
of the Neptune  Society  Inc.;  Markin holds options  exercisable  to acquire an
additional  150,000 shares of common stock of the Neptune  Society Inc. at $0.65
per share; and B.C. Limited, a British Columbia corporation, owns 307,692 shares
of common stock of the Neptune Society Inc. and warrants  exercisable to acquire
an  additional  307,692  shares of common  stock of the Neptune  Society Inc. at
$0.79 per share (collectively,  the Purchased  Securities").  The parties agreed
that (a) Neptune  Society would purchase the Purchased  Securities,  and (b) the
parties would mutually release each other from any and all claims arising out of
or in connection with the Purchased Securities.  Neptune Society paid (i) Markin
a total of $675,750  for shares and options  delivered on the  Separation  Date,
(ii) Karla  Markin a total of $323,250 for shares  delivered  on the  Separation
Date,  and (iii) B.C.  Limited a total of  $1,603,076  for  shares and  warrants
delivered on the Separation Date. Neptune also agreed to pay Markin $46,875 upon
the delivery of one or more share  certificates  evidencing 15,625 shares within
ten (10) business days of the Separation Date. Each of Markin,  Karla Markin and
B.C. Limited provided to Neptune Society general releases from claims related to
the  Purchased  Securities.  Markin  also  provided  to Neptune  Society and the
Neptune  Subsidiaries  general  releases from claims  related to the  Employment
Agreement.

Jerry Norman Employment Agreement

     On February 1, 2004, we entered into an agreement  with Jerry Norman to act
as  our  President  and  Chief  Marketing  Officer.  Mr.  Norman's  annual  base
compensation is $200,000 per annum. Mr. Norman will receive a housing  allowance


                                       54


<PAGE>


of $2,000 per month and standard  employee  benefits.  We agreed to issue 40,000
shares of our common stock as a signing  bonus.  We also agreed to grant options
under our stock option plan to purchase  150,000 shares of common stock at $0.70
per share vesting at the rate of 50,000 shares on each of the first,  second and
third  anniversary  of the  agreement.  Mr.  Norman will be entitled to a yearly
bonus of 30% of his  annual  salary,  such  bonus  based on the  achievement  of
specific  defined  goals,  and payable in cash or shares of our common  stock as
determined  by the board of  directors.  The term of the  agreement  extends  to
January 31, 2007,  unless  terminated  prior to that date.  We may terminate the
agreement upon written notice and,  provided that there has not been a breach of
the  agreement,  a lump sum payment of six,  seven or eight months salary in the
first, second or third year of the agreement respectively,  in full satisfaction
of all claims Mr. Norman may have under the agreement.  Mr. Norman may terminate
the agreement upon four weeks notice.  We amended our employment  agreement with
Mr. Norman,  who was appointed as our President and Chief  Executive  Officer on
February 7, 2005.

     Dan Solberg Employment Agreement

     On June 1, 2004,  we entered into an  agreement  with Dan Solberg to act as
our Chief Financial Officer,  Secretary and Treasurer. Mr. Solberg's annual base
compensation was set at $170,000 per annum. We agreed to grant options under our
stock option plan to purchase  25,000 shares of common stock at $0.70 per share.
Mr. Solberg will be entitled to a yearly bonus of 30% of his annual salary, such
bonus based on the achievement of specific defined goals, and payable in cash or
shares of our common stock as determined by the board of directors.  The term of
the agreement  extends to May 31, 2005, unless terminated prior to that date. We
may terminate the agreement upon written notice and, provided that there has not
been a breach of the agreement,  a lump sum payment of three months  salary,  in
full  satisfaction  of all claims Mr. Solberg may have under the agreement.  Mr.
Solberg may terminate the agreement upon four weeks notice.

     Gary Harris Employment Agreement

     On February 1, 2003,  we entered into an agreement  with Gary Harris to act
as our National Sales Manager.  Mr. Harris' annual base  compensation is $75,000
per annum plus an override of $10 on each  pre-need  contract  sold.  Mr. Harris
will have a car and expense allowance and standard employee benefits.  We agreed
to issue 30,000 shares of our common stock as a signing bonus. We also agreed to
grant  options  under our stock option plan to purchase  30,000 shares of common
stock at $0.70 per share,  subject to  adjustment,  vesting on February 1, 2004.
Mr.  Harris will be entitled to a yearly bonus of no less than 10% of his annual
salary,  net of reimbursement  and car expenses,  , payable in cash or shares of
our common stock, as determined by the board of directors.  Mr. Harris agreed to
defer $2,000 per month of his salary  until  August 31, 2003,  at which time the
deferred  salary  shall be paid in cash.  The term of the  agreement  extends to
January 31, 2006,  unless  terminated  prior to that date.  We may terminate the
agreement upon written notice and the payment of the accrued  salaries due under
the agreement and, provided that there has not been a breach of the agreement, a
lump sum  payment of six months  salary in full  satisfaction  of all claims Mr.
Harris may have under the agreement. Mr. Harris may terminate the agreement upon
four weeks written notice.

     Barry Maynes Employment Agreement

     On March 1, 2003, we entered into an agreement  with Barry Maynes to act as
our Chief Information  Officer.  Mr. Maynes' annual base compensation is $98,000
per annum for the first  twelve  months,  $103,000  during the  second  year and
$108,000  during the third year.  We agreed to issue Mr. Maynes 15,000 shares of
our common stock as a signing  bonus.  We also agreed to grant options under our
stock option plan to purchase  20,000 shares of common stock at $0.70 per share,
subject to adjustment,  vesting on March 1, 2004. Mr. Maynes will be entitled to
a yearly  bonus of no less than 15% of his  annual  salary,  payable  in cash or
shares of our common stock, as determined by the board of directors. The term of
the  agreement  extends to February 28, 2006,  unless  terminated  prior to that
date. We may terminate the agreement  upon written notice and the payment of the
accrued salaries due under the agreement and, provided that there has not been a
breach  of the  agreement,  a lump sum  payment  of four  months  salary in full
satisfaction  of all claims Mr. Maynes may have under the agreement.  Mr. Maynes
may terminate the agreement upon four weeks written notice.

     Jim Ford Employment Agreement

     On September 1, 2004,  we entered into an agreement  with James Ford to act
as Senior Vice President of Operations.  Mr. Ford's annual base  compensation is
$116,000  per annum.  Mr. Ford will  receive an expense  allowance of $2,000 per


                                       55


<PAGE>


month and  standard  employee  benefits.  Mr.  Ford will be entitled to a yearly
bonus of 30% of his  annual  salary,  such  bonus  based on the  achievement  of
specific  defined  goals,  and payable in cash or shares of our common  stock as
determined  by the board of  directors.  The term of the  agreement  extends  to
January 31, 2004,  unless  terminated  prior to that date.  We may terminate the
agreement upon written notice and,  provided that there has not been a breach of
the agreement, a lump sum payment of three months salary in the first, second or
third year of the agreement respectively, in full satisfaction of all claims Mr.
Ford may have under the  agreement.  Mr. Ford may terminate  the agreement  upon
four weeks notice.

Report on Repricing of Options/SARs

     We did not reprice any options or SARs outstanding during the most recently
completed fiscal year ended December 31, 2004.

Incentive Stock Option Plans

     On October 8, 1999, our  shareholders  approved our 1999 Stock Option Plan,
as approved by the Board of Directors on June 1, 1999.  The Option Plan provides
for the grant of incentive and  non-qualified  options to purchase up to 225,000
shares of Neptune  Society  common stock to our employees and such other persons
as the Plan  Administrator  (which  currently  is the  Board of  Directors)  may
select.  The Plan is intended to help attract and retain key  employees and such
other persons as the Plan  Administrator  may select and to give such persons an
equity incentive to achieve the objectives of our shareholders.

     Effective  April 12, 2002,  our Board  unanimously  approved our 2002 Stock
Plan,  which  provides for the grant of incentive and  non-qualified  options to
purchase  up to 750,000  shares of our common  stock to our  employees  and such
other  persons  as the  Plan  Administrator  (which  currently  is the  Board of
Directors) may select.  The 2002 Plan is intended to help attract and retain key
employees  and such other  persons as the Plan  Administrator  may select and to
give  such  persons  an  equity  incentive  to  achieve  the  objectives  of our
shareholders. Our shareholders ratified the 2002 Plan on May 22, 2002.

     Incentive  stock options may be granted to any individual  who, at the time
the  option is  granted,  is an  employee  of  Neptune  Society  or any  related
corporation. Non-qualified stock options may be granted to employees and to such
other persons as the Plan Administrator may select. The Plan Administrator fixes
the exercise price for options in the exercise of its sole  discretion,  subject
to certain minimum  exercise prices in the case of Incentive Stock Options.  The
exercise price may be paid in cash,  certified check or cashier's check. Options
will  not be  exercisable  until  they  vest  according  to a  vesting  schedule
specified by the Plan Administrator at the time of grant of the option.

     Options  are  non-transferable  except by will or the laws of  descent  and
distribution.  Except as otherwise  specified by the Plan  Administrator  or the
employee's stock option agreement, vested but unexercised options terminate upon
the earlier of:

          o    the   expiration  of  the  option  term  specified  by  the  Plan
               Administrator at the date of grant (generally ten years; or, with
               respect to Incentive Stock options  granted to  greater-than  ten
               percent shareholders, a maximum of five years); or

          o    the expiration of ninety (90) days from the date of an employee's
               termination  of  employment  with Neptune  Society or any related
               corporation for any reason whatsoever.

     Unless accelerated in accordance with the Plan,  unvested options terminate
immediately  upon termination of employment of the optioned by us for any reason
whatsoever, including death or disability.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

     The following table sets forth certain information regarding the beneficial
ownership of shares of our common stock as of December 31, 2004 by:


                                       56


<PAGE>


          o    each person who is known by us to  beneficially  own more than 5%
               of our issued and outstanding shares of common stock;

          o    our  chief  executive  officer  and our five  executive  officers
               during our last fiscal year,  individually named in the executive
               compensation table below;

          o    our directors; and

          o    all of our executive officers and directors as a group.

<TABLE>
------------------------------- -------------------------------------- ----------------- ------------------------
Name of Shareholder             Address                                Number of         Percent of Class (1)
                                                                       Common
                                                                       Shares Owned
-----------------------------------------------------------------------------------------------------------------
5% or greater shareholders
------------------------------- -------------------------------------- ----------------- ------------------------
<S>                             <C>                                        <C>                         <C>   <C>
CapEx, L.P.                     518 17th Street, Suite 1700                1,781,120(2)                21.96%(2)
                                Denver, CO 80202
------------------------------- -------------------------------------- ----------------- ------------------------
Bow River Entities              1490 Lafayette St., Suite 400                905,282(3)                11.71%(3)
                                Denver, CO  80218
------------------------------- -------------------------------------- ----------------- ------------------------
B G Capital Group, Ltd./        2424 N. Federal Highway, Suite 101         4,157,831(4)                58.74%(4)
Brooklyn Holdings, LLC          Boca Raton, FL  33431
------------------------------- -------------------------------------- ----------------- ------------------------
570421 BC, Ltd.                 Sherman Oaks, CA 91423                       615,384(5)                 8.35%(5)
-----------------------------------------------------------------------------------------------------------------
Directors and Named Executive Officers
------------------------------- -------------------------------------- ----------------- ------------------------
Marco P. Markin, CEO            4312 Woodman Avenue, 3rd Floor               996,510(6)                14.11%(6)
                                Sherman Oaks, CA 91423
------------------------------- -------------------------------------- ----------------- ------------------------
Jerry A. Norman, President      4312 Woodman Avenue, 3rd Floor                97,800(7)                 1.37%(7)
and Chief Marketing Officer     Sherman Oaks, CA 91423
------------------------------- -------------------------------------- ----------------- ------------------------
Daniel M. Solberg, CFO          4312 Woodman Avenue, 3rd Floor                25,000(8)                     *(8)
                                Sherman Oaks, CA 91423
------------------------------- -------------------------------------- ----------------- ------------------------
Gary Harris, National Sales     4312 Woodman Avenue, 3rd Floor                83,077(9)                 1.18%(9)
Director                        Sherman Oaks, CA 91423
------------------------------- -------------------------------------- ----------------- ------------------------
Brent Lokash, Director          4312 Woodman Avenue, 3rd Floor                      Nil                        *
                                Sherman Oaks, CA 91423
------------------------------- -------------------------------------- ----------------- ------------------------
Cameron Strang, Director        4312 Woodman Avenue, 3rd Floor                      Nil                        *
                                Sherman Oaks, CA 91423
------------------------------- -------------------------------------- ----------------- ------------------------
Officers and Directors                                                        1,202,387                   15.76%
 as a group
(includes 7 persons)
------------------------------- -------------------------------------- ----------------- ------------------------
</TABLE>

*Less than one percent (1%).

     (1)  Based on 7,064,637  shares issued and  outstanding  as of December 31,
          2004.

     (2)  RBP, LLC, CapEx, L.P.'s general partner, has ultimate voting power and
          control over these  shares.  Includes  736,834  shares of common stock
          issued and outstanding on December 1, 2004; 1,030,000 shares of common
          stock  acquirable  upon the  exercise  of  warrants at $3.00 per share
          until July 31, 2007;  14,286  shares of common stock  acquirable  upon
          exercise of warrants at $0.79 per share until February 19, 2005.

          On February 17, 2005, BG Capital  Group Ltd.,  Brooklyn  Holdings,  an
          affiliate of BG Capital  Group,  and Bobby  Genovese  (the "BG Capital
          Group") filed an amended Schedule 13G with the Securities and Exchange
          Commission  reporting  that it acquired  751,120  shares of our Common
          Stock from CapEx, LP for an aggregate price of $2,215,414.49.


                                       57


<PAGE>


     (3)  Bow River Capital Fund, LP and Bow River Capital Fund II, LP (together
          the  "Bow  River  Entities")  acquired  all of the  rights  title  and
          interest in these securities from D.H. Blair Investment  Banking Corp.
          effective February 6, 2004. Bernard C. Darre has ultimate voting power
          and control over these  shares.  Consists of 238,615  shares of common
          stock issued and  outstanding  on December 31, 2004 and 666,667 shares
          of common stock  acquirable upon the exercise of warrants at $3.00 per
          share until July 31, 2007. On February 17, 2005,  the BG Capital Group
          filed  an  amended  Schedule  13G  with the  Securities  and  Exchange
          Commission  reporting  that it acquired  238,615  shares of our Common
          Stock  from  the  Bow  River  Entities  for  an  aggregate   price  of
          $703,790.51.

     (4)  B G Capital  Group Ltd. held  4,157,831  shares of common stock issued
          and  outstanding  at December  31, 2004. B G Capital is the manager of
          Brooklyn  Holdings Ltd. and has ultimate voting power over its shares.
          Brooklyn  Holdings  holds  conversion  rights to  3,636,364  shares of
          common stock as part of the $6,000,000  Convertible  Debenture entered
          into on June 18, 2004. The debentures are convertible at the option of
          the Company at $1.65 per share  through June 2009 and  convertible  by
          Brooklyn Holdings or the Company at $1.65 per share from June 18, 2009
          through June 18, 2014.

          On February 17, 2005,  the BG Capital Group filed an amended  Schedule
          13G with the  Securities  and Exchange  Commission  reporting  that it
          acquired  751,120  shares and  238,615  shares of our common  stock in
          separate transactions.  BG Capital reported that it beneficially owned
          5,360,589 shares of our common stock, or  approximately  82.14% of our
          issued and outstanding  voting stock, based on the number of shares of
          Common Stock (6,525,820 shares) we reported as outstanding on November
          12, 2004 in our  Quarterly  Report on Form 10-QSB for the period ended
          September  30, 2004 less 538,817  shares of our common stock that were
          repurchased  and cancelled in connection with a Separation and Release
          Agreement dated February 2, 2005.

     (5)  Karla Markin,  the spouse of Marco Markin,  has ultimate  voting power
          and control over these shares. Includes 307,682 shares of common stock
          and 307,682 shares  acquirable  upon exercise of warrants at $0.79 per
          share until  February 19, 2005. On February 2, 2005, we entered into a
          separation  and release  agreement  effective  as of February 2, 2005,
          with  Marco  Markin,  Karla  Markin and 570421  B.C.  Ltd.,  a British
          Columbia  corporation  ("B.C.  Limited").   Under  the  terms  of  the
          Separation Agreement, Neptune Society agreed to purchase the following
          securities beneficially owned by each of Markin, Karla Markin and B.C.
          Limited:  Markin and Karla  Markin  beneficially  own  231,125  common
          shares of The Neptune Society Inc.;  Markin holds options  exercisable
          to acquire an additional 150,000 shares of common stock of The Neptune
          Society Inc. at $0.65 per share; and B.C. Limited,  a British Columbia
          corporation,  owns  307,692  shares  of  common  stock of The  Neptune
          Society Inc. and warrants exercisable to acquire an additional 307,692
          shares of common stock of The Neptune Society Inc. at $0.79 per share.

     (6)  Marco Markin was our Chief Executive  Officer at December 31, 2004 and
          remains a director. Includes 231,126 shares of common stock issued and
          outstanding  on December  31,  2004;  150,000  shares of common  stock
          acquirable  upon the  exercise  of  options  at $0.65 per share  until
          February 24, 2006. Mr.  Markin's  spouse,  Karla Markin,  has ultimate
          voting power and control over BC Ltd., which beneficially owns 615,384
          shares of common  stock of The  Neptune  Society,  Inc.  Collectively,
          Marco  Markin  and Karla  Markin  beneficially  own a total of 996,510
          shares  of  common  stock,  constituting  14.11%  of  our  issued  and
          outstanding  common stock as of December 1, 2004. On February 2, 2005,
          we entered into a  separation  and release  agreement  effective as of
          February  2, 2005,  with Marco  Markin,  Karla  Markin and 570421 B.C.
          Ltd., a British Columbia corporation ("B.C. Limited"). Under the terms
          of the Separation  Agreement,  Neptune  Society agreed to purchase the
          following  securities  beneficially  owned  by each of  Markin,  Karla
          Markin and B.C.  Limited:  Markin and Karla  Markin  beneficially  own
          231,125  common  shares of The  Neptune  Society  Inc.;  Markin  holds
          options  exercisable to acquire an additional 150,000 shares of common
          stock of The  Neptune  Society  Inc.  at  $0.65  per  share;  and B.C.
          Limited, a British Columbia corporation, owns 307,692 shares of common
          stock of The Neptune Society Inc. and warrants  exercisable to acquire
          an additional  307,692  shares of common stock of The Neptune  Society
          Inc. at $0.79 per share.


                                       58


<PAGE>


     (7)  Jerry A. Norman is our President and Chief Marketing Officer. Includes
          47,800 shares of common stock issued and  outstanding  on December 31,
          2004 and 150,000 shares of common stock  acquirable  upon the exercise
          of  options  at $0.70 per share  until May 1,  2007,  of which  50,000
          shares  become  vested and may be  exercised  as of  February 1, 2005,
          another  50,000  shares  become  vested  on  February  1, 2006 and the
          remaining  50,000 shares become vested on February 1, 2007. Mr. Norman
          was appointed as Chief Executive  Officer  effective as of February 7,
          2005.

     (8)  Daniel M.  Solberg is our Chief  Financial  Officer.  Includes  25,000
          shares of common  stock  acquirable  upon the  exercise  of options at
          $0.70 per share until August 31, 2005.

     (9)  Gary I. Harris is our National Sales Manager.  Includes  53,077 shares
          of common stock  issued and  outstanding  at December  31,  2004,  and
          30,000 shares of common stock  acquirable upon the exercise of options
          at $0.70 per share until February 28, 2006.

     We have no actual  knowledge of any  arrangements,  including any pledge by
any person of securities of the Neptune Society, the operation of which may at a
subsequent  date result in a change in our  control.  However,  on February  17,
2005, the BG Capital Group filed an amended Schedule 13G with the Securities and
Exchange Commission reporting that it beneficially owned 5,360,589 shares of our
common stock or approximately  82.14% of our issued and outstanding voting stock
based on the number of shares of Common Stock (6,525,820  shares) we reported as
outstanding on November 12, 2004 in our Quarterly  Report on Form 10-QSB for the
period ended  September  30, 2004 less  538,817  shares of our common stock that
were  repurchased  and  cancelled in  connection  with a Separation  and Release
Agreement  dated  February 2, 2005.  According to  information  disclosed in the
amended  Schedule 13G submitted by the BG Capital Group, the BG Capital Group is
considering  whether to make a  proposal  to  acquire  substantially  all of our
assets.  The BG Capital Group further  disclosed that the terms of such proposal
have not been determined and are dependent on various factors,  including income
taxes,  which have not yet been fully  analyzed,  and that it currently does not
intend  to  cause  us to be  liquidated  following  such  transaction,  if  such
transaction is consummated.

     Except  as  otherwise  disclosed  above,  we are  not,  to the  best of our
knowledge,  directly  owned or  controlled  by  another  corporation  or foreign
government.

Equity Compensation Plan Information

     The  following  table  sets  forth   information   related  to  our  equity
compensation plans as of December 31, 2004.

<TABLE>
-------------------------- ------------------------ ----------------------- -------------------------------------
Plan Category              Number of securities     Weighted average        Number of securities remaining
                           to be issued upon        exercise price of       available for future issuance under
                           exercise of              outstanding options,    equity compensation plans
                           outstanding options,     warrants and rights     (excluding securities reflected in
                           warrants and rights                              column (a))
                           (a)                      (b)                     (c)
-------------------------- ------------------------ ----------------------- -------------------------------------
<S>                                                                                       <C>
Equity Compensation                  Nil                     Nil                          899,375
Plans approved by
Security Holders (1)
-------------------------- ------------------------ ----------------------- -------------------------------------
Equity Compensation                405,000                  $0.68                          56,365
Plans not approved by
Security Holders (2)
-------------------------- ------------------------ ----------------------- -------------------------------------
Total                              405,000                  $0.68                         955,739
-------------------------- ------------------------ ----------------------- -------------------------------------
</TABLE>

(1)  Stock  Options  approving the issuance by our  shareholders  under our 1999
     stock option plan and 2002 stock option plan.


                                       59


<PAGE>


(2)  Stock Options issued under employment agreements. See "Employment Contracts
     and Termination of Employment and Change-in-Control Arrangements."


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Except for the transactions  described below, none of our directors,  named
executive officers or principal shareholders,  nor any associate or affiliate of
the foregoing have any interest, direct or indirect, in any transaction,  during
the year ended  December  31,  2003 and  through  December  1,  2004,  or in any
proposed transaction which has materially affected or will materially affect us.

CapEx L.P. and Bow River Entities.
----------------------------------

     Effective  December  31,  2001,  we  amended  the terms of our  convertible
debentures  dated  December  24, 1999,  due  February  24, 2005,  in the initial
principal  amounts of  $3,000,000  issued to CapEx,  L.P.,  a  Delaware  limited
partnership, and $2,000,000 issued to D.H. Blair Investment Banking Corp., a New
York  corporation and warrants  issued to CapEx,  exercisable to purchase 30,000
shares of common stock and warrants issued to D.H. Blair exercisable to purchase
20,000  shares of common stock.  The  convertible  debentures  contained a "full
ratchet"  anti-dilution  provision  that  reset  the  conversion  price  of  the
convertible  debenture in the event we issued equity securities at a price lower
than  the  effective  conversion  price  of  the  convertible   debenture.   The
convertible debentures also contained certain debt coverage ratios (requiring us
to maintain  certain levels of cash flow in excess of debt  obligations),  which
were in material  default and  constituted  events of default under the terms of
the  convertible  debentures.  We determined that it was in our best interest to
amend the  convertible  debentures  to delete the "full  ratchet"  anti-dilution
provision to provide us with  flexibility  in future  equity  financings  and to
adjust the debt coverage ratios to achievable  levels. We also granted CapEx and
D.H.  Blair  preemptive  rights to participate  in future  offerings.  We issued
101,250 shares to Capex and 67,500 shares to D.H. Blair as restructuring fees in
connection with this amendment.

     In April, 2002, we issued 64,449 shares of common stock to CapEx and 42,992
shares of common stock to D.H. Blair at $1.08 per share in connection with their
exercise of preemptive rights in connection with our private placement of common
stock.  In addition,  we issued 13.75%  convertible  debentures in the principal
amount of $42,992 to CapEx and $28,661 to D.H.  Blair in  connection  with their
exercise  of  preemptive  rights in  connection  with our private  placement  of
convertible  debentures.  The convertible debentures are convertible into common
stock at $1.20 per share.  We granted  registration  rights with  respect to the
shares issued to CapEx and D.H. Blair and the shares issuable upon conversion of
the convertible debenture.

     In February 2003, we issued a total of 23,810 units to CapEx and D.H. Blair
at $0.65 per unit,  each unit  consisting  of one share of common  stock and one
warrant  exercisable to acquire one  additional  common share at $0.72 per share
thereafter  until February 19, 2004 and $0.79 per share until February 19, 2005.
The units were issued  pursuant to the exercise of  preemptive  rights,  and the
consideration  for the units was paid by canceling  deferred interest payable to
the holders of the preemptive rights in the amount of $15,476.

     By an agreement dated July 31, 2003 with Capex., we borrowed $1,500,000 for
the  purposes of making the final  payment of $1.8 million in  acquisition  debt
related to our 1999 purchase of our pre-need  cremation  service.  In connection
with the debt financing,  we also restructured our obligations under certain 13%
debentures  in the  aggregate  principal  amount of $5 million held by Capex and
D.H. Blair. This restructuring  amended the previous fixed charge coverage ratio
obligation  and cured possible  conditions of default under the 13%  debentures.
The restructured debentures,  in the aggregate principal amount of $7.4 million,
are  repayable  over the  next  four  years;  we hold the  right to  prepay  the
debentures at any time without penalty.  In connection with this  restructuring,
we issued  400,000  shares of common stock to Capex and 200,000 shares of common
stock to D.H.  Blair as  restructuring  fees.  We also issued  warrants  for the
purchase of a total of 1,666,667 shares  (1,000,000  shares to CapEx and 666,667
shares to D.H. Blair up to July 31, 2008 at a price of $3.00 per share, with the
number of shares subject to increase in connection with future equity  issuances
by us. We also extended the expiry date of 50,000 warrants  previously issued to
CapEx (30,000) and D.H. Blair (20,000) to July 31, 2008.


                                       60


<PAGE>


     Effective on February 6, 2004,  Bow River  Capital  Fund,  LP and Bow River
Capital Fund II, LP  (together  the "Bow River  Entities")  acquired all of D.H.
Blair's  right title and  interest  in (i) that  certain  Amended  and  Restated
Debenture  dated July 31, 2003 in the original  principal  amount of $2,352,896;
(ii) that certain Warrant dated August 1, 2003 exercisable to acquire a total of
666,667  shares of our Common Stock at an exercise price not to exceed $3.00 per
share;  (iii) 238,615 shares of our Common Stock and (iv) D.H. Blair's rights in
the Debenture and Warrant Purchase  Agreement,  as amended.  We consented to the
assignment of such securities.

     On February 17, 2005,  the BG Capital  Group filed an amended  Schedule 13G
with the Securities and Exchange  Commission  reporting that it acquired 751,120
shares  of  our  Common  Stock  from  CapEx,   LP  for  an  aggregate  price  of
$2,215,414.49 and 238,615 shares of our Common Stock from the Bow River Entities
for an aggregate price of $703,790.51.

Green Leaf Investors I, LLC and The Apogee Management Company, Inc.
-------------------------------------------------------------------

     In August 2001, Wilhelm Mortuary,  Inc., our subsidiary,  obtained a bridge
loan in the  principal  amount of $1,575,000  from Green Leaf  Investors I, LLC,
evidenced  by a promissory  note due January 31, 2002,  and secured by a deed of
trust on our  Portland  real  estate  and a security  interest  in assets of our
Portland business.  Green Leaf is a California limited liability company managed
by The Apogee  Management  Company,  Inc. Tom Camp, a former director of Neptune
Society,  who resigned on February  28, 2002 is an officer of Apogee.  Under the
terms of the loan  agreement,  we issued  Green  Leaf a warrant  exercisable  to
acquire  7,500  shares  of common  stock at  $24.00  per  share,  which  expired
unexercised after one year and we issued Green Leaf 3,948 shares of common stock
as a loan fee. We granted piggy-back registration rights on any of our shares of
common stock held by Green Leaf. We also granted Greenleaf  preemptive rights to
participate in future offerings

     During the fourth quarter 2001 as part of our overall business  strategy to
focus on our pre-need marketing and sales operations,  we determined that it was
in our best interest to restructure our Oregon  operations to dispose of certain
physical  assets  related to our Portland  business and our Portland real estate
for the purposes of reducing our  liabilities.  To facilitate the disposition of
our Portland  operations,  we restructured  the obligation  under the Green Leaf
promissory  note to permit the  assumption  of the note by the  purchaser and to
extend the due date to July 31, 2002. In consideration for the restructuring, we
issued  Green  Leaf a loan  fee of  75,000  shares  of  our  common  stock  with
piggy-back  registration and preemptive rights and paid $75,000 of the principal
due under the note payable by issuing Green Leaf a convertible  debenture in the
principal  amount of $75,000,  which was  converted  into 225,000  shares of our
common stock on July 31, 2002.

     On  August  25,  2003,  we  entered  a letter  of  intent  with The  Apogee
Companies,  Inc.,  a  private  company  affiliated  with The  Apogee  Management
Company, Inc. to sell substantially all of our operating assets. The transaction
was subject to certain conditions which were not satisfied or waived, and we and
Apogee agreed to terminate the letter of intent on October 14, 2003.

570421BC, Ltd.
--------------

     In February,  2003 we issued  307,962  units,  each unit  consisting of one
share of common stock and one warrant to acquire an  additional  share of common
stock to 570421  BC,  Ltd.,  a private  company  controlled  by the spouse of an
executive officer and director. The units were issued at $0.65 per unit, and the
proceeds of $200,000 we received  were used for working  capital  purposes.  The
warrants  are  exercisable  at the price of $0.72 per share by February 19, 2004
and thereafter until February 19, 2005 at the price of $0.79 per share.

     On February 2, 2005,  we entered  into a separation  and release  agreement
effective  as of February 2, 2005,  with Marco  Markin,  Karla Markin and 570421
B.C. Ltd., a British Columbia corporation ("B.C.  Limited").  Under the terms of
the  Separation  Agreement,  Neptune  Society  agreed to purchase the  following
securities  beneficially owned by each of Markin, Karla Markin and B.C. Limited:
Markin and Karla Markin  beneficially  own 231,125  common shares of The Neptune
Society Inc.; Markin holds options  exercisable to acquire an additional 150,000
shares of common stock of The Neptune Society Inc. at $0.65 per share;  and B.C.
Limited, a British Columbia corporation,  owns 307,692 shares of common stock of
The Neptune  Society  Inc.  and warrants  exercisable  to acquire an  additional
307,692 shares of common stock of The Neptune Society Inc. at $0.79 per share.

B G Group, Ltd and Brooklyn Holdings, LLC
-----------------------------------------


                                       61


<PAGE>


     During the second  quarter of 2004, we completed a $6,000,000 11% debenture
financing for purposes of  restructuring  our  long-term  debt  obligations  and
reducing our interest  expense.  Approximately  $5,600,000  of the proceeds were
used to pay off the outstanding  principal and interest under our 13% Debentures
and the remainder of the proceeds were used to increase working  capital.  Under
the  terms of the 11%  debentures,  we are  required  to make  monthly  interest
payments on the principal  and the principal  amount is due on June 18, 2014. We
have the right to convert all or a portion of the principal amount due under the
convertible debenture into shares of common stock at any time during the term at
the conversion price of $1.65 per share. The holder has the right to convert all
or a portion of the principal  amount due under the  convertible  debenture into
shares of common  stock at the  conversion  price of $1.65 per share at any time
after  June 18,  2009,  subject to our right to repay,  in full or in part,  the
convertible   debenture  within  30  days  of  receiving  written  notice  of  a
conversion.  We  granted  a  security  interest  in our  assets  to  secure  our
obligations under the debenture.  We believe that the restructuring will improve
our cash flow and allow us to implement our expansion strategies.

     On  February  2, 2005,  the  Company  entered  into a Loan  Agreement  with
Brooklyn  Holdings LLC related to a loan in the principal  amount of $3 million.
The principal amount of the note is due on February 2, 2010. Neptune Society has
agreed to pay simple  interest on the principal  amount at the rate of 13.5% per
annum without penalty of pre-payment.  The Company also agreed to pay a loan fee
equal to 3.5% per annum  calculated as simple  interest on the unpaid balance of
the Principal amount. We granted a security interest in our assets to secure our
obligations under this debenture. The proceeds of the Loan were used for general
working  capital and to make payments under the  Separation  Agreement (see Item
10.  Executive   Compensation,   Marco  Markin  Agreement).   We  reported  this
transaction  on Form 8-K filed with the  Securities  and Exchange  Commission on
February 8, 2005.

Transactions with Named Executive Officers and Directors

     In February  2003,  we issued  81,000  shares of common  stock at $0.65 per
share in settlement of deferred  compensation  in the amount of $52,650 to three
senior executives as follows: Gary Harris: 23,077 shares, Douglas Irving: 40,385
shares, and Matthew Markin:  17,538 shares. We registered these shares of common
stock in the  registration  statement filed with the SEC to register such shares
for resale.

     On April 25, 2003,  we issued  107,750  shares of common stock at $0.65 per
share in settlement of deferred  compensation  in the amount of $70,037 to Marco
Markin, our Chief Executive Officer.  We registered these shares of common stock
in the  registration  statement  filed with the SEC to register  such shares for
resale.

     On April 25, 2003, we issued a total of 55,000  shares of common stock:  to
Kathryn Witter, a member of the Compensation  committee for her services (25,000
shares) and Bryan Symington Smith, a director for directors fees (30,000 shares.
as. We  registered  these shares of common stock in the  registration  statement
filed with the SEC to register such shares for resale.

     On April 30, 2003,  we issued a total of 125,000  shares of common stock to
five  officers  of the  Company  as  signing  bonus  under  the  terms  of their
employment or consulting  agreements with the Company.  These shares were issued
to  Matthew  Markin  (20,000  shares),  Doug  Irving  (30,000  shares),   Mathew
Hoogendoorn  (30,000  shares),  Barry  Maines  (15,000  shares)  and Gary Harris
(30,000 shares).  We registered these shares of common stock in the registration
statement filed with the SEC to register such shares for resale.

     On May 29,  2003,  we issued  107,751  shares of common  stock at $0.65 per
share to K.M.  Lifestyle  Inc. in  settlement  of deferred  compensation  in the
amount of $70,037 due to Marco Markin, our Chief Executive Officer. Karla Markin
is the spouse of Marco Markin,  our Chief  Executive  Officer,  and has ultimate
voting power and control over K.M. Lifestyles, Inc.

     On June 18,  2003,  we issued  2,118  shares of common  stock at a price of
$0.65 per share in consideration of compensation to Doug Irving, an employee. We
registered these shares of common stock in the registration statement filed with
the SEC to register such shares for resale.

     On February 1, 2004,  we issued  40,000 shares of common stock at $0.70 per
share to Jerry Norman as a signing bonus related to his  employment  contract as
President.

     On May 14, 2004, we issued 30,000 shares of common stock at $0.70 per share
to Matthew Hoogendoorn upon exercise of stock options previously granted.


                                       62


<PAGE>


     On September  30, 2004 we issued 50,000 shares of common stock at $0.70 per
share to Douglas Irving upon exercise of stock options previously granted.

     On February 2, 2005,  the Company  entered  into a  separation  and release
agreement  effective  February 2, 2005 with Mr.  Markin.  Under the terms of the
Separation Agreement, the parties agreed as follows:

     Termination of Employment  Agreement:  Neptune Society and Markin agreed to
     terminate  and  release  each other from all claims  under the  Amended and
     Restated Employment  Agreement dated March 12, 2004 between Neptune Society
     and Markin (the "Employment Agreement").  Markin remains subject to certain
     confidentiality  and   non-competition   provisions  under  the  Employment
     Agreement.  Neptune  Society  remains  subject to  certain  indemnification
     obligations  under  the  Employment  Agreement.   The  termination  of  the
     Employment  Agreement  terminates  Neptune Society's  obligation (i) to pay
     Markin  minimum  annual  compensation  of  $406,000  per  year,  increasing
     annually,  plus certain benefits through the term ending December 31, 2007,
     with three automatic one-year  extensions,  and (ii) to purchase securities
     held by  Markin,  Karla  Markin  or her  assignee,  and  B.C.  Limited  for
     compensation based on 13% of the appraised value of Neptune Society, in the
     event the Employment Agreement was terminated under certain  circumstances.
     Markin resigned as Chief Executive  Officer and Chairman of Neptune Society
     effective February 2, 2005 (the "Separation  Date"), and agreed to serve as
     a consultant to the Neptune  Society during a six month  transition  period
     (the "Transition  Period").  During the Transition  Period,  Markin will be
     entitled to compensation  and benefits,  with the exception of the right to
     participate  in any stock option plan or securities  purchase  plan, at the
     level paid to Markin immediately prior to the Separation Date. Markin shall
     devote no more  than 50% of the time  that  Markin  devoted  to his  duties
     immediately  prior to the Separation Date, and Markin may pursue and engage
     in other business  interests and employment  during the Transition  Period.
     Markin  agreed  to resign  as a member  of the  Board of  Directors  of the
     Neptune  Society  and  each  of the  Neptune  Subsidiaries  effective  upon
     termination of the Transition Period.  Neptune Society agrees to pay Markin
     a lump sum  payment of  $221,049  as the sole  consideration  for  Markin's
     agreement to terminate the Employment Agreement and for his general release
     of claims.

     Purchase of  Securities:  Neptune  Society agreed to purchase the following
     securities of Neptune Society  beneficially owned by each of Markin,  Karla
     Markin and B.C. Limited:  Markin and Karla Markin  beneficially own 231,125
     common shares of the Neptune Society Inc.; Markin holds options exercisable
     to acquire an  additional  150,000  shares of common  stock of the  Neptune
     Society  Inc.  at $0.65 per share;  and B.C.  Limited,  a British  Columbia
     corporation,  owns 307,692  shares of common  stock of the Neptune  Society
     Inc. and warrants  exercisable  to acquire an additional  307,692 shares of
     common stock of the Neptune Society Inc. at $0.79 per share  (collectively,
     the Purchased  Securities").  The parties  agreed that (a) Neptune  Society
     would purchase the Purchased Securities, and (b) the parties would mutually
     release each other from any and all claims  arising out of or in connection
     with the Purchased  Securities.  Neptune Society paid (i) Markin a total of
     $675,750 for shares and options  delivered  on the  Separation  Date,  (ii)
     Karla  Markin a total of $323,250 for shares  delivered  on the  Separation
     Date, and (iii) B.C.  Limited a total of $1,603,076 for shares and warrants
     delivered on the Separation Date. Neptune also agreed to pay Markin $46,875
     upon the  delivery  of one or more  share  certificates  evidencing  15,625
     shares  within  ten (10)  business  days of the  Separation  Date.  Each of
     Markin,  Karla Markin and B.C.  Limited provided to Neptune Society general
     releases  from  claims  related to the  Purchased  Securities.  Markin also
     provided to Neptune Society and the Neptune  Subsidiaries  general releases
     from claims related to the Employment Agreement.

We reported the material  details of this transaction on Form 8-K filed with the
Securities and Exchange Commission on February 8, 2005.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

Exhibit
Number      Description
------      -----------

    3.1(1)  Articles of Incorporation of L R Associates, Inc., filed January 4,
            1985
    3.2(1)  Articles of Amendment of L R Associates, Inc. changing name to Lari
            Corp., filed August 3, 1998
    3.3(1)  Articles of Amendment of Lari Corp. changing name to Neptune
            Society, filed April 26, 1999
    3.4(1)  Articles of Amendment of The Neptune Society, Inc. filed May 9,
            2000, effecting a combination of the Corporation's shares of common
            stock
    3.5(1)  Articles of Amendment of The Neptune Society, Inc. effective as of
            March 22, 2002, related to a combination of the Corporation's shares
            of common stock
    3.6(6)  Articles of Amendment of The Neptune Society, Inc.
    3.7(1)  Bylaws of Neptune Society (previously filed as Exhibit 3.6)
   10.1(2)  Employment Agreement by and between the Company and Marco Markin
            (previously filed as Exhibit 10.28)
   10.2(2)  Loan Agreement dated August 8, 2001 with Green Leaf Investors I,
            LLC, a California limited liability company (previously filed as
            Exhibit 10.32)
   10.3(2)  Warrant issued to Green Leaf (previously filed as Exhibit 10.33)
   10.4(2)  Guaranty issued to Green Leaf (previously filed as Exhibit 10.34)
   10.5(3)  Convertible Debenture in the principal amount of $75,000, due July
            31, 2002, issued to Green Leaf Investors I, LLC, a California
            limited liability company. (previously filed as Exhibit 10.40)
   10.6(3)  Debenture and Warrant Amendment Agreement effective as of December
            31, 2001, by and between The Neptune Society, Inc., a Florida
            corporation, CapEx, L.P., a Delaware limited partnership, and D.H.
            Blair Investment Banking Corp., a New York corporation. (previously
            filed as Exhibit 10.41)
   10.7(3)  Form of CapEx, L.P. Debenture Amendment (previously filed as Exhibit
            10.42)
   10.8(3)  Form of D.H. Blair Investment Banking Corp. Debenture Amendment
            (previously filed as Exhibit 10.43)
   10.9(3)  Form of Warrant Amendment (previously filed as Exhibit 10.44)
   10.10(4) Employment Agreement by and between the Company and Douglas Irving
            (previously filed as Exhibit 10.46)
   10.11(4) Employment Agreement by and between the Company and Doug Irving
            (previously filed as Exhibit 10.47)
   10.12(4) Employment Agreement by and between the Company and Barry Maynes
            (previously filed as Exhibit 10.48)
   10.13(4) Employment Agreement by and between the Company and Gary Harris
            (previously filed as Exhibit 10.49)
   10.14(4) Amendment to Employment Agreement by and between the Company and
            Marco Markin (previously filed as Exhibit 10.52)
   10.15(5) Debenture Purchase and Amendment Agreement effective as of July 31,
            2003 by and between The Neptune Society, Inc., CapEx, L.P. and D.H.
            Blair Investment Banking Corp.
            (previously filed as Exhibit 10.53)
   10.16(5) Form of Amended and Restated Debenture dated July 31, 2003 issued to
            CapEx, L.P. in the principal amount of $5,029,344 (previously filed
            as Exhibit 10.54)
   10.17(5) Form of Amended and Restated Debenture dated July 31, 2003 issued to
            D.H. Blair Investment Banking Corp. in the principal amount of
            $2,352,896 (previously filed as Exhibit 10.55)
   10.18(5) Form of Warrant issued to CapEx, L.P. (previously filed as Exhibit
            10.56)
   10.19(5) Form of Warrant issued to D.H. Blair Investment Banking Corp.
            (previously filed as Exhibit 10.57)
   10.20(5) Form of Security Agreement (previously filed as Exhibit 10.58)
   10.21(6) Amended and Restated Employment Agreement by and between the Company
            and Marco Markin dated March 12, 2004 (previously filed as Exhibit
            10.59)
   10.22(7) Employment Agreement by and between the Company and Jerry A. Norman
            (previously filed as Exhibit 10.60)
   10.23(7) Amendment Agreement by and between The Neptune Society, Inc., CapEx,
            L.P., Bow River Capital Fund, LP and Bow River Capital Fund II, LP
            dated February 18, 2004 (previously filed as Exhibit 10.61)
   10.24(7) Asset Sale Agreement between Neptune Management Corporation and
            Brooks Funeral Care and Robert Brooks dated April 2, 2004
            (previously filed as Exhibit 10.62)
   10.25(8) Debenture Purchase Agreement dated June 18, 2004 between The Neptune
            Society Inc. and Brooklyn Holdings LLC (previously filed as Exhibit
            10.63)
   10.26(8) $6,000,000 11% Convertible Debenture, Due June 18, 2014 (previously
            filed as Exhibit 10.64)
   10.27(8) Form of Security Agreement between Brooklyn Holdings LLC and
            Heritage Alternatives, Inc. (previously filed as
            Exhibit 10.65)
   10.28(8) Form of Security Agreement between Brooklyn Holdings LLC and Neptune
            Management Corp. (previously filed as Exhibit 10.66)
   10.29(8) Form of Security Agreement between Brooklyn Holdings LLC and The
            Neptune Society Inc. (previously filed as Exhibit 10.67)
   10.30(8) Form of Security Agreement between Brooklyn Holdings LLC and Trident
            Society, Inc. (previously filed as Exhibit 10.68)
   10.31(8) Form of Security Agreement between Brooklyn Holdings LLC and Neptune
            Society of America, Inc. (previously filed as Exhibit 10.69)
   10.32(8) Form of Guarantee Agreement between Brooklyn Holdings LLC and
            Heritage Alternatives, Inc. (previously filed as
            Exhibit 10.70)
   10.33(8) Form of Guarantee Agreement between Brooklyn Holdings LLC and
            Neptune Management Corp. (previously filed as Exhibit 10.71)
   10.34(8) Form of Guarantee Agreement between Brooklyn Holdings LLC and
            Trident Society, Inc. (previously filed as Exhibit 10.72)
   10.35(8) Form of Guarantee Agreement between Brooklyn Holdings LLC and
            Neptune Society of America, Inc. (previously filed as Exhibit 10.73)
   10.36(9) Separation and Release Agreement (previously filed as Exhibit 10.1)
   10.37(9) Loan Agreement between The Neptune Society, Inc. and Brooklyn
            Holdings, LLC (previously filed as Exhibit 10.2)
   10.38(9) $3 million Secured Promissory Note (previously filed as Exhibit
            10.3)
   10.39(9) Security Agreement between The Neptune Society, Inc. and Brooklyn
            Holdings, LLC (previously filed as Exhibit 10.4)
   10.40(9) Security Agreement between Neptune Society of America, Inc. and
            Brooklyn Holdings, LLC (previously filed as Exhibit
            10.5)
   10.41(9) Security Agreement between Neptune Management Corp. and Brooklyn
            Holdings, LLC (previously filed as Exhibit 10.6)
   10.42(9) Security Agreement between Heritage Alternatives, Inc. and Brooklyn
            Holdings, LLC (previously filed as Exhibit 10.7)
   10.43(9) Security Agreement between Trident Society, Inc. and Brooklyn
            Holdings, LLC (previously filed as Exhibit 10.8)
   10.44(9) Guarantee between Neptune Society of America, Inc. and Brooklyn
            Holdings, LLC (previously filed as Exhibit 10.9)
   10.45(9) Guarantee between Neptune Management Corp. and Brooklyn Holdings,
            LLC (previously filed as Exhibit 10.10)
   10.46(9) Guarantee between Heritage Alternatives, Inc. and Brooklyn Holdings,
            LLC (previously filed as Exhibit 10.11)
   10.47(9) Guarantee between Trident Society, Inc. and Brooklyn Holdings, LLC
            (previously filed as Exhibit 10.12)
   10.48(9) Amendment #1 to Employment Agreement by and between The Neptune
            Society, Inc. and Jerry Norman dated February 7, 2005 (previously
            filed as Exhibit 10.13)
   10.49    Form of Stock Option Plan
   10.50    Employment Agreement by and between the Company and Daniel
            M. Solberg
   10.51    Employment Agreement by and between the Company and James
            Ford
   31.1     Section 302 Certificates of Chief Executive Officer
   31.2     Section 302 Certificates of Chief Financial Officer
   32.1     Section 906 Certificates of Chief Executive Officer
   32.2     Section 906 Certificates of Chief Financial Officer

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

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<PAGE>



(1)  Previously filed on February 12, 2001.
(2)  Previously  filed as an exhibit to Form 10-Q (for the Period ended June 30,
     2001) on August 14, 2001.
(3)  Previously  filed as an exhibit to Form 10-K (for the period ended December
     31, 2001) on April 2, 2002.
(4)  Previously  filed on Form 10-K (for the period ended  December 31, 2002) on
     May 1, 2003.
(5)  Previously  filed on Form  10-QSB (for the period  ended June 30,  2003) on
     August 19, 2003.
(6)  Previously filed on Form 10-KSB (for the period ended December 31, 2003) on
     March 30, 2004.
(7)  Previously  filed on Form 10-QSB (for the period  ended March 31,  2004) on
     May 21, 2004.
(8)  Previously  filed on Form  10-QSB (for the period  ended June 30,  2004) on
     August 13, 2004.
(9)  Previously filed on Form 8-K on February 8, 2005

Current Reports on Form 8-K


                                       64


<PAGE>


During the quarter ended December 31, 2004, we did not file any current  reports
on Form 8-K.  Subsequent to December 31, 2004, we filed reports on Form 8-K with
the SEC on February 8, 2005, February 22, 2005 and March 4, 2005.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed by the Company's  auditors for  professional  services
rendered  in  connection  with the audit of the  Company's  annual  consolidated
financial  statements  for fiscal 2004 and 2003 and reviews of the  consolidated
financial  statements included in the Company's Forms 10-KSB for fiscal 2004 and
2003 were $75,000 and $78,000 respectively.

Audit-Related Fees

The aggregate fees billed by the Company's  auditors for any additional fees for
assurance and related services that are reasonably related to the performance of
the audit or review of the Company's  financial  statements and are not reported
under  "Audit  Fees"  above for fiscal  2004 and 2003 were  $20,000  and $25,000
respectively.

Tax Fees

The aggregate fees billed by the Company's  auditors for  professional  services
for tax compliance,  tax advice,  and tax planning for fiscal 2004 and 2003 were
$906 and $38 respectively.

All Other Fees

The  aggregate  fees billed by the  Company's  auditors for all other  non-audit
services  rendered  to  the  Company,  such  as  attending  meetings  and  other
miscellaneous financial consulting, for fiscal 2004 and 2003 were $Nil and $Nil,
respectively.



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<PAGE>



                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
to be signed by the following persons on behalf of The Neptune Society,  Inc. in
the capacities and on the dates indicated.


Signature                   Title                                    Date


                            Chief Executive Officer
/s/ Jerry A. Norman         (principal executive officer)        March 31, 2005
-----------------------
Jerry A. Norman

                             Chief Financial Officer, Secretary
/s/ Daniel M. Solberg        and Treasurer (Acting Chief         March 31, 2005
------------------------     Financial Officer)
Daniel M. Solberg


/s/ Brent Lokash             Director and Chairman of the
------------------------     Board                               March 31, 2005
Brent Lokash


/s/ Marco Markin             Director                            March 31, 2005
------------------------
Marco Markin


/s/ Cameron Strang           Director                            March 31, 2005
-------------------------
Cameron Strang





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